1 On January 1, 2021, Nebraska Company issued a 3-year bond with face value of P1,500,000 and a 9% stated rate.  The bonds mature on January 1, 2024 and interest is payable annually on December 31.  The bonds are issued with an effective yield of 10%.  The company also paid bond issue costs.  Because of the bond issue costs, the adjusted effective rate is 11%.   Assuming that the bonds was retired on June 30, 2023 at total payment of P1,520,000. How much is the gain on retirement of bonds? ?

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A: The answer is stated below:

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A: Calculate the present value of the principal amount as shown below:

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A:

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A: Introduction Present value of bond:-

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Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.