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ACCOUNTANCY DEPARTMENT

INCOME TAXATION
DEPARTMENTAL FINAL EXAMINATION
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10. 20. 30. 40. 50. 60. 70.
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Multiple Choice Test

SMI-Ed Philippines is a corporation authorized "to engage in the business of manufacturing


ultra high-density microprocessor unit package."

After its registration on June 29, 2008, SMI-Ed Philippines constructed buildings and purchased
machineries and equipment. As of December 31, 2009, the total cost of the properties
amounted to ₱3,150,925,917.00.

SMI-Ed Philippines "failed to commence operations." Its factory was temporarily closed,
effective October 15, 2009. On August 1, 2015, it sold its buildings and some of its installed
machineries and equipment to Ibiden Philippines, Inc. for ¥2,100,000,000.00
(₱893,550,000.00). SMI-Ed Philippines was dissolved on November 30, 2015.

In its quarterly income tax return for year 2015, SMI-Ed Philippines subjected the entire gross
sales of its properties to 5% final tax. SMI-Ed Philippines paid taxes amounting to
₱44,677,500.00.

On February 2, 2016, after requesting the cancellation of its registration and amending its
articles of incorporation to shorten its corporate term, SMI-Ed Philippines filed an
administrative claim for the refund of ₱44,677,500.00 with the Bureau of Internal Revenue
(BIR). SMI-Ed Philippines alleged that the amount was erroneously paid. It also indicated the
refundable amount in its final income tax return filed on March 1, 2016. It also alleged that it
incurred a net loss of ₱2,233,464,538.00.

The BIR did not act on SMI-Ed Philippines’ claim, which prompted the latter to file a petition for
review before the Court of Tax Appeals on September 9, 2017.

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1. What is the applicable tax on the sale of its buildings?
A. 30% normal income tax
B. 6% capital gains tax
C. 5% preferential tax rate
D. Tax exempt

2. What is the applicable tax on the sale of its machineries and equipment classified as real
property?
A. Tax exempt
B. 5% preferential tax rate
C. 30% normal income tax
D. 6% capital gains tax

Manong Gurang, a qualified senior citizen, is an employee of Key Pi Em Gi Drugs Store


Philippines, he has been working as tax consultant for more than 40 years already. The firm
pays him around P100, 000 per month for his salary.

3. How much can Key Pi Em Gi include the salary as part of their itemized deduction?
A. 100,000
B. 115,000
C. 120,000
D. 150,000

4. Assume Manong Gurang make purchase of vatable goods worth P1,000, how much discount
can be availed of by the Manong Gurang?
A. 200 pesos
B. 179 pesos
C. 224 pesos
D. None

5. Assume instead that Manong Gurang is a PWD, how much can Key Pi Em Gi include the
salary as part of their itemized deduction?
A. 100,000
B. 115,000
C. 120,000
D. 125,000

6. Key Pi Em Gi can avail of the discount given as


A. Tax credit
B. Tax deduction
C. Tax exemption
D. Tax refund

7. Wang Bo, a Japanese citizen and resident, won the 200 million-peso jackpot in Philippine
Lottery. How much tax should Mr. Bo pay to the Government of the Philippines?
A. 0
B. 20,000,000
C. 40,000,000
D. 50,000,000

8. The power to enact revenue bills is exclusively lodged in the


A. Congress
B. House of representatives
C. House of Senate

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D. Legislative department

9. The power to enact tax laws is an exercise of


A. Police power
B. Taxation power
C. Imminent domain
D. People power

10. An individual taxpayer, other than a corporation may elect to pay the income tax due in two
equal instalments if the tax due is
A. More than P100
B. More than P1,000
C. More than P2,000
D. More than P5,000

11. Power to tax is not power to destroy as long as this court sits
A. Holmes Dictum C. Marshall Dictum
B. Doctrine of necessary implication D. Obiter Dictum

