Income Taxation

11.
Scope of taxation power, except: absolute

Income taxation 12. Statement 1: The power of taxation is broader than
police power as it covers income of a resident
Chapter 1
citizen earned outside the country
1. The following defines taxation, except:
Statement 2: Police power is broader than taxation
it is an executive prerogative power because it involves the enactment of laws for the
promotion of the general welfare
2. Taxation is a mode of allocating government costs or
burden to the people. In distributing the cost or only statement 2 is correct
burden, the following are the general considerations
13. Why is the power of taxation said to be the most
of the government, except:
important of the three inherent powers?
tax is the lifeblood of the country.
Because of the lifeblood doctrine
3. It is economic principle that states that the amount
14. Which of the following inherent power is dependent
of tax an individual pays should be dependent on
on and provided for in the Philippine constitution?
the level of burden the tax will create relative to the
wealth of the individual None of the above (power of eminent domain, police
power, power of taxation.)
ability to pay
15. Which of the following is exercised by the executive
4. This is the theory of taxation:
branch of the government?
life blood theory
None of the above (power of eminent domain, police
5. This is the basis of taxation: power, power of taxation.)
reciprocal duties of protection and support between 16. Which of the following statements is not correct?
the government and its people
The power of taxation is shared by the legislative and
6. Statement 1: Taxes are the lifeblood of government executive departments of the government
and should be collected without unnecessary
17. Which is NOT a characteristic of the power of
hindrance
Taxation?
Statement 2: Taxes are what we pay for a civilized
It is absolutely legislative in character
society
18. Which of the following statements is correct?
BOTH STATEMENTS IS TRUE
The power of taxation and police power maybe
7. Taxation is an inherent power being an attribute of
exercised simultaneously
sovereignty. The following are manifestations of
taxation being an inherent power, EXCEPT? 19. The purposes and objectives of taxation are as
follows, except
There should be no improper delegation of the power
of tax None of the above
8. Statement 1: A Sovereign State can have the power

of taxation even if the Constitution does not
expressly state its power to tax
Statement 2: Provisions in the Constitution on the

power of taxation are not grants of power, but
limitations on the power of taxation
BOTH STATEMENTS ARE CORRECT 20. Which of the following statements is not correct?
9. Statement 1: In the exercise of the power of The power to tax is unlimited, comprehensive, plenary
taxation, the State can tax anything, at any time and and supreme that it can reach over into any
at any amount jurisdiction to seize upon person or property
Statement 2: Taxes may be imposed not only to raise 21. The following are the basic features of the present
revenue, but also to provide incentives and regulate tax system, EXCEPT:
certain activities within the State
the tax exemption being construed strictissmi juris
BOTH STATEMENTS ARE CORRECT against the government is adhering to by the tax
10. It refers to the power inherent in the state to system
prescribe reasonable regulations necessary to 22. Police power as distinguished from eminent domain
preserve the public order, health, comfort, general
welfare, safety, and morals more superior
police power
23. Which of the following statements is most correct?
Statement 1. The power of taxation is inherent in 30. It means that tax must operate with the same force
sovereignty being essential to the existence of every and effect in every place where the subject of it is
government. Hence, even if not mentioned in the found. It does not require the same treatment; it
Constitution the state can still exercise the power simply requires reasonable basis for classification of
tax subjects
Statement 2. It is essentially a legislative function. Even
if the absence of any constitutional provision, taxation uniformity of taxation
power falls to Congress as part of the general power of
31. Which limitation of the power of taxation is
law-making
exemplified where those with different incomes are
both statements are correct made to pay different rates of tax because in this
case the incomes are considered as belonging to
24. The defense available to a taxpayer who is required
different classes?
to pay excessive taxes is:
Uniformity of taxation
due process of law
32. It means that individuals should be asked to pay
25. Which of the following is a constitutional limitation
taxes according to their ability to pay
to the power of taxation?
Equity of taxation
Observance of due process
33. Which of the following can be delegated outside the
26. It guarantees that the State must respect individual
legislative branch?
rights by setting limitations on laws and legal
proceedings Computation of the amount of tax to be paid by the
taxpayer
due process clause
34. Which of the following statements is true?
27. Statement 1: All government transactions are tax
exempt because of the inherent limitation of the All of the above
power of taxation
Statement 2: The power to levy tax is a legislative

function. It cannot be delegated to the executive
branch
Statement 3: Tax administration is delegated to the

executive branch of the government
ONLY 2 AND 3 ARE CORRECT
28. The power of taxation is essentially a legislative

function. It cannot be delegated and is not a 35. Which of the following identifies the correct situs of
function of the other branches of the government. taxation?
Which of the following is an exception to this rule? Community tax - where the taxpayers reside
All of the above 36. In case of conflict between tax laws and generally
accepted accounting principles (GAAP):
the tax law shall prevail over GAAP;
37. The Municipality of X in the province of Y has an

ordinance which requires all stores, restaurants, and
other establishments selling liquor to pay a fixed
annual fee of P20,000. Subsequently, the municipal
council proposed an ordinance imposing a sales tax
equivalent to 5% of the amount paid for the
purchase or consumption of liquor in stores,
restaurants, and other establishments. The
municipal mayor refused to sign the ordinance on
the ground that it would constitute double taxation.
29. This limitation on the power of taxation states that Is the refusal of the mayor justified?
all tax subjects under the same circumstances must
be treated in the same manner equal No, the refusal of the mayor is not justified because
the imposition are of different nature and character
Equal protection of the law
38. Which of the following is not a basic principle of a
sound taxation system?
It should be exercise to promote public welfare

39. The City Government, claiming that it can impose receipts by the same taxing authority, the cable
taxes under the Local Government Code, imposed a operator argued that the imposition of both
tax on banks (in addition to the percentage tax on business tax and franchise tax amounted to unjust
banks imposed in the National Internal Revenue and improper double taxation. Decide.
Code). The banks within the city objected for the
various reasons given below.
Which would justify the objection of the banks?
None of the above
47. The following are ways of avoiding taxation, except:
reducing the amount of revenues earned and

increasing the amount of allowable deductions in the
tax return
48. Which of the following are NOT usually imposed

when there is a tax amnesty?
40. Which of the following statements is incorrect? Civil, criminal and administrative penalties
A revenue bill becomes a law upon submission to the 49. Taxes are essential and indispensable to the
president continued subsistence of the government
41. Statement 1: Tax laws, including rules and life blood doctrine
regulations, operate prospectively. This rule is
50. Inherent powers of the state, except:
absolute
power to enter into commercial dealings to raise
Statement 2: The power to tax does not expire
revenue
only statement 2 is true
51. Which is incorrect?
42. Which of the following does not state a correct
doctrine in taxation? Taxes should be collected only for public purposes
52. Which of the following does not constitute tax

The law favors exemption from taxation, hence, an
evasion?
exempting provision should not be construed
strictissimi juris Investing money into pension scheme
43. Which is NOT an essential characteristic of a tax?
It is a regular payment Chapter 2

44. Which of the following violates the inherent 1. The proportional contribution by persons and
limitation of the power of taxation? property levied by the law-making body of the State
by virtue of its sovereignty for the support of the
A revenue regulation was issued by the department of
government and all public needs is referred to as:
finance to amend a mistake in a tax law
Taxes
45. Statement 1: No court shall have the authority to
grant an injunction to restrain the collection of any 2. The following are sources of tax laws, EXCEPT:
national internal revenue tax, fee or charge imposed
by the NIRC generally accepted accounting principles
Statement 2: There is no constitutional prohibition 3. These are issuances signed by the Secretary of
against double taxation in the Philippines Finance, upon recommendation of the
Commissioner of Internal Revenue that specify,
BOTH STATEMENTS ARE TRUE prescribe or define rules and regulations for the
effective enforcement of the provisions of the
46. After paying its local business tax liability to a
National Internal Revenue Code (NIRC) and related
certain city government, a cable television operator
statutes
was billed by said city for an adjustment. Dutifully,
the cable operator paid the amount. Upon inquiry revenue regulations
as to the nature of the adjustment, the taxpayer
learned that it represents local franchise tax. The
cable operator wrote a letter of protest to the office
of the city treasurer and requested for cancellation
of said adjustment and its corresponding refund.
Since the taxes were levied twice on the same gross
4. Statement 1: Supreme Court decisions form part of 15. One of the characteristics of our internal revenue
the law of the land laws is that they are:
Statement 2: Administrative issuances should not be

relied upon in interpreting the provisions of the Tax
Code
5. All of the following statements are incorrect, except

16. Excises are levied on goods or services that are
revenue regulation have the effect of tax law unless in
considered harmful or undesirable, in an attempt to
the conflict with the law
discourage consumption. Taxes based on this
6. Statement 1: The basic source of Philippine tax law rationale are classified as-
is the National Internal Revenue Law
sumptuary tax
Statement 2: The Philippines has entered into
several tax treaties for the avoidance of double 17. This kind of tax is imposed primarily for the
taxation and prevention of fiscal evasion with regulation of useful or non-useful occupation or
respect to income taxes enterprises and secondarily only for the purpose of
raising public funds
both statements are true
regulatory tax
7. In case of conflict between the tax laws and
generally accepted accounting principles (GAAP), 18. It refers to the initial burden of the tax
tax law should prevail over GAAP impact of taxation
8. This law provides that all articles, when imported to 19. It refers to the ultimate burden of the tax. It
the Philippines, are subject to duty upon each emerges when the tax finally settles or comes to
importation, even though previously exported there rest on the person who bears it. It, in fact, is the
ultimate result of shifting
the tariffs and customs code
incidence of taxation
9. Statement 1: Tax law in the Philippines covers
national and local taxes 20. Tax of a fixed proportion of the value of the
property with respect to which the tax is assessed
Statement 2: The 1987 Philippine Constitution provides
and requires the intervention of assessors or
for the exercise of the power to tax
appraisers to estimate the value of such property
only statement 1 is true before the amount due from each taxpayer can be
determined is known as
10. These are official positions of the Bureau to queries
raised by taxpayers and other stakeholders relative ad valorem tax
to clarification and interpretation of tax laws
21. Which of the following is not an example of excise
The BIR Rulings tax?
11. How does GAAP differ with tax law in the matter of Real property tax
recognizing income?
22. All except one is an example of direct taxes
excised tax on production of certain commodities
23. It is a tax on the production, sale or consumption of

