Adamson University

College of Business Administration

Accountancy Department
Taxation

1. Rolly B filed his Annual Income Tax Return for calendar year 2017 on April 20, 2018 and the
return is not fraudulent. When is the last day of the BIR to make an assessment?

a. April 20, 2021

b. April 15, 2021
c. April 20, 2023
d. April 15, 2023\

Answer: A.
Explanation:

SEC. 203. Period of Limitation Upon Assessment and Collection. - Except as provided in
Section 222, internal revenue taxes shall be assessed within three (3) years after the last
day prescribed by law for the filing of the return, and no proceeding in court without
assessment for the collection of such taxes shall be begun after the expiration of such
period: Provided, That in a case where a return is filed beyond the period prescribed by
law, the three (3)-year period shall be counted from the day the return was filed. For
purposes of this Section, a return filed before the last day prescribed by law for the filing
thereof shall be considered as filed on such last day.

2. In 2018, Mr. Jose, a Financial Comptroller of JAB Company, earned annual compensation of
Php1,500,000, inclusive of 13th month and other benefits in the amount of Php120,000 but net of
mandatory contributions to SSS and PhilHealth. Aside from employment income, he owns a
convenient store, with gross sales of Php2,400,000. His cost of sales and operating expenses are
Php1,000,000.00 and Php600,000.00 respectively, and with non-operating income of
Php100,000.00

You may use the tax schedule below:

Not over PHP250,000 0%
Over PHP250,000 but not over 20% of the excess over
PHP400,000 PHP250,000
Over PHP400,000 but not over
PHP30,000 + 25% excess over PHP400,000
PHP800,000
Over PHP800,000 but not over
PHP130,000 + 30% excess over PHP800,000
PHP2,000,000
Over PHP2,000,000 but not over PHP490,000 + 32% of the excess over
PHP8,000,000 PHP2,000,000
PHP2,410,000 + 35% of the excess over
Over PHP8,000,000
PHP5,000,000

What is his tax due for 2018 if he opted to be taxed at 8% income tax rate of his gross sales for
his income from business?
a. Php465,000
b. Php263,000
 c. Php513,000
d. Php410,000

Answer: C.
Solution:

Total compensation income Php1,500,000.00

Less: Non‐taxable 13th month pay 90,000.00
Taxable compensation income Php1,410,000.00
Tax Due:
1. On Compensation:
On Php800,000.00 Php130,000.00
On excess (Php1,410,000‐Php800,000)x 30%) 183,000.00
313,000.00

2. On Business Income :
Gross Sales Php2,400,000.00
Add: Non‐operating income 100,000.00
Taxable Business Income Php 2,500,000.00
*8%
= 200,000.00

Total Income Tax Due (Compensation and Business) Php 513,000.00

3. When is the filing of quarterly return and payment VAT?

a. Every person liable to pay the value-added tax shall file a quarterly return of the amount
of his gross sales or receipts within twenty-five (25) days following the close of each
taxable quarter prescribed for each taxpayer.
b. Every person liable to pay the value-added tax shall file a quarterly return of the amount
of his gross sales or receipts within twenty (20) days following the close of each taxable
quarter prescribed for each taxpayer.
c. Every person liable to pay the value-added tax shall file a monthly return of the
amount of his gross sales or receipts within twenty-five (25) days following the close
of each taxable month prescribed for each taxpayer.
d. None of the above

Answer: A.
Explanation:
SEC.4-114-1. Filing of Return and Payment of VAT.

Filing or Return. – Every person liable to pay the value-added tax imposed under this Title
shall file a quarterly return of the amount of his gross sales or receipts within twenty-five
(25) days following the close of each taxable quarter prescribed for each taxpayer. The
term “taxable quarter” shall mean that quarter that is synchronized with the income tax
quarter of the taxpayer (i.e., the calendar quarter or fiscal quarter): Provided, however,
That VAT-registered persons shall pay the value-added tax on a monthly basis: Provided,
finally That beginning January 1, 2023, the filing and payment required under the Tax
Code shall be done within twenty-five (25) days following the close of each taxable
quarter.

4. Mr. Boy O. Tee, a resident citizen, sold his idle land located in Bulacan on February 28, 2016
for Php5,950,000.00. The property was purchased in 2005 for Php3,000,000. The current market
value of the property at the time of sale was:
 BIR Commissioner’s zonal valuation 7,500,000.00
City Assessor’s schedule of values 6,000,000.00

On the 17th month following the sale of property, Mr. Boy O. Tee bought a new principal residence
in Makati at a cost of Php4,500,000.00. What will be the capital gains tax on the sale?

a. Php450,000
b. Php360,000
c. Php357,000
d. Php180,000

Answer: A.
Solution:

BIR Commissioner’s zonal valuation Php7,500,000.00

Multiplied by Capital Gains Tax Rate 6%
Capital Gains Tax due Php450,000.00

Sec. 24(D) of Tax Code, as amended, provides:

“final tax of six percent (6%) based on the gross selling price or current fair market value
as determined in accordance with Section 6(E) of this Code, whichever is higher, is hereby
imposed upon capital gains presumed to have been realized from the sale, exchange, or
other disposition of real property located in the Philippines, classified as capital assets,
including pacto de retro sales and other forms of conditional sales”.
This case cannot be considered under the exception of the rule which states that “capital
gains presumed to have been realized from the sale or disposition of their principal
residence by natural persons, the proceeds of which is fully utilized in acquiring or
constructing a new principal residence within eighteen (18) calendar months from the date
of sale or disposition, shall be exempt from the capital gains tax imposed under this
Subsection… Provided, finally, that if there is no full utilization of the proceeds of sale or
disposition, the portion of the gain presumed to have been realized from the sale or
disposition shall be subject to capital gains tax. For this purpose, the gross selling price or
fair market value at the time of sale, whichever is higher, shall be multiplied by a fraction
which the unutilized amount bears to the gross selling price in order to determine the
taxable portion and the tax prescribed under paragraph (1) of this Subsection shall be
imposed thereon” because what was sold in this problem is just an idle land and not a
principal residence.

