Income TAX Chapter 13 Reviewer

4/23/24, 11:23 PM Income TAX Chapter 13 Reviewer
CHAPTER 13-B SPECIAL ALLOWABLE ITEMIZED DEDUCTION AND NOLCO
Red- False Black- True
1. The employers are allowed additional deduction of 15% on the compensation paid to persons with
disability. (25%)
2.An adopting private entity of a public school is-entitled to a deduction incentive equivalent to
double the amount donated to a public school. (additional 50%)
3.Taxpayers who installed improvements in their facilities to accommodate persons with disability
are allowed an additional 50%deduction incentive based on the value of such-improvement.
4. The distribution of the corpus of a taxable estate or trust is an item of special deduction against the
gross income of the estate or trust. (only distribution income)
5. The transfer to the reserve fund of insurance companies is a special deduction, but the release from
the reserve fund is an item of gross income.
6. Dividends are non-deductible by any taxpayer except real estate investment trusts.
7. The transfers to all reserve funds of the cooperative including mandatory and discretionary funds are
deductible from the gross income of cooperatives.
8. Persons with disability are mandatorily allowed a discount of 20% from all establishments.
9. Senior citizens are mandatorily allowed a discount of 25% from certain establishments. (20%)
10. The employer of senior citizens can claim additional deductions equivalent to 50% of the
compensation paid to senior citizens who have income below the Poverty line. (15%)
11.Expenses incurred to comply with the requirement of the Expanded Breastfeeding Act are
allowed an additional incentive equivalent to the amount of the expense incurred.
12. Attorneys are entitled to the value of their pro-bono services to indigent clients as deduction from
gross income.
13. The allowable incentives to lawyers for pro-bono services shall not exceed 10% of the gross income
from the actual performance of the legal profession.
14. Employers are entitled to an additional deduction of 50%of the productivity incentive bonus paid to
their employees.
15. The amount of NOLCO shall not include the amount of deduction incentives allowed by law.
16. A small business was merged to a larger business. Even after the merger, the NOLCO of the small
business is deductible by the larger business.
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17. NOLCO is valid for 3 years.
18. NOLCO always exists when there is a net operating loss.
19. Net capital loss carry over cannot be carried over together with NOLCO.
20. An acquirer in a business combination sustained a net operating loss before the business
combination. The acquirer is allowed to carry-over its net operating loss in prior years.
EXPENSE/ EXPENDITURE DEDUCTION INCENTIVE INCENTIVE LIMIT

Salaries paid to senior citizen 20 % discount and 15% of None
salaries to senior citizens
Salaries paid to persons with 25% of salaries paid to disabled None
disability persons
Training expense under the 50% training expense None

Jewelry Industry Development
Act
Cost of Facility improvement for 50% of the cost of improvements None
employees with disability
Contribution under Adopt- a 50% of the contribution None

School Program”
Cost of compliance with the 100% of the compliance expense None

Rooming-in and Breastfeeding
Practices Act”
Free Legal Expense Value of Pro-bono services 10% of gross income
Productivity incentive bonus 50% of productivity incentive None

