REVIEW IN BUSINESS LAW AND TAXATION

CAPITAL GAINS TAX

1. Which of the following is not an ordinary asset?
a. Real property held by the taxpayer primarily for sale to customers in the ordinary course of business
b. Stock in trade of a taxpayer or other real property of a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of the taxable year
c. Real property used for residential purposes of the taxpayer
d. Real property used in trade or business of a character of which is subject to the allowance for
depreciation
2. Which of the following is not a capital asset?
a. Prepaid expenses
b. Leasehold rights
c. Franchise rights
d. Inventories
3. Which of the following is incorrect regarding asset classification rules?
a. A property purchased for future use in business is an ordinary asset even though this purpose is
later thwarted by circumstances beyond the taxpayer’s control.
b. Change in business from real-estate to non-real estate business shall change the classification of
ordinary assets previously held into capital assets.
c. Discontinuance of the active use of the property does not change its character previously
established as a business property.
d. Real properties used, being used, or have been previously used, in trade of the taxpayer shall be
considered ordinary assets.
4. Which of the following is not subject to capital gains tax?
a. Sale of real property in the Philippines
b. Exchange and other dispositions of real property in the Philippines
c. Gain on the sale, exchange, and other disposition of domestic stocks directly to buyer
d. Gains from other capital assets in the Philippines
5. Which of the following is correct?
a. The TRAIN law changed the two-tiered tax structure (5% and 10%) capital gains tax to a 15% flat tax
effective January 1, 2017.
b. The TRAIN law changed the 15% flat capital gains tax to a two-tiered tax structure (5% and 10%)
effective January 1, 2018.
c. The TRAIN law changed the two-tiered tax structure (5% and 10%) capital gains tax to a 15% flat tax
effective January 1, 2018.
d. The TRAIN law changed the 15% flat capital gains tax to a two-tiered tax structure (5% and 10%)
effective January 1, 2017.
6. Domestic stocks are evidence of ownership or rights to ownership in a domestic corporation. Examples
of domestic stocks are the following, except
a. Common stock
b. Preferred stock
c. Bonds
d. Unit of participation in any association, recreation or amusement club (golf, polo or similar clubs)
7. Effective January 1, 2018, the sale of domestic stocks classified as capital assets through the Philippine
Stocks Exchange (PSE) is subject to a
a. Stock transaction tax of 60% of 1% of the selling price
b. Stock transaction tax of 50% of 1% of the selling price
c. 15% of gains
d. 5% for the first P100,000 gain and 10% for the excess over P100,000
8. Which of the following is correct regarding the documentary stamp tax in the computation of the net
capital gain/loss?
a. The documentary stamp tax is deducted if paid by the buyer.
b. The documentary stamp tax is deducted if paid by the seller.
c. The documentary stamp tax is ignored.
d. The documentary stamp tax is added to the selling price if paid by the seller.
9. To compute the net gain, selling price shall mean
a. In case of a cash sale, the total consideration received per deed of sale
b. If total consideration is paid partly in money and partly in property, the sum of money and the fair
value of property received
 REVIEW IN BUSINESS LAW AND TAXATION
c. In case of exchanges, the fair value of the property received
d. None of the above
e. Any of a, b and c
10. Mimi sold her stocks receiving in exchange a building with a cost of P6,000,000 but with a fair value of
P3,000,000 and P4,000,000 cash. How much is the selling price?
a. P6,000,000
b. P3,000,000
c. P4,000,000
d. P7,000,000
11. What is the tax basis of the stocks if acquired by inheritance?
a. Fair value at time of receipt of inheritance
b. Fair value at the time of death of decedent
c. Cost at the hands of the decedent when he was still alive
d. Lower of fair value at the time of death of decedent and the cost
12. What is the tax basis of the stocks if acquired for inadequate consideration?
a. The amount paid by the transferee for the property
b. The fair market value of the property
c. The lower of (a) and (b)
d. The higher of (a) and (b)
13. Gary inherited shares from his grandfather who died on June 17, 2019. Title to the shares was
transferred to him on September 17, 2019. The fair value of the shares on September 17, 2019 is
P2,000,000 while the fair value at the time of the decedent’s death is P2,500,000. Gary’s grandfather
purchased the shares for P1,500,000 in 2000. What is the basis of the shares inherited?
a. 1,500,000
b. 2,000,000
c. 2,500,000
d. Zero
14. The TRAIN Law imposed what capital gains tax rate for foreign corporations?
a. 5% and 10% CGT
b. 15% flat rate
c. 6%
d. Exempt
15. Under the installment method, the capital gains tax payable every installment shall be computed as
a. Capital gains tax x Collection / Contract price
b. Collection / Selling price x Capital gains tax
c. Collection / Capital gains tax x Selling price
d. Capital gains tax x Selling price / Contract price
16. Which of the following is not a condition for a wash sale to occur?
a. Within the total 60 day period, the taxpayer acquired shares
b. The sale must be at a loss
c. The shares acquired must be substantially identical
d. The loss is a fake/feigned loss
17. What is the tax rate for the sale, exchange and other disposition of real property classified as capital
assets located in the Philippines?
a. 5%
b. 6%
c. 10%
d. 12%
18. What is the basis for the capital gains tax on the sale of real property?
a. Selling price
b. Zonal value
c. Fair market value
d. The higher of selling price, zonal value and the tax basis or cost of the real property
e. The higher of (a), (b) and (c) above
 REVIEW IN BUSINESS LAW AND TAXATION
19. Mimiyuuuh sold a vacant agricultural land for P2,000,000. The land was previously purchased by
Mimiyuuuh at P2,150,000 and zonal value of P1,700,000. The property has a fair market value of
P2,100,000. What is the capital gains tax?
a. 120,000
b. 126,000
c. 129,000
d. 102,000
20. Who are the taxpayers covered by the capital gains tax on the sale of real property?
a. All individuals
b. Domestic corporations only
c. Individuals and domestic corporations
d. All individuals and all corporations
21. Jaybee sold domestic stocks with total par value of P1,600,000. The stocks have a fair value of
P2,500,000 and were acquired for P2,000,000. How much is the documentary stamp tax?
a. 6,000
b. 12,000
c. 24,000
d. 0
22. Delia disposed a real property capital asset acquired for P2,000,000 10 years ago for P4,000,000. The
property has a zonal value of P5,000,000 and declared real property value per real property tax
declaration of P3,000,000. How much is the documentary stamp tax?
a. 75,000
b. 60,000
c. 0
d. 37,500
23. Payumo sold for P10,000,000 his residential land in Manila (FMV is P12,000,000).
If Payumo utilized all of the P10,000,000 in buying a house and lot to be used as his new principal
residence, the final tax due from Payumo is:
a. P720,000
b. P600,000
c. P120,000
d. P0
24. Ligaya sold 1,500 shares of her stock investment in a domestic corporation. The par value per share was
P85 but was acquired by her at P90. On the date of sale, the shares had a selling price of P120 per share.
The capital gains tax on the sale if the shares are not listed and traded in the Philippine Stock Exchange
is:
a. P1,080
b. P2,250
c. P4,500
d. P6,750
25. Popeye sold his 1,000 not listed and traded shares of stocks of a domestic corporation. The data of
which are as follows:
Selling price P600,000
Expenses on the sale 10,000
Purchase price 440,000
Expenses upon acquisition 3,000
The capital gains tax due is:
a. P3,600
b. P22,050
c. P10,875
d. P9,700