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QUIZZER ON DEDUCTIONS FROM GROSS INCOME

Principles

1. Statement 1: Deductions are items or amounts allowed to be subtracted from gross income to
arrive at the taxable income..

Statement 2: Exclusions are receipts which are excluded from the gross income, hence, do not
form part of the gross income.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

2. Which of the following is not a characteristic of a deduction?

a. It is a reduction of wealth that helped earn the income subject to tax.

b. An immunity or privilege, a freedom from a charge or burden to which others are
subjected.
c. It is not a receipt.
d. It is a subtraction to arrive at income subject to tax.

3. Political campaign contributions are not deductible from gross income

a. If they are not reported to the Commission on Elections.

b. If the candidate supported wins the election because of possible corruption.
c. Since they do not help earn the income from which they are to be deducted.
d. Since such amounts are not considered as income of the candidate to whom given.

4. Statement 1: Deductions from gross income are not presumed.

Statement 2: As a rule, deductions means itemized deductions

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

5. Statement 1: Revenue expenditures are period costs that are related to a particular period of time
of business operation.

Statement 2: Capital expenditures are non-recurring expenditures related to acquisition of

depreciable assets to be used in the business.
a. Only statement 1 is correct
b. Only statement 2 is correct

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c. Both statements are correct

d. Both statements are incorrect

6. Lester bought an equipment under a two-year installment basis to be used in his office in the
practice of his profession. Lester will pay P50,000 monthly for a period of twelve (12) months.
For income tax purposes, the P50,000 monthly payment shall be:

a. Treated as business rental, hence deductible

b. Treated as capital expenditure, hence not deductible
c. Treated as depreciation expense, hence deductible
d. Treated as ordinary business expense

7. Statement 1: A taxpayer can only deduct an item or amount from gross income only if there is a
law authorizing such a deduction.

Statement 2: For income tax purposes, a taxpayer is free to deduct from ross income the full
amount of the deduction allowed, or a lesser amount or not to claim any deduction at all.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

8. In cases of deductions 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 in favor of the employer

9. Statement 1: The taxpayer has the burden of justifying the allowance of any deduction claimed.

Statement 2: Deductions are strictly construed against the government.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

10. Statement 1: Only business expenses may be deducted from the gross income taxpayers.

Statement 2: Itemized deductions from gross income should be duly supported by vouchers or
receipts.

a. Only statement 1 is correct

b. Only statement 2 is correct

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c. Both statements are correct

d. Both statements are incorrect

11. Which of the following is a deductible expense for income tax purposes?

a. Salaries of domestic servants

b. Ordinary repair of the personal car
c. Provision for doubtful accounts
d. None of the above

12. This is not a requisite for business expense to be deductible

a. It must be reasonable
b. It must be paid during the taxable year
c. The withholding tax otherwise required have been deducted and remitted to the BIR
d. It must be ordinary and necessary

13. One of the requirements in order for expenses to be claimed as deduction for income tax purposes
is that, it should be subject to withholding tax if applicable. What is the withholding tax rate
applicable to rental payments?

a. 1%
b. 5%
c. 2%
d. 10%

14. In the conduct of his business in 2021, Modesto found it necessary to give gifts to the government
officials with whom he had official dealings.

a. These gifts are deductible expenses subject to the substantiation rule.

b. The value of the gift, if de minimis, are allowed to be deducted.
c. Irrespective of the value, the gifts are considered as bribes and not allowed to be deductible.
d. These gifts are deductible if found to be necessary and properly supported by receipts.

Ordinary Business/Professional Expenses

15. Which of the following is not deductible from gross income?

a. Salaries and wages of employees

b. Entertainment, amusement and recreation expenses
c. Rental expenses
d. Bribes, kickbacks and other similar payments

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16. Which of the following can be deducted from gross income in the year paid or incurred?

a. Repairs that materially add to the value of the property

b. Repair that appreciably prolong the life of the property
c. Repair that keep the property in its ordinarily efficient operating condition
d. All of the choices

17. Which of the following is allowable expense(s) of an employer?

a. Tax withheld by a corporation from its employees' salary.

b. Kickback payment to a government official.
c. Distribution of profits to partners.
d. None of the above

18. The following are the requisites for deduction of compensation expense, except

a. Personal services must have been actually rendered

b. The compensation for such services must be reasonable
c. Both "a" and "b"
d. Neither "a" nor "b"

19. Which of the following is allowable compensation expense of an employer?

a. Salary of employee paid for a limited period of time after his death to his widow is allowable
deduction of the employer.
b. Manager's expense account subject to fringe benefit tax.
c. Both "a" and "b"
d. Neither "a" nor "b"

20. Statement 1: Cost of technical books used by a CPA in the practice of his profession is allowable
business expense.

Statement 2: Tuition fees, board and lodging incurred by a medical doctor while attending a
continuing professional education seminar is allowable business expense.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

21. Which of the following business expenses of a professional practitioner is not allowed to be
deducted from the gross income?

a. Professional expenses incurred outside the Philippines by a nonresident alien engaged in

business in the Philippines.

