CORPORATION

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a. Ordinary partnership c. General professional partnership

b. An incorporated business organization d. Business partnership
c.
29. A corporation’s records show:
a. Normal Taxes Excess MCIT Excess
Withholding
b. Quarter Income Tax MCIT Withheld Prior Year Tax Prior Year
c. First P100,000 P80,000 P20,000 P30,000 P10,000
d. Second 120,000 250,000 30,000
e. Third 250,000 100,000 40,000
f. Fourth 200,000 100,000 35,000
g. The income tax due for the second quarter is
a. P100,000 b. P80,000 c. P50,000 d. P40,000
h.
30. The income tax due for the second quarter is
a. P120,000 b. P250,000 c. P150,000 d. P230,000
b.
31. The income tax due for the third quarter is
a. P250,000 b. P100,000 c. P140,000 d. P70,000
b.
32. The income tax due for the year is
a. P200,000 b. P100,000 c. P135,000 d. P165,000
b.
33. Using the preceding problem except that the normal income tax for the fourth quarter is
P50,000 (instead of P200,000), the income tax due for the year is
a. P120,000 b. P55,000 c. P45,000 d. P75,000
b.
34. CPA University, a private educational institution organized in 2000, had the following
data for 2012.
a. Tuition fees P850,000
b. Rental income (net of 5% cwt) 142,500
c. School related expenses 820,000
d. The income tax still due for 2012 is
a. P54,000 b. P10,500 c. P18,000 d. P46,500
e.
35. CPA College, a private educational institution organized in 2000, had the following data for
2012.
a. Tuition fees P480,000
b. Rental income (net of 5% cwt) 494,000
c. School related expenses 945,000
d. The income tax still due for 2012 is
a. P16,500 b. (P9,500) c. (P6,000) d. P20,000
e.
36. CPA Airlines, a resident foreign international carrier has the following records of income for the
period. (The income represents Gross Phil. Billings)
i. Continuous flight from Manila to Tokyo = 1,000 tickets at P2,000 per ticket
ii. Flight from Manila to Singapore; transfer flight from Singapore to Tokyo = 2,000
tickets at P2,000 per ticket
iii. Continuous flight from Manila to Singapore = 3,000 tickets at P1,000 per ticket
b. The income tax due is
a. P225,000 b. P125,000 c. P100,000 d. P175,000
c.

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d. 37 - 46. The A Corporation provided the following data for calendar year ending December 31,
2012. ($1 = P50)
e. Philippines Abroad
f. Gross Income P 4,000,000 $40,000
g. Deductions 2,500,000 15,000
h. Income Tax Paid 3,000
i.
37. If it is a domestic corporation, its income tax after credit is
a. P812,500 b. P675,000 c. P962,500 d. P480,000
b.
38. If it is a residents corporation, its income tax is
a. P730,000 b. P450,000 c. P480,000 d. P525,000
b.
39. If it is a non-resident corporation, its income tax is
a. P730,000 b. P1,280,000 c. P1,200,000 d. P1,400,000
b.
40. Under No.37, but it opts to claim the tax paid abroad as deduction from gross income, its income
tax is
a. P910,000 b. P832,000 c. P275,000 d. P780,000
b.
41. If it is a resident international carrier, its income tax is
a. P100,000 b. P10,000 c. P37,000 d. P125,000
b.
42. If it is a non-resident cinematographic film owner/lessor, its income tax is
a. P1,000,000 b. P100,000 c. P300,000 d. P128,000
b.
43. If it is a non-resident lessor of vessels, its income tax is
a. P100,000 b. P180,000 c. P300,000 d. P128,000
b.
44. If it is a non-resident lessor of aircrafts, machineries and equipment, its income tax is
a. P100,000 b. P180,000 c. P300,000 d. P128,000
b.
45. If it is a resident corporation but its expenses within and outside the Philippines is P3M,
unallocated (disregard original data on expenses), its income tax is
a. P640,000 b. P700,000 c. P480,000 d. P600,000
b.
46. If it is a resident corporation and it remitted 60% of its net profit to its head office abroad, its
total tax liability is (original data)
a. P 480,000 b. P571,800 c. P544,500 d. P612,750
b.
47. A Corporation, a resident corporation, provided the following data for taxable year 2012
a. Philippines
USA
b. Gross Income P40M
P20M
c. Dividends from:
d. Domestic corporation 5M
e. Foreign corporation (connected with the conduct
f. of its business in the Phils.) 4M
g. Business expenses 12M
8M
h. The corporation remitted to its head office the P5M dividend income and 40% of
its net profit to its head office in USA. The corporation’s total tax liability
including the tax on the profit remitted is
a. P10,240,000 b. P12,448,000 c. P12,960,000 d. P10,944,000
i.