5. What are the uniform rates of basic real property tax applicable to (a) province and (b)
city/municipality within Metro Manila, respectively?

a. 0.5% & 1%
b. 1% & 2%
c. 1% & 2.5%
d. 1.5% & 2.5%

Answer: B.
Explanation:

A province or city or a municipality within the Metropolitan Manila Area shall fix a uniform
rate of basic real property tax applicable to their respective localities as follows:
 (a) In the case of a province, at the rate not exceeding one percent (1%) of the assessed
value of real property; and
(b) In the case of a city or a municipality within the Metropolitan Manila Area, at the rate
not exceeding two percent (2%) of the assessed value of real property.

6. YOUCANDOTHIS, a domestic corporation started its operation in year 2014. For the year
ended, December 31, 2020, its net income before tax, under GAAP amount to Php855,000.00.
This amount is net of operating expense of Php10,500,000.00 which includes an allowance for bad
debts of Php180,000.00 and an actual contribution to CHED priority projects of Php560,000.00.
What is the amount of income tax due?

a. Php226,500.00
b. Php310,500.00
c. Php227,100.00
d. Php58,500.00

Answer: C.
Solution:

Net income before tax, under GAAP Php 855,000.00

Operating expense 10,500,000.00
Gross Income 11,355,000.00
Multiply by minimum corporate income tax 2%
MCIT 227,100.00

Net income before tax, under GAAP Php 855,000.00

Allowance for bad debts 180,000.00
Income before incentive from CHED contribution 1,035,000.00
Incentive from CHED contribution (50%) (840,000.00)
Net taxable income 195,000.00
Multiplied by NCIT rate 30%
NCIT 58,500.00
Tax due: higher of MCIT and NCIT Php227,100.00

7. Which of the following statements are false?

I. In cases when the sale amounts to P100 or more, the Registered Name, address,
business style if any and Tin of the customer shall be indicated on the face of the
VAT invoice/OR.
II. If a VAT-registered person issues a VAT invoice or VAT official receipt for a VAT-
exempt transaction, but fails to prominently display the words “VAT-exempt sale”,
the transaction shall be considered erroneous and shall not be reported.

a. I only
b. II only
c. Both
d. None of the above

Answer: C.
Explanation:
1. FALSE, In cases when the sale amounts to P100 or more, the Registered Name, address,
business style if any and Tin of the customer shall be indicated on the face of the VAT
invoice/OR.
 2. FALSE, because the transaction shall be taxable and the issuer shall be liable to pay
the VAT thereon. If a VAT-registered person issues a VAT invoice or VAT official
receipt for a VAT exempt transaction, but fails to prominently display the words “VAT-
exempt sale”, the transaction shall be considered erroneous and shall not be reported.
Sources:
1. Section 237 of TAX CODE, AS AMENDED provides the following, to wit:

Section 237. Issuance of Receipts or Sales or Commercial Invoices. - All persons subject
to an internal revenue tax shall, at the point of each sale and transfer of merchandise
or for services rendered valued at One hundred pesos (P100) or more, issue duly
registered receipts or sale or commercial invoices, showing the date of transaction,
quantity, unit cost and description of merchandise or nature of service: Provided,
however, That where the receipt is issued to cover payment made as rentals,
commissions, compensation or fees, receipts or invoices shall be issued which shall
show the name, business style, if any, and address of the purchaser, customer or
client: Provided, further, That where the purchaser is a VAT-registered person, in
addition to the information herein required, the invoice or receipt shall further show the
Taxpayer Identification Number (TIN) of the purchaser.
2. Section 109 of TAX CODE, AS AMENDED provides the following, to wit:

The foregoing exemptions to the contrary notwithstanding, any person whose sale of
goods or properties or services which are otherwise not subject to VAT, but who issues
a VAT invoice or receipt therefor shall, in addition to his liability to other applicable
percentage tax, if any, be liable to the tax imposed in Section 106 or 108 without the
benefit of input tax credit, and such tax shall also be recognized as input tax credit to
the purchaser under Section 110, all of this Code.

8. Income is considered realized for tax purposes when:

a. It is recognized as revenue under accounting standards even if the law does not do
so.
b. The taxpayer retires from business without approval from the BIR.
c. The taxpayer has been paid and has received in cash or near cash the taxable
income.
d. The earning process is complete or virtually complete and an exchange has taken
place.

Answer: D.
Explanation:
In the case of Manila Mandarin Hotels v. Commissioner of Internal Revenue, CTA Case
No. 5046, March 24, 1997, the Court of Tax Appeals explained the "realization principle"
as follows:

"Under the realization principle, revenue is generally recognized when both of the
following conditions are met: (a) the earning process is complete or virtually complete,
and (b) an exchange has taken place. This principle requires that revenue must be earned
before it is recorded. Thus, the amounts received in advance are not treated as revenue
of the period in which they are received but as revenue of the future period or periods in
which they are earned. These amounts are carried as unearned revenue, that is, liabilities
to transfer goods or render services in the future — until the earning process is
complete…”

In relation to the foregoing, the "realization" principle, adopted under Revenue

Regulations No. 2-1940, provides that for purposes of taxation, only the realized gain
or loss from foreign exchange transaction will be subject to income tax. Under this
 principle, income is recognized when: (i) the earning process is complete or virtually
complete, and (ii) an exchange has taken place. Fluctuations in values of foreign
exchange may be recognized and recorded as income, provided such income has been
realized and has arisen from a closed and completed transaction

9. There shall be a prima facie evidence of a purpose to avoid the tax upon its members or
stockholders if the corporations is/are _________. Thus, they may be subjected to improperly
accumulated earnings tax.

a. Publicly held corporations

b. Holding or investment companies
c. Insurance companies
d. Banks and other non-bank financial intermediaries

Answer: B.
Explanation:

According to Sec. 29(C) of Tax Code, as amended, Imposition of Improperly

Accumulated Earnings Tax:

(1) Prima Facie Evidence. - the fact that any corporation is a mere holding company
or investment company shall be prima facie evidence of a purpose to avoid the tax upon
its shareholders or members.

(2) Evidence Determinative of Purpose. - The fact that the earnings or profits of a
corporation are permitted to accumulate beyond the reasonable needs of the business
shall be determinative of the purpose to avoid the tax upon its shareholders or members
unless the corporation, by the clear preponderance of evidence, shall prove to the
contrary.

