OUR LADY OF FATIMA UNIVERSITY
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Dela Paz Norte, City of San Fernando (P) COLLEGE OF BUSINESS AND ACCOUNTANCY
Midterm Examination in APP III Accounting Proficiency Program III
Shade the letter that corresponds to your answer. STRICTLY NO CHEATING. GENERAL
INSTRUCTIONS:
6. SITUATIONAL ANALYSIS:
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Real property taxes should not disregard increases in the value of real property occurring over a long period of time. To do otherwise would violate the canon of a sound tax system referred to as: A. Theoretical justice B. Administrative feasibility C. Fiscal adequacy D. Symbiotic relationship Chak Rita, a student activist, wants to impugn the validity of a tax on text messages. Aside from claiming that the law adversely affects her since she sends messages by text, what may she allege that would strengthen her claim to the right to file a taxpayer’s suit? A. That she is entitled to the return of the taxes collected from her in case the court nullifies the tax measure. B. That she is filing the case in behalf of a substantial number of taxpayers. C. That text messages are an important part of the lives of the people she represents. D. That tax money is being extracted and spent in violation of the constitutionally guaranteed right to freedom of communication. Mr. Malas sells shoes in Marikina through a retail store. He pays VAT on his gross sales to the BIR and the municipal license tax based on the same gross sales to the City of Marikina. He comes to you for advice because he thinks he is being subjected to double taxation. What advice will you give? A. Yes, there is double taxation and it is oppressive. B. The City of Marikina does not have this power. C. Yes, there is double taxation and this is illegal in the Philippines. D. Double taxation is allowed where one tax is imposed by the national government and the other by the local government. X, a management expert was hired by a Philippine corporation to assist in its organization and operation for which he had to stay in the Philippines for an indefinite period. His coming to the Philippines was for a definite purpose which in its nature would require an extended stay and to that end makes his home temporarily in the Philippines. The American management expert intends to leave the Philippines as soon as his job is finished. For income tax purposes, the American management expert shall be classified as: A. Resident alien B. Non-resident alien engaged in trade or business C. Non-resident alien not engaged in trade or business D. Resident citizen
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Z, an American singer, was engaged to sing for one week at the Eastern Philippine Plaza after which she returned to the USA. For income tax purposes, she shall be classified as: A. Resident alien B. Non-resident alien engaged in trade or business C. Non-resident alien not engaged in trade or business D. Resident citizen Who among the following individual taxpayers is taxable on income within and without? A. Tado, a native of General Santos City, working as an overseas contract worker. B. Thelma Thunder, naturalized Filipina citizen and married to a Filipino. She had been living in Olongapo City since 1970. C. Ferrero de la Goya, Spanish citizen, a resident of Madrid, Spain, spent a one 910 week vacation trip in Boracay. D. Melly Lee, Taiwanese singer, held a 3-day concert in Manila. A citizen of the Philippines was a non-resident citizen in 2011. On May 15, 2012, he arrived in the Philippines to reside permanently in the Philippines. His income for the year was: A – From Jan. 1, 2012 to May 14, 2012 B – From May 15, 2012 to Dec. 31, 2012 Which of the following is wrong? A. He is not taxable on his “A” income. B. He is considered a resident citizen on his “B” income. C. He is considered a non-resident citizen on his “A” income.
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He is considered a resident citizen on his “A” and “B” income.
Amando, a staff auditor of Inip, Gora, Malayo & Co., took and passed the examination for Certified Internal Auditor (CIA). The following year, he resigned from his job and left the Philippines on April 10, 2014 to work as an internal auditor in a big establishment in Melbourne, Australia. For income tax purposes, which of the following statements is correct with respect to Amando’s classification?
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He shall be classified as nonresident citizen for the whole year of 2014. B. His classification as a nonresident citizen will start in 2015. C. He shall be classified as nonresident citizen for the year 2014 with respect to his income derived from sources without from April 10, 2014. D. He shall be classified as nonresident citizen for the year 2014 with respect to his income derived from sources without from April 11, 2014. A cash dividend of P100,000 received by a taxpayer in 2016 from a foreign corporation whose income from Philippines sources is 50% of its total income is: Statement 1 – Partly taxable if he is a resident citizen. Statement 2 – Partly taxable if he is a nonresident citizen. A. Both statements are true. B. Both statements are false. C. Only statement 1 is true.