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b. Income tax paid by a resident citizen to a foreign country.

c. Entire amount incurred for meals, lodging, and travel in connection with own business.
d. None of the above

22. The following are allowable compensation expenses of the employer, except

a. Overtime pay paid to a rank-and-file employee.

b. Cash dividends paid
c. Amounts paid for pensions of retired employees
d. All of the above

23. Earl is the product manager of Mcdo Bee Inc. Earl had a dinner with Clifford, owner of a chain of
restaurants, to convince the latter to carry Mcdo Bee products. Clifford agreed. After dinner, Earl
and Clifford went their separate ways. Earl decided to celebrate by going to a bar where he
picked-up a partner and consumed a bottle of liquor. He drove home and on his way, he
sideswiped Delfin, a pedestrian who suffered injuries as a result of the accident. Earl settled the
case extra-judicially by paying Delfin amounting to P100,000 for actual damages (the money
comes from Mcdo Bee Inc.). Which of the following is correct?

a. The expenses incurred in having dinner with Clifford may be deducted from gross income
of Mcdo Bee.
b. The expenses incurred by Earl while celebrating with a partner in a bar is deductible to expense
of Mcdo Bee.
c. The amount paid to Delfin may be deducted from gross income of Mcdo Bee.
d. The amount paid to Delfin may be deducted but the amount will be reduced to an equitable
amount to qualify as ordinary and necessary expenses.

ADDITIONAL TRAINING EXPENSES UNDER THE CREATE LAW

24. (Based on illustration in RR 5-2021). COD Corporation, a domestic manufacturing corporation,

had gross sales of P100,000,000 for fiscal year ending June 30, 2021 and incurred cost of sales of
P60,000,000 and cost of sales of P17,500,000, with the following details:

Cost of Sales
Direct materials P 30,000,000
Direct labor 20,000,000
Manufacturing overhead 10,000,000 P 60,000,000

Operating expenses
Salaries and wages 7,000,000
Taxes 300,000
Depreciation 3,500,000
Professional fees 200,000
Advertising expenses 3,000,000
Training expenses 3,000,000
Office supplies 500,000 P 17,500,000

How much is the additional allowable training expense, if any?

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a. P0
b. P1,000,000
c. P1,500,000
d. P3,000,000

25. How much is the taxable net income of the Company?

a. P1,500,000
b. P17,500,000
c. P40,000,000
d. P21,000,000

INTEREST EXPENSE

26. This is a non-deductible interest expense

a. Interest paid on indebtedness incurred to finance petroleum exploration.

b. Interest paid by a corporation on scrip dividends.
c. Interest paid by a corporate taxpayer who is liable on a mortgage upon real property of which the
said corporation is the legal or equitable owner.
d. Interest paid on tax deficiency if the tax where the interest is in itself an item that is deductible
from gross income.

27. This is a deductible interest expense

a. Interest on deposits paid by authorized banks of the BSP to depositors, if it is shown that
the tax on such interest was withheld and paid.
b. Interest paid on indebtedness between related taxpayers.
c. Interest paid on preferred stock.
d. Interest paid when there is no stipulation for the payment thereof

28. Which of the following is a deductible expense for income tax purposes?

a. Interest paid on delinquent business taxes

b. Provisions for doubtful accounts
c. Ordinary repair for personal car
d. Salaries of domestic servants.

29. Statement 1: As a rule, the interest must be on an indebtedness of the taxpayer, otherwise it is not
deductible.

Statement 2: Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal
or equitable owner, even though the taxpayer is not directly liable upon the bond or not secured by such
mortgage, may be deducted as interest on his indebtedness.

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a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

30. In 2020 (prior to the effectivity of the CREATE Law), Roy borrowed money from the Bank
amounting to P1,000,000 at an annual interest rate of 7%. He invested the money in deposit.
substitutes earning annual interest income of 8%. How much is the deductible interest?

a. P43,600
b. P26,400
c. P70,000
d. P80,000

31. (CREATE Law; Based on illustrations in RR 5-2021). For fiscal year ending June 30, 2021,
assuming that JHB Corporation, aside from the operating expenses of P7,500,000, incurred
interest expense of P400,000 which satisfied the prescribed requirement for deductibility, but it
also earned interest income of P100,000, net of final tax of twenty percent (20%). How much is
the allowable deduction for interest expense?

a. P25,000
b. P100,000
c. P375,000
d. P400,000

32. (CREATE Law; Based on illustrations in RR 5-2021). For taxable year 2021, SGC Corp. incurred
interest expense of P500,000 on its bank loan. For the year, its gross assets amounted to
P50,000,000, exclusive of the cost of the land of P7,100,000. It registered a gross income of
P10,000,000 and incurred operating expenses of P6,000,00 inclusive of P500,000 interest
expense. It had interest income earned for the same year amounting to P150,000. How much is
the allowable deduction for interest expense?

a. PO
b. P150,000
c. P470,000
d. P500,000

33. In computing allowable deduction for purposes of income taxation:

Statement 1: Beginning July 1, 2020, interest expense arising from loans or indebtedness in
connection with taxpayer's business shall be reduced by an amount equal to 20% interest income
subjected to final tax

Statement 2: Interest incurred on money used to acquire property to be used in trade shall only be
allowed as a capital expenditure.

