ReSA

The Review School of Accountancy

Tel. No. 735-9807 & 734-3989

TAXATION May 02, 2021 (Sunday)

Final Pre-Board Examination 08:00 A.M. to 11:00 A.M.

MULTIPLE CHOICE
INSTRUCTIONS: Select the correct answer for each of the following
questions. Mark only one answer for each item by shading the box
corresponding to the letter of your choice on the sheet provided.
STRICTLY NO ERASURES ARE ALLOWED. Use pencil no. 2 only.

1. Excise tax on certain articles is an example of:

a. an indirect tax. c. a local tax.
b. a direct tax. d. a transfer tax.

Answer: A

2. Which one of the following is not a characteristic of the State’s power to tax?
a. It is inherent in sovereignty.
b. It is legislative in character.
c. It based on the ability to pay.
d. It is subject to constitutional and inherent limitations.

Answer: C
Characteristics (or Nature) of the State’s Power to Tax
a. It is inherent in sovereignty, hence, it may be exercised although
not expressly granted by the Constitution.
b. It is legislative in character, hence, only the legislature can
impose taxes (high prerogative of sovereignty).
c. It is subject to Constitutional and inherent limitations, hence, it
is not an absolute power than can be exercised by the legislature
anyway it pleases.

3. (Adapted) First statement: Symbiotic relation is the reason why the government
could impose taxes on the income of the resident citizens derived from sources
outside the Philippines.

Second statement: Jurisdiction is the reason why citizens must provide support
to the State so the latter could continue to give protection.

a. Both statements are correct

b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: B
The first statement refers to jurisdiction while the second statement
refers to symbiotic relationship (reciprocal duties).

4. An annual tax of P1,000 was imposed upon all residents of the Philippines, who
are above 21 years of age, with a gross income of P250,000, whether or not they
send their children to public schools, for the purpose of raising funds in
order to improve public school buildings. The tax is:
a. violative of the equal protection clause of the Constitution.
b. confiscatory.
c. for public purpose.
d. contradicts the inherent limitations.

Answer: C

5. A law was passed by Congress which granted tax amnesty to those who have not
paid income taxes for a certain year without at the same time providing for the
refund of taxes to those who have already paid them. The law is:
a. valid because there is a valid classification.

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b. not valid because those who did not pay their taxes are favored over
those who have paid their taxes.
c. valid because it was Congress which passed the law and it did not
improperly delegate the power to tax.
d. not valid because only the President with the approval of Congress may
grant amnesty.

Answer: A

6. In case of conflict between tax laws and generally accepted accounting

principles (GAAP):
a. both tax laws and GAAP shall be enforced.
b. GAAP shall prevail over tax laws.
c. tax laws shall prevail over GAAP.
d. the issue shall be resolved by the court.

Answer: C

7. “Schedular system of income taxation” means:

a. all types of income are added together to arrive at gross income.
b. separate graduated rates are imposed on different types of income.
c. capital gains are excluded in determining gross income.
d. compensation income and business/professional income are added together
in arriving at gross income.

Answer: B
The opposite of “scheduler system of income taxation” is called “global
system of income taxation” which is described in choice letter d. above.

8. The least source of our tax laws.

a. Statutes c. Constitution
b. Court decisions d. BIR rulings

Answer: D

9. The fair market value of real properties located in each zone or area, shall be
subject to automatic adjustment once every how many years through rules and
regulations issued by the Secretary of Finance based on the current Philippine
valuation standards?
a. 3 years c. 7 years
b. 5 years d. 10 years

Answer: A
Reference: Section 6 (E), NIRC, as amended under TRAIN

10. A decedent dies on January 1, 2019. The estate tax return is filed on June 1,
2019. When is the last day to make a valid assessment?
a. January 1, 2023 c. July 1, 2022
b. June 1, 2022 d. September 1, 2022

Answer: A
The due date for filing the estate tax return in this case is January 1,
2020 (within one year after death.) Since the return is filed on June 1,
2019 which is before the period prescribed by law, the three (3)-year period
shall be counted from the due date. (January 1, 2020)

11. Notwithstanding any contrary provision of R.A. No. 1405 and other general or
special laws, the Commissioner of Internal Revenue is authorized to inquire
into bank deposit:
Case 1 – of a decedent to determine his gross estate.
Case 2 – of any taxpayer who has filed an application for compromise of his
tax liability by reason of financial incapacity provided there is
waiver of his privilege under R.A. No. 1405 or under other general
or special laws.
a. True in both cases
b. False in both cases
c. True only in the first case
d. True only in the second case

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Answer: A
Reference: Section 6 (F), NIRC, as amended

12. Which of the following cases may not be compromised?

a. Delinquent accounts
b. Cases under administrative protest after issuance of the Final Notice of
Assessment to the taxpayer still pending in the BIR
c. Civil tax cases being disputed before the courts
d. Criminal violations involving criminal tax fraud.

