Rakham operates the lending company that made a loan to Alfonso in the amount of

P120,000 subject of a promissory note which is due within one year from the note's
issuance. Three years after the loan became due and upon information that Alfonso is
nowhere to be found, Rakham asks you for advice on how to treat the obligation as
"bad debt." Which is a proper advice on the deductibility of a bad debt? (pg 235)
1 point

The bad debt, to be deductible, must be considered as worthless. The requirement of

ascertainment of worthlessness requires that the taxpayer must have actually ascertained such
debt to be worthless and that such ascertainment must have been done in good faith. The
taxpayer must have reasonably investigated the relevant facts and had drawn a reasonable
inference from the information obtained.

For the bad debt to be deductible, the taxpayer must first initiate the collection process both
extrajudicially and then judicially. The taxpayer must first start with collection letters prior to the
institution of a civil action for the collection of a sum of money. The bad debt cannot be deducted
if there was no prior institution of a civil case for the collection of a sum of money. It is only when
the civil case for the collection of money fails, that the taxpayer may deduct bad debt.

Rakham cannot avail of an allowable deduction for bad debt in this case. Due to the failure of
Rakham to collect the debt within three years from the date it becomes due, it is clear that the
failure to collect is due to the fault of Rakham. Rakham cannot be allowed to avail of a tax benefit
which has been caused by his own negligence. To do so would open the floodgates of tax
evasion and the government would, in effect, be rewarding the negligence of taxpayers. To be
qualified as a deduction for bad debt, Rakham should have immediately begun collection efforts
once the loan became due and demandable.

For the bad debt to be deductible, it must be connected to Rakham's trade, business, or
profession. In this case, it is clear that the debt was incurred purely for personal purposes since
Rakham and Alfonso are close friends. Furthermore, there is an implied forgiveness of an
indebtedness in this case because there was no collection when the loan became due and
demandable. Three years is a long time to wait for the initiation of collection proceedings against
Alfonso.

Upin and Ipin recently passed the 2020 bar exams. As lawyers, they decided to
contribute money to a common fund to form a partnership for the purpose of selling
law books to law students of Holy Name University and the University of Bohol. For
the year 2021, the partnership of Upin and Ipin earned a net income of P500,000.
What is the tax treatment of the partnership’s income? (p41)
1 point

The partnership's income is not subject to income tax but is taxable individually to the partners
The partnership's income is subject to income tax as a taxable corporation
The income is taxable at 0%
The income is subject to 0% rate because each of the partner's share in the distributive net
income of the partnership did not exceed P250,000
In 2010, Juliet Ulbod earned P500,000.00 as income from her beauty parlor and
received P250,000.00 as Christmas gift from her spinster aunt. She had no other
receipts for the year. She spent P150,000.00 for the operation of her beauty parlor.
For tax purposes, her gross income for 2010 is (pg189)
1 point

P750,000.00.
P500,000.00.
P350,000.00.
P600,000.00.

What is the tax treatment of prizes from within the Philippines amounting to Ten
Thousand Pesos (P10,000) or less received by Resident Citizens, Nonresident
Citizens and Resident Aliens? (pg282)
1 point

It is exempt from income tax

It is subject to the graduated income tax rates for individuals
It is subject to a final tax of 10%
It is subject to a final tax of 20%

Carlo Pawnshop, Inc., a domestic corporation duly licensed and authorized to engage
in the pawnshop business, claimed deductions for business expenses such as
professional fees and rent expense. The Commissioner of Internal Revenue
disallowed the deductions for ordinary and necessary business expenses of Carlo
Pawnshop because these were not adequately substantiated. Carlo Pawnshop, Inc.
contends that the professional fees it paid to its bookkeepers and lawyers were
supported by cash vouchers while their rent expenses were supported by lease
contracts with their lessors. Carlo Pawnshop contended that these professionals and
lessors did not issue any official receipts or sales invoices so how could he be
required to present such. Carlo Pawnshop further presented certifications from its
lawyers and bookkeepers to substantiate their claim for professional fees as business
expenses. Is Carlo Pawnshop’s contention correct? Explain. (pg198)
1 point

Yes, Carlo Pawnshop is correct because the claimed expenses were already adequately
substantiated with the cash vouchers and the lease contracts. Furthermore, lease contracts
cannot be supported by evidence since Lessors do not issue official receipts or invoices.

