11.

Scope of taxation power, except: absolute

Income taxation
Chapter 1
1. The following defines taxation, except:
it is an executive prerogative
2. Taxation is a mode of allocating government costs or
burden to the people. In distributing the cost or
burden, the following are the general considerations
of the government, except:
tax is the lifeblood of the country.
3. It is economic principle that states that the amount
of tax an individual pays should be dependent on
the level of burden the tax will create relative to the
wealth of the individual
ability to pay
4. This is the theory of taxation:
life blood theory
5. This is the basis of taxation:
12. Statement 1: The power of taxation is broader than
police power as it covers income of a resident
citizen earned outside the country
Statement 2: Police power is broader than taxation
power because it involves the enactment of laws for the
promotion of the general welfare
only statement 2 is correct
13. Why is the power of taxation said to be the most
important of the three inherent powers?
Because of the lifeblood doctrine
14. Which of the following inherent power is dependent
on and provided for in the Philippine constitution?
None of the above (power of eminent domain, police
power, power of taxation.)
15. Which of the following is exercised by the executive
branch of the government?
None of the above (power of eminent domain, police
power, power of taxation.)

reciprocal duties of protection and support between 16. Which of the following statements is not correct?
the government and its people
The power of taxation is shared by the legislative and
6. Statement 1: Taxes are the lifeblood of government executive departments of the government
and should be collected without unnecessary
17. Which is NOT a characteristic of the power of
hindrance
Taxation?
Statement 2: Taxes are what we pay for a civilized
It is absolutely legislative in character
society
18. Which of the following statements is correct?
BOTH STATEMENTS IS TRUE
The power of taxation and police power maybe
7. Taxation is an inherent power being an attribute of
exercised simultaneously
sovereignty. The following are manifestations of
taxation being an inherent power, EXCEPT? 19. The purposes and objectives of taxation are as
follows, except
There should be no improper delegation of the power
of tax None of the above

8. Statement 1: A Sovereign State can have the power

of taxation even if the Constitution does not
expressly state its power to tax

Statement 2: Provisions in the Constitution on the

power of taxation are not grants of power, but
limitations on the power of taxation

BOTH STATEMENTS ARE CORRECT
9. Statement 1: In the exercise of the power of
taxation, the State can tax anything, at any time and
at any amount
Statement 2: Taxes may be imposed not only to raise
revenue, but also to provide incentives and regulate
certain activities within the State
BOTH STATEMENTS ARE CORRECT
10. It refers to the power inherent in the state to
prescribe reasonable regulations necessary to
preserve the public order, health, comfort, general
welfare, safety, and morals
20. Which of the following statements is not correct?
The power to tax is unlimited, comprehensive, plenary
and supreme that it can reach over into any
jurisdiction to seize upon person or property
21. The following are the basic features of the present
tax system, EXCEPT:
the tax exemption being construed strictissmi juris
against the government is adhering to by the tax
system
22. Police power as distinguished from eminent domain
more superior

police power
23. Which of the following statements is most correct?
Statement 1. The power of taxation is inherent in
sovereignty being essential to the existence of every
government. Hence, even if not mentioned in the
Constitution the state can still exercise the power
Statement 2. It is essentially a legislative function. Even
if the absence of any constitutional provision, taxation
power falls to Congress as part of the general power of
law-making
both statements are correct
24. The defense available to a taxpayer who is required
to pay excessive taxes is:
due process of law
25. Which of the following is a constitutional limitation
to the power of taxation?
Observance of due process
26. It guarantees that the State must respect individual
rights by setting limitations on laws and legal
proceedings
due process clause
27. Statement 1: All government transactions are tax
exempt because of the inherent limitation of the
power of taxation
Statement 2: The power to levy tax is a legislative
function. It cannot be delegated to the executive
branch
Statement 3: Tax administration is delegated to the
executive branch of the government
ONLY 2 AND 3 ARE CORRECT
28. The power of taxation is essentially a legislative
function. It cannot be delegated and is not a
function of the other branches of the government.
Which of the following is an exception to this rule?
All of the above
29. This limitation on the power of taxation states that
all tax subjects under the same circumstances must
be treated in the same manner equal
Equal protection of the law
30. It means that tax must operate with the same force
and effect in every place where the subject of it is
found. It does not require the same treatment; it
simply requires reasonable basis for classification of
tax subjects
uniformity of taxation
31. Which limitation of the power of taxation is
exemplified where those with different incomes are
made to pay different rates of tax because in this
case the incomes are considered as belonging to
different classes?
Uniformity of taxation
32. It means that individuals should be asked to pay
taxes according to their ability to pay
Equity of taxation
33. Which of the following can be delegated outside the
legislative branch?
Computation of the amount of tax to be paid by the
taxpayer
34. Which of the following statements is true?
All of the above
35. Which of the following identifies the correct situs of
taxation?
Community tax - where the taxpayers reside
36. In case of conflict between tax laws and generally
accepted accounting principles (GAAP):
the tax law shall prevail over GAAP;
37. The Municipality of X in the province of Y has an
ordinance which requires all stores, restaurants, and
other establishments selling liquor to pay a fixed
annual fee of P20,000. Subsequently, the municipal
council proposed an ordinance imposing a sales tax
equivalent to 5% of the amount paid for the
purchase or consumption of liquor in stores,
restaurants, and other establishments. The
municipal mayor refused to sign the ordinance on
the ground that it would constitute double taxation.
Is the refusal of the mayor justified?
No, the refusal of the mayor is not justified because
the imposition are of different nature and character
38. Which of the following is not a basic principle of a
sound taxation system?
It should be exercise to promote public welfare
39. The City Government, claiming that it can impose
taxes under the Local Government Code, imposed a
tax on banks (in addition to the percentage tax on
banks imposed in the National Internal Revenue
Code). The banks within the city objected for the
various reasons given below.
Which would justify the objection of the banks?
None of the above
40. Which of the following statements is incorrect?
A revenue bill becomes a law upon submission to the
president
41. Statement 1: Tax laws, including rules and
regulations, operate prospectively. This rule is
absolute
Statement 2: The power to tax does not expire
only statement 2 is true
42. Which of the following does not state a correct
doctrine in taxation?
The law favors exemption from taxation, hence, an
exempting provision should not be construed
strictissimi juris
43. Which is NOT an essential characteristic of a tax?
It is a regular payment
44. Which of the following violates the inherent
limitation of the power of taxation?
A revenue regulation was issued by the department of
finance to amend a mistake in a tax law
45. Statement 1: No court shall have the authority to
grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed
by the NIRC
Statement 2: There is no constitutional prohibition
against double taxation in the Philippines
BOTH STATEMENTS ARE TRUE
46. After paying its local business tax liability to a
certain city government, a cable television operator
was billed by said city for an adjustment. Dutifully,
the cable operator paid the amount. Upon inquiry
as to the nature of the adjustment, the taxpayer
learned that it represents local franchise tax. The
cable operator wrote a letter of protest to the office
of the city treasurer and requested for cancellation
of said adjustment and its corresponding refund.
Since the taxes were levied twice on the same gross
receipts by the same taxing authority, the cable
operator argued that the imposition of both
business tax and franchise tax amounted to unjust
and improper double taxation. Decide.
47. The following are ways of avoiding taxation, except:
reducing the amount of revenues earned and
increasing the amount of allowable deductions in the
tax return
48. Which of the following are NOT usually imposed
when there is a tax amnesty?
Civil, criminal and administrative penalties
49. Taxes are essential and indispensable to the
continued subsistence of the government
life blood doctrine
50. Inherent powers of the state, except:
power to enter into commercial dealings to raise
revenue
51. Which is incorrect?
Taxes should be collected only for public purposes
52. Which of the following does not constitute tax
evasion?
Investing money into pension scheme
Chapter 2
1. The proportional contribution by persons and
property levied by the law-making body of the State
by virtue of its sovereignty for the support of the
government and all public needs is referred to as:
Taxes
2. The following are sources of tax laws, EXCEPT:
generally accepted accounting principles
3. These are issuances signed by the Secretary of
Finance, upon recommendation of the
Commissioner of Internal Revenue that specify,
prescribe or define rules and regulations for the
effective enforcement of the provisions of the
National Internal Revenue Code (NIRC) and related
statutes
revenue regulations
4. Statement 1: Supreme Court decisions form part of
the law of the land
Statement 2: Administrative issuances should not be
relied upon in interpreting the provisions of the Tax
Code
only statement 1 is true
5. All of the following statements are incorrect, except
revenue regulation have the effect of tax law unless in
the conflict with the law
6. Statement 1: The basic source of Philippine tax law
is the National Internal Revenue Law
Statement 2: The Philippines has entered into
several tax treaties for the avoidance of double
taxation and prevention of fiscal evasion with
respect to income taxes
both statements are true
7. In case of conflict between the tax laws and
generally accepted accounting principles (GAAP),
tax law should prevail over GAAP
8. This law provides that all articles, when imported to
the Philippines, are subject to duty upon each
importation, even though previously exported there
the tariffs and customs code
9. Statement 1: Tax law in the Philippines covers
national and local taxes
Statement 2: The 1987 Philippine Constitution provides
for the exercise of the power to tax
only statement 1 is true
10. These are official positions of the Bureau to queries
raised by taxpayers and other stakeholders relative
to clarification and interpretation of tax laws
The BIR Rulings
11. How does GAAP differ with tax law in the matter of
recognizing income?
12. The following are statements on the nature of our
tax laws. Identify which statement is incorrect
tax laws are both civil and penal in nature
13. One of the following is a characteristic of a tax
payable in money
14. It refers to national internal revenue taxes imposed
and collected by the national government through
the Bureau of Internal Revenue (BIR)
national tax
15. One of the characteristics of our internal revenue
laws is that they are:
16. Excises are levied on goods or services that are
considered harmful or undesirable, in an attempt to
discourage consumption. Taxes based on this
rationale are classified as-
sumptuary tax
17. This kind of tax is imposed primarily for the
regulation of useful or non-useful occupation or
enterprises and secondarily only for the purpose of
raising public funds
regulatory tax
18. It refers to the initial burden of the tax
impact of taxation
19. It refers to the ultimate burden of the tax. It
emerges when the tax finally settles or comes to
rest on the person who bears it. It, in fact, is the
ultimate result of shifting
incidence of taxation
20. Tax of a fixed proportion of the value of the
property with respect to which the tax is assessed
and requires the intervention of assessors or
appraisers to estimate the value of such property
before the amount due from each taxpayer can be
determined is known as
ad valorem tax
21. Which of the following is not an example of excise
tax?
Real property tax
22. All except one is an example of direct taxes
excised tax on production of certain commodities
23. It is a tax on the production, sale or consumption of
a commodity in a country
excise tax
24. Every person legally authorized to practice his
profession shall pay this appropriate tax
professional tax
25. Which of the following cases falls within the
jurisdiction of the Court of Tax Appeals?
Criminal actions for violations of the NIRC
26. Which of the following is an example of a
progressive or graduated tax?
Income tax on individual
27. Which of the following statements is not true?
A tax assessment is necessary to a criminal prosecution
for willfully attempt to defeat and evade payment of
taxes
28. The state has complete discretion on the amount to
be imposed, after distinguishing between a useful
and a non-useful activity:
license fee
29. Which statement is NOT correct? A revenue bill:
may originate from the senate and on which same bill
the house of representatives may proposed
amendments
30. Tax laws, being imposition of burden, shall be
strictly construed against:
the government
31. Which of the following is NOT an example of an
excise tax?
Real property tax
32. Value-added tax is an example of
proportional tax
33. Which is NOT an essential characteristic of a tax?
It is a regular payment
34. Which of the following statements is NOT correct?
A special assessment in tax
35. Estate tax is an example of a:
Direct, excise and national tax
36. Statement 1: A government entity may impose a toll
fee
Statement 2: A private entity may impose a tax
only statement 1 is true
37. Which of the following tax system applies to both
individual and corporate taxpayers?
Proportional tax system
38. Which of the following is a proportional tax?
All of the above (value added tax, corporate income tax,
estate tax)
39. Under this basic principle of a sound tax system, the
Government should not incur a deficit:
fiscal adequacy
40. Statement 1: The impact of a tax is said to be
resting on the person or firm who pays the amount
of the tax and thus receives the initial burden
Statement 2: the incidence of the tax rests on the
person or firms who ultimately bears the money burden
of the tax
both statements are true
41. Which of the following is not a scheme of shifting
the incidence of taxation?
Changing the terms of the sale like FOB point in the
Philippines to FOB destination abroad, so that the title
passes abroad instead of in the Philippines
42. It is a system of advance collection of a taxpayer’s
tax liability
withholding tax system
43. Compensation income is subject to which kind of
withholding tax system?
Creditable withholding tax system
44. The Philippine tax system is mainly based on this
approach wherein the taxpayer is responsible for
determining his or her tax liability, filing his or her
tax return, paying the tax due and complying with
reporting requirements.
Self-assessment method
45. It assures us that the tax system should be as simple
as possible, clear, concise and capable of
enforcement and convenient as to time and manner
of how taxes are assessed, collected and complied
with
administrative feasibility
46. A sound tax system must be based on the taxpayers'
ability to pay
theoretical justices
47. It is the enforcement and implementation of tax
laws
tax administration
48. Which of the following does NOT fall under tax
administration?
Levy tax
49. Promulgates needful rules and regulations for the
effective enforcement of the provisions of the Tax
Code-
secretary of finance
50. The number of deputy commissioners of the BIR
4/four
51. Which of the following statement is NOT correct?
A memorandum circular promulgated by the CIR that
imposes penalty for violations of certain rules need to
be published in a newspaper of general circulation of
official Gazette because it has the force and effect of
law
52. Which of the following is an incorrect statement?
In pursuance of the data privacy of the Philippines the
BIR commissioner shall have no authority to inquire
into bank deposit accounts and other related
information held by financial institutions
53. Statement 1: The Commissioner may delegate the
powers vested in him under the pertinent provisions
of the NIRC to any or such subordinate officials with
the rank equivalent to a division chief or higher
Statement 2: The authority to compromise or abate tax
may be delegated by the commissioner of the BIR to
lower BIR officials
only statement 1 is true
54. When a company incurs “continuous heavy losses”,
which of the following remedies would most
probably apply?
Application for a tax compromise
55. Which of the following is not a power vested in the
Bureau of Internal Revenue?
The granting of tax exemptions and other tax
incentives to taxpayers
56. Which of the following is not a national internal
revenue tax?
Real estate tax
CHAPTER 3 - PART 1
1) It means all income derived from whatever source
GROSS INCOME
2) The following constitutes “gross income”, except:
A. Compensation for services
B. Gross income derived from the conduct of trade
or business or the exercise of profession
C. Gains for dealing in properties
D. NONE OF THE ABOVE
3) It refers to item of gross income less deductions
allowed under the law.
TAXABLE INCOME
4) It refers to the wealth of money invested or
available to be invested.
CAPITAL
5) It is the flow of wealth or money
INCOME
6) It is in payment or return received from an
investment that is not considered a taxable event
and it’s not taxed as income
RETURN OF CAPITAL
7) For the purpose of computing the taxable income in
the income tax it shall mean gross sales less sales
return discount and allowances and cost of goods
sold.
GROSS INCOME
8) For the purpose of computing that taxable income
and the income tax it shall include all business
expenses directly incurred to produce the
merchandise to bring them to their present location
and use
COST OF GOODS SOLD
9) Statement 1: In the case of taxpayers engaged in
the sale of service,” gross income” means gross
receipts less sales returns, allowances, discounts
and cost of services
Statement 2: “Cost of services” shall mean all direct
and indirect costs and expenses necessarily incurred
to provide the services required by the customers
and clients
Statement 3: In the case of banks, “cost of services”
shall include interest expense.
ONLY STATEMENT 2 IS FALSE
10) For taxation purposes, the following are elements of
gross income except:
a. It is a return on capital
b. It must be realized actually or constructively
c. It is not accepted by law or treaty
d. NONE OF THE ABOVE
11) Statement 1: Proceeds of life insurance received by
the beneficiary of the insured is a return on capital
Statement 2: The excess of proceeds over total
premiums paid which is received by the beneficiary
of the insured decedent is gross income and is
taxable.
Both statements are false
12) Which of the following indemnity or award is gross
income?
a. Indemnity received from injuries sustained
b. Money awarded by the court to the winning
party for his claim of moral damages against the
other party
c. Indemnity for loss/unpaid salaries
d. None of the above
13) Statement 1: Receipt of proceeds of loan is a
realized benefit or gross income
Statement 2: Gambling winnings are gross income
because there is a flow of wealth or increase in
one’s net worth
Only statement 2 is true
14) In order for income or benefits to be considered as
realize, which of the following elements must be
fulfilled?
a. There must be an exchange with his bilateral
and or onerous
b. The exchange must be with another entity or
person
c. There must be an increase in the net worth of
the recipient
d. All of the above
15) One of the following is the bilateral and onerous
transfer, which one?
a. Donation
b. Transfer of property through last will and
testament
c. Barter
d. None of the above
16) Statement 1: When a transaction is partly onerous
and partly gratuitous, it is a complex transaction
because it normally involves a transfer for less than
full and adequate consideration
 Statement 2: A transaction is said to be complex
because it is subject to both income tax and transfer
tax (estate or donor’s tax)
Both statements are true
17) Which of the following is not a transaction with
another entity?
Sales meet by principal (Home) Office to its branch
office
18) Statement 1: Increase in the value of merchandise
held for sale is gross income
Statement 2: Cancellation of debt of employee by the
employer in consideration of the services rendered by
former is gross income
Only statement 2 is true
19) In the exercise of eminent domain power, the
Philippine Government expropriated the private
property of Mr. Juan for public use with just
compensation
Argument 1: The Collector of Internal Revenue contends
that the said expropriation is sale, and therefore the
income derived therefrom is subject to income tax
Argument 2: Mr. Juan argued that the expropriation
of his property cannot be considered as sale
because the transfer of such property was made by
force, there being practically no meeting of minds
between the parties
Issue: Whether or not income from expropriation
should be deemed as income from sale for income
tax purposes
The collector of Internal Revenue is correct
because there is income derived from the transfer
of property
20) Which of the following is considered a constructive
receipt of gross income?
a. The partnership shared in the income of the
general professional partnership is credited to
his capital account
b. Payment for the seal is deposited by buyer to
the seller bank account
c. A and B only
d. All of the above
21) The following items are exempted from taxation
except?
a. Income of duly registered barangay micro
business enterprise.
b. Minimum wage
c. Income from smuggling
d. None of the above
22) The following are classification of taxpayers except
one. Identify the exception?
a. Nonresident citizen
b. Resident alien engaged in business in the
Philippines
c. Domestic partnership
d. Non-resident foreign corporation
23) Identify from the following who is the resident
citizen?
A citizen staying abroad from 180 days during the
taxable year.
24) Statement 1: It is the length of stay within or
outside the Philippines which determines the
residency of a citizen or alien
Statement 2: In the absence of proof as to the
intention of a taxpayer, the length of stay within or
outside the Philippines shall be considered in
classifying the taxpayer either as resident or non-
resident.
Only statement 2 is true
25) Statement 1: in the absence of proof as to
intention, aliens who stayed in the Philippines for
not more than 180 days are considered non-
resident aliens not engaged in trade or business
Statement 2: An alien who stayed in the country for
45 days during the taxable year, and whose
intention cannot be determined, and conducted
business is classified as a resident alien engaged in
trade or business
Only statement 1 is true
26) Identify which of the following is the correct rule in
classifying individual taxpayers:
An alien staying in the Philippines from more than 180
days but not more than one year is deep in and
resident alien engaged in trade or business
27) Who among the following is taxable on income
earned within and without the Philippines?
Domestic corporation and resident citizen
28) It comprises all the property rights and publication
of deceased:
Estate
29) Identify the incorrect statement
An estate which is under extra judicial settlement is
considered an individual taxpayer
30) A fiduciary relationship in which one party gives
another party the rise to hold title to property or
asset from the benefit of a third party
TRUST
31) It is it type of trust where its term cannot be
modified amended or terminated without the
permission of the grantor’s name beneficiary or
beneficiaries
Irrevocable trust
32) A foreign corporation which operates and conducts
business in the Philippines through a permanent
establishment
Resident FOREIGN corporation
33) Madumi, Inc., is a corporation duly organized and
registered in the Philippines. Out of the total of 15
board members, 12 are foreigners. The controlling
stockholders are also foreigners. The corporation
conducts its business both within and without the
 Philippines. For taxation purposes, the corporation
shall be considered as:
Domestic corporation
34) Which of the following shall be considered as a
corporation from taxation purposes?
A partnership formed from the conduct of business
35) From taxation purposes which of the following shall
not consider that as a corporation?
Irrevocable trust
36) It is the place where an authorities has the right to
impose and collect taxes
SITUS
37) The following are income from sources within the
Philippines except one which is the exception?
A. Interest income from borrowings or residents
and nonresidents whether individual or
corporate
B. Dividends from domestic corporation or foreign
was that derive 50% or more of each income
from a three year. Preceding the dividend
declaration from Philippine sources
C. Service fees or compensation from services
rendered in the Philippines
D. Rentals and royalties from property or interest
located or USE in the Philippines
E. None of the above
38) Which of the following is considered as income from
sources within the Philippines?
A. Gains from seal or real property located in the
Philippines
B. Gains profits and income from personal
property sold in the Philippines
C. Gains profit or income from the sale of shares of
stock of a domestic corporation regardless
where these are sold
D. All of the above
39) Statement 1: Dividends earned by a resident from a
foreign corporation doing business outside the
Philippines is income without (outside) the
Philippines
Statement 2: Gains, profits and income from the sale of
personal property produced (in whole or in part) by the
taxpayer within and sold without the Philippines, or
produced (in whole or in part) by the taxpayer without
and sold within the Philippines, shall be treated as
derived partly from sources within and partly from
sources without the Philippines
Statement 3: Gains, profits and income derived from
the purchase of personal property within and its sale
without the Philippines, or from the purchase of
personal property without and its sale within the
Philippines shall be treated as derived entirely from
sources within the country in which sold.
All statements are true
40) Delta Corporation, a domestic corporation doing
business in and out the country (Philippines),
presented to you the following for evaluation. The
corporation wants to know how much of its gross
income is earned within and without the
Philippines:
Only the gross income prompt goods sold in the
country is income earned within the Philippines
41) Gentrix Corporation, a domestic manufacturing
corporation, manufactures goods and sells them
through its home and branch. The home is located
in the Philippines and the branch is located outside
the country. The home office reported a gross
income of P3,500,000 while the branch reported a
gross income of P5,300,000. Which gross income
shall be considered as income within the Philippines
by Gentrix?
Gross income of Home Office only
42) Bravo X Corporation, a domestic corporation, is the
parent corporation of Charlie Y Corporation.
Manufacturing is done by Bravo and distribution is
undertaken by Charlie. Production gross income
reported by Bravo X is P9,200,000 while distribution
gross income reported by Charlie Y is P5,300,000.
Bravo X is located in the Philippines while Charlie Y
is located abroad. Bravo X wants to know from you
which gross income should it report in the
Philippines for taxation purposes.
What will be your answer?
Bravo X should report only the gross income from its
production income within since Charlie y is separate
entity
43) Which of the following dividend income is an
income earned entirely within the Philippines?
Dividend income earned from a domestic corporation
regardless of the residence of the recipient
44) This is the test to apply in determining whether
dividend income from a resident foreign corporation
(doing business within and without) is income
earned that early without a partly within and
without the Philippines
Pre-dominance test
45) Dividend income of P500,000 is earned by X from a
resident foreign corporation doing business within
and without the Philippines. For the three-year
period preceding the year of declaration of the
dividend, the ratio of the Philippine gross income of
the foreign corporation to its world income is 55%.
The dividend income of X is-
Partially earned within and without the Philippines
CHAPTER 3 – PART 2
1.) Ventura was on his way to deliver merchandise
ordered by his customer when another driver lost
control over his truck and rammed it against the
truck of Mr. Ventura. As a result, Ventura sustained
injuries, his truck was severely damaged, and all the
merchandise were destroyed. Negotiations with the
other party went smoothly and Mr. Ventura was
paid the total amount of P3,150,000 for the
following:
How much is the return of capital? P 6,000