a commodity in a country
excise tax
12. The following are statements on the nature of our 24. Every person legally authorized to practice his
tax laws. Identify which statement is incorrect profession shall pay this appropriate tax
tax laws are both civil and penal in nature professional tax
13. One of the following is a characteristic of a tax 25. Which of the following cases falls within the
payable in money jurisdiction of the Court of Tax Appeals?
14. It refers to national internal revenue taxes imposed Criminal actions for violations of the NIRC
and collected by the national government through 26. Which of the following is an example of a
the Bureau of Internal Revenue (BIR) progressive or graduated tax?
national tax Income tax on individual
27. Which of the following statements is not true? 41. Which of the following is not a scheme of shifting
the incidence of taxation?
A tax assessment is necessary to a criminal prosecution
for willfully attempt to defeat and evade payment of Changing the terms of the sale like FOB point in the
taxes Philippines to FOB destination abroad, so that the title
passes abroad instead of in the Philippines
28. The state has complete discretion on the amount to
be imposed, after distinguishing between a useful 42. It is a system of advance collection of a taxpayer’s
and a non-useful activity: tax liability
license fee withholding tax system
29. Which statement is NOT correct? A revenue bill: 43. Compensation income is subject to which kind of
withholding tax system?
may originate from the senate and on which same bill
the house of representatives may proposed Creditable withholding tax system
amendments
44. The Philippine tax system is mainly based on this
30. Tax laws, being imposition of burden, shall be approach wherein the taxpayer is responsible for
strictly construed against: determining his or her tax liability, filing his or her
tax return, paying the tax due and complying with
the government
reporting requirements.
31. Which of the following is NOT an example of an
Self-assessment method
excise tax?
45. It assures us that the tax system should be as simple
Real property tax
as possible, clear, concise and capable of
32. Value-added tax is an example of enforcement and convenient as to time and manner
of how taxes are assessed, collected and complied
proportional tax with
33. Which is NOT an essential characteristic of a tax? administrative feasibility
It is a regular payment 46. A sound tax system must be based on the taxpayers'
34. Which of the following statements is NOT correct? ability to pay
A special assessment in tax theoretical justices
35. Estate tax is an example of a: 47. It is the enforcement and implementation of tax
laws
Direct, excise and national tax
tax administration
36. Statement 1: A government entity may impose a toll
fee 48. Which of the following does NOT fall under tax
administration?
Statement 2: A private entity may impose a tax
Levy tax
49. Promulgates needful rules and regulations for the
37. Which of the following tax system applies to both effective enforcement of the provisions of the Tax
individual and corporate taxpayers? Code-
Proportional tax system secretary of finance
38. Which of the following is a proportional tax? 50. The number of deputy commissioners of the BIR
All of the above (value added tax, corporate income tax, 4/four
estate tax)
51. Which of the following statement is NOT correct?
39. Under this basic principle of a sound tax system, the
Government should not incur a deficit: A memorandum circular promulgated by the CIR that
imposes penalty for violations of certain rules need to
fiscal adequacy be published in a newspaper of general circulation of
40. Statement 1: The impact of a tax is said to be official Gazette because it has the force and effect of
resting on the person or firm who pays the amount law
of the tax and thus receives the initial burden 52. Which of the following is an incorrect statement?
Statement 2: the incidence of the tax rests on the In pursuance of the data privacy of the Philippines the
person or firms who ultimately bears the money burden BIR commissioner shall have no authority to inquire
of the tax into bank deposit accounts and other related
both statements are true information held by financial institutions
53. Statement 1: The Commissioner may delegate the COST OF GOODS SOLD
powers vested in him under the pertinent provisions
9) Statement 1: In the case of taxpayers engaged in
of the NIRC to any or such subordinate officials with
the sale of service,” gross income” means gross
the rank equivalent to a division chief or higher
receipts less sales returns, allowances, discounts
Statement 2: The authority to compromise or abate tax and cost of services
may be delegated by the commissioner of the BIR to
Statement 2: “Cost of services” shall mean all direct
lower BIR officials
and indirect costs and expenses necessarily incurred
only statement 1 is true to provide the services required by the customers
and clients
54. When a company incurs “continuous heavy losses”,
which of the following remedies would most Statement 3: In the case of banks, “cost of services”
probably apply? shall include interest expense.
Application for a tax compromise ONLY STATEMENT 2 IS FALSE
55. Which of the following is not a power vested in the 10) For taxation purposes, the following are elements of
Bureau of Internal Revenue? gross income except:
a. It is a return on capital
The granting of tax exemptions and other tax
b. It must be realized actually or constructively
incentives to taxpayers
c. It is not accepted by law or treaty
56. Which of the following is not a national internal d. NONE OF THE ABOVE
revenue tax? 11) Statement 1: Proceeds of life insurance received by
the beneficiary of the insured is a return on capital
Real estate tax Statement 2: The excess of proceeds over total
premiums paid which is received by the beneficiary
of the insured decedent is gross income and is
CHAPTER 3 - PART 1 taxable.
1) It means all income derived from whatever source Both statements are false
12) Which of the following indemnity or award is gross
GROSS INCOME income?
a. Indemnity received from injuries sustained
2) The following constitutes “gross income”, except:
b. Money awarded by the court to the winning
A. Compensation for services
party for his claim of moral damages against the
B. Gross income derived from the conduct of trade
other party
or business or the exercise of profession
c. Indemnity for loss/unpaid salaries
C. Gains for dealing in properties
d. None of the above
D. NONE OF THE ABOVE
13) Statement 1: Receipt of proceeds of loan is a
3) It refers to item of gross income less deductions
realized benefit or gross income
allowed under the law.
Statement 2: Gambling winnings are gross income
TAXABLE INCOME because there is a flow of wealth or increase in
one’s net worth
4) It refers to the wealth of money invested or
Only statement 2 is true
available to be invested.
14) In order for income or benefits to be considered as
CAPITAL realize, which of the following elements must be
fulfilled?
5) It is the flow of wealth or money a. There must be an exchange with his bilateral
INCOME and or onerous
b. The exchange must be with another entity or
6) It is in payment or return received from an person
investment that is not considered a taxable event c. There must be an increase in the net worth of
and it’s not taxed as income the recipient
RETURN OF CAPITAL d. All of the above
15) One of the following is the bilateral and onerous
7) For the purpose of computing the taxable income in transfer, which one?
the income tax it shall mean gross sales less sales a. Donation
return discount and allowances and cost of goods b. Transfer of property through last will and
sold. testament
c. Barter
GROSS INCOME
8) For the purpose of computing that taxable income 16) Statement 1: When a transaction is partly onerous
and the income tax it shall include all business and partly gratuitous, it is a complex transaction
expenses directly incurred to produce the because it normally involves a transfer for less than
merchandise to bring them to their present location full and adequate consideration
and use
Statement 2: A transaction is said to be complex 24) Statement 1: It is the length of stay within or
because it is subject to both income tax and transfer outside the Philippines which determines the
tax (estate or donor’s tax) residency of a citizen or alien
Both statements are true
17) Which of the following is not a transaction with Statement 2: In the absence of proof as to the
another entity? intention of a taxpayer, the length of stay within or
outside the Philippines shall be considered in
Sales meet by principal (Home) Office to its branch
classifying the taxpayer either as resident or non-
office
resident.
18) Statement 1: Increase in the value of merchandise
held for sale is gross income
25) Statement 1: in the absence of proof as to
Statement 2: Cancellation of debt of employee by the
intention, aliens who stayed in the Philippines for
employer in consideration of the services rendered by
not more than 180 days are considered non-
former is gross income
resident aliens not engaged in trade or business
Statement 2: An alien who stayed in the country for
19) In the exercise of eminent domain power, the 45 days during the taxable year, and whose
Philippine Government expropriated the private intention cannot be determined, and conducted
property of Mr. Juan for public use with just business is classified as a resident alien engaged in
compensation trade or business
Argument 1: The Collector of Internal Revenue contends Only statement 1 is true
that the said expropriation is sale, and therefore the
income derived therefrom is subject to income tax
Argument 2: Mr. Juan argued that the expropriation 26) Identify which of the following is the correct rule in
of his property cannot be considered as sale classifying individual taxpayers:
because the transfer of such property was made by
An alien staying in the Philippines from more than 180
force, there being practically no meeting of minds
days but not more than one year is deep in and
between the parties
resident alien engaged in trade or business
Issue: Whether or not income from expropriation
should be deemed as income from sale for income 27) Who among the following is taxable on income
tax purposes earned within and without the Philippines?
The collector of Internal Revenue is correct
Domestic corporation and resident citizen
because there is income derived from the transfer
of property 28) It comprises all the property rights and publication
20) Which of the following is considered a constructive of deceased:
receipt of gross income?
a. The partnership shared in the income of the Estate
general professional partnership is credited to 29) Identify the incorrect statement
his capital account
b. Payment for the seal is deposited by buyer to An estate which is under extra judicial settlement is
the seller bank account considered an individual taxpayer
c. A and B only 30) A fiduciary relationship in which one party gives
d. All of the above another party the rise to hold title to property or
21) The following items are exempted from taxation asset from the benefit of a third party
except?
a. Income of duly registered barangay micro TRUST
business enterprise.
31) It is it type of trust where its term cannot be
b. Minimum wage
modified amended or terminated without the
c. Income from smuggling
permission of the grantor’s name beneficiary or
beneficiaries
22) The following are classification of taxpayers except
one. Identify the exception? Irrevocable trust
a. Nonresident citizen
32) A foreign corporation which operates and conducts
b. Resident alien engaged in business in the
business in the Philippines through a permanent
Philippines
establishment
c. Domestic partnership
d. Non-resident foreign corporation Resident FOREIGN corporation
23) Identify from the following who is the resident
33) Madumi, Inc., is a corporation duly organized and
citizen?
registered in the Philippines. Out of the total of 15
A citizen staying abroad from 180 days during the board members, 12 are foreigners. The controlling
taxable year. stockholders are also foreigners. The corporation
conducts its business both within and without the
Philippines. For taxation purposes, the corporation income is earned within and without the
shall be considered as: Philippines:
Domestic corporation
34) Which of the following shall be considered as a

corporation from taxation purposes?
A partnership formed from the conduct of business
35) From taxation purposes which of the following shall

not consider that as a corporation?
Irrevocable trust
36) It is the place where an authorities has the right to

Only the gross income prompt goods sold in the
impose and collect taxes
country is income earned within the Philippines
SITUS
41) Gentrix Corporation, a domestic manufacturing
37) The following are income from sources within the corporation, manufactures goods and sells them
Philippines except one which is the exception? through its home and branch. The home is located
A. Interest income from borrowings or residents in the Philippines and the branch is located outside
and nonresidents whether individual or the country. The home office reported a gross
corporate income of P3,500,000 while the branch reported a
B. Dividends from domestic corporation or foreign gross income of P5,300,000. Which gross income
was that derive 50% or more of each income shall be considered as income within the Philippines
from a three year. Preceding the dividend by Gentrix?
declaration from Philippine sources
Gross income of Home Office only
C. Service fees or compensation from services
rendered in the Philippines 42) Bravo X Corporation, a domestic corporation, is the
D. Rentals and royalties from property or interest parent corporation of Charlie Y Corporation.
located or USE in the Philippines Manufacturing is done by Bravo and distribution is
E. None of the above undertaken by Charlie. Production gross income
38) Which of the following is considered as income from reported by Bravo X is P9,200,000 while distribution
sources within the Philippines? gross income reported by Charlie Y is P5,300,000.
A. Gains from seal or real property located in the Bravo X is located in the Philippines while Charlie Y
Philippines is located abroad. Bravo X wants to know from you
B. Gains profits and income from personal which gross income should it report in the
property sold in the Philippines Philippines for taxation purposes.
C. Gains profit or income from the sale of shares of
stock of a domestic corporation regardless What will be your answer?
where these are sold Bravo X should report only the gross income from its
D. All of the above production income within since Charlie y is separate
39) Statement 1: Dividends earned by a resident from a entity
foreign corporation doing business outside the
Philippines is income without (outside) the 43) Which of the following dividend income is an
Philippines income earned entirely within the Philippines?
Statement 2: Gains, profits and income from the sale of Dividend income earned from a domestic corporation
personal property produced (in whole or in part) by the regardless of the residence of the recipient
taxpayer within and sold without the Philippines, or 44) This is the test to apply in determining whether
produced (in whole or in part) by the taxpayer without dividend income from a resident foreign corporation
and sold within the Philippines, shall be treated as (doing business within and without) is income
derived partly from sources within and partly from earned that early without a partly within and
sources without the Philippines without the Philippines
Statement 3: Gains, profits and income derived from Pre-dominance test
the purchase of personal property within and its sale
without the Philippines, or from the purchase of 45) Dividend income of P500,000 is earned by X from a
personal property without and its sale within the resident foreign corporation doing business within
Philippines shall be treated as derived entirely from and without the Philippines. For the three-year
sources within the country in which sold. period preceding the year of declaration of the
dividend, the ratio of the Philippine gross income of
All statements are true the foreign corporation to its world income is 55%.
40) Delta Corporation, a domestic corporation doing The dividend income of X is-
business in and out the country (Philippines), Partially earned within and without the Philippines
presented to you the following for evaluation. The
corporation wants to know how much of its gross CHAPTER 3 – PART 2
1.) Ventura was on his way to deliver merchandise
ordered by his customer when another driver lost
control over his truck and rammed it against the
truck of Mr. Ventura. As a result, Ventura sustained
injuries, his truck was severely damaged, and all the
merchandise were destroyed. Negotiations with the
other party went smoothly and Mr. Ventura was
paid the total amount of P3,150,000 for the
following:
How much is the return of capital? P 6,000
5. Cruz was an employee of ABC Trading. He was killed

by a co-employee in one of their regular “inuman”
session. A case was filed by the heirs of Mr. Cruz against
the co-employee. The court decided in favor of the heirs
and awarded them the following:
How much of the above gross income or Mr.

ventura for taxation purposes? P700,000
2. Ventura was on his way to deliver merchandise

ordered by his customer when another driver lost
control over his truck and rammed it against the truck of How much of the above is return of capital? P1,900,000
Mr. Ventura. As a result, Ventura sustained injuries, his
truck was severely damaged, and all the merchandise
were destroyed. Negotiations with the other party went 6. Juan bought a certain piece of lot for P300,000. After
smoothly and Mr. Ventura was paid the total amount of 2 years, when its fair value was P500,000, he sold it to
P3,150,000 for the following: his best friend for P320,000 in consideration of their
friendship.
For taxation purposes, how much shall be the gross

income subject to income tax? P20,000
7. Juan bought a certain piece of lot for P300,000. After

2 years, when its fair value was P500,000, he sold it to
his best friend for P320,000 in consideration of their
friendship.
How much shall be subject to transfer (donor’s) tax?
P 180,000
How much is the total return of capital? P2,450,000 8. Arturo is in a quandary and approached you to help
him identify which of the following is considered as
3. Ponce is an employee of XYZ Trading. For the month
gross income for taxation purposes: P 320,000
of June, Ponce received the following from XYZ:
How much of the above is the gross income of Mr.

Ponce? P 31,500 9. How much of the following is gross income subject to
income tax? P1,710,000
4. Ponce is an employee of XYZ Trading. For the month
of June, Ponce received the following from XYZ:
wants to know how much of its gross income is earned
within and without the Philippines:
10. During the calendar year, Minda went abroad and

stayed there for 6 complete months from March 1 to
August 31. During her stay abroad, she was able to How much of the gross income of delta is taxable in the
conduct business and earned a total of P800,000 gross Philippines? P12,000,000
income. She left her business in the Philippines in the
care of her sister. For the entire period of January 1 to 14. Gentrix Corporation, a domestic manufacturing
August 31, her business in the Philippines earned a total corporation, manufactures goods and sells them
of P1,200,000 gross income. She came back in the through its home and branch. The home is located in
country and continued to manage her business which the Philippines and the branch is located outside the
earned a total of P300,000 for the remainder of the country. The home office reported a gross income of
taxable year. Minda had no intention of permanently P3,500,000 while the branch reported a gross income of
residing abroad. P5,300,000.
For the taxable year, how much should Minda declare as How much is the gross income within and without the
gross income for tax purposes? P2,300,000 Philippines? WITHIN – P3,500,000 WITHOUT P
5,300,000
11. Madumi, Inc., is a corporation duly organized and
registered in the Philippines. Out of the total of 15 15. Gentrix Corporation, a domestic manufacturing
board members, 12 are foreigners. The controlling corporation, manufactures goods and sells them
stockholders are also foreigners. The corporation through its home and branch. The home is located in
conducts its business both within and without the the Philippines and the branch is located outside the
Philippines. The following data pertaining the country. The home office reported a gross income of
corporation’s operations is presented to you for P3,500,000 while the branch reported a gross income of
evaluation: P5,300,000.
How much of gross income of genetrix is taxable in the