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D. Only statement 2 is true. Your client owns a row of apartments. He complains to you that he is being required to pay four (4) kinds of taxes on this line of business alone. From the list given by your client, which of the following taxes has been wrongly imposed to him? A. Real estate tax on the land and building B. Value-added tax on the gross receipts from rent C. Community tax based on the assessed value of the apartment house D. Income tax on income from rent The City Council passed an ordinance imposing an occupation tax on an air conditioning technician. Pedro is the only person with such occupation in the city. He challenged the validity of the ordinance as being discriminatory since he is the only one adversely affected. A. The contention of Pedro is justifiable. B. The contention of Pedro is not substantiated because the rule on uniformity is not violated considering that the ordinance would also be imposed on all air conditioning technician who may come within the jurisdiction of the city. C. The issue on validity or invalidity of the ordinance should be set aside. D. The ordinance is unconstitutional because Pedro was denied of his right to equal protection of the law. The Facundo School of Arts and Commerce, a proprietary educational institution which is offering primary, secondary, and tertiary education, is registered with and accredited by the department of education (DepEd) and the Commission on Higher Education (CHED). Which of the following is exempt from tax? What kind of tax? A. The importation of laboratory equipments – from customs duties B. The school building being rented by the school – from real property tax C. A portion of the school building being leased to a fastfood chain – from real property tax D. The income from operations – from income tax Assuming that the school in the preceding number is a non-stock, non-profit educational institution. Which of the following is subject to tax? What kind of tax? A. A portion of the building being leased to a fastfood chain – from real property tax B. The income from operations –from income tax C. The school building owned by the school – from real estate tax D. The school building being rented by the school – from real estate tax The Municipality of Monte Cristo has a ten (10) hectare cemetery consisting of four (4) different cemeteries which are owned by different entities. Which of the following is subject to real property tax? A. Cementerio Municipal del Monte Cristo – a government cemetery owned by the municipality which was established for the purpose of using it as burial ground of the paupers in Monte Cristo.
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Monte Cristo Catholic Cemetery – owned by the Catholic Church; payments are remitted to the Catholic Church and for the improvement of the cemetery. C. Happy Trip Memorial Park – owned by a corporation where dividends are distributed to the shareholders at the end of the year. D. Quita-Quita memorial Park – owned by an association consisting one hundred (100) different families; each family own several square meters of lot, not a single portion is held for sale to either member or non-member of the association. Congressman Manny Loloko of the 3 rd District of Mamasapano and Senator Dina Tuto sponsored a bill in the House of Representatives and the senate, respectively, increasing the personal exemptions of individual taxpayers as well as granting tax exemption to minimum wage earners. Which of the following is correct? A. The senate bill should be discussed ahead of the house bill. B. The senate and house bills maybe discussed at the same time in both houses. C. The house bill should be discussed ahead of the senate bill. D. No priority; each bill can be discussed ahead of the other. Juan was hired as a staff auditor of STD and Company in 1995. On December 2002, he transferred to Amats and Associates. In 2004, he returned back to STD and Company until his retirement in 2010 at the age of 55. Question 1: Are the retirement benefits taxable to Juan? Question 2: Suppose he was terminated from employment due to dishonesty. Is the separation pay taxable to Juan? Question 3: Suppose he was terminated from employment due to the merger of the two audit firms. Will the separation pay be taxable to Juan? A. No – Yes – No B. No – Yes – Yes C. Yes – No – No D. Yes – No – Yes Purita Barberia was retired by her employer corporation in 2011 and paid P2,000,000 as a retirement gratuity without any deduction of withholding tax. The corporation became bankrupt in 2010. Can the BIR subject the P2,000,000 retirement gratuity to income tax? 1st Answer: No, if the retirement gratuity was paid based on a reasonable pension plan where Barberia was 60 years old and has served the corporation for 9 years. 2nd Answer: Yes, if Barberia was forced by the corporation to resign due to retrenchment. A. Both answers are wrong. B. Both answers are correct. C. First answer is correct, the second is wrong. D. First answer is wrong, the second is correct. To start a business of his own, Mr. E opted for an early retirement from Plaridel Retrofitting Corporation, a private company, after ten (10) years of service. Pursuant to the company’s qualified and
