CORDILLERA CAREER DEVELOPMENT COLLEGE

INCOME TAXATION
FINAL EXAMINATION

INSTRUCTION:
 Use capital letters only.
 Summarize answers leaving one space after every 5 numbers followed by solutions.
No solution/wrong solution, no merit. Solutions should be in good/proper form.
 Submit answers together with solutions through messenger of e-mail.

I. Part One. Multiple choice theory. (one point each)

1. Which of the following depreciation in value of property is deductible?
a. Depreciation for a building of a private educational institution where the initial
cost of construction is charged to expenses
b. The portion of depreciation determined by the BIR as unreasonable for the
current period
c. Depreciation for personal properties of the taxpayer such as his cars and
cellphones
d. Depreciation in value of land due to calamity
2. The following impositions which are incurred in the conduct of business are not allowed
as deductions from gross income, except
a. documentary stamp tax. c. final withholding tax
b. special assessment. d. value added tax.
3. The following are requisites of depreciation expense to be deducted from gross income,
except.
a. It must be reasonable and charged off during the year.
b. It must be used in business, profession or trade.
c. The asset subject to depreciation must have a limited life.
d. The asset is a capital asset.
4. Which of the following expenses of the business would be allowed as deduction from its
business income?
a. Insurance premium on life insurance of employee where the employer is the
beneficiary
b. Donation made to employees
c. Losses incurred on transaction with related party
d. Regular repairs of business property
5. Which of the following is deductible as bad debts?
a. Bad debts which is estimated at 1% of net sale
b. Bad debts based on allowance of 1% of accounts receivable
c. Account receivable written off
d. Account receivable recovered
6. The following are exclusions from taxable gross income, except
a. proceeds of life insurance
b. gifts
c. P25,000 Christmas bonus
d. sick leave with pay
 7. Which of the following constitutes a deductible business expense?
a. Purchase of office equipment invoiced under the trade name of the taxpayer’s
business
b. Tuition fees of dependents of the taxpayer
c. Interest expense on a business loan
d. Representation expenses booked in the name of the taxpayer’s wife
8. Which of the following qualifies for deduction for an individual income taxpayer
engaged in business?
a. Salaries of household maid
b. Gasoline expenses of the taxpayer’s personal car
c. Office internet expense
d. Taxpayer’s transportation expense to and from his residence
9. Which of the following can be claimed as deduction?
a. Transportation allowance for the employees of the taxpayer
b. Losses from destruction of the taxpayer’s residence
c. Transportation of the taxpayer’s dependents
d. Depreciation of the residence of the taxpayer
10.Which is not deducted in the determination of gross sales?
a. Sales returns c. Discounts
b. Allowances d. Bad debts expense
11.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 a business partnership
c. Share in the distributive net income of general professional partnership
d. Gross profit from the sale of goods
12.Which is not part of cost of services for a manufacturing concern?
a. Factory supplies c. Wages of plant employees
b. Interest expense d. Depreciation on plant equipment
13.Which of the following is subject to fringe benefit given to managers and supervisors?
a. Fringe benefit of a rank and file employee
b. Fringe benefit of the managerial employees
c. Compensation income of the rank in file employee
d. Compensation income of the managerial employees
14.The following concepts denotes exemption from fringe benefit tax, except?
a. Convenience of the employer c. Welfare and benefits of the
b. Necessity to the business or trade employee
d. De minimis benefits
15.With regard to the amount on which the fringe benefit tax rate is applied, which
statement is wrong? The fringe tax benefit rate is applied on?
a. The monetary value of the fringe benefit
b. The gross-up monetary value of the fringe benefit
c. The amount deductible by the employer from gross income
d. Both accounts of the fringe benefit and the fringe benefit tax
16.The following fringe benefits are not subject to fringe benefit tax, except?
a. If required by the nature of or necessary to the trade, business or profession of the
employer.
b. Contributions of the employer for the benefit of the employee to retirement, insurance and
hospitalization benefit plans
c. Benefits given to the rank and file employees
d. If given for the convenience or advantage of the employee
17.Facilities or privileges furnished or offered by an employer to his employees that 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 his employees.
a. Fringe benefit c. De minimis benefit
b. Fringe benefit tax d. Gross-u monetary
18.Holding period is the duration for which the taxpayer held the capital asset. A capital
held by the taxpayer for not more than 12 months is said to be?
a. Short-term c. Long-term
b. Medium-term d. Co-terminus
19.All of the following cannot claim deductions, except?
a. Non-resident corporations
b. NRA-NETB
c. Resident citizen who is a pure compensation earner
d. Non-resident citizen engaged in trade or business
20.All of the following cannot deduct business expenses incurred abroad on foreign
operation, except?
a. Domestic corporation
b. Resident corporation
c. Non-resident citizen engaged in business
d. NRA- ETB
21.Which is a non-deductible expense?
a. Salaries of staff in a professional practice