Philippines? P8,800,000
16. Bravo X Corporation, a domestic corporation, is the

parent corporation of Charlie Y Corporation.
Manufacturing is done by Bravo and distribution is
How much should be the reportable gross income for
undertaken by Charlie. Production gross income
taxation purposes? P16,000,000
reported by Bravo X is P9,200,000 while distribution
12. Delta Corporation, a domestic corporation doing gross income reported by Charlie Y is P5,300,000. Bravo
business in and out the country (Philippines), presented X is located in the Philippines while Charlie Y is located
to you the following for evaluation. The corporation abroad.
wants to know how much of its gross income is earned
How much gross income should be reported by Bravo X
within and without the Philippines:
Corporation? WITHIN – P9,200,000 WITHOUT P 0
17. Dividend income of P500,000 is earned by X from a

resident foreign corporation doing business within and
without the Philippines. For the three-year period
preceding the year of declaration of the dividend, the
ratio of the Philippine gross income of the foreign
corporation to its world income is 55%.
How much of the dividend income of X is earned from

Philippine source (within)? P275,000

How much gross income is earned by Delta Corporation resident foreign corporation doing business within and
within and without the country? WITHIN – P7,100,000 without the Philippines. For the three-year period
WITHOUT- P4,900,000 preceding the year of declaration of the dividend, the
13. Delta Corporation, a domestic corporation doing ratio of the Philippine gross income of the foreign
business in and out the country (Philippines), presented corporation to its world income is 55%.
to you the following for evaluation. The corporation
Assuming that X is a resident citizen, how much of the Statement 2: Office furniture is an ordinary
entire dividend income (gross income) is taxable in the asset
Philippines? P500,000 Statement 3: Stocks held for investment
purposes by the taxpayer who is not a dealer in
of stocks is capital asset
resident foreign corporation doing business within and
Statement 4: Land (real property) held for
without the Philippines. For the three-year period
speculation purposes is ordinary asset
preceding the year of declaration of the dividend, the
ratio of the Philippine gross income of the foreign Only statement 4 is false
corporation to its world income is 55%.
8. Which of the following income is subject to capital
Assuming that X is a non-resident citizen, how much of gains taxation?
the entire dividend income (gross income) is taxable in
Income from sale of domestic stocks sold directly
the Philippines? P275,000
to buyer buy a non-dealer
20. Alpha Corporation is a domestic corporation doing
9. Statement 1: Capital gains tax is a final tax
55% of its business abroad. Among its stockholders who
Statement 2: Unlike final tax on passive income,
earned dividends during the taxable year was Mr.
the capital gains tax is not subject to final
Jonastic, a non-resident citizen. Mr. Jonastic earned
withholding tax system
form Alpha Corporation the amount of P800,000
dividends. Both statements are true
Which of the following correctly identifies the gross 10. Statement 1: The regular income tax scheme
income and situs of gross income of Mr. Jonastic in applies to income from sale of ordinary assets
relation to the said dividends? WITHIN – P800,000 Statement 2: The regular income tax scheme
WITHOUT – P 0 applies to income from sale of capital assets which
are not subject to the capital gains taxation scheme
CHAPTER 4 – PART 1
Statement 3: The regular income tax scheme
1. Taxable income off the taxpayer maybe taxed applies to passive income which is not subject
under- to the final taxation scheme
A. Final income tax scheme
All statements are true
B. Capital gains tax scheme
C. Regular income tax scheme 11. Which of the following income is subject to regular
D. any one of the above income tax?
2. Under this income taxation scheme the full amount a. Income from sale of personal jewelry
of taxes withheld by the payor before such income b. Income from sale of lot by a real estate
is received by the payee taxpayer dealer
c. Income from sale of inventory
Final income tax scheme
d. All of the above
3. Statement 1: Passive income is income that 12. Statement 1: The taxable income shall be
requires minimal labor to earn and maintain. It is computed upon the basis of the taxpayer’s annual
subject to final taxation scheme accounting period
Statement 2: The taxable income shall be
Statement 2: For taxation purposes, rental from computed in accordance with the method of
property is a passive income accounting regularly employed in keeping the
books of such taxpayer
Both statements are true
4. This withholding tax system applies to passive
income 13. The computation of taxable income shall be made
in accordance with such method as in the opinion
Final withholding tax
of the Commissioner of BIR clearly reflects the
5. Active income is income earned as a direct result of income when-
the specific effort. the following are examples of Answer 1: When the use of GAAP in
active income except? determining income is more plausible under the
a. Compensation income circumstance
b. Rental income Answer 2: When no method of accounting has
c. Royalty income been employed by the taxpayer
d. Profession income Answer 3: The method employed by taxpayer
6. These are assets which are not used in trade, does not clearly reflect the income
business or profession of the taxpayer
Only answers 2 and 3 are true
Capital assets
14. Under the NIRC, the taxable income shall be
7. Statement 1: Jewelry for personal use is a capital computed on the BCS of the calendar year under
asset the following circumstances except one. Identify
the exception
a. Taxpayers does not keep books
b. Stocks peer has no annual accounting period Statement 2: An accounting method is a set of
c. Taxpayers annual accounting period Is other rules for determining when and how to report
than the fiscal year income and deductions
d. None of the above Statement 3: The NIRC prescribes a uniform and
15. Which of the following does not correctly state the specific methods of accounting like the accrual,
deadline of filing of income tax return? cash, and installment basis
Statement 4: The crop method of accounting is an
The annual income tax return for income subject to
accounting method specifically identified in the
return income taxation scheme must be filled in on
NIRC
the 15th day of the fifth month following the close
of taxable year Statement 3 and 4 are false
16. Statement 1: An individual taxpayer, with the 22. Which of the following methods of determining
approval of the Commissioner, may change its income are recognized except:
accounting period from calendar to fiscal or vice a. Deferred payment method
versa b. Crop method
Statement 2: A short accounting period of less c. Percentage of completion method
than 12 months may occur in case of change in d. None of the above
accounting period by a corporate taxpayer 23. This method of accounting is generally used by
taxpayers who do not keep regular books of
account
17. Mang Juan, a sole proprietor, died on July 31, 2020.
Cash basis
The following summarizes the taxable income of
the business left by Mang Juan: 24. Under this method net income is being measured
by the excess of income earned during the period
over the expense incurred
Accrual basis
Which of the following is a correct statement?
Mang juan 2020 income tax return should report the

taxable income of 560,000 while the state of mang
juan shall report the taxable income of 610,000 for
year 2020
25. Which of the following is correct? C
18. Mang Juan, a sole proprietor, died on July 31, 2020.
The following summarizes the taxable income of
the business left by Mang Juan:
The income tax of mang juan must be filed and the

income tax thereon paid on or before April 15 2021
19. A corporate taxpayer may, with the approval of the

Commissioner, change its accounting period. In
relation to this, which statement is incorrect?
If the changes is from fiscal year to calendar year is

separate final or adjustment return shall be made
from the period between December 31 and the close 26. Which of the following is presented to you for
of the fiscal year analysis
20. The annual period of mega corporation was a fiscal

year ending March 31 2020 the corporation with
the approval of the commissioner changed its fiscal
period to calendar year. And adjustment return
must be filed comparing the period
April 1 to December 31 2020
21. Statement 1: While taxable income is based on the Identify which entry (row) in the foregoing table is
method of accounting used by the taxpayer, it will correct CASH RECEIPT ROW ONLY
almost always differ from accounting income
27. The following is presented to you for analysis:
and produce which were raised during the taxable
year or prior years
b. The profit from the sale of any livestock or other
items which were purchased
c. Gross income from all over the sources
d. All of the above
35. Farming gross profits are a certain by adding to the
inventory value of livestock and products on hand
at the end of the year the amount received from
the sale of livestock products, and miscellaneous
receipt from the hierarchy teams, machinery, and
the like, during the year, and deducting from the
sum of the inventory value of livestock and
products on hand at the beginning of the year and
Identify which entry (row) in the foregoing table is the costs of livestock and products purchased
correct ENTRIES ONE IN THREE during the year-
28. He method considered appropriate when Accrual basis of recognizing farming income
collection extends over relatively long period of
36. This farming method that recognizing gross income
time and there is a strong possibility that full
is applicable only from farmers engage in the
collection will not be made
production of crops which take more than a year
Installment method from the time of planting to the process of
gathering and disposal. Expenses paid or incurred
29. Income is computed based on the present value are deducted ball in the period of growth income
(discounted value) of a note receivable from the from the seal of the crops are realized.
contract.
Crop basis of recognizing farming income
deferred method
37. Under the installment method of recognizing
income, the installment collection is multiplied to
the region that grows in cambers to the-
30. Under the outright method of recognizing Contract price

leasehold improvement income, what must the 38. Under the installment method of recognizing
lessor report as income at the time when such income, it is amount derived from the fair value of
buildings or improvements are completed? property received as payment, installment
Fair market value of such building or improvement payments, and any mortgage assume by the buyer
subject to the lease added to the cash received by the seller as
payment
31. Under the spread-out method of recognizing
leasehold improvement, the lesser may spread the selling price
estimated depreciated value of such building or 39. It means the payment received in cash or property
improvements at the termination of the lease and other than evidence of indebtedness of the
report as income from each year of the lease or purchaser during the taxable period In which the
own aliquot part thereof. For over what period seal of the other disposition is made, including
must be less or spread out the depreciated value excess of mortgage issued by the buyer over cost
Over the light of the lease of the item sold, if any
32. One of the following methods is not a method initial payment

used in recognizing farming income which is it? 40. Statement 1: When a real property (immovable)
Installment method considered as inventory is sold, the seller may use
the installment method of recognizing income
33. The world “farm” embraces the farm in the early without any qualification
regionally accepted sense, and it includes the Statement 2: When real property considered as
following, except: non-inventory (capital asset) is sold, the seller is
a. Stop, dairy, poultry, fruit allowed to use the installment method of
b. Truck farms Google Gaga recognizing income only when the selling price
c. Plantation, ranches exceeds P1,000.00 and initial payment does not
d. Land use from farming operation exceed 25% of the selling price
e. None of the above
34. Which of the following is included in the farming Only statement 2 is true
gross income using the cash basis of recognizing 41. A documents you filed with the BIR reporting your
income? income, profits and losses and other deductions as
a. The amount of cash or the value of merchandise or well as details about your tax refund or tax liability
other property received from the sale of livestock
Income tax return
42. Which of the following are methods of filing the

income tax return
a. Manual filing
b. Electronic filing and payment system
c. Using electronic birs forms
d. All of the above
43. This method of filing income tax return is only
available for the top 5000 individual taxpayer, top
20,000 private corporation, large companies, How much is the total capital gain? P360,000
government builders, insurance companies, top
4. Taxpayer is a resident citizen
brokers, and national government agencies
eFPS
44. The tax filing process is digital but the taxpayers

are required to visit an authorized agent bank
(AAB)to pay their tax dues
Use of EBIR forms second
45. Digital filing process for non- eFPS taxpayers and

accredited tax agents (ATA)
Use of ebir forms How much is subject to final tax? P3,000
46. Who needs to use ebir forms? 5. Taxpayer is a resident citizen

a. Corporation reporting to the government
b. People piling from a “ no payment return” (they fall
under business income or mixed income)
c. LGUs (barangays are an exemption)
d. All of the above
Chapter 4 – Part 2

How much is subject to regular income tax? P1,440,000
How much is the total passive income? P 3,000

How much is subject to capital gains tax? P320,000
7. Mang Panday, a resident citizen taxpayer

approached you and presented the following-
How much is the total active income? P 1,400,000

Mang Panday wants to determine the taxability of the How much is the capital gain subject to capital gains
foregoing. How much is the total amount of passive tax? P400,000
income which is subject to final tax? P540,000
10. A taxpayer engaged in service business provides you
8. Mang Panday, a resident citizen taxpayer with the following:
How much is the gross income under cash basis?
2019 – P900,000; 2020 – P1, 520,000
11. A taxpayer engaged in service business provides you

with the following:
How much is the total amount of active income and

other income subject to regular income tax? P1,280,000
9. Mang Panday, a resident citizen taxpayer

How much is the gross income under accrual basis?

2019 – P1,400,000; 2020 – P1, 200,000
12. A taxpayer providing services provided the  P40,000 interest income from customers’
following: promissory notes earned; P30,000 of this was
collected
 Unrealized foreign exchange gains from foreign
currency receivables totaled P60,000
Using accrual basis, compute the total income subject to

income tax. P1,000,000
16. Bronx Corporation, a domestic corporation engaged

in merchandising business, sold its parking lot for
P3,500,000 payable on installment. The lot was
previously acquired for P2,800,000. The buyer was
How much is the total deductions for expenses under required to make a down payment in the amount of
the accrual method? 2019 – P 650,000; 2020 – P200,000. The buyer has outstanding unpaid
P950,000 balance of P2,700,000 as of December 31 of the
13. A taxpayer providing services provided the taxable year 2020 Compute the gross income in
following: 2020 using the installment method P160,000
17. The taxpayer is Juan dela Cruz, a businessman
engaged in selling cars. He engaged your services for
the purpose of helping him prepare his income tax
return for the taxable calendar year 2020. He
presented you the following details of the sale of a
certain car:
How much is the total deductions for expenses under

the cash method? 2019 – P 400,000; 2020 – P900,000
14. A taxpayer uses the calendar period and reported

the following data for 2020:
 Net sales to customers P2,000,000 (300,000 on
account)
 Goods purchased P1,200,000 (200,000 on Juan wants to know how much gross income he should
account) report if he were to avail of a method of income
 Beginning inventory P200,000; ending reporting which is more advantageous to him.
inventory P300,000
 On a sub-lease contract, advance 1-year rent Using the more advantageous method, how much is
income of P60,000 received on September 30, the reportable gross income for 2021? P222,222
2020 and to be applied for the period October 18. The taxpayer is Juan dela Cruz, a businessman
1, 2020 – September 30, 2021 engaged in selling cars. He engaged your services for
 P40,000 interest income from customers’ the purpose of helping him prepare his income tax
promissory notes earned; P30,000 of this was return for the taxable calendar year 2020. He
collected presented you the following details of the sale of a
 Unrealized foreign exchange gains from foreign certain car:
currency receivables totaled P60,000
Using cash basis, compute the total income subject to

