Chapter 9- Regular Income Tax: Inclusion in Gross Income apter 9 - Regular Income Tax: Inclusion in Gross Income

CHAPTER 9: SELF-TEST EXERCISES

T 14 Real property tax and insurance on the property if assumed by the lessee
·onstitute income to the lessor.
C • I
Discussion Questions
1. Enumerate the NIRC list of items of gross income.
F {5, Corporate winnings are exclusions in gross income; hence, they are exempt from
income tax.
2. What are the broad categories of gross income? F \6, Stock dividends are never subject to income tax.
3. Discuss in detail the taxation of interest income. Which is subject to final tax?
Which is subject to regular income tax?
T {7, Pensions or retirement benefits are inclusions in gross income subject to regular
income tax if the employee is term mated due to any cause within his control.
4. Discuss the treatment of gains from dealings in properties. Which gains are 18. Prizes in athletic competitions sanctioned by the Philippine government are
subject to capital gains tax? Which gains are subject to regular income tax? F exclusions in gross income subject to final tax, but are inclusions in gross income
5. Discuss the taxation of dividends. subject to regular income tax.
6. Discuss the taxation of royalties. T 19. Corporate prizes are exclusions in gross income subject to final tax but are
7. Discuss the taxation of prizes and winnings. inclusions in gross income subject to regular income tax.
8. Compare actual distribution and the share in the net income of the partnership. T 20. Stock splits are never subject to income tax.
Which one is included in the gross income of the partner?
9. Discuss the taxability of recoveries of past deductions. True or False 2
10. Enumerate examples of pass-through entities. Are they taxable to final tax, capital F 1. The recovery of deduction from an exempt year is subject to tax.
gains tax, or regular income tax?
T 2. The distributable net income of a general professional partnership is subject to
11. Enumerate and discuss the transfer pricing methods. creditable withholding tax.
F3. Exempt joint ventures and co-ownerships are treated as pass-through entities and
F True or False 1 are subject to income tax.
1. Imputed interest income is an item of gross income subject to regular income tax. T 4. The distribution by the GPP of items of passive income is an inclusion in gross
T 2. Items of gross income subject to regular income tax and capital gains tax are income of the partner subject to regular income tax.
T reportable to the government. T 5. General professional partnerships are exempt from tax and hence, exempt from
3. Rent is a passive income, but is not subject to final tax.
F 4. The interest income from bonds issued by banks is subject to final tax.
withholding.
F 6. The share from the net income of a joint venture organized abroad is subject to
T 5. Gains from dealings in capital assets are generally subject to the regular income
tax. T 7. Income
10% final withholding tax. . . . .
distribution from taxable estates and trusts 1s an mclus1on In gross mcome
F 6. The gross income from operations enjoying a tax holiday are included in gross subject to regular tax by the heir or beneficiary. I,

