CHAPTER 6: CAPITAL GAINS TAXATION

TRUE OR FALSE 1

1. Capital assets will not become ordinary assets when used in business.
FALSE

2. A vacant and unused lot is an ordinary asset to a real estate dealer.

TRUE

3. For taxpayers not engaged in business, assets shall cease to be ordinary

assets when they are discontinued from active use for more than two
years. TRUE

4. Real and other properties acquired are ordinary assets to banks even if
they are not engaged in the realty business. TRUE

5. An ordinary asset automatically becomes a capital asset when it is

withdrawn from active use. FALSE

6. The sale of real property capital assets will never be subject to regular
income tax. FALSE

7. Donated assets become ordinary assets even if the donee do not employ
the same in business. FALSE

8. An ordinary asset continues to be an ordinary asset even if idled for

more than two years if the taxpayer is engaged in realty business TRUE

9. The real properties used by exempt corporations in their exempt

operations are capital assets. TRUE

10. Dealers in realties are subject to the regular tax on their sale of real
properties. TRUE
 11. Capital gains from assets other than domestic stocks and real properties
are subject to regular income tax. TRUE

12. Dealers in securities are not subject to the stock transaction tax but are
subject to the regular income tax on gains realized upon the sale of
stocks through the Philippine Stock Exchange. TRUE

13. Unit of participations in golf, polo, and similar clubs are considered
domestic stocks. TRUE

14. The excess premium on the re-issuance of treasury stocks is subject to

capital gains tax. FALSE

15. The issuance of shares of stock for property is subject to capital gains
tax. FALSE

16. The sale of foreign stocks directly to a buyer is subject to capital gains
tax. FALSE

17. The 15% final capital gains tax cannot apply unless and until there is a
gain on the sale, exchange, and other disposition of stocks directly to a
buyer. TRUE

18. The stock transaction tax on the sale of stocks through the PSE shall
apply if there is a loss on the transaction. TRUE

19. The 6% capital gains tax shall not apply unless there is a gain on the sale
of real property. FALSE

20. The sale of real properties located abroad is subject to the 6% capital
gains tax. FALSE

TRUE OR FALSE 2

1. Installment payment of capital gains is allowed if the ratio of

Down payment over the selling price of the sale does not exceed 25%. False (not
down payment but initial payment)
 2. The annual capital gains tax return is simultaneously due with the annual
regular income tax return. true

3. The basis of properties received by way of inheritance is the basis in the

hands of the last owner who did not acquire the same by donation. False
(or the fair value whichever is lower)

4. When specific identification is impossible, the cost of the stocks sold is

determined by the weighted average method. False (by moving average
method)

5. The basis of the stocks received in tax-free exchanges is the basis of the
shares given. False (adjusted basis of the shares received)

The transactional capital gains tax return is required to be filed within 30 days
from the date of sale. True

6. The gain on the sale of stocks for stocks pursuant to a plan of merger and
consolidation is exempt if it is resulted in the transferor acquiring corporate
control over the absorbed corporation. True

7. The spelling price is used to determine the propriety of using the

installment method but the contract price is used to determine the capital
gains tax payable in installment. True

8. The excess of mortage over the basis assumed by the buyer constitutes an
indirect receipt which is part of the initial payment and the selling price.
False (not selling price but contract price)

10. Wash sales occurs when there is a repurchase of shares within 30 days
before and 30 days after the date of disposal of securities at a loss. True

11. Control means more than 50% ownership in the voting power of a
corporation. true
12. The sale of delisted stock is subject to stock transaction tax and not to
capital received. False

13. Gain and loss in a share-for-share swap pursuant to a plan of merger or

consolidation shall be recognized up to the extent of the cash and other
properties received. true
14. The sale by the National Housing Authority of commercial lots is subject to
capital gains tax. True

15. If the assesor’s fair value is lower than the selling price, then the fair value
of the property is the zonal value. False (Assessed Value and Zonal value are
independent valuations)

16. Title to a property shall not be registered by the Registry of Deeds unless
the Commissioner or his representatives has certified that the tax on the
transfer has been paid. True

17. Domestic corporations are exempt from the capital gains tax on the sale,
exchange, and other disposition of real properties. False (foreign corporations
are exempt)

18. The sale of land pursuant to the Agrarian Reform Program is exempt from
capital gains tax. True

19. Foreign corporations are required to pay capital gains tax on the sale of
domestic stocks and on the sale of property capital assets. False (Only on
domestic stocks.)

21. The alternative taxation on an expropriation sale is not applicable to

corporate taxpayers. True

MULTIPLE CHOICE-THEORY: PART 1

1. Which is an ordinary asset?

1. Personal car c. Principal residence of the taxpayer

2. Delivery truck d. Wedding ring of the tax payer
2. Which is not an ordinary asset?
 1. Personal laptop of the taxpayer c. Real property held for sale
2. Machineries and equipment d. leasehold improvements

3. Which is a capital asset to a realty developer?

1. Constructive equipment
2. Domestics tocks
3. Vacant lot held for the future development
4. Head office building of the developer

4. Which is an ordinary asset?

1. Home appliances
2. Personal car
3. Personal cellphone
4. Office supplies

5. Which is the following assets, if not used in business, is subject to a regular tax? a.
Real property
b. Domestic stock rights
c. Domestic stock option
d. Taxpayer’s personal car

6. Domestic is a capital asset for a security dealer?

a. Domestic stocks
b. Domestic bonds
c. Real property held for speculation
d. Office equipment

7. Which is subject to the 5%-10% capital gains tax?

a. Sale of domestic stocks to a buyer within or outside the Philippines
b. Sale of domestic bonds directly to a buyer within the Philippines c. Sale of domestic
stocks through the Philippines Stock Exchange d. All of the above

8. Who is not subject to capital gains tax on the sale of domestic stocks directly to a
buyer?
a. Dealer of cars
b. Real property developer
c. Dealer of securities
d. Realty dealer

9. Which of the following, when sold, is not subject to capital gains tax?
a. Boarding house
b. Warehouse
c. Dealer of securities
d. Reality dealer

10. Which is not subject to the 6% capital gains tax?

a. Donation property
b. Foreclosure of a mortgaged property
c. Exportation of one’s property in favor of the government
d. Sale of property for an insufficient consideration

11. Statement 1: capital gains may arises from sale, exchange, and other disposition of
movable properties used in business. Statement 2: ordinary gains may arises from sale,
exchange, and other disposition of real properties not used in business. Which is true?

a. Statement 1 is correct
b. Statement 2 is correct
c. Both statements are false
d. Both statements are correct

12. Statement 1: The gain on sale of domestic stocks directly to a buyer is presumed.
Statement 2: The gain on sale of real properties is presumed.
Which of the following correct? a.
Both statements are true
b. Both statements are false
c. Only statement 1 is true
d. Only statement 2 is true

13. Which of the following properties when sold may be subject to capital gains tax? a.
Domestic stock
b. Foreign stock
c. Patent
d. Office Buildings

14. Statement 1: Only depreciable assets of business qualifies as ordinary assets.

Statement 2: Land used in business is a capital asset since it is not subject to
depreciation.
Which of the following correct?
a. Statement 1 is false
b. Statement 2 is false
c. Both statements are false
d. A, B and C

15. Statement 1: Ordinary gains may arises from sale, exchange, and

other dispositions of real properties in business.