approved private retirement benefit plan, he was paid his retirement benefit. A. Plaridel should withhold income taxes from E’s retirement pay. B. E’s retirement pay is excluded from gross income. C. Plaridel should pay the tax on E’s retirement pay. D. Since E voluntarily retired, the retirement pay he received is not retirement in the true sense but is part of his compensation income subject to tax. 19. The City of Manila, claiming that it can impose taxes under the Local Government Code, imposed a tax on banks (in addition to the percentage tax on banks imposed in the National Internal Revenue Code). The banks within the City of Manila objected for the various reasons given below. Which would justify the objection of the banks/ A. The power of tax cannot be delegated B. The rule on double taxation C. Uniformity in taxation D. None of the above 20. A motor vehicle accident involved Z Bus Co. and a private car of Mr. A, resulting in the death of Mrs. A, physical injuries to Mr. A, loss of earnings of Mr. A for a month, and total loss of the car of Mr. A. From a court litigation, Mr. A received damages, as follows: P500,000 for the death of the wife, P80,000 for his physical injuries, P50,000 for the period under treatment, and P500,000 for the loss of the car that he bought for P360,000 and had a value of P500,000 at the time of the loss. Which statement is wrong? A. The damages of P500,000 for the death of the wife is not taxable income. B. The damages of P80,000 for physical injuries is not taxable. C. The damages of P50,000 for lost earnings is taxable. D. The damages of P500,000 for the loss car is not taxable. 21. Emma Lagu sued Emman Santing for breach of promise to marry. Emman lost the case and duly paid the court’s award that included, among others,
P10,000 as moral damages for the mental anguish Emma suffered. Did Emma earn a taxable income? A. She had no taxable income since moral damages are compensatory. B. She had taxable income since she made a profit. C. She had no taxable income because it was a donation. D. She had a taxable income of P100,000 since income is income from whatever source. 22. XYZ Corporation was dissolved and liquidating dividends were declared and paid to the stockholders. What tax consequence follows? A. XYZ Corporation should deduct a final tax of 10% from the dividends. B. The stockholders should declare their gain from their investment and pay income tax at the ordinary rates. C. The dividends are exempt from tax. D. XYZ Corporation should withhold a 10% creditable withholding tax.
23. Mr. Hipon bought a residential house and lot in 2000 for P120,000. In 2012, curious as to how much his property then cost, he asked a real estate broker to reappraise the same. The real estate broker reported that the value of his property has increased to P1,800,000. How should Mr. Hipon treat the P1,680,000 increase in his income tax return for the year 2012? A. He should include the P1,680,000 as a revaluation surplus which is categorized as income subject to deferred income taxes. B. He should include the P1,680,000 as footnote to his income indicating that the same is an increase in appraisal. C. He should not include the P1,680,000 as part of his income because the gain has not yet been realized. D. He should not include the P1,680,000 as part of his income if the certification of the real broker is not under oath and attached to the income tax return of Mr. Hipon. 24. Megan Manananggol, as lawyer, has among her clients a recruitment agency which regularly pays her a monthly retainer of P15,000. P15,000 . In order to reduce her income tax liability, Manananggol arranged for the retainer to be paid directly to her son, Roman, whose name is reported in the payroll as the payee. This year, Manananggol ’s gross income from her law practice, exclusive of the P15,000 monthly retainer fee is P2,000,000. What should be the tax treatment of the P15,000? A. It should be reported as part of Manananggol’s income because it was her who rendered the service and not her son Roman. B. The P15,000 may be deductible by Manananggol as part of his expenses if the son rendered service for her and the payment was the monthly retainer from the recruitment agency. C. It should be report ed s part of Roman’s compensation income since his name appears in the payroll of the recruitment agency. D. It may be deducted as part of the expenses for salaries and wages paid by the recruitment agency in connection with its trade and business. 25. Mr. Sabado owns a vacant parcel of land. He leases the land to Mr. Domingo for ten years at a rental of P120,000 per year. The condition is that Mr. Domingo will erect a building on the land which will become the property of Mr. Sabado at the end of the lease without compensation or reimbursement whatsoever for the value of the building. Mr. Domingo erects the building. Upon completion, the building had a fair market value of P1,000,000. At the end of the lease, the building is worth only P500,000 due to depreciation. What are the tax implications when the lease expires and Mr. Sabado becomes the owner of the building with a fair market value of P500,000? A. Mr. Sabado would have an income of P1,000,000 because his ownership over the property retroacted to the date of the contract of lease. B. Mr. Sabado would have an income of P500,000 because that is the depreciated value of the
