You are on page 1of 14

36

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

CHAPTER 7

DEALINGS IN PROPERTY
Problem 7 1 TRUE OR FALSE
1. False Receivable not related to the main conduct of business are capital assets.
2. False Depreciable assets primarily used in business are ordinary assets.
3. True
4. True
5. True
6. False Regardless of gain or loss, a tax should be paid when the shares of stock are
sold in the stock market because the basis of tax is the selling price.
7. True
8. True
9. True
10. False For ordinary loss, the same; but for capital loss not the same because there is
not capital loss carry over and not holding period for corporation.
11. True
12. False No, because the 6% final tax is based on the higher of the selling price or
zonal value. If there is loss on sale, the normal tax rate if preferable.
13. False Not subject to creditable withholding tax.
14. False whichever is lower
15. False subject to income tax (capital gains tax).
Problem 7 2 TRUE OR FALSE
1. True
2. False equipment used in business operations is an ordinary asset.
3. True
4. False The basis is the fair market value at the date of donation.
5. False - the speculator sells securities which he does not own.
6. True
7. True unless sold by dealers of securities
8. False Ordinary assets
9. True
10. False There should be no capital gain or loss.
11. True
12. True
13. True
14. True
Problem 7 3 TRUE OR FALSE
1. False Not subject to capital gains tax because the issuance is original and the shares
of stock is owned by the corporation.
2. True
3. True
4. True
5. False Losses from wash sales are not deductible.
6. False no wash sales if there are two kinds of shares of stocks
7. True
8. True
9. True
10. True
11. False The final tax should be 30% is based on the gross income.
12. True

37

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

13. True
14. True
Problem 7 4
1.
D
2.
A
3.
None of the choices all are correct.
4.
A
5.
C
6.
A
7.
B
8.
A
9.
C
10.
C
Problem 7 6

Problem 7 5
1.
B
2.
D
3.
D
4.
D
5.
D
6.
D
7.
C
8.
D
9.
D
10. D
11. A

A
Ordinary
assets
P100,000
50,000

Goods for sale


Trade receivables
Investment in property
Land and building for business
Delivery truck
Car for personal use
Correct amount of assets

Capital assets

P200,000
500,000
250,000
.
P900,000

Problem 7 7
1. A
Selling price per 200 sq. meters
Multiplied by number of 200 s.m. sold (9,000/200)
Total sales
Less: Cost of sales (P2,000,000 x 90%)
Ordinary gain from sale of land

400,000
P600,000

P 100,000
45
P4,500,000
1,800,000
P2,700,000

2. C
Remaining capital asset (P2,000,000 x 10%)

P200,000

Problem 7 8
Fair market value
Less: Book value of car
Gain on exchange

P190,000
150,000
P 40,000

Problem 7 9
C
There is capital loss if the property given away has fair value higher than P200,000 when it
was inherited.
Problem 7 10
A
Sec.40C, NIRC. No gain or loss shall also be recognized if property is transferred to a
corporation by a person in exchange for stock or unit of participation in such a corporation of
which as a result of such exchange said person, alone or together with others, not exceeding
four persons, gains control of said corporation; provided, that stocks issued for services shall
not be considered as issued in return for property.
Problem 7 11
Acquisition cost

Not in the choices


P200,000

38

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Agents commission (P500,000 P200,000) x 10%


Processing fee (P500,000 x 1%)
Deductible cost and expenses

30,000
5,000
P235,000

Problem 7 12
C
Sales price
Cost or basis to the donee (the lower of donors cost or
the fair market value when the gift was made
Capital gain
Multiplied by holding period rate more than 1 year
Reportable capital gain

( 50,000)
P100,000
50%
P 50,000

Problem 7 13
C
Sales price
Acquisition cost (P150,000 + P20,000)
Brokers commission (P200,000 x 5%)
Capital gain

P200,000
(170,000)
( 10,000)
P 30,000

P150,000

Problem 7 14
D
The sale of the entire business is not an ordinary business transaction (Kahns Federal Income
Tax, p. 364)
Sales price
P100,000
Less: X , Capital
75,000
Capital gain
P 25,000
Problem 7 15
A
Holding period is more than 1 year = 50% of the capital gain
Problem 7 16
D
Sales price
Less: Cost or market whichever is lower)
Capital gain

P200,000
100,000
P100,000

No holding period is allowed for taxpayer other individuals.


