1.

A corporation can claim the optional standard deduction equivalent to 40% of its gross sales
or receipts, as the case may be.
a. False. The OSD should not exceed 40% of its gross income.
b. False. The OSD should not exceed 40% of gross sales.
c. True. The OSD should not exceed 40% of gross sales or receipts.
d. None of the above.

2. Which of the following should not be claimed as deductions from gross income?
a. Discounts given to senior citizens on certain goods and services.
b. Advertising expense to maintain some form of goodwill for the taxpayer’s
business.
c. Salaries and bonuses paid to employees.
d. Interest payment on loans for the purchase of machinery and equipment used in
business.

3. Freezy Corporation, a domestic corporation engaged in the manufacture and sale of ice
cream, made payments to an officer of Frosty Corporation, a competitor in the ice cream
business, in exchange for said officer’s revelation of Frosty Corporation’s trade secrets.

May Freezy Corporation claim the payment to the officer as deduction from its gross
income?
a. No. The payments made in exchange for the revelation of a competitors trade
secrets is considered an expense which is against law, morals, good customs, or
public policy, which is not deductible.
b. Yes. The law will allow the deduction of bribes, kickback, and other similar
payments.
c. Yes. Applying the principle of ejusdem generis, payment made by Freezy
Corporation would fall under “other similar payments” which are allowed as
deduction from gross income.
d. None of the above.

4. The excess of allowable deductions over gross income of the business in a taxable year is
known as:
a. Net operating loss.
b. Ordinary loss.
c. Net deductible loss.
d. Nolco.

5. Atty. Gambino is a partner in a general professional partnership. The partnership computes

its gross revenues, claims deductions allowed under the Tax Code, and distributes the net
income to the partners, including Atty. Gambino, in accordance with its articles of
partnership.
 In filing his own income tax return, Atty. Gambino claimed deductions that the partnership
did not claim, such as purchase of law books, entertainment expenses, car insurance and
car depreciation. The BIR disallowed the deductions.

Was the BIR correct?

a. The BIR is wrong in disallowing the deductions. These partners may claim
deductions under Section 34 of the NIRC from their gross income.
b. The BIR is correct. Under Section 26 of the NIRC, a general professional
partnership is exempt from income tax and, thus, cannot claim deductions.
c. The BIR is correct. However, partners in a general professional partnership are liable, in
their separate and individual capacities, for the payment of income tax computed on
their distributive share of the general professional partnership’s profits.
d. None of the above.

6. No deductions shall be allowed where the transaction is between "related taxpayers" for
a. Losses from sales or exchanges of property
b. Interest expense
c. Bad debts

a. A and B b. B and C c. A and C d. A, B and C

7. The phrase "related taxpayers" will apply to the following,except:

a. Between members of a family
b. Between the granter and a fiduciary of any trust
c. Between a fiduciary of a trust and a beneficiary.of such trust
d. Between an individual and a corporation more than 50% in value of the outstanding
stock of which is owned, directly or indirectly by or for such individual, in case of
distributions in liquidation

8. The deduction for premium payments on health and I or hospitalization insurance is not
available to:
a. An individual with gross compensation income only
b. An individual with gross income from business or practice profession, whether he is
availing of the optional standard deduction or the itemized deduction
c. An individual with mixed income
d. Both husband and wife

9. The optional standard deduction allowed to individuals and corporations in computing their
taxable income took effect on
a. January 1, 1998
b. July 1, 2008
c. January 1,2008
d. July 6, 2008
10. The optional standard deduction for corporations is
a. 10% of the gross income
b. 10% of the gross sales/receipts
c. 40% of the gross income
d. 40% of the gross sales/receipts

11. The optional standard deduction for individuals is

a. 10% of the gross income
b. 40% of the gross income
c. 10% of the gross sales/receipts
d. 40% of the gross sales/receipts

12. Interest expense incurred to acquire property used in trade or business or exercise of a
profession is
a. Not allowed as a deductions against gross income
b. Required to be treated as a capital expenditure to form part of the cost of the asset
c. Allowed as a deduction or treated as a capital expenditure at the option of the taxpayer
d. Allowed as a deduction or treated as a capital expenditure at the option of the
government

13. A Corp. had a net sales of P1M The actual entertainment, amusement and recreation
expense amounted to P20,000. The deductible 'EAR" expense is
a. P20,000 b. P6,000 c. P10,000 d. P5,000

14. B Corp. had a net revenue of P1M. The actual entertainment, amusement and recreation
expense amounted to P20,000. The deductible "EAR" expense is
b. P20,000 b. P6,000 c. P5,000 d. P10,000

15. C Corp. is engaged in the sale of goods and services with net sales and net revenue of P2M
and P1M respectively. The actual entertainment, amusement and recreation expense
amounted to Pl8,000. The deductible "EAR"expense is
a. P18,000 b. P16,000 c. P12,000 d. P6,000

16. If an individual is on the cash basis of accounting, will interest paid in advance be allowed as
a deduction?
First answer - No, it is a deduction in the year that the indebtedness was paid and not in
the year that the interest was paid.
Second answer -Yes, if the indebtedness is payable in periodic amortizations, the amount
of the interest which corresponds to the amount of the principal amortized or paid during
the year shall be allowed as a deduction in such taxable year.
 a. True, true b. True, false c. False, false d. False, true

17. One of the following losses cannot be deducted from gross income
a. To construct a bigger warehouse, a corporation demolished an old warehouse which
had a construction cost of P2 M and a book value of P300,000.
b. Demolition of a building existing on a land purchased where the corporation has no
use for the building at the time of purchase and it was its intention to remove ·the
building in order to build its factory.
c. A corporation retired its machinery from the business because of the increase in the
cost of production and the failure of the machinery to meet the desired number of
units of production
d. d A corporation ascertained that its B Corp. stocks are worthless because of the total
insolvency of B Corp.

