JPIA REVIEW

INDIVIDUALS
1. LJ, married, left the Philippines in the middle of the year on July 1, 2018 to go abroad and work there for five (5)
years. The following data were provided as of December 31, 2018:
Gross Business Income Business Expenses
PERIOD Philippines Abroad Philippines Abroad
Jan. 1 to June 30 P300,000 P200,000 P100,000 P50,000
July 1 to Dec. 31 600,000 40,000 150,000 50,000

His taxable income is:

a. P800,000 b. P950,000 c. P1,100,000 d. P600,000
Solution:
TNI = P300,000 + 200,000 + 600,000 – 100,000 – 50,000 – 150,000
TNI = P800,000
Note: Personal exemptions (basic and additional) under the TRAIN Law are no longer allowed beginning Jan. 1 2018.

2. Based on the above problem, but assuming he arrived from abroad on July 1, 2018 to permanently resettle in
the Philippines, after working abroad for 5 years, his taxable income as of December 31, 2018 is:
a. P750,000 b. P1,000,000 c. P1,100,000 d. P600,000
Solution:
TNI = 300,000 + 600,000 + 400,000 – 100,000 -150,000 – 50,000
TNI = P1,000,000

3. If he did not leave Philippines at all, LJ’s taxable income is:

a. P750,000 b. P950,000 c. P1,150,000 d. P600,000
Solution:
TNI = total net income Phil. And abroad
TNI = P1,150,000

4 – 7. Carlo, married with two dependent children, received the following income:
Rent, Philippines P1,000,000
Rent, Hongkong 200,000
Interest, peso deposit, MBTC 100,000
Interest, US$ deposit, BDO ($10,000 * P42) 420,000
Interest, deposit in Hongkong (HK$10,000 * P5) 50,000
Prize (cash) won in a local contest 8,000
Prize (TV) won in a local lotter 50,000
PCSO/lotto winnings 2,000,000
Prize won in contest in US 300,000
Lotto winning in US 100,000
Dividend, domestic company 600,000

4. Assuming the taxable year is 2017, determine the taxable net income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180,000

b. 180,000 80,000 1,000,000 1,000,000

c. 1,558,000 908,000 908,000 908,000

 d. 1,658,000 1,008,000 1,008,000 1,008,000

Solution:
RC NRC,RA,NRA-ET
Rent, Philippines P1,000,000 P1,000,000
Rent, Hongkong 200,000 -
Interest, peso deposit, MBTC 20% FWT 20% FWT
Interest, US$ deposit, BDO 7.5% FWT 7.5% FWT for RA; Exempt for NCR&NRAET
Interest, deposit in Hongkong 50,000 -
Prize (cash) won in a local 8,000 8,000
Prize (TV) won in a local lottery 20% FWT 20% FWT
PCS/Lotto winnings Exempt Exempt
Prize won in contest in US 300,000 -
Lotto winnings in US 100,000 -
Dividend, domestic company 10% FWT 10% FWT for RA&NRC; 20% for NRAET
Basic exemption (50,000) (50,000)
Additional exemption (50,000) (50,000)
Taxable net income P1,558,000 P908,000

5. Assuming the taxable year 2018, determine the taxable net income assuming he is:
RC NRC RA NRA-ETB
a. P80,000 P180,000 P830,000 P180,000

b. 180,000 80,000 1,000,000 1,000,000

c. 1,558,000 908,000 908,000 908,000

d. 1,658,000 1,008,000 1,008,000 1,008,000

Solution:
RC NRC,RA,NRA-ET
Rent, Philippines P1,000,000 P1,000,000
Rent, Hongkong 200,000 -
Interest, peso deposit, MBTC 20% FWT 20% FWT
Interest, US$ deposit, BDO 15% FWT 15% FWT for RA; Exempt for NCR&NRAET
Interest, deposit in Hongkong 50,000 -
Prize (cash) won in a local 8,000 8,000
Prize (TV) won in a local lottery 20% FWT 20% FWT
PCS/Lotto winnings NOTE*
Prize won in contest in US 300,000 -
Lotto winnings in US 100,000 -
Dividend, domestic company 10% FWT 10% FWT for RA&NRC; 20% for NRAET
Basic exemption NA NA
Additional exemption NA NA
Taxable net income P1,658,000 P1,008,000
*NOTE
Winnings: PCSO/Philippine Lotto
Prior to TRAIN = Exempt, except if received by NRANETB
TRAIN = Not more than P10,000 = Exempt
More than P10,000 = 20% FWT (RC,NRC,RA)
Received by NRAETB = Exempt regardless of amount.
Received by NRANETB = 25% FWT regardless of amount.
 6. Assuming the taxable year is 2017, determine the total final tax assuming he is:
RC NRC RA NRA-ETB
a. P553,000 P490,000 P550,000 P150,00

