Accountancy Review Center (ARC)
of the Philippines Inc.
One Dream, One Team
TAXATION
1st PREBOARD
STUDENT HANDOUTS
BASIC PRINCIPLES
1. Which of the following statements about eminent domain is
correct?
a. The power to take public property for public purpose
after payment of just compensation.
b. The power to take private property for public purpose
after payment of just compensation.
c. The power to take public property for private purpose
after payment of just compensation.
d. The power to take private property for private purpose
after payment of just compensation.
2.
3.
4.
5.
6.
The House of Representatives is composed of 400 members.
350 attended the session. On that particular session, House
Bill No. 6969, bill granting tax exemption to proprietary
educational institutions, was voted upon. How many votes
are required to pass the Bill?
a. 201
c. 176
b. 267
d. 234
In case of inconsistency between a law and a revenue
regulation, which will prevail?
a. Law
b. Revenue Regulation
c. Either “a” or “b” whichever is favorable to the taxpayer
d. Either “a” or “b” whichever is favorable to the
government
Which of the following statements is incorrect pertaining to
tax exemption of properties for religious, charitable and
educational purposes?
a. Exemptions of religious, charitable and educational
institutions applies to real property tax and income tax
only.
b. In case of property tax exemption, the test is usage, not
ownership.
c. The word “exclusive” means primarily rather than
solely.
d. What is exempted is not the institution itself but the
lands, buildings and improvements actually, directly
and exclusively used for religious, charitable and
educational purposes.
Bank A is subject to the gross receipts tax on its interest
income on loan transactions to customers and at the same
time such income is subject to income tax. Which statement
below INCORRECTLY describes the transaction?
a. There is double taxation because two taxes – income
tax and gross receipts tax are imposed on the interest
income described above, and double taxation is
prohibited under the 1987 Constitution.
b. There is no double taxation because the first tax is
income tax, while the second is a business tax.
c. Income tax on interest income of deposits of Bank A is
a direct tax, while GRT on interest income on loan
transaction is an indirect tax.
d. None of the choices
Allowing of electronic signature for some BIR Forms is a
manifestation of which canons of taxation?
a. Equality
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b.
c.
d.
M.V.U.SIA/E.D.TABAG
MAY 2022 CPALE REVIEW
Theoretical justice
Fiscal adequacy
Administrative feasibility
ESTATE TAX
7. Farang Tanga died on February 6, 2021. Two months after,
an inventory of the estate was made, and it was found out
that the value of the estate on this date amounted to
P4,000,000. From February 6, 2021 up to the date of taking
inventory, the estate earned income of P1,000,000, and
spent P2,500,000 for funeral and judicial expenses. How
much should be declared as gross estate?
a. P4,000,000
c. P5,000,000
b. P5,500,000
d. P2,500,000
8.
Revocable transfers inter vivos are:
a. Subject to donor’s tax if not revoked and the transferor
dies.
b. Subject to donor’s tax if the transferor revoked the
transfer before he dies.
c. Subject to estate tax if not revoked and the transferor
dies.
d. Subject to estate tax if the transferor waives his right of
revocation before he dies.
9.
Which of the following will not form part of claims against
the estate?
a. Unpaid funeral plan at the time of death
b. Unpaid medical expenses at the time of death
c. Both “a” and “b”
d. Neither “a” nor “b”
10. Reciprocity for estate tax purposes affects the taxability of:
a. Tangible personal property located without the
Philippines
b. Tangible personal property located within the
Philippines
c. Intangible personal property located without the
Philippines
d. Intangible personal property located within the
Philippines
11. Jobelly died on February 14, 2021. In her will, she gave the
right to the use and fruits of the property to Dina, but the
title should be registered under the name of Venedict.
Which of the following is exempt from estate tax?
a. Transfer of Jobelly to both Dina and Venedict
b. Transfer of Dina of the right to the use and fruits to
Venedict
c. Transfer of Venedict of the registered title to Dina
d. Transfer of Venedict of the registered title to his own
heirs
12. A decedent died with an unpaid liability of P2,000,000. A
week after his death, the debt fell due. The creditor called
the decedent’s phone, the decedent’s son picked up, and
informed the creditor of the death of the borrower. The
credit appealed to the conscience of the son to settle the
debt. The son settled one-half of the debt. The remainder is
unpaid. How much is the deductible liability in determining
the estate tax of the deceased?
