Accountancy Review Center (ARC)

of the Philippines Inc.

One Dream, One Team

STUDENT HANDOUTS
TAXATION M.V.U.SIA/E.D.TABAG
1st PREBOARD MAY 2021 CPALE REVIEW

BASIC PRINCIPLES
1. In our jurisdiction, which of the following statements may ESTATE TAX
be erroneous? 7. It is a well settled rule that estate taxation is governed by
a. Taxes are pecuniary in nature. the statute in force at the time of:
b. Taxes are enforced charges and contributions. a. Creation of the last will testament or death of the
c. Taxes are imposed on persons and property within the decedent in case of intestate succession
territorial jurisdiction of a State. b. Death of the decedent
d. Taxes are levied by the executive branch of the c. Filing of estate tax return
government. d. Either letter “b” or “c” whichever will result to higher
estate tax liability
2. Well-known authors describe that the exercise of taxation
has three aspects, which of the following is not: 8. A resident alien decedent left a gross estate amounting to
a. Research P5,000,000, which of the following statements is correct?
b. Levy a. The estate may be liable to estate tax.
c. Assessment b. The estate may not be liable to estate tax.
d. Collection c. The estate is absolutely not liable to estate tax.
d. The estate is absolutely liable to estate tax.
3. In case of inconsistency between a law and a revenue
regulation, which will prevail? 9. Which of the following will not form part of claims against
a. Law the estate?
b. Revenue Regulation a. Unpaid funeral plan at the time of death
c. Either “a” or “b” whichever is favorable to the taxpayer b. Unpaid medical expenses at the time of death
d. Either “a” or “b” whichever is favorable to the c. Both “a” and “b”
government d. Neither “a” nor “b”

4. Which of the following statements is incorrect pertaining to 10. Ms. Ty bought a condominium from Ayala Corporation.
tax exemption of properties for religious, charitable and Based on the contract to sell executed between the parties,
educational purposes? the buyer is obligated to secure a life insurance designating
a. Exemptions of religious, charitable and educational the seller as the irrevocable beneficiary. The insurer is
institutions applies to real property tax and income tax mandated to pay whatever is the unpaid obligation of the
only. buyer to the seller in the event of untimely death of the
b. In case of property tax exemption, the test is usage, not former. Unfortunately, Ms. Ty died while there is still an
ownership. unpaid obligation to the seller amounting to P3,000,000.
c. The word “exclusive” means primarily rather than The zonal value of the condominium at the time of death is
solely. P6,000,000. How much should be included in the gross
d. What is exempted is not the institution itself but the estate?
lands, buildings and improvements actually, directly a. P9,000,000 c. P6,000,000
and exclusively used for religious, charitable and b. P3,000,000 d. zero
educational purposes.
11. Based on the preceding number, how much is the
5. Bank A is subject to the gross receipts tax on its interest deductible claims against the estate?
income on loan transactions to customers and at the same a. P9,000,000 b. P6,000,000
time such income is subject to income tax. Which statement b. P3,000,000 d. zero
below INCORRECTLY describes the transaction?
a. There is double taxation because two taxes – income 12. The following deductions are also part of the gross estate,
tax and gross receipts tax are imposed on the interest except:
income described above, and double taxation is a. Claims against the estate
prohibited under the 1987 Constitution. b. Claims against insolvent persons
b. There is no double taxation because the first tax is c. Transfer for public use
income tax, while the second is a business tax. d. Death benefits under Republic Act. 4917
c. Income tax on interest income of deposits of Bank A is
a direct tax, while GRT on interest income on loan 13. In determining the gross estate of a married decedent,
transaction is an indirect tax. which of the following should be excluded?
d. None of the choices a. Exclusive properties of the decedent
b. Share in the common properties by the decedent
6. In cases of deductions and exemptions on income tax c. Share in the common properties by the surviving
returns, doubts shall be resolved spouse
a. Strictly against the taxpayer d. None of the above
b. Strictly against the government
c. Liberally in favor of the taxpayer
d. Liberally against the government

