CPA Review School of the Philippines

Manila

FIRST PRE-BOARD EXAMINATION

TAXATION
Instructions: Choose the BEST answer for each of the following items.
1. Mr. Araki, a non-resident alien stockholder, received a dividend income of P300,000 in the year
2024 from a foreign corporation doing business in the Philippines. The gross income of the
foreign corporation from within and without the Philippines for three years preceding 2024 are
as follows:

Source of income 2021 2022 2023

From within the Philippines P16,000,000 P12,000,000 P14,000,000
From without the Philippines 18,000,000 14,000,000 16,000,000

How much of the dividend income received by Mr. A is considered income from sources
within the Philippines?

a. Zero c. P300,000
b. P150,000 d. P270,000

2. Keynard, single parent, sold through the local stock exchange 10,000 Philippine Long Distance
Telephone shares of stock that it bought 2 years ago. Keynard sold the shares for P4 million and
realized a net gain of P2,000,000.00. How shall Keynard pay tax on the transaction?
a. It shall declare a P4 million gross income in its income tax return, deducting its cost of
acquisition an expense.
b. It shall report the P2,000,000.00 in his income tax return adjusted by the holding
period.
c. It shall pay 15% tax on the net gain of P2,000,000.
d. It shall pay a tax of 6/10 of 1% of the P4 million gross selling price.

3. Bacolor Pegasus Yambing total compensation income amounted to P3,000,000 and Gross Sales
from business amounting to P3,000,000 in a given year. Which of the following statement is
correct?
a. Bacolor Pegasus Yambing is a mixed earner has the option to avail Gross Receipt Tax
of 8% or Progressive Income Tax.
b. Bacolor Pegasus Yambing is a mixed earner cannot avail of Gross Receipt Tax of 8%,
he exceeded the threshold of P3,000,000.
c. Bacolor Pegasus Yambing is a mixed earner and all his income shall be subject to
progressive income tax.
d. Bacolor Pegasus Yambing is a mixed earner and all his income may be subjected to
Gross Receipt Tax of 8%.

4. Federico, a Filipino citizen, migrated to the United States some six years ago and got a permanent
resident status or green card. He should pay his Philippine income taxes on:
a. The gains derived from the sale in California, U.S.A. of jewelry he purchased in the
Philippines.
b. The proceeds he received from a Philippine insurance company as the sole beneficiary
of life insurance taken by his father who died recently.
c. The gains derived from the sale in the New York of shares of stock in Philippine Long
Distance Telephone.
d. Dividends received from a two-year-old foreign corporation whose gross income was
derived solely from Philippine sources.

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5. Mr. Andes asks your professional expertise whether the following items of income need be
reported in his Income Tax Return:
i. Passive income
ii. Fringe Benefits received
iii. Capital gains from sale of real property and shares of stock
iv. Exempt or exclusion from gross income e.g. Proceeds of Life Insurance
a. All of the above must be supplemented in the ITR;
b. None of the above must be supplemented in the ITR;
c. Only items i and ii must be supplemented in the ITR;
d. Only items i , ii and iii must be supplemented in the ITR.

6. Mr. Camilo Cruz, asks you to file a tentative income tax return for his behalf because he is going
abroad. However, Mr. Cruz stay outside the Philippines is indefinite, so Mr. Cruz asks you when
is his last day to make amendments to finalize his Income Tax Return?
a. 3 years from the date of filing.
b. 3 years from the date required by law.
c. Anytime, until the BIR has not yet commenced its investigation over said return.
d. Before Mr. Cruz receives a Letter of Authority from the BIR and/or before lapse of 3
years.

7. Your client is Mr. Irving Ackerman, consulted you on how he can transfer all his properties to
his lone son with a minimum tax consequence. What will you advise Mr. Irving Ackerman?
a. Sell all his properties in favor of his son.
b. Incorporate and give all stockholdings to his son.
c. Convert all properties into a life insurance and designate son as 3rd party irrevocable
beneficiary.
d. Get a life insurance, the proceeds there from will cover the tax consequence.

