P3.6.

SPECIAL RULES IN COMPUTING THE MONETARY VALUE OF FRINGE BENEFITS

1. XYZ Co. leased a residential house for the use of its branch manager.
The rent per agreement was P165,000 per month.
a.How much is the monetary value of the benefit for the month? b. How much is the fringe
benefit tax for the month?

2. XYZ Company owns residential property which is assigned to its officer for use. The following data
pertain to the residential property
Cost
Fair market value per BIR
P5,000,000
4,500,000
Fair market value per Assessor's office
3,000,000

a. How much is the monetary value of the benefit for the

quarter?
b. How much is the fringe benefit tax for the quarter?
3. Using the same data in no. 2, and assuming that XYZ Company transferred the ownership of the
residential property in the name of the officer, answer the following:
a.How much is monetary value of the benefit?
b. How much is the fringe benefit tax?

4. Chen Company purchased a motor vehicle for the use of its manager. The vehicle was registered in
manager's name. The cost of the vehicle was P1,200,000 used partly for personal purposes and partly
for the benefit of the company. Compute the following.
a. Monetary value of the benefit
b. Fringe benefit tax

5. Using the same data in no. 4 and assuming that Chen shouldered only a portion of the cost of the car
in the amount of P800,000 and the balance paid by the manager, determine the following:
a. Monetary value of the benefit
b. Fringe benefit tax

6. Using the same data in no. 4 and assuming that Chen purchased the car in the name of the
manager on installment basis. Determine the following:
a. Monetary value of the benefit
b. Fringe benefit tax
MULTIPLE CHOICE
1. Which of the following is not a characteristic of a deduction?
a. It is a reduction of wealth that helped earn the income
subject to tax.
b. An immunity or privilege, a freedom from a charge or burden
to which others are subjected.
c.
It is not a receipt.
d.
It is a subtraction to arrive at income subject to tax.

2. In the conduct of his business in 2021, Modesto found it necessary to give gifts
to the government officials with whom he had official dealings.
These gifts are deductible expenses subject to the substantiation rule;
b. The value of the gifts if de minimis are allowed to be
deducted;
c. Irrespective of the value, the gifts are considered as bribes
and not allowed to be deductible
d. These gifts are deductible if found to be necessary and
properly supported by receipts.
3. This is not a requisite for business expense to be deductible
A. It must be reasonable
b. It must be paid during the taxable year
c. The withholding tax otherwise required have been deducted
and remitted to the BIR
d. It must be ordinary and necessary,

4. One of the following is deductible from gross income

a. Personal, living and family expenses.
b. Amount paid out for new building or for permanent improvement or betterment,
made to increase the value of property or estate.
C.Losses from sales or exchanges directly or indirectly between members of the family.
d. Grossed-up monetary value of fringe benefits.

5. Which of the following is not deductible from business income?

a. Casual losses on properties connected in the conduct of
trade or business.
b. Loss of business property due to embezzlement.
c. Loss on exchange of capital assets
d. Net operating loss carry over

6. In cases of deductions and exemptions on income tax returns,

doubts shall be resolved
a. Strictly against the taxpayer
b. Strictly against the government
c. Liberally in favor of the taxpayer
d. Liberally in favor of the employer

7. For income tax purposes, which of following statements correctly

describe deductions?
a. Deductions are items or amounts excluded from the
determination of gross income.
b. A taxpayer can avail of any and all deductions authorized by
law for his kind of income to maximize his tax liability.
c. Deductions are a matter of legislative grace.
d. All of the above
 8. Shrinkage in value of the stock and loss from wash sale are
nondeductible losses because
Statement 1: Loss on account of shrinkage in value of the stock through fluctuation
in the market or otherwise are not realized loss. Statement 2: Loss from wash sale
is only an artificial loss.
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 is false
C. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true

9. Which of the following statements regarding NOLCO is incorrect?

I.The source of net operating loss carry-over (NOLCO) is from the ordinary
trade and business of the taxpayer.
II. NOLCO is not applicable against MCIT
III. The reglementary period on the carry-over of NOLCO shall continue to run
notwithstanding the fact that the corporation paid its income tax under the
Minimum Corporate Income Tax (MCIT) computation.
a. Il only

b. II and III only

c. All of the above
d. None of the above

10. Which of the following is correct?

a. Interest incurred on loan from a brother is deductible

b. Interest expense incurred on unpaid value added tax is reduced by 33% of interest
income subjected to final tax

c. Interest payable which had already prescribed is deductible

if paid voluntarily by the taxpayer
d. Interest incurred to acquire a business asset may be added
to the cost of the property
 11. This is a non-deductible interest expense
a. Interest paid on indebtedness incurred to finance petroleum
exploration
b. Interest paid by a corporation on scrip dividends
C.
Interest paid by a corporate taxpayer who is liable on a mortgage upon real
property of which the said corporation is the legal or equitable owner
d. Interest paid on tax deficiency if the tax where the interest is
in itself an item that is deductible from gross income

12. Taxes paid or incurred within the taxable year in connection with the
taxpayer's profession, trade or business, shall be allowed as deduction, except:
a. Philippine income tax.
b. Foreign income tax claimed as tax credit.
c. Estate and donor's taxes.
d. All of the choices.

