True or False CHAPTER 7

1. The P250,000 income tax exemption for individuals is

designed to be in lieu their personal and business
expenses.
-FALSE
2. There are two types of regular income tax: proportional
income tax for corporations and progressive income tax
for individuals.
3. NRA-NETBs and NRFCs are also subject to regular income
tax.
-FALSE
4. All taxpayers are subject to final tax.
-FALSE
5. Taxable income is synonymous to net income.
-FALSE
6. For all taxpayers, taxable income means the pertinent
items of gross income subject to capital gains tax and
final tax less allowable deductions.
7. All taxpayers are subject to regular income tax.
8. Employed taxpayers can claim expenses from their
employment as deduction against their compensation
income.
-FALSE
9. Items of gross income subject to final tax and capital
gains tax are excluded gross income subject to regular
income tax.
10. Non-taxable compensation are items of
compensation that are excluded against gross income.
11. The tax due of corporations is determined by
multiplying their grow income by 25%
-FALSE
12. The taxable compensation income is computed as
gross compensation less the non-taxable compensation
income.
13. The deadline of filing the corporate quarterly income
tax return is the same with the deadline of the quarterly
income tax return of individuals.
-FALSE
14. Business expenses can be deducted against all types
of gross income subject to regular tax.
-FALSE
15. No deduction shall be allowed against taxable
income.
16. Only corporations may incur deductions against
gross income.
-FALSE
17. The gross income from business is measured as sales
or gross receipts less cost of sales or cost of services.
18. The tax due of individuals is determined by means of
a schedules of tax rates
19. The deadline of the annual income tax return of
corporations using the calendar year is similar to the
deadline fixed for individual taxpayers.
20. Every individual taxpayer is exempt from income tax
on compensation up to P250,000 annually but the same
exemption does not apply to business income.

CHAPTER-8 T or F

1. An employer must have rendered more than 10 years

of service before claiming exemption for his
termination benefits.
-FALSE

2. The proceeds of life insurance received by the heirs of

the insured upon his death is excluded in gross income.

3. The amount received in excess of the premium paid in

an insurance contract constitutes an item of gross
income.

4. Donated income in included in the gross income of the

donee.
5. Compensation for injuries and sickness constitutes
profit; hence, an inclusion in gross income.

6. It is sufficient that the employee rendered more than

10 years of service for his retirement benefit to be
exempt.
-FALSE

7. An employee can secure retirement benefit exemption

only once in a lifetime.

8. It is a must that the employer maintains a reasonable

pension benefit plan for the retirement benefit to be
exempt.

9. The income of the Philippine government from

essential public functions is exempt from any income tax.

10. Prizes paid to corporations are an inclusion in gross

income subject to final tax.
-FALSE
11. Only the mandatory portion of GSIS, SSS. PhilHealth,
and union dues can be excluded in gross compensation
income.

12. Social security benefits, retirement gratuities, and

other benefits from foreign governments are excluded in
gross income.

13. Social security benefits, retirement gratuities, and

other benefits from foreign private entities are included
in gross income.
-FALSE

14. The gain from redemption of shares in mutual fund is

an exclusion in gross income subject to regular tax
because it is an Inclusion in gross income subject to
capital gains tax.
-FALSE

15. 13th month pay and other benefits are taxable only
up to P 90.000.
-FALSE

1. Cooperatives that transact business only with members

will, in no case, be subject to income tax.
2. GSIS and SSS benefits are included in gross income to
the extent they exceed P90,000.
-FALSE

3. Prizes awarded upon the condition that the recipient

shall render specified future services is an item of gross
income.

4. Prizes from contests are included in gross income

subject to regular income tax.

5. The income of government-owned and controlled

corporations is an item of gross income.

6. Benefits of veterans of war or retired US army

personnel are excluded in gross income.

7. The employer's share to SSS, PhilHealth and Pag-Ibig

contributions are an exclusion in gross income.
-FALSE

8. Compared to exclusion, deduction is included in the

amount of gross income but both exclusion and
deductions are not reflected in the amount of taxable
income.
9. The interest income from any bond or debentures,
short-term or long-term, is an item of gross income.
-FALSE

10. Cooperatives, regardless of their classification, are

taxable on income from their unrelated activities.

11. The gain on the sale of long-term bonds with a

maturity of five years is an exclusion in gross income.

12. A non-stock, non-profit entity is subject to tax on

income from unrelated activities.

