CHAPTER 7

GROSS PROFIT

1. An act of liberality whereby a person disposes gratuitously of a thing or right in favor of

another who accept it.
a. Succession
b. Donation
c. Inheritance
d. Liquidation

2. When the donor intends that the donation shall take effect during the lifetime of the
donor, though the property shall be delivered till after the donor’s death, this shall be a:
a. Donation mortis causa.
b. Donation inter vivos.
c. Donation propter nuptias.
d. None of the choices.

3. When is the donation perfected?

a. The moment the donor knows of the acceptance by the done.
b. The moment the thing donated is delivered, either actually or constructively, to the
donee.
c. Upon payment of the donor’s tax.
d. Upon execution of the deed of donation.

4. (Phil. CPA) The following are the requisites of a donation for purposes of the donor’s
tax, except one:
a. Capacity of the donor
b. Capacity of the donee
c. Delivery of the subject matter or gift
d. Donative intent

5. For the donation to be considered valid, acceptance of the donation must be made:
a. During the lifetime of the donor only.
b. During the lifetime of the done only.
c. During the lifetime of the donor and donee.
d. None of the choices.

6. Which of the following donations inter vivos may not require that it be made in writing?
a. Donation of personal (movable) property, the value of which exceeds P5,000
b. Donation of personal (movable) property, the value of which is P5,000-oral
c. Donation of real (immovable) property, the value of which is less than P5,000
d. Donation of real (immovable) property, the value of which exceeds P5,000
7. Which of the following statements regarding donation of an immovable property is
incorrect?
 a. The donation must be made in a public document specifying therein the property
donated and the value of the charges which the donee must satisfy.
b. The acceptance may be made in the same Deed of Donation or in a separate public
document, but it shall not take effect unless it is done during the lifetime of the
donor.
c. If the acceptance is made in a separate instrument, the donor shall be notified thereof
in an authentic form, and this step shall be noted in both instruments.
d. None of the choices.

8. One of the following is not a distinction between donation inter vivos and donation
mortis causa.
a. Donation inter vivos takes effect during the lifetime of the grantor while donation
mortis causa takes effect after the death of the grantor.
b. Donation inter vivos is subject to donor’s tax while donation mortis causa is subject
to estate tax.
c. Donation inter vivos requires a public document while donation mortis causa may
not require a public document.
d. Donation inter vivos is valued at fair market value at the time the property is given
while donation mortis causa is valued at the fair market value at the time of the
death of the grantor.

9. Motivated by love, Mr. D donated a car to his brothers, Mr. E and Mr. F, the naked title
to Mr. E and usufruct to Mr. F for one year. Is the transfer of the car, naked title to Mr. E
and usufruct to Mr. F a valid donation?
a. Yes the transfer of the naked title to Mr. E and usufruct to Mr. F is a valid donation,
provided all the donees are living at the same time of donation.
b. No, the donation is not valid because it is specifically provided in the Civil Code that
such donation is not allowed.
c. Yes the donation is valid provided that Mr. E agrees to the donation of usufruct to Mr. F.
d. No, the donation is not valid because a right (usufruct) cannot be donated.

10. The tax imposed on the transfer of property without consideration between two or more
persons who are living at the time the transfer is made.
a. Estate tax
b. Donor’s tax
c. Business tax
d. Property tax

11. Donor’s tax is:

a. A property tax
b. A personal tax
c. A business tax
d. An excise tax
12. First statement: Donor’s tax shall be levied, assessed, collected and paid upon the transfer
of property by any person, resident or nonresident, as a gift.
Second statement: The donor’s tax shall apply whether the transfer is in trust or
otherwise, whether the gift is direct or indirect, and whether the property is real or
personal, tangible or intangible.
a. True, True
b. False, False
c. True, False
d. False, True

13. For purposes of donor’s tax, a “stranger” is a person who is not a:

I- Brother, sister (whether by whole or half blood), spouse, ancestor, and lineal
descendant.
II- Relative by consanguinity in the collateral line within the fourth degree of
relationship.

