CPAR oa } CPA Review School of the Philippines FIRST PRE-BOARD EXAMINATION ‘Saturday, July 16, 2016 Taxation ‘8:00AM to 10:008M nsraciows Choose the BEST answer foreach of the folowing items ‘Mark only one answer for each item on the Special Answer Sheet provided. Strictly co erasure allowed. (1. A final tax shall be imposed upon the cash andor property dividends actually or constructively received by C ‘an individval from I. Domestic corporation TL Regional operating headquarters of multinational companies | (4 dis Pout TIL Share ofan individual inthe distributable net income of partnership TV. Insurance or mutual fund companies a LikMandIV b.[Mandll [Link] dTandW 2.) Which of the following statements 1s 2. & “ , Proprietary educational institutions and hospitsls shall pay a tax of L024-0% their taxable income if the crane fom unrelated mde, business or other acuity is ess than 50% oft el GT ee b. Government-owned or controlled corporations, agencies or it ities shall pay a tax upon their Government ne oad ten. corpoatens of associations gaged in-# Silat Wisi industry or activity Aeecishtit eae raced by a domestic corporation from another corporation shal nt be subies 12 given aden whee individ or corporations, fom transactions with Sepeeson moor expanded Torign currency deposit system hal be exempt Som ems #2 3. | Which of the following is not correct? aay excuse ofthe minimum corporte income tax over the normal jacome tx sll Be carried forward oe the normal iavome tax fr th three 3) immediately succeeding taxable Yk Tuthorized fo suspend the imposition of the minimum: income“whether held in the Philippines of abroad and sanctioned by their national sports associations 7 )gtenct— is nd vats rated ae el sco Aare SS See : Income derived by the government from the exercise of any esental governments] function ecruing tothe Goverament ofthe Philippines otto any political subdivisions thereof are €gclusion rom 703s income, re ‘Both stalemeats are cortct «. Only Statement 1 is correct b. Both-statements are not correct. Only Statement 2is correct 4, Which ofthe following fringe benefit if given to managerial employee is exempt from fringe benefit tx {2 Household personne, such a driver, maid snd others 3 | _by Expenses for foreign travel ‘Educational assistance tothe employee or his daughter Contribution of the employer for the benefit of the employee to retirement, insurance and hospitalization benefit plan 4. The following data on net income, bad debt, write off and recovery show: 2015 Coca CareB Case ‘Net income (Joss) before write off 80,000 P 40,000 (P20,000) ‘Less: Bad debts written off and claimed as deduction 50,000 60,000 70,000 5 Netincome (os) after write 30,000 (20,000) (P90,000) 2016 Subsequent recovery 50,000 50,000 P-50,000 The taxable recovery is ; : i CucA — CaseB Case a 50,000 30,000 50,000 b P5000 PPO wy, yup, ae © P50000 P40,000 P20,000 4 — 50,000 30,000 PO Using the umber, but the subsequent recovery for Case A ~ P30,000; Case B ~ P30,000 and "730,000, the taxable recovery is, v CaseB CaeC , ; a 30,000 P30,000 uw v b 30,00 «PO © 20,000 0 a P10,000) Po Ch 40=doum ILA alien received a prize of P40,000 from SM Department Store. Which of the is ‘connection with the imposition of final tax on the prize? eka ‘a. The first P10,000 is part of taxable income while, the remaining P3! is . The whole amount is part of taxable income oa ‘c. The whole amount of P40,000 shall be subject to The first P10,000 shall be exempt from tax, theI. 14 Somatic propria education insiution improved is brary felts by adding anew wing tit ld brary building, The capital outlay on library improvement, for income tax purpéses, may be a ‘Deducted in full at the time of completion of the improvement '. Capitalized or expensed outright at the option of the school owner &. Capitalized and depreciated over the ested life ofthe improvement Capitalized or expensed outright at the option of the government 15. A bought @ condominium unit under installment basis, to be used as-his-office inthe practice of his ‘Profession and paying P10,000 monthly. For income tax purposes, the P10,000 monthly payment shall be ‘a. Treated as business rental, hence deductible b. Treated as depreciation expense, hence deductible ©. Treated as capital expenditure, hence not deduetible Treated as ordinary business expense 16, Which ofthe following statements is not corect? y ‘If the taxpayer should have additional dependents during the taxable