CAPITAL GAINS TAX
Which of the following statements relative to the capital gains
1. Which of the following properties is classified as an ordinary
asset?
a. appliances in one’s residence
b. automobile for personal use
c. apartment building for lease to tenants
d. residential lot
2. Which of the following real estates is classified as an ordinary
asset?
a. Land owned by a company which shifted from a real
estate business into a manufacturing company
b. Land acquired by the bank through foreclosure sale
c. both (a) and (b)
d. neither (a) nor (b)
3. Which of the following properties is classified as a capital
asset?
a. Personal jewelry
b. Goods in the bodega to be sold to customers
c. Vehicles used to deliver goods to customers
d. Land used in trade or business
4. Which of the following real properties is classified as a capital
asset?
a. Real property acquired by a real estate developer
b. Real property for lease by a real estate lessor
c. Both (a) and (b)
d. Neither (a) and (b)
5. Determine the statement which does not characterize a
capital asset
a. It may be real or personal property.
b. It is not always subject to a holding period.
c. It is normally subject to value-added tax when it is sold.
d. It is not always subject to a final tax.
6. Which of the following transactions is treated as a capital
asset transaction for income tax purposes?
a. Sale of a residential lot by a subdivision developer
b. Sale by a used delivery truck by a retailing company
c. Liquidation of partnership business
d. Sale of shares of stock which are listed and traded at
the stock exchange
7. Determine the capital loss that may be deducted to the extent
of the capital gain in a given taxable period
a. Loss from the sale of personal furniture
b. Loss from the sale of residential house
c. Loss from the sale of company equipment
d. Loss from the sale of listed/traded shares of stock
8. X sold his personal laptop to a friend and derived a gain in the
sum of P20,000. He likewise sold his personal jewelry at a loss
in the sum of P10,000. He acquired the laptop seven months
ago and the jewelry two years ago. What is the tax treatment of
the foregoing transactions?
a. X shall report a net capital gain of P20,000 in his income
tax return.
b. X shall report a net capital gain of P15,000 in his income
tax return.
c. X shall report a net capital gain of P10,000 in his income
tax return.
d. X shall not report any capital gain in his income tax
return.
9.
tax on corporate taxpayers is correct?
a. A corporation is not allowed to recognize any holding
period on its capital gains and capital losses.
b. A corporation may deduct its net capital loss from its
ordinary gross income in the income tax return.
c. A corporation may carry-over its net capital loss in a
particular taxable year to the next succeeding taxable
year.
d. None of the foregoing.
10. A taxpayer realized a capital gain in the amount of P100,000
and a capital loss in the amount of P150,000 for the taxable year
200A. For the succeeding taxable year 200B, he realized a capital
gain in the amount of P300,000.
How much net capital gain shall be reflected in the taxpayer’s
income tax return for 200B to be subjected to the graduated
income tax rates?
a. P300,000
b. P250,000
c. P150,000
d. P0
11. Assume the same facts as above, except that the capital gain
for 200B amounted to P30,000.
How much net capital gain (net capital loss) shall be reflected in
the taxpayer’s income tax return for 200B to be subjected to the
graduated income tax rates?
a. P50,000
b. P30,000
c. (P20,000)
d. P0
12. Which of the following gains shall be reported in the income
tax return and not in a special capital gains tax return?
a. Gain from the sale of residential land
b. Gain from the sale of personal automobile
c. Gain from the sale of shares of stock that are not listed
and traded at the stock exchange
d. Gain from the sale of shares of stock that are listed and
traded at the stock exchange
13. Which of the following taxes is a final capital gains tax?
a. Tax on the sale of a subdivision lot by a real estate
developer
b. Tax on the sale of a personal computer
c. Tax on the sale of unlisted/untraded shares of stock
d. Tax on the sale of merchandise in the store
14. Determine the tax that is not a capital gains tax
a. Tax on the sale of real property classified as a capital
asset
b. Tax on the sale of personal property classified as a
capital asset
c. Tax on the sale of unlisted/untraded shares of stock
d. Tax on the sale of listed/traded shares of stock
15. Which of the following losses can be claimed as a deduction
for income tax purposes?