Statement 2: Capital gain may arise from sale, exchange, and other dispositions of real
properties not used in business.
Which is false?
a. Statement 1 is correct
b. Statement 2 is correct
c. Both statements are false
d. Both statements are correct

MULTIPLE CHOICE- THEORY: PART 2

1. Which is the following properties, when sold, may be covered by regular income tax?
a. Share options
b. Preferred stocks
c. Share warrants
d. Promissory notes

2. Which is the following assets may be subject to capital gain tax upon disposal? a.
Parking lot
b. Dormitory
c. Farm lot
d. Office Supplies

3. The sale of an office building will be subject to

a. 60% of 1% percentage tax.
b. 6% capital gains tax.
c. 15% capital gains tax
d. Regular tax.

4. The term "other disposition" covers

a. Foreclosure sales
b. Auction sale
c. Expropriation by the government
d. Any of these

5. Which of the following sales of domestic stocks is subject to capital

gains tax?
a. Sale of domestic stocks through the PSE
b. Issue of domestic stocks to subscribers C. Sale of domestic
stocks directly to a buyer
d. Exchange of stocks for stocks in a corporate merger

6. The sale of listed shares will never be subjected to be

a. 6% capital gains tax only
b. 60% of 1% percentage tax
c. 15%capital gains tax
d. Any of these

7. The sale of non-listed shares may be subjected to

a. 6% capital gains tax only.
b. 60% of 1% percentage tax only.
c. 15% capital gains tax only.
d. Any of these

8. Which of the following when sold may be exempted from the 6% capital gains tax?
a. Unused land to the government
b. Residential lot
c. Developed residential properties for sale
d. Principal residence

9. Statement 1: The sale or exchange must result to an actual gain before

the 15% capital gains tax is imposed.
Statement 2: The sale or exchange must result to an actual gain before the 6% capital
gains tax is imposed.
a. Both statements are correct c. Only statement 1 is correct
b. Both statements are incorrect d. Only statement 2 is correct

10. When the annualized capital gains tax exceeds the transactional capital gains tax,
the excess is a
a. Tax credit c. Tax refundable
b. Tax payable d. A or B

11. 1st statement: Properties acquired by real estate dealers are ordinary assets.
2nd statement: Properties of real estate dealers continue to be classified as
ordinary assets even if they change the nature of their business.
a. First statement is correct
b. Second statement is correct
c. Neither statement is correct
d. Both statements are correct

12. 1st statement: When realty businesses discontinue use of assets for more than two
years, the same shall be reclassified as capital assets.
2nd statement: When realty businesses discontinue use of assets for more than two
years, the same shall be reclassified as capital assets.
a. First statement is correct c. Neither statement is correct b. Second statement is
correct d. Both statements are correct

13. Which is an incorrect statement?

a. The capital gains tax on the disposition of capital stock presumes the existence of
gain on the sales transaction.

b. The buyer of real property capital asset shall with hold the tax at source and remit the
same to the government.
c. Capital gains tax is identified under the NIRC as a form of final tax.

d. The capital gains tax on the disposition of real property presumes the existence of
gain on the sales transaction.

14. Which of these shall pay the two-tiered capital gains tax? a. A real property
developer

b. A dealer in stocks
c. A merchandiser or trader of goods

d. A or B

15. The sale of real properties which would otherwise be subject to the 6% capital gains
tax may nevertheless be subject to regular income tax if all of the following conditions
are met, except one. Which is the exception? a. the seller must be an individual taxpayer
b. the sale involves the principal residence of the taxpayer
c. the buyer is the government
d. the taxpayer opted to be subjected to regular tax

16. Which of these pay the 6% capital gains tax?

a. Security dealer
b. Real property developer
c. Real property dealer
d. d. None of these

17. The sale of a principal residence is exempt from the capital gains tax if all of the
following conditions are met, except
a. The proceeds is fully utilized in acquiring a new principal residence.

b. The reacquisition must be by purchase.

c. The reacquisition must have been made within 18 months from the date of the sale.
d. The capital gains tax must be deposited in escrow.

MULTIPLE CHOICE - THEORY: PART 3

1. The transactional 15% capital gains tax is to be paid

a. Within 30 days from the date of sale or exchange.
b. Within 30 days from the end of month of sale.
c. On the 15th day of the fourth month following the close of the quarter when the sale
was made.
d. On the 15th day of the fourth month following the taxpayer's year-end.

2. The annual 15% capital gains tax return is due

a. Within 30 days from the end of the month of sale.
b. Within 30 days from the date of sale or exchange.
c. On or before the 15th day of the fourth month following the taxpayer's year-end.
d. on or before the 15th day of the fourth month following the close of the quarter when
the sale was made

3. Capital gains tax that is not payable on installment basis is due

1. within 30 days from the date of sale or exchange.

2. within 30 days from the end of month of sale.
3. on or before the 15th day of the fourth month following the close of the

quarter when the sale was made.

d. on or before the 15th day of the fourth month following the taxpayer's year- end.
4. Installment payments of the 6% capital gains tax is due

1. Within 10 days from the date of each installment payment.

2. Within 30 days from the date of each installment payment.
3. Within 15 days from the date of each installment payment.
4. Within 20 days from the date of each installment payment.

5. The installment payment of capital gains tax is applicable to the

1. 15% capital gains tax only 2. 6% capital gains tax only

c. Both A and B
d. Neither A nor B
6. The installment payment of capital gains tax is applicable to

1. Individual taxpayers only c. Dealers in properties only

2. Corporate taxpayers only d. A or B

7. Which of these capital gains is subject to capital gains tax?

1. Gain on the sale of stock rights

2. Gain on sale of interest in a professional partnership
3. Gain on the sale of derivative financial instruments linked to commodity
prices
d. Gain on sale of bonds

8. Paulo indicated in his return his intent to avail of the exemption from the 6%
capital gains tax. Under what condition will he be exempted?

a. When the proceeds of the sale exceeds the cost basis of the property sold
b. When the proceeds of the sale exceeds the acquisition price of the new
residence
c. When the cost basis of the property sold exceeds its selling price
d. When the acquisition price of the new property exceeds the proceeds of the old
property sold

9. Partial taxation under the 6% capital gains tax will result when a. The
proceeds from the sale of the old property exceeds both its cost and the
acquisition price of the new property.
b. The proceeds of the sale exceeds its zonal value and Assessor's fair value.
 c. The proceeds of the old property exceeds the acquisition price
of the new property regardless of the tax basis, zonal value, and Assessor's fair
value of the old property.
d. The zonal value is greater than the sales proceeds of the old property

10. The transactional capital gains tax on domestic stocks is

a. not a final tax.
b. included in the income tax return
c. creditable to the regular income tax
d. creditable to the annual capital gains tax due.

