ReSA

The Review School of Accountancy

Tel. No. 735-9807 & 734-3989

TAXATION September 26, 2021 (Sunday)

Final Pre-Board Examination 08:00 A.M. to 11:00 A.M.

MULTIPLE CHOICE
INSTRUCTIONS: Select the correct answer for each of the following
questions. Mark only one answer for each item by shading the box
corresponding to the letter of your choice on the sheet provided. STRICTLY
NO ERASURES ARE ALLOWED. Use pencil no. 2 only.

1. Excise tax on certain articles is an example of:

a. an indirect tax. c. a local tax.
A b. a direct tax. d. a transfer tax.

2. Which of the following is/are correct?

Statement A: Non-resident citizens are taxable on all income derived from
sources within the Philippines.
Statement B: Resident citizens and domestic corporations are taxable on
all income derived from sources within or without the
Philippines.
Statement C: Foreign corporations, whether engaged or not in trade or
business in the Philippines are taxable from sources within
or without the Philippines.
Statement D: Aliens, whether residents or not of the Philippines, are
taxable only from sources within the Philippines.
a. Statements C and D are correct
B
b. Statement A, B and D are correct
c. Statement B, C and D are correct
d. Statement A and D are correct

3. (Adapted) First statement: Symbiotic relation is the reason why the

government could impose taxes on the income of the resident citizens
derived from sources outside the Philippines.

Second statement: Jurisdiction is the reason why citizens must provide

support to the State so the latter could continue to give protection.

B a. Both statements are correct

b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

The first statement refers to jurisdiction while the second statement

refers to symbiotic relationship (reciprocal duties).

4. 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 schools, for the purpose of
raising funds in order to improve public school buildings. The tax is:
C a.violative of the equal protection clause of the Constitution.
b.confiscatory.
c.for public purpose.
d.contradicts the inherent limitations.

5. A law was passed by Congress which granted tax amnesty to those who have
not paid income taxes for a certain year without at the same time providing
for the refund of taxes to those who have already paid them. The law is:
A a. valid because there is a proper classification.

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b. not valid because those who did not pay their taxes are favored over
those who have paid their taxes.
c. valid because it was Congress which passed the law and it did not
improperly delegate the power to tax.
d. not valid because only the President with the approval of Congress
may grant amnesty.

6. Which of the following are basic principles of a sound tax system?

B a. Fiscal Adequacy, Economic Feasibility and Theoretical Justice
b. Fiscal Adequacy, Administrative Feasibility and Theoretical Justice
c. Progressive Taxation, Ability to Pay and Symbiotic Relationship
d. Fiscal Deficit, Administrative Feasibility and Ability to Pay

7. “Schedular system of income taxation” means:

B a. all types of income are added together to arrive at gross income.
b. separate graduated rates are imposed on different types of income.
c. capital gains are excluded in determining gross income.
d. compensation income and business/professional income are added
together in arriving at gross income.

The opposite of “scheduler system of income taxation” is called “global

system of income taxation” which is described in choice letter d. above.

8. Mr. Yu So’s piece of land measuring 500 sq. m. in Quezon City was assessed
as commercial with a fair market value of P20,000 per sq. m. How much is
the highest possible amount of annual basic real property tax can be
collected from him?
D a. P20,000 c. P 40,000
b. P50,000 d. P100,000
Solution:
Fair market value (500 x 20,000) P10,000,000
X Assessment level 50%
Assessed value 5,000,000
Rate 2%
Real property tax P100,000

9. The fair market value of real properties located in each zone or area,
shall be subject to automatic adjustment once every how many years through
rules and regulations issued by the Secretary of Finance based on the
current Philippine valuation standards?
A a. 3 years c. 7 years
b. 5 years d. 10 years

10. Mr. D filed his 2014 income tax return on June 30, 2015. The Bureau of
Internal Revenue discovered a deficiency income tax on August 15, 2016.
When should the deficiency tax assessment be served?
B a. On or before August 15, 2019
b. On or before June 30, 2018
c. On or before April 15, 2018
d. On or before April 2018

11. Notwithstanding any contrary provision of R.A. No. 1405 and other general
or special laws, the Commissioner of Internal Revenue is authorized to
inquire into bank deposit:
Case 1 – of a decedent to determine his gross estate.
Case 2 – of any taxpayer who has filed an application for compromise
of his tax liability by reason of financial incapacity
provided there is waiver of his privilege under R.A. No. 1405
or under other general or special laws.
A a. True in both cases
b. False in both cases
c. True only in the first case
d. True only in the second case

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12. The concept of “situs of taxation” is based on which limitations of

taxation?
A a. Territorial jurisdiction
b. International comity
c. Exemption of the government
d. Public purpose

13. The following are instances when penalties and/or interest imposed on
the taxpayer may be abated or cancelled on the ground that the imposition
thereof is unjust and excessive, except when the:
D a. filing of the return or payment of the tax is made at the wrong
venue.
b. taxpayer’s mistake in payment of his tax is due to erroneous written
official advice of a revenue officer.
c. assessment is brought about or a result of the taxpayer’s non-
compliance with the law due to a difficult interpretation of the
said law.
d. taxpayer is declared insolvent or bankrupt.

