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OUR LADY OF FATIMA UNIVERSITY 5.

Z, an American singer, was engaged to sing for one


Dela Paz Norte, City of San Fernando (P) week at the Eastern Philippine Plaza after which she
COLLEGE OF BUSINESS AND ACCOUNTANCY
Midterm Examination in APP III returned to the USA. For income tax purposes, she
Accounting Proficiency Program III shall be classified as:
A. Resident alien
B. Non-resident alien engaged in trade or business
GENERAL INSTRUCTIONS: Shade the letter that C. Non-resident alien not engaged in trade or
corresponds to your answer. STRICTLY NO CHEATING. business
D. Resident citizen
6. Who among the following individual taxpayers is
SITUATIONAL ANALYSIS: taxable on income within and without?
A. Tado, a native of General Santos City, working as
1. Real property taxes should not disregard increases in an overseas contract worker.
the value of real property occurring over a long B. Thelma Thunder, naturalized Filipina citizen and
period of time. To do otherwise would violate the married to a Filipino. She had been living in
canon of a sound tax system referred to as: Olongapo City since 1970.
A. Theoretical justice C. Ferrero de la Goya, Spanish citizen, a resident of
B. Administrative feasibility Madrid, Spain, spent a one 910 week vacation
C. Fiscal adequacy trip in Boracay.
D. Symbiotic relationship D. Melly Lee, Taiwanese singer, held a 3-day
2. Chak Rita, a student activist, wants to impugn the concert in Manila.
validity of a tax on text messages. Aside from 7. A citizen of the Philippines was a non-resident citizen
claiming that the law adversely affects her since she in 2011. On May 15, 2012, he arrived in the
sends messages by text, what may she allege that Philippines to reside permanently in the Philippines.
would strengthen her claim to the right to file a His income for the year was:
taxpayer’s suit? A – From Jan. 1, 2012 to May 14, 2012
A. That she is entitled to the return of the taxes B – From May 15, 2012 to Dec. 31, 2012
collected from her in case the court nullifies the Which of the following is wrong?
tax measure. A. He is not taxable on his “A” income.
B. That she is filing the case in behalf of a B. He is considered a resident citizen on his “B”
substantial number of taxpayers. income.
C. That text messages are an important part of the C. He is considered a non-resident citizen on his
lives of the people she represents. “A” income.
D. That tax money is being extracted and spent in D. He is considered a resident citizen on his “A”
violation of the constitutionally guaranteed right and “B” income.
to freedom of communication. 8. Amando, a staff auditor of Inip, Gora, Malayo & Co.,
3. Mr. Malas sells shoes in Marikina through a retail took and passed the examination for Certified
store. He pays VAT on his gross sales to the BIR and Internal Auditor (CIA). The following year, he
the municipal license tax based on the same gross resigned from his job and left the Philippines on April
sales to the City of Marikina. He comes to you for 10, 2014 to work as an internal auditor in a big
advice because he thinks he is being subjected to establishment in Melbourne, Australia. For income
double taxation. What advice will you give? tax purposes, which of the following statements is
A. Yes, there is double taxation and it is oppressive. correct with respect to Amando’s classification?
B. The City of Marikina does not have this power. A. He shall be classified as nonresident citizen for
C. Yes, there is double taxation and this is illegal in the whole year of 2014.
the Philippines. B. His classification as a nonresident citizen will
D. Double taxation is allowed where one tax is start in 2015.
imposed by the national government and the C. He shall be classified as nonresident citizen for
other by the local government. the year 2014 with respect to his income
4. X, a management expert was hired by a Philippine derived from sources without from April 10,
corporation to assist in its organization and 2014.
operation for which he had to stay in the Philippines D. He shall be classified as nonresident citizen for
for an indefinite period. His coming to the the year 2014 with respect to his income
Philippines was for a definite purpose which in its derived from sources without from April 11,
nature would require an extended stay and to that 2014.
end makes his home temporarily in the Philippines. 9. A cash dividend of P100,000 received by a taxpayer
The American management expert intends to leave in 2016 from a foreign corporation whose income
the Philippines as soon as his job is finished. from Philippines sources is 50% of its total income is:
For income tax purposes, the American management Statement 1 – Partly taxable if he is a resident
expert shall be classified as: citizen.
A. Resident alien Statement 2 – Partly taxable if he is a nonresident
B. Non-resident alien engaged in trade or business citizen.
C. Non-resident alien not engaged in trade or A. Both statements are true.
business B. Both statements are false.