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14. The following properties will be classified uniformly under Claims against an insolvent debtor (40% 1,500,000
Conjugal Partnership of Gains and Absolute Community of uncollectible)
Property, except: Funeral expenses (P300,000 still unpaid at 850,000
the time of death)
a. Property inherited or received as donation during the
Judicial expenses 460,000
marriage
Medical expenses (55% paid at the time of 1,200,000
b. Property acquired from labor, industry, work or
death)
profession of spouses
c. Fruits or income due or derived during the marriage How much is the exclusive gross estate?
coming from common properties a. P1,000,000 c. P16,500,000
d. Fruits or income due or derived during the marriage b. P33,000,000 d. none of the choices
coming from exclusive properties
21. How much is the common gross estate?
a. P1,000,000 c. P16,500,000
15. The following deductions are also part of the gross estate,
b. P33,000,000 d. none of the choices
except:
a. Claims against the estate
22. How much is the exclusive deduction?
b. Claims against insolvent persons
a. P1,000,000 c. P600,000
c. Transfer for public use
b. P1,440,000 d. P720,000
d. Death benefits under Republic Act. 4917
23. How much is the common deduction?
16. Which of the following is not allowed to claim family home a. P1,000,000 c. P400,000
allowance as deduction in determining estate tax? b. P1,440,000 d. P720,000
a. Non-resident citizen
b. Resident alien 24. How much is the special deduction?
c. Non-resident alien a. P14,500,000 c. P15,000,000
d. Both “a” and “c” b. P24,000,000 d. none of the choices

17. D borrowed 10,000,000 from Bank C which remained 25. How much is the estate tax payable?
unpaid at the time of death. The heirs negotiated with the a. P76,800 c. P46,800
Bank to settle the loan for P7,000,000 only due to financial b. P226,800 d. zero
constraints. How much can be claimed as deduction by the
estate of D in the determination of estate tax liability? QUESTIONS 26-28
a. P3,000,000 c. P7,000,000 Donald Trunk, a married American residing in Florida U.S.A.,
b. P10,000,000 d. zero died in 2021 leaving the following assets in the Philippines:
a. Shares of stocks in Ayala Land Corp. with cost of P3,500,000
18. When the Commissioner finds that the payment of the and unrealized gain of P500,000 at the time of death.
estate tax or of any part thereof would impose undue b. Ordinary unlisted shares with book value amounting to
hardship upon the estate or any of the heirs, he may extend P1,800,000 and par value of P1,500,000.
the time for payment. Which of the following cases will not c. Preferred unlisted shares with book value amounting to
be a sufficient ground for the Commissioner to deny the P900,000 and par value of P600,000.
request for extension? d. Condominium in Trump Tower costing P6,000,000 but with
a. Simple negligence zonal value amounting to P9,000,000 and fair market value
b. Gross negligence per real property tax declaration of P7,000,000. It has
c. Intentional disregard of rules and regulations unpaid mortgage amounting to P1,600,000 at the time of
d. None of the choices death.

19. If the estate is settled judicially, the allowed extension for The gross estate abroad of the deceased is equivalent to 80% of
filing is: the total gross estate worldwide.
a. Within 30 days from the statutory due date
b. Within six (6) months from the statutory due date 26. How much is the total gross estate to be reported in the
c. Within two (2) years from the statutory due date Philippines?
d. Within five (5) years from the statutory due date a. P15,40,000 c. P14,900,000
b. P15,700,000 d. P15,200,000
QUESTIONS 20-25
20. Ms. Inah Taque, a resident alien married to a Filipino, died 27. How much is the total ordinary deductions?
leaving the following: a. P1,600,000 c. P320,000
Family home (500 sq. meters, zonal value P19,000,000 b. P6,600,000 d. P1,320,000
is P50,000 per square meter)
Bank deposit (50% subjected to 6% final 5,000,000 28. How much is the net taxable estate?
tax) a. P7,040,000 c. P7,540,000
Life insurance proceeds, beneficiary is the 4,000,000 b. P14,580,000 d. P15,080,000
wife who is the executor, designation is
irrevocable DONOR’S TAX
Life insurance proceeds, beneficiary is his 2,000,000 29. Which of the following statements is correct?
son, designation is irrevocable a. The donor’s tax shall be 6% computed on the basis of
Donation to the City of Tacloban made in 1,000,000 the total gifts.
the will