income subject to regular tax, but are presented as deductions in the income tax T 8. The recovery of past deduction must be reverted back to gross Income of
T return.
7. The share in a business partnership is subject to final tax, but the share in a F 9. The
taxpayers using the accrual basis.
recovery of bad debts need not be reverted back to gross income of taxpayers
T general professional partnership is subject to regular income tax. the cash basis.
T 8. Gains from dealings in ordinary assets are subject to regular income tax. F 10. General
using
professional partnerships are not exempt from regular tax but are subject
9, Items of passive royalty income are subject to final income tax while items of
active royalty income are subject to regular income tax. F to final tax and capital gains tax.
T 10. Compensation income is an inclusion in gross income subject to regular tax except
11. An indebtedness cancelled by the creditor out of mercy is an income to the debtor.
compensation income of special aliens.
F 12. When there is a net loss in the period the deduction Is taken, the subsequent
T recovery of the deduction will not have any tax benefit d b kt
11. The reportable gross income from business or the exercise of a profession is net of
the cost of goods sold or cost of services.
T I3. The refind or recovery of non-deductible taxes shall not be reverter iac o gross
T
12. Items of _income _which are included in gross income subject to final tax are F 14. T»
Income.
· .
,4,
d b the partners as deduction in
the'
eir
excluded in gross income subject to regular income tax ' le loss of the partnership can be claime y
T 13. Advanced rentals are income in the year received. . F 15,
Income tax retut
er irns. direct impact upon the amount o
3f
· The accounting period of the taxpayer has a
gross income to be reported.
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 Chapter 9 - Regular Income Tax: Inclusion in Gross Income r g _ Regular Income Tax: Inclusion in Gross Income
Cha te
F
16. The power of the CIR to redistribute income and expense includes the pow,, Share in the income of a general professional partnership
c ·
impute income between affiliated enterprises. lo d. Winnings
T 17. The situs of taxation has an impact on the extent of the reportable gross income
C 5 Which of these employee benefits is subject to final tax?
T 18. Creditable withholding taxes are added back to the amount of reportable ,,, · Fringe benefits to rank and file employees
income.
F 19. The output VAT must be included as part of gross income of VAT taxpayers. j, Regular pay of supervisory and managerial employees
c. Fringe benefits to supervisory and managerial employees
F 20. The requirement to revert back to gross income the amount of withheld taxes d. Regular pay of rank and file employees
applies only to VAT taxpayers.
T 21. Generally, all items of income of NRA-NETB and NRFCs from the Philippines a B All of these are items of gross income subject to regular tax except one. Select the
inclusions in gross income subject to final tax. ire 6.
F 22. The taxpayer must enter into an advanced pricing agreement with the BIR for Its
exception.
a. Compensation income
cross-border transfer pricing with associated enterprises.
T 23. Transfer pricing between associated enterprises must be made at arm's length.
b. Interest income from long-term bank deposits
c. Ordinary gain on sale of properties
F 24. The transfer pricing regulations apply only to cross-border transfers of goods and d. Interest on notes receivables
services between associated enterprises.
T 25. Corporations under the direct and indirect control of the same controlling C7., Which is an income exempt from income tax?
individual or corporation are associated enterprises.
F a. Income of a general professional partnership
26. Under the accrual basis of accounting. items of gross income are reported In the b. Foreign dividends
period they are received.
T c. Taxes collected by the government
27. Basically, transfer pricing adjustment Is needed when the income reported for d. Income of government-owned and controlled corporations
Philippine taxation is understated.
D 8. All of these are subject to regular income tax. except 3
!.,
Multiple Choice - Theory: Part 1 a. Professional fees I
b. Wages and commissions
A 1. Which item of gross Income is not subject to regular tax?
c. Business income ... .
a. Interest income from foreign bank deposits d. Capital gain from the sale of real property located in the Philippines
b. Capital gain on the sale of bonds with more than S years maturity
c. Gain on sale of domestic stocks by a security dealer
B
9. Which is exempt from regular tax?
d. Capital gain on sale of patent a. Income from construction
D b. Income of qualified pension plans
2. Which is not subject to income tax? c. Income from merchandising or trading
a. Gain from sale of shares in mutual funds by the investor d. Income from financing or leasing
b. Prizes in recognition of civic, religious, and artistic achievements
c. PCSO lotto winnings, not exceeding P10,000 C lo. . . . :.
Which is not part of compensation income subject to regular tax?
d. All of these a. Director's fees
A 3. Which is an item of gross income subject to regular tax? b. Bonuses and fixed allowances
c. Portion of salary contributed to SSS
a. Gain on sale oflot by a realty dealer
d. Portion of salary used to pay salary loans
b. Interest income from bank deposits
c. Passive royalty income B 1 ibir
l. Which is included in the gross income subject {O
t regular tax of a resident alien?
d. Capital gain on the sale of domestic stocks a. Gross income from thesaleofgoodsabi©,,,,r clients
C b. Interest income from promissory notes ol res
4. Which is not an item of gross income subject to final tax?
a. Dividends from a domestic corporation C Interest income from relatives ab!",,,,ly to a buyer
b. Prizes in excess of P10,000 by an individual d. Gain from the sale of domestic stocks

