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TAXATION The Review School of Accountancy Final Pre-board Examination

INCOME TAXATION 7. Which of the following is a similarity among the three (3) inherent powers of the State
Basic Principles of Taxation A. They are superior to the impairment clause of the Constitution
1. Which of the following taxes is NOT a national tax? B. They are means by which the State interferes with the private rights and properties
A. Sugar adjustment tax C. Real estate tax C. They affect the community as a whole
B. Science fund tax D. Private motor vehicle tax D. They are commonly payable in money

2. The power of the Commissioner to interpret the provisions of the Tax Code and other tax laws 8. Which of the following is CORRECT?
is subject to the review of the A. Penalties shall be imposed under the police power only
A. Secretary of Finance C. Commission on Civil Service B. Preliminary assessment notice is always a requirement before a formal assessment is
B. National Evaluation Board D. Court of Tax Appeals made
C. Tariff and revenue bills shall always originate from the House of Representatives
3. Police power as distinguished from power of eminent domain D. The power to compromise or abate any tax liability can be delegated by the Commissioner
A. Just compensation is received by owner of the property of Internal Revenue to his subordinates
B. Maybe exercised by public utility companies
C. Superior to the non-impairment of obligation of contract clause Income Tax Patterns
D. Property taken by the Government is for public purpose 9. It is important to know the sources of income for tax purposes (i.e. from within and without the
Philippines) because
4. The BIR may compromise payment of internal revenue taxes when A. Some individuals and corporate taxpayers are taxed on their worldwide income while
1st ground: A reasonable doubt as to the validity of the claim against the taxpayer exists others are taxable only upon income from sources within the Philippines
2nd ground: When collection costs do not justify the collection of the tax B. The Philippines imposes income tax only on income from sources within
A. B. C. D. C. Some individual taxpayers are citizens while others are aliens
1st Ground Correct Incorrect Correct Incorrect D. Export sales are not subject to income tax
2nd Ground Correct Incorrect Incorrect Correct
Income Tax on Individuals
5. In case of conflict between tax laws and generally accepted accounting principles(GAAP) 10. 1st statement: An unacknowledged illegitimate child is qualified as dependent for additional
A. Both tax laws and GAAP shall be enforced exemption
B. GAAP shall prevail over tax laws 2nd statement: A single taxpayer who takes care of a senior citizen but does not necessarily
C. Tax laws shall prevail over GAAP give him chief support qualifies as head of family
D. The issue shall be resolved by the courts A. B. C. D.
1st Statement Correct Incorrect Correct Incorrect
6. Tax laws, being imposition of burden, will be interpreted against 2nd Statement Correct Incorrect Incorrect Correct
A. The taxpayer
B. The Government Income Tax on Corporation
C. Either the taxpayer of the Government depending on the evidence presented 11. The imposition of the minimum corporate income tax (MCIT) applies to
D. A person who refuses to pay the tax A. Offshore banking units.
B. Regional operating headquarters
C. Proprietary educational institutions
D. Publicly held domestic corporations
April 18, 2004 Page 1 of 8
TAXATION The Review School of Accountancy Final Pre-board Examination

