POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF ACCOUNTANCY AND FINANCE

Sta. Mesa, Manila

ACCO 4133 –TAXATION

1ST EVALUATION EXAMINATION
2ND SEMESTER, S.Y. 2016-2017

4 DECEMBER 2016
12:00 NN – 3:00 PM

IN THE PROVIDED SCANNABLE ANSWER SHEET, SHADE IN FULL THE BOX WHICH
CORRESPONDS TO THE BEST ANSWER FOR EACH OF THE FOLLOWING QUESTIONS.
KEEP YOUR ANSWER SHEET CLEAN AND FREE FROM UNNECCESARY MARKINGS.
COMPUTATIONS SHOULD BE WRITTEN IN SEPARATE SHEET/S OF PAPER. YOU HAVE
THREE (3) HOURS FOR THIS EXAM. CHEATING IS A MAJOR OFFENSE. GOD BLESS!

PART I – THEORIES (30 QUESTIONS, 1 POINT EACH)

1. The state’s power of taxation is derived from

a. the state’s existence.
b. the National Internal Revenue Code.
c. the Constitution.
d. the National Internal Revenue Code and the Constitution.

2. This inherent power of the state may likewise be exercised by private entities providing public utility
services.
a. Police Power. c. Power of Taxation.
b. Power of Eminent Domain. d. People Power.

3. Income tax is not a/an

a. excise tax. c. personal tax.
b. national tax. d. progressive tax.

4. It is a contract whereby the parties, by reciprocal concessions, avoid litigation or put an end to one
already commenced.
a. Settlement. c. Abatement.
b. Compromise. d. Amnesty.

5. It is a summary remedy whereby the collection of tax is enforced on the goods, chattels or effects of
the taxpayer. The property may be offered in a public sale, if taxes are not voluntarily paid.
a. Distraint. c. Garnishment.
b. Levy. d. Attachment.

6. In order for a compromise of taxes on the ground that there is doubt as to the validity of assessment
to be valid, the minimum tax collected must be at least
a. 10% of the tax intended to be compromised.
b. 40% of the tax intended to be compromised.
c. 1,000,000.00.
d. 10% of the tax intended to be compromised, or 1,000,000.00 whichever is higher.

7. Which of the following items of income is subject to final income tax, as far as a non-resident citizen
taxpayer is concerned?
a. Interest from foreign currency deposit units from local banks.
b. Interest from peso deposit accounts in banks located outside the Philippines.
c. Dividends from a domestic corporation, where 90% of the gross income of such domestic
corporation for the past three years were derived from sources without the Philippines.
d. Dividends from a foreign corporation, where 90% of the gross income of such foreign
corporation for the past three years were derived from sources within the Philippines.

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8. Quarterly income tax payments made by a non-resident citizen taxpayer may be claimed as
a. allowed deduction.
b. tax credit.
c. either allowed deduction or tax credit.
d. neither allowed deduction nor tax credit.

9. Income tax payment to a foreign country in the case of a resident citizen may be claimed as
a. carry-over.
b. tax credit.
c. either allowed deduction or tax credit.
d. tax refund.

10. Taxpayers engaged in the practice of their profession are required to file their income tax returns
a. once a year.
b. on a quarterly basis, cumulatively.
c. on a quarterly basis, but not cumulatively.
d. on a monthly basis, cumulatively.

11. Which of the following is a valid ground to question the legality of a new tax passed by Congress?
a. The taxes that will be collected from the new law is not enough or adequate that it will not be
able to contribute to the fiscal needs of the government.
b. The new law is difficult to implement on the part of the BIR and difficult to understand on the
part of the taxpayers.
c. The new law disregards the rule that taxes should consider the taxpayers’ ability to pay the said
taxes.
d. The new law will not benefit the taxpayer because the taxpayer does not avail of any public
services.

