PRELIM Chapter 9 10 11

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CHAPTER 9 – REGULAR INCOME TAX: INCLUSION IN GROSS INCOME

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.

Which statement is generally correct?


a. Statement 1 c. Both statements 1 & 2
b. Statement 2 d. Neither statement is true
16. Which is an item of gross income subject to regular tax?
a. Lottery winnings from abroad
b. Imputed interest income
c. Advanced rent representing security deposit for contingency which
may or may not happen
d. Leasehold improvements with useful life not extending beyond the
lease terms.
17. Which of the following is not subject to regular tax of a domestic
corporation or resident citizen?
a. Deposit interest income from abroad
b. Prize not exceeding P10,000 from the Philippines
c. Income from abroad exempt under treaty
d. Royalties from abroad
18. Which is subject to regular tax to a non-resident foreign
corporation or non-resident alien not engaged in trade or business?
a. Business income in the Philippines
b. Capital gain from the sale of stocks directly to a buyer in the
Philippines
c. Dividends from domestic corporations
d. None of these
19. Which is subject to regular tax to a resident foreign corporation?
a. Service fees abroad
b. Gain from sale of real property capital assets in the Philippines
c. Dividends from a domestic corporation
d. Gain from dealings in property abroad.
20. The proceeds of the life insurance received by the wife of the
ensured is
a. Exempt from income tax c. Part of taxable income
b. Subject to final tax d. Partly exempt and partly taxable

MULTIPLE CHOICE – THEORY: PART 2


1. Which of the following will not be reported in gross income?
a. Receipt of inheritance
b. Share in the net income of a foreign partnership
c. Royalties from foreign sources
d. Income distribution from a taxable estate
2. Which is not a reportable type of gross income?
a. Passive royalties
b. Dividends from a foreign corporation
c. Rent income
d. Capital gains from the sale of domestic stocks through the PSE
3. Which of the following is included in gross income subject to
regular tax?
a. Sub-contract income from petroleum service contractors
b. Interest income from government securities
c. Share in the net income of a taxable co-ownership
d. Farming income
4. All income earned abroad that would otherwise be subject to final
taxes id earned within the Philippines shall be subject to
progressive tax of a
a. Domestic corporation c. Resident aliens
b. Resident citizen d. All taxpayers
5. All items of passive income earned abroad are subject to regular tax
to
a. Resident citizen only.
b. A domestic corporation only.
c. A resident citizens and domestic corporations.
d. All taxpayers.
6. Which individual taxpayer is not subject to progressive tax?
a. NRA-ETB c. Resident alien
b. Special aliens d. Resident citizen
7. Which corporate taxpayer is not subject to regular tax?
a. Domestic corporation c. Business-partnership
b. Resident corporation d. Non-resident foreign corporation
8. Individual taxpayers shall report their income on
a. a fiscal year. c. either fiscal or calendar year.
b. a calendar year. d. a crop year.
9. Corporations are allowed to report their income on
a. a fiscal year. c. either fiscal or calendar year.
b. a calendar year. d. a crop year.
10. Which is subject to progressive tax to an individual taxpayer?
a. Proceeds of life insurance policy
b. Gift
c. Amounts received by the insured in excess of premiums paid
d. Compensation for personal injuries
11. Which of these is subject to Philippine regular income tax to a
foreigner?
a. Rent income on properties located abroad
b. Dividend income from a domestic corporation
c. Interest income on a deposit abroad
d. Interest income from domestic bonds
12. If not covered by the substituted filing system, employed individual
taxpayers shall report their regular income
a. monthly. c. quarterly.
b. annually. d. quarterly and annually.
13. Corporations and individuals engaged in business or in the exercise
of a profession are required to report their regular income
a. monthly. c. quarterly.
b. annually. d. quarterly and annually.
14. Which is incorrect concerning transactions between associated
enterprises?
a. Transactions between related parties should not be controlled.
b. Pricing should be determined by free market forces.
c. Pricing should be motivated by the need to save from total income
tax.
d. Non-arms’ length pricing between related parties may be restated
by the BIR to reflect the arms’ length value of transactions.
15. Which is not an associated enterprise to the controlling individual
of a holding company?
a. An associate of a subsidiary in the group
b. The parent company
c. A direct subsidiary company
d. A subsidiary of a subsidiary in the group

MULTIPLE CHOICE – PROBLEMS: PARTT 1


1. Mr. Lolong, a supervisory employee, received the following income in
2015:

Gross compensation income, before contributions


to SSS, PhilHealth, and HDMF totaling P124,000 P 800,000
Fringe benefits 200,000
Gain from redemption of shares in a mutual friend 100,000
Commission income 150,000
Gain on sale of stock through the PSE 400,000

Determine the total income to be reported by Mr. Lolong in gross


income.
a. P1,526,000 c. P1,026,000
b. P1,426,000 d. P 826,000
2. Calixto, employed, derived the following income during the year:

Gross salaries P 400,000


13th month pay and other benefits 40,000
SSS, PhilHealth, and Pag-ibig contributions 20,000
Deductions for loans repayments 50,000
Deductions for withholding tax 60,000

Compute the compensation income to be reported in the annual income


tax return.
a. P440,000 c. P380,000
b. P330,000 d. P390,000
3. Corazon resigned in 2015 after 12 years of service. She had the
following income during the year:

Salary, net of P80,000 withholding tax, P20,000


SSS, P18,000 Philhealth and P40,000 13th month pay P 480,000
Separation pay 1,000,000

Compute the gross income subject to progressive (regular) tax.


a. P1,480,000 c. P560,000
b. P1,560,000 d. P480,000
4. Iriga Corporation is engaged in the sales of goods. It reported the
following summarized financial statements during the year:

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:

Rental, net of 5% creditable withholding tax P 1,900,000


Real property tax of the leased building 50,000
Reimbursement for utilities used
by the lessee paid by Andres 200,000

How much will be included in gross income subject to regular tax?


a. P2,050,000 c. P2,000,000
b. P2,250,000 d. P1,950,000
8. Mr. Croki, a professional practioner, received the following from
his clients:

Advances for future services to be earned P 30,000


Collections for past services rendered 70,000
Reimbursements for client expense 40,000
Reimbursement for out-of-pocket expenses 10,000

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.

