INCOME TAXATION

Name:__________________________ Date:_____________________
Section:_________________________ GROSS INCOME

1. Exclusions from gross income, except:

a. Interest on the price of the land covered by the Presidential Decree on land reform
b. Interest payments on proceeds of life insurance held by the insurer.
c. GSIS, SSS, Philhealth and Pag-ibig contributions and Union dues of individuals.
d. Gains realized by an investor upon redemption of shares of stock in a mutual fund company.

2. Which of the following statements is correct?

a. The power of taxation reaches even the citizens abroad and their income earned from sources
outside the Phils.
b. Priests and religious institutions are exempt from income and property taxes.
c. Separation benefits received by terminated employees resulting from a deadlock in their collective
bargaining agreement are exempt from income tax.
d. The value of a property received as a gift, or under a will or testament or through legal succession
is exempt from taxation.

3. One of the following is taxable income

a. Gifts, bequests and devices
b. Amounts received as rewards for giving information instrumental in the discovery of violation of
the Tax Code and seizure of smuggled goods.
c. Proceeds of life insurance
d. Separation pay received by an employee due to a cause beyond his control

4. Which of the following statements is not correct?

a. Proceeds of life insurance policies paid to beneficiaries upon the death of the insured are
excluded from gross income regardless of whether the proceeds are received as a single sum
or in installments.
b. In case of transfer for a valuable consideration by assignment or otherwise of a life insurance,
endowment or annuity contract or any interest therein, only the actual value of such
consideration and the amount of the premium and the sums subsequently paid by the transferee
are exempt from income tax.
c. Marriage fees, baptismal offerings, sums paid for saying masses for the dead and other
contributions received by a clergyman, evangelist or religious worker for services rendered is
taxable income
d. Monetization of leave credits of employees who were unable to go on leave due to exingencies
of the service constitute taxable income.

5. Which of the following statements is correct as regards a resident citizen?

a. Income from illegal activities are subject to final tax
b. Income tax refunds constitute taxable income to the taxpayer
c. Recovery of bad debts previously written off is part of taxable income
d. As a rule, contest awards and prizes are subject to 20% final tax if they amount to more than
P10,000, otherwise they will be part of taxable income.

6. Which of the following statements is not correct?

a. Minimum wage earners shall be exempt from the payment of income tax
b. Holiday pay, overtime pay, night shift differential and hazard pay shall be exempt from income
tax
c. Prizes and awards granted to athletes in local and international sports competitions and
tournaments whether held in the Philippines or abroad and sanctioned by their national sports
associations are exclusions from gross income
d. Benefits received from or enjoyed under the Social Security System are exclusions from Gross
Income

7. One of the following is part of taxable income subject to schedular rate

a. Compensation for damages
b. The share of a partner in the undistributed net income of a general co-partnership
c. Living quarters and meals furnished and given to an employee for the convenience of the
employee
d. Facilities or privilege of relatively small value offered by the employer as a means of promoting
the health, goodwill, contentment, or efficiency of the employee

