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Example 5 from Page 76 to 79. Can someone please tell me that why the cost of 16,000 has been included in the ‘cost to acquire shares’ for calculating the net cash position (requirement b). Shouldn’t the net cash position include 42,000 (cash inflow) and 500 (cash outflow) only? 16,000 was never paid to exercise the option.
@frafiq81 If you look at the scenario, it says “10,000 shares can be acquired for £1.60 per share (= market value at grant of option).” In other words to actually acquire the shares, she will have to pay 16,000. The cost of the option represents the cost to be able to lock the price of the shares and not the actual cost of the shares to her.
If you look on page 68, the granting of the option has no tax effect and is not taken into account in any capital gains computation. As a result, the 5p per share (500) paid for the option has no effect on the computation.
Hope that helps answer the question, but if not, read through the solution again because it is all explained there.
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