INCOME TAXATION TERM ASSESSMENT 2ND SEM SY 2019 – 2020

INSTRUCTION: Write your answers in CAPITAL A. Reciprocity rule

letters using BLACK or BLUE ink pen. Avoid erasures.
Coverage: Chapter 8 - 11
THEORIES: (1 point per item)
1. One of the following is not a distinction between
capital and income
A. Capital is fund, income is a flow
B. Capital is wealth, income is the service of
wealth
C. Capital is a tree, income is the fruit
D. Capital is to corporations, income is to
individuals
2. One of the following is not a requisite of a taxable
income
A. There must be gain
B. The gain must be realized or received
C. The gain must not be excluded by law from
taxation
D. The gain must be that of resident or
nonresident citizen
3. In general, this term means all remuneration for
services performed by an employee for his
employer under an employer-employee
relationship
A. Dividend C. Interest
B. Compensation D. Royalty
4. Which of the following is not taxable?
A. Living quarters or meals furnished to an
employee for the convenience of the
employer
B. Tips or gratuities paid directly to an employee
by a customer of the employer which are not
accounted for by the employee to the
employer
C. Pensions, retirement and separation pay, in
general
D. Fixed or variable transportation,
representation and other allowances which
are received by a public officer or employee
or officer of a private entity, in addition to the
regular compensation fixed for his position or
office, in general
5. Promissory notes or other evidence of
indebtedness received in payment for services,
and not merely as a security for such payment,
constitute income to the amount of their:
A. Face value C. Fair market value
B. Maturity value D. Regular value
6. If an individual performs services for a creditor who
in consideration thereof cancels the debt, the
cancellation of indebtedness may amount to:
A. Gift C. Donation
B. Capital contribution D. Payment of Income
7. The recovery of account previously written off
would constitute taxable income only if in the year
of recognition of being worthless, the write-off
resulted in a reduction of a taxable income
B. Equity of the incumbent rule
C. Tax benefit rule
D. Materiality rule
8. One of the following is considered an income for
income taxation
A. Advance in the value of the person or
corporation
B. Increase in the book value of real property
and other fixed assets of a corporation as a
result of their re-appraisal
C. Net increase in the value of livestock or
increase of its inventory
D. Items of gross income which have been
credited or set apart for the taxpayer without
restriction
9. It refers to income received or earned but is not
taxable as income because it is exempted by law
or by treaty
A. Exclusion C. Deduction
B. Inclusion D. Taxation
10. Recoveries of damages, representing
compensation for personal injuries which are non-
physical in nature shall not be included in gross
income if due to which of the following?
A. Libel, defamation and slander
B. Breach of promise to marry
C. Alienation of affection
D. All of the choices
11. In a certain civil case, Wilfredo, plaintiff, was
awarded by the court P20,000 damages
representing profit he failed to realize on account
of defendant’s failure to comply with his obligation
to Wilfredo. Are those damages taxable income of
Wilfredo?
A. No, because damages are generally not
subject to income tax
B. Yes, because damages which are generally
excluded from gross income are only those
that are paid arising from injuries or sickness
C. No, because no criminal case was filed by
Wilfredo
D. Yes, because damages arising out of a civil
case is always taxable under the current
provisions of the Tax Code
12. Which is correct with respect to deductions from
gross income?
A. They pertain to expenses of generating items
of business or professional gross income
B. They are excluded from the determination of
taxable income
C. They include expenses incurred in the
generation of any income
D. They include P250,000 annual income
exemption
13. Which is correct with respect to exclusions from
gross income?