8. Which is not creditable withholding income tax?

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 a. Expanded withholding income tax c. Withholding income tax on passive income
b. Withholding income tax at source d. Withholding income tax on compensation income
9. As a rule, this is not part of taxable income
a. Profit sharing b. Hazard pay c. Overtime pay d. 13th month pay
10. This is a taxable income
a. Retrenchment pay c. Separation pay due to resignation
b. SSS/ GSIS benefits d. Refund of Philippine Income Tax
11. Which of the following is taxable income?
a. Prizes and awards as an awardee of Ramon Magsaysay Award Foundation
b. Damages awarded as a consequence of a libel and slander suits
c. Interest on Philippine lotto winnings
d. Amounts received as returns of premiums
12. Which of the following statements regarding dividends is correct?
a. Exempt from tax if received by a resident citizen from a domestic corporation
b. Exempt from tax if received by a resident alien from a domestic corporation
c. Taxable subject to year-end tax if received by a resident citizen from a non-resident corporation
d. Taxable subject to final tax if received by a non-resident citizen from non-resident corporation
13. As a rule, the following are taxable income, except
a. Cash dividend b. Property dividend c. Scrip dividend d. stock dividend
14. The following items are exclusions from gross income, except
a. Labor union dues c. IOUs
b. SSS/GSIS premium contributions d. Pag-ibig premiums contributions
15. Which of the following is part of gross income?
a. PCSO & Phil. Lotto winnings c. Proceeds of life insurance
b. Bank interest on long-term deposit d. Raffle prize not exceeding P10,000
16. If refunded, this is taxable
a. Estate tax b. donor’s tax c. special assessment d. fringe benefit tax
17. Income tax payments to a foreign country, in the case of a resident citizen may be claimed as
a. Tax credit and deduction from gross income c. tax credit or deduction from gross income
b. Tax credit only d. deduction from gross income only
18. Dividends paid by a domestic corporation may be taxable but subject to final tax, except.
a. If received by a resident citizen c. If received by a non-resident corporation
b. If received by a resident alien d. If received by another domestic corporation
19. A works as a minimum wage earner in an advertising firm in Makati. During the year, she received
P10,000 a month as salary or a total of P120,000. In addition she also received 13th month pay,
Christmas bonus, productivity bonus, mid year bonus and 14th month pay amounting to P42,000. The
total deductions for her SSS premiums, Medicare, Pag-ibig, and Union dues contributions amounted to
P5,000. A’s taxable income, if single
a. P70,000 b. P65,000 c. P95,000 d. P0
20. A) PCSO and Phil. lotto winnings are excluded from gross income because they are subject to final tax
B) Prizes, awards and winnings are excluded from gross income because they are subject to final tax
a. Both are true b. Both are false c. Only the first is true d. Only the second is true
21. Which of the following is taxable?
a. P100,000 interest on long-term deposit or investment c. P12,000 prize in a supermarket
raffle
b. P200,000 gain on sale of 10-year bonds d. P1M winnings from Phil. lotto
22. Gains realized from the sale or exchange or retirement of bonds, debentures or other certificate of
indebtedness is excluded from income if with a maturity of
a. P20,000 b. More than 7 years c. More than 8 years d. More than 10 years
23. Gross benefits received by officials and employees of public and private entities as thirteenth month
pay and other benefits such as productivity bonus, service incentive pay and Christmas bonus shall be
excluded from taxable income up to
a. P30,000 b. P82,000 c. P40,000 d. P90,000
24. Advance rental in the nature of prepaid rental, received by the lessor under a claim or right and without
restriction as to use is
a. Taxable income of the lessor in the year received if he is on the cash method of accounting
b. Taxable income of the lessor in the year received if he is on the accrual method of accounting
c. Taxable income of the lessor in the year received whether he is on the cash or accrual method
of accounting
d. Taxable income of the lessor up to the amount earned in the year the rental is received
25. Which payments made by the lessee under such terms of the lease contract should be considered as
additional rent income of the lessor?
A. If the lessee paid directly to the government a real estate tax on the property of the lessor
B. If the amount received by the lessor is in the nature of a security deposit for the faithful
compliance by the lessee of the terms of the contract

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 C. If the amount received by the lessor is in the nature of a loan extended by the lessee to the
lessor.
a. Only A b. Only A and C c. Only B and C d. A, B, and C
26. Should the lessee make permanent improvements on the property leased under an agreement that
upon the expiration of the lease contract the improvements shall belong to the lessor, the lessor may
recognize income from the leasehold improvements
A. At the time when such improvements are completed the fair market value of such improvements
B. By spreading over the remaining term of the lease the estimated depreciated value of such
improvements at the termination of the lease and report as income for each year of the lease an
aliquot part thereof