income tax. P890,000
15. A taxpayer uses the calendar period and reported

the following data for 2020:
 Net sales to customers P2,000,000 (300,000 on
account)
 Goods purchased P1,200,000 (200,000 on
account)
 Beginning inventory P200,000; ending
inventory P300,000 Assuming that in the above problem, instead of selling
 On a sub-lease contract, advance 1-year rent cars, Juan is engaged in a grocery business and he sold
income of P60,000 received on September 30, that certain car. How much income should he report
2020 and to be applied for the period October using a method which is more advantageous to him?
1, 2020 – September 30, 2021 P500,000
19. Garcia and Mr. Ponce entered into a lease
agreement dated January 1, 2020 with the following
details and conditions:
 The lease term is 5 years starting from January 1,
2020
 The monthly rental shall be 10,000 to be paid at
the beginning of each month
 The lessee shall construct a leasehold
improvement the ownership of which shall belong
How much is the farming income using the CASH basis?
to the lessor at the end of the lease term
370,000
 The improvement was completed exactly at the
end of the 3rd month from the contract 24. In year 1, Mang Cardo, a farmer, planted certain
 The value of improvement is P240,500 with useful kind of trees. In year 4, the trees were ready to be
life of 8 years and estimated scrap value of sold. He sold them for a total of P2,000,000. The
P500.00 following shows a summary of all the costs he
incurred prior sale:
How much income from leasehold improvement shall
be reported in 2020 under each method? OUTRIGHT
METHOD- 240,500; SPREAD-OUT METHOD – 15,474
20. On August 1, 2018, Mr. Garcia, a single proprietor

engaged in selling various food products, sold an
office furniture for P350,000 with the following
additional details of the transaction: Using crop-year method, how much is the reportable
gross income of Mang Cardo in year 1? 0 ZERO
25. In year 1, Mang Cardo, a farmer, planted certain

kind of trees. In year 4, the trees were ready to be
sold. He sold them for a total of P2,000,000. The
following shows a summary of all the costs he
incurred prior sale:
Using the deferred method of recognizing income, how

much interest income should be reported for the How much is the reportable gross income in year 4
taxable year 2018 and 2019? 2018 – 0; 2019 – P20,000 using the crop-year method? 1,240,000
26. A has been assessed deficiency income tax
21. Marco accepted a P1,000,000 construction contract
P1,000,000.00, exclusive of interest and surcharge
in 2019. As of December 31 of the year, Marco
for the taxable year 2018.
incurred a total construction cost of P400,000. The
 BIR Commissioner issued notice and demand to
estimated additional cost to bring the project to
pay which is due on June 30, 2020
completion is P100,000. Per independent appraisal,
 The tax liability has remained unpaid despite
the building is 60% completed. Compute Marco’s
the lapse of June 30, 2020
2019 construction income using the percentage of
 Payment was made by the taxpayer on February
completion method. P200,000
10, 2021
22. A farmer presents the following for the taxable
period: Compute the amount of applicable surcharge: 250,000
27. A has been assessed deficiency income tax

P1,000,000.00, exclusive of interest and surcharge
for the taxable year 2018.
 BIR Commissioner issued notice and demand to
pay which is due on June 30, 2020
 The tax liability has remained unpaid despite
the lapse of June 30, 2020
 Payment was made by the taxpayer on February
10, 2021
How much is the farming income using the accrual
basis? 350,000 Compute the total amount which was due the taxpayer
on June 30, 2020 (including interest and surcharge):
23. A farmer presents the following for the taxable
1,395,315
period:
28. A has been assessed deficiency income tax 12. Which of the following is not correct? Final tax rate
P1,000,000.00, exclusive of interest and surcharge in interest under the expanded foreign currency
for the taxable year 2018. deposit system(EFCDS) is 7 ½%
 BIR Commissioner issued notice and demand to 13. Which of the following dividends are not taxable?
pay which is due on June 30, 2020 A. Stock dividends
 The tax liability has remained unpaid despite B. Dividends for cooperatives
the lapse of June 30, 2020 C. Intercorporate dividends earned by a domestic
 Payment was made by the taxpayer on February or resident foreign corporation from a domestic
10, 2021 corporation
D. All of the above
How much must have been paid by the taxpayer on
14. Statement 1: Upon the effectivity of CREATE (April
February 10, 2021 (including surcharge and interest)?
11, 2021), dividends earned by a domestic
1,498,530
corporation from a non-resident foreign corporation
Chapter 5 - Part 1 shall be subject to the final tax rate of 25% or 20%
Statement 2: Upon the effectivity of CREATE (April
1. Passive income is income that requires minimal 11, 2021), dividends earned by a domestic
labor to earn and maintain. In the Philippines, corporation from a non-resident foreign corporation
certain items of passive or subject to final tax period may be exempt from tax under certain conditions
which of the following are passive income subject to Only statement two is true
final tax? 15. Statement 1: Effective January 1, 2021, dividends
Interest income or savings deposit with a local earned by a non-resident foreign corporation from a
bank domestic corporation is subject to the regular
income tax rate of 25% in general
2. The final tax on certain passive income is subject to
which kind of withholding tax system? Statement 2: Intercorporate dividends earned by a non-
resident foreign corporation from a domestic
Final withholding tax system corporation shall be taxed with 15% final tax if the
3. A final tax is withheld at – source country in which the non-resident foreign corporation is
4. The final tax is imposed on certain items of passive domiciled allows a credit against the tax due from the
income earned- within the Philippines only non-resident foreign corporation taxes deemed to have
5. The obligation to withhold final tax is imposed by been paid in the Philippines equivalent to 10%
law on the - payor of the income Statement 3: Dividends earned by a resident citizen
6. What is the general final tax rate on short term from a non-resident foreign corporation is subject to
interest or yield from bank deposit or deposit regular income tax Only statement one is FALSE
substitute? 20%
7. The final tax on short term interest or yield from the 16. Statement 1: The gross income of a non-resident
bank deposit or deposit substitute applies also to foreign corporation from all sources within the
which of the following Philippines, except capital gains from the sale of
a. Government securities shares of stocks not traded through the stock
b. Money market placements exchange, shall be subject to a final tax of 25%
c. Trust fund effective January 1, 2021
d. All of the above Statement 2: Royalties on printed literary works,
8. Which of the following interest income earned by books, musical compositions of citizens and resident
an individual is subject to final tax? Interest income aliens earned in the Philippines are subject to the
earned and a poor year time deposit with the local final tax of 10% Both statements are true
bank 17. In general, what is the final tax rate on royalties on
9. Cardo, a resident citizen, owns the six-year time non-literary works and patents earned by
deposit any local bank which earned a 7% annual individuals and corporation in the Philippines? 20%
interest payable in every year end. Towards the end 18. Royalties and payments for cinematography films to
of the fourth year, cardo pre-terminated the nonresidents are subject to what final tax rate? 25%
deposit. The interest income earned until pre 19. One of the following is a correct statement of one
termination shall be subject to a final tax rate of condition for exemption from income tax or foreign
12% source dividends received by a domestic
10. Bronx corporation, domestic corporation, owns a corporation which is it? The dividends received
six-year time deposit in a local bank which earns a shall only be used to fund the working capital
7% annual interest payable every year and. Towards requirements capital expenditures, dividend
the end of 4th year, bronx pre terminated the payments, investment in domestic subsidiaries and
deposit. Which of the following is correct ? Only the infrastructure projects
interest income per year or is subject to 20% final 20. the general final tax rate is priced and winnings
tax at pre-termination which are subject to final tax is – 20%
11. Interest under the expanded foreign currency 21. identify the false statement? A 10,000-price earned
deposit system (EFCDS)earned by which of the in the Philippine by a non-resident citizen is subject
following taxpayer is subject to final tax? Resident to final withholding tax
alien
22. Statement 1: Hidilyn Diaz won an Olympic gold How much is the final tax on her interest income
medal for the Philippines. Her monetary prizes are debited against her account? 256
the fruits of her labor, hence subject to regular
4. Jones, a foreigner, arrived in the Philippines under a
income tax and not final tax
Temporary Visitor’s Visa. He had been staying in the
Statement 2: Manny Pacquiao is one of the
country for more than 60 days and so he was able to
“greatest professional boxers” of all time. He brings
open a savings account with a local bank. On one
fame to our country. His prizes are subject to final
occasion, he withdrew his money and found out
withholding tax on passive income both statements
that he received a total of P1,100 interest.
are false
23. Statement 1: Hidilyn Diaz won an Olympic gold How much final tax must have been withheld by the
medal for the Philippines. Her monetary prizes, local bank? 367
even though fruits of her labor, are not subject to
regular income tax but final tax 5. ABX Corporation, a domestic corporation, maintains
Statement 2: Selina Pascual, a resident citizen, is a a 6-year time deposit with BPI. The amount of
very popular badminton player. In one Asian deposit is P2,000,000 and earns a 6% interest per
badminton competition held in Singapore, she was annum which is credited to the account every end
endorsed and sponsored by the biggest badminton of each quarter. Exactly three years and 3 quarters
club in the Philippines. She won a P2M prize in the after opening the account, ABX pre-terminated it.
competition. The prize is taxable in the Philippines How much final tax on interest income must be
Only statement two is true withheld by the bank at pre-termination date? Zero
24. When Hidilyn Diaz also won the gold for the 6. On March 1, 2017 Amelia, a non-resident citizen,
Philippines, certain individuals and entities opened a 5-yr time deposit with her local bank. The
announced their pledge of millions of pieces for amount of deposit is P600,000 at 6% annual interest
Hidilyn Diaz pledged taxable? Being mere promises credited every calendar year’s end. Needing money,
there are not yet subject tax she pre-terminated the account on June 1, 2021.
25. Assuming in the immediately preceding case hidilyn How much final tax is withheld by the bank at pre-
was able to receive already the money pledge is the termination? 7,650
amount taxable? Yes, it is subject to donors’ tax 7. Karen, an alien staying in the Philippines for 3 years
which must be paid by the donors now, maintains a foreign currency deposit account
26. Going back to the case of Selina Pascual, a resident under the EFCDS with DEF Bank. For the current
citizen, who is a very popular badminton player. In period, she received the amount of $255 interest
one Asian badminton competition held in from the bank.
Singapore, she was endorsed and sponsored by the How much final tax was withheld by the bank? 45
biggest badminton club in the Philippines. She won 8. Karen, an alien staying in the Philippines for 3 years
a P2M prize in the competition. Which of the now, maintains a foreign currency deposit account
following is correct? The price is subject to regular under the EFCDS with DEF Bank. For the current
income tax period, she received the amount of $255 interest
from the bank.
Using the same data above except that Karen is an
OFW Filipino, how much is the final tax on her
Chapter 5 – Part 2
interest income? Zero
1. Cynthia found various ways to make use of her 9. Spouses Pedro and Margarita, both Filipinos,
money to generate income. The following maintain a joint foreign currency deposit account
summarizes all the income she was able to derive under EFCDS with an offshore bank in the country.
from her use of money: Interest income from loans Pedro has been working abroad for 4 years now
granted to online sellers who did not have enough while Margarita stays in the Philippines. For the
capital on their own – P25,000 Interest income on a current period, the account earned $500 interest.
90-day time deposit with BPI. The amount of How much is the final tax on the interest? 37.5
deposit is P500,000 which pays 7% interest per 10. Minda, resident citizen, invested in a 6-year bond
annum. The interest was already credited to her issued by a local bank. The bond was issued by the
account Interest income on her savings account bank to more than 20 persons in the public and
maintained in her cooperative – P5,000 Interest complied with legal requirments. Minda earned a
income on promissory notes of clients – P7,000 How total of P2,000 interest on the instrument for the
much interest income is subject to final tax? 8,750 current period.
2. Carlos is a resident citizen. He maintains a savings
How much is the final tax on the interest? Zero
account deposit with the BPI-Baguio City Branch.
For the current year, his savings earned a total of 11. ZAX Corporation, a domestic corporation, declared a
P6,000 interest. P1,000,000 dividend for the current period 2021.
How much is the final tax on said income? 1,200 The following are some stockholders of ZAX:
3. Minda, an OFW Filipino, returned to the country
after 3 years abroad. She immediately went to her
bank and had her savings account passbook
updated. She computed a total of P1,280 interest
credited to her account.
P2,000,000 dividends for the current period 2021.
Gomez, a resident Filipino, owns 15% of Bandana.
How much dividend income is earned by Gomez? IN
– ZERO; OUT – 300,000
17. Bandana Corporation, a resident foreign corporation
consistently doing 40% of its business in the
Philippines and the rest abroad, declared
P2,000,000 dividends for the current period 2021.
How much is the final tax on the dividend earned by De
How much is taxable in the Philippines? 300,000
Guzman? 10,000
12. ZAX Corporation, a domestic corporation, declared a consistently doing 40% of its business in the
P1,000,000 dividend for the current period 2021. Philippines and the rest abroad, declared
The following are some stockholders of ZAX: P2,000,000 dividends for the current period 2021.
How much is the final tax? ZERO
19. Gamma Corporation is a foreign corporation which
is 40% owned by Beta Corporation, a corporation
duly organized under existing Philippine laws and
whose net taxable income does not go below P5M
in any taxable period. Gamma declared P2,000,000
dividends this year 2021. The dividends earned by
Beta is not reinvested in its business operations but
How much is the final tax on the dividend earned by invested in unrelated activities. How much of the
Cruz? 30,000 dividend income earned by Beta is taxable in the
Philippines? 800,000
13. ZAX Corporation, a domestic corporation, declared a
20. Gamma Corporation is a foreign corporation which
P1,000,000 dividend for the current period 2021.
is 40% owned by Beta Corporation, a corporation
The following are some stockholders of ZAX:
duly organized under existing Philippine laws and
whose net taxable income does not go below P5M
in any taxable period. Gamma declared P2,000,000
dividends this year 2021. The dividends earned by
Beta is not reinvested in its business operations but
invested in unrelated activities.
How much is the tax on the dividend income? 25%
REGULAR INCOME TAX
21. Garcia, resident citizen, earned the following during
the taxable year:
How much is the final tax on the dividend earned by
ABC? No final tax
14. ZAX Corporation, a domestic corporation, declared a