12. Under the National Internal Revenue Code, the term “corporation” excludes not only general 16. Assuming the corporation is a domestic corporation, how much is the tax payable in the
professional partnership but also Philippines? (note 1)
A. Insurance companies A. P2,304,000 C. P2,250,200
B. Joint stock companies B. P2,279,000 D. None of the choices
C. Joint accounts or associations
D. Joint venture or consortium formed for the purpose of undertaking construction projects 17. Assuming the corporation is a resident foreign corporation, how much is the tax payable in the
Philippines? (note 2)
13. Which of the following government owned or controlled corporations is subject to the corporate A. P1,447,657 C. 1,415,000
income tax? B. P1,442,027 D. None of the choices
A. Philippine Amusement and Gaming Corporation (PAGCOR)
B. National Development Corporation (NDC) Fringe Benefits Tax
C. Philippine charity Sweepstakes Office (PCSO) 18. Yasay Corporation owns a condominium unit. During the year 2004, it furnishes and grants
D. Social Security System (SSS) the unit for the residential use of its Executive Vice President. The fair market value of the
property as determined by Commissioner is P10,000,000, while its fair market value as shown
14. Which of the following items of income received by a non-stock non-profit organization in the current Real Property Tax Declaration amounts to P8,000,000. How much is the
operated exclusively for the promotion of social welfare is exempt from corporate income tax? monthly fringe benefit tax? (note 3)
A. Assessment dues from members A. P20,552.39 C. P10,261.19
B. Parking fees in the parking area inside the building owned by the organization B. P27,083 D. P9,803.92
C. Rental from office spaces in the building owned by the organization.
D. Income from grocery store operated by the organization Capital Gains Tax on Sale of Real Property
19. On November 5, 2003, a seller and buyer of real property agreed on a price of P100,000, to be
15. Regional or area headquarters of multinationals in the Philippines shall pay a tax of paid by an assumption by the buyer of a P20,000 mortgage on the property, a down payment
A. 10% of their taxable income C. 32% of their gross income P20,000 and installment payments of P2,000 every month thereafter. If the property sold was
B. 32% of their taxable income D. None. Not subject to tax for a capital asset and had a cost of P60,000 to the seller, the income reported in 2003 was
(note 4)
Questions 16 & 17 are based on the following information. A. P40,000 C. P3,800
A corporation has presented the following condensed data for your consideration B. P11,000 D. None of the choices
Gross income, Philippine(excluding the P500,000 rent) P4,500,000
Gross income, USA 3,000,000 Final Withholding Tax
Rent income, Philippines(gross of 5% withholding tax) 500,000 20. Which of the following income payments is subject to final withholding tax?
Dividend from a foreign corporation (foreign corporations A. dividends received by domestic corporation from a domestic corporation
gross income is 70% from Philippine sources) 300,000 B. interest income on dollar deposit of a non-resident alien
Deductions, Philippines 500,000 C. interest on long-term deposits with maturity exceeding 5 years
Deductions, USA 400,000 D. Tax informer’s reward
Unallocated expenses 200,000

April 18, 2004 Page 2 of 8


TAXATION The Review School of Accountancy Final Pre-board Examination

Deductions from Gross Income 25. The properties situated outside the Philippines need not be included in the gross estate when
21. In 2002, the taxpayer, a surgeon, performed an operation for a patient and sent him a bill for the decedent is a:
P300,000. The bill was not paid. The taxpayer did not include the unpaid bill in his income for A. Resident citizen C. Resident alien
2002 because he was using cash method of accounting. In 2003, the patient was adjudicated B. Non-resident citizen D. Non-resident alien
bankrupt and without assets. In 2004, the patient died. When could the taxpayer deduct the
P300,00 as bad debt? 26. A taxpayer died leaving real and personal properties. Among the personal properties he left
A. 2002, when the bill was sent was a taxicab. Within six (6) months after his death while the estate was still under
B. 2003, when the patient was adjudged bankrupt administration, the taxicab was carnapped and was not recovered. Which of the following
C. 2004, when the patient died statements is correct regarding the loss of the taxicab?
D. Cannot be deducted in any year A. The loss is deductible from the gross estate only
B. The loss is deductible from the gross income only
Procedures C. The loss is deductible from both the gross estate and the gross income
22. Which of the following statements is INCORRECT? D. The loss is deductible from the gross estate if not claimed as deduction from the gross
A. No uniform method of accounting can be prescribe for all taxpayers income.
B. Each taxpayer is required by law to make a return on his true income
C. The taxpayer has to adopt accrual method of accounting because it is in accordance with 27. Which statement is correct? Claims against the estate, as deduction from the gross estate
generally accepted accounting principles A. Represents obligations enforceable during the lifetime of the decedent
D. Where purchase or sale of merchandise is an income-producing factor, inventories on B. Shall always be evidenced by a notarized document
hand shall be taken at the beginning and at the end of year C. Is sufficient for deductibility if a valid obligation under the law on obligation
D. If unpaid mortgage of a non-resident alien, the property shall be included in the Philippine
23. Villanueva Corporation, because of financial difficulties, requested that its 2003 income tax gross estate
liability of P400,000 be paid in four (4) equal monthly installments, starting April 15, 2004. His
request for installment payment was approved on April 10, 2004. How much is the interest on 28. Which of the following deductions from the gross estate is NOT SUBJECT TO maximum
the second installment which is due on May 15, 2004? (note 5) amount?
A. P81,250 C. P5,000 A. Medical expenses C. Family home
B. P27,083 D. None B. Funeral expenses D. Vanishing deduction