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INCOME TAXATION TERM ASSESSMENT
A. They are included as part of gross income but
are subsequently deducted
B. They are not included in gross income but are
added to the taxable income
C. They are not considered in the computation of
taxable income
D. They are synonymous with deductions
14. A policy holder who outlived the policy and
received a cash surrender value in excess of
premiums paid is exempt upon
A. The amount representing a return on
premiums
B. The entire amount received
C. The excess of amount received over the
premiums paid
D. The entire amount is taxable
15. Termination benefits are exempt from income tax
provided that the reason for termination is
A. Beyond the employee’s control
B. Within the employee’s control
C. Within the employer’s control
D. Beyond the employer’s control
16. Which is not a requisite of exemption of a
retirement benefit plan?
A. Ten years of employment
B. The employer maintains a reasonable
pension benefit plan
C. The retiree must be a senior citizen
D. First time availment of retirement exemption
17. Which of the following is not an exclusion from
gross income?
A. Income of government properties
B. Income taxes collected by the Bureau of
Internal Revenue
C. Dividend income payable to foreign
government
D. Social Security Benefits
18. Which is not included in the gross taxable
compensation income of an employee?
A. Fixed monthly allowances
B. Performance based bonus
C. 13th month pay and other benefits not in
excess of P90,000
D. 13th month pay and other benefits in excess
of P90,000
19. Which is not a supplemental compensation
income?
A. De minimis benefits C. Allowances
B. Honoraria D. Bonuses
20. Which of the following is subject to income tax?
A. Minimum wage
B. De minimis benefits
C. Voluntary contribution to SSS, PHIC and
HDMF
D. GSIS benefits
21. When will the fringe benefit tax be paid?
2ND SEM SY 2019 – 2020
A. On or before the 10th day of the month
following the month in which the fringe
benefits were granted to the recipient
B. 15th day of the month following the month in
which the fringe benefits were granted to the
recipient
C. 25th day after the end of the calendar quarter
D. 30th day after the end of the calendar year
22. One who is vested with powers or prerogatives to
lay down and execute management policies
and/or hire, transfer, suspend, lay-off, recall,
discharge, assign or discipline employees
A. Managerial employee
B. Supervisory employee
C. Rank and file employee
D. Managerial or rank and file employee
23. Fringe benefit tax is imposed on
A. All employees
B. Consultants
C. Managerial and Supervisory employees
D. Rank and file employees
24. Statement 1: The fringe benefit tax is imposed only
when the employer is a corporation.
Statement 2: The fringe benefit tax shall be
withheld and paid by the employer in accordance
with the provision of the Tax laws.
A. Both statements are correct
B. Both statements are incorrect
C. Only statement 1 is correct
D. Only statement 2 is correct
25. The fringe benefit furnished to employees who are
non-resident aliens not engaged on trade or
business within the Philippines (except rank and
file) shall be taxed at:
A. 33% C. 25%
B. 32% D. 15%
26. In which one of the following fringe benefits cases
involving motor vehicle shall the monetary value
be 50% of the value of the benefit?
A. If the employer purchases the motor vehicle
in the name of the employee
B. If the employer provides the employee with
cash for the purchase of a motor vehicle, the
ownership of which is placed in the name of
the employee
C. IF the employer purchases the car on
installment, the ownership of which is placed
in the name of the employee
D. If the employer owns and maintains a fleet of
motor vehicle for the use of the business and
employees
27. The cost of educational assistance extended by an
employer to the dependents of the employee shall
be treated as fringe benefits of the employee
unless the assistance was:
A. Provided through a competitive scheme
under the scholarship program of the
company
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INCOME TAXATION TERM ASSESSMENT 2ND SEM SY 2019 – 2020

