FUNDAMENTALS OF INCOME TAXATION

3. Those exempted by the Constitution,

INCOME statues or treaty or contract with
- all wealth which flows into the taxpayers
taxpayer other than a mere return of
capital and includes gains EXAMPLES:
a. Receipt of non-profit institutions from
Why is income taxed? Income is the best their main activities
measure of a taxpayer’s ability to pay. b. Contributions to GSIS, SSS, PhilHealth,
Pag-Ibig and
GROSS INCOME – refers to what is income c. Retirement and separation benefits
for taxation purposes under certain circumstances
TAXABLE INCOME – as the pertinent items d. Tax holiday for entities registered
of gross income that are subject to tax after pursuant to the Omnibus Investment
allowable deductions Code
TAX BASE – the value of a certain goods, or e. Income of foreign government or
property for taxation purposes corporations owned or controlled by
them
CHARACTERISTICS OF GROSS INCOME:
1. Return on capital and resulted increased TAXATION OF GROSS INCOME UNDER
net worth at the moment of its generation THE NIRC:
2. Realized benefit by the taxpayer
(realization means actual or constructive A. PASSIVE INCOME TAX
receipt of in cash)
1. CAPITAL GAINS TAX – few final tax
EXAMPLES OF CONSTRUCTIVE RECEIPTS OF is imposed on certain gains on
INCOME: dealings on properties
1. credit to an account own by the
taxpayer EXAMPLES INCLUDE FINAL TAX ON:
2. declaration of a share of the profits of a. Final tax on net gain on sale of
a general professional partnership domestic stocks directly to buyer
3. offsetting debt with right to received (withheld at source)
dividends b. Final tax on gains on sale of real
4. cancellation of debt in payment of property located in the
service Philippines classified as capital
asset
WHICH DO NOT CONSTITUTE GROSS
INCOME? 2. OTHER WITHHELD FINAL TAX –
these are groups of passive income
1. RECEIPTS REPRESENTING RETURNS that are subject to withholding by the
OF CAPITAL income payor.
Examples include final tax on:
EXAMPLES: a. Interest on deposits with banks
a. Proceeds of life insurance policy (upon b. Winnings
death of the insured) c. Prizes
b. Proceeds received by the insured (still d. Royalties
living) representing return of premium e. Dividends received from
domestic corporation
2. UNREALIZED INCOME
B. REGULAR (ACTIVE) INCOME TAX –
EXAMPLES: applies to all items of gross income that
a. Appreciation of value of properties are generated by the taxpayer in the
b. Unrealized gains on investments ordinary course of business or to those
items of passive income that are not
covered by final taxes. SITUS OF INCOME

Regular income tax is either: A. INTEREST – debtor’s residence

1. PROGRESSIVE TAX (0-32%
schedular rates) – applicable to B. DIVIDENDS
individual and taxable trusts and 1. BY A DOMESTIC CORPORATION –
estates within the Philippines
2. FINAL TAX (35%) – applicable to 2. BY A FOREIGN CORPORATION – apply
corporations the income dominance test

EXAMPLES ACTIVE INCOME: BASIS:

1. COMPENSATION INCOME World gross income for the three-year

period ending the current taxable year
2. PROFESSIONAL INCOME preceding the declaration of such dividends