D. Resident citizen C. Only statement 1 is true.
D. Only statement 2 is true. B. Monte Cristo Catholic Cemetery – owned by the
10. Your client owns a row of apartments. He complains Catholic Church; payments are remitted to the
to you that he is being required to pay four (4) kinds Catholic Church and for the improvement of the
of taxes on this line of business alone. From the list cemetery.
given by your client, which of the following taxes has C. Happy Trip Memorial Park – owned by a
been wrongly imposed to him? corporation where dividends are distributed to
A. Real estate tax on the land and building the shareholders at the end of the year.
B. Value-added tax on the gross receipts from rent D. Quita-Quita memorial Park – owned by an
C. Community tax based on the assessed value of association consisting one hundred (100)
the apartment house different families; each family own several
D. Income tax on income from rent square meters of lot, not a single portion is held
11. The City Council passed an ordinance imposing an for sale to either member or non-member of the
occupation tax on an air conditioning technician. association.
Pedro is the only person with such occupation in the 15. Congressman Manny Loloko of the 3rd District of
city. He challenged the validity of the ordinance as Mamasapano and Senator Dina Tuto sponsored a bill
being discriminatory since he is the only one in the House of Representatives and the senate,
adversely affected. respectively, increasing the personal exemptions of
A. The contention of Pedro is justifiable. individual taxpayers as well as granting tax
B. The contention of Pedro is not substantiated exemption to minimum wage earners. Which of the
because the rule on uniformity is not violated following is correct?
considering that the ordinance would also be A. The senate bill should be discussed ahead of the
imposed on all air conditioning technician who house bill.
may come within the jurisdiction of the city. B. The senate and house bills maybe discussed at
C. The issue on validity or invalidity of the the same time in both houses.
ordinance should be set aside. C. The house bill should be discussed ahead of the
D. The ordinance is unconstitutional because Pedro senate bill.
was denied of his right to equal protection of D. No priority; each bill can be discussed ahead of
the law. the other.
12. The Facundo School of Arts and Commerce, a 16. Juan was hired as a staff auditor of STD and
proprietary educational institution which is offering Company in 1995. On December 2002, he
primary, secondary, and tertiary education, is transferred to Amats and Associates. In 2004, he
registered with and accredited by the department of returned back to STD and Company until his
education (DepEd) and the Commission on Higher retirement in 2010 at the age of 55.
Education (CHED). Question 1: Are the retirement benefits taxable to
Which of the following is exempt from tax? What Juan?
kind of tax? Question 2: Suppose he was terminated from
A. The importation of laboratory equipments – employment due to dishonesty. Is the separation pay
from customs duties taxable to Juan?
B. The school building being rented by the school – Question 3: Suppose he was terminated from
from real property tax employment due to the merger of the two audit
C. A portion of the school building being leased to firms. Will the separation pay be taxable to Juan?
a fastfood chain – from real property tax A. No – Yes – No
D. The income from operations – from income tax B. No – Yes – Yes
13. Assuming that the school in the preceding number is C. Yes – No – No
a non-stock, non-profit educational institution. D. Yes – No – Yes
Which of the following is subject to tax? What kind 17. Purita Barberia was retired by her employer
of tax? corporation in 2011 and paid P2,000,000 as a
A. A portion of the building being leased to a retirement gratuity without any deduction of
fastfood chain – from real property tax withholding tax. The corporation became bankrupt
B. The income from operations –from income tax in 2010. Can the BIR subject the P2,000,000
C. The school building owned by the school – from retirement gratuity to income tax?
real estate tax 1st Answer: No, if the retirement gratuity was paid
D. The school building being rented by the school – based on a reasonable pension plan where Barberia
from real estate tax was 60 years old and has served the corporation for
14. The Municipality of Monte Cristo has a ten (10) 9 years.
hectare cemetery consisting of four (4) different 2nd Answer: Yes, if Barberia was forced by the
cemeteries which are owned by different entities. corporation to resign due to retrenchment.
Which of the following is subject to real property A. Both answers are wrong.
tax? B. Both answers are correct.
A. Cementerio Municipal del Monte Cristo – a C. First answer is correct, the second is wrong.
government cemetery owned by the D. First answer is wrong, the second is correct.
municipality which was established for the 18. To start a business of his own, Mr. E opted for an