b. Tuition fee of the dependents of the taxpayer
c. Transportation incurred in providing services to clients
d. Rental of the taxpayer’s business establishment
22.Which of the following is a deductible expense for income tax purposes?
a. Salaries of domestic servants c. Provision for doubtful accounts
b. Ordinary repair of personal car d. None of the above
23.Which of the following is a local tax?
a. Value added tax c. Other percentage tax
b. Documentary stamp tax d. Real property tax
24.Which of the following is not a local tax?
a. Community tax c. Tax on banks and other financial institutions
b. Documentary stamp tax d. Business taxes, fees and charges
25.A license that is imposed for revenue purposes is known as?
a. A license tax c. Professional tax
b. Sin tax d. Mixed tax
26.A tax system which is not directly practiced in the Philippines?
a. Proportional tax c. Regressive tax
b. Mixed tax d. Progressive tax
27.Which is a least principle of a sound tax system?
a. Consistency with economic objectives c. Administrative feasibility
b. Theoretical justice d. Fiscal adequacy
28.Which is not a source of tax laws?
a. Judicial decisions c. Local ordinances
b. Opinion of tax authors d. BIR rulings
29.In particular, income is taxed because?
a. When a person received an income, it received a benefit from the government.
b. Other sources of government revenues may not be sufficient to shoulder government
expenditures.
c. It represents the primary source of government revenue aside from business tax.
d. It represents the best indicator of one’s ability to pay.
30.Gross income means.
a. The pertinent item of income that is subject to progressive rates.
b. The pertinent item of income that is subject to final tax rates.
c. Income that can be subject to income taxation.
d. Income that are actually realized in cash or property.
31.Which is not subject to income taxation?
a. Income from properties received from donations and inheritance.
b. Proceeds of crop insurance.
c. Damage recovered from patent infringement suit.
d. Revenues of non-profit educational institutions.
32.Which is subject to income tax?
a. Compensation for personal injuries
b. Investment income of foreign government in the Philippines
c. Income of resident aliens abroad
d. Business income from jueteng and sale of cocaine
33.Which is an item of gross income?
a. Tariff collected by the Bureau of Customs
b. License fees collected by the Professional Regulation Commission
c. Income of a Government-Owned and Controlled Corporation
d. Tithes received by religious organizations
34.Which is not an item of gross income?
a. Interest on a bank deposit c. Winnings
b. Interest on a notes receivable d. PhilHealth benefits
35.Which is not an income taxpayer?
a. Business partnership c. Non-resident alien
b. Non-resident foreign corporation d. General professional partnership
36.Which of the following individual taxpayer is not covered by progressive tax?
a. Resident citizen c. Non-resident alien engaged in trade or business
b. Non-Resident citizen d. Non-resident alien not engaged in trade or business
37.Under the NIRC, a business partnership that is organized in the Philippines but
dominantly operates abroad is considered a/an?
a. Domestic corporation c. Non-resident corporation
b. Resident corporation d. Absentee corporation
38.A corporation doing business in the Philippines but not organized according to
Philippine laws is classified as?
a. Domestic corporation c. Non-resident corporation
b. Resident corporation d. Non-resident foreign corporation
39.All of the following taxpayers are taxable even on income earned outside the
Philippines, except?
a. Domestic corporation c. Resident alien
b. Resident citizen d. None of these
40.All of the following are taxable only on income earned within the Philippines, except?
a. Resident alien c. Non-resident alien
b. Resident citizen d. Non-resident citizen
41.Which is not a supplemental compensation?
a. De minimis benefits c. Allowances
b. Honoraria d. Bonuses
42.De minimis benefits are generally?
a. Exempt from tax c. Taxable in excess of P90,000
b. Fully taxable d. Subject to fringe benefits
43.Which is taxable as compensation?
a. SSS benefits
b. Retirement benefits
c. Termination benefits from resignation
d. Retirement gratuities from foreign institution
44.Which of these items is subject to fringe benefits tax?
a. Compensation income of rank in file employees
b. Fringe benefits of rank in file employees
c. Fringe benefits of managerial and supervisory employees
d. Compensation income of managerial or supervisory employees
45.Which is not an exempt housing benefit?
a. Housing w/n 50 meters from the perimeter of the employer’s business
b. Housing benefit for four months
c. Military sleeping quarters
d. Temporary housing
46.The gain arising from the sale of ordinary assets is?
a. Ordinary income c. Extraordinary gain
b. Regular income d. Ordinary gain
47.The gain arising from dealings in capital assets?
a. Capital income c. Capital gain
b. Extra ordinary gain d. Regular income
48.Which is deductible business expenses?
a. Interest on personal borrowings
b. Rental of taxpayer’s domicile
c. Selling commission to agents
d. Wages of Kasambahays
 49.Which of the following is deductible?
a. Rent of office space
b. Tuition fees of the siblings of the taxpayer
c. Selling expense of domestic stocks directly to buyer
d. Estimated losses on lawsuit
50.Which is a deductible business expense?
a. Loss on decline in value of securities
b. Estimated losses on expropriation
c. Fire loss on an insured property
d. Loss on theft of company assets

