No. 125 Brgy.

San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

Gross Income TAX02-06

1. First Statement – Income coming from illegal sources should not be subjected to
tax. Otherwise the State shall be accused of benefitting from the nefarious and
criminal acts of persons.
Second Statement- Generally, income means all wealth that flows into the
taxpayer, other than return of capital.
a. True, true
b. True, False
c. False, False
d. False, True

2. The following are the requisites of income to be taxable, except:

a. There must be gain, derived from labor, capital or both labor and capital
b. The gain must be realized or actually received
c. The gain must not be explicitly excluded/exempted by law
d. The gain must have been actually received

3. The following are taxable compensation income, except:

a. Basic salary
b. Basic salary not exceeding or less than the statutory minimum wage
c. 13th month pay and other benefits exceeding 90,000
d. Commission received by a minimum wage earner.

4. The following are statury exclusions from the taxable compensation income of
employees, except:
a. GSIS or SSS Contributions
b. Pag-ibig Contributions
c. Labor Union Dues
d. Home Development Mutual Fund (Pag-ibig Fund) contribution

5. The following are taxable compensation income, except:

a. Monetized unused vacation leave not exceeding 10 days
b. Christmas cash gift exceeding Php5,000 per year
c. Separation pay of an employee who tendered her resignation
d. Loyalty award in the form of gift certificate valued at Php10,000.

6. Nar Cisa receives a Php20,000 monthly allowance from her sister who works as a
nurse in the United Kingdom. For the month of December, when she was checking
for the credit on her bank account the usual allowance from her sister, she
discovered that she was credited with an amount of Php2,000,000. She
immediately withdrew the entire PHP2,000,000 and spent the rest on luxury goods.
Later on, the bank is demanding that the she return Php1,980,000. On account of
error on encoding on the part of the bank personnel and she was meant to receive
only Php20,000. She refuses to return the demanded amount stating that she has
already spent the rest of it. One of the following is correct.
a. Nar Cisa has the right to retain the Php1,980,000 grounded on the principle
of losers weepers, finders keepers.
b. The bank has no cause of action against Nar Cisa, considering it was the
fault of their employee which resulted to damage to them. They should have
been more prudent in hiring their employees.
c. Nar Cisa received a donation from the bank and donor’s tax should have
been paid on the Php1,980,000.

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

d. Nar Cisa is required to report as gross income the amount of Php1,980,000

and pay income tax thereon, considering there was in inflow of wealth which
is not exempt by law.

7. On February 14, 2021, Bronson sold shares of San Miguel Corporation through
the local stock exchange, He was able to sell it at a price of Php75,000 when the
cost to him of said shares is Php25,000. One of the following conclusions is
correct:
a. He will be liable to pay final capital gains tax of Php11,250 on the said sale.
b. He will be liable to pay final tax on capital gains of Php2,500.
c. The sale is subject to the stock transactions tax of Php375.
d. The gain of Php50,000 is exempt from the final tax on capital gains and also
exempt from regular income tax on individual.

8. The following are ordinary assets except:

a. 10 door apartment, earning rental income, owned by a retired widower
b. Partnership interest in a business partnership engaged in the business of
offering residential houses for rent.
c. Dental chair owned by a dentist
d. Grocery items included in the inventory of a business operating a mini
grocery.

9. The following are the special rules applicable to capital gains and losses, except
a. A corporation’s capital gain or loss to be taken in to account, in case of
property held by it for more than 12 months, is only 50%
b. Capital losses are allowed only against capital gains earned during the
same year.
c. An individual income taxpayer sustains during the taxable year a net capital
loss, such capital loss shall be treated in the subsequent year as a short
term capital loss in an amount not exceeding the net income of the year it
originated.
d. An individual’s capital gain or loss to be taken into account, in case of
property held by it for 12 months or less is 100%

Numbers 10 to 13 are based on the following.

The taxpayer provided you with the following:

2020 2021
Net Income Php2,000,000 Php3,500,000
Capital Gain Php7,500,000 Php10,000,000
Capital Loss Php10.000,000 Php5,000,000
10. Assuming the taxpayer is an individual, his taxable income for the year 2020 is
a. Php2,000,000
b. Php0
c. (Php500,000)
d. Php500,000
11. Assuming the taxpayer is an individual, his taxable income for the year 2021 is:
a. Php8,500,000
b. Php6,500,000
c. Php8,000,000
d. Php0

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

12. Assuming the taxpayer is a corporation and the property sold with capital gains
were held for 13 months. Its taxable income for 2020 is
a. Php2,000,000
b. Php0
c. (Php500,000)
d. Php500,000
13. Assuming the taxpayer is a corporation, the taxable income in 2021 is:
a. Php8,500,000
b. Php6,500,000
c. Php8,000,000
d. Php0