12. Which statement refers to eminent domain as distinguished from taxation?

a. It can only be imposed on specific property or properties.
b. The compensation involved is rather intangible.
c. It involves the destruction of property by the government.
d. The exercise is limited to the needs of the government.

13. Which of the following does not pertain to a constitutional limitation on the power of taxation?
a. No person shall be imprisoned for non-payment of poll tax.
b. The rule of taxation shall observe equality among taxpayers.
c. All revenues and assets of non-stock, non-profit educational institutions used actually, directly,
and exclusively for educational purposes shall be exempt from taxes and duties.
d. No law granting tax exemption shall be passed without the concurrence of a majority vote of
all the Members of the Congress.

14. Within what period should the BIR decide on a claim for tax refund filed by a taxpayer?
a. Within 2 years from the date the claim for refund was filed.
b. Within 2 years from the date the tax sought to be refunded was paid.
c. Within 180 days from the date the claim for refund was filed.
d. Within 180 days from the date the tax sought to be refunded was paid.

15. Within what period should the BIR decide on a protest filed by a taxpayer?
a. Within 3 years from the date the protest was filed.
b. Within 3 years from the date the protest was denied.
c. Within 180 days from the date the protest was filed.
d. Within 180 days from the date the protest was denied.

16. Who will have to decide on a case involving a denied claim for refund?
a. The BIR Commissioner.
b. The Court of Tax Appeals
c. The Supreme Court.
d. The Secretary of the Department of Finance.

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17. De minimis benefits are
a. generally exempt from tax. c. taxed based on the kind of taxpayer.
b. generally subject to basic income tax. d. given to rank and file employees only.

18. As far as individual taxpayers are concerned, cash dividends declared by a domestic corporation
a. is always subject to final income tax.
b. is always subject to basic income tax.
c. is always exempt from income tax.
d. maybe subject to basic or final income tax.

19. Interest from long-term deposits in the Philippines with an original maturity period of ten (10) years
but was pre-terminated between the sixth and seventh year is
a. subject to final income tax.
b. exempt from income tax.
c. subject to basic income tax.
d. partly exempt and partly subject to final income tax.

20. Substituted filing of tax return does not require which of the following conditions?
a. The taxpayer must be a purely compensation income earner.
b. The taxpayer must be earning his income from a single employer for the entire taxable year.
c. The taxpayer must be a resident, whether a citizen or an alien.
d. The employer must have withheld and remitted the correct amount of taxes.

21. Whenever applicable, taxes may be refunded within what period from their payment?
a. 2 years. c. 5 years.
b. 3 years. d. 10 years.

22. In every case of doubt, tax laws should be interpreted

a. strictly against the government and the taxpayer.
b. liberally in favor of the government and the taxpayer.
c. strictly against the government and liberally in favor of the taxpayer.
d. liberally in favor of the government and strictly against the taxpayer.

23. Which of the following taxpayers cannot claim optional standard deduction?
a. A minimum wage earner.
b. A non-resident alien engaged in trade or business in the Philippines.
c. A resident senior citizen engaged in the practice of his profession.
d. A trust established by a resident alien in the Philippines.

24. The distinction of a tax from permit or license fee is that a tax
a. is imposed for regulatory purposes.
b. involves an exercise of police power.
c. generally has no limit on the amount that may be imposed.
d. renders the business illegal if not paid.

25. Whenever required, the 3rd quarterly income tax return of an individual should be filed
a. on or before October 15 of the same year.
b. on or before November 15 of the same year.
c. on or before December 15 of the same year.
d. depending on the kind of taxable year the individual adopts, calendar or fiscal.

26. Net capital loss carry-over, whenever applicable, can be made over a period of
a. 1 year only. c. 3 years.
b. 2 years. d. 5 years.

27. The value of the donation of accounting, tax and law books in favor of the Polytechnic University of
the Philippines College of Accountancy and Finance
a. is not deductible. c. is partially deductible.
b. is deductible in full. d. is void.

