La AGAMATA & rts, CPA REVIEW ‘Home of Topnotch Professionals” REVIEW NOTES INCOME TAXATION TAX.O-1403 |” GENERAL PRINCIPLES ON INCOME TAXATION KNOWLEDGE ENGINEERS/ REVIEWERS R. B, Banggawan All wealth which flows into the taxpayer other than a mere return of capital and includes gains Why is income taxed? Income is the best measure of a taxpayer's ability to pay, Basic Definitions: Gross Income ~ refers to what is income for taxation purposes Taxable Income ~ as the pertinent items of gross income that are subject to tax after allowable deductions Tax Base ~ the value of a certain goods, or property for taxation purposes Characteristics of Gross Income: 1. Return on capital and resulted increased networth at the moment of its generation 2. Realized benefit by the taxpayer (realization means actual or constructive receipt of in cash) Example of constructive receipts of income: 1. credit to an account ow! in by the taxpayer 2, declaration of a share of the profits of a general professional partnership 3. offsetting debt with right to received dividends 4, cancellation of debt in payment of service Which do not constitute gross income? 1, Receipts representing returns of capital Examples: @. Proceeds of life insurance policy (upon death of the insured) b, Proceeds rec 2. Unrealized income Examples: a. Appreciation of value of properties b. Unrealized gains on investments ue cpa review www. certscollege.org ived by the insured (stil living) representing return of premium www-reviewer-online.com 1‘TAX.0-1403,General Principles on Income Taxation.RN "Those exempted by the Constitution, statues or treaty or contract with taxpayers Examples: ‘a, _ Receipt of non-profit institutions from their main activities b. ‘ Contributions to GSIS, SSS, PhilHealth, Pag-ibig and ©, _ Retirement and separation benefits under certain circumstances d, Taxholiday for entities registered pursuant to the Omnibus Investment Code ¢, Income of foreign government or corporations owned or controlled by them Taxation of Gross Income under the NIRC: A. Passive Income Tax i 1. Capital gains tax - few final tax is imposed on certain gains on dealings on properties Examples include final tax on: a. Final tax on net gain on sale of domestic stocks directly to buyer (withheld at source) b. Final tax on gains on sale of real property located in the Philippines classified as. capital asset 2, Other withheld final tx ~these are groups of passive iene that are subject to withholding by the income payor, Cm Examples include final tax on: a. Interest on deposits with banks d. Winnings b. Prizes Ko e. Royalties ¢. Dividends received from domestic corporation Regular (Active) income Tax ~ applies to all(tems of gross income that are generated by the: taxpayer in the ordinary course of business Otto those items of passive income that are not covered by final taxes. Z Regular income tax is either: g, 1. Progressive tax (0-32% schedular rates) — applicable to individuat and taxable trusts and estates 2. Final tax (35%) = aplcable to corporations “68 Examples active income: 1. Compensation income 2. Professional income 3. Business income 4, Those items of income that are excluded from capital gains tax a. Gain on sale of properties located abroad b. Gain on sale of properties located in the Philippines by non-residents TAX.0-1403.General Principles on Income Taxation 6. Others 3 Certain tax benefits (example: items. of deductions claimed in the past that subsequently recovered} b. Obligations waived by the creditors in consideration of service SITUS OF INCOME A, Interest ~ debtor's residence 8. Dividends 1. By a domestic corporation ~ within the Philippines 2. | Bya foreign corporation ~ apply the income dominance test Basis: World gross income for the three-year period ending the current taxable year preceding th declaration of such dividends 2. If Philippine gross income is more than 85%, the whole dividends are considered within b. If Philippine gross income is less than 50% of the basis, the whole dividend is considera earned outside the Philippines ©. If Philippine gross income is at least 50% of this, the-ratio of Philippine gross incor over the basis multiplied. by the dividend received ¥§ considered, earned, within the Philippines. Service ~ place of performance of the service Rent — location of the property Royalties — place where the intangible is use F. Gainon sale 8. Real property location of the property b. Domestic shares of stack ~ always Within the Philippines ©. Personal property ~ place of sale 6. Mining ~ location of mine H.