COLEGIO DE SAN LORENZO

Congressional Avenue, Quezon City

SCHOOL OF BUSINESS AND

MANAGEMENT

PRELIMINARY EXAMINATION IN INCOME TAX LAW AND ACCOUNTING

GENERAL INSTRUCTION: Test Booklet, Pens, Calculator, Permit Only. Answer
accordingly using the IRAC method for the essay part and CAPITAL LETTERS for the
Multiple Choice Questions. Erasures are allowed by drawing a single line on the word
or words to be erased. Do not tear any page of your booklet as it will invalidate your
exam.
MULTIPLE CHOICE QUESTIONS (20 questions ; 20 minutes; on first page) (20%)
(A. 1st T 2nd F | B.1ST F 2ND T| C. both false | D. both true)
1.

A proportional tax is a tax in which the increase in the tax rate is proportionate to the increase in
the tax base.
A specific tax is a tax or duty upon the value of the article or subject of taxation.

2.

A direct tax is one which is shifter by the taxpayer to another.

Income tax is a tax on income whether gross or net (37 Am. Jur. 208)

3.

The constitutional limitation provides that taxation is limited to the territorial jurisdiction of the
state
The inherent limitation include that the rule on taxation shall be uniform and equitable

4. Taxation reaches all persons, properties covered by the tax, Police power reaches only a particular
owner of property.
A resident alien not engaged in business is taxable from sources within the Philippines dividend
from a domestic corporation taxable as a domestic corporation of 10%
5. A non resident corporation who receives dividends from a domestic corporation has a final tax of
15%
Dividends received by a resident foreign corporation from a domestic corporation is exempted from
final tax
6.

As a general rule, campaign contributions are not included in the taxable income of the candidate
to whom they are given and is required to file with the BIR a statement of expenditures, unutilized
campaign contributions.
If the statement of expenditures is not filed, the entire amount of the campaign contributions shall
be subject to income tax

7. Gross income means all income from whatever source including inheritance and gifts received.
Down payment means less than the initial payment
8. Capital Gain Tax / Contract Price x Installment Payment Received = installment payment of capital
gain tax
From sources within the Philippines on royalties from the movie bar boys received by a resident
citizen not engaged in business final tax is 10%
9. From sources within the Philippines, share of the distributive net income before tax of a general
partnership final tax of 20% by a non resident alien in business in the Philippines
Interest on long term investments or deposits in banks are exempt from final tax when received by
a domestic corporation
10. The personal exemption shall be equal to that allowed by the income tax law of his country to a
citizen of the Philippines not residing therewith but deriving income therefrom, or the amount
provided by the NIRC to citizen of the Philippines whichever is higher

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If a resident citizen wins a the 6/49 lotto in the amount of 100,000,000.00 the final tax is 20%
11. The gross capital gain after deducting the selling expenses thereof or the fair market value of the
shares not listed and traded in the local stock exchange when received by a resident alien shall be
5% or 10% on the amount on the first 100,000 or excess in succession.
The personal exemptions of a resident alien are the same as those of a non resident citizen of the
Philippines
12. A minimum wage earner is exempt from income tax on the hazard pay
On sale of real property in the Philippines held as capital asset, the tax is withheld by the buyer and
that the tax is a final tax (that which does not need to go into the quarterly or annual taxable
income.
13. An oil/fuel tank (even if it can be removed, unearthed) of a gasoline station is a real property under
our tax laws and civil code
The distributive share of net income of a general professional partnership is subject to final tax of
10% if received by a Resident Citizen
14. The senior citizen is a citizen with the age of 65 years old and above, dependent on tax payer is a
dependent with an additional exemption
Mr. A is a business man who has a 65 year old mother, 2 children who are 14 and 15 years old. The
personal exemption is 75,000.00
15. The status of the taxpayer at the end of the year determines the personal exemptions
First quarterly return is filed on April 15 of the current year
16. Final or annual return is filed on April 15 of the succeeding year
A general professional partnership (GPP)is a partnership formed for the purpose of practicing a
profession.
17. If a GPP is a separate entity distinct from the partners, then its liability of tax is to be paid by the
partnership and not of the partners
Other Partnership is not a partnership that is a GPP
18. Revenue Regulations 2 means that accumulation of profits is not proper if it is for the purpose of
sudden surge or anticipated increase in income
If a NRC received dividend from a foreign corporation it is subject to 10% FT
19. If NRAN received from Philippines sources income from royalties on musical compositions a final tax
of 25% is proper
If NRAE received dividends from joint stock companies within the Philippines it is subject to 5-32%
tax.
20. A domestic corporation is always subject to the Normal Income Tax, MCIT and IAET
The MCIT is 30% of the taxable income
II. ESSAY (Use IRAC method) no basis/rules/law, no points. (8 problems 55 minutes ) (80%)

