UNIVERSAL COLLEGE OF PARAÑAQUE

COLLEGE OF BUSINESS & ACCOUNTANCY

TAXATION REVIEW SCORE

FIRST PREBOARD
DECEMBER 16, 2022
2:00PM – 5:00PM

NAME:____________________ YEAR & SECTION:____________ DATE:______________

Instructions: from the following multiple-choice questions below, choose the letter
of the best answer. Shade your answer on the separate sheet provided. Any erasure
on the answer sheet will result to a deduction of ten (10) points from the final
score. Good luck and fighting! Future CPA!!

Part I. Theoretical

1. Which of the following statements is/are correct?

Statement A: The power to tax includes the power to exempt.

Statement B: The power to tax includes the power to destroy.
Statement C: The power to license includes the power to tax.
Statement D: The power to tax and police power are superior to the non-impairment
clause of the Constitution.

a. Statements A and C are correct.

b. Statements B and D are correct.
c. Statements A and B are correct.
d. Statements C and D are correct.

2. Which statements is/are correct?

I. Equal protection of the law is the right of every taxpayer to be heard.
II. Equality is the same as progressive taxation.

a. True, true
b. True, false
c. False, true
d. False, false

I – Due process
II – Equality is based on one’s ability to pay; progressive is when the tax base
increase, the tax rate also increases.

3. Which of the following is not within the scope of tax legislation?

a. Fixing the imposable tax rate.
b. Assessment of the tax.
c. Determining the subject to be taxed.
d. Determining the purpose of the tax.

4. Which of the following aspects of taxation is (are) administrative in nature?

I. Levy
II. Assessment
III. Collection

a. I only
b. I and II
c. II and III
d. III only

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5. VINCE, who is a real estate dealer, sold a residential lot in Quezon City at a
gain of P100,000 (Selling price of P900,000 and cost of P800,000). The sale is
subject to income tax as follows
a. 6% capital gains tax on the gain
b. 6% capital gains tax on the gross selling price or fair market value, whichever
is higher.
c. Ordinary income tax at the graduated rates of 5% to 32% of net taxable income.
d. 30% income tax on net taxable income.

6. The concept of “situs of taxation” is based on which limitation of taxation?

a. Territoriality
b. International comity
c. Exemption from the government
d. Public purpose

7. The following taxpayers have the option to be taxed using the graduated tax table
or the preferential income tax rate of 8%, except
I. A resident citizen who is an employee
II. A non-resident citizen who is engaged in trade or business
III. A resident alien who is in the practice of his profession
IV. A non-resident alien who is engaged in trade or business
V. A non-resident alien who is not engaged in trade or business
VI. An estate or trust

a. I, II, IV, V and VI

b. I, V and VI
c. I, IV, V and VI
d. V and VI

8. Which of the following is TRUE in fringe benefits tax? If the foreign travel is
a business travel
a. The cost of plane ticket is exempted from FBT.
b. The traveling expenses are exempted from FBT.
c. Proof of expenses is required in all cases.
d. The cost of lodging is subject to FBT if it’s expensive.

9. Acting on the information given by A, the government seized and confiscated

smuggled goods with a fair market value of P40,000,000. A received his reward
amounting to
a. P4,000,000
b. P3,600,000
c. P900,000
d. P1,000,000

10. Which statement below expresses lifeblood theory?

a. The assessed taxes must be enforced by the government.
b. The underlying basis of taxation is government necessity for without taxation, a
government can neither exist nor endure.
c. Taxation is an arbitrary method of exaction by those who are in the seat of power.
d. The power of taxation is an inherent power of the sovereign to impose burdens
upon subjects and objects within its jurisdiction for the purpose of raising
revenues.

11. During the taxable year 2022, a domestic corporation may be held liable to pay
the following corporate income tax
I. RCIT of 25% or 20%
II. CGT on the sale of shares of stocks of a domestic corporation at 15% of capital
gains
III. MCIT of 1%
IV. IAET of 10%

a. I or III, II and IV
b. I and III, II and IV
c. I, II and IV
d. I or III and II

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12. The following are your clients as a Certified Public Accountant:
• Bran – an online seller of cakes and pastries whose gross sales amounted to
P300,000.
• Daenerys – an employee whose gross compensation income amounted to P3,000,000.
• Jon – an operator of cockpit arena (sabungan) whose gross receipts amounted to
P2,000,000.
• Sansa – a VAT-registered seller of goods whose gross receipts amounted to
P1,000,000.

Who among them is qualified to use 8% optional income tax?

a. Bran
b. Daenerys
c. Jon
d. Sansa

13. Statement 1: Trusts including employees’ trusts, whether revocable or irrevocable

are subject to income tax on all their income earned during a taxable year.
Statement 2: In the case of revocable trust, its income which may be held or
distributed for the benefit of the grantor shall be included in the income tax
return of the grantor.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are not true

14. When shall the MCIT be paid by a non-resident foreign corporation?

a. On the fourth year following the year it commences business.
b. When the MCIT is higher than the regular corporate income tax.
c. When both a and b concur.
d. None of the above.

15. Excise tax on certain articles is an example of

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

16. An individual, who is a real estate broker, sold a residential lot in Rizal at
a gain of P100,000. The sale is subject to income tax as follows
a. 6% CGT on the gross selling price or fair market value, whichever is higher
b. Ordinary income tax at the graduated tax table
c. 6% CGT on the gain
d. 30% income tax on net taxable income

17. The following are excluded in the “Gross Philippine Billings” for income tax
purposes of an international air carrier, except:
a. Tickets sold outside the Philippines for passengers originating from outside the
Philippines.
b. Passage documents sold outside the Philippines for excess baggage originating
from the Philippines.
c. Tickets sold in the Philippines for passengers originating from the Philippines
but are not actually flown.
d. Passage documents sold in the Philippines for cargoes originating from outside
the Philippines.

18. Which statement is correct? A non-stock, non-profit, charitable association that

sells its idle agricultural property is
a. Not required to file an income tax return, nor pay income tax on the transaction
to the BIR, provided the sales proceeds are invested in another real estate during
the year.
b. Required to pay the 6% CGT on the gross selling price or fair market value,
whichever is higher.
c. Mandated to pay the 30% RCIT on the gain from sale.
d. Required to withhold the applicable expanded withholding tax rate on the
transaction and remit the same to the BIR.

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19. UPSKI Corporation filed its Annual ITR for 2022 and chose therein the option to
be issued a tax credit certificate (“TCC”) for its excess creditable taxes amounting
to P5,000,000. In its Annual ITR for 2023, it declared the same P5,000,000
(previously applied for a TCC in the 2022 ITR) as “Prior Year’s Excess Credit”.
Subsequently, it filed an amended Annual ITR for 2023 wherein it reduced the “Prior
Year’s Excess Credit” to P2,000,000, and then filed a claim for refund/issuance of
a TCC for the balance of P3,000,000.

Is the taxpayer entitled to the refund of its 2022 excess CWTs in the amount of
P3,000,000?
a. Yes. The taxpayer is allowed to change its choice from carrying over its excess
creditable tax to electing a refund or TCC.
b. No. Once a taxpayer opts to carryover its excess creditable tax, it may not
subsequently elect a refund or issuance of TCC.
c. Yes. The taxpayer may insist that the insertion of the carry-over in the 2023
ITR was a mistake which can be revoked by amending the ITR.
d. None of the above.

20. The municipality of San Isidro passed on ordinance imposing a tax on installation
managers. At that time, there was only one installation manager in the municipality;
thus, only he would be liable for the tax.

Is the law constitutional?

a. It is unconstitutional because it clearly discriminates against this person.
b. It is unconstitutional for lack of legal basis.
c. It is constitutional as it applies to all persons in that class.
d. It is constitutional because the power to tax is the power to destroy.

21. What is the rule of taxability of income that a government educational

institution derives from its school related operations? Such income is
a. Exempt from income taxation in the same manner as government owned and controlled
corporations.
b. Exempt from income taxation if it is actually, directly, and exclusively used
for educational purposes.
c. Subject to the ordinary income tax rates with respect to income derived from
educational activities.
d. Subject to 10% tax on its net taxable income as if it is proprietary educational
institution.

22. Which of the following statements is/are correct?

I. Interest income derived within the Philippines from bank deposits, deposit
substitutes, and trust funds are taxed at 20% FWT for all individual taxpayers except
for NRA-NETB.
II. Royalties from books, literary works and musical compositions are taxed at 10%
FWT for all individual taxpayers except for NRA-NETB.
III. Prizes amounting to P10,000 or less will be taxed at 10% FWT for all individual
taxpayers except for NRA-NETB.
IV. PCSO and lotto winnings over P10,000 will be taxed at 20% FWT for all individual
taxpayers except for NRA-NETB

I II III IV
a. TRUE TRUE TRUE TRUE
b. TRUE TRUE FALSE FALSE
c. TRUE TRUE FALSE TRUE
d. TRUE TRUE FALSE TRUE

23. Which of the following is taxable based on income from all sources within and
outside?
a. Domestic Corporations
b. Resident Foreign Corporations
c. Non-resident Foreign Corporations
d. All of the choices

24. The income tax due from compensation is

a. 8% income tax rate on gross sales or receipts and other non-operating income in
excess of P250,000.

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b. Either graduated income tax rate or 8% income tax rate on gross sales or receipts
and other non-operating income in excess of P250,000.
c. Based on graduated income tax rates under Section 24(A)
d. Based on taxable income after deducting expenses and exemptions

25. 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
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.

26. As regards a general professional partnership, which of the following statements

is correct?
a. Treated like a corporation, hence it is subject to the corporate income tax
b. Partners’ share will be included in their respective ITRs whether distributed or
not.
c. Partners’ shares are subject to final tax.
d. It is exempt from income tax; hence it need not file an ITR.

27. Upon to the effectivity of CREATE Law, MCIT shall apply to which of the following
resident foreign corporation?
I. International carrier
II. Offshore banking units (OBUs) on their income from foreign currency transactions
with local commercial banks.
III. Regional or area headquarters

a. I only
b. II only
c. II and III only
d. I, II and III

28. To guide the taxpayers in the filing of the returns, Commissioner DIZON issued
Revenue Memorandum Circular No. 4-2021. This act is in keeping with
a. Fiscal adequacy
b. Theoretical justice
c. Administrative feasibility
d. Lifeblood doctrine

29. A citizen of the Philippines who works and derives income abroad is a resident
citizen if he stayed outside the Philippines
a. For less than 180 days
b. For more than 180 days
c. For less than 180 days
d. For 183 days or more

30. Which of the following is NOT one of the changes under CREATE Law?
a. The tax on PCSO winnings for NRA-ETB shall be 20% final withholding tax.
b. Effective July 1, 2020 to December 31, 2023, the other percentage tax shall be
1% then back to 3% afterwards.
c. IAET of 10% on improperly accumulated earnings has been repealed.
d. Foreign-sourced dividends received by a domestic corporation shall be exempt if
requirements under Section 27D are met.

31. Passive income includes income derived from an activity in which the earner does
not have any substantial participation. This type of income is
a. Usually subject to a final tax
b. Exempt from income taxation
c. Taxable only if earned by a citizen
d. Included in the income tax return

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32. Which of the following is not correct?
a. Any excess of the MCIT over the RCIT shall be carried forward and credited against
the RCIT for the three immediately succeeding taxable year.
b. The Secretary of Finance is authorized to suspend the imposition of the MCIT on
corporations which suffers losses on account of prolonged labor dispute or because
of force majeure, or because of legitimate business losses.
c. A MCIT of 1% of the gross income is imposed on taxable corporations beginning on
the 4th taxable immediately following the year in which such corporation was
incorporated. (operated)
d. The Secretary of Finance is authorized to promulgate, upon recommendation of the
CIR the necessary rules and regulations that shall define the terms and conditions
under which he may suspend the imposition of the MCIT in a meritorious case.

33. Which of the following is not a source of our tax laws?

I. Supreme Court Judicial Decisions
II. SEC Regulations and Rulings
III. Bureau of Customs Memorandum Orders
IV. Administrative rules and regulations
V. Legislations, tax treaties, and tax ordinances
VI. Opinion of authors

a. II, III and VI only

b. II, III and IV only
c. II and VI only
d. None of the above

34. Income from the performance of service is treated as income within the
Philippines, if
a. The payment of compensation for the service is made in the Philippines
b. The service is actually performed in the Philippines
c. The recipient of service income is a resident of the Philippines
d. The contract calling for the performance of service is signed in the Philippines

35. Assuming the situs of dividend is from Philippine sources and any requisites
for exemption are satisfied, which among the following dividend income received
during the effectivity of CREATE Law is tax-exempt? Dividend income received from
I. A domestic corporation by a domestic corporation
II. A domestic corporation by a resident foreign corporation
III. A resident foreign corporation by a resident foreign corporation
IV. A domestic corporation by a non-resident foreign corporation
a. I only
b. I, II and III only
c. All of the above
d. None of the above

36. Statement 1: Estates and trusts can deduct from their gross income the same
items of deductions authorized under the Tax Code as those allowed to individual
taxpayers. (T)
Statement 2: The schedular tax rates under Section 24(A), which are prescribed
for individuals, will be used in computing the income tax of estates and trusts.
(T)
Statement 3: The amount of income of the estate for the taxable year, which is
properly paid or credited during such year to any legatee, heir, or beneficiary,
is a special item of deduction from the gross income of the estate. (T)
Statement 4: An allowance paid to a widow or heir out of the corpus or principal
of the estate is deductible from the gross income of the estate.
(F – not deductible)
a. Only one of the above statements is true
b. Two of the above statements are true
c. Three of the above statements are true
d. All of the above statements are true

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37. Which of the following is NOT one of the changes under the CREATE Law?
a. Regional operating headquarters shall be treated as a regular resident foreign
corporation starting January 1, 2022.
b. Offshore banking units shall be taxed at 25% income tax rate.
c. Capital gains tax on sale of unlisted shares for all types of corporations shall
be at 15%.
d. Domestic and foreign corporations may qualify as Micro Small and Medium
Enterprises if their net taxable income does not exceed P5,000,000 and total assets,
excluding land, do not exceed P100,000,000.

38. Which of the following items is an income of a non-resident citizen subject to

the basic tax?
a. Dividend received from a domestic corporation
b. Prizes from USA lotto
c. Interest income from PNB
d. Share in the net income of general professional partnership

39. In computing the quarterly income tax payable of a domestic or resident foreign
corporation, the following may be credited against the MCIT, except:
a. Excess withholding taxes of prior year.
b. Taxes paid in previous quarterly ITRs during the year.
c. Creditable taxes withheld during the quarter.
d. Excess MCIT of previous years.

40. Income payments to persons residing in the Philippines as professional and talent
fees for services rendered shall be subject to creditable withholding tax of:

Statement I – If gross income for the year did not exceed P3,000,000 – 5%
Statement II – If gross income for the year is more than P3,000,000 – 10%
Statement III – If gross income for the year did not exceed P720,000 – 10%
Statement IV – If gross income for the year is more than P720,000 – 15%

a. All statements are correct

b. All statements are not correct
c. Statement 1 and 2 are correct
d. Statement 3 and 4 are correct

Part II. Situational

Situation 1:

The International State College of the Philippines (“ISCP”) was a domestic

educational institution established 1432. It is the first to offer Accountancy, Law,
and Medicine in Asia. It has produced many distinguished alumni, including
presidents, statesmen, and saints. For the taxable year ending December 31, 2022,
the ISCP had the following results of operations:

Gross receipts
From tuition fees 14,000,000
From rentals 2,500,000
From sale of school merchandise 6,300,000
Total gross receipts 22,800,000
Less: Cost of services (13,450,000)
Gross profit 9,350,000
Less: Operating expenses (5,240,000)
Net income 4,110,000

Included in the operating expenses is a full-year depreciation expense in the amount

of P1,000,000 for a newly acquired building with a useful life of five years. The
entire gross receipts were used for the acquisition of a land for the expansion of
the educational institution.

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41. If ISCP is a non-stock, non-profit educational institution, how much is income
tax due?
a. P1,233,000
b. P411,000
c. P822,000
d. P0

42. If ISCP is a proprietary educational institution and it did not opt to deduct
the capital outlay as an expense, how much is income tax due?
a. P1,233,000
b. P411,000
c. P511,000
d. P0

Income tax due (4,110,000 x 10%) 411,000

43. If ISCP is a proprietary educational institution, and assuming the taxable year
is 2021, and it did not opt to deduct the capital outlay as an expense, how much is
income tax due?
a. P511,000
b. P411,000
c. P41,100
d. P0

Income tax due (4,110,000 x 1%) 41,100

Situation 2:

RAI sold to HEART shares of stock of a foreign corporation at a selling price of

P1,000,000 with an acquisition cost of P380,000. On the same date, RAI sold to HEART
shares of a stock of a domestic corporation at a selling price of P600,000 and an
acquisition cost of P400,000.

44. If RAI is a resident citizen and is not a dealer in securities, and the shares
were sold directly to HEART, how much is the capital gains tax due of RAI from the
transaction?
a. P0
b. P30,000
c. P93,000
d. P123,000

Selling price 600,000

Acquisition cost (400,000)
Net capital gain 200,000
Multiply by CGT rate 15%
CGT due 30,000

45. If RAI is a resident citizen and is not a dealer in securities, and the shares
were sold directly to HEART, how much of RAI’s income is subject to regular income
tax?
a. P0
b. P200,000
c. P620,000
d. P820,000

Selling price 1,000,000

Acquisition cost (380,000)
Net capital gain 620,000

46. If RAI is a resident citizen and is a dealer in securities, and the shares were
sold directly to HEART, how much is the capital gains tax due of RAI from the
transaction?
a. P0
b. P30,000
c. P93,000
d. P123,000

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The transactions are subject to regular income tax, considering that for a dealer
in securities, the shares are presumed to be ordinary assets.

Situation 3

On April 15, 2022, BLUEMING Corporation, a domestic corporation, paid cash dividends
to its stockholders, as follows:

Cash dividends paid

Resident citizens 1,800,000
Resident aliens 600,000
Non-resident citizens 300,000
Non-resident alien engaged in business 320,000
Non-resident alien not engaged in business 120,000
Domestic corporations 1,400,000
Resident foreign corporations 600,000
Non-resident foreign corporations 85,000

47. How much should BLUEMING remit to the BIR as final withholding tax on the
dividends paid to its stockholders?
a. P376,750
b. P435,000
c. P389,500
d. P509,000

Resident citizens (1,800,000 / 90% x 10%) 200,000

Resident aliens (600,000 / 90% x 10%) 66,667
Non-resident citizens (300,000 / 90% x 10%) 33,333
Non-resident alien engaged in business (320,000 / 80% x 20%) 80,000
Non-resident alien not engaged in business (120,000 / 75% x 25%) 40,000
Domestic corporations (EXEMPT – Intercompany dividends) -
Resident foreign corporations (EXEMPT) -
Non-resident foreign corporations (85,000 / 85% x 15%) 15,000
Total final withholding taxes 435,000

Situation 4

KIT and DIEREME inherited a four-storey commercial lot and building from their
parents in 2021. In 2022, the property realized rental income of P3,600,000, in
which they shared the revenue equally. They did not register the co-ownership with
the SEC. In addition, KIT and DIEREME reported their personal income and expenses
as follows:

KIT – gross compensation income (inclusive of 13th month and other

benefits amounting to P150,000) 1,950,000
DIEREME – net income from his dry-cleaning service business (net of
cost and expense of P900,000) 300,000

48. How much final withholding income tax should the co-ownership remit representing
the revenue distribution to the co-owners?
a. P360,000
b. P540,000
c. P180,000
d. P0

49. How much is the income tax due of KIT in his annual income tax return, assuming
OSD is used in determining his expenses?
a. P790,800
b. P541,200
c. P584,600
d. P308,000

Rent income (3,600,000 / 2) 1,800,000

OSD (1,800,000 x 40%) (720,000)
Compensation income (1,950,000 – 90,000) 1,860,000

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 Total Taxable income 2,940,000
Tax Due 790,800

50. How much is the income tax due of DIEREME in his annual income tax return
assuming OSD is used in determining his expenses?
a. P304,000
b. P324,000
c. P430,000
d. P554,000

Rent income (3,600,000 / 2) 1,800,000

Net income – dry cleaning (300,000 + 900,000) 1,200,000
Total 3,000,000
OSD (3,000,000 x 40%) (1,200,000)
Total Taxable income 1,800,000
Tax Due 430,000

Situation 5

KATH SEPAGAN, presented the following data regarding the items of income she earned
during the taxable year 2022:

I. Rental income (gross)

a. From an apartment unit in USA 240,000
b. From a parcel of land in Makati 180,000
II. Royalties from book
a. Published in the Philippines 30,000
b. Published in USA 20,000
III. Interest income earned on notes receivable
a. From a debtor who resides in USA 15,000
b. From a debtor who resides in Manila 25,000
IV. Net profit from sales, merchandise business
a. From Philippine outlet 300,000
b. From USA outlet 200,000
V. Dividend income from two domestic corporations. The gross
income from the Philippines for the past three years:
a. 60% of its world income 60,000
b. 85% of its world income 80,000
VI. Dividend income from two resident foreign corporations. The
gross income from the Philippines for the past 3 years was
equivalent to:
a. 40% of its world income 40,000
b. 60% of its world income 20,000
VII. Prizes received from Supermarket raffle:
A. From the Philippines
1. SM Southmall 8,000
2. Robinsons Galleria 12,000
B. From USA
1. Wallmart 6,000
2. Amazon 14,000
VIII. Prizes and winnings from lotto
1. Philippine Lotto 200,000
2. USA Lotto 100,000

51. The total income from sources within the Philippines is

a. P907,000
b. P703,000
c. P895,000
d. P915,000

52. The total income from sources outside the Philippines is

a. P635,000
b. P535,000
c. P643,000
d. P629,000

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53. Assume that KATH is a resident citizen, her net taxable income subject to
graduated rates is
a. P1,168,000
b. P1,018,000
c. P992,000
d. P938,000

54. Assume that KATH is a non-resident citizen, her net taxable income subject to
graduated rates is
a. P495,000
b. P525,000
c. P470,000
d. P487,000

Within Without RC NRC

I. Rental income (gross)
c. From an apartment unit in USA 240,000 240,000
d. From a parcel of land in Makati 180,000 180,000 180,000
II. Royalties from book
c. Published in the Philippines 30,000
d. Published in USA 20,000 20,000
III. Interest income earned on notes
receivable
c. From a debtor who resides in 15,000 15,000
USA
d. From a debtor who resides in 25,000 25,000 25,000
Manila
IV. Net profit from sales,
merchandise business
c. From Philippine outlet 300,000 300,000 300,000
d. From USA outlet 200,000 200,000
V. Dividend income from two domestic
corporations. The gross income from
the Philippines for the past three
years:
c. 60% of its world income 60,000
d. 85% of its world income 80,000
VI. Dividend income from two resident
foreign corporations. The gross
income from the Philippines for the
past 3 years was equivalent to:
c. 40% of its world income 40,000 40,000
d. 60% of its world income 20,000 20,000 20,000
VII. Prizes received from
Supermarket raffle:
C. From the Philippines
3. SM Southmall 8,000 8,000
4. Robinsons Galleria 12,000
D. From USA
3. Wallmart 6,000 6,000
4. Amazon 14,000 14,000
VIII. Prizes and winnings from lotto
3. Philippine Lotto 200,000
4. USA Lotto 100,000 100,000
TOTAL 915,000 635,000 1,168,000 525,000

Situation 6

ANSYADOR received the following compensation for the year 2022:

Basic salary, per month 50,000

Overtime pay for November 10,000
13th month pay 50,000
Other benefits 10,000
Withholding tax (January to November) 73,334.25

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55. The taxable compensation income is
a. P580,000
b. P600,000
c. P610,000
d. P0

56. The tax still due (refund) is

a. P9,165.75
b. P1,165.75
c. P6,165.75
d. (P73,334.25)

First 400,000 30,000

Excess (210,000 x 25%) 52,500
Tax Due 82,500
CWT (73,334.25)
Tax still due 9,165.75

Situation 7

ADO Corporation organized in 2016 has the following data:

2018 2019
Sales 1,700,000 2,300,000
Cost of Sales 1,050,000 1,425,000
Operating Expenses 615,000 480,000

57. The income tax payable in 2018 is

a. P13,000
b. P5,250
c. P10,500
d. P12,250

RCIT only for 2018

58. The income tax payable in 2019 is

a. P118,500
b. P110,750
c. P116,000
d. P105,500

RCIT and MCIT, whichever is higher

Situation 8:

Umaasa Corporation, a domestic corporation and a retailer of goods has prepared its
audited financial statements for fiscal year May 31, 2021:

Statement of Financial Position

As of May 31, 2021

ASSETS

Cash P15,000,000
Receivables 25,000,000
Inventories 12,500,000
Property, plant, and equipment 59,000,000

LIABILITIES AND SHAREHOLDERS’ EQUITY

Accounts Payable P10,000,000

Share Capital 60,000,000
Share Premium 12,000,000
Retained Earnings 12,500,000

Taxation by Juan Miguel S. Ungsod, CPA Page 12

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Additional information:
• 10% of the company’s receivables are uncollected.
• The corporation’s property, plant, and equipment include land and building
amounting to P17,000,000 in which the business entity is situated.
• A machinery that costs P15,600,000 has a remaining useful life of 8 years. No
depreciation has been recorded for this machinery for this year.
• The corporation has gross sales of P14,000,000 with a cost of sales of P7,600,000
and allowable deductions of P2,500,000 for the fiscal year.
• Mistakenly included by the accountant of the corporation in its gross sales,
interest from bank deposits amounting to P56,000, prizes amounting to P150,000,
and royalties amounting to P550,000.

Total Assets 111,500,000

ADA (25,000,000 x 10%) (2,500,000)
Land and building (17,000,000)
Depreciation Expense (15,600,000 / 8 years) (1,950,000)
Total Assets, as adjusted 90,050,000

59. How much is the income tax due for the fiscal year?
a. P686,250
b. P62,789
c. P658,800
d. P988,200

Sales (14,000,000 – 56,000 – 550,000) 13,394,000

COS (7,600,000)
GI 5,794,000
AD (2,500,000)
Taxable net income 3,294,000
RCIT
(3,294,000 x 30% x 1/12) 82,350
(3,294,000 x 20% x 11/12) 603,900 686,250
MCIT
(5,794,000 x 2% x 1/12) 9,657
(5,794,000 x 1% x 11/12) 53,112 62,769
Tax Due 686,250

60. How much is the final withholding taxes dues for the fiscal year?
a. P11,000
b. P11,200
c. P120,000
d. P121,200

Interest (56,000 x 20%) 11,200

Royalties (550,000 x 20%) 110,000
121,200

Situation 9:

As a CPA, you were contracted to prepare a tax plan regarding the registration of a
business of a client. You projected that the gross sales will most likely amount to
P6,000,000 with cost of sales amounting to P4,000,000 and operating expenses of
P1,000,000.

61. Which is true if the client will consider registering the business as a one-
person corporation instead of a sole proprietorship? Use itemized deduction and the
20% regular corporate income tax rate under CREATE law
a. Client will save P10,000 if will register as sole proprietor
b. Client will save P10,000 if will register as OPC
c. Client will have no tax savings
d. Client is not allowed to do this

Taxation by Juan Miguel S. Ungsod, CPA Page 13

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Situation 10:

X Builders and Y Development, both domestic corporations, are engaged in the

construction business. They formed a joint venture, XY Inc., with an agreed profit
and loss sharing ratio of 60:40 for X Builders and Y Development, respectively. X,
Y and the joint venture are all licensed by the PCAB and eligible for tax incentives.

Summary information for the three entities are as follows:

Joint Venture X Builders Y Development

Gross income 12,000,000 3,000,000 4,500,000
Expenses 9,000,000 1,800,000 3,000,000

62. Determine the income tax liability of the joint venture, XY Inc.
a. P900,000
b. P240,000
c. P60,000
d. P0

63. Determine the income tax liability before tax credits of X Builders.
a. P360,000
b. P900,000
c. P810,000
d. P0

(3,000,000 x 30%) 900,000

64. Assume instead that X and Y are both engaged in the transportation business,
determine the income tax liability of the joint venture.
a. P900,000
b. P240,000
c. P0
d. None of the above

(3,000,000 x 30%) 900,000

Situation 11:

VSLG & Co., a general professional partnership providing accounting services, is

composed of the following partners with their respective sharing in the partnership
profits: V (50%), S (25%), L (12.5%), and G (12.5%). For the current taxable year,
the partnership and the partners have the following financial data:

VSLG V S L G
Gross income 7,600,000 400,000 350,000 200,000 150,000
Deductible expenses 3,235,000 235,000 323,000 123,000 145,000
Interest on bank deposit
(net of FWT) 26,800 2,000 1,000 500 45
Dividend income
(from domestic corporation) 1,500 2,300 12,500
Gain on sale of residential house 2,000,000

65. What is the taxable net income of the partnership?

a. P4,365,000
b. P0
c. P4,391,800
d. None of the above

66. What is the taxable income of S in his respective ITR?

a. P0
b. P1,118,250
c. P1,124,950
d. P1,745,345

67. If VSLG and Co. were actually a business partnership, what shall be the tax of
the partnership and of V in their respective ITRs?

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a. P1,091,250; P0
b. P1,316,200; P18,000
c. P1,309,500; P490,680
d. None of the above

VSLG V (50%) S (25%) L(12.5%) G (12.5%)

Gross income 7,600,000 400,000 350,000 200,000 150,000
Deductions (3,235,000) (235,000) (323,000) (123,000) (145,000)
Other income (GPP) 2,182,500 1,091,250 545,625 545,625
Taxable net income 4,365,000 2,347,500 1,118,250 622,625 550,625

VSLG V (50%) S (25%) L(12.5%) G (12.5%)

Gross income 7,600,000 400,000 350,000 200,000 150,000
Deductions (3,235,000) (235,000) (323,000) (123,000) (145,000)
Taxable net income 4,365,000 165,000 27,000 77,000 5,000
Tax Due 1,091,250

Situation 12:

Mr. and Mrs. UNGSOD, residents of Las Piñas City, supports 6 minor children. They
have the following income and expense transactions in 2022:

Mr. UNGSOD
Gross receipts from business as a contractor, net of WT of 1% 495,000
Business expenses 150,000

Dividend from X Company, domestic, net of FWT 45,000

Dividend from foreign company 50,000
Rental income from property in US 100,000
Share in net income of BABAO & Associates, a GPP, net of CWT 45,000

Mrs. UNGSOD
Gross sales, store 10,000,000
Cost of goods sold, store 2,000,000
Business expenses, store 5,000,000

Share in the net income of a joint venture engaged in

transportation, net of CWT 90,000
Rental of real property (WT was not withheld by the payor) 50,000
Amount received as beneficiary of the estate of her late father,
net of WT 34,000

Sale of Conjugal Assets:

Selling price of Company BBB shares, traded 50,000
Cost (60,000)
Net Gain (Loss) (10,000)

Selling Price of Company VVV shares, not traded 3,000,000

Cost (500,000)
Net Gain (Loss) 2,500,000

Selling Price of vacant lot, net of FWT 1,410,000

Cost (100,000)
Net Gain (Loss) 1,310,000

Selling Price of apartment house (business property) 2,000,000

Book value (1,500,000)
Net Gain (Loss) 500,000

Selling Price of residential house (sold on June 5, 2022) 3,000,000

Cost (bought in 2014) (1,500,000)
Net Gain (Loss) 1,500,000

Commissioner’s zonal value 2,500,000

Proceeds of sale invested in new house (December 10, 2022) 2,500,000

Taxation by Juan Miguel S. Ungsod, CPA Page 15

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68. How much is the total capital gains?
a. P675,300
b. P495,000
c. P495,300
d. P615,000

BBB shares, traded (50,000 x 0.6%) – Subject to STT 300

VVV shares, not traded

Net Gain 2,500,000
Multiply by CGT rate 15%
CGT 375,000

Vacant Lot (1,410,000/94%) 1,500,000

CGT (1,500,000 x 6%) 90,000

Apartment house (business asset) – The apartment house is not a capital asset. It
is a business asset, the gain on the sale of which is not subject to FWT. This
income is returnable by Mr. and Mrs. UNGSOD, and will be included in ordinary
income subject to either the graduated rates or to the 8% income tax rate option.

Sale of residential house:

SP (proceeds) 3,000,000
Commissioner’s ZV 2,500,000

Investment in new house 2,500,000

Unutilized amount (3,000,000 – 2,500,000) 500,000

Tax Base (500k/3,000k x 3,000k) 500k

CGT (500,000 x 6%) 30,000

CGT on shares of VVV Corporation 375,000

CGT on vacant lot 90,000
CGT on residential house (unutilized portion) 30,000
Total CGT 495,000

69. How much is the total final withholding taxes on passive income?
a. P5,000
b. P10,000
c. P15,000
d. P0

Dividends from X Company (45,000/90%) x 10% 5,000

Share in net income of joint venture (90,000/90%) x 10% 10,000
Total FWT 15,000

70. How much is the net income tax payable by the spouses in the ITR?
a. P1,032,800
b. P1,048,800
c. P918,800
d. P130,000

Mr. Castro
Gross receipts (contracting business), gross of 1% CWT 500,000
Rental income from US property 100,000
1/2 share in gain from sale of apartment (business asset) 250,000 850,000
Less: Itemized deductions
Business expenses (150,000)
Net income from operations 700,000
Add: Non-operating income
Dividend from foreign company 50,000
Share in GPP net income, gross of 10% CWT 50,000 100,000
Total taxable net income 800,000

Tax on 400,000 30,000

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 Tax on 400,000 x 25% 100,000
130,000

Mrs. Castro
Gross Sales, store 10,000,000
Rental income of real property 50,000
Amount received as beneficiary of the estate of late
father, gross of 15% CWT 40,000
1/2 share in gain from sale of apartment 250,000 10,340,000
COGS, Store (2,000,000)
Gross income from operations 8,340,000
Itemized Deductions – Business Expenses, store (5,000,000)
Net taxable income 3,340,000

Tax on 2,000,000 490,000

Tax on 1,340,000 x 32% 428,800
918,800

Tax Due, Mr. Castro 130,000

Tax Due, Mrs. Castro 918,800
Total Tax Due 1,048,800
Less: Tax Credits
1% CWT on gross receipts (500,000 x 1%) 5,000
10% CWT on share in GPP net income (50,000 x 10%) 5,000
15% CWT on income from estate (40,000 x 15%) 6,000 (16,000)
Tax Payable 1,032,800

GRADUATED TAX RATE UNDER THE TRAIN AND CREATE LAW

Over But not over Tax Plus Of Excess Over
- P250,000 - - -
P250,000 P400,000 - 20% P250,000
P400,000 P800,000 P30,000 25% P400,000
P800,000 P2,000,000 P130,000 30% P800,000
P2,000,000 P8,000,000 P490,000 32% P2,000,000
P8,000,000 - P2,410,000 35% P8,000,000

“Fei shang, gao shing, chi, shishyang, Chonghu, Guaja, Jushi, Xijingpin, Chunguju,
Frelupin, Tashir, Wangshilian, Ho, Twenty, Chonghu, Gongmin, Chiri, Trali,
Chingju, Chonghua, Renmin, Gonghu, Shangri, Chi Shirsan, Jonyen, Ju Twenty,
Jonghu, Ren, Goching Kwai La”

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