P1,000,000 dividend for the current period 2021.
The following are some stockholders of ZAX:
How much final tax must have been withheld from the
above items of income?256,500
How much is the final tax on the dividend earned by 22. How much of the following prizes and awards is
DEF? 25,000 subject to income tax? 1,559,000
15. Gentrix Corporation, a resident foreign corporation,

owns 40% of Omega Corporation, a domestic
corporation. The rest of Omega is owned by several
resident individuals. Omega declared a P1,500,000
dividend in 2021.
How much final tax on dividend must have been
withheld by Omega? 90,000
consistently doing 40% of its business in the
Philippines and the rest abroad, declared
23. How much of the following prizes and awards is 5. Which of the following gain is subject to capital
subject to final tax? 250,000 gains tax?
a. Gain on sale of domestic bonds considered us
capital asset
b. Gain on sale of real property considered as
capital assets which is located in the
Philippines
c. All of the above
d. Came home sales of foreign stocks not traded
through the Stock Exchange
6. Identify a false statement:
a. Capital gains tax is it tax imposed on the gains
realized by the sender from the seed exchange
or other disposition of certain capital assets
24. How much of the following is subject to final competed in the Philippines including factor
withholding tax in the Philippines? Zero director seeds and other forms of conditional
 P10,000,000 prize of Ms. Hidilyn Diaz for sales
bagging the gold in the Olympics b. Under NIRC the capital gains tax on the seals of
 P15,000,000 cash received from generous domestic stock sold directly to the buyer he
individuals and entities in the Philippines final tax
 P990,000,000 earned by Manny Pacquiao c. Under end IIRC the capital gains tax on the sale
from boxing abroad of real property located in the Philippines and
 P80,000,000 earned by Manny Pacquiao classified as capital asset is a final tax
from boxing in the Philippines d. None of the above
25. How much of the following is subject to regular 7. Identify which statement is false:
income tax in the Philippines? 1,070,000,000 a. Change of business from real estate to non-real
 P10,000,000 prize of Ms. Hidilyn Diaz for estate business and change the classification of
bagging the gold in the Olympics ordinary assets previously held.
 P15,000,000 cash received from generous b. Real properties used by a tax exempt
individuals and entities in the Philippines corporation in its exempt operation are capital
 P990,000,000 earned by Manny Pacquiao assets
from boxing abroad c. Discontinuance of active use of ordinary assets
 P80,000,000 earned by Manny Pacquiao does not change its character as ordinary assets
from boxing in the Philippines 8. Juan operates a grocery in Baguio City as sole
Chapter 6 Part 1 proprietor. In dire need of money, Juan sold an
adjoining lot used as parking area of customers. He
1. These are assets which are not used in trade, derived gain from the sale
business, or profession and may include personal
(tangible or intangible) or real (immovable) The gain on sale is subject regular income tax
property: 9. Juan operates a grocery in Baguio City as sole
Capital assets proprietor. An adjoining lot is used as parking area
of his customers. In 2017, due to a business
2. It is a tax imposed on the gains realized by the seller reversal, Juan disallowed the use of the lot as
from the sale, exchange, or other disposition of parking space for customers and contemplated on
certain capital assets: selling it. It was only recently, in June 2021, that
Capital gains tax Juan was able to sell the lot at a gain
3. Statement 1: Capital gains tax applies only if the The gain on sale is subject to capital gains tax
gain is derived from sale of a capital asset located in 10. On the gain on sale, exchange, and other disposition
the Philippines of shares of stock in a domestic corporation,
Statement 2: Capital gains tax does not apply if the classified as capital assets, not traded through the
sale is conditional or one which is in the nature of a local stock exchange, which of the following is
pacto de retro sale or sale with right of repurchase incorrect?
Only statement 1 is true None of the above
4. Statement 1: Every gain on sale of an asset 11. On the sale, exchange, and other disposition of real
classified as capital asset and which is located in the property considered as capital asset and located in
Philippines is subject to capital gains tax the Philippines, which of the following is correct?
Statement 2: Financial assets and intangibles, Seller - individual ; tax rate 6% ; basis - selling price
though related to the business, are considered as or FV whichever is higher
capital assets

12. The capital gains tax on the sale or disposition of Zonal value and assessed value
domestic stocks does not cover-
24. Statement 1: In case of sale of real property
All of the above considered as capital asset, the transfer of title from
the seller to the buyer shall not be effected until the
13. The gain on sale of domestic stocks classified as
BIR certifies that the capital gains tax has been paid
capital assets through the Philippine Stock Exchange
Statement 2: If the sale of real property considered
is subject to:
as capital asset resulted to a loss, there shall be no
Percentage tax capital gains tax to be imposed on the transaction
14. What is the rate of stock transaction tax on sale of Only statement 1 is true
domestic stocks classified as capital assets through
25. Which one of the following may be exempted from
the Philippine Stock Exchange?
the payment of capital gains tax on sale of
60% of 1% of selling price immovable property considered as principal
residence and located in the Philippines?
15. The gain on sale by a dealer of domestic stocks A. Resident citizen
classified as ordinary assets through the Philippine B. Non-resident citizen
Stock Exchange is subject to- C. resident alien
Regular income tax D. Any of the above
26. To be exempt from the capital gains tax on sale of
16. In the case of domestic stocks classified as capital real property, certain requirements must be
assets sold directly to buyer and where such stocks complied with by the seller.
were previously inherited by seller, what shall be
deducted from the selling price in computing the Which one of the following requirements is incorrect?
capital gain? The reacquisition of new principal residence must be
The fair value at the time of death of decedent within 12 months in the date of sale
17. Every capital gain or loss on the sale, exchange, and 27. The capital gains tax return on the sale of real
other disposition of shares of stock in a domestic property must be filed and the tax paid-
corporation, classified as capital assets, not traded Within thirty (30) days following the sale, exchange or
through the local stock exchange shall be reported disposition of real property
through BIR Form-
1707
Chapter 6 - Part 2
18. The deadline of filing the capital gains tax return on
every capital gain or loss on the sale, exchange, and 1. Garcia, a resident citizen, is a stockholder of ABX
other disposition of shares of stock in a domestic Corporation, a domestic corporation. He sold 3,000
corporation, classified as capital assets, not traded of his shares to his best friend for a P150,000 mark-
through the local stock exchange and the payment up on cost. The mark-up is 20% of cost. He paid
of the corresponding tax shall be P2,000 broker’s commission and P4,000
documentary stamp tax on the sale.
With in thirty (30) days after each sale, barter,
exchange or other disposition Compute the capital gains tax: 21,600
19. Requirements for installment payment of the capital 2. Garcia, a resident citizen, is a stockholder of ABX
gains tax, except: Corporation, a domestic corporation. He sold 3,000
of his shares to his best friend for a P150,000 mark-
Taxpayer is a resident individual or corporation up on cost. The mark-up is 20% of cost. He paid
20. Identify a false statement: P2,000 broker’s commission and P4,000
documentary stamp tax on the sale.
Capital losses on wash sales by dealers or non-dealers
in securities are not deductible against capital gains Assuming that Garcia is a non-resident alien, compute
the capital gains tax: 21,600
21. The following persons (sellers) are liable to pay the
capital gains tax on the sale of domestic stocks 3. Juan, a non-resident Filipino, sold his stocks in San
directly to buyer, except: Gabriel, Inc., a domestic corporation, directly to
buyer and received P200,000 cash plus a car with
None of the above fair value of P100,000. The car has a depreciated
22. The following persons (sellers) are liable to pay the value of 90,000 and was previously bought by the
capital gains tax on the sale of immovable property owner for P500,000. The shares sold by Juan were
in the Philippines considered as capital asset, inherited by him. The fair value of the stocks at the
except: time of inheritance was P50,000. The fair value of
the stocks at the time of sale was P90,000.
Foreign corporations
Compute the capital gains tax: 37,500
23. Fair value of real property is whichever is higher of
the –
4. Manny bought 500 shares of stocks of a domestic 10. Patricio made the following capital transactions
corporation for P20,000. He paid the broker’s regarding his domestic stocks
commission of P1,000. He later sold the shares
directly to buyer for P45,000. The buyer shouldered
the P5,000 selling expenses.
5. Your client presented to you a summary of his

domestic stocks transactions as follows: How much is the capital gains tax still due or payable in
the annual CGT Return? Zero/0
11. On June 1, 200A Cardo sold his domestics stocks

directly to buyer at 50% mark-up on cost for
P432,000. The buyer will pay the price on a 36-
equal- monthly-installments arrangement payable
every month-end starting on June 30, 200A.
How much capital gains tax is due on the 1st

installment? 600
Assuming the client does not maintain records and
could not identify the stocks sold, compute the gain or 12. Mandy shows the following summary of
loss on June 15 using any applicable method: 64,000 transactions pertaining to the common shares he
hold in ZAX Corporation (domestic). Mandy is not a
6. Taxpayer sold his domestic shares directly to buyer dealer in securities and the following transactions
for P300,000. At the time of sale, the fair value of are done outside the stock exchange:
the stocks was P800,000. The stocks were
previously acquired for P100,000.
7. Gomez made the following capital transactions

regarding his domestic stocks:
Which of the following is correct regarding the June 5
sale? Gain (loss)-(24,000); Wash sales? - No Deductible
loss? – Yes
13. Mandy shows the following summary of

transactions pertaining to the common shares he
hold in ZAX Corporation (domestic). Mandy is not a
dealer in securities and the following transactions
Assuming all the transactions have been properly
are done outside the stock exchange:
reported to the BIR, how much net capital gain must be
reported and capital gains tax to be paid in the annual
capital gains tax return? Net capital gain - 650,000; tax
still due/payable – 0
8. Patricio made the following capital transactions

regarding his domestic stocks
Which of the following is correct regarding the June 5
sale? Gain (loss)-(24,000); Wash sales? - Yes Deductible
loss? – No
14. Dante is a non-dealer of securities. He sold 9,000 of

his common shares in ABC Corporation (domestic)
How much is the capital gains tax on the April directly to buyer at a loss of P100,000 . Twenty days
transaction? Zero/0 immediately preceding the sale, he purchased 5,000
similar shares as replacement.
9. Patricio made the following capital transactions
regarding his domestic stocks Which of the following is correct? Deductible loss-
44,444; non-deductible loss - 55,555
15. In pursuance of the merger of Agrix Corporation and

Beta Corporation, stockholder Carlo of the Agrix
Corporation surrendered his shares for shares in
Beta Corporation. Carlo does not gain control over
Beta. The following are the details of the exchange:
How much is the capital gains tax on the August
transaction? 7,500
1. This tax is imposed generally on all items of income,
except certain passive income subject to final tax,
certain capital gains subject to capital gains tax, and
certain types of income which are subject to special
rates under the law
Compute the capital gain or loss: 50,000 REGULAR INCOME TAX
16. In pursuance of the merger of Agrix Corporation and 2. It is a kind of withholding tax which is prescribed on
Beta Corporation, stockholder Carlo of the Agrix certain income payments and is creditable against
Corporation surrendered his shares for shares in the income tax due of the payee for the taxable
Beta Corporation. Carlo does not gain control over quarter/year in which the particular income was
Beta. The following are the details of the exchange: earned.
Creditable withholding tax
3. Statement 1: Some regular income are subject to

creditable withholding tax while others are subject
to final withholding tax
Statement 2: The rate of income tax on individuals is

How much shall be recognized as return of capital? proportional
200,000
Both statements are false
17. Taxpayer is a sole proprietor owner of a
merchandising business. He sells an idle lot located 4. The following income, unless excluded by law, are
in Baguio City at 10% above cost. Records show the taxable with regular income tax, except:
cost of P1,000,000. Zonal value per BIR list is Gain on royalties
P1,200,000 and the value per local assessor’s office
is P800,000. 5. Statement 1: Exclusions from gross income are
items which are exempted from income tax and
Compute the capital gains tax: 72,000 therefore, deducted from the gross income of the
18. Taxpayer is a sole proprietor owner of a taxpayer in computing his net taxable income
merchandising business. He sells an idle lot located Statement 2: A compensation income earner may claim
in Baguio City at 10% above cost. Records show the as deduction from his gross compensation certain items
cost of P1,000,000. Zonal value per BIR list is of deduction for expenditures related to his
P1,200,000 and the value per local assessor’s office employment
is P800,000.
both statements are false
Compute the documentary stamp tax on the sale:
18,000 6. Agnes, a CPA, is a faculty of ABC University under
the department of accountancy. She was employed
19. From the following details of sale by a resident on a contractual basis. Agnes is said to be exercising
citizen of his principal residence located in the her profession as CPA in the academe/education
Philippines: sector. The income of Agnes from the school is –
 Cost - P1,000,000 Compensation income
 Fair value - P6,000,000 7. If a taxpayer derives income from both
 Selling price - P5,500,000 compensation and conduct of business or
 All requirements under the law on tax profession, the category of the taxpayer is
exemption have been complied with.
Mixed income earner
How much will be deposited by taxpayer (seller) in favor
of the government (BIR)? 360,000 8. Statement 1: Certain allowable deductions are
deducted from income from business or profession
20. From the following details of sale by a resident and compensation income
citizen of his principal residence located in the Statement 2: All other items of income which are
Philippines: not from business and profession or compensation
 Cost - P1,000,000 and which are not subject to final tax, capital gains
 Fair value - P6,000,000 tax, or special tax regime are considered as “other
 Selling price - P5,500,000 income” which shall be added to the gross income
 All requirements under the law on tax form business and profession
exemption have been complied with.
Compute the capital gains tax liability of the
seller/taxpayer: 52,364 9. In computing the taxable income of a compensation
income earner, what is deducted from his total
(overall) compensation to derive at the taxable
compensation income? Non-taxable compensation
Chapter 7-Part 1
10. In computing the taxable gross income of a taxpayer 22. It pertains to the collections for sale of goods or
engaged in business and/or profession, what is services-
deducted from his total sales or revenue?
Receipts
Cost of goods sold or services rendered
23. Which of the following forms part of “total
11. In computing the net taxable income of a taxpayer sales/revenues/receipts/fees”?
engaged in business and/or profession, what is
A and B (income from primary operations, other income
deducted from his gross income?
from operations)
Allowable deductions
24. Which of the following is not considered in
12. Globalization rule in determining the taxable computing the gross income from business or
income of the taxpayer means that profession?
The regular income of taxpayer from employment and Non-operating income

