Taxation

The Professional CPA Review School

2nd

Main: 3F C. Villaroman Bldg. 873 P. Campa St. cor Espana, Sampaloc, Manila  (02) 735 8901 / 735 9031 / 0922 861 0191 email add: [email protected] Baguio Davao Flr. #12 CURAMED BLDG. MARCOS HIGHWAY, BAGUIO 3/F GCAM Bldg. Monteverde St. Davao City  (074) 442-1440 / 0922-8499196  (082) 285-8805 / 0925-7272223

TAXATION FIRST PRE-BOARD EXAMINATION

MAY 2019 BATCH FEB 9, 2019; 7:30AM-10:30AM

INSTRUCTIONS: Select the correct answer for each of the following questions. Mark only one answer for each item by Shading the corresponding letter of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only. 1.

The power to tax is not without limitations. Such limitations maybe inherent (restrict the power not embodied in the constitution) or constitutional (expressly found in the Constitution or implied in its provisions). Which of the following is an inherent limitation? A. Equal protection of the laws. B. No imprisonment for non – payment of poll tax. C. Exemption from taxation of government entities. D. Exemption of religious, charitable and educational entities, non – profit cemeteries and churches from property taxation.

2.

Which of the following is not a condition imposed by the Constitution in the exercise of the power of eminent domain? A. The payment of just compensation. B. The observance of due process in taking private property. C. The existence of public use for taking private property. D. The consent of the private property owner to sell the property to the government.

3.

How broad is the power of the legislature to impose taxes? Ans. 1 – The legislature has limited discretion as to the persons, property or occupations to be taxed, where there are no constitutional restrictions, provided the subject or object to be taxed is within the territorial jurisdiction of the State. Ans. 2 – The legislature has the right to finally determine the amount or rate of tax, in the absence of any constitutional prohibitions and it may levy a tax of any amount it sees fit. A. True, True B. True, False C. False, True D. False, False

4.

Account receivable by the estate of the decreased, his executor or administrator as insurance under a policy taken by the decedent covering his own life is: A. Excluded from gross estate. B. Part of gross estate if the beneficiary is revocable. C. Part of gross estate if the beneficiary is irrevocable. D. Part of gross estate whether the beneficiary is revocable or irrevocable.

5.

The following, except one, are the basic principles of a sound taxation system. The exception is: A. It is generally payable in money. B. It should consider the taxpayer’s ability to pay. C. It should be capable of being effectively enforced. D. The sources of revenue must be sufficient to meet government expenditures and other public needs.

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

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6.

Statement I. Government owned and controlled corporations are subject to tax unless expressly exempted. Statement II. Government agencies performing governmental and proprietary functions are exempt from tax unless expressly taxed. A. True, True B. False, False C. True, False D. False, True

7.

It is an aspect of taxation that is administrative in character and the power to exercise it is vested to the department of finance. A. Levying B. Collection C. Imposition D. Legislation

8.

Which of the following aspects of taxation is (are) administrative in nature? I. Levy II. Assessment III. A. I only B. I and II C. II and III D. III only

9.

Which of the following are the elements of impact of taxation? I. Levy II. Imposition III. Assessment A. I only B. I, II and III C. III and IV D. I, II, III and IV

Collection

IV.

Collection

10. Congress passed a sin tax law that increased the excise tax rates on cigarettes by 1,000%. The law was thought to be sufficient to force many cigarettes manufacturers out of business. One cigarette manufacturer that would go out of business questioned in court the new sin tax law because it would not be able to pay the increased tax. The cigarette manufacturer is: A. Wrong because taxes are the lifeblood of the government. B. Correct because Congress, in this case exceeded its power to tax. C. Correct because no government can deprive a person of its livelihood. D. Wrong because the law recognizes the fact that the power to tax carries with it the power to destroy. 11. The Municipality of Itogon passed an ordinance imposing a tax on installation managers. At that time, there was only one installation manager in the municipality, thus, only he would be liable for the tax. Is the law constitutional? A. It is unconstitutional for lack of legal basis B. It is constitutional as it applies to all persons in that class. C. It is constitutional because the power to tax is the power to destroy. D. It is unconstitutional because it clearly discriminates against this person. 12. Yamaha Corporation manufactures motorcycles and is almost at the point of bankruptcy. It has no more cash and all it has are unsold motorcycles. It received an assessment from the BIR for deficiency income taxes. It wants to pay but due to lack of cash it seeks permission to pay in kind with motorcycles. Should the BIR grant the requested permission? A. It should grant permission to make payment convenient to taxpayers. B. It should not grant permission because a tax is generally a pecuniary burden. C. It should grant permission else Yamaha Corporation would not be able to pay.

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch) D.

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It should not grant permission because the government does not have the storage facilities for motorcycles.

13. Panelco is a power generation and distribution company operating mainly in Agno, Pangasinan. It owns electric poles which it also rents out to other companies that use poles such as telephone and cable companies. The municipality of Agno passed an ordinance imposing a fee equivalent to 1% of the annual rental for these poles. Panelco questioned the legality of the ordinance on the ground that it imposes an income tax which local government units are prohibited from imposing. Rule in the validity of the ordinance: A. The ordinance is valid as an LGU may impose tax on income. B. The ordinance is void as the 1% of annual rental fee is excessive and oppressive. C. The ordinance is valid as it is a legitimate exercise of police power to regulate electric poles. D. The ordinance is void as the fee is based on rental income and is therefore a tax on income. 14.

Which of the following statements is incorrect? A. In case of doubt, statutes levying taxes are construed strictly against the government. B. The reversal of ruling shall not generally be given retroactive application if said reversal will be prejudicial to the taxpayer. C. The construction of a statute made by his predecessor is not binding upon the successor if thereafter he becomes satisfied that a different construction should be given. D. A memorandum circular promulgated by the Commissioner of Internal Revenu (CIR) that imposes penalty for violations of certain rules need not be published in a newspaper of general circulation or official gazette because it has the force and effect of law.

15.