How much will be included in the gross income of BBSA


a. P 600,000 c. P3,000,000
b. P2,400,00 d. P 0
10. Farmers, Inc. purchased an agricultural lot for P1,000,000. It was
later discovered that the lot had gold deposits. Thus its fair value
increased to P4,000,000. This increase in fair value is
a. exempt from income tax.
b. subject to income tax.
c. partially exempt and partially taxable.
d. Any of these
11. Northern Cattle Company produces beef meat. In 2015, it reported the
following:

Sales of live cattle P 600,000


Sale of young feeders 200,000
Increase in value of cattle inventory 300,000

Compute the income subject to regular tax.


a. P 1,100,000 c. P 900,000
b. P 800,000 d. P 600,000
12. Don Juanito has the following income in 2015:

Sales from vegetables P 400,000


Sales from fruits 200,000
Sales of carabao (acquired for P30,000 in 2015) 35,000
Interest income from tenants on the sale of
agricultural land pursuant to the Agrarian
Reform Program 12,000

The gross income subject to progressive tax is


a. P 647,000 c. P 600,000
b. P 617,000 d. P 605,000
13. Mr. Conner purchased a life annuity for P1,000,000 which will pay
him P100,000 a year. What will Mr. Conner include in his gross
income on the 11th year of the policy?
a. P1,000,000 c. P 200,000
b. P 100,000 d. P1,200,000

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.

How much will Edwin exclude from his gross income?


a. P 500,000 c. P 70,000
b. P 430,000 d. P 0
15. Mr. Benson insured his life with his children as beneficiaries. He
died after paying P200,000 premiums. His children collected the
P1,000,000 life insurance proceeds. How much will be excluded from
Mr. Benson's gross income?
a. P 800,000 c. P 200,000
b. P1,000,000 d. P 0
16. Pedro's crop was destroyed by incessant rains. He received P200,000
from an insurer that insured his crop. The proceeds of the insurance
is an
a. item of gross income subject to regular tax.
b. item of gross income subject to final tax.
c. exclusion from gross income.
d. exempt income.
17. In 2016, Northern Crest Corporation (NCC) reported a P40,000
recovery from bad debts that was claimed as deduction against gross
income in 2012. In 2012, the write-off increased the operating loss
of NCC to P50,000. NCC was very profitable from 2013 to the present.
How much of the P40,000 recovery is subject to tax?
a. P 60,000 c. P 40,000
b. P 10,000 d. P 0
18. West Oil abandoned an oil facility in 2012 and expensed the P300,000
unrecovered investment in the facility as abandonment loss. The 2012
taxable income before provision for the loss was P100,000. West
posted continuous loss until 2015. With increasing prices of crude
oil in 2016, West re-commissioned the facility for use. How much
will be included in its gross income in 2016
a. P 300,000 c. P100,000
b. P 200,000 d. P0
19. Sarah Baby International graduated from its income tax holiday
incentive and effectively subject to tax beginning 2015. In 2016, it
collected a P4M from a P6M receivable which was written off as bad
debt expense in 2013. Before the write-off, Sarah International had
P1M profit. Sarah posted profits in 2014 and 2015 in excess of its
operating loss in 2013.

Compute the amount of recovery subject to regular income tax.


a. P6,000,000 c. P4,000,000
b. P1,000,000 d. P 0
20. In 2015, an accrual basis taxpayer received a cash refund for an
income tax assessment which he paid in 2011 consisting of the
following:

Basic tax P 40,000


Surcharge 10,000
Interest 4,000
Total taxes paid P 54,000

How much must be reverted back to gross income in 2015?


a. P 0 c. P10,000
b. P 4,000 d. P44,000
21. In the immediately preceding problem, compute the tax benefit if the
refund was of local tax instead of income tax.
a. P 44,000 c. P 10,000
b. P 4,000 d. P 0
22. An accrual basis taxpayer recovered a P20,000 local tax expense
which was refunded by the local government in 2015. The local tax
expense was paid in 2013 when the taxpayer sustained a P5,000 net
operating loss. How much shall be reverted to income?
a. P O c. P 20,000
b. P 5,000 d. P 15,000

23. A taxpayer under the cash basis wrote-off P50,000 receivables in


2010. In 2015, P30,000 of the receivables was recovered.

Determine the amount to be included in gross income in 2015 assuming


that the taxpayer incurred a net operating loss of P40,000 in 2010.
a. P 0 c. P 30,000
b. P 10,000 d. P 40,000

MULTIPLE CHOICE – PROBLEMS: PARTT 2


1. Mr. Cordillera owns 20% interest in a joint venture engaged in
construction projects. In 2015, the joint venture reported profits
of P500,000, inclusive of P20,000 from time deposits.

Compute the total income to be reported in gross income of Mr.


Cordillera?
a. P 0 c. P 96,000
b. P 4,000 d. P 100,000
2. Mr. Buaya, with 14 dependent children, had the following data for his
income tax return in 2018:

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

What is the net income?


a. P 170,000 c. P100,000
b. P 290,000 d. P 20,000
3. Compute the taxable compensation income.
a. (P150,000) c. P 90,000
b. (P 30,000) d. P 120,000
4. Compute the taxable income.
a. P 10,000 c. P 140,000
b. P100,000 d. P 260,000
5. Raymund and Zeus practice their accounting profession through a
general professional partnership. They contributed equal capital and
agreed to share in profits equally. The following relates to their
gross receipts and expenses:

Gross receipts P 4,000,000


Less: Cost of services 1,800,000
Gross income from operations P 2,200,000
Add: Other non-operating income
Gain on sale of equipment P 100,000
Interest on time deposits 40,000 140,000
Total gross income P 2,340,000
Less: Allowable deductions 1,200,000
Net profits P 1,140,000

What is the reportable income in the tax return of Raymund?


a. P1,170,000 c. P 550,000
b. P 500,000 d. P 570,000
6. In the immediately preceding problem, determine the amount of income
to be reported by Zeus assuming that their partnership is a beauty
parlor.
a. P 0 c. P 550,000
b. P 570,000 d. P 500,000
7. An alien employee in an RHQ had the following in 2015:

Gross compensation income P 1,500,000


Contributions to SSS, PhilHealth, and HDMF 150,000
Creditable with holding tax 202,500

What is the total amount to include in gross income subject to


regular income tax?
a. P 0 c. P1,350,000
b. P1,147,500 d. P1,500,000

8. In the immediately preceding problem, what is the amount to include


in gross income assuming the employee is a Filipino rank and file
employee?
a. P 0 c. P1,500,000
b. P1,147,500 d. P1,350,000
9. A corporation had the following gains from dealings in properties:

Sale of delivery truck P 150,000


Sale of domestic stocks 50,000
Sale of 3-year corporate bonds 12,500
Sale of 6-year corporate bonds 7,500

What is the total amount of gain to be included in gross income?


a. P 150,000 c. P 170,000
b. P 162,500 d. P 212,500
10. Shown below is a compilation of the gain on the sale of real
properties:

Real properties classified as Philippines Abroad


Ordinary assets P 300,000 P 800,000
Capital assets 400,000 200,000

What is the amount of income to be included in gross income subject


to regular income tax assuming the taxpayer is a domestic
corporation?
a. P1,300,000 c. P1,700,000
b. P1,100,000 d. P300,000
11. What is the gain to be included in gross income subject to regular
income tax if the taxpayer is a resident foreign corporation?
a. P 300,000 c. P700,000
b. P400,000 d. P1,100,000
12. What is the gain to be included in gross income if the taxpayer is a
resident alien?
a. P700,000 c. P300,000
b. P400,000 d. P1,100,000
13. A taxpayer collected the following passive income during the year:

Passive income Philippines Abroad


Interest income from banks P 300,000 P 800,000
Royalties from books 200,000 100,000
Rent of properties 400,000 200,000

What is the amount to be reported in gross income if the taxpayer is


a resident citizen?
a. P 900,000 c. P1,500,000
b. P1,100,000 d. P2,000,000
14. In the immediately preceding problem, what is the reportable gross
income assuming the taxpayer is a resident alien?
a. P 0 c. P 600,000
b. P 900,000 d. P 400,000
15. In 2020, the taxpayer received the following prizes and winnings:

Passive income Philippines Abroad


Prizes P 10,000 P 100,000
Winnings 400,000 100,000

What is the reportable item of gross income if the taxpayer


respectively is a resident citizen and a non-resident citizen?
a. P 500,000 ; P 0 c. P 0 ; P 500,000
b. P 510,000 ; P 10,000 d. P 910,000 ; P 410.000

16. What is the reportable item of gross income if the taxpayer is a


domestic corporation and a resident foreign corporation,
respectively?
a. P 500,000 ; P 0 c. P 910,000 ; P 410,000
b. P 510,000 ; P 10,000 d. P 500,000 ; P 10,000
17. Mang Sipalay registered his business as a BMBE. He made a total sale
of P500,000 and incurred cost of sales of P400,000. He also earned
P10,000 interest income from time deposits. What is the total
reportable gross income?
a. P 0 c. P100,000
b. P 10,000 d. P110,000
18. Boracay Company is registered as a TIEZA locator subject to 5% gross
income tax. During the year, it made a total P400,000 gross receipts
from various tourist assistance services. It also incurred P210,000
in direct services.

What is the amount to be included in gross income subject to regular


income tax?
a. P 0 c. P210,000
b. P 190,000 d. P400,000
19. Mr. Siayan is a 5-6 lender. During the year, he granted loans
totaling P2,000,000 and collected P400,000 in interest. He also
earned P8,000 in temporary investments in domestic bonds plus
additional P6,000 from bank deposit substitutes. Direct cost of
lending was P100,000.

What is the total amount to be reported in gross income subject to


regular tax?
a. P0 c. P414,000
b. P300,000 d. P308,000
20. Mr. Asuncion received the following royalties from the following
sources:

Mining claims P 150,000


Novel, "Alicia in Wonderland" 250,000
Basic Accounting textbook 250,000
Musical composition "Dayang-dayang” 40,000

What is the total amount to be reported in gross income?


a. P 0 c. P 400,000
b. P 150,000 d. P 520,000

MULTIPLE CHOICE – PROBLEMS: PARTT 3


1. Mrs. Kapalong has several interests in various businesses and
partnerships. He received the following income during the year:

Dividends from a domestic corporation P 120,000


Dividends from a resident foreign corporation 80,000
Share in net income of a business partnership 200,000
Share in the net income of a professional partnership 100,000

What is the total income to be reported in gross income?


a. P 0 c. P 300,000
b. P 380,000 d. P 180,000
2. Ms. Panabo received a total P200,000 from her father for her
support. During the year, she also received a P150,000 total
distribution from the trust irrevocably designated by her
grandfather in her favor. She also received P120,000 income
distribution from the estate of her grandmother undergoing judicial
settlement
What is the total amount to be included in her gross income?
a. P 200,000 c. P 350,000
b. P 270,000 d. P 470,000
3. A non-VAT taxpayer collected P45,000 net of P5,000 withholding tax.
Compute the gross income subject to regular tax.
a. P5,000 c. P45,000
b. P40,000 d. P50,000

4. A VAT taxpayer collected P66,600, inclusive of P7,200 VAT and net of


P600 withholding tax. Compute the gross income subject regular
income tax.
a. P 59,400 c. P 66,000
b. P 67,200 d. P 60,000
5. A non-VAT taxpayer collected P79,200, net of 1% withholding tax.
What is the amount subject to regular income tax?
a. P 71,351 c. P 80,000
b. P 71,429 d. P 79,200
6. A VAT taxpayer taxpayer received P45,900 inclusive of VAT and net of
10% creditable withholding tax. Compute the gross income subject to
regular tax.
a. P 45,000 c. P 45,536
b. P 45,900 d. P 51,000
7. A non-VAT taxpayer received P8,000 interest income, net of 20% final
withholding tax. Compute the amount subject to regular income tax.
a. P 0 c. P 8,000
b. P 6,400 d. P 10,000
8. A VAT-registered taxpayer received P18,000 dividend, net of 10%
final withholding tax. Compute the amount subject to regular income
tax.
a. P 0 c. P 17,857
b. P 17,647 d. P 20,000
9. A resident foreign corporate taxpayer entered into an advanced
pricing agreement (APA) with the BIR with respect to the pricing of
its export sales to a foreign country. A mark-up ratio of 50% of the
cost is set in the APA. During the year, the corporation
manufactured goods costing P12,000,000 and exported 80% of the
production to its foreign affiliate at a price of P12,000,000.

What is the amount of gross income subject to Philippine tax?


a. P2,000,000 c. P2,400,000
b. P4,800,000 d. P6,000,000
10. Ms. Nene Gosio registered a manufacturing business as a BMBE exempt
from tax. She also owns another taxable business which is engaged in
the trading of goods. Ms. Gosio ordered her BMBE business to sell
its production to her trading business at ultimate sales prices.

You were tasked by your audit supervisor to conduct a transfer


pricing evaluation of Ms. Gosio's businesses. Based on your study,
you determined that the retail profit rate (on sales) of trading
businesses with similar operations involving similar goods is 40%.
During the year, the trading business made a total purchases of
P400,000 from the BMBE and sold 75% of these for P500,000.