5. Cruz was an employee of ABC Trading. He was killed

by a co-employee in one of their regular “inuman”
session. A case was filed by the heirs of Mr. Cruz against
the co-employee. The court decided in favor of the heirs
and awarded them the following:

How much of the above gross income or Mr.

ventura for taxation purposes? P700,000

2. Ventura was on his way to deliver merchandise

ordered by his customer when another driver lost
control over his truck and rammed it against the truck of
Mr. Ventura. As a result, Ventura sustained injuries, his
truck was severely damaged, and all the merchandise
were destroyed. Negotiations with the other party went
smoothly and Mr. Ventura was paid the total amount of
P3,150,000 for the following:
How much of the above is return of capital? P1,900,000
6. Juan bought a certain piece of lot for P300,000. After
2 years, when its fair value was P500,000, he sold it to
his best friend for P320,000 in consideration of their
friendship.

For taxation purposes, how much shall be the gross

income subject to income tax? P20,000

7. Juan bought a certain piece of lot for P300,000. After

2 years, when its fair value was P500,000, he sold it to
his best friend for P320,000 in consideration of their
friendship.

How much shall be subject to transfer (donor’s) tax?

How much is the total return of capital? P2,450,000
3. Ponce is an employee of XYZ Trading. For the month
of June, Ponce received the following from XYZ:
P 180,000
8. Arturo is in a quandary and approached you to help
him identify which of the following is considered as
gross income for taxation purposes: P 320,000

How much of the above is the gross income of Mr.