business or professions, including other income subject
25. Which of the following is an example of “other
to income tax are all combined because they are
operating income”
subject to the same tax scheme
A. Rental income paid to a grocery owner by
13. Sophia derived a total compensation of P350,000. several food kiosks owners operating within the
She also derived income from the sale of her grocery premises
personal jewelry in the amount of P50,000. Which B. Income by a beautician from the sale of
of the following statement is true? customers "cut hair"
C. Income from the sale of sawdust earned by a
Sophia will consolidate her income from compensation
carpenter
and sale of jewelry in one declaration income
D. All of the above
14. Carding derived a total gross income of P350,000 26. Which of the following is an example of non-
from his store. He also sold his truck and derived operating income?
P30,000 gain. Which of the following is true? A. interest income on employee advances
B. Interest income on bank deposited abroad by a
Carding will show BIR a consolidated and one resident citizen
computation of taxable income C. Gain on sale of equipment
15. Identify a false statement: D. All of the above
27. What is the optional tax rate available to self-
In consolidating income subject to regular income tax, employed and/or professionals after meeting
a net loss from the business may be deducted from the certain requirements? 8%
taxable compensation 28. The optional tax available to self-employed and/or
16. The taxable income of a taxpayer shall be computed professionals is based on-
upon the basis of such taxpayer’s- sale or receipts and other non-operating income
Annual accounting period 29. The optional tax available to self-employed and/or
17. What method of accounting should the taxpayer professionals is a substitute for –
use? Both A and B (income tax, percentage tax on business)
Method of regularly employed by the tax payer 30. The regular income tax rate for a domestic
18. Which of the following shall be considered as corporation or foreign corporation: 25%
forming part of “cost of service”? 31. For domestic corporations which are considered as
A. Direct labor micro-, small-, and medium-sized enterprises
B. Direct materials (MSMEs) and provided they meet certain
C. Overhead cost requirements, what is the applicable regular income
D. All of the above tax rate? 20%
19. Which of the following shall be considered as 32. ABAKA enterprise (an MSME) computed a net
forming part of “cost of service”? Direct cost taxable income of P1M for the taxable year. The
20. For a CPA engaged in the practice of his profession total assets of ABAKA, excluding land, is P150M.
as external auditor, which of the following will he What income tax rate is applicable to ABAKA? 25%
report as forming part of his “cost of service”?
A. Depreciation of computer used in the profession 33. Corporate taxpayers are subject to the minimum
B. Salaries of his researchers corporate income tax (MCIT). The rate of MCIT is
C. mobility expense on meetings with clients 2% but reduced to 1% to cover the period of-
D. All of the above July 1 2020 - June 30, 2023
21. For a beautician rendering services to various
clients, which of the following will not form part of 34. The following are “special corporations” because
“cost of service” they enjoy special tax privileges, except:
Depreciation of laptop used by front desk personnel non-stock, non-profit educational institution
35. This BIR Form (Annual Income Tax Return) shall be
filed by individuals who are engaged in
4. Bernabe reports the following transactions
trade/business or the practice of profession
including those with mixed income 1701
36. This BIR Form (Annual Income Tax Return) shall be
filed by individuals earning income purely from
trade/business or from the practice of profession,
with OSD as a mode of deduction or who availed of
the 8% optional tax: 1701A
37. The annual income tax return is due for filing on-
Compute the taxable income of Bernabe: 385,000
15th day of the 4th month following the taxable
year of the taxpayer 5. Bernabe reports the following business transactions
38. Who are not required to file quarterly income tax
returns?
A. Corporate taxpayers
B. Individuals’ earnings compensation and
business income
C. Income earning business/ professional income
only
D. None of the above Bernabe also earned a total compensation of P410,000
39. The deadline of filing the 2nd quarterly income tax from a part-time employment of which, P105,000 is
return for individuals: August 15 of the same excluded from taxation.
taxable year
Compute the taxable income of Bernabe which is
40. Statement 1: Pure income earners who have other
subject to regular income tax: 680,000
income subject to regular income tax are qualified
to avail of the substituted filing system 6. Carding earns income from both employment and
Statement 2: Once qualified under the substituted business. He earned P350,000 taxable
filing system, employees are no longer required to compensation, excluding P90,000 exempt
file BIR Form 1700 compensation, and a net loss in his business in the
amount of P125,000.
Compute the taxable income of Carding: 350,000
7. EGAHA Corporation (domestic) reports the

Chapter 7- Part 2
following:
1. The total compensation (salary) is P890,000 of
which P210,000 is excluded from taxation.
How much is the taxable compensation? 680,000
2. Margaret received the total compensation of

P750,000 with details as follows:
Compute the gross income from operations that should

Compute the taxable compensation of Margaret based be reported for taxation purposes: 1,550,000
only on the foregoing given data: 630,000
3. Bernabe reports the following transactions
Compute the net taxable income of Bernabe: 375,000

8. EGAHA Corporation (domestic) reports the How much shall be reported as total gross income?
following: 635,000
11. How much of the following shall be reported as

“incidental income” of a carpenter? 70,000

“non-operating income” of a carpenter? 15,000
Compute the total gross income subject to regular

income tax that should be reported for taxation
purposes: 1,585,000
9. Shiminda operates her own beauty parlor. She

reports the following:

“incidental income” by a domestic manufacturing
company? 160,000

“non-operating income” by a domestic
How much shall be reported as gross income from manufacturing company? 512,000
business/profession? 590,000
10. Shiminda operates her own beauty parlor. She

reports the following:
15. The net taxable income of Glenn from business is

P467,000.
Compute the income tax due: 46,750
16. Mr. Cruz earned a total compensation of P900,000

of which P160,000 is excluded by law in income
taxation. Mr. Cruz incurred P120,000 expenses in
performing his job as employee.
How much is the taxable compensation? 740,000
17. During the pandemic, Abigail created her own

YouTube channel which immediately became
sensational. According to her, she is earning an 21. Which of the following is correct regarding the
average of P160,000 on this account. She incurred a taxable income of each taxpayer?
total of P20,000 in setting up and maintaining her
channel. She is not a registered businesswoman or
professional. All she did was use her device and
earned money from an online platform.
Compute the taxable income of Abegail: 140,000 net

subject to regular income tax
18. During the pandemic, Glenn started selling plants

online to supplement his online tutorial as source of
income. Glenn is not employed in any company. He
established an online tutorial platform and some
students started enrolling. For the current period,
he earned a total of P200,000 on his tutorial and
P150,000 on selling plants. He reported expenses of
P50,000 and 30,000 on tutorial and selling,
respectively. He also invested P100,000 in bonds
issued by BPI and earned P10,000 for the period.
Compute the net taxable income of Glenn: 270,000
19. Alhambra, Inc., a domestic corporation, reported

the following:
The following are presented to you for comparison:

LETTER C
Chapter 8- Part 1
1. The following are excluded from gross income,

except:
Amount received by the insured in excess of the

Compute the taxable income subject to regular income premiums paid
tax: 2,730,000
2. Which of the following is excluded from gross
20. Alhambra, Inc., a domestic corporation, reported income?
the following:
Prizes of hidilyn diaz for winning the gold on Olympics
3. Statement 1: 13th month pay is exempted from

income tax but the exemption is only up to a certain
amount
Statement 2: Gains from sale of bonds, debentures, or

certificates of indebtedness is excluded from gross
income
Compute the taxable income subject to regular income 4. Statement 1: If an insured outlived his policy and
tax: 700,000 receives from the insurance company an amount
equivalent to the total premiums paid, such amount
is taxable
Statement 2: If the insured dies and the beneficiary
receives payment from the insurance company, the
amount received in excess of the total premiums
paid shall be taxable
5. It refers to a flow of wealth to the taxpayer which is

not treated as part of gross income for purposes of
computing the taxpayer’s taxable income.
Exclusions
6. It refers to the amount subtracted from the gross Separation payment as a consequence of termination
income in determining the net taxable income. because of the pandemic
Deductions 15. In a certain civil case, plaintiff was awarded

damages by the court in the sum of P20,000
7. Statement 1: If the proceeds of life insurance are
representing profit he failed to realize on account of
held by the insurer under an agreement to pay
defendant’s failure to comply with his obligation to
interest thereon, the interest payments shall be
said plaintiff.
included in gross income
Statement 2: The value of property acquired by gift, Are those damages taxable against plaintiff?
bequest, devise or descent, including it fruits and
Yes because the damages is not on account of injuries
income, shall be excluded from the gross income
or sickness but for lost profit
16. Romy retired from employment at the age of 48
8. Which of the following is not tax exempt? because he was already qualified under his
employer’s retirement plan duly registered with the
Consequential damages representing the loss of the
BIR. He rendered 20 years in service at the time of
victim’s earnings capacity awarded by the courts to the
retirement.
heirs of the victim
Is the retirement benefit of Romy excluded from taxable
9. Statement 1: Exclusions pertain to the computation
gross income?
of gross income, while deductions pertain to the
computation of net income No, the retirement pay is taxable because Romy is only
48 years old at the time of retirement
Statement 2: Exclusions are something received or
earned by the taxpayer which do not form part of 17. Carding was fond of violating his employer’s
taxable gross income, while deductions are something company policies. As a result, he was asked by his
spent or paid in earning gross income employer to sign a resignation/termination letter
which he did. He received a separation pay.
Is the separation pay taxable to Carding?
10. Mrs. Y, wife of a deceased employee, received
financial benefits voluntarily voted upon by the Yes, his separation is voluntary and not one of those
Board of Directors of the employer-company in enumerated under the law to be tax exempt
recognition of her husband’s long and loyal service
18. Statement 1: Government owned and controlled
and primarily to help her meet financial needs.
corporations are taxable on their income as such
Which of the following is false?
Statement 2: Social Security System (SSS), a GOCC, is
Mrs. Y is subject income tax on the financial benefits tax-exempt on its income as such
she received because such amount is in consideration
of her deceased husband's employment
19. Anna is a scholarship grantee of ABC Company. In
11. Statement 1: When a taxpayer receives a car from a
consideration of Anna’s excellent academic
corporation for furnishing the names of potential
performance, she received P100,000 award form
customers, the same is a taxable income
ABC Company with the condition that after
Statement 2: When a foreign corporation “donates”
graduation, she will render at least 1 year service to
stocks to its resident manager in the Philippines in
ABC. Is the award taxable?
consideration of his services as such, the value of
the shares shall be considered as taxable Yes, it is not excluded to the gross income because it is
compensation in consideration of future services
only statement 2 is true 20. Carlo is the best karate student of the Japan Karate
Association in the Philippines. In one prestigious
12. Under RA 7641, which is a correct requirement in
international tournament held in the Philippines as
order that a retirement benefit shall be excluded
host country, Carlo won and received a certain
from gross income?
amount of cash prize.
The retirement benefit is to be availed of for the first
Is the prize taxable?
time
Yes, because there is no showing that the tournament
13. In the absence of a private retirement benefit plan,
is sanctioned by the national sports
the following requirements must be met in order
association/committee
that the retirement benefit of an employee shall be
excluded from gross income, except: 21. Ms. Cruz is an employee. Her pay slip shows the
following deductions and/or contributions:
the employee must apply for a tax exemption ruling
 for SSS benefits
from the BIR
 for Philhealth benefits
14. Which of the following is an exclusion from gross  for GSIS benefits
income?  for tardiness
 for union dues insurance company which insured the car owned by
 for advances from the company the other party involved in the accident.
 for savings in the company cooperative
From the above payments and transactions, the amount
Which deduction/contribution is/are taxable and NOT of taxable income in 2020 is? Zero/0
excluded from gross income?
2. Amando took out a life insurance policy for
A. For tardiness P1,000,000.00 naming his wife as beneficiary. Under
B. for advances from the company the terms of the policy, the insurer will pay Amando
C. For savings in the company's cooperative the amount of P1,000,000.00 after the 20th year of
D. All of the above the policy, or his beneficiary, should he die before
22. Manny was retrenched from his employment. To that date. Amando outlived the policy and received
support his family, he decided to buy his own P1,000,000.00. The premiums paid on the policy
equipment and tag along with some of the “small- was P250,000.00.
time” miners he know. The group of miners was
How much is the taxable income? 750,000
able to extract gold and after processing the same,
they sold it for profit in the “black market”. 3. Lexi purchased a life annuity for P500,000 which will
pay him P120,000 a year. The life expectancy of Lexi
Is the share of Manny in the profit taxable?
is 12 years.
Yes, there is no showing that Manny and the rest of the
Which of the following will Lexi be able to exclude from
group are registered as small-scale miners and the
his gross income? 500,000
market is also not registered
4. On April 30, 2020 the endowment insurance policy
23. As a source of income during the pandemic, Nena,
of Zandy, for which he was paying an annual
together with friends in the barangay, established
premium of P10,000 since April 2000 matured. He
an enterprise wherein the group members made
was then paid the face value of his insurance policy
“bags” out of used garments and thereafter sold the
in the amount of P500,000.
products for profit.
How much is excluded from gross income? 200,000
Is the income of each member excluded from gross
income? 5. The negligence of Dave, driver of a certain bus
company, resulted in the death of Pedro’s wife,
No, there’s is no showing that the enterprise is duly
physical injuries to Pedro that prevented him from
registered BMBE or that each member are minimum
working for a month, and the total wreck of Pedro’s
wages earners
brand new car which he had bought for P400,000.
24. BBAAA is a duly-registered credit cooperative. On In the action for damages filed by Pedro against the
one occasion, BBAAA rented out its facility to a bus company, the court awarded the following:
certain review center for the conduct of review  P30,000 for Pedro’s injuries consisting mainly in
sessions. The owner of the review center is not a the loss of his right hand;
member of the cooperative.  P45,000 for Pedro’s loss of one month salary;
 P25,000 for the death of his wife;
Is the rental income of the cooperative taxable?
 P100,000 moral damages on account of the
Yes, the transaction of the cooperative is not with a death of Pedro’s wife; and
member hance, taxable  P800,000 for the loss of Pedro’s car.
25. Kanlungan, Inc., is a registered non-stock, non-profit How much is excluded from gross income? 555,000
entity with the purpose of helping the poor mainly
6. Garcia was injured in a vehicular accident. He
by gathering donations from benevolent donors and
incurred and paid medical expenses of P10,000 and
distributing the same to the needy. On one
legal fees of P5,000 during the year. He recovered
occasion, Kanlungan, Inc., used a certain amount of
P35,000 as settlement from the insurance company
donation to purchase a commercial stall. Kanlungan
which insured the car owned by the other party
designated some of its staff to operate the
involved in the accident. From the above payments
commercial stall to generate income to boost the
and transactions, the amount taxable to Garcia is:
funds of the organization.
zero/0
Is the income from the stall taxable? 7. Fernando was hit by a wayward bus while on his
way to work. He survived but had to pay P400,000
Yes, the income is from an unrelated source hence, for his hospitalization. He was unable to work for six
taxable (6) months which meant that he did not receive his
usual salary of P10,000 a month or a total of
P60,000. He sued the bus company and was able to
Chapter 8-Part 2 obtain a final judgment awarding him the following:
1. Mr. X was injured in a vehicular accident in 2018.  P400,000 as reimbursement for his
He incurred and paid medical expenses of P20,000 hospitalization:
and legal fees of P10,000 during the taxable year. In  P60,000 for the salaries he failed to receive
2020, he received P70,000 as settlement from the while hospitalized;
 P200,000 as moral damages for his pain and 13. Your friend shows you a summary of her
suffering, and compensation for the year as follows:
 P100,000 as exemplary damages. He was able
to collect in full from the judgment.
How much is excluded from gross income? 700,000
8. Rem was retired by his employer corporation in