year, he can claim the exemptions for such dependents in full forthe year Cs | ’, Ifthe taxpayer should die during the taxable year, his estate may claim the personal exemption as ifhe died atthe close of such year ¢ ©. Ifa qualified dependent should become 21 years old during the taxable year, the taxpayer may claim the personal exemptions as ifthe dependent became 21 years old atthe close of the taxable year 4 1f-a qualified dependent should marry during the taxable year, the taxpayer may claim the personal exemptions as ifthe dependent marred at the close ofthe taxable year | 17, Which ofthe following items is an income of a resident sien subject tothe basic tax (schedular)? | ‘2 Dividend received from a domestic corporation ‘re. Intrest income from Philippine loto winnings '. Prizes from USA lotto w 4. Shae inthe net income of ordinary partnership © | 18. This income is part of taxable income subject to the basic tax (schedular) 3 ‘4 Fringe benefits given to rank and file employees. Compensation for personal injuries or sickness by Fringe benefits given to managecal employees. Proceeds of life insuranceon ‘24. The taxpayer is not allowed to claim additional exemptions * /natural son who celebrated his 21" birthday January 1 ofthe taxable year a, daughter, 25 years old but incapable of sl-support due to mental defect © legitimate son, minor who died December 31 of the previous year tif expense is Pi,860,000. The fringe benefits tax expense is a 8,160,000 .PI75,058 «. PI19,040 a.pi4,000 28. The following were taken from the income statement of A Corporation forthe taxable year 2016: Gross profit from sales 1,000,000 ‘Less Besinsas connected expenses 630,000 Provision for bad debts. a 90,000 _720,000 j Net income before income ax PF 2k0000 toa information ir ‘a Accounts written off during the year and charge to allowance for bad debts P 60,000 Gs Ieee ecco ser atle rerio pret ia S i. Allowed by BIR as deductions 30,000 ii. Disallowed by BIR as deduction Refund of taxes paid in 2010: i. Allowed by BIR as deduction * oryote Db. P10,000 ©. P390,000 4. P340,000 eas .i, 60% ofits word income 20,000 & Prize received from Supermarket raf: “ i. From the Philipines, 1. ABC Supermarket 8,000 2. DEF Superstore 12.000 ii, From USA, 1. UVW Supermarket 00 2, XYe sop sino ‘ 1 Prizes and winnings from lato i Philippine lato 200,000 ii, USA oto see ‘The total income from sources within the Philippines is 1. P903,000b,P703,000 <. P895,000d. 907,000 30, Using the above data, the total income from sources outside the Philippines is 1. 635,000 P35,000 ¢.P643,000 d. P629,000 31. Using data in number 29, assume instead that A isa resident citizen, single, his net taxable income subject to graduated rates is @ P1,118,000 b.P1,018,000 ¢.P992,000 4, P938,000 32, Using data in number 29, assume instead shat A is a non-resident citizen, single, his net taxable income subject to graduated rates is i ‘a. 495,000 b.P#75,000 —¢. PA70,000. P487,000 33, XYZ Corporation, a domestic corporation had the following data during the calendar Gross income P 1,000,000 Business connected expenses Dividends from ‘a. Domestic corporation >, Foreign corporation, 90% of the gross income37, This income is subject to final tax ‘Fringe benefits given fo rank and file employees . Marriage fees, baptismal offerings received by a clergyman, evangelists or religious workers for services rendered «Dividend income from a domestic corporation by a resident foreign corporation Share ofan individual taxpayer from the distributable net income of general co-parinership 138. A, acquired his residitial land in 2000 at a cost of PIM. A sold the property on January 2,.2016 for a selling price of Pa the FMV is PSM. Within 18 months, A purchased his new prineipal residence at A ‘8 cost of P7M. How much isthe capital gains tax? ‘a P300,000 b.P240,000¢, P75,000d. PO 39. Bank A deposited money with Bank B which eams interest that is subjected to the 20% final withholding fax. At the same time, Bank A is subjected to the 5% gross receipts tax on it ‘income on loan transactions. Which statement below incorrectly deseribes the transactions? a ia. There is double taxation because two taxes ~ income tax and gross receipts tax are imposed on the interest incomes described above, and double taxation is prohibited under the 1987 Constitution 'b. There is no double taxation because the first is income tax while the second is business tax ‘c. There is no double taxation because the