Chapt 7+Dealings+in+Prop2013f

INCOME TAXATION 6TH Edition (BY: VALENCIA & ROXAS)SUGGESTED ANSWERS

Chapter 7: Dealings in Property

CHAPTER 7

DEALINGS IN PROPERTYProblem 7 – 1 TRUE OR FALSE

1. True2. False – Ordinary assets3. False – its real properties shall continue to be treated as ordinary assets.4. True5. 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. True10. 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. True12. 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 FALSE1. True2. 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 lower5. False – equipment used in business operations is an ordinary asset.6. True7. False – The basis is the fair market value at the date of donation.8. True9. True10. False – There should be no capital loss because there is an exercise of the option.11. True12. True

Problem 7 – 3 TRUE OR FALSE1. True2. True3. True4. False – Losses from wash sales are not deductible.5. False – No wash sales if the classes of shares of stocks are different.6. True7. True8. False – Not subject to capital gains tax because the issuance is original and the shares

of stock is owned by the corporation.9. True10. False – subject to either stock transaction tax (traded-in stock market) or capital gains

tax of 5% to 10% based on capital gains (not traded-in the stock market).11. True

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12. False – additional assessments by a corporation from its shareholders are not income; hence, not taxable income.

Problem 7 – 41. False – subject to capital gains tax of 6%.2. True3. False - … the speculator sells securities which he does not own.4. True5. False – this refers to patent.6. True7. True8. False – if the land is ordinary asset, subject to normal tax.9. True10. False – not dealers of securities11. True12. True

Problem 7 – 5 Problem 7 – 6 1. C 1. A2. B 2. D3. D 3. D4. C 4. A5. C 5. C 6. A 6. B 7. B 7. D 8. A 8. D9. C 9. D10. C 10. A 11. A12. D

Problem 7 – 7 DReal property inventories P10,000,000Land and building used in business 3,000,000Vacation house of the executives 1,500,000Acquired undeveloped properties 500,000Abandoned properties 600,000 Total amount of ordinary assets P15,600,000

All properties acquired by real estate dealers/developers are ordinary assets. Ordinary assets of realty companies that were later abandoned and become idle continue to be considered as ordinary assets. (Rev. Reg. No. 7 – 03)

Problem 7 – 8 CInterest in partnership P1,000,000Idle raw lands 100,000Proceeds of expropriated real property 2,000,000 Capital assets P3,100,000

The transfer of property through expropriation with just compensation is basically a sale or exchange of property subject to capital gains tax of 6%. (Blas Gutierrez, and Maria Morales vs. CTA, and CIR, G.R. Nos. L-9738 and L-9771, May 31, 1957)

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Problem 7 – 9 1. Letter D

Selling price per 200 sq. meters P 100,000Multiplied by number of 200 s.m. sold (9,000 – 1,000)/200 40 Total sales P4,000,000Less: Cost of sales (P2,000,000 x 90%) 1,800,000 Ordinary gain from sale of land P2,200,000

2. Letter AThere is no remaining capital asset of B because the remaining 10% of one hectare is also used into business as a warehouse.

Problem 7 – 10 BFair market value P190,000Less: Book value of car 150,000 Gain on exchange P 40,000

Problem 7 – 11 CThere is capital loss if the property given away has fair value higher than P200,000 when it was inherited.

Problem 7 – 12 AThere is no taxable amount in the above transaction because the transaction is an exchange solely in kind and Mr. A gained control of Veniz Corporation acquiring more than 50% of the outstanding shares (15/25 = 60%).

Problem 7 – 13 DAcquisition cost (P200,000 + P20,000) P220,000Agent’s commission (P500,000 x 10%) 50,000 Deductible cost and expenses P270,000

Problem 7 – 14 ASales price P2,000,000Less: Fair market value at the time of his father’s death 500,000 Gain on sale of farm land P1,500,000

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 ASales price P150,000Cost or basis to the donee (the lower of donor’s cost or the fair market value when the gift was made ( 50,000)Capital gain P100,000

No holding period because the seller is a corporation.