14. Tikboy Alangaling, a member of the Philippine boxing team received the following
during the taxable year:
Prize for winning gold in the P500,000
South East Asian games
Athlete of the year award 100,000
Winnings from PCSO lotto 5,000
Prize – Mc Donald raffle promo 10,000

From the foregoing, the amount that should be exempted from income tax
a. Php100,000
b. Php500,000
c. Php605,000
d. Php615,000

15. Prizes and awards received shall be exempt from income tax when the following
conditions are met, except
a. It is given in recognition of religious, charitable, scientific, educational, artistic,
literary or civic achievement.
b. The recipient of the award or prize is not required to render substantial future
services as a condition in receiving the prize or award.
c. The recipient of the award was selected without any action on his part to enter the
contest or proceeding.
d. The recipient shall recognize the awarded prize as income on the year it was
actually received.

16. Proceeds of insurance taken by a corporation on the life of an executive to

indemnify the latter’s beneficiaries against loss in case of the employee’s death is:
a. Exempt from income tax
b. Part of taxable income
c. Subject to final tax
d. Partly exempt, partly taxable

17. The premiums paid by the corporation in the preceding number is a:

a. Taxable income of the executive
b. Deductible expense of the corporation
c. Both “a” and “b”
d. Neither “a” nor “b”

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

18. Bro Co, a domestic corporation, is paying Php2,500,000 to Stateside Inc, a non-
resident foreign corporation. Stateside is a resident of the United States of America
without permanent establishment in the Philippines. The following statements are
correct, except:
a. As provided by Section 32 (B)(5) said payment is exempt from income tax
in the Philippines, applying the Philippines – United States of America
double tax treaty
b. Generally, without invoking the Treaty, payment to Stateside Inc. is subject
to 30% final withholding tax.
c. A tax treaty relief application should be lodged with the Bureau of Internal
Revenue – International Tax Affairs Division (BIR – ITAD) before the
happening of the taxable event. Otherwise the treaty exemption will be
forfeited.
d. In case of Interest, dividend and Royalty, a Certificate of Residence for Tax
Treaty (CORTT) should be lodged with the BIR-ITAD.

19. One of the following is a taxable income

a. Car received as gift on account of wedding
b. Diamond ring inherited from the mother
c. PCSO lotto winning amounting to Php7,500
d. Interest income from a loan to a sibling

20. The following dividends are taxable except:

a. Cash dividend
b. Stock dividend
c. Property dividend
d. Liquidating dividend

Numbers 21 to 24 are based on the following:

21. On July 1, 2014, Mr. Valentine leased his vacant lot for a period of 12 years to Mr.
Juliet at an annual rate of P2,400,000. It was also agreed that Mr. Juliet will pay
the following:
▪ P4,800,000 representing rental payment for two (2) years. Subsequent rental
payments will be made every July 1 of the applicable year.
▪ Security deposit of P2,400,000.
▪ Annual real property tax of P30,000.

The lease contract provides, among others that the lessee will construct a 5-storey
building for parking purposes at a cost of P36,000,000. Ownership of the building
shall belong to the lessor upon the expiration or termination of the lease contract.

The building was completed on July 1, 2016 with an estimated useful life of 15 years.
Mr. Valentine shall report total income from the lease for 2014 at
a. Php2,430,000
b. Php2,400,000
c. Php4,830,000
d. Php2,640,000
22. Assuming Mr. Valentine will use outright method in recognizing income from
leasehold improvements, how much is the total income from lease for year 2016?
a. Php3,030,000
b. Php3,630,000

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

c. Php38,430,000
d. Php2,400,000
23. Assuming Mr. Valentine will use spread-out method in recognizing income from
leasehold improvements, how much is the total income from lease for year 2016?
a. Php3,030,000
b. Php3,630,000
c. Php14,430,000
d. Php2,400,000

24. Assuming that due to the fault of the lessee, the lease contract was terminated on
January 1, 2018, how much income is to be reported by the lessor in 2018?
a. Php32,400,000
b. Php30,600,000
c. Php34,830,000
d. Php33,030,000

25. If an individual performs services for a creditor who in consideration thereof

cancels the debt, the cancellation of indebtedness may amount:
a. To a gift
b. To a capital contribution
c. To a donation inter vivos
d. To a payment of income

26. Gain realized from the sale, exchange or retirement of bonds, debentures or other
certificate of indebtedness is excluded from gross income if it has a maturity of
a. 5 years or more
b. Less than 5 years
c. More than 5 years
d. 10 years or more

