Taxation, 2019 Bar — Question A.9

QUESTION

GHI, Inc. is a corporation authorized to engage in the business of manufacturing ultra-high density microprocessor unit packages. After its registration on July 5, 2005, GHI, Inc. constructed buildings and purchased machineries and equipment. As of December 31, 2005, the total cost of the machineries and equipment amounted to P250,000,000.00. However, GHI, Inc. failed to commence operations. Its factory was temporarily closed effective September 15, 2010. On October 1, 2010, it sold its machineries and equipment to JKL Integrated for P300,000,000.00. Thereafter, GHI, Inc. was dissolved on November 30, 2010. (a) Is the sale of the machineries and equipment to JKL Integrated subject to normal corporate income tax or capital gains tax? Explain. (3%) (b) Distinguish an ordinary asset from a capital asset. (2%)

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