Allowable Deductions

1st Statement : Exclusions are receipts which are excluded from the gross income, hence, do not form part of the gross income. 2nd Statement: Deductions are allowable items or amount that can be subtracted from the gross income to arrive at the taxable income.a. true, trueb. false, falsec. true, falsed. false, true

2. Taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship are allowed to deduct the ff. except:Basic personal exemptionAdditional exemptionPremium payments on health and/or hospitalization income.Ordinary and necessary expenses paid or incurred during the year.

3. One of the ff. is not a requisite for the deductibility of business expenses.The expenses are ordinary and necessary.The expenses are paid or incurred during the taxable yearThe expenses are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of profession.As long as business related, the expenses do not necessarily have to be substantiated with sufficient evidence, such as official receipts or other adequate records.

4. The ff. are examples of corporate expenses deductible from gross income except:Representation expenses designated to promote business.Contribution to drum up business, like contributions of soft drinks to barrio fiesta.Expenses paid to an advertising firm in order to create favorable image for the corporation.Premium on life insurance covering the life of an employee if the beneficiary is the heirs.

5. A business partnership leased a condominium unit in Makati for use as its office. The contract was properly classified as a capital lease. It paid P50,000 monthly to the condominium owner. For income taxation, the monthly payment was:Deductible as rent expenseDeductible as payment of amortizationNot deductible because the taxpayer was taking title and would become the owner of the condominium unit.Not deductible because the payment was not reasonable

6. 1st St.: The term entertainment, amusement and recreation expenses includes representation expenses and/or depreciation or rental expense relating to entertainment facilities. 2nd St.: The term entertainment facilities shall refer to a yacht, vacation home or condominium and any similar item of real or personal property used by the taxpayer primarily for the entertainment, amusement or recreation of guests or employees.true, true c. true, falseb. false, false d. false , true

7. One of the ff. is not deductible from the gross income of the employer.De minimis benefits given to employeesFringe benefits given to rank and fileSSS, GSIS, Philhealth, HDMF and other contributionsCost of advertising to influence legislation.

8. A taxpayer is engaged in trucking business. He finds it more profitable to violate the color-coding ordinance and other regulations restricting the use of motor vehicles on specified days or hours of the day. He regularly pays the legal fines. For income taxation, the fines are:Deductible because they are paid or incurred regularly and are attributed directly to the business.Deductible because they are ordinary and necessary.Not deductible because the allowance thereof frustrates sharply defined public policy.Not deductible because the amount is not specified.

9. A private educational institution had capital outlays of depreciable assets for expansion of school facilities. For income taxation, the private educational institution may:Deduct the capital outlays as expenses during the year.Depreciate the cost over the estimated useful lifeDeduct the capital outlays as expense during the year or depreciate them over the estimated useful life at its option.Deduct the capital outlays as expense during the year or depreciate them over the estimated useful life at the option of the BIR

10. First Statement: As a rule, the interest must be on an indebtedness of the taxpayer, otherwise, it is not deductible. Second Statement: Interest paid by the taxpayer on a mortgage upon real estate of which he is the legal or equitable owner, even if he is not directly liable upon the bond or note secured by such mortgage, may be deducted as interest on his indebtedness.True, truec. True. FalseFalse, Falsed. False, True

11. At the option of the taxpayer, interest incurred to acquire property used in trade or business or exercise of profession may be:I- allowed as deductionII- treated as capital expenditureBoth I and II are correctBoth I and II are incorrectOnly I is correctOnly II is correct

12. Taxes paid or incurred within the taxable year with the taxpayers profession, trade or business, shall be allowed as deduction except:Philippine income taxForeign income tax claimed as tax creditEstate and donors taxAll of the choices

The term taxes means taxes proper and no deductions shall be allowed for amounts representing interest, surcharge, or penalties incident to delinquency. Taxes are deductible as such only by person upon whom they are imposed.a. both statements are correctb. both statements are incorrectc. only first statement is correctd. only the second statement is correct.

