ses Octacton G TRUE OR FALSE, : oe 1. 2. 3. baat aut 10. 11. 12. 13. Chapter Rs Scone Deductions from gross in taxpayers that aro not reste Ft 10 th6 tow oy Exclusions are the amounts Which te 9088 income, “2lth to the from gross income in order to hth th allows to Allowable deductions generally we,2t M2 income,® ° P& deducted directly from one's total tax liability." °° @™0unts that are sut Deductions which Constitute ibe, ki payment made to an Official or empy oye and Poly a hor yet OF simitar enon Poe! the atonal Sat policy are not deductible trom gross income “998 law and pubic The deductible taxes are limites only to nati Domestic and residen rations oes. cannot claim NOLCO, re t foreign corporat Decline in value through market fi i a corporation is not a dedutibie loge: 1" Of ¥ESIments instock o Casualty, robbery, theft or embezziem ; when a “Declaration of Loss" is submited sos “45 dae oy date of discovery of the casualty or robbery, theft or empeonn on that caused the loss, : emer, In a total loss due to Casualty, the measure of loss is the of the asset reduced by any form of indemnity, 260k vole Ordinary losses can be deducted from any gross income. Ina wash sale, loss is not deductible In a merger or consolidation, or transfer to a Controlled corporation, loss is deductible. Bad debt is an expense in the books of accounts when a Provision is made for it. Such amount should likewise be deducted from gross income to arrive at taxable income. The phrase “actually Charged off from the taxpayer's books of accounts” means that the amount of money lent by the taxpayer (in the course of his business, trade or profession) to his debtor that had been recorded in the books of account as a receivable has actually become worthless as of the end of the taxable year, and that the said receivable has been cancelled and written off from the said taxpayer's books of accounts. ibtracteg . Before a taxpayer may charge off and deduct a debt, he must ascertain and be able to demonstrate with reasonable degree of Certainty, the uncollectibility of a debt. . When securities were held by an individual as capital asset and were a of the written off, the write off results in a capital loss on the date o write off. shal ascertain *(pecase of banks, the BSP, thru the Monetary Board shal ae shall bed del he worthlessness and uncollectibility of the bad the bank's €pprove the writing-off of the said indebtedness from he © books of accounts at the end of the taxable year 497Chapler Exercises — Deductions from Ging he Om, 48. The cost of leasehold improvements shall be dedi lessee by spreading the cost of the improvements iene improvements or remaining term of the lease, whicheve 1h lite 49. Gain from wash sale transaction is taxable. orl 20. A mere recording in the taxpayer's books of accou; uncollectible accounts does not constitute a viile-of 2 C8 soo eple.. Hence, shall not be a valid basis for its dec bad debt expense. leducton a 21. In no case may a receivable from an insurance or su : be written off from the taxpayer's books and claimed oH Company deduction unless such company has been declared alosene insolvency or any such similar reason by the ue ty . Commissioner. Insure 2. Bad Debt is a deduction from the gross incom: eatten git gi le when an Account 23. When the allowance for depletion shall equal the capital inves further allowance shall be granted. an ne 24. Foreign corporations engaged in international shipping or air cay in the Philippines may deduct NOLCO from its gross income, ma 25. If a taxpayer did not benefit from the reduction of a debt writen because it did not result to any reduction of his income tortite year of such deduction, his subsequent recovery thereof shall be treated as a mere recovery ora return of capital. thy Oye MULTIPLE CHOICE 4. Which of the following is not a characteristic of a deduction? a. It is a reduction of wealth that helped eam the income subject to tax. b. An immunity or privilege, a freedom from a charge or burden to which others are subjected. Itis not a receipt. Itis a subtraction to arrive at income subject to tax. 29 2. Inthe conduct of his business in 2021, Modesto found it nec to give gifts to the government officials with whom he had dealings. . ‘ . : a. These gifts are deductible expenses subject © substantiation rule; b. The value of the gifts deducted; t as bib c. Irrespective of the value, the gifts are considered and not allowed to be deductible ry These gifts are deductible if found to be necess™ properly supported by receipts. we if de minimis are allowed © 498CNMLEEY Crercises eda : ¢ Deductions from Gi h ross This is not a requisite for busi ae a. It must be rea: NESS expeng, sonable, S10 be dea b. Il must be paid during th, Sg come ; taxabi c. The withholding tax othe, 22ble year and remitted to the oI Srwise required have been ded, ucted