- Farming - location of farm |, Merchandising ~ place of sale" pO Place of Puchase _Place of Sale income is earned a Within within within b. within abroad abroad c abroad within within d. abroad abroad abroad 4.“ Manufacturing ~ place of production and place of sale (Sec. 42(E), MIRC): Whether full or partial processing, for example: Gain on sale of other non-domestic stocks and non-real property capital assets Place of Production Place of Sale Incomes earned, Those items of income that are excluded from other final taxes a. Within within within a, Interest income on notes receivable (not deposit) b within abroad RNR Anca trea b. Prizes where the taxpayer has no intention or active effort to compete (Nobel Prize, c abroad within Wiican arene cash awards to “Most Outstanding Citizens of Baguio”) d. abroad abroad abroad © Dividends from foreign corporations 2 ~ : www.certscollege.org: uc cpa review uc cpa review www.certscollege.org Www.reviewer-online.comTAX.O-1403.General Principles on Income Taxation, Rf res 8. Deferred Payment Sales few th fact production’ price ~ the value as transfer price of the factory to the selling 1. Installment method ~ applicable in'the following three cases only: ’ bh hear the selling price of the commodity transferred.* 5 . a. Sale of personal property by a dealer Without factory oF production price ~ the portion deemed earned within the Philippines is: b; ” Cagual sale of personal property where: (Property value, Philippines/ Property value, world) * 507% of income R a. _ selling price is over P1,000.00 (Gross sales, Philippines/ Gross sales, world) * 503% of income Me b. initial payment do not exceed 259 0Rtheselih: pHs F carned orn the PHIIDDINES © property is of a kind which would be included inthe taxpayer's inventory if a) Manuifacturing/incora hand at the close of the taxable year ¢. Sale of real property where the initial payment do not exceed 25% of the selling pric TAX ACCOUNTING PERIODS fod of times Income taxation would require adoption of an fal Poyinetip~eferstspayrents which the sella recaves upon te Rg Gross income accra oe ace the income, The NIRC provides that “‘axable Income shall be instruments of sale and those scheduled to be received in the year of sale of disposition @ rasta earth bask ofthe taxpayers eal accounting period in accordance with the methods, It simply means “total first year payments” but do not include receipts of eviderice of Recut each employed in keeping the books of such taxpayer.” indebtedness of the buyer such as notes. Deferred payment basis - applicable when the buyer has issued evidence of obligation of tax accounting periods: (notes). The notes stiall be valued at its market value at the date of receipt. The difference Sa eer ies fh saiod nding December 34 and is applicable to: between the fair value and the face value is reported as, interest income in future taxable a. Calendar year the 12-month parlor’! < period, This is an alternative to delaying tax payments when the installment method is not ing’peri han the i %y taxpayers who do Rt Keep books d. taxpayers‘with actounting® periods other tl bon Eo ee _ ‘Eee | actounting period 1. Percentage of completion ~ this is applicable ‘ony to long-term construction contracts ea eee ae ani saa ain the last day of any month other than December 31°. covering’a period in excess of one year (Architect or engineer's certification is required) Li del sabia raat eae tt 2. Completed contract basis ~ gross inconié is recognized upon completion of construction This is Not available to non-corporate taxpayers ae ‘ i i rt accounting period may arise in Farin intone Normally, accounting period are uniformly 12 ina ate Crop year basis ~ applicable only to féiihers engaged in the production of crops which takes more shercvowing case ’ 3. dissolution of'a business than a year from the time of planting to the process of gathering and disposal, Expenses palid or eee ikaieeseoed 4. changes in accounting period incurred are deductible in the year the gross income from the sale of the erops is realized, 2. newly organized business, Jeaséheld inrprovement } 1, Qutright method — the Value of the leasehold improvement