14. First statement: In civil tax cases involving collection of internal

revenue taxes, prescription is construed strictly against the government
and liberally in favor of the taxpayer.

Second statement: In criminal tax cases involving tax offenses punishable

under the Tax Code, prescription is construed strictly against the
government.
C a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

In criminal tax cases involving tax offenses punishable under the Tax
Code, prescription is construed strictly against the taxpayer.

15. Which of the following statements is not correct?

C a. A tax refund is in the nature of a tax exemption which must be
construed strictissimi juris against the taxpayer.
(Bonus b. Tax refund refers to the actual reimbursement of the erroneously or
item illegally collected taxes.
in c. Tax refund may be utilized in the payment of internal revenue taxes,
Final including (corrected from “excluding”) withholding taxes, for which
Pre- the taxpayer is directly liable.
Board) d. Illegally assessed or collected taxes arose when payments are made
under duress or assessment thereof having been rendered by a person
who has no power to assess the tax at all.

16. First statement: The President shall have the power to veto any
particular item or items in an appropriation, revenue, or tariff bill,
but the veto shall not affect the item or items to which he does not
object.
Second statement: The President shall have the power to veto any
particular item or items in a bill that penalizes crimes, but the veto
shall not affect the item or items to which he does not object.

A a. 1st statement is correct, 2nd statement is wrong

b. 1st statement is wrong, 2nd statement is correct
c. Both statements are wrong
d. Both statements are correct
The President shall have the power to veto any particular item or items
in an appropriation, revenue, or tariff bill, but the veto shall not
affect the item or items to which he does not object [Art. VI, Sec. 27
(2)].

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17. Warrant of levy as distinguished from warrant of distraint.

A a. It is on real property owned by and in possession of the taxpayer.
b. It is on personal property owned by and in possession of the taxpayer.
c. It is on property owned by the taxpayer but in the possession of a
third party,
d. It does not required advertisement.

18. If at any time prior to the consummation of the sale all proper charges
are paid to the officer conducting the sale, the goods or effects
distrained:
A a. shall be restored to the owner.
b. shall no longer be restored to the owner.
c. shall be brought to the Revenue District Officer.
d. shall be brought to the Regional District Officer.

SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. -

If at any time prior to the consummation of the sale all proper charges
are paid to the officer conducting the sale, the goods or effects
distrained shall be restored to the owner.

19. A written notice informing a Taxpayer that the findings of the audit
conducted on his books of accounts and accounting records indicate that
additional taxes or deficiency assessments have to be paid.
A a. Notice of Informal Conference
b. Preliminary Assessment Notice
c. Letter of Authority
d. Formal Assessment Notice

20. For requests for reconsideration, the taxpayer shall submit all relevant
supporting documents in support of his protest within how many days from
date of filing of his letter of protest, other-wise, the assessment shall
become final?
D a. Sixty (60) days c. Twenty (20) days
b. Thirty (30) days d. None of the choices

The sixty (60)-day period for the submission of all relevant supporting
documents shall not apply to requests for reconsideration. It applies
to request for reinvestigation.

21. If the taxpayer is adversely affected by the resolution of the CTA in

Division on his Motion for Reconsideration, he may file a petition for
review with the CTA en banc within how many days?
D a. Sixty (60) days c. Twenty (20) days
b. Thirty (30) days d. Fifteen (15) days

22 to 25 are based on the following: In 2018, Ms. Glai Espenilla

Bangug, a financial comptroller of EB Company, earns annual
compensation of P1,500,000, inclusive of 13th month and other benefits
in the amount of P80,000 and mandatory SSS contribution of P3,500
and Philhealth contribution of P2,000. Aside from her employment
income, she owns a convenience store, VAT-registered, with gross
sales of P3,000,000. Sales discount amounts to P300,000; sales
returns and allowances amount to P150,000. Her cost of sales and
operating expenses are P1,000,000 and P600,000 respectively and with
non-operating income of P100,000. Payments for the first three (3)
quarters amount to P300,000.

22. Can she avail of the 8% income tax rate?

a. Yes, because her gross sales do not exceed the VAT threshold.
B b. No, because she is VAT-registered.
c. Yes, because she is a mixed income earner.
d. No, because her total income including compensation income exceed
the VAT threshold.

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23. How much is her total taxable income?