a. Loss from a sale between brother and sister (half blood)
b. Loss from a wash sale made by a non-dealer in
securities
c. Loss from jueteng operations
d. None of the foregoing
16. Which of the following transactions is exempt from the final
capital gains tax?
a. The sale of the principal residence of the taxpayer
where the entire proceeds is used to purchase a
vacation lot at Tagaytay
b. The sale of a beach lot of the taxpayer where the entire
proceeds is used to construct his principal residence
c. The sale of the principal residence of the taxpayer for
the second time in ten years to purchase another
principal residence
d. None of the foregoing
17. Determine the amount on which the 6% capital gains tax
rate shall be based upon, where a residential lot is sold under
the following circumstances:
a. P5,000,000 – the price of an adjacent lot recently sold
b. P4,000,000 – the zonal value as determined by the
Bureau of Internal Revenue
c. P3,000,000 – the market value as determined by the
local assessor
d. P2,000,000 – the selling price is indicated in the Deed
of Absolute Sale
18. The 5% final tax rate on the sale of unlisted/untraded shares
of stock shall be applied where the net capital gain amounts to
a. P500,000
b. P200,000
c. P100,000
d. None of the foregoing
19. Which of the following losses may not be deducted to the
extent of the capital gain in the income tax return?
a. Wash sale made by a non-dealer in securities
b. Short sale
c. Worthless bonds
d. Liquidating dividend
20. A partnership that has operated for ten years is now
dissolved by reason of the withdrawal of X (co-partner of Y).
Information pertinent to the dissolution appears below:
Investment of X to the common fund P1,000,000
Share of X in undistributed net income
Of the partnership 200,000
X’s share given to him upon liquidation 1,500,000
Determine the capital gain (capital loss) to be reported by X in
his income tax return:
a. P300,000
b. (P300,000)
c. P150,000
d. (P150,000)
21. X borrowed the certificates of stock of Y to be used as
security for a loan. Thereafter, the market price of the shares
zoomed up and Z sold the said shares in the trading market. X
returned the amount equivalent to the par value of the shares
to Y and pocketed the profit he made from the sale.
This transaction is what is known as:
a. Wash sale
b. Short sale
c. Insider trading
d. None of the foregoing
22. X connived with several brokers to engage among
themselves in the buying and selling of his securities in order to
create a false appearance of active trading with respect to his
securities at the stock exchange.
This transaction is what is known as:
a. Wash sale
b. Short sale
c. Insider trading
d. None of the foregoing
23. Which of the following exchanges in a merger results into a
taxable gain for income tax purposes?
a. the absorbed corporation’s assets worth P50,000,000
are exchanged for the absorbing corporation’s shares
of stock worth P45,000,000
b. the absorbed corporation’s assets worth P50,000,000
are exchanged for the absorbing corporation’s shares
of stock worth P55,000,000
c. the absorbed corporation’s assets worth P50,000,000
are exchanged for the absorbing corporation’s shares
of stock worth P50,000,000 plus P2,000,000 cash to be
distributed to the shareholders of the absorbed
corporation in accordance with the terms of the merger
plan
d. None of the foregoing
24. Which of the following sales may not be reported in
installment for income tax purposes?
a. Sale of an automobile by a car dealer as follows – Selling
Price: P1,000,000; Downpayment, 200A: P500,000;
Postdated Checks, 200B to 200F: P100,000 each
totaling P500,000.
b. Sale of personal cell phone by its owner as follows –
Selling Price: P1,000; Downpayment, 200A: P200;
Promissory Notes, 200B: P200 each totaling P800.
c. Sale of a personal gold watch by its owner as follows –
Selling Price: P50,000; Downpayment, 200A: P10,000;
Promissory Notes, 200B to 200C: P10,000 each totaling
P40,000.
d. Sale of land by its owner as follows – Selling Price:
P4,000,000; Downpayment, 200A: P1,000,000;
Postdated Checks, 200B to 200D: P1,000,000 each
totaling P3,000,000.
25. Which of the following is not an attribute of a deferred-
payment sale?
a. The initial payments exceed 25% of the selling price in
the year of sale.
b. The obligations or promissory notes received by the
vendor from the vendee are considered as equivalent
to cash.
c. The tax may be paid in installments.
d. The sale involves both real and personal property.
