MASAOY, TRIXIE MARIE C.

3FM4

1. The following describes a deduction , except:

a. It is charged against a taxpayers gross income to arrive at taxable income
b. It is not a receipt
c. It has the effect of reducing the amount against which the income tax will be based
d. It is the privilege from a charge or burden to which others are subjected

2. First Statement – Deductions from gross income are matters of legislative grace, i.e., what is
not expressly granted by Congress is withheld.
Second Statement – Only those enumerated in Section 34 of the Tax Code and special
laws may be claimed as deductions from Gross income to arrive at Taxable Income.
a. True, true
b. True, False
c. False, False
d. False, True

3. The following are the requisites in order for an expense to be considered as an allowable
deduction from gross income, except:
a. It is not ordinary and necessary to the taxpayer’s trade, business or profession
b. It is linked to the taxpayer’s trade, business or profession
c. Its amount must be reasonable
d. Its payment must be legitimate

4. The following are the conditions in order for any expense be allowed as a deduction
from gross income, except:
a. It must be paid during the taxable year – “or incurred”
b. Its amount must be reasonable
c. It must be properly substantiated with evidence
d. If the income payment or accrual is subject to withholding, the corresponding withholding tax
must have been withheld and paid to the BIR.

5. The following are the characteristics of Capital expenditure, except:

a. Incurred in the acquisition, betterment or permanent improvement of an asset
b. Akin to the acquisition of capital assets which normally should be spread over a
reasonable period of time
c. Expected to benefit more than one accounting period
d. Benefits one accounting period and is a deduction from gross income in the year
paid or incurred
6. The following taxpayers are allowed to claim optional standard deductions (OSD), except:
a. Resident Citizen
b. Non-resident Citizen
c. Resident Alien
d. Non-resident alien

7. The basis of determining OSD for an individual is:

a. Gross income
b. Gross sales or gross receipts
c. Net income
d. Taxable income

8. The following corporate taxpayers are allowed to claim OSD, except:

a. Proprietary educational institutions
b. Domestic corporation
c. Resident foreign corporation
d. Non-resident foreign corporation

9. The basis of determining OSD for a corporate taxpayer is:

a. Gross income
b. Gross sales or gross receipts
c. Net income
d. Taxable income

10. Statement 1- Exclusions are items or amounts allowed to be subtracted from gross income to
arrive at the taxable income.
Statement 2- Deductions from gross income are not presumed.
a. True, true
b. True, false
c. False, false
d. False, true

11. The following are related parties enumerated on section 36(b) of the Tax Code whereby
interest expense is not deductible, except:
a. Between members of a family, which shall include only his brothers and sisters, spouse,
ancestors and lineal descendants.
b. Except in the case of distribution in liquidation, between an individual and corporation
more than 50% in value of the outstanding stock of which is owned, directly or indirectly,
by or for such individual
c. Between the grantor and a fiduciary of any trust
d. Between the fiduciary of a trust and the fiduciary of another trust if another person
is a grantor with respect to each trust
12. Interest expense incurred to acquire an asset used in the course of trade or business and such
asset could be subject to an allowance for depreciation is
a. Cannot be allowed as a deduction from gross income
b. Can only be allowed as a deduction from gross income
c. May either be capitalized, added to the cost of the asset, or claimed as an outright interest
expense at the prerogative of the taxpayer
d. May either be capitalized, added to the cost of the asset, or claimed as an outright interest
expense at the prerogative of the Commissioner of Internal Revenue (CIR)

13. Avenger Incorporated is engaged in manufacturing clothes. It reported the following during
the year ended December 31, 2021:
Sales Php100,000,000
Cost of sales 60,000,000
General and Administrative expenses 10,000,000
Interest income on PH Bank deposit(gross) 1,000,000
Interest expense 2,000,000
The allowable interest expense is:
a. Php1,000,000
b. Php2,000,000
c. Php1,800,000
d. Php660,000

SOLUTION :

Interest Incurred = 2,000,000

Interest Income = 1,000,000 x .20 = 200,000
Allowable Interest Expense = 2,000,000 – 200,000 = 1,800,000

14. The taxable income of the Corporation for the year ended December 31, 2021 is:
a. Php28,200,000
b. Php29,000,000
c. Php28,000,000
d. Php40,000,000

SOLUTION :