C a. P2,913,500 c. P2,463,500
b. P2,550,000 d. None of the choices
Solution:
Total compensation income P1,500,000
Less: Non-taxable 13th month and other
benefits 80,000
Mandatory SSS contribution 3,500
Mandatory Philhealth contribution 3,000 86,500
Taxable compensation income 1,413,500
Gross sales 3,000,000
Less: Sales discount ( 300,000)
Sales returns and allowances ( 150,000)
Net sales 2,550,000
Less: Cost of sales (1,000,000)
Gross income 1,550,000
Less: Operating expenses 600,000
Net income from operation 950,000
Add: Non-operating income 100,000 1,050,000
Total taxable income P2,463,500

24. How much is her tax due when she files her final tax return?
A a. P338,320 c. P482,320
b. P366,000 d. None of the choices
Total taxable income P2,463,500
Tax due Sec. 24 (A) 2,000,000 490,000
463,500 x 32% 148,320 P 638,320
Less: Payments, firs 3 quarters 300,000
Tax payable P 338,320

25. How much is the output VAT, if any?

A a. P306,000 c. P360,000
b. P342,000 d. None of the choices
Solution:
Gross sales P3,000,000
Less: Sales discount ( 300,000)
Sales returns and allowances ( 150,000)
Net sales 2,550,000
Tax rate 12%
Output VAT P 306,000

26 to 29 are based on the following: Mr. and Mrs. CTE had the following
conjugal transfers during the year 2018:
January 26: Donated a parcel of land to their son, on account of
marriage. Their son’s wedding is on July 31, 2018. The fair
market value of the land at the time of donation was
P500,000. The fair market value of the land at the time
of marriage was P550,000. The donated property was subject
to P100,000 mortgage which was assumed by their son.

October 29: Donated P300,000 to the sister of Mr. CTE who was diagnosed
with cancer. They donated the amount for the medication
of Mr. CTE’s sister.

December 30: Sold 300,000 shares of stock from ABC Corporation to their
daughter for P300,000. The book value per share as per
latest audited financial statements of ABC Corporation is
P1.50 per share. The shares of stock were acquired two
years ago for P200,000.

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26. How much is the donor’s tax still of Mr. CTE on the January 26
transfer?
D a. P24,000 c. P12,000
b. P16,500 d. None of the choices
Solution:
January 26, 2018
Gross gift (1/2 x 500,000) P250,000
Less: Mortgage assumed by the donee (1/2 x 100,000) 50,000
Net gift 200,000
Less: Exempt gift 250,000
Taxable net gift (50,000)
Donor’s tax rate 6%
Donor’s tax due -

27. How much is the donor’s tax due of Mrs. CTE on the October 29
transfer?
D a. P57,000 c. P21,000
b. P45,000 d. None of the choices
Solution:
Gross gift (1/2 x 300,000) P150,000
Less: Deduction -
Net gift 150,000
Add: Prior net gift January 26 (250,000 – 50,000) 200,000
Total net gifts 350,000
Less: Exempt gift (250,000)
Total taxable net gifts 100,000
Donor’s tax rate 6%
Tax due P6,000
Less: Donor’s tax on prior net gifts -
Donor’s tax payable P6,000

28. How much is the capital gains tax due of Mr. CTE on the December 30,
transfer?
C a. P22,500 c. P7,500
b. P15,000 d. None of the choices
Solution:
Selling price (1/2 x 300,000) P150,000
Less: Value in the hands of the donor (1/2 x 200,000) 100,000
Capital gain 50,000
Tax rate 15%
Capital gains tax P 7,500

29. How much is the donor’s tax still of Mr. CTE on the December 30
transfer?
C a. P25,500 c. P4,500
b. P 9,000 d. None
Solution:
December 30
Gross gift (225,000 – 150,000) P75,000
Less: Deduction -
Net gift 75,000
Add: Prior net gifts (200,000
January 26 200,000
October 29 150,000 350,000
Total net gifts 425,000
Less: Exempt gift (250,000)
Taxable net gifts 175,000
Donor’s tax rate 6%
Tax due 10,500
Less: Donor’s tax on prior net gifts 6,000
Donor’s tax payable P4,500

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30 to 33 are based on the following: ECB, non-VAT registered lessor of

residential and commercial units had the following data for the first
and second quarters of 2018:
First Second
quarter quarter
Gross receipts from lease of residential units
With monthly rental of P13,000 per unit P2,500,000 P2,300,000
With monthly rental of P18,000 per unit 1,000,000 1,200,000
Gross receipts from lease of commercial units 2,300,000 2,400,000
Input tax paid from VAT suppliers 150,000 120,000

30. How much is the business tax of ECB for the first quarter?
A a. P396,000 c. P174,000
b. P246,000 d. P 99,000
Solution:
Gross receipts from lease of residential unit with
18,000 monthly rental 1,000,000
Gross receipts from lease of commercial units 2,300,000
Total (exceeds VAT threshold of 3,000,000) 3,300,000
Tax rate 12%
Output VAT 396,000

31. How much is the business tax of ECB for the second quarter?
B a. P708,000 c. P312,000
b. P432,000 d. P108,000
Solution:
Gross receipts from lease of residential unit with
18,000 monthly rental 1,200,000
Gross receipts from lease of commercial units 2,400,000
Total 3,600,000
Tax rate 12%
Output VAT 432,000

