Professional Documents
Culture Documents
ch7 - Tax
ch7 - Tax
CHAPTER 7
DEALINGS IN PROPERTY
Problem 7 1 TRUE OR FALSE
1. True
2. False Ordinary assets
3. False its real properties shall continue to be treated as ordinary
assets.
4. True
5. False the basis is the same as the cost of the donor or the FMV at the
time of donation whichever is lower.
6. True
7. False Regardless of gain or loss, a tax should be paid when the shares
of stock are sold in the stock market because the basis of tax is the
selling price.
8. False real property classified as ordinary assets are subject to normal
tax.
9. True
10.False Loss on sale of debt securities sustained by bank can either be
classified as capital loss or ordinary loss. Capital loss if owned by bank
as investments but ordinary loss if acquired for clients loan
settlements.
11.True
12.False For ordinary loss, the same; but for capital loss not the same
because there is no capital loss carry over and not holding period for
corporation.
Problem 7 2 TRUE OR FALSE
1. True
2. False No, because the 6% final tax is based on the higher of the
selling price or zonal value. If there is loss on sale, the normal tax rate
if preferable.
3. False Not subject to creditable withholding tax.
4. False whichever is lower
5. False equipment used in business operations is an ordinary asset.
6. True
7. False The basis is the fair market value at the date of donation.
8. True
9. True
10.False There should be no capital loss because there is an exercise of
the option.
11.True
12.True
4
subject to capital gains tax of 6%.
- the speculator sells securities which he does not own.
this refers to patent.
if the land is ordinary asset, subject to normal tax.
not dealers of securities
Problem 7 6
1.
2.
3.
4.
5.
6.
7.
8.
9.
A
D
D
A
C
B
D
D
D
10
.
A
D
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
P10,000,00
0
3,000,000
1,500,000
500,000
600,00
0
P15,600,00
0
P1,000,000
100,000
2,000,000
P3,100,000
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.
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
P220,000
50,000
P270,000
P2,000,00
0
500,00
0
P1,500,00
0
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
Sales price
P700,00
0
Acquisition cost
Less:
(P1,000,000/5) x 2
Capital gain
Accum.
depn.
P1,000,0
00
400,0
00
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
Year
1
P200,0
00
Year
2
P300,00
0
P
25,000
( 40,00
0)
(P15,00
0)
P
20,000
( 10,00
0)
P
10,000
( 10,00
0)
P300,00
0
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
P200,0
00
P50,000
P20,000
15,000
( 5,000)
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
P50,000
P20,000
30,000
( 10,000)
Problem 7 20
1. Letter C
Year 1
P
60,000
(P400,00
0)
300,00
0
(P100,00
0)
30,000
P80,000
P
60,000)
2. Letter B
Ordinary taxable income
40,000
P90,000
Year
2
P180,00
P200,00
0
(50,000)
(60,00
0)
P
P270,00
0
P180,00
P200,00
0
(100,00
0)
P100,00
P280,00
Problem 7 21
Jewelry
M. Benz Car long term
(50%)
Refrigerator
Ford Car
A
Selling Price
P 80,000
400,000
6,000
12,000
Cost &
Expenses
P 11,000
370,000
5,000
20,500
Net Capital
Gain
P
69,000
15,000
1,000
(8,500)
P
5,000
12,50
0
P
17,500
P30,000
5%
P 1,500
P1,000,00
0
P900,00
0
Brokerage fee
40,000
Net income
Multiplied by corporate income tax
Income tax due
940,000
P 60,000
30%
P 18,000
Letter B
Stock transaction tax (P1,000,000 x
0.005)
3
.
P5,000
Letter C
Sales
P1,000,00
P900,00
0
Brokerage fee
40,000
Capital gains
Multiplied by tax rate applicable
5%
P
3,000
Problem 7 26
940,000
P 60,000
Sold thru
stock
market
P140,000
90,000
P 50,000
( 1,400)
(
700)
Sold direct
to the
buyer
P140,000
90,000
P 50,000
.