Problem 7 17

Net business income


Capital asset transactions:
Year 1
Capital gain (long-term) = (P50,000 x 50%)
Capital loss (short-term) = (P40,000 x 100%)
Net capital loss carry over
Capital loss
Taxable income before personal exemption

Year 2
( 40,000 x 50%)
(10,000 x 100%)

Year 1
P200,000

Year 2
P300,000

25,000
(40,000)

20,000
(10,000)
(15,000)
(5,000)
P300,000

(15,000)
P200,000

Correction: The requirement should be taxable income before personal exemption.


Problem 7 18
1.
C
Ordinary gain
Capital asset transactions:
Short-term capital gain
Long-term capital gain (P30,000 x 50%)
Long-term capital loss
Taxable income before personal exemption

P50,000
P20,000
15,000
( 5,000)

30,000
P80,000

39

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

2.

B
Ordinary gain
Capital asset transactions:
Short-term capital gain
Long-term capital gain (P30,000)
Long-term capital loss
Taxable income before personal exemption

P50,000
P20,000
30,000
( 10,000)

40,000
P90,000

Problem 7 19
1. C
2. C
Ordinary net business income
Capital asset transactions:
Short-term capital gain
Short-term capital loss
Long-term capital gain (P45,790 x 50%)
Net capital loss carry-over
Taxable net income before personal exemption
Problem 7 20
1. Not in the choices = P270,000
Ordinary taxable income
Short-term capital gain (loss)
Long-term capital gain (loss) (P600,000 x 50%): (P100,000 x 50%)
NOLCO applicable
Net capital gain
Taxable income before personal exemption

200A
P48,900

200B
P85,700

15,895
(18,960)
.
(P3,065)
P 48,900

P22,895
( 3,065)
P 105,530

Year 1
P 60,000
(P400,000)
300,000
(P100,000)
P 60,000)

2. B
Ordinary taxable income
Short-term capital gain (loss)
Long-term capital gain (loss)
Net capital gain
Taxable income before personal exemption
Problem 7 21

Year 2
P180,000
P200,000
(50,000)
(60,000)
P 90,000
P270,000
P180,000
P200,000
(100,000)
P100,000
P280,000

Jewelry
M. Benz Car long term (50%)
Refrigerator
Ford Car

Selling Price
P 80,000
400,000
6,000
12,000

Cost & Expenses


P 11,000
370,000
5,000
20,500

Net Capital Gain


P
69,000
15,000
1,000
(8,500)
P76,500

Problem 7 22
A
Zero. If BPI is a dealer of debt and equity securities, the transactions related to securities are
not capital asset transactions but ordinary transactions, hence there is no net capital gain.
Problem 7 23
A
Sales of shares of stock
Basis of shares of stock (lower)
Gain on sale
Problem 7 24
A
Capital gains of November sales (P150,000 P120,000)

P400,000
( 50,000)
P350,000
P30,000

40

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Multiplied by capital gains tax rate


Capital gains tax
Problem 7 25
A
Gain per share (P110 P100)
Number of shares of stock sold outside stock exchange
Capital gain not traded in local stock exchange
Final tax rate, 5% for the first P100,000 gain
Capital gains tax

5%
P 1,500

10
1,000
P10,000
5%
P 500

Note: The shares of stock sold in the Philippine stock exchange are subject to percentage tax
of of 1%.
Problem 7 26
1.
A
Tax due and payable (P500,000 x .005)
2.

D
Gross profit (P500,000 x 30%)
Other expenses (P3,800 + P200)
Net taxable gain
Multiplied by normal corporate income tax rate
Tax due and payable

Problem 7 27
D
Capital gain (P150 P125) x 100)
Problem 7 28
D
Sale March (P120 x 500 shares)
Less: Cost (P120,000/ 1,200 shares) x 500 shares
Capital gain
1. B
Sales May (P90 x 500)
Less: Cost of sales (P70,000 x 500/700)
Loss
Nondeductible loss (P5,000 x 300/500)
2. B
Proceeds of liquidation (P100 x 300)
Less: Cost (P45,000 + P3,000)
Capital loss
Problem 7 29
1.
D
No capital gain on original issuance of companys own
stock even if issued above par
2.