attributable to the lessor I day of the fourth month following the clase of the taxpayer's taxable reported in taxable income at the time of completion of the leasehold. Spread-out method ~ the value of the leasehold improvement attributable to the lessor ih recognized in taxable income over the lease term a. Individuals TAX PAYMEN & Tax shall be paid on the 15" year TAX ACCOUNTING HODS 0 a4 the reporting of items of gross incom would be consistent, tax accounting methods should ball Reminders on Tax Accounting Methods: 2. Absence of accounting method or use of one that do not clearly reflects the income applied such as the following: Ifthe taxpayer has no accounting method or if the method employed does not cleatly reflect aon inet wthéd — income is recorded in the yeor itis actually or constructively received the Income, the computation shall be made in accordance with such method as in the + apensed até generally reported in the year i's paid a opinion of the Commissioner clearly reflects the income. 2 sthod ~ income is reported in the year it is earned and expenses are deductes Consolidation of gross income from two or more methods ; 2, Acetlial Mahe If 2 taxpayer adopted the.cash basis and accrual basis in accounting for income earned on yar athe combination of both cash basis and accrual basis method separate trade or business, he may opt to combine the two income determined {rom the a iva aaerceepunaoe respective methods as a consolidated income for tax purposes. Change of Tax Method + - Prior BIR approval is required od a Nee wiaviawer Online.com Www.certscollege. org uc opa review uic epa review ‘www. certscollege.org www.reviewer-online com www, 4 = ——TAX.0-1403.General Principles on Income Taxation,RN If the taxpayer changes its accounting methods from accrual to installment. methed, he z . Every resident alien on income fi ins should include in future periods the collection of receivables in future gross income. 7" rom sources within the Philippines; and : Every non-resident alien engaged in trade or business or in the exercise of profession in the ‘ing future periods i it exer beret pale See A se ee Philippines, on income from sources within the Philippines periods expected to be benefited by the expenditure. Who are not required to file individual returns for income tax? Advanced receipt of items of gross income : i 1._ An individual whose gross. income, does not exceed his total. personal and additional Receipt of income in advance is taxable in the year of receipt. exemptions, except those engaged in business or profession An individual with respect to pure compensation income, derived from sources in the Philippines, the income tax on which has been correctly withheld, except those with concurrent employment ‘Type of Taxpayers 3. An individual whose income has been subjected to final income tax. Individuals 4. An individuals who is exempt from filing income tax returns in pursuant.to other provisions: Citizens — of the Tax Code and ather laws. 4, Resident 7 2, Non-resident Where to file income tax returns? 2 “Income Taxable in the Philippines Earned Philippines Earned Abroa Aliens 1 Authorized agent bank 1) Resident 2. Revenue District Officer 2, Non-resident 3. Collection Agent * a. Inbusiness nf 4. Duly authorized Treasurer of the'city of municipality in which the ‘taxpayer has his legal bi Not in business mG ae residence or principal place of business in the Philippines or Fstate and Trusts sane) ale eaneiyee 5. _ Office of the Commissioner if the taxpayer has no legal residence or place of business In the Philippines fe |. Corporations ‘ 5 A. Domestic : nee . Payment of income Tax B. Foreign P 1, Outright 4. Resident 2, Installments (for indi 2. Non-resident. L* The Networth Method C i PHivsines flint the “self-assessment method” wherein taxpayers determine their gross The Networth Method serves as a 88st of the existence of income when not specifically disclosed, income, prepare thelr income tax returns and pay the tak accordingly. The return filed is brestmedl] posstole Gross income = Personal Expenditres + Change in Networth* correct unless proven otherwise by the government. However, in cases of failure to file a return, the Commissioner of Internal Revenue shall file a return from best available information and such returAll «the change in Networthis computed ast {hus filed is