and employee training program bonus
1. The required reserve for an insurance company was P3,200,000 as of December 31, 2013 and
P3,500,000 as of December 31, 2021. What is the deductible amount of transfer to the reserve fund?
(3,500,000 – 3,200,000)
a. PO
b. P300,000
c. P3,200.000
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d. P3,500,000
2. A fitness gym catering to senior citizens recorded a total gross revenue of P345, 000 from senior
citizens. The gym provides 24% discount in excess of the legal requirements. What is the deductible
amount of senior citizen's discount? (345,000/ 76% x 20%)
a. PO
c. P82,800
b. P69,000
d. P90,789
3. Germania Inc. employs three senior citizens as regular employees. Two of them are receiving the
minimum wage which is within the poverty level. Total minimum wages paid to these senior citizen
employees during the year were P182,000. One of the senior citizen employees is a director of the
company who was paid P780,000 compensation during the year.
Compute the deductible additional compensation expense. (182,000 x 15%)
a. PO
b.P27,300
c. P91,000
d. P144,300
4. An employer hired two senior citizens during the year as temporary replacements for its two staffs
who were on leave. Both senior citizens were paid salaries not in excess of the poverty level. Mang
Pandoy, substituted for an employee who went on one year sabbatical leave. Mang Pandoy received a
total of P144,000 during the year. Aling Maria substituted for an employee who filed for maternity leave
for 3 months. Aling Maria received a total of P28,000 during the year. Compute the total deductible
additional compensation expense. (144,000 x 15%)
a. P0
b. P21,600
c. P25,800
d. P43,000
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5. Mr. Bernard irrevocably designated in trust his investment portfolio consisting of domestic stocks and
bonds. The dividend income from the stocks shall be distributed to the beneficiary while the interest on
the bonds shall be accumulated. During the year, the portfolio earned P200,000 interest and P135,000
dividends, net of final tax.
What is the total deduction allowable to the trust for the income distribution?
a. PO
c. P135,000
b. P15,000
d. P150,000
6. A grantor irrevocably designated in trust a real property in favor of a beneficiary. Under the trust
indenture, 20% of the trust net income shall be distributed to the beneficiary. The trustee shall be paid
5% of the gross income as management fee. During the year, the trust collected P810,000 rent income,
net of 10% creditable withholding taxes. The trust recorded P350,000 in expenses.
Compute the deductible amount of income distribution to the beneficiary.
(900,000- 350,000 -45,000) x 20%
a. PO
b. P101,000
c. P110,000
d. P180,000
7. A real estate investment trust (REIT) earned P4,100,000 from property rentals. Total business expenses
were P2,100,000. Assuming the REIT declared the mandatorily required dividend distribution, what is
the amount of deductible dividend against gross income? (4,100,000- 2,100,000 x 10%)
a. PO
b. P1,800.000
c. P1,890.000
d. P3,690,000
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8. A cooperative transacting business only with its members is on its third year of operation. It reserves
50% of its operating income in compliance with the new CDA regulation. During the year, it reported a
total operating income of P3,000,000 inclusive of P2,400,000 income from related activities. Compute
the deductible amount of transfers to reserve against gross income. (3,000,000- 2,400,000 x 50%)
a. PO
b. P60,000
c. P240,000
d. P300,000
9. An establishment granting senior citizens 25% discounts recorded the following sales during the
period:
Customers
Regular Senior citizen
Gross sales P 8,000.000 P 800,000
Cost of sales 5,000,000 400,000
What is the deductible senior citizens' discount? (800,000 x 20%)
a. PO
b. P160,000
c. P200,000
d. P266,667
10. A restaurant granted 25% discounts to senior citizens in excess of the 20% mandatory requirement.
During the year, the restaurant reported receipts of P93,750 from senior citizen customers.
Compute the deduction for senior citizens' discount. (93,750 / 75% x 20%)
a. PO
b. P7.250
c. P23,437.50
d. P25,000
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11. An employer embarked on a socio-economic program named "A World Empowered by Persons with
Disability." Under the ambitious program, the employer established a business which is fully manned by
persons with disability. The employer incurred P300,000 in workplace improvements specifically
designed for its disabled employees. The business venture turned very profitable due to overwhelming
public sympathy. During the year, the employer paid P2,100,000 in compensation expense. Compute the
additional deductible compensation expense. (2,100,000 X 25%)
a. PO
b. P210,000
c. P315,000
d. P525,000
12. In the immediately preceding problem, what is the deductible additional expense for the
improvements made for the employees with disability? (300,000 X 50%)
a. PO
c. P75,000
b. P45,000
d. P150,000
13. In 2021, Frank Abon, a practicing lawyer, adopted a public elementary school and contributed
P500,000 for the acquisition of computer equipment and software. Abon had an operating income of
