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

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

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

Problem 7 3 TRUE OR FALSE
1. True
2. True
3. True
4. False Losses from wash sales are not deductible.
5. False No wash sales if the classes of shares of stocks are different.
6. True
7. True
8. False Not subject to capital gains tax because the issuance is original
and the shares of stock is owned by the corporation.
9. True
10.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
12.False additional assessments by a corporation from its shareholders
are not income; hence, not taxable income.
Problem 7
1. False
2. True
3. False
4. True
5. False
6. True
7. True
8. False
9. True
10.False
11.True
12.True
Problem 7
5
1.
C
2.
B
3.
D
4.
C
5.
C
6.
A
7.
B
8.
A
9.
C

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

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

10
.
11
.
12
.

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

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
C
Interest in partnership
Idle raw lands
Proceeds of expropriated real property
Capital assets

P1,000,000
100,000
2,000,000
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. L9738 and L-9771, May 31, 1957)
Problem 7 9
1. Letter D
Selling price per 200 sq. meters
Multiplied by number of 200 s.m. sold (9,000
1,000)/200
Total sales
Less: Cost of sales (P2,000,000 x 90%)
Ordinary gain from sale of land

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.

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

Problem 7 10
Fair market value
Less: Book value of car
Gain on exchange

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

There 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
D
Acquisition cost (P200,000 + P20,000)
Agents commission (P500,000 x 10%)
Deductible cost and expenses
Problem 7 14
Sales price

P220,000
50,000
P270,000

Less: Fair market value at the time of his fathers

death
Gain on sale of farm land

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

No holding period because the seller is a corporation.

Problem 7 16

Sales price

Less: Book value of the car

P700,00
0

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

Acquisition cost
Less:
(P1,000,000/5) x 2
Capital gain

Accum.

depn.

P1,000,0
00
400,0
00

Multiplied by percent of holding period

Reportable capital gain

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

No holding period is allowed for taxpayer other individuals.

Problem 7 18

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

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 19
1. Letter C
Ordinary gain
Capital asset transactions:
Short-term capital gain
Long-term capital gain (P30,000 x 50%)

P50,000
P20,000
15,000

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

Long-term capital loss (P10,000 x 50%)
Taxable income before personal exemption
2.

( 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

Ordinary taxable income

Short-term capital gain (loss)
Long-term capital gain (loss) (P600,000 x 50%):
(P100,000 x 50%)

NCLCO applicable in year 2 is P60,000

P
60,000
(P400,00
0)
300,00
0
(P100,00
0)

Net capital gain

Taxable income before personal exemption

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

Short-term capital gain

Net capital gain

P200,00
0
(100,00
0)
P100,00

Taxable income before personal exemption

P280,00

Long-term capital (loss)

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)

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

P76,500
Problem 7 22
A
Zero. 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

First P100,000 (P95,000/95%) x 5%

Over P100,000 [(P207,500 P95,000)/90%] x 10%
Total final tax
Problem 7 24

P
5,000
12,50
0
P
17,500

Capital gains of November sales (P150,000

P120,000)
Multiplied by capital gains tax rate
Capital gains tax
Problem 7 25
1 Letter A
.
Sales
Less: Cost of equity securities

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

The dealers in securities are not liable to the stock transaction

tax of of 1% based on the selling price or fair market value,
whichever is higher. (Sec. 4 & 5, Rev. Regs. No. 6 2008)
2
.

Letter B
Stock transaction tax (P1,000,000 x
0.005)

3
.

P5,000

Letter C
Sales

P1,000,00

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

0
Less: Cost of equity securities

P900,00
0

Brokerage fee
40,000
Capital gains
Multiplied by tax rate applicable

5%
P
3,000

Capital gains tax

Problem 7 26

940,000
P 60,000

Sales price (P140 x 1,000 shares)

Less: Cost of sales
Gross profit
Brokers fee (P140,000 x 1%)
Percentage tax (P140,000 x
0.005)
Capital gains tax (P50,000 x 5%)
Profit
Less: Profit if sold through the stock
market
Decrease in profit

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

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

Less: Cost Beginning: (P120,000/1,200) x
200 shares
- April: (P150 x 300 shares) +
P3,000
Capital loss

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

March 20 (P92* x 350 shares)

32,200
Gain on sale
2
.

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

*Computation of cost per share and total amount:

Mar. 10 (P80,960/880 shares)

April 20 (P161,700/1,650 shares)

Total
Cost/shar Amount
e
P92.00
P80,960
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.
Problem 7 30
1. Letter D
No capital gain on original issuance of
companys own stock even if issued above par
2.

