ACCA TX ^UK Syllabus E. Corporation Tax Liabilities - Capital gains computation - Past Papers ^{1 / 5}

Kitten is the controlling shareholder in Kat Ltd, an unquoted trading company.

Kat Ltd
Kat Ltd sold a freehold factory on 31 May 2015 for £364,000, which resulted in a chargeable gain of £120,700. The factory was purchased on 1 October 2003 for £138,600, and further capital improvements were immediately made at a cost of £23,400 during the month of purchase. Further improvements to the factory were made during the month of disposal. The relevant retail prices indexes (RPIs) are as follows:

October 2003      182·6
May 2015            258·0

Kat Ltd is unsure how to reinvest the proceeds from the sale of the factory. The company is considering either purchasing a freehold warehouse for £272,000, or acquiring a leasehold office building on a 40-year lease for a premium of £370,000. If either reinvestment is made, it will take place on 30 September 2016.

All of the above buildings have been, or will be, used for the purposes of Kat Ltd’s trade.
.

What amount of indexation allowance will have been deducted in calculating the chargeable gain of £120,700 on the disposal of Kat Ltd’s factory?

A £47,304
B £40,471
C £66,906
D £57,242

Luna Ltd had the following transactions in shares during the year ended 31 March 2015:

(1) On 29 November 2014, Luna Ltd sold its entire shareholding of £1 ordinary shares in Pluto plc for £53,400. Luna Ltd had originally purchased 16,000 shares in Pluto plc on 14 June 2008 for £36,800. On 22 May 2010, Luna Ltd sold 10,000 of the shares for £46,200.

Retail price indices (RPIs) are as follows:
June 2008            216·8
May 2010             223·6
November 2014   257·0

(2) On 12 February 2015, Luna Ltd’s shareholding in Asteroid plc was taken over by Comet plc. Luna Ltd had originally purchased 10,000 £1 ordinary shares in Asteroid plc, and their indexed cost on 12 February 2015 was £33,000.

Under the terms of the takeover, for each of its £1 ordinary shares in Asteroid plc, Luna Ltd received £6·50 in cash plus one £1 ordinary share in Comet plc. Immediately after the takeover, Comet plc’s £1 ordinary shares were quoted at £4·50.

Required:
(a) Explain how the indexation allowance can be used when a company makes a capital loss, or where the indexation allowance is greater than a company’s unindexed gain. (2 marks)

Acebook Ltd sold the following assets during the year ended 31 December 2011:

(1) On 10 March 2011 Acebook Ltd sold its entire shareholding of 50p ordinary shares in Oogle plc for £3·20 per share. The company had originally purchased 8,000 shares in Oogle plc on 28 June 2003 for £25,200.

On 31 October 2006 Oogle plc made a 2 for 1 bonus issue. Then, on 14 February 2008, Oogle plc made a 1 for 5 rights issue. Acebook Ltd took up its allocation under the rights issue in full, paying £4·30 for each new share issued.

(2) On 30 June 2011 three acres of land were sold for £192,000. Acebook Ltd had originally purchased four acres of land, and the indexed cost of the four acres on 30 June 2011 was £196,000. The market value of the unsold acre of land as at 30 June 2011 was £53,000. During June 2011 Acebook Ltd spent £29,400 clearing and levelling all four acres of land. The land has never been used for business purposes.

(3) On 1 October 2011 an investment property owned by Acebook Ltd was destroyed in a fire. The indexed cost of the property on that date was £138,400. Acebook Ltd received insurance proceeds of £189,000 on 20 October 2011, and on 31 October 2011 the company paid £172,400 for a replacement investment property. Acebook Ltd has made a claim to defer the gain arising from the receipt of the insurance proceeds.

Required:
Calculate Acebook Ltd’s chargeable gains for the year ended 31 December 2011. (12 marks)