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b. Any contribution in cash or in kind to any candidate, c. The above transaction may be subject to donor’s tax or
political party or coalition of parties for campaign estate tax upon the election of Mr. Hinada or the
purposes shall be governed by TRAIN Law. executor or administrator of his estate.
c. The donor’s tax is not a property tax , but is a tax d. The above transaction is neither subject to donor’s tax
imposed on the transfer of property by way of gift nor estate tax.
inter vivos.
d. All of the choices. PERCENTAGE TAX
37. The Republic of Korea, as an act of goodwill, does not
30. What is the formal requirement in-order for the donation impose business taxes to Philippine carriers. Korean Air is
of an immovable may be valid? operating in the Philippines having two flights a week. If
a. It must be in writing. you were engaged by Korean air as its tax consultant and
b. It must be in a public document. asked you whether it is liable to percentage tax, which of
c. There must be simultaneous delivery the following will be your advice?
d. There is no formal requirement a. Korean Air is liable to percentage tax based on gross
receipts from passengers, goods, cargoes and mails.
31. The transfer of property by gift is completed when? b. Korean Air is liable to percentage tax based on gross
a. the moment the donor knows of the acceptance by the receipts from passengers only.
donee. c. Korean Air is liable to percentage tax based on gross
b. the moment it is delivered, either actually or receipts from goods, cargoes and mails only.
constructively d. Korean air is not liable to percentage based on the
c. either “a” or “b” whichever comes first principle of reciprocity.
d. neither “a” nor “b”
38. Tubigan ni Juan Inc. is authorized to engaged in the
32. Renunciation by the surviving spouse of his/her share in business of a water utility pursuant to a franchise duly
the conjugal partnership or absolute community after the issued by the Government. Its gross receipts of the
dissolution of the marriage in favor of the heirs of the preceding year exceeded the 10 million pesos. What
deceased spouse or any other person/persons is: business tax will apply to Tubigan ni Juan Inc. in the
a. subject to donor’s tax present year?
b. subject to donor’s tax if the renunciation is general a. Value-added tax
c. subject to donor’s tax if the renunciation is specific b. Percentage tax
d. subject to estate tax c. Value-added tax or percentage tax at the option of
Tubigan ni Juan Inc.
33. When is the deadline for filing the donor’s tax return d. Value-added tax or percentage tax at the option of the
reckoned from the date the gift is made or completed? Bureau of Internal Revenue (BIR)
a. 1 year c. 3 months
b. 6 months d. 30 days 39. A purely cooperative company doing life insurance
business is subject to what kind of business tax?
34. Where property, other than real property subject to 6% a. Value-added tax
capital gains tax, is transferred for less than an adequate b. Percentage tax
and full consideration in money or moneys’ worth, then: c. Value-added tax or percentage tax depending on the
a. It is subject to donor’s tax regardless of circumstances gross receipts for the year
b. It is subject to donor’s tax if with donative intent d. Exempt from Value-added tax and Percentage tax
c. It is not subject to donor’s tax regardless of
circumstances 40. Manny Pacquiao fought Floyd Mayweather Jr. in Legazpi
d. It is subject to 15% capital gains tax City, Philippines for the vacant World Boxing Council
Welterweight Title. The showdown was titled Lindol sa
35. Which of the following gifts is not exempt? Bicol wherein Manny sent Floyd to the canvass on the 12th
a. Gifts made to or for the use of the National round, the latter’s first defeat in his entire career. The fight
Government was promoted by Top Rank Promotions, 60% owned by
b. Gifts made to or for the use of the Local Government Bob Arum and other Americans, and 40% owned by Dean
c. Dowry Bobads. The event generated the following staggering
d. Gifts in favor of an educational institution revenues:
Admission Fees P10,000,000
36. Mr. Hinada, a Japanese citizen residing in Osaka, sold his Pay per view 100,000,000
shares of stock in UCC Corp. to Ms. Japlos, a Filipina, for Expenses 50,000,000
P700,000 at the time when its fair market value was
P1,000,000. It was agreed between the parties that as long How much percentage tax is due on the above revenues?
as the seller lives, he shall be entitled to the dividends. After a. P11,000,000 c. P10,000,000
two years from the date of sale, Mr. Hinada died. The fair b. P1,000,000 c. P6,000,000
market value of the shares at that time is already
P1,500,000. Other than Japan (Head Office), UCC Corp. only 41. Which of the following franchise grantees is subject to the
operates in Singapore, Korea, France, United Kingdom and franchise tax?
USA. I. Franchise on radio and/or television broadcasting
companies the annual gross receipts in the
Based on the above data, which of the following preceding year exceeds P10,000,000.
statements is correct? II. Franchise on gas and water utilities.
a. The sum of P300,000 shall be subject to donor’s tax. III. Franchise on toll road operations.
b. The estate of Mr. Hinada will include P800,000 in the IV. Franchise granted to PLDT
computation of gross estate. a. I only c. II and III only