32. How much is the business tax of ECB for the second quarter of 2018
assuming he registered as a VAT taxpayer at the start of the second
quarter 2018?
D a. P708,000 c. P432,000
b. P588,000 d. P312,000
Solution:
Gross receipts from lease of residential unit with
18,000 monthly rental 1,200,000
Gross receipts from lease of commercial units 2,400,000
Total 3,600,000
Tax rate 12%
Output VAT 432,000
Less: Input tax 120,000
VAT due 312,000

33. Assuming ECB is VAT-registered taxpayer instead of Non-VAT

registered taxpayer, how much is the business tax due for the first
quarter of 2018?
D a. P696,000 c. P396,000
b. P546,000 d. P246,000
Solution:
Gross receipts from lease of residential unit with 18,000
monthly rental 1,000,000
Gross receipts from lease of commercial units 2,300,000
Total 3,300,000
Tax rate 12%
Output VAT 396,000
Less: Input tax 150,000
VAT due 246,000

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34. An alien employee of an offshore banking unit has the following

income for the year 2018:

Salary received from offshore banking unit (OBU) P10,000,000

Honoraria and allowances received from the OBU 5,000,000
Interest income from a domestic bank on his peso
deposits 50,000
Capital gain from sale of shares in a domestic
corporation 100,000

How much is the tax from his gross income in the Philippines?
A a. P4,869,000 c. P1,500,000
b. P2,250,000 d. None of the choices
Solution:
Taxable compensation income (10,000,000 + P15,000,000
5,000,000)
Tax due Section 24 (A) 8,000,000 P2,419,000
7,000,000 x 35% 2,450,000 P 4,869,000

Notes:
1) Starting January 1, 2018, all employees of RHQs/ROHQs/OBUs, and
Petroleum Service Contractors and Subcontractors shall be subject
to regular income tax rate under Section 24 (A)(2)(a) of the Tax
Code, as amended, without prejudice to the application of
preferential tax rates under existing international tax treaties,
if warranted.

2) The interest income on peso deposits and the capital gain from sale of
shares of stock in a domestic corporation shall be subject to different
rates of tax [See Section 24 (B) (1) and Section 24 (C).]

Section 24 (A) Effective January 1, 2018 up to December 31, 2022

If the taxable income is:
Over But not over The tax shall be Plus Of excess over
P 250,000 0%
P 250,000 400,000 20% P 250,000
400,000 800,000 P 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 2,419,000 35% 8,000,000

35. Under the TRAIN, the books of accounts shall be audited and examined
yearly by independent Certified Public Accountants and their income
tax returns accompanied with a duly accomplished Account Information
Form (AIF) which shall contain, among others, information lifted
from certified balance sheets, profit and loss statements, schedules
listing income-producing properties and the corresponding income
therefrom and other relevant statements if the:
A a. gross annual sales, earnings, receipts or output exceed Three
million pesos (P3,000,000).
b. gross quarterly sales, earnings, receipts or output exceed Three
million pesos (P3,000,000).
c. gross annual sales, earnings, receipts or output amount to Three
million pesos (P3,000,000) or more.
d. gross quarterly sales, earnings, receipts or output exceed One
Hundred Fifty Thousand (P150,000).

36 and 37 are based on the following: Assume that “Mr. Era”, resident
citizen, bought shares of stock in 2017 at a cost of P100,000. He
donated these shares to “Mr. Aio”, a close resident alien friend, on
January 1, 2017, during which time, the said shares has a fair market
value of P 1,000,000 and on the basis of such fair market value, “Mr.

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Era” paid the corresponding donor’s tax. “Mr. Aio”, the donee, sold the
shares on February 1, 2018 for a consideration of P2,000,000.

36. How much is the capital gain (loss) from sale of shares of stock?
A a. P1,900,000 c. P950,000
b. P1,000,000 d. P500,000
Solution:
Selling price P2,000,000
Less: Value in the hands of the donor 100,000
Capital gain P1,900,000

37. How much was the capital gains tax, if any?

A a. P285,000 c. P185,000
b. P205,000 d. None of the choices
Solution:
Capital gain P1,900,000
Tax rate 15%
Capital gains tax P 285,000

38 to 41 are based on the following: Mr. Mark Tang is a partner of Tang

Dayag Caiga Company, a business partnership. He owns 25% interest. The
gross sales of Tang Dayag Caiga Company amounted to P10,000,000.00 for
taxable year 2021. The recorded cost of sales and operating expenses
of the partnership were P2,750,000.00 and P1,500,000.00, respectively.
It had also incurred an interest expense of P200,000 in connection with
asset acquisition and earned interest income from bank deposit amounting
to P100,000.

