Cpa Review School of The Philippines Manila Capital Assets Dela Cruz / de Vera / Lopez / Llamado

CPA REVIEW SCHOOL OF THE PHILIPPINES
Manila
CAPITAL ASSETS Dela Cruz / De Vera / Lopez / Llamado
1. Determine whether ordinary asset or capital asset.

a. Inventories of raw materials, work in process and finished goods
b. Office equipment Ordinary
c. Land used in business Asset
d. Land for sale by a real estate dealer
e. Accounts receivable
f. Securities held as investment
g. Land held for investment purposes Capital
h. Residential houses Asset
i. Business of sole proprietorship sold to a corporation
j. Interest of a partner in a partnership
k. Car used partly for business and partly for personal purposes.
2. This is a 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
3. 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 using the graduated rates
4. Basic rule sale of capital assets, except

a. Sale of real property located in 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
c. Sale, by individual taxpayers and domestic corporations, of shares of stock of a domestic
corporation not through the local stock exchange is subject to a final tax of 15%.
d. Sale of personal property located in the Philippines by a resident citizen is subject to the
rules on holding period.
5. A. Capital losses are deductible from ordinary gains but net capital loss is not deductible
from ordinary gains.
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B. Ordinary losses are deductible only to the extent of the capital gains but the net capital
loss is not deductible from ordinary gain.
a. True, true
b. True, false
c. False, true
d. False, false
6. 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, P50,000 was credited to his capital account as his share in
the partnership income, but he withdrew P10,000 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.
Answer:
200,000
30,000
50,000
(10,000)
300,000 - 270,000 = 30,000 / 2 = 15,000
7. A is 40% partner in ABC, a general professional partnership. The partnership was

organized in 2010 with A contributing P200,000. The partnership had the following net
income:
2017 – P120,000 distributed to the partners

2018 – P70,000 not yet distributed to the partners
In 2018, the partnership was dissolved and A received the sum of P250,000 upon
liquidation.
Determine the taxable gain or deductible loss of A.

Answer:
150,000 70,000
(128,000) 40%
22,000 / 2 = 11,000 28,000
8. 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.
c. Capital loss is deductible only up to the extent of ordinary gains.
d. Ordinary loss is deductible from capital gains.
9. 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.
c. Property primarily for sale to customers in the ordinary course of his trade or business.
d. Property used in the trade or business of the taxpayer and subject to depreciation.
10. 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
incurred.
11. 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.
c. Ordinary losses are deductible from capital gains but net capital loss cannot be deducted
from ordinary gain.
d. 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 2015 to 2018.
2015 2016 2017 2018
Ordinary Taxable Income P200,000 P250,000 P300,000 P350,000
Gain from sale of capital assets:
Held for 12 months 20,000 2,000 100,000 57,000
Held for 13 months 8,000 10,000 20,000 28,000
Loss from sale of capital assets:
Held for 19 months 22,000 20,000 60,000 10,000
Held for 7 months 3,000 30,000 50,000 5,000
Status of the taxpayer Single Married Married w/ Married w/
1 QDC 2 QDC
Required: Compute for the net taxable income of the taxpayer for the years, 2015 to
2018, under the graduated rates:
Answer:
2015 2016 2017 2018
200,000 250,000 300,000 350,000
10,000 50,000 30,000 61,000
210,000 200,000 (30,000) 411,000
(50,000) (75,000)
160,000 225,000
13. The records of C, citizen, married, with 2 dependent children show the following for
2018:
Business income, net of P240,000 expense P160,000
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. Furniture & 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.

Answer:
400,000
100,000
20,000
20,000
(40,000)
(240,000)
480,000
14. C had the following transactions in GHI Corporation’s common stock:

Oct. 10, 2018 Purchased 10,000 shares @ 50 P500,000
Oct. 20, 2018 Purchased 4,000 shares @ 50 200,000
Nov. 10, 2018 Purchased 3,000 shares @ 48 144,000
Nov. 14, 2018 Sold the 10,000 shares purchased on 450,000
10/10/18 @ 45
Determine the loss sustained by C and state whether it is deductible or not.
Answer:
500,000
(450,000)
50,000 x 7/10 = 35,000 Disallow
50,000 x 3/10 = 15,000 Allowed
15. G, married, resident citizen had the following for 2018:

a. Business Income
1. Rental income from real property, net of 5% W/T P285,000
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 P142,500

Real property tax paid by the lessor 20,000
Note: The lessee 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 P300,000 Cost (2004) P180,000
2. Shares of DEF (domestic), traded:
3. Shares of XYZ (foreign)
4. Vacant lot
5. Toyota Car
c. Other transactions:
1. In 2000, he purchased shares of A Corporation for P50,000 which became
worthless and was written off in 2018.
2. In 2018, 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.

Answer:
300,000
(50,000)
25,000 (50,000/2) 200,000
(120,000) (100,000)
150,000 (25,000)
(40,000) 75,000
265,000 + 150,000 = 415,000
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 P400,000 P500,000
Gain from sale of capital assets:
Held for 12 months 20,000 23,000
Loss from sale of capital assets:
Required: Compute for the taxable net income of the corporation for the year 20-A to 20-
B.
Answer:
20-A 400,000 20-B 506,000
20,000 (7,000) Disallow 23,000 (15,000) 500,000
5,000 (25,000) 10,000 (12,000) +
25,000 (32,000) = (7,000) 33,000 (27,000) = 6,000
506,000
17. D had the following transactions in JKL Corporation for the year 2017:
Oct. 10, 2017 Purchased 10,000 shares @ P100 P1,000,000
Oct. 28, 2017 Purchased 5,000 shares @ P98 490,000
Nov. 24, 2017 Sold the 10,000 shares purchased on 920,000
10/10/17 @ P92
Dec. 10, 2017 Purchased 3,000 shares @ P90 270,000
a. Determine the loss sustained by D and indicate whether it is deductible or not.

Answer:
1,000,000
(920,000)
Loss 80,000 x 2/10 = 16,000 Allowed (Deductible)
b. If the shares acquired on October 28, 2017 are sold today at P100 per share,
determine D’s gain or loss.
Answer:
500,000
(490,000)
(40,000) 5/10 x 80,000
(32,000)
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.
c. No gain shall be recognized because the land was in exchange for shares of stock of a
corporation and A became the majority stockholder thereof.
d. No loss shall be recognized because the par value of the shares is greater than the cost
of the land.
The End!!!
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CPA REVIEW SCHOOL OF THE PHILIPPINES

CAPITAL ASSETS Dela Cruz / De Vera / Lopez / Llamado

1. Determine whether ordinary asset or capital asset.

2. This is a capital asset

4. Basic rule sale of capital assets, except

6. B had an original investment in a general professional partnership of P200,000 in 2017.

7. A is 40% partner in ABC, a general professional partnership. The partnership was

2017 – P120,000 distributed to the partners

Determine the taxable gain or deductible loss of A.

8. Where the taxpayer is a corporation, which of the following statements is true?

9. The term “capital assets” include

Determine the taxable income of C.

14. C had the following transactions in GHI Corporation’s common stock:

15. G, married, resident citizen had the following for 2018:

2. Rental income from real property, net of 5% W/T P142,500

b. Sale of capital assets:

Determine the taxable income of G.

a. Determine the loss sustained by D and indicate whether it is deductible or not.

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