Acquisition Cost of the Assets

TAXATION LAW

Taxation law
Answer-1
It can be seen in the given case that Eric has bought some assets since the last year and because
the given case does not mention an appropriate time for holding of such assets, it can be
presumed that the same has been held for less than a year.
Whenever the sale consideration of a specific asset exceeds its cost base, the taxability of capital
gain arises and since in the given case, the assets are presumed to be held for less than a year,
indexation benefit shall not accrue upon Eric. Eric has bought the following assets in the last
year. Firstly, he has acquired assets for his own use excluding collectibles. These assets consist
of a home sound system with an acquisition cost of $12,000. Besides, based on the law, if the
acquisition cost of personal use assets is less than $10,000, then taxability of capital gain does
not incur. Secondly, Eric has bought few collectibles that are usually to address his own benefits
and enjoyment. Such collectibles consist of an antique chair with an acquisition cost of $3000,
painting with an acquisition cost of $9000, and an antique vase with an acquisition cost of $2000
respectively . Besides, based on the law, if the acquisition cost of such assets does not exceed
$500, then taxability of capital gain does not incur upon the transaction (Cartwright, 2013).
Lastly, Eric has also bought few shares in a listed company for an acquisition cost of $5000 that
attracts capital gain tax according to the law. Nonetheless, in order to compute taxability of
capital gain for the assets held for less than a year, the acquisition cost of such assets can be
deducted from their capital proceeds that can derive the net capital gain or loss for the year
(Sadiq et. al, 2017).
(Amounts in dollars)
Assets Acquisition cost of
the assets
Net Capital Proceeds Net Capital Gain or
Loss
Home Sound System 12,000 11000 (1000)
Painting 9,000 1000 (8000)
Antique Vase 2,000 3000 1000
Listed company’s
shares
5,000 20000 15000
Antique Chair 3,000 1000 (2000)
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Taxation law
Net Capital Gain 5000
Therefore, it can be seen from the above computation that the net capital gain in relation to Eric
comes to $5000 and the same is liable to be paid by him respectively.
In relation to the previously mentioned computation, many points must be taken into account.
Firstly, every personal asset bought by Eric have been purchased at an acquisition cost of more
than $10,000 and that is why they are applicable for taxability of capital gain. Secondly, the
collectibles bought by Eric have also been bought for an acquisition cost of more than $500 and
that is the reason why these are taken into account for computing net capital gain or loss for the
year (Sadiq et. al, 2017). Lastly, the net capital gain of $5000 has been derived by setting off the
capital losses from the capital gain in the particular year.
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