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Mr. Bone filed 2014 income tax return on June 30, 2015. The Bureau of Internal Revenue discovered a deficiency income tax on August 15, 2016. When the deficiency tax assessment be served? A. On April 15, 2018 C. On or before June 30, 2018 B. On or before April 15, 2018 D. On or before August 15, 201...

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PHIL. CPA LICENSURE EXAMINATION

TAXATION 6.

How much discount is granted to a senior citizen on his purchase of basic and prime commodities, subject to limitation? A. 5% C. 15% B. 10% D. 20%

7.

What is the basis of the documentary stamp tax to be imposed when one of the contracting parties on the sale of property is the government? A. Actual consideration B. Consideration contracted to be paid for such realty C. Consideration contracted to be paid for such realty or on its fair market value, whichever is lower D. Consideration contracted to be paid for such realty or on its fair market value, whichever is higher

Which of the following statement/s is/are correct? Statement A. Non-resident citizens are taxable on all income derived from sources within the Philippines Statement B. Resident citizens and domestic corporation are taxable on all income derived from sources within or without the Philippines. Statement C. Foreign corporations, whether engaged or not in trade or business in the Philippines are taxable from sources within or without the Philippines. Statement D. Aliens, whether residents or not of the Philippines, are taxable only from sources within the Philippines. A. Statement A and D are correct C. Statements A, B and D are correct B. Statements C and D are correct D. Statements B, C and D are correct

8.

Which of the following statement/s is/are correct Statement A. DORA filed ger 2014 ITR (not fraudulent nor false) on March 20, 2015. The last day for the BIR to collect the tax by judicial action if no assessment was made is April 15, 2018 Statement B. DADA’s 2014 ITR was filed and paid on May 8, 2015. The last day for the BIR to send an assessment is April 15, 2018. Statement C. On July 20, 2015, DIDI filed an amended return which is substantially different from the 2014 ITR which she filed on April 13, 2015. The last day to send an assessment is April 15, 2018. A. Only Statement A is correct C. Statement A and C are correct B. Statement A and B are correct D. Statement B and C are correct

4.

Which of the following are basic principles of a sound tax system? A. Fiscal Deficit, Administrative Feasibility and Ability to Pay B. Progressive Taxation, Ability to Pay, Symbiotic Relationship C. Fiscal Adequacy, Economic Feasibility and Theoretical Justice D. Fiscal Adequacy, Administrative Feasibility and Theoretical Justice

9.

5.

Mr. SMALL TIME’s piece of land measuring 500 sq. meters in Makati City was assessed as commercial with a fair market value P20,000 per sq. m. How much is highest possible amount of annual basic real property tax can be collected from him? A. P20,000 C. P50,000 B. P40,000 D. P100,000

Which of the following statements is TRUE? A. Real property taxes are payable in the local treasurer’s offices B. A local government unit is empowered to collect documentary stamp taxes C. For the computation of real property tax, the FMV is equal to the Assessed Value Divide by the Assessment Level. D. When the land is located in a commercial area but the building is residential, the classification of land to determine the fair market value is residential and the assessment level is commercial.

1.

Mr. Bone filed 2014 income tax return on June 30, 2015. The Bureau of Internal Revenue discovered a deficiency income tax on August 15, 2016. When the deficiency tax assessment be served? A. On April 15, 2018 C. On or before June 30, 2018 B. On or before April 15, 2018 D. On or before August 15, 2019

2.

On March 5, 2015, the Bureau of Internal Revenue discovered a deficiency value added tax for the quarter ended September 2008. The deficiency did not arise from error or fraud. Which of the following statement is CORRECT? A. The BIR has no more remedies since the tax prescribed. B. The BIR must send the assessment notice before March 5, 2018. C. The BIR must send the assessment notice before March 5, 2025 D. The BIR must send the assessment notice before September 30, 2018.

3.

OCTOBER 2019

Page 1 of 9

PHIL. CPA LICENSURE EXAMINATION 10. If a taxpayer believes in good faith that the assessment against him is doubtful but the same has become final and unappealable, what is the best available remedy for him? A. Protest the assessment B. File an injunction with the CTA C. Ask for the interest to be waived D. Apply for a compromise of his tax liability 11. The concept of “situs of taxation” is based on which limitation of taxation? A. Exemption of the government C. Public purpose B. International comity D. Territoriality 12. Which of the following statement is/are CORRECT? I. The power to license includes the power to tax II. The power to tax may not include the power to destroy. III. The power to tax includes the power to exempt A. I only C. I and II B. III only D. II and III 13. The following, EXCEPT ONE, are establishments which grant sales discount to senior citizens on their sale of goods and/or services. Which is the EXCEPTION? A. Cinema houses C. Optical clinics B. Funeral parlors D. Residential unit lessor 14. PETRON INC. installed underground tanks in its depot for the storage of its oil and petroleum products. The City of Cebu assessed Petron for real property tax on land and on the storage tanks. A. Petron is not taxable B. Petron is taxable on the land only C. Petron is taxable on the storage tanks D. Petron is taxable both to the land and storage tanks