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a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

34. An individual taxpayer has the following data for 2021 taxable year:

Interest paid, business loan P 100,000

Interest paid, loan to finance personal car 500,000
Interest expense on delinquency business related taxes 50,000
Interest income, BDO West Avenue branch (net) 24,000

For income tax purposes, the deductible interest expense shall be

a. P102,000
b. P138,600
c. P144,000
d. P150,000

35. Debtor Corporation, with total assets of P15,000,000, shows the following data during taxable
year:

Sales P 500,000
Interest income, net of 20% final tax 24,000
Cost of sales 300,000
Salary expense 120,000
Interest expense 60,000
Rent expense 24,000
Advertising expense 6,000
Depreciation expense 5,000

What is the correct amount of itemized deduction?

a. P202,400
b. P205,100
c. P215,000
d. P265,000

36. Leomar Corporation paid the following during 2021:

Interest paid for late payment of 2020 income tax P 50,000

Surcharge and compromise penalty for late payment of 2020 income tax 72,500
Interest on bonds issued by Leomar Corporation 1,000,000
Interest on money borrowed by Leomar Corporation from Cabarles 500,000
Incorporated (owns of 60% shares of Leomar Corporation)
Interest on preferred shares which in reality is dividend 200,000

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How much is the deductible interest for 2021?

a. P1,822,500
b. P1,122,500
c. P1,000,000
d. P50,000

37. How shall interest related to acquisition of property used in trade, business or profession be
treated?
a. Claim as outright expense
b. Capitalize
c. At the option of the taxpayer, may be claimed as outright expense or capitalize
d. At the option of the government, may be claimed as outright expense or capitalize

38. Mrs. Sarabia is a self-employed individual using cash basis of accounting in recording her
business transactions. She borrowed money from the bank in 2021 payable after 2 years in lump
sum. The proceeds given to her by the bank was already net of P100,000 interest. When can she
claim as deduction the said interest?

a. In 2021
b. In 2022
c. In 2023
d. Spread over the term of the loan

39. The following interest are non-deductible, except?

a. Interest paid to persons classified as related taxpayers

b. Interest related to indebtedness incurred to finance petroleum exploration
c. Interest on preferred stock
d. Interest related to indebtedness incurred to finance working capital requirements

RENTAL EXPENSES

40. A lessee paid the real estate tax on the property he leased. For income tax purposes, the amount
paid was:

a. Deductible as part of lease expenses.

b. Deductible as tax expense
c. Deductible as an interest expense
d. Non-deductible expense

41. The cost of leasehold improvements shall be deductible by the lessee by

a. Spreading the cost of the improvements over the life of the improvements or remaining
term of the lease, whichever is shorter.

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b. Spreading the cost of the improvements over the life of the improvements or remaining term of
the lease, whichever is longer.
c. Spreading the cost of the improvements over the term of the lease or may be expensed outright in
full, at the option of the lessee.
d. Any of the above

42. . A leasehold is acquired for business purposes for P5,000,000. The lease contract is for 10 years.
How much is the deductible amount from the gross income during the year?
a. P500,000.
b. P5,000,000
c. P1,000,000
d. P0

43. On January 1, 2021, Mr. V leased his vacant lot for a period of 12 years to Mr. J at an annual rate
of P2,400,000. It was also agreed that Mr. J will pay the following:

 P4,800,000 representing rental payment for year 2021 and 2022.

 Security deposit of P2,400,000.
 Annual real property tax of P30,000.

The lease contract provides, among others that the lessee will construct a 5-storeybuilding for
parking purposes at a cost of P9,500,000. Ownership of the building shall belong to the lessor
upon the expiration or termination of the lease contract.
The building was completed on July 1, 2023 with an estimated useful life of 15 years. How much
can Mr. J claim as deduction in relation to the lease in 2021?

a. P2,430,000
b. P4,830,000
c. P2,400,000
d. P4,800,000

44. How much can Mr. J claim as deduction in relation to the lease in 2022?
a. P2,430,000
b. P4,830,000
c. P2,400,000
d. P4,800,000

45. Using the same information above, how much can Mr. J claim as deduction in relation to the
lease in 2023?
a. P2,430,000
b. P2,930,000
c. P2,400,000
d. P3,063,333

46. Using the same information above, how much can Mr. J claim as deduction in relation to the
lease in 2024?

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a. P 2,430,000
b. P 2,930,000
c. P3,430,000
d. P3,063,333

47. Mike leased his land to Leomar for two years beginning July 1, 2021. Leomar would pay monthly
rental of P100,000. He paid rent up to October 2021 and then defaulted for the rest of the year.
Under accrual method, how much was the income of Mike in 2021?

a. P200,000
b. 400,000
c. P600,000
d. None of the choices

48. Using the same data in the preceding number, under cash method, how much was the income of
Mike in 2021?

a. P200,000
b. P400,000
c. P600,000
d. None of the choices

49. Under accrual method, how much was the deductible expense of Leomar in 2021?

a. P600,000
b. P400,000
c. P200,000
d. None of the choices

50. Under cash method, how much was the deductible expense of Leomar in 2021?

a. P600,000
b. P400,000
c. P200,000
d. None of the choices

51. Pedro leased his lot to Jose. The contract calls for Jose to construct a house which would serve as
the residence of the latter, the ownership thereof to be transferred to Pedro after the expiration of
the lease. When the house was completely constructed, the remaining term of the lease was 10
years. The residential house had an estimated useful life of 15 years. What is the tax implication
of the leasehold improvement?

a. Pedro derives taxable income on the improvement; Jose can claim depreciation expense as a
deduction from gross income.
b. Pedro derives taxable income on the improvement; Jose cannot claim depreciation expense
as a deduction from gross income.