P 47,900
( 2,500)
P 47,500
47,900
Problem 7 27
D
Capital gain (P150 P125) x 100 shares
Problem 7 28
1. Letter D
Sale March (P120 x 500 shares)
Less: Cost (P120,000/1,200 shares) x 500 shares
Capital gain
2. Letter C
Sales May (P90 x 500)
Less: Cost of sales (P70,000 x 500/700)
Loss
Nondeductible loss (P5,000 x 300/500)
3. Letter A
Proceeds of liquidation (P130 x 500)
(P
400)
P2,500
P
60,000
50,00
0
P10,000
P45,000
50,000
P 5,000
P 3,000
P65,000
P20,000
48,000
(P3,000)
Problem 7 29
1 Letter C
.
Sales proceeds
Less: Cost of equity investments sold
April 20 (1,650 shares)
68,000
P240,00
0
P161,70
0
193,900
P
46,100
Letter C
Cost per share batch March 10
Number of shares remaining [(800 x 110%)
350]
Cost of remaining shares
92
530
P48,760
Total
Cost/shar Amount
e
P92.00
P80,960
P98.00
161,700
Letter C
Capital gain on reissued shares (P23 P21) x
2,000)
P - 0 -
P4,000
P18,000
2,000
P16,000
P 180,000
(120,000)
P 60,000
5%
P 3,000
20.00%
P
800
Letter C
Liquidating dividend
Less: Cost of stock investment (P10 x 10,000)
Reportable
capital
gain
corporation
2
.
P120,000
100,000
P 20,000
Letter D
Liquidating dividend
Less: Cost of stock investment (P10 x 10,000)
P120,000
100,000
P 20,000
50%
P 10,000
Letter B
Sales proceeds
Less: Amount used to acquire new family home
Unutilized sales proceeds
Multiplied by capital gains tax rate
Capital gains tax to be paid
Problem 7 35
Basis of new residence
P1,250,00
0
P4,000,00
0
2,500,00
0
P1,500,00
0
6
%
P
90,000
P9,000,000
P300,000
Since there was no tax exemption, the entire amount of acquiring the new
house and lot shall be its cost.
Problem 7 36
D
Zonal value (P700 x 500) higher
Multiplied by capital gains tax rate
Capital gains tax
P350,000
6%
P 21,000
P6,000,000
3,000,000
P9,000,000
Problem 7 38
1. Letter C
Final tax (P1,200,000 x 6%)
2.
P72,000
P7,500
Problem 7 39
1. Letter D
Capital gains tax (P2,500,000 x 6%) SP,
higher
Add:
Documentary
stamp
tax
(P2,500,000 x 1.5%)
Total tax to the BIR
2. Letter C
Gross income (P2,500,000 P1,500,000)
Less: OSD (P1,000,000 x 40%)
Net taxable income
Multiplied by corporate normal tax rate
Income tax due
Add:
Documentary
(P2,500,000 x 1.5%)
Total tax due to the BIR
stamp
tax
P150,000
37,500
P187,500
P1,000,00
0
400,00
0
P
600,000
30%
P
180,000
37,500
P217,500
P 30,000
300,000
P330,000
P8,000,000
(3,200,000)
P4,800,000
(2,800,000)
P2,000,000
30%
P 600,000
( 330,000)
P 270,000
Problem 7 41
1. Letter A
None. No withholding tax because Goldrich Realty Corporation is the
buyer not a seller.
2
Letter A
None. No income tax is to be collected from sale of land by the
government.
Problem 7 42
1 Letter A
.
Fair market value of V Co.s share received
(P30 x 250,000)
P
7,500,000
9,000,00
0
(P2,500,00
0)
Letter B
E Co.s cost or basis is the same as the book
value of net asset it transferred to acquire V
Co.s equity
3
.
P9,000,000
Letter D
Fair value of E Co.s net asset received
Less: Par value of shares issued (P25
P8,000,000
6,250,00
0
P1,750,000
P - 0 -
Letter C
Portion of FMV of V Co.s shares received
(P7,500,000 x 20/300)
Less: Cost of investment
Loss not recognized
5
.
