CPA Review School of the Philippines

Manila
First Preboard Examination February 2022
TAXATION De Vera / Llamado

1. A tax is classified as ____________________, if the same is based on the value of the

property subject matter of the tax, and therefore may require the expert judgment of assessors
and appraisers.

a. ad valorem
b. specific
c. direct
d. indirect
e. None of the above

2. Statement 1: One of the sumptuary/secondary purposes of the power to tax is to raise

revenues for governmental expenses.
Statement 2: A revenue bill may originate from the Senate as long as the House of
Representatives is given the opportunity to study the bill upon three full readings
of the same.
a. Both are true.
b. Both are false.
c. Only Statement 1 is true.
d. Only Statement 2 is true.

3. A non-resident alien not engaged in trade or business (NRANETB) shall generally be subject
to a 25% final tax on gross income received from all sources within the Philippines.
However, a NRANETB shall be exempt from tax on:
a. Philippine Charity and Sweepstakes Office (PCSO) winnings less than ₱10,000.
b. De minimis prizes of less than ₱10,000.
c. Interest income paid by a depositary bank under the foreign currency deposit system.
d. Interest income from a long-term deposit or investment certificate issued by a bank in the
Philippines, and held for a period exceeding 5 years.
4-9) Christina, single, Filipino with 1 dependent child, received in taxable year 2021 the
following professional fees as an independent consultant:

Monthly Fees Less 5% CWT Net Monthly Fees

₱240,000 ₱12,000 ₱228,000

The monthly cost of her professional services amounted to ₱20,000, gross of the CWT.
The rental expenses related to her consultancy business amounted to:

Monthly rental Monthly rental expense

CWT
expense paid

Office space ₱30,000 ₱1,500 ₱28,500

Computer ₱5,000 None ₱5,000

Note: The lessor of the office space is Christina’s brother, Christopher.

Her car fuel expenses amounted to ₱10,000 per month. She used the car for her consultancy
business 40% of the time.
She is not VAT-registered and instead pays 3% OPT on her gross receipts under Section 116
of the Tax Code.
She has excess tax credits from the prior year of ₱15,500.
In her 1st Quarterly ITR, she chose to be taxed under the graduated rates with OSD as
method of deduction.

4. Calculate her tax payable in the 2nd Quarterly ITR.

a. ₱0
b. ₱75,200
c. ₱61,700
d. None of the above.

5. For her annual ITR, she chose to file BIR Form No. 1701A (for Individuals Earning Income
Purely from Business/Profession). What is the correct amount to be placed on Part IVC
Line 58 of BIR Form No. 1701A?

a. ₱108,000
b. ₱144,000
c. ₱155,300
d. None of the above.
6. Calculate her tax payable in the Annual ITR.
a. ₱93,600
b. ₱334,400
c. ₱78,100
d. None of the above.

7. If Christina, in her 1st Quarterly ITR, chose to be taxed under the graduated rates with
itemized deduction as method of deduction, what would be her tax payable in her 3rd
Quarterly ITR?
a. ₱124,920
b. ₱120,420
c. ₱147,420
d. None of the above.

8. If Christina chose to be taxed under the graduated rates with itemized deduction as method
of deduction, what BIR Form should she file as her annual ITR?
a. BIR Form No. 1701A
b. BIR Form No. 1701
c. Either (A) or (B)
d. None of the above.

9. Calculate her tax payable in the Annual ITR if she chose to be taxed under the graduated
rates with itemized deduction as method of deduction.
a. ₱127,832
b. ₱162,032
c. ₱156,332
d. None of the above.
10 -16) Carissa, resident citizen, single, 45 years of age, is an employee of GMA Inc. from which
she received the following employment income:

Less SSS premiums

Gross pay Less CWT Net Pay
and union dues

₱850,000 ₱60,000 ₱6,000 ₱784,000

The amount she received from GMA is inclusive of 13th Month Pay and other benefits of
₱165,000.
Carissa, aside from her employment, is also registered with the BIR as engaged in real estate
leasing and management consultancy.
She has the following financial information in the current taxable year:
(a) Interest income on receivable from her mother ₱ 25,000
(b) Interest expense on loan owed to grandfather 10,000
(c) Royalty income from book, net of FT 15,000
(d) Loss on sale of rental property to brother 350,000
(e) Gain on sale of personal car bought in 2018 90,000
(f) Rental receipts from real property, gross of 5% CWT 600,000
(g) Cost of revenues related real property leasing 100,000
(h) Distributive share in net income of a GPP, net of 15% WT 187,000
(i) Dividend received from Microsoft Corporation with
headquarters in Seattle, Washington, USA 75,000
(j) Dividend from Jollibee Corporation 5,000
(k) Expenses for dancing lessons with Zeus Cohen 50,000
Because she is a mixed income earner and is not qualified for the 8% tax option, she will be
filing BIR Form No. 1701 as her annual ITR.

10. What is the correct amount of Non-Taxable/Exempt Compensation to be placed on Line 5 in

Schedule 2 (Part V) in page 2 of BIR Form No. 1701?
a. ₱60,000
b. ₱90,000
c. ₱96,000
d. None of the above.
11. What is the correct amount of Taxable Compensation Income to be placed on Line 6 in
Schedule 2 (Part V) in page 2 of BIR Form No. 1701?
a. ₱790,000
b. ₱754,000
c. ₱760,000
d. None of the above.

12. What is the correct amount of Net Sales/Revenues/Receipts/Fees to be placed on Line 10 in

Schedule 3.A (Part V) in page 2 of BIR Form No. 1701?
a. ₱ 600,000
b. ₱ 850,000
c. ₱1,354,000
d. None of the above.

13. What is the correct amount of Total Allowable Itemized Deductions of to be placed on Line
16 in Schedule 3.A (Part V) in page 2 of BIR Form No. 1701?
a. ₱410,000
b. ₱360,000
c. ₱350,000
d. None of the above.

14. What is the correct amount of Optional Standard Deduction to be placed on Line 17 in
Schedule 3.A (Part V) in page 2 of BIR Form No. 1701?
a. ₱240,000
b. ₱250,000
c. ₱580,000
d. None of the above.

15. What is the correct amount of Total Other Non-Operating Income to be placed on Line 22 in
Schedule 3.A (Part V) in page 2 of BIR Form No. 1701?
a. ₱340,000
b. ₱295,000
c. ₱365,000
d. None of the above.

16. Calculate her tax payable in the Annual ITR.

a. ₱252,700
b. ₱285,700
c. ₱315,700
d. None of the above.
17. The following are the features of the 8% optional income tax in the ITR, except:
a. The qualified individual taxpayer is not required to file his financial statements with
his Annual ITR.
b. The qualified taxpayer is still required to comply with bookkeeping and invoicing
requirements.
c. The qualified taxpayer, who is also a partner in a general professional partnership,
must signify his choice of the 8% tax rate in the first quarterly ITR.
d. The qualified taxpayer is exempt from paying the 3% OPT under Section 116 of the
Tax Code.

18. DND Corporation leased a residential house for the use of its CEO. The monthly rent
agreed upon under the lease contract was ₱156,750, net of the 5% CWT. Compute the
quarterly FBT to be paid by DND Corporation.
a. ₱126,606
b. ₱126,923
c. ₱133,269
d. None of the above

19. In number 18, what is the total deduction allowable to DND Corporation for the quarter?
a. ₱628,269
b. ₱380,769
c. ₱513,038
d. None of the above

20. Lee Min Ho, a non-resident alien, came to the Philippines to perform project management
services for Green View Corporation, a domestic corporation engaged in mining. The
contract fee for Lee’s services was ₱600,000. He stayed in the Manila Mandaring Hotel for
10 days, and upon completion of the service, left for Korea. Green View paid for Lee’s
hotel bills in the amount of ₱75,000.
Compute the final taxes to be remitted by Green View to the BIR.
a. ₱168,750
b. ₱150,000
c. ₱175,000
d. None of the above
21. Which of the following benefits received by an employee may be included in the employee’s
ITR and be subject to the regular income tax?
(1) Use of employer’s Mercedes Benz by CEO for to attend business meeting
(2) Uniform and clothing allowance of ₱6,000 per year
(3) Payment of tuition fee of eldest child of a rank-and-file employee
(4) Housing provided to a rank-and-file employee
a. (1) and (2)
b. (2) and (3)
c. (3) and (4)
d. None of the above

