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TAXATION TAMAYO/GARCIA
TX 1001: Income Tax (Capital Assets and Capital Gains and Losses)
1. Capital Assets
a. Meaning of capital assets The term capital assets means property held by the taxpayer whether or not
connected with his trade or business.
b. Not included in capital The term does not include the following (hence ordinary assets):
assets a. Stock in trade;
b. Property of a kind which would be included in inventory of the taxpayer if on hand at
the close of the taxable year;
c. Property held by the taxpayer primarily for sale to customers in the ordinary course
of trade or business;
d. Personal property used in the trade or business which is subject to allowance for
depreciation;
e. Real property used in business.
c. Exercise: Classify the following into capital asset or ordinary asset
Classification Reason
1. Accounts receivable
2. Securities held as investment
3. Interest of a partner in a partnership
4. Apartment house
5. Inventories of raw materials, work in process and finished goods
6. Office equipment
7. Land used in business
8. Land for sale by a real estate dealer
9. Residential house and lot
10. Car for personal use
*
TX-
ReSA: The Review School of Accountancy Page 2 of 3
5. Sales of Capital Assets Which Are Subject to Capital Gains Tax (Final Tax)
a. Sale of shares of stock not traded in the local stock exchange (5% and 10% based on net capital gains)
b. Sale of real property classified as capital asset (6% based on selling price or FMV whichever is higher)
7. Exercises
1) In 2009, a general professional partnership was organized. Binky Reyes contributed P500,000 for a 60% interest. The
partnerships net income in 2009 was P750,000, and in 2010 P800,000. The net income in 2009 was distributed to the
partners while no distribution of income was made in 2010.
In 2011, the partnership was dissolved, and Ms. Reyes received P700,000 as her share in the liquidation.
How much was the capital gain (loss) of Binky in 2011?
2) Rowena expects that within a week, the market price of Angeles Corporation shares, which is selling at P10 per share, is
going down. She does not have Angeles Corporation shares so she calls up her stockbroker and asks him to sell for her
10,000 shares of Angeles Corporation shares. Rowena and the stockbroker agree that the sold shares are to be replaced
within one week after the sale.
The stockbroker sells for Rowena the 10,000 shares at P10 per share. One week after, when the sold shares are about to
be replaced, the selling price of Angeles Corporation shares rises to P16 per share, contrary to Rowenas expectation.
Nevertheless, she orders her stockbroker to buy for her 10,000 Angeles Corporation shares to cover the same number of
shares she borrowed a week ago.
How much is the capital gain (loss) from the short sale?
3) A single taxpayer has the following income, expenses and transactions in 2011:
Gross sales P500,000
Cost of sales 350,000
Business expenses 75,000
Health insurance premium paid 2,000
Selling price, partnership interest (investment in 2004 was P20,000) 60,000
Gain on sale of personal car held for 3 years 10,000
Loss on sale of jewelry for personal use held for 6 months 5,000
Loss on account of failure to exercise two-month option to buy 4,000
Liquidating dividend (investment in 2009, P100,000) 80,000
Gain on short sales 2,000
Question 1 - Compute the net capital gain (loss)
2 Compute the taxable net income using: a. itemized deduction. b. optional standard deduction.
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Taxation: Income Tax - Capital Assets (BATCH 22)
TX-1001
ReSA: The Review School of Accountancy Page 3 of 3
THOT: Not everything that counts can be counted. Not everything that can be
counted counts.
jb
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Taxation: Income Tax - Capital Assets (BATCH 22)
TX-1001