CARD-MRI Development Institute, Inc.

Purok Lemonsito, Brgy. Mankilam, Tagum City

Subject: Income Taxation

Prefinal Examination
(Last Name, First Name, MI)
Name: Section: Score
Teacher: Exam Date: 40
Instruction: Please read each question carefully and circle the correct answer for each one. Use a pen to mark
your answers, ensuring that they are legible. No erasures are allowed. Remember to keep your eyes on your own
paper and do not share answers with others.

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 change 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. 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 gross 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
4. 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 government
5. 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
c. Both statements are correct
d. Both statements are incorrect
6. 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
7. This is not a requisite for business expense to be deductible
a. It must be reasonable
b. It must be paid during taxable year
c. The withholding tax otherwise required have been deducted and remitted to
the BIR

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Brgy. Mankilam, Tagum City

d. It must be ordinary and necessary

8. 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
9. 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” and “b”
10. 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
11. The following are allowable compensation expenses of the employer, except;
a. Overtime pay paid to a rank-and-file employees
b. Cash dividend paid
c. Amounts paid for pensions of retired employees
d. All of the above
12. This is deductible interest expense
a. Interest on deposits paid by authorized banks of the BSP to depositors, if it is known
that the tax on such interest was withheld and paid.
b. Interest paid on indebtedness between related parties
c. Interest paid on preferred stock
d. Interest paid when there is no stipulation for the payment thereof.
13. For the year ending June 30, 2021, assuming that RJC 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 20%. How much is the allowable deduction for interest expense?
a. 25,000 c. 375,000
b. 100,000 d. 400,000
14. RJC Corporation, with total assets of P15,000,000, shows the following data during taxable
year;
Sales P500,000
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. 202,400 c. 215,000
b. 205,100 d. 265,000
15. RJC Corporation paid the following during 2021:
Interest paid for late payment in 2020 income tax 50,000
Surcharge and compromise penalty for late payment of 2020 income tax 72,500
Interest on bonds issued by RJC Corporation 1,000,000
Interest on money borrowed by RJC Corp. from RC Inc. (60% ownership) 500,000
Interest on preferred shares which in reality is dividend 200,000

How much is deductible interest in 2021?

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Brgy. Mankilam, Tagum City

a. 1,822,500 c. 1,000,000
b. 1,122,500 d. 50,000
16. 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 expenses
c. Deductible as an interest expense
d. Non-deductible expense
17. The cost of leasehold improvements shall be deducted 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.
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
18. 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. 500,000 c. 5,000,000
b. 1,000,000 d. 0
19. Which of the following is not the 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.
20. Which of the following is non-deductible?
a. Percentage tax on common carriers by land
b. Franchise tax
c. Overseas communication tax
d. Stock transaction tax
21. Which of the following is the correct allowable entertainment expense?
a. Not more than ½% of revenue from services
b. Not more than 1% of net sales of goods.
c. Not more than 1 ½% of revenue from services
d. Not more than 1 1/2% of net sales of goods
22. RJC Corporation is engaged in the sale of goods with net sales of P2,000,000. The actual
EAR expense for the taxable quarter totaled P20,000. For income tax purposes, how much is
the deductible EAR expenses.
a. 10,000 c. 20,000
b. 11,000 d. 0
23. RJC 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 EAR expense for the taxable year
totalled P30,000. How much is the deductible EAR expense?
a. 30,000 c. 25,000
b. 27,000 d. nill
24. 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
25. 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 c. Losses
b. Interest d. Salaries
26. The term “net operating loss” shall mean
a. The excess of capital losses over capital gains deductible from ordinary income.

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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Brgy. Mankilam, Tagum City

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
27. 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 carried 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
d. Both statements are incorrect
28. 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 c. 200,000
b. 185,000 d. 215,000
29. 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, profession, or business.
c. Net operating loss carry-over
d. Shrinkage in the value of the stock
30. When shall bad debts be allowed as deduction from gross income?
a. Upon setting up 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
31. 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 pain in foreign country
d. Travelling expenses
32. Which of the following charitable contributions is not fully deductible?
a. Donation to the government of the Philippines to finance priority projects identified by
NEDA.
b. Donation to the Municipality of Carmen in the Province of Davao del Norte for the
repair of Municipal Hall
c. Donation to International Organizations
d. Donation to Accredited Non-government Organizations.
33. The following donations are non-deductible, except?
a. Donations given directly to Yolanda survivors
b. Alms given to beggars
c. Political contributions
d. Donation to Internation Organization
34. To be allowed as a valid deduction, charitable and other contribution must not exceed;
a. 5% of taxable income after charitable contribution, in case individuals
b. 10% of taxable income after charitable contribution, in case individuals
c. 5% of taxable income before charitable contribution, in case individuals
d. 10% of taxable income before charitable contribution, in case individuals
35. The following contributions and donations were made by a taxpayer.
To Christ the King Catholic Church 250,000
To Bukas Palad, non-profit domestic corporation 300,000
To the fire victims of Recto 200,000
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 CARD-MRI Development Institute, Inc.
Purok Lemonsito, Brgy. Mankilam, Tagum City

To the Gospel church of Taiwan 350,000

a. 250,000 c. 750,000
b. 550,000 d. 1,100,000
36. A domestic corporation has the following data on income and expenses
Gross business income 6,200,000
Deductions including SSS and Philhealth contributions of 150,000 2,500,000
Contributions to the government for priority project in education 100,000
Contribution to domestic non-accredited charitable organization 190,000

How much is the deductible charitable and other contributions?

a. 390,000 c. 285,000
b. 290,000 d. 211,000
37. Which statement is wrong? Contributions made by an employer to a pension trust
a. For lumpsum payment to cover past service cost, is allowable as deduction beginning
with the year the payment was made.
b. For lumpsum payment to cover past service cost, is allowable as deduction amortized
for period of ten years.
c. For lumpsum payment to cover past service cost, may be amortized over a period of
more than, but not less than 10 years.
d. For present service cost, is deductible in the year that payment is made.
38. Under RA 11494, or Bayanihan Act II, the NOLCO of the business or enterprise for taxable
years 2020 and 2021 shall be carried over as a deduction from gross income for the next;
a. 3 consecutive taxable years
b. 4 consecutive taxable years
c. 5 consecutive taxable years
d. 6 consecutive taxable years
39. Which of the following is not included in the Priority activities/projects to be considered in
charitable and other contributions?
a. Health
b. Science and Culture
c. Sports Development
d. None of the above
40. Under CREATE Law, what is the additional deduction from taxable income relating to
labor training expenses incurred for skills development of enterprise-based trainees enrolled
in public senior high schools, public higher educational institutions, or public technical
vocational institutions and duly covered by an apprenticeship agreement under the Labor
Code of the Philippines?
a. ½ of the value of labor training expense
b. ¼ of the value of labor training expense
c. 100% of the value of labor training expense
d. None of the above

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