Chapter 20-25

D

Annabelle, single, earned Php 250,000 (gross of Php 50,000 withholding tax) compensation income from employment from July to December 2018. She paid Php 6,000 as health and hospitalization insurance premiums from July to December. For 2018, she can deduct premiums for health and hospitalization insurance of: A. Php 2,400 B. Php 1,200 C. Php 3,000 D. Php 0

D

Fil- Metal, Inc (lessee) leased a portion of the land owned by Mrs. Dy (lessor) starting July 1, 2016. In accordance with the lease agreement, Fil- Metal proceeded to construct a building on the premises which building will be owned by Mrs. Dy after the end of the 15- year lease agreement The building was finished on October 1, 2016 with an estimated cost of P2,500,000, and an estimated life of 25 years. How much can the lessee deduct as depreciation expense in 2016? a. Php 169,492 b. Php 166,667 c. Php 41,667 d. Php 42,373

B

Ms. Abby Iba purchased 1,000 common shares of DIN Company on November 1, 2017 for ₱1,000 per share, which she sold on January 15, 2018 for ₱800 per share. The sale resulted in a loss of ₱200,000. On February 1, 2018, she purchased 1,000 preferred shares of the same company for ₱900 per share, or for ₱900,000. Is the loss a wash sale loss? A. Yes B. No C. It depends on whether Ms. Iba is a dealer in securities or not. D. Not enough information to give an answer.

A

Statement 1: A tax credit is generally more effective in decreasing taxes than an allowable deduction. Statement 2: Once the option of treating foreign income tax paid as a tax credit is chosen, such foreign income tax shall be credited in full against the Philippine income tax. a. Only Statement 1 is true. b. Only Statement 2 is true. c. Both statements are true. d. Both statements are false.

D

Statement 1: All individual taxpayers who are citizens of the Philippines, regardless of residence, are allowed to claim deductions or tax credits for income taxes paid in foreign countries. Statement 2: Only individual taxpayers who are taxed on the net income basis in their individual tax returns are allowed to claim tax credits for income taxes paid in foreign countries. a. Only Statement 1 is true. b. Only Statement 2 is true. c. Both statements are true. d. Both statements are false.

D

Statement 1: All losses from sales or exchanges of property between an individual and a corporation more than 50% in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual, are not allowed as deductions whether or not the sale arises from the liquidation of the corporation. Statement 2: Interest paid or incurred on indebtedness between blood relatives, regardless of the number of degrees of consanguinity, are not allowed as deductions. a. Only Statement 1 is true. b. Only Statement 2 is true. c. Both statements are true. d. Both statements are false.

C

Statement 1: Depreciation expense is a deduction available to taxpayers to recover the costs of both tangible and intangible assets with limited useful lives. Statement 2: In the case of oil and gas wells or mines, a reasonable allowance for depletion or amortization computed in accordance with the cost- depletion method shall be granted. a. Only statement 1 is true b. Only statement 2 is true c. Both statements are true d. Both statements are false

D

Statement 1: In computing the taxable income from mining operations, the taxpayer may, at his option, deduct exploration and development expenditures accumulated as cost or adjusted basis for cost depletion as of the date of prospecting, as well as exploration and development expenditures incurred during the taxable year. Provided, the total amount of such deductions shall not exceed 30% of the net income computed without benefit of any tax incentive under existing laws. Statement 2: The election by the taxpayer in Statement 1 to deduct the exploration and development expenditures shall be available in the 1st quarter of every year. A. Only statement 1 is true B. Only Statement 2 is true C. Both statements are true D. Both statements are false

A

Statement 1: In the case of oil and gas wells and mines, when the allowance for depletion shall equal the capital invested no further allowance shall be granted. Statement 2. Before the commencement of production in commercial quantities, certain intangible exploration and development drilling costs may be deductible in the year incurred. A. Only statement 1 is true. B. Only Statement 2 is true C. Both statements are true D. Both statements are false

D

Statement 1: Research and development expenses may, at the election of the taxpayer, be chargeable to property of a character which is subject to depreciation or depletion. Statement 2: The election of a taxpayer to treat research and development expenses as deferred expenses chargeable to a capital account shall be irrevocable. A. Only statement 1 is true. B. Only statement 2 is true. C. Both statements are true. D. Both statements are false.

D

Statement 1: Research and development expenses must be deducted as ordinary and necessary expenses in the taxable year incurred. Statement 2: Research and development expenses may, at the election of the taxpayer, be amortized over a period of not more than 60 months. A. Only statement 1 is true. B. Only statement 2 is true. C. Both statements are true. D. Both statements are false.

A

Statement 1: The charitable contribution is not allowed as a deduction against compensation income. Statement 2: A pledge or promise to make a charitable contributions is adequate for a taxpayer to take a deduction thereon. A. Only statement 1 is true. B. Only statement 2 is true. C. Both statements are true. D. Both statements are false.