P900,000 before this contribution expense. Assuming the "Adopt-a-School Program" is an investment
priority program of the government in 2016, compute Bernard's additional contribution expense and net
income respectively. (500,000 X 50%) AND (900,000 – 500,000 – 250,000)
a. P250,000; P150,000
b. P250,000; P 650,000
c. P125,000; P275,000
d. P125,000; P775,000
14. In the preceding problem, compute Abon's additional contribution expense and net income,
respectively, if the "Adopt-a-School program" is no longer a government priority program in 2016?
(500,000 X 50%) AND (900,000 – 90 (900K x 10%) – 250,000)
a. P 0; P810,000
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b. P 0; P400,000
c. P250,000; P650,000
d. P250,000; P560,000
15. Benguet Jewelery is a qualified jewelry enterprise registered with the Board of Investments. In order
to modernize its jewelry making business, it instituted an in-house training program and hired external
experts to train its employees. The program was duly approved by TESDA. The program cost P300,000
during the year.
What is the deductible amount of additional training expense? ( 300,000 X 50%)
a. P30,000
c. P75,000
b. P45.000
d. P150,000
16. Girl Power Corporation employs purely women. It installed a lactation station at a total cost of
P350,000 and secured a "Working Mother-Baby-Friendly Certificate" from the Department of Health.
Compute the additional deduction under the Rooming-in and Breastfeeding Practices Act.
(350,000 X 100%)
a. PO
b. P175,000
c. P350,000
d. P700,000
17. A government provincial hospital established a milk bank at a cost of P1,000,000. Determine the
additional deduction incentive it is allowed under the Rooming-in and Breastfeeding Practices Act.
a. PO
b.P250,000
c. P500,0000
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d. P1,000,000
18. In the immediately preceding problem, what would be the additional deduction assuming the
hospital is a proprietary medical center? (1,000,000 X 100%)
a. PO
b. - P500.000
c. P1,000,000
d. P2,000,000
19. Atty. Abdul is a practicing lawyer in the remote provinces of Mindanao. During the year, he provided
180 actual hours for pro-bono services inclusive of the 60-hour mandatory legal aid services to indigent
clients. These services would have been billed P1,000 per hour if rendered to paying clients. Atty.
Abdulhas a P1,400,000 gross income during the year exclusive of P20,000 interest on his savings deposit.
Compute the special deduction for the free legal services.
Limit = (1.4 M x 10%) OR (180 HRS- 60 HRS x 1,000)
a. P60.000
b. P120.000
c. P140,000
d. P142,000
20. Curaratnit, Bolalatsing & Associates, a law firm, earned an operating income of P8,000,000, net of
P6,000,000 administrative expenses and P12,000,000 direct cost of services. During the year, it
represented selected clients under its free legal assistance program. The value of these services would
have been P1,500,000. It also represented indigent clients for free, the value of which would have been
P400,000. Compute the special deduction for free legal services. (8 M- 6M) X 10%
a. P1,200,000
b. P1,400,000
c. P1,500,000
d. P1,900,000
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21. An employer paid a total of P800,000 productivity incentive bonus to its production workers. What is
the additional productivity incentive bonus expense? (800,000 X 50%)
a. PO
b. P80.000
c. P200,000
d. P400,000
22. An employer provides manpower training and special studies to its rank and file employees at a total
cost of P200,000. The in-house program was accredited by TESDA. What is the deductible additional
productivity incentive bonus expense? (200,000 X 50%)
a. PO
b. P20,000
c. P100,000
d. P200,000
Multiple Choice - Problems 2
1. In 2016, Warren Buffet purchased the net assets of Berkshire Hathaway, a losing business which
posted a cumulative P10,000,000 loss in the past three years. Buffet's charismatic leadership led the
business to turn P4,000,000 profits in 2016. What is the allowable NOLCO deduction for 2016?
a. P0
b. P4,000,000
c. P5,000,000
d. P10,000,000
2. A taxpayer had the following results of operations:
2019 2020
Gross income P 1.200.000 P 2,500,000
Itemized deductions 1,400,000 1,000,000
Deduction incentives 200,000 300.000
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What is the net income in 2020? (2,500,000 -1,000,000+200,000 – 300,000)
a. P 800,000
b. P1,000,000
c. P1,100,000
d. P1,200,000
3. An enterprise registered with the BOI had a consistent profitable operation. Just before graduating
from its BOI tax holiday incentives in 2019, it sustained a P1,800,000 operating loss due to an employee
strike in 2019. The settlement of the deadlock in 2020 enable the enterprise to post a P2,400,000
operating income.
What is the allowable NOLCO deduction in 2020?
a.P0
b. P900,000
c. P1,800,000
d. P2.400,000
4. A corporate taxpayer incurred an operating loss in 2021:
Sales P 3,000,000
Less: Cost of sales 1,200,000
Gross income P 1,800,000
Less: Deductions
Regular itemized deduction P1,200,000
Special itemized deductions 800,000
Deduction incentives 400,000 2,400,000
Net operating loss 600,000
What is the amount of NOLCO to be carried over in the next three years?
(1,800,000 – 1,200,000 – 800,000- 400,000)
a. PO
b. P200,000
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c. P400,000
