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Review on Taxation

FATHER SATURNINO URIOS UNIVERSITY FINAL EXAMINATION


Accountancy Program Instructor: Jisryl H. Raz, CPA

Name: ___________________________________________________________ Date: _______________________________________________

General Instruction: This test is a multiple choices test which will take an hour and half. The test is composed of 60
items, both theories and problems in taxation. Read each item carefully and use your knowledge in taxation when
answering each item. No extra sheet of paper must be provided; you may use this questionnaire as your solution
paper. A separate answer sheet is provided for you to shade. Remember, you can only use a black or blue pen when
shading. Lastly, erasure on the answer sheet is strictly prohibited. Secure that the answer sheet is clean, free from
alterations, and any unnecessary writings/markings.

BEGIN
1. The aspects of taxation are
a. Legislative in character
b. Executive in character
c. Shared by the legislative and executive departments
d. Judicial in character

2. Taxation as distinguished by from police power and power eminent domain


a. Property is taken to promote the general welfare
b. Maybe exercised only by the government
c. Operates upon the whole citizenry
d. There is generally no limit as to the amount that may be imposed

3. Which is not true about the taxability of educational assistance to the employee or his dependents as fringe
benefits?
a. The cost of educational assistance extended by an employer to the dependents of an employee shall
be treated as taxable fringe benefits if the assistance was provided through a competitive scheme
under the scholarship program of the company.
b. The cost of educational assistance to the employee borne by the employer is generally a taxable fringe
benefit unless the employees education or study is directly connected with the employers trade, business
or profession.
c. The employee whose education was financed by the employer is obliged to remain in the employ of the
employer for a period mutually agreed upon under a written contract.
d. All of the above.

4. One of the following losses cannot be deducted from gross income.


a. To construct a bigger warehouse, a corporation demolished an old warehouse which had a construction cost
of P 3,000,000 and a book value of P500,000.
b. Demolition of a building existing on a land purchased where the corporation has no use for the
building at the time of purchase and it was its intention to remove the building in order to build its
factory.
c. A corporation retired it machinery from the business because of the increase in the cost of production and
the failure of the machinery to meet the desired number of units of production.
d. A corporation ascertained that its B Corp. stocks are worthless because of the total insolvency of B Corp.

5. On August 15, 2009, Pacman sold a 500 square meters residential house for P3, 000,000. The house was acquired
in 2007 for P1, 800, 000. On the date of sale, the fair market value of the house as shown in the real property
declaration is P2, 500, 000 and the assessed value amounts to P2, 200,000. The zonal value is P7,000 per square
meter. The capital gains tax is:
a. P180,000 b. P150,000 c. P132,000 d. P210,000

6. Using the above information, the capital gains tax payable assuming that Pacman will utilize only P2,000,000 of
the proceeds in acquiring a new residence:
a. P90, 000 b. P210, 000 c. P70, 000 d. P 140, 000

7. The payor of passive income subject to final tax is required to withhold the tax from the payment due the
recipient. The withholding of the tax has the effect of

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a. A final settlement of the tax liability on the income


b. A credit from the recipients income tax liability
c. Consummating the transaction resulting in an income
d. A deduction in the recipients income tax return

8. Proceeds of life insurance to the extent of the amount receivable by the estate of the deceased, his executor or
administrator under policies taken out by the decedent upon his own life shall be
a. Part of gross income if the beneficiary designated is the estate, the executor or the administrator.
b. Part of gross income if the beneficiary designated is the estate, the executor or the administrator regardless
of whether the designation is revocable or irrevocable.
c. Not part of gross income if the beneficiary is not the estate, the executor or the administrator
d. Not part of the gross income whether the beneficiary is the estate, the executor or the administrator
or a third person regardless of whether the designation is revocable is revocable or irrevocable

9. Three of the following are exempt from the value-added tax. Which is the exception?
a. Importation of books and any newspapers, magazines, review or bulletin.
b. Importation of agricultural and marine food products in their original state.
c. Importation of petroleum products and their raw materials.
d. Importation or sale of fish, prawn, livestock and poultry feeds.