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c. Pedro does not derive taxable income on the improvement; Jose cannot claim depreciation
expense as a deduction from gross income.
d. Pedro does not derive taxable income on the improvement; Jose can claim depreciation expense
as a deduction from gross income.

52. Assume the same facts in the immediately preceding number, except that at the time of the
completion of the residential house, the remaining term of the lease was 15 years while the useful
life of the house was 10 years. What is the tax implication of the leasehold improvement?

a. Pedro derives taxable income on the improvement; Jose can claim depreciation expense as a
deduction from gross income.
b. Pedro derives taxable income on the improvement; Jose cannot claim depreciation expense as a
deduction from gross income.
c. Pedro does not derive taxable income on the improvement; Jose cannot claim depreciation
expense as a deduction from gross income.
d. Pedro does not derive taxable income on the improvement; Jose can claim depreciation expense
as a deduction from gross income.

TAX EXPENSE

53. Which of the following is not a requisite for taxes to be deductible?

a. Must have been paid or incurred within the taxable year:

b. Deductible only by the person/s upon whom the tax is imposed by law.
c. Must be in connection with the taxpayer's profession, trade, or business.
d. Must be imposed by the national government.

54. Which of the following is non-deductible?

a. Percentage tax on common carriers by land
b. Franchise tax
c. Overseas communications tax
d. Stock transaction táx

55. Mapanlinlang Corporation was assessed by the BIR due to underpayment of Percentage Taxes.
The Assessment Notice disclosed the following:

Basic Tax P 1,000,000

Surcharge 250,000
Interest 200,000
Penalties 25,000
Total P 1,475,000

It also generated interest income from bank deposits amounting to P100,000. How much is the
deductible interest?

a. P200,000
b. P162,000

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c. P167,000
d. Nil

.
56. Based on the above problem, how much is the deductible taxes?

a. P1,275,000
b. P1,000,000
c. P1,250,000
d. nil

57. Assuming the tax underpaid is donor's tax, how much is the deductible interest and tax?

a. P200,000 and P1,000,000, respectively

b. P200,000 and zero, respectively
c. Zero and P1,000,000, respectively
d. Zero for both items

ENTARTAINMENT, AMUSEMENT AND RECREATION EXPENSES

58. Which of the following is the correct allowable entertainment expense?

a. Not more than 1% of revenue from services.

b. Not more than ½ % of net sales of goods.
c. Not more than 1 ½ % of revenue from services.
d. Not more than 1 ½ % of net sales of goods.

59. Niah Corporation is engaged in the sale of goods with net sales of P2,000,000. The actual
entertainment, amusement and recreation expenses for the taxable quarter totaled P20,000. For
income tax purposes, how much is the deductible entertainment, amusement and recreation
expenses?

a. P10,000
b. P11,000
c. P20,000
d. PO

60. JAO Corporation is engaged in the sale of goods and services with net sales/net revenue of
P3,000,000 and P2,000,000 respectively. The actual entertainment, amusement and recreational
(EAR) expense for the taxable year totalled P30,000. How much is the deductible EAR expense?

a. P30,000
b. P27,000
c. P25,000
d. nil

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LOSSES/NOLCO

61. Which of the following is NOT correct regarding NOLCO?

a. NOLCO is allowed as deduction from business income for the next 3 succeeding years (5 years if
incurred in 2020 and 2021 under Bayanihan Act II).
b. Domestic and resident foreign corporation subject to normal income tax is allowed with NOLCO.
c. Private educational institution enjoying preferential tax rate is allowed with NOLCO.
d. None of the above

62. Which of the following is entitled to claim NOLCO?

a. An employee with respect to his compensation income.

b. Foreign international carrier
c. Entities registered with the Philippine Economic Zone Authority (PEZA).
d. Self-employed individual

63. Statement 1: A net operating loss is the excess of allowable deductions over the gross income
from business for a taxable year.

Statement 2: A net operating loss which had not previously been deducted from gross income
shall be carried over as a deduction only in the next year immediately following the year of such
loss.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

64. Which of the following items of expenses require that notice be filed with the BIR to be allowed
as deduction from gross income?

a. Taxes
b. Interest
c. Losses
d. Salaries

65. The net operating loss of the business or enterprise for any taxable year immediately preceding
the current taxable year, which had not been previously offset as deduction from gross income
shall:

a. Be carried over as a deduction from gross income for the next 3 consecutive taxable years
immediately following the year of such loss.

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b. The business or enterprise which incurred net operating loss for taxable years 2020 and 2021
shall be allowed to carry over the same as a deduction from its gross income for the next five (5)
consecutive taxable years immediately following the year of such loss.
c. The net operating loss for 2020 and 2021 taxable years may be carried over as a deduction even
after the expiration of RA No. 11494 (also known as Bayanihan Act II) provided, the same are
claimed within the next five (5) consecutive taxable years immediately following the year of such
loss.
d. All of the above.

