Income Taxation Reviewer Final Compress

INCOME TAXATION Chapter 1 – Introduction to Taxation
MC – part 1
1. The point at which tax is levied is also called

a. Impact of Taxation c. Incidence of taxation
b. Situs of Taxation d. Assessment
2. Which of the following inappropriately describes the nature of taxation?
a. Inherent in sovereignty
b. Essentially a legislative function
c. Subject to inherent and constitutional limitation
d. Generally for public purpose
3. Which is correct?
a. Tax condonation is a general pardon granted by the government
b. The BIR had five deputy commissioners
c. The government can still collect tax in disregard of a constitutional limitation because taxes are
the lifeblood of the government
d. The president of the Philippines can change tariff or imposts without necessity of calling Congress
to pass a law for that purpose
4. A. The power to tax includes the power to exempt
B. The power to license includes the power to tax
Which is true?
a. A only c. A and B
b. B only d. Neither A and B
5. International double taxation can be mitigated by any of the following except
a. Providing allowance for tax credit
b. Provision of reciprocity provisions in tax laws
c. Provision of tax exemptions
d. Entering into treaties to form regional trade blockage against the rest of the world
6. Which is not an object of taxation?
a. Persons c .Transactions
b. Business d. Public Properties
7. That courts cannot issue injunction against the government’s effort to collect taxes is justified by
a. The lifeblood c. the ability to pay theory
b. Imprescriptibility of taxes d. the doctrine of estoppel
8. The power to enforce proportional contribution from the people for the support of the government is
a. Taxation c. Eminent domain
b. Police power d. Exploitation
a.
9. This theory underscores that taxes are indispensable to the existence of the state.
Doctrine of equitable recoupment
b. The Lifeblood Doctrine
c. The benefit received theory
d. The Holmes Doctrine
10. A. Taxation is the rule, exception is the exemption
B. Vague taxation laws are interpreted liberally in favor of the government
Which is false?
A. A only c. Both A and B
B. B only d. Neither A nor B
11. Select the incorrect statement
a. The power to tax includes the power to exempt
b. Exemption is construed against the taxpayer and in favor of the government
c. Tax statues are construed against the government in case of doubt
d. Taxes should be collected only for public improvements
12. Which is not a public purpose?
a. Public education c. Transportation
b. National defense d. None of these
13. Which does not properly describe the scope of taxation?
a. Comprehensive c. Discretionary
b. Supreme d. Unlimited
14. All of these are secondary purposes of taxation except
a. To reduce social inequality
b. To protect local industries
c. To raise revenue for the support of the government
d. To encourage growth of local industries
15. What is the theory of taxation?
a. Reciprocal duties of support and protection
b. Necessity
c. Constitutionality
d. Public purpose
16. A. taxes should not operate retrospectively.
B.tax is generally for public purpose
Which is true?
a. A only c. A and B
a.
b. B only d. Neither A nor B
17. Which provision of the Constitution is double taxation believed to violate?
A. Equal protection guarantee
B. Progressive scheme of taxation
C. Uniformity rule
D. Either A or C
18. Which limitation of taxation is the concept of “situs of taxation” based?
Territoriality c. International comity
b. Public purpose d. Exemption of the government
19. Which tax exemption is irrevocable?
a. Tax exemption based on contract
b. Tax exemption based on the Constitution
c. Tax exemption based on law
d. Both A and B
20. Which statement is incorrect?
a. Every person must contribute his share in government costs
b. The existence of a government is expected to improve the lives of the people
c. The government provides protection and other benefits while the people provide support
d. Only those who are able to pay tax can enjoy the privileges and protection of the government
21. Which is the most incorrect statement regarding taxes?
a. Taxes are necessary for the continued existence of the government
b. The obligation to pay tax does not rest upon the privilege enjoyed by or the protection afforded to
the citizen of the government but upon the necessity of money for the support of the state
c. There should be personal benefit enjoyed from the government before one is required to pay tax
d. Taxes should be collected without unnecessary delay but its collection should not be tainted with
arbitrariness
22. Statement 1: in the selection of the objects of taxation, the courts have no power to inquire into the
wisdom, objectivity, motive, expediency, or necessity of a tax law.
Statement 2: An imposition can be both a tax and a regulation. Taxes may be levied to provide means
for rehabilitation and stabilization of threatened industry
Which is correct?
a. Statement 1 only c. Both statements
b. Statement 2 only d. Neither statements
23. Which of the following acts in taxation is administrative by nature?
a. Determination of the amount to be imposed
b. Fixing the allocation of the amount to be collected between the local government and the national
government
a.
c. Levy or distraint of taxpayers’ property for tax delinquency
d. Determining the purpose of the tax to impose
24. This refers to the privilege or immunity form a tax burden which others are subject to:
a. Exclusion c. Tax holiday
b. Deduction d. Reciprocity
25. Statement 1: the benefit received theory presupposes that some taxpayers within the territorial
jurisdiction of the Phil. Will be exempted from paying tax so long as they do not receive benefits from
the government.
Statement 2: the ability to pay theory suggests that some taxpayers may be exempted from tax
provided they do not have the ability to pay the same.
Which statement is true?

Only statement 1 c. Both statements 1 and 2
b. Only statement 2 d. Neither statement 1 nor 2
26. Which is not a legislative act?
a. Determination of the subject of the tax
b. Setting the amount of the tax
c. Assessment of the tax
d. Determining the purpose of the tax
27. Statement 1: Taxation is the rule; exemption is the exception
Statement 2: Taxation may be used to implement the police power of the state
a. I is true c. I and II are true
b. II is true d. I and II are not true
28. Which of the following powers of the Commissioner of Internal Revenue cannot be delegated?
a. The examination of tax return and the determination of tax due thereon
b. To refund or credit tax liabilities in certain cases
c. The power to compromise or abate any tax liability involving basic deficiency tax of P500,000 and
minor criminal violations
d. The power to reverse a ruling of the Bureau of Internal Revenue
29. When exemption from a tax imposition is silent or not clearly stated, which is true?
a. Taxation applies since exemptions are construed against the government
b. Exemption still applies since this is an instance of exemption by omission
c. Taxation applies since exemptions are construed against the tax payer
d. Exemption applies since obligation arising from law cannot be presumed and hence construed
against the government
30. What is the basis of taxation?
a. Reciprocal duties of support and protection
b. Constitutionality
a.
c. Public purpose
d. necessity
31. When the provisions of tax law are silent as to the taxability of an item, which is true?
a. Taxation applies since taxation is the rule, exemption is the exception
b. Exemption applies since vague tax laws are construed against the government
c. Taxation applies due to the Lifeblood doctrine
d. Exemption applies since obligation arising from law is presumed; ignorance of the law is not an
excuse
32. Which of the following statement does not support the principle that tax is not subject to
compensation or set-off?
a. The government and the taxpayer are not creditors and debtors of each other
b. Tax is not in the nature of contract but it grows out of a duty wherein taxpayers are bound to obey
even without the personal consent of the taxpayer
c. Taxes arise from law, not from contracts
d. Both tax and debt partake the nature of an obligation
33. Which is not legally tenable in refusing to pay tax?
a. Absence of benefit from the government
b. Lack of jurisdiction of the taxing authority
c. Prescription of the tax authority’s right to collect
d. All of these
34. What is the primary purpose of taxation?
a. To enforce contribution from its subjects for public purpose
b. To raise revenue
c. To achieve economic and social stability
d. To regulate the conduct of business or profession
MC Part 2
1. The constitutional exemption of religious or charitable institutions refers only to

a. Real property tax c. Property tax and income tax
b. Income tax d. Business tax
2. The agreement among nations to lessen tax burden of their respective subjects called
a. Reciprocity c. Territoriality
b. International comity d. Tax minimization
3. An educational institution operated by a religious organization was being required by a local
government to pay real property tax. Is the assessment valid?
a. Yes, with respect to all properties held by such educational institution
b. Yes, with respect to properties not actually devoted to educational purposes
c. No, with respect to any properties held by such educational institution
d. No, with respect to properties not actually devoted to educational purposes
4. Which is not a constitutional limitation?
a. No tax law shall be passed without the concurrence of a majority of all members of congress b.
Non-appropriation for religious purposes
c. No law impairing government obligations on contracts shall be passed
d. Non-impairment of religious freedom
5. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose
b. Taxation is limited to its territorial jurisdiction
c. Tax laws shall be uniform and equitable
d. Exemption of government agencies and instrumentalities
6. The following are inherent limitations to the power of taxation except one. Choose the exception. a.
Territoriality of taxes
b. Legislative in character
c. For public purpose
d. Non-appropriation for religious purpose
7. That all taxable articles or properties of the same class shall be taxed at the same rate underscores
a. Equality in taxation c. Uniformity in taxation
b. Equity of taxation d. None of these
8. The following are limitations of taxation:
A. Territoriality of taxation
B. Exemption of the government
C. Taxation is for public purpose
D. Non-impairment of contracts
E. Non-delegation of the power to tax
Which of these are classified as both constitutional and inherent limitation?
a. A and B c. C and E
b. B and C d. D and E
9. The provisions in the Constitution regarding taxation are
a. Grants of the power to tax
b. Limitations to the power to tax
c. Grants and limitations to the power to tax
d. Limitations against double taxation
10. The constitutional exemption of non-stock, non-profit educational institutions refers to
a. Real property tax c. property tax and income tax
b. Income tax d. business tax
11. Which of the following is violative of the principle of non-delegation?
a. Requiring that legislative enactment must exclusively pertain to congress
b. Authorizing the president to fix the amount of impost on imported and exported commodities
c. Authorizing certain private corporation to collect taxes
d. Allowing the secretary of finance and the BIR to issue regulation or rulings which go beyond the
scope of a tax law
12. Which of the following violates constitutional provisions?
a. Payment of salaries to priest or religious ministers employed by the Armed Forces of the
Philippines
b. Imposing tax on properties of religious institutions which are not directly and exclusively used for
religious purposes
c. Imposition of license for the sale of religious literature
d. Authorizing the President of the Philippines to fix the rates of tariffs or imposts
13. In order to phase-out a huge deficit, the President of the Philippines passed a law offering all taxpayers
with previous tax delinquency to pay a minimum tax in exchange for relief from tax assessment in the
period of delinquency. Is this a valid exercise of taxation power? a. Yes, because the measure adopted
is grounded upon necessity
b. Yes, because the President is merely exercising his presidential discretion
c. No, because the power of taxation is non-delegated
d. No, because only the Department of Finance can issue such ruling
14. Concerned with increasing unemployment rates in the country, the President of the Philippines
encouraged the Philippine Senate to pass a law granting special tax privileges to foreign investors who
will establish businesses in the country. The senate accordingly drafted the bill and passed to Congress
for approval. Is this valid exercise of taxation power?
a. Yes. It is the discretion of the President to adopt any measures he deemed necessary to alleviate
poor conditions in the country.
b. Yes. Any means beneficial to the public interest should be given optimum priority.
c. Yes. The president’s proposal will have to be finally approved and passed by the legislature. The
rule on non-delegation of taxation would not be violated.
d. No. tax bills shall originate from the House of Representatives
15. Ram is the only practicing lung transplant specialist in Baguio City. The City Government of Baguio
passed a local ordinance subjecting the practice of lung transplant to 2% tax based on receipts. Ram
objected claiming that other transplant specialists in other regions of the country are not subjected to
tax.
Is Ram’s contention valid?

a. Yes, because the rule of taxation should be uniform and equitably enforced
b. Yes, because Ram is the only one subject. Other practitioners who would later practice would not
be covered by the ordinance.
c. No, because the ordinance would cover all transplant specialist who would practice in Baguio City.
The uniformity rule would not be violated.
d. No, because subjecting new industry to taxation would hamper economic growth.
16. With the country under incessant shortage of sugar, the Philippine Congress enacted a law providing
tax exemption and incentives to cane farmers without at the same time granting tax exemptions to rice
farmers who produce the staple food of the Philippines, is the new law valid?
a. Yes, since there is a valid classification of the taxpayers who would be exempted from tax
b. Yes, since sugar is more important than rice
c. No, since the grant of exemption is construed in favor of taxpayers
d. No, because there is no uniformity in the grant of tax exemption
17. Congress passed a law subjecting government-owned and controlled corporation (GOCCs) to income
tax. Is the law valid?
a. Yes, because all government agencies and instrumentalities are subject to tax
b. Yes, because GOCCs are not government agencies and are essentially commercial in nature
c. No, because government agencies are exempt. This would pose a violation of the equality clause in
the constitution
d. No, because GOCCs are constitutionally exempted from paying taxes
18. Which of the following is not a constitutional limitation of the power to tax?
a. Non-impairment of obligation or contracts
b. Due process and equal protection of the law
c. Non-appropriation for religious purposes
d. Non-delegation of police power
19. The Philippine Congress enacted a law requiring foreign banks to withhold taxes earned by Filipino
residents in their country and to remit the same to the Philippine government. Is this a valid exercise of
taxation power?
a. Yes because foreign banks are with the territorial jurisdiction of the Philippines
b. Yes, the Philippines can enforce tax requirements to subjects of foreign sovereignty even if they are
outside the country
c. No, as this leads to encroachment of foreign sovereignty
d. No, this is prohibited by the Constitution
20. Which of the following normally pays real property tax?
a. Bantay bata, a non-profit charitable institution
b. Jesus crusade movement, a religious institution
c. University of Pangasinan, a private proprietary educational institution
d. AM Property Holdings, a registered property development company
21. Tax exemption bills are approved by
a. Majority of all members of Congress
b. Solely by the President of the Republic
c. 2/3 of all members of Congress
d. Majority of the representatives constituting a quorum
22. The Japanese government invested P100,000,000 in a Philippine local bank and earned P10,000,000
interest. Which is correct?
a. The income is exempt on grounds of territoriality
b. The income is exempt due to international comity
c. The income is subject to tax on the basis of sovereignty
d. The income is subject to tax because the income is earned within the Philippines
MC – Part 3
1. When a legislative body taxes a persons and property, rights and privileges under the same taxable
category at the same rate, this is referred to as compliance with the constitutional limitation of:
a. Equity c. Due process
b. Uniformity d. Equal protection clause
2. Which is not a legislative act?

a. Assessment of the tax c. Determination of the subject of the tax
b. Setting the amount of the tax d. Determining the purpose of the tax
3. The inherent powers of the state are similar in the following respect, except:
a. They are inherent to the existence of the State
b. They are exercisable without the need for an express constitutional grant
c. All are not exercised by private entities
d. They are exercised primarily by the legislature
4. Which is mandatorily observed in implementing police power?
a. Public interest c. Public Use
b. Just compensation d. All of these
5. Which is considered in the exercise of eminent domain?
a. Public use c. Both a and b
b. Just compensation d. Neither a and b
6. The general power to enact laws to protect the well-being of the people is called
a. Police power c. Taxation
b. Eminent domain d. all of these
7. Which of the following entities will least likely exercise the power of eminent domain?
a. Electric cooperatives c. telecommunication business
b. Water cooperatives d. transportation operators
8. In exercising taxation, the government need not consider
a. Inherent limitations c. due process of law
b. Just compensation d. constitutional limitations
9. Licensing of business or profession is an exercise of
a. Police power c. Eminent Domain
b. Taxation d. All of these
10. Select the correct statement
a. Eminent domain refers to the power to take public property for private use after paying just
compensation
b. Police power being the most superior power of the State is not subject to any limitation
c. Taxation power shall be exercised by Congress even without an express Constitutional grant
d. Taxes may be collected even in the absence of a law since obligation arising from law is always
presumed
11. Which is principally limited by the requirement of due process?
a. Eminent domain c. taxation
b. Police power d. all of these
12. S1: congress can exercise the power of taxation even without constitutional delegation of the power of
tax
S2: only the legislature can exercise the power of taxation, eminent domain, and police power?
Which statement is correct?

a. Statement 1 c. statement 1 and 2
b. Statement 2 d. neither statement 1 nor 2
13. Which power of the state affects the least number of people?
a. Police power c. taxation
b. Eminent domain d. taxation and police power
a. The benefit received theory explains that the government is obliged to serve the people since it is
benefiting from the tax collection from its subjects
b. The lifeblood theory underscores the taxation is the most superior power of the state
c. The police power of the state is superior to non-impairment clause of the constitution
d. The power of taxation is superior to the non-impairment clause of the constitution
15. Which of the following is not exercised by the government?
a. Taxation c. eminent domain
b. Police power d. exploitation
a. Since there is compensation, eminent domain raises money for the government
b. Once a government is established, taxation is exercisable
c. The most important of the power is taxation
d. Police power is more superior that the non-impairment clause of the constitution
17. The following statements reflects the differences among the inherent powers except:
a. The property taken under eminent domain and taxation are preserved but that of police power is
destroyed
b. Eminent domain and police power do not require Constitutional grant, but taxation, being a
formidable power, requires constitutional grant
c. Only eminent domain can be exercised by private entities
d. Taxation, police power, and eminent domain are ways in which the government interferes with
private right and property
18. S1: the taxation power can be used to destroy if the law is valid
S2: a tax law which destroys things, business, or enterprises for the purpose of raising revenue is an
invalid tax law
Which is incorrect?
a. Statement 1 c. both statements
b. Statement 2 d. neither statement
a. The provision on taxation in the Philippine Constitution are grants of the power to tax
b. The power to tax includes the power to destroy
c. When taxation is used as a tool for general and economic welfare, this is called fiscal purpose
d. The sumptuary purpose of taxation is to raise funds for the government
20. Which if the following power is inherent or co-existent with the creation of the government?
a. Police power c. taxation
b. Eminent domain d. all of these
21. Which of the following is not an inherent limitation of the power to tax?
a. Tax should be levied for public purpose
b. Taxation is limited to its territorial jurisdiction
c. Tax laws shall be uniform and equitable
d. Government agencies and instrumentalities are exempt from tax
a. The power to tax includes the power to exempt
b. Exemption is construed against the taxpayer and in favor of the government
c. Tax statues are construed against the government in case of doubt
d. Taxes should be collected only for public improvement
23. Which of the following is not a constitutional limitation of the power to tax?
a. Non-impairment of obligation or contracts
b. Due process and equal protection of the law
c. Non-appropriation for religious purpose
d. Non-delegation of the taxing power
24. Which of the power of the state is the most superior? Which is regarded as the most important?
a. Taxation; eminent domain
b. Police power; taxation
c. Eminent domain; police power
d. All
CHAPTER 3: INTRODUCTION TO INCOME TAX MC 1
1. Which is not a requisite of gross income?