3. BUSINESS INCOME a. If Philippine gross income is more

than 85%, the whole dividends are
4. THOSE ITEMS OF INCOME considered within.
THAT ARE EXCLUDED FROM b. If Philippine gross income is less
CAPITAL GAINS TAX than 50% of the basis, the whole
dividend is considered earned
a. Gain on sale of properties outside the Philippines
located abroad c. If Philippine gross income is at
b. Gain on sale of properties least 50% of this, the ratio of
located in the Philippines by Philippine gross income over the
non-residents basis multiplied by the dividend
c. Gain on sale of other non- received is considered earned
domestic stocks and non-real within the Philippines.
property capital assets
C. SERVICE – place of performance of the
5. THOSE ITEMS OF INCOME service
THAT ARE EXCLUDED FROM
OTHER FINAL TAXES D. RENT – location of the property
a. Interest income on notes
receivable (not deposit) E. ROYALTIES – place where the intangible
b. Prizes where the taxpayer has is used
no intention or active effort to
compete (Nobel Prize, cash F. GAIN ON SALE
awards to “Most Outstanding a. REAL PROPERTY – location of the
Citizens of Baguio”) property
c. Dividends from foreign b. DOMESTIC SHARES OF STOCS –
corporations always within the Philippines
c. PERSONAL PROPERTY – place of
6. OTHERS sale
a. Certain tax benefits (example:
items of deductions claimed in G. MINING – location of mine
the past that are subsequently
recovered) H. FARMING - location of farm
b. Obligations waived by the
creditors in consideration of I. MERCHANDISING – place of sale
service
 Place of Puchase Place of Sale 1. Calendar year – the 12-month period
Income is earned ending December 31 and is applicable to:
a. Within within a. Individuals
within b. taxpayers who do not keep books d.
b. within abroad taxpayers with accounting periods
abroad other than the fiscal year
c. abroad within c. taxpayers with no annual accounting
within period
d. abroad abroad 2. Fiscal period – any 12 months period
abroad ending the last day of any month other
J. Manufacturing – place of production and than December 31st. This is Not available
place of sale (Sec. 42(E), NIRC): to non-corporate taxpayers.
Whether full or partial processing, for
example: Normally, accounting period are uniformly 12
Place of Production Place of Sale months, however, short accounting period
Income is earned may arise in the following cases:
a. Within within 1. death of a taxpayer 3.
within dissolution of a business
b. within abroad 2. newly organized business
within and abroad 4. changes in accounting period
c. abroad within
within and abroad GENERAL RULE IN INCOME TAXATION
d. abroad abroad Income Taxable in
abroad the Philippines
Type of Taxpayers Earned Earned
Allocation methods: Philippines Abroad
1. With factory or production price – the I. Individuals
value as transfer price of the factory to A. Citizens
the selling segment is deemed the 1. Resident  
selling price of the commodity 2. Non-resident 
transferred.* B. Aliens
2. Without factory or production price – 1. Resident 
the portion deemed earned within the 2. Non-resident
Philippines is: a. In 
(Property value, Philippines/ Property value, world) * 50%business
of
income b. Not in 
(Gross sales, Philippines/ Gross sales, world) * 50% of incomebusiness
Manufacturing income earned from the PhilippinesC. Estate and same rule with
Trusts individuals

TAX ACCOUNTING PERIODS II.Corporations

Gross income accumulates over a period of A. Domestic  
time. Income taxation would require adoption B. Foreign 
of an accounting period wherein to measure 1. Resident 
the income. The NIRC provides that “taxable 2. Non-resident 
income shall be computed upon the basis of
the taxpayer’s annual accounting period in TAX COMPLIANCE
accordance with the methods of accounting The Philippines follows the “self-assessment
regularly employed in keeping the books of method” wherein taxpayers determine their
such taxpayer.” gross income, prepare their income tax
returns and pay the tax accordingly. The
There are two types of tax accounting return filed is presumed correct unless
periods: proven otherwise by the government.
However, in cases of failure to file a return, 4. Duly authorized Treasurer of the city
the Commissioner of Internal Revenue shall or municipality in which the taxpayer
file a return from best available information has his legal residence or principal
and such return thus filed is presumed place of business in the Philippines or
correct. The taxpayer has the burden of proof 5. Office of the Commissioner if the
in this case. The same rule applies when tax taxpayer has no legal residence or
authorities has reasons to believed that the place of business in the Philippines
tax return of the taxpayer is grossly
misstated.

Income tax return is required for items of EXAM DRILL PROBLEMS:

gross income that are subject to: 1. In particular, income is taxed because
1. Regular Income Tax (quarterly and a. When a person receive an income, it
annual consolidated return) received a benefit from the
2. Capital Gains Tax (per transaction and government
an annual consolidated return) b. Other sources of government revenues
may not be sufficient to shoulder
Who shall file income tax returns? government expenditures
1. Every resident Filipino citizen c. It represents the primary source of
2. Every non-resident Filipino citizen on government revenue aside from
his income from sources within the business tax
Philippines d. It represents the best indicator of
3. Every resident alien on income from one’s ability to pay
sources within the Philippines; and
4. Every non-resident alien engaged in 2. Gross income means
trade or business or in the exercise of a. The pertinent item of income that is
profession in the Philippines, on subject to progressive rates.
income from sources within the b. The pertinent item of income that is
Philippines subject to final tax rates.
c. Income that can be subject to income
Who are not required to file individual returns taxation.
for income tax? d. Income that are actually realized in
1. An individual whose gross income does cash or property.
not exceed his total personal and
additional exemptions, except those 3. ABC Company received a P1,000,000 cash
engaged in business or profession remittance from its sister company, DEF
2. An individual with respect to pure Company, to be remitted to its home
compensation income, derived from office HIJ Company. Which statement is
sources in the Philippines, the income correct concerning the taxation of this
tax on which has been correctly item?
withheld, except those with concurrent a. Not taxable since the item represents
employment a return of capital.
3. An individual whose income has been b. Taxable since it is realized by ABC
subjected to final income tax Company by means of an actual
4. An individuals who is exempt from receipt.
filing income tax returns in pursuant to c. Not taxable since the item, although a
other provisions of the Tax Code and received in cash, did not redound to
other laws. the benefit of ABC Company.
d. Taxable since taxation is the rule,
Where to file income tax returns? exemption is the exception.
1. Authorized agent bank
2. Revenue District Officer 4. THE Corporation declared dividends to its
3. Collection Agent 100,000 outstanding P10-par ordinary
 share at P2 per share. ABC bought its a. The appreciation will be subject to tax
10,000 ordinary share investment in THE since transaction in currencies is
Corporation for P15 per share. ABC have presumed to be a realized benefit.
already received cumulative dividends of b. The appreciation will not be subject to
P140,000. Which statement is correct? tax since it is not a realized benefit.
a. Only P10,000 of the dividends will be c. The appreciation will not be subject to
subject to income tax since it tax since it is merely a return of
represents excess over cost (i.e. return capital.
on capital) d. The appreciation will be subject to tax
b. The P20,000 dividends will be subject since it will be reported in accounting
to tax since both return of or on income. The NIRC provides that the
capital is subject to tax methods of accounting of the taxpayer
c. The P20,000 dividends will be subject shall be followed in determining the
to tax because it represents a return taxable income.
on capital.
d. Only P10,000 of the dividends will be 9. Which of the following represents an item
subject to income tax since it is the of gross income?
benefit actually realized. a. Revaluation surplus on building
c. Appreciation in the value of
5. Which is not subject to income taxation? land
a. Income from properties received from b. Local tax refund
donations and inheritance d. Return of premium in a life
b. Proceeds of crop insurance insurance policy
c. Damage recovered from patent
infringement suit
d. Revenues of non-profit educational 10. Which is not an item of gross income?
institutions a. Interest on a bank deposit c.
Winnings
6. Which is subject to income tax? b. Interest on a notes receivable
a. Compensation for personal injuries d. PhilHealth benefits
b. Investment income of foreign
government in the Philippines 11. Which cannot be subjected to income tax?
c. Income of resident aliens abroad a. Exemplary damages c.
d. Business income from jueteng and sale Damages awarded from a patent
of coccaine infringement suit
b. Proceeds of crop insurance d.
7. Which is an item of gross income? Lotto winnings
a. Tariff collected by the Bureau of
Customs 12. All of the following cannot be subject to
b. License fees collected by the income tax, except?
Professional Regulation Commission a. Proceeds of life insurance of a director
c. Income of a government-owned and received by the corporation as
controlled corporations beneficiary
d. Tithes received by religious b. Excess of the proceeds of the life
organizations insurance over premium paid by the
taxpayer
8. Alexander is a foreign currency c. Moral damages
speculator. He currently held $100,000 d. Tuition fee earned by Benguet State
dollar purchased by him at P40/$1. At the University
close of his business on December 31,
2008, a dollar was selling P50. Which 13. Toma Sengla Tumba is an organized non-
statement is correct? stock, non-profit fraternal organization. In
order to fund its summer activity,