Problem 7 – 16 BSales price P700,000Less: Book value of the car Acquisition cost P1,000,00

0 Less: Accum. depn. (P1,000,000/5) x 2 400,00 600,000

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0Capital gain P100,000Multiplied by percent of holding period 50% Reportable capital gain P 50,000

Problem 7 – 17 DSales price P200,000Less: Cost or market whichever is lower) 100,000 Capital gain P100,000

No holding period is allowed for taxpayer other individuals.

Problem 7 – 18 B Year

1 Year 2

Operating income P200,000

P300,000

Capital asset transactions: Capital gain – long-term (50%) P

25,000P 20,000

Capital loss – short-term (100%) ( 40,000)

( 10,000)

Net capital gain (loss) (P15,000)

P 10,000

Net capital loss carry-over, limit ( 10,000)Taxable income P200,00

0P300,000

The net capital loss carry-over is limited to only P10,000 instead of P15,000 because the net capital gains in year 2 is only P10,000.

Problem 7 – 191. Letter C

Ordinary gain P50,000Capital asset transactions: Short-term capital gain P20,000 Long-term capital gain (P30,000 x 50%) 15,000 Long-term capital loss (P10,000 x 50%) ( 5,000) 30,000 Taxable income before personal exemption P80,000

2. Letter BOrdinary gain P50,000Capital asset transactions: Short-term capital gain P20,000 Long-term capital gain (P30,000) 30,000 Long-term capital loss ( 10,000) 40,000 Taxable income before personal exemption P90,000

Problem 7 – 201. Letter C Year 1 Year 2

Ordinary taxable income P 60,000 P180,000Short-term capital gain (loss) (P400,000) P200,000Long-term capital gain (loss) (P600,000 x 50%): (P100,000 x 50%) 300,000 (50,000)

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NCLCO – applicable in year 2 is P60,000 (P100,000) (60,000) Net capital gain P 90,000Taxable income before personal exemption P 60,000) P270,000

2. Letter BOrdinary taxable income P180,000Short-term capital gain P200,000Long-term capital (loss) (100,000)Net capital gain P100,000Taxable income before personal exemption P280,000

Problem 7 – 21 A

JewelryM. Benz Car – long term (50%)RefrigeratorFord Car

Selling PriceP 80,000400,000

6,00012,000

Cost & ExpensesP 11,000

370,0005,000

20,500

Net Capital GainP 69,000

15,0001,000

(8,500) P76,500

Problem 7 – 22 AZero. If BPI is a dealer of debt and equity securities, the transactions related to securities are not capital asset transactions but ordinary transactions, hence there is no net capital gain.

Problem 7 – 23 CFirst P100,000 (P95,000/95%) x 5% P 5,000Over P100,000 [(P207,500 – P95,000)/90%] x 10% 12,500 Total final tax P 17,500

Problem 7 – 24 ACapital gains of November sales (P150,000 – P120,000) P30,000Multiplied by capital gains tax rate 5% Capital gains tax P 1,500

Problem 7 – 251. Letter A

Sales P1,000,000Less: Cost of equity securities P900,000 Brokerage fee 40,000 940,000 Net income P 60,000Multiplied by corporate income tax 30% Income tax due P 18,000

The dealers in securities are not liable to the stock transaction tax of ½ of 1% based on the selling price or fair market value, whichever is higher. (Sec. 4 & 5, Rev. Regs. No. 6 – 2008)

2. Letter BStock transaction tax (P1,000,000 x 0.005) P5,000

3. Letter CSales P1,000,000Less: Cost of equity securities P900,000 Brokerage fee 40,000 940,000 Capital gains P 60,000Multiplied by tax rate applicable 5%

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Capital gains tax P 3,000

Problem 7 – 26 CSold thru

stock market

Sold direct to the buyer

Sales price (P140 x 1,000 shares) P140,000 P140,000Less: Cost of sales 90,000 90,000 Gross profit P 50,000 P 50,000Broker’s fee (P140,000 x 1%) ( 1,400)Percentage tax (P140,000 x 0.005) ( 700)Capital gains tax (P50,000 x 5%) . ( 2,500)Profit P 47,900 P 47,500Less: Profit if sold through the stock market 47,900 Decrease in profit (P 400)