Ponce? P 31,500 9. How much of the following is gross income subject to
income tax? P1,710,000
4. Ponce is an employee of XYZ Trading. For the month
of June, Ponce received the following from XYZ:

10. During the calendar year, Minda went abroad and
stayed there for 6 complete months from March 1 to
August 31. During her stay abroad, she was able to
conduct business and earned a total of P800,000 gross
income. She left her business in the Philippines in the
care of her sister. For the entire period of January 1 to
August 31, her business in the Philippines earned a total
of P1,200,000 gross income. She came back in the
country and continued to manage her business which
earned a total of P300,000 for the remainder of the
taxable year. Minda had no intention of permanently
residing abroad.
For the taxable year, how much should Minda declare as
gross income for tax purposes? P2,300,000
11. Madumi, Inc., is a corporation duly organized and
registered in the Philippines. Out of the total of 15
board members, 12 are foreigners. The controlling
stockholders are also foreigners. The corporation
conducts its business both within and without the
Philippines. The following data pertaining the
corporation’s operations is presented to you for
evaluation:
How much should be the reportable gross income for
taxation purposes? P16,000,000
12. Delta Corporation, a domestic corporation doing
business in and out the country (Philippines), presented
to you the following for evaluation. The corporation
wants to know how much of its gross income is earned
within and without the Philippines:
How much gross income is earned by Delta Corporation
within and without the country? WITHIN – P7,100,000
WITHOUT- P4,900,000
13. Delta Corporation, a domestic corporation doing
business in and out the country (Philippines), presented
to you the following for evaluation. The corporation
wants to know how much of its gross income is earned
within and without the Philippines:
How much of the gross income of delta is taxable in the
Philippines? P12,000,000
14. Gentrix Corporation, a domestic manufacturing
corporation, manufactures goods and sells them
through its home and branch. The home is located in
the Philippines and the branch is located outside the
country. The home office reported a gross income of
P3,500,000 while the branch reported a gross income of
P5,300,000.
How much is the gross income within and without the
Philippines? WITHIN – P3,500,000 WITHOUT P
5,300,000
15. Gentrix Corporation, a domestic manufacturing
corporation, manufactures goods and sells them
through its home and branch. The home is located in
the Philippines and the branch is located outside the
country. The home office reported a gross income of
P3,500,000 while the branch reported a gross income of
P5,300,000.
How much of gross income of genetrix is taxable in the
Philippines? P8,800,000
16. Bravo X Corporation, a domestic corporation, is the
parent corporation of Charlie Y Corporation.
Manufacturing is done by Bravo and distribution is
undertaken by Charlie. Production gross income
reported by Bravo X is P9,200,000 while distribution
gross income reported by Charlie Y is P5,300,000. Bravo
X is located in the Philippines while Charlie Y is located
abroad.
How much gross income should be reported by Bravo X
Corporation? WITHIN – P9,200,000 WITHOUT P 0
17. Dividend income of P500,000 is earned by X from a
resident foreign corporation doing business within and
without the Philippines. For the three-year period
preceding the year of declaration of the dividend, the
ratio of the Philippine gross income of the foreign
corporation to its world income is 55%.
How much of the dividend income of X is earned from
Philippine source (within)? P275,000
18. Dividend income of P500,000 is earned by X from a
resident foreign corporation doing business within and
without the Philippines. For the three-year period
preceding the year of declaration of the dividend, the
ratio of the Philippine gross income of the foreign
corporation to its world income is 55%.
Assuming that X is a resident citizen, how much of the
entire dividend income (gross income) is taxable in the
Philippines? P500,000
19. Dividend income of P500,000 is earned by X from a
resident foreign corporation doing business within and
without the Philippines. For the three-year period
preceding the year of declaration of the dividend, the
ratio of the Philippine gross income of the foreign
corporation to its world income is 55%.
Assuming that X is a non-resident citizen, how much of
the entire dividend income (gross income) is taxable in
the Philippines? P275,000
20. Alpha Corporation is a domestic corporation doing
55% of its business abroad. Among its stockholders who
earned dividends during the taxable year was Mr.
Jonastic, a non-resident citizen. Mr. Jonastic earned
form Alpha Corporation the amount of P800,000
dividends.
Which of the following correctly identifies the gross
income and situs of gross income of Mr. Jonastic in
relation to the said dividends? WITHIN – P800,000
WITHOUT – P 0
CHAPTER 4 – PART 1
1. Taxable income off the taxpayer maybe taxed
under-
A. Final income tax scheme
B. Capital gains tax scheme
C. Regular income tax scheme
D. any one of the above
2. Under this income taxation scheme the full amount
of taxes withheld by the payor before such income
is received by the payee taxpayer
Final income tax scheme
3. Statement 1: Passive income is income that
requires minimal labor to earn and maintain. It is
subject to final taxation scheme
Statement 2: For taxation purposes, rental from
property is a passive income
Only statement 1 is true
4. This withholding tax system applies to passive
income
Final withholding tax
5. Active income is income earned as a direct result of
the specific effort. the following are examples of
active income except?
a. Compensation income
b. Rental income
c. Royalty income
d. Profession income
6. These are assets which are not used in trade,
business or profession of the taxpayer
Capital assets
7. Statement 1: Jewelry for personal use is a capital
asset
Statement 2: Office furniture is an ordinary
asset
Statement 3: Stocks held for investment
purposes by the taxpayer who is not a dealer in
of stocks is capital asset
Statement 4: Land (real property) held for
speculation purposes is ordinary asset
Only statement 4 is false
8. Which of the following income is subject to capital
gains taxation?
Income from sale of domestic stocks sold directly
to buyer buy a non-dealer
9. Statement 1: Capital gains tax is a final tax
Statement 2: Unlike final tax on passive income,
the capital gains tax is not subject to final
withholding tax system
Both statements are true
10. Statement 1: The regular income tax scheme
applies to income from sale of ordinary assets
Statement 2: The regular income tax scheme
applies to income from sale of capital assets which
are not subject to the capital gains taxation scheme
Statement 3: The regular income tax scheme
applies to passive income which is not subject
to the final taxation scheme
All statements are true
11. Which of the following income is subject to regular
income tax?
a. Income from sale of personal jewelry
b. Income from sale of lot by a real estate
dealer
c. Income from sale of inventory
d. All of the above
12. Statement 1: The taxable income shall be
computed upon the basis of the taxpayer’s annual
accounting period
Statement 2: The taxable income shall be
computed in accordance with the method of
accounting regularly employed in keeping the
books of such taxpayer
Both statements are true
13. The computation of taxable income shall be made
in accordance with such method as in the opinion
of the Commissioner of BIR clearly reflects the
income when-
Answer 1: When the use of GAAP in
determining income is more plausible under the
circumstance
Answer 2: When no method of accounting has
been employed by the taxpayer
Answer 3: The method employed by taxpayer
does not clearly reflect the income
Only answers 2 and 3 are true
14. Under the NIRC, the taxable income shall be
computed on the BCS of the calendar year under
the following circumstances except one. Identify
the exception
a. Taxpayers does not keep books
 b. Stocks peer has no annual accounting period
c. Taxpayers annual accounting period Is other
than the fiscal year
d. None of the above
15. Which of the following does not correctly state the
deadline of filing of income tax return?
The annual income tax return for income subject to
return income taxation scheme must be filled in on
the 15th day of the fifth month following the close
of taxable year
Statement 2: An accounting method is a set of
rules for determining when and how to report
income and deductions
Statement 3: The NIRC prescribes a uniform and
specific methods of accounting like the accrual,
cash, and installment basis
Statement 4: The crop method of accounting is an
accounting method specifically identified in the
NIRC
Statement 3 and 4 are false

16. Statement 1: An individual taxpayer, with the
approval of the Commissioner, may change its
accounting period from calendar to fiscal or vice
versa
Statement 2: A short accounting period of less
than 12 months may occur in case of change in
accounting period by a corporate taxpayer
Only statement 2 is true
17. Mang Juan, a sole proprietor, died on July 31, 2020.
The following summarizes the taxable income of
the business left by Mang Juan:
22. Which of the following methods of determining
income are recognized except:
a. Deferred payment method
b. Crop method
c. Percentage of completion method
d. None of the above
23. This method of accounting is generally used by
taxpayers who do not keep regular books of
account
Cash basis
24. Under this method net income is being measured
by the excess of income earned during the period
over the expense incurred

Accrual basis

Which of the following is a correct statement?

Mang juan 2020 income tax return should report the

taxable income of 560,000 while the state of mang
juan shall report the taxable income of 610,000 for
year 2020
25. Which of the following is correct? C
18. Mang Juan, a sole proprietor, died on July 31, 2020.
The following summarizes the taxable income of
the business left by Mang Juan:

The income tax of mang juan must be filed and the

income tax thereon paid on or before April 15 2021

19. A corporate taxpayer may, with the approval of the

Commissioner, change its accounting period. In
relation to this, which statement is incorrect?

If the changes is from fiscal year to calendar year is

separate final or adjustment return shall be made
from the period between December 31 and the close 26. Which of the following is presented to you for
of the fiscal year analysis

20. The annual period of mega corporation was a fiscal

year ending March 31 2020 the corporation with
the approval of the commissioner changed its fiscal
period to calendar year. And adjustment return
must be filed comparing the period

April 1 to December 31 2020

21. Statement 1: While taxable income is based on the Identify which entry (row) in the foregoing table is
method of accounting used by the taxpayer, it will correct CASH RECEIPT ROW ONLY
almost always differ from accounting income
27. The following is presented to you for analysis:

Identify which entry (row) in the foregoing table is
correct ENTRIES ONE IN THREE
28. He method considered appropriate when
collection extends over relatively long period of
time and there is a strong possibility that full
collection will not be made
Installment method
29. Income is computed based on the present value
(discounted value) of a note receivable from the
contract.
deferred method
30. Under the outright method of recognizing
leasehold improvement income, what must the
lessor report as income at the time when such
buildings or improvements are completed?
Fair market value of such building or improvement
subject to the lease
31. Under the spread-out method of recognizing
leasehold improvement, the lesser may spread the
estimated depreciated value of such building or
improvements at the termination of the lease and
report as income from each year of the lease or
own aliquot part thereof. For over what period
must be less or spread out the depreciated value
Over the light of the lease
32. One of the following methods is not a method
used in recognizing farming income which is it?
Installment method
33. The world “farm” embraces the farm in the early
regionally accepted sense, and it includes the
following, except:
a. Stop, dairy, poultry, fruit
b. Truck farms Google Gaga
c. Plantation, ranches
d. Land use from farming operation
e. None of the above
34. Which of the following is included in the farming
gross income using the cash basis of recognizing
income?
a. The amount of cash or the value of merchandise or
other property received from the sale of livestock
and produce which were raised during the taxable
year or prior years
b. The profit from the sale of any livestock or other
items which were purchased
c. Gross income from all over the sources
d. All of the above
35. Farming gross profits are a certain by adding to the
inventory value of livestock and products on hand
at the end of the year the amount received from
the sale of livestock products, and miscellaneous
receipt from the hierarchy teams, machinery, and
the like, during the year, and deducting from the
sum of the inventory value of livestock and
products on hand at the beginning of the year and
the costs of livestock and products purchased
during the year-
Accrual basis of recognizing farming income
36. This farming method that recognizing gross income
is applicable only from farmers engage in the
production of crops which take more than a year
from the time of planting to the process of
gathering and disposal. Expenses paid or incurred
are deducted ball in the period of growth income
from the seal of the crops are realized.
Crop basis of recognizing farming income
37. Under the installment method of recognizing
income, the installment collection is multiplied to
the region that grows in cambers to the-
Contract price
38. Under the installment method of recognizing
income, it is amount derived from the fair value of
property received as payment, installment
payments, and any mortgage assume by the buyer
added to the cash received by the seller as
payment
selling price
39. It means the payment received in cash or property
other than evidence of indebtedness of the
purchaser during the taxable period In which the
seal of the other disposition is made, including
excess of mortgage issued by the buyer over cost
of the item sold, if any
initial payment
40. Statement 1: When a real property (immovable)
considered as inventory is sold, the seller may use
the installment method of recognizing income
without any qualification
Statement 2: When real property considered as
non-inventory (capital asset) is sold, the seller is
allowed to use the installment method of
recognizing income only when the selling price
exceeds P1,000.00 and initial payment does not
exceed 25% of the selling price
Only statement 2 is true
41. A documents you filed with the BIR reporting your
income, profits and losses and other deductions as
well as details about your tax refund or tax liability
 Income tax return

42. Which of the following are methods of filing the

income tax return
a. Manual filing
b. Electronic filing and payment system
c. Using electronic birs forms
d. All of the above
43. This method of filing income tax return is only
available for the top 5000 individual taxpayer, top
20,000 private corporation, large companies, How much is the total capital gain? P360,000
government builders, insurance companies, top
4. Taxpayer is a resident citizen
brokers, and national government agencies

eFPS

44. The tax filing process is digital but the taxpayers

are required to visit an authorized agent bank
(AAB)to pay their tax dues

Use of EBIR forms second

45. Digital filing process for non- eFPS taxpayers and

accredited tax agents (ATA)

Use of ebir forms How much is subject to final tax? P3,000

46. Who needs to use ebir forms? 5. Taxpayer is a resident citizen

a. Corporation reporting to the government
b. People piling from a “ no payment return” (they fall
under business income or mixed income)
c. LGUs (barangays are an exemption)
d. All of the above

