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INCOME TAXATIONINCOME TAXATIONCHAPTER 13CHAPTER 13PRINCIPLES OF DEDUCTIONSPRINCIPLES OF DEDUCTIONSMultiple ChoiceMultiple Choice –  –  Theory: Part 1 Theory: Part 11. Losses on capital assets areLosses on capital assets area. Deductible against gross income to the exten...

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INCOME INCOME TAXATION TAXATION CHAPTER 13 PRINCIPLES PRINCIPLES OF OF DEDUCTIONS DEDUCTIONS Multiple Choice Theory: Part 1 –

1. Losses on capital assets are a. Deductible Deductible against against gross gross income income to to the the extent extent not not compensated compensated by by in in b. Deductible Deductible against against capital capital gain gain to to the the extent extent compensated compensated by by insuran insuran c. Not Not deductible deductible against against gross gross income income whether whether or or not not compensated compensated for for insurance. d. Not Not deductible deductible against against capital capital gains gains unless unless not not compensated compensated by by insura insura 2. Which is a deductible expense? a. Marketing and advertising expense b. Insurance on factory building c. Salaries of security guards in the factory d. Cost of registering stocks 3. The The transactions transactions involving involving an an insured insured property property isis said said to to be be closed closed and and completed when a. Final settlement by the insurer is made b. The report of the insurance adjuster indicates a loss loss c. Final settlement confirms an unrecoverable cost d. No No proceedings proceedings in in court court is is expected expected to to be be made made by by the the insured insured 4. Which Which is is aa deductible deductible business business expense? expense? a.Acquisition cost of a business franchise b. Repayment of debt c. Cost of registering a business d. Cost of issuing securities 5. Which Which is is aa deductible deductible business business expense? expense? a. Interest on personal borrowings domicile b. Rental of taxpayer’s domicile c. Selling commission to agents d. Wages of kasambahays 6.A A repair repair expense expense is is deductible deductible in in the the period period paid or incurred unless it

a. Merely maintain the value of the property b. Increases the value of the property c Constitutes a major repair

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d. Covered by insurance or indemnity contracts 8. Losses Losses on on insured insured properties properties are are not not deductible deductible a. To the extent not compensated by insurance b. To the extent compensated by insurance c. As a rule, except when allowed by the the BIR examiner d. In all circumstances 9. Which statement is the most accurate? a. Prepaid Prepaid expense expense isis deductible deductible in in the the period period paid paid by by taxpayers taxpayers using using ca ca basis b. Prepaid Prepaid expenses expenses is is deductible deductible in in the the future future period period itit relate relate without without re re the the basis basis of of accounting accounting employed employed by by the the taxpayer taxpayer c.Accrued Accrued expenses expenses are are deductible deductible by by cash cash basis taxpayers d. Depreciation Depreciation expense expense can can be be claimed claimed only only by by accrual accrual basis basis taxpayers taxpayers 10.Cash Cash basis basis and and accrual accrual basis basis taxpayers taxpayers differs differs in in the the treatment treatment of of a. Prepaid expenses b. Current period cash expense c. Current period accrued expense d. Depreciation expense 11.Which may not be related? a. The The controlling controlling individual individual and and the the controlled controlled corporation corporation b. The The controlling controlling individual individual and and aa subsidiary subsidiary of of aa controlled controlled corporation corporation c. The grantor and fiduciary of a trust d. The grantor and the beneficiary of a trust 12.Which of the following is an extraordinary non-deductible non-deductible expense agains regular gross income of a merchandiser? a. Loss on sale of obsolete merchandise b. Store supplied and utilities c. Local business permit d. Loss on sale of investment in stocks 13.Which Which is is aa deductible deductible expense expense against against business business gross gross income? income? a. Commission Commission expense expense on on sale sale of of investment investment in stocks b. Salaries of marketing personnel of a manufacturing business c. Quarterly estimated income tax

d. Final Final tax tax on on interest interest income income on on bank bank savings savings deposit deposit