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48. A Corporation has the following data for the year 2011:
a. Gross Income, Philippines P1,000,000
b. Gross Income, USA 500,000
c. Gross Income, Japan 500,000
d. Expenses, Philippines 300,000
e. Expenses, USA 200,000
f. Expenses, Japan 100,000
g. Other Income:
h. Dividend from San Miguel Corp. 70,000
i. Dividend from Ford Motors, USA 120,000
j. Gain, sale of San Miguel shares directly to buyer 150,000
k. Royalties, Philippines 50,000
l. Royalties, USA 100,000
m. Interest (other than from banks) 60,000
n. Rent, land in USA 250,000
o. Other rent income 100,000
p. Prize, contest in Manila 200,000
q. The total tax liability as a domestic corporation is:
a. P689,000 b. P669,000 c. P679,750 d. P699,500
r.
49. Based on the above problem, its total tax liability if it is a resident corporation is
a. P318,000 b. P338,000 c. P328,750 d. P348,520
b.
50. And if it is a non-resident corporation, its total tax liability is
a. P433,500 b. P443,500 c. P338,500 d. P353,500
b.
51. ABC, is a domestic corporation engaged in merchandising business. For the calendar year 2012,
it had a net income per books of P500,000, after considering, among others, the following:
i. Dividend received from a domestic corporation P30,000
ii. Provision for doubtful accounts 10,000
iii. Dividend received from a foreign corporation 20,000
iv. Portion of P150,000 advance rental already earned 100,000
v. Recovery of receivables previously written off (included as part of income
above):
b. Allowed by the BIR as deduction 10,000
c.Disallowed by BIR as deduction 30,000
i. Refund of taxes (included as part of net income above):
d. Allowed by BIR as deduction 25,000
e.Disallowed by BIR as deduction 15,000
i. Bank interest income:
f. Philippine Bank 80,000
g. USA Bank 100,000
h. The taxable net income is
a. P485,000 b. P365,000 c. P375,000 d. P405,000
i.
52. The net operating loss incurred in a taxable year during which the taxpayer was exempt from
income tax shall
a. Be carried over as a deduction from gross income for the next taxable year
b. Be carried over as a deduction from gross income for the next 3 consecutive taxable years
c. Be carried over as a deduction from gross income for the next 5 consecutive taxable years
d. Not be allowed as a deduction for the next taxable year
e.
53. Any income from transactions with depository banks under the expanded foreign currency
deposit system shall be exempt from income tax if derived by a
a. Domestic corporation c. Non-resident foreign corporation

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b. Resident foreign corporation d. Resident alien

c.
54. Selected cumulative balances were taken from the records of ABC Co., a domestic
corporation, in its fifth year of operations in 2012, which had an income tax refundable of
P10,000 for preceding year for which there is a certificate of tax credit:
a. QI Q2 Q3
Q4
b. Gross profit from sale P800,000 P1,600,000 P2,400,000
P3,100,000
c. Capital gain on sale directly to buyer of shares
d. of domestic corporation 50,000 50,000 50,000
100,000
e. Dividend from domestic corp. 10,000 10,000 20,000
20,000
f. Interest on Philippine currency
g. Bank deposits 5,000 10,000 15,000
20,000
h. Business expenses 600,000 1,200,000 1,700,000
2,100,000
i. Income tax withheld 15,000 35,000 65,000
115,000
j. If the corporation uses the calendar year, the annual income tax return is
due on
a. April 15, 2012 b. April 15, 2013 c. July 15, 2013 d. July 15, 2012
k.
55. The income tax due at the end of the first quarter
a. P39,000 b. P45,000 c. P35,000 d. P60,000
b.
56. The income tax due at the end of second quarter
a. P50,000 b. P70,000 c. P40,000 d. P85,000
b.
57. The income tax due at the end of third quarter
a. P70,000 b. P60,000 c. P75,000 d. P80,000
b.
58. The income tax due (refundable) at the end of the year
a. P52,000 b. P50,000 c. P30,000 d. P40,000
b.
59. A domestic corporation has the following data for 2012:
a. Excess MCIT 2011 P10,000
b. Q1 Q2
c. Income, net of 1% withholding tax P495,000 P792,000
d. Deductions 480,000 700,000
e. How much is the income tax still due and payable in the second quarter?
a. P4,000 b. P8,000 c. P9,000 d. P13,000
f.
g.
60. The records of a closely held domestic corporation show the following data for 2012:
a. Gross Income P1,500,000
b. Business expenses 600,000
c. Gain on sale of business asset 60,000
d. Interest on deposits with Metrobank, net of tax 5,000
e. Sale of shares of stocks, not listed and traded:
f. Selling price 150,000
g. Cost 115,000
h. Dividends from Victory Corporation, domestic 35,000
i. Dividends paid during the year 120,000

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j. Reserved for building acquisition 300,000

k. In 2011, the corporation suffered an operating loss of P130,000 . This amount was carried
forward and claimed as deduction from gross income in 2012. The income tax due in 2012 is
a. P234,375 b. P249,000 c. P273,937 d. P288,000
l.
61. The improperly accumulated earnings tax is
a. P48,640 b. P34, 765 c. P35,640 d. P36,425
b.
62. A domestic corporation organized in 1998 provided the following information:
a. 2006 2007 2008 2009 2010
b. Net Sales P4,000,000 P5,000,000 P6,000,000 P7,000,000
P9,000,000
c. Cost of Sales 2,000,000 3,500,000 4,200,000 5,000,000
5,200,000
d. Business expenses 1,900,000 1,550,000 1,820,000 2,100,000
2,300,000
e. The income tax due for 2006 is
a. P35,000 b. P30,000 c. P40,000 d. P32,000
f.
63. The income tax due for 2010 is
a. P293,000 b. P399,000 c. P344,000 d. P450,000
b.
c. 64 – 66. The records of a domestic corporation organized in 2000 show:
d. 2009 2010 2011
e. Gross Income P2,000,000 P3,000,000
P4,000,000
f. Other Income:
g. Capital gain from sale of
h. commercial land 400,000 500,000
i. Interest income from
j. bank deposit 80,000 96,000
k. Capital gain from sale of shares
l. of stock-not listed 60,000 70,000
m. Allowable deduction 1,940,000 3,100,000
3,500,000
n.
64. The income tax payable in 2009 is
a. P138,000 b. P40,000 c. P42,000 d. P18,000
b.
65. The taxable income in 2011 is
a. P400,000 b. P900,000 c. P1,000,000 d. P500,000
b.
66. The income tax payable in 2011 is
a. P150,000 b. P120,000 c. P38,000 d. P68,000
b.
c. 67-68. The records of ABC Corporation, organized in 2004 showed the following data for 2012.
d. Gross Income P2,000,000
e. Less: Allowable business expenses
f. (other than bad debts) P1,850,000
g. Bad debts written off 100,000 1,950,000
h. Taxable net income P 50,000
i.
67. The income tax due in 2012 is
a. P40,000 b. P45,000 c. P15,000 d. P25,000
b.
68. In 2013, which of the following statements is correct?
a. There is a deficiency income tax of P24,000 for 2012.