Chapter 4 – Part 2

1. Taxpayer is a resident citizen

How much is subject to regular income tax? P1,440,000

6. Taxpayer is a resident citizen

How much is the total passive income? P 3,000

2. Taxpayer is a resident citizen

How much is subject to capital gains tax? P320,000

7. Mang Panday, a resident citizen taxpayer

approached you and presented the following-

How much is the total active income? P 1,400,000

3. Taxpayer is a resident citizen

Mang Panday wants to determine the taxability of the
foregoing. How much is the total amount of passive
income which is subject to final tax? P540,000
8. Mang Panday, a resident citizen taxpayer
approached you and presented the following-
How much is the total amount of active income and
other income subject to regular income tax? P1,280,000
9. Mang Panday, a resident citizen taxpayer
approached you and presented the following-
How much is the capital gain subject to capital gains
tax? P400,000
10. A taxpayer engaged in service business provides you
with the following:
How much is the gross income under cash basis?
2019 – P900,000; 2020 – P1, 520,000
11. A taxpayer engaged in service business provides you
with the following:
How much is the gross income under accrual basis?
2019 – P1,400,000; 2020 – P1, 200,000
12. A taxpayer providing services provided the
following:
How much is the total deductions for expenses under
the accrual method? 2019 – P 650,000; 2020 –
P950,000
13. A taxpayer providing services provided the
following:
How much is the total deductions for expenses under
the cash method? 2019 – P 400,000; 2020 – P900,000
14. A taxpayer uses the calendar period and reported
the following data for 2020:
 Net sales to customers P2,000,000 (300,000 on
account)
 Goods purchased P1,200,000 (200,000 on
account)
 Beginning inventory P200,000; ending
inventory P300,000
 On a sub-lease contract, advance 1-year rent
income of P60,000 received on September 30,
2020 and to be applied for the period October
1, 2020 – September 30, 2021
 P40,000 interest income from customers’
promissory notes earned; P30,000 of this was
collected
 Unrealized foreign exchange gains from foreign
currency receivables totaled P60,000
Using cash basis, compute the total income subject to
income tax. P890,000
15. A taxpayer uses the calendar period and reported
the following data for 2020:
 Net sales to customers P2,000,000 (300,000 on
account)
 Goods purchased P1,200,000 (200,000 on
account)
 Beginning inventory P200,000; ending
inventory P300,000
 On a sub-lease contract, advance 1-year rent
income of P60,000 received on September 30,
2020 and to be applied for the period October
1, 2020 – September 30, 2021
 P40,000 interest income from customers’
promissory notes earned; P30,000 of this was
collected
 Unrealized foreign exchange gains from foreign
currency receivables totaled P60,000
Using accrual basis, compute the total income subject to
income tax. P1,000,000
16. Bronx Corporation, a domestic corporation engaged
in merchandising business, sold its parking lot for
P3,500,000 payable on installment. The lot was
previously acquired for P2,800,000. The buyer was
required to make a down payment in the amount of
P200,000. The buyer has outstanding unpaid
balance of P2,700,000 as of December 31 of the
taxable year 2020 Compute the gross income in
2020 using the installment method P160,000
17. The taxpayer is Juan dela Cruz, a businessman
engaged in selling cars. He engaged your services for
the purpose of helping him prepare his income tax
return for the taxable calendar year 2020. He
presented you the following details of the sale of a
certain car:
Juan wants to know how much gross income he should
report if he were to avail of a method of income
reporting which is more advantageous to him.
Using the more advantageous method, how much is
the reportable gross income for 2021? P222,222
18. The taxpayer is Juan dela Cruz, a businessman
engaged in selling cars. He engaged your services for
the purpose of helping him prepare his income tax
return for the taxable calendar year 2020. He
presented you the following details of the sale of a
certain car:
Assuming that in the above problem, instead of selling
cars, Juan is engaged in a grocery business and he sold
that certain car. How much income should he report
using a method which is more advantageous to him?
P500,000
19. Garcia and Mr. Ponce entered into a lease
agreement dated January 1, 2020 with the following
details and conditions:
 The lease term is 5 years starting from January 1,
2020
 The monthly rental shall be 10,000 to be paid at
the beginning of each month
 The lessee shall construct a leasehold
improvement the ownership of which shall belong
How much is the farming income using the CASH basis?
to the lessor at the end of the lease term
370,000
 The improvement was completed exactly at the
end of the 3rd month from the contract 24. In year 1, Mang Cardo, a farmer, planted certain
 The value of improvement is P240,500 with useful kind of trees. In year 4, the trees were ready to be
life of 8 years and estimated scrap value of sold. He sold them for a total of P2,000,000. The
P500.00 following shows a summary of all the costs he
incurred prior sale:
How much income from leasehold improvement shall
be reported in 2020 under each method? OUTRIGHT
METHOD- 240,500; SPREAD-OUT METHOD – 15,474

20. On August 1, 2018, Mr. Garcia, a single proprietor

engaged in selling various food products, sold an
office furniture for P350,000 with the following
additional details of the transaction: Using crop-year method, how much is the reportable
gross income of Mang Cardo in year 1? 0 ZERO

25. In year 1, Mang Cardo, a farmer, planted certain

kind of trees. In year 4, the trees were ready to be
sold. He sold them for a total of P2,000,000. The
following shows a summary of all the costs he
incurred prior sale:

Using the deferred method of recognizing income, how

much interest income should be reported for the How much is the reportable gross income in year 4
taxable year 2018 and 2019? 2018 – 0; 2019 – P20,000 using the crop-year method? 1,240,000
26. A has been assessed deficiency income tax
21. Marco accepted a P1,000,000 construction contract
P1,000,000.00, exclusive of interest and surcharge
in 2019. As of December 31 of the year, Marco
for the taxable year 2018.
incurred a total construction cost of P400,000. The
 BIR Commissioner issued notice and demand to
estimated additional cost to bring the project to
pay which is due on June 30, 2020
completion is P100,000. Per independent appraisal,
 The tax liability has remained unpaid despite
the building is 60% completed. Compute Marco’s
the lapse of June 30, 2020
2019 construction income using the percentage of
 Payment was made by the taxpayer on February
completion method. P200,000
10, 2021
22. A farmer presents the following for the taxable
period: Compute the amount of applicable surcharge: 250,000

27. A has been assessed deficiency income tax

How much is the farming income using the accrual
basis? 350,000
23. A farmer presents the following for the taxable
period:
P1,000,000.00, exclusive of interest and surcharge
for the taxable year 2018.
 BIR Commissioner issued notice and demand to
pay which is due on June 30, 2020
 The tax liability has remained unpaid despite
the lapse of June 30, 2020
 Payment was made by the taxpayer on February
10, 2021
Compute the total amount which was due the taxpayer
on June 30, 2020 (including interest and surcharge):
1,395,315
28. A has been assessed deficiency income tax
P1,000,000.00, exclusive of interest and surcharge
for the taxable year 2018.
 BIR Commissioner issued notice and demand to
pay which is due on June 30, 2020
 The tax liability has remained unpaid despite
the lapse of June 30, 2020
 Payment was made by the taxpayer on February
10, 2021
How much must have been paid by the taxpayer on
February 10, 2021 (including surcharge and interest)?
1,498,530
Chapter 5 - Part 1
1. Passive income is income that requires minimal
labor to earn and maintain. In the Philippines,
certain items of passive or subject to final tax period
which of the following are passive income subject to
final tax?
Interest income or savings deposit with a local
bank
2. The final tax on certain passive income is subject to
which kind of withholding tax system?
Final withholding tax system
3. A final tax is withheld at – source
4. The final tax is imposed on certain items of passive
income earned- within the Philippines only
5. The obligation to withhold final tax is imposed by
law on the - payor of the income
6. What is the general final tax rate on short term
interest or yield from bank deposit or deposit
substitute? 20%
7. The final tax on short term interest or yield from the
bank deposit or deposit substitute applies also to
which of the following
a. Government securities
b. Money market placements
c. Trust fund
d. All of the above
8. Which of the following interest income earned by
an individual is subject to final tax? Interest income
earned and a poor year time deposit with the local
bank
9. Cardo, a resident citizen, owns the six-year time
deposit any local bank which earned a 7% annual
interest payable in every year end. Towards the end
of the fourth year, cardo pre-terminated the
deposit. The interest income earned until pre
termination shall be subject to a final tax rate of
12%
10. Bronx corporation, domestic corporation, owns a
six-year time deposit in a local bank which earns a
7% annual interest payable every year and. Towards
the end of 4th year, bronx pre terminated the
deposit. Which of the following is correct ? Only the
interest income per year or is subject to 20% final
tax at pre-termination
11. Interest under the expanded foreign currency
deposit system (EFCDS)earned by which of the
following taxpayer is subject to final tax? Resident
alien
12. Which of the following is not correct? Final tax rate
in interest under the expanded foreign currency
deposit system(EFCDS) is 7 ½%
13. Which of the following dividends are not taxable?
A. Stock dividends
B. Dividends for cooperatives
C. Intercorporate dividends earned by a domestic
or resident foreign corporation from a domestic
corporation
D. All of the above
14. Statement 1: Upon the effectivity of CREATE (April
11, 2021), dividends earned by a domestic
corporation from a non-resident foreign corporation
shall be subject to the final tax rate of 25% or 20%
Statement 2: Upon the effectivity of CREATE (April
11, 2021), dividends earned by a domestic
corporation from a non-resident foreign corporation
may be exempt from tax under certain conditions
Only statement two is true
15. Statement 1: Effective January 1, 2021, dividends
earned by a non-resident foreign corporation from a
domestic corporation is subject to the regular
income tax rate of 25% in general
Statement 2: Intercorporate dividends earned by a non-
resident foreign corporation from a domestic
corporation shall be taxed with 15% final tax if the
country in which the non-resident foreign corporation is
domiciled allows a credit against the tax due from the
non-resident foreign corporation taxes deemed to have
been paid in the Philippines equivalent to 10%
Statement 3: Dividends earned by a resident citizen
from a non-resident foreign corporation is subject to
regular income tax Only statement one is FALSE
16. Statement 1: The gross income of a non-resident
foreign corporation from all sources within the
Philippines, except capital gains from the sale of
shares of stocks not traded through the stock
exchange, shall be subject to a final tax of 25%
effective January 1, 2021
Statement 2: Royalties on printed literary works,
books, musical compositions of citizens and resident
aliens earned in the Philippines are subject to the
final tax of 10% Both statements are true
17. In general, what is the final tax rate on royalties on
non-literary works and patents earned by
individuals and corporation in the Philippines? 20%
18. Royalties and payments for cinematography films to
nonresidents are subject to what final tax rate? 25%
19. One of the following is a correct statement of one
condition for exemption from income tax or foreign
source dividends received by a domestic
corporation which is it? The dividends received
shall only be used to fund the working capital
requirements capital expenditures, dividend
payments, investment in domestic subsidiaries and
infrastructure projects
20. the general final tax rate is priced and winnings
which are subject to final tax is – 20%
21. identify the false statement? A 10,000-price earned
in the Philippine by a non-resident citizen is subject
to final withholding tax
22. Statement 1: Hidilyn Diaz won an Olympic gold
medal for the Philippines. Her monetary prizes are
the fruits of her labor, hence subject to regular
income tax and not final tax
Statement 2: Manny Pacquiao is one of the
“greatest professional boxers” of all time. He brings
fame to our country. His prizes are subject to final
withholding tax on passive income both statements
are false
23. Statement 1: Hidilyn Diaz won an Olympic gold
medal for the Philippines. Her monetary prizes,
even though fruits of her labor, are not subject to
regular income tax but final tax
Statement 2: Selina Pascual, a resident citizen, is a
very popular badminton player. In one Asian
badminton competition held in Singapore, she was
endorsed and sponsored by the biggest badminton
club in the Philippines. She won a P2M prize in the
competition. The prize is taxable in the Philippines
Only statement two is true
24. When Hidilyn Diaz also won the gold for the
Philippines, certain individuals and entities
announced their pledge of millions of pieces for
Hidilyn Diaz pledged taxable? Being mere promises
there are not yet subject tax
25. Assuming in the immediately preceding case hidilyn
was able to receive already the money pledge is the
amount taxable? Yes, it is subject to donors’ tax
which must be paid by the donors
26. Going back to the case of Selina Pascual, a resident
citizen, who is a very popular badminton player. In
one Asian badminton competition held in
Singapore, she was endorsed and sponsored by the
biggest badminton club in the Philippines. She won
a P2M prize in the competition. Which of the
following is correct? The price is subject to regular
income tax
Chapter 5 – Part 2
1. Cynthia found various ways to make use of her
money to generate income. The following
summarizes all the income she was able to derive
from her use of money: Interest income from loans
granted to online sellers who did not have enough
capital on their own – P25,000 Interest income on a
90-day time deposit with BPI. The amount of
deposit is P500,000 which pays 7% interest per
annum. The interest was already credited to her
account Interest income on her savings account
maintained in her cooperative – P5,000 Interest
income on promissory notes of clients – P7,000 How
much interest income is subject to final tax? 8,750
2. Carlos is a resident citizen. He maintains a savings
account deposit with the BPI-Baguio City Branch.
For the current year, his savings earned a total of
P6,000 interest.
How much is the final tax on said income? 1,200
3. Minda, an OFW Filipino, returned to the country
after 3 years abroad. She immediately went to her
bank and had her savings account passbook
updated. She computed a total of P1,280 interest
credited to her account.
How much is the final tax on her interest income
debited against her account? 256
4. Jones, a foreigner, arrived in the Philippines under a
Temporary Visitor’s Visa. He had been staying in the
country for more than 60 days and so he was able to
open a savings account with a local bank. On one
occasion, he withdrew his money and found out
that he received a total of P1,100 interest.
How much final tax must have been withheld by the
local bank? 367
5. ABX Corporation, a domestic corporation, maintains
a 6-year time deposit with BPI. The amount of
deposit is P2,000,000 and earns a 6% interest per
annum which is credited to the account every end
of each quarter. Exactly three years and 3 quarters
after opening the account, ABX pre-terminated it.
How much final tax on interest income must be
withheld by the bank at pre-termination date? Zero
6. On March 1, 2017 Amelia, a non-resident citizen,
opened a 5-yr time deposit with her local bank. The
amount of deposit is P600,000 at 6% annual interest
credited every calendar year’s end. Needing money,
she pre-terminated the account on June 1, 2021.
How much final tax is withheld by the bank at pre-
termination? 7,650
7. Karen, an alien staying in the Philippines for 3 years
now, maintains a foreign currency deposit account
under the EFCDS with DEF Bank. For the current
period, she received the amount of $255 interest
from the bank.
How much final tax was withheld by the bank? 45
8. Karen, an alien staying in the Philippines for 3 years
now, maintains a foreign currency deposit account
under the EFCDS with DEF Bank. For the current
period, she received the amount of $255 interest
from the bank.
Using the same data above except that Karen is an
OFW Filipino, how much is the final tax on her
interest income? Zero
9. Spouses Pedro and Margarita, both Filipinos,
maintain a joint foreign currency deposit account
under EFCDS with an offshore bank in the country.
Pedro has been working abroad for 4 years now
while Margarita stays in the Philippines. For the
current period, the account earned $500 interest.
How much is the final tax on the interest? 37.5
10. Minda, resident citizen, invested in a 6-year bond
issued by a local bank. The bond was issued by the
bank to more than 20 persons in the public and
complied with legal requirments. Minda earned a
total of P2,000 interest on the instrument for the
current period.
How much is the final tax on the interest? Zero
11. ZAX Corporation, a domestic corporation, declared a
P1,000,000 dividend for the current period 2021.
The following are some stockholders of ZAX:

17.
How much is the final tax on the dividend earned by De
Guzman? 10,000
18.
12. ZAX Corporation, a domestic corporation, declared a
P1,000,000 dividend for the current period 2021.
The following are some stockholders of ZAX:
19.
How much is the final tax on the dividend earned by
Cruz? 30,000
13. ZAX Corporation, a domestic corporation, declared a
20.
P1,000,000 dividend for the current period 2021.
The following are some stockholders of ZAX:
21.
How much is the final tax on the dividend earned by
ABC? No final tax
P2,000,000 dividends for the current period 2021.
Gomez, a resident Filipino, owns 15% of Bandana.
How much dividend income is earned by Gomez? IN
– ZERO; OUT – 300,000
Bandana Corporation, a resident foreign corporation
consistently doing 40% of its business in the
Philippines and the rest abroad, declared
P2,000,000 dividends for the current period 2021.
Gomez, a resident Filipino, owns 15% of Bandana.
How much is taxable in the Philippines? 300,000
Bandana Corporation, a resident foreign corporation
consistently doing 40% of its business in the
Philippines and the rest abroad, declared
P2,000,000 dividends for the current period 2021.
Gomez, a resident Filipino, owns 15% of Bandana.
How much is the final tax? ZERO
Gamma Corporation is a foreign corporation which
is 40% owned by Beta Corporation, a corporation
duly organized under existing Philippine laws and
whose net taxable income does not go below P5M
in any taxable period. Gamma declared P2,000,000
dividends this year 2021. The dividends earned by
Beta is not reinvested in its business operations but
invested in unrelated activities. How much of the
dividend income earned by Beta is taxable in the
Philippines? 800,000
Gamma Corporation is a foreign corporation which
is 40% owned by Beta Corporation, a corporation
duly organized under existing Philippine laws and
whose net taxable income does not go below P5M
in any taxable period. Gamma declared P2,000,000
dividends this year 2021. The dividends earned by
Beta is not reinvested in its business operations but
invested in unrelated activities.
How much is the tax on the dividend income? 25%
REGULAR INCOME TAX
Garcia, resident citizen, earned the following during
the taxable year:

14. ZAX Corporation, a domestic corporation, declared a

P1,000,000 dividend for the current period 2021.
The following are some stockholders of ZAX:

How much final tax must have been withheld from the
above items of income?256,500

How much is the final tax on the dividend earned by 22. How much of the following prizes and awards is
DEF? 25,000 subject to income tax? 1,559,000

15. Gentrix Corporation, a resident foreign corporation,

owns 40% of Omega Corporation, a domestic
corporation. The rest of Omega is owned by several
resident individuals. Omega declared a P1,500,000
dividend in 2021.
How much final tax on dividend must have been
withheld by Omega? 90,000
16. Bandana Corporation, a resident foreign corporation
consistently doing 40% of its business in the
Philippines and the rest abroad, declared
23. How much of the following prizes and awards is
subject to final tax? 250,000
24. How much of the following is subject to final
withholding tax in the Philippines? Zero
 P10,000,000 prize of Ms. Hidilyn Diaz for
bagging the gold in the Olympics
 P15,000,000 cash received from generous
individuals and entities in the Philippines
 P990,000,000 earned by Manny Pacquiao
from boxing abroad
 P80,000,000 earned by Manny Pacquiao
from boxing in the Philippines
25. How much of the following is subject to regular
income tax in the Philippines? 1,070,000,000
 P10,000,000 prize of Ms. Hidilyn Diaz for
bagging the gold in the Olympics
 P15,000,000 cash received from generous
individuals and entities in the Philippines
 P990,000,000 earned by Manny Pacquiao
from boxing abroad
 P80,000,000 earned by Manny Pacquiao
from boxing in the Philippines
Chapter 6 Part 1
1. These are assets which are not used in trade,
business, or profession and may include personal
(tangible or intangible) or real (immovable)
property:
Capital assets
2. It is a tax imposed on the gains realized by the seller
from the sale, exchange, or other disposition of
certain capital assets:
Capital gains tax
3. Statement 1: Capital gains tax applies only if the
gain is derived from sale of a capital asset located in
the Philippines
Statement 2: Capital gains tax does not apply if the
sale is conditional or one which is in the nature of a
pacto de retro sale or sale with right of repurchase
Only statement 1 is true
4. Statement 1: Every gain on sale of an asset
classified as capital asset and which is located in the
Philippines is subject to capital gains tax
Statement 2: Financial assets and intangibles,
though related to the business, are considered as
capital assets
Only statement 2 is true
5. Which of the following gain is subject to capital
gains tax?
a. Gain on sale of domestic bonds considered us
capital asset
b. Gain on sale of real property considered as
capital assets which is located in the
Philippines
c. All of the above
d. Came home sales of foreign stocks not traded
through the Stock Exchange
6. Identify a false statement:
a. Capital gains tax is it tax imposed on the gains
realized by the sender from the seed exchange
or other disposition of certain capital assets
competed in the Philippines including factor
director seeds and other forms of conditional
sales
b. Under NIRC the capital gains tax on the seals of
domestic stock sold directly to the buyer he
final tax
c. Under end IIRC the capital gains tax on the sale
of real property located in the Philippines and
classified as capital asset is a final tax
d. None of the above
7. Identify which statement is false:
a. Change of business from real estate to non-real
estate business and change the classification of
ordinary assets previously held.
b. Real properties used by a tax exempt
corporation in its exempt operation are capital
assets
c. Discontinuance of active use of ordinary assets
does not change its character as ordinary assets
8. Juan operates a grocery in Baguio City as sole
proprietor. In dire need of money, Juan sold an
adjoining lot used as parking area of customers. He
derived gain from the sale
The gain on sale is subject regular income tax
9. Juan operates a grocery in Baguio City as sole
proprietor. An adjoining lot is used as parking area
of his customers. In 2017, due to a business
reversal, Juan disallowed the use of the lot as
parking space for customers and contemplated on
selling it. It was only recently, in June 2021, that
Juan was able to sell the lot at a gain
The gain on sale is subject to capital gains tax
10. On the gain on sale, exchange, and other disposition
of shares of stock in a domestic corporation,
classified as capital assets, not traded through the
local stock exchange, which of the following is
incorrect?
None of the above
11. On the sale, exchange, and other disposition of real
property considered as capital asset and located in
the Philippines, which of the following is correct?
Seller - individual ; tax rate 6% ; basis - selling price
or FV whichever is higher
12. The capital gains tax on the sale or disposition of
domestic stocks does not cover-
All of the above
13. The gain on sale of domestic stocks classified as
capital assets through the Philippine Stock Exchange
is subject to:
Percentage tax
14. What is the rate of stock transaction tax on sale of
domestic stocks classified as capital assets through
the Philippine Stock Exchange?
60% of 1% of selling price
15. The gain on sale by a dealer of domestic stocks
classified as ordinary assets through the Philippine
Stock Exchange is subject to-
Regular income tax
16. In the case of domestic stocks classified as capital
assets sold directly to buyer and where such stocks
were previously inherited by seller, what shall be
deducted from the selling price in computing the
capital gain?
The fair value at the time of death of decedent
17. Every capital gain or loss on the sale, exchange, and
other disposition of shares of stock in a domestic
corporation, classified as capital assets, not traded
through the local stock exchange shall be reported
through BIR Form-
1707
18. The deadline of filing the capital gains tax return on
every capital gain or loss on the sale, exchange, and
other disposition of shares of stock in a domestic
corporation, classified as capital assets, not traded
through the local stock exchange and the payment
of the corresponding tax shall be
With in thirty (30) days after each sale, barter,
exchange or other disposition
19. Requirements for installment payment of the capital
gains tax, except:
Taxpayer is a resident individual or corporation
20. Identify a false statement:
Capital losses on wash sales by dealers or non-dealers
in securities are not deductible against capital gains
21. The following persons (sellers) are liable to pay the
capital gains tax on the sale of domestic stocks
directly to buyer, except:
None of the above
22. The following persons (sellers) are liable to pay the
capital gains tax on the sale of immovable property
in the Philippines considered as capital asset,
except:
Foreign corporations
23. Fair value of real property is whichever is higher of
the –
Zonal value and assessed value
24. Statement 1: In case of sale of real property
considered as capital asset, the transfer of title from
the seller to the buyer shall not be effected until the
BIR certifies that the capital gains tax has been paid
Statement 2: If the sale of real property considered
as capital asset resulted to a loss, there shall be no
capital gains tax to be imposed on the transaction
Only statement 1 is true
25. Which one of the following may be exempted from
the payment of capital gains tax on sale of
immovable property considered as principal
residence and located in the Philippines?
A. Resident citizen
B. Non-resident citizen
C. resident alien
D. Any of the above
26. To be exempt from the capital gains tax on sale of
real property, certain requirements must be
complied with by the seller.
Which one of the following requirements is incorrect?
The reacquisition of new principal residence must be
within 12 months in the date of sale
27. The capital gains tax return on the sale of real
property must be filed and the tax paid-
Within thirty (30) days following the sale, exchange or
disposition of real property
Chapter 6 - Part 2
1. Garcia, a resident citizen, is a stockholder of ABX
Corporation, a domestic corporation. He sold 3,000
of his shares to his best friend for a P150,000 mark-
up on cost. The mark-up is 20% of cost. He paid
P2,000 broker’s commission and P4,000
documentary stamp tax on the sale.
Compute the capital gains tax: 21,600
2. Garcia, a resident citizen, is a stockholder of ABX
Corporation, a domestic corporation. He sold 3,000
of his shares to his best friend for a P150,000 mark-
up on cost. The mark-up is 20% of cost. He paid
P2,000 broker’s commission and P4,000
documentary stamp tax on the sale.
Assuming that Garcia is a non-resident alien, compute
the capital gains tax: 21,600
3. Juan, a non-resident Filipino, sold his stocks in San
Gabriel, Inc., a domestic corporation, directly to
buyer and received P200,000 cash plus a car with
fair value of P100,000. The car has a depreciated
value of 90,000 and was previously bought by the
owner for P500,000. The shares sold by Juan were
inherited by him. The fair value of the stocks at the
time of inheritance was P50,000. The fair value of
the stocks at the time of sale was P90,000.
Compute the capital gains tax: 37,500
4. Manny bought 500 shares of stocks of a domestic
corporation for P20,000. He paid the broker’s
commission of P1,000. He later sold the shares
directly to buyer for P45,000. The buyer shouldered
the P5,000 selling expenses.
Compute the capital gains tax: 3,600
5. Your client presented to you a summary of his
domestic stocks transactions as follows:
Assuming the client does not maintain records and
could not identify the stocks sold, compute the gain or
loss on June 15 using any applicable method: 64,000
6. Taxpayer sold his domestic shares directly to buyer
for P300,000. At the time of sale, the fair value of
the stocks was P800,000. The stocks were
previously acquired for P100,000.
Compute the capital gains tax: 30,000
7. Gomez made the following capital transactions
regarding his domestic stocks:
Assuming all the transactions have been properly
reported to the BIR, how much net capital gain must be
reported and capital gains tax to be paid in the annual
capital gains tax return? Net capital gain - 650,000; tax
still due/payable – 0
8. Patricio made the following capital transactions
regarding his domestic stocks
How much is the capital gains tax on the April
transaction? Zero/0
9. Patricio made the following capital transactions
regarding his domestic stocks
How much is the capital gains tax on the August
transaction? 7,500
10. Patricio made the following capital transactions
regarding his domestic stocks
How much is the capital gains tax still due or payable in
the annual CGT Return? Zero/0
11. On June 1, 200A Cardo sold his domestics stocks
directly to buyer at 50% mark-up on cost for
P432,000. The buyer will pay the price on a 36-
equal- monthly-installments arrangement payable
every month-end starting on June 30, 200A.
How much capital gains tax is due on the 1st
installment? 600
12. Mandy shows the following summary of
transactions pertaining to the common shares he
hold in ZAX Corporation (domestic). Mandy is not a
dealer in securities and the following transactions
are done outside the stock exchange:
Which of the following is correct regarding the June 5
sale? Gain (loss)-(24,000); Wash sales? - No Deductible
loss? – Yes
13. Mandy shows the following summary of
transactions pertaining to the common shares he
hold in ZAX Corporation (domestic). Mandy is not a
dealer in securities and the following transactions
are done outside the stock exchange:
Which of the following is correct regarding the June 5
sale? Gain (loss)-(24,000); Wash sales? - Yes Deductible
loss? – No
14. Dante is a non-dealer of securities. He sold 9,000 of
his common shares in ABC Corporation (domestic)
directly to buyer at a loss of P100,000 . Twenty days
immediately preceding the sale, he purchased 5,000
similar shares as replacement.
Which of the following is correct? Deductible loss-
44,444; non-deductible loss - 55,555
15. In pursuance of the merger of Agrix Corporation and
Beta Corporation, stockholder Carlo of the Agrix
Corporation surrendered his shares for shares in
Beta Corporation. Carlo does not gain control over
Beta. The following are the details of the exchange:

Compute the capital gain or loss: 50,000
16. In pursuance of the merger of Agrix Corporation and
Beta Corporation, stockholder Carlo of the Agrix
Corporation surrendered his shares for shares in
Beta Corporation. Carlo does not gain control over
Beta. The following are the details of the exchange:
How much shall be recognized as return of capital?
200,000
17. Taxpayer is a sole proprietor owner of a
merchandising business. He sells an idle lot located
in Baguio City at 10% above cost. Records show the
cost of P1,000,000. Zonal value per BIR list is
P1,200,000 and the value per local assessor’s office
is P800,000.
Compute the capital gains tax: 72,000
18. Taxpayer is a sole proprietor owner of a
merchandising business. He sells an idle lot located
in Baguio City at 10% above cost. Records show the
cost of P1,000,000. Zonal value per BIR list is
P1,200,000 and the value per local assessor’s office
is P800,000.
Compute the documentary stamp tax on the sale:
18,000
19. From the following details of sale by a resident
citizen of his principal residence located in the
Philippines:
 Cost - P1,000,000
 Fair value - P6,000,000
 Selling price - P5,500,000
 All requirements under the law on tax
exemption have been complied with.
How much will be deposited by taxpayer (seller) in favor
of the government (BIR)? 360,000
20. From the following details of sale by a resident
citizen of his principal residence located in the
Philippines:
 Cost - P1,000,000
 Fair value - P6,000,000
 Selling price - P5,500,000
 All requirements under the law on tax
exemption have been complied with.
Compute the capital gains tax liability of the
seller/taxpayer: 52,364
Chapter 7-Part 1
1. This tax is imposed generally on all items of income,
except certain passive income subject to final tax,
certain capital gains subject to capital gains tax, and
certain types of income which are subject to special
rates under the law
REGULAR INCOME TAX
2. It is a kind of withholding tax which is prescribed on
certain income payments and is creditable against
the income tax due of the payee for the taxable
quarter/year in which the particular income was
earned.
Creditable withholding tax
3. Statement 1: Some regular income are subject to
creditable withholding tax while others are subject
to final withholding tax
Statement 2: The rate of income tax on individuals is
proportional
Both statements are false
4. The following income, unless excluded by law, are
taxable with regular income tax, except:
Gain on royalties
5. Statement 1: Exclusions from gross income are
items which are exempted from income tax and
therefore, deducted from the gross income of the
taxpayer in computing his net taxable income
Statement 2: A compensation income earner may claim
as deduction from his gross compensation certain items
of deduction for expenditures related to his
employment
both statements are false
6. Agnes, a CPA, is a faculty of ABC University under
the department of accountancy. She was employed
on a contractual basis. Agnes is said to be exercising
her profession as CPA in the academe/education
sector. The income of Agnes from the school is –
Compensation income
7. If a taxpayer derives income from both
compensation and conduct of business or
profession, the category of the taxpayer is
Mixed income earner
8. Statement 1: Certain allowable deductions are
deducted from income from business or profession
and compensation income
Statement 2: All other items of income which are
not from business and profession or compensation
and which are not subject to final tax, capital gains
tax, or special tax regime are considered as “other
income” which shall be added to the gross income
form business and profession
Only statement 2 is true
9. In computing the taxable income of a compensation
income earner, what is deducted from his total
(overall) compensation to derive at the taxable
compensation income? Non-taxable compensation
10. In computing the taxable gross income of a taxpayer
engaged in business and/or profession, what is
deducted from his total sales or revenue?
Cost of goods sold or services rendered
11. In computing the net taxable income of a taxpayer
engaged in business and/or profession, what is
deducted from his gross income?
Allowable deductions
12. Globalization rule in determining the taxable
income of the taxpayer means that
The regular income of taxpayer from employment and
business or professions, including other income subject
to income tax are all combined because they are
subject to the same tax scheme
13. Sophia derived a total compensation of P350,000.
She also derived income from the sale of her
personal jewelry in the amount of P50,000. Which
of the following statement is true?
Sophia will consolidate her income from compensation
and sale of jewelry in one declaration income
14. Carding derived a total gross income of P350,000
from his store. He also sold his truck and derived
P30,000 gain. Which of the following is true?
Carding will show BIR a consolidated and one
computation of taxable income
15. Identify a false statement:
In consolidating income subject to regular income tax,
a net loss from the business may be deducted from the
taxable compensation
16. The taxable income of a taxpayer shall be computed
upon the basis of such taxpayer’s-
Annual accounting period
17. What method of accounting should the taxpayer
use?
Method of regularly employed by the tax payer
18. Which of the following shall be considered as
forming part of “cost of service”?
A. Direct labor
B. Direct materials
C. Overhead cost
D. All of the above
19. Which of the following shall be considered as
forming part of “cost of service”? Direct cost
20. For a CPA engaged in the practice of his profession
as external auditor, which of the following will he
report as forming part of his “cost of service”?
A. Depreciation of computer used in the profession
B. Salaries of his researchers
C. mobility expense on meetings with clients
D. All of the above
21. For a beautician rendering services to various
clients, which of the following will not form part of
“cost of service”
Depreciation of laptop used by front desk personnel
22. It pertains to the collections for sale of goods or
services-
Receipts
23. Which of the following forms part of “total
sales/revenues/receipts/fees”?
A and B (income from primary operations, other income
from operations)
24. Which of the following is not considered in
computing the gross income from business or
profession?
Non-operating income
25. Which of the following is an example of “other
operating income”
A. Rental income paid to a grocery owner by
several food kiosks owners operating within the
grocery premises
B. Income by a beautician from the sale of
customers "cut hair"
C. Income from the sale of sawdust earned by a
carpenter
D. All of the above
26. Which of the following is an example of non-
operating income?
A. interest income on employee advances
B. Interest income on bank deposited abroad by a
resident citizen
C. Gain on sale of equipment
D. All of the above
27. What is the optional tax rate available to self-
employed and/or professionals after meeting
certain requirements? 8%
28. The optional tax available to self-employed and/or
professionals is based on-
sale or receipts and other non-operating income
29. The optional tax available to self-employed and/or
professionals is a substitute for –
Both A and B (income tax, percentage tax on business)
30. The regular income tax rate for a domestic
corporation or foreign corporation: 25%
31. For domestic corporations which are considered as
micro-, small-, and medium-sized enterprises
(MSMEs) and provided they meet certain
requirements, what is the applicable regular income
tax rate? 20%
32. ABAKA enterprise (an MSME) computed a net
taxable income of P1M for the taxable year. The
total assets of ABAKA, excluding land, is P150M.
What income tax rate is applicable to ABAKA? 25%
33. Corporate taxpayers are subject to the minimum
corporate income tax (MCIT). The rate of MCIT is
2% but reduced to 1% to cover the period of-
July 1 2020 - June 30, 2023
34. The following are “special corporations” because
they enjoy special tax privileges, except:
non-stock, non-profit educational institution
35. This BIR Form (Annual Income Tax Return) shall be
filed by individuals who are engaged in
4. Bernabe reports the following transactions
trade/business or the practice of profession
including those with mixed income 1701
36. This BIR Form (Annual Income Tax Return) shall be
filed by individuals earning income purely from
trade/business or from the practice of profession,
with OSD as a mode of deduction or who availed of
the 8% optional tax: 1701A
37. The annual income tax return is due for filing on-
Compute the taxable income of Bernabe: 385,000
15th day of the 4th month following the taxable
year of the taxpayer 5. Bernabe reports the following business transactions
38. Who are not required to file quarterly income tax
returns?
A. Corporate taxpayers
B. Individuals’ earnings compensation and
business income
C. Income earning business/ professional income
only
D. None of the above Bernabe also earned a total compensation of P410,000
39. The deadline of filing the 2nd quarterly income tax from a part-time employment of which, P105,000 is
return for individuals: August 15 of the same excluded from taxation.
taxable year
Compute the taxable income of Bernabe which is
40. Statement 1: Pure income earners who have other
subject to regular income tax: 680,000
income subject to regular income tax are qualified
to avail of the substituted filing system 6. Carding earns income from both employment and
Statement 2: Once qualified under the substituted business. He earned P350,000 taxable
filing system, employees are no longer required to compensation, excluding P90,000 exempt
file BIR Form 1700 compensation, and a net loss in his business in the
amount of P125,000.
Only statement 2 is true
Compute the taxable income of Carding: 350,000

7. EGAHA Corporation (domestic) reports the

Chapter 7- Part 2
following:
1. The total compensation (salary) is P890,000 of
which P210,000 is excluded from taxation.

How much is the taxable compensation? 680,000

2. Margaret received the total compensation of

P750,000 with details as follows:

Compute the gross income from operations that should

Compute the taxable compensation of Margaret based be reported for taxation purposes: 1,550,000
only on the foregoing given data: 630,000

3. Bernabe reports the following transactions

Compute the net taxable income of Bernabe: 375,000

8. EGAHA Corporation (domestic) reports the How much shall be reported as total gross income?
following: 635,000

11. How much of the following shall be reported as

“incidental income” of a carpenter? 70,000

12. How much of the following shall be reported as

“non-operating income” of a carpenter? 15,000

Compute the total gross income subject to regular

income tax that should be reported for taxation
purposes: 1,585,000

9. Shiminda operates her own beauty parlor. She

reports the following:

13. How much of the following shall be reported as

“incidental income” by a domestic manufacturing
company? 160,000

14. How much of the following shall be reported as

“non-operating income” by a domestic
How much shall be reported as gross income from manufacturing company? 512,000
business/profession? 590,000

10. Shiminda operates her own beauty parlor. She

reports the following:

15. The net taxable income of Glenn from business is

P467,000.

Compute the income tax due: 46,750

16. Mr. Cruz earned a total compensation of P900,000

of which P160,000 is excluded by law in income
taxation. Mr. Cruz incurred P120,000 expenses in
performing his job as employee.

How much is the taxable compensation? 740,000

17. During the pandemic, Abigail created her own

YouTube channel which immediately became
 sensational. According to her, she is earning an
average of P160,000 on this account. She incurred a
total of P20,000 in setting up and maintaining her
channel. She is not a registered businesswoman or
professional. All she did was use her device and
earned money from an online platform.
Compute the taxable income of Abegail: 140,000 net
subject to regular income tax
18. During the pandemic, Glenn started selling plants
online to supplement his online tutorial as source of
income. Glenn is not employed in any company. He
established an online tutorial platform and some
students started enrolling. For the current period,
he earned a total of P200,000 on his tutorial and
P150,000 on selling plants. He reported expenses of
P50,000 and 30,000 on tutorial and selling,
respectively. He also invested P100,000 in bonds
issued by BPI and earned P10,000 for the period.
Compute the net taxable income of Glenn: 270,000
19. Alhambra, Inc., a domestic corporation, reported
the following:
Compute the taxable income subject to regular income
tax: 2,730,000
20. Alhambra, Inc., a domestic corporation, reported
the following:
Compute the taxable income subject to regular income
tax: 700,000
21. Which of the following is correct regarding the
taxable income of each taxpayer?
The following are presented to you for comparison:
LETTER C
Chapter 8- Part 1
1. The following are excluded from gross income,
except:
Amount received by the insured in excess of the
premiums paid
2. Which of the following is excluded from gross
income?
Prizes of hidilyn diaz for winning the gold on Olympics
3. Statement 1: 13th month pay is exempted from
income tax but the exemption is only up to a certain
amount
Statement 2: Gains from sale of bonds, debentures, or
certificates of indebtedness is excluded from gross
income
Only statement 1 is true
4. Statement 1: If an insured outlived his policy and
receives from the insurance company an amount
equivalent to the total premiums paid, such amount
is taxable
Statement 2: If the insured dies and the beneficiary
receives payment from the insurance company, the
amount received in excess of the total premiums
paid shall be taxable
both statements are false
5. It refers to a flow of wealth to the taxpayer which is
not treated as part of gross income for purposes of
computing the taxpayer’s taxable income.
Exclusions
6. It refers to the amount subtracted from the gross Separation payment as a consequence of termination
income in determining the net taxable income. because of the pandemic

