"DEDUCTIONS AND EXEMPTIONS _ Dela Cruz/De Vera / Lopez / Llamado 1. Which of the following statements is true? ‘ a. Payments which constitute bribes, kickbacks and others of similar nature which are necessary to realize profits are allowed as deductions from gross income. PSI b. The taxes which are deductible from gross income include the taxes, interest and penalties incident to tax delinquency. ; ‘ ¢. Deductions are amounts allowed by the Tax Code to be deducted from gross income to arrive at the income tax liability of a taxpayer. 2 4. Losses from wagering transactions shall be allowed only up the extent of the gains from such transactions. This is not deductible from gross income a. Transportation expenses from the main office to the branch. b. Transportation expenses from home to the office and from the office back to home. c. Travel expenses on business trips. , d. Travel expenses while away from home in the pursuit of trade, business or profession. v 3. A revenue expenditure is ‘Usually incurred in the acquisition, betterment or permanent improvement of the asset. Capitalized and the cost is recovered through annual depreciation. Ordinarily to benefit more than one accounting period. To benefit one accounting period and is a deduction from gross income in the year paid or incurred. pegs 4. No deductions shall be allowed where the transaction is between “related taxpayers” under Sec. 36(B) of the Tax Code for ‘A) Losses from sales or exchanges of property B) Interest expense C) Bad debts a. AandB b. BandC c. AandC dA, BandC 5. The phrase “related taxpayers” under Sec. 36(B) of the Tax Code will apply to the following, except: a. Between members of a family b. Between the grantor and a fiduciary of any trust c. Between a fiduciary of a trust and a beneficiary of such trust d. Between an individual and a corporation more than 50% in value of the outstanding stock of which is owned, directly or indirectly by or for such individual, in case of distributions in_ liquidation 6. The optional standard deduction for corporations is a. 10% of the gross income b. 10% of the gross sales/receipts c. 40% of the gross income 4, 40% of the gross sales/receipts ’ 7. The optional standard deduction for individuals is a. 10% of the gross income b. 10% of the gross sales receipts ©. 40% of the gross income _ 4. 40% of the gross sales/receiptsBere 8, Interest expetise incurred to acquite property used in trade or business or exercise of a profession is a. Not allowed as a deduction against gross income b iired to be treated as ital to form of the cost of the asset ° 4. Allowed as a deduction or treated as a capital expenditure at the option of the government yeae ofamls e—npowe = Wg of 31. : inet sales of PIM. The actual entertainment, amusement and recreation expense Bw fof Hf = 45.00 9.°A Corp. had amounted to P20,000. The deductible “EAR” expense is lve? Lower (P5,000 a. P20,000 . P6,000 ©. P10,000 kd 2809 ate sts = 10°C Corp. had net revenues of PIM, The actual entertainment, amusement and recreation expense amounted to P20,000. The deductible “EAR” expense is Mx th ta a. 20,000 b, P6,000 c. P5,000 4. P10,000 © ML Corp engraed en th tale of pode sad genicennittnepn pieneabenesnee reir earena toP1 respectively. a a ee ee lis en! chad (BKX%)> [2.000 deductible “EAR” expense is a. P18,000 ©. P12,000 4. P6,000 106 Fn tees OIE)» Da inex > Gan so Flay 12. If an individual is on the cash basis of accounting, will interest paid in advance be allowed as a deduction? First answer — No, it is a deduction in the year that the indebtedness is paid and not in the year that the interest is paid. 7 ‘Second answer ~ Yes, if the indebtedness is payable in periodic amortizations, the amount of the interest which to the amount of the principal amortized or paid during the year shall be allowed as a deduction in such taxable year. ° ©. False, false d. False, true a. (ues true b. True, false 13. One of the following losses cannobbe deducted from gross income: a To consti ig vars opens es i Spares We Tal onstruction cost of EZ Bt c. A corporation retired its machinery from the business because of the increase in the cost of production and the failure of