12. Corporate benefits are granted to the following employees


i. Rank and file
ii. Supervisory
iii. Managerial

In relation to the same benefits, to which of these employees must a tax on fringe benefits
be applied?
A. i, ii, iii
B. i, ii only
C. i only
D. Ii and iii only

13. Fringe benefits may be given to


A. Rank and file only
B. Supervisory only
C. Supervisory and managerial only
D. All employees

14. The following dates are available for X Corp:


SEC Registration January 17, 2014
BIR Registration January 4, 2015
Start of operations January 1, 2016

The MCIT will be imposed on X Corp starting taxable year:


A. 2017
B. 2018
C. 2019
D. 2020

15. Tax as distinguished from license fee


A. For regulatory purpose
B. Amount imposed is limited
C. For revenue purpose
D. Exercise of police power

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16. The following are examples of non-taxable compensation for injuries, except
A. Actual damages for injuries suffered
B. Exemplary damages
C. Compensatory damages for unrealized profit
D. Moral damages for grief, anxiety and physical sufferings

17. How much is the allowable deduction from business income of a domestic corporation
which granted and paid P99,000 fringe benefits to its key officers in 1998?
A. P150,000 B. P100,000 C. P99,000 D. P65,000

18. What would be the allowable deduction for P8,000 contribution made by a resident citizen
to a religious organization from his P70,000 net income after contribution?
A. P8,000 B. P7,000 C. P7,800 D. P3,500

19. A bought a condominium unit under installment basis, to be used his office in the practice
of his profession and paying P10,000 monthly. For income tax purposes, the 10,000 monthly
payment shall be
A. Treated as business rental, hence deductible
B. Treated as capital expenditure, hence not deductible
C. Treated as depreciation expense, hence deductible
D. Treated as ordinary business expense

20. The following are not taxable, except


A. Refund of fringe benefit tax
B. Refund of Philippine income tax
C. Refund of estate or donor’s tax
D. Refund of special assessment

21. Which of the following does not represent compensation income?


A. Honorarium as a guest speaker
B. Emergency leave pay
C. Vacation and sick leave pay
D. Gratuitous condonation of obligation

22. One of the following is not subject to final tax


A. Interest on saving taxes
B. Royalties
C. Prizes amounting to more than 10,000
D. Profession fees paid to individuals

23. Gain on sale of domestic shares of stock in New York is


A. Income within the Philippines
B. Income without the Philippines
C. Income party within and without
D. Exempt from income tax

24. A was selected as most outstanding teacher in her region. Her name was submitted by the
school principal without her knowledge. She received a trophy and a cash award of 15,000.
A. Taxable income
B. Subject to final tax
C. Exempt from income tax
D. Partly Taxable, partly exempt

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25. This will not result to taxable gain or loss
A. The sale by a corporation of its sale of stock from the unissued stock over its par or
stated value.
B. The sale by a corporation of its treasury stock over its cost or other basis of acquisition
C. The purchase a retirement by a corporation of its bonds at price less than the issue price
or face value.
D. The issuance by a corporation of its bonds at a premium

26. For ordinary contribution, an individual may be allowed to claim as deductions as amount
not to exceed
A. 5% of net income before contributions
B. 10% of the net income before contributions
C. 5% of the net income after the contributions
D. 10% of the net income after contribution

27. One of the following is a taxable income


A. Compensation for injuries and sickness
B. Income derived from gifts, bequest and devices
C. Proceeds of life insurance
D. Amount received as returns of premium

28. A domestic corporation made borrowing from ABC bank thereby incurring a business
connected interest expense of P60,000 for taxable year 1999. During the same year, the
corporations earned an interest income subject to final tax in the amount of P100,000. The
principal interest is
A. P19,000 B. P21,000 C. P60,000 D. P0

29. The share in the profits of a partner in a general profession partnership is regarded as
received be him and thus taxable although not yet distributed. The principal is known as
A. Actual receipt
B. Advance reporting of income
C. Accrual method of accounting
D. Constructive receipt of income

