Choose the letter of the correct answer

1. An accounting period of twelve (12) months ending on the last day of December.

a. Calendar year c. Leap year

b. Fiscal year d. Sum-of-the-year

2 An accounting period of twelve (12) months ending on the last day of any month other than
December.

a. Calendar year c. Leap year

b. Fiscal year d. Sum-of-the-year

3 Which one of the following cases may the taxable income be computed not on the basis

of the calendar year?

I. Taxpayer has no accounting period

II. Taxpayer does not keep books of accounts

III. Taxpayer is an individual taxpayer

IV. Taxpayer is a corporation

V. Taxpayer is a general partnership

a. IV only c. III, IV and V only

b. IV and V only d. None of the above

4 Which of the following statements is correct?

a. A change in the method of accounting requires a prior approval of the Commissioner of Internal
Revenue.

b. A change in accounting period does not require prior approval of the Commissioner of Internal
Revenue as long as the necessary income tax returns

for the different accounting periods are filed.

c. Both "a" and "b"

d. Neither "a" nor "b"

5. A method of accounting which applies to a farmer who is engaged in producing

which take more than a year from the time of planting to the time of gathering and

disposing. The entire cost of producing crop must be taken as a deduction in the yea

which the gross income from the crop is realized.

a. Cash basis c. Crop basis

b. Accrual basis d. Installment method

6. A method of accounting where income is reported in the year it is collected, actually or

constructively.

a. Cash basis c. Crop basis

b. Accrual basis d. Installment method

7. Which of the following instances may give rise to short accounting period?

a. When the corporation is newly organized using calendar year

b. When a corporation is dissolved

c. When a corporation changes accounting period

d. All of the above

8. Which of the following instances may give rise to short accounting period?

I. When the corporation is newly organized using fiscal year

II. When a taxpayer dies

III. When a corporation changes accounting method

a. I only c. Ill only

b. Il only d. I, Il and lII

9. Which of the following statements in incorrect?

a. No uniform method of accounting can be prescribed for all taxpayers.

b. Each taxpayer is required by law to make a return on his true income.

c. The taxpayer has to adopt accrual method of accounting because it is in

accordance with generally accepted accounting principles

d. Where purchase or sale of merchandise is an income-producing factor;

inventories on hand shall be taken at the beginning and at the end of year.

10. Statement 1: If a taxpayer, other than an individual, with the approval of the

Commissioner, changes the basis of computing net income from fiscal year to calendar

year, a separate final or adjustment return shall be made for the period between the

close of the last fiscal year for which return was made and the following December 31.

Statement 2: If the change is from calendar year to fiscal year, a separate final or

adjustment return shall be made for the period between the close of the last calendar

year for which return was made and the date designated as the close of the fiscal year.

a. Statements 1 & 2 are false

b. Statement 1 is true but statement 2 is false

c. Statement 1 is false but statement 2 is true

d. Statements 1 and 2 are true

11. Statement 1: The method of accounting regularly employed by the taxpayer in keeping

his books, if such method clearly reflects his income, is to be followed with respect

time as of which items of gross income and deductions are to be accounted for

Statement 2: The computation shall be made in accordance with such method of

accounting as in the opinion of the Commissioner clearly reflects the income if there is a

method of accounting being employed by the taxpayer and such method of accounting

clearly reflect the income.

a. Statements 1 & 2 are false

b. Statement 1 is true but statement 2 is false

c. Statement 1 is false but statement 2 is true

d. Statements 1 and 2 are true

12. Which one of the following is an essential of an acceptable accounting method?

a. There should be distinction between revenue and capital expenditures

b. Expenses to restore property or prolong its useful life should not be added to

the property account or charged against depreciation

In all cases in which production, purchase or sale of merchandise is an

income producing factor, inventories should be considered ether at the

beginning or at the end of the accounting peri0d

d. The accounting method should adhere to generally accepted accounting

principles.

