No. 125 Brgy.

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

Deductions from Gross income Tax03-08

1. The following describes a deduction , except:

a. It is charged against a taxpayers gross income to arrive at taxable income
b. It is not a receipt
c. It has the effect of reducing the amount against which the income tax will be
based
d. It is the privilege from a charge or burden to which others are subjected

2. First Statement – Deductions from gross income are matters of legislative grace,
i.e., what is not expressly granted by Congress is withheld.
Second Statement – Only those enumerated in Section 34 of the Tax Code and
special laws may be claimed as deductions from Gross income to arrive at Taxable
Income.
a. True, true
b. True, False
c. False, False
d. False, True

3. The following are the requisites in order for an expense to be considered as an

allowable deduction from gross income, except:
a. It is ordinary to the taxpayers trade, business or profession
b. It is linked to the taxpayer’s trade, business or profession
c. Its amount must be reasonable
d. Its payment must be legitimate

4. The following are the conditions in order for any expense be allowed as a
deduction from gross income
a. It must be paid during the taxable year
b. Its amount must be reasonable
c. It must be properly substantiated with evidence
a. If the payment or accrual is subject to withholding, the corresponding
withholding tax must have been withheld and paid to the BIR.

5. The following are the characteristics of Capital expenditure, except:

a. Incurred in the acquisition, betterment or permanent improvement of an asset
b. Akin to the acquisition of capital assets which normally should be spread over
a reasonable period of time
c. Expected to benefit more than one accounting period
d. Benefits one accounting period and is a deduction from gross income in the
year paid or incurred

6. The following taxpayers are allowed to claim optional standard deductions (OSD),
except:
a. Resident Citizen
b. Non-resident Citizen
c. Resident Alien
d. Non-resident alien

7. The basis of determining OSD for an individual is:

a. Gross income
b. Gross sales or gross receipts
c. Net income
d. Taxable income

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

8. The following corporate taxpayers are allowed to claim OSD, except:

a. Proprietary educational institutions
b. Domestic corporation
c. Resident foreign corporation
d. Non-resident foreign corporation

9. The basis of determining OSD for a corporate taxpayer is:

a. Gross income
b. Gross sales or gross receipts
c. Net income
d. Taxable income

10. Statement 1- Exclusions are items or amounts allowed to be subtracted from gross
income to arrive at the taxable income.
Statement 2- Deductions from gross income are not presumed.
a. True, true
b. True, false
c. False, false
d. False, true

11. The following itemized deductions are not deductible, if between related parties as
described by section 36(b) of the Tax code, except
a. Loss on dealings with property
b. Interest
c. Bad debt write-off
d. Casualty loss

12. The following are related parties enumerated on section 36(b) of the Tax Code
whereby interest expense is not deductible.
a. Between members of a family, which shall include only his brothers and sisters,
spouse, ancestors and lineal descendants.
b. Except in the case of distribution in liquidation, between an individual and
corporation more than 50% in value of the outstanding stock of which is owned,
directly or indirectly, by or for such individual
c. Between the grantor and a fiduciary of any trust
d. Between the fiduciary of a trust and the fiduciary of another trust if another
person is a grantor with respect to each trust

13. Interest expense incurred to acquire an asset used in the course of trade or
business and such asset could be subject to an allowance for depreciation is
a. Cannot be allowed as a deduction from gross income
b. Can only be allowed as a deduction from gross income
c. May either be capitalized, added to the cost of the asset, or claimed as an
outright interest expense at the prerogative of the taxpayer
d. May either be capitalized, added to the cost of the asset, or claimed as an
outright interest expense at the prerogative of the Commissioner of Internal
Revenue (CIR)

14. Avenger Incorporated is engaged in manufacturing clothes. It reported the

following during the year ended December 31, 2020:
Sales Php100,000,000
Cost of sales 60,000,000
General and Administrative expenses 10,000,000
Interest income on PH Bank deposit(gross) 1,000,000
Interest expense 2,000,000

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

The allowable interest expense is:

a. Php1,000,000
b. Php2,000,000
c. Php1,735,000
d. Php660,000

15. The taxable income of the Corporation for the year ended December 31, 2020
is:
a. Php28,265,000
b. Php29,000,000
c. Php28,000,000
d. Php40,000,000