Which statement below expresses the lifeblood theory? A. The assessed taxes must be enforced by the government. B. Taxation is an arbitrary method of exaction by those who are in the seat of power. C. The underlying basis of taxation is government necessity for without taxation a government can neither exist nor endure. D. The power of taxation is an inherent power of the sovereign to impose burdens upon subject and objects within its jurisdiction for the purpose of raising government revenues.

16.

Which statement is wrong? A. The power to tax is subject to certain constitutional limitations. B. The money contributed as tax becomes part of the public funds. C. Generally, there is no limit on the amount of tax that may be imposed. D. The power of taxation may be exercised by the government, its political subdivisions and public utilities.

17.

The government is said to be exempt from taxation. Which of the following is an exception to this rule? A. A government employee buying 30 printers for office use. B. DSWD claiming tax exemption or goods donated by the LGUs of Laoag City. C. A contractor for the government claiming exemption from contractor’s tax. D. A contract entered into by the PNP and SM where SM furnishes the PNP with police uniforms.

18.

Which of the following is not within the scope of tax legislation? A. Assessment of tax B. Fixing the possible tax rate. C. Determining the purpose of the tax. D. Determining the subjects to be taxed.

19.

Which of the following is not an inherent limitation in the exercise of the power of Taxation? A. Territoriality B. International comity

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch) C. D.

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Public purpose test Veto power of the President

20.

Which of the following is not an exclusion from the gross estate? A. Transfer to government. B. Proceeds of life insurance C. Transfer passing under a limited power of appointment D. Foreign corporation shares of stock where 80% of its operation is in the Philippines owned by a non- resident alien decedent.

21.

A non- stock, non- profit entity shuts down and transfers all its property in favor of another entity will not be subject to tax if it meets the requirements of the law, except: A. The transferee is a non – government organization. B. The transferee is another non –stock, non – profit organization. C. Not more than 30% of the donation is used for administrative purpose. D. The transferee is an educational, charitable, religious, cultural, social welfare, or philanthropic organization.

22.

What cannot be allowed as deduction from the gross estate? A. Family home B. Vanishing deduction C. Optional standard deduction D. Share of surviving spouse

23.

Which of the following may be deducted from the gross estate? A. Medical expenses C. Funeral expenses B. Standard deduction D. Judicial expenses

24.

If a Briton was a resident of the Philippines, is the property located outside the Philippines be included in his gross estate? A. No, only property located in the Philippines will be included because he was a Briton. B. Yes, regardless of the location of the property will be included in the gross estate because he was a resident. C. No, he must be both a resident and Filipino citizen to include property outside the Philippines in his gross estate. D. Yes, regardless of location of the property will be included in the gross estate because he was a British citizen.

25.

An American living in New York died intestate leaving the following properties: Dodge caliber in New York P 3,000,000 Tiny House in New York 5,000,000 Fixtures in the Tiny House 1,000,000 Proceeds of life insurance with Philam (philamerican) life 2,000,000 Which of the above-listed properties will be included in the decedent’s gross estate? A. None. B. All his properties. C. Only the life insurance proceeds. D. Only properties outside the Philippines. Nos. 26 to 28 are based on the following information: Sir Bigay made the following donations for the year 2018, as follows: January – to his son amounting to P250,000. February – to an officemate P30,000. March – to his daughter who got married in the month P 60,000; and to his daughter-inlaw P40,000.

26.

How much is the donor’s tax for the month of January? A. Exempt B. P 1,800 C. P 6,000

SET A

D. P 7,800

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch) 27.

28.

Page 5

How much is the donor’s tax for the month of February? A. P 9,000 B. P 7,800 C. P 6,000

D. P 1,800

How much is the donor’s tax for the month of March? A. P 6,000 B. P 7,800 C. P 9,000

D. P 14,000

Nos. 29 to 32 are based on the following information: Mr. Regalo made donations for calendar year 2018 as follow: Feb: July:

29.

30.

To a legitimate daughter who got married on valentine’s day amounting to P 350,000. To legitimate son’s birthday celebration amounting to P450,000. To the National Government cash of P100,000.

How much is the donor’s tax due for the month of February? A. P 5,400 B. P 6,000 C. P 20,400

D. P 21,000

How much is the donor’s tax due for the month of July? A. P 18,000 B. P 26,400 C. P 27,000

D. P 33,000

31.

Compute the donor’s tax due for the month of July if the gift given to the son was split into two: P 225,000 in July and P 225,000 in August 2019? A. P 12,900 B. P 13,500 C. P 19,000 D. P 19,500

32.

The donor’s tax due for the month of August 2019 is: A. P 19,500 B. P 13,500 C. P 12,900

D. Exempt

33.

The Bureau of Internal Revenue may grant an extension of time for filling the Estate Tax Return settled judicially within? A. I month B. I year C. 2 years D. 5 years

34.

A non- stock non- profit entity shuts down and transfers all its property in favor of another entity. It will not be subject to tax if it meets the requirements of the law, except? A. The transferee is non – government organization. B. The transferee is another non –stock, non – profit or organization. C. Not more than 30% of the donation is used for administrative purpose. D. The transferee is an educational, charitable, religious cultural or social welfare, or philantrophic organization. Nos. 35 to 39 are based on the following information: Don Pepe, single, but head of family, Filipino and resident of Manila died intestate on November 1, 2018. He left the following properties and interests: House and lot ( family home ) in Manila P 800,000 Vacation house in New York City 5,500,000 Commercial land in Manila donated by his father in 2012 2,000,000 Toyota car in Manila being used by his fiancée 500,000 Proceeds of life insurance where the beneficiary is his fiancée 1,000,000 (revocable) Furniture and appliances in Manila house 1,000,000 Claims against an insolvency person (Filipino resident) whose assets total P10,000 and whose liabilities total P100,000 100,000 Shares of stock in XYZ Corporation (domestic)with FMV of 100,000 The expenses and charges against the estate are as follows: Funeral expenses Unpaid real property taxes Medical expenses of last illness Claims against the estate

35.