10. An importer wishes to withdraw his importation from the Bureau of Customs. The imported goods were
subjected to a 10% customs duty in the amount of P12,500 and to other charges in the amount of P9,500. The
value-added tax due is:
a. P12,500 b. P13,750 c. P17,640 d. P14,700

11. A revocable transfer with the following circumstances: Fair market value at the time of transfer - P300,000; fair
market value at the time of death - P180,000; consideration received when transferred - P200,000:
a. Shall be included in the gross estate at P180,000.
b. Shall be included in the gross estate at P200,000.
c. Shall be included in the gross estate at P100,000.
d. Shall not be included in the gross estate.

12. Which of the following is not included in the gross estate?


a. Revocable transfer where the consideration is not sufficient.
b. Revocable transfer where the power of revocation was not exercised.
c. Proceeds of life insurance where the beneficiary designated is the estate and the designation is irrevocable.
d. Proceeds of life insurance where the beneficiary designated is the mother and the designation is
irrevocable.

13. A citizen of the Philippines and a resident of the United States, under the system of conjugal partnership of gains,
died in the United States and was shipped to and buried in the Philippines. He had, among others, the following
data:
Real property in the Philippines (inherited 3-1/2 years ago,
with a fair market value of P500,000 when inherited) P 600,000
Real property in the U.S., used as family home 2,400,000
Tangible personal properties in the Philippines 200,000
Tangible personal properties in the United States 700,000
Claim against an insolvent person in the Philippines 100,000
The gross estate is:
a. P800,000 b. P4,000,000 c. P3,900,000 d. P900,000

14. An exemption provided by law to take care of personal, living and family expenses of individual income taxpayers
and the amount of which is determined irregardless of their status is:
a. Optional standard deduction c. Additional exemption
b. Personal exemption d. Special additional exemption

15. An exemption allowed to an individual income taxpayer who has qualified legitimate, and/or recognized
illegitimate or legally adopted children:
a. Additional exemption c. Optional standard deduction

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b. Special additional personal exemption d. Personal exemption

16. 1st Statement: For married individuals both earning taxable income, either spouse should file only one return to
cover their income for the taxable year.
2nd Statement: The husband and wife should both sign the return unless it is physically impossible for them to do
so, in which case, the signature of only one of the spouses would suffice.
a. Both statements are correct
b. Both statements are wrong
c. The first statement is correct, while the second statement is wrong
d. The first statement is wrong, while the second statement is correct

Items 17 through 19 are based on the following information:

Mr. and Mrs. Lozada, both professionals and residents of the Phil. with five minor children, had the following data for
the taxable year 2009.
Mr. Mrs. Total
Income from practice of profession,
net of 15% withholding tax P 680,000 P 850,000 P1,530,000
Expenses incurred in connection with income above 400,000 550,000 950,000
Rental income of property acquired during marriage:
Administered by Mr. Lozada (net of 5% withholding tax) 760,000 760,000
Administered by Mrs. Lozada (net of 5% withholding tax) 570,000 570,000
Expenses incurred in connection with rental income 380,000 440,000 820,000
Salaries as part time faculty members, gross 120,000 180,000 300,000
Other income:
Royalty, as author of textbook 100,000 150,000 250,000
Prize in a supermarket raffle 10,000 20,000 30,000
Dividend received from:
Foreign corporation 40,000 40,000
Domestic corporation 30,000 30,000

