TAXATION

EASY ROUND

E1. The following are the effects of failure to stamp a taxable document, except
A. It shall not be recorded until the DST is paid
B. It shall not be admitted or used as evidence in any court until the DST is paid
C. The notary public shall not add his jurat or acknowledge to the document until the DST is paid
D. The notary public shall not allow the taxpayer to conduct the business until the DST is paid

E2. 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.

E3. Which of the following is not correct?

A. The Bureau of Internal Revenue is part of the administrative machinery for the assessment and collection of
internal revenue taxes.
B. The Bureau of Customs is also charged with the collection of internal revenue taxes.
C. The local government units, such as the municipalities, cities and provinces, form part of the national tax system
D. Private banks may be authorized to collect internal revenue taxes

E4. A VAT taxpayer has the following data for a particular quarter during the current year:
Sale of shares of stock:
Held as inventory P 1,000,000
Held as investment 500,000
Cost of the shares sold directly to the buyer:
Held as inventory 300,000
Held as investment (thru local stock exchange) 600,000
The stock transaction tax is:
A. P0 B. P1,500 C, P3,000 D. P2,500

E5. The improperly accumulated earnings tax imposed on corporations is

A. Based on the net income per books after tax
B. Based on the net income per books before tax
C. Calculated to encourage domestic corporations to declare dividends
D. 10% of the excess retained earnings over the paid in capital

E6. Mr. Tee, a taxpayer reporting in the cash basis, showed the following interest expense related to his business during
the year:
Interest paid in advance P20,000
Interest paid to brother 12,000
Interest paid on delinquency taxes 8,000
Interest on borrowing to finance his family home 30,000
Interest paid to finance petroleum exploration 100,000

If Mr. Tee has an interest income of P10,000 earned from the bank, and P20,000 interest income from trade notes
receivable, how much is the deductible interest expense during the year?

Ans: P8.000

E7. Triple X Corporation has a principal office located along EDSA. Due to worsening traffic conditions, its Board of
Directors decided to relocate to Davao City. Assuming it acquired from you real properties to be used as office and you
are a real estate dealer, what will be the tax consequence of the said transaction, which of the following will be your
correct advice?
A. The sale may be exempt from the income tax since the property to be sold is the principal office subject to
compliance with the requirements similar to sale of principal residence by individuals
B. The sale is subject to capital gains tax of 6%
C. The sale is subject to capital gains tax of 5% and/or 10% depending on the net capital gain
D. The sale is subject to RCIT or MCIT whichever is higher
E8. Mr. Alvarez is in the retail business. He received a deficiency tax assessment from the BIR containing only the
computation of the deficiency tax and the penalties without any explanation of the factual and legal bases for the
assessment. Is the assessment valid?
A. The assessment is valid; all that Mr. Alvarez needs to know is the amount of tax.
B. The assessment is invalid; the law requires a statement of the facts and the law upon which the assessment is based
C. The assessment is valid but Mr. Alvarez can still contest it.
D. The assessment invalid because Mr. Alvarez has no way to determine if the computation is erroneous.

E9. The prescriptive period for the collection of the deficiency tax assessment will be tolled
A. If the taxpayer files a request for reconsideration with the Assistant Commissioner
B. If the taxpayer files a request for reinvestigation that is approved by the Commissioner of Internal Revenue
C. If the taxpayer changes his address in the Philippines that is communicated with the BIR
D. If a warrant or levy is served upon the taxpayer’s real property in Manila

E10. Branch Profit remittances apply to _____________.

Ans: Resident Foreign Corporations

AVERAGE ROUND

A1. Which of the following statemenets are not incorrect?

I. If the estate is settled extra-judicially, the estate tax return should be filed within 2 years from the date of death of
the decedent
II. If the estate is settled judicially, the estate tax return should be filed within 5 years from the date of death of the
decedent
III. The value added tax return shall be filed within 25 days from the close of the taxable month
IV. The donor’s tax return is not required if the net gift exceeds P250,000

Ans: None

A2. Unicorn Airlines Inc. is a resident foreign international carrier. Its records of income and expenses are as follows:
a. Continuous flight from Manila to Beijing = 2,000 tickets at P5,000 per ticket
b. Ticket sold for slight from Manila to Beijing (Transferred flight from Hong Kong to Beijing) = 4,000 tickets at
P6,000 per ticket
c. Direct flight from Manila to Hong Kong = 2,000 tickets at P3,000 per ticket
d. Total operating expenses is P10,000,000

What is the amount of Unicorn’s income tax payable in the Philippines?

