INCOME TAXATION – Gross Income

Answer: B,A,D,C,A
#GrossIncome #IncomeTaxation #CPADreams
1. Which of the following is taxable?
a. Separation pay received by a 50 year old employee due to the retrenchment program of the employer.
b. Retirement pay received from a benefit plan registered with the BIR where at the time the employee retired, he was 57 years of age,
retiring from employment for the first time in his life and was employed with the employer for 8 years.
c. Social security benefit received by a balikbayan from employer abroad at age of 30.
d. None of the above.
ANS: B
2. Statement 1 : Amounts received by reason of involuntary separation remain exempt from income tax even if the official or employee
at the time of separation has rendered less than ten years (10)
Of service and /or below fifty years of age.
Statement 2: Any amount received by an official or employee or by his heirs from the employer due to death , sickness or other physical
disability or for any cause beyond the control of the said official or employee, such as retrenchment, redundancy, or cessation of business
are exempt from income tax.
A. Both statements are correct.
B. Both statements are not correct.
C. Only the first statement is correct.
D. Only the second statement is correct.
Ans: A
3. The taxpayer was retired by his employer in 2020 and paid 2,000,000 as a retirement gratuity without any deduction or withholding
tax. The corporation became bankrupt in 2022. Can the BIR subject the 2,000,000 retirement gratuity to income tax in 2022?
1st Answer : Yes, if the retirement gratuity was paid based on reasonable pension where the taxpayer was 50 years old and has served the
corporation.
2nd Answer: No, if the taxpayer was forced by the corporation to retire.
a. 1st and 2nd answers are correct.
b. 1st answer is correct but 2nd answer is wrong
c. 1st answer is wrong but 2nd answer is correct
d. 1st and 2nd answer are both wrong.
ANS: D
4. JJ, an official of excel corporation asked for an earlier retirement because he was immigrating to Dubai with his girlfriend. He was
paid 3,000,000 PHP as separation pay in recognition of his valuable services to the corporation. Jon, another official of the same
company was separated for occupying redundant position. He was given 1,000,000 separation pay. Renato who has rendered 11 years of
service and who is now 55 yrs old opted to retire for the first time. He received 2,000,000 for retirement pay. How much is the total
income subject to withholding tax?
A. 1,000,000 c. 3,000,000
B. 2,000,000 d.6,000,000
ANS: C
5. Statement 1: Tips or gratuities paid directly to an employee by a customer of the employer that are not accounted for by the employee
to the employer are considered as taxable income subject to basic tax.
Statement 2: The tips described in statement 1 shall not be subject to withholding tax for the reason that tips are not accounted for by the
employee to the employer.
A. Both statements are correct.
B. Both statements are not correct.
C. Only the first statement is correct.
D. Only the second statement is correct.
Ans: A

INCOME TAXATION – Gross Income

ANS: 21.C, 22.B, 23.D, 24.B, 25.B
21. Compensation income is earned when an employer-employee relationship exists. Which of the following income represents income
earned through employee-employer relationship?
I. Professional Fees
II. Wages
III. Pension Pay
IV. Capital gain
a. I Only c. II and III only
b. I and III only d. I,II,III and IV
ANS: C
22. Which of the following compensation will be subject to graduated rates?
a. Basic salary whether or not the employee is a minimum wage earner
b. Basic salary only if the employee is not a minimum wage earner
c. 13th month pay and other benefits not exceeding PHP 30,000
d. Fringe benefits received by supervisory or managerial employee
ANS: B
23. Which if the following items reduces salaries of employees is not an exclusion from gross income?
a. GSIS or SSS contributions
b. Pag-ibig contributions
c. Labor Union Dues
d. None of the Above
Ans: D
24. One of the following compensation income of an individual taxpayer is not an exclusion from gross income:
a. Monetized vacation leaves not exceeding 10 days a year
b. Separation pay of an employee who resigned from his employment
c. Retirement benefits of an employee under a qualified benefit plan who has worked for an employer for at least 10 years, who all the
time of retirement is not less than 50 years of age, who avails of the retirement for the first time
d. All of these
Answer: B
25. Jonathan is a member of the board of directors of CPA Dreams. During the current taxable year, Jonathan received directors fess
amounting to 300,000 from quarterly board meetings he attended. Such fees should:
a. Form part of Jonathan’ s gross compensation income whether or not he is at the same time an employee of the corporation.
b. Form part Jonathan’s gross compensation income only if he is at the same time an employee of the corporation
c. Both A and B are correct.
d. Neither A nor B is correct.
ANS: B