b. 121,500 90,000 150,000 937,500

c. 131,000 90,000 90,000 90,000

d. 142,000 90,000 150,000 150,000

Solution:
RC & RA NRC NRA-ET NRA-NET
Rent income Philippines @25% - - - P250,000
Interest, peso deposit, MBTC @20%; 25% P20,000 P20,000 P20,000 25,000
Interest, US$ deposit, BDO @ 7 1/2 %; exempt 31,500 Exempt Exempt Exempt
Prize (TV) won in a local lottery @ 20%; 25% 10,000 10,000 10,000 12,500
PCSO/Lotto winnings Exempt Exempt Exempt 500,000
Dividend, domestic company @10% 60,000 60,000 - -
Dividend, domestic company @20% - - 120,000 -
Dividend, domestic company @ 25% - - - 150,000
Total FWT P121,500 P90,000 P150,000 P937,500
7. Assuming the taxable year is 2018, determine the total final tax assuming he is:
RC NRC RA NRA-ETB
a. P553,000 P490,000 P550,000 P150,00

b. 121,500 90,000 150,000 937,500

c. 131,000 90,000 90,000 90,000

d. 142,000 90,000 150,000 150,000

Solution:
RC & RA NRC NRA-ET NRA-NET
Rent income Philippines @25% - - - P250,000
Interest, peso deposit, MBTC @20%; 25% P20,000 P20,000 P20,000 25,000
Interest, US$ deposit, BDO @15% 63,000 Exempt Exempt Exempt
Prize (TV) won in a local lottery @ 20%; 25% 10,000 10,000 10,000 12,500
PCSO/Lotto winnings @20%; 25% 400,000 400,000 Exempt 500,000
Dividend, domestic company @10% 60,000 60,000 - -
Dividend, domestic company @20% - - 120,000 -
Dividend, domestic company @ 25% - - - 150,000
Total FWT P553,000 P490,000 P150,000 P937,500

CORPORATIONS
8. During the 2018, a domestic corporation derived the following items of revenues:
 Gross receipts from a trading business, P500,000.
 Interest from money placements in the banks, P30,000
 Dividends from its stock investments in domestic corporations, P20,000
 Gains from stock transactions through the Philippine Stock Exchange, P50,000
 Proceeds under an insurance policy on the lost of goods, P100,000
How much should the corporation report as taxable income?
 a. P500,000 b. P550,000 c. P600,000 d. P650,000

Solution:
Generally, taxable income means income not subject to FWT on passive income nor CGT.
Item B is a passive income subject to 20% FWT
Item C is a dividend income received from another DC, hence, tax-exempt (inter-corporate dividend).
Item D is not subject to income tax, but to Percentage Tax of 6/10 of 1% (TRAIN Law) of gross selling price under
section 127(A) of the tax code, as amended.
Item D is a compensation for lost of goods. It is a return of investment not subject to tax.

9. Lenovo, Inc., a resident foreign corporation, has earned the following income during 2017:
DIVIDEND INCOME FROM:
 Microsoft, a non-resident foreign corporation P 500,000
 Intel, a resident foreign corporation (ratio of Philippine
income over world income for the past 3 years is 40%) 400,000
 Panday, a domestic corporation 300,000
INTEREST INCOME FROM:
 Current account, BDO 600,000
 Savings deposit, ABN-AMRO bank, UK 700,000
 FCDU deposits 800,000
ROYALTY INCOME from various domestic corporations 100,000

The total final tax on passive income for the taxable year is:
a. P200,000 c. P328,000
b. P260,000 d. P1,088,000

Solution:
Interest income – BDO (P600,000 x 20%) P120,000
Interest income – FCDU deposits (P800,000 x 7.5%) 60,000
Royalty income from various domestic corp. (P100,000 x 20%) 20,000
Total Final Taxes on passive income P200,000
Note:
 Dividend income received by a foreign corporation (assuming the situs of the dividend is Philippines) from
foreign corporations (resident or non-resident), is subject to basic income tax/regular corporate income tax
(RCIT).
 A dividend income received by an RFC from a DC is tax-exempt (intercorporate dividend)
 The interest income from a bank deposit abroad is considered an income derived abroad, subject to basic tax if
received by resident citizen or domestic corp.