CORPORATIONS
1. The 30% corporate income tax rate shall be applied on the gross income of
a:
a. Domestic corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
d. Taxable partnership
2. Which of the following statements relative to a non-resident foreign rate of 40% on all dividends received by corporations organized under and by
corporation is false? virtue of its laws.
a. It does not file an income tax return The taxes deemed paid in the Philippines which may be claimed by the subject
b. Its taxable income is always subject to final withholding tax taxpayer as a tax credit from its foreign income tax on the dividend is equivalent
c. It is taxed only on income derived from sources within the Philippines to the rate of:
d. None of the foregoing a. 40%
3. Shanghai Corporation, a non-resident corporation organized under and by b. 30%
virtue of the laws of the People’s Republic of China, deposited $1,000,000 c. 15%
at the Philippine National Bank (PNB) branch in Makati City. The interest d. 10%
income from the said deposit shall be subject to: 11. Assume the same facts as above, except that the foreign country where the
a. 30% final withholding tax non-resident foreign corporation is domiciled does not allow any tax credit on
b. 20% final withholding tax the tax imposed on dividends. The non-resident foreign corporation shall be
c. 7.5% final withholding tax liable for Philippine income tax on the dividend at the rate of:
d. 0% final withholding tax a. 40%
4. Which of the following statements relative to the sale or exchange of shares b. 30%
of stock by a close corporation is true? c. 15%
a. Its net capital gain is subject to the 5% - 10% final tax rates. d. 10%
b. Its gross selling price is subject to the ½ of 1% final tax rate. 12. A German corporation operating a branch office in the Philippines is a
c. Its ordinary gain is subject to the 30% income tax rate. recipient of cash dividends declared by a domestic corporation. Germany’s
d. None of the foregoing. income tax law imposes a 40% tax rate on dividends. It allows a tax credit for
5. Which of the following statements relative to the sale of real property income tax actually paid in the Philippines on the dividend, but does not allow
classified as a capital asset is false? any tax credit for the difference between the 30% regular income tax rate and
a. Any gain or loss on the sale of real property classified as a capital asset the 15% preferential rate.
is immaterial where the vendor is a domestic corporation. The dividend received by the German corporation shall be subject in the
b. Any capital gain on the sale of real property classified as a capital Philippines to:
asset is returnable where the vendor is a resident foreign a. 40% final tax
corporation. b. 30% final tax
c. Any capital gain on the sale of real property classified as a capital c. 15% final tax
asset is subject to the 30% final income tax rate where the vendor is d. 0% final tax
a non-resident foreign corporation. 13. Which of the following statements is not a feature of the “gross income
d. None of the foregoing. method”?
6. Pinoy, Inc. owned a piece of commercial land which was forcibly taken by the a. It may be availed of by domestic and resident foreign corporations
city government for its highway expansion project in the exercise of its power of only.
eminent domain. This land was used by the corporation as a parking area for its b. The 15% tax rate on gross income shall be applied in lieu of the
numerous delivery trucks and vans. A compensation of P10,000,000 was paid regular 30% tax rate on net income whenever the latter is lower than
although the selling price in the area amounted to P12,000,000 for a similar the former.
property. The company records showed that the land was bought by the c. The ratio of cost of sales to gross sales or receipts must not exceed
company a few years ago for only P5,000,000. How shall the income tax liability, 55%.
if any, of Pinoy, Inc. on the foregoing transaction be computed? d. The election of the “gross income method” is irrevocable for a period
a. 30% corporate income tax rate based on the gross income of of three years.
P5,000,000 (P10,000,000 – 5,000,000) 14. Which of the following is a feature or characteristic of the “minimum
b. 6% capital gains tax rate based on the fair market value of corporate income tax” (MCIT).
P12,000,000 a. The income tax payable shall be computed as follows: net income x
c. 6% capital gains tax rate based on the gross selling price of regular rate, or gross income x 2%, whichever is lower.
P10,000,000 b. The MCIT takes effect on the 3rd taxable year immediately following
d. Exempt transaction being a forced sale the 1st year of business operations of the corporation.