purpose of using it as burial ground of the early retirement from Plaridel Retrofitting
paupers in Monte Cristo. Corporation, a private company, after ten (10) years
of service. Pursuant to the company’s qualified and
approved private retirement benefit plan, he was 23. Mr. Hipon bought a residential house and lot in 2000
paid his retirement benefit. for P120,000. In 2012, curious as to how much his
A. Plaridel should withhold income taxes from E’s property then cost, he asked a real estate broker to
retirement pay. reappraise the same. The real estate broker reported
B. E’s retirement pay is excluded from gross that the value of his property has increased to
income. P1,800,000. How should Mr. Hipon treat the
C. Plaridel should pay the tax on E’s retirement P1,680,000 increase in his income tax return for the
pay. year 2012?
D. Since E voluntarily retired, the retirement pay he A. He should include the P1,680,000 as a
received is not retirement in the true sense but revaluation surplus which is categorized as
is part of his compensation income subject to income subject to deferred income taxes.
tax. B. He should include the P1,680,000 as footnote to
19. The City of Manila, claiming that it can impose taxes his income indicating that the same is an
under the Local Government Code, imposed a tax on increase in appraisal.
banks (in addition to the percentage tax on banks C. He should not include the P1,680,000 as part of
imposed in the National Internal Revenue Code). The his income because the gain has not yet been
banks within the City of Manila objected for the realized.
various reasons given below. Which would justify the D. He should not include the P1,680,000 as part of
objection of the banks/ his income if the certification of the real broker
A. The power of tax cannot be delegated is not under oath and attached to the income
B. The rule on double taxation tax return of Mr. Hipon.
C. Uniformity in taxation 24. Megan Manananggol, as lawyer, has among her
D. None of the above clients a recruitment agency which regularly pays her
20. A motor vehicle accident involved Z Bus Co. and a a monthly retainer of P15,000. In order to reduce her
private car of Mr. A, resulting in the death of Mrs. A, income tax liability, Manananggol arranged for the
physical injuries to Mr. A, loss of earnings of Mr. A retainer to be paid directly to her son, Roman,
for a month, and total loss of the car of Mr. A. From whose name is reported in the payroll as the payee.
a court litigation, Mr. A received damages, as This year, Manananggol’s gross income from her law
follows: P500,000 for the death of the wife, P80,000 practice, exclusive of the P15,000 monthly retainer
for his physical injuries, P50,000 for the period under fee is P2,000,000.
treatment, and P500,000 for the loss of the car that What should be the tax treatment of the P15,000?
he bought for P360,000 and had a value of P500,000 A. It should be reported as part of Manananggol’s
at the time of the loss. Which statement is wrong? income because it was her who rendered the
A. The damages of P500,000 for the death of the service and not her son Roman.
wife is not taxable income. B. The P15,000 may be deductible by Manananggol
B. The damages of P80,000 for physical injuries is as part of his expenses if the son rendered
not taxable. service for her and the payment was the
C. The damages of P50,000 for lost earnings is monthly retainer from the recruitment agency.
taxable. C. It should be reported s part of Roman’s
D. The damages of P500,000 for the loss car is not compensation income since his name appears in
taxable. the payroll of the recruitment agency.
21. Emma Lagu sued Emman Santing for breach of D. It may be deducted as part of the expenses for
promise to marry. Emman lost the case and duly salaries and wages paid by the recruitment
paid the court’s award that included, among others, agency in connection with its trade and
P10,000 as moral damages for the mental anguish business.
Emma suffered. Did Emma earn a taxable income? 25. Mr. Sabado owns a vacant parcel of land. He leases
A. She had no taxable income since moral damages the land to Mr. Domingo for ten years at a rental of
are compensatory. P120,000 per year. The condition is that Mr.
B. She had taxable income since she made a profit. Domingo will erect a building on the land which will
C. She had no taxable income because it was a become the property of Mr. Sabado at the end of
donation. the lease without compensation or reimbursement
D. She had a taxable income of P100,000 since whatsoever for the value of the building.
income is income from whatever source. Mr. Domingo erects the building. Upon completion,
22. XYZ Corporation was dissolved and liquidating the building had a fair market value of P1,000,000.
dividends were declared and paid to the At the end of the lease, the building is worth only
stockholders. What tax consequence follows? P500,000 due to depreciation.
A. XYZ Corporation should deduct a final tax of 10% What are the tax implications when the lease expires
from the dividends. and Mr. Sabado becomes the owner of the building