C
Capital gain on reissued shares (P23 P21) x 2,000)

P2,500
P150,000
4,000
P146,000
30%
P 43,800
P2,500

P 60,000
50,000
P10,000
P45,000
50,000
P 5,000
P 3,000
P30,000
48,000
P18,000

P - 0 -

P4,000

41

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Problem 7 30
(1
C
)
Cost of the new family home (P2,500,000/P4,000,000) x P2,000,000
(2
)

P1,250,000

B
Sales proceeds
Less: Amount used to acquire new family home
Unutilized sales proceeds
Multiplied by capital gains tax rate
Capital gains tax to be paid

Problem 7 31
Basis of new residence

P4,000,000
2,500,000
P1,500,000
6%
P
90,000

D
P9,000,000

Capital gains tax (P5,000,000 x 6%)

P300,000

Since there was no tax exemption, the entire amount of acquiring the new house and lot shall
be its cost.
Problem 7 32
D
Zonal value (P700 x 500) higher
Multiplied by capital gains tax rate
Capital gains tax

P350,000
6%
P 21,000

Holding period is not applicable because the property is a real property subject to final tax.

Problem 7 33
B
Cost of original residence
Add: Excess of new acquisition cost over sales price
(P15,000,000 P12,000,000)
Basis of new principal residence
Problem 7 34
1.
C
Final tax (P1,200,000 x 6%)
2.

C
Creditable withholding tax (P500,000 x 6%)

Problem 7 35
Sales proceeds
Multiply by tax rate
Capital gains tax

P6,000,000
3,000,000
P9,000,000

P72,000
P30,000

A
P500,000
6%
P 30,000

Note: If the property is not used in trade or business, only the selling price (not zonal value)
shall be used in determining the basis of tax when the property is:
a. foreclosed by banks or
b. sold by a government corporation.

42

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Problem 7 36
B
Creditable withholding tax:
(P500,000 x 1.5%) x 4 houses
(P3,000,000 x 5%) x 2
Income tax still due and payable:
Total revenue (P500,000 x 4) + (P3,000,000 x 2)
Total costs (P200,000 x 4) + (P1,200,000 x 2)
Gross profit
Operating expenses
Net income
Multiplied by normal corporate income tax rate
Income tax due
Creditable withholding tax
Income tax still due and payable

P 30,000
300,000
P330,000
P8,000,000
(3,200,000)
P4,800,000
(2,800,000)
P2,000,000
30%
P 600,000
( 330,000)
P 270,000

Problem 7 37
1.
A
None. No withholding tax because Goldrich Realty Corporation is the buyer not a
seller.
2

A
None. No income tax is to be collected from sale of land by the government.

Problem 7 38
1.
B
Zonal value
Multiplied by capital gains tax rate
Capital gains tax
2.

3.

4.

C
Selling price
Multiplied by capital gains tax rate
Capital gains tax

P10,000,000
6%
P 600,000
P 6,000,000
6%
P 360,000

B
Zonal value
Multiplied by creditable withholding tax rate
Creditable withholding tax

P10,000,000
6%
P 600,000

B
Zonal value
Multiplied by capital gains tax rate
Capital gains tax final tax

P10,000,000
6%
P 600,000

Note: Real property tax is different from capital gains tax.


5.

C
Selling price
Multiplied by capital gains tax rate

P6,000,000
6%

43

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Capital gains tax


Problem 7 39
Selling price = P1,000,000.

P 360,000
A

Problem 7 40
B
Selling price
Less: Cost of real property lower than unpaid mortgage assumed
Contract price
Problem 7 41
B
Down payment
Excess of unpaid mortgage assumed by the buyer over the cost of real
property (P500,000 P400,000)
Initial payments

P1,000,000
400,000
P 600,000
P 120,000
100,000
P 220,000

Problem 7 42
B
Selling price
Less: Unpaid mortgage assumed by the buyer lower than cost
Contract price