7. Intercorporate dividend is exempt where the domestic dividend is received c. The excess of MCIT over the regular income tax may be carried over
by a: and credited against the regular income tax for the four succeeding
a. Domestic corporation taxable years.
b. resident foreign corporation d. None of the foregoing.
c. both (a) and (b) 15. Which of the following circumstances does not suspend the imposition of
d. neither (a) and (b) the MCIT on the ground that the corporation sustained substantial losses?
8. The tax sparing principle, which entitles the taxpayer of the preferential tax a. Losses due to strike lasting for three months
rate of only 15% on the dividends received from a domestic corporation, may be b. Losses due to natural calamities
applied to: c. Losses due to fire, robbery, theft or embezzlement
a. domestic corporations d. Other economic reasons as may be determined by the Secretary of
b. resident foreign corporations Finance
c. non-resident foreign corporations 16. The minimum corporate income tax is applicable to:
d. non-corporate taxpayers a. Lyceum de Cagayan University
9. The domestic dividend received by a non-resident foreign corporation cannot b. Philippine General Hospital
avail of the preferential 15% final tax rate under the tax sparing principle if: c. Philippine Airlines, Inc.
a. The country in which the non-resident foreign corporation is d. None of the foregoing
domiciled allows a tax credit for the taxes actually paid in the 17. A domestic corporation’s records revealed a regular income tax of P140,000
Philippines and the taxes deemed paid in the Philippines. and a MCIT of P150,000 for the taxable first quarter of 2011. The corporation
b. The country of the non-resident foreign corporation allows a tax shall pay an income tax of:
credit for taxes actually paid in the Philippines but does not allow any a. P150,000
tax credit for taxes deemed paid in the Philippines. b. P140,000
c. The country of the non-resident foreign corporation does not impose c. P10,000
any tax on the dividends. d. P0
d. None of the foregoing. 18. A MCIT in the sum of P300,000 was paid for the taxable year 200A. Its regular
10. A non-resident foreign corporation received domestic dividends in the sum income tax for that period amounted to only P100,000. The following data were
of P100,000. The foreign country to which it is domiciled imposes an income tax gathered: 200B (regular income tax – P100,000); 200C (regular income tax,
P50,000); and 200D (MCIT – P150,000). The income tax payable for the taxable 28. Which of the following taxpayers may avail of the 40% optional standard
year 200D shall be: deduction based on the gross income?
a. P150,000 a. Individual taxpayers
b. P100,000 b. Non-resident foreign corporations
c. P50,000 c. Both (a) and (b)
d. P0 d. neither (a) nor (b)
19. Proprietary educational institutions and non-profit hospitals shall be subject 29. ABC Corporation’s financial data for the taxable year 200A revealed an
to the 30% regular corporate income tax rate and not to the special 10% tax rate excess income tax in its Second Quarter Income Tax Return. What is the proper
on its net income, if its gross income is derived from: treatment of the excess income tax in the second quarter?
a. School or hospital operations – 60%; and unrelated school or hospital a. Claim the excess income tax as a tax refund or tax credit.
activities – 40%. b. claim the excess income tax as a tax refund only
b. School or hospital operations – 50%; and unrelated school or hospital c. claim the excess income tax as a tax credit only
activities – 50%. d. do not claim the excess income tax as tax refund or tax credit
c. School or hospital operations – 100% 30. XYZ Corporation adopts the fiscal year as its accounting period commencing
d. None of the foregoing. on April 1 and ending on March 31. For the taxable year April 1, 200A to March
20. The special income tax rate of 10% that may be availed by proprietary 31, 200B, the First Quarter Return and the Final Adjustment Return shall each be
educational institutions and non-profit hospitals shall be based on: filed not later than:
a. Gross income from school/hospital related activities a. May 31, 200A and July 15, 200B, respectively
b. Net income from school/hospital unrelated activities b. August 29, 200A and July 15, 200B, respectively
c. Gross income from both school/hospital related and unrelated c. June 1, 200A and July 15, 200B, respectively
activities d. August 29, 200A and August 15, 200B, respectively
d. Net income from both school/hospital related and unrelated 31. Determine which of the following taxpayers cannot pay the income tax by
activities installment:
21. Which of the following corporations is subject to income tax? a. Individual Taxpayers
a. PAGCOR b. Corporations
b. UP c. Estates
c. SSS d. Trusts
d. PHIC 32. What taxpayer is allowed to adopt the “fiscal year” as its taxable year?