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28. Net operating loss carry-over can be claimed by
a. individual taxpayers. c. both a and b.
b. corporate taxpayers. d. neither a nor b.

29. Expense accounts of the employee to be reimbursed by the employer upon submission of receipts
a. constitutes compensation income of the part of the employee and therefore subject to basic
income tax.
b. constitutes fringe benefit on the part of the employee and therefore subject to final income tax
if he is a managerial or supervisory employee.
c. constitutes de minimis benefits and is therefore exempt from tax.
d. does not constitute income and is therefore not taxable.

30. Gains from the sale of a real property is considered as an income from sources within the Philippines
if
a. the Deed of Absolute sale is executed and notarized in the Philippines.
b. the seller of the real property is a citizen of the Philippines.
c. the payment will be made in the Philippines.
d. the property is located in the Philippines.

PART II – PROBLEMS (35 QUESTIONS, 2 POINTS EACH)

Alma, single, resident citizen, had the following dependents for the taxable year 2016, all living with her
and dependent for chief support:

• Jacob, legally adopted son, 20 years old.

• Emma, 19 years old, Jacob’s live-in partner.
• Abraham, Alma’s grandfather, senior citizen, suffering from Alzheimer’s disease.
• Bronwyn, illegitimate child, 8 years old, working as a commercial and drama child actress.
• Enoch, child of Alma’s brother, 22 years old, paralytic.

31. How much is Alma’s total basic and additional personal exemption?
a. 75,000.00 c. 125,000.00
b. 100,000.00 d. 150,000.00

32. If Alma is a non-resident Nepalese engaged in business in the Philippines and in Nepal they allow a
basic personal exemption of 30,000.00 and additional personal exemption of 20,000.00 where they
can claim up to six (6) dependents, how much is Alma’s total basic and additional personal
exemption?
a. 50,000.00 c. 70,000.00
b. 60,000.00 d. 95,000.00

Horace, a resident citizen, received the following for the current taxable year:

Basic salary 300,000.00

Overtime pay 40,000.00
Holiday pay 20,000.00
13th month pay and other bonuses 50,000.00
Salary deductions:
SSS, PhilHealth, Pag-IBIG contributions 10,000.00
SSS and Pag-IBIG loans 20,000.00
Withholding tax 30,000.00
Net pay 350,000.00

33. How much is the gross compensation income?

a. 410,000.00 c. 360,000.00
b. 400,000.00 d. 350,000.00

34. How much is the taxable net compensation income?

a. 370,000.00 c. 320,000.00
b. 350,000.00 d. 300,000.00
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Hugh, a retired American soldier, has been staying in the Philippines since his marriage to a Filipina ten
(10) years ago. His close friend residing in America borrowed $10,000.00 from Blair. They stipulated for
$1,000.00 interest upon due date of the loan.

35. Which of the following statements is correct?

a. Hugh is liable to pay tax on the $1,000.00 interest, 20% of which shall be withheld by his friend
and remitted to the BIR.
b. Hugh is liable to pay tax on the $1,000.00 interest, but it shall no longer be subject to any
withholding tax.
c. Hugh is not liable to pay tax because he is taxed only on his income derived from sources within
the Philippines.
d. Hugh is not liable to pay tax because interest income is exempt from tax.

After working for 25 years at Peregrine Hospital, Esmeralda retired from employment at the age of 55. She
received 800,000.00 as retirement pay from the private retirement plan maintained by Mereen Hospital.
The private retirement benefit plan was approved by the BIR. She also received her endowment insurance
policy in the amount of 400,000.00 which she was paying for 20 years at a premium of 5,000.00 per year.

36. How much income should be reported by Esmeralda?

a. 1,200,000.00 c. 400,000.00
b. 1,100,000.00 d. 300,000.00

Wawawa Corporation declared and distributed to its stockholders shares of Wewewe Corporation. One of
its stockholders, Franklin, received 100 shares of Wewewe Corporation shares as dividends. At the date of
the declaration, the fair market value of Wewewe Corporation’s share was 120.00 per share and by the time
Franklin received the dividend, the fair market value increased to 180.00 per share.