Ans: P700,000

A3. Which if the following fringe benefits given to a managerial or supervisory employee shall not be subject to fringe
benefits tax?
I. Contributions of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit
plans
II. Benefits granted to employees which are required by the nature of, or necessary to the trade, business or
profession of the employer
III. Benefits granted for the convenience or advantage of the employee
IV. Personal expenses of the employee paid for or reimbursed by employer whether or not receipted in the name of
the employer

Ans: I & II only

A4. Convergence, a non-resident foreign consulting firm, received P10,8500,000 (net of withholding income tax) as
payment for a consulting service rendered to SMX, Philippine. During its short stay in the Philippines, it incurred the
following costs:
 Purchase from VAT registered enterprises P 1,344,000
 Purchase from non-VAT registered enterprises 1,050,000
How Much is the total national taxes on the transactions?

Ans: P 6,510,000
A5. Liwayway Corporation has the following data for the year 2019 and 2020:
2019: Gross income P200,000
Business expenses 180,000
Capital loss (capital asset was acquired on January 15, 2019
and was sold on March 15, 2019) 75,000
Capital gain (capital asset was acquired on January 15, 2019
And was sold on March 31, 2019) 30,000
2020: Gross income 500,000
Business expenses 400,000
Capital gain (capital asset held for 12 months) 65,000
Capital loss (capital asset held for more than 12 months) 10,000
What is the taxable net income for 2019 and 2020, respectively?

Ans: P 20,000; P 155,000

A6. XYZ Corporation, a domestic corporation, had the following data during the year 2019:
Gross income P 1,000,000
Business connected expenses 400,000
Dividends from:
a. Domestic corporation 100,000
b. Foreign corporation, 90% of the gross income was derived from the Philippines 100,000
c. Foreign corporation, 60% of the gross income was derived from the Philippines 80,000
d. Foreign corporation, 30% of the gross income was derived from the Philippines 40,000
The taxable income for 2019 is ___________.

Ans: P 820,000

A7. One of the following is not within the powers of the Commissioner of Internal Revenue?
A. Compromise the payment of internal revenue tax on the ground of taxpayer’s financial incapacity
B. Compromise the payment of internal revenue tax on the ground that there is reasonable doubt as to the validity of
the assessment.
C. Compromise criminal violation if already filed in court and those involving fraud.
D. Abate or cancel a tax liability on the ground that the cost of collection is greater than that of the tax to be collected

A8. The JD Company is a PEZA-registered manufacturer entitled to the Income Tax Holiday (ITH) incentive for the CY
2018. It is the company’s fourth year of operations. The following information pertain to the CY 2018 activities of the
company:
Details Registered Activities Unregistered Activities
Gross sales P 121,700,000 P 10,452,000
Cost of sales (103,400,000) 7,350,500
Other income (net gain on disposal of office PPE) - 700,500
Operating expense* (use 60%-40% allocation 7,350,000
between registered and unregistered activities)
*assume all the requisites for deductibility were met
Creditable withholding taxes amounted to P40,000, not excluding P10,000 CWT for 2019. Income tax still due is
_______.

Ans: 228,600

A9. If the estate of a Japanese alien residing in Tokyo has an executor or administrator in the Philippines who is duly
registered, the estate tax return shall be filed with:
A. The office of the Commissioner (RDO No. 39 – South Quezon City)
B. Revenue District Office where the executor or administrator is registered.
C. Revenue District Office having jurisdiction over the executor or administrator’s legal residence.
D. Duly authorized treasurer of the city or municipality where the decedent was domiciled at the time of death.