D

Statement 1: The contributions of an employer to a pension trust are deductible in the year they are paid. Statement 2: Past service cost contributions by an employer to its pension trust are amortized over 5 years. A. Only statement 1 is true. B. Only statement 2 is true. C. Both statements are true. D. Both statements are false.

B.

Statement 1: The cost of incidental repairs which neither materially add to the value of the property nor appreciably prolong its life may be capitalized. Statement 2: Repairs in the nature of replacement, to the extent that they arrest deterioration and appreciably prolong the life of the property, must be capitalized. a. Only Statement 1 is true. b. Only Statement 2 is true. c. Both statements are true. d. Both statements are false.

D

Statement 1: Wash sale is a sale of stocks or securities at a loss, whereby the seller acquired by purchase or exchange the same number of other stocks or securities within a 61-day period, beginning 30 days and ending 30 days after such date. Statement 2: All losses arising from wash sales cannot be claimed as deductible losses regardless of the number of shares bought within the 61-day period. a. Only Statement 1 is true. b. Only Statement 2 is true. c. Both statements are true. d. Both statements are false.

C

The following are requisites for the deductibility of charitable contributions except: A. The charitable contribution must be given to an entity or institutions specified by law. B. The taxpayer seeking the deduction must be engaged in a strade, business, or profession of the taxpayer. C. The charitable contribution must be related to the trade, business, or profession of the taxpayer. D. The net income of the recipient institution must not inure to the benefit of any private stockholder or individual.

C

The following taxpayers can claim tax credits or deductions for income taxes paid to foreign countries, except: A. Domestic corporations B. Resident citizens C. Non-resident alien individuals engaged in trade, business, or profession D. None of the above

C

This refers to any cost incurred in petroleum operations which is incidental to and necessary for the drilling and preparation of wells for the production of petroleum. Such costs shall not pertain to the acquisition or improvements of a property of a character subject to the allowance for depreciation. A. Exploration expenditures B. Development expenditures C. Intangible costs in petroleum operations D. None of the above

B

This refers to expenditures paid or incurred during the development stage of the mine or other natural deposits. It shall begin at the time when deposits of ore or other minerals are shown to exist in sufficient commercial quantity and quality, and shall end upon commencement of actual commercial extraction. A. Exploration expenditures B. Development expenditures c. Intangible costs in petroleum operations d. None of the above

A

This refers to expenditures paid or incurred for the purpose of ascertaining the existence, location, extent, or quality of any deposit of ore or other mineral, and paid or incurred before the beginning of the development stage of the mine or deposit. a. Exploration expenditures b. Development expenditures c. Intangible costs in petroleum operations d. None of the above

D

Which among the following statements about research and development is wrong? A. Such expenses may be treated as a deferred expense which shall be amortized over a period of not less than 60 months. B. Such expenses for the acquisition or improvement of land, or for the improvement of property to be used in connection with research and development and of a character which is subject to depreciation or depletion, may not be treated as ordinary expenses nor as deferred expenses to be amortized over a period of not less than 60 months. C. The method so elected by the taxpayer under Section 34(I) of the Tax Code regarding such expenses shall be adhered to in computing taxable income for the current taxable year and for all subsequent taxable years unless the commissioner approves a change to a different method. D. None. All statements are correct.

D

Which is the correct limit for charitable contributions of corporations? a. 5% of gross income before any deductions. b. 10% of taxable income derived from trade, business, or profession after deducting all allowable deductions c. 10% of taxable income derived from trade, business, or profession before any deductions for charitable contributions. d. 5% of taxable income derived from trade, business, or profession before any deductions for charitable contributions.

D

Which of the following assets can be subject to depreciation for income tax purposes? a. Goodwill of the business b. Inventory of products ready for sale c. Family home d. Company car for business travel

D

Which of the following methods of depreciation is expressly allowed under Section 34(F)(2) of the Tax Code? a. Straight line method b. Declining balance method c. Sum of the years digit method d. All of the above

A

Which of the following statements about charitable contributions of individual taxpayers is correct? A. Contributions to government-owned and controlled corporations (GOCCs) to be used for general purpose is subject to the limit of 10% of taxable income derived from trade, business, or profession before deducting any charitable contributions. B. All charitable contributions made by an individual engaged in trade, business, or profession shall be deductible C. Contributions to the Philippines National Government or to any of its political subdivisions to finance social welfare projects are deductible in full. D. All statements are correct.

B

Which of the following statements is incorrect? a. Depreciation is allowed as a deduction for the recovery of the acquisition cost of the property used in trade or business b. Depreciation includes the extent of reduction in the market value of an asset where such market value reduction is not due to wear and tear or obsolescence c. Depreciation expense is computed using straight- line method, sum- of- the- years- digit method, or the declining balance method d. All of the above.