C 1.

● Statement 1. A net operating loss is the excess of allowable deductions over the gross income
from business for a taxable year.
● Statement 2. A net operating loss which had not previously been deducted from gross income
shall be carried over as a deduction only in the next year immediately following the year of such
loss.
a. True, true.
b. False, false.
c. True, false.
D. False, true.

C 2.
● Statement 1. Bad debt is an expense in the books of account when a provision is made for it.
● Statement 2. Bad debt is a deduction from the gross income when the account is written off.
a. The first statement is true while the second statement is false.
b. The first statement is false while the second statement is true.
c. Both statements are true.
d. Both statements are false.

A 3.
● Statement 1. The cost of leasehold improvements shall be deductible by the lessee by spreading
the cost of the improvements over the life of the improvements or remaining term of the lease,
whichever period is shorter.
● Statement 2. Deprecation expense can be a deduction for both tangible and intangible property
with limited useful life.
a. True, true.
b. False, false.
c. True, false.
d. False, true.
D 4.
● Statement 1. Contributions by the employer to a pension trust for past service cost is deductible
in full in year that the employer made the contributions, if he is on the cash basis of accounting.
● Statement 2. Contributions or donations given directly to individuals cannot be deducted from
gross income.
a. True, true.
b. False, false.
c. True, false.
d. False, true.

D 5. Which statement is not correct?

a. The deduction of an individual for contribution subject to limitation should not exceed ten
percent (10%) of his taxable income from business, trade or profession before deduction
for contributions.
b. The deduction of a corporation for contributions subject to limitation should not
exceed five percent (5%) of its taxable income from business or trade before deduction
for contributions.
c. Contributions to media in its fund drive for the relief of the calamity victims are
deductible from gross income.
d. Contributions of canned goods to student organizations during the Christmas season for
distribution to Muntinglupa inmates are deductible from gross income.

D 6.
Which statement is wrong/ research and development costs:
a. When related to the acquisition and/or improvement of land and building, must be capitalized.
b. If not related to land and building, may be treated as an outright deduction.
c. If not related to land and building, may be treated as a deferred expense which may be
amortized.
d. Cannot be deducted because it has unlimited life.
D 7.
Which statement is wrong? The deduction for premiums on hospitalization and health insurance
is:
a. Not to exceed P2,400 a year per family.
b. Not to exceed P200 per month.
c. Not allowed if the family income exceeds P250,000.
D. In the case of married persons, can be claimed by either spouse.

D 8.
Which statement is wrong? Deduction for premiums on hospitalization and health insurance is:
a. Allowed a citizen with a gross compensation only.
b. Allowed a citizen with business or professional income only.
c. Allowed a citizen with mixed income.
D. Only if the taxpayer is taking itemized deduction from gross income.

C 9.
The Optional Standard Deduction is ten percent (10%) of the gross income. Choose the correct
and best answer: For purposes of the Optional Standard Deduction of an individual(other than
non- resident alien) gross income means:
a. If a trading concern, gross profit from sales.
b. If a service concern, gross receipts lee direct cost of services.
c. Means gross profit from sales, or gross receipts or revenues less direct cost of services,
plus all other items of gross income.
d. Includes the net capital gain of an individual.

C 10.
Which statement is wrong? The rule that capital losses are deductible only to the extent of capital
gains is applicable:
a. To a corporation.
b. To an individual.
c. To the individual taking the Optional Standard Deduction.
d. To the individual taking the itemized deduction from gross income

--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------

B 1.
A domestic corporation, in its fifth year of operations in 2002, had the following data:
Sales P2,000,000
Cost of sales 1,000,000
Business expenses 950,000
The income tax of the corporation is:
a. P17,000.
b. P20,000.
c. P1,000.
d. P340,000.

A 2.
In 2002, a domestic corporation was in its sixth year of operations. The following data are for
the years 2001 and 2002:
Gross profit from sales
Business expenses
2001
P600,000
580,000
2002
P700,000
650,000
The income tax for 2001 is:
a. P12,000.
b. P6,800.
c. P4,000.
d. P20,400.

A 3.
In Question 2, the income tax due from 2002 is:
a. P10,400.
b. P16,500.
c. P11,300.
d. P17,000.