11. The 15% capital gains tax does not apply to

a. Resident citizen dealers of stocks
b. Non-resident citizen dealers of cars
c. Resident alien dealers of computer parts
d. Domestic corporations dealing in real properties

12. The documentary stamp tax on the sale of domestic stocks directly to a buyer
is based on
a. Selling price
b. Fair Value
c. Par value
d. Cost

13. The documentary stamp tax on the sale of property is based on a.

Selling price
b. Fair value
c. Cost
d. A or B, whichever is higher

14. The 6% capital gains tax does not apply to

a. Domestic corporations
b. Resident aliens
c. Non-resident citizens

d. Foreign corporations
15. Who shall file the capital gains tax return for the sale, exchange, and other
disposition of real property? a. Seller
b. Buyer
c. Transfer agent
d. The registry of deeds

Multiple Choice – Problem: Part 1

1. Mr. Dionisio sold domestic stocks directly to a buyer at a mark-up on

cost of P200,000. He paid P5,000 broker’s commission and P8,000
documentary stamp tax on the sale. Compute the capital gains tax.

a. P28,050 [The net gain is (P200K – P5K – P8K) x 15%] c. P14,200 b. P14,500 d.
P13,700

2. Mr. Abdul, a non-resident alien, sold domestic stocks directly to

a buyer at a net gain of P70,000. Compute the capital gains tax. a.
P10,500 c. P4,000
b. P6,000 d. P3,500

3. Mr. Panay, a non-resident citizen, sold domestic stock rights directly

to a buyer at a net gain of P320,000. Compute the capital gains tax.
a. P30,000 c. P27,000
b. P25,000 d. P48,000

4. Mr. Digos sold shares of a resident foreign corporation directly to a

buyer. The shares were purchased for P100,000 and were sold at a
net selling price of P210,000. Compute the capital gains tax. a.
P15,000 c. P5,500
b. P11,000 d. P0

5. Grace sold domestic shares directly to buyer. The following relates to

the sale:
Fair market value of shares P400,000
Selling price 300,000
Cost 150,000
Compute the capital gains tax. a.
P7,500 c. P15,000
b. P9,925 d. P22,500
6. Texas Inc. exchanged its investments representing domestic shares for
a piece of land owned by Eagle, Inc.
Fair market value of shares P400,000
Fair market value of land 500,000
Par value of shares 300,000
Cost of shares 350,000
Compute the capital gains tax. a.
P22,163 c. P11,000
b. P15,000 d. P9,988

7. Digong Inc. exchanged its share investment from Bee Inc., as payment
of its P350,000 long outstanding loan from the latter. Digong acquired the
shares for P300,000. Ignoring documentary stamp tax, compute the
capital gains tax on the transaction.
a. P0 c. P5,000 b. P7,500 [(P350K-300K) X 15%] d. P2,500

8. On January 5, 2020, Mercy, a stock dealer, diposed the following shares

directly to a buyer:
Shares Selling Price Cost
Stock rights P200,000 P170,000
Common stocks 100,000 110,000
Ignoring the documentary stamp tax, the capital gains tax payable on
the sale is
a. P0 c. P1,500
b. P1,000 d. P3,000

9. Kidapawan, Inc., a domestic service company, has the following transactions

on the sale of another domestic corporation:
Transaction Quantity Net price
Purchase 20,000 P40,000
Purchase 30,000 63,000
Sale 40,000 92,000
Assuming the first-in, first-out method, compute the capital gains
tax on the sale. a. P0 c. P500
b. P480 d. P4,650

10. Assuming the moving method, compute the capita; gains on tax on the
sale.
a. P0 c. P500
b. P400 d. P1,440

11.Koron Company, a trading company, made the following transactions

during the year involving the stocks of Xurpas, a domestic corporation:
Date Transaction Shares Net price
6/15/2020 Purchase 10,000 P30
9/30/2020 Sale 8,000 28
10/3/2020 Purchase 15,000 25
12/7/2020 Sale 10,000 32

12. Koron uses the FIFO method in costing the Xurpas stocks.
Compute the deductible loss on the September 30 sale. a.
P20,000 c. P12,800
b. P16,000 d. P0
12. Compute the taxable gain on the December 7 sale.
a. P64,118 c. P51,467
b. P60,000 d. P44,000

13. Mr. Trinidad has the following transactions during the year on the common
stocks of Philippine Pines, a domestic non-listed company:
Date Transaction Gain (Loss)
5/8/2020 Sale P120,000
8/5/2020 Sale (10,000)
9/8/2020 Sale 250,000
Compute the annual capital gains tax due for 2020. a.
P54,000 c. P22,000
b. P29,000 d. P3,000

14. Mr. Kalibo shows the following transactions on the shares of Aklan Corporation,
a closely held corporation:
Date Transaction Quantity Price
2/8/2020 Buy 10,000 P120,000
4/5/2020 Sell 10,000 100,000
5/1/2020 Buy 20,000 240,000
What is the tax basis of the shares acquired on May 1,2020? a.
P300,000 c. P240,000
b. P260,000 d. P220,000

15. Mrs. Aurora, a resident citizen, purchased 100,000 shares of

PhilHotdogs, a domestic listed company. The shares were acquired at
P200,000. She disposed the shares through the Philippine Stock
Exchange at a fair value of P250,000.
Compute the capital gains tax. a.
P0 c. P7,500
b. P2,500 d. P10,000

16. Mr. Bosun disposed various stocks at a total consideration of

P400,000 and paid thereon stock transactions tax of P2,000.
Aggregate gains realized totaled P98,000 after the stock
transaction tax. What is the capital gains tax? a. P0 c. P9,800
b. P4,900 d. P14,700
Multiple Choice – Problems: Part 2

1. A certain taxpayer shows the following over-the-counter transactions

in the shares of a domestic corporation:
Date Transaction Quantity Net price
2/8/2020 Purchase 10,000 P112,000
4/5/2020 Sale 10,000 110,000
5/1/2020 Purchase 8,000 80,000
6/7/2020 Sale 5,000 60,000
Compute the capital gain on June 7,2020 that is subject to capital gains
tax.
a. P4,000 c. P10,000
b. P5,000 d. P12,000

2. An investor sold domestic stocks directly to a buyer on October 1,2019

under the following terms:
Selling price P 500,000
Cost 200,000
Downpayment 10%
Installment in 2019 50,000
Compute the total capital gains tax in 2019. a.
P45,000 c. P9,000
b. P25,000 d. P6,250

3. ABC realized the following gains or losses in selling various securities:

Gain on sale of domestic stocks P300,000
Par value of domestic stocks sold 200,000
Gain on the sale of interest in a partnership 200,000 Gain
on the sale of stocks of foreign corporations 150,000
Compute the capital gains tax. a. P45,000 c. P35,000
b. P44,775 d. P25,000

4. Compute the documentary stamp tax in the preceding problem.

a. P1,500 c. P562.50
b. P1,125 d. P750

5. A wash sale of domestic shares wherein 20,000 shares where disposed

at a loss of P40,000 were subsequently covered up within the 30- day
period by a purchased of 15,000 shares for P12/share. The deductible
loss against capital gain on the wash sale is a. P0 c. P10,000
b. P13,333 d. P20,000
6. What is the cost of 15,000 shares acquired in the preceding problem?
a. P150,000 c. P180,000
b. P160,000 d. P190,000

7. Isidro sold 1,500 shares of stocks of Achievers Corporation directly

to a buyer. The share’s par value per shares was P85. Isidro purchased
the shares for P90 each. On the date of sale, the shares had a selling
price of P120 per share. What is the capital gains tax on the sale? a.
P2,625 c. P6,607
b. P2,250 d. P11,375

8. Mr. Palangdon purchased domestic stocks which were priced at 150%

above their par values. After two years, he sold the stocks when their fair
value doubled. He paid, P7,500.00 documentary stamp and P10,000 in
commission expenses on the sale.
Compute the selling price of the stocks. a.
P3,000,000 c. P1,500,000
b. P2,500,000 d. P1,000,000