II. Multiple choice computational. (five points each)

1. Lakay Itong, a 60-year old employee retired during the year after 35 years of service and
received the following remunerations:
Basic salary, net of mandatory contributions P 350,000
Overtime pay 16,000
Supplementary compensation 120,000
Retirement pay 2,300,000
Benefits from SSS 400,000
13th month pay 21,000
Compute the gross taxable compensation of Lakay Itong.
a. 366,000 c. 486,000
b. 2,786,000 d. 507,000
Bata, a private employee of White Van Corporation had the following remunerations in 2020:
Gross salaries, net of mandatory contribution P 314,000
Fixed RATA 12,000
Cost-of-living allowance 24,000
th
13 month pay 28,000
Clothing and uniform allowance 6,500
Christmas gift 5,000
Laundry allowance 8,000
2. What is the total exempt de minimis benefit?
a. 19,500 c. 8,600
b. 15,100 d. 14,600
3. What is the total exempt benefit?
a. 42,600 c. 36,600
b. 47,500 d. 43,100
4. Mr. Taraki had the following dealings in properties:
2018 2019
Net income P20,000 P80,000
Capital gains 35,00 60,000
Capital loss 60,000 25,000
Compute the capital loss deductible in 2018.
a. 60,000 b. 20,000
 c. 15,000 d. 35,000
Fake News Company owns a residential lot which was purchased for P800,000, eight years
ago. The lot was sold to a rank in file employee for only P500,000 when it was worth
P1,200,000.
5. Compute the fringe benefit expense.
a. 300,000 c. 500,000
b. 700,000 d. 0
6. Compute the fringe benefit tax
a. 269,230 c. 161,539
b. 0 d. 376,923
7. On September 2019, a taxpayer borrowed P1,000,000 at 10% annual interest to finance his
acquisition of a luxury car. The prevailing market interest rate during that time is 8%.
Compute the deductible interest expense.
a. 0 c. 50,000
b. 25,000 d. 80,000
8. A taxpayer paid P45,000 property insurance having a 12-month coverage starting March 1,
2018. Compute the deductible insurance expense in 2018.
a. 0 c. 37,500
b. 7,500 d. 45,000
9. Mr. Jun, a professional practitioner, incurred the following expenses during the year:
Salaries of household maids 50,000
Salaries of office staff 30,000
Office utilities 12,000
Office supplies 8,000
Depreciation of personal car 15,000
Depreciation of office equipment 20,000
Compute the total deductible expenses.
a. 50,000 c. 100,000
b. 70,000 d. 135,000
10. A taxpayer paid the following disbursements and expenses for the current year:
Tuition fees of children 50,000
Donation to friends 20,000
Purchase of office equipment at start of the year (5-year useful life) 100,000
Office rent (for 3 years including the current year) 90,000
Office supplies (1/2 used) 20,000
Compute the total deductible expenses from the above items.
a. 0
b. 20,000
c. 50,000
d. 60,000