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b. The taxable net income should be corrected to P130,000.

c. There is a taxable recovery amounting to P80,000 in 2013.
d. The bad debts expense in 2012 should be reduced to P20,000.
e.
f. The End!
g.
h.
i.

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PARTNERSHIP
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Partnership Tax

Bachelor of Science in Accountancy (University of the Immaculate Conception)

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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

PARTNERSHIPS, JOINT VENTURE

AND CO-OWNERSHIP Dela Cruz / De Vera / Llamado

1. As regards a business partnership, which of the following is not correct?

a. The partnership must file quarterly and year end income tax returns.
b. The distributable income available to the partners is the taxable income in its ITR less the income
tax thereon.
c. The share of a partner in the distributable net income, even if not actually received is considered
constructively received by the partner.
d. The share of a partner in the distributive net income whether actually received or not is subject to a
final withholding tax on dividends.

2. The following statements regarding taxable partnerships are correct, except

a. They file quarterly and year-end income tax returns.
b. They are subject to the rules on corporation for capital gains tax, final tax on passive income, regular
corporate income tax, and MCIT.
c. The partners’ share in the distributable net income is subject to final tax.
d. They were subject to the IAET before the same was repealed.

3. Regarding a general professional partnership, which of the following is not correct?

a. It shall not be subject to income tax.
b. The partners shall be liable for income tax on their respective distributive shares.
c. Each partner shall report in his ITR his distributive share in the partnership net income.
d. The share of a partner shall be subject to a creditable withholding tax of 10% if his distributive
share does not exceed P3.0 Million and 15% if it exceeds P3.0 Million

Reason: The share of a partner shall be subject to a creditable

withholding tax of 10% if the current year’s income payments
to the partner total ₱720,000 or below, or 15% if the same
exceeds ₱720,000.

4. A partner, on his own transactions, is on the cash method of accounting while the general professional
partnership is on the accrual method of accounting. In the partner’s determination of his taxable income
for the year, he
a. Must convert his income from the partnership into cash method.
b. Must convert his own income into accrual method.
c. Does not report his income from the partnership because the partnership is exempt from income tax.
d. Can consolidate his share in the net income of the partnership under accrual method with his own
income under the cash method.

5. Which of the following statements is not correct?

a. When the co-owners invest the income of the property co-owned in a business or in any income
producing properties or activities constituting themselves into a business partnership, such
partnership is consequently subject to tax as a corporation.
b. As a rule, a co-ownership is not subject to income tax because the activities of the co-owners are
limited to the preservation and enjoyment of the property and the collection of the income therefrom.
c. A co-owner is subject to income tax on his share in the net income of the co-ownership actually or
constructively received.
d. All partnerships, no matter how created or organized, are considered corporations subject to
corporate income tax.

6. As regards an ordinary partnership, which of the following statements is correct?

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a. Partners’ shares are subject to final tax, hence the partnership need not file an ITR.
b. Subject to improperly accumulated earnings tax.
c. Treated like corporations, hence partners have limited liability.
d. Partners’ shares, even if distributed, will not be included in their respective ITRs.

7. As regards a general professional partnership, which of the following statements is correct?

a. Treated like a corporation, hence it is subject to the corporate income tax.
b. It is exempt from income tax, hence it need not file an ITR.
c. Partners’ shares are subject to final tax.
d. Partners’ shares will be included in their respective ITRs, whether distributed or not.

8. Statement 1 – A CPA and a Lawyer may form a general co-partnership to sell law and accounting
books.
Statement 2 – Partnerships and Corporations have separate juridical personalities distinct from the
owners. Therefore, partners and stockholders are not liable to creditors of the business.
a. True; true
b. False; false
c. False; true
d. True; false

9. Statement 1 – The general professional partnership may claim itemized deductions in computing its
net income and a partner may also claim itemized deductions in computing his net taxable income.
Statement 2 – The general professional partnership may claim the optional standard deduction in
computing its net income while a partner may claim itemized deductions in computing his net taxable
income.
a. True; true
b. True; false
c. False; true
d. False; false

10. Statement 1 – The general professional partnership may claim itemized deductions in computing its
net income while a partner may claim the optional standard deduction in computing his net taxable
income.
Statement 2 - The general professional partnership may claim the optional standard deduction in
computing its net income and a partner may also claim the optional standard deduction in computing
his net taxable income.
a. True; true
b. True; false
c. False; true
d. False; false

11. The net share received by a partner in a general professional partnership is

a. Part of his taxable income in his/her ITR.
b. Exempt from income tax
c. Subject to 10% creditable withholding tax
d. Subject to final tax

12. The net share received by a partner in a general co-partnership is

a. Part of his taxable income in his/her ITR.
b. Exempt from income tax
c. Subject to 10% creditable withholding tax
d. Subject to final tax

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13-15) A and B are partners in a Partnership which realized a gross income of ₱800,000 with a
corresponding ₱350,000 in expenses in the year 2021. A is married with 2 qualified dependent
children, with his own business generating net sales of P400,000, and incurring cost of sales and
deductible expenses of ₱30,000 and P230,000, respectively. B, single, also has his own business
generating ₱450,000 in net sales, and incurring cost of sales and deductible expenses of ₱200,000
and ₱50,000, respectively. They share profits and losses of their partnership at 4:6.