Yes, Carlo Pawnshop is correct with respect to the bookkeepers and lawyers because its
payment to these professionals were adequately supported by cash vouchers. The rent expense,
however, is not deductible since what was only presented was a leas contract. A similar cash
voucher should have been presented.
No, Carlo Pawnshop is not correct because the adequate substantiation required by the law
refers to the official receipts or sales invoices issued upon payment or purchase. Cash vouchers
are not enough because they still have to be validated by official receipts or sales invoices.

No, Carlo Pawnshop is not correct because he failed to show that the proper withholding taxes on
these expenses have been withheld. To be deductible, the taxes required to be withheld must
have been shown to be withheld and remitted to the BIR.

Capital assets include (pg303)

1 point

The spare parts inventory of an automobile shop which are not sold separately to customers but
are used for replacing defective parts of cars subject to repair.

The parcel of land used as an off-site storage are of a manufacturer of plastic water tanks

The delivery truck of a newspaper publishing corporation

Ming dynasty jars personally owned by the general manager of a marketing corporation which he
used to decorate his office

A general professional partnership (GPP) is one: (p36)

1 point

That is registered as such with the Securities and Exchange Commission and the Bureau of
Internal Revenue;

That is composed of individuals who exercise a common profession;

That exclusively derives income from the practice of the common profession;

That derives professional income and rental income from property owned by it.

What is the tax rate on the cash and/or property dividends actually or constructively
received by a RESIDENT CITIZEN from a taxable domestic corporation? (285)
1 point

a final tax of 5%
a final tax of 10%
a final tax of 20%
a final tax of 35%

A final tax of six percent (6%) is imposed on the gain presumed to have been realized
on the sale, exchange, or disposition of lands and/or buildings treated as capital
assets, based on the gross selling price or fair market value, whichever is higher, of
such lands and/or buildings. This rate does not apply to:
1 point
Resident Aliens
Non-resident Aliens engaged in trade or business
Resident Foreign Corporations
None of the above

Passive income includes income derived from an activity in which the earner does not
have any substantial participation. This type of income is (133)
1 point

usually subject to a final tax.

exempt from income taxation.
taxable only if earned by a citizen.
included in the income tax return.

Atty. Gambino is a partner in a general professional partnership. The partnership

computes its gross revenues, claims deductions allowed under the Tax Code, and
distributes the net income to the partners, including Atty. Gambino, in accordance with
its articles of partnership. In filing his own income tax return, Atty. Gambino claimed
deductions that the partnership did not claim, such as purchase of law books,
entertainment expenses, car insurance and car depreciation. The BIR disallowed the
deductions. Was the BIR correct?
1 point

Yes, the BIR is correct. Atty. Gambino can no longer deduct his personal expenses as these were
not related to his trade, business, or the exercise of his profession.

Yes, the BIR is correct. Although the General Professional Partnership is a mere pass-through
entity, it is still required to compute its income in the same manner as a corporation. After the net
income of the partnership has already been computed, the partners can no longer further deduct
from their share in the distributive net income of the partnership. The proper party claiming the
deduction should have been the corporation while it was still computing the net income of the
partnership.

No, the BIR is not correct. Atty. Gambino may still claim valid allowable itemized deductions from
his share in the distributive income of the partnership as long as it has not yet been claimed as an
allowable deduction by the general professional partnership.

No, the BIR is not correct. Atty. Gambino may still claim valid allowable itemized deductions from
his gross income from trade, business, or the exercise of his profession (excluding the income
from the share in the GPP). However, with respect to his share in the income of the GPP, he can
no longer claim allowable deductions from it because it was already fully availed of by the GPP.

Interest income from long-term deposit or deposit substitutes, investment

management accounts and other investments evidenced by certificates in such form
prescribed by the Bangko Sentral ng Pilipinas shall be exempt from income tax if
received by the following, except:
1 point

Non-resident Citizen
Resident Alien
Non-resident Alien engaged in trade or business
Domestic Corporation

Anktryd, Inc., bought a parcel of land in 2009 for P7 million as part of its inventory of
real properties. In 2010, it sold the land for P12 million which was its zonal valuation.
In the same year, it incurred a loss of P6 million for selling another parcel of land in its
inventory. These were the only transactions it had in its real estate business. Which of
the following is the applicable tax treatment?
1 point

Anktryd shall be subject to a tax of 6% of P12 million.

Anktryd could deduct its P6 million loss from its P5 million gain.
Anktryd's gain of P5 million shall be subject to the holding period.
Anktryd's P6 million loss could not be deducted from its P5 million gain.