10. Assume the same data in the immediately preceding number, except that the taxable year was 2018, the total
final tax on passive income for the year should be:
a. P200,000 c. P328,000
b. P260,000 d. P1,088,000

Solution:
Interest income – BDO (P600,000 x 20%) P120,000
Interest income – FCDU deposits (P800,000 x 7.5%) 60,000
Royalty income from various domestic corp. (P100,000 x 20%) 20,000
Total Final Taxes on passive income P200,000
 Under the TRAIN Law, interest income from FCDU deposit of RFC was not amended,
hence, use the old rate of 7.5%

11. Lenovo, Inc., a resident foreign corporation, has earned the following income during
2017:
DIVIDEND INCOME FROM:
Microsoft, a non-resident corporation P500,000
Intel, a resident foreign corporation 400,000
IBM, a domestic corporation 300,000
INTEREST INCOME FROM:
Current account, BDO 600,000
Savings deposit, ABN-AMRO bank, UK 700,000
US dollar deposit (FCDU)- BPI Makati 800,000
Royalty income from various domestic corporations 100,000
Additional information:
 The ratio of Microsoft’s gross income in the Philippines over worldwide income for the past three years is
40%.
 The ratio of Intel’s gross income in the Philippines over worldwide income for the past three years is
60%.
 The ratio of IBM’s gross income in the Philippines over worldwide income for the past three years is 80%.

How much is the total income tax expense of Lenovo?

a. P200,000
b. P400,000
c. P320,000
d. P272,000

Solution:
DI-Microsoft
DI-Intel (P400,000 x 60% x 30%) P 72,000
DI-IBM Exempt
Interest income – BDO @ 20% 120,000
FCDS deposit @ 7.5% 60,000
Royalty income @ 20% 20,000
Total Income Tax Expense P272,000

 Income Tax Expense = RCIT + Final Taxes on Passive Income + CGTs

 Unless clear or otherwise stated, dividend income from a foreign corporation shall be considered income
derived from abroad.
 Dividend income from Microsoft is treated as income derived purely from abroad because the ratio of GI
Philippines over world is less than 50%.

SITUS of Dividend Income:

 From DC = purely income derived from within the Philippines
 From FC (RFC or NRFC):
o If silent, = income derived from without
o If provided in the problem, As provided
 o If the ratio of Gross Income Philippines over world for the past three (3) years is available, the
rule is:
 Ratio is < 50% = purely income from without the Philippines
 Ratio is > 50% = partly income from within the Philippines

12. Assuming Lenovo is a domestic corporation, how much is its total income tax expense?
a. P200,000
b. P560,000
c. P680,000
d. P272,000

Solution:
DI-Microsoft (P500,000 x 30%) P150,000
DI-Intel (P400,000 x 30%) 120,000
DI-IBM Exempt
Interest Income – BDO @ 20% 120,000
Savings deposit – UK @ 30% 210,000
FCDS deposit @ 7.5% 60,000
Royalty income @ 20% 20,000
Total Income Tax Expense P680,000

The entire dividend income from Microsoft and Intel (regardless of the ratio of GI Philippines over world) is
subject to RCIT because the taxpayer is a domestic corporation (taxable on income derived from whatever
source).

13. In 2018, a domestic corporation declared and paid dividends to its shareholders as follows:
To Apol, a resident citizen P100,000
To Alex, a nonresident citizen 100,000
To George, a resident alien 100,000
To LJ, a nonresident alien engaged in trade in the Philippines 100,000
To Francis, a nonresident alien not engaged in trade in the PH 100,000
To Chen, a domestic corporation 100,000
To a resident foreign corporation 100,000
To a nonresident foreign corporation (w/tax sparing) 100,000

How much final tax shall be withheld by the corporation?

a. P80,000
b. P90,000
c. P85,000
d. P95,000

Solution:
To Apol (P100,000 x 10%) P10,000
To Alex (P100,000 x 10%) 10,000
To George (P100,000 x 10%) 10,000
To LJ (P100,000 x 20%) 20,000
To Francis (P100,000 x 25%) 25,000
To Chen (exempt) -
To a resident foreign corporation (exempt) -
 To a nonresident foreign corporation (P100,000 x 15%) 15,000
TOTAL P90,000

