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JillyB.
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- August 15, 2024 at 8:26 pm #709773
Hello Jilly,
In the following question the requirement was for the gain on disposal but not specifically asked for gain on cash consideration like what the model answer said.
So do we have to focus on the cash gain as a result of disposal in this case?
can you please clarify,
Thanks,
Neha purchased 50,000 shares in Enjoy Ltd. for £90,000 on 30 May 2005.
3 years later, Enjoy Ltd. was taken over by Sad Ltd.
Enjoy Ltd. shareholders received £3 cash and 2 Sad Ltd. ordinary £1 shares for every Enjoy Ltd. share
Immediately after the takeover Sad Ltd. shares were worth £1.20 each.
What is Neha’s chargeable gain as a result of the takeover?
£0
£150,000
£100,000
£180,000Answer
The total consideration provided by Sad Ltd is:
MV Cost
£ £
Cash (50,000 « £3) 150,000 50,000
Shares (50,000 x 2 x £1.20) 120,000 40,000
270,000 90,000Neha has made a part disposal in relation to the cash consideration.
Disposal proceeds (cash: 50,000 x £3) 150,000
Less: Original cost (£150,000/£270,000 x £90,000) (50,000)
Chargeable gain 100,000August 16, 2024 at 6:31 pm #709904A takeover is normally paper for paper and therefore no gain arises until later when the shares are sold.
If, during the takeover the person gets shares and cash then the cash is considered to be a chargeable gain at the time of the takeover and you will need to do a cgt computationAugust 17, 2024 at 7:34 pm #709971Thanks a lot.
August 19, 2024 at 10:36 am #710023Glad to help
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