A 4.
In year 2002, a domestic corporation had the following data:
Sales
P4,000,000
Cost of sales 1,500,000
Business expenses 1,000,000
The gross income tax of the corporation is:
a. P375,000.
b. P480,000.
c. P600,000.
d. P125,000.

C 5.
D. Co. is a domestic corporation with the following data for 2002 (first year of operations):
Gross profit from sales P2,000,000
Dividend from domestic corporation 20,000
Capital gain on sale of land in the Philippines held for two years (sold at P1,000,000) 200,000
Capital gains on sale of shares of domestic corporation held for two months (direct sale to buyer) 120,000
Business expenses 1,100,000
Capital loss on bonds of domestic corporation held for 6 months 30,000
The total capital gains taxes for the year:
a. P64,000.
b. P54,000.
c. P67,000.
d. P0.

C 6.
In Question 5, the normal tax of the corporation at the end of the year:
a. P327,000.
b. P1,070,000.
c. P288,000.
d. P900,000.

A 7.
Selected cumulative balances were taken from the records of ABC Co., Inc., a domestic
corporation, of its fourth year of operations in 2002, which had an income tax refundable of
P10,000 for a preceding year for which there is a certificate of tax credit:
Gross profit from sales
1stQ
800,000
2ndQ
1,600,000
3rdQ
2,400,000
Year
3,100,000
Capital gain on sale directly to buyer of
shares
of domestic corporation 50,000 50,000 50,000 100,000
Dividend from domestic corporation 10,000 10,000 20,000 20,000
Interest on Philippine currency bank deposit 5,000 10,000 15,000 20,000
Business expense 600,000 1,200,000 1,700,000 2,100,000
Income tax withheld 15,000 35,000 65,000 115,000
The income tax due at the end of the first quarter:
a. P39,000.
b. P45,000.
c. P55,000
D. P60,000.

D 8.
In Question 7, the income tax due at the end of the secondquarter:
a. P50,000.
b. P70,000.
c. P140,000.
D. P44,000.

A 9.
In Question 7, the income tax due at end of the third quarter:
a. P66,000.
b. P50,000.
c. P75,000.
d. P140,000.

D 10.
In Question 7, the income tax due (or refundable) at the end of the year:
a. P245,000.
b. P350,000.
c. (P10,000).
D. P46,000

--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------

B 1.
Mr. A is not a dealer in securities. In 2002, he had the following transactions of common shares of
stock of Z Co., a domestic corporation:
Purchase on January 5, of 100 shares P7,000
Sale of June 18, of the shares purchased on January 5 6,000
Purchase on June 22, of 60 share 6,500
Sale on October 5, of the shares purchased on June 22 8,000
The loss not recognized on the sale of June 18:
a. P1,000.
b. P600.
c. P0.
d. Some other amount.

B 2.
In Problem 1, the basis of the shares purchased on June 22, 2000 is:
a. P600.
b. P7,100.
 c. P6,500.
d. Some other amount.

A 3.
In Problem 1, the gain on the sale of October 5, 2000 is:
a. P900.
b. P1,500.
c. P0.

B 4.
Some other amount Anson Co. was merged into Bono Co., and only Bono Co. continues to exist.
Mr. Arnold Custodio, a stockholder of Anson Co. was asked to surrender his 100 shares of Anson
Co. that he acquired for P100,000 and received under the merger 100 shares of Bono Co. with a
fair market value of P130,000 and cash of 30,000. The gain to Mr. Arnold Custodio on the merger
is:
a. P60,000.
b. P30,000.
c. P0.
d. Some other amount.

A 5.
In Question 4, the basis to Mr. Arnold Custodio of the shares of Bono Co. received is:
a. P100,000.
b. P130,000.
c. P70,000.
d. Some other amount.

C 6.
M CO., a domestic corporation, had the following data for 2000:
Taxable income, Philippines P1,000,000
Taxable income, X Foreign Country 600,000
Taxable income, Y Foreign Country 400,000
Income tax paid to X Foreign Country 250,000
Income tax paid to Y Foreign Country 120,000
Philippine income tax paid, three quarters of the year 110,000
Tax credit for foreign income taxes paid?
a. P540,000.
b. P370,000.
c. P312,000.
D. P340,000.

A 7.
In Question 6, the Philippine income tax still due, after credit for foreign income taxes paid is:
a. P218,000.
b. P356,000.
c. P570,000.
d. P0.