Use the following data for the next three (3) questions:
JC Corporation, a domestic corporation had the following data for 2017 taxable year:
Sales P5,000,000
Cost of Goods Sold 2,000,000
General selling and administrative expenses 500,000
Interest income from Philippine Bank Deposit 100,000
Rental income (net of 5% withholding tax) 190,000
Dividend Income
From domestic corporation 60,000
From foreign corporation 50,000
Capital gains from sale of domestic shares of stocks
sold directly to buyer 75,000
Dividend declared and paid during the year 500,000
Retained earnings, 12/31/2016 1,000,000
Par Value of Outstanding shares, 12/31/2017 500,000
Appropriation for future plant expansion 800,000

14. The income tax payable was:

a. P815,000
b. P819,200
c. P825,000
d. P899,200

Solution:
Sales P5,000,000
Rental Income (P190,000/95%) 200,000
Dividend Income foreign corporation 50,000
Cost of goods sold (2,000,000)
General selling and administrative expenses (500,000)
Taxable Net Income P2,750,000
x 30%
Income Tax Due P 825,000
Less: CWT on Rental Income (10,000)
Income Tax Payable P 815,000

15. Based on the foregoing problem, the Improperly accumulated earnings tax on 2017 was:
a. P105,125
b. P108,125
c. P208,125
d. P213,625

Solution:
Income subject to basic tax
Taxable Net Income P2,750,000
Passive Income subject to FWT
Interest income from BPI 100,000
 Tax exempt income
Dividend income domestic corporation 60,000
Income subject to CGT
On shares of stock 75,000
Total P2,985,000
Less:
Normal tax (total, not the payable only) (825,000)
FWT on passive income ( 20,000)
CGT (P75,000 x 5%) ( 3,750)
Dividends paid (500,000)
Retention (Par value of outstanding shares) (500,000)
Add:
Retained earnings, beginning 1,000,000
(Balance) Improperly accumulated earnings P2,136,250
X IAET % 10%
IAET P 213,625

16. The Improperly Accumulated Earnings Tax assuming the taxable year was 2018:
a. P105,125
b. P108.125
c. P212,875
d. P213,625

Solution:
Income subject to basic tax:
Taxable net income P2,750,000
Passive income subject to FWT
Interest income from BPI 100,000
Tax exempt income
Dividend income domestic corporation 60,000
Income subject to CGT
On shares of stock 75,000
Total P2,985,000
Less:
Normal Tax (total, not the payable only) (825,000)
FWT on passive income ( 20,000)
CGT (P75,000 x 15%) ( 11,250)
Dividends paid (500,000)
Retention (Par Value of Outstanding Shares) (500,000)
Add:
Retained earnings, beginning 1,000,000
(Balance) Improperly accumulated earnings P2,128,750
x IAET % 10%
IAET P 212,875

PARTNERSHIP
17. Partnership is formed by persons for the sole purpose of exercising their common profession, no part of the
income of which is derived from engaging in any trade or business.
a. Joint venture
 b. General professional partnership
c. Trading partnership
d. Joint accounts
18. A general professional partnership is exempt from income tax, but is required to file an income tax return
a. For statistical purposes
b. Because the net income of the partnership will be traced into the income tax return of the partners
c. Because all income earners are required to file income tax returns
d. None of the above

19. For purposes of taxation, partnership is

I. Classified into two major categories, partnership in trade and general professional partnership
II. Partnership in trade is treated as corporate taxpayer
III. General professional partnership is exempt from income tax

a. I, II, and III c. I and III only

b. I and II only d. I only

20. Statement 1: All partnerships are taxed in the same manner as corporation.
Statement 2: The income of a general commercial partnership is also subject to MCIT or Regular Corporate
Income Tax whichever is applicable.
a. Statements 1 and 2 are false
b. Statement 1 is true but Statement 2 is false
c. Statement 1 is false but Statement 2 is true
d. Statements 1 and 2 are true

21. Which of the following statements is false?

a. Registered general professional partnerships are subject to income tax
b. A partners’ share in the net profits of a general professional partnership is not compensation income.
c. A limited partnership is considered, for tax purposes, a corporation and the partnerships thereof likened to
stockholders.
d. Tax income taxation rules application to corporations likewise apply to informal partnerships

22. Statement 1: A CPA and a Dentist may form a GPP or an ordinary partnership.
Statement 2: Partnership and Corporation have separate juridical personalities distinct from the owners.
a. Statements 1 and 2 are false
b. Statement 1 is true but Statement 2 is false
c. Statement 1 is false but Statement 2 is true
d. Statement 1 and 2 are true

Answer:
Statement 1 is false. They can form an ordinary partnership but not a GPP because they have different
professions.