10. A VAT-registered estate dealer transferred a piece of land to the son of his first cousin as a gift
on account of his marriage. The parcel of land had a selling price of Php2, 500,000 and fair value
of Php3, 000,000 with a cost of Php2, 000,000. How much is the value-added tax on the transfer
of property, if any?

a. P360,000
b. P300,000
c. P240,000
d. P0

Answer: A.
Solution:

Higher of fair value or selling price Php 3,000,000.00

Multiply by: VAT rate 12%
VAT Php 360,000.00
 Sec. 106 (A) (1) of Tax Code, as amended, provides:

1. "Goods or Properties." The term "goods" or "properties" shall mean all tangible and
intangible objects which are capable of pecuniary estimation and shall include:
(a) Real properties held primarily for sale to customers or held for lease in the ordinary
course of trade or business;
Sec. 4.106-4 of RR No. 04-2007 provides:
The term “gross selling price” means the total amount of money or its equivalent which
the purchaser pays or is obligated to pay to the seller in consideration of the sale, barter
or exchange of the goods or properties, excluding VAT. The excise tax, if any, on such
goods or properties shall form part of the gross selling price. In the case of sale, barter
or exchange of real property subject to VAT, gross selling price shall mean the
consideration stated in the sales document or the fair market value whichever is higher.
Sec 106(B) of Tax Code, as amended, provides:

(B) Transactions Deemed Sale. - The following transactions shall be deemed sale:
(1) Transfer, use or consumption not in the course of business of goods or properties
originally intended for sale or for use in the course of business;
-Estate Dealer

11. Pong Co., a VAT taxpayer, purchased the following machineries for the first quarter of 2018.
Please note that the amounts shown are exclusive of VAT:

Life Cost
January 3 2 Php 500,000.00
January 15 3 640,000.00
February 10 6 1,000,000.00
February 20 3 400,000.00
March 1 5 220,000.00
March 30 4 600,000.00

The input tax to be shown on the monthly declaration of February is:

a. 2,800.00
b. 7,633.33
c. 3,333.33
d. 7,966.66

Answer: D.
Solution:
Multiply by: 12% Divide by: Lower of useful life or 60
Cost
rate months
January 3 Php 500,000.00 Php 60,000.00 Php 2,500.00
January 15 640,000 76,800 2,133.33
February 10 1,000,000 120,000 2,000.00
February 20 400,000 48,000 1,333.33
Total Php 7,966.67
 Source: Section 110 (A) of Tax Code, as amended provides the following, to wit:
The input tax on domestic purchase or importation of goods or properties by a VAT-
registered person shall be creditable:
(a) To the purchaser upon consummation of sale and on importation of goods or properties;
and
(b) To the importer upon payment of the value-added tax prior to the release of the goods
from the custody of the Bureau of Customs.

Provided, that the input tax on goods purchased or imported in a calendar month for
use in trade or business for which deduction for depreciation is allowed under this Code
shall be spread evenly over the month of acquisition and the fifty-nine (59) succeeding
months if the aggregate acquisition cost for such goods, excluding the VAT component
thereof, exceeds One million pesos (P 1, 000, 000): Provided, however, That if the
estimated useful life of the capital goodies less than five (5) years, as used for
depreciation purposes, then the input VAT shall be spread over such a shorter period:
[67]Provided, finally, that in the case of purchase of services, lease or use of properties,
the input tax shall be creditable to the purchaser, lessee or license upon payment of the
compensation, rental, royalty or free.

12. When should a Corporation file its Annual Audited Financial Statement with the Securities
and Exchange Commission?

a. Within 110 calendar days after the end of the fiscal year, as indicated in the
Financial Statements
b. Within 120 calendar days after the end of the fiscal year, as indicated in the
Financial Statements
c. Within 90 calendar days after the end of the fiscal year, as indicated in the
Financial Statements
d. Within 180 calendar days after the end of the fiscal year, as indicated in the
Financial Statements

Answer: B.

13. Julius Patrick, a resident Filipino citizen, received the following during the year 2018:

Basic salary per month Php 75,000.00

13th month pay 75,000.00
Christmas bonus 37,500.00
Christmas gift 6,000.00
Laundry allowance per year 3,000.00
Medical allowance for 2 dependent children 10,000.00
Clothing allowance per year 8,000.00
Rice subsidy during the year 19,200.00
Cash prize for her 10th year of service in the company 10,000.00
Monetized unused vacation leave of 15 days 12,500.00
Additional information:
 Julius Patrick received 100 shares of stocks as compensation for service rendered on
November 30, 2018. The market value of the shares of stocks at the time when service
was rendered was P200 per share, but P300 per share when the shares were received on
December 2, 2018.
 1,000 shares were also granted to him as stock option. The market price per share was
P180 but the option price per share was P150 at the time of stock option exercise.

How much is his total gross taxable compensation income for the year? (Round off your answer
to the nearest peso)

a. Php1,178,367
b. Php1,188,367
c. Php1,008,367
d. Php996,667
Answer: D.
Explanation:

Basic salary (75,000 * 12) Php 900,000

Other benefits: (see computation below) 46,667
Limit Excess
th
13 month pay(max 90,000) Php 75,000 0
th
Christmas bonus (absorbed by 13 month pay) 15,000 22,500
Christmas gift 5,000 1,000
Laundry allowance (300*12) 3,000
Medical allowance (1500 * 2) 3,000 7,000
Clothing allowance 6,000 2,000
Rice subsidy (2,000 * 12) 19,200 0
Employee achievement award 10,000
Unused vacation leave (12,500 * 10/15) 8,333 4,167
46,667
Shares of stock as compensation (100*200) 20,000
Stock option [1,000 * (180 – 150)] 30,000
Gross Taxable Compensation Income Php996,667

RR 11-18 implements the provision of RA No. 10963, more particularly on the increase
to P 90,000.00 of the total amount of exclusion from gross income for 13th month pay
and other benefits, effectively further amending the pertinent provisions of RR No. 2-98
De minimis:

1. Monetized unused vacation leave credits of employees not exceeding ten (10) days during
the year; (RR No. 11-2018)
2. Monetized value of vacation and sick leave credits paid to government officials and
employees; (RR No. 11-2018)
3. Medical cash allowance to dependents of employees, not exceeding P1,500 per employee
per semester or P250 per month; (RR No. 11-2018)
4. Rice subsidy of P2,000 or one (1) sack of 50 kg. rice per month amounting to not more
than P2,000; (RR No. 11-2018)
5. Uniform and Clothing allowance not exceeding P6,000 per annum; (RR No. 11-2018)
 6. Actual medical assistance, e.g. medical allowance to cover medical and healthcare needs,
annual medical/executive check-up, maternity assistance, and routine consultations, not
exceeding P10,000.00 per annum; (RR No. 5-2011)
7. Laundry allowance not exceeding P300 per month; (RR No. 5-2011)
8. Employees achievement awards, e.g., for length of service or safety achievement, which
must be in the form of a tangible personal property other than cash or gift certificate, with
an annual monetary value not exceeding P10,000 received by the employee under an
established written plan which does not discriminate in favor of highly paid employees;
(RR No. 5-2011)
9. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000
per employee per annum; (RR No. 5-2011)
10. Daily meal allowance for overtime work and night/graveyard shift not exceeding
twenty-five percent (25%) of the basic minimum wage on a per region basis; (RR No. 5-
2011)
11. Benefits received by an employee by virtue of a collective bargaining agreement (CBA)
and productivity incentive schemes provided that the total monetary value received from
both CBA and productivity incentive schemes combined do not exceed P10,000.00 per
employee per taxable year. (RR No 1-2015)

RR 2-98 (as amended) states that “[C]ompensation may be paid in money or in some medium
other than money, as for example, stocks, bonds or other forms of property. If services are
paid for in a medium other than money, the fair market value of the thing taken is the
payment to be included as compensation subject to withholding. If the services are
rendered at a stipulated price, in the absence of evidence to the contrary, such price will
be presumed to be the fair market value of the remuneration received. If the corporation
transfers to its employees its own stock as remuneration for services rendered by the
employee, the amount of such remuneration is the fair market value of the stock at the
time the services were rendered."
Revenue Memorandum Circulars No 88-2012: When the employee exercises the option by
paying the exercise price (equity-settlement option), it results in additional income. Such
additional income shall equal the higher of the book value or FMV of the shares less the
exercise price.

14. Geraldine Caridad is an owner of a clothing store. She is single resident citizen. Her parents
are living with her and are dependent on her for chief support. She reported the following
information during the year 2018.

Sales returns and allowances 29,500.00

Sales discount 57,000.00
Cost of sales (represents 35% of net sales) 1,750,000.00
Business expense:
Rental 320,000.00
Utilities 120,000.00
Workers’ salaries 520,000.00
Office supplies 45,000.00
Advertising 130,000.00
Miscellaneous (represents 1% of sales)
No creditable withholding tax was withheld in payment of rent. How much is the tax due if
Geraldine Caridad opted for itemized deductions of business expenses?

a. Php712,200.00
b. Php612,923.20
c. Php711,923.20
d. Php609,523.20

Answer: B.
Solution:

Rent is not deductible because as stated in RR 2-1998 Sec. 2.58.5. (as amended), “[A]ny
income payment which is otherwise deductible under the Code shall be allowed as a
deduction from the payor’s gross income only if it is shown that the income tax required
to be withheld has been paid to the Bureau in accordance with Secs. 57 and 58 of the
Code.”

Sales [(1,750,000 / 35%) + 29,500 +57,000] Php5,086,500.00

Sales returns and allowances (29,500.00)
Sales discount (57,000.00)
Net sales P 5,000,000.00
Cost of sales (represents 35% of net sales) (1,750,000.00)
Gross income
Less: Business expense
Utilities 120,000.00
Workers’ salaries 520,000.00
Office Supplies 45,000.00
Advertising 130,000.00
Miscellaneous (5,086,500 * 1%) 50,865.00 (865,865.00)
Net income 2,384,135.00

Income tax on Php2,000,000 490,000.00

Income tax on excess (384,135.00 * 32%) 122,923.20
Income tax due 612,923.20

15. Which of the following is/are correct?

I. Franchise grantees of radio and/or TV broadcasting whose annual sales equal or

exceed Php10,000,000 is subject to mandatory registration as a VAT taxable entity
II. Any VAT-registered person with other lines of business which are VAT exempt has
the option to register as a VAT-taxable entity and the said registration shall be
irrevocable for the next 3 years
III. Unless the taxpayer signifies the intention to elect the 8% income tax rate in the 1st
Quarter Percentage and/or lncome Tax Return, or on the initial quarter return of the
taxable year after the commencement of a new business/practice of profession, the
taxpayer shall be considered as having availed of the graduated rates under Section
24(A)(2)(a) of the Tax Code, as amended. Such election shall be irrevocable for 3
years and no amendment of option shall be made for the said taxable year.

a. Statement I
b. Statement II
c. Statement I & II
d. Statement II & III
Answer: B.
Explanation:

Section 119 of TAX CODE, AS AMENDED provides the following, to wit:

Any provision of general or special law to the contrary notwithstanding, there shall be
levied, assessed and collected in respect to all franchises on radio and/or television
broadcasting companies whose annual gross receipts of the preceding year do not exceed
Ten million pesos. subject to Section 236 of this Code, a tax of three percent (3%) and on
gas and water utilities, a tax of two percent (2%) on the gross receipts derived from the
business covered by the law granting the franchise: Provided, however, That radio and
television broadcasting companies referred to in this Section shall have an option to be
registered as a value-added taxpayer and pay the tax due thereon: Provided, further, That
once the option is exercised, said option shall not be irrevocable. [83]

Section 109 (2) of TAX CODE, AS AMENDED provides the following, to wit:

A VAT-registered person may elect that Subsection (1) not apply to its sale of goods or
properties or services: Provided, that an election made under this subsection shall be
irrevocable for a period of three (3) years from the quarter the election was made.
BIR website provides the following, to wit:

New VAT taxpayers shall apply for registration as VAT Taxpayers and pay the
corresponding registration fee of five hundred pesos (P500.00) using BIR Form No. 0605
for every separate or distinct establishment or place of business before the start of their
business following existing issuances on registration.
Thereafter, taxpayers are required to pay the annual registration fee of five hundred pesos
(P500.00) not later than January 31, every year.

Section 3(C) of RR No. 8-2018 provides the following, to wit:

Unless the taxpayer signifies the intention to elect the 8% income tax rate in the 1st
Quarter Percentage and/or lncome Tax Return, or on the initial quarter return of the
taxable year after the commencement of a new business/practice of profession, the
taxpayer shall be considered as having availed of the graduated rates under Section
24(A)(2)(a) of the Tax Code, as amended. Such election shall be irrevocable and no
amendment of option shall be made for the said taxable year.