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Chapter 9- Regular Income Tax: Inclusion in Gross Income g.Regular Income Tax: Inclusion In Gross Income
capte'
D 12. Which of the following deductions from gross compensation income is include], The proceeds of life insurance received by the wife of the insured is
part of gross income subject to regular tax: A ", exempt from income tax. C.part of taxable income.
a. Pag-lbig Contributions c. PhillHealth Contributions , subject to final tax. d. partly exempt and partly taxable.
b. Contributions to union d.dues Withholding tax
D 13. Which interest income is not subject to regular tax? I Choice - Theory: Part 2
Multiple'.:. 1bi
Which individual taxpayer is not sutject to progressive tax?
a. Interest income from notes c. Interest from trading account margins
b. Interest income from lending d. All of these BNRA-ETB c. Resident alien
:: Special aliens d. Resident citizen
A 14. Dividends subject to regular tax includes
a. Foreign dividends c. Both a and b Which of the following will not be reported in gross income?
b. Domestic dividends d. Neither a nor b A
' Receiptof inheritance
:: Share in the net income of a foreign partnership
A 15. Statement 1: All prizes earned abroad are subject to regular tax. c. Royalties from foreign sources
Statement 2: All prizes in the Philippines are subject to final tax. d. Income distribution from a taxable estate
Which statement is generally correct?
3. Which is not a reportable type of gross income?
a. Statement 1 c. Both statements 1 and 2
b. Statement2 d.Neither statement is true. D a. Passive royalties
b. Dividends from a foreign corporation
A c. Rent income
16. Which is an item of gross income subject to regular tax?
a. Lottery winnings from abroad d. Capital gains from the sale of domestic stocks through the PSE
b. Imputed interest income
4. Which of the following is included in gross income subject to regular tax?
c. Advanced rent representing security deposit for contingency which may or
may not happen D a. Sub-contract income from petroleum service contractors
b. Interest income from government securities
d. Leasehold improvements with useful life not extending beyond the lease term
c. Share in the net income of a taxable co-ownership
C 17. Which of the following is not subject to regular tax of a domestic corporation or d. Farming income
resident citizen?
S. All income earned abroad that would otherwise be subject to final taxes if earned
a. Deposit interest income from abroad
b. Prize not exceeding P10,000 from the Philippines
B within the Philippines shall be subject to progressive tax of a ,,
c. Income from abroad exempt under treaty a. domestic corporation. c. resident alien.
d. Royalties from abroad b. resident citizen. d. all taxpayers.
D 6· All items of passive income earned abroad are subject to regular tax to
18. Which is subject to regular tax to a non-resident foreign corporation or non· C a. a resident citizen only.
resident alien not engaged in trade or business?
a. Business income from the Philippines b. a domestic corporation only. .
b. Capital gain from the sale of stocks directly to a buyer in the Philippines c. a resident citizens and domestic corporations.
c. Dividends from domestic corporations d. all taxpayers.
d. None of these
7
B D· Which corporate taxpayer is not subject to regular tax? h'
a D . . c. Business partners Ip
19. Which is subject to regular tax to a resident foreign corporation?
a. Service fees abroad ,' ?9mesticcorporation +-resident foreign corporation
· Resident corporation d.Non-r
" 7""@'of real propery capital assets in ue Phppines
c. hviden s rom a domestic corporation Bhdividual taxpayers shall report their inco "",y or calendar year.
d. Gain from dealings in properties abroad a. a fiscal year c. either a
® acalendaryear. d,a crop year.
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 Chapter 9- Regular Income Tax: Inclusion in Gross Income t r g. Regular Income Tax: Inclusion in Gross Income
Chapte

9. Corporations areallowedtoreporttheirincomeor,, How much will be included in Bong's gross Income for regular Income tax
C a. a fiscal year. c. either a 1sca year or ca eniar year. purposes?
b. a calendar year. d. a crop year. a. P150,000 c. P110,000 30K+70K+10K
, P140,000 d. P100,000
C 10. Which is subject to progressive tax to an individual taxpayer?
a. Proceeds oflife insurance policy Mr. Darlow, a supervisory employee, received the following income in 2024:
b. Gift 2
D Gross compensation income, before contributions
c. Amounts received by the insured in excess of premiums paid
% sSS, Phil Health, and HDMF totaling P124,000 P 800,000
d. Compensation for personal injuries
Fringe benefits 200,000
D 11. Which of these is subject to Philippine regular income tax to a foreigner? Gain from redemption of shares in a mutual fund 100,000
a. Rent income on properties located abroad Commission income 150,000
b. Dividend income from a domestic corporation Gain on sale of stocks through the PSE 400,000
c. interest income on a deposit abroad
d. Interest income from domestic bonds Determine the total income to be reported by Mr. Darlow in gross income.
B 12.
a. Pl,526,000 c. P1,026,000 800K-124K+150K
If not covered by the substituted filing system, employed individual taxpayers b. P1,426,000 d. P 826,000
shall report their regular income
a. monthly. c. quarterly. . 3. Aldrin, employed, derived the following income during the year:
b. annually. d. quarterly and annually. C Gross salaries P 400,000
D 13. Corporations and individuals engaged in business or in the exercise of i 13 month pay and other benefits 40,000 400K-20K
profession are required to report their regular income SSS, Phil Health, and Pag-lbig contributions 20,000
a. monthly. c. annually. Deductions for loans repayments 50,000
b. quarterly. d. quarterly and annually. Deductions for withholding tax 60,000

