PRELIM Chapter 9 10 11
PRELIM Chapter 9 10 11
PRELIM Chapter 9 10 11
TRUE OR FALSE 1
1. Items of gross income subject to regular income tax and capital
gains tax are reportable to the government.
2. Rent is a passive income, but is not subject to final tax.
3. The interest income from bonds issued by banks is subject to final
tax.
4. Gains from dealings in capital assets are generally subject to the
regular income tax.
5. The gross income from operations enjoying a tax holiday are included
in gross income subject to regular tax, but are presented as
deductions in the income tax return.
6. The share in a business partnership is subject to final tax, but the
share in a general professional partnership is subject to regular
income tax.
7. Gains from dealings in ordinary assets are subject to regular income
tax.
8. Items of passive royalty income are subject to final income tax
while items of active royalty income are subject to regular income
tax.
9. Compensation income is an inclusion in gross income subject to
regular tax except compensation income of special aliens.
10. The reportable gross income from business or the exercise of a
profession is net of the cost of goods sold or cost of services.
11. Items of income which are included in gross income subject to final
tax are excluded in gross income subject to regular income tax.
12. Imputed interest income is an item of gross income subject to
regular income tax.
13. Advanced rentals are income in the year received.
14. Real property tax and insurance on the property if assumed by the
lessee constitute income tax to the lessor.
15. Corporate winnings are exclusion in gross income; hence they are
exempt from income tax.
16. Stock dividends are never subject to income tax.
17. Pensions or retirement benefits are inclusions in gross income
subject to regular income tax if the employee is terminated due to
any cause within his control.
18. Prizes in athletic competitions sanctioned by the Philippine
government are exclusions in gross income subject to final tax, but
are inclusions in gross income subject to regular income tax.
19. Corporate prizes are exclusions in gross income subject to final tax
but are inclusions in gross income subject to regular income tax.
20. Stock splits are never subject to income tax.
TRUE OR FALSE 2
1. The distributable net income of a general professional partnership
is subject to creditable withholding tax.
2. Exempt joint ventures and co-ownerships are treated as pass-through
entities and are subject to income tax.
3. The distribution by the GPP of items of passive income is an
inclusion in gross income of the partner subject to regular income
tax.
4. General professional partnerships are exempt from tax and hence,
exempt from withholding.
5. The share from the net income of a joint venture organized abroad is
subject to 10% final withholding tax.
6. Income distribution from taxable estates and trusts is an inclusion
in gross income subject to regular tax by the heir or beneficiary.
7. The recovery of past deduction must be reverted back to gross income
of taxpayers using the cash basis.
8. The recovery of bad debts need not be reverted back to gross income
of taxpayers using cash basis.
9. The recovery of deduction from an exempt year is subject to tax.
10. General professional partnerships are not exempt from regular tax
but are subject to final tax and capital gains tax.
11. An indebtedness cancelled by the creditor out of mercy is an income
to the debtor.
12. When there is a net loss in the period the deduction is taken, the
subsequent recovery of the deduction will not have any tax benefit.
13. The refund or recovery of non-deductible taxes shall not be reverted
back to gross income.
14. The loss of the partnership can be claimed by the partners as
deduction in their income tax return,
15. The accounting period of the taxpayer has a direct impact upon the
amount of gross income to be reported.
16. The power of the CIR to redistribute income and expense includes the
power to impute income between affiliated enterprises.
17. The situs of taxation has an impact on the extent of the reportable
gross income.
18. Creditable withholding taxes are added back to the amount of
reportable gross income.
19. The output VAT must be included as part of the gross income of VAT
taxpayers.
20. The requirement to revert back to gross income the amount of
withheld taxes applied only to VAT taxpayers.
21. Generally, all times of income NRA-NETB and NRFCs from the
Philippines are inclusions in gross income subject to final tax.
22. The taxpayer must enter into an advanced pricing agreement with the
BIR for its cross-border transfer pricing with associated
enterprises.
23. Transfer pricing between associated enterprises must be made at
arm’s length.
24. The transfer pricing regulations apply only to cross-border
transfers of goods and services between associated enterprises.
25. Corporations under the direct and indirect control of the same
controlling individual or corporation are associated enterprises.
26. Under the accrual basis of accounting, items of gross income are
reported in the period they are received.
27. Basically, transfer pricing adjustment is needed when the income
reported for Philippine taxation is understated.
MULTIPLE CHOICE – THEORY: PART 1
1. Which is not subject to income tax?
a. Gain from sale of shares in mutual funds by the investor
b. Prizes in recognition of civic, religious, and artistic
achievements
c. PCSO and lotto winnings, not exceeding P20,000
d. All of these.