22. In determining the Gross Philippine Billings of a resident foreign corporation a. Individual Taxpayers
operating as an international air or shipping carrier, the primary consideration b. Estates and Trusts
is: c. Corporations
a. Place of sale of the passage or freight document d. None of the foregoing
b. Place of original departure 33. The surcharge of 50% on the amount due shall be imposed where there is:
c. Place of final destination a. Failure to file any return and pay the tax due thereon
d. Nationality of the international carrier b. Filing of a return with an internal revenue officer other than those
23. Which of the following revenues constitutes the Gross Philippine Billings of with whom the return is required to be filed
a resident foreign corporation operating as an international air carrier? c. Failure to pay the deficiency tax on time as indicated in the notice of
a. Revenue on flight from the United States to the Philippines; tickets assessment
sold in the Philippines d. Failure to file a return on time due to willful neglect
b. Revenue on flight from Philippines to Japan; tickets sold in Japan 34. Which of the following cases constitutes a Prima Facie evidence of a false or
c. Revenue on flight from Hongkong to Russia, (flight originated from fraudulent return?
the Philippines with transshipment at Hongkong); tickets sold in the a. Sales or receipts of P1,000,000 were declared in the return but the
Philippines true amount of sales or receipts is P1,400,000
d. None of the foregoing b. Deductible expenses of P125,000 were claimed in the return but the
24. Determine which of the following revenues of a non-resident foreign true amount of expenses is P100,000
corporation is subject to the regular final tax of 30%: c. Both (a) and (b)
a. non-resident cinematographic film owners, lessors, or distributors d. Neither (a) nor (b)
b. Non-resident owners or lessors of vessels chartered by Philippine 35. The fiscal year may be adopted, instead of the calendar year, as the taxable
nationals year if:
c. Non-resident owners or lessors or aircraft, machineries and other a. The taxpayer has no annual accounting period.
equipment b. The taxpayer does not keep books of accounts.
d. None of the foregoing c. The taxpayer is an individual.
25. The improperly accumulated earnings tax which is a 10% surtax imposed on d. None of the foregoing.
the improperly accumulated taxable income of corporations, is imposable on:
a. Publicly-held corporations
b. Banks
c. Insurance companies
d. None of the foregoing
26. There is a prima facie presumption that a corporation is avoiding tax upon
its shareholdings or members and is, therefore, liable to the improperly
accumulated earnings tax, if such corporation is formed as a mere:
a. holding company
b. investment company
c. either (a) or (b)
d. neither (a) nor (b)
27. Which of the following revenues of exempt organizations shall be subject CORPORATE BUSINESS EXPENSES
nonetheless to income tax? 1. Which of the following statements relative to the optional standard deduction
a. Income derived by the Young Men’s Christian Association (YMCA) is false?
from fees paid by non-members on its parking lot a. The taxpayer does not have the burden of proof in proving the
b. Income derived by the Philippine Lung Center (charitable hospital) expenses by means of receipts and other evidence.
from the lease of its adjacent lot to a business establishment b. The 40% deduction rate shall be multiplied to the gross sales or gross
c. Both (a) and (b) receipts in the case of corporate taxpayers.
d. neither (a) nor (b)
 c. The 40% deduction rate shall be multiplied to the gross income in the b. Income tax
case of corporate taxpayers. c. Tax on interest on bank deposit
d. No deduction for personal and additional exemption is claimed in the d. Electric energy consumption tax on business establishment
corporate income tax return. 12. Which of the following taxes may be deducted from gross income?