Deductions 15. In a certain civil case, plaintiff was awarded

damages by the court in the sum of P20,000
7. Statement 1: If the proceeds of life insurance are
representing profit he failed to realize on account of
held by the insurer under an agreement to pay
defendant’s failure to comply with his obligation to
interest thereon, the interest payments shall be
said plaintiff.
included in gross income
Statement 2: The value of property acquired by gift, Are those damages taxable against plaintiff?
bequest, devise or descent, including it fruits and
Yes because the damages is not on account of injuries
income, shall be excluded from the gross income
or sickness but for lost profit
only statement 1 is true
16. Romy retired from employment at the age of 48
8. Which of the following is not tax exempt? because he was already qualified under his
employer’s retirement plan duly registered with the
Consequential damages representing the loss of the
BIR. He rendered 20 years in service at the time of
victim’s earnings capacity awarded by the courts to the
retirement.
heirs of the victim
Is the retirement benefit of Romy excluded from taxable
9. Statement 1: Exclusions pertain to the computation
gross income?
of gross income, while deductions pertain to the
computation of net income No, the retirement pay is taxable because Romy is only
48 years old at the time of retirement
Statement 2: Exclusions are something received or
earned by the taxpayer which do not form part of 17. Carding was fond of violating his employer’s
taxable gross income, while deductions are something company policies. As a result, he was asked by his
spent or paid in earning gross income employer to sign a resignation/termination letter
which he did. He received a separation pay.
both statements are true
Is the separation pay taxable to Carding?
10. Mrs. Y, wife of a deceased employee, received
financial benefits voluntarily voted upon by the Yes, his separation is voluntary and not one of those
Board of Directors of the employer-company in enumerated under the law to be tax exempt
recognition of her husband’s long and loyal service
18. Statement 1: Government owned and controlled
and primarily to help her meet financial needs.
corporations are taxable on their income as such
Which of the following is false?
Statement 2: Social Security System (SSS), a GOCC, is
Mrs. Y is subject income tax on the financial benefits tax-exempt on its income as such
she received because such amount is in consideration
both statements are true
of her deceased husband's employment
19. Anna is a scholarship grantee of ABC Company. In
11. Statement 1: When a taxpayer receives a car from a
consideration of Anna’s excellent academic
corporation for furnishing the names of potential
performance, she received P100,000 award form
customers, the same is a taxable income
ABC Company with the condition that after
Statement 2: When a foreign corporation “donates”
graduation, she will render at least 1 year service to
stocks to its resident manager in the Philippines in
ABC. Is the award taxable?
consideration of his services as such, the value of
the shares shall be considered as taxable Yes, it is not excluded to the gross income because it is
compensation in consideration of future services
only statement 2 is true 20. Carlo is the best karate student of the Japan Karate
Association in the Philippines. In one prestigious
12. Under RA 7641, which is a correct requirement in
international tournament held in the Philippines as
order that a retirement benefit shall be excluded
host country, Carlo won and received a certain
from gross income?
amount of cash prize.
The retirement benefit is to be availed of for the first
Is the prize taxable?
time
Yes, because there is no showing that the tournament
13. In the absence of a private retirement benefit plan,
is sanctioned by the national sports
the following requirements must be met in order
association/committee
that the retirement benefit of an employee shall be
excluded from gross income, except: 21. Ms. Cruz is an employee. Her pay slip shows the
following deductions and/or contributions:
the employee must apply for a tax exemption ruling
 for SSS benefits
from the BIR
 for Philhealth benefits
14. Which of the following is an exclusion from gross  for GSIS benefits
income?  for tardiness
 for union dues
 for advances from the company
 for savings in the company cooperative
Which deduction/contribution is/are taxable and NOT
excluded from gross income?
A. For tardiness
B. for advances from the company
C. For savings in the company's cooperative
D. All of the above
22. Manny was retrenched from his employment. To
support his family, he decided to buy his own
equipment and tag along with some of the “small-
time” miners he know. The group of miners was
able to extract gold and after processing the same,
they sold it for profit in the “black market”.
Is the share of Manny in the profit taxable?
Yes, there is no showing that Manny and the rest of the
group are registered as small-scale miners and the
market is also not registered
23. As a source of income during the pandemic, Nena,
together with friends in the barangay, established
an enterprise wherein the group members made
“bags” out of used garments and thereafter sold the
products for profit.
Is the income of each member excluded from gross
income?
No, there’s is no showing that the enterprise is duly
registered BMBE or that each member are minimum
wages earners
24. BBAAA is a duly-registered credit cooperative. On
one occasion, BBAAA rented out its facility to a
certain review center for the conduct of review
sessions. The owner of the review center is not a
member of the cooperative.
Is the rental income of the cooperative taxable?
Yes, the transaction of the cooperative is not with a
member hance, taxable
25. Kanlungan, Inc., is a registered non-stock, non-profit
entity with the purpose of helping the poor mainly
by gathering donations from benevolent donors and
distributing the same to the needy. On one
occasion, Kanlungan, Inc., used a certain amount of
donation to purchase a commercial stall. Kanlungan
designated some of its staff to operate the
commercial stall to generate income to boost the
funds of the organization.
Is the income from the stall taxable?
Yes, the income is from an unrelated source hence,
taxable
Chapter 8-Part 2
1. Mr. X was injured in a vehicular accident in 2018.
He incurred and paid medical expenses of P20,000
and legal fees of P10,000 during the taxable year. In
2020, he received P70,000 as settlement from the
insurance company which insured the car owned by
the other party involved in the accident.
From the above payments and transactions, the amount
of taxable income in 2020 is? Zero/0
2. Amando took out a life insurance policy for
P1,000,000.00 naming his wife as beneficiary. Under
the terms of the policy, the insurer will pay Amando
the amount of P1,000,000.00 after the 20th year of
the policy, or his beneficiary, should he die before
that date. Amando outlived the policy and received
P1,000,000.00. The premiums paid on the policy
was P250,000.00.
How much is the taxable income? 750,000
3. Lexi purchased a life annuity for P500,000 which will
pay him P120,000 a year. The life expectancy of Lexi
is 12 years.
Which of the following will Lexi be able to exclude from
his gross income? 500,000
4. On April 30, 2020 the endowment insurance policy
of Zandy, for which he was paying an annual
premium of P10,000 since April 2000 matured. He
was then paid the face value of his insurance policy
in the amount of P500,000.
How much is excluded from gross income? 200,000
5. The negligence of Dave, driver of a certain bus
company, resulted in the death of Pedro’s wife,
physical injuries to Pedro that prevented him from
working for a month, and the total wreck of Pedro’s
brand new car which he had bought for P400,000.
In the action for damages filed by Pedro against the
bus company, the court awarded the following:
 P30,000 for Pedro’s injuries consisting mainly in
the loss of his right hand;
 P45,000 for Pedro’s loss of one month salary;
 P25,000 for the death of his wife;
 P100,000 moral damages on account of the
death of Pedro’s wife; and
 P800,000 for the loss of Pedro’s car.
How much is excluded from gross income? 555,000
6. Garcia was injured in a vehicular accident. He
incurred and paid medical expenses of P10,000 and
legal fees of P5,000 during the year. He recovered
P35,000 as settlement from the insurance company
which insured the car owned by the other party
involved in the accident. From the above payments
and transactions, the amount taxable to Garcia is:
zero/0
7. Fernando was hit by a wayward bus while on his
way to work. He survived but had to pay P400,000
for his hospitalization. He was unable to work for six
(6) months which meant that he did not receive his
usual salary of P10,000 a month or a total of
P60,000. He sued the bus company and was able to
obtain a final judgment awarding him the following:
 P400,000 as reimbursement for his
hospitalization:
 P60,000 for the salaries he failed to receive
while hospitalized;
  P200,000 as moral damages for his pain and 13. Your friend shows you a summary of her
suffering, and compensation for the year as follows:
 P100,000 as exemplary damages. He was able
to collect in full from the judgment.

How much is excluded from gross income? 700,000

8. Rem was retired by his employer corporation in

2020 and was paid P1,000,000 as a retirement
gratuity without any deduction of withholding tax.
In addition, Rem was also paid P50,000 representing
terminal leave pay and P45,000 for unpaid bonuses.

How much is excluded from gross income? 1,000,000

9. Pedro, an official of Corporation X, asked for an She wants to know, how much is the total exclusions
“earlier retirement because he was migrating to from her gross income? 171,000
Australia. He was paid P2,000,000.00 as separation
14. Your friend shows you a summary of her
pay in recognition of his valuable services to the
compensation for the year as follows:
corporation.

Juan, another official of the same company, was

separated for occupying a redundant position. He was
given P500,000.00 as separation pay.

Jose, another employee, was separated due to his failing

eyesight. He was given P800,000.00 as separation pay.

How much is excluded from gross income? 1,300,000

10. Jake worked for a manufacturing firm. Due to

business reverses, the firm offered a voluntary
redundancy program in order to reduce overhead
expenses. Under the program, an employee who
offered to resign would be given separation pay
equivalent to his three months’ basic salary for
every year of service. Jake accepted the offer. He
resigned and received P400,000.00 as separation
pay under the program.
After all the employees who accepted the offer were
paid, the firm found its overhead still excessive. Hence,
it adopted another redundancy program. Various
unprofitable departments were closed. As a result,
Kelvin was separated from the service. He received
P300,000.00 as separation pay.
How much of the above is non-taxable? 300,000
11. Quintin worked as chief accountant of a hospital for
forty-five years. When he retired at 65, he received
a retirement pay equivalent to two-month salary for
every year of service as provided in the hospital’s
retirement plan or a total amount of P3,500,000. In
addition, the hospital resolved to pay him a gratuity
of P1 million over and above his retirement pay for
his valuable service and loyalty to the hospital.
She wants to know, how much is her taxable gross
income? 1,064,000
15. Arturo inherited a building from his father. The fair
market value of the building at the time of
inheritance is P3,000,000. The same is earning
rental from current tenants in the amount of
P250,000. Arturo spent P35,000 in the maintenance
of the building. Compute the exclusions from gross
income of Arturo: 3,000,000
16. Hidilyn Diaz brought fame to her country by winning
the gold in the Olympics. She received the
following:
P20M from the government as cash prize
P10M from a certain businessman
P15M from a certain domestic corporation
How much of the total receipts is taxable as income to
Ms. Diaz? Zero/0
17. Carmela invested P2M in a 5-year bond of Prime
Holdings Corporation. In need of money, she
decided to sell the investment for P3.5M.

How much is excluded from gross income? 4,500,000 How much is the taxable income of Carmela? 1,500,000

12. X, an employee of ABC Corporation, died. ABC 18. The Land Transportation Office (LTO) of Baguio City
Corporation gave X’s widow an amount equivalent reported the following revenues:
to X’s salary for one year or a total of P900,000. The
company also paid X’s widow the amount of
P145,000 representing unpaid bonuses and
allowances of the deceased.

How much of the amounts paid to the widow is taxable

as income to her? Zero/0
Compute the income or revenue of LTO that should be Only statements 1 and 2 are true
taxable: 4,900,000
7. Statement 1: All items of gross income are subject
19. Santos, a retired public school teacher, relies on her to regular income tax
pension from the GSIS and the interest income from Statement 2: Gross income may be subject to
a 4-year time deposit of P500,000.00 with ABC regular income tax, final tax, or capital gains tax
Bank. Every month, she receives the following:
Only statement 2 is true

8. The following shall involve “gains in dealings in

properties”, except:

Gain on sale of an immovable property located in the

How much is the exclusion from gross income?18,000
20. Santos, a retired public school teacher, relies on her
pension from the GSIS and the interest income from
a 4-year time deposit of P500,000.00 with ABC
Bank. Every month, she receives the following:
How much is the gross income (taxable) of Santos?
4,375
21. XYZ is a religious entity. The following summarizes
some of the entity’s transactions for the current
period:
How much is the exclusion from gross income?
1,100,000
Chapter 9-Part 1
1. It means all wealth which flows into the taxpayer
other than as a mere return of capital. Income
2. It means all income derived from whatever source
Gross income
3. The following are items of gross income, except:
gratuity
4. Which of the following items of gross income is
subject to regular income tax?
Philippines which is considered as capital assets
9. Which of the following interests forms part of gross
income subject to regular income tax?
A. Interest on long term deposit in the Philippines
earned by a domestic corporation
B. Interest on short term deposit in the Philippines
earned by a individual taxpayer
C. Imputed interest on customer’s promissory note
D. None of the above
10. Which of the following is not an item of gross
income?
Security deposit for obligations of lessee upon
termination of lease
11. The following dividends are items of gross income,
except: stock dividend
12. Which of the following dividends is an item of gross
income?
Dividends received by a resident citizen from a non-
resident foreign corporation
13. Dividends received by a domestic corporation from
a non-resident foreign corporation is subject to
regular income tax but such is treated as inter-
corporate dividend and exempt from tax if certain
requirements are fulfilled.

Royalties on franchise earned abroad by a domestic

corporation

5. Statement 1: Compensation in the form of stocks of

the company is not gross income on the part of the
employee
Statement 2: Other allowances granted to an
employee do not form part of the gross income of
the employee
both statements are false
6. Statement 1: The gross income of an employee is
computed by removing excluded income from his
total compensation

Statement 2: The gross income from business or

profession is computed by deducting cost of sales or
revenue from total sales or revenue

Statement 3: Business or professional income exempted

from income tax shall be included in computing gross
income but will be allowed as deduction under the item
“allowable deductions”

Which of the following is NOT a requirement for the
exemption? None of the above
14. Which of the following is NOT included in gross
income subject to regular income tax?
Partner's share in the income of a business partnership
15. Statement 1: An estate, the totality of properties
and rights of a deceased, shall be considered as a
taxable person (individual taxpayer)
Statement 2: The share in the income of an estate
received by an heir shall be a deduction from the gross
income of the estate but treated as gross income of the
receiving heir
both statements are true
16. When in the previous taxable period, a deduction
from gross income was claimed and such is
recovered in the current taxable period, the
recovery of the past deduction shall be included in
the gross income in the period of recovery. This rule
is referred to as – tax benefit rule
17. An entity is tax exempt in 2019 but became taxable
in 2020. In 2019, the entity recognized bad debts of
P100,000. In 2020, the bad debts were recovered.
Should the recovery of bad debts be recognized as
part of gross income in 2020?
18. Statement 1: Expenses of the taxpayer which are
reimbursed by the customer or client shall be
included in the gross income of the taxpayer
Statement 2: An indebtedness of a customer which
is cancelled or condoned by the taxpayer without
any consideration is not gross income but donation
both statements are true
19. Employee X borrowed P40,000 from his employer Z.
It was agreed by both that Z will cancel the loan of X
in consideration of the services of the latter for 1
month. Incidentally, X receives P40,000 as salary
every month. Therefore, X will not receive his salary
for 1 month.
Which of the following is correct?
20. Statement 1: All other circumstances being equal, a
taxpayer using accrual basis would most likely
report a gross income higher than a taxpayer using
cash basis method of recognizing income and
expenses
Statement 2: All other circumstances being equal, a
resident taxpayer would most likely report a higher
gross income than a non-resident taxpayer on the
assumption that both taxpayers derive income both in
the Philippines and abroad
both statements are true
21. Which of the following gross income is subject to
regular income tax? Other capital gains not subject
to capital gains tax
22. For taxpayers engaged in sale or exchange of goods
or services, which of the following is true?
23. Statement 1: The VAT collected by a seller from the
buyer is gross income of the seller
Statement 2: The gross income of sellers of goods or
services comprises of the selling price or revenue less
cost of sales or revenue
only statement 2 is true
24. This refers to the amount deducted by income
payors against the gross income subject to regular
income tax of the payee taxpayer and which
represents advance income tax payment of the
latter. Creditable withholding tax
25. Statement 1: Creditable withholding tax is an
exclusion from the gross income of the payee
taxpayer
Statement 2: Creditable withholding tax withheld by the
payor should still form part of the reportable gross
income of the payee taxpayer
only statement 2 is true
Chapter 9-part 2
1. Pedro issued a check drawn on a bank in which he
has no funds. He negotiated the check and received
P10,000. He tried his luck in a casino and won
P300,000. Thereafter, he was charged and convicted
for passing a worthless check.
How much is the gross income of Pedro? 310,000
2. In order to facilitate the processing of its application
for a license from a government office, Corporation
A found it necessary to pay the amount of
Php100,000 as a bribe to the approving official. The
official is receiving a monthly salary of P45,000
exclusive of P7,000 tax-exempt contributions.
Compute the taxable gross income of the official:
145,000
3. Gancho is a resident citizen. He reported the
following:
Compute the gross income of Gancho which is subject
to regular income tax. 795,000
4. ZAX, resident foreign corporation, reports the
following:
Compute the gross income of ZAX subject to regular
income tax in the Philippines.15,900,000
5. Berto bought a life insurance for P500,000 which
will pay him an annuity of P75,000 per year for 10
years.
What is the gross income of Berto when he outlives the
policy? 250,000
6. Juan, a resident citizen, reports the following
transactions.
How much is the gross income of Juan subject to regular
income tax? 1,585,000
7. XYZ Bank reports the following:
Compute the gross income of XYZ Bank which is subject
to regular income tax: 4,400,000
8. XYZ Corporation leased out its commercial space to
ABC. Per agreement, ABC shall pay a monthly rental
of P150,000 payable every 1st day of the month.
Upon signing of the agreement, ABC shall deposit
an equivalent of 3-month rental to XYZ to settle any
unpaid obligations of the lessee upon termination of
the lease. In addition, ABC shall also deposit an
advance 2-month rental to be applied after the 1st
month. The parties signed the agreement on May
1, 2021.
Compute the gross income of XYZ upon signing of the
agreement: 450,000
9. Nasudi Corporation, a domestic corporation, reports
the following items of income:
Compute the gross income of Nasudi that is subject to
regular income tax. 3,000,000
10. Carding won the following:
How much of the above is gross income of Carding
subject to regular income tax? zero/0
11. Andres is a partner of ABC Partnership, a
partnership created for the exercise of the
engineering profession of several partners. For the
taxable period, the partnership reported a total
receipts and fees of P900,000 and records show that
the partnership incurred total direct cost of
P200,000. The share of Andres in the distributable
net income of the partnership is P150,000. Records
also show that the partnership earned P10,000
interest income on its bank deposits.
How much is the gross income of the partnership that is
subject to regular income tax? Zero/0
12. Andres is a partner of ABC Partnership, a
partnership created for the exercise of the
engineering profession of several partners. For the
taxable period, the partnership reported a total
receipts and fees of P900,000 and records show that
the partnership incurred total direct cost of
P200,000. The share of Andres in the distributable
net income of the partnership is P150,000. Records
 also show that the partnership earned P10,000
interest income on its bank deposits.
How much should Andres report as gross income
subject to regular income tax? 150,000
13. Brenda is a business partner in AXXA Partnerships.
AXXA reported the following:
Compute the gross income of AXXA subject to regular
income tax. 780,000
14. The distributive share of partner Brenda in the AXXA
business partnership is P250,000. Brenda reports
personal expenses of P100,000 as partner.
How much is the gross income of Mando? 40,000
19. Zoe is a VAT-registered businessman. He sold goods
to customer X for P896,000 inclusive of the 12% VAT.
The cost of the goods sold was P300,000. How
much is the gross income of Zoe from the
transaction? 500,000
20. Romy, 48 years of age and a retired employee had
the following investment properties and
transactions at the end of the 2020 taxable year:
 Shares of stock in AAA Corporation which he
bought in 2001 for P50,000.00 and which has a
fair value of P70,000.00 as of the end of 2020
 Shares of BBB Corporation which he bought for
P40,000.00 in 2002 and which he sold for
P100,000.00 in 2020
How much should Romy report in 2020 as gross income
subject to regular income tax? Zero/0