INCOME TAXATION – Gross Income

ANS: 11.D,12.A,13.B,14.C,15.A
11. Which of the following test of source of income is incorrect?
a. Interest income – residence of the debtor
b. Income from services – place of performance
c. Royalties – place of use of intangible
d. Gain on sale of real property
ANS: D
12. Situs of taxation on income from sale of a domestic corporation
a. Always treated as income derived from within the Philippines
b. Always treated as income derived from without the Philippines
c. Maybe treated as income within or without the Philippines depending on the place of sale
d. Maybe treated as income within or without the Philippines depending on the place of where the shares are kept
ANS: A
13. Statement 1: A gain from sale of shares of a domestic corporation shall be considered derived from the Philippines regardless of
where the shares are sold
Statement 2: A gain from sale of shares of a foreign corporation shall be considered derived from the country where the corporation was
created or organized.
a. Statement 1 & 2 are false
b. Statement 1 is true but statement 2 is false
c. Statement 1 is false but statement 2 is true
d. Statements 1 and 2 are true
ANS : B
14. Jonathan earned interest income from a promissory note issued to him by Marlon, a resident of Dubai, UAE. Assuming Jonathan is a
non resident citizen, the interest income is:
a. Subject to basic income tax
b. Subject to final tax
c. Not subject to income tax
d. Partly subject to scheduler and partly subject to final tax
Ans. C
15. Mr. Ali, an Arab citizen permanently residing in the Philippines, received several items during the taxable year. Which among the
following is not subject to Philippine Income Taxation?
a. Consultancy fees received for designing a computer program and installing same in Dubai facility of an Arab firm.
b. Interest from his deposits in a local bank of foreign currency earned abroad converted to Philippine pesos.
c. Dividends received from an Arabian corporation which derived 60% of his annual gross receipts from Philippine sources for the past
10 years.
d. Gains derived from the sale of his condominium unit located in Quezon city.
ANS: A
INCOME TAXATION – Gross Income
ANS: 6.B,7.D,8.C,9.A, 10.B
6. Which is not a valid definition of income?
a. Income is the return from capital invested
b. Income is a fund at one distinct point of time.
c. Income means all wealth which flows into the taxpayer other than a mere return of
Capital.
d. Income means cash or its equivalent unless otherwise stated
ANS: B
7. The share in the profits of a partner in general professional partnership is regarded as received by him and thus taxable although not
yet distributed. This principle is known as
a. Actual receipt of income
b. Advance reporting of income
c. Accrual method of accounting
d. Constructive receipt of income
ANS: D
8. Which of the following is considered or construed as an example of constructive receipt?
a. Retirement benefits, pensions, gratuities
b. Fess paid to a public official
c. Interest coupons that have matured and are payable but have not been cashed.
d. Deposits for rentals to answer for damages, restricted as to use
ANS: C
9. When different types of income are subjected to common tax rate, the tax system is described as:
a. Global tax system
b. Gross income tax system
c. Schedular tax system
d. Final tax system
ANS: A
10. Situs of taxation on income from sale of property purchased.
a. Place of the seller
b. Place of sale
c. Place of buyer
d. As determined by the Commissioner
ANS: B

INCOME TAXATION – Gross Income

1. The following are sources of income, except one:
a. Labor
b. Illegal Activities
c. Profits Derived from sale or exchange of capital assets
d. Gifts and Inheritance
ANS:D
2. Which of the following is a requisite for an income to be taxable?
a. There must be gain
b. The gain must be realized or received
c. The gain must not be excluded by law from taxation
d. All of the above.
ANS:D
3. Which of the following is not an income for income tax purposes?
a. Gain derived from Labor
b. Return on Capital
c. Excess of selling price over cost of assets sold
d. Gift received
ANS: D
4. Which of the following is not a characteristic of Income?
a. Increase in taxpayer’s wealth
b. Realization or receipt of gain
c. Earnings constructively received
d. Return of taxpayer’s wealth
ANS: D
5. In 2020, Marlon sent his sister Mae $ 15,000 via Western Union. Josie, a an exchange remittance clerk made a mistake and credited
Jocelyn $ 500,000 which she promptly withdrew. The western union demanded the return of the mistakenly credited excess, but Mae
refused. The BIR entered the picture and investigated Mae. Would the BIR be correct if it determines that , Mae earned the taxable
income under these facts?
a. No, she had no income because she had no right to the mistakenly credited funds.
b. Yes, income is income regardless of the source
c. No, it was not her fault that the funds in excess of $15,000 were credited to her.
d. No, the funds in excess of $15,000 were in effect donated to her
ANS: B, gross income as all income derived from whatever source.