2. Who among the following taxpayers may avail of the 40% optional standard a. Tax on the sale of unlisted shares of stock
deduction for income tax purposes? b. Foreign income tax not claimed as tax credit
a. Non-resident alien engaged in trade or business in the Philippines c. Estate tax on commercial lots left behind by the decedent-owner
b. Non-resident alien not engaged in trade or business in the Philippines d. Value-added tax
c. Resident foreign corporation 13. Which of the following taxes may be deducted from gross income?
d. Non-resident foreign corporation a. Tax on royalty income
3. One of the following is not a requisite for an expense to be claimed as a b. Tax on beauty pageant prizes
deduction from gross income: c. Stock transfer tax
a. It must be ordinary and necessary. d. Registration fees on company vehicles
b. It must be actually paid during the taxable year. 14. Who among the following taxpayers may not claim a tax credit or deduction
c. It must be connected with the taxpayer’s trade, business, or on income tax paid to foreign countries?
profession. a. Resident citizens
d. It must be reasonable. b. Resident aliens
4. Which of the following items is not part of “expenses in general” and, c. Domestic corporations
therefore, is not deductible from gross income? d. Beneficiaries of an estate
a. Grossed-up monetary value of fringe benefit furnished by the 15. Which of the following statements relative to the tax credit of foreign
employer to the employee income tax is false?
b. electricity bill for consumed power of the preceding taxable period a. Tax credit for foreign income taxes is aimed to minimize the effect of
but not yet actually paid international double taxation
c. Unused office supplies b. Only taxpayers who are taxed on their income from sources within
d. Entertainment expenses and without the Philippines may claim the tax credit for foreign
5. Which of the following statements will qualify an interest expense as a income taxes.
deduction from gross income? c. Foreign income tax may be claimed as a tax credit or as a deductible
a. The indebtedness is incurred to finance the taxpayer’s residential expense at the option of the taxpayer.
house. d. None of the foregoing.
b. The indebtedness is supported by a promissory note that was 16. A loss that is suffered in connection with the taxpayer’s trade, business or
executed fifteen years ago. profession, in order to be deductible from gross income, must be reported to the
c. Both (a) and (b) Bureau of Internal Revenue within:
d. Neither (a) nor (b) a. 30 days from discovery of the loss
6. Which of the following items of interest expense cannot be deducted from b. 30 days from occurrence of the loss
gross income? c. 45 days from discovery of the loss
a. Interest paid on business loan contracted by the taxpayer from his d. 45 days from occurrence of the loss
wealthy uncle. 17. Which of the following statements relative to net operating loss carry-over
b. Interest on scrip dividend declared by the corporation is false?
c. interest on delinquent taxes a. Net operating loss means the excess of allowable deductions and
d. Interest on delayed installment payments for the purchase of home personal and additional exemptions over gross income
theater equipment b. Net operating loss of a particular taxable year may be carried over to
7. Which of the following items of interest expense may be deducted from gross the next three consecutive taxable years
income? c. There must not be any substantial change in the ownership of the
a. Interest on corporation’s preferred stock business
b. Interest on loan for construction of residential house d. Mining businesses are allowed to carry over any net operating loss
c. Interest on payables to suppliers already due at the end of the taxable during the first ten years of operations for the next five consecutive
year but not yet paid years.
d. Interest on bank loan to finance petroleum exploration 18. The loss from the sale or exchange of property is deducted from gross
8. Which of the following items of interest expense may be deducted from gross income where the sale or exchange is:
income? a. Between the fiduciary of a trust and the fiduciary of another trust if
a. Interest deducted in advance by the bank on a loan where no having the same grantor
amortization payment has yet been made and the taxpayer reports b. Between the fiduciary of a trust and the beneficiary of such trust
income on cash basis c. Between an individual and his cousin
b. Interest for delinquency in the payment of taxes d. Between an individual and a corporation if the former owns more
c. Interest paid out of a personal loan by taxpayer from his grandmother than 50% in value of the outstanding capital stock of the latter.
d. Interest on the corporation’s preferred stock 19. Which of the following losses is deductible for income tax purposes?
9. Which of the following items may be deducted from gross income? a. Loss from an illegal transaction
a. Interest paid by X in advance on his bank loan to remodel his house; b. Loss incurred in selling a used delivery truck to an uncle
the indebtedness was fully paid by X in the same year the c. Loss from a business receivable from a customer which is doubtful of
indebtedness was incurred (cash basis in reporting income was collection
adopted by X) d. Loss from a wash sale
b. Interest paid by Y on the indebtedness of his friend secured by a
mortgage on Y’s apartment building in order to avoid foreclosure. 20. Which of the following statements does not reflect the nature of a wash
c. Interest paid by Z to his sister on the loan contracted by Z to supply sale?
additional capital to his buy-and-sell business a. It involves a sale of stocks or securities at a loss.
