Taxation

Dorothy A.
Apolinario
Prelim Bring-Home Exam- Income Taxation
Nov. 20, 2020
1.) Which of the following income is allowed to be reduced with itemized

deductions?
A. Capital Gain
B. Compensation income
C. Passive income
D. Business income
Explanation: There shall be allowed the following deductions from gross
income on all ordinary and necessary trade and business expenses paid
or incurred during the taxable year in carrying on.
3.) Jennie bought equipment under a two-year installment basis to be used in

his office in the practice of her profession. Jennie will pay P50,000 monthly for
a period of twelve (12) months. for income tax purposes, the P50,000 monthly
payment shall be?
A. Treated as capital expenditure, hence not deductible
B. Treated as depreciation expense, hence deductible
C. Treated as ordinary business expense.
D. Treated as business rental, hence deductible
Explanation: Depreciation is the process of allocating the cost of a
tangible asset over its useful life and is used to account for declines in
value.Expenses for the purchase of personal protective equipment, test
kits and medical equipment will be tax-deductible.
5.) The following are non-taxable housing fringe benefit, except

A. free housing privilege to a corporate officer
B. housing for military official of the Armed Forces of the Philippines
C. housing within 50 meters of business premises
D. temporary housing within three months or more
Explanation: It should be temporary housing within three months or less
8.) Mr. X reimbursed the following expense liquidation of its managerial

employee: Purchase of office supplies, P20,000
Personal meals and groceries, P15,000
Gasoline for transportation (1/2 for business), P8,000
Office electricity, water, and telephone bills, P12,000
How much is the monetary value of fringe benefits?
Personal meals and groceries P 15,000

Gasoline for transportation (1/2 x 8000) 4,000
Monetary Value of Fringe Benefits P 19,000
9. ) In 2018, a corporation granted the following benefits to a managerial
employee:
Salary of household personnel, P12,000 per month
Salary of a personal driver, P10,000 per month
Homeowner's association dues, P4,000 annually.
What is the ANNUAL fringe benefits tax? (USE TWO DECIMAL PLACES.
ROUND-OFF TO THE NEAREST HUNDREDTHS)
Salary of Household Personnel (12,000x12) P 144,000

Salary of Personal Driver (10,000x12) 120,000
Homeowners Association Dues 4,000
Monetary Value P 268,000
Divided by 65%
Grossed-Up Monetary Value 412,307.69
Multiplied by 35%
Annual Fringe Benefit Tax P 144.307.69
10. ) ABC Company designated a residential property for the use of its
managerial employee. The lot has a zonal value of P3,500,000 and
P2,000,000 value per tax declaration. The assessed value on the
improvement on the lot was P1,500,000. The lot was purchased at a cost of
P2,000,000.
Compute the monetary value to be reported in the QUARTERLY fringe

benefits tax return.
Zonal Value P 3,500,000
Assessed Value 1,500,000
Fair Market Value P 5,000,000
Multiplied by: 5%
Total 250,000
Multiplied by: 50%
Total 125,000
Divided by (# or quarters) 4
Quarterly Monetary Value P 31,250
11. ) Stark Corp. made the following contributions during 2019:

Contributions to the Government-non priority activities P60,000
Contributions to foreign charitable institutions 40,000
Contributions to accredited NGO 30,000
Contributions to foreign organizations with treaty 100,000
Stark Corp has net income before contribution expense of P1,000,000. What
is the deductible contribution expense?
Contributions to the Gov’t non priority activities

Actual 60,000
Limit (1,000,000 x 5%) 50,000 (lower) 50,000
Contributions to accredited NGO

Actual 30,000 (lower)
Limit (1,000,000 x 5%) 50,000 30,000
Contributions to foreign organizations with treaty 100,000

Total Deductible Contribution Expense P180,000
13.) GY Corporation shows the following data for the taxable year: Sales,
P500,000
Interest income, net of 20% final tax, 24,000
Cost of Sales, 300,000
Salary expense, 120,000
Interest expense, 60,000
Rent expense, 24,000
Advertising expense, 6,000
Depreciation expense, 5,000
NOLCO, 50,000
What is the amount of itemized deduction that will be allowed by BIR as a
deduction?
Interest expense 60,000

Less: Limitation
Int Inc.subject to FT
(24,000/80%) 30,000
Multiply by 33% (9,900) 50,100
Salary Expense 120,000

Rent Expense 24,000
Advertising Expenses 6,000
Depreciation Expense 5,000
Total Itemized Deduction 205,100
14. ) ABC, Inc. purchased shares of stock of XYZ Corp for P60,00 and of JKL
Co. for P30,000. At the end of the taxable year, it was ascertained that its
XYZ Corp. stock was worthless because of the complete insolvency of the
corporation, and its JKL Co. shares value had declined to P28,000.
How much is the deductible loss of ABC, Inc.?

60,000 amount of shares purchased by ABC Incorporated
18. ) During 2004, Juan Kwan received the following income:

Interest from Philippine Treasury Certificates P4, 000
Refund pertaining to 2003 income tax 50,000
The total amount of interest subject to tax in Kwan’s 2004 income tax return
was:
0, no amount of interest that is subject to tax in Kwan’s 2004 ITR
because the refund is more than the amount payable.
21. ) On July 1, 2016, JK leased his vacant lot for a period of 12 years to LM
at an annual rate of P2,400,000. It was also agreed that LM will pay the
following in 2016:
P4,800,000 representing rental payment for 2 years.
Security deposit of P2,400,000
Annual real property tax of P30,000
The lease contract provides, among others that LM will construct a 5-storey
building for parking purposes at a cost of P36,000,000. Ownership of the
building shall belong to JK upon the expiration of the lease contract. The
building was completed on July 1, 2018 with an estimated useful life of 15
years.
Assuming JK will use the spread-out method in recognizing income from
leasehold improvements, how much is the total income from the lease for the
year 2018?
Rental (4,800,000/2) P 2,400,000
Income in leasehold
((36,000,000x5/12)/10x6/12) 600,000
Annual Property Tax 30,000
Taxable Income P 3,030,000
22. ) Mandu Company paid the following taxes in 2018:

Income tax: P120,000
Excise tax: P150,000
Local business taxes: P100,000
Donor's tax: P60,000
Real estate tax: P70,000
The excise tax, real estate tax and P60,000 of the income tax were refunded
in 2018. If the income of Mandu in 2018 was P1,200,000, the taxable income
for the year should be:
Tax in 2018 P 1,200,000
Excise Tax 150,000
Real Estate Tax 70,000
Taxable Income P 1,420,000
following in 2016:
years.
How much should JK report as income in the year 2017?
Answer: P 30,000 Annual real property tax of lessee
25.) On January 1, 2019, Jennie leased her land to Kim. The terms of the
contract is for 15 years and the rental fee is P360,000 a year. The contract
provides that Kim will construct a building and at the end of the term of the
contract, the ownership of the building will be transferred to Jennie. The
building has a useful life of 30 years and was completed on January 1, 2020,
at a cost of P6,000,000.
Assume that Jennie will spread his income over the term of the contract of
lease. For income tax purposes, Jennie's 2020 income is?
Annual Rental Fee P 360,000

Annual Building Fee (6,000,000/30) 200,000
Total Income in 2020 P 560,000
following in 2016:
years.
JK shall report total income from the lease in 2016 at?
4,800,000 rental payment for 2 yrs.

30,000 Annual property tax
4,830,000 total income from the lease in 2016
27. ) The following was taken from the income statement of a domestic
corporation for the taxable year 2020:
Gross profit on sales 800,000
Less: Deductible expense (440,000)
Provision for Bad Debts (80,000)
Net income before tax 280,000
Additional information:
Accounts written-off during the year and charged to allowance for bad debts
amounted to P50,000
Recoveries on accounts receivable previously written off in 2018 and credited
to allowance for bad debts:
Allowed as deduction by the BIR: P30,000

Disallowed by the BIR as deduction: P20,000
The taxable income of the corporation in 2020 should be?

Gross profit on sales P 800,000
Less: Deductible Expense (440,000)
Less: Provision for Bad Debts (50,000)
Net Income Before Tax P 310,000
Add: Recoveries on A/R 30,000
Taxable Income P 340,000
28. ) An individual taxpayer has the following data for the year 2020: Interest
paid, business loan P100,000
Interest paid, loan to finance a personal car 500,000
Interest expense on delinquency business-related taxes 50,000
Interest income, BDO GenSan Branch (net) 24,000
For income tax purposes, the deductible interest expense shall be
100,000
50,000
(9,900) (24,000/80%x33%)
140,100 Total Deductible
29. ) Jennie acquired a property for use in her business. After a devastating
typhoon, the machinery suffered partial damage. The following were made
available:
Cost P500,000
Accumulated Depreciation 300,000 Restoration Cost 250,000
Est. Useful Life 5 years
How much is the deductible loss?

Cost P 500,000
Less: Accum Dep’n 300,000
Deductible Loss 200,000
30. ) A domestic corporation has the following data on income and expenses:
Gross income from business, P6,200,000
Deductions including SSS and Phil Health contributions of P150,000,
P2,500,000
Contributions to the Government for priority project in education, P100,000
Contribution to a foreign private foundation, P100,000
Contribution to domestic charitable organization, P190,000
How much is the deductible charitable and other contributions?

Contribution to a foreign private foundation P 100,000
Deduction:
Actual = 190,000
Limit( 6,200,000-2,500,000x5%)= 185,000(lower) 185,000
Total Deductible P 285,000
40. ) The 14th month pay is included in the P90,000 non-taxable 13th month
pay and other benefits.
Select one: True
False
46. ) The option to avail of optional standard deduction or itemized deduction

could be opted for each quarter.
Select one: True
False
Explanation: You can use only one scheme for the taxable year. If you
already checked the itemized deduction scheme during the first quarter,
you have to use itemized deductions for the succeeding three quarters
as well.
49. ) If the debt is canceled due to services rendered by the debtor, the basis
of tax is the value of the service rendered.
Select one: True
False
Explanation: The amount of indebtedness condoned in consideration for
services rendered is the basis of tax.

Taxation

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Dorothy A.

1.) Which of the following income is allowed to be reduced with itemized

3.) Jennie bought equipment under a two-year installment basis to be used in

5.) The following are non-taxable housing fringe benefit, except

8.) Mr. X reimbursed the following expense liquidation of its managerial

How much is the monetary value of fringe benefits?

Personal meals and groceries P 15,000

Salary of Household Personnel (12,000x12) P 144,000

Compute the monetary value to be reported in the QUARTERLY fringe

11. ) Stark Corp. made the following contributions during 2019:

Contributions to the Gov’t non priority activities

Contributions to accredited NGO

Contributions to foreign organizations with treaty 100,000

Interest expense 60,000

Salary Expense 120,000

How much is the deductible loss of ABC, Inc.?

18. ) During 2004, Juan Kwan received the following income:

22. ) Mandu Company paid the following taxes in 2018:

Annual Rental Fee P 360,000

JK shall report total income from the lease in 2016 at?

4,800,000 rental payment for 2 yrs.

Allowed as deduction by the BIR: P30,000

The taxable income of the corporation in 2020 should be?

For income tax purposes, the deductible interest expense shall be

How much is the deductible loss?

How much is the deductible charitable and other contributions?

46. ) The option to avail of optional standard deduction or itemized deduction

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