What is the gross income of the trading business to be subjected to


regular income tax following the arms' length principle?
a. P 0 c. P 200,000
b. P 100,000 d. P 120,000
CHAPTER 10
True or False 1
1. A special employee may include Filipino citizens.
2. A rank and file employee recommends managerial actions.
3. A consultant is not an employee.
4. A manager has the power to lay down and execute policies.
5. A regular employee is subject to the regular income tax.
6. Filipinos employed by international missions are generally exempt.
7. Filipinos working in Philippine embassies are exempt from
taxation.
8. A minimum wage earner is exempt from income tax.
9. Compensation income includes regular compensation, supplemental
compensation and 13th month pay and other benefits in excess of
P90,000.
10. Compensation income includes all remunerations received under an
employer-employee relationship, including all fringe benefits of
managerial or supervisory employees.
11. Benefits for the advantage of the employee are exempt from income
tax.
12. Remunerations received as incidents of employments are exempt.
13. The employee’s share in SSS, GSIS, Philhealth and HDMF are
excluded from compensation income.
14. The exempt vacation leave credit is 10 days for government
employees.
15. Tax exempt de minimis benefits include all benefits of relatively
small value.
16. The excess de minimis are considered “other income” for any
employee.
17. The sick leave credit of private employees up to 10 days is exempt
de minimis.
18. The overtime pay of minimum wage earners is exempt from tax.
True or False 2
1. Supplemental compensations are fixed amounts regularly received by
the employee every payroll period
2. A regular employee can be a managerial, supervisory, or rank and
file employee.
3. Regular compensation includes variable performance-based
remuneration received by the employee with or without regard to
the payroll period.
4. All directors are not considered employees.
5. Rank and file employees do routinary or clerical jobs.
6. A minimum wage earner with business income is considered a regular
employee subject to income tax.
7. A managerial employee is least likely to be a minimum wage earner.
8. The statutory minimum wage is P60,000 annually or the amount fixed
by the Regional Tripartite Wage and Productivity Board whichever
is lower.
9. An OBU is a division of local bank authorized to conduct banking
transactions in foreign currencies.
10. The position and function test, compensation threshold test, and
exclusivity test are required for alien employees.
11. A managerial employee can be a special employee.
12. The Christmas gift of private employees forms part of “other
benefits” while that of government employees is considered de
minimis benefit.
13. The fringe benefits of managerial or supervisory employees are
generally subject to fringe benefit tax.
14. Resident Filipinos employed by the foreign embassies, missions, or
international organizations are generally taxable.
15. Non-resident Filipinos employed by the foreign embassies,
missions, or international organizations are generally exempt.
16. Filipinos employed in Philippine embassies are generally exempt.
17. Half of the benefits given for the convenience or necessity of the
employer are taxable.
18. Fixed allowances are supplemental compensation income.
19. For managerial employees, the excess of de minimis benefits over
their limits are included as “other benefits”.
20. The excess of the 13th month pay and other benefits over P90,000
is considered compensation income.
21. The substituted filing system applies to employees who have
multiple or successive employments.
22. An employer controls the means and methods by which the work is to
be accomplished.
23. An employee who became a minimum wage earner during the year is
exempt from tax for the entire year.
24. Minimum wage earners who are disqualified for exemption during the
year shall be taxable as regular employees.
25. Minimum wage earners who breached the minimum wage threshold by a
salary increase during the year are taxable only starting from the
months of increase.
26. A fringe benefit is usually in the nature of an incentive.
Compensation income is in the nature of performance-based pay.

Exercise Drill No. 1


In the blank provided for, indicate whether the specified benefit or
remuneration is an item of:
- RC- regular compensation - FB- fringe benefit
- SC- supplemental compensation - OB- 13th month pay & other benefits
- DM- de minimis benefits - EB- exempt or non-taxable benefits

Ddd111111 Rank & Manager or


Benefit or remuneration file supervisor
employee
1. Uniform allowance
2. 2. Commissions
333333333 3. Rice allowance
4. Productivity incentive
5. Christmas bonus-government
6. Fixed monthly RATA-government
7. Medical benefits
8. Additional compensations allowance-
government
9. 13th month pay
10. Christmas gift-private
11. Anniversary gift
12. Shuttle allowance to a distant facility
13. Excess di minimis benefits
14. Basic salary
15. Profit sharing
16. Other employee personal expenses paid
by employer
17. Emoluments and honoraria
18. Stock bonus
19. Educational assistance to employee
under employment bond
20. Used sick leave credit
21. Monetized unused sick leave-private
22. Monetized unused vacation leave-private
23. Monetized unused sick leave-government
24. Monetized unused vacation leave-
government
25. Excess over P90,000 of 13th month pay
and other benefits

Exercise Drill No. 2


Assuming that the employee is a private employee with a basic salary
P300 per day in a region with a minimum wage of P250 per day, indicate
the annual limit and compute the annual excess de minimis benefits in
the spaces provided for.
De minimis benefits Limit Excess
1. P100/meal for 158 overtime days during
the year
2. P6,000 monetized value of 15-day
vacation leave credits
3. P1,000 monthly medical allowance to
dependents of employees
4. P6,000 monetized value of 15-day sick
leave credits
5. P12,000 medical benefits
6. P2,000 quarterly uniform allowance
7. P500 monthly laundry allowance
8. P10,000 achievement award in cash
9. P3,000 Anniversary gift and P5,000
Christmas gift
10. P3,000 monthly rice allowance

Exercise Drill No. 3


A 50 year-old employee retired during the year after 30 years of
continuous service and received the following remunerations:

Basic salary P 350,000


Employee share to SSS,PHIC,HDMF nad union dues 24,000
Overtime pay 16,000
Retirement pay 2,300,000
Benefits from SSS 400,000
Pro-rated 13th month pay 21,000

Required:
Compute the gross taxable taxation compensation income.___________
Exercise Drill No. 4
An employee received the following benefits:

13th month pay P 60,000


Profit sharing 12,000
De minimis benefits:
De minimis benefits within their limits 80,000
Excess de minimis benefits 30,000
Other de minimis benefits 10,000
Other fringe benefits 25,000
Total incentives P 182,000

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 ______________

Exercise Drill No. 5


An employee with 10 dependent children received the following benefits
during the year:

Regular compensation P 1,068,000


Supplementary compensation 340,000
13th month pay 89,000
Other fringe benefits 13,000

Required: Compute the taxable amount in each of the following taxation


schemes:
Progressive Fringe
Employee type tax benefit tax
1.Rank and file employee
2.Managerial or supervisory employee

Exercise Drill No. 6


The following relates to the compensation income of a minimum wage
earner employee:

Compensation and overtime pay (January to April) P 48,000


Compensation and overtime pay (May to December) 97,000
13th month pay and other benefits in December 15,000

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

Multiple Choice-Theory: Part 1

1. Which is not an element of an employer-employee relationship?


a. Selection process c. Power of control
b. Power to dismiss d. Payment of fixed wages
2. Which is not an employee classification as to function?
a. Managerial employee c. Special employee
b. Rank and file employee d. Supervisory employee

3. Which is not an employee classification as to taxability?


a. Regular employee c. Managerial employee
b. Special employee d. Minimum wage earner

4. Which is usually an employee?


a. A director who is at the same time the Chief Executive Officer
b. A director regularly receiving a retainer’s fee
c. Consultant
d. A hired TV program talent

5. The statutory minimum wage is


a. The amount fixed by the Regional Tripartite Wage and Productivity
Board
b. The rate fixed by the Regional Tripartite Wage and Productivity
Board which must not exceed P5,000 a month or P60,000 annually
c. The higher between P5,000 a month or P60,000 annually or the rate
fixed by the Regional Tripartite Wage and Productivity Board
d. P5,000 a month or P60,000 annually unless it exceeds the rate
fixed by the Regional Tripartite Wage and Productivity Board