the machinery to meet the desired number of units of production. d. A Comp. ascertained that its B Corp. stocks are worthless because of the total insolvency of B Corp. 14. A domestic corporation organized in 2006 provided the following information: 2014 2018 Net Sales 4,000,000 P5,000,000 Cost of Sales 2,000,000 3,500,000 Business Expenses 1,900,000 1,550,000 The income tax still due for 2014 is a, P35,000 b. P30,000 c. d. P32,000 1S. The income tax still due for 2018 isdoe 28 the A tetcer m tm ta co "em Gsm. Gam) Ga. GAD 2a) Gn & Tse fa doe cam) aa) Ce), wd, GD ar es a 2 in eo) o) ea re ©. P344,000 MY ic t a ene a Ee wwe £ %& = a 16, Examples of taxes that are deductible except = a. Occupation ax a b. Privilege tax oe Documentary samp nx 17, Non-deductible taxes, except a. Special assessment b. Donor’s tax c._ Estate tax 4. Business tax 18. A, not happy with her present job, resigned and travel so she used her car for the purpose. Assume that A uses the car for business 70% of the time. Assuming total expenses for the is P300,000, the deductible expense is started her own business. The business requires her to ‘started her business on April 1 and that she year for the use of the car a. P210,000 10m b. 300,000 ¥e. c, P225,000 aes 4. |P157,500 a 19, A acquired a machine at a cost of P500,000. Scrap value is P40,000 and the estimated useful life was ‘98 years, After depreciating the asset for 20 years using the straight-line method, it was determined ‘hat the remaining life is not five years. The annual depreciation from the 21” year assuming a remaining life of 10 years without scrap is a. P17,600 tenon-foen FMAM. b. P20,000 +85 peas KOU fen hp HAT bet ieee 20. 1. Am expense which is necessary but not ordinary, or ordinary but not necessary is deductible from gross income. tit Werdnay ¥ teecon) 11 Fhe taxpayer must signify his intention to elect the itemized deduction, otherwise, he is deemed to have chosen the optional standard deduction. a, True, true b, True, false c. False, true d 21. L Interest paid on preferred stock is deductible from gross income of the paying corporation. dnd TL A capital expenditure usually benefits more than one accounting period and is deductible from gross income in the year it is paid or incurred. (vd?) a. True, true b. True, false c. False, true 4. False, false 22. A) The cost of leasehold improvements shall be deductible by improvements over the life of the improvements ot the period is shorter. B) Contributions by the employer to a pension trust for year that the employer made the contributions.a. True, true 23. Beginning 1/1/2018, for individuals with purely gross compensation income, the following may not deducted: a. Personal exemptions b. Additional exemptions ¢. Optional standard deduction ‘on health and/or hospitalization insurance of profession, which 24, Beginning 1/1/2018, for individuals with gross income from business or pract of the following may be deducted? A. Optional standard deduction ~ B. Itemized Deduction C. Personal basic exemptions D. Additional exemptions E, (Premium payments on health and/or hospitalization insurance a AB,CandD b. B,CandD c. C,Dand E and Either A or B d, 25. Any amount subsequently received on account of a bad debt previously charged off and allowed as a deduction from gross income in prior years must be included in gross income in the taxable year in which received. This is a. Severance test b. Life-blood theory ¢. Destination of income test 4d. Equitable doctrine of tax benefit 10) v0) mle 26. A took out a life insurance policy of P1,000,000 naming his wife as beneficiary. The policy provides that the insurance company will pay A and his beneficiary the amount of P1,000,000 after the 25 ‘year of the policy, should he die before this date, ‘The premiums paid on the policy is P700,000. If A outlived the policy and received the proceeds of P1,000,000, such proceeds will be: a. Taxable in full b._Exempt from income tax © d. Subject to final tax 27. Using the preceding number, if A dies and his beneficiary received the proceeds of P1,000,000, such proceeds will be a. Taxable in full b. Partly taxable, partly exempt c d. Subject to 28. May consider