P1,500,000
300,000
P1,200,000

Selling price
Less: Cost of sale
Gross profit

P1,500,000
500,000
P1,000,000

Reportable income = (gross profit/contract price) x collection


(P1,000,000/P1,200,000) x P300,000

P 250,000

Note: The unpaid mortgage has no effect on the reportable income because its value is lower
than the cost.
Problem 7 43
C
Selling price
Less: Cost of real property lower than unpaid mortgage assumed
Contract price

P1,000,000
400,000
P 600,000

Selling price
Less: Cost of real property
Gross profit

P1,000,000
400,000
P 600,000

Down payment
Excess of unpaid mortgage assumed by the buyer over the cost
(P500,000 P400,000)
Initial payments

P 120,000

Reportable income = (gross profit/contract price) x collection


(P600,000/P600,000) x P220,000

100,000
P 220,000
P 220,000

Problem 7 44
1.

Creditable withholding tax:


b. (P1,000,000 x 30 x 3%)
c. (P2,500,000 x 40 x 5%)
Total creditable withholding tax

P 900,000
5,000,000
P5,900,000

44

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Note: Sale of socialized housing of a realtor that is a member


of
HLURB is not subject to CWT if the sales price is P150,000 per house.
2.

Gross profit:
(20 x P150,000 x 25%)
(30 x P1,000,000 x 30%)
(40 x P2,500,000 x 35%)
Less: Optional standard deduction (P44,750,000 x 40%)
Net taxable income
Multiplied by corporate tax rate
Income tax due
Less: Creditable withholding tax
Income tax still due and payable

Problem 7 45
1. D
Sales in the regular course of business
Add: Sales of ordinary asset (lot used as warehouse)
Total sales of ordinary assets
Less: Cost of sales
Cost of lot
Ordinary gains / income
2.

750,000
9,000,000
35,000,000

P300,000
150,000

B
Sales of residential house and lot
Proceeds applied for the acquisition of new residential
house and lot
Amount subject to final withholding tax
Final tax rate
Final tax

Problem 7 46
Not-traded in Local Stock Exchange:
1. FIFO Method:
Sales proceeds (P200 x 350)
Less: Cost of shares sold:
December 2005 purchased (P86.96 x 100)
February 2006 purchased (P104.35 x 250)
Gain on sale on investment on stock
Multiplied by percentage of tax
Tax due and payable

P44,750,000
17,900,000
P26,850,000
30%
P 8,055,000
5,900,000
P 2,155,000

P500,000
200,00
0
P700,000
450,00
0
P250,000
P1,000,000
800,000
P 200,000
6%
P
12,000

P 70,000.00
P 8,696.00
26,087.50

34,783.50
P 35,216.50
5%
P 1,760.83

Note: The new cost per share due to 15% stock dividends is computed as follows:
December 200A purchase (P10,000/115)

P 86.96

February 200B purchase (P36,000/345)

P104.35

2. Moving Average Method:


Sales proceeds (P200 x 350)
Less: Cost of shares sold (350 x P100)
Gain on sale of investment in stock

P 70,000
35,000
P 35,000

45

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Multiplied by percentage of tax


Tax due and payable

5%
P 1,750

*Computation of the new cost per share would be:

Investment in common stocks:

December 15, 200A


February 24, 200B
Totals
Add: 15% stock dividends
Basis of cost per share
Divide by number of share
New cost per share

No. of
Shares
100
300
400
60
460

Cost/ share
P100
P120

Problem 7 47
Sales (P150 x 1,000)
Cost (P80 x 1,000)
Gross profit
Gross profit rate (P70,000/P150,000)
Percent of initial payment (P30,000/P150,000)

P150,000
( 80,000)
P 70,000
47.667%
20.00%

200A (P30,000 x 46.667%) x 5%


200B (P40,000 x 46.667%) x 5%
200C (P40,000 x 46.667%) x 5%
200D (P40,000 x 46.667%) x 5%

P700.00
P933.34
P933.34
P933.34

Problem 7 48
1. Initial Payments:
Downpayment
Installment received in 2006
Total
Add: Excess of mortgage assumed by the buyer over the cost to the
seller
(P650,000-P600,000)
Initial payments
2.

3.