8. When will a self-employed individual file its 1st quarter income tax return?
a. May 15 of current year.
b. May 31 of the current year.
c. April 15 of the current year.
d. April 30 of the current year.

9. In 2024, Caruso, a resident Filipino citizen, received dividend income from U.S –Based
corporation which owns a chain of Filipino restaurant in the West Coast, U.S.A. The dividend
remitted to Caruso is subject to U.S withholding tax with respect to a non-resident alien like
Caruso. The dividend is subject to:
a. Final income tax
b. Progressive income tax
c. Capital gains tax
d. Exempt from tax

10. Jose was employed by Timberland Incorporated, within how many days Jose needs to obtain
his Tax Identification Number from Bureau Internal Revenue?
a. 1st day of employment
b. 10th day of employment
c. 1st month of employment
d. 15th day of employment.

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11. A domestic corporation provided the following data:

2019 2020 2021 2022

Gross sales P2,040,000 2,800,000 3,000,000 4,000,000
Sales returns 40,000 100,000
Cost of goods sold 1,000,000 700,000 1,500,000 1,500,000
Business expenses 950,000 2,100,000 1,200,000 1,200,000

The income tax due after tax credit, if any for taxable year 2021 is:
a. P15,000 c. P60,000
b. P50,000 d. P75,000

12. Income derived by a depository bank under the expanded foreign currency deposit system
from foreign currency transactions with local commercial banks, shall be subject to a final tax
rate of:
a. Seven and one-half percent (7 ½%)
b. Twenty percent (20%)
c. Ten percent (10%)
d. Fifteen percent (15%)

13. The following corporations are exempt from the Minimum Corporate Income Tax, except:
a. Non-profit hospitals
b. Subcontractors of service contractors of Petroleum operations
c. Non-stock, non-profit educational institutions
d. Offshore banks

14. A domestic corporation provided the following data:

2019 2020 2021 2022

Gross sales P2,040,000 2,800,000 3,000,000 4,000,000
Sales returns 40,000 100,000
Cost of goods sold 1,000,000 700,000 1,500,000 1,500,000
Business expenses 950,000 1,900,000 1,600,000 1,200,000

The income tax due after tax credit, if any for taxable year 2022 is:
a. P325,000 c. P302,500
b. P300,000 d. P277,500

15. Amos Corp. had P600,000 in compensation expense for book purposes in 2022. Included in this
amount was a P50,000 accrual for 2022 non-shareholder bonuses. Amos paid the actual 2022
bonus for P60,000 on March 1, 2023. In its 2022 tax return, what amount should Amos deduct
as compensation expense?
a. P600,000 c. P550,000
b. P610,000 d. P540,000

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16. Aragorn, Inc. had the following items of income and expenses:
Gross Receipts P500,000
Cost of services, salary of personnel
directly engaged in business 250,000
Dividends received 25,000
The dividends were received from a domestic corporation. The general and administrative
expenses include cost of utilized facilities and cost of supplies of P25,000 and P15,000,
respectively. What amount should be reported as gross income for minimum corporate income
tax purpose?
a. P210,000 c. P250,000
b. P235,000 d. P225,000

17. In a given year Cable Corp., a calendar-year corporation, contributed P80,000 to a qualified
charitable organization. Cable’s net income was P820,000. In the given year, what amount can
Cable deduct as charitable contributions?
a. P80,000 c. P40,000
b. P45,000 d. P51,000

18. For the year ended December 31, 20XX Kelly Corp. had net income per books of P300,000
before taxes. Included in the net income were the following items:
Dividend income from an unaffiliated
domestic taxable corporation P 50,000
Bad debts expense (represents the increase
in the allowance for doubtful account) P 80,000
What was Kelly’s taxable income for the year ended December 31, 20XX?
a. P170,000 c. P345,000
b. P330,000 d. P380,000

19. JB bookstore is using cash method of accounting in recognizing its taxable income and
deductions. For the current year, JB decided to adopt the accrual method of recognizing income
and expenses. The application for permission to change the method of accounting employed and
the basis upon which return is made shall be filled to the Bureau of Internal Revenue within:
a. 90 days
b. 60 days
c. 30 days
d. 15 days

20. With regard to the question, how may financial statements and tax return copies will JB
bookstore file with the Bureau of internal Revenue?
a. Duplicate
b. Triplicate
c. Quadruplicate
d. As many as required by the revenue officer.

