Itemized Deductions

1. Which statement is wrong? The net operating loss carry-over (NOLCO) is:
Not available to a general professional partnership in the Philippines.
2. All of the following cannot deduct business expenses incurred abroad on foreign
operation, except
Domestic corporation
3. One is entitled to tax credit for taxes paid to foreign country
Domestic corporation
4. Which of the following items of interest expense may be deducted from gross income?
Interest for delinquency in the payment of taxes
5. Which of the following properties is a "wasting asset"?
Both a and b
6. Statement 1: Contributions by the employer to a pension trust for past service cost is
deductible in full in year that the employer made the contributions, if he is on the
cash basis of accounting.
Statement 2: Contributions or donations given directly to individuals cannot be deducted
from gross income.
False, true.
7. X claimed a bad debt of P 50,000 as a deductible expense in the taxable year 200A. In
200B, X was able to recover the P 50,000 already written off in the preceding year. What
is the treatment of the recovery of the bad debt?
Report the recovery of the bad debt as gross income in 200B.
8. Which statement is not correct? Deduction for depletion:
For domestic corporations, shall be allowed only if the mine is located in the Philippines.
9. Which of the following can be a deductible tax expense?
Fringe benefit tax
10. A store building was constructed on January 2, 2012 with a cost of P570,000. Its
estimated useful life is 16 years with scrap value of P70,000 after 16 years. In January,
2017 replacement of some worn-out parts of the building costing P50,000 was spent.
After the repairs, the building was appraised with a fair market value of P770,000. the
allowable deduction for depreciation for the year 2017 is
P35,795.45
11. The following taxpayers can claim tax credit except one
Non-resident aliens
12. Statement 1: Only business expenses may be deducted from the gross income of
taxpayers.
Statement 2: Itemized deductions from gross income should be duly supported by
vouchers or receipts.

First statement is false while second statement is true.

13. The following may elect optional standard deduction or itemized deduction, except:
Foreign corporation
14. In computing allowable for purposes of income taxation:
Statement 1: Beginning the year 2009 interest expense arising from loans or
 indebtedness in connection with taxpayer's business shall be reduced by an amount
equal to 33% interest income subjected to final tax.
Statement 2: Interest incurred on money used to acquire property to be used in trade
shall only be allowed as a capital expenditure.
Only statement 1 is correct.
15. An ordinary and necessary expenses which is fully documented and supported by
receipts may be fully deducted for income tax purposes over and above the limit set by
law
contribution
16. Zeus, a domestic corporation, has incurred rent expense amounting to P120,000. Zeus
paid the lessor a total of P120,000 without withholding 5% tax therefrom. How much rent
expense can Zeus claim as an allowable deductions?
P 126,000
17. All of the following cannot claim personal exemption, except
NRA-ETB
18. Transient, Inc., a domestic corporation, has the following lists of contributions to various
institutions and organizations:

Transient, Inc. taxable income before contribution is appropriately determined as

P5,800,000. How much is the total deductions for contributions allowable?

P340,000
19. Statement 1: A corporation cannot deduct a loss arising from a sale between the
corporation and the controlling individual stockholders.
Statement 2: A corporation cannot deduct a loss arising from a sale between the
corporation and the controlling parent corporation.

Both statements are correct.

20. The Optional Standard Deduction is ten percent of the gross income. Choose the correct
and best answer: For purposes of the Optional Standard Deduction of an individual
(other than non-resident alien) gross income means:

Means gross profit from sales, or gross receipts or revenues less direct cost of services,
plus all other items of gross income.
21. Which statement is wrong? Deduction for premiums on hospitalization and health
insurance is:
Only if the taxpayer is taking itemized deduction from gross income.
22. Which contribution is not fully deductible?
 Donation for non-government organization engaged exclusively for educational purposes
23. Which of the following assets shall be subject to depletion?
Land containing ore deposit
24. A loss is deductible in which of the following scenario?
An stockholder with substantial holding but not control sold properties to the corporation
at a loss
25. Which of these losses due to the demolition of an old building is deductible from gross
income?
The old building is demolished because it became unsafe.
26. Which statement wrong? Research and development cost:
May be treated as a deferred expense to be amortized over a period of not less than
sixty months from the date benefit from expenditure is derived.
27. Which of the following losses can be deducted from gross income?
loss arising from the disposition of a real property classified as ordinary asset
28. Which of the following expenses may be deducted from gross compensation income?
Premium payments on health and/or hospitalization insurance
29. One of the following is not requisite for an expense to be claimed as a deduction from
gross income:
It must be actually paid during the taxable year.
30. Flores Corporation took two insurance on the life of its President, Mr. Chan. In one
policy, the beneficiary is the corporation to compensate it for its expected loss in case of
death of its President. The other policy designates Mr. Chan's wife as its irrevocable
beneficiary.
Q1: Are the insurance premiums paid by Flores Corporation in both policies deductible?
Q2: Will the insurance proceeds be treated as income subject to tax by the corporation
and by the wife.
Yes to both questions.

No to both questions.
31. Statement 1: Ina total loss due to casualty, the measure of loss is the book value of the
asset reduced by any form of indemnity.
Statement 2: In a partial loss due to casualty, the measure of loss is the cost of the
property, or the cost to restore the property to its normal operating condition, whichever
is lower, reduced by any form of indemnity.
Statement 3: In a wash sale, loss is not deductible.
Statement 4: In a merger or consolidation, or transfer to a controlled corporation, loss is
not deductible.
True, true, true, true.
32. The following are examples of corporate expenses deductible from gross income, except
one:
Contributions to drum up business, like contributions of soft drinks to barrio fiestas.
33. Which of the following is incorrect concerning general expenses?
 Travel expenses are deductible only when incurred or paid abroad hence inshore travel
costs are non-deductible
34. In 2016, Boy's residence was totally destroyed by fire. The property had an adjusted
basis and a fair market value of P130,000 before the fire. During 2016, Boy received
insurance reimbursement of P120,000 for the destruction of his home. Boy's 2016
adjusted gross income was P70,000. Boy had no casualty gains during the year. What
amount of the fire loss was Boy entitled to claim as an itemized deduction on his 2017
tax return?
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35. ABC Corporation took two key men insurance on the life of its President, Mr. X. In one
policy, the beneficiary is the corporation to compensate it for its expected loss in case of
death of its president. The other policy designates Mr. X's wife as its irrevocable
beneficiary.
Question 1 - Are the insurance premium paid by X corporation in both policies
deductible?
Question 2 - Will the insurance proceeds be treated as income subject to tax by the
corporation and by the wife?

No to both questions.
36. Which statement is wrong? The deduction for premiums on hospitalization and health
insurance is:
In the case of married persons, can be claimed by either spouse.
37. One of the requirements in order for expenses to be claimed as deductions for income
tax purposes, is that it should be subject to withholding tax if applicable. What is the
withholding tax rate applicable to rental payments?
5%
38. Which of the following statements will qualify an interest expense as a deduction from
gross income?
Neither a and b
39. Interest on business is deductible for income tax purposes. However, one of the
following is not deductible -
Interest on indebtedness secured to purchase a tax-exempt security.
40. Concerning write-off of bad debts, which of the following is deductible?
The balance of a loans receivable which remains outstanding after final liquidation of the
taxpayer under an insolvency proceeding
41. One of the following is not a requisite in order that a bad debt may be claimed as a
deductible expense:
The debt must be past due for at least one year prior to being claimed as deduction.
42. Which of the following losses is deductible?
Loss on a transfer of property to a controlled corporation solely for stock.
43. One of the following is not correct for deductibility of losses from gross income:
It is of property owned by the taxpayer, whether used in business or not.
44. Which interest expense can be deducted from gross income?
None of the above
45. Statement 1: The cost of leasehold improvements shall be deductible by the lessee
by spreading the cost of the improvements over the life of the improvements or
remaining term of the lease, whichever period is shorter.
Statement 2: Deprecation expense can be a deduction for both tangible and intangible
property with limited useful life.
True, true.
46. Which of the following losses is deductible for income tax purposes?
Loss incurred in selling a used delivery truck to an uncle
47. During 2017, Insider, Inc. borrowed long-term loans from a bank incurring thereon a total
interest of P150,000. It earned an extra P50,000 when it temporarily invested the same
to another bank prior to disbursement. On the other hand, it has earned an interest
income from notes receivable from various customers amounting to P100,000. How
much is the deductible interest expense for Insider, Inc. in 2017?

