CPA REVIEW SCHOOL OF THE PHILIPPINES Manila CAPITAL ASSETS salle / De Vera / Lopez / Liamado Determine whether ordinary asset or capital asset, Inventories of raw materials, work in process and finished goods Office equipment Land used in business Land for sale by a real estate dealer Accounts receivable Securities held as investment Land held for investment purposes Residential house Business of sole proprietorship sold to a corporation Interest of a partner in a partnership Car used partly for business and partly for personal purposes. riirre mp acces This is capital asset a. A residential land previously foreclosed by PNB and is now being offered for sale to the public b. A commercial building foreclosed by a lending institution c. A 10-door apartment unit owned by a retired government employee d. A residential land owned by a practicing CPA An individual taxpayer owns a ten (10)door apartment with a monthly rental of P10,000 each residential unit. He sold this property to another individual taxpayer. Which is not correct? 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 business. d. The rental income is subject to income tax in the taxpayer's ITR. Basic rule sale of capital assets, except a. Sale of real property located in the Philippines by a foreign corporation is subject to 6% CGT based on the selling price or FMV, whichever is higher b. Sale of shares of stock of a domestic corporation through the local stock exchange or initial public offering is exempt from income tax. ¢. Sale, by individual taxpayers and domestic corporations, of shares of stock ofa domestic corporation not through the local stock exchange is subject to a final tax of 15%, 4. Sale of personal property located in the Philippines by a resident citizen is subject to the rules on holding period. A. Capital losses are deductible from ordinary gains but net capital loss is not deductible from ordinary gains, Ordinary losses are deductible only to the extent of the capital gains but the net capital loss is not deductible from ordinary gain. True, true True, false False, true False, false > peep B had an original investment in a general professional partnership of P200,000 in 2017. His share in the net income of the partnership for 2017 which was credited to his capital account was P30,000. In 2018, PS0,000 was credited to his capital account as his share in the partnership income, but he withdrew 10,000 from such share. He paid the income tax on his share in the partnership net income of 2017 and 2018. B retired at the end of 2018 and received P300,000. Determine his capital gain or loss. Tax 87-09K 10, ul a ‘A is a 40% partner in ABC, a general professional partnership. The partnership was organized in 2010 with A contributing P 200,000. The partnership had the following net income: 2017-P 120,000 distributed to and received by the partners. 2018-P 70,000 not yet distributed to the partners. In 2018, the partnership was dissolved and A received the sum of P 250,000 upon liquidation. Determine the taxable gain or deductible loss of A. Where the taxpayer is a corporation, which of the following statements is true? a. The holding period does not apply to corporations, hence, capital gains and losses are recognized at 50%. b. The net capital loss can be carried over in the next succeeding year. ¢. Capital loss is deductible only up to the extent of ordinary gains. 4d. Ordinary loss is deductible from capital gains The term “capital assets” include a, Stock in trade or other property included in the taxpayer's inventory. b. Real property not used in the trade or business of taxpayer. ©. Property primarily for sale to customers in the ordinary course of his trade or business 4d. Property used in the trade or business of the taxpayer and subject to depreciation. Where taxpayer is a corporation, the following rules as to recognition of capital gains or losses from the disposition of property classified as capital asset shall apply. Which is the exception? a. The holding period does not apply to corporations, hence capital gains and losses are recognized at 100%. b. Capital losses are deductible only to the extent of capital gains c. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain, d. Net capital loss carry-over should not exceed the net income in the year the loss was inured. ‘The following rules as to recognition of capital gains or losses from the disposition of personal property classified as capital asset apply where the taxpayer is an individual. Which is the exception? a. Depending on the holding period, the percentages of gain or loss is 100% if the capital asset has been held for 12 months or less; and 50% if the capital asset has been held for more than 12 months. b. Capital losses are deductible only to the extent of the capital gains; hence, the net capital loss is not deductible. ©. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted from ordinary gain. dd. Net capital loss carry over in a taxable year should not exceed the capital gain in the year the loss was incurred. 