INTEGRATED REVIEW

2nd Semester SY 2018-2019

Capital Assets

1. Determine whether ordinary asset or capital asset.

a. Inventories of raw materials, work in process and finished goods
b. Office equipment
c. Land used in business
d. Land for sale by a real estate dealer
e. Accounts receivable
f. Securities held as investment
g. Land held for investment purposes
h. Residential house
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 units 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 of 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
c. Sale 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. Holding period is the duration for which the taxpayer held the capital asset. A capital asset held
by the taxpayer for not more than 12 months is said to be
a. Short-term
b. Medium-term
c. Long-term
d. No-term

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6. I. Capital losses are deductible from ordinary gains but net capital loss is not deductible from
ordinary gains.
II. 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
7. B had an original investment in a general professional partnership of P200,000 in 2009. His share
in the net income of the partnership for 2009 which was credited to his capital account was
P30,000. In 2010, 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 2009 and 2010. B retired at the end of 2010 and received P300,000.
Determine his capital gain or loss.

8. A is a 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:

2011 – P120,000 distributed to the partners

2012 – P70,000 not yet distributed to the partners

In 2012, the partnership was dissolved and A received the sum of P250,000 upon liquidation.
Determine the taxable gain or deductible loss of A.

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

a. The holding period does not apply to corporation, 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.
10. 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.
11. 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.

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12. 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.
13. A sold his principal residence a selling price of P5M but with a FMV of P6M. The property sold
was acquired for P3M. He purchased his new principal residence at a cost of P7M. The capital
gains tax is
a. P360,000 b. P300,000 c. P240,000 d. P0
14. How much is the basis (cost) of the new principal residence?
a. P7M b. P6M c. P5M d. P4M
15. If only P4M out of P5M was utilized in acquiring his new principal residence, the capital gain tax
is
a. P60,000 b.P 72,000 c. P300,000 d. P360,000
16. Using the preceding number, the basis (cost)of the new principal residence is?
a. P3.2M b. P4M c. P2.4M d. P3M
17. A sold on February 14, 2015, 1,000 shares of stock of Y Corporation. Y Corporation has 10,000
outstanding shares. The total assets and liabilities of Y Corporation in its latest audited financial
statements (AFS) are P20,000,000 and P5,000,000, respectively. Assume that the book value of
all its assets and liabilities is also the market with the exception of its real property. Supposing,
the market value of the real properties of Y Corporation are as follows:

Property Book Value per AFS MV per Tax Zonal Value Independent
Declaration Appraiser
Land 1 P2,000,000 P2,500,000 P5,000,000 P6,000,000
Land 2 2,000,000 2,200,000 4,000,000 3,500,000
Building 1 1,000,000 2,400,000 3,000,000
Building 2 500,000 2,000,000 1,950,000
Total 5,500,000

The fair market value of the shares sold was

a. P2,450,000
b. P1,500,000
c. P2,000,000
d. P1,860,000
18. A, resident citizen, had the following data for the years 2014 to 2017.

2014 2015 2016 2017

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
Required: Compute for the taxable income of the taxpayer for the years, 2014 to 2017.

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19. The records of C, married with 2 qualified dependent children, show the following for 2014:
Business income, net of P240,000 expense P160,000
Rental income, net of 5% WT 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 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) Not traded in the stock exchange
Selling price 300,000
Cost (2004) 180,000
Determine the taxable income of C.

20. F, married, had the following date for 2014.

Business income, gross P200,000
Deductible expenses 120,000
Long-term capital gain 50,000
Short-term capital loss 20,000
Loss due to failure to exercise 60-day option to buy 10,000
Selling price of a partnership interest 80,000
(Investment in 2000 – P50,000)

Determine the taxable income of F.

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21. C had the following transactions in GHI Corp.’s common stock:
Oct 10, 2013 Purchased 10,000 shares @ 50 P500,000
Oct 20, 2013 Purchased 4,000 shares @ 50 200,000
Nov 10, 2013 Purchased 3,000 shares @ 48 144,000
Nov 14, 2013 Sold the 10,000 shares purchased on 150,000
10/10/13 @ 45

Determine the loss sustained by C and state whether it is deductible or not.

22. G, married, had the following for 2014:

a) Business income
1) Rental income from real property, net of 5% WT 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% WT 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
Selling price P100,000 Cost (2012) P150,000
3) Shares of XYZ (foreign)
Selling price P500,000 Cost (2000) P100,000
4) Vacant lot
Selling price P800,000 Cost (2000) P200,000
5) Toyota car
Selling price P100,000 Cost (2000) P300,000

c) Other transactions
1) In 2000, he purchased shares of A Corp. for P50,000 which became worthless and was
written off in 2014.
2) In 2014, he received liquidating dividend from B Corp. in the amount of P450,000. The
investment in 2000 was P300,000.

Determine the taxable income of G.

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 23. A domestic corporation had the following data for taxable year 2017 to 2018.

2017 2018
Taxable income before capital assets transaction P400,000 P500,000
Gain from sale of capital assets:
Held for 12 months 20,000 23,000
Held for 9 months 5,000 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 2017 to 2018.

24. D had the following transactions in JKL Corporation for the years 2017 to 2018.
Oct 10, 2013 Purchased 10,000 shares @ P100 P1,000,000
Oct 28, 2013 Purchased 5,000 shares @ P98 490,000
Nov 24, 2013 Sold the 10,000 shares purchased on 10/10/13 @ P92 920,000
Dec 10, 2013 Purchased 3,000 shares @ P90 270,000
a. Determine the loss sustained by D and indicate whether it is deductible or not.
b. If the shares acquired on October 28, 2013 are sold today at P100 per share, determine
D’s gain or loss

25. 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.

***

Source: CPA Review School of the Philippines AMG

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