Problem 7 – 27 DCapital gain (P150 – P125) x 100 shares P2,500

Problem 7 – 281. Letter D

Sale – March (P120 x 500 shares)Less: Cost (P120,000/1,200 shares) x 500 sharesCapital gain

P 60,000 50,000 P10,000

2. Letter C Sales – May (P90 x 500) P45,000Less: Cost of sales (P70,000 x 500/700) 50,000 Loss P 5,000

Nondeductible loss (P5,000 x 300/500) P 3,000

3. Letter AProceeds of liquidation (P130 x 500) P65,000Less: Cost – Beginning: (P120,000/1,200) x 200 shares P20,000 - April: (P150 x 300 shares) + P3,000 48,000 68,000 Capital loss (P3,000)


Sales proceeds P240,000Less: Cost of equity investments sold April 20 (1,650 shares) P161,700 March 20 (P92* x 350 shares) 32,200 193,900 Gain on sale P 46,100

2. Letter CCost per share batch March 10 P 92Number of shares remaining [(800 x 110%) – 350] 530 Cost of remaining shares P48,760

*Computation of cost per share and total amount:Total

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Cost/share Amount Mar. 10 (P80,960/880 shares) P92.00 P80,960April 20 (P161,700/1,650 shares) P98.00 161,700

The shares of stock are increased by the 10% stock dividend.

If the shares of stock sold are properly identified, the identified cost shall first be deducted.


No capital gain on original issuance of company’s own stock even if issued above par

P - 0 -

2. Letter C Capital gain on reissued shares (P23 – P21) x 2,000) P4,000

Problem 7 – 31 DShare premium – treasury shares [(P140 – P120) x 900] P18,000Less: Loss on treasury shares retirement (P100 – P120) x 100 shares 2,000 Net taxable gain P16,000

Correction: should be: “the remaining one hundred (100) shares were retired.”

There is no taxable gain or deductible loss in the original issuance of shares of stock. (Sec. 55, Reg. No. 2)

Problem 7 – 32 BSales (P180 x 1,000) P 180,000Cost (P120 x 1,000) (120,000) Gross profit P 60,000Multiplied by applicable capital gains tax rate 5% Capital gains tax P 3,000

Percent of initial payment (P60,000/P180,000) 20.00%

200D capital gains tax due [P3,000 x (P48,000/P180,000)]

P 800

The initial payment does not exceed 25%, therefore, installment payment of the capital gains tax will be allowed. The installment payment per year is P48,000 or [(P180,000 – P36,000)/3].

Problem 7 – 33 1. Letter C

Liquidating dividend P120,000Less: Cost of stock investment (P10 x 10,000) 100,000 Reportable capital gain – corporation P 20,000

2. Letter DLiquidating dividend P120,000

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Less: Cost of stock investment (P10 x 10,000) 100,000 Capital gains P 20,000Multiplied by percent to report due to holding period 50% Reportable capital gain – individual P 10,000

If the shareholder is a corporation, the capital gain is taxable in full. If the shareholder is an individual and the stocks were held for more than 12 months, the capital gain is taxable only to the extent of 50% thereof, [Sec. 39 (B), NIRC].

The authors believe that the rule on holding period on shares of stock is applicable in case of liquidating dividend. However if the shares of stock is sold through the stock market or the direct to the buyer, the holding period does not apply because the sales are subject to percentage tax or capital gains tax which are final taxes in nature. [Sec. 6 (c, 3), Rev. Regs. No. 2-82]


Cost of the new family home (P2,500,000/P4,000,000) x P2,000,000 P1,250,000

2. Letter BSales proceeds P4,000,000Less: Amount used to acquire new family home 2,500,000 Unutilized sales proceeds P1,500,000Multiplied by capital gains tax rate 6% Capital gains tax to be paid P 90,000

Problem 7 – 35 DBasis of new residence P9,000,000

Capital gains tax (P5,000,000 x 6%) 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 DZonal value (P700 x 500) – higher P350,000Multiplied by capital gains tax rate 6% Capital gains tax P 21,000

Holding period is not applicable because the property is a real property subject to final tax.