income tax is onthe interest income of Bank A con its deposits L— ™ with Bank B (passive income) while the gross receipts taxis on the interest income received by Bank: {A from loans to its debtor ~ customers (active income) 4d. Income tax on interest income of deposits of Bank A is a direct tax while GRT on interest income on Joan transaction isan indirect tax. 40) Which ofthe following statements is not correct? ‘a Incase of doubt, statutes levying taxes are construed strictly against the government ' The construction of a statute made by his predecessor isnot binding upon the successor, if thereafter the becomes satisfied that a different construction should be given ©. The reversal ofa ruling shall not geneelly be given retroactive application, if said reversal will be prejudicial to the taxpayer és ae Fe 4. A’memorandum circular promulgated by the CTR that imposes penalty for violations of certain rules ‘need not be published in a newspaper of general circulation of official gazette because it has the foree ‘and effect of law. 41, Which statement below expresses the lifeblood theory? ‘a. The assessed taxes must be enforeed by the government b. The underying basis of taxation is government necessity‘Income from the performance of ines, if ‘Service is treated as income within the Philippines, if ft 3 ‘Tag beyment of compensation forthe service is made inthe Piippines Fo. The cont calling forthe perfomance of service is signed in the Philippines Service is actually performed in the Philippines Fecipient of service income isa resident ofthe Philipines 4S. For income tax purposes, the soure of the service income i important forthe taxpayer, whois & 4. Filipino citizen residing in Makati City oe b. Non-resident Filipino citizen working and residing in London, United Kingdom © Japanese citizen who is married to Filipina citizen and residing in ther family home located in Fort Bonifacio , Taguig City, who obtained Filipino citizenship by naturalization. 4. Domestic corporation a 46. Interest income of a domestic commercial bank derived from a peso loan to a domestic corporation in 2010 is subject to d, & The 30% income tax based on its net axable income ¢. The 7.5% final withholding tax 1/4 PY. b. The 20% final withholding tax 4.10% final withholding tax 9) " #7. J Taian forces corporation is one that is “i ~/& Organized under the laws ofthe Philippines that does business in another country heal b. Organized under the laws of a foreign country that sets up a regional headquarter in the Philippines ~ doing product promotion and information dissemination bed '/ © Organized under the laws ofthe Philippines that engages business in a special economic zone 4 Organized under the laws ofa foreign country that engages in business in Makati City, Philippines 48. A dealer in suites sold unlisted shares of stocks of a domestic corporation in 2010 and derived a gain of ‘Php IM therefrom. The gain is ‘ Taxable at 30% regular corporate income tax based on net taxable income 'b. Taxabie at 5% / 10% capital gains tax based on net capital gain © Taxable at % of 1% stock transaction tax based on the gross selling price or fair market value, 900,000 and cost of Php 800,000). The sale ‘gins tax on the gain ] rsa ie sBatthe “mot properly refer toa general professional partnership? A GPP is one ; Bich of te lin ed Eichnge Commins and de Buy Inte he Buen of nt t en b. ‘That fs composed of individuals who exercise a common profession ©. That exetustvely derives income from the practice ofthe common profession ‘That derives professional income and rental income from property owned by it “4: The imterest expense of a domestic corporation on a bank loan in connection with the purchase of & Pet nut dase form gross income af the borrower corporation p+ seteteabis fom the gress income of the borrower ~ corporation during the year or it may be apiaized as pt of cost ofthe equipment Tn deducible only fora period of ive years from date of purchase Is doducuble ony of the taxpayer uses the eth method of accounting ‘55. All the items below are excluded from gross income, except , ‘&. Gain from sale of long-term bonds, debentures and indebtedness -©**\/ J). Value of property received by a personas donation or inheritance A ‘c. Retirement benefits received from the GSIS, $SS or accredited retirement plan « ‘d._ Separation pay received by a retiring employee under a voluntary retirement program of the corporate employer 56. Which statement