B. Paid directly to the school where the 3. In 2018, Mata Optical Shop purchased a motor
dependents are studying vehicle for its Manager. It was registered in the
C. Given through the employee-parent of the manager’s name. The cost of the vehicle was
dependent P400,000.. It was used partly for the benefit of the
D. Answer not given company. How much is the fringe benefit tax?
28. Medical cash allowance to dependents of A. P215,385 C. P37,647
employee shall be considered “de minis” benefit B. P188,235 D. P0
not subject to income tax as well as withholding 4. A resident citizen, widower, with a dependent
tax on compensation of both managerial and rank minor brother, had the following data on income
and file employees of not exceeding and expenses:
A. P1,500 per semester or P250 per month Gross sales ₱1,500,000
B. P1,200 per semester or P200 per month Cost of sales 1,000,000
C. P900 per semester or P150 per month Business Expenses 200,000
D. P750 per semester or P125 per month Interest from savings deposit, BPI-Makati
29. In general, fixed or variable transportation, Philippines 50,000
representation and other allowances which are Prize in a literary contest he joined 100,000
received by a public officer or employee of a Prize received for achievement in literature
private entity, in addition to the regular (did not join the contest) 10,000
compensation fixed for his position or office, is Gain from sale of bonds (maturity is 6
compensation subject to withholding tax except: years) 5,000
I. Representation and transportation Separation pay from his former job
allowance (RATA) granted to public (resigned) 250,000
officers and employees under the Cash inherited from his uncle 300,000
General Appropriation Act Proceedsof his wife's life insurance
II. Personal economic relief allowance (irrevocable beneficiary) 1,000,000
A. Both exceptions are correct Amoutn received as return of premium
B. Both exceptions are incorrect (Premium paid: P150,000) 200,000
C. Only first exception is correct Tax informer's reward 500,000
D. Only the second exception is correct Interest income from Government bonds 20,000
30. Statement 1: The excess of advances over the Winnings from gambling 10,000
actual expenses shall constitute taxable income if
such is not returned to the employer
How much was the total amount excluded or
Statement 2: Reasonable amounts of
exempted income?
reimbursements or advances for travelling and
A. P1,815,000 C. P1,465,000
entertainment expenses which are pre-computed
B. P1,715,000 D. P0
on a daily basis are paid to an employee while he
is on an assignment or duty need not be subject to
A married resident citizen has five (5) dependent
the requirements of substantiation and to the
children. The following information pertains to his
withholding
income and expenses in the year 2019:
A. Both statements are true
Salary, net of P20,000 withholding tax ₱380,000
B. Both statements are false
Interest income, bank deposit - BPI Manila 50,000
C. Only statement 1 is true
Yield from money market placement, State
D. Only statement 2 is true
Investment House, Manila 30,000
Rent expense, apartmetn house 36,000
PROBLEMS: (3 points per correct answer. No need
Health insurance premium paid 5,000
to show solutions)

Use the following data for Nos. 1-2: During the year 5. How much is the taxable compensation income?
2018, ABC Corporation paid for the monthly rental of a A. P400,000 C. P250,000
residential house of its branch manager amounting to B. P336,000 D. P230,000
P68,000.
1. How much is the monetary value of the fringe 6. How much is the tax due?
benefit? A. P80,000 C. P17,200
A. P68,000 C. P16,000 B. P30,000 D. P0
B. P34,000 D. P11,333
2. How much is the fringe benefit tax? 7. The taxable income before income tax of Sarah
A. P18,308 C. P6,000 Corporation for the current year was P500,000.
B. P16,000 D. P0 During the year, the corporation received the

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INCOME TAXATION TERM ASSESSMENT 2ND SEM SY 2019 – 2020

following all of which were credited to

miscellaneous income:
Refund of percentage tax ₱20,000 End of Assessment
Refund of income tax 50,000
Refund of value added tax 40,000 “Learning is not the product of teaching. Learning is
Bad debt recovered (allowed as deduction) 30,000
the product of the activity of learners” – John Holt
Bad debt recovered (disallowed as deduction) 20,000

How much would be the adjusted taxable income “A positive attitude may not solve all your problems,
of the corporation for the current year? but it will annoy enough people to make it worth the
A. P410,000 C. P117,000 effort” – Unknown
B. P390,000 D. P0

8. A VAT registered drugstore sells ten (10) pieces of God bless and take care everyone!
prescription medicine to a senior citizen at an nml/2020
undiscounted selling price of P5 per piece. It
issues the following receipt
Selling Price (VAT exempt 10
pcs@P5 per piece) ₱50
Less: 20% discount 10
Amount payable by senior citizen ₱40

How much is the deductible amount?

A. P50 C. P10
B. P40 D. P0

9. The following information were taken from an

employee:
Salary, gross of withholding tax ₱159,000
Transportaion allowance given monthly 5,000
Thirteenth month pay 13,250
Christmas bonus 10,000
Reimbursement for transportation expenses 5,000
Payroll deductions:
SSS Contributions (mandatory is P11,568) 12,000
Philhealth contribution (mandatory is P1,950) 3,000
HDMF Contribution (mandatory is P3,180) 3,600
Loan payment 20,000

How much shall be excluded from his gross

compensation income?
A. P48,600 C. P39,948
B. P46,698 D. P0

10. A rank and file employee received the following

benefits from his employer:
13th month pay ₱40,000
14th month pay 40,000
Christmas bonus 20,000
Productivity incentives 30,000
Total 13th month pay and other benefits ₱130,000

How much is the tax exempt benefits?

A. P130,000 C. P82,000
B. P90,000 D. P30,000

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