BUSINESS & TRANSFER TAXES 29. A resident decedent, head of family left the following
Estate Tax Personal properties P1,000,000
24. A married resident citizen died after the Family Code took effect. For establishing the Real properties (including family home valued at P1,500,000) 2,000,000
Philippine gross estate, under what regime would he fall under? Deductions claimed (including actual funeral expenses of
A. Conjugal partnership of gains P200,000, and medical expenses of P600,000) 900,000
B. Absolute community of properties How much is the taxable net estate? (Note 6)
C. Absolute separation of properties A. P2,100,000 C. P250,000
D. Whatever had been agreed upon before the celebration of marriage B. P1,100,000 D. P100,000

April 18, 2004 Page 3 of 8


TAXATION The Review School of Accountancy Final Pre-board Examination

Donor’s Tax 34. The taxpayer maintained legal residence in Masbate City. He transacted a business in Makati
30. 1st statement: The amount of dowry given to each qualified donee-child shall not exceed and temporarily resided in Quezon City for a month. During his stay in Quezon City, he made
P10,000 a donation to his niece who graduated Magna Cum Laude from the Ateneo de Manila
2nd statement: All donors are allowed to deduct dowry provided the property donated is University. Where would he file his donor’s tax return?
situated in the Philippines A. Masbate City C. Quezon City
A. B. C. D. B. Makati City D. Any one of the three
1st Statement Correct Incorrect Correct Incorrect
2nd Statement Correct Incorrect Incorrect Correct 35. The following donations were made by a resident citizen donor
Property in the Philippines P110,000
31. A non-resident citizen donor is taxed on his donations of properties situated Property outside the Philippines, on account of marriage
A. Within the Philippines only (before deduction and the P4,500 donor’s tax) 200,000
B. Within and outside the Philippines Assuming a P6,000 Philippine donor’s tax due, how much is the donor’s tax after considering
C. Outside the Philippines only the tax credit on foreign donor’s tax? (note 7)
D. Not subject to Philippine donor’s tax because he is a non-resident citizen A. P4,626 C. P2,750
B. P3,208 D. P2,200
32. A donor is a citizen of a country that allows basic and additional personal exemptions to
Filipinos who are not residing there. However, his country imposes transfer taxes on gifts Value-added Tax
made by foreigners on properties situated in the country. During the year 2004, he donated 36. In the value-added tax on sale of services, the output tax is computed
shares of stock he acquired from a Philippine domestic corporation to his son who is getting A. On billings of the month.
married to a Filipina in the Philippines. Which of the following statements is CORRECT in B. On collections of the months on all billings made.
connection with his donation? C. On the contract price of contracts completed during the taxable period.
A. The donor is not subject to Philippine donor’s tax, he can invoke the rule of reciprocity D. Only and strictly on labor performing under the contract for services.
B. The donor is not subject to Philippine donor’s tax, he cannot invoke the rule of reciprocity
C. The donor is subject to Philippine donor’s tax, he can deduct dowry from his donation 37. Mr. Pedro Pedroso is a lessor of real and personal property. The business tax he is liable to
D. The donor is subject to Philippine donor’s tax, he cannot deduct dowry from his gross gift for
Lease of real property Lease of personal property
33. An irrevocable trust was created whereby Mr. Samuel San Jose transferred his commercial A. Value-added tax Value-added tax
apartment to the Philippine Trust Company as trustee. The trust instrument designated Mrs. B. Value-added tax Not subject to VAT
Josefa San Jose as the beneficiary to the rentals for life and appointed their only son to the C. Not subject to VAT Value-added tax
remainder. Which of the following statements best describes the taxability of the trust? D. Not subject to VAT Not subject to VAT
A. The transfer by Mr. San Jose is subject to donor’s tax while the rentals accruing to Mrs.
San Jose is exempt from income tax as property acquired by gift 38. A VAT-registered enterprise manufactures cooking oil. It purchases coconut and supplies used
B. The transfer by Mr. San Jose is subject to donor’s tax while the rentals accruing to Mrs. in the manufacture of cooking oil. As a result of its purchases it
San Jose is subject to income tax A. Can claim presumptive input tax on purchase of coconut in lieu of actual VAT paid
C. The transfer by Mr. San Jose is not subject to donor’s tax but the rentals accruing to Mrs. B. Can claim both presumptive input tax on purchase of coconut and input tax on purchases
San Jose is subject to donor’s tax being the nature of usufruct of supplies
D. The transfer of the apartment to the trustee is subject to estate tax upon the death of Mrs. C. Can claim input tax on purchases of supplies only
San Jose D. Cannot claim any input tax
April 18, 2004 Page 4 of 8
TAXATION The Review School of Accountancy Final Pre-board Examination