12. A, resident citizen, had the following data for the years 2018 to 2020. 2018 2019 2020 Ordinary Taxable Income P 200,000 250,000 300,000 Gain from sale of capital assets: Held for 12 months 20,000 2,000 100,000 Held for 13 months 8,000 10,000 20,000 Loss from sale of capital assets: Held for 19 months 22,000 20,000 60,000 Held for 7 months 3,000 30,000 50,000 Status of the taxpayer Single Married Married w/ 1QDC Required: Compute for the net taxable income of the taxpayer for the years, 2018 to 2020, under the graduated rates: Tax 87-09,13. The records of C, citizen, married, with 2 dependent children show the following for 2019: Business income, net of P240,000 expense P 160,000 Rental income, net of 5% W/T 95,000 Dividend received from a foreign corporation 20,000 ‘Winnings from Phil. Charity Sweepstakes office 400,000 Other transactions: 1. Sale of assets used in business a.) Delivery equipment — Selling price 200,000 Cost (2005) 300,000 Accumulated depreciation 60,000 b) Land ~ Selling price 200,000 Cost (2002) 180,000 c.) Warehouse — Selling price 10,000,000 Cost (2003) 11,800,000 Accumulated depreciation 2,000,000 2. Sale of Capital assets: a.) Jewelry - Selling price 250,000 Cost (2002) 180,000 b,) Land ~ Selling price 800,000 Cost (2000) 900,000 c.) Fumiture & Appliances ~ Selling price 10,000 Cost (2010) 40,000 3. Shares of stocks: a.) Traded in the stock exchange: Selling price 220,000 Cost (2004) 300,000 b.) Non-traded in the stock exchange: Selling price 300,000 Cost (2004) 180,000 Determine the taxable income of C. 14, C,nota dealer in securities, had the following transactions in GHI Corporation’s common stock (not traded in the stock exchange): Oct. 10,2019 Purchased 10,000 shares @ 50 P 500,000 Oct. 20,2019 Purchased 4,000 shares @ 50 200,000 Nov. 10,2019 Purchased 3,000 shares @ 48 144,000 Nov. 14,2019 Sold the! 0,000 shares purchased on 10/10/19 @ 45 450,000 Determine the loss sustained by C on November 14, 2019, and state whether it is deductible or not. 15. G, married, resident citizen had the following for 2019: a.) Business Income 1.) Rental income from real property, net of 5% W/T P 285,000 Real property tax paid by the lessor 50,000 Note: The lessee reimbursed 50% of the tax, as per agreement in the lease contract Deductible expense 120,000 2.) Rental income from real property, net of 5% W/T P 142,500 Real property tax paid by the lessor 20,000 Note: The lessce reimbursed 100% of the tax, as per agreement in the lease contract Deductible expense 40,000 b.) Sale of capital assets: 1.) Shares of ABC (domestic) not traded: Selling Price 300,000 Cost (2004): P180,000 2.) Shares of DEF (domestic), traded: Selling Price P 100,000 Cost (2012): P150,000 Tax 87-094 3.) Shares of XYZ (foreign) Selling Price P 500,000 Cost (2000): P100,000 4.) Vacant lot Selling Price 800,000 Cost (2000): P200,000 5.) Toyota Car Selling Price P 100,000 Cost (2000): P300,000 .) Other transactions: 1,) In 2000, he purchased shares of A Corporation for P50,000 which became worthless and was written off in 2019. 2.) In 2019, he received liquidating dividend from B Corporation in the amount of P450,000. The investment in 2000 was P300,000. Determine the taxable income of G. 16. A domestic corporation had the following data for taxable year 20-A and 20-B 20-A 20-B | Taxable income before capital assets transaction | P 400,000 | P 500,000 Gain from sale of capital assets: ‘Held for 12 months 20,000 23,000 |_ Held for 9 months $,000_| 10,000 Loss from sale of capital assets: Held for 15 months 7,000 15,000 Held for 22 months 25,000 | 12,000 Required: Compute for the taxable net income of the corporation for the year 20-A to 20-B. 17. D had the following transactions in JKL Corporation shares (held as capital assets) for the year 2019: Oct. 10,2019 Purchased 10,000 shares @ P100 P 1,000,000 Oct. 28,2019 Purchased 5,000 shares @ P98 490,000 Nov. 24,2019 Sold the 10,000 shares purchased on 10/10/19 @ P92 920,000 Dee. 10,2019 Purchased 3,000 shares @ P90 270,000 a. Determine the loss sustained by D on November 24, and indicate whether it is deductible or not. b. If the shares acquired on October 28, 2019 are sold today at P100 per share, determine D's gain or loss. 18. A transferred his commercial land with a cost of P600,000 and with a FMV of P900,000 to ABC Corp. in exchange of the stock of the corporation with par value of P800,000. As a result of the transfer A gained control of the corporation, As a result, a. The gain recognized is the difference between the par value of the shares of stocks and the cost of the land b. The loss recognized is the difference between the FMV of the land and the par value of the stocks. ¢. No gain shall be recognized because the Jand was in exchange for shares of stock of a corporation and A became the majority stockholder thereof, 4. No loss shall be recognized because the par value of the shares is greater than the cost of the land. ‘The End! Tax 87-09