23. Statement 1: A partner of a GPP is not required to include in his personal gross income his share in the
distributable income of the GPP
Statement 2: Corporations may form a taxable partnership but not a GPP
a. Statements 1 and 2 are false
b. Statement 1 is true but statement 2 are false
c. Statement 1 is false but statement 2 is true
 d. Statements 1 and 2 are true

Answer:
 Statement 1 is false. Share in the income of a GPP is a returnable income or ordinary income which shall
be included in the partner’s ITR.
 Partnership is a contract. It Is perfected through meeting of the minds. Hence, corporations and other
juridical persons cannot form a partnership because they are incapable of giving consent. However,
juridical persons may form a joint venture.

24. Statement 1: If the amount to be distributed to a partner of a GPP is more than P720,000, it is subject to 15%
creditable withholding tax.
Statement 2: The share of a partner in a GPP is subject to final withholding tax of 10% of the amount is below
P720,000.
Statement 3: The distributive share of a partner in a commercial partnership is subject to final tax.
a. Statements 1, 2, and 3 are false
b. Only statement 3 is false
c. Only statement 2 is false
d. Statements 1, 2, and 3 are true

Use the following data for the next five (5) questions:
Garcia, Ramos, Toribio, and Co., CPAs (GRT & Co.), are partners of an accounting firm. The 2018 financial records
of the firm disclosed the following:
Service Revenue P4,490,000
Cost of Services 1,610,000
Operating Expenses 800,000
Rental Income 500,000
Interest Income from bank deposit 200,000
Interest Income from FCDS deposit 280,000

Ramos is also engaged in business with the following data for the year:
Sales P2,500,000
Cost of Sales 1,250,000
Operating Expenses 550,000

25. How much is the distributable income of the GPP?

a. P992,667
b. P1,019,333
c. P2,578,000
d. P2,978,000

Solution:
Net income of the firm (P4,490k-1,610k-800k+500) P2,580,000
Interest income from bank deposit, net (P200,000 x 80%) 160,000
Interest income from FCDS transaction, net (P280,000 x 85%) 238,000
Total Distributable Income of the GPP P2,978,000
Divide 3
Distributive share/partner P 992,667

26. How much is the distributive share of each partner in the total income of the GPP?
 a. P992,667 c. P2,578,000
b. P1,019,333 d. P2,976,000

27. How much is the taxable income of Ramos in 2018?

a. P860,000 c. P1,560,000
b. P1,510,000 d. P2,580,000

Solution:
Net income from the GPP’s operations P2,580,000
Divide by 3
Share in GPP’s ordinary income per partner P 860,000
Add: Ramos’ own net income (2.5M-1.25M-550k) 700,000
Taxable net income of Ramos P1,560,000

The partners’ share in the other income of the GPP (i.e., subj to FWT and CGTs) are
non-returnable income of the partners.

28. How much is the taxable income of Ramos in 2018 assuming GRT & Co. opted to use Optional Standard
Deduction?
a. P1,376,000 c. P1,692,000
b. P1,426,000 d. P1,860,600

Solution:
GPP’s Gross Income (4,490k-1,610k+500k) P3,380,000
X 60%
GPP’s net income under OSD P2,028,000
Divide 3
Share of Ramos in the ordinary income of the GPP P 676,000
Add: Ramos’ own net income (2.5M-1.25M-550K) 700,000
Taxable net income of Ramos P 1,376,000

 Under the TRAIN Law, the partner may use either itemized deduction or OSD.
 Under the TRAIN Law, apply OSD only if the taxpayer indicated the same in its ITR. Hence, unless clear,
itemized deduction must be applied.

29. How much is the taxable income of Ramos in 2018 assuming the GPP and the partner opted to use Optional
Standard deduction
a. P1,376,000 c. P1,692,000
b. P1,426,000 d. P2,176,000

Solution:
GPP’s Gross Income (4,490k-1,610k+500k) P3,380,000
X 60%
GPP’s net income under OSD P2,028,000
Divide 3
Share of Ramos in the ordinary income of the GPP P 676,000
Add: Ramos’ own net income using OSD (P2.5M x 60%) 700,000
Taxable net income of Ramos P 2,176,000
30. TGT & Co. is a general partnership in trade and on its fifth year of operations. During the current taxable year, it
had a gross profit from sales and business expenses of P2,000,000 and P1,000,000, respectively. T, G, and T share
equally in the profits and losses of the partnership. The income tax due on the partnership is:
a. P40,000 c. P640,000
b. P300,000 d. P0

Solution:
GP’s Gross Income P2,000,000
OPEX (1,000,000)
Net Income P1,000,000
x 30%
Income Tax Due P 300,000