C 14. Which is incorrect concerning transactions between associated enterprises? Compute the taxable compensation income to be reported In the annual income t'
t ,
a Transactions between related parties should not be controlled. tax return.
b. Pricing should be determined by free market forces. a. P440,000 c. P380,000
c. Pricing should be motivated by the need to save from total income tax. b. P330,000 d. P390,000
d. Non-arms' length pricing between related parties may be restated by the BIR
Mary resigned in 2024 after 12 years of service. She had the following income
to reflect the arms' length value of transactions. B 4.
during the year:
A
15. Which is not an associated enterprise to the controlling individual of a holding
company? Salary, net of P80,000 withholding tax, P20,000 SSS,
PlB,000 Philhealth and P40,000 13 month pay p 480,000
a. An associate of a subsidiary in the group
b. The parent company Separation pay 1,000,000
c. A direct subsidiary company .
Compute the gross income subject to progressive (regular) tax.
d. A subsidiary of a subsidiary in the group a. P1,480,000 c. PS60,000 480K+80K+1M
Multiple Choice - Problems: Part 1 b. P1,560,000 d. P480,000
1. Bong. a professional practitioner, received the following from his clients: S . . of oods. It reported the following
C A· Inga Corporation is engaged in the sales g .
Advances for future services to be rendered p 30 000 summarized financial statements during the year:
Collections for past services rendered 70.000
Sales P3,500,000
Reimbursements for client expenses 40,000
Reimbursement for out-of-pocket expenses 10,000
tess: cost of sales 2000,900
p 1,500,000
Gross profit ,
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 Chapter 9- Regular Income Tax: Inclusion in Gross Income Chapter g - Regular Income Tax: Inclusion in Gross Income

Commission income on consignment 200,000 Drivers, Inc. purchased an agricultural lot for P1,000,000. It wa I t di ·d
Interest income from customers 20,000 A 1 0. I t h d gold deposits Th . r . • ' . s a er iscovere
that the lot 1a, 3. 1us its fair value increased to P4,000,000. This
10,000
Interest income, net of final tax I crease in fair value is
n ·
Dividend income 50,000 a. exempt from income tax. c. partially exempt and partially taxable.
Total Income P1,780,000 b. subject to income tax. d. Any of these
Less: Admin & Selling Expenses 1,000,000
Net income P 780 000 B 11. Northern Cattle Company produces beef meat In 2024, it reported the following:
Compute the total gross income subject to regular tax. Sales of live cattle P 600,000
a. P1,720,000 c. Pl,780,000 Sale of young feeders 200,000
b. P1,770,000 d. P 840,000 1.5M+200K+20K Increase in value of cattle inventory 300,000

C 6. Cordova, Inc., a domestic corporation, reported the following income in 2024: Compute the income subject to regular tax.
a. P1,100,000 c. P900,000 600K+200K
Philippines Abroad b. P800,000 d. P600,000
Service fees P 400,000 P 300,000
Interest income -bank
Royalties - franchise
40,000 70,000 D 12. Don Juan Ponce has the following income in 2024:
80,000 30,000
Sales from vegetables P 400,000 400K+200K+
Compute the total gross income subject to regular income tax. Sales from fruits 200,000 (35K-30K)
a. P920,000 c. P800,000 Sales of carabao (acquired for P30,000 in 2024) 35,000
b. P860,000 d. P700,000 400K+300K+70K+30K Interest income from tenants on the sale of
C agricultural land pursuant to the Agrarian I'
i •
7. If Cordova Inc. is a resident foreign corporation, compute the gross income subject 12,000
to regular tax. Reform Program ' !
"
a. PS20,000
b. P480,000
c. P400,000
d. P440,000
The gross income subject to progressive tax is
a. P647,000
b. P6 l 7,000
c. P600,000
d. P605,00D
,
tD