If the partnership is a GPP, the taxable income of A who avails of the OSD is:
a. P 420,000
b. P 70,000
c. P 302,000
d. None of the above

Solution below:

13) Partner A

Sales/Revenues/Receipts/Fees 400,000
Less: Cost of Services (0 is OSD) -
Gross Income from Operation 400,000
Less: OSD (40%) (160,000)
Net income from Operations 240,000
Add: Non-operating income -
Share in the GPP Net income, gross 180,000 180,000
Total taxable income 420,000

14) And the taxable income of B who itemizes deductions is:

a. P 150,000
b. P 470,000 14) Partner B
c. P 450,000
Sales/Revenues/Receipts/Fees 450,000
d. None of the above.
Less: Cost of Services (200,000)
Gross Income from Operation 250,000
Less: Itemized Deductions (50,000)
Net income from Operations 200,000
Add: Non-operating income -
Share in the GPP Net income, gross 270,000 270,000
Total taxable income 470,000

15) If the partnership is an OP, its tax due is

a. P 144,000
b. P 148,500
c. P 112,500 15)
d. P 157,500
Partnership's net taxable income 450,000
Tax rate 25%
Tax due 112,500

Note: If the question is silent, the corporate tax rate is presumed to be

25%

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16– 19) AB partnership with A and B as partners (both resident citizens) had a net professional income
amounting to P500,000 for 2021. Its other income included bank interest income of P8,000, net of final
withholding tax and royalty income of P10,000, net of the final withholding tax. Total assets of the
partnership amount to ₱50.0 Million.

A is single and has his own separate eatery business. In 2021, his business had net sales of ₱1,000,000,
cost of sales of ₱600,000, and operating expenses of ₱200,000.

16) The share of A in the income of the GPP, net of the 15% CWT, is
a. Php250,000 c. Php225,000
b. Php259,000 d. Php220,150

17) The net taxable income and income tax payable of A who shares profit and loss equally with B in
their GPP is:
a. P450,000; P3,650
b. P400,000; P10,450
c. P439,000; P9,670
d. None of the above.
17) Graduated Rates
Sales/Revenues/Receipts/Fees
Less: Cost of Services
Gross Income from Operations
Less: Itemized Deductions
Net income from Operations
Add: Non-operating income
Share in the GPP Net income
Total taxable income
Tax due (table)
Less: CWT
Tax Payable

18) Using the preceding number, but it is a business partnership, the taxable income of the partnership is
a. P518,000
b. P500,000
c. P510,000
d. P508,000

19) Using the preceding number, the net distributable share of B (resident citizen) is
a. P162,500
b. P157,500
c. P188,100
d. P154,350
Net taxable income of AB
Tax rate
Tax due

After-tax net income

Add: Int. income
Royalty income
Total income after tax

B's 50% share

Less: 10% FT
B's distributable share, net of FT

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20) A lawyer was rejected by his extremely sexy and gorgeous secretary. He became so enraged that he
raped her 10 times within 15 minutes. Since then, he became known in the media as the <Machine Gun
Rapist.= For his defense, he obtained the services of ACCRA, the biggest law partnership in the
Philippines. ACCRA asked for a fee of ₱10,000,000 for its legal services in defending him. How much
should the lawyer withhold as CWT from ACCRA’s fee?
a) 10% b) 15% c) 5% d) None.

21) A and B are co-owners by virtue of a property given to them by their father. The co –ownership had a
gross rental income of P500,000 and expenses related to rental activity of P300,000 but 10% is not
deductible for the year 2021. A and B share in the profits at 75% and 25%, respectively. A withdrew
P50,000 from the co-ownership net income for the year; B did not withdraw any amount. A and B are
both single. The income tax liability of the co-ownership is
a. ₱ 102,400 c. ₱ 80,000
b. ₱ 76,800 d. ₱ -0-

22) A’s share in the net income of the co-ownership is:

a. P 172,500
b. P 150,000
c. P 122,500
d. P – 0 –

23) Suppose in the next year, the co-owned property has the same gross rental income of ₱500,000 and
expenses related to rental activity of ₱300,000 but 10% thereof is not deductible.

In that same year, A and B did not divide but instead invested the entire profits from the co-owned
property in a business venture offering property management services. In the same year, this business
had revenues of ₱750,000, cost of revenues of ₱300,000, operating expenses of ₱135,000, and non-
operating income of ₱55,000.

The tax due of the <co-ownership= is

a. P 150,000
b. P 232,500
c. P 0
d. None of the above.