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a.
b.
P2,000,000
P1,500,000
ARC – ACCOUNTANCY REVIEW CENTER
c. P1,000,000
d. nil
13. In determining the gross estate of a married decedent,
which of the following should be excluded?
a. Exclusive properties of the decedent
b. Share in the common properties by the decedent
c. Share in the common properties by the surviving
spouse
d. None of the above
14. The following properties will be classified uniformly under
Conjugal Partnership of Gains and Absolute Community of
Property, except:
a.
b.
c.
d.
Property inherited or received as donation during the
marriage
Property acquired from labor, industry, work or
profession of spouses
Fruits or income due or derived during the marriage
coming from common properties
Fruits or income due or derived during the marriage
coming from exclusive properties
15. The following deductions are also part of the gross estate,
except:
a. Claims against the estate
b. Claims against insolvent persons
c. Transfer for public use
d. Death benefits under Republic Act. 4917
16. Which of the following is not allowed to claim family home
allowance as deduction in determining estate tax?
a. Non-resident citizen
b. Resident alien
c. Non-resident alien
d. Both “a” and “c”
17. Marlyn died on March 19, 2021. The following records were
shared to you:
Date
Details
Amount
March 15, 2021 Hospitalization expenses
P124,000
March 17, 2021 Losses on fire
1,000,000
March 23, 2021 Loss from robbery
2,000,000
May 22, 2021
Losses due to typhoon 2,500,000
(80% insured)
June 1, 2021
Losses on inventory due
145,000
to shrinkage which will be
claimed as deduction in
the income tax calculation
July 14, 2022
Casualty losses
1,000,000
How much is the deductible amount excluding special
deductions?
a. P2,400,000
c. P4,500,000
b. P3,400,000
d. P5,500,000
18. When the Commissioner finds that the payment of the
estate tax or of any part thereof would impose undue
hardship upon the estate or any of the heirs, he may extend
the time for payment. Which of the following cases will not
be a sufficient ground for the Commissioner to deny the
request for extension?
a. Simple negligence
b. Gross negligence
c. Intentional disregard of rules and regulations
d. None of the choices
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19. If the estate is settled judicially, the allowed extension for
filing is:
a. Within 30 days from the statutory due date
b. Within six (6) months from the statutory due date
c. Within two (2) years from the statutory due date
d. Within five (5) years from the statutory due date
QUESTIONS 20-25
20. Ms. Inah Taque, a resident alien married to a Filipino, died
leaving the following:
Family home (500 sq. meters, zonal value P19,000,000
is P50,000 per square meter)
Bank deposit (50% subjected to 6% final
5,000,000
tax)
Life insurance proceeds, beneficiary is the
4,000,000
wife who is the executor, designation is
irrevocable
Life insurance proceeds, beneficiary is his
2,000,000
son, designation is irrevocable
Donation to the City of Tacloban made in
1,000,000
the will
Claims against an insolvent debtor (40%
1,500,000
uncollectible)
Funeral expenses (P300,000 still unpaid at
850,000
the time of death)
Judicial expenses
460,000
Medical expenses (55% paid at the time of
1,200,000
death)
How much is the exclusive gross estate?
a. P1,000,000
c. P16,500,000
b. P33,000,000
d. none of the choices
21. How much is the common gross estate?
a. P1,000,000
c. P16,500,000
b. P33,000,000
d. none of the choices
22. How much is the exclusive deduction?
a. P1,000,000
c. P600,000
b. P1,440,000
d. P720,000
23. How much is the common deduction?
a. P1,000,000
c. P400,000
b. P1,440,000
d. P720,000
24. How much is the special deduction?
a. P14,500,000
c. P15,000,000
b. P24,000,000
d. none of the choices
25. How much is the estate tax payable?
a. P76,800
c. P46,800
b. P226,800
d. zero
QUESTIONS 26-28
Donald Trunk, a married American residing in Florida U.S.A.,
died in 2021 leaving the following assets in the Philippines:
a. Shares of stocks in Ayala Land Corp. with cost of P3,500,000
and unrealized gain of P500,000 at the time of death.