Answer: D
Reference: Section 2, Revenue Regulations No. 30-2002

13. The following are instances when penalties and/or interest imposed on the
taxpayer may be abated or cancelled on the ground that the imposition thereof
is unjust and excessive, except when the:
a. filing of the return or payment of the tax is made at the wrong venue.
b. taxpayer’s mistake in payment of his tax is due to erroneous written
official advice of a revenue officer.
c. assessment is brought about or a result of the taxpayer’s non-compliance
with the law due to a difficult interpretation of the said law.
d. taxpayer is declared insolvent or bankrupt.

Answer: D

14. First statement: In civil tax cases involving collection of internal revenue
taxes, prescription is construed strictly against the government and liberally
in favor of the taxpayer.

Second statement: In criminal tax cases involving tax offenses punishable

under the Tax Code, prescription is construed strictly against the government.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

Answer: C
References: CIR vs. Goodrich Phils., Inc. G.R. 104171, Feb. 24, 1999
Lim vs. CA, G.R. 48134-37, Oct. 18, 1990

In criminal tax cases involving tax offenses punishable under the Tax Code,
prescription is construed strictly against the taxpayer.

15. Which of the following statements is not correct?

a. A tax refund is in the nature of a tax exemption which must be construed
strictissimi juris against the taxpayer.
b. Tax refund refers to the actual reimbursement of the erroneously or
illegally collected taxes.
c. Tax refund may be utilized in the payment of internal revenue taxes,
excluding withholding taxes, for which the taxpayer is directly liable.
d. Illegally assessed or collected taxes arose when payments are made under
duress or assessment thereof having been rendered by a person who has no
power to assess the tax at all.

Answer: C

16. First statement: The President shall have the power to veto any particular
item or items in an appropriation, revenue, or tariff bill, but the veto shall
not affect the item or items to which he does not object.

Second statement: The President shall have the power to veto any particular
item or items in a bill that penalizes crimes, but the veto shall not affect
the item or items to which he does not object.

a. 1st statement is correct, 2nd statement is wrong

b. 1st statement is wrong, 2nd statement is correct
c. Both statements are wrong
d. Both statements are correct

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Answer: A
The President shall have the power to veto any particular item or items in
an appropriation, revenue, or tariff bill, but the veto shall not affect
the item or items to which he does not object [Art. VI, Sec. 27 (2)].

17. Warrant of levy as distinguished from warrant of distraint.

a. It is on real property owned by and in possession of the taxpayer.
b. It is on personal property owned by and in possession of the taxpayer.
c. It is on property owned by the taxpayer but in the possession of a third party,
d. It does not required advertisement.

Answer: A

18. If at any time prior to the consummation of the sale all proper charges are
paid to the officer conducting the sale, the goods or effects distrained:
a. shall be restored to the owner.
b. shall no longer be restored to the owner.
c. shall be brought to the Revenue District Officer.
d. shall be brought to the Regional District Officer.

Answer: A
Reference: Section 210, NIRC, as amended
SEC. 210. Release of Distrained Property Upon Payment Prior to Sale. - If
at any time prior to the consummation of the sale all proper charges are
paid to the officer conducting the sale, the goods or effects distrained
shall be restored to the owner.

19. A written notice informing a Taxpayer that the findings of the audit conducted
on his books of accounts and accounting records indicate that additional taxes
or deficiency assessments have to be paid.
a. Notice of Informal Conference
b. Preliminary Assessment Notice
c. Letter of Authority
d. Formal Assessment Notice

Answer: A
In order the to expedite the processing of Letter Notice (LN) cases, the
issuance of Notice for Informal Conference may immediately commence, even
without prior issuance of Letters of Authority, as required in certain
situations, as prescribed in the existing RMOs on the LN system.

20. For requests for reconsideration, the taxpayer shall submit all relevant
supporting documents in support of his protest within how many days from date
of filing of his letter of protest, other-wise, the assessment shall become
final?
a. Sixty (60) days c. Twenty (20) days
b. Thirty (30) days d. None of the choices

Answer: D
References: Section 228, NIRC, as amended
Section 3.1.5, Revenue Regulations No. 12-99
as amended under Revenue Regulations No. 18-2013
The term “relevant supporting documents” refer to those documents
necessary to support the legal and factual bases in disputing a tax
assessment as determined by the taxpayer.

The sixty (60)-day period for the submission of all relevant supporting
documents shall not apply to requests for reconsideration.

Furthermore, the term “the assessment shall become final” shall mean the
taxpayer is barred from disputing the correctness of the issued
assessment by introduction of newly discovered or additional evidence,
and the FDDA shall consequently be denied.