38. How much is the taxable income of the partnership?

B a. P5,750,000 c. P5,550,000
b. P5,570,000 d. None of the choices
Solution:
Gross sales P10,000,000
Less: Cost of sales 2,750,000
Gross income 7,250,000
Less: Interest expense 200,000
Reduction (20% x 100,000) (20,000) (180,000)
Other operating expense (1,500,000)
Taxable income P5,570,000

39. How much is the income tax liability of the partnership?

C a. P1,725,000 c. P1,392,500
b. P1,674,900 d. None of the choices
Solution:
Taxable income P5,570,000
Tax rate 25%
Tax due P1,392,500

40. How much is the share in the partnership income of partner mark
Tang?
A a. P1,084,375 c. P978,775
b. P1,018,775 d. None of the choices
Solution:
Taxable income of the partnership P5,570,000
Less: Income tax 1,392,500
Net income after tax 4,177.500
Add: Interest income, net of final tax (200,000 –
(200,000 x 20%) 160,000
Distributable net income 4,337,500
Mark Tang’s interest in the partnership 25%
Partner’s interest in the partnership’s
distributable income P1,084,375

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41. Assuming the partnership avails of the Optional Standard deduction,

how much is the tax liability of the partnership?
C a. P1,725,000 c. P1,087,500
b. P1,305,000 d. None of the choices
Solution:
Gross sales P10,000,000
Less: Cost of sales 2,750,000
Gross income 7,250,000
Less: Optional standard deduction (40% x 7,250,000) 2,900,000
Taxable income 4,350,000
Tax rate 25%
Tax due and payable P1,087,500

42. Your client dies on July 14, 2018. You are appointed as
administrator. You withdraw from his bank deposit P100,000
because the estate needs cash to settle some obligations. What
is the consequence of your withdrawal from the decedent’s bank
deposit?
A a. subject to final withholding tax of 6%
b. subject to creditable withholding tax of 6%
c. Not subject to withholding tax
d. Subject to penalty and interest because such withdrawal is not
allowed.

43. Julian Cruz procured a life insurance upon his own life. He designated
his estate’s executor as an irrevocable beneficiary. For estate tax
purposes, the proceeds of life insurance is:
A a. included in the gross estate of Mr. Julian Cruz because when the
executor of the estate is a beneficiary the proceeds are included in
the gross estate regardless of the designation.
b. not included in the gross estate of Mr. Julian Cruz because the
designation of the beneficiary is irrevocable.
c. included in the gross estate of Mr. Julian Cruz because proceeds of
life insurance are always subject to estate tax.
d. not included in the gross estate because, as a rule, proceeds of life
insurance are generally not subject to estate tax.

44 to 47 are based on the following: Mr. Nah Mah The, single and
non-resident alien, died in 2018, leaving the following properties
in favor of his heirs:
Gross estate within the Philippines P30,000,000
Gross estate outside the Philippines 20,000,000
Funeral expenses 500,000
Judicial and administrative expenses 2,000,000
Claims against the estate 5,000,000

His gross estate includes family home valued at P8,000,000.

44. How much is the gross taxable estate of Mr. Nah Mah Teh’s estate?
C a. P50,000,000 c. P30,000,000
b. P45,000,000 d. P35,000,000
Solution:
Gross estate within the Philippines (including family home) P30,000,000

45. How much is the deductible ordinary deductions of Mr. Nah Mah Teh’s
estate?
A a. P5,000,000 c. P4,200,000
b. P4,320,000 d. P3,000,000
Solution:
Claims against the estate P5,000,000

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46. How much is the deductible special deductions of Mr. Nah Mah Teh’s
estate?
D a. P8,500,000 c. P1,000,000
b. P5,500,000 d. P500,000
Solution:
Standard deduction P500,000

47. How much is the estate tax due of Mr. Nah Mah Teh’s estate?
C a. P1,590,000 c. P1,470,000
b. P1,518,000 d. P1,110,000
Solution:
Gross estate P30,000,000
Less: Ordinary deductions 5,000,000
Net estate before special deductions 25,000,000
Less: Standard deduction 500,000
Net taxable estate 24,500,000
Tax rate 6%
Estate tax due P1,470,000

48 and 49 are based on the following: During the current year, Jose Tugas
who resides in 158 R. Papa Street, Sampaloc Manila and with TIN 135-567-
890-006 made the following gifts:
Date Donee Amount of donation
June 1, 2018 Anton, his son, on
account of his P150,000 cash
marriage celebrated
June 1, 2018
July 10, 2018 His friend Carlos P400,000 a second-hand motor
vehicle
September 30, 2018 His daughter Dana P450,000 cash dowry, on
account of her scheduled
marriage on October 25, 2018
November 23, 2018 His father A parcel of land worth
P180,000, subject to the
condition that his father
would assume the mortgage
indebtedness of Jose in the
amount of P40,000;