30. A feature of ordinary gains distinguished from the capital gains:


A. Gains from sale of assets not stock in trade
B. May or may not be taxable in full
C. Source of capital assets
D. No holding period

31. On capital gain tax on real property, which of the following statement is not correct?
A. The tax should be paid, if in one lump sum, within 30 days from the date of the sale
B. The installment payment of the tax should be made within 30 days from receipt from
each installment payment on the selling price
C. The tax maybe paid in installment if the initial payment does not exceed 25% of the
contract price
D. The initial payment maybe more than down payment

32. A operates a retail store and owns the following properties. Which of the following is capital
assets in the hand of A?
A. Build which house and retail store
B. Fixture used in the retail store
C. Inventory on hand at the end of the year
D. Trade accounts receivable

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33. In 2007, ABC Corp. paid total premium of P1,000 of the life insurance policy of the vice
president, where the beneficiary is the corporation. At the end of the year, ABC received
dividend of P100 because of the policy. In 2007, the corporation should indicate for a
deduction for life insurance premium of
A. P1,000 B. P900 C. P1,100 D. Zero

34. If a friend inquires whether or not the cost of education to the assistance to the employee
and/or his dependents which are borne by the employer be taxable. What will your answer
be?
First Answer – A scholarship grant to the employee by the employer shall not be treated as
taxable fringe benefit if the education or study involved is directly connected with the
employer’s trade, business or profession and there is a written contract between them that
the employee is under obligation to remain in the employ of the employer for a period of
time that they have mutually agreed upon.
Second Answer – The cost of education assistance extended by an employer to the
dependents of an employee shall be treated as taxable fringe benefits of the employee
unless the assistance was provided through a competitive scheme under the scholarship
program of the company.
A. True, True B. True, False C. False, True D. False, False

35. All of the following taxpayers are not entitled to foreign tax credit, except
A. Resident citizen with income only from the Philippines
B. Resident citizen with income only from abroad
C. Resident alien with income from within and without the Philippines
D. Non-resident citizen with income from within and without the Philippines

36. 1st Statement – Monetized unused vacation leave credits not exceeding 10 days is an
exempt de minimis benefit.
2nd Statement – Daily meal allowance for overtime work not exceeding twenty-five (25%)
percent of the basic minimum wage is exempt fringe benefit.
A. True, true B. False, true C. True, false D. False, false

37. 1st Statement – Laundry allowance not exceeding P300 per month is exempt de minimis
benefit.
2nd Statement – Medical cash allowance to dependents of employee not exceeding P750
per employee per semester, or one hundred twenty five pesos (P125) per month is exempt
de minimis benefit.
A. True, true B. False, true C. True, false D. False, false

38. 1st Statement – Flowers, Fruits and books or other similar token item given to employees
under certain circumstances are exempt de minimis benefits.
2nd Statement – Gifts given during Christmas and major anniversary celebration not
exceeding P5,000 per employee per annum is an exempt de minimis benefits.
A. True, true B. False, true C. True, false D. False, false

39. 1st Statement – Rice subsidy of two thousand pesos or one sack of 50kg. rice per month
amounting to not more than two thousand pesos is an exempt de minimis benefits.
2nd Statement – Employee achievement awards, e.g., for length of service, or safety
achievement, which must be in the form of a tangible personal property other than cash or
gift certificate, with an annual monetary value not exceeding ten thousand pesos received
by an employee under am established written plan which does not discriminate in favor of
highly paid employees is an exempt de minimis benefits.
A. True, true B. False, true C. True, false D. False, false

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40. 1st Statement – Uniforms and clothing allowance not exceeding P6,000 pesos per annum is
an exempt de minimis benefits.
2nd Statement – Actual medical benefits not exceeding P10,000 per annum is an exempt de
minimis benefits.
A. True, true B. False, true C. True, false D. False, false