b. Ordinary unlisted shares with book value amounting to
P1,800,000 and par value of P1,500,000.
c. Preferred unlisted shares with book value amounting to
P900,000 and par value of P600,000.
d. Condominium in Trump Tower costing P6,000,000 but with
zonal value amounting to P9,000,000 and fair market value
per real property tax declaration of P7,000,000. It has
unpaid mortgage amounting to P1,600,000 at the time of
death.
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ARC – ACCOUNTANCY REVIEW CENTER
The gross estate abroad of the deceased is equivalent to 80% of
the total gross estate worldwide.
26. How much is the total gross estate to be reported in the
Philippines?
a. P15,400,000
c. P14,900,000
b. P15,700,000
d. P15,200,000
27. How much is the total ordinary deductions?
a. P1,600,000
c. P320,000
b. P6,600,000
d. P1,320,000
28. How much is the net taxable estate?
a. P7,040,000
c. P7,540,000
b. P14,580,000
d. P15,080,000
DONOR’S TAX
29. Which of the following statements is correct?
a. The donor’s tax shall be 6% computed on the basis of
the total gifts.
b. Any contribution in cash or in kind to any candidate,
political party or coalition of parties for campaign
purposes shall be governed by TRAIN Law.
c. The donor’s tax is not a property tax , but is a tax
imposed on the transfer of property by way of gift
inter vivos.
d. All of the choices.
30. What is the formal requirement in-order for the donation
of an immovable may be valid?
a. It must be in writing.
b. It must be in a public document.
c. There must be simultaneous delivery
d. There is no formal requirement
31. The transfer of property by gift is completed when?
a. the moment the donor knows of the acceptance by the
donee.
b. the moment it is delivered, either actually or
constructively
c. either “a” or “b” whichever comes first
d. neither “a” nor “b”
32. Renunciation by the surviving spouse of his/her share in
the conjugal partnership or absolute community after the
dissolution of the marriage in favor of the heirs of the
deceased spouse or any other person/persons is:
a. subject to donor’s tax
b. subject to donor’s tax if the renunciation is general
c. subject to donor’s tax if the renunciation is specific
d. subject to estate tax
33. When is the deadline for filing the donor’s tax return
reckoned from the date the gift is made or completed?
a. 1 year
c. 3 months
b. 6 months
d. 30 days
34. Where property, other than real property subject to 6%
capital gains tax, is transferred for less than an adequate
and full consideration in money or moneys’ worth, then:
a. It is subject to donor’s tax regardless of circumstances
b. It is subject to donor’s tax if with donative intent
c. It is not subject to donor’s tax regardless of
circumstances
d. It is subject to 15% capital gains tax
35. Which of the following gifts is not exempt?
a. Gifts made to or for the use of the National
Government
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b.
c.
d.
Gifts made to or for the use of the Local Government
Dowry
Gifts in favor of an educational institution
36. Mr. Hinada, a Japanese citizen residing in Osaka, sold his
shares of stock in UCC Corp. to Ms. Japlos, a Filipina, for
P700,000 at the time when its fair market value was
P1,000,000. It was agreed between the parties that as long
as the seller lives, he shall be entitled to the dividends. After
two years from the date of sale, Mr. Hinada died. The fair
market value of the shares at that time is already
P1,500,000. Other than Japan (Head Office), UCC Corp. only
operates in Singapore, Korea, France, United Kingdom and
USA.
Based on the above data, which of the following
statements is correct?
a. The sum of P300,000 shall be subject to donor’s tax.
b. The estate of Mr. Hinada will include P800,000 in the
computation of gross estate.
c. The above transaction may be subject to donor’s tax or
estate tax upon the election of Mr. Hinada or the
executor or administrator of his estate.
d. The above transaction is neither subject to donor’s tax
nor estate tax.