a. Both are correct

b. Both are incorrect
c. Only I is correct
d. Only II is correct

14. First statement: a legally adopted child is entitled to all the rights and obligations of
legitimate children as provided by law and therefore, donation to him shall not be
considered a donation made to a stranger.
Second statement: Donation made between business organizations and those made
between an individual and a business organization shall be considered as donation made
to a stranger.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

15. Which of the following is a stranger for the donor’s tax purposes?
a. The son of the donor’s first cousin
b. The donor’s grandmother
c. The donor’s spouse
d. A child born out of wedlock of parents who are legally impeded to marry each other
at the time the child is being conceived

16. Satement I: Any contribution in cash or in kind to any candidate political party or
coalition of parties, for campaign purposes, shall be govern by the Election Code, as
amended.
Statement II: Any provision of law to the contrary notwithstanding, any contribution in
cash or in kind to any candidate or political party or coalition of parties for campaign
 purposes duly reported to the COMELEC shall not be subject to the payment of any gift
tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

17. First statement: The donor’s tax shall not apply unless and until there is completed gift.
Second statement: The law in force at the time of the completion of the donation shall
govern the imposition of the donor’s tax.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct

18. When is the donation completed?

a. The moment the donor knows of the acceptance by the done
b. The moment the thing donated is delivered, either actually or constructively, to the
done
c. Upon payment of the donor’s tax
d. Upon execution of the deed of donation

19. A gift that is incomplete because of reserved powers, becomes complete when:
I- The donor renounces the power
II- His right to exercise the reserved power ceases because of some event or
contingency or the fulfillment of some condition, other than the donor’s death.

a. True in both I and II

b. Not true in both I and II
c. True in I only
d. True in II only

20. Which of the following renunciations shall be subject to donor’s tax?

a. Renunciation by the surviving spouse of his/her share in the conjugal partnership or
absolute community after the dissolution of the marriage in favor of the heirs of the
deceased spouse or any other person/s-general renunciation
b. General renunciation by an heir, including the surviving spouse, of his/her share in
the hereditary estate left by the decedent-not subj to donor’s tax
c. Renunciation by an heir, including the surviving spouse, of his/her share in the
hereditary estate left by the decedent categorically in favor of identified heir/s to the
exclusion or disadvantage of the other co-heirs.-subj to donor’s tax
d. None of the choices.

21. John sold his car to Sam for P200,000. John’s car cost P500,000, and had a fair value of
P400,000 at the time of sale. What was the tax consequence of the sale?
 a. There was a taxable gift of P300,000
b. There was a taxable gift of P200,000
c. The transfer was for insufficient consideration, hence, not subject to donor’s tax
d. The transfer involved a personal property, hence, not subject to donor’s tax

22. First statement: A transfer is gratuitous or without consideration and accordingly

qualifies as a donation, if no economic benefit measurable in money or money’s worth
flowed to the transferor from the transferee.
Second statement: A gratuitous transfer is always subject to donor’ tax.
a. True, True
b. False, False
c. True, False
d. False, True

23. (Phil. CPA) The common characteristic of transfer taxes is the transfer of property:
a. Is onerous.
b. Takes effect during the lifetime of the transferor.
c. Takes effect upon the death of the transferor.
d. Is gratuitous.

24. Who is not subject to donor’s tax?

a. An individual making a donation
b. A corporation making a donation
c. A partnership making a donation
d. An individual who pays premiums on the life insurance of another

25. When an indebtedness is cancelled without any service rendered by the debtor in favor
of the creditor, the forgiveness of debt will result to:
a. Taxable income
b. Distribution of dividend
c. Taxable indirect donation
d. Taxable estate

26. First statement: The gross gift of a donor who is a citizen or resident of the Philippines
will include all properties wherever situated.
Second statement: The gross gift of a donor who is not a citizen, and not a resident of the
Philippines will include only properties situated in the Philippines.
a. True, True
b. False, False
c. True, False
d. False, True

27. (Phil CPA Modified) Which of the following examples is not taxable?
a. A Filipino citizen donated a parcel of land located in the United States to B, non-
resident alien.
 b. On June 1, 1993, A made a gift of P200,000 to his daughter on account of her
marriage celebrated on May 1, 1992.
c. Mr. Ramos gives his girlfriend a diamond ring worth P100,000 as a birthday gift.
d. A and B are the only heirs of C. A renounces his share of inheritance in favor of B.