d. Itmust be Ordinary ang Necessary One of the following is deductible f i a. Personal, living and family expos ane b. Amount paid out for i buildin improvement or betterment 8 ate Permanent propery oes » Made to increase the Value of c.. Losses from sales or exchar i between members of the family, 9° S&C oF indirectly d. Grossed-up Monetary value of fringe benefits. Which of the following is not deductible from business i x less income? a. Casual losses on Properties connected in the conduce of trade or business. b. Loss of business Property due to embezzlement. c. Loss on exchange of capital assets d. Net operating loss carry over In cases of deductions and exemptions on income tax retums, doubts shall be resolved a. Strictly against the taxpayer b. Strictly against the government ¢. Liberally in favor of the taxpayer d. Liberally in favor of the employer For income tax purposes, which of following statements correctly describe deductions? a. Deductions are items or amounts excluded from the determination of gross income. ‘ A taxpayer can avail of any and all deductions authorized by law for his kind of income to maximize his tax liability. ¢. Deductions are a matter of legislative grace. d. All of the above b. Shrinkage in value of the stock and loss from wash sale are Nondeductible losses because tatement 1: Loss on account of shrinkage in value of ie 2 through fluctuation in the market or otherwise are not real fatement 2: Loss from wash sale is only an attificial loss. @. Statements 1 and 2 are false a b. Statement 4 is true but statement 2 is false 499Chapter Everci Deduction fon G 08s] / y In ¢. Statement 1 is false but statement 2 is true < d. Statements 1 and 2 are true 9. Which of the following statements regardi jin np |. The source of net operating Toss carga ; i aS ordinary trade and business of the TOC) isfy iI NOLCO is not applicable against MciT Payer . 'e reglementary period on the Calry-over of Continue to run notwithstanding the fact that tr CO tha, Paid its income tax under the Minimum cone = Tax (MCIT) computation. "POE ican a. Il only C. All of the above b. Hand Ill only d. None of the above 10. Which of the following is correct? a. Interest incurred on loan from a brother is deductible b. Interest expense incurred on unpaid value added tay jg reduced by 33% of interest income subjected to final ro ¢. Interest payable which had already prescribed is deduct if paid voluntarily by the taxpayer = d. Interest incurred to acquire a business asset may be added to the cost of the property 11. This is a non-deductible interest expense a. Interest paid on indebtedness incurred to finance petroleun exploration b. Interest paid by a corporation on scrip dividends c. Interest paid by a corporate taxpayer who is liable on a mortgage upon real property of which the ‘said corporation's the legal or equitable owner d. Interest paid on tax deficiency if the tax where the interests in itself an item that is deductible from gross income year in connection wih fe 42. Taxes paid or incurred within the taxable 1 shall be allowed 2s taxpayer's profession, trade or business, deduction, except: a. Philippine income tax.. b. Foreign income tax claimed as c. Estate and donor's taxes. d. All of the choices. tax credit. rom G8. 43, Which of the following taxes is allowed to be deducted ysis! income derived from the exercise of a profession, a. Philippine income tax b. Estate and donor's taxesUctian, ~ c. Taxon sale of Gress come exchanen® 88°28 of stogy trade th FS Income, d. Import duties "UGH the local stock 44, The following are requisites in the a. There must be no CArrY-Over of eee Substantial change inthe oO, excep b. Carry-over iS not allowed if th cect uring the taxable year °"POrAtion ig Subject to ©. Even if the corporation is pata b the prescriptive Period is mao n MCIT, th i | hot in + the runnin, 4. The'cany-ovrie goed gta = 418. Which of the following is not correct re > gardi a. NOLCO is allowed as deductics from ree the next three (3) succeeding year provided that neon sncurred in 2020 and 2021 shall be allowen sadaiene for the next five (5) years. eee b. Domestic and resident foreign cor i ic rporations regular corporate income tax are allowed vith NOLS c. Entities enjoying income tax holiday. ‘ d. None of the above 16. Which of the following is entitled to claim NOLCO? a. Employee with respect to his compensation income. b. Foreign international carrier c. Self-employed individual d. All of the above Use the following data for the next three (3) question: The following are the records of a domestic corporation: 2020 2021 2022 Gross sales 3,300,000 2,340,000 825,000 Cost of sales 2,400,000 1,070,000 380,000 Dividend from resident 140,000 - 32,000 foreign corporation (derived , within) ; Interest income on notes 28,000 16,400 receivable 48,500 Capital gain (short