17. The taxable compensation and business income of Mr. Lozada is:
a. P670,000 b. P756,000 c. P910,000 d. P928,000

18. The taxable compensation and business income of Mrs. Lozada is:
a. P670,000 b. P756,000 c. P910,000 d. P928,000

19. The income tax still due from Mr. and Mrs. Lozada is:
a. P95,600 b. P128,880 c. P179,400 d. P256,200

20. Fatima, a Filipino overseas contract worker and her spouse, a resident of the Phils., have a joint US dollar account
with Citibank. Their gross interest earnings from the bank deposit amounted to US $4,000. Which of the following
statements is correct?
a. The interest income shall be treated as tax-exempt because Fatima is a non-residing citizen.
b. The interest income shall be taxable in full because Fatima and her spouse are both Filipino citizens.
c. Fifty percent (50%) of the interest income shall be treated as exempt while the other fifty percent (50%)
shall be subject to the graduated rates.
d. Fifty percent (50%) of the interest income shall be treated as exempt while the other fifty percent
(50%) shall be subject to a final withholding tax of 7.5%.

21. In the case of a person whose VAT registration is cancelled and who becomes liable to the 3% tax on VAT-exempt
persons, the tax shall accrue from the date of cancellation and shall be paid within:
a. 10 days after the end of each taxable month c. 20 days after the end of each taxable month
b. 15 days after the end of each taxable month d. 30 days after the end of each taxable month

22. Lovely executed on November 10, 2004 a long-term loan from a bank in the amount of P5,000,000 payable within
10 years with the first installment due on or before November 10, 2005 and the succeeding yearly installment on
the same date of the subsequent years. Assume that on November 10, 2009, the loan was preterminated and that

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the interest paid and other fees received from 2005 up to year 2009, amounting to P100,000 annually, were
declared by the bank correctly and the applicable gross receipt taxes paid. What is the gross receipts tax still
payable as recomputed on November 10, 2009, because of the loan reclassification due to pretermination?
a. P9,000 b. P16,000 c. P20,000 d. P25,000

23. One of the following statements is incorrect:


a. Overseas communications tax is imposed on overseas communications originating from the Philippines.
b. The person liable to overseas communications tax may or may not be engaged in any trade or business.
c. The overseas communications tax is imposed whether the overseas communications are made in the
course of trade or business or not.
d. The overseas communications tax is imposed on the owner of the communications facilities used
to make overseas communications

24. One of the following is not subject to the 3% percentage tax.


a. International air carrier doing business in the Philippines
b. International shipping carrier doing business in the Philippines
c. Domestic carriers by land and keepers of garage.
d. Franchise grantee of city gas and water utilities.

25. Which statement is wrong? A forgiveness or cancellation of indebtedness:


a. May result in an income to the debtor.
b. May result in a donation to the debtor.
c. May result in an inclusion of value in the gross estate.
d. None of the above.

26. The personal properties of a non-resident, not citizen of the Philippines, would not be included in the gross estate
if:
a. The intangible personal property is in the Philippines.
b. The intangible personal property is in the Philippines and the reciprocity clause of the estate tax
law applies.
c. The tangible personal property is in the Philippines.
d. The personal property is shares of stock of a domestic corporation 90% of whose business is in the
Philippines.

27. Statement 1: A return, statement or declaration filed with the Bureau of Internal Revenue may not anymore be
modified, changed or amended.
Statement 2: A substantial under-declaration of taxable sales, receipts or income, or a substantial
overstatement of deductions shall constitute prima facie evidence of a false or fraudulent return.
a. First statement is true while second statement is false.
b. First statement is false while second statement is true.
c. Both statements are true.
d. Both statements are false.

28. On January 20, 2004, a taxpayer filed a protest on request for reconsideration of an assessment of a tax. He
received a final decision of the Bureau of Internal Revenue on the protest on April, 30, 2004. He failed to appeal
the decision to the Court of Tax Appeals. The Bureau of Internal Revenue was collecting the tax by summary
proceedings on June 20, 2009. The taxpayer was opposing the collection of the tax on the ground of prescription
of the right of the government to collect.
a. The last day for collection was April 30, 2009. c. The last day for collection was June 29, 2009.
b. The last day for collection was May 30, 2009. d. The last day for collection was July 29, 2009.

