ACCA Taxation (F6) Practice Exam

How is capital gain typically calculated?

1. Sales proceeds minus depreciation

2. Sales proceeds less cost of acquisition

3. Net profit from investments

4. Sales proceeds only

The correct answer is: Sales proceeds less cost of acquisition

Capital gain is typically calculated by taking the sales proceeds from the sale of an asset and subtracting the cost associated with acquiring that asset. This cost can include the purchase price as well as any additional expenses directly related to the acquisition, such as transaction fees or installation costs. The rationale behind this calculation is grounded in the concept of realizing a gain when an asset is sold for more than what it initially cost. By focusing on the difference between the sales proceeds and the cost of acquisition, one can determine the actual profit made on the transaction. This method accurately reflects the appreciation in the asset's value over time and provides a clear picture of the financial outcome of the investment. Understanding this calculation is crucial for tax purposes, as capital gains may be subject to taxation. The other options do not adequately represent the comprehensive approach needed to calculate capital gains. For instance, simply using sales proceeds or net profit from investments omits the necessary comparison to the acquisition cost that defines capital gains.