 Bassagulero, its members purchased and a. An item of income by an individual
sold souvenir merchandise to local that is subject to final tax can still be
tourists. The total profit generated by the subject to progressive rates.
fund raising activity was P200,000. The b. Final tax rules do not apply with
members further contributed P100,000 as corporations since they are taxed
additional funding for the activity. Which under a globalized scheme.
statement is correct? c. In case of individuals, an item of
a. All receipts of Toma Sengla Tumba are income that is subject to final tax
subject to income tax. cannot be subjected to progressive
b. Only the P100,000 membership tax.
contribution is subject to income tax. d. An item of income of an individual that
c. All receipts of Toma Sengla Tumba are is exempted by final tax is always
exempt from income tax. taxable under progressive tax.
d. Only the P200,000 fund raising profit
is subject to income tax. 18. Under individual income taxation, which is
subject to progressive rates?
14.Under the NIRC, income is received not a. Cash reward for tax informers
only when it is actually or physically c. Book royalties
transferred to a person but even when it b. P10,000 prizes
is merely constructively received by him. d. Share in the net profit of a
An example of income constructively general professional partnership
received is
a. Rental payments refused by the 19. All of the following income is considered
lessosr, when the lessee tendered earned within, except one. Choose the
payment and the latter made a judicial exception.
deposit of the rental due. a. Interest income from notes issued by a
b. Interest coupons not yet due and non-resident alien
payable. b. Dividends paid by a non-resident
c. Interest on savings deposit not yet foreign corporation
credited to the account of the c. Management advisory fee earned from
depositor. a foreign client abroad
d. Advanced deposit made by the lessee. d. Dividends declared by a domestic
corporation received a non-resident
15.Which of the following is considered or alien investor
construed as an example of constructive
receipt?
a. Retirement benefits, pension, SITUS APPLICATIONS
gratuities. 20. THY, a resident foreign corporation,
b. Fees paid to a public officials. declared P500,000 dividends on July 1,
c. Interest coupons that have matured 2008, to its 100,000 outstanding ordinary
and are payable but have not been shares. Becky holds 20,000 of THY’s
cashed. ordinary shares. The corporation has just
d. Deposits for rentals to answer for started operation 3 years ago and has
damages, restricted as to use. significant Philippine operation since its
start-up. Details of the gross income of
16.Which is not subject to final tax? THY is shown below:
a. Winnings not exceeding P10,000 Gross
c. Dividends from a resident Income: 2005 2007 2008
corporation Philippi P P P
b. Royalties d. nes 1,200,0 4,000,0 6,000,0
Interest from deposit substitute 00 00 00
Abroad 2,800,0 2,000,0 4,000,0
17.Which is a correct statement? 00 00 00
 25. An Indian citizen who married a beautiful
How much of the dividends received by Filipina wife owns a building in the United
Becky is considered earned within the States and leases the same to businesses
Philippines and the pertinent tax scheme owned by Filipino residents. The Indian
that would apply? national has his residence in the
a. P56,000; final tax c. Philippines and all his children are
P52,000; final tax studying in elite Philippine universities.
b. PP56,000; progressive tax d. Which is true?
P52,000; progressive tax a. The rental income of the Indian
national is taxable in the Philippines
21.A resident alien rendered professional because he had his residence in the
advisory services to foreign businesses Philippines.
earning him P2,000,000 professional fees. b. The rental income of the Indian
The professional fee is national is taxable in the Philippines
a. exempt from the Philippines. because he married a beautiful Filipina
c. taxable both in the wife and his family is resident in the
Philippines and abroad. Philippines.
b. taxable from the Philippines. c. The rental income of the Indian
d. neither taxable in the national is taxable in the Philippines
Philippines nor abroad. because he derives his income from
Filipino resident lessees.
22.Which income is considered purely earned d. The rental income of the Indian
in abroad? national is exempt in the Philippines
a. A merchandise purchased abroad and because the property is located
sold in the Philippines abroad.
b. A merchandise purchased in the
Philippines and sold abroad 26. Benzon, a non-resident alien, invests in
c. A merchandise manufactured in the the capital stock of a domestic
Philippines and sold abroad corporation. Benzon subsequently sold
d. A merchandise manufactured abroad this to another non-resident alien at a
and sold in the Philippines gain of P20,000. Which is true?
a. The income is taxable in the
23.When real property is sold at a gain, the Philippines because domestic securities
situs of taxation is are by situs rules situated herein.
a. the residence of the owner. b. The income is exempt in the
c. the place where the deed of Philippines because the place of sale
sale is executed. applies with sale of personal property.
b. the residence of the buyer. d. c. The income is exempt in the
the place where the property is Philippines because the resident of the
located. seller applies with sale of personal
property.
24.Darrel Asuncion, a resident citizen, owned d. The income is exempt in the