24) X and Y (both resident citizens) are partners in the following partnerships:

Ordinary Partnership General Professional Partnership

Gross Income P 500,000 P 400,000
Deductible expenses 300,000 180,000

They have the following personal income and expenses:

X Y
Gross Income P 400,000 P 280,000
Deductible expenses 250,000 120,000
Dividend from domestic corporation 20,000 30,000
Dividend from foreign corporation 10,000 8,000
Prize, supermarket raffle 15,000 8,000
Royalty, books 10,000 12,000

Partners agreed to share partnership income and losses as follows:

X = 40% (Partner X is married with 2 qualified dependent children)
Y = 60% (Partner Y is single but supporting her 18 year-old boyfriend living with and dependent
upon her for his chief support)
Determine the respective net taxable incomes of partners X and Y in their ITRs for 2021:

a. P148,000, P258,000

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b. P88,000, P132,000
c. P248,000, P308,000
d. None of the above.

GPP
Gross Income
Expenses
Net income

X – 40% Partner

Gross Income
Less: Itemized Deductions
Net income from Operations
Add: Non-operating income (Div. from FC)
Share in the GPP Net income (40%)
Total taxable income

Y – 60% Partner

Gross Income
Less: Itemized Deductions
Net income from Operations
Add: Non-operating income:
Div. from FC
Prize - Supermarket
Share in the GPP Net income (60%)
Total taxable income

25) A Co. and B Co., domestic corporations, both in the construction business, formed a joint venture to
build houses for the poor, a government project, with an agreed equal sharing in net income. The joint
venture, A Co., and B Co. are all licensed by the PCAB. Data on income and expenses for the calendar
year 2021 show:
Joint Venture A Co. B Co.
Gross Income P 80,000,000 P 2,000,000 P 3,000,000
Expenses 60,000,000 1,200,000 2,000,000

Determine:

i) The income tax liability of the joint venture.

a. P 6,000,000 c. P1,800,000
b. P 20,000,000 d. P 0

ii) The income tax liability before tax credits of A Co:

a. P 2,700,000 c. P 7,560,000
b. P 10,800,000 d. P 6,000,000

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JV
Gross Income
Expenses
Net income

A Co.
Gross Income from Operations
Add: Other taxable income not subject to FT:
50% Share in NI of JV
Total Gross Income
Less: Itemized Deductions
Net taxable income
Tax rate
Income tax due

26) A Co. and B Co., domestic corporations, both engaged in the transportation business with operations in
Northern and Central Luzon formed a joint venture agreeing to distribute the net income of the joint
venture equally. In calendar year 2021, the joint venture had a gross income of P5,000,000 and expenses
of P3,500,000.

Determine:
i) The income tax liability of the joint venture.
a. P 375,000 c. P1,050,000
b. P 5,000,000 d. P 0

ii) The share of A Co. in the distributable net income of the JV:

a. P 562,500 c. P 472,500
b. P 52,500 d. P1,050,000

iii) Final tax on the share of A Co. in the distributable net income of the JV:

a. P 562,500 c. P78,750
b. P105,000 d. 0

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 GROSS
INCOME
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Taxation - Gross Income

Bachelor of Science in Accountancy (University of the Immaculate Conception)

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CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

GROSS INCOME Dela Cruz / De Vera / Llamado

1. Statement 1: Damages for loss of earnings represent taxable income.

Statement 2: Exemplary damages received by the plaintiff do not constitute taxable income to the
plaintiff.

a) Statement 1 is true.
b) Statement 2 is true.
c) Both statements are false.
d) Both statements are true.

2. Statement 1: Passive income derived from investments or deposits in the Philippines by foreign
governments shall be taxable in the Philippines.
Statement 2: Income derived from governmental or proprietary functions by the National Government
of the Philippines or any of its political subdivisions as well as those corporations owned by the
Philippine government, are exempt from tax following the principle that the government does not tax
itself.
a) Statement 1 is true.
b) Statement 2 is true.
c) Both statements are false.
d) Both statements are true.

3. Statement 1: The value of property acquired by gift, bequest, devise, or descent, as well as the
income from such property, shall be excluded from the gross taxable income of the recipient.
Statement 2: Gains realized from the sale or exchange or retirement of bonds, debentures, or other
certificates of indebtedness with a maturity of at least 5 years, shall not be taxable to the investor-
seller.
a) Statement 1 is true. c) Both statements are false.
b) Statement 2 is true. d) Both statements are true.

4. The following constitute taxable income except:

a) Refund of real property taxes paid in a previous year but disallowed as a deduction in the
year paid.
b) Recovery of debts which were previously charged off and deducted in a previous year.
c) Casino winnings.
d) Interest income from loan where the interest charged is 100% per annum.

5. Exclusions from gross income, except:

a. Interest on the price of land covered by the Presidential Decree on land reform
b. Interest payments on proceeds of life insurance held by the insurer.
c. GSIS, SSS, Philhealth and Pag-ibig contributions and union dues of individuals.
d. Gains realized by an investor upon redemption of shares of stock in a mutual fund company.

6. Which of the following statements is correct?

a. The power of taxation reaches even the citizens abroad and their income earned from sources outside
the Philippines.
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b. Priests and religious institutions are exempt from income and property taxes.
c. Separation benefits received by terminated employees resulting from a deadlock in their
collective bargaining agreement are exempt from income tax.
d. The value of property received as gift, or under a will or testament or through legal succession is
exempt from taxation.

7. One of the following is taxable income:

a. Gifts, bequests and devices
b. Amounts received as rewards from giving information instrumental in the discovery of
violations of the Tax Code and seizure of smuggled goods.
c. Proceeds from life insurance
d. Separation pay received by an employee due to a cause beyond his control.