48. Using Donor’s Tax Return (BIR Form No. 1800), how much will be reflected
on page 1 line 14 (Total Net Gifts Subject to Tax) for the return to be
filed on November 23, 2018?
B a. P1,140,000 c. P140,000
b. P 890,000 d. None of the choices
Solution:
25 Personal property (From Part V Schedule A) P -
26 Real property (From Part V Schedule B) 180,000
27 Total gifts in this return 180,000
Less: Deductions allowed (Sum of items 28 to 32)
28 Mortgage assumed by the donee 40,000
34 Total net gifts in this return (Item 27 less Item 28) 140,000
35 Add: Total net gifts during the calendar year (Item 36
of return previously filed with the year)
June 1, 2018 150,000
July 10, 2018 400,000
September 30, 2018 450,000 1,000,000
36 Total net gifts (Sum of Items 34 and 35) 1,140,000
37 Less: Exempt gift 250,000
38 Total net gifts subject to tax (Item 36 less Item 37) P 890,000

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49. Using the Donor’s Tax Return (BIR Form No. 1800), how much will be
reflected on line 18 (Tax Payable)?
B a. P53,400 c. (P6,600)
b. P 8,400 d. None of the choices
Solution:
14 Total net gifts subject to tax (From Part IV Item 38) P890,000
15 Applicable donor’s tax rate 6%
16 Total donor’s tax due (Item 14 x Item 15) 53,400
17 Less: Tax credit/payments
17A Payments for prior gifts during the taxable year
(1,000,000 – 250,000 x 6%) 45,000
18 Tax payable/Overpayment ((Item 16 less Item 17A) P 8,400

50 to 53 are based on the following: Your client, Antonio Manuel, is

engaged in various transactions that are subject to percentage taxes.
His address is 143 S. Loyola Street, Sampaloc, Manila. The TIN is 143-
678-910-005. He is under RDO 032. Email ad is Antoman@gamil.com.

The following data for the first quarter of the current year are
presented for your perusal. Answer the questions by filling up the line
in the actual Quarterly Percentage Tax Return (2551Q).
Gross receipts, sale of gas and water P1,500,000
Expenses, sale of gas and water 200,000
Gross receipts, rentals of office spaces, net
of 3% withholding tax 727,500
Expenses, rental of office spaces 150,000
Gross receipts, life insurance premiums 800,000
Expenses, life insurance business 100,000

50. Using line 14 (Total tax due) of BIR Form 2551 Q, how much is total tax
due?
A a. P68,500 c. P30,000
b. P46,000 d. None of the choices
Solution:
Alpha numeric
tax code Taxable amount Rate Tax due
(ATC)
PT 060 P1,500,000 2% P30,000
PT 010 750,000 3% 22,500
PT 120 800,000 2% 16,000
Total tax due P68,500

51. Assuming your client filed the return and paid the tax on July 25 and
it was found out that it was due to willful neglect, using line 20
(Surcharge), how much is the surcharge?
B a. P36,305 c. P17,125
b. P34,250 d. None of the choices
Solution:
Total tax due P68,500
Surcharge rate 50%
Surcharge for willful neglect P34,250

52. Using the same information in the preceding number, using line 21
(Interest), how much is the interest?
C a. P8,220 c. P2,055
b. P3,425 d. None of the choices
Solution:
Interest on delinquency (April 25 to July 25)
(68,500 x 12% x 3/12) P2,055

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53. Using line 24 (Total amount payable), how much is the total amount
payable excluding compromise penalty?
C a. P104,805 c. P82,305
b. P 85,730 d. None of the choices
Solution:
14 Total tax due (From schedule 1 item 7) P68,500
Less: Tax credit/payment (attach proof)
15 Creditable percentage tax per BIR Form No. 2307 22,500
Tax still payable 46,000
Add: Penalties
20 Surcharge 34,250
21 Interest 2,055
Total amount payable P82,305

54 to 57 are based on the following: Inlabada, VAT-registered company is

engaged in the laundry business. During the first quarter of 2018, the
following information were made available:
Net revenue, first quarter 2018 P1,000,000
Receivables from customers, January 1, 2018 224,000
Receivables from customers, March 31, 2018 336,000
Creditable withholding VAT, first quarter 2018 5,000
VAT purchases other than capital goods, first quarter 2018 300,000
VAT purchases, capital goods, first quarter 2018
(all in January 2018) 1,200,000

Receivable balances are all income related and are exclusive of VAT.
Revenue and purchases are VAT exclusive. Capital goods are estimated
to have a useful life of 10 years.

54. Compute item 19B (Output tax) of BIR Form No. 2550Q
D a. P132,000 c. P108,000
b. P120,000 d. P106,560
Solution:
Receivables, January 1, 2018 P 224,000
Add: Revenue, first quarter 2018 1,000,000
Total 1,224,000
Less: Receivables, March 31, 2018 336,000
Gross receipts 888,000
Tax rate 12%
Output tax (Item 19B) P106,560

55. Compute item 22 (Total available input tax) of BIR Form No. 2550Q
B a. P185,000 c. P43,200
b. P180,000 d. P36,000

Input tax on VAT purchases other than capital goods,

first quarter 2018 (300,000 x 12%) P 36,000
Input tax on VAT purchases, capital goods, first quarter
2018 (all in January 2018)
(1,200,000 x 12% = 144,000) 144,000
Total available input taxes (Line 22) P 180,000