P 500,000
700,000
(P200,000)
Letter A
Sales price [P30 x (20,000 x 20%)]
Less: Cost of sale (P700,000 x 20%)
Loss on sale
P120,000
140,000
(P 20,000)
Problem 7 43
1. Creditable withholding tax:
b. (P1,000,000 x 30 x 3%)
c. (P2,500,000 x 40 x 5%)
Total creditable withholding tax
P 900,000
5,000,000
P5,900,000
Gross profit:
(20 x P150,000 x 25%)
P
750,000
9,000,000
35,000,0
00
standard
deduction
P44,750,00
0
17,900,0
00
P26,850,00
0
30
%
P
8,055,000
5,900,00
0
P
2.
P300,000
150,00
0
Letter B
Sales of residential house and lot
Proceeds applied for the acquisition of new residential
house and lot
Amount subject to final withholding tax
Final tax rate
Final tax
Problem 7 45
Not-traded in Local Stock Exchange:
1. FIFO Method:
Sales proceeds (P200 x 350)
Less: Cost of shares sold:
December 200A purchased (P86.96 x
100)
February 200B purchased (P104.35 x
250)
Gain on sale on investment on stock
Multiplied by percentage of tax
Tax due and payable
P500,0
00
200,0
00
P700,0
00
450,0
00
P250,0
00
P1,000,00
0
800,0
00
P
200,000
6
%
P
12,000
P 70,000.00
P 8,696.00
26,087.50
34,783.50
P 35,216.50
5%
P 1,760.83
Note: The new cost per share due to 15% stock dividends is computed
as follows:
December 200A purchase (P10,000/115)
P 86.96
P104.35
P 70,000
35,000
P 35,000
5%
P 1,750
No. of Shares
100
300
400
60
460
Cost/ share
P100
P120
Amou
nt
P10,00
0
36,00
0
P46,00
0
.
P46,00
0
4
60
P
100
Problem 7 46
Sales (P150 x 1,000)
Cost (P80 x 1,000)
Gross profit
Gross profit rate (P70,000/P150,000)
Percent of initial payment (P30,000/P150,000)
P150,000
( 80,000)
P 70,000
47.667%
20.00%
P700.00
P933.34
P933.34
P933.34
Problem 7 47
Option money not exercise
Gain on retirement of bonds [(P1,000,000 x 120%)P1,000,000]
Shares becoming worthless
Loss
P 5,000
Gai
n
20,000
P25,000
P200,00
0
Note: The gain or loss on transaction letter c is zero. In the absence of cost,
the fair market value is assumed as the cost.
Problem 7 48
Trinidad is correct. There is a tax savings of P100,000 for opting to pay final
taxes.
Final tax (P3,000,000 x 6%)
P 180,000
Normal tax (P3,000,000 P2,200,000) x
( 240,000)
30%
Tax savings
( P60,000)
Problem 7 49
No, because the Loakan Corporation is not an individual taxpayer.
Problem 7 50
1. Individual taxpayer
Operating gain (loss)
NOLCO
Capital gain (loss)
NCLCO
Taxable income before
p.e.
Year 1
(P100,000)
Year 2
P50,000
(80,000)
Year 3
P30,000
(20,000)
Year 4
P80,000
20,000
10,000
( P80,000)
(P20,000)
(40,000)
.
P10,000
50,000
(10,000)
P120,00
0
The net capital loss of P40,000 in year 3 could not be deducted in its full
amount in year 4 because the taxable income in year 3 is only P10,000.
2. Corporate taxpayer
Operating gain (loss)
NOLCO
Capital gain (loss)
Taxable income before
p.e.
(P100,000)
P50,000
(80,000)
P30,000
(20,000)
P80,000
20,000
10,000
(40,000)
50,00
0
( P80,000)
(P20,000)
.
P10,000
P130,00
0
P10,000
15,000
( 2,000)
P23,000
2.