presumed correct. The taxpayer has the burden of proof In this case. The same rule applies when tax authotities has reasons to believed that the tax return of the taxpayer is grossl eset ' cnesice “ sonido less: Assets, beginning - _Liabilities, beginning = Networth, beginning, Change in.networth - Income tax return is required for items of gross income that are subject to: The possible gross income Is generally taxable, excent when tent i 1. Regular Income Tax (quarterly and annual consolidated return) 1. Is excluded by law, contract, treaty, public policy from taxation 2. Capital Gains Tax (per transaction and an annual consolidated return) 2, testi rentadanonat intestine 3. is not income for income tax purposes (i.e. does not meet’ the’ three characteristics of gross Who shall file income tax returns? income) 1, Every resident Filipino citizen S tt 'y non-resident Filipino citizen on his income from sources within the Philippines _ wwwrevieweronlinecom ___ www.certscollege.org uc cpa review cae aaa ammotrenhTAX.O-1403.General Principles on Income Taxation. Mi 7. Which is an item of Bross income? A. Tariff collected by the Bureau of Customs from the government B. License fees collected by the Professional Regulation Commission Bee ie utc houlder government €.__ Income of a government-owned and controlled corporations 1403.General Principles on Income Taxation.MC MULTIPLE CHOICE QUESTIONS - In particular, income is taxed because ‘A, Whena person receive an income, 8. Other sources of government revenues may not ‘expenditures © “It represents the pri pan D. It represents the best indicator of one’s ability to pay mary source of government revenue aside from business tax Alexander is a foreign currency speculator. He currently héld $100, PAO/S1. At the close of his business on December 31, 2008, statement is correct? A. The appreciation will be subj realized benefit. ° ,000 dollar purchased by hin at 2 dollar Was selling P50. Which 1 ne perinen Yect to tax since transaction in currencies is presumed to he 9 A, The pertinent item of income that is subject to po er i that is subject to final tax rate: The pertinent item of income \ ae that are actually realized in cash or property. be eet tt gotten rei h remittance from its sister company, DEF Company, to ABC Company received a P1,000,000 cas! ef ganrany AEE Fomnea Re rove hat the ets be remitted to its home office HU Company. Which statement Ne nat sents a return of capital 9. ethic the following represents an item of gross income?” A, Not taxable since ans Company by means of an actual receipt evaliston surge oe Males B. | Taxable since it is realizes ior 8. Local tax refund C,Appreciation in the value of land e eftol Local tax refu ble since the item, although a received inicagh, did not redound to the ben a ©. Not taxable since the item, D- Return of premium in a life insurance poliey i 40. Which is not an item of gross i 2 i ‘ABC Company. sitio ae . Taxable since taxation fs the rule, exemption is the except we eta tem fai standing P:10-par ordinary share at P2 per Paeeana tans tage {tin THE Corporation for P15 per share. * ©. Winnings THE Corporation declared dividends to its 100,000 outs Cc investment ce a 2 . share, ABC bought its 10,000 Se ‘of P140,000, Which statement is correct? 1. Wich cannot be subjected to incomeitai? ABC have already received cumu ds wil Be subject to income tax since it represents excess over A. Exemplary damages Only P10,000 of the dividends w . © Proceeds of crop insurante rf C. Damages awarded from: tent infri cost (i.e. return on capital) turn of or on capital is subject to ‘patent infringement suit The P20,000 dividends will Be subject to tax since both retur Dias ome i" re ah 20,000 dividends will be subject to tax because it sees 1}. Only P10,000 of the dividends will be subject to income tax sin A 8 return on capital. era bane setual 12, Allof the following cannot be subject to income tax, except? A. Proceeds of life insurance of a director n B. Excess of the proceeds of the lif Moral damages axation? i Which is not sublet to come et ‘iceerenennanene D.. Tuition fee eared by Benguet State University income from properties recei 3 i ike Ha eerie 1B. ee Sengla Tumba is an organized nén-stock, non-profit fratethal organization. In order to fund aa arg uishe ape eee Summer activity, Bassagulero, its members purchased ahd