is correct? A non-stock, non-profit charitable association that sells its idle agricultural property is ‘a. Not required to file an income tax return, nor pay income tax on the transaction to the BIR, provided the sales proceeds are invested in another realestate uring the year " e 'b. Required to pay the 6% capital gain tax on the gross selling price or fair market value, whichever is higher ‘© Mandated to pay the 30% regular corporate income tax onthe gain from sale 4d. Required to withhold the applicable expanded withholding tax rate on the transaction and remit the same fo the BIR sh Se entree cy eeracren cere aoa ce een ere Ae aia oof sion tex Ri reap rar age ee bearers ry > ‘58 Passive income includes income derived from an activity in which the earner does not have any substantial “participation, This typeof income is a. Usually subject oa final tax taxation2 7 63 ‘2. ABC Corporation should deduct af i 4 final tax of 105 from the dividends ‘b The stockholders should declare tei gin from their investment and pay income tat the ordinary ‘The dividends are exempt from tax ABC Corporation should withhold 2 10% creditable withholding tax MGC Corporation secured an income ax oly for 5 yeas spines. On te fou ye of holiday, MGC Corporation declared and paid cesh dividends to its stockholders, all of whom are individuals. Are the dividends taxable? any The dividends are taxable, the ax exemption of MGC Corporation doesnot extend to its stockholders ‘The dividends are tax exempt beeause of MGC Corporation's income tax holiday The dividends are taxable if they exceed Si of MGC Comporations retained camings ‘The dividends are exempt if paid before ths end of MGC corporation fiscal year. pege Mr, Alas sells shoes in Makati through aretilstore. He pays the VAT on his goss sales to the BUR and te municipal license ix based on the same gros sles tothe City of Makai, He comes to yon for advice because he thinks he is being subjected to double taxation. What advice will ou BiVe? Yes, there is double taxation and itis oppressive The City of Makati dos nothave this power ‘Yes, there is double taxation and ths is illegal in the Philippines Double taxation is allowed where one tax is Imposed by the national government and the other by the local government peer Congress passed sn tx aw that neeaod the tnx rates on igre y1,000%. The aw wns BORE be sufficient to drivé many cig te companies out of busigess and was questioned in court by a cigaretie aoe tat would go Ou of business Dectse would not be able t py ibe inteasd tm, Te Hare company is a Wrong becausstaxcs are lifeblood ofthe government Wrong because the law recognized thatthe power to taxis the power to destroy Pires because no govemment can deprive a person of his livelihood 4. Correct beemuse Congress, in his case, exceeded its power tas69. PRT. ion purchased a residential house and lot with a swimming pool in an upscale subdivision and dis cocipany president to stay there without paying rent; It reasoned out thet the company DePeaaOeamy ‘Must maintain a certain ir and be able to entertain guests at the house to 4 e the company’s: business. The company president declared that because they are childless, he and his wife could very well liveinra smaller house, Was there a taxable fringe benefit? There was no taxable fringe benefit since it was for the convenience of the employer and was.» necessary for its business. . There was a taxable fringe benefit since the stay at the house was for free ©. ‘There was a taxable finge benefit because the hous was very luxurious 4d. There was no taxable fringe benefit because the company president was only required to stay there and did not demand free housing 7 ppg income tx mad tad some ds on wicca conmisio Je eae shuld be declared for the current year or forthe succeeding year. He sought the opinion of his lawyet Who advised ‘him to report the commission in the succeeding year. He heeded his lawyer's advice and reported the commission in the succeeding year. The lawyer's advice turned out to be wrong. In Mr. A’s petition against the BIR assessment, the court ruled against Mr. A. Is Mr. A guilty of fraud? 2. Mr. Ais not guilty of fraud as he simply followed the advice of his lawyer A ». Mr. A is guilty of fraud; he deliberately did not report the commission in the current year ‘when he should have done so © Mr. A’s lawyer should pay the tax for giving the wrong advice. 4. Mr. Ais guilty for filing to consult his accountant.