Q76.
Under which of the following circumstances may 'capital gains' arise? 1. When you sell a capital asset at a higher price than you paid for it. 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:
Answer
B
Explanation
Capital gains arise when the value of a capital asset increases. Statement 1 as worded in the question asks about circumstances, and it is not explicitly listed in some versions. A capital gain is an increase in the value of a capital asset (investment or real estate) that gives it a higher worth than the purchase price. The gain is not realized until the asset is sold. Natural increase in property value (statement 2) and appreciation of a painting (statement 3) both constitute capital gains scenarios when realized. The key aspect is unrealized gains also qualify as the circumstances for capital gains, not just when sold.