property at the time the ownership vested in him. C. The income realized by Mr. Sabado at the time of expiration of his lease would be the fair market value of the building as reported for real property tax purposes. D. Mr. Sabado does not realize any income at the end of the lease period. Mr. Domingo transferred the building to him without consideration, therefore it is a donation which is not considered as income. 26. Maring bought tax-exempt government bonds. As such the interest, she received is not includible as part of her gross income. Why? A. The interest received is not considered income derived from the use of capital. B. The interest is excluded from gross income for reasons of public policy to encourage purchase of government bonds. C. The interest is not taxed because of the redemption of the bond at a premium would be taxable. D. To tax such interest would be violative of the non-impairment clause because Maring would not have bought the bond if it were not tax-free. 27. Bentong insured his own life for P1,000,000. He assigned the insurance to Andong for valuable consideration in the amount of P800,000. Bentong died and Andong was able to collect the P1,000,000. Prior to Bentong’s death, Andong, had in the
meantime paid P50,000insurance premiums on the policy. What should be the income tax treatment of the P1,000,000 life insurance proceeds considering the above circumstances? A. The P1,000,000 is excluded from Andong’s gross income because it is life insurance proceeds. B. Andong should include the P1,000,000 as part of his gross income. C. Andong should report only P150,000 of the P1,000,000 he received because the P800,000 is considered as his expense in earning the income and the P50,000 is considered as return of the premiums he paid. D. Andong should report only P150,000 of the P1,000,000 he received because the P850,000 is considered as a return of his investment. 28. Emotera Corporation took a keymen insurance on the life of its president, Mr. Elias Mandurugas. The policy designated Mr. Madurugas’ wife as its revocable beneficiary in the event of death of Mr. Mandurugas. In the event of Mr. Madurugas’ death,
the life insurance proceeds would be: A. Taxable as the wife’s income. B. Taxable as part of Emotera Corporation’s income. C. Excluded from the wife’s gross income. D. Taxable as part of Mr. Mandurugas’ benefits as an employee. 29. Coco Corporation, a multinational corporation doing business in the Philippines, donated 100 shares of stock of said corporation to Ms. Tress, its resident manager in the Philippines.
Assuming the shares of stocks were given to Ms. Tress in consideration of her services to the corporation, what are the tax implications? A. The value of the stocks form part of Ms. Tress’ compensation income. B. The value of the shares should be treated as a gift which is excluded from Ms. Tress’ income.
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The value of the stocks is neither income nor gift. D. The shares of stock shall be considered as dividends subject to tax. 30. Apolinario, a resident Filipino citizen and a ninety (90) year old USAFFE veteran was among the beneficiaries of Pres. Obama’s recovery program
that gave a US$10,000 cash benefit to World War II veterans. The distribution of the cash benefit was made by the U.S. Veterans Administration Office located within the premises of the U.S. embassy. He comes to your for advice on the tax treatment of the cash benefit. You shall tell him that: A. The amount is part of his income from without hence subject to income taxation in the Philippines. B. He is not subject to the payment of any income tax on the cash benefit because it is a donation by the U.S. government to the veterans being a pure act of liberality. C. The amount of the cash benefit is part of the payments made to the U.S. Armed Forces veterans hence excluded from gross income. D. He is not subject to any kind of tax on the cash benefit he received because he is a senior citizen. THEORIES:
31. The Philippines adopted a semi-global tax system, which means that: A. All taxable incomes, regardless of the nature of income, are added together to arrive at gross income, and all allowable deductions are deducted from the gross income to arrive at the taxable income. B. All incomes subject to final withholding taxes are liable to income tax under the scheduler tax system, while all ordinary income as well as income not subject to final withholding taxes are liable to income tax under the global tax system. C. All taxable incomes are subject to final withholding taxes under the scheduler tax system. D. All taxable incomes from sources within and without the Philippines are liable to income tax. 32. The following, except one are the basic principles of a sound tax system. The exception is: A. It should be capable of being effectively enforced. B. It should consider the taxpayers’ ability to pay . C. It is levied by the lawmaking body of the state. D. The sources of revenue must be sufficient to meet government expenditures and other public needs. 33. Which of the following receipts is excluded from gross income because they are exempt from income taxation?