2020 and was paid P1,000,000 as a retirement
gratuity without any deduction of withholding tax.
In addition, Rem was also paid P50,000 representing
terminal leave pay and P45,000 for unpaid bonuses.
How much is excluded from gross income? 1,000,000
9. Pedro, an official of Corporation X, asked for an She wants to know, how much is the total exclusions
“earlier retirement because he was migrating to from her gross income? 171,000
Australia. He was paid P2,000,000.00 as separation
14. Your friend shows you a summary of her
pay in recognition of his valuable services to the
compensation for the year as follows:
corporation.
Juan, another official of the same company, was

separated for occupying a redundant position. He was
given P500,000.00 as separation pay.
Jose, another employee, was separated due to his failing

eyesight. He was given P800,000.00 as separation pay.
How much is excluded from gross income? 1,300,000
10. Jake worked for a manufacturing firm. Due to

business reverses, the firm offered a voluntary
redundancy program in order to reduce overhead She wants to know, how much is her taxable gross
expenses. Under the program, an employee who income? 1,064,000
offered to resign would be given separation pay
equivalent to his three months’ basic salary for 15. Arturo inherited a building from his father. The fair
every year of service. Jake accepted the offer. He market value of the building at the time of
resigned and received P400,000.00 as separation inheritance is P3,000,000. The same is earning
pay under the program. rental from current tenants in the amount of
P250,000. Arturo spent P35,000 in the maintenance
After all the employees who accepted the offer were of the building. Compute the exclusions from gross
paid, the firm found its overhead still excessive. Hence, income of Arturo: 3,000,000
it adopted another redundancy program. Various 16. Hidilyn Diaz brought fame to her country by winning
unprofitable departments were closed. As a result, the gold in the Olympics. She received the
Kelvin was separated from the service. He received following:
P300,000.00 as separation pay.
P20M from the government as cash prize
How much of the above is non-taxable? 300,000
P10M from a certain businessman
11. Quintin worked as chief accountant of a hospital for
forty-five years. When he retired at 65, he received P15M from a certain domestic corporation
a retirement pay equivalent to two-month salary for
How much of the total receipts is taxable as income to
every year of service as provided in the hospital’s
Ms. Diaz? Zero/0
retirement plan or a total amount of P3,500,000. In
addition, the hospital resolved to pay him a gratuity 17. Carmela invested P2M in a 5-year bond of Prime
of P1 million over and above his retirement pay for Holdings Corporation. In need of money, she
his valuable service and loyalty to the hospital. decided to sell the investment for P3.5M.
How much is excluded from gross income? 4,500,000 How much is the taxable income of Carmela? 1,500,000
12. X, an employee of ABC Corporation, died. ABC 18. The Land Transportation Office (LTO) of Baguio City
Corporation gave X’s widow an amount equivalent reported the following revenues:
to X’s salary for one year or a total of P900,000. The
company also paid X’s widow the amount of
P145,000 representing unpaid bonuses and
allowances of the deceased.
How much of the amounts paid to the widow is taxable

as income to her? Zero/0
Compute the income or revenue of LTO that should be Only statements 1 and 2 are true
taxable: 4,900,000
7. Statement 1: All items of gross income are subject
19. Santos, a retired public school teacher, relies on her to regular income tax
pension from the GSIS and the interest income from Statement 2: Gross income may be subject to
a 4-year time deposit of P500,000.00 with ABC regular income tax, final tax, or capital gains tax
Bank. Every month, she receives the following:
8. The following shall involve “gains in dealings in

properties”, except:
Gain on sale of an immovable property located in the

How much is the exclusion from gross income?18,000
Philippines which is considered as capital assets
20. Santos, a retired public school teacher, relies on her
9. Which of the following interests forms part of gross
pension from the GSIS and the interest income from
income subject to regular income tax?
a 4-year time deposit of P500,000.00 with ABC
A. Interest on long term deposit in the Philippines
Bank. Every month, she receives the following:
earned by a domestic corporation
B. Interest on short term deposit in the Philippines
earned by a individual taxpayer
C. Imputed interest on customer’s promissory note
D. None of the above
How much is the gross income (taxable) of Santos? 10. Which of the following is not an item of gross
4,375 income?
21. XYZ is a religious entity. The following summarizes Security deposit for obligations of lessee upon
some of the entity’s transactions for the current termination of lease
period:
11. The following dividends are items of gross income,
except: stock dividend
12. Which of the following dividends is an item of gross
income?
How much is the exclusion from gross income? Dividends received by a resident citizen from a non-
1,100,000 resident foreign corporation
Chapter 9-Part 1 13. Dividends received by a domestic corporation from
a non-resident foreign corporation is subject to
1. It means all wealth which flows into the taxpayer
regular income tax but such is treated as inter-
other than as a mere return of capital. Income
corporate dividend and exempt from tax if certain
2. It means all income derived from whatever source
requirements are fulfilled.
Gross income
3. The following are items of gross income, except:
gratuity
4. Which of the following items of gross income is
subject to regular income tax?
Royalties on franchise earned abroad by a domestic

corporation
5. Statement 1: Compensation in the form of stocks of

the company is not gross income on the part of the
employee
Statement 2: Other allowances granted to an
employee do not form part of the gross income of
the employee
6. Statement 1: The gross income of an employee is
computed by removing excluded income from his
total compensation
Statement 2: The gross income from business or

profession is computed by deducting cost of sales or
revenue from total sales or revenue
Statement 3: Business or professional income exempted

from income tax shall be included in computing gross
income but will be allowed as deduction under the item
“allowable deductions”
18. Statement 1: Expenses of the taxpayer which are
reimbursed by the customer or client shall be
included in the gross income of the taxpayer
Statement 2: An indebtedness of a customer which
is cancelled or condoned by the taxpayer without
any consideration is not gross income but donation
19. Employee X borrowed P40,000 from his employer Z.

It was agreed by both that Z will cancel the loan of X
in consideration of the services of the latter for 1
month. Incidentally, X receives P40,000 as salary
every month. Therefore, X will not receive his salary
for 1 month.
Which of the following is correct?
Which of the following is NOT a requirement for the

exemption? None of the above 20. Statement 1: All other circumstances being equal, a
14. Which of the following is NOT included in gross taxpayer using accrual basis would most likely
income subject to regular income tax? report a gross income higher than a taxpayer using
cash basis method of recognizing income and
Partner's share in the income of a business partnership expenses
15. Statement 1: An estate, the totality of properties Statement 2: All other circumstances being equal, a
and rights of a deceased, shall be considered as a resident taxpayer would most likely report a higher
taxable person (individual taxpayer) gross income than a non-resident taxpayer on the
assumption that both taxpayers derive income both in
Statement 2: The share in the income of an estate
the Philippines and abroad
received by an heir shall be a deduction from the gross
income of the estate but treated as gross income of the both statements are true
receiving heir
21. Which of the following gross income is subject to
both statements are true regular income tax? Other capital gains not subject
to capital gains tax
16. When in the previous taxable period, a deduction
22. For taxpayers engaged in sale or exchange of goods
from gross income was claimed and such is
or services, which of the following is true?
recovered in the current taxable period, the
recovery of the past deduction shall be included in
the gross income in the period of recovery. This rule
is referred to as – tax benefit rule
23. Statement 1: The VAT collected by a seller from the

buyer is gross income of the seller
Statement 2: The gross income of sellers of goods or

services comprises of the selling price or revenue less
17. An entity is tax exempt in 2019 but became taxable cost of sales or revenue
in 2020. In 2019, the entity recognized bad debts of
P100,000. In 2020, the bad debts were recovered.
Should the recovery of bad debts be recognized as 24. This refers to the amount deducted by income
part of gross income in 2020? payors against the gross income subject to regular
income tax of the payee taxpayer and which
represents advance income tax payment of the
latter. Creditable withholding tax
25. Statement 1: Creditable withholding tax is an
exclusion from the gross income of the payee
taxpayer
Statement 2: Creditable withholding tax withheld by the

payor should still form part of the reportable gross
income of the payee taxpayer
Chapter 9-part 2
1. Pedro issued a check drawn on a bank in which he

has no funds. He negotiated the check and received
P10,000. He tried his luck in a casino and won
P300,000. Thereafter, he was charged and convicted
for passing a worthless check. Compute the gross income of XYZ Bank which is subject
to regular income tax: 4,400,000
How much is the gross income of Pedro? 310,000
8. XYZ Corporation leased out its commercial space to
2. In order to facilitate the processing of its application ABC. Per agreement, ABC shall pay a monthly rental
for a license from a government office, Corporation of P150,000 payable every 1st day of the month.
A found it necessary to pay the amount of Upon signing of the agreement, ABC shall deposit
Php100,000 as a bribe to the approving official. The an equivalent of 3-month rental to XYZ to settle any
official is receiving a monthly salary of P45,000 unpaid obligations of the lessee upon termination of
exclusive of P7,000 tax-exempt contributions. the lease. In addition, ABC shall also deposit an
Compute the taxable gross income of the official: advance 2-month rental to be applied after the 1st
145,000 month. The parties signed the agreement on May
1, 2021.
3. Gancho is a resident citizen. He reported the
following: Compute the gross income of XYZ upon signing of the
agreement: 450,000
9. Nasudi Corporation, a domestic corporation, reports

the following items of income:
Compute the gross income of Nasudi that is subject to

regular income tax. 3,000,000
Compute the gross income of Gancho which is subject
10. Carding won the following:
to regular income tax. 795,000
4. ZAX, resident foreign corporation, reports the

following:
How much of the above is gross income of Carding

subject to regular income tax? zero/0
11. Andres is a partner of ABC Partnership, a

partnership created for the exercise of the
engineering profession of several partners. For the
taxable period, the partnership reported a total
receipts and fees of P900,000 and records show that
the partnership incurred total direct cost of
Compute the gross income of ZAX subject to regular P200,000. The share of Andres in the distributable
income tax in the Philippines.15,900,000 net income of the partnership is P150,000. Records
also show that the partnership earned P10,000
5. Berto bought a life insurance for P500,000 which
interest income on its bank deposits.
will pay him an annuity of P75,000 per year for 10
years. How much is the gross income of the partnership that is
subject to regular income tax? Zero/0
What is the gross income of Berto when he outlives the
policy? 250,000 12. Andres is a partner of ABC Partnership, a
partnership created for the exercise of the
6. Juan, a resident citizen, reports the following
engineering profession of several partners. For the
transactions.
taxable period, the partnership reported a total
How much is the gross income of Juan subject to regular receipts and fees of P900,000 and records show that
income tax? 1,585,000 the partnership incurred total direct cost of
P200,000. The share of Andres in the distributable
7. XYZ Bank reports the following:
net income of the partnership is P150,000. Records
also show that the partnership earned P10,000 How much is the gross income of Mando? 40,000
interest income on its bank deposits.
19. Zoe is a VAT-registered businessman. He sold goods
How much should Andres report as gross income to customer X for P896,000 inclusive of the 12% VAT.
subject to regular income tax? 150,000 The cost of the goods sold was P300,000. How
much is the gross income of Zoe from the
13. Brenda is a business partner in AXXA Partnerships.
transaction? 500,000
AXXA reported the following:
20. Romy, 48 years of age and a retired employee had
the following investment properties and
transactions at the end of the 2020 taxable year:
 Shares of stock in AAA Corporation which he
bought in 2001 for P50,000.00 and which has a
fair value of P70,000.00 as of the end of 2020
 Shares of BBB Corporation which he bought for
P40,000.00 in 2002 and which he sold for
P100,000.00 in 2020
Compute the gross income of AXXA subject to regular
income tax. 780,000 How much should Romy report in 2020 as gross income
subject to regular income tax? Zero/0
14. The distributive share of partner Brenda in the AXXA
business partnership is P250,000. Brenda reports
personal expenses of P100,000 as partner.
How much is the gross income of Brenda subject to

