ACTIVITY 1: EVALUATE THEORY

1. Statements 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 income subject to a tax
b. An immunity or privilege, a freedom from a charge or burden to which others are subjected
c. It is not a receipts
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 statement are correct
d. Both statement 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 depreciate
asset to be used in the business
A. Only Statement 1 is correct
B. Only Statement 2 is correct
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 for a period of (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's a law
authorizing such a deduction
Statement 2: From income tax purpose, a taxpayer is free to deduct from gross income the full amount
of the deduction allowed, or a lesser amount or not claim any deduction at all.
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statements are correct
d. Both statement are incorrect

8. In cases of deductions and exemption on income tax return, 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 deductions claimed
Statement 2: Deductions are strictly construed against the government
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statement are correct
D. Both statement 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
C. Both statements are correct
D. Both statement 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 (prior to EOPTA)

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 prior to the effective itsy of EOPTA 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 2023, Calixto 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 substatantiation 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

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

a. Salaries and wages of employee
b. Entertainment, amusement and recreation expense
c. Rental Expenses
d. bribes, kickbacks and other similar payments

16. Which of the following can be deducted from gross income in the year paid or incurred?
a. Repairs that materially add value of the property
b. repaid 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 expenses 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 is allowable

A. Personal services must have been actually received
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 a 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 statement are correct
d. Both statements are incorrect
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 a real property of which
the siad corporation is a legal or equitable owner
d. Interest paid on tax deficiency if the tax where the interest is itself an item that is deductible
from the gross income

27. This is a deductible interest expense

A. Interest on deposits by authorized bank of the BSP to depositors, if it is shown that the tax on
such interest was withheld ad paid
B. Interest paid on indebtedness between related taxpayer
C. Interest paid on preferred stock
D. Interest paid where 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. Provision 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 ow 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
a. Only Statement 1 is correct
b. Only Statement 2 is correct
c. Both statement are correct
d. Both statements are incorrect

33. In computing allowable deductions 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 reduce by an amount equal to 20% interest income subject 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
A. Only Statement 1 is correct
B. Only Statement 2 is correct
C. Both statement are correct
D. Both statement are incorrect

40. A Lessess paid the real estate tax on the property he leased. For income tax purposes, the amount
paid was:
a. Deductible as part of lease expense
b. Deductible as tax expense
c. Deductive as an interest expense
 d. Non-deductible expense

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

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

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

a. Must have been paid or incurred within the taxable year
b. Deductible only bt 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 tac
d. Stocks transaction tax

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

a. Nor more than 1% of revenue from services
b. Not more than ½% of net sales of goods
c. Not more than 1 ½% of revenues from services
d. Not more than 1 ½% of net sales of goods

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

a. NOLCO is allowed as deduction from business income for the next three succeeding years (5
years is 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. Provate 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 deduction over the gross income the
business for taxable year
Statement: 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 statement are correct
d. Both statements are incorrect

64. Which of the following items of expense require that notice be file with the BIR to be allowed as
deduction from gross income?
a. Taxes
b. Interest
c. Losses
d. Salaries

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 carryover is good for one (1) yeat