A10. A domestic company under calendar year has the following selected transactions:
09/09/18 – Purchased 100 shares of Pabobo Company common for P5,000.
12/21/19 – Purchased 50 shares of Pabobo Company common for P2,750.
12/26/19 – Sold the 100 shares purchased on 09/09/08 for P4,000.
0102/20 – Purchased 25 shares of Pabobo Company common for P1,125.
How much is the amount to be added to the adjusted cost basis of the replacement stocks bought after the date of sale?
Ans: 250
DIFFICULT ROUND

D1. On March 31, 2019, Mekeni Foods, Inc. received a notice of assessment and a letter of demand on its April 15, 2017
final adjustment return from the BIR. Mekeni Foods, Inc. then filed a request for reinvestigation together with the
requisite supporting documents on April 25, 2019. On June 2, 2019, the BIR issued a final assessment reducing the
amount of tax demanded. Since Mekeni Foods, Inc. was satisfied with the reduction, it did not do anything anymore. On
April 15, 2024, the BIR garnished the corporation’s bank deposits to answer the liability. Was the BIR action proper?
A. Yes, the BIR has 5 years from the filing of the protest within which to collect.
B. Yes, the BIR has 5 years from the issuance of the final assessment within which to collect.
C. No, the taxpayer did not apply for a compromise.
D. No, without the taxpayer’s prior authority, the BIR action violated the Bank Deposit Secrecy Law.

D2. The following data were provided by Air America, international carrier doing business in the Philippines:

Gross receipts, sales of tickets in the Philippines to passengers

(Manila to Taipei flight) P 8,000,000
Gross receipts, sales of tickets in Japan to passengers
(only P5,000,000 actually flown, Manila to Tokyo flight) 6,000,000
Gross receipts, transport of goods, sales of tickets in Japan
(Manila to Tokyo flight) 3,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Hongkong
Flight), passengers were endorsed by another international carrier 1,000,000
Gross receipts, sales of tickets in the Philippines (Manila to Los Angeles flight),
Passengers were transshipped in Tokyo to Los Angeles by another airline
(flight from Manila to Tokyo-5 hours, from Tokyo to Los Angeles-10 hours) 4,500,000

Expenses, sales of tickets, Philippines 4,000,000

Rental Income, Philippines, net of withholding tax, 5% 1,425,000
Interest income, bank deposit, Philippines 50,000
Expenses connected to rental income, Philippines, gross of VAT 560,000
Payments, 1st 3 quarters 150,000

How much is OPT?

Ans: P 90,000

D3. It refers to a plea of re-evaluation of an assessment on the basis of newly discovered or additional evidence that a
taxpayer intends to present. It may involve a question of fact or of law or both.

Ans: Request for reinvestigation

D4. COC Bank provided the following data for the first quarter of 2019:
January February March
Interest income, remaining maturity of loan is 6 years P 60,000 P 70,000 P 80,000
Interest income, remaining maturity of loan is 5 years 50,000 60,000 70,000
Interest income, remaining maturity of loan is 4 years 40,000 50,000 60,000
Dividend income 75,000 100,000 125,000
Royalties 50,000 50,000 50,000
Trading gain (loss) 50,000 (25,000) 40,000

How much is the gross receipts tax for the month of March, (a) assuming the taxpayer is a non-bank financial
intermediary performing quasi banking functions and (b) if it is a non-bank financial intermediary NOT performing quasi
banking functions? (Provide two answers)

Ans: P 11,850; P 16,800

D5. A married decedent who was under absolute community of properties died on October 15, 2019. His estate provided
the following information:
Real properties inherited during the marriage from his father
Who died 3 years before the present decedent’s death P 500,000
Real property given during the marriage by his uncle as gift
4 ½ years before the present decedent’s death 1,500,000
Land inherited before the marriage from an aunt who died
6 years before the present decedent’s death 500,000
House built on the land inherited from the aunt (family home) 900,000
Cash income from the real property received as a gift 100,000
Real properties received by the surviving wife spouse before the marriage 3,800,000
Real properties acquired by the spouses during the marriage 5,500,000
Personal properties acquired during the marriage 2,000,000
The following were considered as deductions from the gross estate:
Actual funeral expenses p 100,000
Judicial expenses 150,000
Medical expenses 200,000
Obligations incurred before marriage that benefited
The community properties 250,000
Claims against an insolvent debtor 50,000
Unpaid mortgage on inherited land 100,000
Loss of car through theft on December 31, 2019 (part of personal
Properties acquired during the marriage) 300,000
Unpaid realty tax on real property received as gift from his uncle 30,000

The value of the real properties at the time of inheritance was P300,000. The value of the real property received as gift
from an uncle was P1,000,000. The inherited land and the house built on it were certified as the family home of the
decedent and his family by the Barangay Captain in the locality where they were situated. The vanishing deduction is
__________.