a. Return on capital c. Exempted by law
b. Realized benefit d. not exempted by law
2. Which is taxable item of income?
a. Increase in numbers of a herd animals
b. Compensation for personal inquiries
c. Moral damages
d. Interest on moral damages
3. Which is not subject to income tax?
a. Donation c. sales of goods
b. Sale of service d. barter of goods
4. The total consideration received from the sale of service constitute
a. Return on capital c. either a or b
b. Return of capital d. both a or b
5. When paid for, which of the following items may involve a return on capital?
a. House an lot c. dignity
b. Life d. health
6. The total consideration received from the sales of goods at a gain represents
7. The total consideration received from the sale of goods at loss represents
8. Why is income subject to taxation?
a. Income is the most prevalent source of a taxpayer’s wealth
b. Income is the best measure of taxpayer’s ability to pay tax
c. Rich people tend to have more income than the poor
d. Any of these
9. Which is not an item of gross income because of the absence of an undertaking from the taxpayer? a.
Proceeds of a life insurance policy
b. Forgiveness of indebtedness as an act of gratuity
c. Revaluation surplus on properties
d. Service fees
10. Which is subject to income tax?
a. Proceeds of life insurance policy received by the family of the insured
b. Excess of proceeds over the premiums paid received by the taxpayers
c. Life insurance proceeds received by the corporation from the insurance of a deceased officer d.
None of these
11. Which of the following is exempted from income taxation because of the absence of ability to pay?
a.damages received from patent infringement suit
b. unrealized income from investments
c. gain on sale of goods
d. inheritance
12. Income tax may be imposed for the following purposes, except
a. To provide large amount of revenues
b. To limit corruption
c. To offset regressive sales and consumption taxes
d. To mitigate the evils arising from the inequalities in the distribution of income and wealth
13. Which of the following constitutes taxable income?
a. Return of premium on life insurance received by the insured
b. Moral damages received from slander
c. Proceeds of crop insurance
d. Compensation for personal injury
14. Which of the following is not a constructive receipt of income?
a. Forgiveness of indebtedness in consideration of service
b. Matured detachable interest interest coupons
c. Deposit of income to taxpayer’s bank accounts
d. Cash salary of an employee
15. Transfers for insufficient consideration are subject to
a. Income tax c. either a or b
b. Transfer tax d. both a or b
16. Which is specifically exempted from income taxation by virtue of legal exemption? a. Minimum wage
b. Gain on sale of prohibited drug
c. Unrealized gain
d. All of these
MC – Part 2
1. A resident alien naturalized in accordance with Philippine laws is a

a. Resident citizen
b. Resident alien
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business
2. Who is not a resident alien?
a. An alien who stayed in the Phil. For more than two years
b. An alien who married and stayed in the Phil. For one year
c. And alien who stayed in the Phil. For more than one year
d. An alien who established his intention before the CIR to stay in the Phil. For an extended period of
time
3. Which taxpayer is not a natural person?
a. Resident citizen
b. Taxable estate
4. A Filipino who has been abroad for more than 183 days is classified as a a. Resident alien
b. Non-resident alien
c. Non-resident citizen
d. Non-resident citizen not engaged in trade or business
5. Which of the following is not an income taxpayer classification?
a. Resident citizen c. resident foreign corporation
b. Non-resident alien d. general professional partnership
6. An American who showed proof to the satisfaction of the Commissioner of Internal Revenue of his
intention to stay in the Philippines as an immigrant classified as a
a. Resident citizen c. NRA – ETB
b. Resident alien d. NRA – NETB
7. A Japanese who is staying in the Philippines for 183 days is a
a. Resident alien
8. A Canadian who is staying in the Philippines for more than one year is a a. Resident alien
9. An alien who stayed less than one year in the Philippines is classified as a non-resident alien not
engaged in trade or business if he stayed herein for less than
a. 180 days c. 183 days
b. 1 year d. 2 years
10. A corporation incorporated according to Philippines laws is a
a. Domestic corporation c. non-resident corpo
b. Resident corpo d. de jure corpo
11. A foreign corporation which is not authorized to conduct business in the Philippines is a
12. A foreign corporation which operates a branch in the Philippines is a
13. A partnership which dominantly operates business abroad is a
14. Which is required to pay income tax?
a. Revocable trust
b. Estates under extrajudicial settlement
c. Co-ownership
d. Business partnership
15. Which is not an income taxpayer?
a. Non-resident foreign corporation
b. Non-resident alien not engaged in trade or business
c. Joint venture engaged in energy operation pursuant to a service contract with the government d.
Irrevocable trusts
16. Which of the following taxpayers is taxable only on income earned from the Philippines?
a. Resident alien c.resident citizen
b. Domestic corporation d. all of these
17. All of the following are taxable only on income earned from sources within the Philippines, except
a. Resident alien c. non-resident corporation
b. Non-resident citizen d. domestic corporation
18. Which is taxable on world income?
a. Resident corporation c. resident citizen
b. Non-resident citizen d. resident alien
MC – Part 3
1. The place of taxation is

a. Situs rule c. territoriality
b. Situs d. gross income
2. Which is an incorrect statement regarding of situs of income?
a. Service income earned in the domicile of the taxpayer
b. Interest income is earned in the residence of the debtor
c. Royalty is earned where the intangible is employed
d. Rent is earned in the location of the property
3. Which statement is correct regarding situs of income?
a. The gain on the sale of real property is earned in the location of the property
b. The gain on sale of any property is earned in the place of sale
c. Merchandising income is earned in the residence of the properties
d. Manufacturing income is earned in the place of sale
4. Pedro, a non-resident citizen, lent money to shino, a resident chinese. The indebtedness was
collateralized by a property located to Japan. The interest income is earned in
a. The Philippines c. Japan
b. China d. Japan, China, and the Philippines
5. Gains on sale of goods manufactured and sold by the taxpayer within the Philippines is subject to tax
a. Wherever sold c. without the Philippines only
b. If sold abroad only d. within the Philippines only
6. Yvonne, a resident alien, bought a car manufactured in the Philippines and exported the same at a gain
to Carla, a non-resident citizen. Which is correct?
a. The gain is subject to tax in the Philippines since the commodity involved is manufactured in the
Philippines
b. The gain is subject to tax in the Philippines since the buyer is a citizen of the Philippines
c. The gain is both subject to tax in the Philippines and abroad since the commodity involved is
manufactured in the Philippines
d. The gain is taxable abroad because it is sold abroad
7. Juan, a resident alien, and Pedro, a non-resident alien, executed a contract of sale in Japan whereby
Pedro shall purchase the lot owned by Juan in the Philippines. Which is true? a. The gain is exempt
since the gain is derived outside the Philippines
b. The gain is not subject to Philippines tax since Juan is a resident alien
c. The gain is subject to Philippine tax because Juan is a resident alien
d. The gain is subject to Philippine tax because the property is in the Philippines
CHAPTER 5: Final Income Taxation
Which is correct with regard to the final income taxation?

a. Taxpayers need to file an income tax return
b. It cover all items of passive income from whatever sources
c. It applies to all items of gross income of any non-residents sources within the Philippines
d. It applies to passive income earned abroad
Which statement is correct regarding final income tax?
a. Items of income subjected to final tax can still be subjected to regular tax
b. Final tax applies only on certain passive income earned within Philippines
c. Items of income exempt under final tax are subject to regular tax
d. Final income tax applies to all passive income from Philippines
Interest income from which of the following sources is subject to final income tax? a.
Lending
b. Mortgage loans
c. Bond investment
d. Money market placements
The final tax does not apply to interest on (select the best answer)
a. Long-term deposit
b. Trust funds
c. Deposit substitute
d. Promissory notes
The exemption on final tax on interest from long-term deposit is not applicable? a.
Citizen individuals
b. Corporations
c. Residents corporations or individuals
d. All of these
Which interest income is not subject to any income tax?
a. Interest income from discount notes
b. Interest income from bonds issued by a bank
c. Imputed interest
d. Interest income from deposit substitute
The final tax rates on pre-termination of long-term deposits is not relevant to
a. Any corporations
b. Residents citizens
c. Residents aliens
d. Non-residents citizens
Which of the following is subject to 15% final tax on interest from foreign currency deposits made with
Philippines banks?
a. Non-resident corporation
b. Non-resident alien engaged in trade or business
c. Non-resident alien not engaged in trade or business
d. Resident alien
The following are subject to final tax on all income from sources within the Philippines. Which is the
exception? a. Non-resident foreign corporation
b. Non-resident alien not engaged in trade or business
d. None of these
The interest income from long-term peso deposits made with foreign banks is
a. Subject to 20% final tax
b. Exempt from any tax
c. Subject to regular tax
d. None of these
What is the final tax on interest income on 6-year deposit on dividends? a.
20%
b. 12%
c. 5%
d. 0%
Which of the following recipients is exempt from final tax dividends?
a. Residents citizenship
c. Resident corporation
d. Resident alien
A dividend declaration in 2019 is subject to a final tax of?
a. 6%
b. 8%
c. 10%
d. 20%
Dividends declared by a resident corporation is
a. Exempt from tax
b. Subject to 10% final tax
c. Subject to regular income tax
d. Subject to 20% final tax
Between the date of declaration and the date of record, BCD Inc. sold as investment representing stock of
ABC, INC., a domestic corporation. Which statement is correct?
a. ABC, Inc. shall withhold 10% dividend tax if the buyer of the sale is an individual
b. ABC, Inc. shall withhold 10%dividend if the buyer of the sale is a corporation
c. ABC, Inc. shall withhold 10%dividend if the buyer of the sale is a individual
d. ABC, Inc. shall withhold 10%dividend if the buyer of the sale is a corporation Which is covered
by final tax?
a. Interest income from foreign banks
b. Share in the net income of a joint venture
c. P10,000 taxable prizes from the Philippines
d. Share in the net income of a general professional
partnership Which is not subject to 20% final tax?
a. Interest income from trust funds
b. Royalties from musical compositions
c. P11,000 worth of prizes
d. Winnings
Which is not subject to 10% final tax?
a. Royalties from literary works
b. Dividends from a domestic corporation
c. Share in the net income of a business partnership
d. Royalties from a business trademark Which of the following taxable?
a. Prize on sport competitions sanctioned by the national sports organization
b. Prize from dance competition abroad
c. Nobel prize
d. Any prize received without effort
Which is the following is taxable to a final tax
a. Winnings exceeding P10,000
b. Winnings not exceeding P10,000
c. Winnings from PCSO or lotto
d. All of these
Prizes from sources abroad is subject to final tax
a. If the amount of prizes exceeds P10,000
b. If the amount of prizes does not exceed P10,000
c. If it is given to the taxpayers without effort
d. Under no circumstance
The following winnings are exempt from tax, except one. Which is the exception?
a. Jueteng winnings
b. Lotto winnings exceeding P10k
c. PCSO winnings not exceeding P10k
d. All of these
Which of the following is exempt from final tax?
a. Interest income earned by a bank from deposits in another bank
b. Royalties from books
c. Interest income earned by a bank from lending activities
d. All of these
Dividend income from domestic corporations is subject to final tax effective
a. 2000
b. 1999
c. 1998
d. 1997
Prizes arising from sources within the Philippines may be
a. Subject to final tax
b. Subject to regular tax
c. Exempt from tax
d. Exempt or subject to final tax or regular tax
Any royalties earned abroad by a non-resident corporation is
a. Not subject to Philippines income tax
b. Always subject to final tax
c. Subject to either final tax or regular tax
d. Always subject to regular tax
The winnings of a resident alien form abroad is
a. Subject to regular tax
b. Subject to final tax
d. Not subject to Philippine income tax
Royalty income of a domestic corporation from abroad is
a. Subject to regular tax
b. Subject to final tax
d. Not subject to Philippine income tax
Winnings from PCSO are generally
a. Exempt from any tax
b. Subject to regular tax
c. Subject to 20% final tax
d. Subject to both final and regular tax
The final tax rates on income are generally similar to the following taxpayers, except one. Select the exception
a. corporation
b. Resident alien
d. Non-resident corporation
The tax informer’s reward may be granted to
a. Officials of the BIR
b. Public officials or employees
c. Close relatives of public government employees
d. Relatives of government employees beyond the 6th degree of consanguinity Which is not
subject to final tax?
a. Compensation to non-resident aliens not-engaged in trade or business
b. Fringe benefits of supervisory and managerial employees
c. Income of non-resident foreign corporations
d. Fringe benefits of rank and file employees Which of the following is exempt from final tax?
a. Winnings in competitions aliens sponsored by local trading company
b. Prizes in body building competitions
c. Dividends from foreign corporation
d. Winnings from casino
CHAPTER 7: INTRODUCTION TO REGULAR INCOME TAX MC – PART 1
1. The general rule in income taxation is

a. Final income taxation c. regular income taxation
b. Capital gains taxation d. fringe benefit taxation
2. Active income is subject to
a.regular tax c. final tax
b. capital gains tax d. any of these
3. Questions 3 and 4 are based on the following:
a. Regular tax b. final tax c. capital gains tax
Which of the foregoing are passive incomes are subject to?

a. A only c. Both A and B
b. B only d. Either A or B
4. Which of the foregoing are capital gains subject to?
a. A only c. Either A or C
b. C only d. Both A and C
5. The net amount of regular income subject to regular tax is called
a. Taxable income c. net income
b. Compensation income d. gross income
6. Which is not generally subject to regular income tax?
a. Compensation income c. professional income
b. Business income d. passive income
7. What are allowable deductions against gross income?
a. Business expenses c. personal expenses by the taxpayer
b. Family support d. expenses of employment
8. Deductions are allowed to
a. Employed taxpayers c. corporate taxpayers only
b. Individual taxpayers only d. taxpayers engaged in business
9. Personal exemptions are allowed to
a. Employed taxpayers c. corporate taxpayers only
b. Individual taxpayers only d. taxpayers engaged in business
10. Which is not a feature of the regular income tax?
a. Net income tax c. annual tax
b. Final withholding tax d. creditable withholding tax
11. Which is true with the final withholding tax?
a. The taxpayer still needs to file an annual consolidated return
b. It applied to all items of gross income
c. It constitutes a partial payment of income tax
d. It applies to certain passive income
12. Which is not true with the creditable withholding tax?
a. Advances to the annual tax due
b. No need to pay further taxes
c. Need to file annual income tax return
d. Applicable to items of regular income
13. Progressive income tax is applicable to
a. Corporate taxpayers c. compensation earners only
b. Individual taxpayers d. individuals in business only
14. Proportional regular income tax is applicable to
a. Corporations only c. individuals engaged in business
b. Compensation earners only d. both individuals and corporations
15. Which of the following individual taxpayers is not subject to tax on taxable income?
a. Non-resident citizen c. NRA – NETB
b. Resident Alien d. Non-resident alien engaged in business
16. Which of the following corporate taxpayers is not subject to tax on taxable income?
a.domestic corporation c. non-resident foreign corporation
b. business partnership d. resident foreign corporation
17. Which is a source of income subject to regular income tax?
a. Employment c. trade or business or exercise of profession
b. Casual sales transactions d. all of these
18. Which interest income will not be included in the income tax return?
a. Interest income from bank deposits
b. Interest income from lending
c. Interest income from notes
d. Interest income from employees
19. Which is not subject to final tax?
a. Prizes amounting to P11,000
b. Interest income from bank deposits
c. Winnings from the Philippines
d. Share in the net income of general professional partnership
20. Which of the following is a passive income but is nevertheless subject to regular tax by virtue of
exclusion under final income taxation?
a. Prizes amounting to P10,000 c. merchandising income
b. Service income d. dividends from domestic corporations
MC – PART 2
1. The following may be relevant in the determination of taxable income

a. Gross income subject to regular tax
b. Gross income subject to final tax
c. Deductions from gross income
d. Personal exemption
Which is not considered in the determination of taxable income?

a. A and B c. D only
b. C and D d. B and D only
2. Which is a correct statement regarding exclusion in gross income?
a. They are included in gross income subject to regular income tax
b. They are ignored in the determination of gross income
c. They are presented in gross income but are presented as deductions
d. They are subject to final tax
3. Which of these types of employees may be subject to final fringe benefit tax?
a. Managerial employees c. Rank and file employees
b. Supervisory employees d. A and B
4. Which is not considered an operating income?
a. Consignment commission income by a retail store
b. Fees from the rendering of services
c. Interest income from advances to employees
d. Sale of scrap
5. Which is a non-operating income?
a. Gain on sale of office building c. gate receipts of cockpits
b. Sale of goods by a retail store d. gate receipts of cinemas
6. Which is incorrect statement?
a. Business expenses are deductible by individuals and corporations
b. Personal exemptions are deductible by individuals and corporations
c. Personal exemptions are deductible by individuals, estates, and trusts
d. Deductions are considered in the determination of net income
7. Which of the following will least likely to be considered an operating income of a security dealer?
a. Gain on sale of stocks c. dividend income from domestic corpo
b. Gain on sale of bonds d. interest income from bonds
8. The distinction between operating and non-operating income is not required in the income tax return
of
a. Self- employed individuals in business
b. Mixed income earners
c. Self-employed professionals
d. Purely employed individuals
9. The reporting classification of gross income into operating and non-operating is unnecessary for
a. Corporate taxpayers c.Both A and B
b. Individual taxpayers d. Neither A nor B
10. Which is not part of compensation income?
a. Basic pay of rank and file employees
b. Fringe benefits of managerial and supervisory employees
c. Basic pay of managerial or supervisory employees
d. Fringe benefits of rank and file employees
11. Who cannot claim deductions?
a. Employed taxpayers
b. Self-employed taxpayers in business
c. Self-employed professional taxpayers
d. B and C
12. Who are required to file quarterly declaration of income?
a. individuals engaged in business
b. corporations and individuals engaged in business
c. corporations
d. all individuals and corporations
13. Mr. Jones wishes to file his 2019 income tax return. To avoid penalty, he must file his return on or
before
a. April 15, 2019 c. August 15, 2020
b. April 15, 2020 d. November 15, 2020
14. An individual taxpayer must file his income tax return for the third quarter of 2019 on or before
a. April 15, 2020 c. November 15, 2020
b. August 15, 2019 d. November 15, 2019
15. Avida Corporation is filing its income tax return for the quarter ending February 28, 2019. The return
must be filled on or before
a. April 15, 2020 c. April 30, 2019
b. August 15, 2019 d. March 30, 2019
16. Which of these taxpayers is required to file an income tax return?
a. An employee covered by the substituted filing system
b. A taxpayer deriving purely passive income subject to final tax
c. A special alien with respect to his compensation income
d. A resident citizen who derives his entire income from sources outside the Philippines
17. The taxable income of corporate taxpayers is the
a. Net income from business
b. Net income from business less personal exemption
c. Taxable compensation income
d. Taxable compensation income plus net income from business
18. The taxable income of a pure compensation income earner is the
a. Net income from business less personal exemption
b. Taxable compensation income plus net income from business
d. Net income from business
19. The taxable income of a mixed income earner is the
a. Net income from business less personal exemption
b. Net income from business
d. Taxable compensation income plus net income from business
20. The taxable income of a pure professional income earner is the
a. Net income from business
b. Taxable compensation income
c. Taxable compensation income plus net income from business
d. Net income from profession less personal exemption
21. Which if the following statements is incorrect with respect to the determination of the taxable income
of individual taxpayers with other income?
a. The other income of pure compensation earners is simply included in taxable compensation
income
b. The other income of a professional income earner is included as part of non-operating income and
is included in net income
c. The other income of a mixed earner is also treated as part of non-operating income and is included
in net income
d. The other income is simply ignored in the computation of taxable income
22. S1: individuals with higher income are subject to higher tax rates S2: corporations with higher income
are subject to higher tax rates
Which is correct regarding the regular income tax?