What is the gross estate and the allowable deductions therefrom? A. P 5,500,000; P 3,500,000 B. 10,000,000; 6,110,000 C. 10,990,000; 6,200,000 D. 11,000,000; 6,800,000

SET A

P 250,000 600,000 800,000 310,000

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36.

What is the taxable net estate and the estate tax due? A. P 2,000,000; P 120,000 B. 3,890,000; 233,400 C. 4,200,000; 252,000 D. 4,790,000; 272,400

37.

If the decedent was a non – resident alien, what would be the gross estate for Philippines estate tax purposes and the allowable deductions therefrom if there was no reciprocity? A. P 5,500,000; P 1,000,000 B. 5,490,000; 1,400,000 C. 5,200,000; 1,200,000 D. 5,500,000; 500,000

38.

In No. 37 what is the taxable net estate and the estate tax due? A. P 5,000,000; P 300,000 B. 4,000,000; 240,000 C. 4,090,000; 225,400 D. 4,500,000; 270,000

39.

What if Don Pepe before dying, asked your advice on how to transfer his properties to his heir with the least tax consequences? What advice would you give? A. Sell all properties to his heir. B. Donate all properties to his heir. C. Get a life insurance policy. When he dies the proceeds from such policy shall cover the estate tax. D. Create 2 corporations: Corporation X holding the assets of Don Pepe and Corporation Y in which the heir is a majority shareholder. Have the 2 corporations merged or consolidated where the heir exchanges his shares in Corporation Y for the shares in Corporation X, as set forth in Sec. 40 (a) (2) of the Tax Code, as amended.

40.

To mitigate the harmful effect of successive taxation of the same property occasioned by the death occurring within a short period of time, the law allows as deduction: A. Vanishing deduction. C. Share of surviving spouse. B. Claims against the estate. D. Claims against insolvent person.

41.

Which of the following is not a condition for the allowance of family home deduction in estate taxation? A. The total value of the family home must be included as part of the gross estate of the decedent. B. The family home must be the actual residential house of the decedent and his family at the time of his death, as certified by the Barangay Chairman of the locality where the family home is situated. C. Allowable deduction must be an amount equivalent to the current fair market value of the family home as declared or included in the gross estate or to the extent of the decedent’s interest (whether conjugal/community or exclusive property), whichever is higher, but not exceeding P10,000,000. D. None of the choices.

42.

Benru, revocably transferred his Montero car to his nephew. He challenged his nephew to pass the CPA Licensure Examination because if he does, he will waive his power to revoke the transfer. The nephew topped the CPA Licensure Examination, so Benru; waved his power to revoke the transfer. The transfer is subject to: A. Estate tax B. Donor’s tax C. Either estate tax or donor’s tax D. Neither donor’s tax or estate tax

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

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43.

Which of the following renunciation is not subject to donor’s tax? A. General renunciation by an heir, including the surviving spouse of his/her share in the hereditary estate left by the deceased. B. Renunciation by the surviving spouse of his/ her share in the conjugal partnership or absolute community estate after the dissolution of the marriage in favor of the heirs of the deceased spouse or any other person/s. C. Renunciation by an heir, including the surviving spouse of his/her share in the hereditary estate left by the deceased specifically done in favor of identified heir/s to the exclusion or disadvantage of the co – heirs in the hereditary estate. D. None of the choices.

44.

Your bachelor client, a Filipino residing in Baguio City, wants to give his girlfriend a gift of P500,000 in 2018. He seeks your advice for purposes of reducing, if not eliminating, the donor’s tax on the gift. What advice will you give? A. Advise his girlfriend to go abroad with him and give the gift while they are outside the country. B. Give the full gift of P500,000 in 2018 and tell his girlfriend not to tell anyone that she receives a gift because the BIR will not know that the gift is made to her. C. Split the gifts into two: the first P250,000 gift to be given on December 25, 2018 and other P250,000 to be given on January 1, 2019. Both gifts will be exempted from donor’s tax. D. None of the choices

45.

X and Y were to marry in three (3) months time. Meanwhile to express his affection, X donated a house and lot to Y. Y, wrote back, accepting the donation and took possession of the property. Before the wedding, however, Y suddenly died of heart attack. Can Y’s heirs get the property? A. No, since the marriage did not take place. B. No, since the donation and acceptance were not in public instrument. C. Yes, since X freely donated the property to Y who became its owner. D. Yes, since all the requisites of a donation of an immovable property are present.

46. Revocable transfer Land Automobile Shares of Stock Bond certificates Transfers under power of appointment: Farm land, limited power Land and building, general power

FMV, date of Death Transfer P 5,200,000 P 4,000,000 0 1,000,000 200,000 500,000 400,000 300,000

1,300,000

1,500,000

0

1,800,000

2,000,000

1,000,000

Additional gross estate (if still any) is: A. None B. P 3,000,000 47.

Consideration received P 3,000,000 1,500,000 400,000 350,000

C. P 3,500,000

D. P 4,300,000

The records pertinent to same properties of a resident citizen, who died on February 14, 2018, reveal the following information: Fair market value FMV Date Acquired Date acquired 2/14/18 Land (inherited) 2/1/2017 P 500,000 P 700,000 Car (donated) 12/25/2014 300,000 200,000 Jewelry (inherited) 1/1/2013 100,000 150,000 The car donated to the decedent was mortgaged by the donor for P60,000 which was paid by decedent before he died. The gross estate of the decedent amounted to P10 million while total of deductible losses, indebtedness, taxes, and donation to the Government for public purpose amounted to P2 million. The vanishing deduction is: A. P 360,000 B. P 364,800 C. P 380,800 D. P 524,800

SET A

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48.

The following transactions are considered “in the course of trade or business” and, therefore, subject to business taxes, except: A. Isolated services in the Philippines by non- resident foreign persons. B. Isolated sale of goods or services for a gross selling price or receipts of P300,000. C. Regular conduct or pursuit of a commercial or an economic activity by a stock private organization. D. Regular conduct or pursuit of a commercial or an economic activity by a non – stock, non – profit private organization.

