TAXATION CPA Review School of the Philippines Final Pre-board Examination

INCOME TAXATION Income Tax Patterns

Basic Principles of Taxation 7. 1st Statement: Income even if merely presumed shall be taxable.
1. One of the following is not a Constitutional limitation on the power of taxation? 2nd Statement: Income to be taxable must be coming from legal sources.
A. Exemption from taxes of revenues and assets of educational institutions, including grants, A. True, True C. True, False
endowments, donations and contributions. B. False, False D. False, True
B. Non-impairment of the jurisdiction of Supreme Court in tax case
C. Exemption of the government from taxes. 8. Which of the following is not an income taxpayer:
D. Non-infringement of religious freedom and worship. A. Ordinary partnership C. General professional partnership
B. Joint venture D. Corporation
2. One of the following is not within the scope of legislative taxing power?
A. The person, property or occupation to be taxed. Income Tax on Individuals
B. The amount or rate of tax. 9. Which of the following items would be included in the determination of gross compensation
C. The enforcement and administration of tax. income:
D. The purpose of the tax provided it is public. A. SSS Contribution
B. Union dues
3. Which phase of taxation falls within the exclusive jurisdiction of the legislature: C. 13th month pay amounting to P20,000
A. Imposition C. Enforcement D. Productivity incentive pay amounting to P35,000
B. Administration D. Collection
10. The total amount of exemption allowed to a taxpayer who is married with 5 qualified
4. Kind of tax where rates increase as the tax base increase: dependent children
A. Proportional tax C. Progressive tax A. P72,000 C. P60,000
B. Regressive tax D. Retroactive tax B. P64,000 D. P57,000

5 1st Statement: In cases of deductions and exemptions from taxes. Doubts as to its 11. One of the following in a passive income subject to final tax rates of 20%
interpretation shall be resolved strictly against the taxpayer. A. Interest from any currency bank deposits and yield or any other monetary benefit from
2nd Statement: Generally tax laws shall be interpreted liberally in favor of the government deposits substitute and from trust fund and similar arrangements derived from sources
A. B. C. D. outside the Philippines.
1st Statement True True False False B. Royalties, including books, as well as other literary works and musical compositions.
2nd Statement True False True False C. Other winning, except Philippine Charity Sweepstakes and Lotto winning
D. Interest income received from expanded foreign currency deposit system.
6. The following taxes are imposed by Congress in the, 1997 National Internal Revenue Code,
except: 12. Optional Standard Deduction shall not be allowed to a:
A. Real Estate Tax C. Donor's Tax A. Resident citizen C. Resident alien
B. Value Added Tax D. Income Tax B. Non-resident citizen D. Non-resident alien

13. Refund of the following, taxes shall be considered taxable income, except:
A. Municipal license fee C. Fringe benefit tax
B. Real estate tax D. Capital gains tax
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TAXATION CPA Review School of the Philippines Final Pre-board Examination

Income Tax on Corporation 20. A non-resident corporation received dividend from a domestic corporation. The income tax
14. Minimum corporate income tax shall not be imposed on: liability will be:
A. Domestic corporation C. Resident corporation A. Gross income tax of 32%.
B. Foreign corporation D. Non-resident corporation B. None, because it is an exempt income.
C. 15% final tax on the dividend income received.
15. For purposes of computing minimum corporate income tax of a corporation engaged in the D. 20% final tax on the dividend income received.
sale of services, cost of services means:
A. Salaries and employees' benefits of personnel directly rendering the service. 21. 1st Statement: All international carriers shall be subjected to a 2½% tax on their gross
B. Cost of facilities directly utilized in providing the services Philippines billings.
C. Cost of supplies 2nd Statement: Gross Philippine Billings in international shipping shall mean gross revenue
D. All of the above whether for passenger, cargo or mail originating from the Philippines up to final destination,
regardless of the place of sale or payments of the passage or freight documents.
16. A corporation exempt from income tax is A. B. C. D.
A. Labor, agricultural or horticultural organization organized for profit. 1st Statement True True False False
B. Cemetery Company owned and operated exclusively for the benefit of its members. 2nd Statement True False True False
C. Non-profit and stock educational institution.
D. Private education institution. Questions 22 thru 24 are based on the following information.
Ina Computer University is a private educational institution. It owns a 10-storey building where the
17. 1st Statement: Regional operating headquarters of a multinational company shall be taxed like first 5 floors are being used for its operations and the other 5 floors are being rented by other
an ordinary foreign corporation. entities. During the year 2003, its income and expenses figures are as follows:
2nd Statement: Regional or area headquarters of a multinational, company shall pay a tax ten - Gross income
percent of their taxable income. Tuition fees P3,000,000
A. B. C. D. Rent Income 500,000
st
1 Statement True True False False Operating Expenses 1,500,000
2nd Statement True False True False
22. The income tax due of Ina Computer University shall be:
18. 1st Statement: A domestic corporation is taxable on all income derived from sources within and A. P640,000 C. P70,000
outside the Philippines. B. P200,000 D. P112,000
2nd Statement: A foreign corporation whether engaged or not in trade or business in the
Philippines, is taxable only on income derived from sources within the Philippines. 23. The Minimum Corporate Income Tax will be:
A. B. C. D. A. P70,000 C. P200,000
1st Statement True True False False B. P0 D. P1,120,000
2nd Statement True False True False
24. Assuming rent income of P5s000,000 the income tax due of Ina Computer University will be:
19. Air Jordan is a resident international carrier. For the year 2003, its Gross Philippine Billings A. P640,000 C. P2,080,000
totaled P2,000,000. The company's income tax liability would amount to: B. P200,000 D. P112,000
A. P50,000 C. P200,000
B. P640,000 D. P320,000
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TAXATION CPA Review School of the Philippines Final Pre-board Examination