d. P600,000
5. An individual taxpayer reported the following in 2021:
Gross income P 1,500,000
Less:
Administrative expenses P800,000
Selling expenses 650.000
1,450,000
Operating income 50.000
Less: Personal expenses 150,000
Excess of personal expenses over income 100.000
What is the NOLCO to be carried over in the next three years?
a. PO
c. P100,000
b. P50,000
d. P150,000
6. In 2021, a taxpayer finally posted a P1,000,000 operating profit after four years of continuous losses.
The results of operations in prior years were:
2016 (P 800,000)
2017 (400,000)
2018 (200,000)
2019 (100,000)
Compute the deductible NOLCO in 2021. (400,000 +200,000+ 100,000)
a. PO
b. P700.000
c. P1,000,000
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d. P1,500,000
7. A taxpayer has the following historical results of operations:
2016 (P 600,000)
2017 (700,000)
2018 400,000
2019 (200,000)
2020 100,000
What is the total outstanding NOLCO at the end of 2020 which can be carried over in future years?
a. PO
b. P200,000
c. P600,000
d. P800,000
8. A taxpayer reported the following items of gross income and deductions in 2020:
Rent income P 400,000
Service fees 200,000
Interest income from bank deposits 50,000
Deductible expenses 800,000
Non-deductible expenses 100,000
Compute the NOLCO to be carried over in the next three years.
a. P300,000
b. P250,000
c. P200,000
d. P150,000
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9. The carry-over of NOLCO is allowed when
a. the net operating loss is sustained from an exempt year.
b. there is a change for at least 75% of the paid-up capital or nominal value of the outstanding shares of
a corporation.
C. the business is acquired by another taxpayer.
d. there is a change in the controlling shareholder representing 51% ownership.
10. Which is incorrect with regard to the net operating loss carry-over (NOLCO)?
a. NOLCO can be claimed together with Optional Standard Deductions.
b. NOLCO cannot be claimed if the net operating loss arises in a year where the taxpayer is exempt from
income tax.
C. NOLCO can be carried over to a period of three years.
d. NOLCO cannot be claimed by non-resident foreign corporation.
11. The following pertains to the salaries paid by the taxpayer during the year:
Salaries to regular employees P 400,000
Salaries to senior citizens (above poverty line) 30,000
Salaries to senior citizens (below poverty line) 50,000
Salaries to persons with disability 200,000
Compute the total deductible salaries expense under regular allowable itemized deductions and the
total special deduction.
a. P680,000; P 0
b. P680,000; P57,500
c. P 742,500; PO
d. P 680,000; P62,500
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CHAPTER 13-C OPTIONAL STANDARD DEDUCTION
Red- False Black- True
1. Unlike individual taxpayers, corporations opting for OSD can claim deduction for cost of goods sold or
cost of services.
2 OSD is in lieu of all deductions against gross income including personal exemptions.
3. Individuals can claim OSD up to 40% of gross sales or receipts or gross income.
4. Taxpayers opting to use the OSD are not required to submit financial statements.
5. Taxpayers may use the OSD for quarterly returns, then use the itemized deductions for the annual
return.
6.The optional standard deduction is presumed unless the taxpayer signified in his return his intention to
claim itemized deductions.
7. The taxable net income of individuals is 60%of their gross sales or receipts
8.Corporate taxpayers opting to use OSD will have taxable income equivalent to 60% of their gross
income.
9. “Gross sales” is net of sales returns, allowances and discounts.
10. "Gross receipts” include other receipts incidental to the primary operations of the business.
11. Gains in dealings in properties are included in gross sales or receipts.
12. Corporate OSD is 40% of operating and non-operating gross income excluding only those subject to
final tax or capital gains tax and exempt income.
13. For taxpayers using the accrual basis in the sales of services, gross receipts shall mean revenue.
14. Administrative and selling expenses are included in "cost of services.”
15.A partner can claim itemized deduction against his share in the net income of a general
professional partnership provided the partnership is using the OSD.
16. A partner can claim OSD out of his share in the net income of a general professional partnership.
17.A partner can claim OSD out of his share in the net income of a general professional
partnership provided the partnership is not using the OSD.
18. No deduction of whatever nature is allowed against compensation income, except mandatory
deductions and exempt benefits.
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19.Net operating loss carry-over and net capital loss carry-over are items of deductions hence; both are
not claimable simultaneously with OSD.
20. The option to elect OSD may result into a net operating loss carry over.
Exercise Drill No.1:
Check the box if the indicated taxpayers can claim optional standard deductions:
1.Resident citizen /
2.Resident alien /
3.Non-resident citizen /
4.Non-resident alien
5.Regular domestic corporation /
6.Regular resident foreign corporation /
7.Special corporation
8.Corporations subject to special