a commercial building in Las Vegas. The Philippines because both non-residents
building was currently leased to a resident are involved in the transaction.
Pilipino who pays P50,000,000 rental
annually. The rent is considered
a. earned abroad. INCOME TAXPAYERS
c. earned within the Philippines. 27. Which is not an income taxpayer?
b. earned in the Philippines. a. Business partnership
d. partly within and partly c. Non-resident alien
outside the Philippines. b. Non-resident foreign corporation
d. General professional
partnership
 b. Resident citizen
28.Which of the following individual d. Non-resident citizen
taxpayers is not covered by progressive
tax? 34. An alien who arrived in the Philippines
a. Resident citizen during the year and showed proof to the
c. Non-resident alien engaged satisfaction of the CIR regarding his
in trade or business employment in the Philippines for an
b. Resident alien extended period of time.
d. Non-resident alien not a. Resident alien
engaged in trade or business c. Non-resident citizen engaged
in trade or business
29.The following are not separate income b. Resident citizen
taxpayer, except? d. Non-resident citizen not
a. Revocable trusts engaged in trade or business
b. Non-resident alien, not engaged in
business 35. In default of intention, an alien who is
c. Estates under extrajudicial settlements resident in the Philippines for 6 months is
d. Joint ventures engaged in construction considered a
projects or energy operations in a. Resident alien
pursuant to an operating consortium c. Non-resident citizen engaged
agreement under service contract with in trade or business
the government b. Resident citizen
e. Co-ownership d. Non-resident citizen not
engaged in trade or business
30.A business partnership that is organized in
the Philippines but dominantly operates 36. A resident alien naturalized in accordance
abroad is classified under the NIRC as a with law
a. domestic corporation a. Resident alien
c. non-resident corporation c. Non-resident citizen
b. resident corporation d. b. Resident citizen
absentee corporation d. Non-resident alien engaged
in trade or business
31.A corporation doing business in the
Philippines but is not organized according TAX ACCOUNTING PERIODS AND METHODS
to Philippine laws is classified as 37. Which is incorrect? The calendar year
a. domestic corporation accounting period is applicable to
c. non-resident corporation a. individual income taxpayers only
engaged in business b. taxpayers who do not keep book or
b. resident corporation d. with no annual accounting period
non-resident foreign corporation c. taxpayers with other than fiscal
accounting period
32.All of the following taxpayers are taxable d. individuals and corporations
even on income earned outside the
Philippines, except 38. Which is correct? The fiscal accounting
a. Domestic corporation period is applicable only to
c. Resident alien a. domestic corporations.
b. Resident citizen c. corporations and individuals
d. None of these by election.
33.All of the following are taxable only on b. resident corporations.
income earned within the Philippines, d. Any taxpayers who are not
except individuals.
a. Resident alien
c. Non-resident alien
39.A short accounting period may arise under adjustment return shall be made for
the following scenarios, except one. Select the period between the close of the
the exception? last calendar year for which return was
a. When a taxpayer dies. made and the date designated as the
b. When a business is dissolved. close of the fiscal year
c. When the Commissioner of Internal c. If the change is from one fiscal year to
Revenue terminates the taxpayer’s another fiscal year, a separate final or
accounting period. adjustment return shall be made for
d. When an individual taxpayer changes the period between the close of the
his accounting period to a fiscal year. former fiscal year and the date
designated as the close of the new
40.DEF Corporation changed its accounting fiscal year
period from a calendar year to a fiscal d. If the change is from fiscal year to a
year ending every March 31. DEF calendar year, a separate final or
Corporation should file its annual income adjustment return shall be made for
tax return not late than the period between the close of the
a. April 15 last calendar year and the last fiscal
c. June 15 year
b. August 15 d.
July 15 44. Starting August, 2008, ABC Corporation
changed its accounting period from a
41.Bee Jay, a resident citizen, changed its fiscal year ending every June 30 to the
accounting period for internal reporting calendar year. Which statement is
purposes from a calendar year to a fiscal correct?
year ending every June 30 after a a. ABC Corporation should file an
significant change in the nature of his adjustment return on April 15, 2009
business. Bee Jay should file its annual covering the period of July 1, 2008 to
income tax not later than December 31, 2008.
a. June 30 b. b. ABC Corporation should file an
September 15 c. October 15 adjusted return on April 15, 2009
d. April 15 covering the period of August 1, 2008
to December 31, 2008.
42.Gross income is reported partially in each c. ABC Corporation should file an
taxable year in proportion to collections adjustment return on October 15
made in such period as it bears to the covering the period of January 1, 2008
total contract price refer to to June 30, 2008
a. Crop year basis method d. ABC Corporation need not file an