TAXATION 16. The President of the Philippines and the Prime Minister of Japan entered into an executive agreement on a loan facility to the Philippines from Japan whereby it was stipulated that interest on loans granted by private Japanese financial institutions in the Philippines shall not be subject to Philippine income tax laws. What basic characteristics of taxation has been violated by this agreement? A. Constitutional limitation C. Legislative in character B. Inherent limitation D. Theoretical justice 17. The refusal of the taxpayer to submit books of accounts and records relating to the pending tax investigation by the offices of the Bureau of Internal Revenue shall allow the BIR to _____ A. Issue a final assessment based only of the financial statements submitted by the taxpayer B. Allow the BIR to enter the premises of the taxpayer to obtain any available records relating to the tax investigation C. File an action with the Court of Tax Appeals or the regular courts to compel the taxpayer to present the necessary documentation D. Authorize the issuance of a subpoena duces tecum against the taxpayer to submit the pertinent records to the office of the BIR 18. Which of the following is a FALSE statement? A. Every person legally authorized to practice his profession shall pay professional tax anywhere in the Philippines, regardless of where he practices his profession or his principal office location B. The province may levy an annual professional tax on each person engaged in the exercise or practice of his profession requiring government examination at such amount and reasonable classification C. Every person legally authorized to practice his profession shall pay the professional tax to the province where he practices his profession or where he maintains his principal office if he practices in several places D. Every person legally authorized to practice his profession shall be entitled to practice his profession in any art of the Philippines without being subjected to any other national or local tax for the practice of such profession.

15. Which of the following tax cases may NOT be compromised? A. Collection cases filed in courts B. Civil tax cases being disputed before courts C. Delinquent accounts with duly approved schedule of installment payments D. Criminal violations, other than those already filed in court or those involving criminal tax fraud OCTOBER 2019

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PHIL. CPA LICENSURE EXAMINATION SITUATIONAL Situation 1 – (TRAIN LAW) Mr. and Mrs. JBL had the following conjugal transfers during the year 2018: • January 26 Donated a parcel of land to their son, on account of their marriage. Their son’s wedding is on July 31, 2018. The fair market value of the land at the time of donation was P500,000. The fair market value of the land at the time of marriage was P550,000. The donated property subject to P100,000 mortgage which was assumed by their son. • October 29 Donated P300,000 to the sister of Mr. JBL who was diagnosed with cancer. They donated the amount for the medication of Mr. JBL’s sister. • December 20 Sold 300,000 shares of stocks from ABC Corporation to their daughter for P300,000. The book value per shares as per latest audited financial statement of ABC Corporation is P1.50 per share. The shares of stocks were acquired two years ago for P200,000 19. How much is the donor’s tax still due of Mr. JBL on the January 26 transfer? A. P11,400 C. P16,500 B. P12,000 D. P24,000 20. How much is the donor’s tax due of Mrs. JBL on the October 29 transfer A. P9,000 C. P45,000 B. P21,000 D. P57,000 21. How much is the capital gains tax due of Mr. JBL on the December 20 transfer? A. P7,500 C. P22,500 B. P15,000 D. P41,250 22. How much is the donor’s tax still due of Mr. JBL on the December 20 transfer? A. P4,500 C. P25,500 B. P9,000 D. None Situation 2 – (TRAIN LAW) Mr. X sold on April 30, 2018, 5,000 shares of stock of XYZ Corporation for P10,000,000. Said shares of stock were acquired 3 years ago at par value. XYZ Corporation has 10,000 outstanding shares with par value of P1,000 per share. The total assets and liabilities of XYZ Corporation in its latest audited financial statements are P20,000,000 and P5,000,000, respectively. Assuming that the book value of all its assets and liabilities is also the market value with the exception of its real property. OCTOBER 2019

TAXATION Assume further that the market values of the real property of XYZ Corporation as follow: Book Value MV per TD* Zonal Value Appraised Value Land A P2,000,000 P2,500,000 P5,000,000 P6,000,000 Land B 2,000,000 2,200,000 4,000,000 3,500,000 Building A 1,000,000 2,400,000 3,000,000 Building B 500,000 2,000,000 1,950,000 *MV per TD – Market value per tax declaration 23. How much is the capital gains tax due on the sale of Mr. X’s shares of stock? A. P495,000 C. P1,046,250 B. P750,000 D. P1,087,500 24. How much is the documentary stamp tax due on the sale of Mr. X’s Shares of Stock? A. P18,750 C. P75,000 B. P37,500 D. P91,875 25. How much is the donor’s tax due if any? A. P90,000 B. P103,500