27. 1st statement - Rene Rekets turned 60 on February 14, 2020. During the same
year, he retired from his employer of 30 years and received retirement pay of
Php5,000,000. The retirement pay received by Rene is exempt from income tax
and the consequent compensation withholding tax
2nd Statement – Star Lu is an employee of Goto Mi Hopi Factory for the past 15
years. She turned 54 on valentines day of 2021 and decided to retire from work.
Her employer gave her a retirement pay amounting to Php5,000,000 out of the
latter’s working fund. The retirement pay is exempt from income tax and
consequent withholding tax.
a. True, true
b. True, False
c. False, False
d. False, True

28. Refund of the following taxes are not recognized as income, except:
a. Income tax
b. Donor’s tax
c. Estate tax
d. Fringe benefits tax

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

29. First Statement -Thirteenth (13th) month pay and other benefits received by officials
and employees of public and private entities are exempt from income tax and
creditable withholding tax on compensation, provided that the total exclusion shall
not exceed P90,000.
Second Statement - The excess of de minimis benefits over the ceiling would form
part of an individual's gross income only if the total excess benefits including
bonuses exceeds P90,000 and would be subject to income tax and applicable final
withholding taxes .
a. True,True
b. True, False
c. False, False
d. False, True

30. The following data were provided to you by Intelligent Corporation for the current
year:
Amount PriorYear Amount
written-off Income Recovered
in Prior (Loss) in Current
Year before write year
off
P50,000 P350,000 P20,000
10,000 (50,000) 10,000
30,000 20,000 30,000

The income from bad debt recovery during current year is:
a. Php0
b. Php40,000
c. Php50,000
d. Php60,000

31.If an individual performs services for a creditor who in consideration thereof cancels
the debt, the cancellation of indebtedness may amount:
a. To a gift
b. To a capital contribution
c. To a donation inter vivos
d. To a payment of income

32. Brando, married with 4 children, received the following during the taxable year:
• House and lot, inherited from his mother, FMV` Php35,000,000
• Car, received as a gift from his best friend, cost 1,250,000
• Proceed of life insurance of his mother 10,000,000
• Cash, awarded in a court case, for lost profit 15,000,000
• Cash, awarded in a court case, for moral damages 500,000

The amount added in his gross income is:

a. Php61,750,000
b. Php15,500,000
c. Php15,000,000
d. Php46,250,000

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 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

Numbers 33 to 35 are based on the following

Bob Eden, a nonresident Malaysian stockholder, received dividend income of

P300,000 in 2020 from Ramen Incorporated, a foreign corporation doing business in
the Philippines. The gross income of the foreign corporation from within and without
the Philippines for the past three years preceding 2020 were as follows:
Source 2017 2018 2019
Philippines P16,000,000 P12,000,000 P14,000,000
Abroad 8,000,000 14,000,000 16,000,000

33. The amount of income subject to tax should be:

a. P0
b. P90,000
c. P157,500
d. P300,000

34. Assuming the percentage of gross income over worldwide gross income of Ramen
Inc. for the past three years is 40%, the income to be reported by Bob is:
a. P0
b. P90,000
c. P157,500
d. P300,000

35. Assuming Ramen Inc is a domestic corporation, the amount of income subject to
tax of Bob should be:
a. Php0
b.
Php90,000
c. Php157,500
d. Php300,000

36. Gains realized by the investor upon redemption of shares of stock in a mutual fund
company is:
a. Exempt
b. Subject to final withholding tax
c. Subject to basic tax
d. None of the above

37. Drago purchased a life insurance, which he will pay Php100,000 for the next 10
years. If he die anytime, his beneficiary will receive Php1,500,000. On the other hand,
if he outlive the 10 years, he will receive the Php1,500,000 on the 15 th year. How
much should he recognize as income on the 15th year.
a. P100,000
b. Php1,500,000
c. Php1,000,000
d. Php500,000
e. Php0

7|P a g e TLOPEZ/JPAPA
 No. 125 Brgy. San Sebastian
Lipa City, Batangas, Philippines
Mobile : 0927 283 8234
Telephone : (043) 723 8412
Gmail : www.icarecpareview@gmail.com

38. Drago purchased a life insurance, which he will pay Php100,000 for the next 10
years. If he die anytime, his beneficiary will receive Php1,500,000. On the other hand,
if he outlive the 10 years, he will receive the Php1,500,000 on the 15th year. Assuming
Drago died on the 2nd year, how much should the beneficiary recognize as income
on account of receipt of the Php1,500,000.
a. P100,000
b. Php1,500,000
c. Php1,000,000
d. Php500,000
e. Php0

That in all things, God will be glorified

8|P a g e TLOPEZ/JPAPA

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