Problem 7 – 37 BCost of original residence P6,000,000Add: Excess of new acquisition cost over sales price (P15,000,000 – P12,000,000) 3,000,000 Basis of new principal residence P9,000,000


Final tax (P1,200,000 x 6%) P72,000

2. Not in the choicesCreditable withholding tax (P500,000 x 1.5%) P7,500

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Capital gains tax (P2,500,000 x 6%) – SP, higher P150,000Add: Documentary stamp tax (P2,500,000 x 1.5%) 37,500 Total tax to the BIR P187,500

2. Letter CGross income (P2,500,000 – P1,500,000) P1,000,000Less: OSD (P1,000,000 x 40%) 400,000 Net taxable income P 600,000Multiplied by corporate normal tax rate 30% Income tax due P 180,000Add: Documentary stamp tax (P2,500,000 x 1.5%) 37,500 Total tax due to the BIR P217,500

The transaction above is VAT-exempt because the selling price (SP) is P2,500,000 and the real property is for residential dwelling.

Problem 7 – 40 DCreditable withholding tax: (P500,000 x 1.5%) x 4 houses P 30,000 (P3,000,000 x 5%) x 2 300,000

P330,000Income tax still due and payable: Total revenue (P500,000 x 4) + (P3,000,000 x 2) P8,000,000 Total costs (P200,000 x 4) + (P1,200,000 x 2) (3,200,000) Gross profit P4,800,000 Operating expenses (2,800,000) Net income P2,000,000 Multiplied by normal corporate income tax rate 30% Income tax due P 600,000 Creditable withholding tax ( 330,000) Income tax still due and payable P 270,000


None. No withholding tax because Goldrich Realty Corporation is the buyer not a seller.

2 Letter ANone. No income tax is to be collected from sale of land by the government.


Fair market value of V Co.’s share received (P30 x 250,000) P 7,500,000Less: Book value of the net asset of E Co. 9,000,000 Loss of E Co. – not recognized (P2,500,000)

2. Letter BE Co.’s cost or basis is the same as the book value of net asset it transferred to acquire V Co.’s equity P9,000,000

3. Letter D

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Fair value of E Co.’s net asset received P8,000,000Less: Par value of shares issued (P25 x 250,000) 6,250,000 Nontaxable gain of V Co. P1,750,000Taxable gain of V Co. P - 0 -

There is no taxable gain because the merger is solely in kind.

4. Letter CPortion of FMV of V Co.’s shares received (P7,500,000 x 20/300) P 500,000Less: Cost of investment 700,000 Loss – not recognized (P200,000)

5. Letter ASales price [P30 x (20,000 x 20%)] P120,000Less: Cost of sale (P700,000 x 20%) 140,000 Loss on sale (P 20,000)

Problem 7 – 431. Creditable withholding tax:

b. (P1,000,000 x 30 x 3%) P 900,000 c. (P2,500,000 x 40 x 5%) 5,000,000 Total creditable withholding tax P5,900,000

Note: Sale of socialized housing of a realtor that is a member of HLURB is not subject to CWT if the sales price is P150,000 per house.

2. Gross profit: (20 x P150,000 x 25%) P 750,000 (30 x P1,000,000 x 30%) 9,000,000 (40 x P2,500,000 x 35%) 35,000,000 P44,750,000Less: Optional standard deduction (P44,750,000 x 40%) 17,900,000 Net taxable income P26,850,000Multiplied by corporate tax rate 30% Income tax due P 8,055,000Less: Creditable withholding tax 5,900,000 Income tax still due and payable P 2,155,000


Sales in the regular course of businessAdd: Sales of ordinary asset (lot used as warehouse)Total sales of ordinary assetsLess: Cost of sales Cost of lotOrdinary gains / income

P300,000 150,000

P500,000 200,000 P700,000 450,00

0P250,000

2. Letter BSales of residential house and lotProceeds applied for the acquisition of new residential house and lotAmount subject to final withholding taxFinal tax rateFinal tax

P1,000,000

800,000 P 200,000 6% P 12,000

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Problem 7 – 45Not-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

P 8,696.00 26,087.50

P 70,000.00

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)

February 200B purchase (P36,000/345)