C 8.
If in Question 6, the corporation chose to deduct the foreign income tax paid (instead of availing
of a foreign income tax credit), how much would have been the income tax due?
a. P521,600.
b. P640,000.
c. P411,600.
D. Some other amount.

D 9.
A revocable transfer, with a consideration received:
Consideration received P200,000
Fair market value of property at the time of transfer 300,000
Fair market value of property at the time of death 250,000
Value to include in the gross estate:
a. P300,000.
b. P250,000.
c. P100,000.
d. P50,000.

B 10.
A decedent was married at the time of death and under the system of conjugal partnership of
gains. Among the properties in the gross estate were:
Land, inherited before the marriage, fair market value 100,000
Family home built by the spouses on the inherited land 800,000
Deduction for family home:
a. P900,000.
b. P500,000.
c. P400,000.
d. P450,000

--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------

C 1.
Withholding taxes are primarily the liability of:
a. Payee and payor of income
b. Earner or payee of income
c. Payor of income
d. Collecting agency of the government

D 2.
Public educational institutions, like the University of the Philippines is deemed by law:
a. Subject to the preferential corporate income tax for special corporations
b. Subject to the basic corporate income tax
c. Subject to both the preferential income tax and the basic corporate income tax
D. Exempt from the corporate income tax

D 3.
If the gross income from unrelated activity exceeds 50% of the total gross income derived by any
private education institution, the tax rate shall be the regular 30% based on the entire taxable
income. This is known as the
a. Constructive receipt
b. Tax benefit rule
c. End trust doctrine
D. Predominance test

C 4.
For income taxation purposes, the term “corporation” excludes one of the following: *
a. Ordinary Partnership
b. An incorporated business organization
c. General Professional Partnership
D. Business Partnership

D 5.
Gross benefits received by officials and employees of public and private entities shall be excluded
from gross income provided that the total exemption shall not exceed P90,000. The exclusion
shall not apply to:
a. 13th Month Pay
b. Productivity Incentive bonus
 c. Christmas Bonus
d. Basic salary and other allowances

C 6.
Which of the following statements is not correct? *
a. Compensation income of individuals that do not exceed the statutory minimum wage is
exempt from the requirement of withholding tax on compensation
b. Compensation income of individuals that do not exceed ten thousand pesos per month is
exempt from the requirement of withholding tax on compensation
c. Holiday pay, overtime pay, night differential payand hazard pay received by individuals
shall be exempt from tax
d. Minimum wage earners who are receiving only the statutory minimum wage are not
subject to withholding tax and consequently to income tax

A 7.
The excess of allowable deductions over gross income of the business in a taxable year is known
as *
a. Net operating loss
b. Ordinary loss
c. Net deductible loss
D. NOLCO

B 8.
Which is not subject to the P90,000 exemption threshold for a private employee? *
a. 13th month pay
b. Profit Sharing Bonus
c. Cash Gift
D. Productive incentive

D 9.
A citizen of a foreign country is considered a non-resident alien engaged in business in the
Philippines if he stayed inside the Philippines
A. for 183 days or more
B. for less than 183 days
C. for more than 180 days
D. for less than 180 days

D 10.
Which of the following statements is not correct? *
A. MCIT is not applicable to non-resident foreign corporations
B. The corporate quarterly return shall be filed within 60 days following the close of each of
the first three quarters of the taxable year.
C. Resident foreign corporations would be taxed on net income from within the Phil only
D Non-resident foreign corporations are taxed on gross income from within and without the
Phils..

D 11.
Which of the following is not correct? The gross income tax *
A. Is optional to qualified corporation
B. Is available if the ratio of costs of sales to gross sales or receipts from all sources does
not exceed 55%
C. Shall be irrevocable for three consecutive taxable years that the corporation is qualified
under the scheme
D. Is compared with the normal income tax and minimum corporate income tax

D 12.
We win as one” Corporation’s record show: (see image) The income tax due and income tax
payable, respectively, for the year are
a. 670,000; 200,000
b. 670,000;100,000
 c. 670,000;135,000
d. 670,000;165,000

B 13.
Using the preceding problem except that the normal income tax for the fourth quarter is P50,000
(instead of P200,000), the income tax still due for the year is *
a. 120,000
b. 55,000
c. 45,000
d. 75,000