a. A but not B is allowed c. Either A or B is allowed

b. B but not A is allowed d. Neither A nor B is allowed
27. After 10 years of romantic relationship, A decided to end his relationship with B which made B very
angry, B with anger in her eyes boxed, kicked and berated A. A tried to pacify B, but B slipped, lost
control and fell to the ground requiring hospitalization. To buy peace, A decided to shoulder the medical
expenses for the injuries suffered by B. The amount is
a. Taxable income B c. Subject to final tax
b. Deductible expense of A d. Exempt from income tax
28. In 2014, A inherited pieces of jewelry from her father with a FMV of P500,000. Her father acquired the
property in 1975 for P200,000. If A sells these pieces of jewelry in 2014 for P550,000, A’s gross profit is
a. P350,000 b. P50,000 c.P550,000 d. P300,000
29. Using the preceding no., except that A acquired the property as a birthday gift from her father, A’s gross
profit is
a. P350,000 b. P50,000 c.P550,000 d. P300,000
30. One of the following may be a taxable income for a resident individual:
a. Property received as gifts c. Interest on Philippine lotto winnings
b. Cash received as inheritance d. Benefits from the SSS and/or GSIS
31. One of the following represents taxable income:
a. Refund of overpaid rental expense in the prior year c. Refund of income tax in prior year
b. Refund of donor’s tax paid in prior year d. Refund of special assessment
paid in prior year
32. Cash allowance of P125 per month given to Central Bank employees to cover the medical expenses of
their dependents shall be
a. Included as part of gross compensation income
b. Excluded from gross compensation income
c. Partly included, partly excluded from gross compensation income
d. Subject to final tax
33. At the testimonial dinner for new CPAs, C, a reviewer was requested to sing the theme song of the
movie “Ghost”. A was so delighted that she feels she is falling in love with C so she decided to cancel
C’s indebtedness to her. As a result,
a. C realized a taxable income as compensation for services
b. If c accepts the cancellation, he will pay donor’s tax
c. C received a gift from A and therefore not part of his taxable income
d. The amount of indebtedness cancelled is partly taxable, partly exempt.
34. A was adjudged the best boxer in the recently concluded Asian games. In recognition of his splendid
performance, he was awarded a trophy and a cash price of P1M. As a result,
a. The value of the trophy and the cash prize are part of his taxable income
b. Only the value of trophy is taxable
c. Only the cash prize is taxable
d. Both are exempt from income tax
35. A purchased a life annuity for P1,000,00 which will pay him P100,000 a year. The life expectancy of A
is 12 years. Which of the following will A be able to exclude from his income?
a. P1,000,000 b. P1,200,00 c. P200,000 d. P100,000
36. If an individual performs services for a creditor who in consideration thereof cancels the debt, the
cancellation of indebtedness may amount to
a. A gift b. A donation inter-vivos c. A capital contribution d. A payment of
income
37. A transferred his commercial land with a cost of P600,000 and with a FMV of P900,000 to ABC Corp. in
exchange of the stock of the corporation with par value of P800,000. As a result of the transfer A
gained control of the corporation. As a result
a. The gain is the difference between the par value of the shares of stocks and the cost of the land
b. The loss is the difference between the FMV of the land and the par value of the stocks
c. No gain because the land was in exchange of purely shares of stock and A became the majority
stockholder
d. No loss because the par value of the shares is greater than the cost of the land
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 38. This is not part of gross compensation income
a. Salary of P10,000 a month of an employee
b. Fringe benefits of P10,000 a month
c. Salary of P10,000 a month of a partner in a general professional partnership
d. Honorarium and allowances of P10,000 of a member of the board of directors of a corporation
39. Give the income tax due (refund) for the taxable year:

a. A, a non resident citizen, single, had the following during the year:
1. Salaries (net of payroll deduction), P200,000
2. Allowances, P25,000
3. Income from merchandising business (net of withholding), 300,000
4. Tax Evasion fee, 600,000
5. Prizes from SEA games, P50,000
6. Payroll deductions
a. Withholding tax on salary, P16,000
b. Contributions for SSS, PHIC, PAG-IBIG, and labor union dues, P16,000
c. Advances / Loans, P30,000
7. Inheritance from deceased father, P900,750
8. Rent income from USA, 500,000
9. Bank interest income, net of 20% w/tax, P1,400
10. Prizes from singing competition in Japan, 20,000
11. Rent Income received
For current year, 500,000
For next year, 250,000
12. Royalties from e-books, 60,000
13. Royalties from literary works, 90,000
14. Winnings from Japan Sweepstakes, 1,000,000
15. Recovery of accounts receivable written-off in the previous year
Allowed by BIR as deduction, 50,000
Not allowed by BIR as deduction, 60,000
16. Gain from sale of San Miguel shares directly to buyer, 400,000
17. Sale of Residential Land (cost-4,500,000), 6,000,000
18. Sale of Apartment house (cost-3,000,000), 5,000,000
19. Tax informers reward,500,000
20. Interest from bank deposit, local currency
Short term 40,000
Long term 80,000

b. A, resident citizen, single had the following during the year

Gross compensation income P480,000
Deductions from compensation income:
SSS contributions P3,600
Pag-ibig Contributions 1,200
Philhealth Contributions 1,800
Union dues 2,400
Premium payments on health insurance (P250/month) 3,000
Other income
Prizes and awards received as best athlete in the Palarong Pambansa 10,000
Prizes and awards received for the silver medal in the South East Asian games 25,000
Prizes from wowowowee 5,000
Winnings in a Supermarket raffle 10,000
Winnings as a Lucky Home Viewer 20,000
th
13 month pay 40,000
Christmas cash gift 10,000
Proceeds of life insurance from deceased mother 1,000,000
13th month pay 110,000
Nobel Peace Prize 100,000
Interest on bank deposit (net of 20% wt) 16,000
Interest on foreign currency deposit (net of 7.5% wt) 10,000
Interest income from notes receivable 20,000
Sale of principal residence (cost 4M) 7,000,000
The taxpayer acquired new principal residence in 12 months worth 5M
Sale of Domestic shares through PSE (cost-400,000) 900,000
Sale of Domestic shares to a friend (cost 300,000) 600,000
Sale of foreign shares directlt to buyer (cost 250,000) 400,000