A. Gain from redemption of shares in mutual fund B. Income derived by a local government unit C. Compensation received as a result of injuries D. Returned insurance premiums 34. There are various reasons for the exclusion of certain receipts from gross income. This receipt is excluded because it is not income. A. Prizes and awards in sports competition B. Gains derived from exchanges in kind C. Life insurance proceeds D. Prizes received in recognition of civic achievement 35. Which of the following statements is true? A. Opinions of legal luminaries are sources of tax laws. B. The Constitution grants exemption from all kinds of taxes to religious and charitable organizations. C. Because the power to tax is unlimited, comprehensive, plenary, and supreme, the power to tax can reach over into any jurisdiction to seize upon person or property. D. The “benefits -protection theory” is the source of the “doctrine of symbiotic relationship.”
36. One of the characteristics of internal revenue tax is that they are: A. Criminal in nature B. Penal in nature C. Political in nature D. Generally prospective in application 37. Which of the following statements is not correct? A. An inherent limitation of taxation may be disregarded by the application of a constitutional limitation. B. The property of an educational institution operated by a religious order is exempt from property tax, but its income is subject to income tax. C. The prohibition of delegation by the state of the power of taxation will still allow the Bureau of Internal Revenue to modify the rules on time for filing of returns and payment of taxes. D. The power of taxation is shared by the legislative and executive departments of government. 38. Which of the following statements is incorrect? A. No person shall be imprisoned for non-payment of debt or non-payment of taxes. B. The passage of laws granting tax exemptions requires the concurrence by a majority of all the members of Congress. C. The Supreme Court’s jurisdiction over tax cases cannot be impaired. D. The revenues and assets of non-stock, nonprofit educational institutions and donations for educational purposes are exempted from taxes and duties. 39. Question 1: Can the state tax the Armed Forces of The Philippines? Question 2: Are government-owned and controlled corporations subject to tax? A. Yes – No B. Yes – Yes C. No – Yes D. No – No
40. One of the characteristics of a tax is: A. A tax is a pecuniary burden and the law may not allow payment in kind. B. It is dependent upon the will or contractual assent, express or implied of the p erson taxed. C. It is levied by the state by virtue of its sovereignty. D. It is collected for public and private purposes. 41. Which statement refers to police power as distinguished from taxation? A. It can only be imposed on specific property or properties. B. The amount imposed depends on whether the activity is useful or not. C. It involves taking of property by the government. D. The amount imposed has no limit. 42. Which of the following may not raise money for the government? A. Power of taxation B. Police power C. Power of eminent domain D. Privatization of government’s capital assets 43. The following statements are correct. Which is the exception? A. The rule of taxation shall be uniform and equitable. B. Taxation may be used to implement the police power of the state. C. Police power is superior to the non-impairment clause of the Constitution. D. The salaries of the justices of the Supreme Court are exempt from income tax. 44. Which of the following statements is correct? A. Tax laws can never have a retroactive effect. B. The government cannot tax its agencies and instrumentalities. C. The taxpayer’s suit can be filed by any taxpayer in any instance against the government. D. In the Philippines, there may be double taxation. 45. Which of the following statements constitute tax avoidance? A. Deliberate failure of a taxpayer to pay the taxes due to the government. B. Connotes fraud through the use of pretenses and forbidden devices to lessen or defeat taxes. C. Punishable by law. D. Maybe contrary to the intent of the legislature but nevertheless do not violate the law. 46. A franchise can be amended by: A. An amendment of special law, which granted the franchise. B. An amendment of a law of general application. C. An amendment of a revenue regulation. D. An amendment of tax laws. 47. In cases of deduction and exemptions on income tax returns, doubts shall be resolved: A. Strictly against the taxpayer. B. Strictly against the government. C. Liberally in favor of the taxpayer. D. Liberally against the government. 48. Domicile or residence of the owner is not the situs o f taxation in: A. Estate tax B. Community tax