29. Statement 1: There must be an assessment of a deficiency tax before there can be a judicial action for collection.
Statement 2: The state can collect the tax by summary proceedings of distraint of personal property and levy
on real property, one after the other, but not simultaneously.
a. First statement is true while second statement is false.
b. First statement is false while second statement is true.
c. Both statements are true.
d. Both statements are false.

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30. Assessment received - January 5, 2009. Petition for reconsideration filed with the Bureau of Internal Revenue -
February 1, 2009. Documents supporting the petition filed by the taxpayer - February 7, 2009. Decision of the
Bureau of Internal Revenue denying the petition was received - March 22, 2009. Second request for
reconsideration filed with the Bureau of Internal Revenue - March 30, 2009. Decision of denial of second request
for reconsideration was received - April 12, 2009. Last day to appeal to the Court of Tax Appeals:
a. May 12, 2009 b. July 4, 2009 c. May 4, 2009 d. None of these

31. Income tax return for the calendar year 2008 was due for filing on April 15, 2009 but the taxpayer voluntarily
filed his tax return, without notice from the BIR, only on June 30, 2009. The tax due per return amounts to
P100,000. Ignoring any compromise penalties, the total amount due from the taxpayer as of June 30, 2009 is:
a. P100,000 b. P104,167 c. P129,167 d. P154,167

32. Pichay owns a forest logging concession. He harvested matured logs and sold them to Zubiri. Zubiri sold the logs
in their original state to Lacson. For VAT purposes, the sale of logs by Pichay to Zubiri shall be:
a. Subject to VAT
b. Exempt from VAT
c. Exempt from VAT or subject to VAT depending on the annual gross receipts of Pichay
d. Subject to VAT if Zubiri did not subsequently sell it.

33. One of the following is not a livestock for VAT purposes:


a. Rabbit b. Cow c. Pig d. Race horse

34. First statement: A taxpayer subject to VAT may be subject to excise tax also.
Second statement: A taxpayer subject to VAT shall not be subject to other percentage taxes under title V of the
Tax Code.
a. Both statements are correct c. Only the first statement is correct
b. Both statements are incorrect d. Only the second statement is correct

35. As to scope of the legislative power to tax, which is not correct?


a. Where there are no constitutional restrictions, and provided the subjects are within the territorial
jurisdiction of the state, congress has unlimited discretion as to the persons, property or occupations to
be taxed
b. In the absence of any constitutional prohibition, the House of Representative has the right to levy a tax of
any amount it sees fit
c. The discretion of Congress in imposing taxes extends to the mode, method or kind of tax, if not restricted
by the Constitution
d. The sole arbiter of the purpose for which taxes shall be levied is the CIR, provided the purpose is
public but the courts may review the levy of the tax to determine whether or not the purpose is
public

36. In every case of doubt, tax exemptions are construed


a. Strictly against the government and the taxpayer
b. Liberally in favor of the government and the taxpayer
c. Strictly against the government and liberally in favor of the tax payer
d. Liberally in favor of the government and strictly against the taxpayer

37. Keysa, a dedicated and honest employee of ABC Corp. for the past 20 years was advised that he is to be retrenched
as the company was losing heavily but that he would be given the separation pay provided by law. To avoid
implication of inefficiency, Keysa was advised to file a letter of resignation instead of being retrenched. If Keysa
files a letter of resignation and receives the separation pay, such amount is
a. Exempt from income tax c. Taxable in full
b. Subject to final tax d. Partly taxable, partly exempt

38. The present Philippine Budget deficit is a violation of what principle?


a. Administrative feasibility and compliance
b. Theoretical justice or equality
c. Fiscal Adequacy
d. Consistency with economic goods

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39. It is a tax of a fixed proportion of the value of the property with respect to which the tax is assessed and requires
the intervention of assessors or appraisers to estimate the value of such property.
a. Specific b. Ad Valorem c. Special or regulatory d. Excise