56. Compute the deferred input tax as of March 31, 2018?

C a. P141,600 c. P136,800
b. P140,400 d. None of the choices
Solution:
1,200,000 X 12% X 57/60 = P136,800

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57. Compute item 23C (Input tax allocated to exempt sales) of BIR Form No.
2550Q
D a. P13,000 closed to expense
b. P2,200 closed to income
c. P11,000 closed to expense
d. None of the choices

58 and 59 are based on the following: The gross sales of GEAL Corporation
for 2022 amounted to P6,000,000.00, with cost of sales amounting to
P4,000,000.00. It incurred. Operating expenses amounting to
P1,000,000.00. Its total assets excluding the land on which the particular
business entity’s office, plant and equipment are situated does not exceed
P100,000,000.00. On the filing of its First Quarter Income Tax Return,
its signified its intention to avail of the OSD.

58. Compute the income tax due

C a. P360,000 c. P240,000
b. P300,000 d. None of the choices
Solution:
Gross sales P6,000,000.00
Less: Cost of sales 4,000,000.00
Gross income 2,000,000.00
Less: Optional Standard Deduction (2,000,000.00 x 40%)* 800,000.00
Taxable income P1,200,000.00
Tax rate** 20%
Tax due P 240,000.00

* OSD for corporation is based on gross income.

** Tax rate is 20%, taxable income does not exceed P5,000,000.00 and
total assets do not exceed P100,000,000.00

59. How much is the Output VAT, if any.

A a. P720,000 c. P120,000
b. P240,000 d. None of the choices
Solution:
Gross sales P6,000,000.00
Tax rate 12%
Output VAT P720,000.00

60. Mr. Florence Binaluyo donates a piece of land to the City of Masbate.
The fair market value per BIR of the piece of land is P2,000,000 and its
value per Tax Declaration is P1,800,000. How much is the documentary
stamp tax, if any?
C a. P30,000 c. None, exempt from DST
b. P27,000 d. None of the choices

Transfers exempt from donor’s tax under Section 101(a) and (b) of
the Tax Code shall be exempt from the tax imposed under this Section.

61. On every original issue, whether on organization, reorganization or for

any lawful purpose, of shares of stock by any association, company or
corporation, the documentary stamp tax is:
B a. One peso and fifty centavos (P1.50) on each Two hundred pesos
(P200), or fractional part thereof, of the par value of such stock.
b. Two pesos (P2.00) on each Two hundred pesos (P200), or fractional
part thereof, of the par value, of such shares of stock
c. Three pesos (P3.00) on each Two hundred pesos (P200), or fractional
part thereof, of the par value, of such shares of stock
d. Fifteen pesos (P15.00) on each Two hundred pesos (P200), or
fractional part thereof, of the par value, of such shares of stock

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62. EF Pharmaceutical Corporation sold drugs for cancer which were part of
the corporation’s previous and current purchases. Total sales for the
period is P500,000,000.00, fifty percent (50%) of which is VAT-exempt.
The corporation also incurred P20,000,000.00 of input tax for the period
from purchases of medicines including those prescribed for cancer. There
was an unutilized input tax of P10,000,000.00 coming from the previous
period but cannot be attributed to the inventory of drugs for cancer.

Using BIR Form No. 2550Q what amount shall be reflected in line 23C?
B a. P30,000,000 c. P10,000,000
b. P15,000,000 d. None of the choices
Solution:
Output tax (250,000,000.00 x 12%) P30,000,000.00
Less: Input taxes for the period
Carried over from previous 10,000,000.00
period
From current purchases 20,000,000.00
Total 30,000,000.00
Less: Input tax ratable to (15,000,000.00)
exempt sales (50% of
total sales)(line 23C) (15,000,000.00)*
VAT payable P11,000,000.00

*Note: The P15,000,000.00 directly identifiable to exempt sales shall

be charged to cost.

63. Which of the following articles shall be subject to specific excise

tax?
D a. Excise tax on alcoholic products
b. Excise tax on automobiles
c. Excise tax on non-essential services
d. Excise tax on sweetened beverages

64. A non-profit hospital has the following data for the current calendar
year:
Gross receipts, related activities P 15,000,000.00
Cost of services, related activities 6,000,000.00
Allowable deductions from related activities 3,250,000.00
Gross receipts, unrelated activities 18,000,000.00
Cost of services, unrelated activities 5,000,000.00
Allowable deductions from unrelated
activities 2,000,000.00
Payments, first three (3) quarters 2,000,000.00

How much is the tax payable (Overpayment)?