22. Alberto fell in love with Beatrice. However, Alberto’s father disapproved of the
relationship. Against his father’s wishes, Alberto and Beatrice eloped, got married, and had
4 children.
In spite of his disapproval of his son’s marriage, Alberto’s father created a revocable trust
with Atty. Salvador Sanchez as trustee. Alberto’s father transferred a 10-door apartment
where rent income of P190,000 per month (net of 5% withholding tax) was received by the
trust with an expense of P980,000 during the year. 30% of the net income was given to
Alberto.
Determine the income tax still due from the trust.
a. ₱170,000
b. ₱166,500
c. ₱156,680
d. None of the above

23-24) A Co. and B Co., domestic corporations, both in the construction business, formed a
joint venture (JV) to construct apartment complexes in Laguna, with an agreed equal
sharing in net income. Since both corporations were both licensed by the Philippine
Contractors’ Accreditation Board (PCAB), the management of the JV deemed it
unnecessary to get a PCAB license for itself.
Data on income and expenses for the calendar year 2021 show:

Joint Venture A Co. B Co.

Gross Income P 80,000,000 P 2,000,000 P 3,000,000
Expenses 60,000,000 1,200,000 2,000,000

23. Determine the income tax due of the JV for 2021:

a. ₱5,000,000
b. ₱4,000,000
c. ₱4,500,000
d. None of the above
24. The income tax due of A Co for 2021:
a. ₱200,000
b. ₱700,000
c. ₱ 75,000
d. None of the above

25. Who among the following individuals is subject to the preferential 15% tax rate on gross
compensation income under the Tax Code as amended by the TRAIN?

i) Foreign managers in Philippine regional area headquarters of multinational companies;

ii) Aliens employed with foreign petroleum service contractors engaged in petroleum
operations in the Philippines;
iii) Aliens employed with offshore banking units in the Philippines; or
iv) Filipinos occupying non-managerial technical positions in Philippine regional operating
headquarters of multinational companies,
a. All except (iv).
b. All of them.
c. Only (i) and (ii).
d. None of them.

26-29) Ginger Licaros, single, resident citizen, had the following financial information in 2021:
Compensation income, Philippines, net of CWT 2,500,000
Business income, Philippines 3,895,000
Business income, abroad 1,300,000
Business expenses, Philippines 878,000
Business expenses, abroad 340,000
Dividend income from a domestic corporation 40,000
Dividend income from a foreign corporation* 30,000
Interest income, BPI Manila 50,000
Interest income, Citibank New York 25,000
Interest income, BPI FCDU 34,000
Royalty income, copyright (book) 450,000
Royalty income, patent 1,350,000
Raffle draw winnings 25,000
Philippine lottery winnings 35,000
CWT 194,750
Taxes withheld from compensation income 220,000
Household expenses 2,500,000

*Note: 2/3 of the foreign corporation’s income in the last 3 years was earned in the
Philippines.
 26. What is the total amount of final taxes on Ginger’s income in 2021?
a. ₱346,100
b. ₱391,100
c. ₱339,100
d. None of the above

27. Compute Ginger’s income tax payable for CY 2021.

a. ₱1,595,890
b. ₱1,587,810
c. ₱1,592,690
d. None of the above

28. What is the total amount of final taxes on Ginger’s income in 2021 if she was a non-resident
alien engaged in trade or business (NRAETB)?
a. ₱345,000
b. ₱350,100
c. ₱341,000
d. None of the above

29. Compute Ginger’s income tax payable for CY 2021 if she was a non-resident alien engaged
in trade or business (NRAETB).
a. ₱1,277,490
b. ₱1,274,290
c. ₱1,280,690
d. None of the above

30. The Municipality of Oslob in the Province of Cebu conducts Butanding Watching Activity
operations for visiting tourists. It also provides guides to assist the tourists. For such
services, the municipality charges and collects fees from the tourists. Are these fees
taxable?