Doña Evelina, a rich widow engaged in the business of currency exchange, was
assessed a considerable amount of local business taxes by the City Government of
Bagnet by virtue of Tax Ordinance No. 24. Despite her objections thereto, Doña
Evelina paid the taxes. Nevertheless, unsatisfied with said Tax Ordinance, Doña
Evelina, through her counsel Atty. ELP, filed a written claim for recovery of said local
business taxes and contested the assessment. Her claim was denied, and so Atty.
ELP elevated her case to the Regional Trial Court (RTC). The RTC declared Tax
Ordinance No. 24 null and void and without legal effect for having been enacted in
violation of the publication requirement of tax ordinances and revenue measures
under the Local Government Code (LGC) and on the ground of double taxation. On
appeal, the Court of Tax Appeals (CTA) affirmed the decision of the RTC. No motion
for reconsideration was filed and the decision became final and executory. If Doña
Evelina eventually recovers the local business taxes, must the same be considered as
income taxable by the national government?
1 point

Yes, it is taxable income on her part because she previously availed of the local tax as an
allowable deduction in the computation of her taxable income. Hence, under the tax benefit rule,
the tax refund is taxable income on the part of Dona Evelina.
No, tax refunds are not considered as items of income because they do not represent income
from the sales or dispositions of goods/properties and services.
Yes, it may be considered as taxable income on her part IF she previously availed of the local tax
as an allowable deduction in the computation of her taxable income. Hence, under the tax benefit
rule, the tax refund is taxable income on the part of Dona Evelina.
No, the tax refund should not be considered as a taxable income on the part of Dona Evelina,
Upon his retirement, Alfredo transferred his savings derived from his salary as a
marketing assistant to a time deposit with AAB Bank. The bank regularly deducted
20% final withholding tax on the interest income from the time deposit. Alfredo
contends that the 20% final tax on the interest income constituted double taxation
because his salary had been already subjected to withholding tax. Is Alfredo's
contention correct?
1 point

No, Alfredo's contention is not correct because the 20% final withholding tax is a tax on his
interest income while the withholding tax on his salary is a tax on his salary.
Yes, there is direct duplicate taxation here because, although they are imposed differently, both
the 20% final withholding tax and the withholding tax on Alfredo's salary are income taxes.
Alfredo's income should only be subject to one type of tax.
No, Alfredo's contention is not correct because the withholding tax is not the final settlement of
his tax liability. Hence, being subject to the creditable withholding tax on his salaries does not
mean that he will no longer file his annual income tax return and pay other taxes because such is
not a final withholding tax.
Yes, Alfredo's contention is correct because the income of Alfredo should only be taxed once.
The withholding tax on his salary, though, can only be likened to an advance payment of his
income tax liabilities and it still has to be determined whether the 20% final withholding tax is
sufficient to cover the taxes already withheld from his salary to ensure that there would be no
refund.

Carmelito is an American National travelling Asian countries looking for the perfect
bride. In order to finance his extravagant travels, he also sells various goods in the
places that he visits. Upon his visit to the Philippines, he stayed here continuously for
a period of 160-days looking for the one true bride who will rule his life. Afterwards, he
then went off to Thailand to continue his search for the perfect bride. For tax purposes,
what is the tax status of Carmelito?
1 point

Resident alien
Non-resident alien engaged in trade or business
Non-resident alien not engaged in trade or business
None of the above

In March 2019, Tonette, who is fond of jewelries, bought a diamond ring for
P750,000.00, a bracelet for P250,000.00, a necklace for P500,000.00, and a brooch
for P500,000.00. Tonette derives income from the exercise of her profession as a
licensed CPA. In October 2019, Tonette sold her diamond ring, bracelet, and necklace
for only P1.25 million incurring a loss of P250,000.00. She used the P1.25 million to
buy a solo diamond ring in November 2019 which she sold for P1.5 million in
September 2020. Tonette had no other transaction in jewelry in 2020. Which among
the following describes the tax implications arising from the above transactions?
1 point

Tonette may deduct his 2009 loss only from her 2009 professional income.
Tonette may carry over and deduct her 2009 loss only from her 2010 gain.
Tonette may carry over and deduct her 2009 loss from her 2010 professional income as well as
from her gain.
Tonette may not deduct her 2009 loss from both her 2010 professional income and her gain.