How much is the gross income of Brenda subject to

regular income tax? Zero/0

15. Celzo died intestate and left an income generating

building. During the settlement of the estate, the
property earned a total of P500,000. Costs incurred
to maintain the property amounted to P100,000.
Celzo received in advance his share in the income of
the estate amounting to P150,000.

How much should the estate report as gross income

subject to regular income tax? 400,000

16. Celzo died intestate and left an income generating

building. During the settlement of the estate, the
property earned a total of P500,000. Costs incurred
to maintain the property amounted to P100,000.
Celzo received in advance his share in the income of
the estate amounting to P150,000. Personal
expenses of Celzo amount to P70,000.

How much should Celzo report as gross income subject

to regular income tax? 150,000

17. Last taxable period, Gabriel reported a net income

of P350,000 after recognizing P60,000 bad debts
and writing off the corresponding receivables.
During the current taxable period, Gabriel recovered
P100,000 (P60,000 from the receivables written off
and the balance from accounts not yet written off).
How much should Gabriel report as gross income in
the current period in relation to the recovery of bad
debts? 60,000
18. Mando is a regular employee of ABC Trading. Three
months ago, Mando borrowed P20,000 from his
employer which is due this month. This payroll
period, Mando shows you his pay slip and asked you
to compute his gross income. The following are the
details:
Chapter 10 Part 1
1. It refers to all remuneration for services performed
by an employee for his employer under an
employee-employer relationships unless exempted
by the NIRC and pertinent laws.
GROSS COMPENSATION
2. The following are NOT compensations but may be
treated as income from profession, except:
COMMISSIONS TO SALES PERSONNEL
3. Statement 1: To compute the taxable
compensation, compensations which are exempted
from income taxation must be excluded from the
gross compensation
Statement 2: The gross compensation technically
includes taxable and non-taxable compensation
BOTH STATEMENTS ARE TRUE
4. The following comprise non-taxable or exempt
compensation, except:
SUPPLEMENTARY COMPENSATION
5. Case 1: Nora made a total of P5,000 contributions
for SSS, Philhealth, Pag-ibig, and union dues. The
P5,000 contributions form part of Nora’s gross
compensation. However, in computing her taxable
compensation, such amount must be excluded
Case 2: Nora suddenly got sick and was hospitalized for
1 month. She received a certain amount of benefit from
SSS. Her hospital bills were also reduced by her
philhealth benefit. The amount received by Nora from
SSS and the reduction in her hospital bills constitute
taxable compensation to Nora.
ONLY CASE 1 IS CORRECT
6. Statement 1: The mandatory contributions such as
the SSS, Philhealth, Pag-ibig may be reduced or
removed by agreement of the employer and
employee
Statement 2: In case employee agrees to increase his
mandatory contributions to more than what the law
requires, the excess contribution over the amount
required by law shall still form part of the taxable
compensation
ONLY STATEMENT 2 IS TRUE
7. These are facilities or privileges given or offered by
an employer to its employees, provided such
facilities or privileges are of relatively small value
and are offered or furnished by the employer
merely as a means of promoting the health,
goodwill, contentment, or efficiency of its
employees.
DE MINIMIS BENEFIT
8. The following are de minimis benefits, except:
MONITIZED UNUSED SICK LEAVE CREDITS OF PRIVATE
EMPLOYEES NOT EXCEEDING 10 DAYS DURING THE
YEAR
9. How much is the limit to the laundry allowance as a
de minimis benefit?
NOT EXCEEDING P300 PER MONTH
10. The following are requirements in order for a meal
allowance to be considered as de minimis benefit,
except:
THE ALLOWANCES MUST BE APPROVED BY THE BIR
11. How should the excess amount of de minimis over
the limit set by law be treated for a rank and file
employee?
ADDED TO 13TH MONTH PAY AND OTHER BENEFITS
12. How should the excess amount of de minimis over
the limit set by law be treated for a managerial
employee?
TAXABLE COMPENSATION SUBJECT TO FRINGE BENEFIT
TAX
13. Which of the following is an important requirement
in order that an achievement award granted to an
employee is tax exempt?
THE AWARD MUST BE IN THE FORM OF A TANGIBLE
PERSONAL PROPERTY AND DOES NOT EXCEED P 10,000
14. Statement 1: CBA or productivity incentive scheme
benefits shall only be exempt as “de minimis”
benefits if the total amount thereof does not exceed
P10,000 per taxable year
Statement 2: CBA incentive in the amount of P15,000
shall be de minimis and tax-exempt up to P10,000 only
ONLY STATEMENT 1 IS TRUE
15. What is 13th month pay for a government
employee?
AMOUNT EQUIVALENT TO A CHRISTMAS BONUS OF
ONE MONTH SALARY PLUS P 5000 CASH GIFT
16. How much “13th month pay and other benefits” is
tax-exempt?
90,000
17. Which of the following may be treated under “13th
month pay and other benefits”? ALL OF THE ABOVE
18. Statement 1: Foreign government embassies,
diplomatic missions and international organizations
are tax-exempt in their function as such in the
Philippines
Statement 2: Generally, Filipino employees of foreign 25. It refers to the rate fixed by the Regional Tripartite
governments, international missions, and organizations Wage and Productivity Board (RTWPB)
in the Philippines are taxable
STATUTORY MINIMUM WAGE
Statement 3: Employees working in Philippine
26. For a minimum wage earner, which of the following
embassies or Philippine consulate offices are considered
is tax-exempt compensation? ALL OF THE ABOVE
as “resident citizens”, hence their salaries as such are
taxable

ALL STATEMENTS ARE TRUE

19. Which of the following compensations is/are not

taxable compensation to the employee? ALL OF THE
ABOVE

Chapter 10 Part 2
20. This rule mandates that any employee expenses 1. Pedro works as salesman of ZZZ Trading. The
paid for by the employer or granted by the agreement between Pedro and ZZZ provides the
employer as allowance or compensation must be following terms:
solely for the expediency of the employer, and must
be incurred on the employer's premises if
applicable.

EMPLOYER'S CONVENIENCE RULE

Pedro made a total sale of P250,000 for the month.
21. It pertains to the fixed remunerations received by Incidentally, during the month, Pedro received a
the employee. P50,000 commission from selling his friend’s vacant lot.
REGULAR COMPENSATION Compute the gross compensation of Pedro. P 52,500
22. Which of the following does not form part of the 2. Pedro works as salesman of ZZZ Trading. The
taxable regular compensation? agreement between Pedro and ZZZ provides the
REPRESENTATION AND TRAVEL ALLOWANCES (RATA) following terms:
OF GOVERNMENT EMPLOYEES

23. These compensations are variable and normally

based on the performance of an employee.

SUPPLEMENTARY COMPENSATION Pedro made a total sale of P250,000 for the month.
Incidentally, during the month, Pedro received a
24. Which of the following is not a supplementary P50,000 commission from selling his friend’s vacant lot.
compensation?
How much is the regular compensation income of
NONE OF THE ABOVE Pedro? 25,000

3. Using the following information:

Compute the taxable compensation: 59,000

4. Using the following information:


Compute the net pay of the employee: 42,000
5. The following de minimis benefits were received by
Berto, during the taxable year. Berto works in the
private sector:
How much is the total non-taxable de minimis benefits?
42,100
6. Juan earns the basic salary of P44,000 a month. His
daily compensation rate is P2,000. For current the
month, Juan availed a total 3-day vacation leave
with pay. Of the basic salary, how much should be
reported as the salary of Juan for the current
month?
44,000
7. Miranda is an employee of XYZ Corporation, a
private enterprise. The following summarizes the
benefits of Miranda for the current year:
Compute the total non-taxable de minimis benefits.
58,600
8. Miranda is an employee of XYZ Corporation, a
private enterprise. The following summarizes the
benefits of Miranda for the current year:
Compute the taxable 13th month pay and other
benefits. 45,400
9. Zenny is one of the 20-year awardees of her
company. For her service, she received a watch
worth P8,000, a plaque, and a check for P10,000.
On the same day, she also received a bonus for her
excellent performance for the entire duration of her
service in the amount of P35,000.
How much should be included in the “13th month pay
and other benefits” of Zenny? 45,000
10. The converted daily compensation rate of Anna is
P2,000. On top of her salary, she receives a daily
meal allowance of 20% of her basic daily rate, daily
transportation allowance of P50.00 and daily
communication allowance of P30.00.
How much should be reported as de minimis benefits?
0/Zero
11. The converted daily compensation rate of Anna is
P2,000. On top of her salary, she receives a daily
meal allowance of 20% of her basic daily rate, daily
transportation allowance of P50.00 and daily
communication allowance of P30.00.
How much should be reported as regular compensation
of Anna? 2,480
12. Carlos is a board member of AXA Corporation. As
such, he receives the amount of P50,000 per diem
on a monthly basis. He also serves as the CEO of
the corporation and receives P250,000 per month
as such. Incidentally, Carlos also serves as a
financial consultant of another independent
corporation for P100,000 per month.
From the foregoing only, how much is the total
compensation income? 250,000
13. As manager in the company, Delia receives the
following benefits:
How much should be subject to the fringe benefit tax
for managers? 25,400
14. Sarah, manager of ZBC Corporation, receives
P120,000 13th month pay, P60,000 14th month pay,
P25,000 monthly residential rental allowance, and
P5,000 monthly grocery allowance.
For the taxable year, how much should be reported as
“13th month pay and other benefits” of Sarah? 180,000
15. Due to business reverses, Pedro was terminated
from employment. He received termination pay of
P250,000, exclusive of the following: P30,000
unpaid salary net of P5,000 mandatory
contributions, P25,000 accumulated sick leave
credits, and P50,000 pro-rated 13th month pay.
How much is the taxable compensation? 30,000
16. Mando, manager of XXX Domestic Corporation,
received a stock option from the corporation
entitling him to buy 5,000 shares of XXX at P10.00
per share. After some time, Mando exercised his
option when the shares were selling at P15.00 per
share. The shares, at the time of exercise, had a
book value of p12.00 per share. After 3 months,
Mando sold the shares for P18.00 per share.

Compute the compensation income of Mando. 25,000 Compute the taxable income of Mang Carding. 125,000

17. A government rank and file employee shows the

following record for the taxable year:

Compute the taxable compensation. 935,000

18. A government rank and file employee shows the

following record for the taxable year:

Compute the total NON-TAXABLE compensation.

308,000

19. Narda availed of the 105-day maternity leave under

the SSS law. Her pay slip for the period showed the
following:

Considering only the foregoing data, how much is the

taxable compensation of Narda for the period? 7,000

20. Mang Carding is a minimum wage earner. To

augment his earnings, he put up a mini store under
his name and managed by his wife. Records show
the following relating to his compensation and store
operations for the taxable year: