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:

QUESTION

Medium

Economy

Prelims 2012

Under which of the following circumstances may ‘capital gains’ arise?

When there is an increase in the sales of a product
When there is a natural increase in the value of the property owned
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:

Select an option to attempt

Explanation

Statement 1 is Incorrect: An increase in the sales of a product leads to higher business revenue or operating profit, whereas capital gains specifically refer to the profit realized from the sale of a capital asset. Statement 2 is Correct: Capital gains arise when there is an appreciation in the value of a capital asset, such as real estate or land, over its original purchase price. Statement 3 is Correct: Movable assets like paintings, jewelry, and archaeological collections are considered capital assets; an increase in their value due to factors like popularity results in a capital gain when the asset is sold.

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