B 14.
CPA University, a proprietary educational institution organized in 2000, had the following data for
2012. (see image) The income tax still due for 2012 is *
a. 54,000
b. 10,500
c. 18,000
d. 46,500

B 15.
“Easy lang ito” Corporation provided the following data for the calendar year ending December
31, 2012. ($1=P50) (See image) If it is a resident foreign corporation, its income tax is
a. P730,000
b. P450,000
c. P480,000
D. P525,000

B 16.
A Domestic Corporation has the following data for 2012:Excess MCIT 2011 – P10,000. (see image)
How much is the income tax still due and payable in the second quarterly return
a. P4,000
b. P8,000
c. P9,000
D. P13,000

B 17.
The improperly accumulated earnings tax shall not apply to the following except: *
a. Insurance companies
b. Corporations formerly registered with PEZA
c. Publicly held corporations
D. Banks and Non-Bank financial intermediaries

D 18.
CPA Airlines, a resident foreign international carrier has the following records of income for the
period. (The income represents gross Phil. billings) A. Continuous flight from Manila to Tokyo=1,
000 tickets at P 2, 000 per ticket B. Flight form Manila to Singapore ; transfer flight from Singapore
to Tokyo=2, 000Tickets at P 2, 000 per ticket C. Continuous flight from Manila to Singapore= 3, 000
tickets at P1,000 per ticket. The income tax due is
A. P225, 000
B. P125, 000
C. P100, 000
D. P 175, 000

A 19.
Which of the following statements is correct?
A. Partners of a taxable partnership are considered as stockholders and profits distributed to
them by the partnership are considered as dividends.
B. The share of each partner in net income of a taxable partnership shall be based on their
capital contribution .
 C. The share of an individual partner in the net income of taxable partnership shall be equal
to the share of a capitalist partner with the least capital contribution.
D. The industrial partner shall contribute money and or property but not services.

C 20.
Which is not correct? The following are exempt from the corporate income tax: *
A. Philippine Charity Sweepstakes Office
B. Bureau of Internal Revenue
C. Gov’t. owned or controlled corp.
D. Social Security System

D 21.
The MCIT shall not apply to the following resident foreign corporations, except *
A. RFC engaged in business as int’l carrier subject to 2 ½ 0/0 of their Gross Phil billings
B. RFC engaged in business as offensive Banking Units on their income from foreign
currency transactions with local commercial banks.
C. RFC engaged in business as regional operating headquarters
D. RFC engaged in hotel, motel and resort operations

A 22.
I- Remuneration for services performed outside the Philippines by a resident citizen for a
domestic or resident foreign corporation or partnership, or for a nonresident corporation or
partnership, or for a non-resident individual not engaged in trade ore business in trade business
in the Philippines shall be treated as compensation which is subject to tax. II - Remuneration for
services as employee of a nonresident alien individual, foreign partnership or foreign corporation
constitute compensation only if such employer is engaged in trade or business within the
Philippines.
A. True; False
B. True; True
C. False; False
D. False; True

A 23.
Miss Ty Gassin, single, rank and file employee and supporting her dependent 12-year-old sister,
had the following data during 2018: (See image) The total net taxable amount is
a. 226,300
b. 227,200
c. 202,200
d. 151,300

B 24.
The following relate to the compensation income of a private rank-and-file employee, single,
during the year 2019: (See image) The correct net taxable income should have been is:
a. 559,000
b. 555,000
c. 562,000
D. Some other answer

D 25.
In 2015, Ms. Keeta earned P1,000,000 as income from her coffee shop and received 500,000 as
Christmas gift from her friend, Mr. Yie. She had no other receipts for the year. She spent P300,000
for the operation of her coffee shop. For tax purposes, her gross income for 2016 is:
a. 1,500,000
b. 1,000,000
c. 700,000
D. Cannot be determined
D 26.
A Corporation, a resident corporation, provided the following data for taxable year 2012. (See
image) The corporation remitted to its head office 40% of its net profit to its head office in the
USA. The corporation’s totaltax liability including the tax on the profit remitted is
a. P10,240,000
b. P12,448,000
c. 12,960,000
d. P10,944,000