2. Which is an item of gross income subject to regular tax?
a. Gain on sale of lot by a realty dealer
b. Interest income from bank deposits.
c. Passive royalty income
d. Capital gain on the sale of domestic socks
3. Which is not an item of gross income subject to final tax?
a. Dividends from a domestic corporation
b. Prizes in excess of P10,000 by an individual
c. Share in the income of a general professional partnership
d. Winnings
4. Which of these employee benefits is subject to final tax?
a. Fringe benefits to rank and file employees
b. Regular pay of supervisory and managerial employees
c. Fringe benefits to supervisory and managerial employees
d. Regular pay of rank and file employees
5. All of these are items of gross income subject to regular tax except
one. Select the exception.
a. Compensation income
b. Interest income from long-term bank deposits
c. Ordinary gain on sale of properties
d. Interest on notes receivables
6. Which is an income exempt from income tax?
a. Income of a general professional partnership
b. Foreign dividends
c. Taxes collected by the government
d. Income of government-owned and controlled corporations
7. All of these are subject to regular income tax except
a. Professional fees
b. Wages and commissions
c. Business income
d. Capital gain from the sale of real property located in the
Philippines
8. Which is exempt from regular tax?
a. Income from construction
b. Income of qualified pension plans
c. Income from merchandising or trading
d. Income from financing or leasing
9. Which item of gross income is not subject to regular tax?
a. Interest income from foreign bank deposits
b. Capital gain on sale of bonds with more than 5 years maturity
c. Gain on sale of domestic stocks by a security dealer
d. Capital gain on sale of patent
10. Which is not part of compensation income subject to regular tax?
a. Director’s fees
b. Bonuses and fixed allowances
c. Portion of salary contributed to SSS
d. Portion of salary used to pay salary loans
11. Which is included in the gross income subject to regular tax of a
resident alien?
a. Gross income from the sale of goods abroad
b. Interest income from promissory notes of resident clients
c. Interest income from relatives abroad
d. Gain from the sale of domestic stocks directly to a buyer
12. Which of the following deductions from gross compensation income is
included as part of gross income subject to regular tax?
a. Pag-ibig Contributions c. PhilHealth Contributions
b. Contributions to union d. dues Withholding tax
13. Which interest income is subject to regular tax?
a. Interest income from notes c. Interest income from lending
b. Interest income from bonds d. All of these
14. Dividends subject to regular tax includes
a. Foreign dividends c. Both a and b
b. Domestic dividends d. Neither a nor b
15. Statement 1: All prizes earned abroad are subject to regular tax.
Statement 2: All prizes in the Philippines are subject to final tax.
Sales P 3,500,000
Less: Cost of sales 2,000,000
Gross profit P 1,500,000
Commission income on consignment 200,000
Interest income from customers 20,000
Interest income, net of final tax 10,000
Dividend income 50,000
Total income P 1,780,000
Less: Admin and selling expenses 1,000,000
Net income P 780,000
Compute the total gross income subject to regular tax.
a. P1,720,000 c. P1,780,000
b. P1,770,000 d. P 840,000
5. Precy, Inc., a domestic corporation, reported the following income
in 2014.
Philippines Abroad
Service fees P 400,000 P 300,000
Interest income – bank 40,000 70,000
Royalties – franchise 80,000 30,000
Compute the total gross income subject to regular income tax.
a. P920,000 c. P 800,000
b. P860,000 d. P 700,000
6. If Precy Inc. is a resident foreign corporation, compute the gross
income subject to regular tax.
a. P 520,000 c. P 400,000
b. P 480,000 d. P 440,000
7. Andres leases a building to a client. During the year, he received
the following remittance from the lessee:
How much will be included in Croki’s gross income for regular income
tax purposes?
a. P 150,000 c. P 110,000
b. P 140,000 d. P 100,000
9. The Big Bird Security Agency (BBSA)received P3,000,000 from its
clients. P2,400,000 of this was designated for salaries of guards
assigned to various client establishments.
14. Edwin purchased the life insurance policy of Paulo for P50,000. He
continued the policy by paying P20,000 premium after which Paulo
died. Edwin collected the P500.000 proceeds of the policy.