A 8. remittance
Lenj leases a building to a client During the year, he received the following
from the lessee: B 13. Mr. Roding purchased a life annuity for P1,000,000 which will pay him P100,000 a
year. What will Mr. Roding include in his gross income on the 11 year of the
Rental, net of 5% creditable withholding tax P 1,900,000 policy?
Real property tax of the leased building 50,000 a. P1,000,000 c. P200,000
Reimbursement for utilities used
b. P100,000 d. P1,200,000
by the lessee paid by Lenj 200,000
C 14. Jerry purchased the life insurance policy of Paulo for P50,000. He continued the
How much will be included in gross income subject to regular tax? policy by paying P20,000 premium after which Paulo died. Jerry collected the
a. P2,0SO,OOO c. P2,000,000
b. P2,250,000 d. Pl,950,000
1.9M/95%+50k P500,000 proceeds of the policy.

A9 How much will Jerry exclude from his gross income?

· The Big Bird Security Agency (BBSA) received P3,000,000 from its clients-
2#00,000 of this was designated for salaries of guards assigned to various clie a. P500,000 c. P70,000
estai lishments. b. P430,000 d.PO
B
I5. Mr. Vhinsc » edhislife ·ith his children as beneficiaries. He died after paying
How much will be included in the gross income of BBSA? p; ioninsure islitewit ad the P1,000,000 life insurance
a. P600,000 c. P3,000,000 200,000 premiums. His children collecte e r '

b. P2,400,000 d. p o" 3M-2.4M

proceeds.

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 Chapter 9- Regular Income Tax: Inclusion in Gross Income r g- Regular Income Tax: Inclusion in Gross Income
t
chapte! .

How much will be excluded from Mr. Vhinson's gross income? j the immediately preceding problem, compute the tax benefit if the refund was
a. P800,000 c. P200,000 A",(ocal tax instead of income tax.
b. P1,000,000 d. P 0 a ?44,000 c. Pl0,000
A 16. Pedro's crop was destroyed by incessant rains. He received P200,000 fr,, %, 4,000 d.PO
insurer that insured his crop. The proceeds of the insurance is an ll
B 2 An accrual basis taxpayer recovered a P20,000 local tax expense which was
a. item of gross income subject to regular tax. 2. funded by the local government in 2021. The local tax expense was paid in 2019
b. item of gross income subject to final tax. ,,%n the taxpayer sustained a P5,000 net operating loss. How much shall be
c. exclusion from gross income. reverted to income?
d. exempt income. a. p O c. P20,000
C 17. In 2024, Northern Crest Corporation (NCC) reported a P40,000 recovery from ~d b. P5,000 d. PlS,000
debts that was claimed as deduction against gross income in 2021. In 2021, ~ A taxpayer under the cash basis wrote-off PS0,000 receivables In 2021. In 2024,
write-off increased the operating loss of NCC to P50,000. NCC was very profitab!, C23. P30,000 of the receivables was recovered.
from 2022 to the present How much of the P40,000 recovery is subject to tax?
a. P60,000 c. P40,000 Determine the amount to be included in gross income in 2024 assuming that the
b. P10,000 d. PO taxpayer incurred a net operating loss of P40,000 in 2021.
C18. a. PO c. P30,000
West Oil abandoned an oil facility in 2020 and expensed the P300,000 b. P10,000 d. P40,000
unrecovered investment in the facility as abandonment loss. The 2020 taxable
income before provision for the loss was P100,000. West posted continuous losses
Multiple Choice - Problems: Part 2
until 2023. With increasing prices of crude oil in 2024, West re-commissioned th,
facility for use. How much will be included in its gross income in 2024? C 1. An alien employee in an RHQ had the following in 2024:
a. P300,000 c. Pl00,000 2020 2024
3 years P 1,500,000
b. P200,000 d. P 0 100K 100K Gross compensation income
150,000
Contributions to SSS, Phil Health, and HDMF !
D19. (300K) Creditable withholding tax 202,500
tf
Sarah Baby International graduated from its income tax holiday incentive and is
effectively subject to tax beginning 2020. In 2021, it collected a P4M from a P6
I'
What is the total amount to include in gross income subject to regular income tax?
receivable which was written off as bad debt expense in 2018. Before the write- a. PO c. P1,350,000
I
off, Sarah International had PIM profit. Sarah posted profits in 2019 and 2020in
excess of its operating loss in 2018.
b. P1,147,500 d. Pl,500,000 !
D 2. Mr. Cordillera owns 20% interest in a joint venture engaged in construction
Compute the amount of recovery subject to regular income tax. projects. In 2024, the joint venture reported profits of P500,000, inclusive o
a. P6,000,000 c. P4,000,000 P20,000 from time deposits. Compute the total income to be reported in gross
b. P 1,000,000 d. p O
income of Mr. Cordillera? 500KX20%
B a. PO c. P96,000
20. In 2024, an accrual basis taxpayer received a cash refund for an income ta}
assessment which he paid in 2020 consisting of the following: b. P4,000 d. P100,000