13. Statement 1: Income which is credited to the account of or set apart for a taxpayer and

which may be withdrawn upon by him at any time is subject to tax for the year during

which so credited or set apart, although not then actually reduced to possession.

Statement 2: The doctrine of constructive receipt of income is designed to prevent the

exclusion from taxable income of items, the actual receipt of which could, at the option of

a taxpayer on the cash basis, be deferred or indefinitely postponed.

a. Statements 1 & 2 are false

b. Statement 1 is true but statement 2 is false

c. Statement 1 is false but statement 2 is true

d. Statements 1 and 2 are true

14. The following statements pertain to registration requirements of every person required

to register for tax purposes. Choose the incorrect statement.

I. Every person subject to any internal revenue tax shall register once with

the appropriate revenue district officer.

II. A person maintaining a head office, branch or facility shall register with
revenue district officer having jurisdiction over the head office, branch or

facility.

III. In case a registered person decides to transfer his place of business of his

head office or branches, it shall be his duty to update his registration

status by filing an application for registration information update in a

prescribed form.

IV. The registration of any person who ceases to be liable to a tax type shall

be cancelled upon filing with the Revenue District Office where he is

registered by filing an application for registration information update in a

prescribed form.

a. III only c. All of the above

b. IV only d. None of the above

15. Statement 1: Any person required under the authority of the Tax Code to make,

render, or file a return, statement or other documents shall be supplied -with or

assigned a single Taxpayer Identification Number (TIN).

Statement 2: The assigned TIN shall be indicated every time a return, statement or

document is filed with the BlR for the taxpayer's proper identification.

a. Statements 1 & 2 are false

b. Statement 1 is true but statement 2 is false

c. Statement 1 is false but statement 2 is true

d. Statements 1 and 2 are true

16. What is/are the penalty for non-issuance of receipts or invoices?

a. Fine of not less than P1,000 but not more than P50,000;

b. Imprisonment for not less than two (2) years but not more than four (4) years.

c. Both "a" and "b"

d Neither "a" nor "b"

17. Prior to the effectivity of the TRAIN Law, what books of account shall be kept for those

whose quarterly sales/earnings/receipts or output do not exceed P50,000 prior to

2018?

I. Simplified set of bookkeeping records

II. Journal and a ledger or their equivalents.

III. Either simplified set or bookkeeping records or journal and a ledger or their equivalents.

IV. No books of account required.

a. I only c. III only

b. Il only d. IV only

18. Prior to the effectivity of TRAIN Law, what books of account shall be kept for those

whose quarterly sales, earnings, receipts or output exceed P50,000? e

I. Simplified set of bookkeeping records

II. Journal and a ledger or their equivalents.

III. Either simplified set or bookkeeping records or journal and a ledger or their

equivalents

IV. No books of account required.

a. I only c. III only

b. Il only d. IV only

19. Prior to the effectivity of TRAIN Law, the books of account are required to be audited

and examined yearly by an independent CPA if the gross quarterly sales, earnings

receipts or output exceed.

a. P10,000 c. P50,000

b. P30,000 d. P150,000
20. The books of account may be kept in the following languages, except

a. Native language

b. Spanish

c. English

d. Chinese or Japanese.

21. How long must the books of account be kept?

a. For a period beginning the preceding taxable year until the last day of the

same taxable year;

b. For a period beginning the current taxable until the last day of the same

taxable year;

c. For a period beginning from the last entry in each book until the last day

prescribed within which the Commissioner is authorized to make an

assessment;

d. Keeping of books of account is not required.

22. Statement 1: The books of account and other records shall be subject to examination

and inspection only once in a taxable year by the BIR officers.