19. C, P, A and Dreams Co. are partners of an accounting firm. The 2020 financial records of the
firm disclosed the following:
Service Revenue 4,490,000
Cost of Services 1,610,000
Operating Expenses 800,000
Rental Income 500,000
Interest Income from bank deposit 200,000
Interest income from FCDS deposit 280,000
P is also engaged in business with the following data for the year 2020:
Sales 2,500,000
Cost of Sales 1,250,000
Operating Expenses 550,000
How much is the distributable income of the GPP?
A. 992,667 C. 2,578,000
B. 1,019,333 D. 2,978,000
ANS: D
Net income 2,580,000
Interest Income from Bank deposit net 160,000
Interest Income from FCDS trans net 238,000
Total Distributive Share Income 2,978,000
Divide by 3 992,667
20. How much is the distributive share of each partner?
A. 992,667 C. 2,578,000
B. 1,019,333 D. 2,978,000
ANS: A
21. How much the income of P in 2020?
a. 860,000 c. 1,560,000
b. 1,510,000 d. 2,580,000
ANS: C
Net Income form GPP’s operations 2,580,000 / 3 = 860,000
Add P Own Net Income (2.5 – 1.25-550) 700,000
Taxable Net Income of Ramos 1,560,000
The partners share in the other income of the GPP are non returnable income of the partners.

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INCOME TAXATION – Partnerships

1. C, 2.A , 3. B 4. A
1. Statement 1: If the amount to be distributed to a partner of a GPP is more than P720,000, it is subject to 15% creditable withholding
tax.
Statement 2: The share of a partner in a GPP is subject to final withholding tax of 10% if the amount below P720,000.
Statement 3: The distributive share of a partner in a commercial partnership is subject to final tax.
a. Statements 1 & 2 & 3are false
b. Only statement 3 is false
c. Only Statement 2 is false
d. Statement 1 & 2 & 3 are true
ANS: C
2. Statement 1: GPP’s may claim the 40% OSD in the determination of distributable income.
Statement 2: A GPP is subject to income tax.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
ANS: A
3. Statement 1: Co-ownership and partnership are similar to taxability.
Statement 2: Corporations and ordinary partnerships are similar as to taxability.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
ANS: B
4. Statement 1: The share of the partner in the gross income of GPP is added to his own gross income
Statement 2: The share of the partner in the net income of a GPP is also considered passive income.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect
ANS: A, share in income of a GPP is treated as ordinary income subject to basic tax.
Share in income of a GP is treated as a dividend income, a passive income subject to a final withholding tax.

INCOME TAXATION – Partnerships

6. A, 7.B, 8.C
6. For purposes of taxation, partnership is:
I. Classified into two major categories, partnership in trade and general professional partnership.
II. Partnership in trade is treated as corporate taxpayer.
III. General professional partnership is exempt from income tax
a. I,II and III c. I and III only
b. I and II only d. I only
ANS: A
7. Jon & Mar contributed money and purchased five hectares of land in 2020. In the same year, they sold the land in a higher price. In
2021 they bought a bigger parcel of land and sold it after three months and at double the price. They paid the corresponding capital gains
taxes.
Q1: Have they formed an unregistered partnership subject to tax?
Q2: Are their respective shares in the income taxable to them?
a. Yes, Yes c. Yes, No
b. No, Yes d. No, No
ANS: B
8. When their parents died, Juan and Pedro inherited five hectares of land in Laguna. They decided to invest capital and developed the
land into a subdivision with a small lots being sold either on installment or cash basis>
Q1. Is a partnership created by Juan and Pedro?
Q2. Are they subject to final tax on their respective share in the income?
a. Yes, Yes c. Yes, No
b. No, Yes d. No, No
ANS: C, the partnership is not pertaining to practice of common profession thus classified as general or commercial partnership, taxable
as corporation. Share in income of a general partnership or commercial partnership is treated as dividend income from a domestic
corporation. Consequently, the partners are subject to FWT on dividend income on their share in the net income of the partnership.