Amount
P10,000
36,000
P46,000
.
P46,000
460
P
100

Selling Price:
Down payment
Installment payments P200,000 + (P300,000 x 4)
Mortgage assumed by the buyer
Selling Price

P100,000
200,000
P300,000
50,000
P350,000

100,000
1,400,000
650,000
P 2,150,000

Contract Price:
Selling price
Add: Excess of mortgage assumed by the buyer over the cost to the
seller
(P650,000 P600,000)
Total
Less: Mortgage assumed by the buyer
Contract Price

P 2,150,000
50,000
P 2,200,000
650,000
P 1,550,000

Problem 7 49
Option money not exercise
Gain on retirement of bonds[(P1,000,000 x 120%)-P1,000,000]

Loss
P 5,000

Gain
P200,000

46

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Shares becoming worthless

20,000
P25,000

.
P200,000
P175,000

Net gain (P200,000 P25,000)

Note: The gain or loss on transaction letter c is zero. In the absence of cost, the fair market
value is assumed as the cost.
Problem 7 50
Trinidad is correct. There is a tax savings of P100,000 for opting to pay final taxes.
Final tax (P3,000,000 x 6%)
P 180,000
Normal tax (P3,000,000 P2,200,000) x 30%
( 240,000)
Tax savings
( P60,000)
Problem 7 51
No, because the Loakan Corporation is not an individual taxpayer.
Problem 7 52
1. Individual taxpayer
Operating gain (loss)
NOLCO
Capital gain (loss)
NCLCO
Taxable income before p.e.
2. Corporate taxpayer
Operating gain (loss)
NOLCO
Capital gain (loss)
Taxable income before p.e.

Year 1
(P100,000)

Year 2
P50,000
(80,000)

Year 3
P30,000
(20,000)

Year 4
P80,000

20,000

10,000

( P80,000)

(P20,000)

(40,000)
.
P10,000

50,000
(40,000)
P90,000

(P100,000)

P50,000
(80,000)

P30,000
(20,000)

P80,000

20,000

10,000

50,000

( P80,000)

(P20,000)

(40,000)
.
P10,000

P130,000

Problem 7 53
1.

M as an individual taxpayer
Business income
Business expenses
Ordinary income (loss)
NOLCO
Net ordinary income (loss)
Capital asset transactions:
Short-term gain (loss) 100%

P 120,000

Long term gain (loss) 50%

Net capital gain (loss)

NCLCO
Reportable net capital gain
Taxable
income
before
exemption
2.

200A
P 200,000
300,000
(P100,000
)
.
(P100,000
)

50,000
)
70,000
.
70,000
(P
30,000)

200B
P400,000
350,000
P 50,000

200C
P450,000
400,000
P 50,000

200D
P520,000
500,000
P 20,000

200E
P600,000
500,000
P100,000

( 30,000)
P 20,000

.
P 50,000

.
P 20,000

.
P100,000

(P100,000
)
90,000

P - 0 -

P 70,000

P 50,000

10,000

(100,000)

- 0 -

(P
10,000)
.

P 10,000

(P 30,000)

P 50,000

( 10,000)

P 20,000

P 50,000

P 20,000

( 30,000)
P 20,000
P120,000

2006
P400,000

2007
P450,000

2008
P520,000

2009
P600,000

M as a corporate taxpayer
Business income

2005
P 200,000

47

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property


Business expenses
Ordinary income (loss)
NOLCO
Net ordinary income (loss)

300,000
(P100,000
)
.
(P100,000
)

Capital asset transactions:


Short-term gain (loss)

P 120,000

Long term gain (loss)


Net capital gain (loss)

( 100,000)
P 20,000

Reportable net capital gain


Taxable income

P 20,000
(P
80,000)

350,000
P 50,000

400,000
P 50,000

500,000
P 20,000

500,000
P100,000

( 50,000)
P - 0 -

( 30,000)
P 20,000

.
P 20,000

.
P100,000

(P100,000
)
180,000
P 80,000

P - 0 -

P 70,000

P 50,000

20,000
P 20,000

( 200,000)
(P130,000
)

- 0 P 50,000

P 80,000
P 80,000

P 20,000
P 40,000

P 20,0000

Problem 7 54
1.
Sales price
Less: Cost of sale
Gross income
Multiplied by percent of collection (P2,000,000 + P500,000)/5,000,000
Reportable gross income in 2009
2.