21. If the taxpayer is adversely affected by the resolution of the CTA in Division
on his Motion for Reconsideration, he may file a petition for review with the
CTA en banc within how many days?
a. Sixty (60) days c. Twenty (20) days
b. Thirty (30) days d. Fifteen (15) days

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Answer: D
Reference: Section 11, Republic Act No. 1125

22 to 25 are based on the following: In 2018, Ms. Glai Espenilla Bangug, a

financial comptroller of EB Company, earns annual compensation of P1,500,000,
inclusive of 13th month and other benefits in the amount of P80,000 and
mandatory SSS contribution of P3,500 and Philhealth contribution of P2,000.
Aside from her employment income, she owns a convenience store, VAT-
registered, with gross sales of P3,000,000. Sales discount amounts to
P300,000; sales returns and allowances amount to P150,000. Her cost of sales
and operating expenses are P1,000,000 and P600,000 respectively and with non-
operating income of P100,000. Payments for the first three (3) quarters
amount to P300,000.

22. Can she avail of the 8% income tax rate?

a. Yes, because her gross sales do not exceed the VAT threshold.
b. No, because she is VAT-registered.
c. Yes, because she is a mixed income earner.
d. No, because her total income including compensation income exceed the
VAT threshold.

Answer: B

23. How much is her total taxable income?

a. P2,913,500 c. P2,464,500
b. P2,550,000 d. None of the choices

Answer: C
Total compensation income P1,500,000
Less: Non-taxable 13th month and other benefits 80,000
Mandatory SSS contribution 3,500
Mandatory Philhealth contribution 2,000 85,500
Taxable compensation income 1,414,500
Gross sales 3,000,000
Less: Sales discount ( 300,000)
Sales returns and allowances ( 150,000)
Net sales 2,550,000
Less: Cost of sales (1,000,000)
Gross income 1,550,000
Less: Operating expenses 600,000
Net income from operation 950,000
Add: Non-operating income 100,000 1,050,000
Total taxable income P2,464,500

24. How much is her tax due when she files her final tax return?
a. P338,640 c. P482,320
b. P366,000 d. None of the choices

Answer: A
Total taxable income P2,464,500
Tax due Sec. 24 (A) 2,000,000 490,000
464,500 x 32% 148,640 P 638,640
Less: Payments, first 3 quarters 300,000
Tax payable P 338,640

25. How much is the output VAT, if any?

a. P306,000 c. P360,000
b. P342,000 d. None of the choices

Answer: A
Gross sales P3,000,000
Less: Sales discount (300,000)
Sales returns and allowances (150,000)
Net sales 2,550,000
Tax rate 12%
Output VAT P 306,000

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Effective January 1, 2018 up to December 31, 2022

If the taxable income is:
Over But not over The tax shall be Plus Of excess over
P 250,000 0%
P 250,000 400,000 20% P 250,000
400,000 800,000 P 30,000 25% 400,000
800,000 2,000,000 130,000 30% 800,000
2,000,000 8,000,000 490,000 32% 2,000,000
8,000,000 2,419,000 35% 8,000,000

26 to 31 are based on the following: Ms. Queenie Matusalem signified her

intention to be taxed at 8% income tax rate on gross sales in her first
quarter return. However, her gross sales during the taxable year has exceeded
the VAT threshold.
First Second Third Fourth
quarter quarter quarter quarter
Total sales P500,000 P1,000,000 P1,500,000 P4,000,000
Cost of sales 300,000 500,000 700,000 1,500,000
Operating expenses 100,000 200,000 250,000 500,000

26. How much is the income tax due for the first quarter?
a. P40,000 c. Zero
b. P20,000 d. None of the choices

Answer: B
Gross sales P500,000
Less: Exempt amount 250,000
Tax amount 250,000
Tax rate 8%
Tax due P 20,000

27. How much is the income tax payable for the second quarter?
a. P100,000 c. P20,000
b. P 80,000 d. None of the choices

Answer: B
Gross sales, first quarter P1,000,000
Add: Gross sales, previous quarters 500,000
Total gross sales 1,500,000
Less: Exempt amount 250,000
Tax amount 1,250,000
Tax rate 8%
Tax due 100,000
Less: Payments, previous quarter 20,000
Tax payable P 80,000

28. How much is the income tax payable for the third quarter?
a. P220,000 c. P120,000
b. P150,000 d. None of the choices

Answer: C
Gross sales, third quarter P1,500,000
Add: Gross sales, previous quarters 1,500,000
Total gross sales 3,000,000
Less: Exempt amount 250,000
Tax amount 2,750,000
Tax rate 8%
Tax due 220,000
Less: Payments, previous quarter 100,000
Tax payable P 120,000

29. How much is income tax payable for the final return?
a. P574,000 c. P340,000
b. P560,000 d. None of the choices

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Answer: A
Total gross sales P7,000,000
Less: Cost of sales 3,000,000
Gross income 4,000,000
Less: Operating expenses 1,050,000
Taxable income 2,950,000
Tax due Sec. 24 (A) 2,000,000 490,000
950,000 x 32% 304,000 P 794,000
Less: 8% income tax payments, first 3 220,000
quarters
Tax payable P 574,000