41. Which of the following is included in gross income?


A. Amount received by insured as return of premium
B. Life insurance proceeds
C. Compensation of injuries or sickness
D. Share in the net income of a general professional partnership

42. One of the following does not from part of gross income?
A. Interest B. Royalties C. Annuities D. Gifts, bequest and devices

43. In computing allowable deduction for purpose of income taxation


1st Statement: Beginning the year 2005 interest expense in connection with taxpayer’s
business shall be reduce by an amount to forty-two percent (42%) of interest income
subjected to final tax
2nd Statement: Interest incurred on money used to acquired property to be used in trade
shall only be allowed as a capital expenditure.
A. True, true B. False, true C. True, false D. False, false

44. Which is the following is not correct?


A. An individual citizen of the Philippines who is working and deriving income from abroad
as an overseas contract is taxable only on income from sources within the Philippines
B. A seaman who is citizen of the Philippines and who received compensation for service
rendered abroad as a member of the complementary of a vessels engaged exclusively in
international trade shall be treated as an overseas contract worker.
C. An alien individual is taxable only on income derived from source within the Philippines
D. A citizen of the Philippines is taxable on income derived from sources within and
without the Philippines

45. A worked for a manufacturing firm but due to business reverses, the firm offered a
voluntary redundancy program in order to reduce overhead expenses. Under the program,
an employee who offered to resign would be given separation pay equivalent to his 3-
month basic salary for every year of service. A accepted the offer and received P800,000 as
separation pay under the program. After all the employees who accepted the offer were
paid, the firm found its overhead still excessive. Hence, it adopted another program, where
various unprofitable departments were closed. As a result, B was separated from the
service, B also received P800,000 as separation pay. At the time of separation of both A and
B have rendered at least 10 years of service but A was 55 years old while B is 45 years old.
As a result,
A. Both amounts are exempt from income tax
B. Both amounts are subjected to income tax
C. Only Mr. A is subjected to income tax
D. Only Mr. B is subjected to income tax

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46. Which of the following expenses is deductible from gross income?
A. Contribution to a newspaper fund for needy families when such newspaper organizes a
drive solely for charitable purposes
B. Premiums paid by the self-employed employer for the life insurance of his employees
C. Contribution to the construction of a chapel of a university that declares dividends to its
stockholders
D. Donation of prizes and awards to athletes in local and international competitions and
sanctioned by their representative sport associations

47. Cash dividend received by a non-resident foreign corporation from a domestic corporation
is
A. Exempt from income tax
B. Subject to final tax
C. Part of taxable income
D. Partly exempt, partly taxable

48. Cash dividend received by a domestic corporation from a domestic corporation


A. Exempt from income tax
B. Subject to final tax
C. Part of taxable income
D. Partly exempt, partly taxable

49. In order to avail of the tax exemption under RA 4917 on retirement benefits received by
private employees, the following conditions must be met, except one
A. The retirement benefit must be received under existing CBA agreement or other
agreements
B. The employee must have served for at least 10 years
C. Retired at the age of at least 50 years old
D. None of the above

50. Real property taxes should not disregard increases in the value of real property occurring
over a long period of time. To do otherwise would violate the canon of a sound tax system
referred to as
A. Theoretical justice.
B. Fiscal adequacy.
C. Administrative feasibility.
D. Symbiotic relationship.

51. Eddie Paylaeng, a Filipino citizen who supports his senior citizen father, reported the
following earnings and expenses during the year:
Gross compensation income P200,000
Gross receipts derived from rent income 50,000
Personal living expenses 180,000
Premium payments on hospitalization 5,000
insurance

How much is the net taxable income of Mr. Paylaeng by taking the best option to minimize tax?
a. P 52,400 c. P177,600
b. P175,000 d. P180,400

ABC, a domestic corporation usually bills its foreign branch at cost. ABC and the BIR entered
into an advanced pricing agreement which fixed ABC’s cross border pricing to its foreign branch
at 150% of cost. The following are provided for the year:

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Philippines Branch
Sales through branch:
(intra-company sales)
Selling Price 10,000,000 18,000,000
Cost of Sales 10,000,000 10,000,000
Gross Income 0 8,000,000

Sales to another domestic corporation:


Selling Price 8,000,000
Cost of Sales 3,000,000
Gross Income 5,000,000

52. The gross income from the Philippines is


A. 5,000,000 B. 10,000,000 C. 13,000,000 D. 15,000,000

53. The gross income of ABC is


A. 13,000,000 B. 18,000,000 C. 5,000,000 D. 10,000,000

54. The following data were provided by Air Asia, international carrier doing business in the
Philippines:
Gross receipts, sales of tickets in the Philippines (Manila to Taipei flight) P8,000,000
Gross receipts, sales of tickets in Japan (Manila to Tokyo flight) 5,000,000
Gross receipts, sales of tickets in Japan (Tokyo to manila flight) 3,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Hongkong
flight),passenger were endorsed to another international airline
which airlifted them from Manila 1,000,000
Gross receipts, sales of tickets in the Philippines
(Manila to Los Angeles flight), passengers were transshipped in
Tokyo to Los Angeles by another airline (flight from manila to
Tokyo – 5 hours; flight from Tokyo to Los Angeles – 10 hours) 4,500,000
Expenses 4,000,000

How much was the Philippine income tax due and payable?
A. P5,250,000
B. P387,500
C. P 537,500
D. P287,500

55. AkunKaNala, a resident foreign corporation had the following data in five years:
Year 3 : Normal income tax 22,000
Minimum corporate income 46,000
Year 4 : Normal income tax 10,000
Minimum corporate income tax 8,000
Year 5 : Normal income tax 15,000
Minimum corporate income tax 21,000
Year 6 : Normal income tax 17,000
Minimum corporate income tax 17,000
Year 7 : Normal income tax 7,000
Minimum corporate income tax 5,000
The income tax for Year 7 ( before credit for any quarterly income tax payments) is:
A. P0 C. P2,000

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B. P1,000 D. P3,000

56. On March 1, 2014 a Certified Public Accountant purchased for P1,000,000 an automobile,
which will be used exclusively for his practice. He deducted annual depreciation on the basis
of an estimated useful life of five (5) years. On March 1, 2016, the automobile was partially
damaged in an accidental collision with another automobile. The fair market value of the
vehicle was P400,000 immediately before the collision and P200,000 immediately after the
collision. The taxpayer received insurance proceeds of P133,000 to cover the loss. How
much is the deductible loss?
A. P67,000 C. P367,000
B. P167,000 D. P467,000

A resident citizen, 50 years old, married, with three (3) qualified dependent children asks
you to assist him in computing his taxable net income for the year 2014:

Gross professional income, net of 15% withholding tax P800,000


Professional expenses 300,000
Retirement benefits received from his previous 250,000
Employer that maintained a reasonable private
pension plan (he served the company for 12 years)
Lump sum benefits received from SSS 200,000
Prize in a sports tournament sponsored by a group 50,000
of businessmen promoting health products
Gain from sale of bonds (maturity is 4 years) 10,000
Interest income from bonds with a maturity period of 7 years 20,000
Interest on long term deposits with maturity period of 5 years 30,000
Philippine Lotto Winnings 500,000
Share in the net income of a business partnership 100,000

57. How much is the total amount of excluded or exempted income?


A. P480,000 C. P1,000,000
B. P980,000 D. P1,150,000

58. How much is the taxable net income?


A. P20,000 C. P30,000
B. P24,000 D. P34,000

59. As a member of the accountancy faculty, I would like to say something (in behalf, on behalf)
of the department.
A. In behalf
B. On behalf
C. Either in behalf or on behalf
D. Neither in behalf nor on behalf

60. The new policy (with regard, with regards) to the comprehensive examinations is just okay.
A. With regard
B. With regards
C. Neither
D. Either

--- End of Examination ---

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