d. Fines and penalties for late payment of taxes b. Identical stocks or securities are acquired within 30 days before or
10. Which of the following taxes may be deducted from gross income? after the sale of the stocks or securities.
a. Percentage tax on sale of listed stock c. The sale is made by a dealer in securities in the ordinary course of his
b. Real property tax on residence trade or business.
c. Business permit fee paid to the city d. Any loss arising therefrom is not deductible from gross income.
d. Special assessment 21. Which of these losses due to the demolition of an old building is deductible
11. Which of the following taxes may be deducted from gross income? from gross income?
a. Real property tax on commercial building a. The old building is demolished because it became unsafe.
 b. The land with an existing old building was purchased with the a. Contribution to accredited NGOs
intention of demolishing the old building in order to construct a new b. Contribution to unaccredited NGOs
one. c. Both (a) and (b)
c. Both (a) and (b) d. Neither (a) nor (b)
d. Neither (a) nor (b) 34. Which of the following contributions is deductible with limit for income tax
22. One of the following is not a requisite in order that a bad debt may be purposes?
claimed as a deductible expense: a. Contribution to the World Health Organization
a. The debt must be connected with the taxpayer’s trade, business or b. Contribution to the government to finance priority projects according
profession. to the National Priority Plan of the NEDA
b. The debt must be ascertained to be worthless. c. Contribution to unaccredited NGO
c. The debt must be written off during the taxable year. d. Contribution to the Humanitarian Science Foundation
d. The debt must be past due for at least one year prior to being claimed 35. Which of the following donations is deductible with limit for income tax
as a deduction. purposes?
23. X claimed a bad debt of P50,000 as a deductible expense in the taxable year a. Contribution to the TESDA
200A. In 200B, X was able to recover the P50,000 debt already written off in the b. Cultural Center of the Philippines
preceding year. What is the treatment of the recovery of the bad debt? c. Integrated Bar of the Philippines
a. Report the recovery of the bad debt as gross income in 200A. d. Mindanao State University
b. Report the recovery of the bad debt as gross income in 200B. 36. Which of the following statements relative to contributions made by
c. Disregard the recovery of the bad debt. partnerships is false?
d. Rectify the deduction for bad debt made in 200A. a. A business partnership may deduct both contributions deductible
24. Which of these expenses may be claimed as a deduction in relation to a with limit and contributions deductible in full
commercial lot used in the trade or business of the taxpayer? b. A general professional partnership cannot deduct contributions
a. Depreciation expense deductible with limit
b. Depletion expense c. A partner of a general professional partnership cannot deduct
c. Amortization expense contributions deductible in full
d. None of the foregoing d. None of the foregoing
25. What method in computing depreciation allocates a constant amount of 37. The limitations imposed by law on the contributions subject to limit are:
deductible expense in every taxable year? a. Not exceeding 5% of net income, excluding contributions, in the case
a. Working hours method of individual donors
b. Production method b. Not exceeding 10% of net income, excluding contributions, in the
c. Straight-line method case of corporate donors
d. Sum-of-years’ digits method c. Both (a) and (b)
26. Which of the following assets of an appliance dealer shall be subject to d. Neither (a) nor (b)
depreciation? 38. Which of the following statements relative to research and development
a. Office supplies costs (R&D costs) is true?
b. Land a. It must always be amortized over a period of not less than sixty
c. Air-conditioners for sale to customers months and may not be treated as an outright expense
d. Air-conditioners used in the administration building b. Any expenditure for the acquisition or improvement of land or
27. The term “depletion” applies to depreciable assets used in connection with R&D may not be claimed
a. Building as a deductible expense
b. Patent c. Any expenditure for the purpose of ascertaining the existence or
c. Timberland location of mineral deposits may be claimed as a deductible expense
d. None of the foregoing d. Any expenditure for the purpose of ascertaining the quality of oil and
28. Which of the following properties is a “wasting asset”? gas may be claimed as a deductible expense.
a. Mineral land 39. What may be deducted from gross income in relation to pension trust?