30. How much is the percentage tax under Section 116 for the third quarter?
a. P210,000 c. Not subject to Sec. 116
b. P 45,000 d. None of the choices

Answer: B
Gross sales, third quarter P1,500,000
Tax rate 3%
Percentage tax under Sec. 116 P 45,000

31. How much is output VAT for the fourth quarter, if any?
a. P840,000 c. P120,000
b. P480,000 d. None of the choices

Answer: B
Gross sale (7,000,000 – 3,000,000) P4,000,000
Tax rate 12%
Output VAT P 480,000

32. An alien employee of an offshore banking unit has the following income for
the year 2018:
Salary received from offshore banking unit (OBU) P10,000,000
Honoraria and allowances received from the OBU 5,000,000
Interest income from a domestic bank on his peso deposits 50,000
Capital gain from sale of shares in a domestic corporation 100,000

How much is the tax from his gross income in the Philippines?
a. P4,860,000 c. P1,500,000
b. P2,250,000 d. None of the choices
Answer: A
Taxable compensation income (10,000,000 + 5,000,000) P15,000,000
Tax due Section 24 (A) 8,000,000 P2,410,000
7,000,000 x 35% 2,450,000 P 4,860,000
Notes:
1) Starting January 1, 2018, all employees of RHQs/ROHQs/OBUs, and Petroleum
Service Contractors and Subcontractors shall be subject to regular income
tax rate under Section 24 (A)(2)(a) of the Tax Code, as amended, without
prejudice to the application of preferential tax rates under existing
international tax treaties, if warranted.

2) The interest income on peso deposits and the capital gain from sale of shares of
stock in a domestic corporation shall be subject to different rates of tax [See
Section 24 (B) (1) and Section 24 (C).]

33. Under the TRAIN, the books of accounts shall be audited and examined yearly
by independent Certified Public Accountants and their income tax returns
accompanied with a duly accomplished Account Information Form (AIF) which
shall contain, among others, information lifted from certified balance
sheets, profit and loss statements, schedules listing income-producing
properties and the corresponding income therefrom and other relevant
statements if the:
a. gross annual sales, earnings, receipts or output exceed Three million
pesos (P3,000,000).
b. gross quarterly sales, earnings, receipts or output exceed Three
million pesos (P3,000,000).
c. gross annual sales, earnings, receipts or output amount to Three
million pesos (P3,000,000) or more.
d. gross quarterly sales, earnings, receipts or output exceed One
Hundred Fifty Thousand (P150,000).

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Answer: A

34 and 35 are based on the following: Assume that “Mr. Era”, resident citizen,
bought shares of stock in 2017 at a cost of P100,000. He donated these shares to
“Mr. Aio”, a close resident alien friend, on January 1, 2017, during which time,
the said shares has a fair market value of P 1,000,000 and on the basis of such
fair market value, “Mr. Era” paid the corresponding donor’s tax. “Mr. Aio”, the
donee, sold the shares on February 1, 2018 for a consideration of P 2,000,000.
34. How much is the capital gain (loss) from sale of shares of stock?
a. P1,900,000 c. P950,000
b. P1,000,000 d. P500,000

Answer: A
Selling price P2,000,000
Less: Value in the hands of the donor 100,000
Capital gain P1,900,000

35. How much was the capital gains tax, if any?

a. P285,000 c. P185,000
b. P205,000 d. None of the choices

Answer: A
Capital gain P1,900,000
Tax rate 15%
Capital gains tax P 285,000

36 to 39 are based on the following: Mr. Mark Tang is a partner of Tang Dayag
Caiga Company, a business partnership. He owns 25% interest. The gross sales of
Tang Dayag Caiga Company amounted to P10,000,000.00 for taxable year 2018. The
recorded cost of sales and operating expenses of the partnership were
P2,750,000.00 and P1,500,000.00, respectively. It had also incurred an interest
expense of P200,000 in connection with asset acquisition and interest income from
bank deposit amounting to P100,000.

36. How much is the taxable income of the partnership?

a. P5,750,000 c. P5,550,000
b. P5,583,000 d. None of the choices

Answer: B
Gross sales P10,000,000
Less: Cost of sales 2,750,000
Gross income 7,250,000
Less: Interest expense 200,000
Reduction (33% x 100,000) (33,000) (167,000)
Other operating expenses (1,500,000)
Taxable income P5,583,000

37. How much is the income tax liability of the partnership?

a. P1,725,000 c. P1,665,000
b. P1,674,900 d. None of the choices

Answer: B
Taxable income P5,583,000
Tax rate 30%
Tax due P1,674,900

38. How much is the share in the partnership income of partner Mark Tang?
a. P1,058,775 c. P978,775
b. P1,018,775 d. None of the choices

Answer: A
Taxable income of the partnership P5,750,000
Less: Income tax 1,674,900
Net income after tax 4,075,100
Add: Interest income, net of final tax (200,000 x 20%) 160,000
Distributable net income 4,235,100
Mark Tang’s interest in the partnership 25%