37. Which of the following is the proper tax treatment?

a. Since Franklin received a stock dividend, the same is exempt from tax.
b. Since Franklin received a property dividend, the same is subject to basic income tax.
c. Since Franklin received a property dividend, the same is subject to final income tax.
d. Since Franklin will later on sell the shares, it is as if he received cash dividends, hence the same
is subject to final income tax.

In 2006, Millard, a retiree, bought 10,000 Wuwuwu shares that are unlisted in the local stock exchange for
10.00 per share. In 2010, the said shares had a book value per share of 60.00 per share. In view of a car
accident in 2010, Millard had to sell his Wuwuwu shares but he could sell the same only for 50.00 per share.

38. Which of the following is the proper tax treatment?

a. 5%/10% capital gains tax on the capital gain from sale of 40.00 per share (50.00 selling price
less 10.00 cost).
b. 5%/10% capital gains tax on the capital gain of P50 per share, arrived at by deducting the cost
(10.00 per share) from the book value (60.00 per share).
c. 5%/10% capital gains tax on the capital gain from sale of 40.00 per share (50.00 selling price
less 10.00 cost) plus donor’s tax on the excess of the fair market value of the shares over the
consideration.
d. Graduated income tax rates of 5% to 32% on the net taxable income from the sale of the shares.

39. If the shares were listed and traded in the local stock exchange, what would be the proper tax
treatment?
a. 5%/10% capital gains tax. c. exempt from taxes.
b. basic income tax. d. percentage tax.

Wiwiwi Company provided fringe benefits to its managerial employees in the amount of 136,000.00 and
to its rank and file employees amounting to 50,000.00.

40. How much is the deductible expense of Wiwiwi Company?

a. 250,000.00 c. 186,000.00
b. 200,000.00 d. 136,000.00
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Victor, a resident citizen, obtained a loan from a bank in order to purchase a new car, so he could use a car
to and fro his work as a fast-food restaurant branch manager. He incurred a substantial amount of interest
expense with respect to this loan. He inquired from you if he can claim as allowed deduction the interest
expense incurred from the loan he obtained and the depreciation of the car.

41. What would your answer be?

a. He can claim both interest expense and depreciation expense as allowed deductions.
b. He can claim the interest expense but not the depreciation expense.
c. He can claim the depreciation expense but not the interest expense.
d. He cannot claim the interest expense nor the depreciation expense.

Reynard, a resident citizen, earned the following items during the taxable year:

Interest income – BDO 30,000.00

Royalty from a patented invention 50,000.00
Royalty from copyrighted books 40,000.00
Prize won in a barangay singing contest 7,500.00
Share from a professional partnership 25,000.00
Dividend from a domestic corporation 10,000.00

42. How much is the total final income tax withheld?

a. 22,500.00 c. 21,000.00
b. 21,500.00 d. 20,000.00

George, a resident citizen, had the following transactions during the taxable year:

Philippines Abroad
Compensation income 300,000.00 100,000.00
Business income 500,000.00 200,000.00
Business expenses 200,000.00 50,000.00
Royalty from books 100,000.00 50,000.00
Interest from bank deposits 50,000.00 20,000.00
Dividends from a domestic corporation 40,000.00
Dividends from a resident foreign corporation 50,000.00 20,000.00
Prizes and winnings 20,000.00 10,000.00

43. If George is a resident citizen, how much is the taxable net income?
a. 700,000.00 c. 830,000.00
b. 800,000.00 d. 850,000.00

44. If George is a resident citizen, how much is the final income tax due?
a. 28,000.00 c. 39,000.00
b. 33,000.00 d. 46,000.00

45. If George is a resident alien, how much is the taxable net income?
a. 450,000.00 c. 600,000.00
b. 500,000.00 d. 650,000.00

46. If George is a resident alien, how much is the final income tax due?
a. 46,000.00 c. 33,000.00
b. 39,000.00 d. 28,000.00

For the taxable year ending 2015, Kate filed his final adjustment return on April 15, 2016 and paid the taxes
due thereon.