What is the tax rate for interest income earned by a Resident Citizen from any short-
term/current peso currency bank deposit and yield or any other monetary benefit from
deposit substitutes and from trust funds and similar arrangements:
1 point

a final tax of 5%
a final tax of 10%
a final tax of 20%
a final tax of 35%

What is the tax treatment for interest on loans used to acquire capital equipment or
machinery?
1 point

This is deductible as interest from gross income.

This interest will form part of the cost of the capital expenditure to be subjected to depreciation
This is not deductible as interest but is deductible as an ordinary and necessary expense.
The taxpayer has the option to claim the interest as a deduction or to treat it as capital
expenditure.

The "all events test" refers to:

1 point

A person who uses the cash method where all sales have been fully paid by the buyers thereof;
A person who uses the installment sales method, where the full amount of consideration is paid in
full by the buyer thereof within the year of sale;
A person who uses the accrual method, whereby an expense is deductible for the taxable year in
which all the events had occurred which determined the fact of the liability and the amount
thereof could be determined with reasonable accuracy;
A person who uses the completed method, whereby the construction project has been completed
during the year the contract was signed.

What is the tax treatment for the compensation income of minimum wage earners
defined under Section 22?
1 point

It is exempt from income tax excluding the holiday pay, overtime pay, night shift differential pay
and hazard pay
It is exempt from income tax including the holiday pay, overtime pay, night shift differential pay
and hazard pay
It is subject to income tax but is taxed at a rate of 0% according to the Graduated Tax Rates for
individuals
The exemption of minimum wage earners was removed by the TRAIN Law

In 2010, Mr. Belen, a Filipino residing in Bohol, bought a residential house and lot for
P1,000,000. He used the property as his and his family's principal residence. It is now
year 2020 and he is thinking of selling the property to buy a new one where his family
can move. He seeks your advice on how much income tax he would pay if he sells the
property. The total zonal value (Fair market value determined by the BIR/CIR) of the
property is P5,000,000 and the fair market value per the tax declaration is P2,500,000.
He intends to sell it for P6,000,000. What is the tax implication of this transaction?
1 point

Mr. Belen is liable for the 6% capital gains tax on the sale of real property classified as a capital
asset located in the Philippines. The tax shall be based on the P5,000,000 fair market value as
determined by the Commissioner of Internal Revenue because it is the higher amount.
Mr. Belen is liable for the 6% capital gains tax on the sale of real property classified as a capital
asset located in the Philippines. The tax shall be based on the P2,500,000 fair market value as
determined by the Commissioner of Internal Revenue because it is the lower amount.
Mr. Belen may avail of the exemption (in full or in part) from the 6% capital gains tax if he utilizes
the proceeds of the sale in order to acquire a new principal residence, provided that he can only
avail of this exemption once every ten years and provided, further, that he must inform the BIR of
his intention to avail of this exemption within 30 days from the date of the sale.
Mr. Belen is exempt from the 6% capital gains tax rate because the property involved in the sale
is a residential house and lot. The sale of a principal place of residence is exempt from the 6%
capital gains tax.

Mr. Jose Castillo is a resident Filipino Citizen. He purchased a parcel of land in Makati
City in 1970 at a consideration of P1 Million. In 2020, the land , which remained
undeveloped and idle, had a fair market value of P20Million. Mr. Antonio Ayala,
another Filipino citizen, is very much interested in the property and he offered to buy
the same for P20 Million. The Assessor of Makati City re-assessed in 2021 the
property at P10 Million. Is Mr. Castillo liable for income tax in 2021 based on the offer
to buy by Mr. Ayala? Explain your answer
1 point

Yes, Mr. Castillo is liable for income tax on the increase in the value of his property. It would be
unconscionable not to tax him on the increase of up to P19,000,000 value of his property.
Yes, Mr. Castillo is liable for income tax because Mr. Antonio Ayala will be buying the property for
P20,000,000. The sale of the real property will be subject to the 6% capital gains tax rate if it is
considered as a capital asset.
No, Mr. Castillo is not liable for income tax in 2021 because the re-assessment made by the
Assessor of Makati is below the P20,000,000 selling price of the property.
No, Mr. Castillo is not liable for income tax because there was no income realiezed yet. What
existed was a mere offer to buy by Mr. Ayala and there was no actual sale yet. The income, if
any, on the property is still unrealized.