66. The term "net operating loss" shall mean

a. The excess of capital losses over capital gains deductible from ordinary income.
b. The excess of capital losses over capital gains not deductible from ordinary income.
c. The excess of allowable deductions over gross income.
d. The excess of capital losses over ordinary losses.

67. All of the following, except one, are requisites in the carry-over of net operating loss:

a. There must be no substantial change in the ownership of the business

b. Carry-over is not allowed if the corporation is subject to MCIT during the taxable year
c. Even if the corporation paid MCIT, the running of the prescriptive period is not interrupted.
d. The carry-over is good for one (1) year.

68. Which of the following instances will NOLCO can still be claimed as deduction?

a. Transfer of ownership involves change from direct ownership to indirect ownership, or vice
versa.
b. Merger of the subsidiary into the parent company.
c. Either "a" or "b"
d. Neither "a" nor "b"

69. X Corporation owns 100% of Y Corporation. Y Corporation owns 100% of Z Corporation that
has NOLCO. Z Corporation is merged into Y Corporation. Which of the following statements is
correct?

a. Z Corporation's NOLCO can be used by it to the exclusion of all other parties.

b. Z Corporation's NOLCO is transferred to Y Corporation.
c. Z Corporations NOLCO is transferred to X Corporation.
d. Z Corporations NOLCO can no longer be used.

LOSS ON WASH SALE

70. Which of the following losses is not deductible?

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a. Abandonment losses in petroleum operation.

b. Excess of expenses over gross income from sale of ordinary assets.
c. Losses on wash sales of stocks.
d. Losses on sale of investments.

71. Which of the following taxpayers may be allowed to claim losses from wash sales as deduction?

a. Dealer in Real Properties

b. Dealer in personal properties
c. Dealer in securities
d. Investor in shares of stocks

72. On December 1, 2020, Ana purchased 100 shares of common stock of Jessie company for
P10,000. On December 15, 2020, she purchased 100 additional shares for P9,000. On January 2,
2021, she sold the 100 shares purchased on December 1, 2020 for P9,000. How much is the
deductible loss?

a. P1,000
b. P750
c. P250
d. Zero

73. Erick had the following stock transactions:

 Purchased 100 shares of common stock of Drei Inc. on Sept. 21, 2021 for P5,000.
 Purchased 50 shares of substantially identical stock on Dec. 21, 2021 for P2,750.
 On December 26, 2021, he purchased 25 additional shares of such stock for P1,125.
 On January 2, 2022, he sold for P4,000 the 100 shares purchased on Sept. 21, 2021.

How much is the non-deductible loss?

a. P1,000
b. P750
c. P500
d. Zero

CASUALTY LOSSES/ SECURITIES BECOMING WORTHLESS OTHER LOSSES

74. Statement 1: Casualty, robbery, theft or embezzlement loses are deductible only when a
"Declaration of Loss" is submitted within 45 days from the date of discovery of the casualty or
robbery, theft or embezzlement that caused the loss.

Statement 2: Casualty, robbery, theft or embezzlement loses are deductible from gross income if
at the time of the filing of the income tax return, they have not been claimed as deductions for estate tax
purposes in the estate tax return.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct

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d. Both statements are incorrect

75. Sira Sira Company had an old warehouse which had a cost of P1,200,000. The company
demolished the warehouse when it had a book value of P200,000 in order to construct a new and
bigger warehouse. The demolition cost amounted to P25,000 while the scrap were sold for
P10,000. How much is the deductible loss in arriving at taxable income?

a. None
b. P185,000
c. P200,000
d. P215,000

76. Statement 1: In a total loss due to casualty, the measure of loss is the book value of the asset
reduced by any form of indemnity

Statement 2: In a partial loss due to casualty, the measure of loss is the book value of the
property, or the cost to restore the property to its normal operating condition, whichever is lower,
reduced by any form of indemnity.

a. Only statement 1 is correct

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

77. On July 1, 2018, a taxpayer purchased for P500,000 an automobile which will be used
exclusively for his practice. He deducted annual depreciation on the basis of an estimated useful
life of five (5) years. On July 1, 2021, the automobile was partially damaged in an accidental
collision with another vehicle. The cost of repairs amounted to P100,000. The taxpayer received
insurance proceeds of P70,000 to cover the loss. How much is the deductible loss?

a. P200,000
b. P100,000
c. P130,000
d. P30,000

78. Emang acquired a property for use in her business. After a devastating typhoon, the machinery
suffered partial damage. The following were made available:
Cost P 500,000
Accumulated Depreciation 300,000
Restoration Cost 250,000
Estimated Useful Life 5 years

How much is the deductible loss?

a. PO
b. P200,000
c. P250,000

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d. P100,000

79. One of the following losses cannot be deducted from gross income.

a. To construct a bigger warehouse, a corporation demolished an old warehouse which had a

construction cost of P3,000,000 and a book value of P500.000.
b. Demolition of a building existing on a land purchased where the corporation has no use for
the building at the time of purchase and it was its intention to remove the building in order
to build its factory.
c. A corporation retired its machinery from the business because of the increase in the cost of
production and the failure of the machinery to meet the desired number of units of production.
d. A corporation ascertained that its B Corp. stocks are worthless because of the total insolvency of
B Corp.