regular income tax? Zero/0
15. Celzo died intestate and left an income generating

building. During the settlement of the estate, the
property earned a total of P500,000. Costs incurred
to maintain the property amounted to P100,000.
Celzo received in advance his share in the income of
the estate amounting to P150,000.
How much should the estate report as gross income

subject to regular income tax? 400,000
16. Celzo died intestate and left an income generating

building. During the settlement of the estate, the
property earned a total of P500,000. Costs incurred
to maintain the property amounted to P100,000.
Celzo received in advance his share in the income of
the estate amounting to P150,000. Personal
expenses of Celzo amount to P70,000.
How much should Celzo report as gross income subject

to regular income tax? 150,000
17. Last taxable period, Gabriel reported a net income

of P350,000 after recognizing P60,000 bad debts
and writing off the corresponding receivables.
During the current taxable period, Gabriel recovered
P100,000 (P60,000 from the receivables written off
and the balance from accounts not yet written off).
How much should Gabriel report as gross income in
the current period in relation to the recovery of bad
debts? 60,000
18. Mando is a regular employee of ABC Trading. Three
months ago, Mando borrowed P20,000 from his
employer which is due this month. This payroll
period, Mando shows you his pay slip and asked you
to compute his gross income. The following are the
details:
Chapter 10 Part 1 9. How much is the limit to the laundry allowance as a
de minimis benefit?
1. It refers to all remuneration for services performed
by an employee for his employer under an NOT EXCEEDING P300 PER MONTH
employee-employer relationships unless exempted
10. The following are requirements in order for a meal
by the NIRC and pertinent laws.
allowance to be considered as de minimis benefit,
GROSS COMPENSATION except:
2. The following are NOT compensations but may be THE ALLOWANCES MUST BE APPROVED BY THE BIR
treated as income from profession, except:
11. How should the excess amount of de minimis over
COMMISSIONS TO SALES PERSONNEL the limit set by law be treated for a rank and file
employee?
3. Statement 1: To compute the taxable
compensation, compensations which are exempted ADDED TO 13TH MONTH PAY AND OTHER BENEFITS
from income taxation must be excluded from the 12. How should the excess amount of de minimis over
gross compensation the limit set by law be treated for a managerial
Statement 2: The gross compensation technically employee?
includes taxable and non-taxable compensation
BOTH STATEMENTS ARE TRUE TAXABLE COMPENSATION SUBJECT TO FRINGE BENEFIT
TAX
4. The following comprise non-taxable or exempt 13. Which of the following is an important requirement
compensation, except: in order that an achievement award granted to an
SUPPLEMENTARY COMPENSATION employee is tax exempt?
5. Case 1: Nora made a total of P5,000 contributions THE AWARD MUST BE IN THE FORM OF A TANGIBLE
for SSS, Philhealth, Pag-ibig, and union dues. The PERSONAL PROPERTY AND DOES NOT EXCEED P 10,000
P5,000 contributions form part of Nora’s gross 14. Statement 1: CBA or productivity incentive scheme
compensation. However, in computing her taxable benefits shall only be exempt as “de minimis”
compensation, such amount must be excluded benefits if the total amount thereof does not exceed
Case 2: Nora suddenly got sick and was hospitalized for P10,000 per taxable year
1 month. She received a certain amount of benefit from Statement 2: CBA incentive in the amount of P15,000
SSS. Her hospital bills were also reduced by her shall be de minimis and tax-exempt up to P10,000 only
philhealth benefit. The amount received by Nora from
SSS and the reduction in her hospital bills constitute ONLY STATEMENT 1 IS TRUE
taxable compensation to Nora.
15. What is 13th month pay for a government
ONLY CASE 1 IS CORRECT employee?
6. Statement 1: The mandatory contributions such as AMOUNT EQUIVALENT TO A CHRISTMAS BONUS OF

the SSS, Philhealth, Pag-ibig may be reduced or ONE MONTH SALARY PLUS P 5000 CASH GIFT
removed by agreement of the employer and
16. How much “13th month pay and other benefits” is
employee
tax-exempt?
Statement 2: In case employee agrees to increase his
90,000
mandatory contributions to more than what the law
requires, the excess contribution over the amount 17. Which of the following may be treated under “13th
required by law shall still form part of the taxable month pay and other benefits”? ALL OF THE ABOVE
compensation
ONLY STATEMENT 2 IS TRUE
7. These are facilities or privileges given or offered by

an employer to its employees, provided such
facilities or privileges are of relatively small value
and are offered or furnished by the employer
merely as a means of promoting the health,
goodwill, contentment, or efficiency of its
employees.
DE MINIMIS BENEFIT
18. Statement 1: Foreign government embassies,
8. The following are de minimis benefits, except: diplomatic missions and international organizations
are tax-exempt in their function as such in the
MONITIZED UNUSED SICK LEAVE CREDITS OF PRIVATE
Philippines
EMPLOYEES NOT EXCEEDING 10 DAYS DURING THE
YEAR
Statement 2: Generally, Filipino employees of foreign 25. It refers to the rate fixed by the Regional Tripartite
governments, international missions, and organizations Wage and Productivity Board (RTWPB)
in the Philippines are taxable
STATUTORY MINIMUM WAGE
Statement 3: Employees working in Philippine
26. For a minimum wage earner, which of the following
embassies or Philippine consulate offices are considered
is tax-exempt compensation? ALL OF THE ABOVE
as “resident citizens”, hence their salaries as such are
taxable
ALL STATEMENTS ARE TRUE
19. Which of the following compensations is/are not

taxable compensation to the employee? ALL OF THE
ABOVE
Chapter 10 Part 2
20. This rule mandates that any employee expenses 1. Pedro works as salesman of ZZZ Trading. The
paid for by the employer or granted by the agreement between Pedro and ZZZ provides the
employer as allowance or compensation must be following terms:
solely for the expediency of the employer, and must
be incurred on the employer's premises if
applicable.
EMPLOYER'S CONVENIENCE RULE

Pedro made a total sale of P250,000 for the month.
21. It pertains to the fixed remunerations received by Incidentally, during the month, Pedro received a
the employee. P50,000 commission from selling his friend’s vacant lot.
REGULAR COMPENSATION Compute the gross compensation of Pedro. P 52,500
22. Which of the following does not form part of the 2. Pedro works as salesman of ZZZ Trading. The
taxable regular compensation? agreement between Pedro and ZZZ provides the
REPRESENTATION AND TRAVEL ALLOWANCES (RATA) following terms:
OF GOVERNMENT EMPLOYEES
23. These compensations are variable and normally

based on the performance of an employee.
SUPPLEMENTARY COMPENSATION Pedro made a total sale of P250,000 for the month.
Incidentally, during the month, Pedro received a
24. Which of the following is not a supplementary P50,000 commission from selling his friend’s vacant lot.
compensation?
How much is the regular compensation income of
NONE OF THE ABOVE Pedro? 25,000
3. Using the following information:
Compute the taxable compensation: 59,000
4. Using the following information:

9. Zenny is one of the 20-year awardees of her
company. For her service, she received a watch
worth P8,000, a plaque, and a check for P10,000.
On the same day, she also received a bonus for her
excellent performance for the entire duration of her
service in the amount of P35,000.
How much should be included in the “13th month pay

Compute the net pay of the employee: 42,000 and other benefits” of Zenny? 45,000
5. The following de minimis benefits were received by 10. The converted daily compensation rate of Anna is
Berto, during the taxable year. Berto works in the P2,000. On top of her salary, she receives a daily
private sector: meal allowance of 20% of her basic daily rate, daily
transportation allowance of P50.00 and daily
communication allowance of P30.00.
How much should be reported as de minimis benefits?

0/Zero
11. The converted daily compensation rate of Anna is

P2,000. On top of her salary, she receives a daily
How much is the total non-taxable de minimis benefits? meal allowance of 20% of her basic daily rate, daily
42,100 transportation allowance of P50.00 and daily
6. Juan earns the basic salary of P44,000 a month. His communication allowance of P30.00.
daily compensation rate is P2,000. For current the How much should be reported as regular compensation
month, Juan availed a total 3-day vacation leave of Anna? 2,480
with pay. Of the basic salary, how much should be
reported as the salary of Juan for the current 12. Carlos is a board member of AXA Corporation. As
month? such, he receives the amount of P50,000 per diem
on a monthly basis. He also serves as the CEO of
44,000 the corporation and receives P250,000 per month
7. Miranda is an employee of XYZ Corporation, a as such. Incidentally, Carlos also serves as a
private enterprise. The following summarizes the financial consultant of another independent
benefits of Miranda for the current year: corporation for P100,000 per month.
From the foregoing only, how much is the total

compensation income? 250,000
13. As manager in the company, Delia receives the

following benefits:
Compute the total non-taxable de minimis benefits.

58,600
8. Miranda is an employee of XYZ Corporation, a How much should be subject to the fringe benefit tax
private enterprise. The following summarizes the for managers? 25,400
benefits of Miranda for the current year: 14. Sarah, manager of ZBC Corporation, receives
P120,000 13th month pay, P60,000 14th month pay,
P25,000 monthly residential rental allowance, and
P5,000 monthly grocery allowance.
For the taxable year, how much should be reported as

“13th month pay and other benefits” of Sarah? 180,000
15. Due to business reverses, Pedro was terminated

from employment. He received termination pay of
P250,000, exclusive of the following: P30,000
unpaid salary net of P5,000 mandatory
contributions, P25,000 accumulated sick leave
credits, and P50,000 pro-rated 13th month pay.
Compute the taxable 13th month pay and other
benefits. 45,400 How much is the taxable compensation? 30,000
16. Mando, manager of XXX Domestic Corporation,
received a stock option from the corporation
entitling him to buy 5,000 shares of XXX at P10.00
per share. After some time, Mando exercised his
option when the shares were selling at P15.00 per
share. The shares, at the time of exercise, had a
book value of p12.00 per share. After 3 months,
Mando sold the shares for P18.00 per share.
Compute the compensation income of Mando. 25,000 Compute the taxable income of Mang Carding. 125,000
17. A government rank and file employee shows the

following record for the taxable year:
Compute the taxable compensation. 935,000
18. A government rank and file employee shows the

following record for the taxable year:
Compute the total NON-TAXABLE compensation.

308,000
19. Narda availed of the 105-day maternity leave under

the SSS law. Her pay slip for the period showed the
following:
Considering only the foregoing data, how much is the

taxable compensation of Narda for the period? 7,000
20. Mang Carding is a minimum wage earner. To

augment his earnings, he put up a mini store under
his name and managed by his wife. Records show
the following relating to his compensation and store
operations for the taxable year:

Income Taxation

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11.

Scope of taxation power, except: absolute

8. Statement 1: A Sovereign State can have the power

Statement 2: Provisions in the Constitution on the

Statement 2: The power to levy tax is a legislative

Statement 3: Tax administration is delegated to the

ONLY 2 AND 3 ARE CORRECT

28. The power of taxation is essentially a legislative

the tax law shall prevail over GAAP;

37. The Municipality of X in the province of Y has an

It should be exercise to promote public welfare

Which would justify the objection of the banks?

None of the above

47. The following are ways of avoiding taxation, except:

reducing the amount of revenues earned and

48. Which of the following are NOT usually imposed

52. Which of the following does not constitute tax

It is a regular payment Chapter 2

Statement 2: Administrative issuances should not be

only statement 1 is true

5. All of the following statements are incorrect, except

excised tax on production of certain commodities

23. It is a tax on the production, sale or consumption of

license fee withholding tax system

A special assessment in tax theoretical justices

Application for a tax compromise ONLY STATEMENT 2 IS FALSE

34) Which of the following shall be considered as a

A partnership formed from the conduct of business

35) From taxation purposes which of the following shall

36) It is the place where an authorities has the right to

5. Cruz was an employee of ABC Trading. He was killed

How much of the above gross income or Mr.

2. Ventura was on his way to deliver merchandise

For taxation purposes, how much shall be the gross

7. Juan bought a certain piece of lot for P300,000. After

How much shall be subject to transfer (donor’s) tax?

How much of the above is the gross income of Mr.

10. During the calendar year, Minda went abroad and

How much of gross income of genetrix is taxable in the

16. Bravo X Corporation, a domestic corporation, is the

17. Dividend income of P500,000 is earned by X from a

How much of the dividend income of X is earned from

18. Dividend income of P500,000 is earned by X from a

Which of the following is a correct statement?

Mang juan 2020 income tax return should report the

The income tax of mang juan must be filed and the

19. A corporate taxpayer may, with the approval of the

If the changes is from fiscal year to calendar year is

20. The annual period of mega corporation was a fiscal

April 1 to December 31 2020

30. Under the outright method of recognizing Contract price

32. One of the following methods is not a method initial payment

42. Which of the following are methods of filing the

44. The tax filing process is digital but the taxpayers

Use of EBIR forms second

45. Digital filing process for non- eFPS taxpayers and

Use of ebir forms How much is subject to final tax? P3,000

46. Who needs to use ebir forms? 5. Taxpayer is a resident citizen