TAXATION 1

CAPITAL GAINS & LOSSES

PROBLEM 1 – Multiple Choice

1. The term capital assets includes
a. stock ib trade or other property included in taxpayer’s inventory
b. propery used in trade subject to depreciation
c. real property not used in trade or business of taxpayer
d. property held for sale in the ordinary course of business

2. Lots being rented when subsequently sold are classified as

a. capital asets c. ordinary assets
b. liquid assets d. fixed assets

3. A taxpayer sold a 5-door apartment that is being leased at 12,000 per month per door. Which is
not true?
a. The seller is not liable to pay the capital gains tax
b. The property sold is a capital asset
c. The taxpayer is engaged in the real estate business
d. The taxpayer is regularly renting out the apartment

4. A feature of ordinary gains as distinguished from capital gains

a. Gains from sales of assets not included in inventory
b. May or may not be taxable in full
c. Sources are capital assets
d. No holding period

5. On capital gain tax on real property, which of the following statements is not true?
a. The tax should be paid, if in one lump sum, within 30 days from date of sale
b. The term “initial payment” is synonymous to “downpayment”
c. The tax may be paid in installment if the initial payments do not exceed 25% of the
selling price
d. The installment payment of the tax should be made within 30 days from receipt of each
installment payment on the selling price

6. Which of the following is considered a sale or exchange of capital asset?

a. Retirement of bonds d. Failure to exercise privilege or option to buy
b. Securities becoming worthless or sell property
c. Short sales of property

7. Losses on sale of stocks traded through the stock exchange and held as capital assets, to be
deductible must conform with which of the following rules?
a. There is no holding period hence the entire amount of capital gain or loss is considered
b. Net capital loss for a quarter is deductible in the same taxable year only
c. Capital losses when the transaction is deemed a wash sale are not deductible
d. All of the above

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PROBLEM 2 – Enumeration
1. Examples of capital assets – 5
2. Examples of ordinary assets – 5
3. Transactions which are not considered sale or exchange in accounting but are deemed sale or
exchange in taxation – 6
4. Persons or entities exempt from payment of capital gains tax – 5

PROBLEM 3
In each of the following cases, compute the taxable income before exemption:

Case 1 ; Taxpayer – Individual Case 2: Taxpayer - Individual

2006 2006
Ordinary taxable income 25,000 Ordinary taxable income 25,000
Long-term capital gain 24,000 Short-term capital gain 37,500
Short-term capital gain 16,800 Long-term capital loss 9,900
Short-term capital loss 54,300 Short-term capita loss 45,600

2007 2007
Ordinary taxable income 15,000 Ordinary taxable income 123,000
Short-term capital gain 13,700 Short-term capital gain 33,000
Short-term capital loss 8,000

Case 3: Tax payer – Corporation

2006 2007
Ordinary taxable income 234,000 Ordinary taxable income 157,500
Long-term capital gain 16,000 Long-term capital gain 86,000
Short-term capital gain 35,000 Short-term capital gain 14,400
Long-term capital loss 10,500 Long-term capital loss 46,800
Short-term capital loss 62,000

PROBLEM 4
Napulis , a resident of Pagbilao, Quezon, sold on November 15, 2012 a piece of land held as
capital asset in Kalibuyboy, Pagbilao, Quezon at a selling price of 4,800,000. The land was mortgaged
for 1,200,000 which was assumed by the buyer. At the time of sale, it had a fair market value of
5,400,000. Napulis bought the land in 2008 for 1,600,000.

The terms of the sale are: 600,000 downpayment, balance, in 5 equal monthly installments
starting December 15, 2012.

REQUIRED
Compute the initial payment, the contract price and the capital gain tax to be paid in 2012 and
2013.

PROBLEM 5
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 Sirikit, a resident of Domoit, Lucena City, sold on March 1, 2007 her residential house that
she acquired 6 years ago for 7,500,000 at a price of 15,000,000. On this date, it has a fair market
value of 14,000,000. Sirikit, immediately thereafter, constructed a new house at a cost of 10,000,000.

REQUIRED
Compute the capital gain tax on the sale and the adjusted cost basis of the new residential
house.

PROBLEM 6
The following are the transactions of Jung in the Philippine Stock Exchange:

2007
January 18 Bought 5,000 ordinary shares of A Corporation @ 120.
March 9 Sold 5,000 shares of A Corporation @ 125.
June 24 Bought 8,000 preference shares of San Mig Company @ 400.
September 11 Sold 5,000 shares of San Mig Company @ 360.

REQUIRED
Determine the total tax to be paid by Jung in 2007 in connection with the stock transactions.

PROBLEM 7
Rodney, married, sold the following assets in 2007:

1. Car, being used in business, cost – 650,000; accumulated depreciation – 390,000, fair value on
date of sale – 240,000, sold for 300,000
2. Jewelry, cost – 225,000, fair value on date of sale – 440,000, sold for 525,000
3. Office equipment, cost – 98,000, accumulated depreciation – 37,500, fair value on date of sale
– 38,300, sold for 52,000
4. 1,000 PLDT ordinary shares, cost – 670,000, fair value on date of sale – 775,000, sold directly
to buyer for 750,000, broker’s commission – 1%
5. Residential land, purchase price – 1,330,000, cost of improvements – 72,000, fair value on date
of sale – 1,825,000, sold for 1,900,000 less 3% commission
6. 8,000 ordinary shares of ABC Corporation sold directly to buyer for 544,000
Purchases:
July, 2006, 4,000 shares @ 50
October, 2006, 6,000 shares @ 60
December, 2006, received 20% stock dividend
Book value per share in the books of ABC Corporation, 75

During 2007, wrote off 2,000 shares of DEF Corporation which was declared bankrupt by the
court. The shares were acquired in 2003 for 78,000.

REQUIRED
Compute the following:
1. Total ordinary gain
2. Total ordinary loss
3. Net capital gain/loss
4. Total capital gain tax for the year

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