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Partner’s interest in the partnership’s distributable income P 1,058,775

39. Assuming the partnership avails of the Optional Standard deduction, how
much is the tax liability of the partnership?
a. P1,725,000 c. Zero
b. P1,305,000 d. None of the choices

Answer: B
Gross sales P10,000,000
Less: Cost of sales 2,750,000
Gross Income 7,250,000
Less: Optional standard deduction (40% x 7,250,000) 2,900,000
Taxable income 4,350,000
Tax rate 30%
Tax due and payable P 1,305,000

40. Your client dies on July 14, 2018. You are appointed as administrator.
You withdraw from his bank deposit P100,000 because the estate needs cash
to settle some obligations. What is the consequence of your withdrawal from
the decedent’s bank deposit?
a. subject to final withholding tax of 6%
b. subject to creditable withholding tax of 6%
c. Not subject to withholding tax
d. Subject to penalty and interest because such withdrawal is not allowed.

Answer: A

41. Mr. Julian Cruz procured a life insurance upon his own life. He designated his
estate’s executor as an irrevocable beneficiary. For estate tax purposes, the
proceeds of life insurance is:
a. included in the gross estate of Mr. Julian Cruz because when the executor
of the estate is a beneficiary the proceeds are included in the gross
estate regardless of the designation.
b. not included in the gross estate of Mr. Julian Cruz because the designation
of the beneficiary is irrevocable.
c. included in the gross estate of Mr. Julian Cruz because proceeds of life
insurance are always subject to estate tax.
d. not included in the gross estate because, as a rule, proceeds of life
insurance are generally not subject to estate tax.

Answer: A

42 and 43 are based on the following: A resident decedent left the following
properties:
Real properties P10,000,000
Personal properties excluding bank deposit 15,000,000
Bank deposit (P1,000,000 was withdrawn from the account
after the decedent died) 3,000,000

42. The gross estate of the decedent was:

a. P28,000,000 c. P26,000,000
b. P27,000,000 d. P25,000,000

Answer: B
Real properties, Philippines P10,000,000
Personal properties excluding bank deposit 15,000,000
Bank deposit (P3,000,000 – P1,000,000) 2,000,000
Gross estate P27,000,000

43. The final withholding tax on amount withdrawn was:

a. P200,000 c. P60,000
b. P100,000 d. None of the choices

Answer: C
Amount withdrawn P1,000,000
Rate 6%
Final withholding tax P 60,000

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44 and 45 are based on the following: An unmarried decedent died leaving

properties he inherited 4 ½ years ago which had fair market value of P800,000 at
the time of his death (P650,000 at the time of inheritance, and unpaid mortgage
of P50,000, P20,000 of which paid by the present decedent before he died). Other
properties in his gross estate had fair market value of P1,000,000. The total
expenses, losses, indebtedness, taxes and transfer for public purpose amounted to
P300,000.

44. How much was the vanishing deduction?

a. P 225,000 c. P 102,900
b. P 108,333 d. P 100,000

Answer: C
Value to take P 650,000
Less: Mortgage paid 20,000
Initial basis 630,000
Less: Proportional deduction
(P630,000/P1,800,000 X P330,000) 115,500
Final basis 514,500
Rate 20%
Vanishing deduction P 102,900

45. Assuming that the inherited property had no unpaid mortgage when received by
the present decedent. It was the present decedent who mortgaged the property
for P50,000 when he already owned it. He paid the mortgage indebtedness
before he died. How much was the vanishing deduction?
a. P 508,333 c. P 208,333
b. P 225,000 d. P 108,333

Answer: D
Value to take P 650,000
Less: Mortgage paid -
Initial basis 650,000
Less: Proportional deduction (650,000/1,800,000 x 300,000) 108,333
Final basis 541,667
Rate 20%
Vanishing deduction P 108,333

46 and 47 are based on the following: The decedent is a resident unmarried head
of family who died on March 1, 2018. He left the following properties,
obligations and expenses:
Real and personal properties P14,000,000
Family home 30,000,000
Ordinary deductions
Unpaid real estate tax 2,000,000
Medical expenses 600,000

46. The taxable net estate if he dies in 2018 is:

a. P42,000,000. c. P27,000,000.
b. P32,000,000. d. P23,000,000.

Answer: C
Reference: Section 8, Revenue Regulations No. 12-2018

Gross estate P44,000,000

Less: Deductions 2,000,000
Estate after deductions 42,000,000
Less: Family home (10,000,000)
Standard deduction (5,000,000)
Taxable net estate P27,000,000

47. Continuing the preceding number, the estate tax return shall be filed and the
estate tax paid on or before what date to avoid penalties:
a. March 1, 2019 c. September 1, 2018
b. March 1, 2021 d. None of the choices

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Answer: A

48. On March 1, 2018, Ms. Samira Aquino donated a piece of land to her best
friend, Mar Roxas. She also donated to a non-profit religious organization.
The donation to her friend was a piece of land which had an assessed value of
P1,000,000 and zonal value of P800,000 at the time of donation. The donations
to a non-profit religious organization were cash amounting to P200,000 and an
automobile with a purchase price of P700,000. The piece of land was encumbered
with an unpaid mortgage of P300,000 which was not assumed by the donee. In
addition, the donee agreed to pay the applicable donor’s tax of P210,000.