C. P120,000 D. None

26. Assuming that Mr. X donated the 5,000 shares of stocks of XYZ Corporation, instead of being sold, how much is the donor’s tax due on the said donation? A. P435,000 C. P703,000 B. P585,000 D. P720,000 Situation 3 – (TRAIN LAW) Mr. SMB single and non-resident alien, died of a heart attack in 2018, leaving the following properties in favor of his heirs: Gross estate within the Philippines P30,000,000 Gross estate outside the Philippines 20,000,000 Funeral expense 500,000 Judicial and administrative expense 2,000,000 Claims against the estate 5,000,000 His gross estate includes family home valued at P8,000,000 27. How much is the gross taxable estate of Mr. SMB’s estate? A. P30,000,000 C. P45,000,000 B. P35,000,000 D. P50,000,000 Page 3 of 9

PHIL. CPA LICENSURE EXAMINATION

TAXATION

28. How much is the deductible ordinary deductions of Mr. SMB’s estate? A. P3,000,000 C. P4, 320,000 B. P4,200,000 D. P5,000,000

Less: Interest from bank Gain on sale of land Net taxable income Multiply by: Corporate income Tax rate Income tax expense

29. How much is the deductible special deduction of Mr. SMB’s estate? A. P500,000 C. P5,500,000 B. P1,000,000 D. P8,500,000 30. How much is the estate tax due of Mr. SMB’s estate A. P1,110,000 C. P1,518,000 B. P1,510,000 D. P1,590,000 Situation 4 Minalas Corporation, a real estate dealer and lessor, on its first year of operation, has been issued a letter of Authority by the BIR. As a revenue officer, you were assigned to audit the Corporation’s income tax for taxable year 2016. The audited financial statements show the corporation’s income statement as follows: Revenues: Rental income Interest from Bank Gain on sale of land Total

P2,800,000 24,000 500,000 P3,324,000

Expenses: Depreciation Salaries and wages Taxes and licenses Entertainment and representation Interest expense Office supplies Total Net income before income tax Income tax expense Net income

P800,000 200,000 180,000 40,000 60,000 20,000 P1,300,000 P2,024,000 (450,000) P1,574,000

Income tax due for the year is computed as follow: Net income before income tax

P2,024,000

OCTOBER 2019

P 24,000 500,000

(524,000) P1,500,000 30% P450,000

After a detailed examination of the Corporation’s book, you have noted the following: * Balance sheet as of December 31, 2016 showed an outstanding balances of deferred rent income amounting to P200,000 * Interest from bank is net of 20% final withholding tax * Gain on sale of land, represent gain on sale of residential lot with selling price, amounting to P2,000,000 * Taxes and licenses in the notes to financial statements showed the following breakdown: Withholding tax on sale of land P120,000 Documentary stamp tax on sale of land 30,000 Surcharge and penalties on late payment of tax 10,000 Permit and licenses 20,000 * Interest expense includes interest on late payment of tax amounting to P5,000 31. How much should reflected as net sales and revenues in the annual income tax return of the Corporation? A. P3,300,000 C. P4,800,000 B. P3,500,000 D. P5,000,000 32. How much should be the deductible taxes and licenses? A. P20,000 C. P50,000 B. P30,000 D. P180,000 33. How much is the deductible entertainment and representation expense? A. P33,333 C. P38,000 B. P34,000 D. P40,000 34. How much is the basic deficiency income tax due? A. P103,800 C. P135,300 B. P133,800 D. P253,800

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PHIL. CPA LICENSURE EXAMINATION

TAXATION

Situation – 5 Mr. The Pokna, Filipino and married, died in 2017, leaving his estate in favor of his surviving spouse. The following information were made available: • Real property in Manila, acquired during marriage. Said property is supported by a barangay certification that the spouses resided in this property at the time of Mr. Pokna’s death. The fair market value of this property as per latest tax declaration is P1,200,000, while the zonal valuation as of the time of death is P1,500,000. Said real property was held as a mortgage in a loan applied by the spouses. As of the time of death, the outstanding balance of the mortgage payable amounted to P500,000 • Real property in Laguna, inherited by Mr. Pokna during marriage, two and half years ago, from his late father. The fair market value as per latest tax declaration as of the time of his death is P1,000,000 while the zonal valuation is P800,000. Said property was previously taxed at a value of P900,000 when Mr. Pokna inherited the property from his father • Real property in Cavite, donated to Mrs. Pokna, 10 years ago (before marriage) by his parents-in-law. The fair market value as per latest tax declaration as of the time of Mr. Pokna’s death is P300,000 while the zonal valuation is P400,000. • Cash supported by a bank certification. Balance as of the time of death: savings account in the name of Mr. Pokna - P200,000; and saving account in the name of Mr. and Mrs. Pokna P300,000 • Funeral expenses incurred by the estate during the wake and burial of Mr. Pokna amounted P150,000 35. Compute item 21C of BIR Form No. 1801 A. P2,850,000 B. P3,000,000