B 27.
On June 30, 2018, Joven, widower, supporting his 75-year old father, retired from his employment.
He worked with the company for 30 years, the latest salary being P8,000 a month. As a
consequence of his retirement, he received a retirement pay of P600,000. Moreover, his
20-year-old insurance policy for which he had paid an annual premium of P5,000 had matured. The
proceeds amounted to P500,000. He also received a retirement gratuity from the Social Security
System of P200,000.
a. P1,248,000
b. P448,000
c. P398,000
d. P400,000

D 28.
The net shares received by a partner in a general co-partnership is *
A. Part of his taxable income
B. Exempt from income tax
C. Subject to corporate tax
D. Subject to final tax

D 29.
The following statements regarding taxable partnerships are correct, except *
A. They file quarterly and year-end income tax returns.
B. They are subject to the rules on corporation for capital gain tax, final tax on passive
income, normal income tax, minimum corporate income tax and gross income tax.
C. The partners’ share in the distributable net income is subject to final tax.
D. They are subject to the improperly accumulated earnings tax.

C 30.
Which of the following is subject to the corporate income tax? *
A. a non- stock and non profit educational institution
B. Public educational institution
C. Private cemeteries
D. Civic league or organization not organized for profit and operated exclusively for the promotion
of social welfare

--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------------------------------------------

A 1.
Which is not an essential characteristic of tax?
a. Limited as to amount
b. Proportionate in character
c. Payable in money
d. Regular payment

B 2.
A system of taxation that places emphasis on direct rather than indirect taxation, with the ability
to pay as the principal criterion.
a. Regressive tax system
b. Progressive tax system
c. Global tax system
d. Gross Income tax system

A 3.
Carrotman, a farmer, uses the crop-year method in reporting his income from long-term crops.
The following data are relevant to his farming operations in 2014: (See image) Compute
Carrotman’s total income subject to tax.
P540,000
b. P500,000
c. P340,000
a. d. P240,000

D 4.
Which of the following is not included in the income to be reported by the lessor? *
a. Rent paid by the lessee
b. Taxes paid by the lessee
c. Income on the leasehold improvement
d. Depreciation on the leasehold improvement

C 5.
An annual tax of P1,000 was imposed upon all residents of the Philippines, who are above 21
years of age, with a gross income of P250,000, whether or not they send their children to public
school, for the purpose of raising funds in order to improve public school buildings. The tax is:
a. Violative of the equal protection clause of the
Constitution
b. Confiscatory
c. For public purpose
d. Contradicts inherent limitations

B 6.
Individual data the year 2019 are presented to you: ( See image) Based on the image, how much is
the deductible interest expense?
a. P150,000
b. 90,600
c. 59,400
d. Some other answer

B 7.
Which of the following may not raise money for the government?
a. Power of taxation
b. Police Powers
c. Power of eminent domain
A, B and C
b. C only
c. B only
a. d. B and C only

C 8.
The following, except one are the basic principles of a sound tax system. The exception is
a. It should be capable of being effectively enforced
b. It should consider the taxpayer’s ability to pay
c. It is levied by the lawmaking body of the state
d. The sources of revenue must be sufficient to meet government expenditures and other public
needs

C 9.
The power to tax is not without limitations. Such limitations may be constitutional or inherent.
Which of the following is an inherent limitation?
a. No imprisonment for non-payment of a poll tax
b. Equal protection of the laws
c. Exemption from taxation of government entities
d. Exemption of religious, charitable, and educational entities, non-profit cemeteries, and
churches from proper taxation

B 10.
It is an aspect of taxation that is administrative in character and the power to exercise it is vested
on the Department of Finance
a. Levying
b. Collection
c. Imposition
d. Legislation

B 11.
Which statement below expresses the lifeblood theory? *
a. The assessed taxes must be enforced by the government
b. The underlying basis of taxation is government necessity for without taxation, a
government can neither exist nor endure
c. Taxation is an arbitrary method of exaction by those who are in the seat of power
d. The power of taxation is an inherent power of the sovereign to impose burdens upon subjects
and objects “within its jurisdiction for the purpose of raising revenues”

A 12.
Which statement is wrong?
a. The power of taxation may be exercised by the government, its political subdivision and public
utilities
b. Generally, there is no limit on the amount of tax that may be imposed
c. The money contributed as tax becomes part of the public funds
d. The power of tax is subject to certain constitutional limitations