P 86.96

P104.35

2. Moving Average Method: Sales proceeds (P200 x 350) Less: Cost of shares sold (350 x P100) Gain on sale of investment in stock Multiplied by percentage of tax Tax due and payable

P 70,000 35,000 P 35,000 5% P 1,750

*Computation of the new cost per share would be:Investment in common stocks:

December 15, 200AFebruary 24, 200BTotalsAdd: 15% stock dividendsBasis of cost per shareDivide by number of shareNew cost per share

No. of Shares100300400 60460

Cost/ shareP100P120

AmountP10,000 36,000 P46,000 . P46,000 460 P 100

Problem 7 – 46Sales (P150 x 1,000) P150,000Cost (P80 x 1,000) ( 80,000) Gross profit P 70,000Gross profit rate (P70,000/P150,000) 47.667%Percent of initial payment (P30,000/P150,000) 20.00%

200A (P30,000 x 46.667%) x 5% P700.00200B (P40,000 x 46.667%) x 5% P933.34200C (P40,000 x 46.667%) x 5% P933.34200D (P40,000 x 46.667%) x 5% P933.34

Problem 7 – 47

Option money – not exerciseGain on retirement of bonds [(P1,000,000 x 120%)-P1,000,000]Shares becoming worthless

Loss P 5,000

20,000

Gain

P200,000 .

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P25,000 P200,000Net gain (P200,000 – P25,000) P175,000

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 – 48Trinidad is correct. There is a tax savings of P100,000 for opting to pay final taxes.Final tax (P3,000,000 x 6%) P 180,000Normal tax (P3,000,000 – P2,200,000) x 30% ( 240,000)Tax savings ( P60,000)

Problem 7 – 49No, because the Loakan Corporation is not an individual taxpayer.

Problem 7 – 501. Individual taxpayer Year 1 Year 2 Year 3 Year 4

Operating gain (loss) (P100,000) P50,000 P30,000 P80,000 NOLCO (80,000) (20,000)

Capital gain (loss) 20,000 10,000 (40,000) 50,000 NCLCO . (10,000) Taxable income before p.e. ( P80,000) (P20,000) P10,000 P120,000

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 taxpayerOperating gain (loss) (P100,000) P50,000 P30,000 P80,000 NOLCO (80,000) (20,000)

Capital gain (loss) 20,000 10,000 (40,000) 50,000 .

Taxable income before p.e. ( P80,000) (P20,000) P10,000 P130,000

No NCLCO shall be made if the taxpayer is a corporation.

Problem 7 – 51Short-term gain - sale of car (P105,000 – P95,000) x 100%Long-term gain - sale of jewelry (P80,000 – P50,000) x 50%Long-term loss - sale of refrigerator (P4,000 – P8,000) x 50%Net capital gains

P10,00015,000

( 2,000)P23,000

Sale of real property classified as capital asset is subject to final tax; hence, not to be reported in the ITR, [Sec. 24 (D)(1), NIRC]. Related party losses are not deductible. [Sec. 36 (B), NIRC]

Problem 7 – 521. Taxpayer is individual.

Year 4 Year 5 Year 6 Year 7 Year 8

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Business income 300,000 400,000 500,000 600,000 700,000Business expenses 340,000 380,000 450,000 570,000 650,000Net income before NOLCO

( 40,000) 20,000 50,000 30,000 50,000

NOLCO ( 10,000)Net income (loss) from operation ( 40,000) 10,000 50,000 30,000 50,000Capital gain (loss) Short-term (100%) 50,000 (40,000) 30,000 30,000 (40,000) Long term (50%) (20,000) 5,000 (50,000) 5,000 35,000 NCLCO (20,000) Net capital gain (loss) 30,000 (35,000) (20,000) 15,000 ( 5,000) Net income (loss) ( 10,000) 10,000 50,000 45,000 50,000

2. Taxpayer is a corporation. Year 4 Year 5 Year 6 Year 7 Year 8

Business income 300,000 400,000 500,000 600,000 700,000Business expenses 340,000 380,000 450,000 570,000 650,000