39. The passed on value-added tax on purchases from VAT-registered taxpayer by a taxpayer not 44. International air and shipping carrier domestic business in the Philippines shall be subject to
subject to VAT is A. 3% percentage tax on Philippine gross receipts in lieu of the 2 ½ % income tax on Gross
A. An expense C. Part of the cost of purchases Philippines billings
B. A tax credit. D. Ignored B. 2 ¼ % income tax on Gross Philippine billings in lieu of the 3% percentage tax on
Philippine gross receipts
Questions 40 & 41 are based on the following information. C. Both the 3% percentage tax on Philippine gross receipts and the 2 ½ % income tax on
In a particular month the following selected data were taken from the books of a VAT registered Gross Philippine billings
taxpayer D. Neither the 3% percentage tax on Philippine gross receipts nor the 2 ½ % income tax on
Domestic sales P660,000 Gross Philippine billings.
Export sales 1,500,000
Purchases from VAT-registered persons 45. Boxing exhibitions shall be exempt from amusement tax when the following conditions are
Connected with export sales 550,000 present
Connected with domestic sales 220,000 Condition 1 – Involves World Oriental or Philippine championships in any division
Operating expenses 110,000 Condition 2 – Both of the contenders are citizens of the Philippines
Condition 3 – Promoted by citizens of the Philippines or by a, corporation or association at
40. How much is the input tax attributable to export sales? (note 8) least 60% of the capital is owned by Filipino citizens
A. P20,000 C. P70,000 A. All the three conditions are correct C. Only conditions 1 and 2 are correct
B. P50,000 D. P80,000 B. None of the three conditions is correct D. Only condition 3 is correct

41. How much input tax is refundable, assuming the input tax attributable to export sale is taken 46. 1st statement: The Monthly Percentage Return for large taxpayers is filed on or before the
as tax credit? (note 9) 20th day after the close of the month while those of non-large taxpayers are filed on or before
A. P50,000 C. P10,000 the 10th day after the close of the month
B. P30,000 D. None 2nd statement: The remittance of percentage tax withheld by withholding agents whether large
or non-large taxpayers, is done within ten (10) days following the end of the month the
Percentage Taxes withholding was made
42. Which of the following statements is INCORRECT? A. B. C. D.
A. The percentage tax is basically on sale of services 1st Statement True False True False
B. The percentage tax may be imposed on a sale of goods 2nd Statement True False False True
C. The percentage tax may be imposed together with the value-added tax
D. The percentage may be imposed together with excise tax 47. The following data, were presented to you by a client who requested you to compute the
percentage tax payable
43. A keeper of garage whose gross receipts for the year exceed P550,000 is subject to Total sales for the month P40,000
A. Value-added tax. C. Garage sales tax. Receivable, beginning of the month 30,000
B. Common carrier’s tax. D. Franchise tax. Receivable, end of the month 20,000
Out of the total collections, 80% were net of the 3% withholding tax.
How much was the percentage tax payable for the month? (note 10)
A. P2,700 C. P1,200
B. P1,500 D. P300
April 18, 2004 Page 5 of 8
TAXATION The Review School of Accountancy Final Pre-board Examination

Remedies of the State & the Taxpayer ANSWER EXPLANATIONS


48. Which of the following will NOT suspend the period for collection of any tax by summary or
judicial proceedings?
A. if the taxpayer requests for reinvestigation which is granted by the BIR
B. if the taxpayer cannot be located in the address given by him in the tax return filed
C. if the warrant of distraint and levy is duly served upon the taxpayer, his authorized
representative or a member of his household with sufficient discretion and no property can
be found
D. if the taxpayer is found bankrupt by a competent court