B. The stockholders should declare their gain from with a fair market value of P500,000?
their investment and pay income tax at the A. Mr. Sabado would have an income of
ordinary rates. P1,000,000 because his ownership over the
C. The dividends are exempt from tax. property retroacted to the date of the contract
D. XYZ Corporation should withhold a 10% of lease.
creditable withholding tax. B. Mr. Sabado would have an income of P500,000
because that is the depreciated value of the
property at the time the ownership vested in Assuming the shares of stocks were given to Ms.
him. Tress in consideration of her services to the
C. The income realized by Mr. Sabado at the time corporation, what are the tax implications?
of expiration of his lease would be the fair A. The value of the stocks form part of Ms. Tress’
market value of the building as reported for real compensation income.
property tax purposes. B. The value of the shares should be treated as a
D. Mr. Sabado does not realize any income at the gift which is excluded from Ms. Tress’ income.
end of the lease period. Mr. Domingo C. The value of the stocks is neither income nor
transferred the building to him without gift.
consideration, therefore it is a donation which is D. The shares of stock shall be considered as
not considered as income. dividends subject to tax.
26. Maring bought tax-exempt government bonds. As 30. Apolinario, a resident Filipino citizen and a ninety
such the interest, she received is not includible as (90) year old USAFFE veteran was among the
part of her gross income. Why? beneficiaries of Pres. Obama’s recovery program
A. The interest received is not considered income that gave a US$10,000 cash benefit to World War II
derived from the use of capital. veterans. The distribution of the cash benefit was
B. The interest is excluded from gross income for made by the U.S. Veterans Administration Office
reasons of public policy to encourage purchase located within the premises of the U.S. embassy. He
of government bonds. comes to your for advice on the tax treatment of the
C. The interest is not taxed because of the cash benefit. You shall tell him that:
redemption of the bond at a premium would be A. The amount is part of his income from without
taxable. hence subject to income taxation in the
D. To tax such interest would be violative of the Philippines.
non-impairment clause because Maring would B. He is not subject to the payment of any income
not have bought the bond if it were not tax-free. tax on the cash benefit because it is a donation
27. Bentong insured his own life for P1,000,000. He by the U.S. government to the veterans being a
assigned the insurance to Andong for valuable pure act of liberality.
consideration in the amount of P800,000. Bentong C. The amount of the cash benefit is part of the
died and Andong was able to collect the P1,000,000. payments made to the U.S. Armed Forces
Prior to Bentong’s death, Andong, had in the veterans hence excluded from gross income.
meantime paid P50,000insurance premiums on the D. He is not subject to any kind of tax on the cash
policy. benefit he received because he is a senior
What should be the income tax treatment of the citizen.
P1,000,000 life insurance proceeds considering the
THEORIES:
above circumstances?
A. The P1,000,000 is excluded from Andong’s gross 31. The Philippines adopted a semi-global tax system,
income because it is life insurance proceeds. which means that:
B. Andong should include the P1,000,000 as part of A. All taxable incomes, regardless of the nature of
his gross income. income, are added together to arrive at gross
C. Andong should report only P150,000 of the income, and all allowable deductions are
P1,000,000 he received because the P800,000 is deducted from the gross income to arrive at the
considered as his expense in earning the income taxable income.
and the P50,000 is considered as return of the B. All incomes subject to final withholding taxes
premiums he paid. are liable to income tax under the scheduler tax
D. Andong should report only P150,000 of the system, while all ordinary income as well as
P1,000,000 he received because the P850,000 is income not subject to final withholding taxes
considered as a return of his investment. are liable to income tax under the global tax
28. Emotera Corporation took a keymen insurance on system.
the life of its president, Mr. Elias Mandurugas. The C. All taxable incomes are subject to final
policy designated Mr. Madurugas’ wife as its withholding taxes under the scheduler tax
revocable beneficiary in the event of death of Mr. system.
Mandurugas. In the event of Mr. Madurugas’ death, D. All taxable incomes from sources within and
the life insurance proceeds would be: without the Philippines are liable to income tax.
A. Taxable as the wife’s income. 32. The following, except one are the basic principles of
B. Taxable as part of Emotera Corporation’s a sound tax system. The exception is:
income. A. It should be capable of being effectively
C. Excluded from the wife’s gross income. enforced.