14. One of the ff. is not a requisite for deductibility of loss.The loss must be that of the taxpayerThe loss must be actually sustained and charged off within the taxable yearThe loss must be evidenced by a closed and completed transactionThe loss must be compensated for by insurance or other form of indemnity

15. Losses are deductible only by the corporation sustaining them, thus, the loss suffered by a corporation which has a separate personality from its stockholders, cannot be deducted by the latter.In case of a nonresident alien individual or foreign corporation, the losses deductible shall be those actually sustained during the year and incurred in business, trade or profession conducted within the Philippines , when such losses are not compensated for by insurance or other forms of indemnity.false, falsec. false, trueTrue, falsed. true, true

16. It denotes an accident, a mishap, some sudden invasion by a hostile agency, and excludes the progressive deterioration of property through a steadily operating cause.CasualtyBusinessAbandonmentWager

17. A coconut plantation in Masbate was destroyed by cadang-cadang infestation starting 2010. By the end of the year, more than of the plantation was worthless. Towards the middle of 2011, the plantation was totally destroyed.When should the loss be deducted?20102011Any year as the taxpayer choosesCannot be deducted in any year.

18. One of the ff. loss is deductible:Loss caused by the steady weakening of the building due to normal wind and weather conditions.Loss due to termite or moth damageLoss resulting from car accident due to willful negligence or willful act.Loss resulting from car accident because of faulty driving.

19. A taxpayer is engaged in jewelry business. The car door is accidentally slammed in her hand, breaking the setting of a diamond ring which he is carrying as a sample demonstration to a prospective buyer. The diamond falls from the ring and is never found. The loss is :Not deductible because it was caused by carelessness.Deductible as a casualty loss.Not deductible because loss of jewelry is generally not deductibleDeductible because diamonds are precious.

20. NOLCO shall be availed of on a:First-in, first-out basisLast-in, last-out basisWeighted average basisNone of the basis

21. It refers to the amount due to taxpayer whether as money lent or uncollected income from goods or services rendered but have become worthless or uncollectible, in part or in whole.Bad debtsSecuritiesLiabilitiesRestructured debts

22. One of the ff. is not a requisite for deduction of bad debts:a. The debt must have a maturity of not more than 5 yearsb. There must be an existing indebtedness to the taxpayer and these must be valid and legally demandablec. The debt must actually be charged off the books of accounts of the taxpayer as of the end of the taxable year.d. The debt must actually be ascertained worthless and uncollectible as of the end of the taxable year.

23. It is the gradual diminution of the useful value of tangible property resulting from wear and tear and normal obsolescence. It is also applied to the amortization of intangible assets whose use in the trade or business is definitely limited in duration.DepreciationDepletionObsolescenceBad debts

24. It is the exhaustion of natural resources like mines, oil and gas wells due to production.DepreciationDepletionAmortizationWasting assets

25. It means expenditures paid or incurred during the development stage of the mine or other natural depositsIntangible cost of petroleum operationExploration costDevelopment costDepreciable cost

26. Bad debts to be deductible from gross income for income tax purposes.Must be charged off during the taxable yearMust be set up as reserve for bad debtBoth of the aboveNeither a or b

27. So that worthless securities may be allowed as deduction from gross incomeThey must be ordinary assetsThey must be capital assetsBoth of the aboveNeither a or b

28. Statement 1: Bad debt is an expense in the book of accounts when a provision is made for it.Statement 2: Bad debt is deduction from the gross income when the account is written off.Both statements are trueBoth statements are falseStatement 1 is true; statement 2 is falseStatement 1 is false; statement 2 is true

29. A store building was constructed on Jan. 2, 2005 with a cost of P570,000. Its estimated useful life is 16 years with a scrap value of P70,000 after 16 years. In Jan. 2010, replacement of some worn-out parts of the building costing P50,000 was spent. After the repairs, the building was appraised with a fair market value of P770,000. The allowable deduction for depreciation for the year 2010 assuming straight-line depreciation method is used is-P35,795 b. P43,750 c. P49,432 d. P31,250

Construction cost570,000Less: scrap value 70,000Depreciable cost 500,000Less: depr from jan 2, 2005 to jan 2010(500,000/16 x 5) 156,250Book value 343,750Add: capital expenditure 50,000New depreciation base 393,750Depreciation-2010 (393,750/11) 35,795.