49. A taxpayer received an assessment notice on January 5, 2004. He filed a petition for
consideration on January 15, 2004. Concrete documents supporting his petition were
submitted to the BIR on January 31, 2004. The Commissioner had failed to act on the petition
as of July 15, 2004. When would be last day of the taxpayer’s appeal to the Court of Tax
Appeals?
A. February 14, 2004
B. August 14, 2004
C. August 28, 2004
D. The taxpayer could no longer appeal because the assessment became final and
executory after thirty (30) days from the date of assessment

Comprehensive
50. Mr. Jose Cusi, imported cigarettes from the United States for sale in the Philippines. To what
Philippine taxes on importation would he be liable to
A. Value-added tax, excise tax, income tax C. Value-added tax
B. Value-added tax and excise tax D. Excise tax

Answer Key
1. C 11. D 21. D 31. B 41. C
2. A 12. D 22. C 32. D 42. C
3. C 13. B 23. C 33. B 43. B
4. C 14. A 24. D 34. A 44. C
5. C 15. D 25. D 35. D 45. D
6. B 16. B 26. D 36. B 46. D
7. B 17. B 27. A 37. A 47. D
8. C 18. D 28. D 38. B 48. D
9. A 19. B 29. C 39. C 49. D
10. D 20. D 30. B 40. B 50. B
April 18, 2004 Page 6 of 8
1
.
Gross income, PhilippinesP4,500,000Gross income, USA3,000,000Total7,500,000Other incomeRent
income500,000Dividend from foreign corporation300,000 800,000Total gross income8,300,000Less:
DeductionsPhilippines500,000USA400,000Unallocated expenses200,000 1,100,000Taxable net incomeP7,200,000Tax
due (32%)P2,304,000Less: Withholding tax on rent (500,000 x 5%) 25,000Tax payableP2,279,000
2
.
Gross income, PhilippinesP4,500,000Other incomeRent income500,000Dividend from foreign corporation (300,000 x
70%)210,000 710,000Total5,210,000Less: DeductionsPhilippines500,000Unallocated expenses
(5,210,000/8,300,000 x 200,000)
125,542
625,542Taxable net incomeP4,584,458Tax due (32%)P1,467,027Less: Withholding tax on rent (500,000 x 5%)
25,000Tax payableP1,442,027

3
. Monthly value of the benefit (10,000,000 x 5% divided by 12) P 41,667
Monthly monetary value (41,667 x 50%) P 20,833
Fringe benefit tax (20,833 divided by 68% x 32%) P 9,803.92
4
. 40,000/80,000 x 22,000 = P11,000
Selling price P100,000
Less: Cost 60,000
Gross income P 40,000

Selling price P100,000


Less: Mortgage assumed 20,000
Contract price P 80,000

Down payment P 20,000


Installment year of sale 2,000
Initial payments P 22,000

Initial Payments 22,000


= = 22%
Selling price 100,000

5
. Tax due P400,000
Less: First installment 100,000
Balance P300,000
Interest on extended payment (300,000 x 20% x 1/12) P 5,000
6
.
Gross estateP3,000,000Less: DeductionsFuneral expenses (limit)150,000Other deductions 100,000 250,000Net
estate before special deduction2,750,000Less: Special deductionsFamily home (maximum)1,000,000Standard
deduction1,000,000Medical expenses (maximum) 500,000 2,500,000Taxable net estateP 250,000
7
.
Net gifts, PhilippinesP110,000Net gifts, foreign (200,000-10,000) 190,000Taxable net giftsP300,000Tax dueP
6,000Less: Tax credit for foreign donor’s taxActual foreign estate tax 4,500Limit (190,000/300,000 x 6,000) 3,800
3,800Tax payable P 2,200
8
. Purchases for export sales (550,000 x 1/11) P 50,000
9
. Output tax (660,000 x 1/11) P 60,000
Less: Input tax
Purchases for domestic sales (220,000 x 1/11) 20,000
VAT payable P40,000
Less: Input tax connected to zero-rated sales ( 50,000)
Amount refundable (P 10,000)
10
. Collections P 50,000
Rate 3%
Percentage tax 1,500
Less: Percentage tax withheld (50,000 x 80% x 3%) 1,200
Tax payable P 300