9. Compute the capital gains tax.

a. P143,625 c. P153,725
b. P152,750 d. P222,375

10. On June 20,2019, Mr. Lito filed the capital gains tax return
involving the sale of domestic stocks on February 20, 2019. The
net gain was P140,000. Compute the total amount due including
penalties except compromise penalty. a. P26,880 c. P11,700
b. P21,500 d. P12,250

Multiple Choice – Problem: Part 3

1. A taxpayer purchased a building to be used as a future plant site.

The building remained unused for 3 years due to a significant
decline in customer’s demand in product of the taxpayer. The
taxpayer eventually disposed the property. What is the classification
of the property?
a. Ordinary asset c. Either A or B at the discretion
of the BIR
b. Capital asset d. Either A or B depending on the
intent of the buyer

2. Assuming the same data in the preceding number except that the
property was not disposed of but the same was used as a sales after
which it became vacant for more than two years. What is the classification
of the property?
c. Ordinary asset, regardless of the taxpayer
d. Capital asset, regardless of the taxpayer
e. Ordinary asset, if taxpayer is not engage in real estate business
f. Capital asset, if the taxpayer is not engaged in real estate business

3. Anderson disposes a vacant lot for P3,000,000. The lot has an

Assessor’s fair value of P2,800,000, a zonal value of P3,200,000, and
an appraisal value P3,500,000.
What is the capital gains tax? a.
P0 c. P192,000
b. P180,000 d. P210,000

4. Puerto Princesa Company sold its parking lot for P2,000,000. The
lot has a zonal value of P2,500,000 and appraisal value of
P1,800,000. The capital gains tax on the sale of the lot is a. P0 c.
P120,000
b. P108,000 d. P150,000

5. Mr. Antonio disposed his principal residence for P2,000,000 and

immediately acquired a new one for P1,800,000. The old residence cost
Mr. Antonio of P1,000,000 and had a fair market value of P2,500,000
on the date of sale.
Compute the capital gains tax to be deposited in escrow. a.
P0 c. P120,000
b. P60,000 d. P150,000

6. What would be the tax basis of Mr. Antonio’s new residence?

a. P1,800,000 c. P900,000
b. P1,000,000 d. P800,000

7. How much is the capital gains tax will be released to the taxpayer?
a. P150,000 c. P120,000
b. P135,000 d. P15,000

8. On August 15,2020, Ms. Mones sold a 500-square meter residential

house and lot for P3,000,000. The house was acquired in 2005 at
P2,000,000. The Assessor’s fair market values of the house and lot,
respectively, were P1,500,000 and P1,000,000. The zonal value of the
lot was P5,000 per square meter.
What is the capital gains tax? a.
P180,000 c. P150,000
b. P120,000 d. P240,000

9. Manny, a resident Filipino citizen, sold his principal residence (house

and lot) at its original purchase price of P11,000,000. The property had
a P13,000,000 fair value at that time.
If the proceeds of the sale were not invested in the new principal
residence but, instead, new funds of P15,000,000 were used to
construct it, the capital gains tax is a. P0 c. P750,000
b. P660,000 d. P780,000
Numbers 10 through 12 are based on the following information: Mr.
Pepito sold his residential land in Manila with fair market value of
P12,000,000 for P10,000,000.

10. If Mr. Pepito utilized all of the P10,000,000 in buying a house

and lot to be used as his new principal residence, the final tax due
from him is
a. P720,000 c. P120,000
b. P600,000 d. P0

11. If Mr. Pepito utilized only P7,000,000 from the proceeds of the
sale in acquiring a new residence, the final tax due from him is a.
P720,000 c. P180,000
b. P216,000 d. P0

12. The documentary stamp tax due on the sale is

a. P179,895 c. P149,985
b. P180,000 d. P150,000

Multiple Choice – Part: 4

1. Mr. Quirino exchanged his stock investment in Carmen Corporation

for the shares of stock of Dingalan Corporation. The stocks acquired by
Mr. Quirino represent 60% of the stocks of Dingalan Corporation.
Basis of the stocks given P3,000,000
Fair market value of stocks given 5,000,000
Fair market value of stocks received 4,500,000
What is the capital gains tax? a. P0 c.
P145,000
b. P45,000 d. P225,000

2. In the immediately preceding problem, what is the basis of the

stocks received by Mr. Quirino? a. P0 c. P4,500,000
b. P3,000,000 d. P5,000,000
3. Mr. Eller exchanged his DEF shares for the shares of EFG pursuant
to a plan of merger. Mr. Eller bought his shares for P1,000,000. The
shares had a fair value of P1,500,000 on the date of exchange. Mr.
Eller received EFG shares with a fair value of P1,300,000 plus cash of
P200,000.
Compute the capital gains tax. a.
P0 c. P30,000
b. P15,000 d. P45,000

4. What is the basis of the shares received be Mr. Eller?

a. P0 c. P1,200,000
b. P1,000,000 d. P1,300,000

5. What is the basis of the DEF shares received be EFG Company?

a. P0 c. P1,200,000
b. P1,000,000 d. P1,300,000

6. Raymund exchanged his A Company shares pursuant to a plan of consolidation

where A Company will be integrated with B Company.
The following relates to the exchange.
Basis of A Company shares given P1,200,000
Fair value of A Company shares given 1,300,000
Fair value of B Company shares received 1,100,000
Fair value of other properties received 250,000
Compute the capital gains tax. a. P0 c. P20,000
b. P10,000 d. P22,000

7. What is the tax basis of the B Company received by Raymund?

a. P0 c. P1,200,000
b. P1,100,000 d. P1,350,000

8. What is the basis of the “boot” or the other properties received by

Raymund?
a. P0 c. P250,000
b. P150,000 d. P400,000

9. What is the basis of the A Company shares received by B Company?

a. P0 c. P1,200,000
b. P1,100,000 d. P1,350,000
10. Mrs. Joson sold a residential lot in June 1,2019 for P2,000,000.
The property had a zonal value of P2,500,000 and a Assessor’s market
value of P1,000,000.
On July 1, 2020, Mrs. Joson was compelled to pay the capital gains
upon the request of the buyer. The compromise penalty was
determined to be P20,000. Compute the total tax due. a. P150,000
c. P217,500
b. P180,000 d. P237,500

11. Basic Company paid P9,000 documentary stamp tax on the sale of a
real property capital asset. Compute the capital gains tax on the sale.
a. P9,000 c. P36,000
b. P16,000 d. P42,000

12. Mr. Bassit Unay sold a residential land P4,000,000. The land had
a fair value of P3,500,000 and an Assessor’s fair value of
P2,000,000. What is the total income tax and documentary stamp tax
due?
a. P0 c. P400,000
b. P300,000 d. P450,000
 CHAPTER 7: INTRODUCTION TO REGULAR INCOME TAX

True or False 1

1. The P250,000 income tax exemption their personal and business

expenses. FALSE

2. There are two types of regular income tax: proportional income tax
for corporations and progressive income tax for individuals. TRUE

3.NRA-NETBs and NRFCs are also subject to regular income tax. FALSE

4. All taxpayers are subject to final tax. FALSE

5. Taxable income is synonymous to net income. FALSE

6. For all taxpayers, taxable income means the pertinent items of gross
income not subject to capital gains tax and final tax less allowable
deductions.
TRUE
7. All taxpayers are subject to regular income tax. TRUE

8. Employed taxpayers can claim expenses from their employment as

deductions against their compensation income. FALSE

9. Items of gross income subject to final tax and capital gains tax are excluded
in gross income subject to regular income tax. TRUE