16. The following interest expenses are not deductible except:

a. In case of an individual taxpayer reporting income on cash basis incurs an
indebtedness on which interest is paid in advance through discount and no
corresponding payment of principal was made.
b. Interest expense between a father and his son
c. Interest expense incurred to finance petroleum exploration
d. Interest expense on income tax deficiency

17. The following taxes are non-deductible from gross income, except:
a. Income tax
b. Income taxes paid to foreign country in case of a taxpayer who does not signify
in his/its income tax return to claim credit of the same against its Philippine
income tax
c. Estate tax
d. Donor’s tax

18. The following are the requisites for claiming casualty loss as a deduction from
gross income, except:
a. Actually incurred during the taxable year and not compensated by insurance
b. Casualty loss occurred by reason of fire, storm, shipwreck and other similar
casualty and robbery, theft and embezzlement
c. In case of an estate subject to income tax, the loss is claimed as a deduction
in the estate tax return
d. Reported with the Bureau of Internal Revenue within 45 days from the
occurrence of the loss

19. Net operating loss is the excess over gross income, as defined in section 32 of the
Tax Code, less one of the following
a. The itemized deductions
b. The optional standard deductions
c. Both itemized and optional standard deductions
d. Neither itemized and optional standard deductions

20. Net operating loss is allowed as carry-over, as indicated on the following, except:
a. For the immediately succeeding three (3) years following the year of such loss
b. For the immediately succeeding three years following the year of such loss
whereby the taxpayer is enjoying income tax holiday.
c. For mines other than oil and gas wells, who does not enjoy any incentive from
the Board of Investments, net operating loss for the first ten (10) years of
operation, can be carried over for the next five (5) years following the year of
such loss
d. NOLCO for Taxable Year 2020 and 2021, and Fiscal Year ending on or before
June 30,2021, and June 30, 2022 maybe carried over for the next five (5)
consecutive taxable years immediately following the year of such loss

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

21. Which of the following losses is not deductible?

a. Abandonment losses in petroleum operation.
b. Excess of expenses over gross income from sale of ordinary assets.
c. Losses on wash sales of stocks by a person other than a stock dealer
d. Losses on sale of investments.

22. Mr. Edward Nigma, a CPA-Lawyer, engaged in the exercise of his dual profession,
had the following transaction during the year on ACME Chemicals, Inc.
October 10, 2020 Purchased 10,000 shares at Php50 per share Php500,000
October 20, 2020 Purchased 4,000 shares at Php50 per share Php200,000
November 10, 2020 Purchased 3,000 shares at Php48 per share Php144,000
November 14, 2020 Sold the 10,000 shares purchased in October Php450,000
10 at Php45 per share
How much is Mr. Nigma’s deductible loss on the sale
a. Php50,000
b. Php35,000
c. Php15,000
d. Php300,000

23. MisterE Corporation sells goods and services in the ordinary course of its trade
and business. It had net sales and net revenue of P3,000,000 and P2,000,000
respectively. The actual entertainment, amusement and recreational (EAR)
expense for the taxable year totalled P30,000.
How much is the deductible EAR expense?
a. Php30,000
b. Php25,000
c. Php27,000
d. Php0

Numbers 24 and 25 are based on the following:

Wayne Arms, Incorporated has been operating since 1954. It presented you with the
following results of its operation
2017 2018 2019 2020
Sales 5,000,000 6,000,000 7,000,000 9,000,000
Cost of Sales 3,500,000 4,200,000 5,000,000 5,200,000
Itemized Deductions 1,550,000 1,820,000 2,100,000 2,300,000
24. The taxable income for the year 2020 is:
a. Php1,330,000
b. Php1,500,000
c. Php3,800,000
d. Php1,500,000

25. Assuming the total assets of Wayne Arms is Php200,000,000; the income tax still
due for the year ended December 31, 2020 is:
a. Php399,000
b. Php30,000
c. Php259,750
d. Php40,000

26. The following depreciation method are allowed without the need of seeking
permission for its use from the Commissioner of Internal Revenue, except:
a. Straight line method
b. Declining balance method
c. Sum-of-the-years-digit method
d. Units of production depreciation

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

27. Marvel Universe Incorporated contributed P4,000,000 to its pension plan during
the year ended 2020. As indicated in its Actuarial Valuation report, the current
period contribution should only be P3,000,000. How much can Marvel Universe.
claim as pension contribution deduction?
a. Php4,000,000
b. Php3,100,000
c. Php3,000,000
d. Php0