16. Which of the following has an option to register under the VAT system in 2018?

I. Common carriers by air transporting passengers, the gross receipts of which do not
exceed P3,000,000.
II. Radio and/or television broadcasting companies whose annual gross receipts of the
preceding year exceeds P10,000,000.
III. Operator of cockpit, the receipts of which do not exceed P3,000,000 during the year.
IV. Seller of VAT-subject services the gross receipts of which do not exceed P3,000,000.

a. IV only
b. I and III only
c. I and IV only
d. All of the above

Answer: C.
Explanation:

II and III cannot avail the optional VAT Registration because these transactions, under
the law, are subject to Percentage Taxes instead of VAT.

17. One of the following is not a transaction deemed sale:

a. Transfer, use or consumption not in the ordinary course of business of goods or

properties originally intended for sale or for use in the course of business.
b. Distribution or transfer to shareholders or investors of goods or properties as share
in the profits of a VAT-registered person or creditors in payment of debt.
c. Retirement from or cessation from business with respect to all goods on hand as
of the date of such retirement or cessation.
d. Consignment of goods if actual sale is made within 60 days following the date
such goods were consigned.

Answer: D.
Explanation:

Item D is not a transaction deemed sale. It is an actual sale.

18. Garrison Distribution Inc., a VAT Taxpayer, had the following data in a month:

Cash Sales P200,000

Open Account Sales 500,000
Consignment:
0 to 30 days old (of which there were remittances from consignees of P200,000) 600,000
31 to 60 days old 700,000
61 days old and above

How much is the output tax?

a. P348,000
b. P216,000
c. P264,000
d. P192,000

Answer: B.
Solution:

Cash sales P200,000

Open account sales 500,000
Remittance from consignment 200,000
Consignment, 61 days old and above 900,000
Total P1,800,000
VAT Rate 12%
Output VAT P216,000

19. The VAT on importation of goods which are subsequently used or sold in the course of trade
or business by a VAT registered importer shall be treated as

a. Tax Credit
b. Inventoriable Cost
c. Expense
d. At the option of the taxpayer
Answer: A.
Explanation:
Items B and C are applicable only if the importer is non-VAT registered.

20. Galaxy Corporation, a manufacturer, had the following data for the first month of 2018 (first
year as a VAT Taxpayer)

Sales:
Export Sales 2,000,000
Domestic Sales (net) 1,000,000
Purchases:
Raw Materials 300,000
Services 100,000
Machinery (useful life is 2 years) 400,000

On January 1, 2018, the company had inventories and taxes paid thereon as follows:

Cost VAT Paid

Raw Materials 120,000 2,000
Supplies 40,000 4,000

During the month, additional raw materials were purchased from another enterprise with a total
invoice value of P61,600, not included above.
The VAT Payable of Galaxy is:

a. P72,000
b. P57,000
c. P11,000
d. P66,000

Answer: C.
Solution:
Output VAT P120,000
Less: Input VAT
Purchases P96,000
Additional Purchases 6,600
Transitional Input VAT
RM P2,400
Supplies 4,000 6,400 (109,000)
VAT Payable P11,000

21. Statement 1: The input vat on purchase of capital goods valued at P1,000,000 shall be
spread over 60 months if the life of property is equivalent to 5 years or more.

Statement 2: The input vat on purchase of capital goods valued at P1,000,000 shall be
spread over the life of property if life of property is less than 5 years.

a. Both statements are correct

b. Only first statement is correct
c. Both statements are incorrect
d. Only second statement is correct
Answer: C.
Explanation:
The P1,000,000 threshold is not applied “per capital goods” purchased but on the
“aggregate purchases” of capital goods for the month.
The aggregate purchase price for the month must exceed the P1,000,000 threshold.

22. Ador, an executive of Ang Probinsyano Promotions, earned in 2018 P1,200,000 compensation
income, inclusive of 13th month pay and other benefits amounting to P120,000. Aside from
employment, he owns a farm, with gross sales of P5M. His cost of sales and operating expenses
are P2,000,000, and P600,000, respectively, with non-operating income of P100,000.
Which of the following is incorrect?

a. Ador has no option to avail 8% income tax rate

b. Ador’s income tax shall be computed using graduated tax rate.
c. Aside from income tax computed using graduated tax rate, Ador is liable to
prescribed business tax, which, under this case, is value added tax, since his gross
sales/receipts and other non-operating income exceeded the VAT threshold of P3M.
d. None of the above.

Answer: C.
Explanation:
C is incorrect. Ador is exempt from business tax since the nature of his business income is
VAT-exempt.

23. What is the correct treatment of overtime pay, holiday pay, night shift differential, and
hazard pay received by those whose basic pay is more than the Statutory Minimum Wage?

a. Exempt from income tax

b. Subject to income tax, and consequently, to the withholding tax on compensation
income
c. Considered as fringe benefit subject to fringe benefit tax, provided the employee is
holding a managerial or supervisory position
d. None of the above

Answer: B.
Explanation:
The employee is not considered MWE since his basic pay is more than the statutory minimum
wage. Thus, the amount of basic pay, OT, Holiday pay, NSD, and hazard pay, shall be subject
to income tax, consequently, to creditable withholding tax on compensation.

24. Senior citizens deriving returnable income during the taxable year, whether from compensation
or otherwise, are

a. Required to file their ITRs and pay the tax as they file the return.
b. Exempt from compensation income taxes.
c. Exempt from business taxes.
d. Given a special tax at 15% of gross income.
Answer: A.
Explanation:
For income tax purposes, a senior citizen is taxable just like ordinary individual taxpayer.

25. A non-resident alien not engaged in trade or business derived P50,000 interest income from
his long-term bank deposit in the Philippines. How much is the income tax due of the said alien?

a. P10,000
b. P12,500
c. P5,000
d. Nil

Answer: B.
Solution:
FWT= P50,000 x 25% = P12,500
Tax exemption on long-term bank deposit or investment is not applicable to NRANETB.