10. Non-taxable compensation are items of compensation that are excluded

against gross income. TRUE

True or False 2

1. The tax due of corporations is determined by multiplying their gross income

by 25% TRUE
2. The taxable compensation income is computed as gross compensation less
the non-taxable compensation income. TRUE

3. The deadline of filing the corporate quarterly income tax return is the same
with the deadline of the quarterly income tax return of individuals. FALSE

4. Business expenses can be deducted against all types of gross income

subject to regular tax. FALSE

5. No deduction shall be allowed against taxable income. TRUE

6. Only corporations may incur deductions against gross income. FALSE

7. The gross income from business is measured as sales or gross

receipts less cost of sales or cost of services. TRUE

8. The tax due of individuals is determined by means of a schedules of tax

rates. TRUE

9. The deadline of the annual income tax return of corporations using the
calendar year is similar to the deadline fixed for individual taxpayers. TRUE

10. Every individual taxpayer is exempt from income tax on compensation up

to P250,000 annually but the same exemption does not apply to business
income. TRUE

MULTIPLE CHOICE THEORY PART 1

1. The general rule in income taxation is

1. Final income taxation
2. Capital gains taxation a.regular tax 2. Active income
is subject to

. regular income taxation cd. fringe benefit taxation

c. final tax

b. capital gains tax

3. Questions 3 and 4 are based on the following:

a. Regular tax b. final tax c. capital gains tax

Which of the foregoing are passive incomes are subject to?

a. A only c. Both A and B

b. B only d.Either A or B

4. Which of the foregoing are capital gains subject to?

1. A only c. Either A or C
2. C only d. Both A and C
5. The net amount of regular income subject to regular tax is called
Taxable income 1. c. net income
2. Compensation income d. gross income 6. Which is not generally subject
to regular income tax?
1. Compensation income c. professional income
2. Business income d. passive income
7. What are allowable deductions against gross income?

d. any of these

1. Business expenses
2. Family support

8. Deductions are allowed to

1. Employed taxpayers
2. Individual taxpayers only
9. Personal exemptions are allowed to

a. Employed taxpayers
c. personal expenses by the taxpayer d. expenses of employment

c. corporate taxpayers only

d. taxpayers engaged in business
c. corporate taxpayers only

b. Individual taxpayers only

 10. Which is not a feature of the regular income tax?

1. Net income tax c. annual tax

Final withholding tax 2. d. creditable withholding tax

11. Which is true with the final withholding tax?

1. The taxpayer still needs to file an annual consolidated return
2. It applied to all items of gross income
3. It constitutes a partial payment of income tax
4. It applies to certain passive income
12. Which is not true with the creditable withholding tax?

a. Advances to the annual tax due

d. taxpayers engaged in business

2. No need to pay further taxes

3. Need to file annual income tax return
4. Applicable to items of regular income 13. Progressive income tax is applicable to

a. Corporate taxpayers

c. compensation earners only

d. individuals in business only

b. Individual taxpayers
14. Proportional regular income tax is applicable to

Corporations only 1. c. individuals engaged in business

2. Compensation earners only d. both individuals and corporations

15. Which of the following individual taxpayers is not subject to tax on taxable income?
1. Non-resident citizen c. NRA – NETB
2. Resident Alien d. Non-resident alien engaged in business
16. Which of the following corporate taxpayers is not subject to tax on taxable income?

a.domestic corporation c. non-resident foreign corporation

b. business partnership d. resident foreign corporation

17. Which is a source of income subject to regular income tax?

 1. Employment c. trade or business or exercise of profession
2. Casual sales transactions d. all of these
18. Which interest income will not be included in the income tax return?
1. Interest income from bank deposits
2. Interest income from lending
3. Interest income from notes
4. Interest income from employees

19. Which is not subject to final tax?

1. Prizes amounting to P11,000

2. Interest income from bank deposits
3. Winnings from the Philippines
4. Share in the net income of general professional partnership

20. Which of the following is a passive income but is nevertheless subject to regular tax by
virtue of exclusion under final income taxation?

Prizes amounting to P10,000 1. c. merchandising income

2. Service income d. dividends from domestic corporations

MC – PART 2

1. The following may be relevant in the determination of taxable income

1. Gross income subject to regular tax

2. Gross income subject to final tax
3. Deductions from gross income
4. Personal exemption

Which is not considered in the determination of taxable income?

1. A and B c. D only
2. C and D d. B and D only

2. Which is a correct statement regarding exclusion in gross income?

1. They are included in gross income subject to regular income tax
2. They are ignored in the determination of gross income
3. They are presented in gross income but are presented as deductions
4. They are subject to final tax
 3. Which of these types of employees may be subject to final fringe benefit tax?
1. Managerial employees c. Rank and file employees
2. Supervisory employees d. A and B
4. Which is not considered an operating income?
1. Consignment commission income by a retail store
2. Fees from the rendering of services
3. Interest income from advances to employees
4. Sale of scrap
5. Which is a non-operating income?
Gain on sale of office building 1. c. gate receipts of cockpits
2. Sale of goods by a retail store d. gate receipts of
cinemas
6. Which is incorrect statement?
1. Business expenses are deductible by individuals and corporations
2. Personal exemptions are deductible by individuals and corporations
3. Personal exemptions are deductible by individuals, estates, and trusts
4. Deductions are considered in the determination of net income
7. Which of the following will least likely to be considered an operating income of a security
dealer?
1. Gain on sale of stocks c. dividend income from domestic
corpo
Gain on sale of bonds 2. d. interest income from bonds
8. The distinction between operating and non-operating income is not required in the
income tax return of
1. Self- employed individuals in business
2. Mixed income earners
3. Self-employed professionals
4. Purely employed individuals
9. The reporting classification of gross income into operating and non-operating is
unnecessary for

a. Corporate taxpayers c.Both A and B

b. Individual taxpayers
10. Which is not part of compensation income?

a. Basic pay of rank and file employees

d. Neither A nor B
2. Fringe benefits of managerial and supervisory employees
3. Basic pay of managerial or supervisory employees
4. Fringe benefits of rank and file employees

11. Who cannot claim deductions? a. Employed taxpayers

2. Self-employed taxpayers in busines s
3. Self-employed professional taxpayers
4. BandC

12. Who are required to file quarterly declaration of income?

1. individuals engaged in business

2. corporations and individuals engaged in business
3. corporations
4. all individuals and corporations

13. Mr. Jones wishes to file his 2019 income tax return. To avoid penalty, he must file his
return on or before
1. April 15, 2019 c. August 15, 2020
2. April 15, 2020 d. November 15, 2020
14. An individual taxpayer must file his income tax return for the third quarter of 2019 on or
before
1. April 15, 2020 c. November 15, 2020
2. August 15, 2019 d. November 15, 2019
15. Avida Corporation is filing its income tax return for the quarter ending February 28,
2019. The return must be filled on or before

1. April 15, 2020 c. April 30, 2019

2. August 15, 2019 d. March 30, 2019
16. Which of these taxpayers is required to file an income tax return?
1. An employee covered by the substituted filing system
2. A taxpayer deriving purely passive income subject to final tax
3. A special alien with respect to his compensation income
4. A resident citizen who derives his entire income from sources outside the
Philippines
17. The taxable income of corporate taxpayers is the
1. Net income from business
2. Net income from business less personal exemption
3. Taxable compensation income
 4. Taxable compensation income plus net income from business

18. The taxable income of a pure compensation income earner is the

1. Net income from business less personal exemption
2. Taxable compensation income plus net income from business
3. Taxable compensation income
4. Net income from business

19. The taxable income of a mixed income earner is the

1. Net income from business less personal exemption
2. Net income from business
3. Taxable compensation income
4. Taxable compensation income plus net income from business
20. The taxable income of a pure professional income earner is the
1. Net income from business
2. Taxable compensation income

c. Taxable compensation income plus net income from business

d. Net income from profession less personal exemption

21. Which if the following statements is incorrect with respect to the determination of the
taxable income of individual taxpayers with other income? a. b. c.

d.