6. Which is not included in the gross taxable compensation income of an


employee?
a. Fixed monthly allowance
b. Performance based bonuses
c. 13th month pay and other benefits not in excess of P90,000
d. 13th month pay and other benefits in excess of P90,000

7. Which is not an exclusion criterion on employee benefits?


a. Necessity of the employee rule
b. Convenience of employer rule
c. Exemption by special law
d. Exemption by treaties or international agreements

8. For purposes of the fringe benefit tax, fringe benefit pertain to


a. Other fringe benefits not included as compensation income of any
employees
b. Other fringe benefits not specifically included as compensation
income of managerial or supervisory employees
c. All fringe benefits of managerial or supervisory employees
d. All fringe benefits of rank and file employees

9. What is a correct statement?


a. The compensation income of managerial or supervisory employees is
subject to fringe benefit tax.
b. The taxable fringe benefits of rank and file employee are subject
to fringe benefit tax.
c. The taxable fringe benefits of managerial and supervisory employee
are subject to regular income tax.
d. The compensation income of rank and file employees is subject to
regular tax.
Multiple Choice-Theory: Part 2

1. Which is not a supplemental compensation income?


a. De minimis benefits c. Allowances
b. Honoraria d. Bonuses

2. Fringe benefits includes


a. Basic salaries c. Retirement and separation pay
b. Fees d. De minimis benefits

3. De minimis benefits are generally


a. Exempt from tax c. taxable in excess of 90,000
b. Fully taxable d. subject to fringe benefit tax.

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

5. The term “de minimis benefits” does not include


a. Christmas bonus c. Rice subsidy
b. Christmas gift d. Monetized unused vacation leave

6. Select the most accurate statement.


a. De minimis benefits are totally exempt from income tax
b. De minimis benefits in excess of P90,000 are subject to income tax
c. The excess of “other benefits” over P90,000 constitutes
compensation income
d. The benefits of rank and file employees are not subject to fringe
benefit tax

7. Which is taxable as compensation?


a. SSS benefits
b. c. Termination benefits from resignation
c. Retirement benefits
d. Retirement gratuities from foreign institution

8. Which of the following is subject to income tax?


a. Minimum wage
b. De minimis benefits
c. GSIS benefits
d. Voluntary contribution to SSS, PHIC, and HDMF

9. All of these are exempt benefits of a minimum wage earner except


a. Hazard pay c. vacation pay
b. Holiday pay d. overtime pay

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.

12. Meal allowance is taxable when given


a. For overtime pay c. for night shift assignment
b. In cash d. as incentive to all employees

13. Which is an exempt de minimis benefit?


a. 9-day monetized sick leave
b. 15-day monetized vacation leave
c. Rice subsidy of half sack a month valued at P1,000
d. Uniform allowance of P5,500

14. Which is a correct de minimis limit?


a. Actual medical cash allowance of P5,000 per year
b. Laundry allowance of P3,600 per year
c. Employee achievement award of P5,000 per year
d. Christmas gift of P10,000

15. Statement 1: Excess de minimis is considered compensation income as


“other benefits” for rank and file employees and managerial or
supervisory employees.
Statement 2: Excess de minimis is a fringe benefit subject to the
fringe benefit tax
a. Statement 1 is correct c. Both statements are incorrect
b. Statement 2 is correct d. Both statements are correct

16. Which is considered compensation?


a. Reasonable amounts of pre-computed daily transportation allowance
b. Cost-of-living allowance
c. Outstation allowance for employees working at distant facilities
d. Car incentives to medical doctors required to report on duty
anytime

17. Which of the following remuneration is an item of compensation


income?
a. Retainer fees of an outside director
b. Customer tips
c. Commissions to a minimum wage earner
d. Referral fee to a customer

18. Night differential pay is exempt from taxation when received by a


a. Rank and file employee c. minimum wage earner
b. Special employee d. managerial or supervisory employee

19. Which is not subject to P90,000 exemption threshold for a private


employee?
a. 13th month pay c. Profit sharing bonus
b. Cash gift d. Productivity incentive

20. The P90,000 exemption threshold is applicable to


a. Regular employees c. Managerial or supervisory employees
b. Rank and file employees d. all employees

21. The excess of 13th month pay and “other benefits” is


a. Subject to regular tax c. subject to fringe benefit tax
b. Subject to final tax d. exempt from income tax

22. Which is subject to the withholding tax on compensation?


a. Salary of domestic “kasambahays”
b. Compensation for injuries and sickness
c. Salaries of resident Filipinos working in embassies, international
missions and organizations
d. Salary of minimum wage earners receiving fixed allowances

23. Statement 1: A minimum wage earner who loses the benefit of


exemption by transferring to a region with a lower minimum wage is
taxable on all income during the year
Statement 2: A minimum wage earner who qualifies as such during the
year is exempt from tax on all income earned during the year.
Which is correct?
a. Both statements are correct
b. Both statements are incorrect
c. Only statement 1 is correct
d. Only statement 2 is correct

Multiple Choice-Problems: Part 1

1. Mr. Juanito had the following income in 2019:

Compensation income, net of P77,000 SSS,


Philhealh, HDMF and union dues P300,000
Supplemental compensation income 30,000
13th month pay and other benefits 25,000
What is the taxable compensation income?
a. P402,000 c. P375,000
b. P330,000 d. P380,000

2. The following relates to an annual payroll of the employee:

Gross compensation income, before P44,000


Contributions to SSS,PHIC, and HDMF P1,068,000
Additional compensation 45,000
13th month pay and other benefits 89,000

Compute the taxable compensation income


a. P1,113,000 c. P1,069,000
b. P1,112,000 d. P1,068,000

3. Colyong, a government employee, receives a full 13th month pay of


P20,000, exclusive of P14,000 other benefits. He was deducted P18,000
during the year for premium for his SSS, PHIC, and HDMF
contributions. Compute Colyong’s taxable compensation income.
a. P222,000 c. P240,000
b. P226,000 d. P254,000

4. An employee received the following compensation during the year:

Gross compensation (P11,000 x 13 months) P 143,000


Overtime pay 12,000
Less:
SSS, PHIC, HDMF and union dues P 5,200
Withholding tax 10,000 15,200
Net pay P 139,800

Compute the taxable compensation income.


a. P149,800 c. P132,000
b. P138,800 d. P126,800

5. Johnny received a salary of 73,000 during the year consisting of:


P60,000 basic salary, P8,000 overtime pay and P5,000 13th month pay.
Compute Johnny’s taxable income using contemporary tax regulation.
a. P 0 c. P 68,000
b. P 60,000 d. P 73,000

6. A private employee retired at 60 in the middle of the year and was


paid the following remunerations:

Retirement benefits P2,000,000


Terminal leave pay (150 accumulated days) 120,000
Compensation, net of P16,000
SSS, PHIC, and HDMF premium contributions 128,000
Mid-year bonus 8,000
Pro-rated 13th month pay 12,000