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 c. D, is a resident citizen, married, with 2 qualified dependent children, had the following:
Professional fees P400,000
Gross income from rental of conjugal properties 600,000
Expenses connected with profession 180,000
Expenses connected with rental of properties 200,000
Tax withheld on professional fees 40,000
Tax withheld on rental of properties 30,000

d. Albus, a resident citizen, married had the following:

a. Revenue from construction business (net of withholding) 500,000
b. Kidnapping Income 250,000
c. Prizes from Ginoong Pilipinas 1,000,000
d. Ramon Magsaysay Award 200,000
e. Compensation income, net of deductions (final pay) 600,000
Deductions are: SSS-4,500, PHIC-2,400, PAGIBIG-3,000, withholding tax 15,000
f. Income from practice of profession (net of withholding) 1,200,000
g. Prizes from basketball, SEA games 200,000
h. Prizes from hephep hooray 60,000
i. Prizes from dancing competition 7,500
j. Winnings from raffle, USA 20,000
k. Winnings from SM raffle 6,000
l. Share in net income from an accounting firm where albus is a partner 900,000
m. Share in net income from a business partnership 800,000
n. Interest income from bank deposit in foreign currency 740,000
o. Dividends from domestic corporation
i. 60% of income came from the Philippines 90,000
ii. 45% of income came from the Philippines 180,000
p. Dividends from resident foreign corporation
i. 70% of income came from the Philippines 60,000
ii. 35% of income came from the Philippines 90,000
q. Dividends from Non Resident foreign corporation 100,000
r. Royalties from E-books, USA 250,000
s. Income from retirement (Albus’ age-45) 2,000,000
t. Gain from sale of real properties not used in business (cost-4M) 5,000,000
Zonal value-8,500,000 Assessed value-8,000,000
u. Sale of domestic shares through PSA (cost-100,000) 250,000
v. Sale of domestic shares directly to buyer (cost-600,000) 500,000

40. RA 9505, otherwise known as PERA Act of 2008, is

a. Personal equity and retirement account c. personal exemption and retirement
account
b. Personal exemption and the reciprocity action d. personal equity and the reciprocity action

41. The following income received by officials and employees in the public sector are not subject to income
tax and withholding tax on compensation, except
a. 13th month pay and other benefits exceeding P82,000 paid or accrued during the year
b. Representation and transportation allowance (RATA) granted under the General Appropriations
Act
c. Personnel Economic Relief Allowance (PERA) granted to government personnel
d. Monetized value of leave credits paid to government officials and employees

42. A holds 1000 common shares of ABC, a domestic Corp. acquired at P110 per share. Later, he received
a 10% stock dividend in common shares and thereafter sold directly to buyer 500 shares at P120 per
share.
Determine the gain (loss) assuming the shares are ordinary assets

43. DOC corporation, a foreign corporation sells its products in the Philippines through its branch. The
branch filed an income tax return reflecting the following gross income:
Sales 40,000,000
Less: Cost of goods sold 35,000,000
Gross Income 5,000,000
The BIR determined that DOC Corporation is billing its branch at 200% of cost, while other competitors of DOC
Corporation which offer similar product lines are billing their Philippine independent distributors at an average of

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150% of cost. DOC corporation will be given an assessment by the BIR showing that the correct gross income
is
a. P13,750,000
b. P17,500,000
c. P5,000,000
d. P7,500,000

ABC Corporation, a domestic corporation usually bills its branch at cost. ABC corporation entered into an
advanced pricing agreement with the BIR which fixed its cross-border pricing to its foreign branch at 150% of
cost. ABC Corporation provided the following during the year:
Sales Cost of sales
To the branch P14,000,000 P14,000,000
To another domestic corporation P6,000,000 P2,400,000
The branch subsequently sold the goods for P24,000,000. The gross income to be reported by ABC
Corporation is
a. P13,600,000 b. P10,000,000 c. P3,600,000 d. P20,600,000

Using the preceding number, but the foreign operation is not a branch but a foreign subsidiary incorporated in
the foreign country, the gross income to be reported by ABC Corporation is
A. P10,600,000 b. P3,600,000 c. P13,600,000 d. P20,600,000

“The Pessimist Sees Difficulty In Every Opportunity. The Optimist Sees Opportunity In Every
Difficulty.” -Winston Churchill

Tax Handout: CPA Review School of Accountancy

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