13. Which of the following taxes is allowed to be deducted from gross

income derived from the exercise of a profession, trade or business?
a. Philippine income tax
b. Estate and donor's taxes
c. Tax on sale of shares of stock traded through the local stock
exchange
d. Import duties

14. The following are requisites in the carry-over of NOLCO, except

a. There must be no substantial change in the ownership of the
business
b. Carry-over is not allowed if the corporation is subject to
MCIT during the taxable year
C.
Even if the corporation is paid based on MCIT, the running of the prescriptive period is
not interrupted.
d. The carry-over is good for one (1) year.

15. Which of the following is not correct regarding NOLCO?

a.
NOLCO is allowed as deduction from business income for the next three (3)
 succeeding years, provided that NOLCO incurred in 2020 and 2021 shall be
allowed as a deduction for the next five (5) years.
b. Domestic and resident foreign corporations subject to
regular corporate income tax are allowed with NOLCO.
C.Entities enjoying income tax holiday.
d. None of the above

16. Which of the following is entitled to claim NOLCO?

a. Employee with respect to his compensation income. b. Foreign
international carrier
c. Self-employed individual
d. All of the above

Use the following data for the next three (3) questions The
following are the records of a domestic corporation:
2020
2021
2022
Gross sales
P3,300,000
2,340,000
P825,000
Cost of sales
2,400,000
1,070,000
380,000
Dividend from resident
140,000
32,000
foreign corporation (derived
within)
Interest income on notes
28,000
16,400
receivable
Capital gain (short term)
Capital loss (long-term)
Business expenses
DETERMINE THE FOLLOWING:
13,000
18,500
20,000
22,000
1,475,000 1,025,000
459,000

17. The taxable income/(loss) in 2020

a. P(575,000)
c: P(427,000)
b. P(407,000)
d. P1,068,000
18. The taxable income/(loss) in 2021
a.PO
b. P274,400
c. P(132,600) d. P254,400

19. The taxable income/(loss) in 2022

a. P18,000 b. PO
c.P170,600
d. P18,000

20. Atty. Cahayon acquired a property for use in his business. After a devastating typhoon, the
machinery suffered partial damage. The following were made available:
Cost
Accumulated depreciation
Restoration cost
Estimated useful life
P500,000
300,000
250,000
5 years

c. P250,000
 d. P100,000
How much is the deductible loss?
a. PO
b. P200,000

21. In 2021, a taxpayer's residence was totally destroyed by fire. The property had an adjusted
basis and a fair market value of P1,300,000 before the fire. During 2018, the taxpayer received
insurance reimbursement of P1,200,000 for the destruction of his home. Taxpayer's 2021 adjusted
income was P700,000. The taxpayer had no casualty gains during the year. What amount of the
fire loss was the taxpayer entitled to claim as an itemized deduction in 2021 tax return?
a. PO
b. P85,000
c. P86,000 d.
P100,000

22. A taxpayer has a business property having an adjusted basis of P1,000,000. It is completely
destroyed by fire in 2021 but compensated by an insurance claim for P800,000. How much is the
deductible loss?
a. P1,000,000
b. P800,000
c. P200,000
d. P100,000

23. Which of the following is not a deductible loss?

a. Loss due to removal or demolition of old building, the scrapping of old machinery or
equipment incident to renewal or replacement
b. Loss due to removal of building or real estate purchased when the purchase was for
the acquisition of the land and without intending to use the building
c. Loss in value of securities of such extent that the securities
have become worthless and are written off
d. Loss in usefulness in business of an asset soon that
business is discontinued or the asset is discarded.

24. Which of the following losses is deductible?

a. Loss on a wash sale
b. Loss on a merger
C.Loss on a transfer of property to a corporation solely for stock resulting in control
d. Loss on transfer of property to a controlled corporation solely
 for a stock.