80. Dong, a gambling addict, won P90,000 from cockfighting during the year. However, he also
suffered losses from other gambling activities amounting to P200,000. How much is the
deductible loss?

a. P200,000
b. P110,000
c. P90,000
d. nil

81. SNJ Inc. purchased shares of stock of Valde Corp. for P60,000 and of Boba Co. for P30,000.
At the end of the taxable year, it was ascertained that its Valde Corp. stock was worthless because of the
complete insolvency of the corporation, and its Boba Co. shares value had declined to P28,000. How
much is the deductible loss of SNJ Inc.?

a. P90,000
b. P62,000
c. P60,000
d. nil

82. One of the following losses is not deductible from gross income

a. Loss incurred in trade, profession, or business

b. Loss due to fires, storms, shipwreck, or other casualties, robbery, theft, or embezzlement of
property connected with trade, business, or profession.
c. Net operating loss carry-over
d. Shrinkage in the value of the stock

83. When shall bad debts be allowed as deduction from gross income?

a. Upon setting up of allowance for doubtful accounts

b. Upon write-off in the books
c. At the option of the taxpayer, upon setting up of allowance or upon write-off
d. At the option of the government, upon setting-up of allowance or upon write-off

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84. The following losses are deductible from gross income, except one which is deductible only to
the extent of capital gain:

a. net operating loss carryover;

b. accounts written off because these are certain to be uncollectible;
c. loss arising from permanent decline in market value;
d. loss incurred from a transaction involving a capital asset.

85. Statement 1: Capital losses can be deducted only from capital gains

Statement 2: Ordinary losses can be deducted from any gross income

a. Only statement 1 is correct.

b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

86. A taxpayer is allowed to use declining balance method in claiming depreciation. In such a case,
the limitation is –

a. It should not exceed twice the rate in straight-line method

b. It should not exceed twice the rate in sum-of-the-years digit method
c. It should not exceed the rate in straight-line method
d. It should not exceed the rate in sum-of-the-years digit method

87. BSE College, 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

88. Non-resident aliens engage in trade or business as well as resident foreign corporations are also
allowed to claim depreciation in arriving at taxable income. Which of the following is an absolute
requirement before depreciation can be claimed?

a. The property, regardless of location, directly helped in the generation of income in the
Philippines.
b. The property, regardless of location, helped, directly or indirectly, in the generation of income in
the Philippines.
c. The property is used in trade or business regardless of location
d. The property must be located in the Philippines

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PREMIUM PAYMENT ON LIFE INSURANCE

89. XYZ Co. took two key men insurance on the life of its President, Mr. A. In one policy, the
beneficiary is the corporation to compensate it for its expected loss in case of death of its
president. The other policy designates Mr. A's wife as its irrevocable beneficiary.
Question 1-Are the insurance premiums paid by XYZ Co. in both policies deductible?
Question 2-Will the insurance proceeds be treated as income subject to tax by the corporation and
by the wife?

a. Yes to first and No to second question;

b. Yes to both questions;
c. No to first and yes to second question;
d. No to both questions.

90. All of the following, except one, are not deductible from gross income

a. Tuition fees and other expenses of the taxpayer's children

b. Replacement of the roof of the office building
c. Premiums paid in insuring the life of the Corporate President, Appointing the corporation as the
beneficiary of the policy
d. Premiums paid on a life insurance policy of a rank-and-file employee with the latter's
children as the appointed beneficiary

91. In 2021, Delta Company paid total premiums of P10,000 for the life insurance policy of the Vice
President, where the beneficiary is the corporation. At the end of the year, Delta received dividend of
P100,000 because of the policy. In 2021, the corporation should indicate a claim for a deduction for life
insurance premium of

a. P100,000
b. P10,000
c. P1,000
d. Nil

DEDUCTIBLE CONTRIBUTIONS

92. 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. Travelling expenses

93. Which of the following charitable contributions is not fully deductible?

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a. Donation to the Government of the Philippines to finance priority projects identified by NEDA.
b. Donation to the Municipality of Milagros in the Province of Masbate for the repair of
Municipal Hall.
c. Donation to International Organizations.
d. Donation to Accredited Non-government Organizations.

94. One of the following charitable and other contributions is not deductible in full:

a. Donations to Government of the Philippines or to an of its agencies or political subdivisions,

including fully owned government corporations, exclusively to finance, provide for, or to be used
in undertaking priority projects.
b. Donations to certain foreign institutions or international organizations (i.e., International Red
Cross, World Health Organization).
c. Donations to accredited non-government organizations or non-profit domestic corporations that
satisfied the four requirements set by law.
d. Donations made for the use of the Government of the Philippines or any of its agencies or
political subdivision exclusively for public purpose.

95. To be deductible in full, certain accredited non-government organizations or non-profit domestic

corporations must meet certain requisites. One of the following is not a requisite

a. Organized and operated exclusively for scientific, research, educational, character building and
youth and sports development, health, social welfare, cultural and charitable, purposes or
combination of these purposes.
b. Not later than the 15th day of the third month after the close of the taxable year in which the
contributions are received, makes utilization of the contributions directly for the purpose or
function for which the organization is organized and operated.
c. The assets of which, in the event of dissolution, would be distributed to another non-profit
domestic corporation organized for similar purpose or purposes, or to the State for public purpose
or would be distributed by a court to another organization to be used in such manner as in the
judgment of said court shall best accomplish the general purpose for which the dissolved
organization was organized.
d. The administrative expenses shall, on an annual basis, not exceed 40% of the total expenses.