How much was the total deductions?

a. P1,410,000 c. P 900,000
b. P1,200,000 d. None of the choices

Answer: C
Gifts to a non-profit religious organization (200,000 + 700,000) P 900,000

49 and 50 are based on the following: During the current year, Jose Tugas who
resides in 158 R. Papa Street, Sampaloc Manila and with TIN 135-567-890-006 made
the following gifts:
Date Donee Amount of donation
June 1, 2018 Anton, his son, on P150,000 cash
account of his
marriage celebrated
June 1, 2018
July 10, 2018 His friend Carlos P400,000 a second-hand motor vehicle
September 30, 2018 His daughter Dana P450,000 cash dowry, on account of
her scheduled marriage on October 25,
2018
November 23, 2018 His father A parcel of land worth P180,000,
subject to the condition that his
father would assume the mortgage
indebtedness of Jose in the amount of
P40,000;

49. Using Donor’s Tax Return (BIR Form No. 1800), how much will be reflected on
line 14 for the return to be filed on November 23, 2018?
a. P1,140,000 c. P140,000
b. P 890,000 d. None of the choices

Answer: B
25 Personal property (From Part V Schedule A) P -
26 Real property (From Part V Schedule B) 180,000
27 Total gifts in this return 180,000
Less: Deductions allowed (Sum of items 28 to 32)
28 Mortgage assumed by the donee 40,000
34 Total net gifts in this return (Item 27 less Item 28) 140,000
35 Add: Total net gifts during the calendar year (Item 36 of
return previously filed with the year)
June 1, 2018 150,000
July 10, 2018 400,000
September 30, 2018 450,000 1,000,000
36 Total net gifts (Sum of Items 34 and 35) 1,140,000
37 Less: Exempt gift 250,000
38 Total net gifts subject to tax (Item 36 less Item 37) P 890,000

50. Using the Donor’s Tax Return (BIR Form No. 1800), how much will be reflected
on line 18?
a. P53,400 c. (P6,600)
b. P 8,400 d. None of the choices

Answer: B
14 Total net gifts subject to tax (From Part IV Item 38) P890,000
15 Applicable donor’s tax rate 6%
16 Total donor’s tax due (Item 14 x Item 15) 53,400

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17 Less: Tax credit/payments

17A Payments for prior gifts during the taxable year
(1,000,000 – 250,000 x 6%) 45,000
18 Tax payable/Overpayment ((Item 16 less Item 17A) P 8,400

51 to 54 are based on the following: Your client, Antonio Manuel, is engaged in

various transactions that are subject to percentage taxes. His address is 143 S.
Loyola Street, Sampaloc, Manila. The TIN is 143-678-910-005. He is under RDO
032. Email ad is Antoman@gamil.com.

The following data for the first quarter of the current year are presented for
your perusal. Answer the questions by filling up the line in the actual
Quarterly Percentage Tax Return (2551Q).
Gross receipts, sale of gas and water P1,500,000
Expenses, sale of gas and water 200,000
Gross receipts, rentals of office spaces, net of 3% withholding tax 727,500
Expenses, rental of office spaces 150,000
Gross receipts, life insurance premiums 800,000
Expenses, life insurance business 100,000

51. Using line 14 of BIR Form 2551 Q, how much is total tax due?
a. P68,500 c. P30,000
b. P46,000 d. None of the choices

Answer: A
Alpha numeric
tax code (ATC) Taxable amount Rate Tax due
PT 060 P1,500,000 2% P30,000
PT 010 750,000 3% 22,500
PT 120 800,000 2% 16,000
Total tax due P68,500

52. Assuming your client filed the return and paid the tax on July 25 and it was
found out that it was due to willful neglect, using line 20, how much is the
surcharge?
a. P36,305 c. P17,125
b. P34,250 d. None of the choices

Answer: B
Total tax due P68,500
Surcharge rate 50%
Surcharge for willful neglect P34,250

53. Using the same information in the preceding number, using line 21, how much is
the interest?
a. P8,220 c. P2,055
b. P3,425 d. None of the choices

Answer: C
Interest on delinquency (April 25 to July 25)
(68,500 x 12% x 3/12) P2,055

54. Using line 24, how much is the total amount payable excluding compromise
penalty?
a. P104,805 c. P82,305
b. P 85,730 d. None of the choices

Answer: C

14 Total tax due (From schedule 1 item 7) P68,500

Less: Tax credit/payment (attach proof)
15 Creditable percentage tax per BIR Form No. 22,500
2307
Tax still payable 46,000
Add: Penalties
20 Surcharge 34,250
21 Interest 2,055
Total amount payable P82,305