a. Statement 1 only c. Both statements 1 and 2
b. Statement 2 only d. Neither statement 1 nor 2
23. Which is incorrect in the determination of the taxable income of individual taxpayers?
a. Under the TRAIN law, there is no instance where the compensation income of the taxpayers could
become zero
b. A net operating loss is deductible against taxable compensation income
c. The taxable compensation income is added to the net income from business
d. Personal exemption is no longer deductible against compensation income
24. S1: corporations with the same net income may not have the same tax due S2: individuals with the
same net income may not have the same tax due.
Which statement is incorrect regarding the regular income tax?

a. Statement 1 c. both statements 1 and 2
b. Statement 2 d. none
25. A purely engaged in business individual taxpayer shall use
a. BIR form 1701A c. BIR form 1700
b. BIR form 1701 d. BIR form 1702
26. BIR Form 1701 is not intended for
a. Estate c. pure professional income earner
b. Trust d. Mixed income earner
27. BIR Form 1700 is intended for
a. trust c. pure compensation income earner
b.estate d. Pure business or professional income earner
28. A corporation subject to different tax rates shall use

a. Form 1702-RT c. Form 1702-MX
b. Form 1702- EX d. Form 1701A
29. A non-profit corporation with a taxable income shall use
30. A school which is subject to preferential or special tax rate shall use
31. A corporation that is subject only to a 30% income tax rate shall use
CHAPTER 8: Regular Income Tax: Exclusion from Gross Income
Statement 1: items of passive income from abroad are subject to regular income tax.
Statement 2: items of passive income from the Philippines are generally subject to final income tax. Which
statement is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement
Which is true with the regular income tax?
a. Certain items of income are subject to final withholding tax
b. Tax is payable at regular intervals
c. Income tax returns are not required
d. All of these
Which is not a feature of regular income tax?
a. It generally applies to all items of gross not subject to final tax
b. Creditable withholding tax
c. Gross income tax
d. Accounting period
Statement 1: capital gains are generally subject to capital gains tax
Statement 2: items of passive income in the Philippines are generally subject to regular income tax a.
Statement 1 is true
b. Statement 2 is true
c. Both statements 1 and 2 are true
d. Neither statement 1 and 2 is true
Deductions from gross income are
a. Personal expenses
b. Business expenses
c. Either a or b
d. Neither a or b
Which of the following statement distinguishes deductions from exclusions from gross income?
a. Deductions can be claimed by citizens while P250,000 income exemption cannot be claimed by aliens
b. Deduction are outflows from gross incomes while exclusions are not outflows from gross income
c. Both deductions and exclusions are deducted from gross income. d.
All of these
Progressive income tax does not apply to a
a. Non-resident alien
b. Resident alien
d. Resident citizen
Proportional income tax does not apply to
a. Domestic corporation
b. Resident foreign corporation
c. Business partnership
d. General professional partnership
Which is not included under the term “corporation”?
a. Business partnership
b. Co-ownership
c. Non-profit charitable institution
d. Joint venture
The highest the highest marginal tax rate for individual income taxpayers is a.
25%
b. 30%
c. 35%
d. 32%
Which corporate taxpayer is not subject to regular income tax?
a. Non-resident foreign corporation
b. Domestic corporation
c. Resident foreign corporation
d. Business partnership
Which individual income taxpayers is not subject to regular tax?
a. Resident alien not engaged in trade or business
b. Non-resident citizen not engaged in trade or business
Which is correct with respect to exclusions from gross income?
a. They are included as part of gross income but are subsequently deducted
b. They are not included in gross income but are added to taxable income
c. They are not considered in the computation of taxable income
d. They are synonymous with deductions
Which is correct with respect to deductions from gross income?
a. They pertain to expenses of generating items of business or professional gross income
b. They are excluded from the determination of taxable income
c. They include all expenses incurred in the generation of any income
d. They include P250,000 annual income exemption Which constitute a taxable item of gross
income?
a. Compensation for personal injuries
b. Gain from sale in mutual funds
c. Gain from sale of government bonds
d. Income exempt under treaty
The proceeds of an insurance policy received by the corporation as beneficiary on the life of its officer is a.
A gift
b. A taxable income
c. An inheritance
d. Exempt from income tax
Mr. buguey was insured in a life insurance with his daughter, ybon, as the irrevocable beneficiary. Ybon was
paid the entire proceeds when Mr. buguey died. The proceeds constitute
a. A taxable inheritance
b. A taxable gift
c. A taxable income
d. An exclusion from gross income
A policy who outlived the policy an received a cash surrender value in excess premiums paid exempt upon
a. The amount representing a return of premiums
b. The entire amount received
c. The excess of the amount received over the premium paid
d. None of these
The assignment of an insurance policy at an amount in excess of the premiums paid on the policy is subject to
a. Donor’s tax
b. Income tax
c. Estate tax
d. Any of these
A widow who collected the life insurance proceeds of her decease husband is
a. Exempt to the entire amount of the proceeds
b. Taxable to the excess of the proceeds over the premiums paid by the husband
c. Taxable to the excess of the proceeds over the premiums paid by the widow
d. Exempt with respect to the portion of the proceeds representing returns of a premium
The policyholder of a life insurance contract outlived his insurance policy. He was paid P3000,000 upon
maturity of the policy. He paid P250,000 total premium. What is the inclusion in gross income? a. P300,000
b. P250,000
c. P50,000
d. P0
Which of the following is subject to tax?
a. Proceeds of crop insurance
b. Proceeds of livestock insurance
c. Indemnity under patent infringement suit
d. All of these
Which is not requisite of exemption of a retirement benefit plan?
a. 10 years of employment
b. The employer maintains a reasonable pension
c. The retiree must be a senior citizen
d. First time availment of retirement exemption
Termination benefits are exempt from income tax provided that the reason for termination is a.
Beyond the employee’s control
b. Within the employer’s control
c. Within the employee’s control
d. Beyond the employer’s control
Which is not an item of exclusion from gross income?
a. Sss benefits
b. Income of the government and its political subdivisions
c. Income of the government-owned and controlled corporations
d. Income of foreign governments
Which of the following government-owned and controlled corporations is subject to income tax? a.
Social security system
b. National development corporation
c. Philippine charity sweepstakes office
d. Philippine health insurance corporation
Which is not acceptable ground for exemption of termination pay?
a. Mass employee lay-off
b. Closure of employer’s business
c. Grave misconduct and neglect of duty
d. Retrenchment of employer’s business
Which is not an item of gross income for taxation purposes?
a. Unrealized income
b. Advanced income
c. Income earned between related parties
d. All of these
Which is subject to income tax?
a. Gain on sale of 6-year bonds
b. Gain on sale of share in mutual fund
c. Interest income on long-term bonds with a maturity period exceeding five years
d. Interest income on long-term bonds deposits by individual taxpayers Which
of the following is not an exclusion from gross income?
a. Income of government properties
b. Income taxes collected by the bureau of internal revenue
c. Dividend income payable to a foreign government
d. Social security benefits
Which of the following cannot claim deductions from gross income despite actual engagement in business? a.
Resident citizen
b. Resident alien
Which of the following tax payers cannot claim deduction from gross income?
a. General professional partnership
b. Domestic corporation
c. Resident foreign corporation
d. Non-resident foreign corporation
Which of the following can be claimed as deduction?
a. Transportation allowance of employees of the taxpayer
b. Transportation allowance of the taxpayer’s dependents
c. Losses from destruction of the taxpayer’s residence
d. Depreciation of the residence of the taxpayer
Which expense is deductible despite the fact that it is not actual expense?
a. Compliance expense on regulatory requirements
b. Deduction incentives for compliance to regulatory requirements
c. Uncollectible debts ascertained to be worthless
d. None of these
Which is not a characteristic of deductions from gross income?
a. Legitimate business expense
b. Capital expenditure
c. Ordinary and necessary business expense
d. Actual and necessary business expense Which is a deductible expense?
a. Regular repair of office equipment
b. Refurbishing of an old building to prepare it for use
c. Addition of a wing to an existing building
d. Overhaul of machineries to extend their useful life
Which of the following taxpayers can claim deduction against gross income?
a. A resident citizen taxpayer earning purely compensation income
b. Non-resident foreign corporation
c. Non-resident alien not engaged in trade or business
d. Resident citizen earning a mix of passive and business income Which is not separate
classification of deduction from gross income?
a. Net operating loss carry over
b. Regular allowable itemized deductions
c. Special allowable itemized deductions
d. Net capital loss carry over
Which statement incorrect regarding deductions?
a. The claim of deductions, similar to exemption, is construed against the taxpayer
b. The use of optional standard deduction always result in reported taxable income
c. The unreasonableness of deduction is up to BIR to prove
d. The incurrence of an operating loss is an indication of an unreasonableness expense
Losses on capital assets are
a. deductible against gross income to the extent not compensated by insurance.
b. deductible against capital gain to the extend compensated by insurance.
c. not deductible against gross income whether or not compensated for by insurance.
d. not deductible against capital gains unless not compensated for by insurance.
Which is a deductible expense?
a. Marketing and advertising expense
b. Insurance on factory building
c. Salaries of security guards in the factory
d. Cost of registering stocks
The transaction involving an insured property is said to be closed and completed when
a. final settlement by the insurer is made.
b. the report of the insurance adjuster indicates a loss.
c. final settlement confirms an unrecoverable cost.
d. no proceedings in the court is expected to be made by the insured.
Which is deductible expense?
a. Acquisition cost of a business franchise
b. Repayment of debt
c. Cost of registering a business
d. Cost of issuing securities
Which is deductible business expense?
a. Interest on personal borrowings
b. Rental of taxpayer’s domicile
c. Selling commission to agents
d. Wages of kasambahays
A repair expense is deductible in the period paid or incurred useless it
a. merely maintain the value of the property.
b. Increases the value of the property.
c. constitutes a major repair.
d. constitutes a major expense.
Losses of property are not deductible unless
a. sustained with a related party.
b. sustained in an actual or completed transaction.
c. temporary in nature.
d. covered by insurance or indemnity contracts.
Losses on insured properties are not deductible
a. to the extent not compensated by insurance.
b. to the extent compensated by insurance.
c. as a rule, except when allowed by the BIR examiner.
d. In all circumstances.
Which statement is the most accurate?
a. prepaid expense is deductible in the period paid by taxpayer using cash basis.
b. prepaid expense is deductible in the future period it relate without regard to the basis of
accounting employed by the taxpayer.
c. accrued expenses are deductible by cash basis taxpayers
d. depreciation expense can be claimed only by accrual basis taxpayer.
Cash basis and accrual basis taxpayer differs in the treatment of
a. Prepaid expense
b. Current period cash expense
c. Current period accrued expense
d. Depreciation expense Which may not be related?
a. The controlling individual and the controlled corporation.
b. The controlling individual and a subsidiary of a controlled corporation.
c. The grantor and fiduciary of a trust
d. The grantor and the beneficiary of trust
Which of the following is an extraordinary non-deductible expense against regular gross income of
merchandiser?
a. Loss on sale of obsolete merchandise
b. Store supplies and utilities
c. Local business permit
d. Loss on sale of investment in stocks
Which is a deductible expense against business gross income?
a. Commission expense on sale of investment in stocks
b. Salaries of marketing personnel of a manufacturing business
c. Quarterly estimated income tax
d. Final tax on interest income on the bank savings deposit Which is not a general principle of
deduction?
a. The matching principle
b. The related party rule
c. The withholding rule
d. The transfer pricing rule
Which is an actual deductible expense?
a. Provision for an estimated bad debt expense
b. Loss arising for liability on a contested lawsuit confirmed by a final judgment
c. Increase in value of foreign currency- denominated debt
d. Death of animal offspring
Which is deductible against gross income?
a. Imputed interest expense
b. Advance to the profit sharing of a partner in a general professional partnership
c. Repayment of business debt
d. Local taxes
Which of the following is deductible?
a. Rent office space
b. Tuition fees of the siblings of the taxpayer
c. Selling expense of domestic stocks directly to a buyer
d. Estimated losses on lawsuit
Which is non-deductible against gross income?
a. Loss on scale of stocks through the PSE
b. Write-off of bad debts
c. Loss on destruction of office building by an earthquake
d. Amortization of patent or franchise used in business Which is an incorrect statement?
a. The straight line method provides for an equal periodic deduction against gross income.
b. The sum-of-the-years digit method provides for an increasing deduction against gross income.
c. The double declining balance method provides for a declining deduction at a rete twice the deduction
of the straight line method.
d. Both straight line method and sum-of-the-years-digit method consider the residual value of the
property.
Which of the following ordinary assets cannot be depreciated?
a. Office equipment
b. Machineries
c. Building and its improvements
d. Land
Statement 1: Only taxpayer under the accrual basis shall use the inventory method in deducting inventories.
statement 2: Only taxpayer under the under the accrual basis can claim deduction for depreciation and losses.
a. Statement 1 is correct.
b. Statement 2 is correct
c. Both statements are correct
d. Neither statement is correct
Statement 1: The cost of goods sold is directly deducted upon sales in the measurements of the gross income
from the sales of goods.
Statement 2: The cost of services is directly deducted from gross receipts in the measurements of the gross
income from the sales of goods.
d. Neither statement is correct Which
is not a capital expenditure?
a. Payments to create E good image of the business of the taxpayer
b. Prepaid expenses
c. Accrued expenses
d. Advances to contractors
Statement 1: Repairs that do not extent the useful life or increase the fair value of an assets should be
capitalized.
Statement 2: The costs of issuing securities of the taxpayer are deductions against gross income. a.
Statement 1 is correct.
Statement 1: Improvements to properties are usually capitalized.
Statement 2: Directly attributable cost of acquisition of properties are added to the basis of the properties
acquired.
The following cannot claim deduction from gross income except
a. A self-employed individual taxpayer
b. A corporation earning purely passive income
c. An individual earning purely passive income
d. An individual taxpayer earning purely compensation and passive income Which is not
deductible against gross income?
a. Interest expenses incuccred to purchase tax-exempt securities
b. Net capital loss
c. Personal expenses
d. All of these
Which is a deductible business expense?
a. Loss on decline in value of securities
b. Estimated losses on expropriation
c. Fire loss on an insured property
d. Loss on theft of company assets
Which of the following constitution a deductible business expenses?
a. Purchase of office equipment invoiced under the trade name of the taxpayer’s business
b. Tuition fees of dependents of the taxpayer
c. Interest expense on business loan
d. Representation expenses booked in the name of the taxpayer’s
Which of the following qualifies for deduction for an individual income taxpayer engaged in business? a.
Salaries of household maid
b. Gasoline expenses of the taxpayer’s personal car
c. Office internet expense
d. Taxpayer’s transportation expense to and from his residence
Which of the following can be deducted by an individual taxpayer not engaged in business? a.
Transportation expenses
b. Communication expenses
c. Internet expenses
d. None of these
Which of the following can be claimed by a resident foreign corporation?
a. Depreciation expenses on properties located abroad
b. Oncome tax paid in a foreign country
c. Income tax paid in the Philippines
d. Interest expenses on foreign borrowings used to finance its Philippines business Which can be
treated as a capital expenditure deductible thought depreciation expense?
a. Interest expense incurred to purchase office equipment
b. Losses sustained in an uninsured office building
c. Acquisition of land
d. Acquisition of personal computers
Which of the following items can be deducted in full in the year sustained?
a. Write-off of bad debts by a taxpayer under the cash basis
b. Loss on market decline in the value of the gold inventories
c. Loss on the destruction of the taxpayer’s personal car
d. Uninsured fire loss sustained by the business of the taxpayer
Deduction can be claimed against
a. Talent fees
b. Fixed allowance
c. Fringe benefits
d. Salaries
Which is deductible in full by a taxpayer engaged in the merchandising business?
a. Value of inventories taken home by the business owner
b. Loss on unrecoverable debts from a non-paying family member
c. Imputed interest on the capital investment of the owner
d. Value of inventories destroyed by rodents Which is not deductible loss by security dealer?
a. Wash sales loss
b. Loss on the sale of bonds with more than five years maturity
c. Loss on the sale of stocks though the PSE
d. Loss on the sale of short-term bonds through the Philippine deadline
Determine the deductible loss.
a. Loss incurred in exchanging property to obtain control of corporation
b. Loss incurred in exchanging properties with a corporation after obtaining control over said corporation
c. Calamity loss on uninsured property
d. Bad debts from a sister company
Which of the following is non-deductible by the fact that it violates the matching principle?
a. Expense of a tax-exempt operation
b. Payment for the police protection
c. Payments pf revolutionary taxes
d. Expenses not receipted in the name of the taxpayer
Which is incorrect with regard to expenses incurred between associated enterprises?
a. The pricing of the transaction must not be controlled.
b. The pricing method to be adopted shall be based on free market factors on those made between two
independent parties.
c. In case of a controlled transaction, the deduction expense to the paying enterprise shall be arm’s
length value of the transaction.
d. No deduction shall be allowed on expenses incurred between associated enterprises Which is not a
business expense?
a. Fringe benefits tax expense
b. De minimis benefits granted to employees
c. Salaries of personal driver od the company president which was subjected to fringe benefit tax
d. Depreciation value of properties designated for the use of company managers and supervisors which
are subjected to fringe benefits tax
CHAPTER 9: REGULAR INCOME TAX: INCLUSION IN GROSS INCOME