P 129,000
48. Which of the following contributions is deductible with limit for income tax purposes?
Contribution to unaccredited NGO
49. Which of the following statements relative to research and development costs (R&D
Costs) is true?
Any expenditure for the acquisition or improvement of land or depreciable asset used in
connection with research and development may not be claimed as deductible expense.
50. The term "net operating loss" shall mean
The excess of allowable deductions over gross income.
51. Which of the following is not necessary before depreciation can be allowed as deduction
from Gross Income?
The sum-of-the-years method of the depreciation is used
52. Which of the following is a deductible expense for income tax purposes?
None of the above
53. PRW Wind Breeze, Inc., a domestic corporation, paid income tax for its Japanese and
Indonesian operation amounting to P1,500,000 and P800,000 respectively. Taxable
income from its Japanese and Indonesian operation was P5,000,000 and P2,000,000
respectively. Taxable income attributable from sources within the Philippines was
P10,000,000. How much is the creditable foreign income tax of PRW Wind Breeze, Inc.?
P2,200,000
54. Which of the following statements relative to the tax credit of foreign income tax is false?
None of the foregoing.
55. The term "depletion" applies to:
Timberland
56. All of the following cannot deduct business expenses incurred abroad on foreign
operation, except
Domestic corporation
57. The term "amortization" applies to:
Leasehold
58. Statement 1: Bad debt is an expense in the books of account when a provision is made
for it.
Statement 2: Bad debt is a deduction from the gross income when the account is written
off.

Both statements are true.

59. Affluent, Inc., a resident corporation, is engaged at both service and sales of goods. A
summary of its operation is provided as follows:

How much is the deductible entertainment, amusement and recreation expenses?

P 80,000
60. Which of the following items is not part of "expenses in general" from gross income?
Unused office supplies
61. Which statement is wrong? The rule that capital losses are deductible only to the extent
of capital gains is applicable:
To the individual taking the Optional Standard Deduction.
62. Which of the following intangible assets shall be subject to amortization?
"Purchased goodwill" where a business was purchased for more than the actual value of
its assets.
63. The limitations imposed by law on the contributions subject to limit are:
Neither a nor b
64. Which of these expenses may be claimed as a deduction in relation to a commercial lot
used in the trade or business of the taxpayer?
None of the foregoing
65. Which statement is wrong? Contributions made by an employer to a pension trust:
For a lump sum payment to cover past service cost, may be amortized over a period of
more than, but not less than ten years
66. Blue Moon, Inc. is a resident international mining corporation with various mining
operation across Europe and America. It has properties abroad equivalent to
P4,000,000,000 with expected residual value of P500,000,000 and an average useful life
of 20 years. In the Philippines, it has P60,000,000 mining properties with estimated
residual value of P10,000,000 and a useful life of 10 years. How much is the total
depreciation deductible against gross income for Philippine income tax purposes?
5M only
67. Which of the following contributions is deductible in full for income tax purposes?
Contribution to Development Academy of the Philippines
68. Which statement is wrong/ research and development costs:
Cannot be deducted because it has unlimited life.
69. Who among the following taxpayers may not claim a tax credit or deduction on income
tax paid to foreign countries?
Resident aliens
70. Which of the following can be deducted as interest?
Interest on assessed tax delinquency
71. Which of the following can deduct depreciation expense?
Taxpayer operating a service business
72. A loss that is suffered in connection with the taxpayer's trade, business or profession, in
order to be deductible from gross income, must be reported to the Bureau of Internal
Revenue within:
45 days from discovery of the loss
73. The loss from sale or exchange of property is deductible from gross income where the
sale or exchange is:
Between an individual and his cousin.
74. Who among the following individual taxpayers may avail of the itemized deductions for
income tax purposes?
None of the foregoing
75. A Marketing incurred the following expenses in relation to its business during the taxable
year:
 If A Marketing is a sole proprietorship, the allowable deductions for contributions
are:
P 80,000
76. Which of the following assets of an appliance dealer shall be subject to depreciation?
Air-conditioners used in the administration building
77. All of the following cannot claim deductions, except
Non-resident citizen engaged in trade or business
78. A gambler won a P 50,000 at the casino and lost P 70,000 at the cockpit. Which of the
following statements correct?
The taxable gain from gambling amounts to P 0.
79. Which statement is not correct?