28. A nonresident citizen donor is taxed on his donation or properties

a. Situated in the Philippines only
b. Wherever situated
c. Situated outside the Philippines only
d. Situated in the Philippines subject to the rule of reciprocity

29. The rule of reciprocity that applies to estate tax also applies to:
I- Nonresident alien donor.
II- Intangible personal property situated in the Philippines.
a. Both I and II are correct
b. Both I and II are incorrect
c. Only I is correct
d. Only II is correct

30. Every donation or grant of gratuitous advantage, direct or indirect, between the spouses
during the marriage, shall be void, except:
a. Moderate gifts which the spouses may give each other on the occasion of any family
rejoicing.
b. Donation mortis causa.
c. Donation propter nuptials which are given before the marriage.
d. All the choices are correct exceptions.

31. Neither spouse may donate any conjugal partnership or community property without the
consent of the other. However, either spouse may, without the consent of the other, make
moderate donations from the community property:
I- For charity.
II- On occasions of family rejoicing or family distress.
a. Neither I nor II is a correct exception
b. Both I and II are correct exceptions
c. Only I is a correct exception
d. Only II is a correct exception

32. 1st statement: In all cases, void donations are not subject to donor’s tax.
2nd statement: Every donation between the spouses during the marriage shall be void.
a. Both statements are true
b. Both statements are false
c. First statement is true while second statement is false
d. First statement is false while second statement is true
33. Question No.1- Is donative intent always essential to constitute a gift? No. Where the
property, other than real property classified as capital assets, is transferred for less, than
as adequate and full consideration in money or money’s worth, the difference between
the fair market value at the time of transfer and the consideration received is subject to
donor’s tax.
Question No. 2- How is the donation made by the spouses from their conjugal properties
treated for donor’s tax purposes? The donation is taxable to the husband being head of
family, as long as the wife gives consent to it.
a. True, True
b. False, False
c. True, False
d. False, True

34. One of the following statements is correct.

a. A donation inter vivos by the husband and the wife jointly during the marriage is a
donation of conjugal property that will require one computation of the donor’s tax, if
the spouses are under the system of conjugal partnership of gains.
b. A donation inter vivos by the husband and wife jointly during the marriage is a
donation of community property that will require one computation of the donor’s tax,
if the spouses are under the system of absolute community of properties.
c. A donation inter vivos by the husband and the wife jointly during the marriage is a
donation of exclusive property by either spouse that will require one computation of
the donor’s tax, if the spouses are under the system of conjugal partnership of gains.
d. A donation inter vivos by the husband and the wife jointly during the marriage is a
donation of each spouse to the extent of one-half that will require separate
computation for two donor’s taxes, under whichever property relationship exists
between the spouses.

35. First statement: If properties are given as a gift, they shall be appraised at its fair market
value as of the time of donation.
Second statement: In valuing properties of donor’s tax, the principles on valuation of
properties for estate tax shall apply.
a. True, True
b. False, False
c. True, False
d. False, True

36. First statement: In showing gross gifts in the donor’s tax return, real property should be
valued at the current and fair market value, as shown in the assessment rolls, or the fair
market value, as determined by the Commissioner of Internal Revenue, whichever is
higher.
Second statement: In showing gross gifts in the donor’s tax return, personal property
should be valued at current fair market value or at cost, whichever is lower.
a. True, True
b. False, False
c. True, False
 d. False, True

37. (Phil. CPA) Mr. King was the President of a highly profitable corporation, which was
engaged in the marketing of cars. When Mr. King’s daughter got married to the son of a
government official, the corporation gave the newlywed couple a brand new car worth
P500,000, and entered the wedding gift in its books as an advertising expense.
First statement: The car is not taxable income to the couple because it is truly a wedding
gift, but the couple should pay the tax.
Second statement: The donor-corporation should pay the donor’s tax and deduct it from
its gross income.
a. Both statements are correct
b. Both statements are incorrect
c. Only the first statement is correct
d. Only the second statement is correct