D. Taxable as part of Mr. Mandurugas’ benefits as B. It should consider the taxpayers’ ability to pay.
an employee. C. It is levied by the lawmaking body of the state.
29. Coco Corporation, a multinational corporation doing D. The sources of revenue must be sufficient to
business in the Philippines, donated 100 shares of meet government expenditures and other public
stock of said corporation to Ms. Tress, its resident needs.
manager in the Philippines. 33. Which of the following receipts is excluded from
gross income because they are exempt from income
taxation?
A. Gain from redemption of shares in mutual fund 40. One of the characteristics of a tax is:
B. Income derived by a local government unit A. A tax is a pecuniary burden and the law may not
C. Compensation received as a result of injuries allow payment in kind.
D. Returned insurance premiums B. It is dependent upon the will or contractual
34. There are various reasons for the exclusion of certain assent, express or implied of the person taxed.
receipts from gross income. This receipt is excluded C. It is levied by the state by virtue of its
because it is not income. sovereignty.
A. Prizes and awards in sports competition D. It is collected for public and private purposes.
B. Gains derived from exchanges in kind 41. Which statement refers to police power as
C. Life insurance proceeds distinguished from taxation?
D. Prizes received in recognition of civic A. It can only be imposed on specific property or
achievement properties.
35. Which of the following statements is true? B. The amount imposed depends on whether the
A. Opinions of legal luminaries are sources of tax activity is useful or not.
laws. C. It involves taking of property by the
B. The Constitution grants exemption from all government.
kinds of taxes to religious and charitable D. The amount imposed has no limit.
organizations. 42. Which of the following may not raise money for the
C. Because the power to tax is unlimited, government?
comprehensive, plenary, and supreme, the A. Power of taxation
power to tax can reach over into any jurisdiction B. Police power
to seize upon person or property. C. Power of eminent domain
D. The “benefits-protection theory” is the source of D. Privatization of government’s capital assets
the “doctrine of symbiotic relationship.” 43. The following statements are correct. Which is the
36. One of the characteristics of internal revenue tax is exception?
that they are: A. The rule of taxation shall be uniform and
A. Criminal in nature equitable.
B. Penal in nature B. Taxation may be used to implement the police
C. Political in nature power of the state.
D. Generally prospective in application C. Police power is superior to the non-impairment
37. Which of the following statements is not correct? clause of the Constitution.
A. An inherent limitation of taxation may be D. The salaries of the justices of the Supreme Court
disregarded by the application of a are exempt from income tax.
constitutional limitation. 44. Which of the following statements is correct?
B. The property of an educational institution A. Tax laws can never have a retroactive effect.
operated by a religious order is exempt from B. The government cannot tax its agencies and
property tax, but its income is subject to income instrumentalities.
tax. C. The taxpayer’s suit can be filed by any taxpayer
C. The prohibition of delegation by the state of the in any instance against the government.
power of taxation will still allow the Bureau of D. In the Philippines, there may be double taxation.
Internal Revenue to modify the rules on time for 45. Which of the following statements constitute tax
filing of returns and payment of taxes. avoidance?
D. The power of taxation is shared by the A. Deliberate failure of a taxpayer to pay the taxes
legislative and executive departments of due to the government.
government. B. Connotes fraud through the use of pretenses
38. Which of the following statements is incorrect? and forbidden devices to lessen or defeat taxes.
A. No person shall be imprisoned for non-payment C. Punishable by law.
of debt or non-payment of taxes. D. Maybe contrary to the intent of the legislature
B. The passage of laws granting tax exemptions but nevertheless do not violate the law.
requires the concurrence by a majority of all the 46. A franchise can be amended by:
members of Congress. A. An amendment of special law, which granted
C. The Supreme Court’s jurisdiction over tax cases the franchise.
cannot be impaired. B. An amendment of a law of general application.
D. The revenues and assets of non-stock, non- C. An amendment of a revenue regulation.
profit educational institutions and donations for D. An amendment of tax laws.
educational purposes are exempted from taxes 47. In cases of deduction and exemptions on income tax
and duties. returns, doubts shall be resolved:
39. Question 1: Can the state tax the Armed Forces of A. Strictly against the taxpayer.
The Philippines? B. Strictly against the government.
Question 2: Are government-owned and controlled C. Liberally in favor of the taxpayer.