B a. P4,187,500 c. (P1,832,500)
b. P2,187,500 d. None of the choices
Solution:
Related Unrelated
activities activities Total
Gross receipts P15,000,000.00 P18,000,000.00 P33,000,000.00
Less: Cost of 6,000,000.00 5,000,000.00 11,000,000.00
services
Gross income 9,000,000.00 13,000,000.00 22,000,000.00
Less: Allowable
deductions 3,250,000.00 2,000,000.00 5,250,000.00
Net taxable income P 5,750,000.00 P11,000,000.00 16,750,000.00
Tax rate* 25%
Income tax due 4,187,500.00
Less: Payments, 2,000,000.00
first 3 quarters
Income tax payable P2,187,500.00

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65. Case 1: The City of Masbate passed an ordinance granting senior

citizens free movie viewing on certain days.

Case 2: The City of Masbate passed an ordinance limiting the discount

given to senior citizens at 15% instead of 20%.

A a. Only Case 1 is valid.

b. Both cases are valid.
c. Only Case 2 is valid.
d. Both cases are not valid.

66. For income tax purposes, the term “corporation” shall include all the
following except:
D a. One person corporation
b. Partnerships no matter how created or organized
c. Joint-stock companies
d. General professional partnerships

67 and 68 are based on the following: A PEZA-registered entity engage as

an export enterprise provided you with the following information for the
current taxable year:
Export sales P45,500,000
Direct costs 27,000,000
Administrative expenses 5,650,000
Marketing expenses 2,720,000
Other operating expenses 1,330,000
Incidental losses 320,000

Additional information:
a. Domestic sales at P24,500,000 with direct cost at P14,700,000
b. Other expenses related to the domestic sale incurred amounted to
P3,206,400
c. PEZA Letter of Authority No. 18-ERD-LS-FP/EE-0001 provides domestic
sales limitation at 30%

67. What is the entity’s total income tax for the year?
C a. P 925,000 c. P2,903,080
b. P1,978,080 d. None of the choices
Solution:
Gross sales (export) P45,500,000
Less: Direct costs 27,000,000
Gross income 18,500,000
Tax rate 5%
Tax due P 925,000
Share of the National Government (3% x 18,500,000) P 555,000
Share of the local government (2% x 18,500,000) P 370,000

Gross sales (domestic) P24,500,000

Less: Direct costs (domestic sales) 14,700,000
Gross income (domestic sales) 9,800,000
Less: Deductible expenses 3,206,400
Taxable income P 6,593,600
Normal corporate income tax (6,593,600 x 30%) P 1,978,080
Minimum corporate income tax (9,800,000 x 2%) P 196,000
Tax due (higher) P 1,978,080

Income tax on export sales P 925,000

Income tax on domestic sales 1,978,080
Total P 2,903,080

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68. What is the entity’s income tax if the PEZA Letter of Authority No. 18-
ERD-LS-FP/EE-0001 provides domestic sales limitation at 30% as a
condition for fiscal incentives?
A a. P4,522,080 c. P1,978,080
b. P2,903,000 d. None of the choices
Solution:
Gross sales (45,500,000 + 24,500,000) P70,000,000
Less: Direct costs (27,000,000 + 14,700,000) 41,700,000
Gross income 28,300,000
Less: Deductible expenses
Administrative expenses 5,650,000
Marketing expenses 2,720,000
Other operating expenses 1,330,000
Incidental losses 320,000
Other expenses related to the domestic sale 3,206,400 13,226,400
Taxable income P15,073,600
Normal corporate income tax (15,073,600 x 30%) P 4,522,080
Minimum corporate income tax (28,300,000 x 2%) P 566,000
Tax due (higher) P 4,522,080

Domestic sales over total sales is 35% (24,500,000/70,000,000).

Since the PEZA-registered entity is an export enterprise subject to 5% special

tax regime but did not comply with the condition for fiscal incentive, all
the entity’s income shall be subject to the normal corporate income tax of
30% under the Tax Code.

69. LA Corporation is a VAT-registered entity and a holder of License to

Operate issued by FDA to manufacture medical-grade PPE components such
as coveralls, gowns, surgical caps, surgical masks, n-95 masks, scrub
suits, goggles and face shields, double or surgical gloves, dedicated
shoes and shoe covers for COVID-19 prevention.

During the period of April to June 2021, the company had the following
transactions:
Importation of raw materials (not locally available) P2,000,000.00
Importation of capital equipment 25,000,000.00
Importation of raw materials (locally available) 1,000,000.00
Sale or transfer of raw materials to an affiliated
company which is also a holder of License to Operate
by the FDA 500,000.00

How much of the above transactions shall be exempt from VAT?

B a. P28,500,000 c. P27,000,000
b. P27,500,000 d. None of the choices
Solution:

Importation of raw materials (not locally available) P 2,000,000.00

Importation of capital equipment 25,000,000.00
Sale or transfer of raw materials to an affiliated
company also a holder of License to Operate by the FDA 500,000.00
Total P27,500,000.00

70. Starting July 1, 2020, resident foreign corporations the taxable income
and total assets of which do not exceed P5,000,0000 and P100,000,000
respectively shall be taxed at:
B a. 30% c. 20%
b. 25% d. 10%

END OF EXAMINATION

TAXATION – FINAL PRE-BOARD EXAMINATION (BATCH 42)