tax regime
9.Business partnership /
10.General professional partnership /
Exercise Drill No. 2
The gross income of a taxpayer who opted to use the optional standard deductions is presented below:
Gross Sales 5,200,000
Less: Sales Discounts, allowances and returns 180,000
Net sales 5,020,000
Less: COGS 2,500,000
Gross Income 2,520,000
Required: Determine the Optional Standard Deductions assuming the taxpayers is:
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1. 5,020,000 X 40% =2,008,000

2. 2,520,000 X 2% = 1,008,000
Exercise Drill No. 3
A taxpayer had the following results of operations:
Professional fees, P5, 200,000 collected P 6,000,000
Less: Cost of services, including P200,000 accrued and unpaid 3,100,000
Gross Income P 2,900,000
Recorded expenses, P200,000 accrued and unpaid 1,400,000
Net Income P 1,5000,000
Required: Determine the net income of the taxpayers under each of the following
conditions under the OSD:
IND- CASH BASIS = 5,200,000 X40% =2,080,000 5,200,000 - 2,080,000= 3,120,000
IND- ACCRUAL BASIS =6,000,000 X40% =2,400,000 6,000,000- 2,400,000 = 3,600,000
CORP- CASH BASIS =5,200,000 – 2,900,000= 2,300,000 X 40% =920,000
2,300,000- 920,000= 1,380,000
CORP- CASH BASIS= 6,000,000 – 3,100,000 = 2,900,000 X 40% = 1,160,000
2,900,000- 1,160,000= 1,740,000
Taxpayer Cash Basis Accrual Basis