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55 and 56 are based on the following: VAT and Percentage Taxes are based on the
following: In the year 2018, Mr. Nicko Macariola has the following transactions:
Gross receipts, trucking business P1,500,000
Gross receipts, lease of residential units
(monthly rental is P20,000 per unit) 2,500,000
Gross receipts, practice of accountancy 1,000,000
Sale of four (4) residential lots at P1,500,000 each to
four (4) individual buyers 6,000,000
Sale of three (3) parking spaces at P500,000 each 1,500,000

55. How much is the VAT-exempt gross receipts, assuming the taxpayer is VAT-
registered?
a. P8,500,000 c. P3,500,000
b. P6,000,000 d. None of the choices

Answer: B
Sale of four (4) residential lots at P1,500,000 each to four
(4) individual buyers P6,000,000

56. How much is total VAT-subject amount, assuming the taxpayer is not VAT-
registered?
a. P8,500,000 c. P6,500,000
b. P7,500,000 d. None of the choices
Answer: C
Gross receipts, trucking business P1,500,000
Gross receipts, lease of residential units 2,500,000
Gross receipts, practice of accountancy 1,000,000
Sale of three (3) parking spaces at P500,000 each 1,500,000
Vatable gross amount P6,500,000

57. In 2018 a stockholder of a closely held corporation owns 100,000 shares before
the IPO. The cost of the share is P1,000,000. During the IPO, the shares are
selling at P12 per share. After the IPO, the outstanding shares of the closely
held corporation are 1,000,000 shares and are now selling at P14 per share at
the local stock exchange.

Your friend asks for your advice whether to sell his shares during the IPO
through the local stock exchange or sell after the IPO not through the local
stock exchange. What advice will you give him?
a. Sell during the IPO because he will pay lesser tax.
b. Sell after the IPO but directly to a buyer so that he will pay lesser
tax.
c. Sell any time because there is no advantage as far as taxes due are
concerned.
d. Sell it below cost after the IPO directly to a buyer so he will not be
subject to tax on capital gain.
Answer: D
Sell
Sell during directly to
IPO buyer after
IPO
Gross selling price P1,200,000 P1,400,000
Less: Cost - 1,000,000
Gross selling price/net capital gain P1,200,000 P 400,000
Rate 4% 15%
Tax due P 48,000 P 60,000

Ratio = 100,000 shares/1,000,000 shares 10%

58. VAT and Percentage Taxes The VAT on importation of goods which are
subsequently used or sold in the course of trade or business by a VAT-
registered importer shall be treated as:
a. expense. c. tax credit.
b. inventoriable cost. d. none of the choices.

Answer: C

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59 and 60 are based on the following: ABC Corporation, VAT-registered real estate
dealer, sold a residential lot on July 2, 2018 for P1,500,000. The down payment
was P200,000. The zonal value of the subject property at the time of sale amounted
to P2,000,000.

59. Would the sale qualify under installment plan?

a. Yes, because the initial payment did not exceed 25% of the selling price.
b. No, because the amount of the initial payments were not known.
c. Yes, because the sale had initial payments and, therefore, qualified
under installment plan.
d. No, because, as a rule, sale of real property would always be considered
sale under cash basis.

Answer: A
Initial payment/selling price (300,000/1,500,000 = 29%) does not exceed 25%.

60. How much was the output tax on the installment payment?
a. P3,600 c. P2,000
b. P2,400 d. None

Answer: D
Sale of residential lot valued at P1,500,000 and below is exempt from VAT
under the TRAIN.

61. Mr. Florence Binaluyo donates a piece of land to the City of Masbate. The
fair market value per BIR of the piece of land is P2,000,000 and its value per
Tax Declaration is P1,800,000. How much is the documentary stamp tax, if any?
a. P30,000 c. None, exempt from DST
b. P27,000 d. None of the choices

Answer: C
Transfers exempt from donor’s tax under Section 101(a) and (b) of the
Tax Code shall be exempt from the tax imposed under this Section.

62. On every original issue, whether on organization, reorganization or for any

lawful purpose, of shares of stock by any association, company or corporation,
the documentary stamp tax is:
a. One peso and fifty centavos (P1.50) on each Two hundred pesos (P200),
or fractional part thereof, of the par value of such stock.
b. Two pesos (P2.00) on each Two hundred pesos (P200), or fractional part
thereof, of the par value, of such shares of stock
c. Three pesos (P3.00) on each Two hundred pesos (P200), or fractional part
thereof, of the par value, of such shares of stock
d. Fifteen pesos (P15.00) on each Two hundred pesos (P200), or fractional
part thereof, of the par value, of such shares of stock

Answer: B

63. These are taxes on goods manufactured or produced in the Philippines for domestic
sales or consumption or for any other disposition and to things imported as well as
services performed in the Philippine, which tax shall be in addition to the value-
added tax.
a. Percentage Taxes
b. Income Tax
c. Documentary Stamp Taxes
d. Excise Taxes