(TRUE OR FALSE)
TRUE 1. Items of gross income subject to regular income tax and capital gains tax are reportable to the
government.
TRUE 2. Rent is a passive income, but is not subject to final tax.
FALSE 3. The interest income from bonds issued by banks is subject to final tax.
TRUE 4. Gains from dealings in capital assets are generally subject to the regular income tax.
FALSE 5. The gross income from operations enjoying a tax holiday are included in gross income subject to
regular tax, but are presented as deductions in the income tax return.
TRUE 6. The share in business partnership is subject to final tax, but the share in a general professional
partnership is subject to regular income tax.
TRUE 7. Gains from dealings in ordinary assets are subject to regular income tax
TRUE 8. Items of passive royalty income are subject to final income tax while items of active royalty income
are subject to regular income tax.
TRUE 9. Compensation income is an inclusion in gross income subject to regular tax except compensation
income of special aliens.
TRUE 10. The reportable gross income from business or the exercise of a profession is net of the cost of
goods sold or cost of services.
TRUE 11. Items of income which are included in gross income subject to final tax are excluded in gross
income subject to regular income tax.
FALSE 12. Imputed interest income is an item of gross income subject to regular income tax.
TRUE 13. Advanced rentals are income in the year received.
TRUE 14. Real property tax and insurance on the property if assumed by the lessee constitute income to the
lessor.
FALSE 15. Corporate winnings are exclusions in gross income; hence, they are exempt from income tax.
FALSE 16. Stock dividends are never subject to income tax.
TRUE 17. Pensions or retirement benefits are inclusions in gross income subject to regular income tax if the
employee is terminated due to any cause within his control.
FALSE 18. Prizes in athletic competitions sanctioned by the Philippine government are exclusions in gross
income subject to final tax, but are inclusions in gross income subject to regular income tax.
TRUE 19. Corporate prizes are exclusions in gross income subject to final tax but are inclusions in gross
TRUE 20. Stock splits are never subject to income tax.
TRUE 21. The distributable net income of a general professional partnership is subject to creditable
withholding tax.
FALSE 22. Exempt joint ventures and co-ownerships are treated as pass-through entities and are subject to
income tax.
TRUE 23. The distribution by the GDP of items of passive income is an inclusion in gross income of the
partner subject to regular income tax.
TRUE 24. General professional partnerships are exempt from tax and hence, exempt from withholding.
FALSE 25. The share from the net income of a joint venture organized abroad is subject to 10% final
withholding tax.
TRUE 26. Income distribution from taxable estates and trusts is an inclusion in gross income subject to
regular tax by the heir or beneficiary.
TRUE 27. The recovery of past deduction must be reverted back to gross income of taxpayers using the
accrual basis.
FALSE 28. The recovery of bad debts need not be reverted back to gross income of taxpayers using the cash
basis.
FALSE 29. The recovery of deduction from an exempt year is subject to tax.
FALSE 30. General professional partnerships are not exempt from regular tax but are subject to final tax and
capital gains tax.
FALSE 31. An indebtedness cancelled by the creditor out of mercy is an income to the debtor.
FALSE 32. When there is a net loss in the period the deduction is taken, the subsequent recovery of the
deduction will not have any tax benefit.
TRUE 33. The refund or recovery of non-deductible taxes shall not be reverted back to gross income.
FALSE 34. The loss of the partnership can be claimed by the partners as deduction in their income tax
returns.
FALSE 35. The accounting period of the taxpayer has a direct impact upon the amount of gross income to be
reported.
FALSE 36. The power of the CIR to redistribute income and expense includes the power to impute income
between affiliated enterprises.
TRUE 37. The situs of taxation has an impact on the extent of the reportable gross income.
TRUE 38. Creditable withholding taxes are added back to the amount of reportable gross income.
FALSE 39. The output VAT must be included as part of gross income of VAT taxpayers.
FALSE 40. The requirement to revert back to gross income the amount of withheld taxes applies only to VAT
taxpayers.
TRUE 41. Generally, all items of income of NRA-NETB and NRFCs from the Philippines are inclusions in gross
income subject to final tax.
FALSE 42. The taxpayer must enter into an advanced pricing agreement with the BIR for its cross-border
transfer pricing with associated enterprises.
TRUE 43. Transfer pricing between associated enterprises must be made at arm’s length.
FALSE 44. The transfer pricing regulations apply only to cross-border transfers of goods and services between
associated enterprises.
TRUE 45. Corporations under the direct and indirect control of the same controlling individual or
corporation are associated enterprises.
FALSE 46. Under the accrual basis of accounting items of gross income are reported in the period they are
received.
TRUE 47. Basically, transfer pricing adjustment is needed when the income reported for Philippine taxation
is understand.
MULTIPLE CHOICE – THEORY
1. Which is not subject to income tax? D. All of these
2. Which is an item of gross income subject to regular tax? A. Gain on sale of lot by a realty
dealer
3. Which is not an item of gross income subject to final tax? C. Share in the income of a general
professional partnership
4. Which of these employee benefits is subject to final tax? C. Fringe benefits to supervisory
and managerial employee
5. All of these are items of gross income subject to regular tax except B. Interest income from long-term
one. Select. bank deposits
6. Which is an income exempt from income tax? C. Taxes collected by the
government
7. All of these are subject to regular income tax, except D. Capital gain from sale of real
property located in the Philippines
8. Which is exempt from regular tax? B. Income of qualified pension plans
9. Which item of gross income is not subject to regular tax? B. Capital gain on the sale of bonds
with more than 5 years maturity
10. Which is not part of compensation income subject to regular tax? C. Portion of salary contributed to
SSS
11. Which is included in the gross income subject to regular tax of a B. Interest income from promissory
resident alien? notes of resident aliens
12. Which of the following deductions from gross compensation income D. Dues withholding tax
is included as part of gross income subject to regular tax?
13. Which interest income is subject to regular tax? D. All of these
14. Dividends subject to regular tax includes A. Foreign Dividends
15. Statement 1: All prizes earned abroad are subject to regular tax. A. Statement 1
Statement 2: All prizes in the Philippines are subject to final tax.
Which statement is generally correct?
16. Which is an item of gross income subject to regular tax? A. Lottery
17. Which of the following is not subject to regular tax of a domestic C. Income from abroad exempt
corporation or resident citizen? under treaty
18. Which is subject to regular tax to a non-resident foreign corporation D. None of these
or non-resident alien not engaged in trade or business?
19. Which is subject to regular tax to a resident foreign corporation? B. Gain from sale of real property
capital assets in the Philippines
20. The proceeds of life insurance received by the wife of the insured is A. Exempt from income tax
21. Which of the following will not be reported in gross income? A. Receipt inheritance
22. Which is not reportable type of gross income? D. Capital gains from the sale of
domestic stocks through the PSE
23. Which of the following is included in gross income subject to regular D. Farming income
tax?
24. All income earned abroad that would otherwise be subject to final B. Resident citizen
taxes if earned within the Philippines shall be subject to progressive tax
of a
25. All items of passive income earned abroad are subject to regular tax to C. A resident citizens and domestic
corporations
26. Which individual taxpayer is not subject to progressive tax? B. Special aliens
27. Which corporate taxpayer is not subject to regular tax? D. Non-resident foreign corporation
28. Individual taxpayers shall report their income on B. A calendar year
29. Corporations are allowed to report their income on C. Either fiscal year or calendar year
30. Which is not subject to progressive tax to an individual taxpayer? C. Amounts received by the insured
in excess of premiums paid
31. Which of these is subject to Philippine regular income tax to a D. Interest income from domestic
foreigner? bonds
32. If not covered by the substituted filing system, employed individual B. Annually
taxpayers shall report their regular income
33. Corporations and individuals engaged in business or in the exercise of D. Quarterly and Annually
a profession are required to report their regular income
34. Which is incorrect concerning transactions between associated C. Pricing should be motivated by
enterprises? the need to save from total income
tax.
35. Which is not an associated enterprise to the controlling individual of A. An associate of a subsidiary in
a holding company? the group
Chapter 10: Compensation Income
Multiple Choice Theory- Part 1:
1. Which is not an element of an employer-employee relationship?
D. Payment of fixed wages
2. Which is not an employee classification according to function?

C. Special Employee
3. Which is not an employee classification as to taxability?
C. Managerial Employee
4. Which is usually an employee?

A. A director who is at the same time the Chief Executive Officer
5. The statutory minimum wage is

C. The higher between P5,000 a month or P60,000 annually or the rate fixed by the Regional Tripartite Wage and
Productivity Board
6. Which is not included in the gross taxable compensation of an employee?

C. 13th month pay and other benefits NOT in excess of P90,000
7. Which is not an exclusion criterion on employee benefits?

A. Necessity of the employee rule (dapat kasi employer para correct)
8. For purposes of the fringe benefit tax, fringe benefits pertain to
B. Other fringe benefits not specifically included as compensation income of managerial and supervisory employees
9. Which is a correct statement?
D. The compensation of income of rank and file employees is subject to tax Multiple
Choice Theory- Part 2

1. Which is not a supplemental compensation income?
A. De minimis benefits
2. Fringe benefits includes
D. De minimis benefits
3. De minimis benefits are generally

A. Exempt from tax
4. Which do not form part of other benefits of rank and file employees?
B. Salaries and Wages
5. The term “de minimis benefits” does not include
A. Christmas Bonus
6. Select the most accurate statement

D. The benefits of rank and file employees are not subject to fringe benefit tax.
7. Which is taxable as compensation?

C. Termination benefits from resignation
8. Which of the following is subject to income tax?

D. Voluntary contributions to SSS, PHIC, and HDMF
9. All of these are exempt benefits of a minimum wage earner except
C. Vacation Pay
10. Which is correct when a minimum wage earner derives other income outside his employment? C.
He is exempt from withholding tax, but subject to income tax
11. Rice allowance is taxable when

D. Given more than P1,500 (ngayon nabago na, P2,000 na)
12. Meal allowance is taxable when given
D. As incentive to all employees
13. Which is an exempt de minimis benefits?

C. Rise subsidy of half sack a month valued at P 1,000 (kase pede hanggang 2k)
D. Uniform allowance of P 5, 500
14. Which is a correct de minimis limit?
B. Laundry allowance of P 3,600 per year
15. Statement 1: Excess de minimis is considered compensation income as “other benefits” for rank and file employees
and managerial or supervisory employees.
Statement 2: Excess de minimis is a fringe benefit subject to the fringe benefit tax.
C. Both statements are incorrect
16. Which is considered compensation?
B. Cost-of-living allowance
17. Which of the following remuneration is an item of compensation income?

C. Commission to a minimum wage earner
18. Night differential pay is exempt from taxation when received by
C. Minimum wage earner
19. Which is not subject to the P90,000 exemption threshold for a private employee?
C. Profit sharing bonus
20. The P90,000 exemption threshold is applicable to

D. All employees (reg, rank and file, man and superv)
21. The excess of “13th month pay and other benefits” is

A. subject to regular tax
22. Which is subject to the withholding tax on compensation?
D. Salary of minimum wage earners receiving fixed allowances
23. Statement 1: A minimum wage earner who loses the benefit of exemption by transferring to a region with a lower
minimum wage is taxable on all income during the year.
Statement 2: A minimum wage earner who qualifies as much during the year is exempt from tax on all income earned
during the year.
B. Both statements are incorrect
Chapter 11: Fringe Benefit Tax Multiple Choice-Theory 1
1. Which is not part of de minimis benefits?

D. 13th Month pay
2. The minimis benefits not exceeding their thresholds are
D. Exempt from income tax
3. Select the answer which more accurately completes the statement. The taxable fringe benefit of a
supervisory employee is
A. Subject to fringe benefit tax
4. Who is subject to fringe benefit tax?
B. Managerial and supervisory employees
5. Which of these items is subject to fringe benefit tax?
C. Fringe benefits of managerial and supervisory employees
6. The fringe benefit tax by nature is a
A. Final Tax
D. The personal expenses of managerial and supervisory employee shouldered by the employer are subject
to fringe benefit tax.
8. As a rule, hybrid expenses are presumed
A. 50% fringe benefit
9. Which is the following phrase is NOT an exemption criterion for purposes of the fringe benefit tax?
D. For the furtherance of the employer’s business
10. What percentage of the depreciation value is considered fringe benefit in the free usage of employer’s
real properties? C. 50%
11. When fringe benefit is in the form of free use of real properties, what percentage of the fair value of
the property is considered fringe benefit? A. 5%
12. When fringe benefit is in the form of free use of personal properties, what percentage of the
depreciation value of the property is considered fringe benefits?
C. 50%
13. An employer transferred title over property to the employee. What percentage of the benefit is
considered for purposes of the fringe benefit tax?
A. 100%
14. For purposes of computing the annual value of benefits involving the free use of movable properties, what
percentage of the value of property is used?
C. 20%
15. For purposes of computing the annual value of benefits involving the free use of immovable
properties, what percentage of the value of property is used? A. 5%
Multiple Choice-Theory 2
1. Which is not a characteristic of the fringe benefit tax?
D. Imposed upon the monetary value of benefits
2. Which is correct with respect to the fringe benefit tax?
A. It is due monthly and quarterly
3. The actual value of benefits realized by the managerial or supervisory employees is referred to as the A.
Monetary Value
4. Which is not an exempt housing benefit?
B. Housing benefit for four months
5. Which is not subject to fringe benefit tax?

C. Expenses of employees considered in furtherance of the employer’s business
6. The free usage of the following items is exempt from fringe benefit tax?
C. Helicopter
7. What percentage of the fair value of the yacht is considered in measuring depreciation value?
A. 5%
8. Which is subject to fringe benefits tax?

D. Housing for the family members of an employee
9. To which of the following is the tax benefit rate is not applied?
A. The monetary value of the fringe benefit
10. Which fringe benefit is subject to fringe benefit tax?

A. If given for the convenience or advantage of the employee
CHAPTER 13-B: Special Allowable Itemized Deductions and NOLCO

TRUE OR FALSE
FALSE 1. The employers are allowed additional deduction of 15% on the compensation paid to persons with
disability.
FALSE 2. An adopting private entity of a public school is entitled to a deduction incentive equivalent to
double the amount donated to a public school.
TRUE 3. Taxpayers who installed improvements in their facilities to accommodate persons with disability are
allowed an additional 50% deduction incentive based on the value of such improvement.
FALSE 4. The distribution of the corpus of a taxable estate or trust is an item of special deduction against the
gross income of the estate or trust.
TRUE 5. The transfer to the reserve fund of insurance companies is a special deduction, but the release from
the reserve fund is an item of gross income.
TRUE 6. Dividends are non-deductible by any taxpayer except real estate investment trusts.
FALSE 7. The transfers to all reserve funds of the cooperative including mandatory and discretionary funds
are deductible from the gross income of cooperatives.
TRUE 8. Persons with disability are mandatorily allowed a discount of 20% from all establishments.
FALSE 9. Senior citizens are mandatorily allowed a discount of 25% from certain establishments.
FALSE 10. The employer of senior citizens can claim additional deductions equivalent to 50% of the
compensation paid to senior citizens who have income below the poverty line.
TRUE 11. Expenses incurred to comply with the requirement of the Expanded Breastfeeding Act are allowed
an additional incentive equivalent to the amount of the expense incurred.
TRUE 12. Attorneys are entitled to the value of their pro-bono services to indigent clients as deduction from
gross income.
TRUE 13. The allowable incentives to lawyers for pro-bono services shall not exceed 10% of the gross
income from the actual performance of the legal profession.
TRUE 14. Employers are entitled to an additional deduction of 50% of the productivity incentive bonus paid
to their employees.
TRUE 15. The amount of NOLCO shall not include the amount of deduction incentives allowed by law.
FALSE 16. A small business was merged to a larger business. Even after the merger, the NOLCO of the small
business is deductible by the larger business.
TRUE 17. NOLCO is valid for 3 years.
FALSE 18. NOLCO always exist when there is a net operating loss.
TRUE 19. Net capital loss carry over cannot be carried over together with NOLCO.
TRUE 20. An acquirer in a business combination sustained a net operating loss before the business
combination. The acquirer is allowed to carry-over its net operating loss in prior years.
MULTIPLE CHOICE – PROBLEM

1. A fitness gym catering to senior citizens recorded a total gross revenue of P345, 000
from senior citizens. The gym provides 24% discount in excess of the legal requirements. D. P90,789
What is the deductible amount of senior citizen’s discount?
2. Germania Inc. employs three senior citizens as regular employees. Two of them are
receiving the minimum wage which is within the poverty level. Total minimum wages
paid to these senior citizen employees during the year were P182, 000. One of the senior B. P27,300
citizen employees is a director of the company who was paid P780, 000 compensation
during the year. Compute the deductible additional compensation expense.
3. An employer hired two senior citizens during the year as temporary replacements for
its two staffs who were on leave. Both senior citizens were paid salaries not in excess of
the poverty level.
Mang Pandoy, substituted for an employee who went on one year sabbatical leave. B. P21,600
Mang Pandoy received a total of P144, 000 during the year. Aling Maria substituted for
an employee who filed for maternity leave for 3 months. Aling Maria received a total of
P28, 000 during the year.
Compute the total deductible additional compensation expense.

4. Mr. Bakilan irrevocably designated in trust his investment portfolio consisting of
domestic stocks and bonds. The dividend income from the stocks shall be distributed to A.P 0
the beneficiary while the interest on the bonds shall be accumulated. During the year,
the portfolio earned P200, 000 interest and P135, 000 dividends, net of final tax.
5. A grantor irrevocably designated in trust a real property in favor of a beneficiary.
Under the trust indenture, 20% of the trust gross income shall be distributed to the
beneficiary. The trustee shall be paid 5% of the gross income as management fee. During
the year, the trust collected P810, 000 rent income, net of 10% creditable withholding B. P101,000
taxes. The trust recorded P350,000 in expenses.
Compute the deductible amount of income distribution to the fund.

