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On 31 July 2018, Tenth Ltd sold the company’s freehold office building for £179,549. The building was purchased on 3 May 2013 for £150,100, and its indexed cost on 31 July 2018 was £166,911.
The paragraph above belongs to the Kaplan kit question.
In the solution the proceeds were deducted directly against the indexed cost without involving the original cost. Why so?The indexed cost is the cost of the asset plus the indexation allowance (IA) to December 2017 and as the indexed cost is given in the question and is less than the sale proceeds it is the easiest way of directly getting the answer – rather than needlessly separately computing the IA.
If in the question the indexed cost figure given was actually bigger than the sale proceeds then the answer would would be NIL as IA cannot create or increase a loss.
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