C 13.
Mary sold a personal property held as capital asset she acquired 10 years ago with an acquisition
cost of P150,000 for P270,000. The payment shall be made in the following terms – cash down
payment of P40,000 and additional P10,000 at the end of the year of sale. The property sold has
been mortgaged for P160,000 which is assumed by the buyer. The buyer issued a note payable for
the balance which is to be paid equally in two years following the year of sale. The contract price
is
a. P270,000
b. 130,000
c. 120,000
d. 110,000

C 14.
At the testimonial dinner, Andrey , a new CPA passer sang a song. One of his classmates, Iris,
feels like she is falling in love with him so she decided to cancel Andrey’s indebtedness to her. As
a result, *
a. Andrey realized a taxable income as a compensation for services
b. If Andrey accepts the cancellation, he will pay donor’s tax
c. Andrey received a gift and therefore not part of his taxable income
d. The amount of indebtedness cancelled is partly taxable, partly exempt

B 15.
C Corp. is engaged in the sale of goods and services with net sales and net revenue of P2M and
P1M, respectively. The actual entertainment, amusement and recreation expense amounted to
P18,000. The deductible EAR expense is *
a. P18,000
b. P16,000
 c. P12,000
d. P6,000

D 16.
One of the following is not correct for deductibility of losses from gross income *
a. Must arise from fire, storm or other casualty, robbery theft or embezzlement
b. Must not be compensated by insurance or other form of indemnity
c. A declaration of loss by casualty should be filed with the Bureau of Internal Revenue
d. Must have been claimed as deduction in the estate return of the taxpayer

A 17.
Mr. Santos, a retailer of goods, uses the accrual method in reporting his income and expenses.
His transactions show: (see image) If the calendar year is 2015, the net income before exemption
using OSD is
a. P1,560,000
b. P1,040,000
c. P900,000
d. P600,000

A 18.
For mines other than oil and gas wells, a net operating loss without the benefit of incentives under
Executive Order 226, as amended, otherwise known as Omnibus Investment Code of 1987, may be
carried over as a deduction from taxable income, if incurred in any of the *
a. First 10 years of operation
b. First 4 years of operation
c. First 3 years of operation
d. First 5 years of operation

B 19.
Although the power of taxation is basically legislative in character, it is NOT the function of the
Congress to: *
a. Fix with certainty the amount of taxes
b. Collect the tax levied under the law
c. Identify who should collect the tax
d. Determine who should be subject to the tax

A 20.
“Global system if income taxation” means:
a. All types of income except those subject to final tax are aggregated to arrive at gross
income
b. Separate graduated rate are imposed on different types of income
c. Capital gains are excluded in determining gross income
d. Compensation income and business/professional income are taxed at different places in the
world

D 21.
The following reasons maybe given by a taxpayer in refusing to pay his tax liability. Which is not
acceptable for legally refusing to pay the tax *
a. The he has been deprived of due process of law
b. That there is lack territorial jurisdiction
c. That the prescription period for the collection of tax has lapsed
d. That he will be derived no benefit from the tax

D 22.
One of the following is not correct for deductibility of losses from gross income: *
a. It must arise from fire, storm, or other casualty, robbery, theft or embezzlement
b. It must not be compensated by insurance or any form of indemnity
c. A declaration of loss by casualty should be filed with the Bureau of Internal Revenue
d. It is of property owned by the taxpayer, whether used in business or not
D 23.
Which of the following is a taxable income? *
a. Income from qualified pension plan
b. Compensation for personal injuries
c. Moral damages
d. Interest on moral damages

C 24.
Wagering losses are deductible *
a. In full
b. To the extent of capital gains
c. To the extent of gains on wagering transactions
d. Are treated as deferred charge subject to amortization over 60 months.

D 25.
All of the following are correct, except: *
a. The deduction of an individual for contributions subject to limitation shall not exceed
10% of his taxable income before deduction for contributions.
b. The deduction of a corporation for contributions subject to limitation shall not exceed 5%
of its taxable income before deduction for contributions.
c. Contributions to media in its fund drive for the relief of calamity victims are deductible
from gross income.
d. Contributions of canned goods to student organizations during Christmas season for
distribution to Muntinlupa inmates are deductible from gross income.