term) - 180 27 000 Capital loss (long-term) 20,00 5,000 459,000 Business expenses 4,475,000 1,025, " PETERMINE THE FOLLOWING: 9 ~ The taxable income/(loss) in 2 a. P(S75,000) eae b. P(407,000) cy 501Chapter Exercises — Deductions fr CG, oa er Cer é mL 1055 Neon, 18. The taxable income/(loss) in 2021 a. PO c. P(132,600) b. P274,400 d. P254,400 419. The taxable income/(loss) in 2022 a. P18,000 c. P170,600 b. PO d. P18,000 20. Atty. Cahayon acquired a property for use in his business, A devastating typhoon, the machinery suffered partial damage, a following were made available: The Peel si 500,009 Accumulated depreciation 300,000 Restoration cost 250,000 Estimated useful life 5 years How much is the deductible loss? a. PO c. P250,000 b. P200,000 d. P100,000 21. In 2021, a taxpayer's residence was totally destroyed by fire. The property had an adjusted basis and a fair market value of P1,300,000 before the fire. During 2018, the taxpayer received insurance reimbursement of P1,200,000 for the destruction of his home. Taxpayer's 2021 adjusted income was P700,000. The taxpayer had no casualty gains during the year. What amount of the fire loss was the taxpayer entitled to claim as an itemized deduction in 2021 tax return? a. PO c. P86,000 b. P85,000 d.- P100,000 22. A taxpayer has a business property having an adjusted bass ¢ P1,000,000. It is completely destroyed by fire in 2021 ‘s compensated by an insurance claim for P800,000. How much is deductible loss? a. P1,000,000 c. P200,000 b. P800,000 d. P100,000 23. Which of the following is not a deductible loss? icing, a. Loss due to removal or demolition of old a renevel scrapping of old machinery or equipment incident or replacement END25. 26. 27. Chapter Exercises b. Le Dede . Loss due to remov. when the purchase wa building without intend bg c. Loss in Value of sos i ie tions om Gri Gress heone OF real eg tate ke wey Purchased 1e buildin, of the land an have becom« les d. Loss it © worthless ay {Such exten in usefulness ee are wi " that the businest'ts discontnin business sono eaulaes inued or the an as asset is disomeney 90" that iscarded, : . Which of the followin, ig losses is de ductible? a. Loss ona wash Sal b. Loss ona merger 2 c. Loss on a transfe fer of stock resulting in Sao are to a corporation solely for d. Loss on transfer of (rea Property to a controlled corporation solely Alpha company was mer ed wit continues to exist. Mr. Tiesiop. aot oA eae corm asked to surrender is 100 shares that focal P1,000,000, and received under the merger 100 share o Bal, fe with a fair market value of 1,300,000 and cash of P300, 00. The gain to Mr. Masinop ‘on the merger was eae a. P600,000 c. P200,000 b. P300,000 d. P100,000 ed a donation of a car with a fair market value of A taxpayer receiv 400,000 at the time of the donation, but which the donor acquired ata price of P500,000. The taxpayer sold this for 280,000. The sale resulted in a loss of ‘a. P100,000 c. P220,000 b. P200,000 d, P 120,000 ep 3 , ad debts One of the following is nota requisite for deduction of be : be an existing indebtedness due to the taxpayer ‘a. There mus! li ble. which must valid and legally demandal : b. the debt must be connected with profession, trade, OF of the taxpayer ; oad ©. gett must be actually ascertained ee be re ae * uncollectible an rged off the books five years 603Chapter Evercises — Dedacti : we kerctses ed ue tions fom Gross ie ‘One 28. One of the following is a deductible bad debt: a. Bad debt not connected with the i pee of the taxpayer . Bad debt sustained in a transacti \ parties. HOM entered into by c. Worthless debts arising from unpaid wages, . ~ and similar items of taxable income not ines Tey returns of income for the year in which the ded, ened in the debt is sought to be made, or in the previous year °” ta d. Difference between the amount received in the dst assets of a bankrupt company and the alms a : said company. : Profession, tp o of Gains he 29. Which of the following statements is wrong? a. A deduction from bad debt is not availal i for it is made le whe 2 rg b. A deduction from bad debt is available onl it is made atone oa c. Thereisnode — tion for bad debt when there is a surety fy the debtor age | whom collection may be enforced d. A deduction uncollectible account is available to a taxpayer whether he is on the cash or accrual method of accounting. 30. It is the gradual diminution of the useful value of tangible property 31. resulting from wear and tear and normal obsolescence. It is also applied to the amortization of intangible assets the use of whichin the trade or business is definitely limited in duration. a. Depreciation , ¢. Obsolescence b. Depletion d. Bad debts Mike Uro owns 50% of Leomar Corporation's shares of stocks. Mike sold a property valued at P1,000,000 to Leomar for P800,000. 