Allowable

Deductions-Quiz 2
Total points 24/25

The respondent's email address

(2073365@g.cu.edu.ph) was recorded on
submission of this form.

1. Lester bought an equipment 1/1

under a two-year instalment
basis to be used in his o!ce in
the practice of his profession.
Lester will pay P50,000
monthly for a period of twelve
(12) months. For income tax
purposes, the P50,000
monthly payment shall be: *

a. Treated as business rental, hence

deductible.

b. Treated as capital expenditure,

hence not deductible.

c. Treated as depreciation expense,

hence deductible.

d. Treated as ordinary business

expense.

2. Statement 1: A taxpayer can 1/1

only deduct an item or amount
from gross income only if there
is a law authorizing such a
deduction. Statement 2: For
income tax purposes, a tax
payer is free to deduct from
the gross income the full
amount of the deduction
allowed, or a lesser amount or
not to claim any deduction at
all. *

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

3. Statement 1: The taxpayer 1/1

has the burden of justifying the
allowance of any deduction
claimed. Statement 2:
Deductions are strictly
construed against the
government. *

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

4. Statement 1: Only business 1/1

expenses may be deducted
from the gross income
taxpayers. Statement 2:
Itemized deductions from
gross income should be duly
suppo"ed by vouchers or
receipts. *

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

5. In the conduct of his 1/1

business in 2018, Modesto
found it necessary to give gi#s
to the government o!cials
with whom he had o!cial
dealings. *

a. These gifts are deductible

expenses subject to the
substantiation rule.

b. The value of the gifts, if de

minimis, are allowed to be
deducted.

c. Irrespective of the value, the gifts

are considered as bribes and not
allowed to be deductible.

d. These gifts are deductible if found

to be necessary and properly
supported by receipts.

6. Statement 1: Cost of 1/1

technical books used by a CPA
in the practice of his profession
is allowable business expense.
Statement 2: Tuition fees,
board and lodging incurred by
a medical doctor while
a$ending a continuing
professional education seminar
is allowable business expense.
*

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

7. A leasehold is acquired for 1/1

business purposes for
P5,000,000. The lease
contract is for 10 years. How
much is the deductible amount
from the gross income? *

a. P500,000

b. P1,000,000

c. P5,000,000

d. P0

8. Mike leased his land to 1/1

Leonor for two years beginning
July 1, 2018. Leomar would pay
monthly rental of P100,000. He
paid rent up to October 2018
and then defaulted for the rest
of the year. Under accrual
method, how much was the
income of Mike for 2018? *

a. P200,000

b. P400,000

c. P600,000

d. None of the choices

9. Roy borrowed money from 1/1

the Bank amounting to
P1,000,000 at an annual
interest rate of 7%. He invested
the money in deposit
substitutes earning annual
interest income of 8%. How
much is the deductible
interest? *

a. P43,600

b. P26,400

c. P70,000

d. P80,000

10. Statement 1: casualty, 1/1

robbery, the# or
embezzlement losses are
deductible only when a
"Declaration of Loss" is
submi$ed within 45 days from
the date of discovery of the
casualty or robbery, the# or
embezzlement that caused the
loss. Statement 2: casualty,
robbery, the# or
embezzlement losses are
deductible from gross income
if at the time of the %ling of the
income tax return, they have
not been claimed as
deductions for estate tax
purposes in the estate tax
return. *

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

11. One of the following losses 1/1

cannot be deducted from
gross income. *

a. To construct a bigger warehouse,

a corporation demolished an old
warehouse which had a construction
cost of P3,000,000 and a book value
of P500.000.

b. Demolition of a building
existing on a land purchased
where the corporation has no use
for the building at the time of
purchase and it was its intention
to remove the building in order to
build its factory.

c. A corporation retired its machinery

from the business because of the
increase in the cost of production
and the failure of the machinery to
meet the desired number of units of
production.

d. A corporation ascertained that its

B Corp. stocks are worthless
because of the total insolvency of B
Corp.