This refers to any gain from the sale or exchange of property which is not a Capital
Asset
1 point

Capital income
Ordinary income
Capital loss
Ordinary loss

Freezy Corporation, a domestic corporation engaged in the manufacture and sale of

ice cream, made payments to an officer of Frosty Corporation, a competitor in the ice
cream business, in exchange for said officer’s revelation of Frosty Corporation’s trade
secrets. May Freezy Corporation claim the payment to the officer as deduction from its
gross income?
1 point

Yes, the amount paid to the officer of Frosty Corporation is considered as an ordinary and
necessary business expense.
No, the amount paid to the officer of Frosty Corporation cannot be deducted because there was
no receipt or supporting evidence issued by the officer of Frosty Corporation. Had the officer of
Frosty issued a receipt, then Freezy could have properly deducted the expense.
Yes, the amount apdi to the officer of Frosty Corporation is deductible from gross income but is
not classified as an ordinary and necessary expense. Rather, it is classified as part of Research
and Development Cost.
No, the amount paid to the officer of Frosty Corporation cannot be deducted because it is in the
nature of a bribe to private employees of another company. Bribes, kickbacks, etc. are not
deductible from Gross income even if the recipient is a private person, and not a public
employee.

What is the preferential regular corporate income tax rate for these special Domestic
Corporations - Proprietary Educational Institutions or Non-profit Hospitals:
1 point

They are generally subject to a tax of 10% on their taxable income.

They are generally subject to a tax of 30% on their taxable income.
They are generally subject to a tax of 10% on their taxable income but their income from other
unrelated activities may be subject to the regular rate of 30% if their income from unrelated
activities exceeds 50% of their total taxable income.
They are generally subject to a tax of 10% on their taxable income but their TOTAL TAXABLE
INCOME may be subject to the regular rate of 30% if their income from unrelated activities
exceeds 50% of their total taxable income.

Mr. Francisco borrowed P10,000 from his friend, Mr. Gutierrez, payable in one year
without interest. When the loan became due, Mr. Francisco told Mr. Gutierrez that he
(Francisco) was unable to pay because of business reverses. Mr. Gutierrez took pity
on Mr. Franisco and condoned the loan. Mr. Francisco was solvent at the time he
borrowed the P10,000 and at the time the loan was condoned. Did Mr. Francisco
derive any income from the cancellation or condonation of his indebtedness?
1 point

It is taxable income on the part of Mr. Francisco because he should have paid the P10,000 that
he owed Mr. Gutierrez, yet Mr. Gutierrez did not let him pay anymore.
It is not taxable income on the part of Mr. Francisco because the cancellation of the indebtedness
is considered as a donation from Mr. Gutierrez to Mr. Francisco.
It is taxable income on the part of Mr. Francisco because the condonation of the indebtedness
was in consideration for services rendered by Mr. Francisco to Mr. Gutierrez,
It is not taxable income on the part of Mr. Francisco because there is no economic benefit to Mr.
Francisco on the cancellation of the indebtedness.

What is the rate of tax on the Income of purely self-employed individuals and/or
professionals whose gross sales or gross receipts and other non-operating income
does not exceed the P3,000,000 Value-added Tax(VAT) Threshold as Provided in
Section 109(BB):
1 point

They shall be subject to an eight percent (8%) tax on gross sales or gross receipts and other non-
operating income in excess of Two hundred fifty thousand pesos (P250,000) in lieu of the
graduated income tax rates under Section 24 (A)(2)(a) of the Tax Code and the percentage tax.
They may choose to be subject to an eight percent (8%) tax on gross sales or gross receipts and
other non-operating income in excess of Two hundred fifty thousand pesos (P250,000) in lieu of
the graduated income tax rates under Section 24 (A)(2)(a) of the Tax Code and the percentage
tax.
They shall be subject to an eight percent (8%) tax on net taxable income and other non-operating
income in excess of Two hundred fifty thousand pesos (P250,000) in lieu of the graduated
income tax rates under Section 24 (A)(2)(a) of the Tax Code and the percentage tax.
They may choose to be subject to an eight percent (8%) tax on net taxable income and other
non-operating income in excess of Two hundred fifty thousand pesos (P250,000) in lieu of the
graduated income tax rates under Section 24 (A)(2)(a) of the Tax Code and the percentage tax.