Statement 2: The examination and inspection of books of account and other accounting

records shall be done in the taxpayer's office or place of business or office of the Bin

a. Statements 1 & 2 are false

b. Statement 1 is true but statement 2 is false

c. Statement 1 is false but statement 2 is true

d. Statements 1 and 2 are true

23. For income tax purposes, the examination and inspection of the books of account and

records shall be made only once in a taxable year, except in the following cases

I. Fraud, irregularity or mistakes, as determined by the Commissioner

II. The taxpayer requests for reinvestigation;

IIl. Verification of compliance with withholding tax laws and regulations

IV. Verification of capital gains tax liabilities;

a. I and l only c. All of the above

b. Ill and IV only d. None of the above

24. A farmer under accrual basis has the following data for the year:

Beginning inventory:

Livestock and farm products raised in the farm P 60,000

Livestock and farm products purchased the previous year 30,000

Ending inventory:

Livestock and farm products raised in the farm 100,000

Livestock and farm products purchased 80,000

Sales of livestock and farm products raised and purchased 120,000

Cost of livestock and farm products purchased during the year 100,000

Miscellaneous income:

Gain on sale of work, breeding or dairy animals 30,000

Gain on sale of farm equipment and machinery 10,000

Hire of tractor 20,000

Hire of carabaos and horses 6,000

Others 4,000

How much is his gross income?

a. P370,000 c. P180,000

b. P270,000 d. P90,000
Solution:

Sale of livestock and farm products P120,000

Cost of Sales:

Beginning inventory (60k + 30k) P90,000

Purchases of livestock 100,000

Ending inventory (180,000) (10,000)

Gross income from operations P110,000

Add: Other income (30k+ 10k+ 20k+ 6k+ 4k) 70,000

Total Gross income P180,000

25. Based on the preceding data, how much is the gross income assuming cash basis is

used?

a. P370,000 c. P180,000

b. P270,000 d. P90,000

Solution:

Sale of livestock and farm products P120,000

Cost of Sales:

Purchases of livestock (100,000)

Gross income from operations 20,000

Add: Other income (30k+ 10k+ 20k + 6k+ 4k) 70,000

Total Gross income P90,000

Next five (5) questions are based on the following:

Joseph provided the following data on sale of his personal property sold in 2016 held by him for 15
months:

Cost P225,000

Mortgage assumed by the buyer 270,000

Installment Collection Schedule:

- 2016 67,500

- 2017 67,500

- 2018 45,000

26. How much is the selling price?

a. P450,000 c. P180,000

b. P270,000 d. P225,000

Solution:

Cash received P67,500

Receivables 112,500

FMV of property received -

Mortgage assumed by the buyer 270,000

Selling Price P450,000

27. How much is the contract price?

a. P450,000 c. P180,000

b. P270,000 d. P225,000
Solution:

Selling price P450,000

Less: Mortgaged assumed by the buyer (270,000)

Excess of mortgage over cost

(P270,000-P225,000) 45,000

Contract Price P225,000

28. How much is the initial payments?

a. P67,500 c. P45,000

b. P112,500 d. P225,000

Solution:

Cash received P67,500

Excess of mortgage over cost 45,000

Initial Payment P112,500

29. How much is the income subject to income tax in 2016, 2017, and 2018?

a. P56,250, P33,750 and P22,500, respectively

b. Pl12,500, P67,500 and P45,000, respectively

c. P225,000, P0 and P0, respectively

d. None of the choices

Solution:

Selling price P450,000

Cost (225,000)

Gross Profit P225,0000

Gross Profit % = GP/CP

(P225,000/P225,000) 100%
REALIZED GROSS PROFIT 2016 (Year 1)

Initial payment P112,500

X 100%

Gross Profit P112,500

Holding Period X 50%

REALIZED GROSS PROFIT 2016 P56,250

 The asset sold was a capital asset and the seller is individual, hence, apply

rules on holding period.

 For year 1, the multiplier should be the initial payment, rather than collections.
 For 2nd year onwards, use collections.

30. The following data pertain to installment sales of personal property made by Dina Bale,

who regularly sells in installment, in his retail furniture store.