's the loss deductible from Mike Uro's gross income? ral! a. Yes, because Mike and Leomar are not considered parties. i b. No, because Mike and Leomar are considered parties. , c. . Yes, because the sale results from sale of proper ied vl d. No, because the amount of loss cannot be certainty.Cc Heater Evercises - Petetins fo , 32. During 2021, Mike created a te, ” Gr0ss Incamg i t! oO aver ora 38 the trustee" trust is affectionate frig h later, Eri the trustee. Later during the yor Ms W. Erick es ck Created at a price which is substantially iy"; Ong s Pointed Drei ag market value. Can Atty 'y lower Of is a. No, because both at Is. b. Yes, because e No, because Atty, d. Yes, because 33. Lucky Me, Incorporated bot Fi E business worth P1 "000,000." Hosea machine for its e-bingo policy of the government, a law was subsequent ie “tuwid na dean’ gaming of any kind. Consequently, Lucky Me cence Prohibiting Seo aerate race te ne Lucky Mike? 1000. How much isthe deduetibe loss of a. P300,000 c. P1,000,000 b. P700,000 4. nil 34. Proceeds of insurance taken by a corporation on the life of an * executive to indemnify the latter's beneficiaries against loss in case of his death is: a. Exempt from income tax b. Part of taxable income c. Subject to final tax d. Partly exempt, partly taxable 35. The premiums paid by the corporation in the preceding number is a. Taxable income of the executive b. Deductible expense of the corporation ¢. Both “a” and “b” d. Neither “a” nor “b" ji jon: 36. Which statement is not correct? Deduction for deplet a. 1s allowed on ae st oe in doing business in tte jons a in b. For foreign cowed oy wae mine er Philippines rations, shall De allowed only if the mine c. For domestic corp’ nes a opp tte is located in the Philippin depreciation d. ts separate from deduction for deprece” mine site 505Chapter Exercises _ Deductions “Om Gros j 5 Iheay 37. A business leased a condominium in Ortiga: The contract was properly classified as pe shall coke i . P125,000 monthly to the condominium owner. For i ot purposes, the monthly payment was: neome tax a. Deductible as rent expense. b. ee as payment of amortization. c. Not deductible because the taxpayer was taking ti would become the owner of pepe he ~ d. Not deductible because the payment was not reasonable 38. Which of the following will be deductible expense for the exhaust of intangible asset of wasting asset corporation? — a. Depreciation expense b. Amortization expense c. Depletion expense d. Exploration expense 39. To be deductible in full, certain accredited non-govemment organizations or non-profit domestic corporations must meet cerlan requisites. One of the following is not a requisite: a. Organized and operated exclusively for scientific, research, educational, character building and youth and spots development, health, social welfare, cultural and charitable purposes or combinations of these purposes. b.” Not later than the 15" day of the third month after the dos of the taxable year in which the contributions are recel makes utilization of the contributions directly for the pm or function for which the organization is organ! operated. ' ye c. The assets of which, in the event of aissotston, on distributed to another non-profit domestic eS ft organized for similar purpose OF purposes, Oran not public purpose oF would ay wal organization to be used in such manner as in fo of said court shall best accomplish the gene! bv which the dissolved organization was organi d. The administrative expenses shall, on an 4! exceed 40% of the total expenses.Chapter E herels yt Deductions fo rom Cross Income one of the following charit 40. On tile in full Hable and other contibutions is not a. Donations to Government agencies or political subdi government corporations, ex. or to be used in undertaking b. Donations to certain forei organizations (i.e., Internat Organization). c. Donations to accredited non: ti non-profit domestic corporations. that seshed the ae requirements set by law. a! d. Donations made for the use of the Gover Philippines or any of its agencies or paliclsubdisen exclusively for public purpose. Of the Philippi | the Philippines or eons: including fully oad Clusively to finance, provide for, Priority projects, : ign institutions or internati i ati tional Red Cross, World Heath 41. Which statement is not correct? a. The deduction of an individual for contributions subject to limitation should not exceed (10%) of his taxable income from business, trade or profession before deduction for contributions. b. The deduction of a corporation for contributions subject to limitation should not exceed five percent (5%) of its taxable income from business or trade before deduction for contributions. c. Contributions to media in its fund drive for the relief of calamity victims are deductible from gross income. d. Contributions of canned goods to student organizations during the Christmas season for distribution to Muntinlupa inmates are deductible from gross income. 