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b. II only d. All of the above 49. Leomar Cabarles is a well known author in Financial
Accounting and Auditing Problems. His revised book in
42. What is the highest percentage tax rate applicable to a Financial Accounting contained a one-page advertisement
non-bank financial intermediary not performing quasi- promoting ARC as one of the leading review centers in the
banking functions? country. What will be the tax treatment of the sale of books
a. 10% c. 5% for VAT purposes?
b. 7% d. 3% a. Subject to 12% VAT
43. Which of the following percentage taxes cannot be claimed b. Subject to 0% VAT
as deduction in computing taxable income? c. Exempt from VAT
a. Gross Receipts Tax d. Exempt from VAT but subject to percentage tax.
b. Common Carrier’s Tax
c. Overseas Communications Tax 50. Which of the following is not considered an export sale?
d. Stock Transactions Tax a. Sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air
44. Sigurista Insurance Co. collected premiums on variable transport operations.
contracts (as defined in Sec. 232(2) of Presidential Decree b. Sale of raw materials or packaging materials to an
No. 612) in excess of the amounts necessary to insure the export-oriented enterprise whose export sales is at
lives of the variable contract workers. Which of the least seventy percent (70%) of the total annual
following statements is correct? production.
a. To the extent necessary to insure the lives of the c. Sale of raw materials or packaging materials to a non-
variable contract workers, it is subject to 2% resident buyer for delivery to a local export-oriented
premiums tax. enterprise to be used in manufacturing, processing,
b. Premiums collected in excess of the amount necessary packing or repacking in the Philippines of the said
to insure the lives of the variable contract workers is buyer’s goods.
either subject to VAT or section 116. d. None of the choices
c. Both “a” and “b”
d. Neither “a” nor “b” 51. A taxpayer decided to cancel its vat-registration at the time
when it has unused input tax. What is the available
45. Which of the following is not subject to 2% Premiums Tax? remedy?
I. Premium on Health and Accident Insurance a. Apply for the issuance of tax credit certificate or
II. Income earned by the life insurance company refund within two (2) years from the date of
from services which can be pursued cancellation of VAT registration, at the option of the
independently of the insurance business activity taxpayer.
III. Investment income earned by the life insurance b. Apply for issuance of tax credit certificate within two
companies from investing the premiums received (2) years from the date of cancellation of VAT
IV. Investment income realized from the investment registration, however, he shall only be entitled for
of funds obtained from others, if these investment refund if he has no internal revenue tax liabilities.
activities have been allowed and approved by the c. Apply for the issuance of tax credit certificate or
Insurance Commission refund within two (2) years from the quarter in which
a. II only the unused input tax was sustained, at the option of
b. II, III and IV the taxpayer.
c. II and IV d. Apply for issuance of tax credit certificate within two
d. I, II and IV (2) years from the quarter in which the unused input
tax was sustained, however, he shall be entitled for
VAT refund only if he has no internal revenue tax liabilities.
46. Which of the following is not subject to value-added tax?
a. A resident citizen who performs services in the QUESTIONS
Philippines, the performance of services is not regular. JJ Sugar Inc. is a VAT-registered manufacturer of sugar. It has
b. A non-stock, non-profit private organization engaged in the following data for month of January 2021:
trade or business. Local sales of refined sugar to private entities P 3,000,000
c. A government owned or controlled corporation Local sales of refined sugar to Government 1,000,000
engaged in trade or business. Export sales of refined sugar 1,000,000
d. A non-resident person who performs services in the Local sales of muscovado 1,000,000
Philippines, the performance of services is not regular. Purchases of sugar cane 3,000,000
Purchases of packaging materials from VAT 500,000
47. Rommel is an operator of taxi cabs. During a particular suppliers
month, he purchased from Mahindra, a VAT-registered car Purchases of capital goods from VAT- 1,500,000
dealer, 10 sedan type units for a total selling price of 5 suppliers, useful life is 6 years
million pesos. The estimated useful life of each vehicle is
four (4) years. How much will be the amount due from 52. How much is the output tax?
Rommel? a. P720,000 c. P600,000
a. P5,600,000 c. P5,150,000 b. P480,000 d. P360,000
b. P5,000,000 d. P4,480,000
53. How much is the standard input tax?
48. Based on the preceding number, how much input tax can be a. P120,000 c. P50,000
claimed by Rommel? b. P70,000 d. zero
a. P600,000 c. P150,000
b. P12,500 d. zero 54. How much is the creditable input tax?
a. P222,500 c. P192,000