21. A Taxpayer is required by law to retain and preserve Books of Accounts and other accounting
records?
a. 10 years from deadline of filing return;
b. 5 years from deadline of filing return;
c. 3 years from deadline of filing return;
d. 1 year from deadline of filing return;

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22. Statement 1: A person may refuse to pay a tax on the ground that he receives no personal
benefit from it.
Statement 2: A taxpayer has a right to question illegal expenditures of public funds.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

23. Anktryd, Inc. bought a parcel of land in 2022 for P7 million as part of its inventory of real
properties. In 2023, it sold the land for P12 million which was its zonal valuation. In the same
year, it incurred a loss of P6 million for selling another parcel of land in its inventory. These
were the only transactions it had in its real estate business. Which of the following is the applicable
tax treatment?
a. Anktryd shall be subject to a tax of 6% of P12 million
b. Anktryd could deduct its P6 million loss from its P5 million gain, the net P1million loss
can be deducted in the tax return.
c. Anktryd’s gain of P5 million shall be subject to the holding period.
d. Anktryd’s P6 million loss can be deducted from its P5 million gain, but the net capital
loss of P1million cannot be deducted.

24. Which Joint-venture is exempt from income tax:

a. Joint-venture engaged in construction projects between Camella Homes and Vista
Land Inc.
b. Joint-venture between Malapaya corporation and Shell corporation for the exploration
of natural gas in Philippine seas under a service contract with government.
c. Joint-venture between Philtranco and Victory Liner engaged in transportation in the
upper Luzon area with service contract with the Philippine Government.
d. Joint-venture between Globe Telecommunication and Smart Telecommunication for
internet provision in the national election with service contract with the Philippine
Government.

25. A worked for a manufacturing firm but due to business reverses, the firm offered a voluntary
redundancy program in order to reduce overhead expenses. Under the program, an employee
who offered to resign would be given separation pay equivalent to his 3 months basic salary for
every year of service. A accepted the offer and received P800,000 as separation pay under the
program. After all the employees who accepted the offer were paid, the firm found its overhead
still excessive. Hence, it adopted another program, where various unprofitable
departments were closed. As a result, B was separated from the service, B also received
P800,000 as separation pay. At the time of separation both A and B have rendered at least 10
years of service but A was 55 years old while B was only 45 years old. As a result,
a. Both amounts are exempt from income tax
b. Both amounts are subject to income tax
c. Only Mr. A is subject to income tax
d. Only Mr. B is subject to income tax

26. Which of the following expenses is deductible from gross income?

a. Contribution to a newspaper fund for needy families when such newspaper organizes
a drive solely for charitable purposes.
b. Premiums paid by the self-employed employer for the life insurance of his employees
c. Contribution to the construction of a chapel of a university that declares dividends to
its stockholders
d. Donation of prizes and awards to athletes in local and international competitions and
sanctioned by their respective sport associations.

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27. If a friend inquires whether or not the cost of educational assistance to the employee and /or
his dependents which are borne by the employer be taxable. What will your answer be?
First Answer – A scholarship grant to the employee by the employer shall not be treated as
taxable fringe benefit if the education or study involved is directly connected with the
employer’s trade, business or profession and there is a written contract between them that the
employee is under obligation to remain in the employ of the employer for a period of time that
they have mutually agreed upon.
Second Answer – The cost of educational assistance extended by an employer to the
dependents of an employee shall be treated as taxable fringe benefits of the employee unless the
assistance was provided through a competitive scheme under the scholarship program of the
company.
a. Both answers are correct
b. Both answers are wrong
c. Only the first answer is correct
d. Only the second answer is correct