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

P - 0 -

P4,000

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

Problem 7 31

Share premium treasury shares [(P140

P120) x 900]
Less:
Loss
on
treasury
shares
retirement
(P100 P120) x 100 shares
Net taxable gain

P18,000

2,000
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

Sales (P180 x 1,000)

Cost (P120 x 1,000)
Gross profit
Multiplied by applicable capital gains tax rate
Capital gains tax
Percent of initial payment
(P60,000/P180,000)
200D capital gains tax due [P3,000 x
(P48,000/P180,000)]

P 180,000
(120,000)
P 60,000
5%
P 3,000
20.00%
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
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

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

Capital gains
Multiplied by percent to report due to holding
period
Reportable capital gain individual

P 20,000
50%
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]
Problem 7 34
1. Letter C
Cost of the new family home (P2,500,000/P4,000,000) x
P2,000,000
2.

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

Capital gains tax (P5,000,000 x 6%)

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

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

Holding period is not applicable because the property is a real property
subject to final tax.
Problem 7 37
B
Cost of original residence
Add: Excess of new acquisition cost over
sales price
(P15,000,000 P12,000,000)
Basis of new principal residence

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

Not in the choices

Creditable withholding tax (P500,000 x
1.5%)

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

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
D
Creditable withholding tax:

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

(P500,000 x 1.5%) x 4 houses
(P3,000,000 x 5%) x 2

P 30,000
300,000
P330,000

Income tax still due and payable:

Total revenue (P500,000 x 4) +
(P3,000,000 x 2)
Total costs (P200,000 x 4) + (P1,200,000 x
2)
Gross profit
Operating expenses
Net income
Multiplied by normal corporate income tax
rate
Income tax due
Creditable withholding tax
Income tax still due and payable

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)

Less: Book value of the net asset of E Co.

Loss of E Co. not recognized
2
.

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

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

250,000)
Nontaxable gain of V Co.
Taxable gain of V Co.

0
P1,750,000
P - 0 -

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

4
.

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

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
9,000,000
35,000,0
00

(30 x P1,000,000 x 30%)

(40 x P2,500,000 x 35%)
Less:
Optional
(P44,750,000 x 40%)
Net taxable income

standard

Multiplied by corporate tax rate

Income tax due
Less: Creditable withholding tax
Income tax still due and payable

deduction

P44,750,00
0
17,900,0
00
P26,850,00
0
30
%
P
8,055,000
5,900,00
0
P

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

2,155,000
Problem 7 44
1. Letter D
Sales in the regular course of business
Add: Sales of ordinary asset (lot used as warehouse)
Total sales of ordinary assets
Less: Cost of sales
Cost of lot
Ordinary gains / income

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

February 200B purchase (P36,000/345)

P104.35

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

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, 200A

February 24, 200B
Totals
Add: 15% stock dividends
Basis of cost per share
Divide by number of share
New cost per share

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%

200A (P30,000 x 46.667%) x 5%

200B (P40,000 x 46.667%) x 5%
200C (P40,000 x 46.667%) x 5%
200D (P40,000 x 46.667%) x 5%

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

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

.
P200,00
0
P175,00
0

Net gain (P200,000 P25,000)

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 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

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

P130,00
0

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

Problem 7 51

Short-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

P10,000
15,000
( 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 52
1. Taxpayer is individual.
Year
Year
4
5
Business income
300,000 400,000
Business expenses
340,000 380,000
Net income before ( 40,000
20,000
NOLCO
)
NOLCO
( 10,000
)
Net income (loss)
from operation
( 40,000
10,000
)
Capital gain (loss)
Short-term (100%)
50,000 (40,000)
Long term (50%)
(20,000)
5,000
NCLCO
Net capital gain
30,000 (35,000)
(loss)
Net income (loss)

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)

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

from operation
Capital gain (loss)
Short-term
Long term

( 40,000
)
50,000
(40,000)
10,000

Net income (loss)

( 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

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

Less: Shares becoming worthless at Philippine Airlines
Net capital gains

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.

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

P2,000,00
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

Nondeductible loss Feb. 14, 200x

3.

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.

Sales (P60 x 4,000)

Less: Cost of sales:
Jan. 10: (P50 x 1,000)
Jan. 20: (P294,444 x 3/5)

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

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

Capital gain

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.

Basis of new shares allocated

Basis of ordinary shares (P900,000 x 75/100)

Ordinar
y
P675,00
0

Basis of preference shares (P900,000 x 25/100)

3.

Selling price ordinary shares (P25 x 25,000)

Less: Cost ordinary shares - allocated
Selling price preference shares (P60 x 5,000)
Less: Cost preference shares allocated

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.

Total sales price (P625,000 + P300,000)

Multiplied by percentage tax
Percentage tax

P925,000
0.005
P 4,625

5.

Capital gains tax (P25,000 x 5%)

1,250

6.

Tax advantage of 5 transaction over 4 (P4,625

P1,250)

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

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

Total

P350,00
0
180,00
0
P170,00
0

Less: Cost of A Co.s shares transferred

Total gain

2
.

Taxable gain (is limited to the FMV of land and

cash)

P100,00
0

Cost of A Co.s shares transferred

P200,00
0

Less: Cash received

FMV of land received
Balance
Add: Gain recognized in the exchange
Basis of B Co. shares received
3
.

Basis of land received FMV of land

4
.

Capital gains tax of land (P300,000 x 6%)

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