13. A general professional partnership can be registered

as a BMBE.
-FALSE

14. Items of income subject to final tax or capital gains

tax are exclusions in gross income subject to regular
income tax.

15. A BMBE must have a net asset not exceeding

P3,000,000 to be exempt.

CHAPTER-9 True or False

1. Imputed interest income is an item of gross income
subject to regular income tax.
-FALSE

2. Items of gross income subject to regular income tax

and capital gains tax are reportable to the government.

3. Rent is a passive income, but is not subject to final tax.

4. The interest income from bonds issued by banks is

subject to final tax.
-FALSE

5. Gains from dealings in capital assets are generally

subject to the regular income tax.

6. The gross income from operations enjoying a tax

holiday are included in gross income subject to regular
tax, but are presented as deductions in the income tax
return.
-FALSE

7. The share in a business partnership is subject to final

tax, but the share in a general professional partnership is
subject to regular income tax.
8. Gains from dealings in ordinary assets are subject to
regular income tax.

9. Items of passive royalty income are subject to final

income tax while items of active royalty Income are
subject to regular income tax.

10. Compensation income is an inclusion in gross income

subject to regular tax except compensation income of
special aliens.

11. The reportable gross Income from business or the

exercise of a profession is net of the cost of goods sold or
cost of services.

12. Items of income which are included in gross income

subject to final tax are excluded in gross income subject
to regular Income tax.

13. Advanced rentals are income in the year received.

14. Real property tax and insurance on the property if

assumed by the lessee constitute income to the lessor.

15. Corporate winnings are exclusions in gross income;

hence, they are exempt from income tax.
-FALSE
16. Stock dividends are never subject to income tax.
-FALSE

17. Pensions or retirement benefits are inclusions in gross

income subject to regular income tax if the employee is
terminated due to any cause within his control.

18. Prizes in athletic competitions sanctioned by the

Philippine government are exclusions in gross income
subject to final tax, but are inclusions in gross income
subject to regular income tax.
-FALSE

19. Corporate prizes are exclusions in gross income

subject to final tax but are inclusions in gross income
subject to regular income tax.

20. Stock splits are never subject to income tax.

1. The recovery of deduction from an exempt year is

subject to tax.
-FALSE

2. The distributable net income of a general professional

partnership is subject to creditable withholding tax.
 3. Exempt joint ventures and co-ownerships are treated
as pass-through entities and are subject to income tax.
-FALSE

4. The distribution by the GPP of items of passive income

is an inclusion in gross income of the partner subject to
regular income tax.

5. General professional partnerships are exempt from tax

and hence, exempt from withholding.

6. The share from the net income of a joint venture

organized abroad is subject to 10% final withholding tax.
-FALSE

7. Income distribution from taxable estates and trusts is

an inclusion in gross income subject to regular tax by the
heir or beneficiary.

8. The recovery of past deduction must be reverted back

to gross income of taxpayers using the accrual basis.

9. The recovery of bad debts need not be reverted back

to gross income of taxpayers using the cash basis.
-FALSE
10. General professional partnerships are not exempt
from regular tax but are subject to final tax and capital
gains tax.
-FALSE

11. An indebtedness cancelled by the creditor out of

mercy is an income to the debtor.
-FALSE

12. When there is a net loss in the period the deduction is

taken, the subsequent recovery of the deduction will not
have any tax benefit.
-FALSE

13. The refund or recovery of non-deductible taxes shall

not be reverted back to gross income.

14. The loss of the partnership can be claimed by the

partners as deduction in their income tax returns.

15. The accounting period of the taxpayer has a direct

Impact upon the amount of gross income to be reported.
-FALSE
16. The power of the CIR to redistribute income and
expense includes the power to impute income between
affiliated enterprises.
-FALSE

17. The situs of taxation has an impact on the extent of

the reportable gross income.

18. withholding taxes are added back to the amount of

reportable gross income.

19. The output VAT must be included as part of gross

income of VAT taxpayers.
-FALSE

20. The requirement to revert back to gross income the

amount of withheld taxes applies only to VAT taxpayers.
-FALSE

21. Generally, all items of income of NRA-NETB and

NRFCs from the Philippines are Inclusions in gross income
subject to final tax.

22. The taxpayer must enter into an advanced pricing

agreement with the BIR for its cross-border transfer
pricing with associated enterprises.
-FALSE
23. Transfer pricing between associated enterprises must
be made at arm's length.