Compute the taxable compensation income.


a. P2,170,000 c. P170,000
b. P238,000 d. P136,000

7. A managerial employee received the following remunerations:

Gross salaries, net of SSS, PHIC, and HDMF P1,090,000


SSS maternity benefits 30,000
Profit sharing bonus 240,000
13th month pay 95,000

Determine the taxable compensation income.


a. P1,365,000 c. P1,335,000
b. P1,350,000 d. P1,330,000

8. A supervisory employee had the following remunerations during the


year:

Salaries, before P24,000 SSS, Philhealth


HDMF, and union dues P 258,000
Profit sharing 20,000
Fringe benefits 65,000
13th month pay and other benefits 21,000

What is the taxable compensation income?


a. P 343,000 c. P 254,000
b. P 278,000 d. P 204,000

9. An employee had the following details of compensation income in 2019:

Regular compensation income P 780,000


Overtime pay 43,000
13th month pay 65,000

De minimis benefits:
Medical assistance to employee 22,000
Total of other de minimis benefits 32,000

Compute the taxable compensation income if the employee is a rank and


file.
a. P 842,000 c. P 823,000
b. P 836,000 d. P 780,000

10. Compute the taxable compensation income if the employee is a


managerial or supervisory employee.
a. P 842,000 c. P 823,000
b. P 836,000 d. P 780,000

Multiple Choice-Problems: Part 2

1. An employee received the following remunerations aside from the basic


pay:

Fixed representation and transportation allowance P 24,000


Night shift differential pay 12,000
Hazard pay 12,000
Honoraria 8,000
Profit sharing 24,000
13th month pay 18,000

Compute the supplemental compensation if the employee is a regular


employee.
a. P 68,000 c. P 56,000
b. P 44,000 d. P 32,000

2. Compute the supplemental compensation if the employee is a minimum


wage earner:
a. P 68,000 c. P 56,000
b. P 44,000 d. P 32,000

3. A supervisory employee is a recipient of a stock option which vested


during the year. The following data pertains to the exercise of the
option and its subsequent sale by the employee:

Value of stocks at vesting date P 45,000


Exercise price option 30,000
Selling price of stocks 50,000

Compute the supplemental compensation.


a. P 50,000 c. P 15,000
b. P 20,000 d. P 0

4. The following relate to the compensation income of a private rank and


file employee during the year:

Annual compensation income P 540,000


13th month pay 45,000
14th month pay 45,000
Total of monthly rice allowances during the year 26,000
Commission from employer 12,000
Christmas gift 8,000
SSS, Philhealth and HDMF contributions 21,000

Compute he exempt de minimis benefits.


a. P 18,000 c. P 26,000
b. P 24,000 d. P 50,000

5. Compute the total non-taxable compensation income.


a. P 0 c. P 111,000
b. P 90,000 d. P 135,000

6. Compute the supplemental compensation.


a. P 25,000 c. P 12,000
b. P 22,000 d. P 10,000

7. Compute the taxable compensation income.


a. P 586,000 c. P 565,000
b. P 572,000 d. P 541,000

8. A managerial employee received the following benefits during the


year:

Compensation income, net of mandatory contribution P1,080,000


Housing allowance in addition to regular pay
(P30,000 x 12;actual rent is P25,000/month) 360,000
13th month pay 95,000

What is the taxable compensation income?


a. P 1,445,000 c. P 1,145,000
b. P 1,175,000 d. P 1,085,000

9. A government employee received the following benefits in 2019:

Gross salaries P1,044,000


RATA 12,000
PERA 24,000
Additional compensation (ADCOM) 24,000
Christmas bonus 87,000
Christmas gift 5,000
Laundry allowance (P400/month) 4,800
Contributions to GSIS, Philhealth and HDMF 62,000

Determine the taxable compensation income.


a. P 1,071,000 c. P 1,044,000
b. P 1,068,000 d. P 1,009,200

10. A private employee had the following remuneration in 2019:

Gross salaries, net of mandatory contribution P 314,000


Fixed RATA 12,000
Cost-of-living allowance 24,000
13th month pay 28,000
Christmas gift 5,000
Laundry allowance (500/month) 8,000

Answer the following questions:


What is the taxable compensation income?
a. P 314,000 c. P 338,000
b. P 326,000 d. P 350,000

11. What is the total exempt de minimis benefit?


a. P 13,000 c. P 6,000
b. P 8,000 d. P 5,000

12. What is the total exempt benefit?


a. P 36,000 c. P 82,000
b. P 41,000 d. P 90,000

13. Jane, a recipient of minimum wage, became a regular employee at the


start of the third quarter of 2019 when she received a raise in
pay:

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr


Compensation income P 24,000 P 24,000 P 33,000 P
33,000
Overtime pay 4,000 5,000 3,000
6,000
13th month pay - 9,500
Less:
SSS, PHIC, and HDMF 1,000 1,000 1,200
1,200
Creditable WH tax - - 1,000
1,200
Net pay P 27,000 P 28,000 P 33,800 P
45,300

Compute the taxable compensation income in 2019.


a. P 52,100 c. P 75,000
b. P 72,600 d. P 127,600

14. A regular employee became a minimum wage earner when the minimum
wage was increased effective the last quarter of 2019:

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr


Compensation income P 24,000 P 24,000 P 24,000 P
24,750
Overtime pay 4,000 5,000 3,000
6,000
13th month pay - 8,063
Less:
SSS, PHIC, and HDMF 1,000 1,000 1,000
1,100
Creditable WH tax 1,100 1,100 1,100
1,200
Net pay P 25,900 P 26,900 P 24,900 P
36,513

Compute the taxable compensation income in 2019.


a. P 0 c. P 81,000
b. P 29,650 d. P 110,650
CHAPTER 11 FRINGE BENEFIT TAX
TRUE OR FALSE
1. Rank and file employees may be subject to fringe benefit tax.
2. Fringe benefits are always subject to fringe benefit tax.
3. The personal expenses of employees shouldered by the employer are
fringe benefits.
4. Managerial or supervisory employees are subject to fringe benefit
tax.
5. The tax base of the fringe benefit tax is grossed-up monetary
value of the fringe benefit.
6. The fringe benefit tax is a creditable withholding tax presumed to
have been withheld at source by the employer from the fringe
benefits of supervisory or managerial employees.
7. The taxable fringe benefit subject to the fringe benefit tax is
the excess of the de minimis benefit over P90,000.
8. Half of the benefits that are necessary to the trade of the
employer’s business are subject to fringe benefit tax.
9. Benefits in the form of properties transferred to the name of the
employee are subject to fringe benefit tax in full.
10. Benefits provided by the employer for his convenience are exempt
from fringe benefit tax.

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

2. The de minimis benefit not exceeding their thresholds are


a. Exempt from income tax. c. Subject to regular tax.
b. Subject to fringe d. Deductions from gross income.
benefit tax.