corporations subject to tax? D. Liberally against the government.
A. Yes – No 48. Domicile or residence of the owner is not the situs of
B. Yes – Yes taxation in:
C. No – Yes A. Estate tax
D. No – No B. Community tax
C. Business tax A. Promulgated by the Secretary of Finance upon
D. Income tax the recommendation of the Commissioner of
49. Which of the following is a taxable income? Internal Revenue.
A. Moral damages B. Promulgated by the Commissioner of Internal
B. Interest on moral damages Revenue.
C. Income from qualified pension plan C. Promulgated by the Secretary of Finance.
D. Compensation for personal injuries D. An interpretation of the revenue law by the
50. Which of the following is subject to income tax? Commissioner of Internal Revenue.
A. SSS and GSIS
For numbers 57 through 60:
B. Philippines Health Insurance Corporation (PHIC)
C. Local Water Districts “Chenes” gang inside the maximum compound of the
D. Philippine Amusement and Gaming Corporation National Bilibid Penitentiary (NBP) controls almost all
(PAGCOR) transaction of drug proliferation ins and outs of Muntinlupa,
51. Which of the following statements is wrong on hence, President Duterte ordered the investigation of the
corporation? drug activities inside the Bilibid. The president instructed a
A. Domestic corporations are taxable in the thorough investigation to be conducted by the Department of
Philippines on income derived from Japan and Justice, Anti-Money Laundering Council, Bureau of Internal
Philippine sources. Revenue and to some private Auditing Firms to unearth the
B. Resident foreign corporations are taxable in the money trail linking drug lords, high-profile inmates with
Philippines on income earned in the United government officials.
States.
C. Nonresident foreign corporations are taxable in 57. However, (choose the best sentence)
the Philippines on income derived from sources A. Neither SGV nor other audit firms were willing
in the Philippines only. to engage in the anomaly;
D. Domestic corporations are taxable in the B. Neither SGV nor other audit firms was willing to
Philippines on income earned from business engage in the anomaly;
operation in the United States. C. Neither SGV nor other audit firms is willing to
52. There is no taxable income until such income is engage in the anomaly;
recognized. Taxable income is recognized when the: D. Neither SGV nor other audit firms are willing to
A. Taxpayer fails to include the income in his engage in the anomaly;
income tax return. 58. It was found out by the AMLC that the missing link is
B. Income has been actually received in money or the identity of the treasurer or accountant of the
its equivalent. drug money, because it’s (choose the best sentence)
C. Income has been received, either actually or A. Either the treasurer or accountant is responsible
constructively. for allocating the fund.
D. Transaction that is the source of the income is B. Either the treasurer or accountant are
consummated. responsible for allocating the funds.
53. Passive income includes income derived from an C. Either the treasurer or accountant is responsible
activity in which the earner does not have any for allocating the funds.
substantial participation. This type of income is: D. Either the treasurer or accountant are
A. Usually subject to a final tax. responsible for allocating the fund.
B. Exempt from income taxation. 59. Finally, the Department of Justice instituted: OPLAN
C. Taxable only if earned by a citizen. BESSY, and discovered inside the Bilibid (choose the
D. Included in the income tax return. best sentence)
54. Which statement is wrong? Cancellation of A. There is three thousand methamphetamine
indebtedness: hydrochloride inventories left;
A. May not bring about the income tax, but bring B. There is three thousand methamphetamines
about the donor’s tax. hydrochloride inventory left;
B. May bring about the donor’s tax, but not bring C. There are three thousand methamphetamines
about the income tax. hydrochloride inventory left;
C. May result in dividend income subject to income D. There are three thousand methamphetamine
tax. hydrochloride inventories left;
D. Has no tax significance. 60. Ultimately, the purpose of the audit is to determine
55. Which statement is wrong? A non-interest bearing the ultimate beneficiaries of the drug money. The
promissory note received for personal services inflow of drug funds includes amounts collected
rendered: (choose the best sentence)
A. Will not result in income if received merely as A. On behalf of narco-politicians between years
security. 2015 – 2016 during campaign period;
B. Will result in income if received in payment. B. In behalf of narco-politicians between years
C. Will not be income until collected. 2015 – 2016 during campaign period;
D. Is considered payment in kind. C. On behalf of narco – politicians between years
56. Which statement is correct? A revenue regulation, as 2015 – 2016 during campaign period;
a source of tax law, is: D. In behalf of narco – politicians between years
2015-2016 during campaign period;