28. Noel Santos is a very bright computer science graduate. He was hired by Hewlett Packard. To
entice him to accept the offer for employment, he was offered the arrangement that part of his
compensation would be an insurance policy with a face value of P20 Million. The parents of Noel
are made the beneficiaries of the insurance policy. Will the proceeds of the insurance form part of
the income of the parents of Noel and be subject to income tax?

a. Yes, the proceeds of the insurance form part of the gross income of the parents of Noel
and be subject to income tax.
b. Yes, the proceeds of the insurance form part of the income of the parents of Noel and
be subject to final withholding tax.
c. No, the proceeds of the life insurance do not form part of the gross income.
d. No, the proceeds of the insurance do not form part of the gross income of the parents
of Noel being irrevocable beneficiaries.

29. Pursuant to the preceding question, can the company deduct from its gross income the amount
of the premium?
a. Yes, the premium may be deducted from the company’s gross income for it is an
ordinary and necessary expense.
b. Yes, the premium may be deducted from the company’s gross income if the intended
beneficiaries are the immediate family members of Noel Insured.
c. No, the premium may not be deducted from the company’s gross income because the
company was not made the beneficiary of the insurance proceeds.
d. No, the premium may not be deducted from the company’s gross income because it is
not ordinary and necessary expenses of the business.

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30. Calendar year is 2022:
Tax payer is a citizen of the Philippines who is single:
Capital gain on sale of bonds held for 2 months P45,000
Capital gain on sale directly to buyer of shares
of domestic corporation held for 16 months 120,000
Capital loss on sale of family car held for 5 years 80,000
Capital loss on sale of land in the Philippines
held for 3 years on a selling price of P800,000. 60,000
Net capital loss in 2021 (net taxable income
of the year was P30,000) 20,000
The net capital gain in 2022 was:
a. P50,000 c. Zero
b. P 5,000 d. Some other amount

31. Nutrition Chippy Corporation gives all its employees (rank and file, supervisors and
managers) one sack of rice every month valued at P2,000 per sack. During an audit
investigation made by the Bureau of Internal Revenue (BIR), the BIR assessed the company
for failure to withhold the corresponding withholding tax on the amount equivalent to the one
sack of rice received by all the employees, contending that the sack of rice is considered
as additional compensation for the rank and file employees and additional fringe benefit for
the supervisors and managers. Therefore, the value of the one sack of rice every month should
be considered as part of the compensation of the rank and file subject to tax. For the
supervisors and managers, the employer should be the one assessed pursuant to Section 33
(a) of the NIRC. Is there a legal basis for the assessment made by the BIR?

a. Yes, benefits received by rank and file are subject to compensation tax.
b. Yes, benefits received by supervisory employees and managerial employees are subject
to fringe benefit tax.
c. No, the benefits are De minimis, exempt from income tax.
d. No, the benefits are for the convenience of the employer, thus, exempt.

32. Which statement refers to police power as distinguished from taxation?

a. It can only be imposed on specific property or properties
b. The amount imposed depends on whether the activity is useful or not
c. It involves the taking of property by the government
d. The amount imposed has no limit

33. The Local Government Code took effect on January 1,1992. PLDT’s legislative franchise was
granted sometime before 1992. Its franchise provides that PLDT will only pay 3% franchise
tax in lieu of all taxes. The legislative franchises of Smart and Globe Telecoms were granted
in 1998. Their legislative franchise state that they will pay only 5% franchise tax in lieu of all
taxes. The Province of Zamboanga del Norte passed an ordinance in 1997 that imposes a local
franchise tax on all telecommunication companies operating within the province. The tax is
50% of 1% of the gross annual receipts of the preceding calendar year based on the incoming
receipts, or receipts realized, within its territorial jurisdiction. Is the ordinance valid?
a. No, the ordinance in effect resulted into double taxation.
b. No, the Local Government Code prevails over ordinances.
c. Yes, the local government units are empowered by the Constitution to raise its own
revenues.
d. Yes, autonomy of Zamboanga del Norte.