sold Souvenir merchandise to local Sate ea Nate tourists, The total profit generated by the fund raising activity was 200,000, The members further contributed P100,000 as additional funding for the activity. Which Statement Is eorrect? Fics teemeteieien A. Allreceipts of Toma Sengia Tumba are subject to income tax 1 ompensale for persona © Onl the 100,000 membership contribution is subject to Income tax. Soe ee ign mover C. Allreceipts of Tama Sengla Tumba are exempt from income tax €. Income of residantallens abroad | ec, 2 Goa aagane stirs oom me and sale Business Income from jueteng eceived by the corporation as beneficiary realized. Je insurance over premium pal by the taxpayer D. uc cpa reviewssggp “cba review —— "Wit eertscollogo or OO op li WWW. www. reviewer Online.com www reviewer-online com1403.General Principles on Income Taxation. MC physically transferred to a 14, Under the NIRC, income is received not only when it is actually or u person but even when its merely constructively recelved by him. An example of income constructively received is th Rental payments refused by the lessosr, when the lessee tendered payment and the latter made a judicial deposit of the rental due, B. Interest coupons not yet due and. payabie. C._ Interest on savings deposit not yet credited to the account of the depositor. D. Advanced deposit made by the lessee, 15. Which of the following is considered or construed as an example of constructive receipt? A. Retirement benefits, pension, gratuities. B. Fees paid,to a public officials. C, Interest coupons that have matured and are payable but have not been cashed. D. Deposits for rentals to answer for damages, restricted as to use. 16. Which is not subject to final tax? : : ‘A, Winnings not exceeding 10,000 C. Dividendsfrom a resident corporation B. Royalties D. interest frm deposit substitute 17. Which is a correct statement? My A. Anitem of income by an individual that is subject to final tax can still be subject to progressive rates, g B, Final tax rules do not apply with corporations since they are taxed under a globalized scheme C. Incase of individuals, an item offintgme that is subject to final tax cannot be subjected to progressive tax, b.Anitem of income of an individual that is exempted by final tax is always taxable under progressive tax. 18, Under individual income taxation, which is subject to progressive rates? A, Cash reward for tax informers C. Book royalties B. 10,000 prizes 'D. Share in the net profit of a general professional partnership 49, Allof the following income is considered earned within, except one. Choose the exception. |k. Interest income from notes issued by a non-resident alien B, Dividends paid by a non-resident foreign corporation C. Management advisory fee earned from a foreign client abroad 1D. Dividends declared by a domestic corporation received a non-resident alien investor J i0 ue cpa review | www.certscollege.org www reviewer-online.com TAX.O-1403.General Principles on Income Taxation, MIG JITUS APPLICATIONS 0. THY, a resident foreign corporation, declared P500,000 dividends on July 4, 2008; to its 100,000 n 2, vc cpa review outstanding ordinary shares, Becky holds 20,000 of THY's ordinary shares. The corporation ha just started operation 3 years ago and has significant Philippine operation since its start-up. Details of the gross income of THY is shown below: Gross Income: 2005 ot 22007. 2008 Philippines P 4,200,000 P 4,000,000, P. 6,000,000 Abroad 2,800,000 2,000,000 4,000,000 How much of the dividends received by Becky is considered earned within the Philippines anc the pertinent tax scheme that would apply? A. P56,000; final tax B, PP56,000; progressive tax €.P52,000; final tax 1D, P52,000; progressive tax A resident alien rendered professional advisory services to foreign businesses earning him 2,000,000 professional fees. The professional fee is A. exempt from the Philippines. 8, taxable from the Philippines. C. taxable both in the Philippines and abroad, D. neither taxable in the Philippines nor abroad. Which income is considered purely'¢arned inidbroad? A. Amerchandise purchased abroad and sold in the Philippines B, Amerchandise purchased in the Philippines and sold abroad . Amerchandise manufactured in{the Philippines and soid abroad D. Amerchandise manufactured abroad and sold in the Philippines When real property is sold at 8 gain, thesitus of taxation is A. the residence of the ownéf. C. the place where the deed of sale is executed, B._ the residence of the buyer. D. the place where the property is located, Darrel Asuncion; a resident citizen owned a commercial building in Las Vegas. The building was currently leased to'a resident Pilipino who pays P50,000,000 rental annually, The rent is considered A. eared abroad. 