TRUE OR FALSE:
For items 61 through 90: when the law that authorizes the revenue regulation
does not impose a penalty. F
Shade A if statement 1 is true and statement 2 is false. 72. I. A tax imposed by a law can be changed on its
Shade B if statement 1 is false and statement 2 is true. applicability to persons, properties, etc., only by an
Shade C if both statements are true. amendment of the particular law that imposed it. F
Shade D if both statements are false. II. The applicability of a tax imposed by a law on
certain person, properties, etc., may be changed by
61. I. The power of taxation is inherent is sovereignty another or new law that makes reference to the
being essential to the existence of every original law that imposed the tax. T
government. Hence, even if not mentioned in the 73. I. Gross compensation income is income arising out
Constitution, the state can still exercise the power. T of employer-employee relationship. T
II. It is essentially a legislative function. Even in the II. Gross income from self-employment is income
absence of any constitutional provision, taxation arising out of business or the practice of profession.
power falls to Congress as part of the general power T
of lawmaking. T 74. I. Damages recovered for physical injuries are not
62. I. The value-added tax is a property tax. F taxable. T
II. The estate tax is a direct tax. T II. Damages recovered for violation of copyright are
63. I. An ordinance imposing a tax on the manufacture of not taxable. F
softdrinks and another tax on the sale of softdrinks 75. I. Income derived from illegal sources, such as
constitute double taxation. F gambling, extortion, theft, bribes, embezzlement,
II. A criminal case for tax evasion may be filed against and smuggling are not taxable. F
a taxpayer even without prior assessment issued by II. Holiday pay and hazard pay are exempt from
the Commissioner of Internal Revenue. F income tax. F
64. I. A BIR Ruling issued by a Commissioner of Internal 76. I. Tips and gratuities paid directly to an employee by
Revenue which grants tax exemption would create a customers of the employer which are not accounted
perpetual exemption in favor of the taxpayer. F for by the employee to the employer are subject to
II. A tax exemption may be withdrawn anytime at the withholding tax. F
pleasure of the taxing authority. T II. Source of income is either within the Philippines,
65. I. As a rule, taxes are subject to set-off or without the Philippines, or partly within and partly
compensation. F without the Philippines. T
II. The point on which a tax is originally imposed is 77. I. A tax that is allowed by law to be passed on by a
impact of taxation. T taxpayer to another is called an indirect tax. T
66. I. In case of conflict between a revenue regulation II. Business taxes which are not allowed by law to be
and the provisions of the National Internal Revenue passed on by sellers of goods and services to buyers
Code, the latter shall prevail. T are nonetheless imperceptibly passed on because
II. The revocation of a revenue regulation cannot be they are factored in on the selling price. T
made retroactive even if the reason for its 78. i. In addition to rent, other consideration which the
revocation is that it is erroneous or contrary to law. F lessee may pay third parties such as interest, taxes,
67. I. Laundry allowance not exceeding P300 per month dividends, and insurance premiums are taxable to
is not an exempt de minimis benefit if given to rank- the lessee. F
and-file employees. F II. Income of any kind, to the extent required by any
II. Rice subsidy of P1,500 per month is an exempt de treaty obligation binding upon the Government of
minimis benefit regardless of whether the recipient the Philippines, is exempt from income tax. T
employee is occupying a managerial position or not. 79. I. Prizes and awards received in recognition of
T religious, charitable, scientific, educational, artistic,
68. I. Direct double taxation involves two taxes by the literary, or civic achievement are not taxable if the
same taxing authority. T recipient was either selected without any action on
II. Indirect double taxation involves two taxes by his part to enter the contests or proceedings or the
different taxing authorities. T recipient is not required to render substantial future
69. I. Direct double taxation is prohibited by the services as a condition to receiving the prize or
Philippine Constitution. F award. F
II. Indirect double taxation is allowed by the II. if services are paid for in a medium other than
Philippine Constitution. T money, it is not to be included as compensation. F
70. I. Tax evasion, which is the use of means to escape a 80. I. The tax benefit rule states that recovery of
tax that is already a liability, is prohibited by law, and accounts previously written off constitutes a receipt
is punishable. T of a taxable income if in the year of recognition of its
II. Tax avoidance, which is the use of means to being worthless, the write-off resulted in reduction
prevent an accrual of a tax, or to minimize a tax that of taxable income. T
may accrue, is likewise prohibited by law and is II. A non-taxable stock dividend does not constitute
punishable. F income if the new certificates plus the old ones
71. I. A revenue regulation may be contrary to the change the proportionate interest of the stockholder
provision of the law that it implements. F in the net assets of that corporation. F
II. A revenue regulation can expand the provision of 81. I. A progressive system of taxation means a tax
the law that it implements by imposing a penalty structure where the tax base increases as the tax
rate increases. F
II. Tax exemption is a grant of immunity to a  She claimed for the monetized value of her unused
particular taxpayer from tax where others are leave credits for 8 days. Her daily basic salary is
obliged to pay. T P300.
82. I. There can only be a tax if there is a law imposing