6. The required reserve for an insurance company was P3,200,000 as of December 31,
2013 and P3,500,000 as of December 31, 2014. What is the deductible amount of B. P300,000
transfer to the reserve fund?
7. A real estate investment trust (REIT) earned P4,100,000 from property rentals. Total
business expenses were P2,100,000. Assuming the REIT declared the mandatorily B. P1,800,000
required dividend distribution, what is the amount of deductible dividend against gross
income?
8. A cooperative transacting business only with its members is on its third year of
operation. It reserves 50% of its operating income in compliance with the new CDA
regulation. During the year, it reported a total operating income of P3,000,000 inclusive D. P300,000
of P2,400,000 income from related activities. Compute the deductible amount of
transfers to reserve against gross income.
9. An establishment granting senior citizens 25% discounts recorded the following sales
during the period:
Customers
B. P160,000
Regular Senior Citizen
Gross Sales P8,000,000 P800,000
Cost of Sales 5,000,000 400,000
What is the deductible senior citizen’s discount?
10. A restaurant granted 25% discounts to senior citizens in excess of the 20% mandatory
requirement. During the year, the restaurant reported receipts of P93,750 from senior D. P25,000
citizen customers. Compute the deduction for senior citizens’ discount.
11. An employer embarked on a socio-economic program named “A World Empowered
by Persons with Disability.” Under the ambitious program, the employer established a
business which is fully manned by persons with disability. The employer incurred
P300,000 in workplace improvements specifically designed for its disabled employees. D. P525,000
The business venture turned very profitable due to overwhelming public sympathy.
During the year, the employer paid P2,100,000 in compensation expense. Compute the
additional deductible compensation expense.
12. In the immediately preceding problem, what is the deductible additional expense for D. P150,000
the improvements made for the employees with disability?
13. In 2016, Bernard Bakilan, a practicing lawyer, adopted a public elementary school
and distributed P500,000 for the acquisition of computer equipment and software.
Beranard had an operating income of P900,000 before this contribution expense. A. P250,000;
Assuming the “Adopt-a-School Program” is an investment priority program of the P150,000
government in 2016, compute Bernard’s additional contribution expense and net income
respectively.
14. In the preceding problem, compute Bernard’s additional contribution expense and
net income, respectively, if the “Adopt-a-School program” is no longer a government D. P250,000;
priority program in 2016? P560,000
15. Binondo Jewellery is a qualified jewelry enterprise registered with the Board of
Investments. In order to modernize its jewelry making business, it instituted an in-house
training program and hired external experts to train its employees. The program was D. P150,000
duly approved by TESDA. The program cost P300,000 during the year. What is the
deductible amount of additional training expense?
16. Girl Power Corporation employs purely women. It installed a lactation station at a
total cost of P350,000 and secured a “Working Mother-Baby-Friendly Certificate” from C. P350,000
Department of Health. Compute the additional deduction under the Rooming-in and
Breastfeeding Practices Act.
17. A government provincial hospital established a milk bank at a cost of P1,000,000.
Determine the additional deduction incentive it is allowed under the Rooming-in and C. P0
18. In the immediately preceding problem, what would be the additional deduction C. P1,000,000
assuming the hospital is a proprietary medical center?
19. Atty. Midsayaf is a practicing lawyer in the remote provinces of Mindanao. During the
year, he provided 180 actual hours for pro-bono services inclusive of the 60-hour
mandatory legal aid services to indigent clients. These services would have been billed B. P120,000
P1,000 per hour if rendered to paying clients. Atty. Midsayaf has a P1,400,000 gross
income during the year exclusive of P20,000 interest on his savings deposit.
20. Curaratnit, Bolalatsing & Associates, a law firm, earned an operating income of
P8,000,000, net of P6,000,000 administrative expenses and P12,000,000 direct cost of
services. During the year, it represented selected clients under its free legal assistance B. P1,400,000
program. The value of these services would have been P1,500,000. It also represented
ondigent clients for free, the value of which would have been P400,000. Compute the
special deduction for free legal services.
21. An employer paid a total of P800,000 productivity incentive bonus to its production D.P400,000
workers. What is the additional productivity incentive bonus expense?
22. An employer provides manpower training and special studies to its rank and file
employees at a total cost of P200,000. The in-house program was accredited by TESDA. C. P100,000
What is the deductible additional productivity incentive bonus expense?
23. A taxpayer had the following results of operation:
2019 2020
B. P1,000,000
Gross income P1,200,000 P2,500,000
Itemized Deductions 1,400,000 1,000,000
Deduction Incentives 200,000 300,000
What is the net income in 2020?
24. An enterprise registered with the BOI had a consistent profitable operation. Just
before graduating from its BOI tax holiday incentives in 2019, it sustained a P1,800,000
operating loss due to an employee strike in 2019. The settlement of the deadlock in 2020 A. P 0
enable the enterprise to post a P2,400,000 operating income. What is the allowable
NOLCO deduction in 2020?
25. A corporate taxpayer incurred an operating loss in 2020:
Sales P3,000,000
Less: Cost of Sales 1,200,000 Gross
Income P1,800,000
Less: Deductions B. P200,000
Regular Itemized deduction P1,200,000
Special Itemized deductions 800,000
Deduction incentives 400,000 2,400,000
Net operating loss P 600,000
What is the amount of NOLCO to be carried over in the next three years?
26. An individual taxpayer reported the following in 2019:
Gross Income P1,500,000 Less:

Administrative Expenses P800,000
Selling Expenses 650,000 1,450,000
Operating income 50,000 A.P 0
Less: Personal expenses 150,000
Excess of personal expenses over income P 100,000
What is the NOLCO to be carried over in the next three years?

27. In 2020, a taxpayer finally posted a P1,000,000 operating profit after four years of
continuous losses. The results of operations in prior years were:
2016 (P800,000)
2017 ( 400,000) B. P700,000
2018 ( 200,000) 2019 ( 100,000)
Compute the deductible NOLCO in 2020.
28. In 2016, Warren Buffet purchased the net assets of Berkshire Hathaway, a losing
business which posted a cumulative P10,000,000 loss in the past three years. Buffet’s A. P 0
charismatic leadership led the business to turn P4,000,000 profits in 2016. What is the
allowable NOLCO deduction for 2016?
29. A taxpayer has the following historical results of operations:
2016 (P600,000)
2017 ( 700,000)
2018 400,000
2019 ( 200,000) 2020 100,000 B. P200,000
What is the total outstanding NOLCO at the end of 2020 which can be carried over in
future years?
30. A taxpayer reported the following items of gross income and deductions in 2020:
Rent income P400,000

Service fees 200,000
Interest income from bank deposits 50,000 C. P200,000
Deductible expense 800,000
Non-deductible expense 100,000
Compute the NOLCO to be carried over in the next three years.

31. The carry-over of NOLCO is allowed when D. There is a change
in the controlling
shareholder
representing 51%
ownership.
32. Which is incorrect with regard to the net operating loss carry-over (NOLCO)? A. NOLCO can be
claimed together
with Optional
Standard
Deductions.
33. The following pertains to the salaries paid by the taxpayer during the year:
Salaries to regular employees P400,000

Salaries to senior citizens (above poverty line) 30,000
Salaries to senior citizens (below poverty line) 50,000
Salaries to persons with disability 200,000
Compute the total deductible salaries expense under regular allowable itemized
deductions and the total special deductions.
CHAPTER 13-C: Optional Standard Deduction

TRUE OR FALSE
TRUE 1. Unlike individual taxpayers, corporations opting for OSD can claim deduction for cost of goods sold
or cost of services.
FALSE 2. OSD is in lieu of all deductions against gross income including personal exemptions.
FALSE 3. Individuals can claim OSD up to 40% of gross sales or receipts or gross income.
TRUE 4. Taxpayers opting to use the OSD are not required to submit financial statements.
FALSE 5. Taxpayers may use the OSD for quarterly returns, then use the itemized deductions for the annual
return.
FALSE 6. The optional standard deduction is presumed unless the taxpayer signified in his return his
intention to claim itemized deductions.
FALSE 7. The taxable net income of individuals is 60% of their gross sales or receipts.
TRUE 8. Corporate taxpayers opting to use OSD will have taxable income equivalent to 60% of their gross
income.
TRUE 9. “Gross sales” is net of sales returns, allowances and discounts.
TRUE 10. “Gross receipts” include other receipts incidental to the primary operations of the business.
FALSE 11. Gains in dealings in properties are included in gross sales or receipts.
TRUE 12. Corporate OSD is 40% of operating and non-operating gross income excluding only those subject
to final tax or capital gains tax and exempt income.
TRUE 13. For taxpayers using the accrual basis in the sales of services, gross receipts shall mean revenue.
FALSE 14. Administrative and selling expenses are include in “cost of services.”
TRUE 15. A partner can claim itemized deduction against his share in the net income of a general
professional partnership provided the partnership is using the OSD.
FALSE 16. A partner can claim OSD out of his share in the net income of a general professional partnership.
FALSE 17. A partner can claim OSD out of his share in the net income of a general professional partnership
provided the partnership is not using the OSD.
TRUE 18. No deduction of whatever nature is allowed against compensation income, except mandatory
deductions and exempt benefits.
FALSE 19. Net operating loss carry-over and net capital loss carry-over are items of deductions; hence, both
are not claimable simultaneously with OSD.
FALSE 20. The option to elect OSD may result into a net operating loss carry over.

1. The optional standard deduction for corporate taxpayer is A. 40% of gross income
2. Which of the following individuals engaged in business cannot claim B. NRA-NETB
optional standard deduction?
3. Which is correct with optional standard deduction? A. It replaces itemized deduction
4. The optional standard deduction for individual taxpayers is B. 40% of gross sales of gross
receipts
5. One of the following can claim OSD. Which is it? A. A self-employed individual
taxpayer
6. When purely employed, who of the following can claim OSD? D. None of these
7. Which is not covered by the optional standard deduction? A. Premium for health and
hospitalization insurance
8. Which can claim deduction by itemized deduction only? B. Non-resident alien engaged in
trade or business
9. Which is not included in corporate OSD? D. Creditable withholding tax
10. Corporate OSD is in lieu of all expenses such as the following except A. Cost of sales or cost of services
11. Individual OSD is in lieu of all expenses, such as but not including D. Net capital loss carry over
12. The OSD of corporations under the cash basis is based on C. Total gross income
13. The option to elect OSD is irrevocable A. In the year it was made
14. Which is presented as operating income in the income tax return? D. Gross profit from the sale of
goods
15. Which is not part of cost of services for a manufacturing concern? D. Interest expense
16. The OSD of corporations under the accrual basis is based on C. Total gross income
17. The OSD of individuals under the cash basis is based on B. Gross receipts
18. Which is not deducted in the determination of gross sales? D. Bad debt expense
19. For purposes of the OSD, which is not deducted in the determination D. Cost of services
of gross receipts?
20. Non-operating income subject to regular tax is excluded in the OSD A. Individual taxpayers
base of
21. Cost of services of banks excludes the following except C. Interest expense on the
depositors accounts
22. In the determination of the distributive net income of the general D. Partners cannot claim OSD on
professional partnership, their share in the net income of a
general professional partnership.
23. Which is correct with respect to the deduction claimable by a partner C. The partner can claim itemized
against his share in the distributive net income of a general professional deduction provided the general
partnership? professional partnership also uses
itemized deductions.
24. Individual income taxpayer must indicate his or her option to claim C. The annual income tax return.
OSD on
25. Corporate income taxpayers must indicate their options to claim OSD A. The first quarter return during
on the year.
1. An individual taxpayer, reported P800,000 net income after the
following:
Cost of sales P600,000 D. P480,000

Administrative Expense 300,000
Selling expenses 400,000
Compute the optional standard deductions.

2. In the immediately preceding problem, what is the net income under A. P1,260,000
OSD?
3. An individual taxpayer opted to claim optional standard deduction in
his first quarter income tax return in 2015. Total recorded sales before
P150,000 sales discounts and returns were P2,350,000. Total recorded
expenses were P1,180,000 of which only P340,000 were adequately A. P340,000
supported. The cost of sales was P900,000. What is the total allowable
deduction for 2015 assuming the taxpayer wants to claim itemized
deduction in the annual return?
4. The claimable deduction of a taxpayer during the year consisted of the
following:
Cost of sales P600,000

Regular itemized allowable deductions 400,000 D. P1,450,000
Special itemized deductions, including
P100,000 deduction incentives 300,000 Net
operating loss carry over 150,000
To an individual taxpayer, optional standard deduction is in lieu of

5. Assuming that the taxpayer in the immediately preceding problem is a B. P850,000
corporation, OSD is in lieu of
6. Mrs. Belo had the following in 2020:
Sales P3,400,000
Cost of sales 1,200,000
Administrative expense 300,000
Selling expenses 500,000 C. P1,408,000
Other taxable income from operations 120,000
Other non-operating income 80,000 Passive
income, net of final taxes 70,000
Assuming Mrs. Belo elects to deduct OSD, compute the OSD.

7. In the immediately preceding problem, compute the OSD assuming B. P960,000
the taxpayer is a corporation.
8. A self-employed practitioner and part-time employee derived the
following income in 2020:
Gross receipts P800,000 A.P320,000

Compensation Income 300,000
Dividend income from a Real Estate Investment Trust 20,000
Assuming the taxpayer opted to avail of OSD, what is the OSD?

9. The following relate to collections upon billings, receipts, and unpaid
billings of a practitioner during the year:
Receipts from current year billings P800,000

Receipts from last year’s billings 200,000 B.P368,000
Current year uncollected billings 100,000
Reimbursement for out-of-pocket expenses 20,000
Compute the OSD if the taxpayer is under the accrual basis.

10. Compute the OSD if the taxpayer is under cash basis. A. P408,000
11. The results of operations of the taxpayer resulted in the following:
Gross sales revenue P7,200,000

Beginning inventory 300,000
Purchases 5,800,000
Ending inventory 1,400,000 C. P2,920,000
Other operating revenues 100,000
Non-operating income 20,000
Assuming the taxpayer is an individual, what is the optional standard

deduction?
12. In the immediately preceding problem, what is the OSD if the B. P1,048,000
taxpayer is a corporation?
13. A professional practitioner has total uncollected billings of P200,000
at the year-end of 2019. Additional billings totaling P2,500,000 were B. P2,300,000
made in 2020. Uncollected billings at the year-end of 2020 were
P400,000. If he chooses to claim OSD, determine the gross receipts.
14. In the second quarter of 2019, Mr. Mariano reported total gross
income of P2,000,000 after P1,500,000 direct cost of services. If Mariano C. P800,000
claimed itemized deduction in the first quarter, what is the amount of
claimable OSD in the second quarter if he wishes to change to the OSD?
15. A private educational institution subject to a 10% preferential
corporate tax reported the following in the first quarter of 2020:
Gross tuition revenues P13,800,000

Less: Tuition discounts and remissions 400,000 A.P 0
Direct cost of services 6,700,000
Gross income from canteen and bookstores 600,000
Compute the allowable OSD if the school wants to claim OSD

16. Mr. Calabarzon reported the following data in 2020:
Sales P1,000,000
Cost of sales 600,000 A.P440,000
Gain on sale of equipment 60,000
Interest income from bank deposits 40,000
Deductible expenses 300,000
Non-deductible expenses 200,000
Compute the optional standard deduction.

17. Compute the taxable income of Mr. Calabarzon B. P660,000
18. Assuming that Calabarzon is a corporate taxpayer, compute the C. P184,000
optional standard deduction.
Chapter 14: Regular Income Taxation: Individuals Multiple Choice Theory- Part 1
1. Who is a resident citizen?
A. A resident who went on tour abroad
2. Which of the following is an individual whose residence is within the Philippines but who is not a citizen thereof?
C. Resident Alien
3. A non-resident alien is considered engaged in trade or business in the Philippines if he stayed therein for D. More
than 180 days
4. On which of the following dates shall a citizen who left the Philippines during the year be classified as a non-resident
citizen for the year? A. May 31
5. An alien shall be classified as resident in 2014 if he arrived in the Philippines on which of the following dates?
A. December 30, 2013
6. An individual whose residence is not within the Philippines and who is not a citizen thereof B.
Non-resident Alien
7. How long does a citizen have to stay abroad being classified as a non-resident?
A. At least 183 days
8. How long shall an alien have to stay in the Philippines before being classified as a resident alien?
D. More than 1 year
9. The length of stay of individuals for purposes of taxpayer classification is reckoned as of

A. December 31 of the current year
10. Which of the following is not subject to regular income tax?
D. Non-resident alien not engaged in trade or business
11. In 2014, an alien who has been in the country since July 1, 2013 is classified
as a B. Resident Alien
12. In 2016, an American who had been a resident in the Philippines since August
14, 2016 is a D. NRA- NETB
Multiple Choice Theory- Part 2

1. Which of the following is subject to final tax?
C. Fringe benefits
2. Which of the following cannot claim deduction from gross income?
A. Residing citizens deriving income solely from employment
3. To which of the following does the substituted filing system apply?
A. Purely employed taxpayers
4. Which is not a requisite of the substituted filing system?

A. The taxpayer must have only one source of business income
5. Which of the following employees is not required to file an annual consolidated income tax return?
D. Those earning purely compensation income when the employer correctly withheld the tax
6. A taxpayer who is both engaged in business and employment is not
c. Selling expense of domestic stocks directly to a buyer
d. Estimated losses on lawsuit
Which is non-deductible against gross income?
a. Loss on scale of stocks through the PSE
b. Write-off of bad debts
c. Loss on destruction of office building by an earthquake
d. Amortization of patent or franchise used in business Which is an incorrect statement?
a. The straight line method provides for an equal periodic deduction against gross income.
b. The sum-of-the-years digit method provides for an increasing deduction against gross income.
c. The double declining balance method provides for a declining deduction at a rete twice the deductio
of the straight line method.
d. Both straight line method and sum-of-the-years-digit method consider the residual value of the
property.
Which of the following ordinary assets cannot be depreciated?
a. Office equipment
b. Machineries
c. Building and its improvements
d. Land
Statement 1: Only taxpayer under the accrual basis shall use the inventory method in deducting inventories
statement 2: Only taxpayer under the under the accrual basis can claim deduction for depreciation and loss
Statement 1: The cost of goods sold is directly deducted upon sales in the measurements of the gross incom
from the sales of goods.
Statement 2: The cost of services is directly deducted from gross receipts in the measurements of the gross
income from the sales of goods.
d. Neither statement is correct Which
is not a capital expenditure?
a. Payments to create E good image of the business of the taxpayer
b. Prepaid expenses
c. Accrued expenses
d. Advances to contractors
Statement 1: Repairs that do not extent the useful life or increase the fair value of an assets should be
capitalized.
Statement 2: The costs of issuing securities of the taxpayer are deductions against gross income. a.
Statement 1 is correct.
Statement 1: Improvements to properties are usually capitalized.
Statement 2: Directly attributable cost of acquisition of properties are added to the basis of the properties
acquired.
The following cannot claim deduction from gross income except
a. A self-employed individual taxpayer
b. A corporation earning purely passive income
c. An individual earning purely passive income
d. An individual taxpayer earning purely compensation and passive income Which is not
deductible against gross income?
a. Interest expenses incuccred to purchase tax-exempt securities
b. Net capital loss
c. Personal expenses
d. All of these
Which is a deductible business expense?
a. Loss on decline in value of securities
b. Estimated losses on expropriation
c. Fire loss on an insured property
d. Loss on theft of company assets
Which of the following constitution a deductible business expenses?
a. Purchase of office equipment invoiced under the trade name of the taxpayer’s business
b. Tuition fees of dependents of the taxpayer
c. Interest expense on business loan
d. Representation expenses booked in the name of the taxpayer’s
Which of the following qualifies for deduction for an individual income taxpayer engaged in business? a.
Salaries of household maid
b. Gasoline expenses of the taxpayer’s personal car
c. Office internet expense
d. Taxpayer’s transportation expense to and from his residence
Which of the following can be deducted by an individual taxpayer not engaged in business? a.
Transportation expenses
b. Communication expenses
c. Internet expenses
d. None of these
Which of the following can be claimed by a resident foreign corporation?
a. Depreciation expenses on properties located abroad
b. Oncome tax paid in a foreign country
c. Income tax paid in the Philippines
d. Interest expenses on foreign borrowings used to finance its Philippines business Which can
treated as a capital expenditure deductible thought depreciation expense?
a. Interest expense incurred to purchase office equipment
b. Losses sustained in an uninsured office building
c. Acquisition of land
d. Acquisition of personal computers
Which of the following items can be deducted in full in the year sustained?
a. Write-off of bad debts by a taxpayer under the cash basis
b. Loss on market decline in the value of the gold inventories
c. Loss on the destruction of the taxpayer’s personal car
d. Uninsured fire loss sustained by the business of the taxpayer
Deduction can be claimed against
a. Talent fees
b. Fixed allowance
c. Fringe benefits
d. Salaries
Which is deductible in full by a taxpayer engaged in the merchandising business?
a. Value of inventories taken home by the business owner
b. Loss on unrecoverable debts from a non-paying family member
c. Imputed interest on the capital investment of the owner
d. Value of inventories destroyed by rodents Which is not deductible loss by security dealer?
a. Wash sales loss
b. Loss on the sale of bonds with more than five years maturity
c. Loss on the sale of stocks though the PSE
d. Loss on the sale of short-term bonds through the Philippine deadline
Determine the deductible loss.
a. Loss incurred in exchanging property to obtain control of corporation
b. Loss incurred in exchanging properties with a corporation after obtaining control over said corporati
c. Calamity loss on uninsured property
d. Bad debts from a sister company
Which of the following is non-deductible by the fact that it violates the matching principle?
a. Expense of a tax-exempt operation
b. Payment for the police protection
c. Payments pf revolutionary taxes
d. Expenses not receipted in the name of the taxpayer
Which is incorrect with regard to expenses incurred between associated enterprises?
a. The pricing of the transaction must not be controlled.
b. The pricing method to be adopted shall be based on free market factors on those made between tw
independent parties.
c. In case of a controlled transaction, the deduction expense to the paying enterprise shall be arm’s
length value of the transaction.
d. No deduction shall be allowed on expenses incurred between associated enterprises Which is not
business expense?
a. Fringe benefits tax expense
b. De minimis benefits granted to employees
c. Salaries of personal driver od the company president which was subjected to fringe benefit tax
d. Depreciation value of properties designated for the use of company managers and supervisors wh
are subjected to fringe benefits tax
CHAPTER 9: REGULAR INCOME TAX: INCLUSION IN GROSS INCOME