PERCENTAGE TAX
37. The Republic of Korea, as an act of goodwill, does not
impose business taxes to Philippine carriers. Korean Air is
operating in the Philippines having two flights a week. If
you were engaged by Korean air as its tax consultant and
asked you whether it is liable to percentage tax, which of
the following will be your advice?
a. Korean Air is liable to percentage tax based on gross
receipts from passengers, goods, cargoes and mails.
b. Korean Air is liable to percentage tax based on gross
receipts from passengers only.
c. Korean Air is liable to percentage tax based on gross
receipts from goods, cargoes and mails only.
d. Korean air is not liable to percentage based on the
principle of reciprocity.
38. Tubigan ni Juan Inc. is authorized to engaged in the
business of a water utility pursuant to a franchise duly
issued by the Government. Its gross receipts of the
preceding year exceeded the 10 million pesos. What
business tax will apply to Tubigan ni Juan Inc. in the
present year?
a. Value-added tax
b. Percentage tax
c. Value-added tax or percentage tax at the option of
Tubigan ni Juan Inc.
d. Value-added tax or percentage tax at the option of the
Bureau of Internal Revenue (BIR)
39. A purely cooperative company doing life insurance
business is subject to what kind of business tax?
a. Value-added tax
b. Percentage tax
c. Value-added tax or percentage tax depending on the
gross receipts for the year
d. Exempt from Value-added tax and Percentage tax
40. Manny Pacquiao fought Floyd Mayweather Jr. in Legazpi
City, Philippines for the vacant World Boxing Council
Welterweight Title. The showdown was titled Lindol sa
Bicol wherein Manny sent Floyd to the canvass on the 12th
round, the latter’s first defeat in his entire career. The fight
was promoted by Top Rank Promotions, 60% owned by
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ARC – ACCOUNTANCY REVIEW CENTER
Bob Arum and other Americans, and 40% owned by Dean
Bobads. The event generated the following staggering
revenues:
Admission Fees
P10,000,000
Pay per view
100,000,000
Expenses
50,000,000
How much percentage tax is due on the above revenues?
a. P11,000,000
c. P10,000,000
b. P1,000,000
c. P6,000,000
41. Which of the following franchise grantees is subject to the
franchise tax?
I.
Franchise on radio and/or television broadcasting
companies the annual gross receipts in the
preceding year exceeds P10,000,000.
II.
Franchise on gas and water utilities.
III.
Franchise on toll road operations.
IV.
Franchise granted to PLDT
a. I only
c. II and III only
b. II only
d. All of the above
42. What is the highest percentage tax rate applicable to a
non-bank financial intermediary not performing quasibanking functions?
a. 10%
c. 5%
b. 7%
d. 3%
43. Which of the following percentage taxes cannot be claimed
as deduction in computing taxable income?
a. Gross Receipts Tax
b. Common Carrier’s Tax
c. Overseas Communications Tax
d. Stock Transactions Tax
44. Sigurista Insurance Co. collected premiums on variable
contracts (as defined in Sec. 232(2) of Presidential Decree
No. 612) in excess of the amounts necessary to insure the
lives of the variable contract workers. Which of the
following statements is correct?
a. To the extent necessary to insure the lives of the
variable contract workers, it is subject to 2%
premiums tax.
b. Premiums collected in excess of the amount necessary
to insure the lives of the variable contract workers is
either subject to VAT or section 116.
c. Both “a” and “b”
d. Neither “a” nor “b”
45. Which of the following is not subject to 2% Premiums Tax?
I.
Premium on Health and Accident Insurance
II.
Income earned by the life insurance company
from services which can be pursued
independently of the insurance business activity
III.
Investment income earned by the life insurance
companies from investing the premiums received
IV.
Investment income realized from the investment
of funds obtained from others, if these investment
activities have been allowed and approved by the
Insurance Commission
a. II only
b. II, III and IV
c. II and IV
d. I, II and IV
VAT
46. Which of the following is not subject to value-added tax?
a. A resident citizen who performs services in the
Philippines, the performance of services is not regular.
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b.
c.
d.