capital expenditures as revenue €x; a. Resident citizen b. Domestic corporationnal institutions ce d. Resident alien 29. A building was partially destroyed by fire in 2017. The building had a book value of PSM. The insurance company was willing to pay P4M, which was refused by the owner. Finally, the claim was settled in 2018 for P4.6M. The proceeds will be a b. Part of taxable income ©. Subject to final tax . Partly exempt, partly taxable 30. One of the following is not correct for deductibility of losses from gross income @. Must arise from fire, storm or other casualty, robbery, theft or embezzlement. by insurance or other form of indemnity. 'b. Must not be compensated a aA Scltonatsy of I should ap Muse ety xy pd wh he Bar one correct? 31. Which of the following statements is a The Optional Standard Deduction is not available against compensation income arising out of an employer-employee relationship. The election of Optional Standard Deduction is irrevocable for the taxable year for which the choice is made. Unless the taxpayer signifies in his return his intention to avail of the OSD, he shall be considered as having availed of the itemized deductions. 32. The net Operating loss, which had not been previously offset as deduction from gross income shall be carried ov. as deduction from gross income for the next taxable years immediately following such lo: Se b. ©. 4 consecutive taxable years immediately following such loss. d. Taxable year immediately following such loss. a otal Lec - dehiche = BU ~Teane ee A Items 33 and 34 pertain to the following: |», [ec (\ouen) ‘A taxpayer engaged in business incurred a partial loss of property as follows: Asset 1 Asset 2 Book value of the assct at the asset at the time of loss P 200,000 —-P-200,000 Cost to restore the property back to its normal operating condition 120,000 300,000 Insurance recovery 50,000 ‘None Salvage None 40,000 33. The deductible loss for asset | is Ase ine foot a. P 120,000 ©. P3000 wi tah b. P 70,000 dP 80,000 Got hretre 20 ti = htm " ‘ WC (nvwrance 9D 34, The deductible loss for asset 2 is Lavage a, P 300,000 fattone Lo b. P 300,000 . C d. P240,000 Items 35 to 37 pertain to the following:rendered and a yearly contribution of P50,000. The following amounts were paid for the first three years of the plan's operation. ttt 104 edt Le 4 Contribution for Services + Current Years!" First year. P 100,000 'P50,000 pactyear (imK+10yn) 10 Second year. 60,000 50,000 anor (soEFIOV).) SD. Third year... 40,000 50,000." P lle, d. None of the above we 39. Using the ing number, but using ID, his taxable net income is: a am ale, tan b. P 1,500,000 3 any ©. P1,230,000 ie d. None of the above oe ta Opex. 40) BC Corporation, Siclet of oe, waca ie warrant his expenses . ABC Corporation, a uses in reporting his income and under the calendar year basis. Its transactions show: . Jan, 1 to June 30 July 1 to 40. Gross Sales P 1,000,000 700, Cost of Sales 600,000 Itemized deduction 100,000 Other income in the ITR 70,000 The net taxable income using the OSD is a. P 1,560,000 b. Pl c. d. None of the above41, The records of a domestic corporation organized in.2000 show: 2016 2017, 2018 Gross Income 2,000,000 2,200,000 2,500,000 P 2,800,000 Deductions (where 5% represents bad debts written off) 2,000,000 __2.520,000 _ 2,400,000 Net Income ( Loss) F 100,000 P 200,000 (P 20,000) P 400,000 Subsequent recovery of bad debts written off: In2015 P 60,000 In 2016 P 10,000 a) The income tax payable for 2015 is a, P30,000 mo ——_«timan b. x) 7.40) ea s00 wu Gav) a PE-WCIT = POTD ®) The inoome tx payable for 2016s a. P78,000 wa) eu ».