Year of sale Installment sale Profit Equal collection in 2018

2015 P 50,000 15,000 10,000

2016 P100,000 40,000 20,000

2017 P150,000 75,000 40,000

These sales were regularly made in installment by Dina Bale to her customers. Under

installment method, Dina should report gross profit for 2018 of

a. P31,000 c. P86,000

b. P75,000 d. P130,000

 The seller can avail of instalment reporting of income regardless of the ratio of

initial payment over selling price because she is regularly engaged in trading

personal property.
Gross Profit %

2015 15/50 30%

2016 40/100 40%

2017 75/150 50%

Realized Gross Profit 2018

2015 = 15/50 = P10,000 x 30% P3,000

2016 = 40/100 = 20,000 x 40% 8,000

2017 = 75/150 = 40,000 x 50% 20,000

Dina's Gross Profit for 2018 P31,000

31. Maripet sold the following capital assets as follows: (RP - Philippines)

Lot 1 Lot 2 Lot 3

Selling Price P225,000 P750,000 P1,200,000

Cost 95,000 900,000 300,000

Terms of Sale:

Downpayment - 2/16 P15,000 P75,000 P150,000

1st Installment payment-4/16 15,000 75,000 75,000

2nd Installment Payment 9/16 15,000 - 120,000

Still due P180,000 P600,000 P855,000

How much is the capital gains tax for the year 2016?

a. P83,700 c. P130,500

b. P32,400 d. P11,700

RATIO of INITIAL PAYMENT over SELLING PRICE

LOT 1 45/225 = 20%; Installment

LOT 2 150/750 = 20%; installment

LOT 3 345/1,200 = 28.75%; Deferred basis; Treat as cash sale

Solution:

Lot 1 and 2 P195,000

Lot 3 1,200,000

Total P1,395,000

X 6%

Gross income from operations P83,700

32. Based on the above problem, assuming that the balance was collected in 2017, how

much is the capital gains tax on that year?

a. P130,500 c. P46,800

b. P98,100 d. nil

Solution:

Lot 1 and 2 P780,000

Lot 3 -

Total 780,000

X 6%

Gross income from operations P46,800

33. ln 2017, Leomar sold shares of stocks of a domestic company directly to a buyer for

P400,000. The shares were acquired in 2015 for P150,000.

The term of sale are as follows:

Downpayment P50,000

Instalment payments

2017 50,000

2018 100,000

2019 100,000

2020 100,000
How much is the capital gains tax for the year 2017?

a. P20,000 c. P15,000

b. P10,000 d. P5,000

 Ratio of Initial Payment over Selling Price = 100/400 = 25%

 Capital gain = P400,000 150,000 = P250,000
 TOTAL Capital Gains Tax = P100,000 x5% + (P150,000 x 10%)
 CGT for 2017 = P20,000 x 100/400 = P5,000

34 Karen, a real estate dealer sold a house and lot for P600,000 on November 20, 2017.

The cost of the property is P375,000. Terms are:

Downpayment: P100,000

Balance: Payable in monthly installments of

P25,000 beginning Dec. 20, 2017.

How much is the income subject to income tax in 2017?

a. P125,000 c. P46,875

b. P225,000 d. P23,437.50

 Ratio of Initial Payment over Selling Price = 125/600 20.83%

 Gross Profit = P600,000-375,000 = P225,000
 GP % = 225/600 = 37.5%
 Taxable income 2017 = P125,000 x 37.5% = P46,875

35. How much is the income subject to income tax in 2018?

a. P112,500 c. P56,250

b. P300,000 d. nil

Taxable income 2018 = P25,000 x 12months x 37.5% = P112,500

36. Assuming the asset above is a capital asset, the capital gains tax payable is 2017

in 2018 is

a. P36,000 and P0, respectively

b. P7,500 and P18,000, respectively

C. PO and P36,000, respectively

d. P18,000 and P7,500, respectively

 Capital gains tax (CGT) 2017 = P125,000 x 6% = 7,500

 Capital gains tax (CGT) 2017 = P25,000 x 12 x 6% = 18,000