96. The following donations are non-deductible, except?

a. Donations given directly to Yolanda survivors

b. Alms given to beggars
c. Political contributions
d. Donations to International Organizations

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97. The amount of deductible charitable contribution of property other than money shall be based on:

a. Fair market value

b. Book value
c. Lower of cost or fair market value
d. Acquisition cost

98. To be allowed as a valid deduction, charitable and other contribution must not exceed:

a. 5% of taxable income after charitable contribution, in case of individuals

b. 10% of taxable income after charitable contribution, in case of individuals
c. 5% of taxable income before charitable of contribution, in case of individuals.
d. 10% of taxable income before charitable contribution, in case of individuals.

99. The following contributions and donations were made by a taxpayer.

To Christ the King Catholic Church P 250,000

To Bukas Palad, non-profit domestic corporation 300,000
To the fire victims of Recto 200,000
To the Gospel church of Taiwan 350,000

How much is the total deductible actual charitable and other contributions subject to limit?

a. P250,000
b. P550,000
c. P750,000
d. P1,100,000

100. A domestic corporation has the following data on income and expenses

Gross business income P 6,200,000

Deductions including SSS and Philhealth contributions of P150,000 2,500,000
Contributions to the Government for priority project in education 100,000
Contribution to foreign private foundation 100,000
Contribution to domestic charitable organization 190,000

How much is the deductible charitable and other contributions?

a. P390,000 c. P285,000
b. P290,000 d. P211,000

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Use the following data for the next two (2) questions:
Juan, reported the following during the taxable year:
Gross Income P 5,000,000
Cost of Sales 3,000,000
Salaries of employees, net of P100,000 withholding tax and 800,000
P50,000 SSS, Medicare and Pag-ibig premium contributions
Fringe benefits given to rank and file employees 300,000
Fringe benefits given to managerial employees (GUMV) 250,000
Representation and entertainment expenses (business related) 100,000
Rent expense 120,000
Donation to religious and charitable institutions 500,000

101. At what amount should Juan report as taxable income for 2020?
a. P2,790,000
b. P2,906,000
c. P2,956,000
d. P3,006,000

102. How much is the correct taxable net income assuming the taxpayer is a corporation?

a. P2,790,000 c. P2,956,000
b. P3,173,000 d. P3,006,000

PENSION COSTS

103. Which statement is wrong? Contributions made by an employer to a pension trust:

a. For lump sum payment to cover past service cost, is allowable as deduction beginning with the
year the payment was made.
b. For lump sum payment to cover past service cost is allowable as deduction amortized for period
of ten years.
c. For a lump sum payment to cover past service cost, may be amortized over a period of more
than, but not less than ten years.
d. For present service cost, is deductible in the year that payment is made.

104. Statement 1: Contributions by the employer to a pension trust for past service cost is
deductible in full in the year that the employer made the contributions, if he is on the cash basis of
accounting.

Statement 2: Contributions or donations given directly to individuals cannot be deducted

from gross income.
a. Only statement 1 is correct
b. Only statement 2 is correct
c. Both statements are correct
d. Both statements are incorrect

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105. An employer maintains pension trust for its employees. The following contributions are
made

2019 2020 2021

Current Service Costs P 1,000,000 P 1,000,000 P 1,000,000
Past Service Costs 800,000 600,000

How much is the deductible pension contributions?

2019 2020 2021

a. P 1,800,000 P 1,600,000 P 1,000,000
b. P 1,080,000 P 1,060,000 P 1,000,000
c. P 1,080,000 P 1,140,000 P 1,060,000
d. P 1,800,000 P 1,140,000 P 1,140,000

106. DLC Corp. contributed P4,000,000 to its pension plan during the year 2018. The normal
cost appearing on the Actuarial Valuation Report is only P3,000,000. How much can DLC Corp.
claim as deduction?

a. 4,000,000
b. 3,000,000
c. P3,100,000
d. Nil

107. Continuing the information above, assuming in 2019 DLC Corp. contributed only
P2,000,000 while the Normal Cost is P3,000,000, how much is the deductible amount?

a. 2,100,000
b. 3,000,000
c. 2,000,000
d. 3,100,000

108. Gallaxy, Incorporated has been in business for the past 10 years. For the year 2018, it
decided to establish a pension fund for its employees. The pertinent data of the fund are us
follow:

Past service cost (lump sum payment) P 1,000,000

Present service cost 100,000

The deductible pension contribution for the year is

a. P100,000
b. P200,000
c. P1,000,000

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d. P1,100,000

RESEARCH AND DEVELOPMENT

109. Which statement is wrong? Research and development cost:

a. On land and building acquired for research and development purposes is not deductible as
research and development cost.
b. May be claimed as an outright deduction from gross income.
c. May be treated as a deferred expense to be amortized over the period which will benefit
from the expenditure.
d. May be treated as a deferred expense to be amortized over a period of not less than thirty-six (36)
months from the date benefit from the expenditure is derived.