B 26.
A taxpayer has been developing a new product line. During the current year, it incurred P800,000
in research and development costs for this endeavor. In October 1 of the same year, commercial
production finally started. The taxpayer did not opt for outright deduction and the amount that
was otherwise capitalized would have benefited the taxpayer for 8 years. How much is the allowed
expense for the current year?
a. P100,000
b. P25,000
c. P800,000
d. P40,000

D 27.
Which of the following is taxable? *
Separation pay received by a 40-year old employee due to a retrenchment program.
b. Social security benefits received by a balikbayan from employer abroad.
c. SSS and GSIS benefits.
a. d. None of the above.

D 28.
Prizes and awards received in recognition of the following are generally exempt from tax, except: *
Literary
b. Civic
c. Artistic
a. d. Cultural

B 29.
Mr. Ong made contributions to the following in 2015: (see image) Compute the deductible
contribution expense.
a. P0
b. P100,000
c. P140,000
d. P160,000

C 30.
A tax exclusion is defined as: *
 a. An item or amount which the law allows to be deducted from gross income in order to
arrive at net income.
b. The grant of immunity to particular persons or corporations from a tax which others
within the same taxing district are obliged to pay.
c. Income received but which is not taxable as it is exempted by law or by treaty.
d. A deduction from income tax due of any amount paid to a foreign country subject to limitation.

A 31.
● S1: Bad debt is an expense in the books of accounts when a provision is made for it.
● S2: Bad debt is a deduction from gross income when the account is written off.
a. Both are true.
b. Only first statement is true.
c. Both are false.
d. Only first statement is false.

A 32.
● S1: In a total loss due to casualty, the measure of the loss is the book value of the asset reduced
by any form of indemnity.
● S2: In a partial loss due to casualty, the measure of the loss is the book value of the property, or
the cost to restore the property to its normal operating condition, whichever is lower, reduced by
any form of indemnity. *
a. Both are true.
b. Only first statement is true.
c. Both are false.
d. Only first statement is false.

D 33.
In the installment method of reporting income, if the property sold is subject to a mortgage which
is assumed by the buyer and such mortgage does not exceed the cost of the property, which of
the statements is not true?
a. Initial payments consist of all payments received in the year of sale.
b. Initial payments will not consider the mortgage assumed by the buyer.
c. Selling price less mortgage assumed by the buyer is the contract price.
d. Selling price is the contract price.

A 34.
Mean leased her land to Angel. The term of the lease contract is 15 years and the rental fee is
P36,000 a year. The contract also provides that Angel, the lessee, will construct a building and at
the end of the contract, the building will be owned by Mean, the lessor. The building was
constructed at a cost of P600,000 and has a useful life of 30 years. Assuming that Mean elects to
spread her income over the term of the lease, for income tax purposes, her yearly income is:
a. P56,000
b. P40,000
c. P76,000
d. P20,000

B 35.
A short accounting period may not arise under which circumstance? *
a. Change of accounting period by a corporate taxpayer
b. Change of accounting period by an individual taxpayer
c. Death of a taxpayer
d. Dissolution and liquidation of business

A 36.
JOWABLE Corporation provides 20% discount to senior citizens. It recorded the following during
the year: (See image) The regular and special itemized deduction from gross income total:
a. 2,500,000
b. 2,400,000
c. 2,000,000
d. 1,600,000
D 37.
On September 31, 2015, Ms. Usad, a real estate dealer sold a residential land for 3,000,000. The
cost is 1,800,000. He received 1,000,000 as down payment and a note for the 2,000,000 remaining
payable at 200,000 a month the note has a FMV equal to 75% of its face value. If the income is to
be reported under the installment payment method, the income in 2015 is *
a. 400,000
b. 600,000
c. 700,000
d. 1,200,000

A 38.
Ellen insured the life of her father for P2M paying a premium in the amount of P200K. The term of
the insurance was for 20 years. Part of the agreement was for Ellen to be paid P2M, in case her
father survives the 20-year period. Supposing Ellen gets the P2M, how much would be excluded
from her gross income? *
A. 200K
B. 2M
C. 2.2M
D. 0

D 39.
Pursuant to the NIRC interest to be deductible, it must comply with certain requirements. Which of
the ff is not one of the requirements? *
a. the interest expense paid or incurred upon an indebtedness of the taxpayer connected with
this taxpayer’s trade, business or profession
b. the interest expense must have been paid or incurred during the taxable year
c. the interest must have been stipulated in writing and must be legally due.
d. there is no limitation on the deduction provided it is substantiated