8. Which of the following statements is not correct?

a. Proceeds of life insurance policies paid to beneficiaries upon the death of the insured are excluded
from gross income regardless of whether the proceeds are received as a single sum or in installments.
b. In case of transfer for a valuable consideration by assignment or otherwise of a life insurance,
endowment or annuity contract or any interest therein, only the actual value of such consideration
and the amount of the premium and the sums subsequently paid by the transferee are exempt from
income tax.
c. Marriage fees, baptismal offerings, sums paid for saying masses for the dead and other contributions
received by a clergyman, evangelist or religious worker for services rendered are taxable income.
d. Monetization of leave credits of employees who were unable to go on leave due to exigencies
of the service constitutes taxable income.

9. Which of the following statements is correct as regards a resident citizen?

a. Income from illegal activities are subject to final tax.
b. Income tax refunds constitute taxable income to the taxpayer.
c. Recovery of bad debts previously written off is part of taxable income.
d. As a rule, contest awards and prizes are subject to 20% final tax if they amount to more than
P10,000, otherwise they will be part of taxable income in the ITR.

10. Which of the following statements is not correct?

a. Minimum wage earners shall be exempt from the payment of income tax on their SMW.
b. Holiday pay, overtime pay, night shift differential and hazard pay shall be exempt from
income tax.
c. Prizes and awards granted to athletes in local and international sports competitions and tournaments
whether held in the Philippines or abroad, and sanctioned by their national sports associations are
exclusions from gross income.
d. Benefits received from or enjoyed under the Social Security System are exclusions from gross
income.

11. One of the following is part of taxable income subject to schedular (graduated/progressive) rates:
a. Compensation for damage/injury to person or property
b. The share of a partner in the undistributed net income of a general co-partnership
c. Living quarters and meals furnished and given to a rank and file employee for the convenience
of the employee
d. Facilities or privilege of relatively small value offered by the employer as a means of promoting the
health, goodwill, contentment, or efficiency of the employee.

12. Which is not a creditable withholding income tax?

a. Expanded withholding income tax
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b. Withholding income tax at source

c. Withholding income tax on passive income
d. Withholding income tax on compensation income

13. As a rule, this is not part of taxable income

a. Profit sharing
b. Hazard pay
c. Overtime pay
d. 13th month pay

14. This is taxable income

a. Retrenchment pay
b. SSS / GSIS benefits
c. Separation pay due to resignation
d. Refund of Philippine income tax

15. Which of the following is taxable income?

a. Prizes and awards as an awardee of Ramon Magsaysay Award Foundation
b. Damages awarded as a consequence of libel and slander suits
c. Interest on Philippine lotto winnings
d. Amount received as returns of premiums

16. Which of the following statements regarding dividends is correct?

a. Exempt from tax if received by a resident citizen from a domestic corporation
b. Exempt from tax if received by a resident alien from a domestic corporation
c. Taxable subject to year-end tax if received by a resident citizen from a non-resident foreign
corporation
d. Taxable subject to final tax if received by a non-resident citizen from a non-resident foreign
corporation

17. The following items are exclusions from gross income, except
a. Labor union dues
b. SSS/GSIS premiums contribution
c. IOUs
d. Pag-ibig premium contribution

18. Which of the following is part of gross income in the ITR?

a. PCSO and Philippine Lotto winnings
b. Bank interest on long term deposit
c. Proceeds of life insurance upon death of the insured
d. Raffle prize not exceeding P10,000

19. If refunded, this is taxable

a. Estate tax
b. Donor’s Tax
c. Special Assessment
d. Fringe Benefit tax

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20. A) PCSO and Philippine lotto winnings (of more than ₱10,000) of citizens, resident aliens, and
NRAETBs are excluded from gross income in the ITR because they are exempt from tax.
B) All prizes, awards, winnings are excluded from gross income in the ITR because they are subject to
final tax.

a. Both are true

b. Both are false
c. Only the first is true
d. Only the second is true

21. Which of the following is taxable?

a. P 100,000 interest on long-term deposit or investment
b. P 200,000 gain on sale of 10-year bonds
c. P 12,000 prize in supermarket raffle
d. P 10,000 winnings in Philippine Lotto

22. Gain realized from the sale or exchange or retirement of bonds, debentures or other certificate of
indebtedness is excluded from gross income if the same have a maturity of
a. More than 5 years
b. More than 7 years
c. More than 8 years
d. More than 10 years

23. Gross benefits received by officials and employees of public and private entities as 13th month pay and
other benefits such as productivity bonus, services incentive pay and Christmas bonus shall be excluded
from taxable income up to
a. P20,000
b. P90,000
c. P40,000
d. P50,000

24. Advance rental in the nature of prepaid rental, received by the lessor under a claim or right, and without
restriction as to use is
a. Taxable income of the lessor in the year received if he is on the cash method of accounting.
b. Taxable income of the lessor in the year received if he is on the accrual method of accounting.
c. Taxable income of the lessor in the year received whether he is on the cash or accrual method
of accounting.
d. Taxable income of the lessor up to the amount earned in the year the rental is received.