28. Which of the following charitable contributions is not deductible in full?

a. Donation to the Government of the Philippines to finance priority projects
identified by NEDA
b. Donation to the Municipality of Milagros in the Province of Masbate for the
repair of Municipal Hall
c. Donation to International Organizations
d. Donation to accredited Non-government Organizations

29. The following are the conditions in order for donations of personal computers,
laptops, tablets, or similar equipment (i.e. mobile phone, printer) for use in teaching
and learning in public schools, starting from the effectivity of the Bayanihan to
Recover as One Act on September 15,2020 up to December 19, 2020.
a. that the Deed of Donation shall indicate in detail the items donated, its
quantity/number and the amount/value of the donation;
b. That the deduction shall be availed of in the taxable year in which the expenses
have been paid or incurred;
c. That the taxpayer can substantiate the deduction with sufficient evidence, such
as sales invoice/s, delivery receipt and other adequate records: i. the amount
of expenses being claimed as deduction; and ii. Proof or acknowledgement of
receipt of the contributed/donated property by the recipient public school.
d. That the book value of the equipment donated be deductible in full from the
donor’s gross income

30. Deadpool Recreation Inc. has been operating for seven (7) years. During the year
ended December 31, 2020, it presented the following personnel expenses:
Casual employees paid with salaries within SMW Php750,000
Regular employees (80% was subjected to compensation 5,000,000
withholding tax)
Senior Citizen – living below poverty level 500,000
Persons with disability 200,000
The deductible expense of Deadpool Recreation Inc is:

a. Php6,450,000
b. Php5,575,000
c. Php5,700,000
d. Php4,000,000

Numbers 31 and 32 are based on the following:

Mr. Bruce Wayan presented you with the following data during the year:

Gross income from P1,000,000

business
other income 40,000
Long-term Capital gain 50,000
Short-term Capital loss 20,000
Operating expenses 400,000

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

Donation to an 30,000
accredited NGO
Donation to church 40,000

31. How much is the taxable income?

a. Php505,000
b. Php525,000
c. Php575,000
d. Php555,000

32. Based on the above problem, but the taxpayer is a corporation, how much is the
taxable income?
a. Php570,000
b. Php606,500
c. Php545,000
d. Php600,000

33. The taxpayer is a domestic corporation:

Gross sales P9,350,000
Sales returns and allowances 250,000
Sales discounts 100,000
Other income 200,000
Cost of sales 3,000,000
Operating expenses with vouchers and 4,000,000
receipts
Operating expenses without vouchers and 500,000
receipts
Interest income from savings deposit 80,000
Interest income from deposit under FCDS 125,000
Royalty income-passive 100,000

How much is the taxable income using itemized deduction?

a. P1,675,000 c. P1,700,000
b. P2,175,000 d. P2,200,000

34. Based on the preceding number, how much is the taxable income using OSD?
a. P3,755,000 c. P3,695,000
b. P5,470,000 d. P3,720,000

35. Vicki Vale operates a convenience store while at the same time offers bookkeeping
services to her clients. In the year 2020, her gross sales amounted to Php1,800,000, in
addition to her gross receipts from bookkeeping services of Php400,000. During the same
year, her cost of goods sold and operating expenses were Php1,325,000 and
Php320,000, respectively. How much is her taxable income assuming she availed of the
optional standard deduction:

a. Php1,320,000
b. Php720,000
c. Php160,000
d. Php525,000

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

36. RMP Corporation, a domestic manufacturing corporation, had gross sales of P

100,000,000.00 for Fiscal Year ending June 30, 2021 and incurred cost of sales of
P60,000,000.00 and operating expenses of P17,500,000.00, with the following
details:

Cost of Sales
Direct Materials Php 30,000,000.00
Direct Labor 20,000,000.00
Manufacturing Overhead 10,000,000.00
Total Php 60,000,000.00
Operating Expenses
Salaries and Wages Php 7,000,000.00
Taxes 300,000.00
Depreciation 3,500,000.00
Professional Fees 200,000.00
Advertising Expenses 3,000,000.00
Training Expenses 3,000,000.00
Office Supplies 500,000.00
Total Php 17,500,000.00

Assuming the corporation has complied with the withholding tax requirement on all
cost and expenses incurred subject to withholding tax, compute for the corporation’s
net taxable income:
a. Php22,500,000
b. Php23,000,000
c. Php21,000,000
d. Php19,500.000

That in all things, God will be glorified

7|P a g e AESCARTIN/TLOPEZ/JPAPA

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