Under which of the following circumstances may ‘capital gains’ arise?
1. When there is an increase in the sales of a product
2. When there is a natural increase in the value of the property owned
3. When you purchase a painting and there is a growth in its value due to increase in its popularity
Select the correct answer using the codes given below :
Explanation:
Capital gain is the profit one earns on the sale of an asset like stocks, bonds or real estate. It results in capital gain when the selling price of an asset exceeds its purchase price. It is the difference between the selling price (higher) and cost price (lower) of the asset. Capital loss arises when the cost price is higher than the selling price.
When the selling price of an asset exceeds its cost price or purchase price, it will result in a capital gain. Capital gains can be of two types: realised and unrealised. 1) Realised capital gain can be described as the gain made on an investment that has been sold for a profit.
2) Unrealised capital gain can be described as the gain on an investment that has not been sold yet but can make profit if sold later.
Increase in sales of a product does not increase the value of assets so it is not a capital gain