(TRUE OR FALSE)
TRUE 1. Items of gross income subject to regular income tax and capital gains tax are reportable to the
government.
TRUE 2. Rent is a passive income, but is not subject to final tax.
FALSE 3. The interest income from bonds issued by banks is subject to final tax.
TRUE 4. Gains from dealings in capital assets are generally subject to the regular income tax.
FALSE 5. The gross income from operations enjoying a tax holiday are included in gross income subject
regular tax, but are presented as deductions in the income tax return.
TRUE 6. The share in business partnership is subject to final tax, but the share in a general professiona
partnership is subject to regular income tax.
TRUE 7. Gains from dealings in ordinary assets are subject to regular income tax
TRUE 8. Items of passive royalty income are subject to final income tax while items of active royalty in
are subject to regular income tax.
TRUE 9. Compensation income is an inclusion in gross income subject to regular tax except compensat
income of special aliens.
TRUE 10. The reportable gross income from business or the exercise of a profession is net of the cost o
goods sold or cost of services.
TRUE 11. Items of income which are included in gross income subject to final tax are excluded in gross
FALSE 12. Imputed interest income is an item of gross income subject to regular income tax.
TRUE 13. Advanced rentals are income in the year received.
TRUE 14. Real property tax and insurance on the property if assumed by the lessee constitute income
lessor.
FALSE 15. Corporate winnings are exclusions in gross income; hence, they are exempt from income tax
FALSE 16. Stock dividends are never subject to income tax.
TRUE 17. Pensions or retirement benefits are inclusions in gross income subject to regular income tax
employee is terminated due to any cause within his control.
FALSE 18. Prizes in athletic competitions sanctioned by the Philippine government are exclusions in gro
income subject to final tax, but are inclusions in gross income subject to regular income tax.
TRUE 19. Corporate prizes are exclusions in gross income subject to final tax but are inclusions in gros
TRUE 20. Stock splits are never subject to income tax.
TRUE 21. The distributable net income of a general professional partnership is subject to creditable
withholding tax.
FALSE 22. Exempt joint ventures and co-ownerships are treated as pass-through entities and are subjec
income tax.
TRUE 23. The distribution by the GDP of items of passive income is an inclusion in gross income of the
partner subject to regular income tax.
TRUE 24. General professional partnerships are exempt from tax and hence, exempt from withholding
FALSE 25. The share from the net income of a joint venture organized abroad is subject to 10%
withholding tax.
TRUE 26. Income distribution from taxable estates and trusts is an inclusion in gross income subject to
regular tax by the heir or beneficiary.
TRUE 27. The recovery of past deduction must be reverted back to gross income of taxpayers using th
accrual basis.
FALSE 28. The recovery of bad debts need not be reverted back to gross income of taxpayers using the
basis.
FALSE 29. The recovery of deduction from an exempt year is subject to tax.
FALSE 30. General professional partnerships are not exempt from regular tax but are subject to final ta
capital gains tax.
FALSE 31. An indebtedness cancelled by the creditor out of mercy is an income to the debtor.
FALSE 32. When there is a net loss in the period the deduction is taken, the subsequent recovery of the
deduction will not have any tax benefit.
TRUE 33. The refund or recovery of non-deductible taxes shall not be reverted back to gross income.
FALSE 34. The loss of the partnership can be claimed by the partners as deduction in their income tax
returns.
FALSE 35. The accounting period of the taxpayer has a direct impact upon the amount of gross income
reported.
FALSE 36. The power of the CIR to redistribute income and expense includes the power to impute inco
between affiliated enterprises.
TRUE 37. The situs of taxation has an impact on the extent of the reportable gross income.
TRUE 38. Creditable withholding taxes are added back to the amount of reportable gross income.
FALSE 39. The output VAT must be included as part of gross income of VAT taxpayers.
FALSE 40. The requirement to revert back to gross income the amount of withheld taxes applies only t
taxpayers.
TRUE 41. Generally, all items of income of NRA-NETB and NRFCs from the Philippines are inclusions in
income subject to final tax.
FALSE 42. The taxpayer must enter into an advanced pricing agreement with the BIR for its cross-borde
transfer pricing with associated enterprises.
TRUE 43. Transfer pricing between associated enterprises must be made at arm’s length.
FALSE 44. The transfer pricing regulations apply only to cross-border transfers of goods and services be
associated enterprises.
TRUE 45. Corporations under the direct and indirect control of the same controlling individual or
corporation are associated enterprises.
FALSE 46. Under the accrual basis of accounting items of gross income are reported in the period they
received.
TRUE 47. Basically, transfer pricing adjustment is needed when the income reported for Philippine tax
is understand.
1. Which is not subject to income tax? D. All of these
2. Which is an item of gross income subject to regular tax? A. Gain on sale of lot by a rea
dealer
3. Which is not an item of gross income subject to final tax? C. Share in the income of a ge
professional partnership
4. Which of these employee benefits is subject to final tax? C. Fringe benefits to supervis
and managerial employee
5. All of these are items of gross income subject to regular tax except B. Interest income from long-
one. Select. bank deposits
6. Which is an income exempt from income tax? C. Taxes collected by the
government
7. All of these are subject to regular income tax, except D. Capital gain from sale of re
property located in the Philip
8. Which is exempt from regular tax? B. Income of qualified pension
9. Which item of gross income is not subject to regular tax? B. Capital gain on the sale of b
with more than 5 years matur
10. Which is not part of compensation income subject to regular tax? C. Portion of salary contribute
SSS
11. Which is included in the gross income subject to regular tax of a B. Interest income from prom
resident alien? notes of resident aliens
12. Which of the following deductions from gross compensation income D. Dues withholding tax
is included as part of gross income subject to regular tax?
13. Which interest income is subject to regular tax? D. All of these
14. Dividends subject to regular tax includes A. Foreign Dividends
15. Statement 1: All prizes earned abroad are subject to regular tax. A. Statement 1
Statement 2: All prizes in the Philippines are subject to final tax.
Which statement is generally correct?
16. Which is an item of gross income subject to regular tax? A. Lottery
17. Which of the following is not subject to regular tax of a domestic C. Income from abroad exemp
corporation or resident citizen? under treaty
18. Which is subject to regular tax to a non-resident foreign corporation D. None of these
or non-resident alien not engaged in trade or business?
19. Which is subject to regular tax to a resident foreign corporation? B. Gain from sale of real prop
capital assets in the Philippine
20. The proceeds of life insurance received by the wife of the insured is A. Exempt from income tax
21. Which of the following will not be reported in gross income? A. Receipt inheritance
22. Which is not reportable type of gross income? D. Capital gains from the sale
domestic stocks through the P
23. Which of the following is included in gross income subject to regular D. Farming income
tax?
24. All income earned abroad that would otherwise be subject to final B. Resident citizen
taxes if earned within the Philippines shall be subject to progressive tax
of a
25. All items of passive income earned abroad are subject to regular tax to C. A resident citizens and dom
corporations
26. Which individual taxpayer is not subject to progressive tax? B. Special aliens
27. Which corporate taxpayer is not subject to regular tax? D. Non-resident foreign corpo
28. Individual taxpayers shall report their income on B. A calendar year
29. Corporations are allowed to report their income on C. Either fiscal year or calenda
30. Which is not subject to progressive tax to an individual taxpayer? C. Amounts received by the in
in excess of premiums paid
31. Which of these is subject to Philippine regular income tax to a D. Interest income from dome
foreigner? bonds
32. If not covered by the substituted filing system, employed individual B. Annually
taxpayers shall report their regular income
33. Corporations and individuals engaged in business or in the exercise of D. Quarterly and Annually
a profession are required to report their regular income
34. Which is incorrect concerning transactions between associated C. Pricing should be motivated
enterprises? the need to save from total in
tax.
35. Which is not an associated enterprise to the controlling individual of A. An associate of a subsidiary
a holding company? the group
Chapter 10: Compensation Income
Multiple Choice Theory- Part 1:
1. Which is not an element of an employer-employee relationship?
D. Payment of fixed wages
2. Which is not an employee classification according to function?
C. Special Employee
3. Which is not an employee classification as to taxability?
C. Managerial Employee
4. Which is usually an employee?

A. A director who is at the same time the Chief Executive Officer
5. The statutory minimum wage is

C. The higher between P5,000 a month or P60,000 annually or the rate fixed by the Regional Tripartite Wage and
Productivity Board
6. Which is not included in the gross taxable compensation of an employee?

C. 13th month pay and other benefits NOT in excess of P90,000
7. Which is not an exclusion criterion on employee benefits?

A. Necessity of the employee rule (dapat kasi employer para correct)
8. For purposes of the fringe benefit tax, fringe benefits pertain to
B. Other fringe benefits not specifically included as compensation income of managerial and supervisory employee
D. The compensation of income of rank and file employees is subject to tax Multiple
Choice Theory- Part 2

1. Which is not a supplemental compensation income?
A. De minimis benefits
2. Fringe benefits includes
D. De minimis benefits
3. De minimis benefits are generally

A. Exempt from tax
4. Which do not form part of other benefits of rank and file employees?
B. Salaries and Wages
5. The term “de minimis benefits” does not include
A. Christmas Bonus
6. Select the most accurate statement

D. The benefits of rank and file employees are not subject to fringe benefit tax.
7. Which is taxable as compensation?

C. Termination benefits from resignation
8. Which of the following is subject to income tax?

D. Voluntary contributions to SSS, PHIC, and HDMF
9. All of these are exempt benefits of a minimum wage earner except
C. Vacation Pay
10. Which is correct when a minimum wage earner derives other income outside his employment? C.
He is exempt from withholding tax, but subject to income tax
11. Rice allowance is taxable when

D. Given more than P1,500 (ngayon nabago na, P2,000 na)
12. Meal allowance is taxable when given
D. As incentive to all employees
13. Which is an exempt de minimis benefits?

C. Rise subsidy of half sack a month valued at P 1,000 (kase pede hanggang 2k)
D. Uniform allowance of P 5, 500
14. Which is a correct de minimis limit?
B. Laundry allowance of P 3,600 per year
15. Statement 1: Excess de minimis is considered compensation income as “other benefits” for rank and file employee
and managerial or supervisory employees.
Statement 2: Excess de minimis is a fringe benefit subject to the fringe benefit tax.
C. Both statements are incorrect
16. Which is considered compensation?

B. Cost-of-living allowance
17. Which of the following remuneration is an item of compensation income?

C. Commission to a minimum wage earner
18. Night differential pay is exempt from taxation when received by
19. Which is not subject to the P90,000 exemption threshold for a private employee?
C. Profit sharing bonus
20. The P90,000 exemption threshold is applicable to

D. All employees (reg, rank and file, man and superv)
21. The excess of “13th month pay and other benefits” is

A. subject to regular tax
22. Which is subject to the withholding tax on compensation?
D. Salary of minimum wage earners receiving fixed allowances
23. Statement 1: A minimum wage earner who loses the benefit of exemption by transferring to a region with a lower
minimum wage is taxable on all income during the year.
Statement 2: A minimum wage earner who qualifies as much during the year is exempt from tax on all income earned
during the year.
B. Both statements are incorrect
Chapter 11: Fringe Benefit Tax Multiple Choice-Theory 1
1. Which is not part of de minimis benefits?

D. 13th Month pay
2. The minimis benefits not exceeding their thresholds are
D. Exempt from income tax
3. Select the answer which more accurately completes the statement. The taxable fringe benefit of a
supervisory employee is
A. Subject to fringe benefit tax
4. Who is subject to fringe benefit tax?
B. Managerial and supervisory employees
5. Which of these items is subject to fringe benefit tax?
C. Fringe benefits of managerial and supervisory employees
6. The fringe benefit tax by nature is a
A. Final Tax
D. The personal expenses of managerial and supervisory employee shouldered by the employer are subje
to fringe benefit tax.
8. As a rule, hybrid expenses are presumed
A. 50% fringe benefit
9. Which is the following phrase is NOT an exemption criterion for purposes of the fringe benefit tax?
D. For the furtherance of the employer’s business
10. What percentage of the depreciation value is considered fringe benefit in the free usage of employe
real properties? C. 50%
11. When fringe benefit is in the form of free use of real properties, what percentage of the fair value o
the property is considered fringe benefit? A. 5%
12. When fringe benefit is in the form of free use of personal properties, what percentage of the
depreciation value of the property is considered fringe benefits?
C. 50%
13. An employer transferred title over property to the employee. What percentage of the benefit is
considered for purposes of the fringe benefit tax?
A. 100%
14. For purposes of computing the annual value of benefits involving the free use of movable properties, w
percentage of the value of property is used?
C. 20%
15. For purposes of computing the annual value of benefits involving the free use of immovable
properties, what percentage of the value of property is used? A. 5%
Multiple Choice-Theory 2
1. Which is not a characteristic of the fringe benefit tax?
D. Imposed upon the monetary value of benefits
2. Which is correct with respect to the fringe benefit tax?
A. It is due monthly and quarterly
3. The actual value of benefits realized by the managerial or supervisory employees is referred to as the A.
Monetary Value
4. Which is not an exempt housing benefit?
B. Housing benefit for four months
5. Which is not subject to fringe benefit tax?

C. Expenses of employees considered in furtherance of the employer’s business
6. The free usage of the following items is exempt from fringe benefit tax?
C. Helicopter
7. What percentage of the fair value of the yacht is considered in measuring depreciation value?
A. 5%
8. Which is subject to fringe benefits tax?

D. Housing for the family members of an employee
9. To which of the following is the tax benefit rate is not applied?
A. The monetary value of the fringe benefit
10. Which fringe benefit is subject to fringe benefit tax?

A. If given for the convenience or advantage of the employee
CHAPTER 13-B: Special Allowable Itemized Deductions and NOLCO

TRUE OR FALSE
FALSE 1. The employers are allowed additional deduction of 15% on the compensation paid to person
disability.
FALSE 2. An adopting private entity of a public school is entitled to a deduction incentive equivalent to
double the amount donated to a public school.
TRUE 3. Taxpayers who installed improvements in their facilities to accommodate persons with disabil
allowed an additional 50% deduction incentive based on the value of such improvement.
FALSE 4. The distribution of the corpus of a taxable estate or trust is an item of special deduction again
gross income of the estate or trust.
TRUE 5. The transfer to the reserve fund of insurance companies is a special deduction, but the releas
the reserve fund is an item of gross income.
TRUE 6. Dividends are non-deductible by any taxpayer except real estate investment trusts.
FALSE 7. The transfers to all reserve funds of the cooperative including mandatory and discretionary fu
are deductible from the gross income of cooperatives.
TRUE 8. Persons with disability are mandatorily allowed a discount of 20% from all establishments.
FALSE 9. Senior citizens are mandatorily allowed a discount of 25% from certain establishments.
FALSE 10. The employer of senior citizens can claim additional deductions equivalent to 50% of the
compensation paid to senior citizens who have income below the poverty line.
TRUE 11. Expenses incurred to comply with the requirement of the Expanded Breastfeeding Act are al
an additional incentive equivalent to the amount of the expense incurred.
TRUE 12. Attorneys are entitled to the value of their pro-bono services to indigent clients as deduction
gross income.
TRUE 13. The allowable incentives to lawyers for pro-bono services shall not exceed 10% of the gross
income from the actual performance of the legal profession.
TRUE 14. Employers are entitled to an additional deduction of 50% of the productivity incentive bonus
to their employees.
TRUE 15. The amount of NOLCO shall not include the amount of deduction incentives allowed by law.
FALSE 16. A small business was merged to a larger business. Even after the merger, the NOLCO of the s
business is deductible by the larger business.
TRUE 17. NOLCO is valid for 3 years.
FALSE 18. NOLCO always exist when there is a net operating loss.
TRUE 19. Net capital loss carry over cannot be carried over together with NOLCO.
TRUE 20. An acquirer in a business combination sustained a net operating loss before the business
combination. The acquirer is allowed to carry-over its net operating loss in prior years.