49.

Which of the following shall be subject to the 3% percentage tax on VAT – exempt person under Section 109 (BB) of the Tax Code, as amended? A. Sale of mango; gross annual sales do not exceed P3,000,000. B. Milling of palay into rice; gross annual receipts exceed P3,000,000. C. Sale of office supplies; seller not VAT – registered; gross annual sales do not exceed P3,000,000. D. Sale of processed agricultural product; not VAT – registered; gross annual sales exceed P3,000,000. Nos. 50 to 52 are based on the following accounting records of a VAT-registered taxpayer: Accounts receivable, beginning P 100,000 Accounts receivable, ending 140,000 Inventory, beginning 50,000 Inventory, ending 65,000 Purchases 90,000 Sales 250,000 Purchase discount 5,000 Sales return 10,000 Collections 200,000 Cost of sales 70,000

50.

51.

52.

53.

How much is vatable sales? A. P 250,000 B. P 240,000

C.

P 230,000

D.

P 200,000

How much is output tax? A. P 24,000 B. P 27,000

C.

P 28,800

D.

P 30,000

How much is input tax? A. None B. P 10,200

C.

P 10,800

D. P 8,400

The following events happened in a VAT enterprise: June : Performance of service. July : Received invoice in the amount of P112,000. August : Paid the services. When and how much input VAT can be claimed? A. July, P 12,000 B. July, P 13,440 C. August, P12,000 D. August, P13,440 No. 54 to 56 are based on the following information: Viva Corporation has the following sales (total invoice) during a month: Sale to private entities P 224,000 Sale to export-oriented enterprise 100,000 Sale of exempt goods 100,000 The following input taxes were passed – on by its VAT – registered suppliers during the month: Input tax on taxable goods 5,000 Input tax on zero – rated sales 3,000 Input tax on sale of exempt goods 2,000 Input tax on depreciable capital goods not attributable to any particular activity 20,000

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch) 54.

55.

56.

Page 9

The output VAT for the month is: A. P 24,000 B. P 26,880

C.

P 36,000

D. P 48,000

The input VAT for the month is: A. P 5,000 B. P 8,000

C.

P 15,000

D. P 23,000

The VAT payable for the month is: A. P 1,000 B. P 7,200

C.

P 9,000

D. P 16,000

57.

The input taxes on zero – rated sales of goods may at the option of the VAT – registered person be, except: A. Credited. B. Carried over to the next taxable quarter. C. Refunded or converted into tax credit certificate. D. Used as payment for other internal revenue tax, including withholding taxes.

58.

When may a VAT registered person claim input taxes as allowable expense deductions from his income tax return? A. Input taxes from export sales. B. Input taxes from exempt sales C. Input taxes from capital goods D. Input taxes from zero – rated sales. Nos. 59 to 63 are based on the following data taken from a VAT – registered entity, inclusive of VAT. Sales to Government P 112,000 Regular sales 350,000 Zero – rated sales 250,000 Exempt sales 87,500 Purchases 532,000

59.

60.

How much is the output VAT? A. P 12,000 B. P 37,500

C. P 49,500

D. P 79,000

How much is the actual input VAT? A. P 20,350 B. P 49,750

C. P 57,000

D. P 563,840

61.

How much of the actual input VAT can actually be claimed as input tax credit against the output VAT? A. P 50,350 B. P 49,750 C. P 57,000 D. P 63,840

62.

How much VAT is charged to expense? A. P 6,650 B. P 7,250

C.

P 14,250

D.

P 33,250

How much is the final withholding VAT? A. P 4,400 B. P 5,000

C.

P 7,000

D.

P 12,000

63.

64.

Which of the following transactions is exempt from the value-added tax? A. Services rendered by artists, actors and athletes. B. Generation, transmission and distribution of electricity. C. Services rendered by professionals, such as CPAs, Physicians and Lawyers. D. Services rendered by international shipping or air passenger transport operations.

SET A

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Nos. 65 and 66 and based on the following information: A VAT-registered construction materials supplier is the winning bidder to exclusively supply construction materials for the construction of a common terminal in Baguio City. For the month, it has the following data, VAT exclusive: Sales, net P 400,000 Purchases of merchandise 80,000 Purchase of delivery equipment, 5 – year life 1,200,000 PLDT bill 30,000 65.

How much can the local government of Baguio City withhold as VAT from its payment to the VAT – registered construction materials supplier? A. None B. P 20,000 C. P 28,000 D. P 48,000

66.

What if the buyer of the construction materials is non – government entity. How much will be the VAT payable for the month? A. None B. P 32,400 C. P 36,000 D. P 38,400

67.

When to file the VAT return? A. Weekly B. Monthly

C. Quarterly

D.

Yearly

Nos. 68 to 70 are based on the following information: Lola Bertol, 65 years old, grandmother, was treated by her grandchildren Luz, Vi and Minda to Max’s Restaurant during grandparents day and their total bill is P2,240. 68.

69.

70.

How much is the discount of the Senior Citizen? A. P 100 B. P 160 C. P 200

D.

P 400

How much is the VAT? A. P 60 B.

D.

P 240

P 100

C.