Which of the following taxpayers is subject to the 15% Branch Profit Remittance Tax?
1 point

Domestic Corporations
Resident Foreign Corporations
Nonresident Foreign Corporations
Nonresident Aliens Engaged in Trade or Business

The Philippines adopted the semi-global/semi-schedular tax system, which means

that:
1 point
all taxable incomes, regardless of the nature of income, are added together to arrive at gross
income, and all allowable deductions are deducted from the gross income to arrive at the taxable
income
all incomes subject to final withholding taxes are liable to income tax under the schedular tax
system, while all ordinary income as well as income not subject to final withholding taxes are
liable to income tax under the global tax system
all taxable incomes are subject to final withholding taxes under the schedular tax system
all taxable incomes from sources within and without the Philippines are liable to income tax

This is the accounting method usually used by persons whose income is derived in
whole or in part from contracts where the building, installation, or construction covers
a period in excess of one year
1 point

Cash Method of Accounting

Accrual Method of Accounting
Percentage of Completion Method
Installment Method

With respect to married individuals, how should their income be computed?

1 point

It shall be computed separately based on their individual incomes earned and any income which
cannot be definitely attributed to either spouse shall be divided equally between them
It shall be computed jointly based on the property relations of their marriage
The income earned by both spouses should be divided equally between them
It shall be computed separately based on their exclusive properties in accordance with the
property relations of their marriage and any income which cannot be definitely attributed to either
spouse's exclusive properties shall be divided equally between them

Mr. A is a travelling salesman working full time for Nu Skin Products. He receives a
monthly salary plus 3% commission on his sales in a Southern province where he is
based. He regularly uses his own car to maximize his visits even to far flung areas.
One fine day a group of militants seized his car. He was notified the following day by
the police that the marines and the militants had a bloody encounter and his car was
completely destroyed after a grenade hit it. Mr. A wants to file a claim for casualty
loss. Explain the legal basis of your tax advice.
1 point

Yes, Mr. A can claim an allowable deduction for a casualty loss because it is allowed under
Section 34 (D) of the Tax Code.
Yes, Mr. A can claim an allowable deduction for the loss of his car because it was being used in
the exercise of his trade, business, or profession.
No, Mr. A cannot claim an allowable deduction for the loss of his car because the encounter
between the marines and the militants is not the loss contemplated under Section 34 (D).
No, Mr. A cannot claim an allowable deduction from his compensation income because he is not
engaged in trade, business, or the exercise of his profession. Rather, he is working full-time for
Nu Skin Products.
Anchor Banking Corporation, which was organized in 2000 and existing under the
laws of the Philippines and owned by the Sy Family of Makati City, set up in 2010 a
branch office in Shanghai City, China, to take advantage of the presence of many
Filipino workers in that area and its booming economy. During the year, the bank
,management decided not to include the P20 Million net income of the Shanghai
Branch in the annual Philippine income tax return filed with the BIR, which showed a
net taxable income of P30 Million , because the Shanghai Branch is treated as a
foreign corporation and is taxed only on income from sources within the Philippines,
and since the loan and other business transactions were done in Shanghai, these
incomes are not taxable in the Philippines. Is the bank correct in excluding the net
income of its Shanghai Branch in the computation of its annual corporate income tax
for 2010? Explain your answer.
1 point

No, the bank is not correct in excluding the net income of its Shanghai Branch because Anchor
Banking Corporation is a Domestic Corporation, subject to income tax on its income earned
within and without the Philippines.
No, the bank is not correct in excluding the net income of its Shanghai Branch because the
Shanghai Branch is treated as a resident foreign corporation and its income should be subject to
the Branch Profit Remittance Tax
Yes, the bank is correct in excluding the net income of its Shanghai Branch because the branch
is considered as a resident foreign corporation (a foreign corporation doing business in the
country where it is situated), and it is only subject to income tax on its income earned within the
Philippines.
Yes, the bank is correct in excluding the net income of its Shanghai Branch because it is already
considered as income earned without the Philippines. The Anchor Banking Corporation is not a
domestic corporation because it is owned and controlled by chinese shareholders. Hence, it
should only be subject to income tax on its income earned within the Philippines.

Keyrand, Inc., a Philippine corporation, sold through the local stock exchange 10,000
PLDT shares that it bought 2 years ago. Keyrand sold the shares for P2 million and
realized a net gain of P200,000.00. How shall it pay tax on the transaction?
1 point

It shall declare a P2 million gross income in its income tax return, deducting its cost of acquisition
as an expense.
It shall report the P200,000.00 in its corporate income tax return adjusted by the holding period.
It shall pay 5% tax on the first P100,000.00 of the P200,000.00 and 10% tax on the remaining
P100,000.00.
It shall pay a tax of .6% of the P2 million gross sales.

