ACCA Taxation (F6) Practice Exam

In what situation would a gain be realized by the donor during a sale at undervalue?

1. When the asset is held for more than 5 years

2. When the amount received is greater than the original cost

3. When the proceeds are less than the market value

4. When the difference between actual proceeds and original cost is positive

The correct answer is: When the difference between actual proceeds and original cost is positive

A gain is realized by the donor in a sale at undervalue when the difference between the actual proceeds from the sale and the original cost of the asset is positive. This means that if the amount received from the sale exceeds the original cost of the asset, the donor recognizes a gain for tax purposes. In this context, the original cost represents the amount paid for the asset, and a positive difference indicates that the asset has appreciated, or the donor is realizing a taxable gain even if the sale price is less than the market value. The situation focuses on the relationship between the sale proceeds and the original cost rather than the market value. Therefore, if the proceeds from the sale are higher than what the donor originally paid for the asset, a gain is realized regardless of the asset’s market value at the time of the sale.