40. The following information are from the record of Central Mindanao University, Inc., a proprietary educational
institution, for fiscal year ended March 31, 2013:
Income: Tuition Fees P 5,000,000
Miscellaneous Fees 2,500,000
Income from rental 150,000
Net Income, canteen 350,000
Intercorporate Dividends 750,000
Interest on time Deposit 100,000
Expenses: General and Administrative expenses 1,500,000
Interest expenses, bank loan 50,000
Depreciation, for the year of the new
Building costing 1M, completed 6 months ago (est. useful life of 20 years) 50,000
The income tax due of CMU for the fiscal year if it opts to claim deduction expense from the new building is:
a. P646,600 c. P721,400
b. P646,700 d. P645,800

41. All, except one, of the following are not subject to the improperly accumulated earnings tax. Which is the
exception?
a. Publicly-held corporations
b. Service enterprises
c. Banks and other non-bank financial intermediaries
d. Insurance companies

For items 42 and 43, consider the following information:


A taxpayer sold his properties in 2012 as follows:
1. Selling price (A. Co. shares, not traded in the stock exchange) P300,000
Cost 120,000
2. Selling Price (B. Co. Shares, not traded in the stock exchange) 400,000
Cost 340,000
3. Selling Price (C. Co. shares, traded in the stock exchange) 150,000
Cost 230,000
4. Delivery Car used in business operation 390,000
Cost (30% depreciated) 400,000
5. Selling Price (Residential land, proceeds is used in constructing
New Residential Home) 1,300,000
6. Cost when acquired through donation 900,000
FMV at the time of gift 655,000
42. The total stock transaction tax due:
a. P21,000 b. P21,375 c. P750 d. P16,500

43. The total capital gains tax:


a. P94,000 b. P61,300 c. P78,000 d. P16,000

44. Where the taxpayer is a corporation, the following rules as to recognition of capital gains or losses from the
disposition of property classified as capital asset shall apply. Which is the exception?
a. The holding period does not apply to corporations, hence, capital gains and losses are recognized at 100%.
b. Capital losses are deductible only to the extent of capital gains
c. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain.
d. Net capital loss carry-over should not exceed the net income in the year the loss was incurred.

45. If a partner, on his own transactions, is on the cash method of accounting while the general professional
partnership is on the accrual method of accounting, in the partners determination of his taxable income for the
year, he
a. Must convert his income from the partnership into cash method
b. Must convert his own income into accrual method

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c. Does not report his income from the partnership because the partnership is exempt from income tax
d. Can consolidate his share in the net income of the partnership under accrual method with his own
income under cash method.

For items 46 through 49, refer to the following information:


The records of a domestic corporation organized in 2000 show:
2009 2010 2011 2012
Gross income P 2,270,000 P 2,300,000 P 2,500,000 P 2,800,000
Deductions (where 5% represents Bad Debts
Written off) 2,150,000 2,000,000 2,520,000 2,400,000
Net Income (Loss) 120,000 300,000 (20,000) 400,000
Subsequent Recovery of Bad Debts written off:
In 2009 60,000
In 2011 10,000

46. The income tax payable for 2009


a. P36,000 b. P45,400 c. P58,500 d. P40,500

47. The income tax payable for 2010


b. P108,000 b. P68,000 c. P98,600 d. P46,000

48. The income tax payable in 2011


a. P0 b. P50,000 c. P18,000 d. P24,000

49. The income tax payable for 2012


a. P73,000 b. P117,000 c. P67,000 d. P123,000

50. The following data belong to A Corp. for the year 2011
Educational assistance to supervisors and their children P100,000
Employers contribution for the benefit of the employees to retirement 80,000
Years rental for an apartment paid by the company for the use of its comptroller 120,000
The fringe benefit tax due is
a. P75,294 b. P103,529 c. P141,176 d. P112,941