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15.Which is an actual deductible expense? a. Provision Provision for for an an estimated estimated bad bad debts debts expense expense b. Loss Loss arising arising from from liability liability on on aa contested contested lawsuit lawsuit confirms confirms by by aa final final judgement c. Increase in value of foreign foreign currency-denominated debt d. Death of animal offspring 16.Which Which is is deductible deductible against against gross gross income? income? a. Imputed interest expense b.Advances Advances to to the the profit profit sharing sharing of of aa partner partner in in aa general general professional professional partnership c. Repayment of business debts d. Local taxes 17.Which of the following is deductible? a. Rent of office space b. Tuition fees of the siblings of the taxpayer c. Selling Selling expense expense of of domestic domestic stocks stocks directly directly to to aa buyer buyer d. Estimated losses on lawsuit 18.Which Which is is not not deductible deductible against against gross gross income? income? a. Loss on sale of stocks through the PSE b. Write off of bad debts c. Loss Loss on destruction of office office building building by by an an earthquake earthquake d.Amortization of patent or or franchise used in business 19.Which is an incorrect statement? a. The The straight straight line line method method provides provides for for an an equal equal periodic periodic deduction deduction aga aga gross income b. The The sum sum of of the the years years digit digit method method provides provides for for an an increasing increasing deductio deductio against gross income c. The The double double declining declining balance balance method method provides provides for for aa declining declining deductio deducti rate twice the deduction of the straight line method d. Both Both straight straight line line method method and and sum sum of of the the years years digit digit method method consider consider residual value of the property 20.Which of the following ordinary assets cannot be depreciated? a. Office equipment c. Building and its improvements b. Machineries d. Land

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22.Statement 1:The The cost of goods sold is directly deducted upon sales in in th measurement of the gross income from the sales of goods Statement 2: The The cost cost of of service service is is directly directly deducted deducted from from gross gross receipts receipts measurement measurement of of the the gross gross income income from from the the sales sales of of services. services. a. Statement 1 is correct c. Both statements are correct b. Statement 2 is correct d. Neither statement is correct 23.Which is not a capital expenditure? a. Payments Payments to to create create aa good good image image of of the the business business of of the the taxpayers taxpayers b. Prepaid expenses c. Accrued expenses d.Advances to contractors 24.Statement 1:Repairs Repairs that that do do not extend the useful life life or or increase increase the fa of an asset should be capitalized Statement 2:the the costs of of issuing securities securities of of the taxpayer are are deduction deduction against gross income a. Statement 1 is correct c. Both statements are correct b. Statement 2 is correct d. Neither statement is correct 25.Statement 1:improvements improvements to to properties properties are are usually usually capitalized capitalized Statement 2:Directly Directly attributable attributable cost cost of of acquisition acquisition of of properties properties are are ad ad the basis of the properties acquired c. Statement 1 is correct c. Both statements are correct d. Statement 2 is correct d. Neither statement is correct Multiple Choice Theory Part 2 –

1. Which of the following cannot claim deductions from gross income despit engagement in business? a. Resident Citizen b. Resident Alien c. Non-resident Citizen d. NonNon- resident resident alien alien not not engaged engaged in in trade trade or or business business 2. Which of the following taxpayers cannot claim deductions from from gross inco a. General professional partnership b. Domestic corporation c. Resident foreign corporation d. Non-resident foreign corporation

3. Which of the following can be claimed as deduction?

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b. Deduction Deduction incentives incentives for for compliance compliance to to regulatory regulatory requirements requirements c. Uncollectible Uncollectible debts debts ascertained ascertained to to be be worthless worthless d. None of these 5. Which Which is is not not aa characteristic characteristic of of deductions deductions from from gross gross income? income? a. Legitimate business expense b. Capital expenditure c. Ordinary Ordinary and and necessary necessary business business expense d.Actual and necessary business expense 6. Which is deductible expense? a. Regular repair of office equipment b. Refurbishing Refurbishing of of an an old old building building to to prepare prepare itit for for use use c.Addition Addition of of aa wing wing to to an an existing existing building building d. Overhaul of machineries to extend their useful life 7. Which Which of of the the following following taxpayers taxpayers can can claim claim deduction deduction against against gross gross incom incom a.A A resident resident citizen citizen tax tax payer payer earning earning purely purely compensation compensation income income b. Non-resident foreign corporation c. Non-resident Non-resident alien alien not not engaged engaged in in trade or business business d. Resident Resident citizen citizen earning earning aa mix mix of of passive passive and and business business income income 8. Which Which is is not not aa separate separate classification classification of of deduction deduction from from gross gross income? income? a. Net operating loss carry over b. Regular Regular allowable allowable itemized itemized deductions deductions c. Special Special allowable allowable itemized itemized deductions deductions d. Net capital loss carry over 9. Which statement is incorrect regarding deductions? a. The The claim claim of of deduction, deduction, similar similar to to exemption, exemption, is is construed construed against against the the taxpayer b. The The use use of of optional optional standard standard deduction deduction always always results results in in reported reported taxa tax income c. The The unreasonableness unreasonableness of deduction deduction is up to the BIR to prove d. The The incurrence incurrence of of an an operating operating loss loss is is an an indication indication of of an an unreasonab unreasonab expenses 10.The The following following cannot cannot claim claim deduction deduction from from gross gross income income except except a.A A self-employed self-employed individual individual taxpayer taxpayer b.A A corporation corporation earning earning purely purely passive passive income income c.An An individual individual earning earning purely purely passive passive income income

d.An An individual individual taxpayer taxpayer earning earning purely purely compensation compensation and and passive passive incom incom

