Deductions from gross income

1) Which of the following statements is wrong with respect to deductible expenses incurred by individual
taxpayer?
a. A resident citizen of the Philippines who is earning business income abroad is entitled to claim the
expenses incurred abroad as a deduction from his total gross income
b. A nonresident citizen of the Philippines who is earning income as an overseas Filipino worker abroad is
entitled to claim the expenses incurred therein as a deduction from total gross income.
c. A resident citizen of the Philippines who is earning business income abroad, aside from his income in the
Philippines, is entitled to claim 40% optional standard deduction as a deduction from his gross income
within and without of the Philippines
d. A mixed income earner in entitled to claim only the 40% optional standard deduction as a deduction
from the business and/or professional income, to the exclusion of the compensation income

2) Lhagai Corporation incurred the following expenses. Which of these expenses is non-deductible?
a. Insurance premiums of the building
b. Salaries of the officials and employees
c. Entertaining prospective customers
d. Gifts given to public officials who favored Lhagai Corporation’s contract with the government

3) The following are examples of corporate expenses deductible from gross income, except one:
a. Representation expenses designed to promote business
b. Contributions to drum up business like contribution of soft drinks to barrio fiestas
c. Expenses paid to an advertising firm in order to create a favorable image for the corporation
d. Premiums on life insurance covering the life of an employee of the beneficiary is his heirs

4) Lexor Corporation made some repairs on a building being leased to Leslie

Minor repairs-----------------------------------------------------P30,000

Major repairs-------------------------------------------------------60,000

The major or extraordinary repair did not add value to the property but appreciable prolonged its useful
life by 5 years

The entry in the books of Lexor to record the expenses incurred for minor repairs is

The entry in the books of Lexor to record the expenses incurred for major repair

Supposed the major repair increased the value by P40,000 and it also prolonged the life of the asset, the
accounting entry to record this repair in the books of Lexor Coporation is

5) Choose the best answer, Regina monde College Inc, a proprietary educational institution, spent P10 million for
the construction of a new school building, the amount spent for the construction
a. Must be claimed as expense in the year of completion
b. Capitalized and claim annual depreciation over the life of the building
c. Capitalized or expensed outright at the option of the school
d. Capitalized or expensed outright at the option of the BIR

6) Allowance corporation is engaged in sales of goods and services with net sales/net revenue of P400,000 and
P200,000, respectively. The actual entertainment, amusement and recreation expense for the taxable quarter
amounted to P6,000. Allowance corporation can claim an entertainment, amusement and recreation expense
on the sale of goods and services respectively of
7) Interest on business is deductible for income tax purposes. However, one of the following is not deductible
a. Interest on delinquency tax
b. Interest on indebtedness incurred to purchase delivery equipment
c. Interest in indebtedness secured to purchase a tax exempt security
d. None of the above

8) Which interest is deductible?

a. Interest incurred on unpaid value-added tax
b. Interest on loan by an individual from a corporation if 60% of the outstanding stock of the latter is
owned indirectly by such individual
c. Interest on loan between members of a family
d. Interest on loan by a fiduciary of a trust and a beneficiary of such trust

9) On January 2,2017 Mang Otang contracted a 1-year P100,000 loan from Metrobank for the purchase of
computers. The equipments which had a depreciable life of eight years were acquired on April 1, 2017. The
interest expense for one year amounted to P15,000.

In the same year his bank deposit with PNB earned an interest income of P2,000. During the year he incurred an
interest expense on unpaid business tax of P600.

The deductible interest expense of Mang Otang in 2017 is:

10) In no. 9 above, the deduction on the loan of Mang Otang in 2017 assuming that the interest on loan was
capitalized:

11) One is a deductible tax

a. Estate tax
b. Franchise tax
c. Donors tax
d. Special assessment

12) One is entitled to tax credit for taxes paid to foreign country
a. Resident aliens
b. Domestic corporation
c. Nonresident aliens with reciprocity
d. Non-resident citizens

13) Vicor company a domestic corporation had net income from within the Philippines of P200,000 and from the
USA of P300,000. Income tax paid on income from USA is P95,000. The tax credit on income tax paid to US
Government is
a. 105,000
b. 60,000
c. 90,000
d. 110,000
 14) International corporation, a domestic corporation has the following data for the calendar year. The corporation
signified its intention to claim tax credits on income taxes paid to the foreign countries

Country Gross Income Allowable deductions Tax paid

Philippines 1,000,000.00 800,000.00
USA 400,000.00 200,000.00 80,000.00
Japan 300,000.00 200,000.00 25,000.00

The income tax payable by International Corporation is

15) One is not deductible loss

a. Loss due to removal or demolition of old building, the scrapping of old machinery or equipment incident
to renewal or replacement
b. Loss due to removal of building or real estate purchased when the purchase was for the acquisition of
the land and without intending to use the building
c. Loss in value of securities of such extent that the securities have become worthless and are written off
d. Loss in usefulness in business of an asset so that the business is discontinued or the asset is discarded

16) Jimms company had an old warehouse which had a cost of P1,200,000. The company demolished the warehouse
when it had book value of P200,000 in order to construct a new and bigger warehouse. The demolition cost
amounted to P25,000 while the scrap was sold for P10,000. In its accounting entry, Jimms company should debit
loss on retirement of the building of

17) A building was partially destroyed by fire in 2015. It had a book value of P4,000,000. The insurance company was
willing to pay P3,000,000 which was refused by the owner of the building. Finally, the claim was settled in 2016
for P3,500,000. The P3,500,000 proceeds is ? deductible loss?

18) A store building was constructed on January 2, 2010 with a cost of P570,000. Its estimated useful life is 16 years
with scrap value of P70,000 after 16 years. In January 2015, replacement of some worn out parts of the building
with a fair market value of P770,000. The allowable deduction for depreciation for the year 2015

19) Which of the following is deductible from gross income even if the payment is not connected with business
a. Contribution of the employer to the pension trust of the employee
b. Charitable contributions
c. Income tax paid in foreign country
d. Traveling expenses
20) Angel is a cash basis self-employed air-conditioning repairman with 2015 gross business receipts of P200,000.
Angel’s cash disbursements were as follows

Air conditioning---------------------------------------P25,000

Radio advertisement-----------------------------------20,000

Estimated national income taxes on self-employment income----------------10,000

Business long-distance telephone calls-----------------------------------------------4,000

Charitable contributions------------------------------------------------------------------2,000
 What amount should angel report as self-employment income?

21) What would be the allowable deduction for P10,000 contribution made by a resident citizen to a charitable
institution, from his P60,000 net income before contribution?
22) Notre Dame Corporation had the following data during the year

Gross income-----------------------------------------------------------P500,000

Deductions (except contributions) ---------------------------------400,000

Donation to the CCP--------------------------------------------------------3,000

Donation to Roman Catholic Church----------------------------------2,000

Donation to the Rehabilitation of Veterans Inc----------------------1,500

Donations to victims of typhoon Nin-------------------------------------5,000

The taxable income of the corporation is

23) Eugene had the following data during the year:

Gross income from business -----------------------------------------------P1,000,000

Capital gain----------------------------------------------------------------------------50,000

Capital loss-----------------------------------------------------------------------------20,000

Deductions ----------------------------------------------------------------------------400,000

Donation to an accredited NGO--------------------------------------------------30,000

Donation to Church--------------------------------------------------------------------20,000

The taxable income of Eugene if he is an individual taxpayer, single, with a compensation income during the year
of P40,000

24) In Number 23 data, how much is the taxable income if Eugene is a corporation