b. Timberland a. Payment of current pension liability
c. Both (a) and (b) b. Payment of past pension liability
d. Neither (a) nor (b) c. Both (a) and (b)
29. Which of the following assets shall be subject to depletion? d. Neither (a) nor (b)
a. Machinery 40. Which of the following expenditures may be claimed as a deductible expense
b. Land containing ore deposit for income tax purposes?
c. Commercial land a. Amount paid for the construction of a building as part of the
d. Goodwill expansion program of an educational institution
30. The term amortization applies to: b. Premium paid on life insurance covering the life of a company
a. Leasehold executive payable to the latter’s wife as the beneficiary
b. Livestock in farm for breeding purposes c. Both (a) and (b)
c. Leasehold improvement d. Neither (a) nor (b)
d. Commercial land
31. Which of the following intangible assets shall be subject to amortization?
a. Developed goodwill through favorable location and efficient
personnel
b. Purchased goodwill where a business was purchased for more than PARTNERSHIPS
the actual value of its assets
c. Both (a) and (b)
d. Neither (a) nor (b) 1. Which of the following associations is subject to corporate
32. Which of the following contributions is deductible in full for income tax income tax?
purposes? a. General professional partnerships
a. Contribution to the Parish Church
b. Contribution to street beggars
b. Joint venture or consortium agreement for
c. Contribution to Development Academy of the Philippines construction projects
d. None of the foregoing c. Joint venture or consortium agreement for petroleum,
33. Which of the following contributions is deductible in full for income tax coal, geothermal and other energy operations pursuant
purposes?
 to an operating or consortium agreement under a 6. Which of the following contributions may be claimed as a
service contract with the government deduction by a general professional partnership?
d. Co-ownership where the property that is not under a. Donation to Rotary Club
administration proceedings or trust remains undivided b. Donation to the city
for more than ten years c. Donation to parish church
2. X, Y and Z are lawyers who practiced their legal profession in d. none of the foregoing
the same building. They hired a common secretary and shared 7. A taxable business partnership shall adopt as its taxable year
equally for her salary as well as the rental and electricity the:
expenses of their offices. However, they have their own clients a. calendar year
and individually collect their respective fees, except in some b. fiscal year
court cases handled by the two or three of them where they c. either (a) or (b)
ratably share their professional fees. Which of the following d. neither (a) nor (b)
statements is true? 8. A taxable business partnership which does not keep any
a. X, Y and Z will file a quarterly corporate ITR and report books of accounts to record its transactions shall adopt as its
their incomes and expenses jointly therein as partners taxable year the:
b. X, Y and Z will file an annual corporate ITR and report a. calendar year
their incomes and expenses jointly therein as partners b. fiscal year
c. X, Y and Z will file an annual information return for the c. either (a) or (b)
partnership and report their incomes and expenses d. neither (a) nor (b)
separately in their respective individual ITRs 9. An exempt general professional partnership shall adopt as its
d. X, Y and Z will file their annual individual ITRs and report taxable year the:
their incomes and expenses separately therein a. calendar year
3. X and Y, both civil engineers by profession, executed an b. fiscal year
Articles of Partnership wherein they would engage in the c. either (a) or (b)
business of supplying building construction materials. X d. neither (a) nor (b)
provided the necessary cash and equipment for the firm’s capital
while Y would solely provided his services as an expert engineer.
X and Y would share their profits in the ration of 4-1,
respectively. The association of X and Y, for income tax
purposes, will be classified as:
a. Taxable business partnership
b. Exempt general professional partnership
c. Exempt joint venture
d. None of the foregoing
4. Which of these statements relative to a general professional
partnership is false?
a. The firm shall file an information return but the
partners shall file their individual ITRs and separately
pay their income tax liabilities thereon.
b. The firm may claim as a deduction any contributions
which are deductible with limit, whereas the individual
partners may claim as a deduction any contributions
which are deductible in full.
c. The distributive shares of the partners shall be subject
to 10-15% creditable withholding tax.
d. Any partnership loss may be claimed by the partners
proportionately in their respective ITRs.
5. X and Y inherited a piece of agricultural land from their
recently deceased parents. The last will and testament of the
decedent provided that the said property shall not be
partitioned and should remain jointly owned by the siblings for
a period of twenty years. What organization is deemed to exist
for income tax purposes?
a. Corporation
b. Unregistered partnership
c. Co-ownership
d. Trust