24. The transfer pricing regulations apply only to cross-

border transfers of goods and services between
associated enterprises.
-FALSE

25. Corporations under the direct and indirect control of

the same controlling Individual or corporation are
associated enterprises.

26. Under the accrual basis of accounting, items of gross

income are reported in the period they are received.
-FALSE

27. Basically, transfer pricing adjustment is needed when

the income reported for Philippine taxation is
understated.

CHAPTER-10 True or False 1

1. Benefits for the advantage of the employee are exempt

from income tax.
-FALSE
2 . A rank and file employee recommends managerial
actions.
-FALSE

3. A consultant is not an employee.

4. A manager has the power to lay down and executes
policies.
5. A regular employee is subject to the regular income
tax.
6. Filipinos employed by international missions are
generally exempt.
-FALSE

7. Filipinos working in Philippine embassies are exempt

from taxation.
-FALSE

8. A minimum wage earner is exempt from income tax.

9. Compensation income includes regular compensation,
supplemental compensation and 13th month pay and
other benefits in excess of P90,000.
10. Compensation income includes all remunerations
received under an employer-employee relationship,
including all fringe benefits of managerial or supervisory
employees.
-FALSE

11. Remunerations received as incidents of employment

are exempt.
-FALSE
12. The employee's share in SSS, GSIS, PhilHealth, and
HDMF are excluded from compensation income.
13. The exempt vacation leave credit is 10 days for
government employees.
-FALSE

14. Tax exempt de minimis benefits include all benefits of

relatively small value.
-FALSE

15. The excess de minimis are considered "other income"

for any employee.
-FALSE
16. The sick leave credit of private employees up to 10
days is exempt de minimis.
-FALSE

17. The overtime pay of minimum wage earners is

exempt from tax.

1. Filipinos employed in Philippine embassies are

generally exempt.
-FALSE

2. Supplemental compensations are fixed amounts

regularly received by the employee every payroll
period.
-FALSE

3. A regular employee can be a managerial, supervisory,

or rank and file employee.

4. Regular compensation Includes variable performance-

based remuneration received by the employee with or
without regard to the payroll period.
-FALSE
5. All directors are not considered employees.
-FALSE

6. Rank and file employees do routinary or clerical jobs.

7. A minimum wage earner with business income is

considered a regular employee subject to income tax.
-FALSE

8. A managerial employee is least likely to be a minimum

wage earner.

9. The statutory minimum wage is P60,000 annually or

the amount fixed by the Regional Tripartite Wage and
Productivity Board whichever is lower.
-FALSE

10. The position and function test, compensation

threshold test, and exclusivity test are required for alien
employees.
-FALSE

11. A managerial employee can be a special employee.

12. The Christmas gift of private employees forms part of
“other benefits” while that of government employees is
considered de minimis benefit.
-FALSE

13. The fringe benefits of managerial or supervisory

employees are generally subject to fringe benefit tax.

14. Resident Filipinos employed by foreign embassies,

missions, or international organizations are generally
taxable.

15. Non-resident Filipinos employed by foreign

embassies, missions, or international organizations are
generally exempt.

16. Half of the benefits given for the convenience or

necessity of the employer are taxable.
-FALSE

17. Fixed allowances are supplemental compensation

income.
-FALSE

18. For managerial employees, the excess of de minimis

benefits over their limits are included as “other benefits”.
-FALSE
19. The excess of the 13th month pay and other benefits
over P90,000 is considered compensation income.

20. The substituted filing system applies to employees

who have multiple or successive employments.
-FALSE

21. An employer controls the means and methods by

which the work is to be accomplished.

22. An employee who became a minimum wage earner

during the year is exempt from tax for the entire year.

23. Minimum wage earners who are disqualified for

exemption during the year shall be taxable as regular
employees.
-FALSE

24. Minimum wage earners who breached the minimum

wage threshold by a salary increase during the year are
taxable only starting from the months of increase.
-FALSE

25. A fringe benefit is usually in the nature of an

incentive. Compensation income is in the nature of
performance-based pay.
-FALSE

CHAPTER 13-A True or False

1. Interest expenses are deductible in full amount if there

is no interest income subject to final tax during the
period.

2. Interest incurred in the financing of petroleum

operations may at the option of the taxpayer be
capitalized or expensed.
-FALSE

3. Income tax is not an expense.

4. The arbitrage limit applies only when there is an

intentional arbitrage.
-FALSE

5. The arbitrage limit applies to all taxpayers including

individuals.