Sales P 490,000
Gross compensation income 120,000
Cost of sales 200,000
Non-taxable compensation 30,000
Administrative and selling expenses 120,000
Personal expenses 70,000
Required:
Compute the gross taxable taxation compensation income.___________
Exercise Drill No. 4
An employee received the following benefits:
Required:
Compute the taxable “13th month pay and other benefits” assuming the
employee is a:
1. Rank and file employee ______________
2. Managerial or supervisory employee ______________
Required:
Compute the gross taxable compensation income assuming the employee
became a:
1. Minimum wage earner starting May 1
2. Regular employee by promotion starting May 1
4. Which do not form part of other benefits of rank and file employees?
a. Excess of de minimis over their legal limits
b. Salaries and wages
c. Productivity incentive
d. Employee educational assistance
10. Which is correct when a minimum wage earner derive other income
outside his employment?
a. He is subject to withholding tax and income tax
b. He is neither subject to withholding tax nor income tax
c. He is exempt from withholding tax, but subject to income tax
d. He is subject to withholding tax, but exempt from income tax
11. Rice allowance is taxable when
a. Paid in cash c. given more than P1,000 a month
b. Paid in non-cash d. given more than P1,500.
De minimis benefits:
Medical assistance to employee 22,000
Total of other de minimis benefits 32,000
14. A regular employee became a minimum wage earner when the minimum
wage was increased effective the last quarter of 2019:
TRUE OR FALSE 2
1. The annual depreciation value of a real property is presumed to be
10% of the value of property.
2. The monetary value of benefits given in cash is the cash paid.
3. The monetary value of benefits given in kind is 100% of the value
of the property given.
4. The monetary value of fringe benefits in the form of free usage of
property is 50% of the rental or depreciation value of the
property.
5. Employee benefits are employee expense by nature that are paid by
the employer.
6. The annual depreciation value of a movable property is 20% of the
value of the property.
7. When title over property is transferred, monetary value is the
fair value of the property given.
8. When the employer leases a house and lot as the usual residence of
the supervisory or managerial employee, the monetary value of the
benefits is 50% of the rental payments.
9. Educational assistance to the employee is exempt from fringe
benefit tax if there is an employee bond and the study is related
to the trade or business of the taxpayer.
10. Aircraft including helicopters are considered for the business use
and not subject to fringe benefit tax.
11. The monetary value of the benefit from loans at less than market
rate shall be the difference between 12% and the actual rate
charged.
12. Lodging costs on foreign travel is a taxable fringe benefit
regardless of amount.
13. 30% of first-class tickets in foreign travel is taxable fringe
benefit.
14. The expenses of family members of the employee shouldered by the
employer constitute taxable fringe benefit in full.
15. An employee expense receipted in the name of the employer is
considered a business expense of the employer.
MULTIPLE CHOICE – THEORY 1
1. Which is not part of de minimis benefit?
a. Clothing allowance c. Monetized unused vacation leave
b. Actual medical benefit 13th credits
d. Month pay
3. Select the answer which more accurately completes the statement. The
taxable fringe benefit of a supervisory employee is
a. Subject to fringe benefit.
b. Subject to regular income tax as compensation income.
c. The total of 13th month pay and other benefits not exceeding
P90,000.
d. The total of 13th month pay and other benefits exceeding
P90,000.
11. When fringe benefit is in form of free use of real properties, what
percentage of fair value of the property is considered fringe
benefit?
a. 5% c. 50%
b. 20% d. 100%
14. For purposes of computing the annual value of benefits involving the
free use of movable properties, what percentage of the value
property is used?
a. 5% c. 50%
b. 20% d. 100%
15. For purposes of computing the annual value of benefits involving the
free use of immovable properties, what percentage of the value
property is used?
a. 5% c. 50%
b. 20% d. 100%
3. Danao bought a car worth P800,000 and registered in the name of its
supervisory employee. It was agreed that the same will be used
partially for the business of Danao.
6. In July 2019, Naga purchased a P1,200,000 car for the use of its
managerial employee. Compute the monetary value to be reported
respectively for the calendar quarters ending September and
December 2019.
a. P 1,200,000; P 120,000 c. P 120,000; P 120,000
b. P 240,000; P 120,000 d. P 30,000; P 30,000
Fringe benefits:
- To the supermarket in payment for groceries of the company’s
manager and family P16,000
- To a university in payment for the tuition fee of the manager
- P24,750 Salary of the manager, net of P50,000 and
withholding tax – P350,000
Salaries P120,000
Performance bonus P 20,000
9. What is the fringe benefit tax respectively in the third and fourth
quarters?
a. P 1,891,176; P 8,823 c. P 2,163,942; P 10,095
b. P 1,882,253; P 84,329 d. P 1,882,353; P 0
11. ABC Company owns a residential lot which was purchased for
P800,000, eight years ago. The lot was sold to a supervisory
employee for only P500,000 when it was worth P1,200,000.