Basic tax p A 3.
· Mr. Buaya, with 14 dependent children, h a d th e following data for his income tax
Surcharge 40,000
return in 2024:
Interest 10,000
Sales p 490,000 490K-200K-120K
Total taxes paid 4,000 120,000
p54,000 Gross compensation income
200,000
Cost of sales
How much must be reverted back to gross income in 2024? 30,000
a. p O c. P10,000 Non-taxable compensation
120,000
b. P4,000 d. P44,000 Administrative and selling expenses 70,000
Personal expenses
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 Chapter 9- Regular Income Tax: Inclusion in Gross Income chapter g. Regular Income Tax: Inclusion in Gross Income

What is the net income? What is the total amount of gain to be included in gross income?
a. P 170,000 c. P 100,000 P150,000 c.P 170,000
b. P 290,000 d. P 20,000 ~
b. P 162,500
d. P 212,500

C 4. Compute the taxable compensation income.

120K-30K A 10_ Shown below is a compilation of the gain on the sale of real properties:
a. (P150,000) c. P 90,000
b. (P30,000) d. P 120,000 Real properties classified as Philippines Abroad 300K+800K
Ordinary assets P 300,000 P 800,000 +200K
D 5. Compute the taxable income. Capital assets 400,000 200,000
a. P10,000 c. P 140,000 90K+170K
b. P 100,000 d. P 260,000 What is the amount of income to be included in gross income subject to regular
income tax assuming the taxpayer is a domestic corporation?
D a. P1,300,000 c.P 1,700,000
6. Vhinson and Khim practice their accounting profession through
professional partnership. They contributed equal capital and agreed ta ~enera: b. P 1,100,000 d. P 300,000
5
profits equally. The following relates to their gross receipts and expense;: are in
Gross receipts P 4,000,000
C 11. What is the gain to be included In gross income subject to regular income tax if the

Less: Cost of services 1800,000

taxpayer is a resident foreign corporation? 300K+400K
a P300,000 c P 700,000
Gross mcome from operations P 2,200,000 b. P400,000 d.P 1,100,000
Add: Other non-operating income
Gain on sale of equipment p 100,000 C 12. What is the gain to be included in gross income if the taxpayer is a resident alien?
.
I
Interest on time deposits 40,000 a. P 700,000 c. P 300,000 ; ,,,
h
Total gross income
140,000
b. P400,000 d.P 1,100,000 300K t I
P 2,340,000
Less: Allowable deductions
Net profits
1,200,000 C13. A taxpayer collected the following passive income during the year:
% j.

P 1,140,000 .,
i
;