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b. P183,000 d. P152,500 supplies or materials as of the date of such retirement shall

be considered sold. The value-added tax shall be computed
55. How much is the final withholding VAT? based on:
a. P120,000 c. P50,000 a. Cost
b. P70,000 d. zero b. Fair market value
c. Cost or fair market value whichever is higher
56. How much is the VAT Payable? d. Cost or fair market value whichever is lower
a. P327,500 c. P277,500
b. P288,000 d. P168,000 63. Abel Corporation is a merchandising concern and has an
inventory of goods for sale amounting to Php 1 million. Nel
57. CHPA Residences Inc. is a domestic corporation engaged in Corporation, a real estate developer, exchanged its real
real estate business. It has the following data for the last estate properties for the shares of stocks of Abel
quarter of 2020: Corporation resulting to the acquisition of corporate
control. The inventory of goods owned by Abel
Corporation (Php 1 million worth) is:
Installment Sale of a Townhouse:
a. Subject to 12% VAT
Realized gross profit (GPR is 30%) P300,000
b. Subject to 0% VAT
Gross selling price 4,000,000
c. Exempt from VAT
Zonal value 5,000,000
d. Subject to percentage tax
Deferred Sale of a Parking Lot:
Gross selling price 1,000,000
64. Based on the preceding number, the exchange of real
Fair market value 1,500,000
estate properties held for sale or for lease, for shares of
Rental income 800,000
stocks is:
Rent receivable, beg. 300,000
a. Subject to 12% VAT
Rent receivable, end 100,000
b. Subject to 0% VAT
Importation of materials used in the 2,625,000
c. Exempt from VAT
construction
d. Subject to percentage tax
How much is the VAT due or payable?
65. Casa Leticia, VAT registered, is engaged in hotel business.
a. P285,000 c. P135,000
It had the following selected information from its records
b. P261,000 d. P111,000 for the month of December 2020:
Service Revenue Php500,000
58. A.M. Yu & Associates, a VAT-registered Firm, sold its office Unearned Revenue, 12-31-2020 20,000
building together with the lot thereon to Cabarles, Ong, Sia, Purchases from VAT registered entities:
Tabag & Co., another VAT-registered Firm, for 60million Goods (30% still unpaid) 150,000
pesos. Of the total selling price, 40 million pesos pertains Services (20% still unpaid) 200,000
to the building. The useful life of the building is estimated Importation of generator with useful life
to be 30 years. The transaction happened in 2020. of 7 years:
Dutiable value 1,200,000
Assuming the buyer paid in lump sum, how much output Customs duties 100,000
tax should be paid by the seller in the month of sale? Excise tax 50,000
a. P7,200,000 c. P4,800,000 Other charges within the Bureau of 50,000
b. P2,480,000 d. P2,400,000 Customs
Facilitation fee 20,000
59. Based on the preceding number, how much input tax can
be claimed by the buyer against input in the month of How much is the output tax?
purchase? a. P62,400 c. P60,000
a. P7,200,000 c. P4,800,000 b. P57,600 d. none of the choices
b. P2,480,000 d. P2,400,000
66. How much is the VAT paid to the Bureau of Customs?
60. Pilipinas Shell sold fuel to an international shipping carrier a. P170,400 c. P168,000
whose voyage is from a port in the Philippines directly to a b. P2,800 d. P2,840
foreign port without docking or stopping at any other port
in the Philippines. What is the treatment of the transaction 67. How much is the creditable input tax?
for VAT purposes? a. P44,800 c. P34600
a. Exempt b. P40,000 d. P40,040
b. Zero-rated transaction
c. Subject to 12% VAT 68. How much VAT did the Company remit to the BIR?
d. Either “b” or “c” a. P12,800 c. P22,360
b. P20,000 d. P22,400
61. When is the deadline for manual filing of the quarterly VAT
return? 69. Mikylla is planning to enter into fishing business. She
a. Ten (10) days from the end of the quarter expects to have substantial amount of VAT on Importation
b. Twenty (20) days from the end of the quarter for the ship and other equipment that she will need for the
c. Twenty-five (25) days from the end of the quarter business. She is contemplating on whether to sell it raw or
d. Thirty (30) days from the end of the quarter have it processed. Also, she is weighing which is more tax
efficient between selling locally or abroad. If she asks you
62. When a VAT-registered person retires from business, all which the better option is, what will you advise?
goods on hand, whether capital goods, stock in trade, a. Sell the catches abroad unprocessed.

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b. Register under the VAT system and process the earmarked and actually 80%
catches before selling abroad. spent for medical
c. Find a local market and sell it unprocessed. utilization of its members
d. Register under the VAT system, find a local market and
sell it after processing. How much is the output tax for the quarter?
a. P240,000 c. P960,000
70. TodoCare Inc., an HMO, collected 10million pesos, net of b. P1,200,000 d. nil
VAT, for the quarter broken down as follows:
Service fee 20%

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