Fringe Benefits Tax Capital gain tax on sale of shares of stock of domestic corporation not listed and traded thru a local
25. Tax imposed on any goods, services or other benefits furnished or granted in cash or in kind stock exchange
by an employer to an individual employee is a 30. Miss Tina Ranta is a shareholder of 1,000 shares of stock of a domestic corporation. The
A. Value added tax C. Creditable withholding tax shares were acquired at cost of P100 per share. For the period, she sold 500 shares in the
B. Fringe benefit tax D. Final tax on certain income local stock market for P150 per share.
The Capital Gains Tax on the sale is;
26. The following are exempt fringe benefits, except for one: A. P2,500 C. P3,750
A. Fringe benefits given to rank and file employee. B. P1,250 D. P 0
B. Fringe benefit given for the convenience of the employee.
C. Fringe benefit required by the nature of or necessary to the business of the employer. Gross Income
D. Rice benefit amounting to P1,000 a month 31. The following are excluded from gross income, except:
A. Amount received by insured as return of premiums
Capital Gains Tax on Sale of Real Property B. Amount received by insured as return on premiums
27. Which of the following is not subject to capital gains tax on sale of real property? C. Proceeds of life insurance
A. Sale by a corporation of its warehouse, located at Philippine Economic Zone Authority. D. Amount of damages received for injuries
B. Sale by natural persons, the proceeds of winch are fully utilized in acquiring a new
principal residence Deductions from Gross Income
C. Sale by a partnership of its condominium unit, being occupied by one of its partners. 32. In general, ordinary and necessary trade, business or professional expenses have the
D. Sale of real property to the government or government owned or controlled corporations. following requisites, except:
A. Substantiated by receipts
Questions 28 & 29 are based on the following information. B. Must be ordinary and necessary expenses
Mr. Vino Sabos, married and with two minor children, sold his principal residence in Cubao, the C. Incurred during the taxable year
entire proceeds of which he immediately used to pay for another. Selling price of the house was at D. Directly attributable to the development, management, operation of the business.
P10,000,000. The cost to him of the said house was P7,500,000.
33. In computing allowable deduction for purposes of income taxation:
28. His capital gains tax due would be: 1st Statement: Interest expense in connection with taxpayer's business shall be reduced by an
A. P600,000 C. P245,000 amount equal to thirty-eight percent (38%), beginning the year 2000 & thereafter, of interest
B. P0 D. P100,000 income subjected to final tax.
2nd statement: Interest incurred to acquire property used in trade shall only be allowed to be
29. The cost basis of the new principal residence would be. treated as a capital expenditure.
A. P10,000,000 C. P2,500,000 A. B. C. D.
B. P7,500,000 D. P600,000 1st Statement True True False False
2nd Statement True False True False

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TAXATION CPA Review School of the Philippines Final Pre-board Examination

BUSINESS & TRANSFER TAXES 40. Pre-assessment notice shall not be required except:
Value-added Tax A. When the finding for any deficiency tax is the result of mathematical error.
34. Receipts of the following are subject to the VAT, except: B. When the finding of-discrepancy has been determined between the tax withheld and the
A. Professional Basketball players C. Lawyers amount actually remitted by the withholding agent.
B. Film directors D. Stage actors C. When the excise tax due on excisable articles has not been paid.
D. When the value added tax due on imported articles has not been paid.
35. Refunds or Tax credits of Input tax are not allowed under:
A. Purchases on zero-rated or effectively zero-rated sales.
B. Purchases of capital goods Answer Key
C. Purchases of entities whose VAT registration was cancelled 1. C 11. C 21. B 31. B
D. Put chases related to VAT exempt transaction. 2. C 12. D 22. B 32. A
3. A 13. D 23. B 33. B
36. A VAT-registered business reported the following: 4. C 14. D 24. C 34. C
2003 Gross sales P545,000 5. B 15. D 25. B 35. D
2004 Gross sales P650,000 6. A 16. B 26. B 36. D
Which of the following statements is correct? 7. C 17. D 27. B 37. D
A. VAT for the year 2003 only. C. No VAT for both years. 8. C 18. A 28. B 38. A
B. VAT for the year 2004 only. D. VAT for both years. 9. D 19. A 29. B 39. A
10. B 20. C 30. D 40. D
37. During the year 2003, Mr. Jose's gross receipts from lease of 30 apartment units is
P2,200,000. How much would Mr. Jose's output tax for the year 2003?
A. P220,000 C. P600,000
B. P200,000 D. None

Percentage Taxes
38. Debbie Gote operates 5 taxis in Baguio City. She cannot determine her actual quarterly gross
receipts. Her percentage tax for the quarter is:
A. P540 C. P180
B. P400 D. P 0

Remedies of the State & the Taxpayer

39. Where a return was filed, under ordinary circumstances, the prescriptive period for the
government to make its assessment would be:
1st Statement: If the return was filed before the deadline within 3 years from the deadline
2nd Statement: If the return was filed on the deadline, within 3 years from the day of filing.
A. B. C. D.
1st Statement True True False False
2nd Statement True False True False
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