26. Following are properties in the gross estate with their fair market value:

House and lot, family home in Quezon City 1,500,000

Deposit in the foreign branch of a domestic bank 500,000
Shares of stock issued by a domestic corporation, certificate kept in the US 1,000,000
Pieces of jewelry 800,000
Receivable, debtor in Cebu 200,000

If decedent was non-resident alien and there is reciprocity, property excluded from gross estate is
valued at

a. P4,000,000
b. P1,700,000
c. P700,000
d. P200,000

Answer: B.
Solution:

Deposit in the foreign branch of a domestic bank P 500,000

Shares of stock of a DC 1,000,000
Receivable. debtor in Cebu 200,000
Total exclusion 1,700,000

o Since the decedent is NRA and there is reciprocity, excluded from GE are properties
without the Philippines and Intangibles in the Philippines.
o Shares of a DC is always considered an estate in the Philippines, regardless of where the
certificate is kept.

o The situs of bank deposit is where the depository bank is located (regardless of whether
the bank is foreign or domestic). Therefore, the bank deposit in the problem is considered
part of estate without the Philippines because though the bank is domestic, it pertains to its
foreign branch.
27. Delta Corporation, an entity organized under the laws of Russia, is engage in business in the
Philippines for 10 years already. During the year 2018, its income and expenses are shown below:

Philippines Russia
Gross income 20,000,000 30,000,000
Business expenses 18,500,000 21,000,000
Interest income from dollar deposit 500,000
Yield on money market placement 1,000,000

How much is the income tax payable upon filing its annual income tax return?
a. P3,000,000
b. P400,000
c. P450,000
d. P300,000

Answer: C.
Solution:
Gross income (Phils.) P20,000,000
Business expenses (Phils.) (18,500,000)
Taxable Net Income P1,500,000

28. Statement 1: If on any one date, there is a donation by one donor to his relative and another
one to a stranger, there will be two (2) separate donor's tax return to be filled.
Statement 2: In donor's tax, no extension of time for filling the donor's tax return is allowed.

a. Statement 1 is correct, while Statement 2 is wrong

b. Statement 1 is wrong, while Statement 2 is correct
c. Both Statements are correct
d. Both Statements are wrong

Answer: B.
Explanation:
Statement 1: There shall be one return per every date of donation regardless of who are
the donees (relatives or strangers or both and the number of donees.
Statement 2: Unlike in estate taxation the filing of donor’s tax return is not subject to
extension.

29. Mr. Ded, a bachelor and resident Filipino citizen, died on November 2, 2017. The following fees
were paid to the following in connection with the settlement of his estate.

Executor, for time and effort in executing the will P50,000

Attorney, for legal advice in carrying out the will 80,000
Appraiser, for establishing property values 70,000
Administrative expenses for locating and collecting assets 40,000
Accountant, for estate tax return preparation 30,000

How much deduction for judicial expenses may the estate claim?

a. P150,000
b. P220,000
c. P230,000
d. P270,000
Answer: D.
Solution:

Executor, for time and effort in executing the will P50,000

Attorney, for legal advice in carrying out the will 80,000
Appraiser, for establishing property values 70,000
Administrative expenses for locating and collecting assets 40,000
Accountant, for estate tax return preparation 30,000
Total allowable judicial expenses P270,000

30. The following statements are correct regarding standard deduction under the TRAIN LAW,
except:
a. A deduction in the amount of 85,000,000 shall be allowed as an additional
deduction without
need of substantiation.
b. The full amount of 85,000,000 shall be allowed as deduction for the benefit of the
decedent.
c. Standard deduction is not allowed to decedents who are nonresident aliens.
d. None of the above

Answer: C.
Explanation:
PRIOR TO 2018:
• Allowable only to citizen and resident decedents.
• Deductible amount = P1,000,000

For decedents who died on or after January 1, 2018:

• Allowable only all decedents (citizens, residents and NRAs)
• Deductible amount:
Citizen and Resident Decedent = P5,000,000
NRA Decedent = P500,000
• Substantiation requirements = none

31. Which of the following is subject to 3% percentage tax under Section 116 of the Tax Code?

a. Fruit dealer whose gross receipts for 2018 amounted to P2,800,000 only.
b. An individual taxpayer whose gross sales for the year amounted to P100,000.
c. School bus operator whose gross receipts for 2018 amounted to P2,500.000
d. None of the above

Answer: D.
Explanation:

• Section 116 shall apply if:

1) The transaction is vat exempt and the reason for vat-exemption is simply
because the taxpayer's gross sales or receipts did not exceed the vat threshold
of P3M (previously P1,919,500) ; and
2) The taxpayer is not vat registered.
• If the reason for vat exemption is not because of #’s 1 and 2 above, the transaction is
not subject to Section 116.
 • The taxpayer in item "B" is known as Marginal Income Earner (MIE), an individual
whose gross sales or receipts during the year is not more than P100,000. MIE is not
subject to business tax (Vat and OPT).
32. The following are the data of Davao International for the last quarter of 2018:

Sales up to Dec. 15 (invoice value) P380,000

Purchases up to Dec. 15 (net) 150,000

Additional information:
On December 16, 2016, the Company retired from its business and the inventory valued at
P190,000 remained unsold. There is a deferred input tax from the third quarter of P3,500.

How much is the total value-added taxes payable of Davao International?

a. P42,100
b. P21,500
c. P22,800
d. P19,300

Answer: A.
Solution:

OUTPUT VAT
Sales up to Dec. 15 P40,800
TDS transaction 22,800
INPUT VAT
On Purchases (18,000)
Deferred input vat (3,500)
VAT PAYABLE P42,100

33. On January 15, 2018, Jose sold a real property used in business for P600,000 to his brother-
in-law. The assessed value and zonal value of the land were P750,000 and P1,000,000
respectively. The sale is subject to:

a. Subject to donor's tax only of P9,000.

b. Subject to capital gains tax only of P60,000.
c. Subject to donor's tax of P9,000 and capital gains tax of P60,000.
d. Subject to donor's tax of P9,000 or capital gains tax of P60,000 at the option of
Jose.

Answer: A.
Explanation:

o The property sold is classified as "ordinary asset", hence, not subject to 6% CGT.
o The transaction is considered sale for "insufficient consideration". The excess of

FMV over the SP is deemed gift, subject to donor's tax.

34. In case of full or partial denial of the written claim for refund or excess input tax directly
attributable to zero-rated sales, or the failure on the part of the Commissioner to act on the
application within 120 days from the date of submission of complete documents, an appeal must
be filed with the CTA:

a. Within thirty (30) days after filing the administrative claim with the BIR;
 b. Within.sixty (60) days after filing the administrative claim with the BIR;
c. Within one hundred twenty (120) days after filing the administrative claim with the
BIR;
d. Within thirty (30) days from the receipt of the decision denying the claim or after the
expiration of the 120-day period.