( 40,000) 20,000 50,000 30,000 50,000NOLCO (20,000) (10,000)Net income (loss) from operation ( 40,000) 0 40,000 30,000 50,000Capital gain (loss) Short-term 50,000 (40,000) 30,000 30,000 (40,000) Long term (40,000) 10,000 (100,000) 10,000 70,000

10,000 (30,000) (70,000) 40,000 30,000

Net income (loss) ( 30,000) (30,000) 40,000 70,000 80,000

Problem 7 – 531. Sales price P5,000,000

Less: Cost of sale 4,000,000 Gross income P1,000,000Multiplied by percent of collection (P2,000,000 + P500,000)/5,000,000 50% Reportable gross income in 200A P 500,000

2. Collection (P2,500,000/5) P500,000Multiplied by percent of gross income (P1,000,000/P5,000,000) 20% Reportable gross income in 200B P100,000

3. Sales price P5,000,000Less: Cost of sale 4,000,000 Gross income P1,000,000

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 – 54Gain on retirement of bonds [(P500,000 x 120%) – P500,000] P100,000Gain on short sales [P50,000 – (P2.25 x 20,000)] 5,000 Total capital gains P105,000Less: Shares becoming worthless at Philippine Airlines 50,000 Net capital gains P 55,000

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There is no capital loss in the option money because the taxpayer exercised his option rights.

Problem 7 – 551. Capital gains tax (P3,000,000 – P2,000,000) x 6% P 60,000

2. Basis of the new residential home (P1,200,000 x 2/3) P800,000

3. Capital gains tax (P3,000,000 x 6%) P180,000

4. Basis of the new residential home P2,000,000

Problem 7 – 561. Deductible loss – Feb. 14, 200x P - 0 -

2. Sales P320,000Less: Cost of sales (P450,000 x 8/9) 400,000 Nondeductible loss – Feb. 14, 200x P 80,000

3. P294,444

4. P215,556Jan. 20 Feb. 10

Original cost P250,000 P180,000Add: Nondeductible loss Jan. 20: (P80,000 x 5/9) 44,444 Feb. 10:: (P80,000 x 4/9) . 35,556 New cost P294,444 P215,556

5. Sales (P60 x 4,000) P240,000Less: Cost of sales: Jan. 10: (P50 x 1,000) P 50,000 Jan. 20: (P294,444 x 3/5) 176,667 226,667 Capital gain P 13,333

Problem 7 – 571. FMV of ordinary shares (P30 x 25,000) P 750,000

FMV of preference shares (P50 x 5,000) 250,000 Total FMV of shares of stock received P1,000,000Less: Cost of investment in A Co. transferred (P9 x 100,000) 900,000 Nontaxable gain P 100,000

2. Basis of new shares – allocated Ordinary PreferenceBasis of ordinary shares (P900,000 x 75/100) P675,000Basis of preference shares (P900,000 x 25/100) P225,000

3. Selling price – ordinary shares (P25 x 25,000) P625,000Less: Cost – ordinary shares - allocated 675,000 (P50,000)Selling price – preference shares (P60 x 5,000) P300,000Less: Cost – preference shares – allocated 225,000 75,000 Net gain P 25,000

4. Total sales price (P625,000 + P300,000) P925,000Multiplied by percentage tax 0.005 Percentage tax P 4,625

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5. Capital gains tax (P25,000 x 5%) P 1,250

6. Tax advantage of 5 transaction over 4 (P4,625 – P1,250) P 3,375

Problem 7 – 581. B Co. ordinary shares with FMV of P200,000

Land with FMV of 100,000Cash 50,000 Total P350,000Less: Cost of A Co.’s shares transferred 180,000 Total gain P170,000

Taxable gain (is limited to the FMV of land and cash) P100,000

2. Cost of A Co.’s shares transferred P200,000Less: Cash received P50,000 FMV of land received 100,000 150,000 Balance P 50,000Add: Gain recognized in the exchange 100,000 Basis of B Co. shares received P150,000

3. Basis of land received – FMV of land P100,000

4. Capital gains tax of land (P300,000 x 6%) P 18,000

5. Sales price P250,000Less: Cost 180,000 Taxable gain P 70,000

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Chapt 7+Dealings+in+Prop2013f

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