the tax. T How much is to be considered as compensation income?
II. The power to tax is inherent. T _____________
83. I. A person may refuse to pay a tax on the ground 97-99. Joselito Dimagiba won the International Billiard
that he receives no personal benefit from it. F Championship held in Hanoi, Vietnam. The tournament was
II. One of the essential characteristics of a tax is it is sanctioned by a national sports association which is
unlimited in amount. F recognized by the Philippine Olympic Committee. He was
84. I. A tax is based on law while a debt is based on awarded US$60,000 by the sponsor of the tournament. He
contract. T was also given P250,000 cash by San Miguel Corporation as
II. A tax is also a customs duty. F prize or award.
85. I. Provisions in the Philippines Constitution on
taxation are grants of power. F In the same year, he entered into a contract with the same
II. Territoriality is one of the constitutional company to advertise their product for P1,500,000.
limitations on the power of taxation. F
If the exchange rate of every US$1 is P45, Joselito Dimagiba
86. I. Courts can review or inquire into the wisdom or
should report an income of: ___________.
advisability of a tax law. F
II. Our Constitution does not contain any provision For items 100 through 108:
granting tax exemption to the government. T
87. I. Our Tax Code prevails over the Civil Code. T Dora leased a land to Doro for a period of 11 years starting
II. Tax regulations promulgated by the Secretary of January 1, 2015 at annual rental of P12,000. Observing the
Finance need not be published in a newspaper of provisions of the contract, Doro constructed a building which
general circulation. F shall become the property of Dora at the expiration of the
88. I. In every case of doubt, tax statutes are construed lease. The construction was completed on January 1, 2018 at
strictly against the Government and liberally in favor a cost of P1,000,000 with an estimated useful life of 20 years.
of the taxpayer. T It is also stipulated in the contract that the lessee will pay to
II. Where the intent to tax is clear and the taxpayer the government the P1,500 annual real property tax on the
claims that he is exempt from the tax obligation; the land starting in 2015.
tax shall be construed against the taxpayer and in
favor of the Government because the power of 100-102. How much income is to be reported by Dora in 2018
taxation is necessary to the existence of such under the outright method? _________
Government. T
103-105. How much income is to be reported by Dora in 2018
89. I. Because the power of taxation is inherent in state,
under the spread-out method? ______
the inherent limitations on the power of taxation
always apply. F 106-108. Assuming that due to the fault of the lessee, the
II. Inherent limitations on the power of taxation must lease contract was terminated on January 1, 2020, how much
give way to constitutional limitations. T income is to be reported by the lessor in 2020?
90. I. Uniforms and clothing allowance not exceeding _________________
five thousand pesos per annum is an exempt de
minimis benefit. T 109-111. After working for 30 years and due to old age,
II. Actual medical benefits not exceeding P10,000 per Brutus retired from his employment on December 31, 2011 as
annum is an exempt de minimis benefit. T a rank-and-file employee of Toma Corporation. As a
consequence of his retirement, he received the following
SHORT PROBLEMS: (ON A SEPARATE SHEET OF YELLOW from his employer:
PAPER, ANSWER THE FOLLOWING PROBLEMS. NO
SUPPORTING SOLUTIONS, NO POINTS.) Salary for 2011 P250,000
Christmas gift 25,000
91-93. Mr. Ador Able was insured under an endowment Anniversary bonus 2,500
policy with a value of P1,000,000. Total premium paid by him Loyalty award 10,000
during the term of premium payments on the policy was Retirement pay 750,000
P980,000, from which there was a return of premiums of
P80,000. At the maturity of the policy in 2016, Mr. Able
Based on the above data, the amount subject to tax of Brutus
received P1,000,000. The income of Mr. Able under the policy
is: ______________.
is: _______________.
112-114. Authorized capital stock of a domestic corporation:
94-96. Dina Gaganda, an employee, has the following details
common and preferred.
relative to her employment in 2016:
Capital stock issued and outstanding at the time of dividend –
 She consulted the company physician due to
common only;
headache. Had she consulted another physician, she
would have been charged P300 as consultation fee. 50% stock dividend in the form of preferred shares, with a fair
 She received cash from a customer for her efficient market value of P60 per share;
service, P5,000. She failed to account for it to her
employer.
Stock owned at the time of dividend: 100 common shares,
with an acquisition cost of P210 per share and a fair market
value at the time of the dividend of P180 per share;

Sale of 20 preferred shares at P65 per share.

Gain on the sale is: ______________.

For items 115 through 120:

The farmer is on the cash method of accounting.

Sales of livestock and farm P200,000


products raised
Sales of livestock and farm 100,000
products purchased
Cost of livestock and farm 110,000
products purchased and sold
Expenses of raising livestock and 80,000
farm products
Inventory, beginning of the year 10,000
Inventory, end of the year 12,000

115-117. The gross income is: ______________.

118-120. Assuming that the farmer is on the accrual method


of accounting. The gross income is: ______.

END OF EXAMINATION

“DOUBT KILLS MORE DREAMS THAN FAILURE EVER WILL.” –


Suzy Kassem

Prepared by:

FRANCESCO RAFIEL A. MALLARI, CPA


FACULTY, Department of Accountancy
OLFU – Pampanga

Reviewed and Checked by:

ALEND KERSEY Q. SAMPANG, CPA


OIC – Department of Accountancy
OLFU – Pampanga

Approved by:

Dr. IGNACIO C. CORDOVA, Jr.


Dean – College of Business and Accountancy
OLFU

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