INDIVIDUAL 3,120,000 3,600,000
CORPORATION 1,380,000 1,740,000
Exercise Drill No.4
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The income statement of a taxpayer which opted for OSD is disclosed as follows:
Sales, net of returns, allowances and discounts P 5,000,000
Less: Cost of Sales 3,000,000
Gross income from operations P 2,000,000
Add: Other income
Gain on sale of machinery P 100,000
Gain on sale of domestic stocks 92,000 192,000
Total gross income P 2,192,000
Less: Deductions 1,300,000
Net income P 892,000
Required: Compute the optional standard deductions assuming the taxpayer is:
1. An individual taxpayer = 5,000,000 X 40% = 2,000,000
2. A corporate taxpayer = 2,000,000 + 100,000 X40% = 840,000
Multiple Choice – Theory 1
1. The optional standard deduction for corporate taxpayer is
a. 40% of gross income
b. 40% of gross sales or gross receipts
c. 40% of total deductions claimed with or without support
d. 40% of cost of goods sold or direct cost of services
2. Which of the following individuals engaged in business cannot claim optional standard
deduction?
a. Resident citizen c. Resident alien
b. Non-resident citizen d. NRA-NETB
3. Which is correct with optional standard deduction?
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a. It replaces itemized deduction.
b. It replaces P250,000 annual exemption for individuals.
c. Both a and b.
d. Neither a nor b.
4. The optional standard deduction for individual taxpayers is
a. 40% of gross income
b. 40% of gross sales or gross receipts
c. 40% of total deductions claimed with or without support
d. 40% of the lower of actual deductible expenses and 40% of gross sales or gross receipts
5. One of the following can claim OSD. Which is it?
a. A self-employed individual taxpayers
b. A taxpayer earning mix of passive income and compensation income
c. A taxpayer earning purely passive income
d. A taxpayer earning purely compensation income
6. When purely employed, who of the following can claim OSD?
a. Resident citizen c. Resident alien
b. Non-resident citizen d. None of these
7. Which is not covered by the optional standard deduction?
a. Premium for health and hospitalization insurance
b. Senior citizen’s discount
c. Contribution expense
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d. Salaries expense
8. Which can claim deduction by itemized deduction only?
a. Employed taxpayers
b. Non-resident alien engaged in trade or business
c. General professional partnership
d. Business partnership
9. Which is not included in corporate OSD?
a. Cost of sales c. Administrative expenses
b. Selling expenses d. Creditable withholding tax
10. Corporate OSD is in lieu of all expenses such as the following except
a. Cost of sales or cost of services
b. Regular itemized allowable deductions
c. Special itemized allowable deductions
d. Net operating loss carry over
11.Individual OSD is in lieu of all expenses, such as but not including
a. Cost of sales or cost of services
b. Regular itemized allowable deductions
c. Special itemized allowable deductions
d. Net capital loss carry over
1. The OSD of corporations under the cash basis is based on
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a. Gross sales c. Total gross income
b. Gross receipts d. Gross income from operations
2. The option to elect OSD is irrevocable
a. In the year it was made
b. Over the next three years
c. In the quarter it was made
d. effective the quarter in the year the option was made.
3. Which is presented as operating income in the income tax return?
a. Gain on sale of ordinary assets
b. Share in the distributive net income of general professional partnership
c. Share in the distributive net income of a business partnership
d. Gross profit from the sale of goods
4. Which is not part of cost of services for a manufacturing concern?
a. Wages of plant employees
b. Factory supplies
c. Depreciation on plant equipment
d. Interest expense
5. The OSD of corporations under the accrual basis is based on
b. Gross receipts d. Total gross income from operations
6. The OSD of individuals under the cash basis is based on
b. Gross receipts d. Gross income from operations
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7. Which is not deducted in the determination of gross sales?
a. Sales returns
b. Allowances for defective merchandise
c. Sales discounts
d. Bad debt expense
8. For purposes of the OSD, which is not deducted in the determination of gross?
receipts?
a. Sales returns c. Discounts
b. Allowances d. Cost of services
9. Non-operating income subject to regular tax is excluded in the OSD base of
a. Individual taxpayers
b. corporate taxpayers
c. Both individual taxpayers and corporate taxpayers
d. neither individual taxpayers nor corporate taxpayers
10. Cost of services of banks excludes the following except
a. Advertising expense c. Interest expense on depositors accounts
b. Local tax expense d. Loss on sale of assets
11. In the determination of the distributive net income of the general professional partnership,
a. Partners can claim OSD on their share in the net income of a general professional partnership.
b. Partners can claim OSD on their share in the net income of a general professional partnership
provided the latter uses itemized deductions.
c. Partners can claim OSD on their share in the net income of a general professional partnership provided
the latter uses OSD.
d. Partners cannot claim OSD on their share I'm the net income of a general professional
partnership.
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12. Which is correct with respect to the deduction claimable by a partner against his share in the
distributive net income of a general professional partnership?
a. The partner can claim OSD provided the general professional partnership also claims
OSD
b. The partner can claim OSD provided the general professional partnership also claims
OSD
c. The partner can claim itemized deduction provided the general professional partnership
also uses itemized deduction
d. The partner can claim itemized deduction provided the general professional partnership
does not use itemized deductions.
13. Individual income taxpayer must indicate his or her option to claim OSD on
a. the first quarter return during the year
b. or before July 1 of the current year
c. the annual income tax return
d. annual or quarterly return at his or her option
14. Corporate income taxpayers must indicate their options to claim OSD on
a. the first quarter return during the year
b. or before July 1 of the current year
c. the annual income tax return
d. annual or quarterly return at his or her option
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Multiple Choice - Problems 1
1. An individual taxpayer, reported P800,000 net income after the following:
Cost of sales P 600,000
Administrative expense. 300,000
Selling expenses. 400,000
Compute the optional standard deductions. (800,000 + 600,000+ 300,000+ 400,000 x 40%)
a. P320,000. c. P600,000
b. P560,000. d. P840,000
2. In the immediately preceding problem, what is the net income under OSD? (2,100,000- 840,000)
a. P1,260,000. c. P1,540,000 b. P1,500,000 d. P1,780,000
3. An individual taxpayer opted to claim optional standard deduction in his first quarter
income tax return in 2015. Total recorded sales before P150,000 sales discounts and returns were
P2,350,000. Total recorded expenses were P1,180,000 of which only P340,000 were adequately
supported. The cost of sales was P900,000.
What is the total allowable deduction for 2015 assuming the taxpayer wants to claim itemized
deduction in the annual return?
a. P340,000 c. P1,240,000
b. P900,000 d. P1,180,000
4. The claimable deduction of a taxpayer during the year consisted of the following:
Cost of sales. P 600,000
Regular itemized allowable deductions. 400,000
Special itemized deductions, including P100,000.
deduction incentives 300,000
Net operating loss carry-over. 150,000
To an individual taxpayer, optional standard deduction is in lieu of
( 600,000 + 400,000 + 300,000 + 150,000)
a. P750,000 c. P1,300,000
about:blank 24/31
b. P850,000 d. P1,450,000
5. Assuming that the taxpayer in the immediately preceding problem is a corporation, OSD is in lieu of
(400,000 + 300,000 + 150,000)
a. P750,000 c. P1,300,000
b. P850,000 d. P1,450,000
6. Mrs. Belo had the following in 2020:
Sales P 3,400,000
Cost of sales 1,200,000
Administrative expenses. 300,000
Selling expenses. 500,000
Other taxable income from operations. 120,000
Other non-operating income 80,000
Passive income, net of final tax 70,000
Assuming Mrs. Belo elects to deduct OSD, compute the OSD. (3,400,000 + 120,000 x 40%)
a. P800,000 c. P1,480,000
b. P1,360,000 d. P1,440,000
7. I'm the immediately preceding problem, compute the OSD assuming the taxpayer is a corporation.
(3,400,000 – 1,200,000 + 120,000 + 80,000 x 40%)
a. P1,440,000 c. P928,000
b. P960,000 d. P880,000
8. A self-employed practitioner and a part-time employee derived the following income
in 2010:
Gross receipts. P 800,000
Compensation income. 300,000
Dividend income from a Real Estate Investment Trust 20,000
about:blank 25/31
Assuming the taxpayer opted to avail of OSD, what is the OSD? (800,000 x 40%)
a. P320,000 c. P440,000
b P328,000 d. P448,000
9. The following relate to collections upon billings, receipts, and unpaid billings of a practitioner during
the year:
Receipts from current year billings. P 800,000
Receipts from last year's billings. 200,000
Current year uncollected billings. 100,000
Reimbursement for out-of-pocket expenses. 20,000
Compute the OSD if the taxpayer is under the accrual basis. [(P800K+P100K+P20K) X 40%]
a. P408,000. c. P360,000
b. P368,000. d. P320,000
10. Compute the OSD if the taxpayer is under the cash basis. [(P800K+P200K+P20K)X40%]
a. P408,000. c. P368,000
b. P368,000. d. P320,000
1. The result of corporations of the taxpayer resulted in the following:
Gross sales revenue. P 7,200,000
Beginning inventory. 300,000
Purchases. 5,800,000
Ending Inventory. 1,400,000
Other operating revenues 100,000
Non-operating income. 20,000
Assuming the taxpayer is an individual, what is the optional standard deduction?
[(P7.2M+P100K) X 40%]
a. P1,040,000. c. P2,920,000
b. P1,048,000. d. P2,928,000
about:blank 26/31
2. In the immediately preceding problem, what is the OSD if the taxpayer is a