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34. An internal revenue officer (IRO), having been reliably informed from unimpeachable
source that articles subject to excise taxes were kept in the house of Y entered said house to look
for and to seize the aforementioned articles over the objection of Y. Since said officer was not
armed with a search warrant, Y invoked the sanctity of his home. Is the internal revenue
officer’s actuation described above sanctioned by law or not?
a. Yes, because of primary jurisdiction of the BIR over excisable goods pursuant to
the lifeblood doctrine.
b. Yes, the IRO is exempted from obtaining a search and seizure warrant.
c. No, violative of search and seizure clause of the Constitution.
d. No, violative of the right to privacy and abode.

35. Basis of Taxation?

a. Lifeblood theory c. Benefit-protection theory
b. Necessity theory d. Reciprocal theory

36. A tax is classified as ____________________, if the same is based on the number, weight, or
other physical measurement of the goods being taxed.
a. ad valorem
b. specific
c. direct
d. indirect
e. None of the above

37. Statement 1: The principal purpose of taxation is the raising of revenues to cover
expenditures of the government. On the other hand, one of taxation’s
sumptuary/secondary purposes is its use to implement the police power of the
state.
Statement 2: A revenue bill may originate from the Senate as long as the House of
Representatives is given the opportunity to study the bill upon three full
readings of the same.
a. Both are true.
b. Both are false.
c. Only Statement 1 is true.
d. Only Statement 2 is true.

38. A non-resident alien not engaged in trade or business (NRANETB) shall generally be
subject to a 25% final tax on gross income received from all sources within the Philippines.
However, an NRANETB shall be exempt from tax on:
a. Philippine Charity and Sweepstakes Office (PCSO) winnings less than ₱10,000.
b. De minimis prizes of less than ₱10,000.
c. Interest income paid by a depositary bank under the foreign currency deposit system.
d. Interest income from a long-term deposit or investment certificate issued by a bank in the
Philippines, and held for a period exceeding 5 years.

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39-44) Angelo, Filipino, single, living with 4 dependent children in Pasay, Metro Manila,
received in taxable year 2022 the following professional fees as a VAT-registered
independent consultant:

Monthly Fees Less 10% CWT Net Monthly Fees

₱300,000 ₱30,000 ₱270,000

The monthly cost of his professional services amounted to ₱200,000 per month.
The rental expenses related to his consultancy business amounted to:

Monthly rental Monthly rental expense

CWT
expense paid

Office space ₱30,000 ₱1,500 ₱28,500

Computer ₱5,000 None ₱5,000

Note: The lessor of the office space is Angelo’s brother, Christopher.

His car fuel expenses amounted to ₱10,000 per month. He used the car for his consultancy
business 40% of the time.
He has excess tax credits from the prior year of ₱25,500.
In 2022, Angelo had to take out a business loan but no bank was willing to extend him credit
for lack of collateral. He approached his elder brother, Christopher, who loaned him the
amount of ₱4.0 Million. Angelo agreed to pay Christopher a monthly interest of ₱150,000
starting January 2022.
In addition to the loan, Christopher decided to help Angelo by buying the latter’s toy collection
in February 2022 for ₱2,000,000. Angelo spent a total of ₱1,000,000 through the years in
acquiring the toys in his collection (Note: The last toy in the collection was bought in 2020.)
In his 1st Quarterly ITR, he chose to be taxed under the graduated rates with OSD as method
of deduction.

39. Calculate his tax payable in the 3rd Quarterly ITR.

a. ₱82,800
b. ₱55,800
c. ₱74,400
d. None of the above.

40. For his annual ITR, he chose to file BIR Form No. 1701A (for Individuals Earning Income
Purely from Business/Profession). What is the correct amount of Tax Payments for the First 3
Quarters that may be availed of as credits against the annual tax due computed in Form 1701A?
a. ₱392,900
b. ₱181,900
c. ₱232,900
d. None of the above.

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41. Calculate his tax payable/(refundable) in the Annual ITR.
a. ₱82,800
b. ₱(77,200)
c. ₱133,800
d. None of the above.