8,” earned in the Philippines: . earned within the Philippines. D. partly within and partly outside the Philippines: An Indian citizen who married a beautiful Filipina wife owns a building in the United States and leases the same to businesses owned by Filipino residents. The indian national has his residence in the Philippines and all his children are studying in elite Philippine universities. Which is true? A.” The rental income of the Indian national is taxable in the Philippines because he had his residence in the Philippines. B, The rental income of the Indian national is taxable in the Philippines because: he married beautiful Filipina wife and his family is resident in the Philippines, ioe ‘www.certscollege.org vaww-reviewer-online comjeneral Principles on Income Taxation.MC €. The rental income of the Indian national is taxable in the Philippines because he derives his income from Filipino resident lessees. D, The rental income of the Indian national is exempt in the Philippines because the property is located abroad. Benzon, a non-resident alien, invests in the capital stock of a domestic corporation. Benzon subsequently sold this to another non-resident alien at a gain of P20,000. Which is true? The income is taxable in the Philippines because domestic securities are by situs rules situated herein. ‘The income is exempt in the Philippines because the place of sale applies with sale of personal property. The income is exempt in the Philippines because the resident of the seller applies with sale of personal property. The income is exempt in the Philippines because both non-residents are involved in the transaction. INCOME TAXPAYERS 27. Which is not an income taxpayer? A. Business partnership B. Non-resident foreign corporation ©,Non-resident alien D. Geberal professional partnership Which of the following individual taxpayers is fot covered by progressive tax? A. Resident citizen B. Resident alien C. Non-resident alien engaged in trade or business D. Non-resident alien not engaged iitrade or business The following are not separate income taxpayer, except? A. Revocable trusts * B, Non-resident alien, not engaged in business C, Estates under extrajudicial settlements 1D. Joint ventures'engaged in construction projects or energy operations in pursuant to. an operating consortium agreement under service contract with the government. Co-ownership ‘A business partnership that is organized in the Philippines but dominantly operates abroad is classified under the NIRC as a A. domestic corporation B. resident corporation C. non-resident corporation D. absentee corporation A corporation doing business in the Philippines but is not organized according to Philippine laws classified as ‘A. domestic corporation "B._ resident corporation TAX,0-1403,General Principles an linaiiie Taxation. MC C. non-resident corporation engaged in business D, non-resident foreign corporation 42. All of the following taxpayers are taxable even on income earned outside the Philippilies, exept A. Domestic corporation © Resident alien B, Resident citizen D. None of these 13, All of the following are taxable only on income earned within the Philippines, except A. Resident alien . Non-resident alien B.... Resident citizen D. Non-resident citizen M4, Analien who arrived in the Philippines during the year and showed proof to the satisfaction of the CIR regarding his employment in the Philippines for an extended period of time. A. Resident alien B. Resident citizen C. Non-resident citizen engaged in trade or business, < D. Non-resident citizen not engaged in trade or business 35. In default of intention, an alien who is resident in the Philippines for 6 months is considered A. Resident alien 8. Resident citizen C. Non-resident citizen engaged in trade orbisiness D. . Non-resident citizen not engaged in trade dr-business. 