25. Which payments made by the lessee under such terms of the lease contract should be considered as
additional rent income of the lessor?
A. If a lessee paid directly to the local government the real estate tax on the property of the lessor
B. If the amount received by the lessor is in the nature of a security deposit for the faithful compliance
by the lessee of the terms of the contract
C. If the amount received by the lessor is in nature of a loan extended by the lessee to the lessor.

a. Only A
b. Only A and C
c. Only B and C
d. A, B and C

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26. Should the lessee make permanent improvements on the property leased under an agreement that upon
the expiration of the lease contract the improvements shall belong to the lessor, the lessor may recognize
income from the leasehold improvements
A. At the time when such improvements are completed, the fair market value of such improvements.
B. By spreading over the remaining term of the lease the estimated depreciated value of such
improvements at the termination of the lease and report as income for each year of the lease an
aliquot part thereof.
a. A but not B is allowed
b. B but not A is allowed
c. Either A or B is allowed
d. Neither A nor B is allowed

27. After 10 years of romantic relationship, A decided to end his relationship with B which made B very
angry. B with anger in her eyes boxed, kicked and berated A. A tried to pacify B, but B slipped, lost
control and fell to the ground requiring hospitalization. To buy peace, A decided to shoulder the medical
expenses for the injuries suffered by B. The amount is
a. Taxable income B
b. Deductible expense of A
c. Subject to final tax
d. Exempt from income tax

28. One of the following may be a taxable income for a resident individual:
a. Property received as gifts
b. Cash received as inheritance
c. Interest on Philippine lotto winnings
d. Benefits from the SSS and/or GSIS

29. One of the following represents taxable income:

a. Refund of overpaid rental expense in prior year
b. Refund of donors’ tax paid in prior year
c. Refund of income tax in prior year
d. Refund of special assessment paid in prior year

30. Cash allowance of ₱250 per month given to Central Bank employee to cover the medical expenses of
their dependents shall be
a. Included as part of gross compensation income
b. Excluded from gross compensation income
c. Partly include, partly excluded from gross compensation income
d. Subject to final tax

31. At the testimonial dinner for new CPAs, Christian, a reviewer was requested to sing the theme song of
the movie <Ghost=. Pauline, a new CPA, was so delighted that she felt she was falling in love with
Christian so she decided to cancel Christian’s indebtedness to her. As a result,
a. Christian realized a taxable income as compensation for services
b. If Christian accepts the cancellation, he will pay donor’s tax
c. Christian received a gift from Pauline and therefore is not part of his taxable income
d. The amount of indebtedness cancelled is partly taxable, partly exempt

32. A, was adjudged the best boxer in the recently concluded Asian games. In recognition of his splendid
performance, he was awarded a trophy and a cash prize of P1M. As a result,
a. The value of the trophy and the cash prize are part of his taxable income
b. Only the value of the trophy is taxable
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c. Only the cash prize is taxable

d. Both are exempt from income tax

33. A purchased a life annuity for P1,000,000 which will pay him P100,000 a year. The life expectancy of
A is 12 years. Which of the following will A be able to exclude from his income?
a. P 1,000,000
b. P 1,200,000
c. P 200,000
d. P 100,000

34. If an individual performs services for a creditor who in consideration therefor cancels the debt, the
cancellation of indebtedness may amount to
a. A gift
b. A donation inter-vivos
c. A capital contribution
d. A payment of income

35. This is not part of gross compensation income

a. Salary of P10,000 a month of an employee
b. Fringe benefits of P10,000 a month
c. Salary of P10,000 a month of a partner in a general professional partnership
d. Honorarium and allowances of P10,000 of a member of the board of directors of a corporation who
is also an employee of the corporation.

36. The following income received by officials and employees in the public sector are not subject to income
tax and withholding tax on compensation, except
a. The excess of the 13th month pay and other benefits paid or accrued during the year over
P90,000
b. Representation and transportation allowance (RATA) granted under the General Appropriations Act
c. Personnel Economic Relief Allowance (PERA) granted to government personnel
d. Monetized value of leave credits paid to government officials and employees

37. A holds 1,000 common shares of ABC, a domestic corporation, acquired at P110 per share. Later, he
received a 10% stock dividend in common shares and thereafter, sold directly to a buyer 500 shares at
120 per share. Determine the gain (loss) assuming the shares are ordinary assets.
a) ₱10,000
b) ₱20,000
c) ₱ 5,000
d) None of the above.

38-39. The records of ABC Corporation, organized in 2007 showed the following data for 2017.

Gross Income P2,000,000

Less: Allowable business expenses
(other than bad debts) P1,850,000
Bad debts written off 100,000 _1,950,000
Taxable net income P 50,000

In 2018, 80% of the bad debts written off in 2017 was collected

38. The income tax due in 2017 is

a. P40,000
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b. P45,000
c. P15,000
d. P25,000

39. In 2018, which of the following statements is correct?

a. There is a deficiency income tax of P24,000 for 2017
b. The taxable net income should be corrected to P130,000
c. There is a taxable recovery amounting to P80,000 in 2018
d. The bad debts expense in 2017 should be reduced to P20,000

40-41). Bobby, lessor, leased a lot to Christina, lessee, for 15 years beginning January 1, 2016, subject to
the following terms of and conditions:

Monthly rental ₱ 20,000

Advance rental for 2 years 480,000
Security deposit 240,000
Annual RPT to be paid by lessee 10,000

Cost of building constructed by

lessee (to be owned by lessor upon
termination of lease) ₱2,800,000
Building completed on July 1, 2018
Estimated life of building (in years) 20

40. Determine the taxable income of lessor Bobby for 2016, 2017, 2018, and 2019:

(a) Under the Outright Method:

(a) ₱490,000; ₱10,000; ₱3,050,000; ₱250,000

(b) ₱490,000; ₱490,000; ₱3,050,000; ₱250,000
(c) ₱490,000; ₱10,000; ₱10,000; ₱250,000
(d) None of the above