Gross Income = 40,000,000

Interest Expense = 2,000,000
Interest Income = 200,000
General Administrative Expenses = 10,000,000

40,000,0000 – 11,800,000 = 28,200,000

15. The following taxes are non-deductible from gross income, except:
a. Income tax
 b. Income taxes paid to foreign country in case of a taxpayer who does not signify in his/its
income tax return to claim credit of the same against its Philippine income tax
c. Estate tax
d. Donor’s tax

16. Net operating loss is the excess over gross income, as defined in section 32 of the Tax Code,
less one of the following
a. The itemized deductions
b. The optional standard deductions

Both itemized and optional standard deductions

c. Neither itemized and optional standard deductions

17. Net operating loss is allowed as carry-over, as indicated on the following, except:
a. For the immediately succeeding three (3) years following the year of such loss
b. For the immediately succeeding three years following the year of such loss whereby
the taxpayer is enjoying income tax holiday.
c. For mines other than oil and gas wells, who does not enjoy any incentive from the Board
of Investments, net operating loss for the first ten (10) years of operation, can be carried
over for the next five (5) years following the year of such loss
d. NOLCO for Taxable Year 2020 and 2021, and Fiscal Year ending on or before June
30,2021, and June 30, 2022 maybe carried over for the next five (5) consecutive taxable
years immediately following the year of such loss

18. MisterE Corporation sells goods and services in the ordinary course of its trade and business.
It had net sales and net revenue of P3,000,000 and P2,000,000, respectively. The actual
entertainment, amusement and recreational (EAR) expense for the taxable year totalled
P30,000.
How much is the deductible EAR expense? a.
Php30,000
b. Php25,000
c. Php27,000
d. Php0

SOLUTION :
3,000,000 x .005 = 15,000
30,000 x 2/5 = 12,000
27,000

Numbers 19 and 20 are based on the following:

 Wayne Arms, Incorporated has been operating since 1954. It presented you with the following results
of its operation
2017 2018 2019 2020
Sales 5,000,000 6,000,000 7,000,000 9,000,000
Cost of Sales 3,500,000 4,200,000 5,000,000 5,200,000
Itemized Deductions 1,550,000 1,820,000 2,100,000 2,300,000

19. The taxable income for the year 2020 is:

a. Php1,330,000
b. Php1,500,000
c. Php3,800,000
d. Php1,500,000

20. Assuming the total assets of Wayne Arms is Php200,000,000; the income tax still due for the
year ended December 31, 2020 is:
a. Php399,000
b. Php30,000
c. Php259,750
d. Php40,000

SOLUTION:

2017 2018 2019 2020

Sales 5,000,000 6,000,000 7,000,000 9,000,000
Cost of Goods Sold (3,500,000) (4,200,000) (5,000,000) (5,200,000)
Gross Income 1,500,000 1,800,000 2,000,000 3,800,000
Itemized Deductions (1,550,000) (1,820,000) (2,100,000) (2,300,000)
Net Operating Loss (50,000) (20,000) (100,000) 1,500,000
MCIT 30,000 36,000 40,000 (170,000)
RCIT 0 0 0 1,330,000
Multiply: 27.5
Tax Due 365,750
Deduct :
(30,000)
(36,000)
(40,000)
259, 750

The following depreciation method are allowed without the need of seeking permission for its use from
the Commissioner of Internal Revenue, except:
a. Straight line method
 b. Declining balance method
c. Sum-of-the-years-digit method
d. Units of production depreciation

21. Marvel Universe Incorporated contributed P4,000,000 to its pension plan during the year
ended 2020. As indicated in its Actuarial Valuation report, the current period contribution
should only be P3,000,000. How much can Marvel Universe. claim as pension contribution
deduction?
a. Php4,000,000
b. Php3,100,000
c. Php3,000,000
d. Php0

SOLUTION :

Current Service Costs 3,000,000

Past Service Costs 100,000
(1,000,000/ 10) 3,100,000

22. Which of the following charitable contributions is not deductible in full?

a. Donation to the Government of the Philippines to finance priority projects identified
by NEDA
b. Donation to the Municipality of Milagros in the Province of Masbate for the
repair of Municipal Hall
c. Donation to International Organizations
d. Donation to accredited Non-government Organizations

23. Deadpool Recreation Inc. has been operating for seven (7) years. During the year ended
December 31, 2020, it presented the following personnel expenses:
Casual employees paid with salaries within SMW Php750,000
Regular employees (80% was subjected to compensation 5,000,000
withholding tax)
Senior Citizen – living below poverty level 500,000
Persons with disability 200,000
The deductible expense of Deadpool Recreation Inc is: a.