22. S1: S2:

The other income of pure compensation earners is simply included in taxable compensation
income
The other income of a professional income earner is included as part of non-operating income
and is included in net income
The other income of a mixed earner is also treated as part of non-operating income and is
included in net income
The other income is simply ignored in the computation of taxable income
individuals with higher income are subject to higher tax rates
corporations with higher income are subject to higher tax rates

Which is correct regarding the regular income tax?

1. Statement 1 only c. Both statements 1 and 2

 2. Statement 2 only d. Neither statement 1 nor 2

23. Which is incorrect in the determination of the taxable income of individual taxpayers?
b. A net operating loss is deductible against taxable compensation income
c. The taxable compensation income is added to the net income from business d.
Personal exemption is no longer deductible against compensation income

24. S1: corporations with the same net income may not have the same tax due S2:
individuals with the same net income may not have the same tax due.

Which statement is incorrect regarding the regular income tax?

1. Statement 1 c. both statements 1 and 2

2. Statement 2 d. none
25. A purely engaged in business individual taxpayer shall use

a. Under the TRAIN law, there is no instance where the compensation income of the taxpayers
could

become zero

1. BIR form 1701A

2. BIR form 1701

26. BIR Form 1701 is not intended for

1. Estate
2. Trust
27. BIR Form 1700 is intended for

a. trust

b.estate

c. BIR form 1700 d. BIR form 1702

c. pure professional income earner d. Mixed income earner

c. pure compensation income earner

d. Pure business or professional income earner

28. A corporation subject to different tax rates shall use

1. Form 1702-RT c. Form 1702-MX
2. Form 1702- EX d. Form 1701A
29. A non-profit corporation with a taxable income shall use

1. Form 1702-RT c. Form 1702-MX

2. Form 1702- EX d. Form 1701A

30. A school which is subject to preferential or special tax rate shall use
1. Form 1702-RT c. Form 1702-MX
2. Form 1702- EX d. Form 1701A
31. A corporation that is subject only to a 30% income tax rate shall use
1. Form 1702-RT c. Form 1702-MX
2. Form 1702- EX d. Form 1701A
 Chapter 8: RIT-Exclusions from Gross Income

True or False 1 (Red is False)

1. The proceeds of life insurance received by the heirs of the insured upon his is
excluded in gross income.
2. The amount received in excess of the premium paid in an insurance constitutes an
item of gross income.
3. Donated income is included in the gross income of the donee.
4. Compensation for injuries and sickness constitutes profit; hence, an inclusion in
gross income. 5. It is sufficient that the employee rendered more than 10 years of
service for his retirement benefit to be exempt.
6. An employee can secure retirement benefit exemption only once in a lifetime.
7. It is a must that the employer maintains a reasonable pension benefit plan for the
retirement benefit to be exempt.
8. An employee must have rendered more than 10 years of service before claiming
exemption for his termination benefits.
9. The income of the Philippine government from essential public functions is exempt
from any income tax.
10. Prizes paid to corporations are an inclusion in gross income subject to final tax.
11. Only the mandatory portion of GSIS, SSS, PhilHealth, and union dues can be
excluded in gross compensation income.
12. Social security benefits, retirement gratuities, and other benefits from foreign
governments are excluded in gross income.
13. Social security benefits, retirement gratuities, and other benefits from foreign private
entities are included in gross income.
14. The gain from redemption of shares in mutual fund is an exclusion in gross income
subject to regular tax because it is an inclusion in gross income subject to capital
gains tax.
15. 13th month pay and other benefits are taxable only up to P 90 000.

True or False 2
1. GSIS and SSS benefits are included in gross income to the extent they exceed
2. prizes awarded upon the condition that the recipient shall render specified future
services is an item of gross income.
3. prizes from contests are included in gross income subject to regular income tax.
4. The income of government-owned and controlled corporations is an item of gross
income.
5. Benefits of veterans of war or retired US army personnel are excluded in gross
income.
6. The employer's share to SSS, PhilHealth and Pag-lbig contributions are an exclusion
in gross income.
7. Compared to exclusion, deduction is included in the amount of gross income but both
exclusion and deductions are not reflected in the amount of taxable income.
8. The interest income from any bond or debentures, short-term or long-term, is an item
of gross income.
9. Cooperatives that transact business only with members will, in no case, be subject to
income tax.
10. Cooperatives, regardless of their classification, are taxable on income from their
unrelated activities.

11. The gain on the sale of long-term bonds with a maturity of five years is an exclusion
in gross income.
12. A non-stock, non-profit entity is subject to tax on income from unrelated activities.
13. A general professional partnership can be registered as a BMBE.
14. Items of income subject to final tax or capital gains tax are exclusions in gross income
subject to regular income tax.
15. A BMBE must have a net asset not exceeding to be exempt.

Multiple Choice - Theory 1

1. Statement 1: Items of passive income from abroad are subject to regular income tax.
Statement 2: Items of passive income from the Philippines are generally subject to
final income tax.
Which statement is generally correct?
a. Statement 1 c. Both statements
b. Statement 2 d. Neither statement

2. Which is true with the regular income tax?

a. Certain items of income are subject to final withholding tax.
b. Tax is payable at regular intervals.
c. Income tax returns are not required.
d. All of these

3. Which is not a feature of regular income tax?

a. It generally applies to all items of gross income not subject to final tay
b. Creditable withholding tax
c. Gross income tax
d. Accounting period

4. Statement 1: Capital gains are generally subject to capital gains tax. Statement 2:
Items of passive income in the Philippines are generally subject to regular income tax.
 a. Statement 1 is true
b. Statement 2 is true
c. Both statements 1 and 2 are true
d. Neither statement 1 nor 2 is true.

5. Deductions from gross income are

a. Personal expenses
b. Business expenses
c. Either A or B
d. Neither A nor B

6. Which of the following statement best distinguishes deductions from exclusions from
gross income?
a. Deductions can be claimed by citizens while P250,000 income
exemption harbo cannot be claimed by aliens.
b. Deductions are outflows from gross incomes while exclusions are not
outflows from gross income
c. Both deductions and exclusions are deducted from gross income.
d. All of these

7. Progressive income tax does not apply to a

a. a. Non-resident alien.
b. b. resident alien.
c. c. non-resident citizen.
d. d. resident citizen.

8. 8. Proportional income tax does not apply to a

a. a. Domestic corporation
b. b. Resident foreign corporation
c. C. Business partnership
d. General professional partnership

9. Which is not included under the term "corporation"?

a. a. Business partnership
b. b. Co-ownership
c. c. Non-profit charitable institution
d. d. Joint venture

10. The highest marginal tax rate for individual income taxpayers is
a. a.25%
 b. b. 30%
c. c. 35%
d. d.32%

11. Which corporate taxpayer is not subject to regular income tax?

a. a. Non-resident foreign corporation
b. b. Domestic corporation
c. c. Resident foreign corporation
d. d. Business partnership

12. Which individual income taxpayer is not subject to regular tax?

a. Resident alien not engaged in trade or business
b. Non-resident citizen not engaged in trade or business
c. Non-resident alien engaged in trade or business
d. Non-resident alien not engaged in trade or business

13. Which is correct with respect to exclusions from gross income?

a. They are included as part of gross income but are subsequently deducted.
b. They are not included in gross income but are added to the taxable income.
c. They are not considered in the computation of taxable income.
d. They are synonymous with deductions.