A non-stock, non-profit private organization engaged in
trade or business.
A government owned or controlled corporation
engaged in trade or business.
A non-resident person who performs services in the
Philippines, the performance of services is not regular.
47. Rommel is an operator of taxi cabs. During a particular
month, he purchased from Mahindra, a VAT-registered car
dealer, 10 sedan type units for a total selling price of 5
million pesos. The estimated useful life of each vehicle is
four (4) years. How much will be the amount due from
Rommel?
a. P5,600,000
c. P5,150,000
b. P5,000,000
d. P4,480,000
48. Based on the preceding number, how much input tax can be
claimed by Rommel?
a. P600,000
c. P150,000
b. P12,500
d. zero
49. Leomar Cabarles is a well known author in Financial
Accounting and Auditing Problems. His revised book in
Financial Accounting contained a one-page advertisement
promoting ARC as one of the leading review centers in the
country. What will be the tax treatment of the sale of books
for VAT purposes?
a. Subject to 12% VAT
b. Subject to 0% VAT
c. Exempt from VAT
d. Exempt from VAT but subject to percentage tax.
50. Which of the following is not considered an export sale?
a. Sale of goods, supplies, equipment and fuel to persons
engaged in international shipping or international air
transport operations.
b. Sale of raw materials or packaging materials to an
export-oriented enterprise whose export sales is at
least seventy percent (70%) of the total annual
production.
c. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a local export-oriented
enterprise to be used in manufacturing, processing,
packing or repacking in the Philippines of the said
buyer’s goods.
d. None of the choices
51. A taxpayer decided to cancel its vat-registration at the time
when it has unused input tax. What is the available
remedy?
a. Apply for the issuance of tax credit certificate or
refund within two (2) years from the date of
cancellation of VAT registration, at the option of the
taxpayer.
b. Apply for issuance of tax credit certificate within two
(2) years from the date of cancellation of VAT
registration, however, he shall only be entitled for
refund if he has no internal revenue tax liabilities.
c. Apply for the issuance of tax credit certificate or
refund within two (2) years from the quarter in which
the unused input tax was sustained, at the option of
the taxpayer.
d. Apply for issuance of tax credit certificate within two
(2) years from the quarter in which the unused input
tax was sustained, however, he shall be entitled for
refund only if he has no internal revenue tax liabilities.
QUESTIONS
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JJ Sugar Inc. is a VAT-registered manufacturer of sugar. It has
the following data for month of January 2021:
Local sales of refined sugar to private entities
P 3,000,000
Local sales of refined sugar to Government
1,000,000
Export sales of refined sugar
1,000,000
Local sales of muscovado
1,000,000
Purchases of sugar cane
3,000,000
Purchases of packaging materials from VAT
500,000
suppliers
Purchases of capital goods from VAT1,500,000
suppliers, useful life is 6 years
52. How much is the output tax?
a. P720,000
c. P600,000
b. P480,000
d. P360,000
54. How much is the creditable input tax?
a. P222,500
c. P192,000
b. P183,000
d. P152,500
c. P4,800,000
d. P2,400,000
60. Pilipinas Shell sold fuel to an international shipping carrier
whose voyage is from a port in the Philippines directly to a
foreign port without docking or stopping at any other port
in the Philippines. What is the treatment of the transaction
for VAT purposes?
a. Exempt
b. Zero-rated transaction
c. Subject to 12% VAT
d. Either “b” or “c”
62. When a VAT-registered person retires from business, all
goods on hand, whether capital goods, stock in trade,
supplies or materials as of the date of such retirement shall
be considered sold. The value-added tax shall be computed
based on:
a. Cost
b. Fair market value
c. Cost or fair market value whichever is higher
d. Cost or fair market value whichever is lower
55. How much is the final withholding VAT?
a. P120,000
c. P50,000
b. P70,000
d. zero
56. How much is the VAT Payable?
a. P327,500
c. P277,500
b. P288,000
d. P168,000
57. CHPA Residences Inc. is a domestic corporation engaged in
real estate business. It has the following data for the last
quarter of 2020:
P300,000
4,000,000
5,000,000
1,000,000
1,500,000
800,000
300,000
100,000
2,625,000
How much is the VAT due or payable?
a. P285,000
c. P135,000
b. P261,000
d. P111,000
58. A.M. Yu & Associates, a VAT-registered Firm, sold its office
building together with the lot thereon to Cabarles, Ong, Sia,
Tabag & Co., another VAT-registered Firm, for 60million
pesos. Of the total selling price, 40 million pesos pertains
to the building. The useful life of the building is estimated
to be 30 years. The transaction happened in 2020.