1. A fitness gym catering to senior citizens recorded a total gross revenue of P345, 000
from senior citizens. The gym provides 24% discount in excess of the legal requirements. D. P90,78
What is the deductible amount of senior citizen’s discount?
2. Germania Inc. employs three senior citizens as regular employees. Two of them are
receiving the minimum wage which is within the poverty level. Total minimum wages
paid to these senior citizen employees during the year were P182, 000. One of the senior B. P27,30
citizen employees is a director of the company who was paid P780, 000 compensation
during the year. Compute the deductible additional compensation expense.
3. An employer hired two senior citizens during the year as temporary replacements for
its two staffs who were on leave. Both senior citizens were paid salaries not in excess of
the poverty level.
Mang Pandoy, substituted for an employee who went on one year sabbatical leave. B. P21,60
Mang Pandoy received a total of P144, 000 during the year. Aling Maria substituted for
an employee who filed for maternity leave for 3 months. Aling Maria received a total of
P28, 000 during the year.
Compute the total deductible additional compensation expense.

4. Mr. Bakilan irrevocably designated in trust his investment portfolio consisting of
domestic stocks and bonds. The dividend income from the stocks shall be distributed to A.P 0
the beneficiary while the interest on the bonds shall be accumulated. During the year,
the portfolio earned P200, 000 interest and P135, 000 dividends, net of final tax.
5. A grantor irrevocably designated in trust a real property in favor of a beneficiary.
Under the trust indenture, 20% of the trust gross income shall be distributed to the
beneficiary. The trustee shall be paid 5% of the gross income as management fee. During
the year, the trust collected P810, 000 rent income, net of 10% creditable withholding B. P101,00
taxes. The trust recorded P350,000 in expenses.
Compute the deductible amount of income distribution to the fund.

6. The required reserve for an insurance company was P3,200,000 as of December 31,
2013 and P3,500,000 as of December 31, 2014. What is the deductible amount of B. P300,00
transfer to the reserve fund?
7. A real estate investment trust (REIT) earned P4,100,000 from property rentals. Total
business expenses were P2,100,000. Assuming the REIT declared the mandatorily B. P1,800,0
required dividend distribution, what is the amount of deductible dividend against gross
income?
8. A cooperative transacting business only with its members is on its third year of
operation. It reserves 50% of its operating income in compliance with the new CDA
regulation. During the year, it reported a total operating income of P3,000,000 inclusive D. P300,0
of P2,400,000 income from related activities. Compute the deductible amount of
transfers to reserve against gross income.
9. An establishment granting senior citizens 25% discounts recorded the following sales
during the period:
Customers
B. P160,00
Regular Senior Citizen
Gross Sales P8,000,000 P800,000
Cost of Sales 5,000,000 400,000
What is the deductible senior citizen’s discount?
10. A restaurant granted 25% discounts to senior citizens in excess of the 20% mandatory
requirement. During the year, the restaurant reported receipts of P93,750 from senior D. P25,00
citizen customers. Compute the deduction for senior citizens’ discount.
11. An employer embarked on a socio-economic program named “A World Empowered
by Persons with Disability.” Under the ambitious program, the employer established a
business which is fully manned by persons with disability. The employer incurred
P300,000 in workplace improvements specifically designed for its disabled employees. D. P525,0
The business venture turned very profitable due to overwhelming public sympathy.
During the year, the employer paid P2,100,000 in compensation expense. Compute the
additional deductible compensation expense.
12. In the immediately preceding problem, what is the deductible additional expense for D. P150,0
the improvements made for the employees with disability?
13. In 2016, Bernard Bakilan, a practicing lawyer, adopted a public elementary school
and distributed P500,000 for the acquisition of computer equipment and software.
Beranard had an operating income of P900,000 before this contribution expense. A. P250,00
Assuming the “Adopt-a-School Program” is an investment priority program of the P150,000
government in 2016, compute Bernard’s additional contribution expense and net income
respectively.
14. In the preceding problem, compute Bernard’s additional contribution expense and
net income, respectively, if the “Adopt-a-School program” is no longer a government D. P250,00
priority program in 2016? P560,000
15. Binondo Jewellery is a qualified jewelry enterprise registered with the Board of
Investments. In order to modernize its jewelry making business, it instituted an in-house
training program and hired external experts to train its employees. The program was D. P150,0
D. P150,0
duly approved by TESDA. The program cost P300,000 during the year. What is the
deductible amount of additional training expense?
16. Girl Power Corporation employs purely women. It installed a lactation station at a
total cost of P350,000 and secured a “Working Mother-Baby-Friendly Certificate” from C. P350,00
Department of Health. Compute the additional deduction under the Rooming-in and
17. A government provincial hospital established a milk bank at a cost of P1,000,000.
Determine the additional deduction incentive it is allowed under the Rooming-in and C. P0
18. In the immediately preceding problem, what would be the additional deduction C. P1,000,0
assuming the hospital is a proprietary medical center?
19. Atty. Midsayaf is a practicing lawyer in the remote provinces of Mindanao. During the
year, he provided 180 actual hours for pro-bono services inclusive of the 60-hour
mandatory legal aid services to indigent clients. These services would have been billed B. P120,00
P1,000 per hour if rendered to paying clients. Atty. Midsayaf has a P1,400,000 gross
income during the year exclusive of P20,000 interest on his savings deposit.
20. Curaratnit, Bolalatsing & Associates, a law firm, earned an operating income of
P8,000,000, net of P6,000,000 administrative expenses and P12,000,000 direct cost of
services. During the year, it represented selected clients under its free legal assistance B. P1,400,0
program. The value of these services would have been P1,500,000. It also represented
ondigent clients for free, the value of which would have been P400,000. Compute the
special deduction for free legal services.
21. An employer paid a total of P800,000 productivity incentive bonus to its production D.P400,00
workers. What is the additional productivity incentive bonus expense?
22. An employer provides manpower training and special studies to its rank and file
employees at a total cost of P200,000. The in-house program was accredited by TESDA. C. P100,00
What is the deductible additional productivity incentive bonus expense?
23. A taxpayer had the following results of operation:
2019 2020
B. P1,000,0
Gross income P1,200,000 P2,500,000
Itemized Deductions 1,400,000 1,000,000
Deduction Incentives 200,000 300,000
What is the net income in 2020?
24. An enterprise registered with the BOI had a consistent profitable operation. Just
before graduating from its BOI tax holiday incentives in 2019, it sustained a P1,800,000
operating loss due to an employee strike in 2019. The settlement of the deadlock in 2020 A. P 0
enable the enterprise to post a P2,400,000 operating income. What is the allowable
NOLCO deduction in 2020?
25. A corporate taxpayer incurred an operating loss in 2020:
Sales P3,000,000
Less: Cost of Sales 1,200,000 Gross
Income P1,800,000
Less: Deductions B. P200,00
Regular Itemized deduction P1,200,000
Special Itemized deductions 800,000
Deduction incentives 400,000 2,400,000
Net operating loss P 600,000
What is the amount of NOLCO to be carried over in the next three years?
26. An individual taxpayer reported the following in 2019:
Gross Income P1,500,000 Less:

Administrative Expenses P800,000
Selling Expenses 650,000 1,450,000
Operating income 50,000 A.P 0
Less: Personal expenses 150,000
Excess of personal expenses over income P 100,000
What is the NOLCO to be carried over in the next three years?
27. In 2020, a taxpayer finally posted a P1,000,000 operating profit after four years of
continuous losses. The results of operations in prior years were:
2016 (P800,000)
2017 ( 400,000) B. P700,00
2018 ( 200,000) 2019 ( 100,000)
Compute the deductible NOLCO in 2020.
28. In 2016, Warren Buffet purchased the net assets of Berkshire Hathaway, a losing
business which posted a cumulative P10,000,000 loss in the past three years. Buffet’s A. P 0
charismatic leadership led the business to turn P4,000,000 profits in 2016. What is the
allowable NOLCO deduction for 2016?
29. A taxpayer has the following historical results of operations:
2016 (P600,000)
2017 ( 700,000)
2018 400,000
2019 ( 200,000) 2020 100,000 B. P200,00
What is the total outstanding NOLCO at the end of 2020 which can be carried over in
future years?
30. A taxpayer reported the following items of gross income and deductions in 2020:
Rent income P400,000

Service fees 200,000
Interest income from bank deposits 50,000 C. P200,00
Deductible expense 800,000
Non-deductible expense 100,000
Compute the NOLCO to be carried over in the next three years.

31. The carry-over of NOLCO is allowed when D. There is a c
in the controll
shareholder
representing 5
ownership.
32. Which is incorrect with regard to the net operating loss carry-over (NOLCO)? A. NOLCO can
claimed toget
with Optional
Standard
Deductions.
33. The following pertains to the salaries paid by the taxpayer during the year:
Salaries to regular employees P400,000

Salaries to senior citizens (above poverty line) 30,000
Salaries to senior citizens (below poverty line) 50,000
Salaries to persons with disability 200,000
Compute the total deductible salaries expense under regular allowable itemized
deductions and the total special deductions.
CHAPTER 13-C: Optional Standard Deduction

TRUE OR FALSE
TRUE 1. Unlike individual taxpayers, corporations opting for OSD can claim deduction for cost of goods
or cost of services.
FALSE 2. OSD is in lieu of all deductions against gross income including personal exemptions.
FALSE 3. Individuals can claim OSD up to 40% of gross sales or receipts or gross income.
TRUE 4. Taxpayers opting to use the OSD are not required to submit financial statements.
FALSE 5. Taxpayers may use the OSD for quarterly returns, then use the itemized deductions for the a
return.
FALSE 6. The optional standard deduction is presumed unless the taxpayer signified in his return his
intention to claim itemized deductions.
FALSE 7. The taxable net income of individuals is 60% of their gross sales or receipts.
TRUE 8. Corporate taxpayers opting to use OSD will have taxable income equivalent to 60% of their
income.
TRUE 9. “Gross sales” is net of sales returns, allowances and discounts.
TRUE 10. “Gross receipts” include other receipts incidental to the primary operations of the business.
FALSE 11. Gains in dealings in properties are included in gross sales or receipts.
TRUE 12. Corporate OSD is 40% of operating and non-operating gross income excluding only those sub
to final tax or capital gains tax and exempt income.
TRUE 13. For taxpayers using the accrual basis in the sales of services, gross receipts shall mean reven
FALSE 14. Administrative and selling expenses are include in “cost of services.”
TRUE 15. A partner can claim itemized deduction against his share in the net income of a general
professional partnership provided the partnership is using the OSD.
FALSE 16. A partner can claim OSD out of his share in the net income of a general professional partners
FALSE 17. A partner can claim OSD out of his share in the net income of a general professional partners
provided the partnership is not using the OSD.
TRUE 18. No deduction of whatever nature is allowed against compensation income, except mandator
deductions and exempt benefits.
FALSE 19. Net operating loss carry-over and net capital loss carry-over are items of deductions; hence,
are not claimable simultaneously with OSD.
FALSE 20. The option to elect OSD may result into a net operating loss carry over.

1. The optional standard deduction for corporate taxpayer is A. 40% of gross income
2. Which of the following individuals engaged in business cannot claim B. NRA-NETB
optional standard deduction?
3. Which is correct with optional standard deduction? A. It replaces itemized deduct
4. The optional standard deduction for individual taxpayers is B. 40% of gross sales of gross
receipts
5. One of the following can claim OSD. Which is it? A. A self-employed individual
taxpayer
6. When purely employed, who of the following can claim OSD? D. None of these
7. Which is not covered by the optional standard deduction? A. Premium for health and
7. Which is not covered by the optional standard deduction?
hospitalization insurance
8. Which can claim deduction by itemized deduction only? B. Non-resident alien engaged
trade or business
9. Which is not included in corporate OSD? D. Creditable withholding tax
10. Corporate OSD is in lieu of all expenses such as the following except A. Cost of sales or cost of serv
11. Individual OSD is in lieu of all expenses, such as but not including D. Net capital loss carry over
12. The OSD of corporations under the cash basis is based on C. Total gross income
13. The option to elect OSD is irrevocable A. In the year it was made
14. Which is presented as operating income in the income tax return? D. Gross profit from the sale o
goods
15. Which is not part of cost of services for a manufacturing concern? D. Interest expense
16. The OSD of corporations under the accrual basis is based on C. Total gross income
17. The OSD of individuals under the cash basis is based on B. Gross receipts
18. Which is not deducted in the determination of gross sales? D. Bad debt expense
19. For purposes of the OSD, which is not deducted in the determination D. Cost of services
of gross receipts?
20. Non-operating income subject to regular tax is excluded in the OSD A. Individual taxpayers
base of
21. Cost of services of banks excludes the following except C. Interest expense on
depositors accounts
22. In the determination of the distributive net income of the general D. Partners cannot claim OSD
professional partnership, their share in the net income
general professional partners
23. Which is correct with respect to the deduction claimable by a partner C. The partner can claim item
against his share in the distributive net income of a general professional deduction provided the gener
partnership? professional partnership also
itemized deductions.
24. Individual income taxpayer must indicate his or her option to claim C. The annual income tax retu
OSD on
25. Corporate income taxpayers must indicate their options to claim OSD A. The first quarter return dur
on the year.
1. An individual taxpayer, reported P800,000 net income after the
following:
Cost of sales P600,000 D. P480,000

Administrative Expense 300,000
Selling expenses 400,000
Compute the optional standard deductions.

2. In the immediately preceding problem, what is the net income under A. P1,260,000
OSD?
3. An individual taxpayer opted to claim optional standard deduction in
his first quarter income tax return in 2015. Total recorded sales before
P150,000 sales discounts and returns were P2,350,000. Total recorded
expenses were P1,180,000 of which only P340,000 were adequately A. P340,000
supported. The cost of sales was P900,000. What is the total allowable
deduction for 2015 assuming the taxpayer wants to claim itemized
deduction in the annual return?
4. The claimable deduction of a taxpayer during the year consisted of the
following:
Cost of sales P600,000

Regular itemized allowable deductions 400,000 D. P1,450,000
Special itemized deductions, including
P100,000 deduction incentives 300,000 Net
operating loss carry over 150,000
To an individual taxpayer, optional standard deduction is in lieu of

5. Assuming that the taxpayer in the immediately preceding problem is a B. P850,000
corporation, OSD is in lieu of
6. Mrs. Belo had the following in 2020:
Sales P3,400,000
Cost of sales 1,200,000
Administrative expense 300,000
Selling expenses 500,000 C. P1,408,000
Other taxable income from operations 120,000
Other non-operating income 80,000 Passive
income, net of final taxes 70,000
Assuming Mrs. Belo elects to deduct OSD, compute the OSD.

7. In the immediately preceding problem, compute the OSD assuming B. P960,000
the taxpayer is a corporation.
8. A self-employed practitioner and part-time employee derived the
following income in 2020:
Gross receipts P800,000 A.P320,000

Compensation Income 300,000
Dividend income from a Real Estate Investment Trust 20,000
Assuming the taxpayer opted to avail of OSD, what is the OSD?

9. The following relate to collections upon billings, receipts, and unpaid
billings of a practitioner during the year:
Receipts from current year billings P800,000

Receipts from last year’s billings 200,000 B.P368,000
Current year uncollected billings 100,000
Reimbursement for out-of-pocket expenses 20,000
Compute the OSD if the taxpayer is under the accrual basis.

10. Compute the OSD if the taxpayer is under cash basis. A. P408,000
11. The results of operations of the taxpayer resulted in the following:
Gross sales revenue P7,200,000

Beginning inventory 300,000
Purchases 5,800,000
Ending inventory 1,400,000 C. P2,920,000
Other operating revenues 100,000
Non-operating income 20,000
Assuming the taxpayer is an individual, what is the optional standard

deduction?
12. In the immediately preceding problem, what is the OSD if the B. P1,048,000
taxpayer is a corporation?
13. A professional practitioner has total uncollected billings of P200,000
at the year-end of 2019. Additional billings totaling P2,500,000 were B. P2,300,000
made in 2020. Uncollected billings at the year-end of 2020 were
P400,000. If he chooses to claim OSD, determine the gross receipts.
14. In the second quarter of 2019, Mr. Mariano reported total gross
income of P2,000,000 after P1,500,000 direct cost of services. If Mariano C. P800,000
claimed itemized deduction in the first quarter, what is the amount of
claimable OSD in the second quarter if he wishes to change to the OSD?
15. A private educational institution subject to a 10% preferential
corporate tax reported the following in the first quarter of 2020:
Gross tuition revenues P13,800,000

Less: Tuition discounts and remissions 400,000 A.P 0
Direct cost of services 6,700,000
Gross income from canteen and bookstores 600,000
Compute the allowable OSD if the school wants to claim OSD

16. Mr. Calabarzon reported the following data in 2020:
Sales P1,000,000
Cost of sales 600,000 A.P440,000
Gain on sale of equipment 60,000
Interest income from bank deposits 40,000
Deductible expenses 300,000
Non-deductible expenses 200,000
Compute the optional standard deduction.

17. Compute the taxable income of Mr. Calabarzon B. P660,000
18. Assuming that Calabarzon is a corporate taxpayer, compute the C. P184,000
optional standard deduction.
Chapter 14: Regular Income Taxation: Individuals Multiple Choice Theory- Part 1
1. Who is a resident citizen?
A. A resident who went on tour abroad
2. Which of the following is an individual whose residence is within the Philippines but who is not a citizen thereof?
C. Resident Alien
3. A non-resident alien is considered engaged in trade or business in the Philippines if he stayed therein for D. More
than 180 days
4. On which of the following dates shall a citizen who left the Philippines during the year be classified as a non-residen
citizen for the year? A. May 31
5. An alien shall be classified as resident in 2014 if he arrived in the Philippines on which of the following dates?
A. December 30, 2013
6. An individual whose residence is not within the Philippines and who is not a citizen thereof B.
Non-resident Alien
7. How long does a citizen have to stay abroad being classified as a non-resident?
A. At least 183 days
8. How long shall an alien have to stay in the Philippines before being classified as a resident alien?
D. More than 1 year
9. The length of stay of individuals for purposes of taxpayer classification is reckoned as of

A. December 31 of the current year
10. Which of the following is not subject to regular income tax?
D. Non-resident alien not engaged in trade or business
11. In 2014, an alien who has been in the country since July 1, 2013 is classified
as a B. Resident Alien
12. In 2016, an American who had been a resident in the Philippines since August
14, 2016 is a D. NRA- NETB

1. Which of the following is subject to final tax?
C. Fringe benefits
2. Which of the following cannot claim deduction from gross income?
A. Residing citizens deriving income solely from employment
3. To which of the following does the substituted filing system apply?
A. Purely employed taxpayers
4. Which is not a requisite of the substituted filing system?

A. The taxpayer must have only one source of business income
5. Which of the following employees is not required to file an annual consolidated income tax return?
D. Those earning purely compensation income when the employer correctly withheld the tax
6. A taxpayer who is both engaged in business and employment is not
C. Required to consolidate his quarterly mixed income for quarterly tax reporting
7. Which individual income taxpayer can claim tax credit for foreign taxes paid?
A. Resident citizen
8. What is the optional standard deduction claimable by individual income taxpayers who are engaged in business?
D. 40% of gross receipt or sales
9. When should individual income taxpayers submit their annual or consolidated return for the year 2020?
C. April 15, 2021
10. Which of the following taxes is a resident citizen or alien subject?
D. All of these (Final, CGT, Reg)
11. A non-resident alien, not engaged in trade or business is not subject to C.