14. Which is correct with respect to deductions from gross income?

a. They pertain to expenses of generating items of business or professional gross
income.
b. They are excluded from the determination of taxable income.
c. They include all expenses incurred in the generation of any income.
d. They include P 250,000 annual income exemption.

15. Which constitute a taxable item of gross income?

a. Compensation for personal injuries
b. Gain from sale of shares in mutual funds
c. Gain from sale of government bonds
d. Income exempt under treaty

Multiple Choice - Theory 2

1. The proceeds of an insurance policy received by the corporation as beneficiary on
the life insurance of its officer is
a. a gift c. an inheritance.
b. a taxable income. d. exempt from income tax.
2. Mr. Buguey was insured in a life insurance with his daughter, Ybon, as the
irrevocable beneficiary.
Ybon was paid the entire proceeds when Mr. Buguey died. The proceeds
constitute a. a taxable inheritance.
b. a taxable gift.
c. a taxable income.
d. an exclusion from gross income.

3' A policy holder who outlived the policy and received a cash surrender value in
excess of premiums paid is exempt upon
a. the amount representing a return of premiums.
b. the entire amount received.
c. the excess of the amount received over the premiums paid.
d. d. None of these

4. The assignment of an insurance policy at an amount in excess of the paid on the policy
is subject toc. estate tax. a. donor's tax.
a. Donor’s tax
b. Income tax
c. Estate tax
d. any of these

5. A widow who collected the life insurance proceeds of her decease husband is
a. exempt to the entire amount of the proceeds.
b. taxable to the excess of the proceeds over the premiums paid by the husband
c. taxable to the excess of the proceeds over the premiums paid by the
d. exempt with respect to the portion of the proceeds representing returns of

6. The policyholder of a life insurance contract outlived his insurance policy. He was
paid P300,OOO upon maturity of the policy. He paid P250,OOO total premium.
What is the inclusion in gross income?
a. P300,OOO c. P50,OOO
b. P250,OOO d. PO

7. Which of the following is subject to tax?

a. Proceeds of crop insurance
b. Proceeds of livestock insurance
c. Indemnity under patent infringement suit
d. All of these

8. Which is not a requisite of exemption of a retirement benefit plan?

a. 10 years of employment
b. The employer maintains a reasonable pension benefit plan.
c. The retiree must be a senior citizen.
d. First time availment of retirement exemption

9. Termination benefits are exempt from income tax provided that the reason for
termination is

a. beyond the employee's control. c. within the employee s control.

b. within the employer's control. d. beyond the employer's control.

10. Which is not an item of exclusion from gross income?

a. SSS benefits
b. Income of the government and its political subdivisions
c. Income of government-owned and controlled corporations
d. Income of foreign governments

11. Which of the following government-owned and controlled corporations is subject

a. Social Security System

b. National Development Corporation
c. Philippine Charity Sweepstakes Office
d. Philippine Health Insurance Corporation

12. Which is not an acceptable ground for exemption of termination pay?

a. Mass employee lay-off
b. Closure of employer's business
c. Grave misconduct and neglect of duty
d. Retrenchment of employer's business

13. Which is not an item of gross income for taxation purposes?

a. Unrealized income c. Income earned between related parties
b. Advanced income d. All of these

14. Which is subject to income tax?

a. Gain on sale of 6-year bonds.
b. Gain on sale of shares in mutual fund.
c. Interest income on long-term bonds with a maturity period exceeding five years.
d. Interest income on long-term deposits by individual taxpayers.

15. Which of the following is not an exclusion from gross income?

a. Income of government properties
b. Income taxes collected by the Bureau of Internal Revenue
c. Dividend income payable to a foreign government

d. Social Security benefits

Multiple Choice - Problem: Part 1

1. Mr. Bisligo collected the P 1,000,000 insurance proceeds of Mr. Pantukan which he
bought from the latter for P400,000. Before the death of Mr. Pantukan, Mr. Bisligo
paid total premiums of P200,000. Determine respectively the exclusion in gross
income and the inclusion in gross income. a c. P400,OOO;
P600,OOO
b d. P600,OOO; P400,OOO
2. Mr. Kabacan surrendered his life insurance policy and received a cash surrender
value of after contributing P700,000 in annual premiums. Determine
respectively the total exclusion in gross income and the inclusion in gross income.
P800,OOO; PO c. PIOO,OOO; P700,OOO
PO; P800,OOO d. P700,OOO; PIOO,OOO

3. Mr. Tarragoza died. His heirs collected the P2,000,000 proceeds of his life insurance
policy. Mr. Tarragoza previously paid a total payment of P500,000 in Premiums.
Determine respectively the exclusion in gross income and the inclusion in gross
income.
c. P700,000;P100,000

4. Mr. Malalag collected the P5,000,000 fire insurance proceeds of his buildir was
destroyed by fire. The building had a tax basis of P4,500,00 occurrence of the fire.
Determine respectively the total exclusion in gross ir and the inclusion in gross
income.
a. P5,000,000; PO
b. PO; P5,000,000
c. P4,500,000; P500,000
d. P500,000; P4,500,000

5. Mr. Cateel insured his crops for a P1,000,000 insurance cover against
calamitice He paid and expensed P100,000 insurance premium. How much will be
inclus in gross income? a. P900,000
b. P1,000,000
c. P100,000
d. Po
 6. Ms. Sindangan received a condominium including its accrued income as
inheritance from her deceased grandfather on April 1, 2014. The following data
relates to the property:
Fair value of property in P 125,000,000
Rent income earned before death of decedent
4,000,000 ent income earned after death of
decedent 6,000,000
Interest on deposits of rentals (40% accruing after death) 100,000

How much of the above income will be included in the gross income of Mr.
Sindangan and in the gross income of the decedent? a. P6,040,000; P4,060,000
c. P4,060,000; P6,040,000 19-
b. P6,000,000; P4,000,000
d. P4,000,000; P6,000,000

7. Mr. Dimataling was hurt in a bus accident. He received a total indemnity of

P800,000 from the insurer of the bus. Mr. Dimataling paid P250,000 in hospital bills
due to the accident. Compute the total amount to be excluded in gross income. a.
PO
c. P550,000 90000999
b. P250,000
d. P800,000

8. At the age of 54, Mrs. Sindangan was awarded a retirement gratuity of

P2.000.000 for her 30 years of service in the Sirawai Company. The employer's
retirement benefit plan was with an employee participation feature where Mrs.
Sindangan contributed a total premium of P800,000 in the fund. Mrs. Sindangan
also received P500,000 benefit from the SSS. Compute the total exclusion in gross
income. a. P1,700,000 no
b. P1,300,000
c. P800,000
d. P2,500,000

9. Mrs. Candoni retired from the government after 30 years of service at the age of
55. He received a total retirement pay of P1,800,000 plus P400,000 GSIS benefits.
How much will be excluded in gross income?
a. PO c. P2,200,000
b. P400,OOO d. P1,800,000