What is the reportable income in the tax return of Vhinson? Passive income Philippines Abroad
a. P1,170,000 c.P550,000 Interest income from banks P 300,000 P 800,000 .'
b. PS00,000 d. P570,000 1,140,000/2 Royalties from books 200,000 100,000 1
I
400,000 200,000
A 7. In the immediately precedi: bl .
Rent of properties
50,000 100,000
reported b Khi: : mg pro em, determine the amount of income to be Gain on sale of domestic stocks
P Y tm assummg that their partnership is a beauty parlor. What is the amount to be reported in gross income if the taxpayer is a resident
a. O c. P550,000
b. P570,000 d. P500,000 citizen? 800K+100K+400K+200K
a. P 900,000 c. P 1,500,000
D 8. In the immediately precedi bl b. P 1,100,000 d. P 2,000,000
income assuming the en,,''& Protlem, what is the amount to include in gr
a. p O P yee ts a Filipino rank and file employee? D 14· I n · the reportable gross income
the immediately preceding problem, w hat ts
c. P 1,500,000
b. P1,147,500 d. P 1,350,000 assuming the taxpayer is a resident alien?
a. P o c. P 600,000
D 9. A corporation had the followin b. P900,000 d.P 400,000
8 gains from dealings in properties: 10K+400K+100K
Sale of delivery truck
p B 15 I 2 , 11 • prizes and winnings:
· n 024, the taxpayer received the following
Sale of domestic stocks 150,000
Sale of 3-year corporate bonds 50,000 Philippines Abroad
Passive income
Sale of 6-year corporate bonds 12,500 Prizes P 10,000 P 400,000
7,500 400,000 100,000
Winnings
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 Chapter 9- Regular Income Tax: Inclusion in Gross Income er g. Regular Income Tax: Inclusion in Gro
(ha! t )ss 1 Income
Amount Receive + 10% CWT - 12%VAT
Wh at is the repo rta ble item of gross income if the taxpayer respect , galtiple Choice - Problems: Part 3 = Work-back 100% - 10% + 12%
resident citizen and a non-resident citizen? lyi,,
VAT taxpayer received P45,900 inclusive of VAT d
a. P 500,000; P 0 c.P O; P 500,000 A 1. A . .
if
an net ol 10% creditable
b. P 510,000; P10,000 d. P 910,000; P 410,000 withholding tax. Compute the gross income subject to regular tax.
a. P45,000 c.P45,536
C 16. What is the reportable item of gross income if the taxpayer is b. P45,900 d. P 51,000 45900/102%
corporation and a resident foreign corporation, respectively? a dam~
a. P500,000;P0 c. P 910,000; P 410,000 Mrs. Quong has several interests in various businesses and partnerships. He
b. P 510,000; P 10,000 d. P 500,000; P 10,000 D received the following income during the year:
A 17. Mang Sipalay registered his business as a BMBE. He made a total Dividends from a domestic corporation p 120,000
P500,000 and incurred cost of sales of P400,000. He also earned P1o,, "® a Dividends from a resident foreign corporation 80,000
..
income fre 5·
om time de ·5"
epos1ts. Wha ·the
at 1st e tota l reportable gross income?'' Inters Share in net income of a business partnership 200,000
a. PO c. P 100,000 Share in the net income of a professional partnership 100,000
b. P10,000 d. P 110,000
What is the total income to be reported in gross income?
A a. PO c. P300,000
18. Boracay Company is registered as a TIEZA locator subject to 5% gross income
Dunng the year, it made a total P400,000 gross receipts from various 1 • b. P380,000 d. P180,000
assistance services. It also incurred P210,000 in direct services. (ounst B 3. Ms. Palaboy received a total P200,000 from her father for her support. During the
year, she also received a P150,000 total distribution from the trust irrevocably
What Is the amount to be included in gross income subject to regular income tax!
a. PO c P 210,000 designated by her grandfather in her favor. She also received P120,000 income
b. P 190,000 d. P 400,000 distribution from the estate of her grandmother undergoing judicial settlement.
D What is the total amount to be included in her gross income?
19. Mr. Slayan Is a 5-6 lender. During the year, he granted loans totaling P2,000,000 a. P200,000 c. P350,000
and collected P400,000 in interest. He also earned P8,000 in temporary b. P270,000 d. P470,000
investments in domestic bonds plus additional P6,000 from bank depost
substitutes. Direct cost of lending was P100,000. D4. A non-VAT taxpayer collected P45,000 net of P5,000 withholding tax. Compute the
gross income subject to regular tax.
What
p is the total amount to b e reporter d in
• gross income
. subject to regular tax? a. P5,000 c. P 45,000
a. O c.P414,000 b. P40,000 d. P 50,000
b. P 300,000 d. P 308,000 400K-100K+8K D
B 20. Mr. Cartilla received the foll ·
5. A VAT taxpayer collected P66,600, inclusive of P7,200 VAT and net of P600
1 . from the following sources:
owing royalties Withholding tax. Compute the gross income subject regular income tax.
Mining claims a. P59,400 c. P 66,000 66,600-7,200+600
Novel, "Alicia in Wonderland" P 150,000 b. P67,200 d. P 60,000
Basic Accounting textbook 250,000 C6
Musical composition "Dayang-dayang" 80,000 · A non-VAT taxpayer collected P79,200, net of 19% withholding tax. What is the
40,000 amount subject to regular income tax? 79,200/99%
What is the total amount to be reported I a. P71,351 c P 80,000
a. po n gross Income?
b. P71,429 d. P 79,200
b. P150,000 c.P400,000
' d P520,000 A 7. A non-VAT taxpayer received P8,000 interest income, net of
20% final
wit'th holding tax. Compute the amount subject
· to regu I arm
· come tax.
a. P0 cP8,000
b. P6,400 d. P10,000
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 Chapter 9 - Regular Income Tax: Inclusion in Gross Income er 10 - Compensation Income
Cha t
A 8. A VAT-registered taxpayer received P18,000 dividend, net of lO% R._.
HAPTER 10
withholding tax. Compute the amount subject to regular income tax. '"14 cOMPENSATION INCOME
a. p O C. p 17,857
b. P 17,647 d. P 20,000
chapter overview and Objectives
B 9. A resident foreign corporate taxpayer entered into an advanced ..
agreement {APA) with the BIR with respect to the pricing of its export sat"Clilc %dose uc «moveseaala&laAlliks,
foreign country. A mark-up ratio of 50% of the cost is set in the APA. Du,;'5
loi 11 discusses the types of employees, and exempt and taxable benefits. It also
year, the corporation manufactured goods costing P12,000,000 and exporte;~ delineates the gap between the compensation income subject to regular income
of the production to its foreign affiliate at a price of P12,000,000. tax and the fringe benefits subject to fringe benefit tax.