\P.68,000 tian “rat c. P60,000 xt d. P50,000 Sam, | Me > 4407 e-tneyy (10,600) c) ‘The income tax payable in 2017 is t FON a ar b. P50,000 © nO (ram c. P 18,000 Nase head d. P24,000 ¥ Hemet = SON weir@seya?) Don d) The income tax payable for 2018 is a P73,000 epee Sean BON ee 410 0. pe-muy ect a P 64000 NoLtp Cio) peMcir AON Lael. ~ (eM - MM = FGM 42. ‘A Corporation is engaged in the trading business. The reported income and expenses for taxable year 2018 show: ‘as +10, Sales P 10,000,000“ pees Cost of Sales 6,000,000 bmn General business expenses 1,000,000 SU oan wae casiut » #1 Interest on time deposit (gross )-eawtho 7); 100,000 yp inrvincannd Won (He Interest expense on loans payabl 180,000 1 1H he come 12.8090) ‘The net taxable income is a. P 2,820,000 b.1P2,853,000 —_o. P 2,862,000 43, The records of Manila Bus Corp. show salaries and wages pai To non-senior citizens gy To senior citizen ‘The deductible salaries and wages expense is ee Bey ike Cen dinf) sc (40x MEI) anes 90 gh Yelose deduurerc 7 Grp Invome = wating. et a bb. The excess of the ordinary itemized deductions over gross income of the business in a taxable deduction over gross income of the business in a taxable year. year. c. The excess of optional standard ied over as a deduction from gross income to be spread for the d_ Loss incurred which shall be carri next three years. 45. For mines other than oil and gas wells, a net operating loss wit Executive Order 226, as amended, otherwise known as Omnibus. ‘over as a deduction from taxable income, if incurred in a Y °c. First 3 years of operation b. First 4 years of operation 4. First 5 years of operation 46. Using the preceding number, such net operating loss can be carried as a deduction from taxable income, within how many years immediately following the year of such loss? a (Syears ) —b. 3 years ¢, 10 years d. 4 years Ges vo yu cestof sence (2m) 47. Atty. A rendered the following services during the year: [Oily a am Gross receipts from legal fees ; 3,000,000 sc: Hote hai ‘Value of 60 hours assistance to indigent client (jequ\ved 200,000 on > Value of other pro-bono services 150,000, a et) oe Direct cost of services 1,200,000 ee — Other deductible expenses ‘900,000 "" ne The taxable net income of Atty. A is a. P550,000 b. P720,000 | P750,000 © d. P900,000 48. ABC Corporation employs regular people, persons with disabilities (PWDs) and senior citizens as employees, and pays the following compensation: {yO ~ opera tekrnert Regular employees P800,000 — Sunold- Wwentarny PWD employee (itn deductrn of 257) 300,000 Senior citizen employee with salary grade: a. Above poverty level haiagetal 200,000 b. Below poverty level 2a" 9 {te (atfwmdided-4¢ 7) 100,000 ; 5 a) Mel tem The deductible compensation expense is Ps on:901) 40. a. P 1,400, equor (Coyxialf) =f ‘al ton ¥ wane C0 (10) = a c. P 1,115,000 S-e Canim) ot ow 4. P 1,500,000 (SIT) + & esi 11440. echo? 49. Healthy Drugs Corporation had the following data during the year: | sec met) wane WT eae Customer Transactions Regular Senior Citizen Sales (net) Php 8,000,000 Cost of Sales 5,000,000. ‘Other Deductible expenses Healthy adopts a policy of giving senior citizens a 20% discount, total senior citizen's discount during the year. The taxable net i a. P2,000,000 b.P'1,400,000 —.1P2,200,000 © 50. Delicious Eatery Corporation provides 20% discount to during the year: Customer ‘Transactions RegularReceipts (net) Php 8,000,000 Php 2,000,000 Php 10,000,000 Cost of Services 6,000,000 Other Deductible expenses 2,000,000, Deduct 420 ‘The regular and special itemized deductions from gross income total: ani * ey a b. P 2,400,000 , P-2,000,000 . P 1,600,000 43) tp 51. Using the above data, the taxable net income is 4. 1,000,000 'b. P 1,600,000 bP. 2,000,000 = c. P 1,500,000 qqauenT Pau tivity incentive program wherein the measured $2. To improve productivity, ABC Corporation negotiated a employees will receive productivity bonuses equivalent to(40% of production cost savings by an independent expert. ABC requires employees to undergo studies through an “employee advancement study program” with TESDA. All employees who finished their special studies are required to remain at ABC for a period of at least 2 years. The following were determined during the ba managed) (anyin?) #2 Cost of special studies: poty rie (4ix1o7) =m ‘Managerial employees Php 2,000,000 tuts cg4yv is) +H Rank & file employees 4,000,000 ons * Fin Total distributable productivity bonus 2,000,000 ciowaite delusion a Total Php 8,000,000 The allowable deduction for the benefits given is a. Php 8,000,000 b. Php 9,000,000. Php 10,000,000 —_. (Pip 11,000,000 53, Dick Tracy Corporation paid the following expenses during the year: P 5,000 +5 Interest for late payment (delinquent) income tax Surcharge and compromise for late payment of income tax ie" perals, 30,000 Interest on bonds issued 40,000 a Interest on money borrowed by the Company from a stockholder shee who owns 80% of the outstanding stock of the Company sine ian cov} Naga What is Dick Tracy Corporation’s ded bg a)/ 45,000) —_b) £75,000 54, Mr, Allan Bautista is engaged in the business of buying and selling of used cars. In the taxable year, he sold a used car to his first cousin thereby incurring a loss of P50,000. Allan’s acquisition cost of the car was P100,000. Can Allan deduct the loss in his ITR in computing his income tax payable? 