I.(10%)
Pining Garcia Corporation was incorporated in the Philippines and had acquired properties around
the world. Land and Building in London, Ibiza and the Philippines specifically in
Papasabakosatax1ko City, Barangay MCQpalangbiyakna. Pining Garcia obliged himself to
sell their real properties held as capital asset as follows: London Land with gross selling price
(GSP) of 2,000,000.00, costing of 1,000,000.00 and a fair market value of 2,100,000. The
Philippine Land with GSP of 2M and a cost of 1.5M, zonal value of 2.1m and assessed value of
1.9m having a net capital gain 1M directly to traders of shares of stock not listed or traded in the
local stock exchange holding such shares as ordinary assets it is to be sold on installments and
the down payment is 500,000 on the date of sale and the balance of 1,500,000 the ff. year. How
much is the tax due?
II (15%)

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RA 7716 was upon its enactment was assailed by a senator on many points, in particular that it is
indirect and regressive tax in contravention of the constitutional mandate of the congress that it
shall pass tax laws that shall evolve a progressive tax system. Is the contention correct?
III (10%)
Ms. Beth Loggins is resident foreigner of the Philippines with 4 children and 2 Senior Citizens
living with her in the same household where she is the one with the highest salary. Her children is
Jelali is 17 years of age. Bill is 20 years old Gwardiya si Bill, be like bill earning as a minimum
wage earner. Katrina is 17 years old with a child named Luke Jr. and not employed. Edward is 16
years old, a high school delinquent. Lolo Burong, 66 year old and pays income tax annually of
10,000.00 and Lola Burai, 59 years old and is chiefly dependent on Ms. Beth Loggins.
a.) How much is the additional exemption?
b.) Would your answer be the same the ff. year?

IV (10%)
Atty. RJ John Lloyd Bangi, is a native of Quezon City, a handsome professor, and is a great
millennium lover boy. He lived in the Philippines for less than 183 days and earned income from
the following. (Use direct IRAC, no need to state the whole rules per letter)
a.
b.
c.
d.

Interest earned from foreign currency deposit system?

profit sharing received from a joint stock company?
royalties on literary composition?
Dividends received from a regional operating headquarters from a multinational
company?
e. Atty RJ John Lloyd Bangi is what kind of taxpayer?
Delinquent taxpayer ba? Joke only.
IV (7.5%) (COMPUTATION IN GOOD FORM ONLY; not essay)
X Co., a domestic corporation is a service enterprise in its fourth year of operations it had Gross
Receipts 900,000, Discounts and allowances 50,000, salaries of service personnel 160,000
depreciation of equipment used in rendering services 10,000 Rental of office 140,000, supplies
used 12,000, utilities expense 55,000, repairs 5,000, other operating expense 110,000
Compute for the MCIT in good form only
VI. (7.5%) (COMPUTATION IN GOOD FORM ONLY; not essay)
X Co., had the following data on computations of the normal tax and minimum corporate income
tax for five years
MCIT
NT

YR 4
80,000
35,000
20,000
70,000

YR5

YR6
50,000

YR7
30,000

30,000

40,000

YR8
40,000
20,000

a.) How much is the years tax for year 6 in good form
b.) How much is the years tax for year 8 in good form
VII. (10%)
CDSL GRIFFINS Corporation was incorporated in the United Kingdom and had acquired shares
around the world. Among these were Common Shares of San Miguel Corporation, their price of
each share posted on the newspaper for the public to buy having a market value of 1M and a
cost of 900,000 which was sold on installment for 2,000,000.00. That of which if sold for P
500,000 down payment and the balance the ff. year. There were also Shares of
Papasanaakosatax1ko, a corporation not listed or traded in the local stock exchange held as
capital asset having a net capital gain of 120,000.00. How much is the total on capital gain tax
due if it was sold?
VIII. (10%)

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Alpha Benta Lonta Co., a domestic closely held corporation has hired you to become its vice
president for administration on the day after your graduation as the company now knows that
you were former students of a certain terror professor named Alain Lira, despite failing twice or
thrice or just having a grade of 75 in Tax1. However, In their 10 th year of operations in 2016, The
company had a taxable income of P 1,000,000.00 The retained earnings at the beginning of the
year was 4,000,000.00 and paid up capital was 2,000,000.00 It never distributed profits to its
stockholders. There was no assessment yet for the improperly accumulated earnings tax as you
have just reviewed the financial statements. As you have received high grades in your subjects
with Sir Alan Makasiar, Cavin Rigor and all other professors who are very good professors). What
would be your directive to the finance and accounting department in consideration of the above?

Prepared by:

Noted by:

Approved:

_______________________
_____________________
______________________
Alain Marcellius S. Lira, CPA
Alan Lancelot D. Makasiar
Ellen S. Dizon,
MBA
Asst. Instructor I
Coordinator, SBM
Dean, SBM

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