This type of income refers to all remuneration for services performed by an employee
for his employer under an employer-employee relationship.
1 point
Professional Income
Compensation Income
Business Income
Rental Income

Angelo is an American citizen visiting the Philippines. While he was here, he met
Angelita, a Spanish citizen also visiting the Philippines. Like twin souls who have been
separated since birth, they immediately knew that they were meant for each other.
Hence, in 1990, they got married here in the Philippines. Six months later, at the
Ramiro Hospital in Tagbilaran City, Bohol, they gave birth to a premature baby boy
named Gelato. Soon after Gelato was allowed to leave the hospital, the three of them
then went to live in the United States for good. Twenty-two years later, Gelato came
back to the Philippines. While he was in the Philippines, he met Gelateria, a beautiful
young Filipina. Because of this, Gelato decided to permanently stay and establish his
residence here in the Philippines. For tax purposes, what is the tax status of Gelato?
1 point

Resident citizen
Non-resident citizen
Resident alien
Non-resident alien

Which of the following is true with respect to the 8% income tax for taxpayers whose
gross sales/receipts and other non-operating income does not exceed the P3,000,000
Value-added Tax(VAT) Threshold as Provided in Section 109(BB):
1 point

only those purely self-employed individuals or professionals may avail of it.

those earning compensation income and those earning income from their self-
employment/profession may avail of the 8% tax rate on their entire income.
only those earning purely compensation income may avail of the 8% tax rate.
those earning compensation income and those earning income from their self-
employment/profession may avail of the 8% tax rate but only with respect to their income from
their business/profession while their compensation income shall be subject to the graduated tax
rate.

Masarap Food Corporation (MFC) incurred substantial advertising expenses in order

to protect its brand franchise for one of its line products (akin to creating or
maintaining some form of goodwill). In its income tax return, MFC included the
advertising expense as deduction from gross income, claiming it as an ordinary
business expense. Is MFC correct?
1 point
Yes, MFC is correct in claiming the entire advertising expense as an ordinary and necessary
expense.
No, MFC is not correct in claiming the entire advertising expense as an ordinary and necessary
expense. Rather, it is considered as a capital expenditure.
Yes, MFC is correct in claiming the entire advertising expense as an ordinary and necessary
expense because it is intended to benefit only one taxable period.
No, MFC is not correct in claiming the entire advertising expense as an ordinary and necessary
expense because it is not a "necessary" expense considering that a business can survive without
advertising expenses. The advertising expenses are not indispensable to the operation of the
business.

In 2020, Dr. K decided to return to his hometown to start his own practice. At the end
of 2020, Dr. K found that he earned gross professional income in the amount of
P1,000,000.00; while he incurred expenses amounting to P560,000.00 constituting
mostly of his office space rent, utilities, and miscellaneous expenses related to his
medical practice. However, to Dr. K's dismay, only P320,000.00 of his expenses were
properly substantiated with adequate evidence. What are the options available for Dr.
K so he could maximize the deductions from his gross income?
1 point

Dr. K can still choose to deduct the entire amount of P560,000 since these represent expenses
actually incurred in the exercise of his profession
Dr. K can only deduct the remaining P240,000 from his Gross Income because it would be the
right thing to do to pay his taxes. He should not fabricate expenses just so that he could reduce
his tax liability.
Dr. K can only deduct the remaining P320,000 from his Gross Income because it would be the
right thing to do to pay his taxes. He should not fabricate expenses just so that he could reduce
his tax liability.
Dr. K can compare and resort to the Optional Standard Deduction of 40% of his Gross
Sales/Receipts if it would result in more tax savings on his part. However, if he already chose to
avail of the itemized deductions at the start of the filing of his first quarter income tax returns,
then that choice is irrevocable for the taxable year.

Patroclus was injured in a vehicular accident in 2020. He incurred and paid medical
expenses of P10,000.00 and legal fees of P5,000.00 during that year. In 2022, he
recovered P35,000.00 as settlement from the insurance company which insured the
car owned by the other company involved in the accident. From the above payments
and transactions, the amount taxable to Patroclus in 2022 is:
1 point

20,000
25,000
35,000
0
An individual, who is a real estate dealer, sold a residential lot in Quezon City at a gain
of P100,000.00 (selling price of P900,000.00 and cost is P800,00.00). The sale is
subject to income tax as follows:
1 point

6% capital gains tax on the gain;

6% capital gains tax on the gross selling price or fair market value. Whichever is higher;
Ordinary· income tax at the graduated rates of up to 0% to 35% of net taxable income;
30% income tax on net taxable income.