c. Percentage of completion income tax return until April 15, 2009
basis method
b. Accrual method 45. Effective February 2008, DEF Corporation
d. Installment sales method changed its accounting period from a
fiscal year ending every January 31 to
43.Which is incorrect regarding a change in another fiscal year ending every August
accounting period by non-individual 31. Which is correct?
taxpayers? a. DEF Corporation should file an
a. IF the change is from fiscal year to adjustment return covering the period
calendar year, a separate final or covering August 31, 2007 to August
adjustment return shall be made for 31, 2008.
the period between the close of the b. DEF Corporation should file an
last fiscal year for which return was adjustment return covering the period
made and the following December 31 January 1, 2008 to August 31, 2008
b. If the change is from calendar year to c. DEF Corporation should file an
fiscal year, a separate final or adjustment return covering the period
 of February 1, 2008 to August 31, a. P1,750,000 b. P800,000
2008. c. P675,000 d. P900,000
d. DEF Corporation should file an
adjustment return covering the period 49. Which is incorrect regarding change in
of August 31, 2008 to December 31, accounting methods?
2008. a. If the taxpayer changes from accrual
to installment basis, he should include
46.Which is correct? the amounts received from sales or
a. The installment method of reporting other dispositions of property made in
income is applicable only to dealers in any prior year in the computation of
property. his income for the year of change or
b. The installment method can be availed any subsequent year.
only by any taxpayer when the initial b. Any change in accounting method or
payment do not exceed 25% of the accounting period require the BIR’s
selling price of the property sold. approval
c. The casual sale of personal property c. If a taxpayer adopted the cash basis
cannot avail of the installment method and the accrual basis in computing
if the selling price is below P1,000 income earned on separate trade or
d. Dealers in real properties can always business, he may opt to combine the
avail of the installment method. two income determined from the
respective methods as a consolidated
47.On July 1, 2008, Eliazar sold a real income for tax purposes
property for P600,000. 10% down- d. If the taxpayer changes from accrual
payment is due upon signing of the to installment basis, he should include
contract of sale. The balance is payable as only receipts that relates to current
follows: 15% December 31, 2008; 50% sales or dispositions
March 31, 2009; 35% July 31, 2009
50. On October 1, 2008, Vicky sold one of her
Since the property is classified as ordinary business establishment (ordinary asset).
asset only the gain of P300,000 is subject The land and building cost Vicky
to progressive tax. How much of the gain P10,000,000 and was sold for
is taxable in 2008? P14,000,000. P500,000 was paid upon the
a. P0 b. P6,000 c. signing of the contract. The establishment
P300,000 d. P70,500 is subject to P11,000,000 real mortgage
and is to be assumed by the buyer.
48.The following accounts relates to book of Compute the amount taxable gain to be
Zeus, a dealer of household appliances: reported in 2008.
12/31/200 12/31/200 a. P500,000 b. P5,000,000
6 7 c. P4,000,000
Installment P P d. P625,000
sales 1,000,000 2,000,000
Cost of 500,000 1,100,000 51. On December 31, 2008, Carlo received
installment P100,000 notes due April 1, 2009 as
sales payment for his business advisory services
2007 - 500,000 from his client. The notes can be
Installment discounted at various bank at P96,000.
receivables Under deferred payment method, how
2006 300,000 50,000 much is taxable in 2008 and in 2009?
Installment a. P100,000; P0 c.
receivables P4,000; P96,000
b. P96,000; P4,000
How much taxable gain is to be reported d. P0; P100,000
in 2007?
52.The following computations were shown and family expenditures aggregating
by the taxpayer as support of his GAAP P150,000 during that year. Using the net
income under the accrual basis: worth method, what is Mr. Mario’s
possible income?
Gross profit from cash and credit sales a. P70,000 b.
P P270,000 c. P420,000
500,000 d. P220,000
Rental Income:
Cash rentals received P 54. Income tax return may be filed on the
300,000 following, except
Unearned rent, beginning a. Authorized agent bank
100,000 c. Authorized City or
Unearned rent, end ( Municipal Treasurer
50,000 ) b. Collection agent of the BIR
350,000 d. Barangay treasurer of the
Other Income: taxpayer’s residence
P 850,000
Unrealized gain on trading securities
50,000 --- End of Handouts ---
Total Income
P 900,000

Determine the income for taxation

purposes.
a. P800,000 b. P500,000
c. P900,000 d. P950,000

53.Mr. Mario was alleged to have under-

declared his income during the previous
year. An examiner conducted an
evaluation of Mr. Mario based on his
statement of assets and liabilities. The
following information were available:

Declared asset, beginning of P

the year 400,000
Discovered undeclared 500,000
assets existing at the
beginning of the year
Declared liabilities, 200,000
beginning*
Ending assets as evaluated, 1,000,000
inclusive of discovered
undeclared assets
Ending liabilities as 150,000
evaluated
*40% was discovered unsupported and
apparently fictitious

In the same period, Mr. Mario donated a

parcel of land out of its declared asset
with a declared value of P200,000. Mr.
Mario also presented a lists of his personal