Collection (P2,500,000/5)
Multiplied by percent of gross income (P1,000,000/P5,000,000)
Reportable gross income in 2010

3.

Sales price
Less: Cost of sale
Gross income

P 50,000
P150,000

P5,000,000
4,000,000
P1,000,000
50%
P 500,000
P500,000
20%
P100,000
P5,000,000
4,000,000
P1,000,000

Note: The 25% initial payment rule does not apply for the regular installment sale of personal
property (inventory). The 25% initial payment rule applies only to the casual sale of personal
property classified as capital asset and sale of real property.
Problem 7 55
1.
Capital gains tax (P3,000,000 P2,000,000) x 6%

P 60,000

2.

Basis of the new residential home (P1,200,000 x 2/3)

P800,000

3.

Capital gains tax (P3,000,000 x 60%)

P180,000

4.

Basis of the new residential home

Problem 7 56
1.
Down payment (P3,000,000 x 20%)
Add: Excess of mortgage over cost (P1,200,000 P700,000)
Initial payment
2.

Selling price
Add: Excess of mortgage over cost
Total
Less: Mortgage assumed by the buyer
Contract price

3.

Capital gains tax in 2009 (P3,000,000 x 6%)

P2,000,000
P 600,000
500,000
P1,100,000
P3,000,000
500,000
P3,500,000
1,200,000
P2,300,000
P180,000

48

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

Note: The sale is considered cash sales because the initial


payment
is 37% of the selling price.
Problem 7 57
1.
Deductible loss Feb. 14, 2009
2.

Sales
Less: Cost of sales (P450,000 x 8/9)
Nondeductible loss Feb. 14, 2009

3.

P294,444

4.

P215,556
Original cost
Add: Nondeductible loss
Jan. 20: (P80,000 x 5/9)
Feb. 10:: (P80,000 x 4/9)
New cost

5.

Sales (P60 x 4,000)


Less: Cost of sales:
Jan. 10: (P50 x 1,000)
Jan. 20: (P294,444 x 3/5)
Capital gain

P- 0P320,000
400,000
P 80,000

Jan. 20
P250,000
44,444

Feb. 10
P180,000
35,556
.
P215,556

.
P294,444

P240,000
P 50,000
176,667

226,667
P 13,333

Problem 7 58
1.
FMV of ordinary shares (P25 x 30,000)
FMV of preference shares (P50 x 5,000)
Total FMV of shares of stock received
Less: Cost of investment in A Co. transferred (P9 x 100,000)
Nontaxable gain
2.

3.

P 750,000
250,000
P1,000,000
900,000
P 100,000

Basis of new shares allocated


Basis of ordinary shares (P900,000 x 75/100)
Basis of preference shares (P900,000 x 25/100)

Ordinary
P675,000

Selling price ordinary shares (P25 x 25,000)


Less: Cost ordinary shares - allocated
Selling price preference shares (P60 x 5,000)
Less: Cost preference shares allocated
Net gain

P625,000
675,000
P300,000
225,000

Preference
P225,000
(P50,000)
75,000
P 25,000

4.

Total sales price (P625,000 + P300,000)


Multiplied by percentage tax
Percentage tax

P925,000
0.005
P 4,625

5.

Capital gains tax (P25,000 x 5%)

1,250

6.

Tax advantage (P4,625 P1,250)

3,375

Problem 7 59
1. B Co. ordinary shares with FMV of
Land with FMV of

P220,000
50,000

49

INCOME TAXATION 5TH Edition (BY: VALENCIA & ROXAS)


SUGGESTED ANSWERS

Chapter 7: Dealings in Property

2.

Cash
Total
Less: Cost of A Co.s shares transferred
Total gain

20,000
P290,000
200,000
P 90,000

Taxable gain (is limited to the FMV of land and cash)

P 70,000

Cost of A Co.s shares transferred


Add: Cash received
FMV of land received
Balance
Gain recognized in the exchange
Basis of B Co. shares received

P200,000
P20,000
50,000

70,000
P270,000
70,000
P200,000

3.

Basis of land received FMV of land

P 50,000

4.

Capital gains tax of land (P300,000 x 6%)

P 18,000

5.

Sales price
Less: Cost
Taxable gain

P220,000
200,000
P 20,000