36. A resident alien naturalized in accordarice with law A. Resident alien ; B. Resident citizen A C... Non-resident citizen D... Non-resident alien engaged in trade or business TAX ACCOUNTING PERIODS AND METHODS 37. Which |s incorrect? The calendar year accounting period is applicable to A. individual income taxpayers only B, taxpayers who do not keep book or with no annual accounting period C._ taxpayers with other than fiscal accounting period D.... individuals and corporations 38, Which js correct? The fiscal accounting period is applicable only to A. domestic corporations. C, corporations and individuals by election. B,_. resident corporations. D. Any taxpayers who are not individuals. 39. A short accounting period may arise under the following scenarios, except one. Select the exception? a: When taxpayer dies — WWW. FeViewer-online.com www.certscollege.org uc cpa review www.reviewer-online.com ucepa review Www.certscollege.orgles on Income Taxat b. When a business is dissolved, ©. When the Commissioner of Internal Revenue terminates the taxpayer's accounting period. d, When an individual taxpayer changes his accounting period to a fiscal year. 40, DEF Corporation changed its accounting period from a calendar year to a fiscal year ending evel March 31. DEF Corporation should file its annual income tax return not late than a. April 45 c.tune 15 b. August 15 d. July 15 41, Bee Jay, a resident citizen, changed its accounting period for internal reporting purposes from a calendar year to a fiscal year ending every June 30 after a significant change in the nature of hi business. Bee Jay should file fts annual income tax not later than a. , June 30 ¢. October 15 b. September 15 d. April 15 42. Gross income is reported partially in each taxable year in proportion to collections made in such period as it bears to the total contract price refer to a. Crop year basis method ¢. Percentagé of completion basis method b. Accrual method dy Jnstallment sales method 43, Which is incorrect regarding a change in accounting period by non-individual taxpayers? a. IF the change is from fiscal year to calendar year, a separate final or adjustment return shall be made for the period between the close’bf the last fiscal year for which return was mad and the following December 34 If the change Is from calendar yeaPto fiscal year, a separate final or adjustment return shall be made for the period between the close of the last calendar year for which return was made and the date designated as the close of the fiscal year I the change is from one fiscal year to another fiscal year, a separate final or adjustment return shall be made for thé period between the close of the former fiscal yeat and the date designated as the close of the new fiscal year IF the change is from fiscal year to a calendar year, a separate final or adjustment returns be made for the period between the close of the last calendar year and the last fiscal year 44, Starting August, 2008, ABC Corporation changed its accounting period from a fiscal year ending every June 30 to the calendar year. Which statement is correct? ABC Corporation should file an adjustment return on April 25, 2009 covering the periad of July 1, 2008 to December 31, 2008, ABC Corporation should file an adjusted return on April 15, 2009 covering the period of ‘August 1, 2008 to December 31, 2008, ABC Corporation should file an adjustment return on October 15 covering the period of January 1, 2008 to June 30, 2008 ABC Corporation need not file an income tax return until April 15, 2009 14 www.reviewer-online.com wwnw.certscollege.org uc opa review 48 TAX.Q-1403.General Principles on Income Taxation.MC Effective February 2008, DEF Corporation changed its accounting period from a fiscal year ending every January 31 to another fiscal year ending every August 31. Which is correct? a. DEF Corporation should file an adjustment return covering the period covering August 31, 2007 to August 31, 2008. b. DEF Corporation should file an adjustment return covering the period January 1, 2008 to ‘August 31, 2008 c.. DEF Corporation should file an adjustment return covering the per August 31, 2008. ; d. DEF Corporation should file an adjustment return covering the period of August 31, 2008 to December 31, 2008. \d of February 1, 2008 to Which is correct? a, . The installment method of reporting income is applicable only to dealers in property. b, The installment method can be availed only by any taxpayer when the initial