Regular Tax
1. Who is not required to file quarterly income tax return

A. Pure compensation income earner
2. Who is not subject to withholding tax on compensation?

3. An individual who want to pay the regular income tax using optional standard deduction shall use C.
Form 1701A
4. Individual opting to be taxed under 8% income tax shall use

C. Form 1701A
5. Trusts and estates shall use which tax form
B. Form 1701
6. An adjustment return is likely to be required when
A. The employee receives compensation from multiple employers
7. A minimum wage earner who is subjected to withholding tax shall
C. file an adjustment return and claim tax refund
8. If husband and wife are both employed, which is correct regarding their income tax exemption in the tax
table?
A. Each spouse shall be entitled to a P250,000 income tax exemption in the tax table
9. A husband earned P450,000 taxable income. His wife also earned P100,000 taxable income. Which is
true? B. The husband pays tax while the tax is exempt.
10. If the husband is employed with P700,000 taxable income while his wife is unemployed, he shall will
be actually subject to tax on B. P 450,000 of income
11. Which of the following scenario will still require an adjustment return from the employee even if the
employers correctly withheld the tax on their compensation payments? D. All of these
12. An employee who earned income from other sources shall use which annual return?
A. Form 1700
13. Which is a source of tax credit against the tax under Form 1701
D. All of these (2316, 2307, 1701Q)
14. Which is tax credit against the tax due under Form 1700?
A. Form 2316
15. The first quarter income tax return is due

C. May 15 of the same year
16. The third quarter income tax return is due
C. November 15 of the same year
17. Which is incorrect regarding the 8% optional income tax?

C. May be opted to if the taxpayer claimed optional standard deduction
18. Which will not be included in the tax basis of the 8% income tax?
C. Gross income from operation
19. Which is an item of income subject to regular tax?

D. Gain on sale of equipment
20. Who is not allowed the option to be taxed at 8%?

A. Compensation Income Earner
21. Statement 1: There is no need to file a consolidated return if the withholding tax on compensation and t
expanded withholding tax is correctly withheld.
Statement 2: A businessman who is deriving income from a sole customer need not file a consolidated
return if the customer correctly withheld any expanded withholding tax. D. False, True
Multiple Choice: Problems Part 1 (pp. 612-614)

1. Trixie’s business uses fiscal year accounting period starting July 1 and ending June 30 for internal reportin
Her business reported the following quarterly net income on a fiscal year basis:
FISCAL YEAR 2018-2019 2019-2020
1st Quarter (July 1 to September 30) P 190,000 210,0
2nd Quarter (October 1 to December 31) 220,000 250,0
3rd Quarter (1/1/2020 – 3/31/2020) 180,000
4th Quarter (4/1/2020) – 6/30/2020) 200,000
Compute the taxable net income to be reported April 15, 2021?

C. P 840,000
2. Jerson, married 15 dependents, had the following income within and outside the Philippines:
Philippines Abroad
Compensation Income P 280,000
Rental Income 50,000 100,0
Royalties- books 32,000 25,0
Domestic Dividends 9,000
Foreign Dividends - 40,0
Compute his taxable income she is a resident citizen

C. P 495,000
3. Compute his taxable income assuming she is a resident alien
A. P 330,000
4. Henrie, a managerial employee, received the following employee benefits in 2020:

Salaries, net of mandatory and exempt benefits P 4,000,000
Stock Bonus 800,000
Director’s Fees 200,000
Car designated for the use of Henrie 2,500,000
House and lot, transferred in the name of Henrie 5,000,000
Compute the taxable income of Henrie.

C. P 5,000,000
5. In the immediately preceding problem, compute fringe benefit tax for the year.
C. P 2,826,923
6. The following relate to the net income of the firm of Mr. Aguin O. Odit:
Professional Fees P 600,000
Long-term capital gain 80,000
Short-term capital gain 45,000
Ordinary Gain 20,000
Long-term capital loss (90,000)
Short-term capital loss (30,000)
Ordinary Loss (40,000)
Other business expenses (200,000)
Net Income P 385,000
Compute his taxable income.
C. P 390,000
7. Shown below is the summarized result of operations of Mr. Chiz Mozo’s

business: Sales P 900,000
Cost of Sales 300,000
Gross Profit 600,000 Other
deductible expenses 100,000
Contributions expenses:
- Government Priority Project 50,000
- Non-accredited non-profit 55,000
- Foreign foundation 25,000
Compute his taxable income.
A. P 400,000
8. During the year, Coleen received compensation income of P 455,000 after P 15,000 withholding tax on
compensation. Compute her income tax still due.
B. P 47, 500
9. A Filipino citizen has P 400,000 Philippine income and P 300,000 foreign income. He paid P 55,000
income taxes abroad. Compute the allowable tax credit for the income taxes paid abroad. C. P 45,000
10. In the preceding problem, what is the tax credit if taxpayer was a non-resident citizen or a resident
alien? A. P 0
Multiple Choice: Problems Part 2 (pp. 614-617)
1. Kareen received the following income from her employment in 2020:

Gross Salaries P 400,000 Deductions
for:
- SSS P 10,000
- PhilHealth 8,000
- Pag-Ibig 7,000 - Union Dues 2,000
- Withholding Tax 67,000
- Loans Repayment 50,000
- Tardiness and Absences 15,000
Compute Kareen’s taxable compensation income.
C. P 358,000
2. Mary made the following computation of her annual financial savings from employment, her sole source
income:
Salaries, net of P 59,000 withholding tax and P 12,000 mandatory payroll deductions P 321,0
Expenses:
- Load Expenses P 10,0
- Medical Expenses 8,0
- Transportation Expenses 25,0
- Food, Rent & Utilities 100,0
- Bank Loan Repayments 20,0
- Miscellaneous Expenses 15,0
Net savings for 2020 P 143,0
What is Mary’s taxable compensation income for 2020?
C. P 380,000
3. Mr. Roger presented the following schedule of income in 2020:
Service fees, net of 5% withholding tax P 617,5
Dividends from a domestic corporation 20,0
Interest income from bank 10,0
Expenses:
- Office Utilities P 30,0
- Staff Salaries 120,0
- Rent & miscellaneous expenses 80,0
- Tuition fees of 5 dependent children 100,0
- Personal medical expenses 15,0
Net business income P 297,5
Total deductible expense against gross income is
B. P 230,000
4. Compute Roger’s taxable net income.
D. P 420,000
5. Compute the tax still due.

D. P 2,500 payable
6. Compute the tax still due if Mr. Roger opted to the 8% optional tax.
D. P 52,000
7. Jerik, a self-employed employee with ten dependent children, had the following items of income and expenses in
2020:
Sales P 900,0
Less: Cost of Sales 400,0
Gross Profit P 500,0
Interest Income, net of 20% final tax 16,0
Interest Income from clients notes 12,0
Expenses:
- Salaries Expenses P 100,0
- Depreciation Expenses 15,0
- Rent &Other expenses 50,0
- Interest Expense 30,0
Net Income P 333,0
Compute the deductible business expense.
B. P 188, 400
8. Jerik shall report taxable income of
A. P 322,280
9. Compute the taxable income if Jerik opted to use the optional standard deduction
B. P 547, 200
10. Compute the income tax due if Jerik opted to use the 8% optional income tax.
B. P 72,000
11. An individual income taxpayer had the following income:
Compensation Income P 820,0
Mandatory payroll deductions 20,0
Gross receipts 1,800,0
Direct cost of services 500,0
Expenses 300,0
Other income subject to regular tax 100,0
Other income subject to final tax 200,0
Withholding tax on compensation 130,0
Expanded withholding tax on receipts 14,0
Estimated tax payments made 94,0
Compute the income tax still due if the taxpayer opted to the itemized deduction.
C. P 222,000
12. Compute the income tax due if the taxpayer opted to the optional standard deduction.
B. P 246,000
13. Compute the income tax due if taxpayer opted to the 8% optional income tax.
A. P 282,000
14. Mr. Markey recorded sales of P 2,500,000, cost of sales of P 1,000,000 and expenses of P 700,000. He is
also a partner in various partnership and received the following share in their net income:
General Professional Partnership Business Partnership
Share in net income P 200,000 P 400,0
Compute the income tax due if Mr. Markey opted to itemized deduction.
C. P 190,000
15. Compute the income tax due if Mr. Markey opted to the 8% optional income tax. C.
P 196,000
SPECIAL CORPORATION
TRUE OR FALSE 1
1. Foreign and Domestic banks may have EFCDU. T

2. The income of FCDU, OBU, and EFCDU from residents other than depositary banks in the EFCDS or FCDS is
subject to a 10% final tax. T
3. The income of FCDU or EFCDU from foreign sources is subject to regular income tax. F (exempt)
4. Corporation subject to a rate below 30% are referred to as special corporations. T
5. Corporation includes joint ventures, associations, and partnership. T
6. Joint ventures formed for the purpose of undertaking construction projects or engaging in energy operations a
taxable as corporations. F
7. Exempt corporations are never subject to corporate income tax. F
8. Government-owned and controlled corporations are subject to corporate income tax. T
9. A non-profit hospital is an exempt corporation taxable only on income from unrelated activities. T
10. PEZA-registered enterprises are exempt from tax. F
11. BOI-registered enterprises enjoy income tax holiday for 20 years. F
12. FCDU and OBU are divisions from foreign bank. F (except FCDU)
13. The income of OBU from foreign sources is exempt from income tax. T
14. International carriers are subject to a tax of 2.5% on taxable income. F (Gross Philippine Billings)
15. A domestic carrier is subject to 30% tax on Philippine taxable income. F (world taxable income) 16. Special
corporations can claim optional standard deduction. F
17. Exempt corporations are not required to file income tax returns because they do not pay tax. F
18. Exempt corporations and special corporations are mandated to use the itemized deductions. T
19. Exempt corporations who filed late are not subject to penalties because they have no tax due. F (they are sub
to compromise penalty)
20. Exempt corporations filing BIR Form 1702-EX will not pay tax as a rule. T
TRUE OR FALSE 2
1. The classification rule is applied to private schools and non-profit hospitals. F (dominance test)
2. The dominance test is applied to non-profit schools and private hospitals. F
3. A government school is exempt from income tax. T
4. A non-resident owner or lessor of vessel is subject to a tax at 7.5% of the gross rental. F (4.5% of gross income
5. A regional area headquarters is exempt from tax because it does not derive income. T
6. A regional operating headquarter of a municipal company is subject to 10% on world income. F (Philippine
income)
7. A non-resident cinematographic film owner, lessor, or distributor is subject to 25% tax on taxable income. F
(gross income)
8. A non-resident owner or lessor of aircraft, machineries and other equipment is subject to tax at 4.5% of gross
rentals. F (7.5% of gross income)
9. A farmers’ or fruit growers’ association is exempt from income tax. T
10. Exempt corporations are subject to income tax on their income from unrelated activities. T
11. A non-stock, non-profit institution must be organized for religious, charitable, scientific, athletic, cultural, or fo
the rehabilitation of veterans. T
12. To be exempt, all of the net income or asset of a non-profit corporation or association must be devoted to its
purposes, and no part of its net income or asset accrues to benefit any member or a specific person. T
13. The unrelated income of non-profit corporations is exempted from income tax if the same is diverted to its
nonprofit purpose. T
14. The exemption of non-stock and non-profit corporations or associations shall commence when they secure th
tax exemption ruling. T
15. The certificate of tax exemption ruling is valid for one year and renewable every year thereafter. F (three year
TRUE OR FALSE 3
1. The FCDUs, OBUs and EFCDUs, are never subject to regular income tax. F
2. Persons and service establishments inside an ECOZONE are subject to regular tax. T
3. The Gross Philippine Billings of international carriers includes receipts from outgoing voyage or flights which
must be billed in the Philippines. F (wherever billed so long as outgoing)
4. Expenses of an exempt corporation not directly traceable to either related or unrelated operations are allocat
based on the ration of gross income. T
5. Local water districts are exempt from income tax. T
6. Cooperatives that transact business with non-members are taxable on income allocated to interest on membe
capital when their accumulated reserve exceeds P10,000,000. T
7. All cooperatives, regardless of classification, are subject to income tax on their income from unrelated activitie
T
8. The expenses of exempt corporations from exempt operations are deductible to its gross income from unrelat
operations. F
9. When the income from the related activities constitutes at least 50% of total income, private schools are subje
to tax at 10% of taxable income from related and unrelated services. T (the dominance test)
10. When the income from the unrelated activities constitutes at least 50% of total income, only the income from
unrelated activities of private schools and non-profit hospitals is subject to 30% tax. F
11. Refunded tickets and tickets of non-revenue passengers are excluded in the Gross Philippine Billings. T
12. The gross receipts from transient passengers are excluded from Gross Philippine Billings if they depart from th
Philippines through the same carrier within 48 hours from their arrival. T
13. The 48-hour rule does not apply when another carrier continued the flight or voyage of transient passengers. T
14. The 48-hour rule may be extended by force majeure. T
15. Domestic film owners, lessors or distributors shall be subject to 25% tax on gross income from all sources with
F (30% on world taxable income)
MULTIPLE CHOICE: THEORY 1
1. A non-resident foreign corporation is taxable on Philippine gross income.

2. The resident and non-resident classifications do not apply to domestic corporation.
3. Which of these is a special corporate tax payer? – A private school
4. As a rule non-profit, non-stock corporations are exempt from income tax. Which of these nonprofit entities is
subject to income tax? - Hospital
5. The exemption of non-profit corporations specifically pertains to income from related parties.
6. A domestic corporation is taxable on world taxable income.
7. A resident foreign corporation is taxable on Philippine taxable income.
8. Benguet State University, a pubic educational institution is exempt from corporate income tax.
9. Generally, government-owned and controlled corporations are subject to regular income tax.
10. Generally, private proprietary educational institutions are subject to preferential income tax.
11. Which is not an exempt corporation? – Government-owned and controlled corporations 12. Which of these
foreign corporations is subject to the 30% regular corporate tax? – Call center 13. A non-resident foreign
corporation is never subject to 30% on gross income abroad.
14. A resident foreign corporation is not subject to 30% tax on foreign income.
15. A domestic corporation is not subject to the 30% regular income tax on gross income.
MULTIPLE CHOICE: THEORY 2
1. An allocation of common expenses between related and unrelated activities is made to properly reflect taxab
49. Which of the following is not correct?
a. Collection from taxes are public money
b. Appropriation of taxes for the common good of the people is valid
c. Construction of private road from taxes are availed appropriation
c. Construction of private road from taxes are availed appropriation
50. The power to tax includes the power to destroy because the taxpayer has no option but to pay the tax
is imposed to him
a. Marshall Dicturm
b. Holmes Doctrine
c. Pan Matera Principle
a. Marshall Dicturm
51. All of the following are administrative functions of taxation except
a. Selection of object of tax
b. Equalization of assessment
c. Collection of Taxes
a. Selection of object of tax
52. The following is an incorrect description of taxation
a. Legislative and inherent for the existence of the government
b. It involves the taking of property by the government
c. The amount imposed had no limit`
a. Legislative and inherent for the existence of the government
53. A fundamental rule is that the property of one country may not be taxed by another country. This is
known as
a. International Law
b. International Comity
c. Reciprocity
b. International Comity
54. Which of the following tax rate between in same direction with the taxable value?
a. Proportionate
b. Progressive
c. Regressive
d...?
55. The seized property of a delinquent taxpayer becomes the property of the government. This refers to
a. Distraint
b. Levy
c. Forfeiture
c. Forfe

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Income Taxation Reviewer Final Compress

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INCOME TAXATION Chapter 1 – Introduction to Taxation

1. The point at which tax is levied is also called

Which statement is true?

1. The constitutional exemption of religious or charitable institutions refers only to

Which of these are classified as both constitutional and inherent limitation?

Is Ram’s contention valid?

2. Which is not a legislative act?

Which statement is correct?

CHAPTER 3: INTRODUCTION TO INCOME TAX MC 1

1. Which is not a requisite of gross income?

1. A resident alien naturalized in accordance with Philippine laws is a

1. The place of taxation is

Which is correct with regard to the final income taxation?

CHAPTER 7: INTRODUCTION TO REGULAR INCOME TAX MC – PART 1

1. The general rule in income taxation is

Which of the foregoing are passive incomes are subject to?

1. The following may be relevant in the determination of taxable income

Which is not considered in the determination of taxable income?

Which is correct regarding the regular income tax?

Which statement is incorrect regarding the regular income tax?

b.estate d. Pure business or professional income earner

28. A corporation subject to different tax rates shall use

CHAPTER 9: REGULAR INCOME TAX: INCLUSION IN GROSS INCOME

2. Which is not an employee classification according to function?

4. Which is usually an employee?

5. The statutory minimum wage is

6. Which is not included in the gross taxable compensation of an employee?

7. Which is not an exclusion criterion on employee benefits?

Choice Theory- Part 2

3. De minimis benefits are generally

6. Select the most accurate statement

7. Which is taxable as compensation?

8. Which of the following is subject to income tax?

11. Rice allowance is taxable when

13. Which is an exempt de minimis benefits?

17. Which of the following remuneration is an item of compensation income?

20. The P90,000 exemption threshold is applicable to

21. The excess of “13th month pay and other benefits” is

Chapter 11: Fringe Benefit Tax Multiple Choice-Theory 1

1. Which is not part of de minimis benefits?

5. Which is not subject to fringe benefit tax?

8. Which is subject to fringe benefits tax?

10. Which fringe benefit is subject to fringe benefit tax?

CHAPTER 13-B: Special Allowable Itemized Deductions and NOLCO

MULTIPLE CHOICE – PROBLEM

Compute the total deductible additional compensation expense.

Compute the deductible amount of income distribution to the fund.

What is the deductible senior citizen’s discount?

Gross Income P1,500,000 Less:

What is the NOLCO to be carried over in the next three years?

Rent income P400,000

Compute the NOLCO to be carried over in the next three years.

Salaries to regular employees P400,000

CHAPTER 13-C: Optional Standard Deduction

MULTIPLE CHOICE – THEORY

Cost of sales P600,000 D. P480,000

Compute the optional standard deductions.

Cost of sales P600,000

To an individual taxpayer, optional standard deduction is in lieu of

Assuming Mrs. Belo elects to deduct OSD, compute the OSD.

Gross receipts P800,000 A.P320,000

Dividend income from a Real Estate Investment Trust 20,000

Assuming the taxpayer opted to avail of OSD, what is the OSD?

Receipts from current year billings P800,000