P 180

If the seller is non – VAT enterprise, how much is the discount of the Senior Citizen? A. P 100 B. P 112 C. P 160 D. P 180

/cde

SET A

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TAXATION

FIRST PRE-BOARD EXAMINATION

INSTRUCTIONS. Select the correct answer for each of the following questions. Mark only one answer for each item by the corresponding of your choice on the answer sheet provided. STRICTLY NO ERASURES ALLOWED. Use Pencil No. 2 only

1. In one view, the power to tax involves the power to destroy while in another view, the power to tax does not involve the power to destroy. Which among the following statements does not reconcile the two seemingly inconsistent views? A. The power to tax could not be the subject of compensation and set-off. B. The first view refers to a valid üx while the second view refers to an invalid tax. C. An illegal tax could be judicially declared invalid and should not work to prejudice a taxpayer's property. D. The imposition of a valid tax could not be judicially retrained merely because it would prejudice taxpayer's property. Ans: A

2. Statement 1. Jurisdiction js the reason why the government could impose estate tax on the property of resident alien decedents located outside the Philippines. Statement 2. Symbiotic relationship between the taxpayers and the State is the reason why the former must provide support to the latter so that it could continue to give protection. A. Both statements are true, B. Both statements are false. C. Only statement 1 is true but not statement 2, D. Only statement 2 is true but not statement 1. Ans: A

3. A tax does not meet the public purpose inherent limitation if it: A. Is for the benefit principally of limited subjects or objects. B. Affects the areas as a community rather than as were individuals. C. Is for the welfare of the nation or greater portion of the population. D. Is designed to support the services of government for some of its recognized objects. Ans: A Nos. 4 to 6 are based on the following information: KaLansay, Filipino citizen, died on February 14, 2016, leaving the following: Exclusive properties

SET A

P2,000,000

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Page 12

Conjugal real properties (including the family home bought by the spouses with FMV of at the time he died)

2, 500,000

Funeral expenses (40% Unpaid)

122,000

Judicial expenses (20% incurred 8/31/16)

60,000

Unpaid mortgage on inherited property

30,000

Notes payable (1/2 notarized)

80,000

Claim against insolvent person (50% collectible)

400,000

Proceeds of life insurance (beneficiary - estate irrevocable)

100,000

Medical expenses (1/2 paid)

300,000

The exclusive properties had FMV of P500,000 when inherited2-1/2 years ago with P80,000 unpaid mortgage. Based on the foregoing data: 4. The total conjugal property is: A. P 2,500,000

B. P2,600,000

C. 2,900,000

D. P 3,000,000

Ans: D Solution Conjugal rea property 2,500,000.00 Claims againts Insolven person 400,000.00 Proceeds of life Insurance(irrevocable) 100,000.00 Total Conjugal property 3,000,000.00

5. The total exclusive property is: A. P420,000

B. P500,000

C. P 1970,000

D. P 2,000,000

Ans: D Solution Exclusive propeties

2,000,000.00

6. The total ordinary conjugal deduction is: A. P410,000

B. P422,000

C. P 440, 000

D. P 462,000

Ans: A 7. The total ordinary exclusive deduction is: A. P 30,000

B. P88,000

C. P 246,000

D. P 276,240

C. P 257,184

D. P 273,600

C. P1,000,000

D. P1, 200,000

Ans: D 8. The amount of vanishing deduction is: A. P229,824

B. P246,240

Ans: B 9. The deduction for family home is: A. None

B. P600,OOO

Ans: B 10. The total amount of special deduction is:

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

A. P300,000

B. P 1,300,000

C. P 1,900,000

Page 13

D. 2, 900,000

11. . The share of the surviving spouse in the net conjugal property is: A. P 1,269,000

B. P 1,280,000

C. P 1, 289,000

D. P1, 295, 000

C. P 1,118,760

D. P 1,295,000

Ans: D 12. TheTaxable net estate is: A. P270,000

B. P 929, 000

Ans: C 13. Dina Cabangon, a resident citizen, died on November 1, 2016 and her estate incurred losses due to: 1st loss: From fire on February 5, 2017, of improvement on her property not compensated for by insurance. 2nd loss: From tsunami triggered by tectonic-origin earthquake on May 10, 2017, of household furniture and fixtures also not compensated by insurance. A. Both losses are deductible from gross estate. B. Both losses are not deductible from gross estate. C. 1st loss is deductible from gross estate while the 2nd is not. D. 1st loss is not deductible from gross estate while the 2nd loss is. Ans: C

14. Palito, a citizen of the Phi!ippines and resident of Baguio City died intestate on Ju!y 4, 2017. Among his gross estate is a property inherited from his deceased father who died June 10, 2014. What percentage of deduction will be used in computing the amount of vanishing deduction? A, 21%

B. 40%

C. 60%

D. 80%

Ans: B

Number 15 to 19 are based on the following information: I ne decedent was a head of famiiy Fiiipino citizen. The administrator of the estate arrived at a net taxable estate as follows:

Real and personal properties

P 5,000,000

Family home

1,5000,000

Ordinary deductions: Funeral expenses

(400,000)

Other deductions

(950,000)

Special deductions: Family home

(1,500,000)

Medical expenses

(600,000)

Taxable net estate

P 3,050,000

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Page 14

15. The gross estate is: A. P 5,000,000

B. P 5,750,000

C. P 6,000,000

D. P 6,500,000

C. P 325,000

D. P 400,000

C. P 1,000,000

D. P 1,500,000

C. P 3,650,000

D. P 3,875,000

C. P3,650,000

D. P 3,875,000

Ans: D 16. The deduction for funeral expenses is: A. P 0.

B. P 200,000

Ans: B 17. The deduction for family home is: A. P 0.

B. P750,000

Ans: C

18. The total deductions to be claimed is: A. P 2,650/000

B. P 2,950,000

Ans: C 19. The taxable net estate shall be: A. P 2,850,000

B. P 2,950,000

Ans: A 20. An estate tax return need not be filed by the executor, administrator or any of the (egal heirs on: A. Transfers subject to tax. B. Transfers consisting of registered or registrable property. C. Exempt transfers where the gross value of the estate exceeds P200,000. D. Exempt transfers where the gross value of the is P200,000 and below. Ans: D 21. In transfer in contemplation of death, revocable transfer and transfer under a general power of appointment, there are rules to observe to determine what amount to include in the gross estate. Which of the following is not a rule to observe? A. If the transfer was in the nature of a bona fide sale for an adequate and full consideration in money or money's worth, no value shall be included in the gross estate. B. If there was no consideration received on the transfer as in donation mortis causa, the value to include in the gross estate shall be the FMW of the property at the time of the transfer. C. If there was no consideration received on the transfer as in donation mortis causal the value to include in the gross estate shall be the FMV of the property at the time of the decedent's death. D. If the amount received on the transfer was less than adequate and full consideration in money or money's worth, the value to include in the gross estate shall be the excess of the FMV of the property at the time of the decedent's death over the consideration received. Ans: B 22. For proceeds of life insurance not to be included as part of the gross estate: A. Must have been taken out by the decedent upon his own life B. Must have designated the estate of the decedent as revocable or irrevocable beneficiary,