(a) No. The municipality is a political subdivision of the National Government and thus
exempt from taxes.
(b) Yes. The income derived by the municipality is not in the exercise of its essential
government functions, but pursuant to its proprietary function. The income derived
therefrom is subject to both income tax and VAT. (BIR Ruling No. 471-2018, March 13,
2018).
(c) It depends whether the fees received shall be used for the benefit of the residents of the
municipality.
(d) None of the above.
31. The board of directors of CPAR noticed the tremendous performance of Christian Cruz who
teaches taxation. The board voted to take a life insurance policy covering Christian’s life.
Statement 1: The premium paid by CPAR on the abovementioned life insurance is taxable
income to Christian Cruz, whoever is the designated beneficiary of the policy.
Statement 2: If the designated beneficiary of the policy is CPAR, the premiums paid
thereon are deductible by CPAR.
a) Statement 1 is true. c) Both statements are false.
b) Statement 2 is true. d) Both statements are true.

32. Statement 1: Property dividend received by a resident foreign corporation from a non-
resident foreign corporation is not subject to final tax but is includible in the income tax
return of the resident foreign corporation.
Statement 2: Dividends received by individuals from domestic corporations are subject to
creditable withholding taxes.
a) Statement 1 is true. c) Both statements are false.
b) Statement 2 is true. d) Both statements are true.

33. The following are the requirements in the Tax Code for retirement benefits to be exempt,
except:
a) There must be a reasonable private benefit plan.
b) The plan must be approved by the BIR.
c) The retiree must have been in the service of the employer for at least 10 years.
d) The retiree must at least be 55 years old at the time of retirement.
e) The exemption shall be availed of only once.

34-35) Fernando Macasaet, a CPA, is employed as an accounting professor in a university. On

the side, he also provides accounting services for select clients. One of these clients was so
impressed with him that he was made a consultant for one of his companies engaged in agri-
business.
For 2021, he received the following incomes:
Salary from university, net of CWT of ₱45,000 ₱ 268,000
13th month pay received from the university 95,000
Monetized unused vacation leave credits (10 days) 50,000
Employee longevity award with monetary value of 10,000
Fees received as consultant, gross of 10% CWT 80,000
Professional fees from clients, net of 15% CWT 850,000
Damages won in a defamation suit filed against ex-wife 8,000,000
Capital gains from sale of jewelry bought in 2000 100,000
34. What is his gross taxable compensation income for 2018?
a) ₱318,000 c) ₱315,000
b) ₱313,000 d) None of the above

35. In number 34, what is his total gross (taxable) income (in the ITR)?

a) ₱1,448,000 c) ₱1,285,000
b) ₱1,498,000 d) None of the above

Atty. Idol Gadon with total assets of ₱60,000,000, excluding the land on which its business is
situated, has the following data for the year 2021:

Gross Receipts, Philippines P1,000,000

Gross Receipts, USA 500,000
Gross Receipts, Japan 500,000
Expenses, Philippines 300,000
Expenses, USA 200,000
Expenses, Japan 100,000

Other Income:
Dividend from San Miguel Corp. 70,000
Dividend from Ford Motors, USA 120,000
Gain, sale of San Miguel shares directly to buyer 150,000
Royalties, Philippines 50,000
Royalties, USA 100,000
Interest income (other than from bank deposit) 60,000
Rent, land in USA 250,000
Other rental income (Phils.) 100,000
Prize, contest in Manila 200,000
Interest income ($ deposit in BDO) 50,000

36. If Atty. Gadon is Resident Citizen, how much is his income tax?
a. P486,000 c. P499,600
b. P411,500 d. P563,600

37. How much is his final taxes on passive income?

a. P64,500 c. P57,500
b. P24,500 d. P87,000
38. How much is his capital gains tax?
a. P10,000 c. P22,500
b. P15,000 d. 30,000

39. How much is his total tax liability?

a. P486,600 c. P661,100
b. P586,600 d. P579,100

40. If he opted for Gross Receipt Tax, how much is his tax payable?
a. P0 c. P210,400
b. P190,400 d. P142,400

41. If Atty. Gadon is Non-Resident Alien Engaged in Business, how much is his income tax?
a. P186,000 c. P148,000
b. P148,600 d. P163,600