47. If Kate intends to file a claim for refund of the taxes that he paid, until when can she file such claim
for refund?
a. April 15, 2017 c. April 15, 2019
b. April 15, 2018 d. April 15, 2021
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In relation to the previous question, assume Kate filed a claim for refund on April 1, 2017. Kate, on April
1, 2018, received a decision from the BIR denying his claim for refund.

48. Until when can Kate appeal such denial to the Court of Tax Appeals?
a. April 15, 2018 c. April 30, 2018
b. April 16, 2018 d. May 1, 2018

The following information pertains to the dividends that Constance received during the taxable year:

Portion of
income derived Amount of
Corporation Status
from the dividends
Philippines
Lololol Corp. Domestic 100% 50,000.00
Mwah Corp. Domestic 85% 70,000.00
BRB Corp. Domestic 40% 60,000.00
TBH Corp. Foreign 90% 100,000.00
IMHO Corp. Foreign 30% 90,000.00

49. How much is the total final income tax if Constance is a resident citizen?
a. 12,000.00 c. 22,000.00
b. 18,000.00 d. 36,000.00

50. How much is the total final income tax if Constance is a non-resident alien engaged in trade or
business?
a. 18,000.00 c. 36,000.00
b. 24,000.00 d. 44,000.00

Ronda had the following information:

Net income from business 200,000.00

Gain on sale of business machinery
(held for 2 years) 40,000.00
Gain on sale of equipment not used in
business (held for 5 years) 50,000.00
Loss on sale of non-business car
(held for 12 months) 15,000.00

51. How much is the taxable net income if the taxpayer is a single individual?
a. 225,000.00 c. 180,000.00
b. 200,000.00 d. 175,000.00

Harambe received the following income for the current taxable year

Compensation income 200,000.00

13th month pay and other bonuses 80,000.00
Clothing allowance 15,000.00
Company anniversary gift 10,000.00
Rice allowance 15,000.00
Educational assistance 55,000.00
Dividend from a resident foreign corporation 20,000.00
Dividend from a domestic corporation 30,000.00

52. How much is the final tax on certain passive income?

a. 3,000.00 c. 6,000.00
b. 5,000.00 d. 10,000.00

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53. How much is the taxable net income if the taxpayer is a rank and file employee?
a. 170,000.00 c. 240,000.00
b. 260,000.00 d. 238,000.00

54. How much is the taxable net income if the taxpayer is a managerial employee?
a. 170,000.00 c. 240,000.00
b. 260,000.00 d. 238,000.00

55. How much is the fringe benefits tax if the taxpayer is a managerial employee?
a. -0- c. 25,882.00
b. 21,760.00 d. 32,000.00

56. How much is the fringe benefits tax if the taxpayer is a rank and file employee?
a. -0- c. 25,882.00
b. 21,760.00 d. 32,000.00

Litten who is supporting his wife, their legitimate child, his illegitimate child, both minors, the widowed
mother of his wife, his wife’s 18-year old sister, single and a 2-month old child of his wife’s sister, had the
following financial information:

Philippines Borneo Brunei

Gross income 200,000.00 400,000.00 600,000.00
Business expenses 100,000.00 200,000.00 300,000.00
Income tax paid 20,000.00 48,000.00

57. How much is the income tax still due if Litten is a resident citizen?
a. 57,000.00 c. 66,440.00
b. 65,320.00 d. 134,440.00