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Page 15

C. Must have designated a third person other than the estate, the decedent's executor or administrator as revocable beneficiary. D. Must have designated a third person other than the estate, the decedent's executor or administrator as irrevocable beneficiary. Ans: D 23. SK Litton, Filipino, has one year more to reach the optional retirement age of 60 years old as an employee of a private firm. Unfortunately, he met a fatal vehicular accident that caused his instantaneous death. He was survived by his wife and received P500,000 from SK's employer as benefit under RIA, 4917, The amount that must be included as part of SK Litton's gross estate is: A. None

B. P 200,000

C. P250,000

D. P500,000

Ans: D 24. Continuing No. 23, the amount that must be claimed as a special deduction from SK Litton's gross estate for the benefit received by the wife under R.A. 4917 is: A. None

B. P200,000

C. P250,000

D. P500,000

Ans: C 25. Going back to No. 23 and assuming this time that SK Litton was single when he died, the amount that must be claimed as a special deduction from the gross estate for the benefit received under RSA, 4917 is: A. None

B. P200,000

C. P 250,000

D. P500,000

Ans: D 26. Referring again to No. 23, the taxable net estte arising from the retirement benefit received under R.A. 4917 irregardless of whether or not SK Litton died as married or single is: A. None

B. P200,000

C.P250,000

D. P500,000

Ans: A 27. Statement 1: When there is reciprocity; the transfer of intangible personal property located in the Philippines of a resident alien donor is subject to tax. Statement 2. Where a personal property classified as capital asset is transferred for less than adequate and full consideration in money or money's worth, the fair market value of the property less the consideration received is deemed a gift subject to donor's tax. A. Both statements are right. B. Both statements are wrong. C. Statement 1 is right but statement 2 is wrong. D. Statement 2 is right but statement 1 is wrong. Ans: A 28. Mayaman wanted the painting hanging on the wall of his living room replaced with a new one. He the sells it to his bosom friend, Salamat, at a very low price of P500,000. Its fair market value is P750,000. He bought the painting several years ago at an exhibit held in Shangri-La for P300,000. The gain on sale of the painting is A. P200,000

SET A

B. P 300,000

C. P450,000

D. P500,000

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Page 16

29. Continuing No. 28, how much, if any, is the deemed gift? A. None

B. P250,000

C. P300,000

D. P450,00

Ans: B 30. In the preceding number, the rate/s of donor's tax, if appiicabie, is: A. 30% of the net gift. B. Not subject to donors tax. C. 5% on the first P100,000 of the taxable net gift and 10% on any amount of taxable net gift in excess of P100,000. D. The progressive rates under Sec. 99 (A) of the NIRC of 1997 based on aggregate net gifts made during a calendar year. Ans: A

31. Which of the following statement is wrong? A. Gift-splitting is a form of tax avoidance. B. The uncle who is a brother of the donor's father-in-law is a stranger to the donor for purposes of the donor's tax. C. A gift made to a relative in January 2017 is to be added to the gift made to the same relative in December 2017 in determining the donor's tax. D. Renunciation by an heir including the surviving spouse of his share in the hereditary estate left by the decedent is exempt from donor's tax even if done in favor of identified heir to the exclusion or disadvantage of other co-heirs in the hereditary estate. Ans: D 32. Properties owned before marriage and brought into the marriage are generally classified as: I. II.

Exclusive properties under conjugal partnership of gains. Common properties under absolute community of properties. A. Only I is correct,

C. Both I and Il are correct

B. 11 is correct.

D. Both I and Il are incorrect.

Ans: C 33. Statement 1. The Philippine Constitution does not prohibit double taxationStatement 2. If direct duplicate taxation occurs, the Éxpayer may seek relief under the uniformity rule or equal protection guarantee. A. . Only statement 1 is true. B. Only statement 2 is true C. Both statements 1 and 2 are true.

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D. Both statements 1 and 2 are false. ans: B 34. Community properties shall include all properties owned by the spouses at the time of the celebration of the marriage or acquired thereafter. Which of the following is an exclusive property? A. . Properties inherited by the spouses as donation before the marriage. B. Properties acquired by the spouses as donation before the marriage. C. Properties acquired using the income of either spouse earned before marriage. D. Properties acquired before marriage by either spouse who had legitimate descendants by a former marriage. Ans: D 35. Statement 1. Donations by an adopter to a legally adopted child or vice-versa shall be considered as donations made to non-stranger. Statement 2. Donations by and between a legally adopted child and the children or other blood relatives of the adopter and vice-versa shall be considered as donations made to stranger. A. Both statements are correct. B. Both statements are incorrect. C. Statement 1 is correct but not statement 2. D. Statement 2 is correct but not statement 1, Ans: A 36. Mr. and Mrs. Bigay wanted to donate a parcel of land to their son Pogi who is getting married in December 2016. The parcel of land has a zonal value of P420,000. What is the most efficient mode of donating the property? A. Spread the donation over a period of 5 years by the spouses donating PIOO,OOO each year from 2016 to 2019 and P20,OOO in 2020. B. The spouses should each donate a PI 10,000 portion of the value of the property in 2016 then each should donated PIOO,OOO in 2017. C. The spouses should first donate in 2016 a portion of the propetf valued at P20,000 then spread the P400,OOO equally for 2017, 2018, 2019 and 2020. D. The soouses should each donate a PIOO,OOO portion of the value of the proper-W in 2016 and another P100,000 each in 2017. Then, in 2018, they should donate the remaining P20,000. Ans: B 37. Malakas and Maganda got married before the effectivity of the New Family Code, devoid of any pre- nuptial agreement, A year later, Maganda received a donation consisting of a 400 squaremeter lot with a modest bungalow house erected thereon. The couple leased the house to a tenant and saved all the rentals thereon. The said rental receipts were then used to construct their own residence on the vacant one-half portion (200 square-meter) of the same lot. Maganda died, and the following information was available at the time of her death. FMV of 400 square-meter lot