( 10,000
)
Taxpayer is a corporation.
Year
4
Business income
300,000
Business expenses
340,000
( 40,000
)
NOLCO
Net income (loss)
Year
6
500,000
450,000
50,000
Year
7
600,000
570,000
30,000
Year
8
700,000
650,000
50,000
50,000
30,000
50,000
30,000
(50,000)
(40,000)
35,000
(20,000)
30,000
5,000
(20,000)
15,000
( 5,000)
10,000
50,000
45,000
50,000
Year
5
400,000
380,000
20,000
Year
6
500,000
450,000
50,000
Year
7
600,000
570,000
30,000
Year
8
700,000
650,000
50,000
(20,000)
(10,000)
( 40,000
)
50,000
(40,000)
10,000
( 30,000)
40,000
30,000
50,000
(40,000)
30,000
10,000 (100,000
)
(30,000) (70,000)
30,000
10,000
(40,000)
70,000
40,000
30,000
(30,000)
70,000
80,000
40,000
Problem 7 53
1. Sales price
Less: Cost of sale
Gross income
Multiplied by percent of collection (P2,000,000 +
P500,000)/5,000,000
Reportable gross income in 200A
2.
3.
P5,000,00
0
4,000,00
0
P1,000,00
0
50
%
P
500,000
Collection (P2,500,000/5)
Multiplied by percent of gross income
(P1,000,000/P5,000,000)
Reportable gross income in 200B
Sales price
Less: Cost of sale
Gross income
P500,000
20%
P100,000
P5,000,00
0
4,000,00
0
P1,000,00
0
Note: The 25% initial payment rule does not apply for the regular installment
sale of personal property (inventory). The 25% initial payment rule applies
only to the casual sale of personal property classified as capital asset and
sale of real property.
Problem 7 54
Gain on retirement of bonds [(P500,000 x 120%)
P500,000]
Gain on short sales [P50,000 (P2.25 x 20,000)]
Total capital gains
P100,00
0
5,00
0
P105,00
0
50,00
0
P
55,000
There is no capital loss in the option money because the taxpayer exercised
his option rights.
Problem 7 55
1.
Capital
gains
tax
P2,000,000) x 6%
(P3,000,000
P 60,000
2.
P800,000
3.
P180,000
4.
P2,000,00
0
Problem 7 56
1.
Deductible loss Feb. 14, 200x
2.
P- 0-
Sales
Less: Cost of sales (P450,000 x 8/9)
P320,000
400,00
0
P
80,000
P294,444
4.
P215,556
Original cost
Add: Nondeductible loss
Jan. 20: (P80,000 x 5/9)
Feb. 10:: (P80,000 x 4/9)
New cost
5.
Jan. 20
Feb. 10
P250,000 P180,000
44,444
.
35,55
6
P294,444 P215,556
P240,000
P 50,000
176,667
226,66
7
P
13,333
Problem 7 57
1. FMV of ordinary shares (P30 x 25,000)
FMV of preference shares (P50 x 5,000)
Total FMV of shares of stock received
Less: Cost of investment in A Co. transferred (P9 x 100,000)
Nontaxable gain
2.
Ordinar
y
P675,00
0
P
750,000
250,00
0
P1,000,00
0
900,00
0
P
100,000
Preferenc
e
P225,000
P625,00
0
675,00
0
P300,00
0
225,00
0
(P50,000)
75,000
Net gain
P 25,000
4.
P925,000
0.005
P 4,625
5.
1,250
6.
3,375
Problem 7 58
1 B Co. ordinary shares with FMV of
.
Land with FMV of
Cash
P200,00
0
100,000
50,00
0
P350,00
0
180,00
0
P170,00
0
2
.
P100,00
0
P200,00
0
4
.
5
.
Sales price
Less: Cost
Taxable gain
P50,00
0
100,0
00
150,00
0
P
50,000
100,00
0
P150,00
0
P100,00
0
P
18,000
P250,00
0
180,00
0
P
70,000