51. Statement 1: When an estate under administration has income-producing properties, the annual income of the
estate becomes part of the estate subject to the estate tax.
Statement 2: When an estate under administration has income-producing property, the annual income is not part
of the estate subject to estate tax but subject to income tax as income earned by the estate or when distributed to
the heirs in the same year, the same shall be subject to income tax as income of the heirs.
a. True, True b. True, False c. False, True d. False, False

For items number 38-40, refer to the following information:


Mr. and Mrs. Crisostomo gave the following donations in 2011:
Date Donor Property Amount Donee
January 5, 2011 Mr. Crisostomo Separate P150,000 Basilio, legitimate son on account
of marriage on June 1, 2011
April 6, 2011 Mr. Crisostomo Separate 175,000 Gemma, his mother
May 7, 2011 Mr. and Mrs. Crisostomo Conjugal 500,000 Timmy, daughter, on account of
marriage on June 1, 2010
September 9, 2011 Mrs. Crisostomo Separate 200,000 Timmy, daughter, on account of
Marriage

52. The donors tax and payable due on the January 5, 2011 donation is
a. Exempt b. P 45,000 c. P 1,000 d. P 800

53. The donors tax due and payable of Mr. Crisante on May 7, 2011
a. P 10,700 b. P 3,600 c. P 25,700 d. P26, 500

54. The following donations were made to a legitimate child of a citizen donor:

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Property in the Philippines P 210,000


Property outside the Philippines on account of marriage 300,000
Donors tax paid in foreign country 7,500
The donors tax due after tax credit for foreign donors tax paid is
a. P 14,000 c. P7,500
b. P 8,120 d. P6,500

55. Ms. Laureen McDonald, a citizen and resident of Brisbane, Australia, died leaving properties and obligations in
Australia and in the Philippines:
Properties in Australia (inherited within the year of which P1000,000 is family home) P3,000,000
Properties in the Philippines 1,000,000
Investment in stocks of San Miguel Beer, Inc. 550,000
Investment in Foreign Corporation 400,000
Funeral Expenses in Australia 250,000
Unpaid obligations in Australia, duly notarized 700,000
Medical expenses in the Philippines 200,000

The net taxable estate in the Philippines is:


a. P1,243,406 b. P1,268,182 c. P1,068,182 d. P1,305,555

56. Estate tax return should be filed


a. Within 30 days after death
b. Within 6 months after death, but if with judicial settlement, within 2 years
c. Within 6 months after death
d. Within 6 months after death, but if with judicial settlement, within 5 years

57. The following may elect optional standard deduction or itemized deduction, except:
a. Taxable estates and trusts
b. Domestic Corporation
c. Foreign corporation
d. General Professional Partnership

58. A VAT taxpayer made the following purchases of capital goods from VAT registered sellers for use in his business
(amounts are net of VAT) for the 3rd quarter:
Year 2011 Estimated Life Cost
July 10 Machine 1 2 years P 200,000
16 Machine 2 6 years 900,000
Aug. 8 Machine 3 2 years 400,000
20 Machine 4 6 years 500,000
Sept. 14 Machine 5 7 years 2,000,000
Machine 1 was retired on September 30, 2011. The input tax in September is:
a. P4,000 b. P27,800 c. P10,800 d. P26,000

59. Where a return was filed, as a general rule, the prescriptive period for assessment after the date the return was
due or was filed, whichever is later, is within:
a. Two years c. Five years
b. Three years d. Ten years

60. Which of the following statements is incorrect?


a. A taxpayer whose annual gross receipts/sales exceed P 1,919,500 shall pay VAT even if he is not VAT
registered.
b. A taxpayer whose annual gross receipts/sales do not exceed P 1,919,500 but who is VAT-registered shall pay
VAT.
c. Percentage tax maybe imposed together with VAT.
d. Percentage tax maybe imposed together with excise tax.

END OF THE EXAMINATION

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