A 40.
Which of the ff is a deductible expense for income tax purposes? *
a. interest paid on delinquent business tax
b. provision for doubtful accounts
c. ordinary repair for personal car
d. salaries of domestic servants

C 41.
Eugel is a salaried traveling salesman in Isabela, Basilan. In the course of his travel, a band of
Abu Sayaff seized his car by force and used it to kidnap a foreign missionary. The next day, Eugel
learned that the military and the Abu Sayaff band had a chance encounter. Using heavy weapons,
the military fired the Abu Sayaff band that tried to escape with the use of Eugel’s car. All the
members of the band died and Eugel’s car as a total wreck. Eugel’s is covered by a third party
liability insurance, for damage he may cause or caused to his car as a result of vehicular
accidents.
A. Eugel may deduct the value of his car from his gross income.
B. Eugel is not allowed to deduct the value of the car from his gross income because it is
due to his fault that the car was not insured against carnapping.
C. Eugel being entitled to compensation income is not allowed deduction for loss.
D. Eugel could not deduct the value of the car because there is no showing the problem that it
was registered in his name.

A 42.
In 2008, Gloria donated to the National Museum a Manansala painting which she acquired for
P1.5M.Her total income from her business for the year amounted to P6M. Gloria’s allowable
itemized deductions before deducting the charitable contribution amounts to P5M. How much may
Gloria deduct as charitable contributions from her 2005 income? *
P1.5M
b. P0
c. P75k
 d. P150k

D 43.
Which of the following amounts is deductible as charitable contribution from the gross income of
a corporate tax payer?
a. Contribution to the Christmas fund of his employee
b. Contribution to the construction of a chapel of a university that declares dividends to its
stock holders
c. Premiums paid for the life insurance of its president where it is the beneficiary
d. Contribution to Non-government organization registered as a donee institution with the BIR

C 44.
An annual tax of P500.00 was imposed upon all residents of the Phil., who are above 21 yrs old,
with a gross annual income of P250,000.00, whether or not they send their children to public
schools, for the purpose of raising funds in order to improve public school buildings. The tax is: *
a. violative of the equal protection clause of the constitution.
b. confiscatory.
c. for public purpose.
d. contradicts the inherent limitations.

C 45.
A tax does not meet the public purpose limitation if it: *
a. is for the welfare of the nation or greater portion of the population.
b. affects the areas as a community rather than as individuals.
c. is for the benefit principally of limited subjects or objects.
d. is designed to support the services of gov’t for some of its recognized objects.

D 46.
That there should be no improper delegation of the legislative authority to tax is:
a. a principle of sound tax system.
b. a constitutional limitation on the power of taxation.
c. an inherent limitation on the power to tax.
d. both a constitutional and inherent limitation on the power of taxation.

C 47.
A person may be imprisoned for: *
a. non-payment of poll tax.
b. failure to pay a debt.
c. non-payment of his income tax.
d. failure to pay his community tax.

C 48.
Mrs. Maria, the surviving spouse of the deceased employee Herbert, received financial benefits
voluntarily voted upon by the Board of Directors of the employer-corporation in recognition of her
husband’s long and loyal service and primarily to help her meet financial needs. The benefits
received should be treated for tax purposes as *
A. Income of Maria
B. Part of the income of the deceased Herbert
C. A gift excluded from gross income
D. Excluded as part of Herbert’s benefits

C 49.
Mr. Lucero was the president of Ace Marketing Corp, engaged in the marketing of Toyota cars.
When Mr. Lucero’s son got married to the daughter of a Congressman, the corporation gave the
newly-wedded couple a brand new Toyota Corona sedan, worth P2M and entered the wedding gift
in its books as a representation expense. As a result of the above, the Toyota car is: *
A. Taxable income to the couple
B. Deductible expense to the corporation
C. Not taxable income to the couple nor deductible expense of the corporation
D. Deductible as a charitable contribution by the corporation
C 50.
Atty. Liong rendered the following services during the year: (See image) The net income of Atty.
Liong is
a. Php 1,000,000
b. Php 750,000
c. Php 820,000
d. Php 550,000