12. Dong, a gambling addict, 1/1

won P90,000 from
cock%ghting during the year.
However, he also su&ered
losses from other gambling
activities amounting to
P200,000. How much is the
deductible loss? *

a. P200,000

b. P110,000

c. P90,000

d. nil

13. SNJ Inc. purchased shares 1/1

of stock, of Valde Corp. for
P60,000 and of Boba Co. for
P30,000. At the end of the
taxable year, it was asce"ained
that its Valde Corp. stock was
wo"hless because of the
complete insolvency of the
corporation, and its Boba Co.
shares value had declined to
P28,000. How much is the
deductible loss of SNJ Inc.? *

a. P90,000

b. P62,000

c. P60,000

d. nil

14. Statement 1: Capital losses 1/1

can be deducted only from
capital gains. Statement 2:
Ordinary losses can be
deducted from any gross
income. *

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statement are correct

d. Both statement are incorrect

15. A taxpayer is allowed to use 1/1

declining balance method in
claiming depreciation. In such a
case, the limitation is-

a. It should not exceed twice the

rate in straight-line method.

b. It should not exceed twice the rate

in sum-of-the-years digit method.

c. It should not exceed the rate in

straight-line method.

d. It should not exceed the rate in

sum-of-the-years digit method.

16. BSE College, a proprietary 1/1

educational institution, spent
P10 million for the construction
of a new school building. The
amount spent for the
construction- *

a. Must be claimed as expense in the

year of completion.

b. Capitalized and claim annual

depreciation over the life of the
building.

c. Capitalized or expensed
outright at the option of the
school.

d. Capitalized or expensed outright at

the option of the BIR.

17. Gallaxy, Incorporated has 1/1

been in business for the past
10 years. For the year 2018, it
decided to establish a pension
fund for its employees. The
pe"inent data of the fund are
us follow: Past service cost
(lump sum payment)
P1,000,000 Present service
cost 100,000 The deductible
pension contribution for the
year is? *

a. P100,000

b. P200,000

c. P1,000,000

d. P1,100,000

18. The cost of the leasehold 1/1

improvements shall be
deductible by the lessee by: *

a. Spreading the cost of the

improvements over the life of the
improvements or remaining term
of the lease, whichever is shorter.

b. Spreading the cost of the

improvements over the life of the
improvements or remaining term of
the lease, whichever is longer.

c. Spreading the cost of the

improvements over the term of the
lease or may be expensed outright in
full, at the option of the lessee.

d. Any of the above

19. A leasehold is acquired for ···/1

business purposes for
P5,000,000. The lease
contract is for 10 years. How
much is the deductible amount
from the gross income? *

a. P500,000

b. P1,000,000

c. P5,000,000

d. P0

No correct answers

20. Statement 1: As a rule, the 1/1

interest must be on an
indebtedness of the taxpayer,
otherwise it is not deductible.
Statement 2: Interest paid by
the taxpayer on a mo"gage
upon real estate of which he is
the legal or equitable owner,
even though the taxpayer is
not directly liable upon the
bond or not secured by such
mo"gage, may be deducted as
interest on his indebtedness. *

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statement is correctt

d. Both statements are incorrect

21. How shall interest related to 1/1

acquisition of prope"y used in
trade, business or profession
be treated? *

a. Claim as outright expense

b. Capitalized

c. At the option of the taxpayer, may

be claimed as outright expense or
capitalize

d. At the option of the government,

may be claimed as outright expense
or capitalize

22. Statement 1: Prior to 2018, 1/1

an individual taxpayer could
claim both the itemized
deduction and personal
exemption in the same taxable
year. Statement 2: Prior to 2018,
an individual taxpayer could
claim both the itemized
deduction and optional
standard deduction in the
same taxable year. *

a. Only statement 1 is correct

b. Only statement 2 is correct

c. Both statements are correct

d. Both statements are incorrect

23. The following statements 1/1

pe"ain to Optional Standard
Deduction (OSD) for
corporations. Which is
incorrect *

a. Passive incomes which have been

subjected to a Vnal tax at source
shall not form part of the gross
income for purposes of computing
OSD.

b. Incomes exempt from income tax

shall not form part of the gross
income for purposes of computing
OSD.

c. If the taxpayer (individual or

corporate) is engaged in trading
of goods, OSD should be based
on Gross sales less sales returns,
sales discounts and allowances,
and cost of sales.

d. None of the above

24. The following interest are 1/1

non- deductible, except? *

a. Interest paid to persons classiVed

as related taxpayers under Section
36 (B) of RA 8424.

b. Interest related to indebtedness

incurred to Vnance petroleum
exploration.

c. Interest on preferred stock

d. Interest related to
indebtedness incurred to Vnance
working capital requirements.

25. Which of the following is 1/1

the correct allowable
ente"ainment expense? *

a. Not more than 1/2 % of

revenue from services.

b. Not more than 1% of net sales of

goods.

c. Not more than 1 1/2 % of revenue

from services

d. Not more than 1 1/2 % of net sales

of goods.

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