n case of conflict between the

tax laws and generally accepted

accounting principles
A. Both tax laws and
GAAP shall be
enforced
B. GAAP shall prevail over tax
laws
C. Tax laws shall prevail over
GAAP
D. The issue shall be
resolved by the
court
Income Taxation
Chapter 1 to 4

1. In case of conflict between the tax laws and generally accepted accounting principles
A. Both tax laws and GAAP shall be enforced
B. GAAP shall prevail over tax laws
 C. Tax laws shall prevail over GAAP
D. The issue shall be resolved by the court
2. Which limitation of taxation is the concept of ‘situs of taxation’ based?
A. Territoriality C. International comity
B. Public purpose D. Exemption of the government
3. The point at which tax is levied is also called
A. Impact of taxation C. Incidence of taxation
B. Situs of taxation D. Assessment
4. What is the theory of taxation?
A. reciprocal duties of support and protection C. necessity
B. constitutionality D. public purpose
5. Which statement is incorrect?
A. every person must contribute his share in government costs
B. existence of government is expected to improve the lives of the people
C. government provides protection and other benefits while the people provide support
D. only those who are able to pay tax can enjoy the privilege and protection of the government
6. When tax is collected upon someone who is effectively reimbursed by another. The tax is
regarded as
A. direct C. personal
B. indirect D. illegal
7. Which of the following distinguishes tax from license?
A. a regulatory measure C. non-payment does note render the business illegal
B. imposed in the exercise of police power D. limited to cover the cost of regulation
8. Business taxes such as percentage tax and value added tax are
A. specific tax C. indirect tax
B. direct tax D. local tax
9. Which is an application of the progressive scheme of taxation?
A. individual income tax C. estate tax
B. donor’s tax with relatives D. capital gains tax
10. Which is subject to income tax?
A. compensation for personal injuries
B. investment income of foreign government in the Philippines
C. income of resident aliens abroad
D. business income from jueteng and sale of cocaine
11. Which of the following is not an income for income tax purposes?
A. Gain derived from labor C. Excess of selling price over cost of assets sold
B. Return on capital D. Gift received
12. Which of the following is considered or construed as an example of "constructive receipt"?
A. Retirement benefits, pensions, gratuities
B. Fees paid to a public official
C. Interest coupons that have matured and are payable but have not been cashed
D. Deposits for rentals to answer for damages, restricted as to use
13. Under the NIRC, income is received only when it is actually or physically transferred to a person
but even when it is merely constructively received by him. An example of income constructively
 received to is:
A. advance deposit made by the lessee
B. rental payments refused by the lessor, when the lessee tendered payment and the latter
made a judicial deposit of the rental due
C. interest coupon not yet due and payable
D. interest on savings deposits not yet credited to the account of the depositor
14. The Philippines manufacturing division of Andy Company, a domestic corporation manufactures
desiccated coconut oil for sale in the United States of America. The total manufacturing costs
during the period reached P24,000,000 for 1,000,000 liters of coconut oil. The US sales division
sold 800,000 liters for $1,800,000 equivalent to P100,000,000. Similar coconut oil exporters sell
P75/L ex-plant. Andy Company had an advanced pricing agreement set with the BIR at P70/L.
The PH sales division sold 100,000 liters domestic buyers at P72/L. Compute the taxable income.
A. P80,800,000 C. P85,600,000
B. P45,600,000 D. P41,600,000
15. The final tax does not apply to interest on (select the best answer)
A. Long-term deposit C. Trust funds
B. Deposit substitute D. Promissory notes
16. Pedro, a farmer, uses the crop-year method in reporting his income from long-term crops. The
following data are relevant to his farming operations in 2020: Sales of crops harvested, P900,000
Expenses on harvested crops, P400,000 Expenses on maturing crops, P200,000 Expenses on
newly planted crops, P100,000 Sales of tree branches for firewood, P50,000 Pedro uses the crop
year method in reporting crop income. Compute Pedro’s total income subject to tax.
A. P240,000c. C. 540,000
B. P340,000 D. P550,000 (900k sales – 400k expense + 50k)
17. Mani Pakyaw failed to pay file his income tax return for the year 2019 which should have been
filed on or before July 18, 2020. Mani Pakyaw filed a return showing a basic tax due of
P1,000,000. Compute the total interest penalty.
A. P37,644 C. P35,836
B. P30,904 D. P39, 863 (1m * 12% *94/365)
18. Lancelot is a dealer of household appliances. He reported the following in 2019 and 2020:
2019 2020
Installment sales P500,000 P800,000
Cost of installment sales 250,000 440,000
Collections 300,000 600,000
Lance’s 2020 collection is inclusive of P100,000 accounts from 2019.Using the installment
method, compute Lancelot’s gross income subject to income tax 2020.
A. P320,000 C. P360,000
B. P275,000 D. P250,000 [(P250K 2019GP x20%) + (P360K 2020GP x62.5%)]
19. Using the accrual basis of accounting compute Lancelot’s gross income subject to income tax in
2020.
A. P320,000 C. P360,000 (800k – 440k)
B. P275,000 D. P250,000
20. Luccio accepted a P1,000,000 construction contract in early 2020. As of December 31, Luccio
incurred total construction costs of P600,000 and estimates additional P200,000 to bring the
 project to completion. Per independent appraisal, the building is at its 80% stage of completion.
Compute Luccio’s 2020 construction income using the percentage completion method.
A. P120,000 C. P160,000
B. P40,000 D. P200,000 (80% x P1M – P600K)

Identification (1-10) & True or False (11-20)

Revenue regulations 1. Define rules and regulations for the effective enforcement of the provisions of
the NIRC and related statutes

Revenue bulletins 2. It refers to periodic issuances, notices and official announcements of the
commissioner of CIR

Regulatory 3. Tax imposed to regulate business, conduct, acts or transactions

Business taxes 4. These are referred to as ‘onerous transactions’

Minimum wage earner 5. A taxpayer who’s exempted from filing income tax return if his sole income
has been subjected to final withholding tax.

Eminent Domain 6. Power of the state affects the least number of people

Excise tax 7. A tax that is imposed upon the performance of an act, the enjoyment of a privilege or the
engagement in a profession

Installment method 8. Method where gross income is recognized and reported in proportion to the
collection from the installment sales

Contract prices 9. Amount receivable in cash or other property

Corporate taxation 10. One formed for profit and taxable as a corporation

False 11. The income of irrevocable trust is taxable in the same manner as the income of the estate.

False 12. When the power to tax is delegated to the local government, only the legislative branch of the
local government can exercise the power.

False 13. No person shall be imprisoned for non-payment of income tax.

True 14. A foreigner who stays in the Philippines for more than 180 days during the taxable year is
deemed as doing business within and his income within and outside the Philippines is taxable in the
Philippines.

False 15. The primary requisite of Equality or Theoretical Justice principle is that each taxpayer should
be required to contribute equal amounts in the form of taxes.

False 16. A corporation under taxation does not include general professional partnership but includes
joint venture under a service contract with the government.

False 17. Eminent domain involves confiscation of prohibited commodities to protect the well-being of
the people.
True 18. In the selection of the objects of taxation, the courts have no power to inquire into the wisdom.

True 19. An imposition can be both a tax and a regulation. Taxes may be levied.

False 20. The benefit received theory presupposes that some taxpayers within the territorial jurisdiction
of the Philippines will be exempted from paying tax so long as they do not receive benefits from the
government.