Dr. Taimtim is an alumnus of the College of Medicine of Universal University (UU), a

privately-owned center for learning which grants yearly dividends to its stockholders.
UU has a famous chapel located within the campus where the old folks used to say
that anyone who wanted to pass the medical board examinations should offer a dozen
roses on all the Sundays of October. This was what Dr. Taimtim did when he was still
reviewing for the board examinations. In his case, the folk saying proved to be true
because he is now a successful cardiologist. Wanting to give back to the chapel and
help defray the costs of its maintenance, Dr. Taimtim donated P50,000.00 to the
caretakers of the chapel which was evidenced by an acknowledgment receipt. In
computing his net taxable income, can Dr. Taimtim use his donation to the chapel as
an allowable deduction from his gross income under the National Internal Revenue
Code (NIRC)?
1 point

Yes, Dr. Taimtim may deduct the charitable contribution because it was donated for Charitable
purposes to defray the cost of the maintenance of the Chapel.
No, Dr. Taimtim may not deduct the charitable contribution because the Chapel is owned by
Universal University which is a privately owned educational institution which declares dividends to
its stockholders.
Yes, Dr. Taimtim may deduct the charitable contribution because it was donated to an
Educational Institution but his allowable deduction is subject to a limitation that it should not
exceed 10% of his net income before allowable deductions for charitable contributions.
No, Dr. Taimtim may not deduct the charitable contirbution because it is not related to the
exercise of his profession, business or trade. To be deductible, the expense must be in
connection with the taxpayer's trade, business or profession. The taxpayer cannot deduct
personal expenses.

Which among the following taxpayers is required to use only the calendar year for tax
purposes?
1 point

Partnership exclusively for the design of government infrastructure projects considered as

practice of civil engineering
Joint-stock company formed for the purpose of undertaking construction projects
Business partnership engaged in energy operations under a service contract with the government
Joint account (cuentas en participacion) engaged in the trading of mineral ores

What is the tax rate on the cash and/or property dividends actually or constructively
received by a NONRESIDENT ALIEN ENGAGED IN TRADE OR BUSINESS from a
taxable domestic corporation?
1 point

a final tax of 5%
a final tax of 10%
a final tax of 20%
a final tax of 35%

The proceeds received under a life insurance endowment contract is NOT considered
part of gross income
1 point

if it is so stated in the life insurance endowment policy.

if the price for the endowment policy was not fully paid.
where payment is made as a result of the death of the insured.
where the beneficiary was not the one who took out the endowment contract.

3rd Yr Corp. is a domestic corporation registered and existing under the laws of the
Philippines. 3rd Yr Corp. decided that it would need additional funds in order to
expand its business operations within the country. In order to obtain the needed funds,
the corporation requested through its stockholders to invest additional amounts of
money in the form of voluntary assessments to be added to the corporation’s surplus
capital account. What is the tax treatment of these voluntary assessments?
1 point

It is part of the Coporation’s taxable gross income

It is not considered as income
It is subject to the 10% Final Withholding tax on dividends
It is subject to the normal corporate income tax rate

The excess of allowable deductions over gross income of the business in a taxable
year is known as
1 point

net operating loss.

ordinary loss.
net deductible loss.
NOLCO.

In general, net taxable income reflected in you final adjusted return must be computed
with respect to a fixed period. What is this fixed period?
1 point
Quarterly
Semi-Annually
Annually (Calendar or Fiscal)
Annually (Calendar only)

Mr. Chan received jewelry worth 15,000 from Mr. Jack pursuant to a contract of
deposit. Mr. Chan has the obligation of safekeeping the jewelry and returning it to Mr.
Jack 30 days after. After 30 days, Mr. Jack went to Mr. Chan to demand the return of
his jewelries. To Mr. Jack’s surprise, Mr. Chan has already disappeared. Mr. Jack later
found out that Mr. Chan was actually just an alias and that Mr. Chan’s real name is Mr.
Dragon. Mr. Jack also found out that Mr. Dragon misappropriated the jewelries and
sold them for his own personal gain. What is the tax implication of Mr. Dragon’s theft
of the jewelries?
1 point

It is not income because taxable income does not include items received that do not add to the
taxpayer’s net worth or redoung to his benefit such as amounts merely deposited or entrusted to
him. (Commissioner v. Tours Specialist, 183 SCRA 402);
It is taxable income on the part of Mr. Dragon;
It is taxable income on the part of Mr. Dragon because he received it pursuant to a contract of
deposit;
It is not taxable income on the part of Mr. Dragon because it was not given to him but to “Mr.
Chan.”