In: Accounting
Capital Gain Yield (CGY)
A capital gain yield is the rise in the price of the security such as common stock.for the CGY there is rise in the price of the stock divided by the original price of the stock to arrive at the capital gain yield. It is percentage increase in the price of the investment and is determined by increase in the price of an investment and divide by the original purchase price of the security. The basic formulae applied is (P1 - P0) / P0. Here, P1 is the current market price of the security and the P0 is the original purchase price of the security.
Example: if an security is purchase for $200 and after some time it is sold for the $250, the capital gain yield is considered to be 25% ($250 - $200) / 200 and multiply by 100 we get 25% appreciation in the price of the security which is called capital gain yield.
A CGY is totally unpredictable and may occur monthly, quarterly and yearly. if the share price fall below the original purchase price, and some pay high dividends and in that case CGY is less and information and accounting treatment if differ in that case as there is loss on the transaction.
IF the some pay lower dividends then there is high CGY and called growth stocks as profit pay back into the business and accordingly price fluctuations in the market of stock may result to changes in the CGY.
This concept dose not relate to the dividends received. it is only based on the changes in the price of the investment for the period.it also refers to profit which relates to the sale of the capital stock, like stock , bonds, and real estate. wherever sale price exceeds the purchase price then result to capital gain if reverse it is called capital loss.
while calculating the national income accounting capital gain or loss is not considered as they not result to transferring of any right to shares but not result to any production activity so it is not calculated as national income treatment.
on the capital gain these are the points to be considered fo the exemption purpose:
exemption under section 54F is treated as buy of residential property,
exemption under section 54EC in regard of buy bonds
investment in the capital gain account
purchase an capital gains bonds under section 54EC
THERE ARE TWO TYPES OF CAPITAL GAINS TAX like short term capital gain and the long term capital gain if the security held for les then 36 months there is an short ter capital loss and if security held for more than 36 months than it is called long term capital gain and taxed is made accordingly.