payment do not exceed 25% of the selling price of the property sold. c. The casual sale of personal property cannot avail of the installment method if the selling price is below P1,000 , 4, Dealers in real properties can always avail of the installmerit method. On July 1, 2008, Eliazar sold a real property for P600,000, 10% down-payment is due upon signing of the contract of sale. The balance is payable as follows: 15% December 31, 2008; 50% March 31, 2009; 35% July 31, 2009 e Since the property is classified as ordinary asset only the gain of P300,000 is subject to progressive tax. How much of the gaifi's taxable in 2008? a PO c. P300,000 b. P6000 d, P70,500 8. The following accounts relates to book of Zeus, a dealer of household appliances: 12/31/2006 12/31/2007, Installment sales P 1,000,000 P 2,000,000 Cost of installment sales 500,000 1,100,000, 2007 installment receivables - 500,000 2006 installment receivables 300,000 50,000 How much taxable gain is to be reported in 2007? a. P4,750,000 b. P800,000 ¢. P675,000 d. P300,000 15 Uccpa review ‘www.certscollege.org. www. reviewer-online.com49. Which is incorrect regarding change in accounting methods? A. Ifthe taxpayer changes from accrual to installment basis, he should include the amounts received from sales or other dispositions of property made in any prior year in the computation of his income for the year of. ‘change or any subsequent year. B. “Any change in accounting method or accounting period require the BIR’s approval C._ Ifa taxpayer adopted the cash basis and the accrual basis in computing income earned on separate trade or business, he may opt to combine the two income determined from the respective methods as a consolidated income for tax purposes D the taxpayer changes from accrual to installment basis, he should include only receipts th relates to current sales or dispositions 50. On October 1, 2008, Vicky sold one of her business establishment (ordinary asset). The land and building cost Vicky 10,000,000 and was sold for P44,000,000. 500,000 was paid upon the Signing of the contract, The establishment is subject to P11,000,000 real mortgage and is to be assumed by the buyer. Compute the amount taxable gain to be reported in 2008, ‘A. P500,000 C. P4,000,000 8. 5,000,000 D. P625,000 51. On December 31, 2008, Carlo received P100,000 notes due April 1, 2009 as payment for his business advisory services from his client. The notes can be discounted at various bank at 96,000. Under deferred payment method, how much is taxable in 2008 and in 2009? A. P100,000; PO £ C. P4,000; P96,000 8B. P96,000; P4,000 “yD. PO; P100,000 The following computations were shéWn,by the taxpayer as support of his GAAP income uhder the accrual basis: _ Gross profit from cash and credit sales P.500,000 Rental income: at Cash rentals received P 300,000 Unearned rent, beginning 100,000 Unearned rent, end (80,000) — __350,000 Other Income: P 850,000 Unrealized gain on trading securities 50,000 Total income 2.900,000 Determine the income for taxation purposes. A. P800,000 C, P900,000 B. P500,000 D. P9S0,000 1 | 5A, ‘TAX.O-1403.General Principles on income Taxation. MC Mr, Mario was alleged to have under-declared his income during the previous year. An examiner conducted an evaluation of Mr. Mario based on his statement of assets and liabilities. The following information were available: 10,000 Declared asset, beginning of the year ; Pe Be tp Discovered undeclared assets existing at the beginning of the year sae Declared liabilities, beginning* Oe Ending assets as evaluated, inclusive of discovered undeclared assets 000 Ending liabilities as evaluated 7 *40% was discovered unsupported and apparently fictitious in the same period, Mr. Mario donated a parcel of land out of its declared asset with a declared value of P200,000. Mr. Mario also presented a lists of his personal and family expenditures aggregating P150,000 during that year. Using the net worth method, what is Mr, Mario’s possible income? A. P70,000 c. P420,000 a 8. P270,000 D. P220,000%, Income tax return may be filed on the following, except ‘A. Authorized agent bank 8. Collection agent of the BIR C, Authorized City or Municipal Treasurer \* D. Barangay treasurer of the taxpayer's residénce 17 Wwww.reviewér-online.com www.certscollege.ore uc cpa review cepa review www.certscollege.org ‘www. reviewer-online.com