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12.Which Which is is aa deductible deductible business business expense? expense? a. Loss on decline in value of securities b. Estimated losses on expropriation c. Fire loss on an insured property d. Loss on theft of company assets 13.Which of the following constitutes a deductible business expense? a. Purchase Purchase of of office office equipment invoiced invoiced under under the the trade trade name name of of the the ta ta business b. Tuition fees of dependents of the tax payer c. Interest expense on a business loan d. Representation of expenses booked in the name of the taxpayer’s wif 14.Which of the following qualifies for deduction for an individual individual income tax engaged in business? a. Salaries of household maid b. Gasoline expenses of the the taxpayer’s personal car car c. Office internet expense d. Taxpayer’s transportation transportation expense to and from his residence 15.Which Which of of the the following following can can be be deducted deducted by by an an individual individual taxpayer not eng business? a. Transportation expense b. Communication expenses c. Internet expenses d. None of these 16.Which Which of of the the following following can can be be claimed claimed by by aa resident resident foreign corporation? a. Depreciation Depreciation expense expense on on properties properties located located abroad abroad b. Income tax paid in a foreign country c. Income Income tax tax paid paid in in the the Philippines Philippines d. Interest Interest expense expense on on foreign foreign borrowings borrowings used used to to finance finance its its Philippine Philippine 17.Which Which can can be be treated treated as as aa capital capital expenditure expenditure deductible deductible through through deprec deprec expense? a. Interest expense incurred to purchase office equipment b. Losses Losses sustained sustained in in an an uninsured uninsured office office building building c. Acquisition of land d.Acquisition of personal computers 18.Which of the following items can be deducted in full full in the year sustained

a. Write-off Write-off of of bad bad debts debts by by aa taxpayer taxpayer under under the the cash cash basis basis b. Loss Loss on on market market decline decline in in the the value value of of gold gold inventories inventories

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d. Salaries 20.Which Which isis deductible deductible in in full full by by aa taxpayer taxpayer engaged engaged in in the the merchandising merchandising bu b a.Value of inventories taken home by the business owner b. loss loss on on unrecoverable unrecoverable debts debts from from aa non-paying non-paying family family member member c. imputed interest on the capital investment of the owner d.Value Value of of inventories inventories destroyed destroyed by by rodents 21.Which Which is is not not aa deductible deductible loss loss by by aa security security dealer? dealer? a.  Wash sales loss b. Loss Loss on on the the sale of bonds with more than than five years maturity c. Loss on the sale of stocks through the PSE d. Loss Loss on on the the sale sale of of short-term short-term bonds bonds through through the the Philippine Philippine Dealings Dealings exchange 22.Determine the deductible loss. a. Loss Loss incurred incurred in in exchanging exchanging property property to to obtain obtain control control of of aa corporatio corporatio b. Loss Loss incurred incurred in in exchanging exchanging properties properties with with aa corporation corporation after after obtain obtain control over said corporation c. Calamity Calamity loss on uninsured property d. Bad debts from a sister company 23.Which of the following is non-deductible by the fact fact that it violates the m principle? a. Expense of a tax-exempt operation b. Payment for police protection c. Payment of revolutionary taxes d. Expenses not receipted in the name of the taxpayer 24.Which Which is is incorrect incorrect with with regard regard to to expenses expenses incurred incurred between between associated associated enterprises? a. The pricing of the transaction must not be controlled b. The The pricing pricing method method to to be be adopted adopted shall shall be be based based on on free free market market facto facto those made between two independent parties c. In In case case of of a controlled controlled transaction, transaction, the the deductible deductible expense expense to the pay enterprise shall be the arm’s length value of the transaction d. No No deduction deduction shall shall be be allowed allowed on on expenses expenses incurred incurred between between associat associat enterprises 25.Which is not a business expense? a. Fringe benefit taxes

b. De De minimis minimis benefits benefits granted granted to to employees employees c Salaries Salaries of of personal personal driver driver of of the company company president which was subje...