42. If Angelo, in his 1st Quarterly ITR, chose to be taxed under the graduated rates with itemized
deduction as method of deduction, what would be his tax payable/(overpayment) in his 2nd
Quarterly ITR?
a. ₱(46,700)
b. ₱(30,600)
c. ₱(55,700)
d. None of the above.

43. If Angelo chose to be taxed under the graduated rates with itemized deduction as method of
deduction, what BIR Form should he file as his annual ITR?
a. BIR Form No. 1701A (Those under the graduated income tax rates with OSD as mode
deduction OR those who opted to avail of the 8% flat income tax rate)
b. BIR Form No. 1701 (AITR for Individuals (including MIXED Income Earner), Estates,
and Trusts)
c. BIR Form No. 1700 (For Individuals earning purely compensation income)
d. None of the above.

44. Calculate his tax payable/(refundable) in the Annual ITR if he chose to be taxed under the
graduated rates with itemized deduction as method of deduction.
a. ₱(107,900)
b. ₱42,100
c. ₱(125,900)
d. None of the above.

45 -51)
KC Pastillas, resident citizen, single, 29 years of age, is an employee of JO Logistics, Inc.
from which she received the following employment income in 2023:

Less SSS Less Contribution

Less
Gross pay premiums and to Employees’ Net Pay
CWT
union dues Trust

₱850,000 ₱60,000 ₱6,000 ₱25,000 ₱759,000

The amounts mentioned above are exclusive of the 13th Month Pay and Other Benefits she
received in the amount of ₱70,800.
KC, aside from her employment, is also registered with the BIR as engaged in real estate
leasing and management consultancy.
She has the following financial information in the current taxable year 2023:
(a) Interest income on receivable from her mother ₱ 25,000
(b) Interest expense on loan owed to fiancé 10,000
(c) Royalty income from book, net of FT 15,000
(d) Loss on sale of rental property to brother 350,000

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 (e) Gain on sale of personal car bought in 2018 90,000
(f) Rental receipts from real property, gross of 5% CWT 600,000
(g) Cost of revenues of real property leasing business 100,000
(h) Distributive share in net income of a GPP, net of 15% WT 187,000
(i) Dividend received from Microsoft Corporation with
headquarters in Seattle, Washington, USA 75,000
(j) Dividend from Jollibee Corporation 5,000
(k) Expenses for singing lessons with Anne Curtis 50,000
Because she is a mixed income earner and is not qualified for the 8% tax option, she will be
filing BIR Form No. 1701 as her annual ITR.
45. What is the correct amount of Non-Taxable/Exempt Compensation to be placed in Part V,
Schedule 2, Item 5 on page 2 of BIR Form No. 1701?
a. ₱6,000
b. ₱66,000
c. ₱76,800
d. None of the above.

46. What is the correct amount of Taxable Compensation Income to be placed in Part V, Schedule
2, Item 6 on page 2 of BIR Form No. 1701?
a. ₱914,800
b. ₱844,000
c. ₱754,000
d. None of the above.

47. What is the correct amount of Net Sales/Revenues/Receipts/Fees to be placed in Part V,

Schedule 3.A, Item 10 on page of BIR Form No. 1701?
a. ₱600,000
b. ₱850,000
c. ₱1,354,000
d. None of the above.

48. What is the correct amount of Total Allowable Itemized Deductions to be placed in Part V,
Schedule 3.A, Item 16 on page 2 of BIR Form No. 1701?
a. ₱10,000
b. ₱350,000
c. ₱360,000
d. None of the above.

49. What is the correct amount of Optional Standard Deduction to be placed in Part V, Schedule
3.A, Item 17 on page 2 of BIR Form No. 1701?
a. ₱200,000
b. ₱337,600
c. ₱342,000
d. None of the above.

50. What is the correct amount of Total Other Non-Operating Income to be placed in Part V,
Schedule 3.A, Item 22 on page 2 of BIR Form No. 1701?
a. ₱340,000
b. ₱295,000
c. ₱365,000
d. None of the above.