110. Research and development deduction shall not apply to

I. Any expenditure for the acquisition or improvement of land, or for the improvement of property
to be used in connection with research and development of a character which is subject to
depreciation and depletion.
II. Any expenditure paid or incurred for the purpose of ascertaining the existence, location, extent,
quality of any deposit or ore or other mineral, including oil and gas.

a. I only
b. II only
c. Both I and II
d. Neither I nor II

111. Research and development expenses treated as a deferred expenses shall be allowed as
deduction ratably distributed over a period of

a. Not less than 6 months beginning with the month in which the taxpayer first realizes benefits
from such expenditure.
b. Not more than 60 months beginning with the month in which the taxpayer first realizes
benefits from such expenditure.
c. Not less than 60 months beginning with the month in which the taxpayer first realizes benefits
from such expenditure.
d. Not less than 30 months beginning with the month in which the taxpayer first realizes benefits
from such expenditure.

112. Which statement is wrong? Research and development costs:

a. When related to the acquisition and/or improvement of land and building, must be capitalized.
b. If not related to land and building, may be treated as an outright deduction.
c. If not related to land and building may be treated as a deferred expense which may be amortized.
d. Cannot be deducted in gross income.

ITEMIZED DEDUCTIONS AND OPTIONAL STANDARD DEDUCTIONS (OSD)

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113. Which of the following income is to be reduced by itemized deductions?

a. Compensation income
b. Business income
c. Passive income
d. Capital gain

114. The following may be allowed to claim OSD in lieu of the itemized deductions, except

a. Taxable estates and trust

b. Non-Resident aliens
c. Resident foreign corporations
d. Domestic corporations

115. Optional standard deduction

a. Is equal to 40% of the gross income from business or practice of profession.

b. Cannot be used as a deduction from compensation income.
c. May be availed by all individuals
d. May be availed of by the taxpayer whether or not he signifies his desire to elect optional standard
deduction.

116. For purposes of Optional Standard deduction of an individual, the Optional Standard
Deduction of forty percent (40%) should be based on:
a. If a trading concern, gross profit from sales
b. If a service concern, gross receipts less direct cost of services
c. Gross sales or gross receipts
d. Means gross profit from sales, or gross receipts or revenues less direct cost of services, plus all
other items of gross income

117. Which of the following should be used as a basis in computing the Optional Standard
Deduction?

I. For individual taxpayers using the accrual basis of accounting, OSD is based on 40% of gross
sales.
II. For individual taxpayers using the cash basis of accounting, OSD is based on 40% of gross
receipts.
III. For individual taxpayers using the other basis of accounting such as percentage of completion
method, OSD is based on 40% of gross receipts or sales, as the case may be.
IV. For OSD purposes, corporate taxpayers shall compute the OSD in the same manner with
individual taxpayers
a. I and III only c. All of the above
b. I, II and III only d. None of the above

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118. The following statements pertain to Optional Standard Deduction (OSD) for
corporations. Which is incorrect?

a. Passive incomes which have been subjected to a final tax at source shall not form part of the gross
income for purposes of computing OSD.
b. Incomes exempt from income tax shall not form part of the gross income for purposes of
computing OSD.
c. If the taxpayer (individual or corporate) is engaged in trading of goods, OSD should be
based on Gross sales less sales returns, sales discounts and allowances, and cost of sales.
d. None of the above

119. One of the following statements is correct. A choice by an individual of the Optional
Standard Deduction means that:

a. His income tax return need not be accompanied by financial statements

b. He need not keep books of accounts
c. He need not have records of gross income
d. His choice can still be changed by filing an amended return

120. A resident citizen has the following data on income and expenses in 2021:

Gross compensation income P200,000

Gross sales 900,000
Cost of sales 500,000
Business expenses 200,000

He avails himself of the Optional Standard Deduction. How much is his taxable net income?

a. P690,000
b. P740,000
c. P420,000
d. P290,000

121. A domestic corporation has the following data on income and expenses for the year:
Gross sales P9,350,000
Sales returns and allowances 250,000
Sales discounts 100,000
Interest income on trade notes receivable 150,000
Other income 50,000
Cost of sales 3,000,000
Operating expenses with vouchers and receipts 4,000,000
Operating expenses without vouchers and receipts 500,000
Interest income from savings deposit 80,000
Interest income from deposit under FCDS 125,000
Royalty income 100,000

How much is the taxable income using itemized deduction?

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a. P1,675,000
b. P2,175,000
c. P1,700,000
d. P2,200,000

122. Based on the preceding number, how much is the taxable income using OSD?
a. P3,755,000 c. P3,695,000
b. P5,470,000 d. P3,720,000

123. . A resident corporation has the following data on income and expenses during the year:

Gross sales P 935,000

Sales Returns and Allowances 25,000
Sales Discounts 10,000
Interest income on trade notes receivable 15,000
Capital gain on asset held for 2 years 50,000
Cost of sales 400,000
Operating expenses with vouchers and receipts 215,000
Operating expenses without vouchers and receipts 200,000
Capital loss on asset held for six (6) months. 10,000

How much is the taxable income using itemized deduction?

a. P293,000
b. P300,000
c. P340,000
d. P349,000

124. How much is the taxable income using OSD?

a. P 293,000
b. P 300,000
c. P 340,000
d. P 349,000

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