Answer: D

64. Which of the following articles shall be subject to specific excise tax?
a. Excise tax on alcoholic products
b. Excise tax on automobiles
c. Excise tax on non-essential services
d. Excise tax on sweetened beverages

Answer: D

65. A residential building located in one of the cities in Metro Manila has a fair
market value of P10,000,000. The city ordinance fixed the actual assessment

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level at 60%. How much is the basic real property tax, excluding the Special
Educational Fund (SEF)?
a. P120,000 c. P30,000
b. P 60,000 c. None of the choices

Answer: A
Fair market value P10,000,000
Multiplied by assessment level 60%
Assessed Value 6,000,000
Tax rate 2%
Basic real property tax P 120,000

66. Unless otherwise provided in the Local Government Code, the tax period of all
local taxes, fees and charges shall be:
a. calendar year.
b. fiscal year.
c. either calendar year or fiscal year at the option of the taxpayer.
d. neither calendar year nor fiscal year at the option of the LGU.

Answer: A

67. Case 1: The City of Masbate passed an ordinance granting senior citizens free
movie viewing on certain days.

Case 2: The City of Masbate passed an ordinance limiting the discount given
to senior citizens at 15% instead of 20%.

a. Only Case 1 is valid.

b. Both cases are valid.
c. Only Case 2 is valid.
d. Both cases are not valid.

Answer: A

68. The following data are taken from the books of a VAT-registered manufacturer
of cigarettes:
Gross sales P4,900,000
Sales returns 500,000
Sales discount, determinable at the time of sale 100,000
Excise tax 150,000
Value-Added Tax 540,000
Local tax passed-on to customers 100,000

For local business tax purposes, the taxable amount is:

a. P5,000,000 c. P3,710,000
b. P4,500,000 d. None of the choices

Answer: C
Gross sales (4,900,000 + 100,000) P5,000,000
Less: Sales returns 500,000
Sales discount 100,000
Excise tax 150,000
Value-Added Tax 540,000 1,290,000
Taxable amount P3,710,000

69 and 70 are based on the following: A PEZA-registered entity engage as an export

enterprise provided you with the following information for the current taxable
year:
Export sales P45,500,000
Direct costs 27,000,000
Administrative expenses 5,650,000
Marketing expenses 2,720,000
Other operating expenses 1,330,000
Incidental losses 320,000

Additional information:
a. Domestic sales at P24,500,000 with direct cost at P14,700,000

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b. Other expenses related to the domestic sale incurred amounted to

P3,206,400
c. PEZA Letter of Authority No. 18-ERD-LS-FP/EE-0001 provides domestic sales
limitation at 30%

69. What is the entity’s total income tax for the year?
a. P 925,000 c. P2,903,080
b. P1,978,080 d. None of the choices

Answer: C
Gross sales (export) P45,500,000
Less: Direct costs 27,000,000
Gross income 18,500,000
Tax rate 5%
Tax due P 925,000
Share of the National Government (3% x 18,500,000) P 555,000
Share of the local government (2% x 18,500,000) P 370,000

Gross sales (domestic) P24,500,000

Less: Direct costs (domestic sales) 14,700,000
Gross income (domestic sales) 9,800,000
Less: Deductible expenses 3,206,400
Taxable income P 6,593,600
Normal corporate income tax (6,593,600 x 30%) P 1,978,080
Minimum corporate income tax (9,800,000 x 2%) P 196,000
Tax due (higher) P 1,978,080

Income tax on export sales P 925,000

Income tax on domestic sales 1,978,080
Total P 2,903,080

70. What is the entity’s income tax if the PEZA Letter of Authority No. 18-ERD-LS-
FP/EE-0001 provides domestic sales limitation at 30% as a condition for fiscal
incentives?
a. P4,522,080 c. P1,978,080
b. P2,903,000 d. None of the choices

Answer: A
Gross sales (45,500,000 + 24,500,000) P70,000,000
Less: Direct costs (27,000,000 + 14,700,000) 41,700,000
Gross income 28,300,000
Less: Deductible expenses
Administrative expenses 5,650,000
Marketing expenses 2,720,000
Other operating expenses 1,330,000
Incidental losses 320,000
Other expenses related to the domestic 3,206,400 13,226,400
sale
Taxable income P15,073,600
Normal corporate income tax (15,073,600 x 30%) P 4,522,080
Minimum corporate income tax (28,300,000 x 2%) P 566,000
Tax due (higher) P 4,522,080

Domestic sales over total sales is 35% (24,500,000/70,000,000).

Since the PEZA-registered entity is an export enterprise subject to 5%

special tax regime but did not comply with the condition for fiscal
incentive, all the entity’s income shall be subject to the normal corporate
income tax of 30% under the Tax Code.

END OF EXAMINATION

TAXATION – FINAL PRE-BOARD EXAMINATION (BATCH 41)