Ans: P 361,320

D6. A, resident citizen, single had the following data during the taxable year:
1. Contributions during the year:
a. To the Department of Education – for priority activity in education P 100,000
b. To religious and charitable organizations 20,000
c. To victims of habagat in Benguet 40,000
d. To the government for public purposes 20,000
2. Bad debts from bankrupt debtors, uncollectible 30,000
3. Accumulated depreciation on machineries
a. Beginning 80,000
b. Ending 100,000
4. Allowance for bad debts
a. Beginning 75,000
b. Ending 80,000
5. During the year, A sold a machine acquired three years earlier for P95,000. The machine had a cost of P80,000
and an accumulated depreciation of P30,000.
The net income of A before considering nos. 105 amounts to P300,000. The taxable income of A is ________.

Ans: P 138,500

D7. A resident citizen, married, with two qualified depedent children has the following income and expenses for the year
2018:
Gross income, Philippines P 3,000,000
Gross income, USA 2,000,000
Business expenses, Philippines 500,000
Business expenses, USA 300,000
Interest income, peso bank deposit BPI-Manila 20,000
Interest income, US dollar bank deposit BPI-Manila 50,000
Gain from sale of vacant lot used as parking space for rent 500,000
(selling price P3,000,000; FMV at the time of sale, P5,000,000)
Gain from sale of shares of stock listed and traded in the local stock 30,000
 exchange (Selling price, P100,000)
How much is the total final tax on passive income and capital gains tax, respectively?
Ans: 11,500; 0

D8. A, a rank and file employee, receiving the statutory minimum wage and supporting an illegitimate child had the
following data during the taxable year:
a. Salary, gross P 120,000
b. Mid-year bonus 20,000
c. 13th month pay 10,000
d. Christmas bonus 30,000
e. Overtime pay 40,000
f. Fringe benefits (paid in cash)
1. Rice subsidy 28,000
2. Uniform and clothing allowance 14,000
3. Actual medical benefits 10,000
4. Christmas cash gift 5,000
5. Achievement award (10-year service) 10,000
6. Monetized unused leave credits (12 days) 6,000
g. Deductions made by the employer
1. SSS premiums contributions 2,000
2. Philhealth premiums contributions 1,800
3. Pag-ibig premiums contributions 1,200
4. SSS loan 3,600
5. Pag-ibig loan 2,400
6. Premiums on health and hospitalization insurance 2,000
The net taxable income of A is _______.

Ans: Zero

D9. A closely-held corporation registered with the BIR in 2005 had the following data for taxable year 2019:
Sales P 5,000,000
Cost of sales 1,500,000
Business expenses 800,000
Dividend from a domestic corporation 50,000
Selling price of land (capital asset) costing P3,500,000 4,000,000
Interest on Philippine currency bank deposit 40,000
Dividends declared and paid 500,000
Tax paid for the first three quarters 150,000
The BIR upon investigation found out that there was improper accumulation of earnings. The corporation did not contest
the findings of the BIR. The tax on improperly accumulated earnings is __________.

Ans: P 173,200

D10. Identify each of the following statements whether it is true or false, in relation to stock options.
I. When an amount is received from the employee for the option to purchase the employer company stocks, the
same shall be considered by the employer company as ordinary gain since it is related to the active pursuit of
business of the employer company.
II. Upon the grant of option to purchase stocks of the employer company, said option hall be subject to documentary
stamp tax.
III. The sale of option shall be treated as sale of stocks not listed on the stock exchange.
IV. The transfer of option without consideration shall be treated as donation subject to donor’s tax based on the FMV
of the option at the time of donation.

Ans: False, True, True, True

AUDITING
EASY ROUND

E1. Which of the following statements most likely would be included in an engagement letter from an auditor to a client?
a. The CPA firm will provide absolute assurance about whether the financial statements are free of material
misstatement.
b. The CPA firm is responsible for ensuring that the client complies with applicable laws.
c. The CPA firm will involve information technology specialists in the performance of the audit.
d. The CPA firm will adjust the financial statements to correct misstatements before issuing a report.