10. The Professional Regulations Commission collected a total sum of from professional
license fees. It also collected government properties. What is the total exclusion in
gross income?
d. P100,000,000

11. Mr. Alvarez had the following income during the year:
Gross compensation income including P25,000
13th month pay P 325,000
Less: Tardiness or absences 10.000)
Net compensation income P 315,000
SSS deductions 12,000
PhilHealth deductions 9,000
Pag-lbig deductions 10,000
Union dues 5,000
Withholding tax 40.000
Net pay p 239,000
Compute the total exclusions from gross income.
a. P36,OOO c. P66,OOO
b. P61,OOO d. P71,OOO

12. Mr. Henares received the following during the year:

Donated properties P 200,000

Income of donated property before donation 50,000
Income of donated property after donation 30,000
Inherited properties 100,000
How much is taxable to Mr. Henares?
a. P380,OOO b, P80,OOO c. P30,OOO d. P50,OOO

13. Mr. Tacurong has the following data during the year: Basic salary
Income tax withheld 50,000
13th month pay 100,000
sss
2,000
PhilHealth 1,800
Pa -Ibig 1,700
Compute the total exemptions and exclusions from gross income:
c. P 96,000
a. P 106,000
d. P 88,000
b. P 100,000
14. Mang Antonio collected P200,000 from the fire insurance company that his building
which had a tax basis of PI ,800,000 when the fire occurred.

the same period, he also collected P300,000 crop insurance proceeds pertainirgto
his crops destroyed by frost. The total item of gross income is
 c. P300,OOO.
b. P200,OOO. d. P500,OOO.

Multiple Choice - Problems: Part 2

1. Wary of his deteriorating health conditions, Mr. Benigno resigned from his j)b at age
40 after working as a supervisor for 12 years. He was paid P2,000,000 as separation
pay. Is the P2,000,000 separation pay subject to income tax?
a. No, because the reason for Mr. Benigno's termination was beyond his
control.
b. Yes, because Mr. Benigno resigned.
c. No, because Mr. Benigno worked for the company for more than 10 years.
d. Yes, because Mr. Benigno is not yet 50 years old.

2. On December 25, 2014, Mr. Reynon was terminated by his employer at age 60 due
to his failing eyesight. He joined the company in February 2006 and has since then
worked as treasurer of the company. Is Mr. Reynon's retirement pay exempt from
income tax?
a. Yes, because his termination was beyond his control.
b. No, because he was employed for less than 10 years.
c. Yes, because he is over 50 years old.
d. No, because the employee is already a senior citizen.

3. Ms. Henson retired from her job after 25 years of service. She joined the company at
the age of 23 and was promoted from an accounting clerk to VP Finance. was paid
P2,000,000 total retirement pay from the employer's contributory pension plan which
was duly registered with the BIR. Out of the total proceeds, Ms. Henson contributed
P600,000. This was Ms. Henson's first retirement employment. How much is excluded
from gross income?
a. P600,OOO

4. Assuming Ms. Henson transferred to another company and was retired after years of
service. The second employer paid P 1,500,000 out of its non-contributory pension
fund as retirement pay to Ms. Henson. The pension fund was also registered with the
BIR.
Is the second retirement pay exempt from income tax?
a. No, because this is the second time Ms. Henson retired from employment.
b. Yes, because Ms. Henson is already a senior citizen.
c. Yes, because this is the first time Ms. Henson qualifies for retirement pay
exemption.
d. No, because an employee must work under one employer until retirement to
qualify for retirement exemption.
5. Mr. Baracho won P 500,000 in a local that was sanctioned by a chess competition
sports organization that is currently applying for accreditation from the national sports
association. Is the P500,000 prize considered an item of gross income?
a. Yes, because all prizes are subject to income tax.
b. No, because the chess competition is not an international competition.
c. No, because the sport competition is a local competition.
d. Yes, because the organizer is not an accredited sports organization.

6. Mr. Sibuco discovered teleport technology where people can be transported over
thousand miles in seconds. Due to this, he was awarded by the scientific community
the most coveted Nobel Prize award in 2015. The total award was $150,000,000.
What is the most correct statement regarding the taxation of the award?
a. The award is an inclusion in gross income subject to regular income tax since final
taxes do not apply abroad.
b. The award is an inclusion in gross income subject to final tax since it is more than
PIO,OOO.
c. The award is an exclusion in gross income subject to regular tax since it is an inclusion
in items of gross income subject to final tax.
d. The award is an exclusion in gross income.

7. The following relates to the compensation income of Ms. Lamitan in 2017:

Compensation
Contributions to SSS, PhilHealth, and HDMF:
Mandatory contributions 125,000
150,000
Voluntary contributions
120,000
Contribution to PERA
190,000
Creditable withholding taxes 105,000
Employer's share in SSS, PhilHealth and HDMF

What is the total exclusion in gross income?

a.P225,OOO c. P395,OOO
b P230,OOO d. P465,OOO

8. In 2014, Ms. Kabacan invested in the 10-year bonds of Mining Corporation. She
disposed the investment in 2016 for a total considerati0h of P8,500,000 inclusive of
the P400,000 accrued interest, What are respectively the a. inclusion P500,OOO;
in POgross income c. and P400,OOO; the exclusion PIOO,OOO in gross income?
c. P400,000;P100,000
 9. Ms. Sibuco invested in the mutual fund and savings deposit of BCBC Bank. She
acquired a 100,000 participation shares when the net asset value per unit of the
fund was P98.00. She pulled out her investment when the net asset value per unit
was PIOI.OO. Ms. Sibuco also had PIOO,OOO accrued interest in her savings
deposit.

Which statement is incorrect?

a. The P300,000 gain is an exclusion in gross income.

b. The P100,000 interest income is an exclusion in gross income regular tax.
c. The P 100,000 interest income is an inclusion in gross income
d. The P300,000 is an inclusion in gross income subject but the PIOO,OOO is an
exclusion in gross income subject to final tax.

10. The following income relates to a proprietorship registered as a BMBE:

Gross income from sales P 400,000
Dividend income - domestic
9,000
Interest on deposits
6,800
Compute the total exclusion in gross income subject to regular tax.
a. P400,OOO c. P15,800
b. P415,800

11. In the immediately preceding problem, compute the total inclusions in gro ss income
subject to final tax. a. PO
c. P6,800
b. P15,800
d. P9,OOO

12. KKB, a multi-purpose credit cooperative, had the following income in 2015:
Income from related activities
Income from unrelated activities: P 400,000
Dividends from stocks
Income from time deposits 20,000
Rent income 18,000
60,000
compute the total exclusion from gross income subject to regular tax of the
cooperative.
a. P O c. P438,OOO
b. P38,OOO d. P400,OOO
13. In the immediately preceding problem, compute the total inclusion in gross income
subject to regular tax.
a. P60,OOO c. P460,OOO
b. P98,OOO d. P38,OOO
14. A non-stock, non-profit charitable entity received the following during 2015:

Contributions from the public

Income from the sale of merchandise 500,000 Gain on the
sale of properties 300,000
What is the total exclusion from gross income subject to regular tax?
c. P1,400,000
15. Mr. Santiago purchased a life annuity for PIOO,OOO which will pay him PIO,OOO a
year. The life expectancy of Mr. Santiago is 12 years. Which of the following can Mr.
Santiago exclude from his gross income?
P 10,000 b. P20,000 c. P 120,000 d. P100,000