Items 19 to 20 pertain to the following:

A taxpayer had the following:

Year 1 Year 2 Year 3 Year 4 Year 5
Gross income P900,000 P900,000 P880,000 P840,000 P980,000

Allowable deductions P980,000 P880,000 P900,000 P830,000 P900,000

18. The income to be reported in year 2 is

a. P20,000 b. P900,000 c. P880,000 d. P0

19. The income to be reported in year 5 is

a. P60,000 b. P 70,000 c. P80,000 d. zero

20. There is prima facie evidence of a false or fraudulent return where the
a. Tax return was amended after a notice of assessment was issued.
b. Tax return was filed beyond the reglementary period.
c. Taxpayer changed his address without notifying the BIR.
d. Deductions claimed exceed by 30% the actual deductions.

21. The proceeds received under a life insurance endowment contact is NOT considered part of
gross income
a. If it is so stated in the life insurance endowment policy
b. If the price for the endowment policy was not fully paid.
c. Where payment is made as a result of the death of the insured.
d. Where the beneficiary was not the one who took out the endowment contract.
22. The excess of allowable deductions over gross income of the business in a taxable year us
known as
a. Net operating loss c. Net deductible loss
b. Ordinary loss d. NOLCO

23. A privilege granted a taxpayer to deduct or set-off against Phil. income tax, the income, war
profits and excess profits taxes that he has paid or has accrued to a foreign country
a. Tax exemptionb. Tax deduction c. Tax consolidation d. Tax credit

24. Any amount subsequently received on account of a bad debt previously charged off and
allowed as a deduction from income for prior years must be include in gross income for the
taxable year in which received. This is
a. End-result doctrine c. Severance theory
b. Destination of income test d. Equitable doctrine of tax benefit

25. A bought a condominium unit under installment basis, to be used his office in the practice
of his profession and paying P10,000 monthly. For income tax purposes, the 10,000 monthly
payment shall be
a. Treated as business rental, hence deductible
b. Treated as capital expenditure, hence not deductible
c. Treated as depreciation expense, hence deductible
d. Treated as ordinary business expense

26. For ordinary contribution, an individual may be allowed to claim as deductions as amount
not to exceed
a. 5% of net income before contributions
b. 10% of the net income before
c. Contributions 5% of the net income after the contributions
d. 10% of the net income after contribution

27. In computing allowable deduction for purpose of income taxation

1st Statement: Beginning the year 2005 interest expense in connection with taxpayer’s
business shall be reduce by an amount to forty-two percent (42%) of interest income
subjected to final tax
2nd Statement: Interest incurred on money used to acquired property to be used in trade
shall only be allowed as a capital expenditure.
a. True, true b. False, true c. True, false d. False, false

28. In cases of deductions and exemptions on income tax returns, doubts shall be resolved
a. Strictly against the taxpayer c. strictly against the government
b. Liberally in favor of the taxpayer d. liberally against the government

29. One of the following is not a requisite for deduction of bad debts:
 a. There must be an existing indebtedness due to the taxpayer which must be valid and
legally demandable;
b. The debt must be connected with the profession, trade or business of the taxpayer;
c. The debt must be actually ascertained to be worthless and uncollectible and charged off
the books of accounts as of the end of the taxable year;
d. The debt must have a maturity of not more than 5 years.

30. Research and development expenses treated as deferred expenses shall be allowed as
deduction notably distributed over a period of:
a. Not more than 60 months beginning with the month in which the taxpayer first realizes
benefits from such expenditures;
b. Not less than 60 months beginning with the month in which the taxpayer first realizes
benefit from such expenditures;
c. Not less than 30 months beginning with the month in which the taxpayer first realizes
benefits from such expenditures;
d. Not less than 6 months beginning with the month in which the taxpayer first realizes
benefits from such expenditures.

31. It refers to income received or earned but is not taxable as income because it is exempted
by law or by treaty.
a. Exclusion c. Deduction
b. Inclusion d. Taxation

32. To compute for optional standard deduction, a taxpayer should multiply 10% of
a. net income; c. gross income before itemized deduction;
b. gross income after expenses; d. all of the above.

33. To compute for optional standard deduction, a taxpayer should multiply 10% of
c. net income; c. gross income before itemized deduction;
d. gross income after expenses; d. all of the above.

34. Which of the following is not allowed with itemized deductions?

a. Resident alien with business income in the Philippines;
b. Resident alien with only passive income derived in the Philippines;
c. Non-resident alien deriving business income in the Philippines;
d. Non-resident citizen deriving business activities in the Philippines;

35. An exemption allowed to a taxpayer who has qualified legitimate, and/or recognized or
legally adopted children:
a. Additional personal exemption; c. Optional standard deduction
b. Special additional personal exemption; d. Basic personal exemption