Answer: D.
Explanation:

o In case of full or partial denial by the CIR, the taxpayer’s recourse is to file an appeal
before the CTA within 30 days from receipt of the decision of the CIR. However, if
after the 120-day period the CIR fails to act on the application for tax refund/credit,
the remedy of the taxpayer is to appeal the inaction of the CIR to CTA within 30 days.
(CIR v. Aichi Forging Company of Asia, inc., G.R. No. 184823, October 6, 2010)

TRAIN LAW
Revenue Regulation No. 26-2018, dated Dec. 21, 2018
o The BIR CIR has to act on the application for refund of input tax refund/credit within
90 days.
o The 90-day period under the TRAIN Law shall apply only to input tax refund/credit.

35. Sandara, a nonresident citizen, received a dividend income of P300,000 in 2018 from Super
Bowl Corporation, a foreign corporation doing business in the Philippines. The gross income of
the foreign corporation from sources within and without the Philippines for the past three years
preceding 2018 is provided as follows:

Source 2015 2016 2017

Philippines 14,000,000 10,000,000 12,000,000
Abroad 10,000,000 16,000,000 18,000,000

The amount of income subject to tax should be:

a. P0
b. P135,000
c. P165,000
d. P300,000

Answer: A.
Solution:

 The taxpayer is a nonresident citizen hence, taxable only on income derived from
Philippine sources.
 The ratio of gross income from within the Philippines over world income for the
pastthree (3) years of the foreign corporation is 45% (ratio = P36,000/80,000). If the
ratio is less than 50%, the dividend income shall be treated as derived purely from
sources without the Philippines.

36. Statement 1: Passive incomes are subject to separate and final tax rates.
Statement 2: Passive incomes are included in the computation of taxable net income from
business operations of a corporation.

a. b. c. d.
Statement 1 TRUE FALSE TRUE FALSE
Statement 2 TRUE FALSE FALSE TRUE
Answer: A.
Explanation:
Statement 2 is False. The liability of the taxpayer for passive incomes subjected to final
withholding taxes is already PO because the taxes withheld already constitute final and
full payment of the applicable tax. Therefore, such income shall not be included anymore
in the determination of "taxable income" subject to regular corporate income tax.
Consequently, such income shall be excluded in the ITR of the corporation.

37. A taxpayer registered under the VAT system on January 1, 2018. His records during the month
show:

Value of inventory as of December 31, 2017 purchased from

VAT-registered persons P112,000
VAT paid on inventory as of December 31, 2017 12,000
Value of inventory as of December 31, 2017 purchased, from
Non-VAT persons 518,000
Sales, net of VAT 281,000
Purchases during the month, net of VAT 70,000
Purchases during the month of vat exempt goods 50,000

VAT payable is:

a. P23,080
b. P25,320
c. P12,720
d. P12,320

Answer: C.
Solution:

The 2% Transitional input vat shall be multiplied from the beginning inventory regardless
of whether it was acquired from vat registered or non-VAT registered suppliers.

Output Vat (P281,000 x 12%) P33,720

Less:
Purchases (P70,000 x 12%) (8,400)
Transitional input vat (higher)
Actual P12,000
vs. 2% x (P112,000 + 518,000) P12,600 (12,600)
Value Added Tax Payable P12,720

38. A VAT-registered trader has the following transactions for the month of July 2018:

Sale of goods to private entities, net of VAT P2,500,000

Purchases of goods sold to private entities, gross of 12% VAT 896,000
Sales to a government owned corporation (GOCC), net of VAT 1,500,000
Purchases of goods sold to GOCC, net of 12% VAT 700,000
Purchases of Machineries, gross of VAT, useful life is 6 years 11,200,000

How much is the VAT payable to the BIR?

a. P280,000
b. P224,000
c. P191,500
d. P300,000
Answer: C.
Solution:

OUTPUT VAT P480,000

LESS INPUT VAT
Private (96,000)
SIV (105,000)
Allocated Input Vat (12,500)
(1,200,000/60 x 2.5/4)
5% withholding from the government (75,000)
Vat Payable P191,500

OR

OUTPUT VAT (private entities only) P300,000

LESS INPUT VAT
Private (96,000)
Allocated Input Vat (12.500)
(1,200,000/60 x 2.5/4)
Vat Payable P191,500

39. In 2017, East Star Inc. sold shares of stock for P250,000. The shares, acquired in 2015 at a
cost of P100,000, were held as investment, and were sold directly to a buyer. How much was the
capital gains tax due?

a. P10,000
b. P15,000
c. P22,500
d. P45,000

Answer: C.
Solution:

CGTx =1(100,000 x 5%) + (50,000 x 10%)] = P10,000

40. Using the same data in the preceding number, how much is the capital gains assuming the
shares were sold in 2018?

a. P10,000
b. P15,000
c. P22,500
d. P45,000

Answer: C.
Solution:

CGTx. P150.000 x 15% = P22,500

 Under RA No. 10963 (TRAIN Law), the CGT on shares of stock is now 15%,
regardless of the amount of capital gain.
41. When their parents died, Romeo and Juliet inherited five (5) hectares of land in Isabela. They
decided to invest capital and developed the land into a subdivision, with small lots being sold
either on installment or cash basis
Q1: Is a partnership created by Romeo and Juliet?
Q2: Are they subject to final tax on their respective share in the income

a. No, Yes
b. Yes, Yes
c. No, No
d. Yes, No

Answer: C.
Explanation:

o The partnership is not pertaining to practice of common profession, thus, classified as

general or commercial partnership, taxable as corporation. Share in income of a general
partnership or commercial partnership is treated as dividend income from a domestic
corporation. Consequently, the partners are subject to FWT on dividend income on their
share in the net income of the partnership.

42. Which of the following is incorrect?

a. A vat-taxable article may be exempt from vat

b.A vat-taxable article may be subject to vat
c. A taxpayer may have two businesses where one is subject to vat and the other is subject to percentage
tax
d.Manufacturers and importers of goods are subject to excise tax

Answer: D.
Explanation:

o "A" is correct. Sale of an article not exempt from vat is not subject to vat if the Seller is
not vat registered and the amount of annual sale or receipts than the vat threshold.
o "B" is correct. Sale of an article not exempt from vat is subject to vat if the seller is vat
registered or the annual gross sales or receipts exceeded the vat threshold.
o "C" is correct. The taxpayer or seller is engaged in mixed transactions.
o "D" is wrong. To be subjected to excise tax, the product manufactured or imported
shall pertain to sin products and non-essential goods.