corporation? B [(P7.2M-P4.7M COGS)+P100K+P20K]X 40%
a. P1,040,000. c. P2,920,000
b. P1,048,000. d. P2,928,000
3. A professional practitioner has total uncollected billings of P200,000 at the year- end of 2019.
Additional billings totaling P2,500,000 were made in 2020. Uncollected billings at the year-end of
2020 were P400,000.
If he chooses to claim OSD l, determine the gross receipts. (P200K+P2.5M-P400K)
a. P2,100,000. c. P2,500,000
b. P2,300,000. d. P2,700,000
4. In the second quarter of 2019, Mr. Mariano reported total gross income of P2,000,000 after
P1,500,000 direct cost of services. If Mr. Mariano claimed itemized deduction in the first quarter, what is
the amount of claimable OSD in the second quarter if he wishes to change to the OSD?
C (P2M X 40%)
a. P 0. c. P800,000
b. P600,000. d. P1,400,000
5. A private educational institution subject to a 10% preferential corporate tax reported the
following in the first quarter of 2020:
Gross tuition revenues. P13,800,000
Less: Tuition discounts and remission. 400,000
Direct cost of services. 6,700,000
Gross income from canteen and bookstores 600,000
Compute the allowable OSD if the school wants to claim OSD.
a. P 0. c. P5,600,000
b. P2,920,000. d. P5,760,000
6. Mr. Calabarzon reported the following data in 2020:
Sales. P 1,000,000
Cost of sales. 600,000
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Gain on sale equipment. 60,000
Interest income from bank deposits. 40,000
Deductible expenses. 300,000
Non-deductible expenses. 200,000
Answer the following questions:
Compute the optional standard deduction (1M +60,000 + 40,000)
a. P440,000. c. P400,000
b. P424,000. d. P160,000
7. Compute the taxable income of Mr. Calabarzon. B (P1M-400K)+P60K
a. P700,000. c. P340,000
b. P660,000. d. P300,000
8. Assuming that Calabarzon is a corporate taxpayer, compute the optional standard