42. What would be the allowable deduction for P8,000 contribution made by a resident citizen toa religious ‘organization from his P70,000 net income after contribution? a. P3,500 c. P7,800 b. P7,000 d. P8,000 43. A domestic corporation has the following data on income and expenses 6,200,000 rc iness income Baduotione including ‘$8 and Philhealth 2,500,000 contributions of P150,000 oy ject 400,000 Contributions to Government-priority proje 400,000 Contribution to foreign private foundation, 490,000 Contribution to domestic charitable organization 507Chapter How much is the total deductible charitable and oth fer contributions? a. P390,000 c. P285,000 b. P290,000 d. P211,000 44. Juan, reported the following for the year 2021: Gross Income Cost of Sales Salaries of employees, net of P100,000 withholding tax and P50,000 SSS, Medicare and Pag-Ibig premiums contributions Fringe benefits'given to rank and file employees Fringe benefits given to managerial employees Representation and entertainment expenses (business related) Rent expense Donation to religious and charitable institutions oe Dedaction fom Gra 55 Ty a ’me, 00, oo 800.009 30000) 138.09 100009 120.000 500.000 The amount that Juan will report as taxable net income in 2021 shall be a. P2,894,000 c. 2,997,000 b. P3.054,600 d. 3,051,000 45. Statement 1: Contributions by the employer to a pension trust for past service ‘cost is deductible in full in the year that the employer made the contributions, if he is on the cash basis of accounting. Statement 2: Contributi cannot be deducted from gross income ‘a. Statements 1 and 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 46. An employer maintains pension trust for its employees. The following contributions are eee 2,000,000 P. i sts Current service co: 7'600,000 “'200,000 Past service costs How much is the deductible pension contributions? 2024 2022 ae op p2'160,000 _P2,280,000 508 ions or donations given directly to individuals zo 2,000,000 pao” 2024 00 3,600,000 P3,200,000 P20 0 B2'160,000 2,120,000 PP4 oq o00 P2,160,000 2,280,000 9'¢0,000ear ts CM ses Te RESEARCH AND Dey, \ E AT. Which statement i WOR MeNT - On land and building sean Purposes is. met nd 2°auired toy ceveOPent ee eute as esaGach and do . May be claim, “rh ar ti ae : and de ©. May be treated ag o yCutight ded nay May be teed as 9 cteney coon fom gy af which will benefit frome rot . May be treated as a def a ee re a period of not les ferred benefi s than thirty mort fit from the expenditure, anen Months ne oe 48, Research and develo, i I Any expenditure for ce aca a n isition ae the improvement of Property to be used ir A esearch and development of a aaa ranch ee i; = 3ject to depreciation and depletion. ghee 3 ny expenditure paid or incurred for t ae al r the oe the existence, location, eet ncaa of any leposit or ore or other mineral, including oll and gas. a. only c. Both land Il : b. lonly d. Neither | nor I! Not apply to Or improvement of land, 49. Research and development expenses treated as a deferred expenses shall-be allowed as deduction ratably distributed over a period of a. than 60 months beginning with the month in which Not more the taxpayer first realizes benefits from such expenditure. b. Not less than 60 months beginning with the month in which the taxpayer first realizes benefits from such expenditure. Not less than 30 months beginning with, the month in which a its from such expenditure. the taxpayer first realizes benefits fro nditur d. Not ee than 6 months beginning with the month in ee the taxpayer first realizes benefits from such expenditure. : sts: 50. Which statement is wrong? Research and develope ent of land a. When related to the acquisition andor imp and building, must be ap ng, may be treated a8 2 7 lated to land 4! } b. If not rel ioe oe outright deduction in c. if fal related to land and nor deferred expense ic 2 ome d. Cannot be deducted in gO 509C hapler Exercises = Deductions from Gross j 5 Lop, 51. Which of the following is a deductible expense? a. Insurance paid by the employer for the life insurance of employees Ce Offs b. Employer's contribution to the Christmas fund of its employees c. Contribution to government priority activities d. All of the above 52. One is not a deductible loss a. Loss due to removal or demolition of old building, the scrapping of old machinery or equipment incident to renewal or replacement b. Loss due to removal of building or real estate purchased when the purchase was for the acquisition of the land and without intention to use the building c. Loss in value of securities of such extent that the securities have become worthless and are written off d. Loss in usefulness in business of an asset son that business is discontinued or the asset is discarded.