Assuming the buyer paid in lump sum, how much output
tax should be paid by the seller in the month of sale?
a. P7,200,000
c. P4,800,000
b. P2,480,000
d. P2,400,000
59. Based on the preceding number, how much input tax can
be claimed by the buyer against input in the month of
purchase?
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P7,200,000
P2,480,000
61. When is the deadline for manual filing of the quarterly VAT
return?
a. Ten (10) days from the end of the quarter
b. Twenty (20) days from the end of the quarter
c. Twenty-five (25) days from the end of the quarter
d. Thirty (30) days from the end of the quarter
53. How much is the standard input tax?
a. P120,000
c. P50,000
b. P70,000
d. zero
Installment Sale of a Townhouse:
Realized gross profit (GPR is 30%)
Gross selling price
Zonal value
Deferred Sale of a Parking Lot:
Gross selling price
Fair market value
Rental income
Rent receivable, beg.
Rent receivable, end
Importation of materials used in the
construction
a.
b.
63. Abel Corporation is a merchandising concern and has an
inventory of goods for sale amounting to Php 1 million. Nel
Corporation, a real estate developer, exchanged its real
estate properties for the shares of stocks of Abel
Corporation resulting to the acquisition of corporate
control. The inventory of goods owned by Abel
Corporation (Php 1 million worth) is:
a. Subject to 12% VAT
b. Subject to 0% VAT
c. Exempt from VAT
d. Subject to percentage tax
64. Based on the preceding number, the exchange of real
estate properties held for sale or for lease, for shares of
stocks is:
a. Subject to 12% VAT
b. Subject to 0% VAT
c. Exempt from VAT
d. Subject to percentage tax
65. Casa Leticia, VAT registered, is engaged in hotel business.
It had the following selected information from its records
for the month of December 2020:
Service Revenue
Php500,000
Unearned Revenue, 12-31-2020
20,000
Purchases from VAT registered entities:
Goods (30% still unpaid)
150,000
Services (20% still unpaid)
200,000
Importation of generator with useful life
of 7 years:
Dutiable value
1,200,000
Customs duties
100,000
Excise tax
50,000
Other charges within the Bureau of
50,000
Customs
Facilitation fee
20,000
How much is the output tax?
a. P62,400
c. P60,000
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b.
P57,600
ARC – ACCOUNTANCY REVIEW CENTER
d. none of the choices
a.
b.
66. How much is the VAT paid to the Bureau of Customs?
a. P170,400
c. P168,000
b. P2,800
d. P2,840
c.
d.
67. How much is the creditable input tax?
a. P44,800
c. P34600
b. P40,000
d. P40,040
Sell the catches abroad unprocessed.
Register under the VAT system and process the
catches before selling abroad.
Find a local market and sell it unprocessed.
Register under the VAT system, find a local market and
sell it after processing.
70. TodoCare Inc., an HMO, collected 10million pesos, net of
VAT, for the quarter broken down as follows:
Service fee
20%
earmarked and actually
80%
spent
for
medical
utilization of its members
68. How much VAT did the Company remit to the BIR?
a. P12,800
c. P22,360
b. P20,000
d. P22,400
69. Mikylla is planning to enter into fishing business. She
expects to have substantial amount of VAT on Importation
for the ship and other equipment that she will need for the
business. She is contemplating on whether to sell it raw or
have it processed. Also, she is weighing which is more tax
efficient between selling locally or abroad. If she asks you
which the better option is, what will you advise?
How much is the output tax for the quarter?
a. P240,000
c. P960,000
b. P1,200,000
d. nil
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