43. Statement 1: A tax due from the taxpayer whose amount does not justify the expenses to
be incurred in collecting it may be compromised.
Statement 2: In case of false • or fraudulent return with intent to evade the tax assessment
may be validly made on the 10th year from discovery thereof and collection may be
effected within five (5) years thereafter.\

a. Both statements are correct

b. Both statements are not correct
c. Only the first statement is correct
b. Only the second statement is correct

Answer: B.
Explanation:
o The proper remedy on the part of the government in statement 1 is "abatement or
cancellation".
o The correct period to collect in statement 2 is 10 years

44. Pedro a citizen of the Philippines and resident of Makati City, died testate on May 10, 2018.
Among his gross estate were properties inherited from his deceased father who died on April 4,
2015. What percentage of the deduction would be used in computing the amount of vanishing
deduction?

a. 60%
b. 40%
c. 20%
d. nil

Answer: B.
Explanation:

o The property was inherited from the predecessor more than three years before the
present decedent's death. The vanishing deduction rate shall be:

Interval of Acquisition and death of the present decedent %

Within one year 100%
Within two years 80%
Within three years 60%
Within four years 40%
Within five years 20%

45. Statement 1: Other percentage taxes are indirect taxes that can be passed on by person
required to pay to another person who shall bear the burden of paying the tax.
Statement 2: Transactions that are subject to the other percentage taxes are no longer
subject to the value-added tax but may be subject to excise tax.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

Answer: C.
Explanation:

o Statement 1: Business taxes are indirect taxes

o Statement 2: Sale or Transaction (transaction level only) = may be subject to either
vat OR percentage tax only + excise tax, if applicable.
Taxpayer (entity level: individuals, corporations, etc.) = may be subject both to vat
and percentage tax + excise tax, if applicable, provided the taxpayer is engaged in
mixed transactions (vatable business and non-vatable business).

46. Kaktda Realty Inc. developed a condominium in Manila. During the month of January 2013,
it had the following data (VAT included, if applicable):
Selling Price
Cash sale of a 3 bedroom unit P5,040,000
Sale of parking lot 560,000
Installment sale of 2 bedroom unit (initial)
 payments exceed 25% of the selling price) 3,920,000

The 3 bedroom unit sold for cash had a zonal value of P5,000,000 and the 2 bedroom unit had a
fair market value per Tax Declaration of P3,000,000. How much is the output tax for the month?

a. P920,000
b. P900,000
c. P1,020,000
d. P1,080,000

Answer: D.
Solution:

3 Bedroom unit
SP = P5,040,000/1.12 = P4.5M
ZV =P5M
Output Vat = P5M x 12% P600,000
2 Bedroom unit
SP = P3,920,000 = P3,500,000
ZV= P3,000,000 60,000
OV = P3.5M x 12% 420,000
TOTAL Output Vat P1,080,000

47. Hananiah Corporation, a corporation engaged in business in the Philippines and abroad has the
following data for the current year:

Gross Income, Philippines P975,000

Expenses, Philippines 750,000
Gross Income, Malaysia 770,000
Expenses, Malaysia 630,000
Interest on bank deposit 25,000

Determine the income tax due if the corporation is

Domestic Res. Foreign Corp. Non-resident Foreign Corp.

a. P116,800 P72,000 P320,000
b. P109,500 P67,500 P300,000
c. P312,000 P515,850 P116,800
d. P109,500 P72,000 P300,000

Answer: B.
Solution:

Domestic RFC NRFC

Gross Income, Philippines P975,000 P975,000 P975,000
Expenses, Philippines -750,000 -750,000
Gross Income, Malaysia 770,000
Expenses, Malaysia -630,000
Interest on bank deposit - - 25,000
Taxable income 365,000 225,000 P1,000,000
Tax Rate 30% 30% 30%
Tax Due P109,500 67,500 300,000
 o Ordinary and passive incomes received by NRFCs are subject to FWT of 30% unless
exempt under the law such as interest income derived from FCDS deposits.
o Generally, "income tax due" shall pertain to tax on "ordinary" income or income tax
other than FWT on passive income and CGTs.

48. A resident alien had the following data in 2018:

Gross income, Philippines P2,000,000

Business expenses 1,200,000
Dividends received:
From domestic corporation (net)
60% of its income came from the Philippines 90,000
40% of its income came from the Philippines 72,000
From resident foreign corporation (gross)
60% of its income came from the Philippines 50,000
40% of its income came from the Philippines 40,000

The taxpayer's taxable income is

a. P750,000
b. P830,000
c. P796,000
d. P800,000

Answer: B.
Solution:

Gross Income P2,000,000

Business expenses (1,200,000)
Dividend income from foreign corp. (50,000 x 60%) 30,000
Taxable income P830,000

49. Which of the following statements is correct?

a. Donation of immovable property may be made orally or in writing.

b. If the value of the real property donated exceeds P5,000, the donation and the
acceptance shall be made in writing, otherwise, the donation shall be void.
c. An oral donation requires the simultaneous delivery of the thing or of the
document representing the right donated.
d. All of the above

Answer: B.
Explanation:

o Choices "a" and "b" are incorrect. Donation of immovable property shall be made in
a public document, regardless of amount.

50. A decedent left 10,000 PLDT shares. The shares were traded in the local stock exchange. At
the time of death, the following were available:

Fair market value P400 per share

Mean between the highest and the lowest quotations P500 per share
Book value per P350 per share
What was the value included in the decedent's gross estate?
a. P3,500,000
b. P4,000,000
c. P5,000,000
d. Whichever was the highest among the fair market value, mean and book value

Answer: B.
Explanation:
VALUATION of Shares of Stock:

o In General, FMV at the time of death

o Traded - FMV (closing rate) at the date of death
o Traded, FMV at the time of death is not available - the average between the
highest and lowest quotation nearest the date of death.
o Common or ordinary shares, not traded - book value at the date of death
o Preferred or preference shares, not traded,- par value

o GE = P10,000 shares x P400 per share = P400,000

o Use letter "C" only if there is no valuation at the date of death.