6. Interest expenses incurred with related parties are

deductible.
-FALSE

7. Interest on a prescribed debt is deductible.

-FALSE

8. A deductible interest must not be incurred between

related parties.

9. The allowable deduction for deductible taxes includes

the basic tax, surcharge and interest.
-FALSE

10. Foreign taxes can be claimed as a deduction or tax

credit.

11. Foreign corporations and aliens can claim deduction

or tax credit for foreign taxes.
-FALSE

12. Capital loss is deductible to the extent of ordinary

gain while ordinary loss is deductible in full.
-FALSE

13. Losses must be reported to the BIR within 45 days

from the occurrence of the casualty, robbery, theft, or
embezzlement giving rise to the loss.

14.Depreciation on revaluation surplus of properties can

be deducted as part of depreciation expense.
-FALSE
15. The claim of the same loss in the income tax return of
the estate and in the estate tax return is not allowed.

1. If the fair value of the property is not determinable,

restoration costs are expensed to the extent of the basis
of the original property. The excess over the basis is
treated as an increase in fair value and is capitalized.

2. The loss in value of assets is deductible only when

sustained and realized.

3. Bad debt expenses representing loss of capital can be

deducted by cash basis taxpayers.

4. Bad debt expenses between related parties can be

deducted as long as these are adequately supported with
documentary evidence.
-FALSE

5. The loss of capital investment in a business can be

claimed as bad debt expense.
-FALSE

6. The subsequent recovery of bad debt expense must be

reverted back to gross income to the extent of the tax
 benefit of the deduction in the year the deduction is
made.

7. The loss on insured property cannot be deducted.

8. In total destruction of properties, restoration costs are

treated as new acquisition of properties.

9. Losses on wagering transactions are deductible in full.

-FALSE

10. With the exception of domestic corporations and

resident citizens, expenses incurred abroad cannot be
deducted unless incurred in connection with the
Philippine business.

11. Contributions are valued at the fair value of the

property donated.
-FALSE

12. The recovery of bad debts by cash basis taxpayers

must always be reverted back to gross income.

13. The recovery of bad debts by accrual basis taxpayers

may be reverted back to gross income.

14. Capital assets can be depreciated for tax purposes.

-FALSE

15. The depreciation expense on properties held under

life tenancy is computed as if the life tenant were the
absolute owner of the property.

1. The depreciation on properties held in trust is

apportioned between the income beneficiaries and the
trustees in accordance with the provision of the
instrument creating the trust or on the basis of the
income allowable to each.

2. Petroleum operations are not subject to the limit on

the deduction of intangible exploration and development
costs after the commencement of commercial
production.

3. Contribution expenses are deductible if the donee is a

domestic institution.

4. Donations to foreign institutions covered by treaty

exemptions are fully deductible.

5. Contribution expenses are measured at the fair value

of the property donated.
-FALSE
6. Private educational institutions are allowed to deduct
capital expenditures.

7. The depreciation of revaluation surplus is not

deductible in taxation.

8. No depreciation expense is allowable for helicopters,

yachts, airplanes or aircraft, and land vehicles which
exceeds P2,400,000 in value unless the main line of
business of the taxpayer is transport or lease of
transportation equipment.

9. Tangible development costs in wasting assets are

capitalized and depreciated.

10. Intangible exploration and development costs

incurred before commercial production in a wasting asset
operation. are capitalized as cost of the wasting asset.

11. After commencement of commercial production,

intangible exploration and development costs incurred on
non-producing wells or mines are deductible in the
period paid or incurred.

12. After commencement of commercial production,

intangible exploration and development costs incurred on
producing wells or mines are always capitalized and
amortized using the cost-depletion method.
-FALSE

13. The threshold on partially deductible contributions of

corporate taxpayers is 10% of the net income before the
contribution.
-FALSE

14. The funding of past service cost is amortized over 10

years or the actual vesting period whichever is longer.
-FALSE

15. The overfunding of defined benefit plans is treated as

funding of past service cost and is amortized over 10
years.
-FALSE

16. The employee counterpart in a contributory pension

plan is deductible by the employer.
-FALSE

17. Research and development costs related to land must

be capitalized.
18. Research and development costs not related to
capital accounts are either deducted outright or deferred
and amortized over a period of not less than 60 months.

19. The EAR expense on the sale of goods is subject to a

limit of 0.5% of gross sales.
-FALSE

20. The EAR expense on the sale of services is subject to a

limit of 1% of net revenue.

21. Purely employed individuals can claim deductions for

donations made.