Contributions of canned goods to student organizations during the Christmas season to

contribution to Muntinlupa inmates are deductible from gross income.

80. Which of the following statements does not reflect the nature of a wash sale?
The sale is made by a dealer in securities in the ordinary course of his trade or business.
81. Securing a tax treaty relief ruling requires the filing of a formal request with the
BIR ITAD
82. Lenovo, Inc., a domestic corporation, conducted a research and development activity in
connection to its product, T60. Total costs of research and development was
P9,000,000. Due to this, additional features and utilities were introduced to the T60
which were intended to increase sales for the next 3 years starting the first sales promo
 on January 2016. Starting January 2016, Lenovo T60 sales did increased significantly
year throughout. How much is the deductible research and development cost that can be
claimed by Lenovo, Inc. for the quarter ended December 2016?
P 450,000
83. Which of the following items may be claimed as a deduction from gross income?

Interest paid by Y on the indebtedness of his friend secured by a mortgage on Y's

apartment building in order to avoid foreclosure
84. Emson Corp. books of accounts reveal the following contribution for its retirement plan
for the years 2016, 2017 and 2018.

If the retirement plan is approved by the CIR, how much is the deductible retirement
expense for the year 2018?

P 530,000
85. Which of the following statements relative to the optional standard deduction is false?
The taxpayer has the burden of proof in proving the expenses by means of receipts and
other evidence.
86. Who among the following individuals may avail of the 40% optional standard deduction
for income tax purposes?
A Filipino boxer on his cash prizes from boxing bouts here and abroad
87. Which of the following taxes may be deducted from gross income?
Real property tax on commercial building
88. What may be deducted from gross income in relation to pension trust?
Both a and b
89. Vicor Co., a domestic corporation has net income from within the Philippines, P200,000
and from the USA, P300,000. Income tax paid on income from USA is P110,000. The tax
credit on income tax paid to US government is
P64,000
90. Which of the following donations is deductible with limit for income tax purposes?
Contribution to TESDA
91. Referring to immediately preceding problem, the taxpayer can claim a deductible loss of
P500,000 in 2017
92. Which of the following can either be capitalized or expensed at the option of the
taxpayer?
 Interest expense incurred for borrowings to financed acquisition of property for use in
business or trade
93. Which of the following can either be capitalized or expensed at the option of the
taxpayer?

Interest expense incurred for borrowings to financed acquisition of property for use in
business or trade
94. Which of the following contribution is subject to limit?
Donations to Bahay Kalinga, an accredited non-profit charitable institution
95. Select the incorrect statement.
Write-off of a foreign receivable account representing income abroad is deductible by a
resident corporation
96. Which of the following items of interest expense may be deducted from income?
Interest on payables to suppliers already due at the end of the taxable year but not yet
paid
97. Which of the following statements relative to "net operating loss carry-over" is false?
Net operating loss means the excess of allowable deductions and personal and
additional exemptions over gross income.
98. Statement 1: Interest paid or incurred in the acquisition of fixed assets may be
capitalized to the asset account.
Statement 2: On individual on the cash basis of accounting shall deduct interest paid in
advance in the year that the principal is paid.

Both statements are correct.

99. Who among the following taxpayers may avail of the 40% optional standard deduction
for income tax purposes?
Philippines Resident foreign corporation
100. Which of the following depreciation is deductible?
Depreciation for a building of a private educational institution where the initial cost of
construction is charged to expensed
101. Which of the following statements relative to contributions made by partnerships is
false?
None of the foregoing.
102. X is a Mexican actor who stayed in the Philippines to do a local television show for
one month during the taxable year. The agreed talent fee amounts to P 3,000,000. X,
however, incurred and paid the following expenses during his stay in the country:

The most advantageous deduction that X may avail to minimize his Philippine
income tax liability is:
None of the foregoing
103.