25. Alpha company was merged with Beta, Inc., and only the latter continues to exist. Mr.
Masinop, a stockholder of Alpha company was asked to surrender his 100 shares that he acquired
for P1,000,000, and received under the merger 100 shares of Beta, Inc. with a fair market value of
P1,300,000 and cash of P300,000. The gain to Mr. Masinop on the merger was
a. P600,000
b. P300,000
c. P200,000
d. P100,000

26. A taxpayer received a donation of a car with a fair market value of P400,000 at the time of
the donation, but which the donor acquired at a price of P500,000. The taxpayer sold this for
P280,000. The sale resulted in a loss of
a. P100,000
b. P200,000
c. P220,000 d. P120,000,

27. One of the following is not a requisite for deduction of bad debts
a. There must be an existing indebtedness due to the taxpayer
which must be valid and legally demandable.
b. The debt must be connected with profession, trade, or
business of the taxpayer.
c. The debt must be actually ascertained to be worthless and uncollectible and
charged off the books of accounts as of the end of the taxable year.
d. The debt must have a maturity of not more than five years.
Chapter Exercises
Deductions from Gross Income

28. One of the following is a deductible bad debt:

a. Bad debt not connected with the profession, trade or
business of the taxpayer
b. Bad debt sustained in a transaction entered into by related
parties.
C.
Worthless debts arising from unpaid wages, salaries, rents and similar
items of taxable income not included in the returns of income for the
year in which the deduction for bad debt is sought to be made, or in
 the previous year.
d. Difference between the amount received in the distribution of assets of a
bankrupt company and the claims against the said company.

29. Which of the following statements is wrong?

a. A deduction from bad debt is not available when a provision
for it is made
b. A deduction from bad debt is available only when a write off
is made
C.
There is no deduction for bad debt when there is a surety for the
debtor against whom collection may be enforced
d. A deduction for uncollectible account is available to a taxpayer whether
he is on the cash or accrual method of accounting.

30. It is the gradual diminution of the useful value of tangible property resulting
from wear and tear and normal obsolescence. It is also applied to the
amortization of intangible assets the use of which in the trade or business is
definitely limited in duration.
a.
Depreciation
b. Depletion
C.
Obsolescence
d. Bad debts

31. Mike Uro owns 50% of Leomar Corporation's shares of stocks. Mike
sold a property valued at P1,000,000 to Leomar for P800,000. Is the loss deductible
from Mike Uro's gross income?
a. Yes, because Mike and Leomar are not considered related
parties.
b.
No, because Mike and Leomar are considered related parties.
c. Yes, because the sale results from sale of property.
d. No, because the amount of loss cannot be identified with
certainty.
32. During 2021, Mike created a trust in favor of his friend Leomar. He
appointed Atty. Ong as the trustee. A month later, Erick created a trust in favor of
his affectionate friend, JJ. Erick appointed Drei as the trustee. Later during the year,
 Atty. Ong sold a property to Drei at a price which is substantially lower than the
property's current market value. Can Atty. Ong deduct the loss as a result of the sale?
a. No, because both Atty. Ong and Drei were fiduciaries of
trusts.
b. Yes, because Atty. Ong and Drei are fiduciaries of different
grantors.
c. No, because Atty. Ong does not have a capital gain.
d. Yes, because losses as a rule are deductible.

33. Lucky Me, Incorporated bought a special machine for its e-bingo
business worth P1,000,000. However, due to the "tuwid na daan" policy of the
government, a law was subsequently passed prohibiting gaming of any kind.
Consequently, Lucky Me permanently retired the machine from use. The carrying value of
the machine at the time of retirement was P700,000. How much is the deductible loss of
Lucky Mike?
a. P300,000
b. P700,000
c. P1,000,000
d. nil

34. Proceeds of insurance taken by a corporation on the life of an

executive to indemnify the latter's beneficiaries against loss in case of his death is:
a. Exempt from income tax
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

35. The premiums paid by the corporation in the preceding number is

a. Taxable income of the executive
b. Deductible expense of the corporation
c. Both "a" and "b"
d. Neither "a" nor "b"

36. Which statement is not correct? Deduction for depletion:

a. Is allowed on wasting assets only
b. For foreign corporations engaged in doing business in the Philippines, is allowed
only if the mine is located in the Philippines
C.
For domestic corporations, shall be allowed only if the mine is located in the
Philippines
d. Is separate from deduction for depreciation of building in the
mine site

37. A business leased a condominium in Ortigas for use as its office.

The contract was properly classified as a finance lease. It paid P125,000 monthly to
the condominium owner. For income tax purposes, the monthly payment was:
Deductible as rent expense.
b. Deductible as payment of amortization.
C.Not deductible because the taxpayer was taking title and would become the owner
of the condominium unit.
d. Not deductible because the payment was not reasonable.

38. Which of the following will be deductible expense for the exhaustion
of intangible asset of wasting asset corporation?
a. Depreciation expense b. Amortization expense c. Depletion expense d. Exploration
expense