Accounting Q&A · Taxation · Topic 11
Practise 25 questions on disposal proceeds, adjusted basis, gains, losses and supporting records. Try each question before opening the answer. The examples use hypothetical amounts and rates. Check the rules for your jurisdiction and tax year before applying them.
Worked example
An asset sells for 18,000, selling costs are 500, and adjusted basis is 12,000. In this hypothetical computation, the gain is 5,500. At a flat 15% with no relief, tax is 825.
Key concepts
1. What is a capital gain in a simple tax exercise?
The excess of net disposal proceeds over the asset’s adjusted tax basis.
2. What is a capital loss?
The excess of adjusted basis over net disposal proceeds, subject to local recognition rules.
3. What is a disposal?
A transaction or event treated as disposing of an asset under applicable law.
4. What is tax basis?
The amount attributed to an asset for tax purposes under the relevant rules.
5. How can adjusted basis differ from purchase price?
Eligible acquisition costs, improvements, allowances and other adjustments may change it.
6. What are net disposal proceeds?
Gross proceeds less eligible disposal costs under the exercise or governing rules.
7. What if consideration includes property rather than cash?
Check valuation and recognition rules for the non-cash consideration.
8. How do you support acquisition cost?
Keep purchase contracts, invoices, statements and evidence for relevant fees.
9. How do you support an improvement adjustment?
Retain invoices and evidence showing the expenditure qualifies.
10. Why distinguish repairs from improvements?
Their effect on basis or deduction can differ.
Applying the rules
11. Proceeds are 25,000 and selling costs 1,000. What are net proceeds?
24,000 if those costs are deductible from proceeds.
12. Adjusted basis is 19,000. What is the gain on net proceeds of 24,000?
5,000.
13. What is illustrative tax at 12% on that gain?
600 before other adjustments.
14. Net proceeds are 8,000 and basis is 11,000. What is the result?
A loss of 3,000 before restrictions.
15. Can every capital loss offset salary?
Offset rules vary and often restrict eligible income or gains.
16. What is a carry-forward loss?
An unused loss allowed to be applied in a later period under stated conditions.
17. Why check the holding period?
Some systems apply different rates or treatments depending on how long the asset was held.
18. Can gifts trigger a disposal for tax?
Some systems apply deemed disposal or special basis rules.
19. Can related-party sales use a different tax value?
Check whether the law substitutes a prescribed value or restricts losses.
Review questions
20. Why check a main-home relief separately?
Eligibility can depend on residence, use, timing and local law.
21. How is a partial disposal approached?
Allocate basis using the relevant rule and reconcile the remainder.
22. What can complicate sales paid over several years?
Timing rules may recognise all or part of the gain in different periods.
23. Why can accounting gain differ from taxable gain?
Carrying amount and tax basis may differ, along with treatment of proceeds and costs.
24. Which dates should the disposal schedule capture?
Acquisition, disposal and any relevant payment or recognition dates.
25. What should a capital gains computation reconcile?
Proceeds, allowable costs, basis, relief, losses, rates and payment records.