(a) Outright Method

2016 2017 2018 2019
Rental - - 240,000 240,000
Advance rental (2 years) 480,000 - - -
Annual RPT paid by lessee 10,000 10,000 10,000 10,000
Income from leasehold
improvement - - 2,800,000 -
Total income 490,000 10,000 3,050,000 250,000

(b) Under the Spread-Out Method:

(a) ₱490,000; ₱10,000; ₱292,000; ₱334,000

(b) ₱490,000; ₱490,000; ₱0; ₱250,000
(c) ₱400,000; ₱10,000; ₱10,000; ₱250,000
(d) None of the above

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(a) Spread-out Method

2016 2017 2018 2019
Rental - - 240,000 240,000
Advance rental (2 years) 480,000 - - -
Annual RPT paid by lessee 10,000 10,000 10,000 10,000
Income from leasehold
improvement - - 42,000 84,000
Total income 490,000 10,000 292,000 334,000

Schedule:
Cost of leasehold improvement 2,800,000
Less estimated accumulated depreciation
at the end of the lease:
(₱2.8 M/20 years) x 12.5 years (1,750,000)
Est. Book value, at the end of lease 1,050,000

Income from LHI per year:

₱1.05 M/12.5 years 84,000 per year

41. In Number 40, determine the deductible expense of Cristina, lessee, for 2016, 2017, 2018, and 2019.

(a) ₱250,000; ₱250,000; ₱362,000; ₱474,000

(b) ₱250,000; ₱350,000; ₱474,000; ₱474,000
(c) ₱250,000; ₱250,000; ₱362,000; ₱362,000
(d) None of the above

2016 2017 2018 2019

Rental expense 240,000 240,000 240,000 240,000
RPT paid to lessor 10,000 10,000 10,000 10,000
Depreciation of LHI - - 112,000 224,000
Total deductible expense 250,000 250,000 362,000 474,000

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Schedule:

Cost of LHI 2,800,000

Divided by shorter of:

(a) Useful life of LHI 20

(b) Remaining term of lease 12.5 12.5

Depreciation expense per year 224,000

42. A, dedicated and honest employee of ABC Corp. for the past 20 years was advised that he is to be
retrenched as the company was losing heavily but that he would be given the separation pay provided
by law. To avoid the implication of inefficiency, A was advised to file a letter of resignation instead of
being retrenched. If A files a letter of resignation and receives the separation pay, such amount is
a. Taxable in full
b. Partly taxable, partly exempt
c. Exempt from income tax
d. Subject to final tax

43. Using the preceding number, if A is retrenched and receives the separation pay, such amount is
a. Taxable in full
b. Partly taxable, partly exempt
c. Exempt from income tax
d. Subject to final tax

44. A is engaged in the marketing of cars. When A’s son got married to the daughter of a senator, he gave
the newly-wedded couple a brand new car worth P800,000 as a wedding gift. The value of the car is
a. Taxable income to the newly-wedded couple
b. Deductible expense of A
c. Not taxable income to the newly-wedded couple
d. Taxable income to the couple and deductible expense of A

45. Statement 1: Income derived from investments in the Philippines in loans, stocks, bonds, or other
domestic securities, or from interest on deposits in banks in the Philippines, including sale of
investments, by foreign governments and financial institutions wholly-owned, controlled, or enjoying
financing from foreign governments, shall be exempt from income tax, and consequently from
withholding tax.

Statement 2: Gains realized from the sale or exchange or retirement of bonds, debentures, or other
certificates of indebtedness with a maturity of at least 5 years, shall not be taxable to the investor-
seller.

a) Statement 1 is true.
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10

b) Statement 2 is true.
c) Both statements are false.
d) Both statements are true.

46. Mike Reyes has been an employee of Matatag Steelworks Inc. for the last 25 years. His employer set
up a BIR-approved private benefit plan primarily for retirement payments to its retiring employees.
His employer also set up a trust fund for the exclusive benefit of its employees, and to which the
employees can make contributions. So far, Mike has contributed a total of ₱40,000 to this trust fund.

When he retired at age 55, he received the following amounts from his employer: (1) ₱125,000
representing his retirement benefits and which was paid out of the BIR-approved benefit plan; and (2)
a dividend of ₱140,000 from the trust fund.

Which statement is correct?

a) Mike’s retirement benefits from the BIR-approved private benefit plan are income tax-exempt.
b) ₱40,000 of the ₱140,000 which Mike received from the trust fund is exempt from income tax.
c) ₱100,000 of the ₱140,000 which Mike received from the trust fund shall be subject to an FWT.
d) All of the above.
e) None of the above.

Reason: The retirement benefits from the BIR-approved retirement plan are exempt from
tax.

On the other hand, only the excess of the dividend received from the employee’s trust over
his contribution is taxable. Such excess shall be subject to a final withholding tax to be
withheld by the trust fund.

47. In its first year, a domestic corporation did not derive any income nor any gain as it had not yet
started commercial operations in said year. However, it was assessed a deficiency tax by the BIR.
The BIR found that the corporation overstated its pre-operating expenses, some of which were
unsubstantiated. Should such disallowed expenses give rise to income tax?

a) Yes. The fact that pre-operating expenses were overstated should give rise to a penalty in the form
of income tax thereon.
b) No. Income tax cannot be imposed in the absence of any gain or profit which is realized or received,
actually or constructively.
c) No. Assuming that the disallowance of the pre-operating expenses was proper, no income tax may
result therefrom because the taxpayer did not benefit from the deduction of the disallowed expenses.
d) (B) and (C). (Great Holiday Entertainment Services, Inc. vs. CIR, CTA Case No. 8864, April 2,
2018).

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