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C. Business tax D. Income tax Which of the following is a taxable income? A. Moral damages B. Interest on moral damages C. Income from qualified pension plan D. Compensation for personal injuries Which of the following is subject to income tax? A. SSS and GSIS B. Philippines Health Insurance Corporation (PHIC) C. Local Water Districts D. Philippine Amusement and Gaming Corporation (PAGCOR) Which of the following statements is wrong on corporation? A. Domestic corporations are taxable in the Philippines on income derived from Japan and Philippine sources. B. Resident foreign corporations are taxable in the Philippines on income earned in the United States. C. Nonresident foreign corporations are taxable in the Philippines on income derived from sources in the Philippines only. D. Domestic corporations are taxable in the Philippines on income earned from business operation in the United States. There is no taxable income until such income is recognized. Taxable income is recognized when the: A. Taxpayer fails to include the income in his income tax return. B. Income has been actually received in money or its equivalent. C. Income has been received, either actually or constructively. D. Transaction that is the source of the income is consummated. 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. Which statement is wrong? Cancellation of indebtedness: A. May not bring about the income tax, but bring about the donor’s tax. B. May bring about the donor’s tax, but not bring about the income tax. C. May result in dividend income subject to income tax. D. Has no tax significance. Which statement is wrong? A non-interest bearing promissory note received for personal services rendered: A. Will not result in income if received merely as security. B. Will result in income if received in payment. C. Will not be income until collected. D. Is considered payment in kind. Which statement is correct? A revenue regulation, as a source of tax law, is:
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Promulgated by the Secretary of Finance upon the recommendation of the Commissioner of Internal Revenue. B. Promulgated by the Commissioner of Internal Revenue. C. Promulgated by the Secretary of Finance. D. An interpretation of the revenue law by the Commissioner of Internal Revenue. For numbers 57 through 60: “Chenes” gang inside the maximum compound of the
National Bilibid Penitentiary (NBP) controls almost all transaction of drug proliferation ins and outs of Muntinlupa, hence, President Duterte ordered the investigation of the drug activities inside the Bilibid. The president instructed a thorough investigation to be conducted by the Department of Justice, Anti-Money Laundering Council, Bureau of Internal Revenue and to some private Auditing Firms to unearth the money trail linking drug lords, high-profile inmates with government officials. 57. However, (choose the best sentence) A. Neither SGV nor other audit firms were willing to engage in the anomaly; B. Neither SGV nor other audit firms was willing to engage in the anomaly; C. Neither SGV nor other audit firms is willing to engage in the anomaly; D. Neither SGV nor other audit firms are willing to engage in the anomaly; 58. It was found out by the AMLC that the missing link is the identity of the treasurer or accountant of the drug money, because it’s (choose the best sentence)
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Either the treasurer or accountant is responsible for allocating the fund. B. Either the treasurer or accountant are responsible for allocating the funds. C. Either the treasurer or accountant is responsible for allocating the funds. D. Either the treasurer or accountant are responsible for allocating the fund. 59. Finally, the Department of Justice instituted: OPLAN BESSY, and discovered inside the Bilibid (choose the best sentence) A. There is three thousand methamphetamine hydrochloride inventories left; B. There is three thousand methamphetamines hydrochloride inventory left; C. There are three thousand methamphetamines hydrochloride inventory left; D. There are three thousand methamphetamine hydrochloride inventories left; 60. Ultimately, the purpose of the audit is to determine the ultimate beneficiaries of the drug money. The inflow of drug funds includes amounts collected (choose the best sentence) A. On behalf of narco-politicians between years 2015 – 2016 during campaign period; B. In behalf of narco-politicians between years 2015 – 2016 during campaign period; C. On behalf of narco – politicians between years 2015 – 2016 during campaign period; D. In behalf of narco – politicians between years 2015-2016 during campaign period; TRUE OR FALSE:
For items 61 through 90:
Shade A if statement 1 is true and statement 2 is false. Shade B if statement 1 is false and statement 2 is true. Shade C if both statements are true. Shade D if both statements are false. 61. I. The power of taxation is inherent is sovereignty being essential to the existence of every government. Hence, even if not mentioned in the Constitution, the state can still exercise the power. T II. It is essentially a legislative function. Even in the absence of any constitutional provision, taxation power falls to Congress as part of the general power of lawmaking. T 62. I. The value-added tax is a property tax. F II. The estate tax is a direct tax. T 63. I. An ordinance imposing a tax on the manufacture of softdrinks and another tax on the sale of softdrinks constitute double taxation. F II. A criminal case for tax evasion may be filed against a taxpayer even without prior assessment issued by the Commissioner of Internal Revenue. F 64. I. A BIR Ruling issued by a Commissioner of Internal Revenue which grants tax exemption would create a perpetual exemption in favor of the taxpayer. F II. A tax exemption may be withdrawn anytime at the pleasure of the taxing authority. T 65. I. As a rule, taxes are subject to set-off or compensation. F II. The point on which a tax is originally imposed is impact of taxation. T 66. I. In case of conflict between a revenue regulation and the provisions of the National Internal Revenue Code, the latter shall prevail. T II. The revocation of a revenue regulation cannot be made retroactive even if the reason for its revocation is that it is erroneous or contrary to law. F 67. I. Laundry allowance not exceeding P300 per month is not an exempt de minimis benefit if given to rankand-file employees. F II. Rice subsidy of P1,500 per month is an exempt de minimis benefit regardless of whether the recipient employee is occupying a managerial position or not. T 68. I. Direct double taxation involves two taxes by the same taxing authority. T II. Indirect double taxation involves two taxes by different taxing authorities. T 69. I. Direct double taxation is prohibited by the Philippine Constitution. F II. Indirect double taxation is allowed by the Philippine Constitution. T 70. I. Tax evasion, which is the use of means to escape a tax that is already a liability, is prohibited by law, and is punishable. T II. Tax avoidance, which is the use of means to prevent an accrual of a tax, or to minimize a tax that may accrue, is likewise prohibited by law and is punishable. F 71. I. A revenue regulation may be contrary to the provision of the law that it implements. F II. A revenue regulation can expand the provision of the law that it implements by imposing a penalty
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when the law that authorizes the revenue regulation does not impose a penalty. F I. A tax imposed by a law can be changed on its applicability to persons, properties, etc., only by an amendment of the particular law that imposed it. F II. The applicability of a tax imposed by a law on certain person, properties, etc., may be changed by another or new law that makes reference to the original law that imposed the tax. T I. Gross compensation income is income arising out of employer-employee relationship. T II. Gross income from self-employment is income arising out of business or the practice of profession. T I. Damages recovered for physical injuries are not taxable. T II. Damages recovered for violation of copyright are not taxable. F I. Income derived from illegal sources, such as gambling, extortion, theft, bribes, embezzlement, and smuggling are not taxable. F II. Holiday pay and hazard pay are exempt from income tax. F I. Tips and gratuities paid directly to an employee by customers of the employer which are not accounted for by the employee to the employer are subject to withholding tax. F II. Source of income is either within the Philippines, without the Philippines, or partly within and partly without the Philippines. T I. A tax that is allowed by law to be passed on by a taxpayer to another is called an indirect tax. T II. Business taxes which are not allowed by law to be passed on by sellers of goods and services to buyers are nonetheless imperceptibly passed on because they are factored in on the selling price. T i. In addition to rent, other consideration which the lessee may pay third parties such as interest, taxes, dividends, and insurance premiums are taxable to the lessee. F II. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines, is exempt from income tax. T I. Prizes and awards received in recognition of religious, charitable, scientific, educational, artistic, literary, or civic achievement are not taxable if the recipient was either selected without any action on his part to enter the contests or proceedings or the recipient is not required to render substantial future services as a condition to receiving the prize or award. F II. if services are paid for in a medium other than money, it is not to be included as compensation. F I. The tax benefit rule states that recovery of accounts previously written off constitutes a receipt of a taxable income if in the year of recognition of its being worthless, the write-off resulted in reduction of taxable income. T II. A non-taxable stock dividend does not constitute income if the new certificates plus the old ones change the proportionate interest of the stockholder in the net assets of that corporation. F I. A progressive system of taxation means a tax structure where the tax base increases as the tax rate increases. F
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89.
90.