What is the amount of gross income subject to Philippine tax? After this chapter, readers are expected to demonstrate:
a. P 2,000,000 c. P 2,400,000 12MX80%X50% 1. Understanding of the concept of an employer-employee relationship
b. P4,800,000 d. P 6,000,000 2. Knowledge of the classifications of employees and the tax treatment of their
C 10. Ms. Nene Bing registered a manufacturing business as a BMBE exempt from tu
compensation income and fringe benefits
She also owns another taxable business which is engaged in the trading of goods. 3. Mastery of the list of employee benefits exempted under the NIRC and special
Ms. Neneng Bing ordered her BMBE business to sell its production to her tradiq laws and the de minimis list
business at ultimate sales prices. 4. Knowledge of the condition for exemption of employee benefits under treaty
or international agreements
You were tasked by your audit supervisor to conduct a transfer pricing evaluation 5. Understanding of the concept of "employer convenience" rule and the
of Ms. Bing's busmesses. Based on your study, you determined that the retail "necessity of the employer" rule
profit rate (on sales) of trading businesses with similar operations involving 6. Understanding of the conditions of exemption of a minimum wage earner
similar goods 1s 40%. During the year, the trading business made a total purchases 7. Knowledge of the classification rules for items of gross taxable compensation
of P400,000 from the BMBE and sold 75% of these for P500,000. income
What is the gross income of the trading business to be subjected to regular incoae 8. Mastery of the composition of "13 month pay and other benefits" for rank and
tax following the arms' length principle? file employees and managerial or supervisory employees
a. P O c. P 200,000 500KX40% 9. Comprehension of the fringe benefits subject to regular tax and fringe benefits
b. P100,000 d. P 120,000 subject to fringe benefits tax

EMPLOYER-EMPLOYEE RELATIONSHIP
Employer - refers to any person for whom an individual performs any service of
whatever nature as employee of such person.

An employer is the person who has control over the payment of the employee
[emuneration. However, if such person is a non-resident not engaged in trade or
business in the Philippines the employer is deemed the person paying
re; "
rnuneration in their behalf.
Etnployee - r ' t . d' 'dual who is a recipient of wages and includes
m er I e1ers o any inuivi. I f the Government o 3f t he Phili;I ipp1ines or any
9llicer,
pol,' 'Ployee or elected official O!
1 cal subdivisions r the f. The term also includes
agency or instrumentality iereot.
3nofnc "
cer of a corporation.

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