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.

4. Who is subject to the fringe benefit tax?


a. An employer of rank and c. An employer of managerial or
file employees supervisory employees
b. Managerial or supervisory d. Rank and file employees
employees

5. Which of these items is subject to fringe benefit tax?


a. Compensation income of rank and file employees
b. Fringe benefits of rank and file employees
c. Fringe benefits of managerial or supervisory employees
d. Compensation income of managerial or supervisory employees

6. The fringe benefit tax by nature is a


a. Tax on passive income of managerial or supervisory employees.
b. Final tax.
c. Tax to the employer of managerial or supervisory employees.
d. Tax to all employee on their fringe benefits.

7. Which is a correct statement?


a. The fringe benefit tax is a tax upon the expense of the
employer.
b. The personal expenses of any employees paid by the employer are
subject to fringe benefit tax.
c. The personal expenses of rank and file employees paid by the
employer are subject to fringe benefit tax.
d. The personal expenses of managerial or supervisory employee
shouldered by the employer are subject to fringe benefit tax.

8. As a rule, hybrid expenses are presumed


a. 50% fringe benefit. c. 50% de minimis benefit
b. 100% fringe benefit. d. 100% legitimate business
expense.

9. Which of the following phrases is not an exemption criterion for


purposes of the fringe benefit tax?
a. Convenience of the employer
b. Necessary for the business of the employer
c. In furtherance of employee goodwill
d. For the furtherance of the employer’s business

10. What percentage of the depreciation value is considered fringe


benefit in the free usage of employer’s real properties?
a. 5% c. 50%
b. 20% d. 100%

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%

12. When fringe benefit is in the form of free use of personal


properties, what percentage of the depreciation value of the
property is considered fringe benefits?
a. 5% c. 50%
b. 20% d. 100%

13. An employer transferred title over property to the employee. What


percentage of benefit is considered for purposes of the fringe
benefit tax?
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%

MULTIPLE CHOICE – THEORY 2


1. Which is not a characteristic of the fringe benefit tax?
a. A final tax c. Payable by the employer
b. An income tax d. Imposed upon the monetary value
of benefits
2. Which is correct with respect to the fringe benefit tax?
a. It is due monthly and quarterly
b. It is a tax upon the compensation income of employee
c. It is tax upon the fringe benefit of an employee
d. Employees do not need to file income tax returns to report the
fringe benefit

3. The actual value of benefits realized by the managerial or


supervisory employee is referred to as the
a. Monetary value c. Grossed-up monetary value
b. Fair value d. Annual depreciation value

4. Which is not exempt housing benefit?


a. Housing within 50 meters from the perimeter of the employer’s
business
b. Housing benefit for four months
c. Military sleeping quarters
d. Temporary housing

5. Which is not subject to fringe benefit tax?


a. Personal expenses receipted in the name of the employee paid by
the employer
b. Employer personal expense receipted in the name of the employer
paid by employer
c. Expenses of employees considered in furtherance of the
employer’s business
d. Personal expenses receipted in the name of the employee
reimbursed by the employer

6. The free usage of which of the following items is exempt from


fringe benefit tax?
a. Yacht c. Helicopter
b. Car d. Residential unit

7. What percentage of the fair value of the yacht is considered in


measuring depreciation value?
a. 5% c. 20%
b. 10% d. 50%

8. Which is subject to fringe benefits tax?


a. Premiums of employee group insurance
b. Expenses of business travels
c. Housing for an employee to ensure his immediately availability
d. Housing for the family members of the employee

9. To which the following is the tax benefit rate is not applied


a. The monetary value of the fringe benefit
b. The amount deductible by the employer from the gross income
c. The gross-up monetary value of the fringe benefit
d. Both accounts of the fringe benefit and the fringe benefit tax

10. Which fringe benefit is subject to fringe benefit tax?


a. If given for the convenience or advantage of the employees
b. Benefits given to rank and file employees
c. Those required by the nature of or necessary to the trade,
business, or profession of the employer
d. Contributions of the employer to retirement, insurance and
hospitalization benefit plans for the benefit of the employee

MULTIPLE CHOICE – PROBLEM: PART 1


1. A supervisory employee has the following benefits:
13th month pay and other benefits P 40,000
De minimis within their limits 35,000
Excess de minimis benefits 10,000
Other fringe benefits 40,000

Compute the amount fringe benefits subject to the fringe benefit


tax rate.
a. P 85,000 c. P 50,000
b. P 76,923 d. P 73,259
2. An employer pays the P 10,000 monthly residential rental of his
managerial employee. Compute the quarterly monetary value.
a. P 15,000 c. P 30,000
b. P 10,000 d. P 40,000

3. ABC Company designated residential property for the use of its


managerial employee. The lot has zonal value of P3,500,000 and
P2,000,000 value per tax declaration. The assessed value on the
improvement on the lot was P1,500,000. The lot was purchased at a
cost of P2,000,000. Compute the monetary value to be reported in
the quarterly fringe benefit tax return?
a. P 250,000 c. P 62,500
b. P 125,000 d. P 31,250

4. Kalibo Company purchase a residential unit for P3,000,000 and


transferred ownership to its supervisory employee. The property has
a zonal value of P3,500,000. Compute the monetary value.
a. P 3,000,000 c. P 1,750,000
b. P 3,500,000 d. P 175,000

5. Celebs, Inc. owns a residential property it acquired for


P2,000,000. It transferred ownership thereto to its managerial
employee for P1,200,000 when its fair value was P3,000,000. What is
the monetary value of the benefit?
a. P 3,000,000 c. P 1,800,000
b. P 2,000,000 d. P 800,000

6. Catarman Corporation designated two condominium units for the use


of its supervisory employees with fair value and terms of residence
as follows:
Agreed Residence Time Property Value
Unit no. 1 1 year P4,000,000
Unit no. 2 3 moths P3,000,000

Compute the quarterly monetary values for the above.


a. P 4,000,000 c. P 100,000
b. P 175,000 d. P 25,000

7. Tapas Corporation granted ownership of several housing units to the


following employees on its foundation day:

Name Position Party Value


Mr. Magdiwang Accounting Manager P3,000,000
Mrs. Calatrava Marketing Supervisor P2,000,000
Mr. Romblon Machine Operator P1,500,000
Mrs. Sta Fe Electrical Staff P1,000,000

Compute the total monetary value of all fringe benefits.


a. P 7,500,000 c. P 187,000
b. P 5,000,000 d. P 125,000

8. Compute the total monetary value of housing benefits that are


subject to the fringe benefits tax.
a. P 6,500,000 c. P 5,000,000
b. P 162,500 d. P 125,000
9. Ozamis Corporation has a production facility 10 km away from town.
To promote the goodwill of its employees, it decided to construct
housing units within the compound of the facility. It also agreed
to pay half of the household rentals of employees, who did not want
to transfer their families to the housing units. The following data
relates to the quarter of grant:

Company Officers Rank and file employees


Value of housing unit P1,000,000 P3,000,000
Rental payments P 500,000 P 800,000

Compute the monetary value of benefits subject to fringe benefit


tax.
a. P 250,000 c. P 500,000
b. P 1,500,000 d. P 4,650,000

10. As part of its employee benefits plan, Zarraga Realty Corporation


acquired a piece of residential lot worth P2.000.000 for its
director of finance and constructed upon it a house at a cost of
P4,000,000. Ownership of the house and lot was turned over to the
director upon completion of the construction. 40% of the value of
the house and lot will be deducted from the director’s salary over
a period five years
What is the monetary value of the fringe benefit?
a. P 6,000,000 c. P 3,600,000
b. P 2,400,000 d. P 1,600,000

MULTIPLE CHOICE – PROBLEM: PART 2

1. Mandaue reimbursed the following expense liquidation of its


managerial employee:

Purchase of supplies P 20,000


Personal meals and groceries P 15,000
Gasoline for transportation (1/2 for business) P 8,000
Office electricity, water and telephone bills P 12,000

Compute the monetary value of fringe benefits.


a. P 55,000 c. P 19,000
b. P 35,000 d. P 23,000

2. In the immediate preceding problems, what is the fringe benefit tax


if the managerial employee is a resident citizen?
a. P 25,882 c. P 8,941
b. P 16,471 d. P 10,231

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.

Compute the monetary value.


a. P 400,000 c. P 80,000
b. P 800,000 d. P 0

4. In the immediate preceding problems, what is the fringe benefit tax


assuming the employee is a non-resident alien?
a. P 376,471 c. P 188,235
b. P 266,667 d. P 133,333

5. Lapu-lapu Company grants its managerial employees the privilege to


select a car of their choice with value not exceeding P1,000,000 a
unit or be given P1,000,000 cash benefit to acquire their own cars.
It also grants supervisory employees car benefits if they actually
purchase their cars.

Car benefits given to an manager, net of


withholding tax on compensation P 900,000
Value of cars purchased for two other managers P 2,000,000
Cash payments to various cars suppliers for
supervisory employees P 1,600,000

Compute the monetary value


a. P 4,500,000 c. P 2,000,000
b. P 3,600,000 d. P 1,600,000

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

7. Compute the fringe benefit tax if the employee is a resident


citizen
a. P 564,706; P 56,471 c. P 16,154; P 16.154
b. P 112,941; P 56,471 d. P 56,471; P 56,471

8. Maasin Carbon Plant acquired a P1,000,000-motor vehicle for the use


of its field engineer, a plant supervisor, assigned to a very
remote facility from town. Compute the monetary value of benefits
subject to tax.
a. P 1,000,000 c. P 100,000
b. P 200,000 d. P 0

9. Dexter acquired a car for P1,200,000 and transferred ownership to


its supervisory employee for P400,000. The car shall be used partly
in the employer’s business. Compute the monetary value
a. P 80,000 c. P 800,000
b. P 240,000 d. P 1,200,000

MULTIPLE CHOICE – PROBLEM: PART 3


1. Dog Company made the following payments in the first quarter of
2019:

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

Determine the fringe benefit tax due.


a. P 19,412 c. P 21,942
b. P 19,176 d. P 184,118

2. Ormoc International acquired the following for the use of its


executive officers:
Bell 206 helicopter P23,000,000
Elling E3 Executive (seagoing motor yacht) P16,400,000

Compute the monetary value.


a. P 39,400,000 c. P 1,640,000
b. P 16,400,000 d. P 410,000

3. Lila Corporation paid the following fringe benefits during the


calendars quarter to its managerial employee:

Salaries of household help P10,000/month


Salaries of personal security guard P15,000/month
Personal driver P15,000/month
Annual home owner’s association dues P 4,000
Garbage dues P 100/week

Compute the quarterly monetary value.


a. P 122,200 c. P 121,200
b. P 125,200 d. P 44,100

4. Tolosa Company paid or punished the following in behalf of a


supervisory employee for the quarter ended March 2016:

Membership dues in golf course P10,000


One-year P200,000 interest free loan due December 2016 -
Free vacation sponsored by Tolosa P12,000

Compute the monetary value.


a. P 46,000 c. P 22,000
b. P 32,000 d. P 28,000

5. During the last calendar quarter of 2019, Naval Company granted a


Filipino supervisory employee the following benefits:

Salaries P120,000
Performance bonus P 20,000

13th month pay P 40,000


Excess de minimis P 12,000
Cash price of car given to supervisory employee P300,000

Compute fringe benefit tax.


a. P 168,000 c. P 146,824
b. P 151,529 d. P 141,176

6. Logan paid the P27,200 monthly rental of the residence of it


managerial employee from January to May of 2019. Compute the fringe
benefit tax for the first quarter and second quarter of 2019
a. P 6,400; P 6,400 c. P 19,200; P 12,800
b. P 12,941; P 8,533 d. P 21,969; P 7,323
7. On August 1, 2019, Calbayog designated the use of its residential
unit for its managerial employee. The residential unit was acquired
for P4,500,000 and has a fair value of P4,000,000
a. P 100,000; P 100,000 c. P 13,235; P 13,325
b. P 52,941; P 52,941 d. P 10,096; P 15,144

8. Borongan Company granted the following fringe benefits in 2016:


- January 15 – paid P68,000 for the birthday celebration expense
of its vice president for operations.
- February 14 – distributed iPhones costing P47,600 each to four
supervisory employees as incentives.
- April 2 – granted the use of residential unit to the vice
president for finance with fair value of P3,000,000.
- August 4 – transferred ownership of a residential dwelling with
zonal value of P4,000,000 and assessed value of P3,000,000 to
the company president.
- December 15 – distributed P896,000 in the 13th month pay to all
employees (20% of this relates to managerial or supervisory
employees)

Compute the quarterly fringe benefit tax to be remitted by


Borongan Company in the first quarter and in the second
quarter.
a. P 139,138; P 10,095 c. P 54,400; P 70,588
b. P 121,600; P 8,823 d. P 32,000; P 35,294

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

10. Baybay Corporation maintains a fleet of motor vehicles for business


use and employees use. The following relates the calendar quarter
just ended:

Cost of three motor vehicles used exclusively for


Sales, freights and delivery service P4,500,000
Cost of a motor vehicle for employees’ business
Use and employees use P 500,000
Rental payments for additional motor vehicle for
The employees’ personal use P 30,000

Compute the total quarterly monetary value of the fringe benefit.


a. P 4,350,000 c. P 42,500
b. P 530,000 d. P 80,000

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.

Compute the fringe benefit expense


a. P 300,000 c. P 700,000
b. P 400,000 d. P 0

12. Compute the fringe benefits tax.


a. P 141,176
b. P 188,235
c. P 329,412
d. P 376,923

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