58. How much is the income tax still due if Litten is a resident alien?
a. 2,450.00 c. 66,440.00
b. 5,800.00 d. -0-

59. How much is the final income tax still due if Litten is a non-resident alien not engaged in trade or
business in the Philippines?
a. 13,000.00 c. 38,000.00
b. 25,000.00 d. 50,000.00

Poplio asked help from you with respect to the proper determination of income tax liability of his business
operating for more than 5 years already. Poplio provided you with the following financial information:

2015 2016
Gross income 500,000.00 700,000.00
Allowed deductions 400,000.00 300,000.00
Capital gains – long term 80,000.00 70,000.00
Capital losses – short term 50,000.00 20,000.00
Tax credits 10,000.00 15,000.00

A review of the 2014 tax return revealed that there is an excess tax credit amounting to 10,000.00, a net
operating loss of 120,000.00 and a net capital loss of 20,000.00.

60. How much is the net operating loss that can be carried over in 2016?
a. 50,000.00 c. 20,000.00
b. 30,000.00 d. -0-

61. How much is the net capital loss that can be carried over in 2016?
a. 10,000.00 c. 30,000.00
b. 20,000.00 d. -0-

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Rowlet, a resident citizen, is a partner in four (4) different partnerships. Information regarding the
partnerships follows:

Rowlet’s Net income

interest (net loss)
Koko Partnership, a general professional partnership 40% 50,000.00
Lele Partnership, a general professional partnership 30% (40,000.00)
Bulu Partnership, an ordinary partnership 50% 60,000.00
Mimi Partnership, an ordinary partnership 20% (20,000.00)

62. How much is the final income tax due from Rowlet’s share with respect to the above partnerships?
a. 3,000.00 c. 5,000.00
b. 4,000.00 d. 6,000.00

63. Which of the following statements is true?

a. Rowlet should only report as part of his gross income 20,000.00.
b. Rowlet should only report as part of his gross income 10,000.00
c. Rowlet should only report as part of his gross income 8,000.00.
d. Rowlet should report as part of his gross income 20,000.00 and claim as allowed deduction
12,000.00.

Your friend, a non-resident citizen, has substantial amounts of cash which are denominated in foreign
currency. He wanted to make this cash productive. He told you that he wants to earn some passive income,
but he also wants to minimize his tax exposure.

64. Which of the following is not a sound advice?

a. Deposit his money in a foreign currency deposit unit.
b. Invest his money in rental properties outside the Philippines.
c. Lend his money to you, a resident citizen.
d. Deposit his money in local long-term deposits.

65. Shade B.
a. No way!
b. Eto na po, naiiyak pa.
c. Papasa ako, tiwala lang.
d. Appeal to the CTA.

=END=

Over But not over Tax due Plus of excess over

10,000.00 5%
10,000.00 30,000.00 500.00 10% 10,000.00
30,000.00 70,000.00 2,500.00 15% 30,000.00
70,000.00 140,000.00 8,500.00 20% 70,000.00
140,000.00 250,000.00 22,500.00 25% 140,000.00
250,000.00 500,000.00 50,000.00 30% 250,000.00
500,000.00 125,000.00 32% 500,000.00

“You are the smartest children I know. You just don't believe it.”
Mysterious Benedict Society
/CUL

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 ACCO 4133 –TAXATION

1. A 16. B 31. B 46. D 61. D

2. B 17. A 32. C 47. B 62. D
3. C 18. A 33. A 48. A 63. D
4. B 19. B 34. D 49. B 64. C
5. A 20. C 35. C 50. C 65. B
6. B 21. A 36. B 51. B
7. C 22. C 37. C 52. A
8. B 23. A 38. A 53. D
9. C 24. C 39. D 54. A
10. B 25. B 40. A 55. D
11. C 26. A 41. D 56. A
12. A 27. B 42. C 57. A
13. B 28. C 43. D 58. D
14. C 29. D 44. A 59. D
15. C 30. D 45. C 60. C
1 – 30 = 30 items x 1 31 – 65 = 35 items x 2

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