Php6,450,000
b. Php5,575,000
c. Php5,700,000
d. Php4,000,000

SOLUTION :
500, 000 x .15 = 75,000
500,000 + 75,000 = 575,000
 Numbers 25 and 26 are based on the following:
Mr. Bruce Wayan presented you with the following data during the year:

Gross income from P1,000,000

business
other income 40,000
Long-term Capital gain 50,000
Short-term Capital loss 20,000
Operating expenses 400,000
Donation to an 30,000
accredited NGO
Donation to church 40,000

Solution:

Gross Income 1,000,000 1,000,000

Compensation 40,000 40,000

Long Term, CG 25,000 50,000

Short Term, CL 20,000 5,000 20,000 30,000
Itemized deductions (400,000) (400,000)
Taxable Income 645,000 670,000

30,000 30,000
40,000 33,000
575,000 606,500

24. How much is the taxable income? a.

Php505,000
b. Php525,000
c. Php575,000
d. Php555,000

25. Based on the above problem, but the taxpayer is a corporation, how much is the taxable
income?
a. Php570,000
b. Php606,500
c. Php545,000
d. Php600,000

Numbers 27 and 28 are based on the following: The

taxpayer is a domestic corporation:

Gross sales P9,350,000
Sales returns and allowances 250,000
 26. How much is the taxable income using itemized deduction?
a. P1,675,000 c. P1,700,000
b. P2,175,000 d. P2,200,000

SOLUTION :
Gross Sales 9,350,000
Sales Return and allowance (250,000)
Sales Discounts (100,000)
Interest Income on trade notes receivables 150,000
Other Income 50,000
Cost of Sales (3,000,000)
Gross Income 6,200,000
Less: OPEX with vouchers and receipts (4,000,000)
Taxable Net Income 2,200,000

27. Based on the preceding number, how much is the taxable income using OSD?
a. P3,755,000 c. P3,695,000
b. P5,470,000 d. P3,720,000

SOLUTION :
Gross Sales 9,350,000
Sales Return and allowance (250,000)
Sales Discounts (100,000)
Interest Income on trade notes receivables 150,000
Other Income 50,000
Cost of Sales (3,000,000)
Gross Income 6,200,000
Less: OPEX (6,200,000 x 40%) (4,000,000)
Taxable Net Income 3,720,000
28. Vicki Vale operates a convenience store while at the same time offers bookkeeping services
to her clients. In the year 2020, her gross sales amounted to Php1,800,000, in addition to her
gross receipts from bookkeeping services of Php400,000. During the same year, her cost of
goods sold and operating expenses were Php1,325,000 and Php320,000, respectively. How much
 is her taxable income assuming she availed of the optional standard deduction:

a. Php1,320,000
b. Php720,000
c. Php160,000
d. Php525,000

29. RMP Corporation, a domestic manufacturing corporation, had gross sales of P

100,000,000.00 for Fiscal Year ending June 30, 2021 and incurred cost of sales of
P60,000,000.00 and operating expenses of P17,500,000.00, with the following details:

Cost of Sales
Direct Materials Php 30,000,000.00
Direct Labor 20,000,000.00
Manufacturing Overhead 10,000,000.00
Total Php 60,000,000.00
Operating Expenses
Salaries and Wages Php 7,000,000.00
Taxes 300,000.00
Depreciation 3,500,000.00
Professional Fees 200,000.00
Advertising Expenses 3,000,000.00
Training Expenses 3,000,000.00
Office Supplies 500,000.00
Total Php 17,500,000.00

Assuming the corporation has complied with the withholding tax requirement on all
cost and expenses incurred subject to withholding tax, compute for the corporation’s net taxable
income:

a. Php22,500,000
b. Php23,000,000
c. Php21,000,000
d. Php19,500.000

SOLUTION:

Gross Sales 100,000,000

Cost of Sales 60,000,000
Gross Income 40,000,000
Exp. Before additional 17,500,000
Deduction
Additional Allowance Exp (1,500,000)
Net Taxable Income 21,000,000