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51. Calculate her tax payable in the Annual ITR.
a. ₱204,250
b. ₱221,950
c. ₱206,750
d. None of the above.

52. The following are the features of the 8% optional income tax in the ITR, except:
a. The qualified individual taxpayer is not required to file his financial statements with
his Annual ITR.
b. The qualified taxpayer is not required to comply with bookkeeping and invoicing
requirements under the Tax Code.
c. A self-employed taxpayer, who is also a partner in a general professional partnership,
cannot avail of the 8% tax rate option.
d. The qualified taxpayer is exempt from paying the 3% OPT under Section 116 of the Tax
Code.

53. RNK Co., owns a condominium unit which is being used by the President of the corporation.
It has a fair market value per Real Property Tax Declaration of P2,500,000 and a zonal value
of P2,900,000. The unit was acquired 5 years ago for ₱3,000,000, and is being depreciated
over 25 years using the straight line method with no salvage value.
Determine the fringe benefit taxes due in 2022.
a. ₱40,385
b. ₱39,038
c. ₱33,654
d. None of the above.

54. In relation to the use of the condominium unit in number 53 above, what is the total amount
which RNK may have as deductions in its ITR?
a. ₱160,385
b. ₱159,038
c. ₱184,038
d. ₱145,000

55. Which of the following benefits received by an employee should be included in the
employee’s 13th month pay and other benefits, and which therefore potentially may be subject
to the regular income tax in the ITR?
(1) Use of employer’s car for business meetings
(2) Laundry allowance of ₱3,600 per year
(3) Payment of tuition fee of eldest child of a rank-and-file employee
(4) Housing provided to a rank-and-file employee
a. (1) and (2)
b. (2) and (3)
c. (3) and (4)
d. None of the above

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56-57) Alberto fell in love with Beatrice. However, Alberto’s father disapproved of the
relationship. Against his father’s wishes, Alberto and Beatrice eloped, got married, and had
4 children.
In spite of his disapproval of his son’s marriage, Alberto’s father created an ordinary trust
with Atty. Salvador Sanchez as trustee. Alberto’s father transferred a 10-door apartment
where rent income of P190,000 per month (net of 5% withholding tax) was received by the
trust with an expense of P980,000 during the year 2023. 30% of the net income was given to
Alberto.

56. Determine the income tax still due from the trust in taxable year 2023.
a. ₱41,000
b. ₱51,000
c. ₱31,000
d. None of the above

57. Assume that the trust in number 56 was a revocable trust wherein title to the property of the
trust may at any time revest or revert to Alberto’s father. Compute the income tax payable
of the trust in taxable year 2023.
a. ₱41,000
b. ₱51,000
c. ₱31,000
d. None of the above

58-59) A Co. and B Co., domestic corporations, both in the construction business, formed a joint
venture (JV) to construct apartment complexes in Laguna, with an agreed equal sharing
in net income. Since both corporations were both licensed by the Philippine Contractors’
Accreditation Board (PCAB), the management of the JV deemed it unnecessary to get a
PCAB license for itself.
Financial data for the calendar year 2020 show:

Joint Venture A Co. B Co.

Gross Income P 80,000,000 P 2,000,000 P 3,000,000
Expenses 60,000,000 1,200,000 2,000,000
Assets, net of
depreciation and 50,000,000 10,000,000 20,000,000
allowances

58. Determine the income tax due of the JV for CY 2020:

a. ₱5,500,000
b. ₱5,000,000
c. ₱1,200,000
d. None of the above

59. The income tax due of A Co for CY 2020:

a. ₱200,000
b. ₱700,000
c. ₱ 75,000
d. None of the above

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60-63) GILI Inc., a domestic corporation, had the following financial information for CY 2022:
Gross income, Philippines 3,895,000
Gross income, abroad 1,300,000
Business expenses, Philippines 878,000
Business expenses, abroad 340,000
Dividend income from a domestic corporation 40,000
Dividend income from a foreign corporation* 30,000
Interest income, BPI Manila 50,000
Interest income, Citibank New York 25,000
Interest income, BPI FCDU 34,000
Royalty income (Phils.), copyright (book) 450,000
Royalty income (Phils.), patent 1,350,000
Raffle draw winnings 60,000
CWT per Form 2307s 194,750
*Note: 2/3 of the foreign corporation’s income in the last 3 years was earned in the
Philippines.