II. Tax exemption is a grant of immunity to a particular taxpayer from tax where others are obliged to pay. T I. There can only be a tax if there is a law imposing the tax. T II. The power to tax is inherent. T I. A person may refuse to pay a tax on the ground that he receives no personal benefit from it. F II. One of the essential characteristics of a tax is it is unlimited in amount. F I. A tax is based on law while a debt is based on contract. T II. A tax is also a customs duty. F I. Provisions in the Philippines Constitution on taxation are grants of power. F II. Territoriality is one of the constitutional limitations on the power of taxation. F I. Courts can review or inquire into the wisdom or advisability of a tax law. F II. Our Constitution does not contain any provision granting tax exemption to the government. T I. Our Tax Code prevails over the Civil Code. T II. Tax regulations promulgated by the Secretary of Finance need not be published in a newspaper of general circulation. F I. In every case of doubt, tax statutes are construed strictly against the Government and liberally in favor of the taxpayer. T II. Where the intent to tax is clear and the taxpayer claims that he is exempt from the tax obligation; the tax shall be construed against the taxpayer and in favor of the Government because the power of taxation is necessary to the existence of such Government. T I. Because the power of taxation is inherent in state, the inherent limitations on the power of taxation always apply. F II. Inherent limitations on the power of taxation must give way to constitutional limitations. T I. Uniforms and clothing allowance not exceeding five thousand pesos per annum is an exempt de minimis benefit. T II. Actual medical benefits not exceeding P10,000 per annum is an exempt de minimis benefit. T
SHORT PROBLEMS: (ON A SEPARATE SHEET OF YELLOW PAPER, ANSWER THE FOLLOWING PROBLEMS. NO SUPPORTING SUPPORTING SOLUTIONS, NO POINTS.) 91-93. Mr. Ador Able was insured under an endowment policy with a value of P1,000,000. Total premium paid by him during the term of premium payments on the policy was P980,000, from which there was a return of premiums of
P80,000. At the maturity of the policy in 2016, Mr. Able received P1,000,000. The income of Mr. Able under the policy is: _______________. 94-96. Dina Gaganda, an employee, has the following details relative to her employment in 2016:
She consulted the company physician due to headache. Had she consulted another physician, she would have been charged P300 as consultation fee. She received cash from a customer for her efficient service, P5,000. She failed to account for it to her employer.
She claimed for the monetized value of her unused leave credits for 8 days. Her daily basic salary is P300.
How much is to be considered as compensation income? _____________ 97-99. Joselito Dimagiba won the International Billiard Championship held in Hanoi, Vietnam. The tournament was sanctioned by a national sports association which is recognized by the Philippine Olympic Committee. He was
awarded US$60,000 by the sponsor of the tournament. He was also given P250,000 cash by San Miguel Corporation as prize or award. In the same year, he entered into a contract with the same company to advertise their product for P1,500,000. If the exchange rate of every US$1 is P45, Joselito Dimagiba should report an income of: ___________. For items 100 through 108:
Dora leased a land to Doro for a period of 11 years starting January 1, 2015 at annual rental of P12,000. Observing the provisions of the contract, Doro constructed a building which shall become the property of Dora at the expiration of the lease. The construction was completed on January 1, 2018 at a cost of P1,000,000 with an estimated useful life of 20 years. It is also stipulated in the contract that the lessee will pay to the government the P1,500 annual real property tax on the land starting in 2015. 100-102. How much income is to be reported by Dora in 2018
under the outright method? _________ 103-105. How much income is to be reported by Dora in 2018
under the spread-out method? ______ 106-108. Assuming that due to the fault of the lessee, the
lease contract was terminated on January 1, 2020, how much income is to be reported by the lessor in 2020? _________________ 109-111. After working for 30 years and due to old age, Brutus retired from his employment on December 31, 2011 as a rank-and-file employee of Toma Corporation. As a consequence of his retirement, he received the following from his employer:
Salary for 2011 Christmas gift Anniversary bonus Loyalty award Retirement pay
P250,000 25,000 2,500 10,000 750,000
Based on the above data, the amount subject to tax of Brutus is: ______________. 112-114. Authorized capital stock of a domestic corporation: common and preferred.
Capital stock issued and outstanding at the time of dividend – common only; 50% stock dividend in the form of preferred shares, with a fair market value of P60 per share;
Stock owned at the time of dividend: 100 common shares, with an acquisition cost of P210 per share and a fair market value at the time of the dividend of P180 per share; Sale of 20 preferred shares at P65 per share. Gain on the sale is: ______________. For items 115 through 120:
The farmer is on the cash method of accounting. Sales of livestock and farm products raised Sales of livestock and farm products purchased Cost of livestock and farm products purchased and sold Expenses of raising livestock and farm products Inventory, beginning of the year Inventory, end of the year
P200,000 100,000 110,000 80,000 10,000 12,000
115-117. The gross income is: ______________. 118-120. Assuming that the farmer is on the accrual method of accounting. The gross income is: ______. END OF EXAMINATION “DOUBT KILLS MORE DREAMS THAN FAILURE EVER WILL.” –
Suzy Kassem Prepared by: FRANCESCO RAFIEL A. MALLARI, CPA FACULTY, Department of Accountancy OLFU – Pampanga Reviewed and Checked by: ALEND KERSEY Q. SAMPANG, CPA OIC – Department of Accountancy OLFU – Pampanga Approved by: Dr. IGNACIO C. CORDOVA, Jr. Dean – College of Business and Accountancy OLFU
