Problem 7 7

D
Real property inventories
Land and building used in business
Vacation house of the executives
Acquired undeveloped properties
Abandoned properties
Total amount of ordinary assets

P10,000,000
3,000,000
1,500,000
500,000
600,000
P15,600,000

All properties acquired by real estate dealers/developers are ordinary assets. Ordinary assets of
realty companies that were later abandoned and become idle continue to be considered as
ordinary assets. (Rev. Reg. No. 7 03)
Problem 7 8
C
Interest in partnership
Idle raw lands
Proceeds of expropriated real property
Capital assets

P1,000,000
100,000
2,000,000
P3,100,000

The transfer of property through expropriation with just compensation is basically a

sale or exchange of property subject to capital gains tax of 6%. (Blas Gutierrez, and
Maria Morales vs. CTA, and CIR, G.R. Nos. L-9738 and L-9771, May 31, 1957)
Problem 7 9
1. Letter D
Selling price per 200 sq. meters
Multiplied by number of 200 s.m. sold (9,000 1,000)/200
Total sales
Less: Cost of sales (P2,000,000 x 90%)
Ordinary gain from sale of land

P 100,000
40
P4,000,000
1,800,000
P2,200,000

2. Letter A
There is no remaining capital asset of B because the remaining 10% of one hectare is also
used into business as a warehouse.
Problem 7 10
Fair market value
Less: Book value of car
Gain on exchange

B
P190,000
150,000
P 40,000

Problem 7 11
C
There is capital loss if the property given away has fair value higher than P200,000 when it was
inherited.
Problem 7 12

There is no taxable amount in the above transaction because the transaction is an

exchange solely in kind and Mr. A gained control of Veniz Corporation acquiring more
than 50% of the outstanding shares (15/25 = 60%).

Problem 7 13
D
Acquisition cost (P200,000 + P20,000)
Agents commission (P500,000 x 10%)
Deductible cost and expenses

P220,000
50,000
P270,000

Problem 7 14
A
Sales price
Less: Fair market value at the time of his fathers death
Gain on sale of farm land

P2,000,000
500,000
P1,500,000

The basis of the property shall be the fair market price or value at the date of acquisition, if the
same was acquired by inheritance. [Sec. 40 (B) (2), NIRC] The value at the date of acquisition
prevails over the fair market value because such is the lower amount.
Problem 7 15
A
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

P150,000
( 50,000)
P100,000

No holding period because the seller is a corporation.

Problem 7 16

Sales price

Less: Book value of the car

Acquisition cost
Less: Accum. depn. (P1,000,000/5) x

2
Capital gain

P700,00
0
P1,000,00
0
400,00
0

Multiplied by percent of holding period

Reportable capital gain

600,00
0
P100,00
0
50%
P
50,000

Problem 7 17
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 18

Year

Year 2

Operating income
Capital asset transactions:
Capital gain long-term (50%)
Capital loss short-term (100%)
Net capital gain (loss)
Net capital loss carry-over, limit
Taxable income

1
P200,00
0
P
25,000
( 40,000
)
(P15,000
)

P200,00
0

P300,00
0
P
20,000
( 10,000
)
P
10,000
( 10,000
)
P300,00
0

The net capital loss carry-over is limited to only P10,000 instead of P15,000 because
the net capital gains in year 2 is only P10,000.
Problem 7 19
1. Letter C
Ordinary gain
Capital asset transactions:
Short-term capital gain
Long-term capital gain (P30,000 x 50%)
Long-term capital loss (P10,000 x 50%)
Taxable income before personal exemption
2.

Letter 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

Problem 7 20
1. Letter C
Ordinary taxable income
Short-term capital gain (loss)
Long-term capital gain (loss) (P600,000 x 50%): (P100,000 x
50%)

NCLCO applicable in year 2 is P60,000

Net capital gain
Taxable income before personal exemption

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

30,000
P80,000

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

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

40,000
P90,000

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

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

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

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

P180,000
P200,000
(100,000)
P100,000
P280,000

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

First P100,000 (P95,000/95%) x 5%

Over P100,000 [(P207,500 P95,000)/90%] x 10%
Total final tax

Problem 7 24

P
5,000
12,50
0
P
17,500

Capital gains of November sales (P150,000

P120,000)
Multiplied by capital gains tax rate
Capital gains tax
Problem 7 25
1 Letter A
.
Sales
Less: Cost of equity securities
Brokerage fee
Net income
Multiplied by corporate income tax
Income tax due

P30,000
5%
P 1,500

P1,000,000
P900,000
40,000

940,000
P 60,000
30%
P 18,000

The dealers in securities are not liable to the stock transaction tax of
of 1% based on the selling price or fair market value, whichever is

higher. (Sec. 4 & 5, Rev. Regs. No. 6 2008)

2
.

Letter B
Stock transaction tax (P1,000,000 x 0.005)

3
.

P5,000

Letter C
Sales
Less: Cost of equity securities
Brokerage fee
Capital gains
Multiplied by tax rate applicable
Capital gains tax

Problem 7 26

P1,000,000
P900,000
40,000

Sold thru
stock
market
Sales price (P140 x 1,000 shares)
P140,000
Less: Cost of sales
90,000
Gross profit
P 50,000
Brokers fee (P140,000 x 1%)
( 1,400)
Percentage tax (P140,000 x 0.005)
(
700)
Capital gains tax (P50,000 x 5%)
.
Profit
P 47,900
Less: Profit if sold through the stock market
Decrease in profit
Problem 7 27
D
Capital gain (P150 P125) x 100 shares

940,000
60,000
5%
P
3,000
P

Sold direct
to the buyer
P140,000
90,000
P 50,000

( 2,500)
P 47,500
47,900
(P
400)

P2,500