60. What is the total amount of final taxes to be withheld from GILI’s income in 2022?
a. ₱375,100
b. ₱346,100
c. ₱379,600
d. None of the above

61. Compute GILI’s income tax payable in its AITR for CY 2022.
a. ₱828,500
b. ₱623,650
c. ₱813,250
d. None of the above

62. If GILI, Inc. is an RFC, what is the total amount of final taxes to be withheld from its
income in CY 2022?
a. ₱375,100
b. ₱346,100
c. ₱379,600
d. None of the above

63. If GILI is an RFC, compute its income tax payable in its 2022 AITR if it avails of the 40%
OSD.
a. ₱401,500
b. ₱596,500
c. ₱714,000
d. None of the above

64. If GILI Inc. is an NRFC, what are the total final taxes to be withheld from its income in 2022?
a. ₱1,462,250
b. ₱1,464,750
c. ₱1,466,250
d. None of the above

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65. The board of directors of RuralBanking Corporation (RBC) voted to take a life insurance
policy covering the life of its dynamic Chief Operation Officer, Noel Reyes.
Statement 1: If the designated beneficiary of the policy is Noel’s family, the premium paid
by RBC shall be taxable to Noel. However, the tax thereon shall be imposed
on, and paid by RBC.
Statement 2: If the designated beneficiary of the policy is RBC, the premiums paid thereon
are deductible by RBC.
a) Statement 1 is true. c) Both statements are false.
b) Statement 2 is true. d) Both statements are true.

66. Statement 1: Property dividend received by a resident foreign corporation from a non-resident
foreign corporation is generally exempt from Philippine income tax.

Statement 2: Dividends received by individuals from domestic corporations are subject to

creditable withholding taxes.
a) Statement 1 is true. c) Both statements are false.
b) Statement 2 is true. d) Both statements are true.

67. The following are the requirements for retirement benefits received under RA No. 7641 to be
exempt from Philippine income tax, except:
a) There must be a reasonable private benefit plan which is approved by the BIR.
b) The retiree must have been in the service of the employer for at least 5 years.
c) The retiree must at least be 60 years old, but not more than 65 years old.
d) None of the above.

68-69) Fernando Macasaet, a CPA, is employed as an accounting professor in a university. On

the side, he also provides accounting services for select clients. One of these clients was so
impressed with him that he was made a consultant for one of his companies engaged in agri-
business.
For 2021, he received the following incomes:
Salary from university, net of CWT of ₱45,000 ₱ 268,000
13th month pay received from the university 95,000
Monetized unused vacation leave credits (10 days) 50,000
Employee longevity award with monetary value of 10,000
Fees received as consultant, gross of 10% CWT 80,000
Professional fees from clients, net of 15% CWT 850,000
Damages won in a defamation suit filed against ex-wife 8,000,000
Capital gains from sale of jewelry bought in 2000 100,000

68. What is his taxable compensation income for 2021?

a) ₱318,000 c) ₱315,000
b) ₱313,000 d) None of the above

69. In number 68, what amount of total gross taxable income shall be reflected in his AITR for
2021?
a) ₱1,448,000 c) ₱1,285,000
b) ₱1,498,000 d) ₱1,069,000

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70. A domestic corporation made the following charitable contributions in the current taxable
year:
To the victims of a typhoon ₱ 100,000
To an accredited religious organization 200,000
To an accredited NGO 300,000

If the domestic corporation’s net income for the current taxable year is ₱1,500,000, (after all
deductions including the abovementioned charitable contributions), what is its taxable net
income for the current taxable year?

a) ₱555,000 c) ₱1,810,000
b) ₱1,695,000 d) None of the above.

END

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