deduction. C [(P1M-P600K)+60K] X 40%
a. P440,000. c. P184,000
b. P424,000. d. P160,000
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Income TAX Chapter 13 Reviewer

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4/23/24, 11:23 PM Income TAX Chapter 13 Reviewer

CHAPTER 13-B SPECIAL ALLOWABLE ITEMIZED DEDUCTION AND NOLCO

Red- False Black- True

17. NOLCO is valid for 3 years.

18. NOLCO always exists when there is a net operating loss.

EXPENSE/ EXPENDITURE DEDUCTION INCENTIVE INCENTIVE LIMIT

Training expense under the 50% training expense None

Contribution under Adopt- a 50% of the contribution None

Cost of compliance with the 100% of the compliance expense None

Free Legal Expense Value of Pro-bono services 10% of gross income

Productivity incentive bonus 50% of productivity incentive None

Compute the deductible additional compensation expense. (182,000 x 15%)

Compute the deductible amount of income distribution to the beneficiary.

(900,000- 350,000 -45,000) x 20%

Regular Senior citizen

Gross sales P 8,000.000 P 800,000

Cost of sales 5,000,000 400,000

What is the deductible senior citizens' discount? (800,000 x 20%)

(500,000 X 50%) AND (900,000 – 90 (900K x 10%) – 250,000)

Document continues below

CPA Reviewer Law on

THE LAW ON Sales

Xienadin Group Project

What is the deductible amount of additional training expense? ( 300,000 X 50%)

Compute the special deduction for the free legal services.

Limit = (1.4 M x 10%) OR (180 HRS- 60 HRS x 1,000)

Multiple Choice - Problems 2

2. A taxpayer had the following results of operations:

What is the net income in 2020? (2,500,000 -1,000,000+200,000 – 300,000)

What is the allowable NOLCO deduction in 2020?

4. A corporate taxpayer incurred an operating loss in 2021:

Less: Cost of sales 1,200,000

Gross income P 1,800,000

Regular itemized deduction P1,200,000

Special itemized deductions 800,000

Deduction incentives 400,000 2,400,000

Net operating loss 600,000

(1,800,000 – 1,200,000 – 800,000- 400,000)

5. An individual taxpayer reported the following in 2021:

Gross income P 1,500,000

Administrative expenses P800,000

Selling expenses 650.000

Operating income 50.000

Less: Personal expenses 150,000

Excess of personal expenses over income 100.000

What is the NOLCO to be carried over in the next three years?

Compute the deductible NOLCO in 2021. (400,000 +200,000+ 100,000)

7. A taxpayer has the following historical results of operations:

Rent income P 400,000

Service fees 200,000

Interest income from bank deposits 50,000

Deductible expenses 800,000

Non-deductible expenses 100,000

Compute the NOLCO to be carried over in the next three years.

9. The carry-over of NOLCO is allowed when

a. the net operating loss is sustained from an exempt year.

C. the business is acquired by another taxpayer.

d. there is a change in the controlling shareholder representing 51% ownership.

a. NOLCO can be claimed together with Optional Standard Deductions.