42. How much is his final taxes on passive income?

a. P64,000 c. P57,500
b. P64,500 d. P87,000

43. How much is his capital gains tax?

a. P10,000 c. P22,500
b. P15,000 d. 30,000

44. How much is his total tax liability?

a. P235,000 c. P235,600
b. P234,500 d. P228,00

45. If he opted for Gross Receipt Tax, how much is his tax payable?
a. P0 c. P92,800
b. P72,800 d. P68,800

46. If Atty. Gadon is Non-Resident Alien not Engaged in Business, how much is his income
tax?
a. P386,000 c. P348,000
b. P348,600 d. P370,000
47. How much is his final taxes on passive income?
a. P64,000 c. P57,500
b. P64,500 d. none

48. How much is his capital gains tax?

a. P10,000 c. P22,500
b. P15,000 d. 30,000

49. How much is his total tax liability?

a. P335,000 c. P335,600
b. P334,500 d. P392,500

50. If he opted for Gross Receipt Tax, how much is his tax payable?
a. none c. P92,800
b. P72,800 d. P68,800

51. Statement 1: A person may refuse to pay a tax on the ground that he receives no personal
benefit from it.
Statement 2: A taxpayer has a right to question illegal expenditures of public funds.
a. if only the first statement is correct.
b. if only the second statement is correct.
c. if both statements are correct.
d. if both statements are incorrect.

52. Statement 1: One of the essential characteristics of a tax is it is unlimited in amount.

Statement 2: A tax is generally unlimited because it is based on the needs of the state.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

53. Statement 1: A License Fee is a charge imposed under the police power of the state.
Statement 2: Penalty is imposed by the state only.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.
54. Statement 1: Imposition of taxes is a legislative act.
Statement 2: Collection of taxes is an administrative act.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

55. Statement 1: A state has the power to tax even if not granted by the Constitution.
Statement 2: A state cannot exercise police power if not granted by the Constitution.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

56. Statement 1: There can only be a tax if there is a law imposing the tax.
Statement 2: The power to tax is inherent.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

57. Statement 1: A tax is based on law while debt is based on contract.

Statement 2: A tax is also a custom’s duty.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

58. Statement 1: A person cannot be imprisoned for non-payment of property tax.

Statement 2: A law may be passed violating uniformity of taxation.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

59. Statement 1: The RDO is known as the alter ego of the BIR Commissioner.
Statement 2: The BIR Commissioner is directly under the President’s Office.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.
60. Statement 1: Provisions in the Philippine Constitution on Taxation are grants of power.
Statement 2: Due process of law in taxation in the Constitution is a grant of power.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

61. Statement 1: An excise tax is also called privilege tax.

Statement 2: A tax which is neither personal nor property, is an excise tax.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

62. Statement 1: Estate tax is a proportional tax.

Statement 2: A progressive tax is a tax, the rate of which is directly proportional to tax base.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

63. Statement 1: Taxation without representation is not tyranny.

Statement 2: In the exercise of taxation, the state can tax anything at anytime and at any
amount.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

64. Statement 1: Taxation and power of Eminent Domain may be exercised simultaneously.
Statement 2: Taxation and Police Power may be exercised simultaneously.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

65. Statement 1: All of our tax laws are statutory laws.

Statement 2: The non-impairment clause is a statutory law on taxation.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.
66. Statement 1: Non-payment of tax makes the business illegal.
Statement 2: The non-payment of license fee makes the business illegal.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

67. Statement 1: Margin fee is a tax.

Statement 2: Custom’s duty is a tax.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

68. Statement 1: Territoriality is one of the constitutional limitations on the power of taxation.
Statement 2: International comity is an inherent limitation in taxation.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

69. Statement 1: Taxes may be used for sectarian purposes if allowed by an ordinance.
Statement 2: The President can refuse to implement a tax law if it appears to be
unconstitutional.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

70. Statement 1: There can be double taxation in the Philippines.

Statement 2: Double taxation is illegal if it violates the uniformity of taxation.
a. If only the first statement is correct.
b. If only the second statement is correct.
c. If both statements are correct.
d. If both statements are incorrect.

The End!!
 Beginning 1 January 2018:

Taxable Income (PHP)

Tax on column 1 (PHP) Tax on excess (%)
Over Not Over

0 250,000 - 0

250,000 400,000 - 20

400,000 800,000 30,000 25

800,000 2,000,000 130,000 30

2,000,000 8,000,000 490,000 32

8,000,000 2,410,000 35