4) P60,000 a) No. The loss is a personal, and not connected with his business. b) No. The loss is connected with his business, but the loss is between related parties under Section 36 (B) of the Tax Code. ©) Yes. The loss is a capital loss which can be offset against capital gains that are includible in the 4) Yes, The loss is connected with his business, and is not between related parties. 55. ABC, is a domestic corporation engaged in the merchandising business. For the had a net income per books of P500,000, after considering, among others, Ne Income, A a) Dividend received from a domestic corporation Ire GO) b) Provision for doubtful accounts cull deduted Cl al c) Dividend received from a foreign corporation }, Portion of P150,000 atvaice ental eadpectaed® Mame ¢) Recovery of receivables previously written off: i i) Previously allowed by the BIR as deduction Yad ii) Previously disallowed by the BIR as deductionf) Refund of deductible taxes i) Previously allowed by the BIR as deduction ii) Previously disallowed by the BIR as deduction ) Bank interest income: i) Philippine Bank ii) USA Bank The taxable net income is a. P485,000' » b. P365,000 «. P375,000 d. None of the above 25,000 15,000 80,000 100,000 56. In the preceding problem, if the amounts in items (¢) and (f) are included as part of book net income, the taxable net income is: a. P485,000 —_b. P375,000 ¢. P365,000 dd. P405,000 57. The net operating loss incurred in a taxable year during which the taxpayer was exempt from income tax shall a. Be carried over as a deduction from gross income for the next taxable year b. Be carried over as a deduction from gross income for the next 3 consecutive taxable years c. Be carried over as a deduction from income for the next 5 consecutive taxable years 4. I Not be allowed a a Gocched forthe Bane BBS oko SF Under Sec. 34(L) of the Tax Code, as amended by R.A. No. 10963 (TRAIN), 58. Statement 1 a general professional partnership and the partners comprising such partnership may avail of the OSD only once, either the by GPP or the partners comprising the partnership Statement 2: The partners of a GPP can may avail either the Itemized Deductions or the OSD against their distributive shares IF the basis of such distributive share is the GPP’s gross income, and not its net income. This means that the GPP does not avail either of the Itemized Deductions nor of the OSD in computing the basis of the distcibutive shares of the partners. ¢. Only Statement 2 is true, 'b. Only Statement 1 is true. d. Both are false 59. Loma de Jesus borrowed P100,000 from Claris de Diablo. As collateral, she mortgaged her house in favor of Chris. She was not able to pay, and Chris immediately foreclosed the property in 2015. In the public auction held in 2015, Chris was the highest bidder with a bid of 40,000, In 2017, Chris eventually sold the house for P75,000. Chris is not inthe real estate business nor did he previously use 60. For individuals before 2018, premiums paid during the 61. the house for business. Cows ae ‘wir Cannot deduc any Sareea: Yr. > Cer ¢) 60,000 in 2015, P40,000 in 2017. How much loss can Chris deduct in 2015 and in 2017? a) 60,000 in 2015, None in 2017. 'b) P60,000 in 2015, 25,000 in 2017. 4d) insurance taken out by him for himself or his family income, provid tht sh aly asa om a. More than P250,000 b. More than P500,000 donc First statement - Before 2018, in case of a additional exemptions for dependents shall be health and/or hospitalization insurance. — Before 2018, the hospitalization insurance shall not exceed.