College of Accounting Education

PreRev and Correlation Course

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Session 5 and 6: Estate Tax

Exercise Drill
March 19, 2021

GENERAL INSTRUCTION: Place your answers on a clean paper and summarize your answers especially for the problem
solving. Make sure that your answers are readable when you upload your work in the LMS. Show
your solutions if necessary. Deadline for submission will be at 11:59PM on Saturday, March 20,
2021.

MULTIPLE CHOICE QUESTIONS: Write the letter of the correct answer.

1. Which of the following losses is not deductible?

a. Losses of properties compensated for by insurance
b. Losses arising from fires
c. Losses arising from theft or embezzlement
d. Losses arising from storms or shipwreck

2. Which of the following decedents cannot claim special deductions for family home?
a. Resident citizen
b. Resident alien
c. Non-resident alien
d. Non-resident citizen

3. Which is not considered in computing the share of surviving spouse?

a. Claims against the estate
b. Transfer for public use
c. Standard deduction
d. Vanishing deduction

4. Which is not an ordinary deduction?

a. Family home
b. Vanishing deduction
c. Share of surviving spouse
d. Casualty losses of estate properties

5. Which of the following losses is claimable as deduction against gross estate?

a. Losses claimed in the income tax return of the estate
b. Losses occurring before the death of the decedent
c. Losses occurring after six months of the decedent’s death
d. Losses of separate properties of the decedent

6. Which statement is incorrect?

a. Claims against insolvent persons are presented in gross estate and deductions against gross estate.
b. Claims against insolvent persons are presented separately from losses.
c. Non-resident alien decedents can claim deductions for losses, indebtedness, and taxes.
d. Properties subject to mortgage are presented in gross estate at an amount net of the mortgage.

7. Which obligation is deductible against gross estate?

a. Bank loans acquired for the medication of the decedent
b. Income tax of the decedent before death
c. Sole obligation of the surviving spouse
d. Real property tax of the separate property of the surviving spouse.

8. Which of these taxes is deductible against gross estate?

a. Income tax paid before death
b. Income tax of the estate
c. Real property tax accruing after death
d. Real property tax accruing before death

9. Non-resident alien decedents can claim prorated amounts for the following deductions, except

Session 5 and 6: Estate Tax Page 1

 a. Taxes
b. Losses
c. Indebtedness
d. Vanishing deductions

10. Which is not a requisite of vanishing deductions?

a. If the property is acquired by inheritance, the prior estate must have paid the estate tax.
b. If the property is acquired by inheritance, the prior estate must have not claimed vanishing deduction.
c. The decedent must have acquired the property by way of inheritance or donation.
d. The decedent must have acquired the property by purchase.

11. Vanishing deduction is allowed if the property subject to vanishing deduction is acquired
a. One year before death
b. More than one year before death
c. Within five year before death
d. More than five year before death

12. A decedent died in a wild fire which totally gutted his home. Which is correct?
a. If the property is insured, the insurance reimbursement is included in gross estate and the loss is reported
as a deduction.
b. If the property is not insured, the insurance reimbursement is included in gross estate and a deduction for
loss is claimed.
c. No deduction is allowed with or without insurance reimbursement
d. With or without reimbursement, a loss is claimable

13. A decedent died with a gross estate of P4,000,000. Which of the following is required?
a. Notice of death
b. Estate tax return
c. CPA certification
d. All of these

14. Statement 1: No estate tax is due on an estate with P5,000,000 worth of properties.
Statement 2: An estate with only a family home worth P15,000,000 as its property will not pay estate tax.

Which is correct?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statements

15. Statement 1: An estate with several properties but with a negative taxable estate is not required to file an estate tax
return.
Statement 2: The BIR shall be notified of the death of the decedent if he has properties exceeding P1,000,000.

Which is incorrect?
a. Statement 1
b. Statement 2
c. Both statements
d. Neither statement

PROBLEM SOLVING: Answer what is being asked in each problem. Show your solutions if necessary.

1. The heirs of the decedent compiled the following accrued taxes:

Before Death After Death
Real property tax P 40,000
Income tax 80,000 P 110,000
Estimated estate tax 400,000

Compute the deductible taxes.

2. Mr. A died with a receivable form Mr. B. Mr. B has properties worth P220,000 and obligations of P320,000. Included
in the obligations of Mr. B are P20,000 owed to the government of the Republic of the Philippines for unpaid taxes
and to Mr. A of P60,000. The estate of Mr. A has a deduction for claim against insolvent of:

3. Mr. B died on June 30, 2018 leaving, among others, the following charges and obligations: Real property tax for the
calendar year 2018 – P 20,000; On an interest-bearing promissory note (notarized) face value of the note – P10,000;

Session 5 and 6: Estate Tax Page 2

 Accrued interest on the note at the time of death – P 600; and Interest to accrue on the note from the date of death
to the date of maturity – P 400. Compute for the deductions from gross estate.

4. Property subject to vanishing deduction had the following data. Fair market value when inherited 4 ½ years before
and at the death of P220,000 and P320,000 respectively. Mortgage indebtedness paid thereon by the decedent is
P20,000. Gross estate and deductions (except vanishing deduction and family home and standard deduction) of
P2,000,000 and P50,000, respectively. Compute for the vanishing deduction.

5. The following relate to the estate of a decedent:

Gross estate (P1,000,000 is exclusive) P 3,000,000
Expenses and obligations:
• Funeral expense 200,000
• Judicial expense 300,000
• Indebtedness and taxes 150,000
• Losses 250,000

Compute for item 39 Part IV of BIR Form 1801.

6. The decedent, non-resident citizen, is a married man with a surviving spouse with the following data:
Conjugal real properties P 10,000,000
Exclusive family home 2,000,000
Other exclusive properties 2,500,000
Conjugal ordinary deduction:
Funeral expenses P 150,000
Other deductions 1,300,000 1,450,000
Medical expenses (including unpaid 700,000
Hospital bills amounting to P150,000
Incurred 14 months before death)

Compute for the following:

a. Item 40 Part IV of BIR Form 1801.
b. Item 18 Part II of BIR Form 1801.

7. The decedent is a married man with a surviving spouse with the following data:
Conjugal real properties P 6,000,000
Conjugal family house 1,000,000
Exclusive family lot 400,000
Other exclusive properties 4,500,000
Conjugal ordinary deductions 1,500,000
Exclusive ordinary deductions 500,000

Compute for the following:

a. Item 37B Part IV of BIR Form 1801.
b. Item 16 Part II of BIR Form 1801
c. Item 18 Part II of BIR Form 1801

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