SET A

P 800,000

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

FMV of rented bungalow house

200,000

FMV of family house

500,000

Page 18

The gross estate of Maganda amounts to: A. P800,000

B. P1,000,000

C. P 1,250,000

D. P 1,500,000

Ans: D

38. Continuing No.38, the deduction for family home is: A. P250,000

B. P 650,000

C. P1,000,000

D. P1,050,000

Ans: B 39. Assume the same facts in No. 38, except that the couple got married after the effectivity of the New Family Code and assume further that it was Malakas who died (not Maganda). The gross estate of Malakas would be: A. Zero

B. P250,000

C. P500,000

D.P700,000

Ans: A 40. Going back to No. 38, the gross estate of Malakas if he was the one who died (rather than Maganda) Would d be. A. Zero

B. P250,000

C. P500,000

D. P700,000

Ans: C 41. A VAT-registered person made the following sales for the month of June 2016: Cash sales, exclusive of VAT

P 300,000

Open account sales, invoice price

550,000

Installment sales, invoice price

990,000

Consignments, VAT exclusive: June 1 (sold already)

400,000

April 1

800,000

June 15

300,000

The total output tax is: A. P 249,000

B. P345,000

C. P364,000

D. P381,000

42. The gross sale and/or receipts of a taxpayer for the year are from the following sources: Grocery store

P1,500,000

Sale of gold to the BSP

419,500

Passenger jeepneys for hire

500,000

Which of the following statement is correct? A. The taxpayer is required to register for VAT because the basis for registration is the total gross sales and/or receipts of P2,419,500. B. The taxpayer may elect to register for VAT because his annual gross sales and/or receipts as basis for optional registration amount to only P1,919,500. C. The taxpayer may elect to register for VAT because his annual gross sales and/or receipts as basis for optional registration amount to only

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Page 19

D. The taxpayer is not required to register for VAT because his annual gross sales and/or receipts has no bearing in the optional or compulsory registration as VAT taxpayer. Ans: B 43. As regards a revenue measure, which of the following statements is wrong? A. The President may recommend a revenue bill to Congress. B. The House of Representatives may propose amendments if the bill originates from the Senate. C. The Senate may propose amendments if the bill originates from the House of Representatives. D. A House of Representatives version and a Senate version approved separately and then consolidated in the Bicameral Committee with both houses approving the consolidated version. Ans: B 44. NatyGok, a spinster Filipino citizen and an avowed devotee of Mama Mary, is a living cancer patient (stage four) and given only a month to live by her doctor. Her only asset is composed of cash amounting to P5/000,000. Prior to her death, she asks you whether she would transfer her property by way of donation inter vivos (donor's tax) or donation mortis causa (estate tax) to a well-to-do cousin who pledged paying for the funeral expenses when her last moment comes. You presented to her that the aggregate donor's tax due is P204,000 plus 10% of excess over and the aggregate estate tax due is P135,000 plus 11% of excess over P2,000,000. Naturally, NatyGok preferred paying the tax by means of donation inter vivos (rather than thru donation mortis causa) because of the lesser transfer tax to be paid. Is she correct? A. Yes, because NatyGok is still alive. B. No, because the estate tax is cheaper by P49,000. C. No, because whether donor's tax or estate tax is to be paid, the transfer tax amount would be the same, D. Yes, because there will be tax savings of P61,000. Ans: B 45. Supposing that in the preceding number, the wealthy would be successor of NatyGok's property is a second cousin, yet she still prefers paying donor's tax over that of estate tax. Is she correct? A. Yes, because she is still alive. B. NO, because the amount of transfer tax to be paid would-be the same under either donor's taxation or estate taxation. C. No, because the donor's tax will be expensive by over a million pesos. D. Yes, because her wealthy successor is still a non-stranger cousin. Ans: C

Nos. 46 to 48 are based on the following information: A widowed non-resident alien donor made the following donations, all on the same day: Donee

Property

FMV

To a daughter on her

House and lot in the Philippines

P2,000,000

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Page 20

wedding day. To Development Academy Time deposit in BDO of the Philippines.

Unibank.

To a son on his birthday.

Saving account in PNB Unibank

500,000

300,000

There is an unpaid mortgage of P500,000 on the house and lot which the daughter assumed. Also, the donor wants 25% of the gift to the son be donated to a Roman Catholic Church of his choice in the Philippines, 46. The total gross gifts is: A. P2,225,000

B. P2,300,000

C. P2,500,000

D. P2,800,000

C. P1,075,000

D. P1,085,000

C. P2,075,000

D.P2,150,000

47. The total exemptions or deductions is: A. P75,000

B. P225,000

Ans: C 48. The taxable net gift is: A. P 1,425,000

B. P1,725,000

Ans: B 49. The Commissioner of Internal Revenue may grant an extension of time for the payment of the estate tax or any part thereof in case the estate is settled extrajudicial for a period not exceeding: A. Two years from grant of the extension. B. Five years from grant of the extension. C. Two years from the settlement of the estate. D. Five years from the settlement of the estate, Ans: A 50. Which one of the following is not among the characteristics or nature of value-added Ex (VAT)? A. It is an indirect tax. B. It is a percentage tax. C. It is a tax on property. D. It is a tax on consumption. Ans: C 51. The following are the various VAT methods and systems. Which one is a contradiction? A. Tax credit method, B. Cost deduction method. C. Neither tax credit method nor cost deduction method. D. Mixture of tax credit method and cost deduction method. Ans: C 52. A business operator has his main office in Manila and two branch offices in Makati. How many certificate of reaistratjon shall be issued by Bureau of Internal Revenue (BIR)? A. Two, for the two branches. B. Two, one for Manila and one for Makati.