E2. Which of the following prospective financial statements is (are) appropriate for general use?
Financial forecast Financial projection
a. Yes Yes
b Yes No
.
c. No Yes
d No No
.

E3. When assessing the competence of the internal auditors, an independent CPA should obtain information about the
a. Organizational level to which the internal auditors report.
b. Quality of the internal auditors’ working paper documentation.
c. Policies prohibiting internal auditors from auditing sensitive matters.
d. Internal auditors’ preliminary assessed level of control risk

E4. Analytical procedures used in the planning phase of an audit should focus on:
a. Documenting the risk factors relating to the susceptibility of assets to misappropriation.
b. Identifying the internal control activities that could reduce the assessed level of control risk.
c. Discovering uncorrected misstatements that should be communicated to the audit committee.
d. Enhancing the auditor’s understanding of the transactions and events that have occurred since the last audit.

E5. An auditor who uses the work of a specialist may refer to the specialist in the auditor’s report if the
a. Auditor believes that the specialist’s findings are reasonable in the circumstances.
b. Specialist’s findings support the related assertions in the financial statements.
c. Auditor modifies the report because of the difference between the client’s and the specialist’s valuations of an
asset.
d. Specialist’s findings provide the auditor with greater assurance of reliability about management’s representations.

E6. in attribute sampling, a 25% change in which of the following factors will have the smallest effect on the size of the
sample?
A. Tolerable rate of deviation.
B. Number of items in the population.
C. Degree of assurance desired.
D. Planned assessed level of control risk

E7. Which of the following is an analytical procedure that an auditor most likely would perform during the final review
stage of an audit?
a. Comparing each individual expense account balance with the relevant budgeted amounts and investigating any
significant variations.
b. Testing the effectiveness of internal control procedures that appear to be suitably designed to prevent or detect
material misstatements.
c. Reading the financial statements and considering whether there are any unusual or unexpected balance that were
not previously identified.
d. Calculating each individual expense account balance as a percentage of total entity expenses and comparing the
results with industry averages.

E8. Thunderstruck Company must determine the December 31, 2019 accruals for advertising and rent expense.

 A P50,000 advertising bill was received January 7, 3030 comprising costs of P35,000 for advertisements in
December 2019 issues and P15,000 for advertisements in January 2020 issues of the newspaper.
 
A store lease, effective December 16, 2019 calls for a fixed rent of P120,000 per month, payable one month from
the effective date and monthly thereafter. In addition, rent equal to 5% of net sales over P6,000,000 per calendar
year is payable on January 31 of the following year. Net sales for 2019 totaled P9,000,000.
On December 31, 2019, what amount should be reported as accrued liabilities?

Ans: 245,000

E9. Shy Violet Co. provided you the following information at year-end:
Preference share capital, P100 par P 2,300,000
Share premium-preference share 805,000
Ordinary share capital, P10 par 5,350,000
Share premium-ordinary share 2,750,000
Subscribed ordinary share capital 50,000
Retained earnings 1,900,000
Note payable 4,000,000
Subscription receivable-ordinary share 400,000
What is the amount of legal capital?

Ans: 7,600,000

E10. Bombastic is engaged in a small export business. The company maintains limited records. Most of the company’s
transactions are summarized in a cash journal; non-cash transactions are recorded by making memo entries. The following
are abstracted from the company’s records:
Accounts receivable, increase P 1,480,000
Notes receivable, decrease 800,000
Accounts payable, decrease 600,000
Notes payable, trade, increase 800,000
Notes payable-bank, increase 1,200,000
Sales return (120,000 was refunded) 320,000
Sales discounts 80,000
Purchase returns (120,000 was refunded) 320,000
Purchase discounts 140,000
Accounts written off 240,000
Recovery of accounts written off 72,000
Cash sales 1,200,000
Cash purchases 1,000,000
Cash received from current receivables,
excluding recoveries 6,000,000
Cash payment to trade creditors 4,800,000

What is the total gross sales?

Ans: 8,320,000

A1.