C. P3,250,000 D. P3,400,000

36. Compute item 22C of BIR Form No. 1801 A. P670,000 B. P1,055,442

C. P1,103,588 D. P1,151,765

37. Compute item 24 of BIR Form No. 1801 A. P750,000 B. P1,000,000

C. P1,500,000 D. None

38. Compute item 29 of BIR Form No. 1801 A. P675,000 B. P793,750

C. P865,000 D. P1,200,000

OCTOBER 2019

Situation – 6 (TRAIN LAW) Kiko Macha, a non-VAT registered lessor of residential and commercial units, had the following data for the 1st and 2nd Quarters of 2018 1st Quarter 2nd Quarter Gross receipts With monthly rental of P13,000 per unit P2,500,000 P2,300,000 With monthly rental of P18,000 per unit 1,000,000 1,200,000 Gross receipts from lease of commercial units 2,300,000 2,400,000 Input tax paid from VAT suppliers 150,000 120,000 39. How much is the business tax due for the 1st Quarter 2018 of Mr. Macha? A. P99,000 C. P246,000 B. P174,000 D. P396,000 40. How much is the business tax due for the 2nd Quarter 2018 of Mr. Macha? A. P108,000 C. P432,000 B. P312,000 D. P708,000 41. How much is the business tax due for the 2nd quarter 2018 of Mr. Macha. Assuming he registered as VAT taxpayer at the start of the 2nd quarter 2018? A. P312,000 D. P588,000 B. P432,000 C. P708,000 42. Assuming Mr. Macha is VAT registered taxpayer instead of non-VAT registered taxpayer, how much is the business tax due of Mr. Macha for the 1st Quarter of 2018? A. P246,000 C. P546,000 B. P396,000 D. P696,000 Situation – 7 (TRAIN LAW) HUMILITY Corporation, is a domestic corporation engaged in the business of manufacturing textiles. For the fiscal year end June 30, 2019, its profit and loss statement reported the following: Sales: P100,000,000 Cost of goods manufactured and sold (60,000,000) Gross income from operations P 40,000,000 Other income 5,000,000 Total gross income P 45,000,000 Operating expenses (15,000,000) Finance cost (5,000,000) Page 5 of 9

PHIL. CPA LICENSURE EXAMINATION Net income before income tax Income tax expense Net income after income tax

TAXATION P 25,000,000 (4,500,000) P 20,500,000

Additional information were made available for tax reconciliation purposes: • Withholding tax credit from sale of textile (supported by BIR Form No. 2307) - P600,000 • Other income broken down as follow: - Interest income for savings deposit (net of final withholding tax) - 200,000 - Gain from sale of investment property (the property was not used in the primary activity of the corporation but held for lease) - P4,000,000 (gross of withholding tax amounting to P900,000) - Rental income from investment property – P800,000 (gross of withholding tax) • Operating expenses includes allowance for bad debts expense amounting to P500,000 • During the year, the Corporation has written-off bad debts which are certainly uncollectible amounting P300,000 • Finance cost is broken down as follows: - Interest expense on loan from various financial institution – P3,000,000. - Interest expense on loans from a majority stockholder – P2,000,000 • Income tax expense, represent quarterly income tax paid 43. Compute page 4, Schedule V, Item 4 of BIR Form No. 1702-RT (net income per books should refer to net income before income tax) A. P500,000 C. P2,500,000 B. P582,400 D. P2,582,400 44. Compute page 4, Schedule V, Item 9 of BIR Form No. 1702-RT. A. P200,000 C. P500,000 B. P300,000 D. P4,500,000 45. Compute page 2, Item 55 of BIR Form No, 1702-RT A. P600,000 C. P5,140,000 B. P5,100,000 D. P6,040,000 46. How much withholding tax should HUMILITY Corporation remit on its loan interest payment assuming the Corporation is including in the BIR list of top withholding agents? A. P100,000 C. P460,000 B. P360,000 D. P750,000 OCTOBER 2019

Situation 8 BASTA LANG CORPORATION, is a registered enterprise with the board of investment and was granted an Income Tax Holiday (ITH) Incentives for the first 4 years of operation as a non-pioneer firm. The Corporation has not applied for an extension of its ITH incentives on its 5th year. On its 5th year of operations, it reported the following: Sales P120,000,000 Cost of goods manufacture and sold 70,000,000 Operating expense 20,000,000 Additional information were made available as follows: • All sales during the year are export sales • Cost of goods ma...