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Page 21

C. Three, for the two branches and the main office. D. One, only for the main office in Manila. Ans: C 53. Which one of the following is subject to VAT? A. Keepers of garages. B. Customs brokers and dealers in securities. C. Crop insurance of non-life insurance companies, D. Sale of marine food products in their original state by a dealer. Ans: B 54. In the course of trade, business or exercise of profession taxpayers are required to register with the BIR: A. Monthly. B. Quarterly, C. Every year on January 31. D. Once only before commencing operation. Ans: C 55. A VAT-registered entity had the following data for the month of October 2016: Sales (VAT excluded)

P980,000

Merchandise paid to creditors (VAT excluded)

436,000

Purchases of goods (VAT included): From VAT-registered supplier

756,000

From non-VAT person

75,000

Purchases of services (VAT included): From VAT-registered person

61,600

From non-VAT person

25,000

Salaries and wages

50,000

Operating expenses

150,000

Purchases from person subject to percentage tax

25,000

The value-added tax payable for October 2016 is: A. P64,200

B. P69,816

C. P76,800

D. P82,416

Ans: D Nos. 56 to 58 are based on the following information: From the books of accounts were transactions for each of the months of October, November and December (last quarter) of 2016 of a VAT-registered taxpayer:

Credits to sales account

October

November

December

P492,800

P616,000

P770,000

123,200

739,200

369,600

Debit to purchases account on local purchases of goods from: VAT-registered persons

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Non-VAT registered persons

44,800

Page 22

67,200

33,600

There was debit balance in the Input Taxes account in the preceding quarter of P15,600. 56. The value-added tax payable at the end of October is: A. P19,200

B. P24,000

C. P23,376

D. P28,752

Ans: D

57. The value-added tax at the end of November is: A. Payable of PO

C. Refundable of P13,200

B. Payable of P20,400

D. Refundable of P14,784

Ans: A 58. The value-added tax payable at the end of December is: A. P18,4800

B. P33,264

C. P34,320

D. P49,104

Ans: B 59. After recognizing the value-added tax payable for the last calendar quarter of 2016, the books of accounts of a VAT-registered retail store showed a debit balance in the Input Taxes account of P2,500. Transactions in the first calendar quarter of 2017 per books were: Sales

P2,100,000

Sales discounts

42,000

Sales returns and allowances

105,000

Purchases (at total invoice costs) of: Goods for sale from VAT-registered suppliers

840,000

Goods for sale from non-VAT registered persons

336,000

Services from VAT-registered service providers

280,000

Equipment (6-year life) bought at start of year from VAT-registered person

1.176,000

Operating expenses

505,000

Value-added tax paid first two months of the quarter

16,920

Importation for sale: Invoice cost from country of origin (1$ : P48.00)

$10,000

Freight and insurance

P15,000

Customs duty

26,000

Excise tax

2,500

Other expenses: Prior to removal of the goods from customs custody

3,500

After removal of the goods from customs custody

2,000

Facilitation expense

5,000

The value-added tax on the importation is: A. P62,040

B. P63,180

C. P63, 240

D. P63,480

60. Continuing No. 69, the value – added tax payable at the end of the quarter is:

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

A. P 25, 400

B. P31,790

C. P32,030

Page 23

D. P32, 820

61. Statement 1. The basis of or rationale for taxation explains the reason why a state may impose taxes Statement 2. The theory of taxation explains why there is a need to impose taxes. A. Both statements are true B. Both statements are false. C. Statement 1 is true while statement 2 is false. D. Statement 2 is true while statement 1 is false. Ans: A 62. Nature of the power of taxation: A. An inherent power only. B. A legislative power only. C. Both an inherent power and a legislative power. D. Neither an inherent power nor a legislative power. Ans: C 63. A person may be imprisoned for: A. Failure to pay a debt. B. Non-payment of capitation tax. C. Failure to pay the community tax. D. Non-payment of value-added tax. Ans: C 64. The NIRC of 1997 imposes different kinds of taxes on dispositions of property. These are VAT, OPT, excise taxes, estate tax, donor's tax, etc. Which among the following transactions would be subject to a transfer tax? A. Sale of articles that are exempt from VAT. B. Sale of cigars and cigarettes by a manufacturer. C. Sale of automobile for less than an adequate and full consideration. D. Sale of shares of stock that are listed and traded at the local stock exchange. Ans: C 65. Donor's tax is imposed on the privilege to: A. Receive property inter vivos. B. Transfer property inter vivos. C. Receive property mortis causa. D. Transfer property mortis causa. Ans: B 66. Which among the following distinguishes an estate tax from other kinds of taxes that are presently imposed under the provisions of the NIRC of 1997? A. It is a tax that is imposed upon gratuitous transfers. B. It is a Ex that is imposed only upon the death of a person.

SET A

CRC-ACE/TAXATION: FIRST PRE-BOARD EXAMS(May 2019 batch)

Page 24

C. It is a tax imposed on the privilege to transfer property ownership. D. It is a tax that is imposed upon the net value of the properties that are transferred. Ans. C 67. Statement 1. In determining the situs of taxation, the subject matter of the tax is not to be considered at all. Statement 2. In a gratuitous transfer of property, situs is the taxpayer's residence, citizenship or location of the property. A. Both statements are correct. B. Both statements are incorrect. C. Statement 1 is correct but statement 2 is incorrect. D. Statement 2 is correct but statement 1 is incorrect. Ans: D 68. Which one of the following statements is not correct? A. In the exercise of the power of taxation, the state can tax anything at any time. B. Taxes may be imposed to raise revenues or to provide disincentives to certain activities within the State. C. The provisions of in the Philippine Constitution are grants of power and not limitations or taxing powers. D. The State can have the power of taxation even if the Constitution does not expressly give it power to tax. Ans: C 69. In donation, donor's tax is imposed as the ownership of the property passes from the: A. Donee to the donor. B. Donor to the donee. C. Decedent to the heir. D. Heir to the successor. Ans: B 70. How many degrees or generation apart are third cousins? A. Two

B. Four

C. Six

D. Eight

Ans: D

END OF EXAMINATION

SET A