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Sir there is an mcq in current Kaplan kit that
Mathew purchased $200000 nominal value gilts paying interest at 1% for $211000 on 1 sept 2017. Interest is payable half yearly on 30 June and 31 Dec. He sold the gilts on 1 Dec 2018 for $213000 including accrued interest.
How much will Mathew include in savings income in respect of gilts in tax year 18/19?Solution
(200000 x 1% x 6/12) + (200000 x 1% x 5/12)
Sir I don’t understand how they have taken 6/12 and 5/12. Can you please explain?
May I please ask have you read Chapter 2 Section 3.3 of the OT notes on the – Accrued Income Scheme?
Sir I have gone through OT notes but still I don’t understand how they have taken 6/12 and 5/12. Can you please explain?
On 30 June 2018, 6 months of interest is actually received and because the sale proceeds include the accrued interest – the accrued interest scheme applies as in the example shown in the notes, to also include within the 2018/19 assessment the 5 months of interest accrued at the date of sale.
But sir gilts were purchased on 1 sept and interest was received on 30 june, so won’t we take 10/12 instead of 6/12?
Read the question more carefully – “interest is paid half yearly on 30 June and 31 December” – only 6 months interest was paid at 30 June 2018 – 4 months interest would have been paid at 31 December 2017!
Thanks. In a similar question of the same topic , it says
Investment in loan notes on 1 nov 2017
Interest recieved on 31 jan and 31 july
Nominal value = 240000
Coupon rate = 6% p.a
Mr X sold this loan notes on 1 oct 2018Sir here in caculation they have taken
240000 × 6% × 6/12 + 240000 × 6% × 2/12
Sir here why they have done 2/12? I do not understand thisYes it is written that Mr x sold this loan notes on 1 oct 18 (including accrued interest)
Then it is exactly the same basis of answer as in the previous question that we have already dealt with – there is a 6 month figure of interest received on 31 July 2018 and at the date of sale there are 2 months of accrued interest.
Sir here we have also received interest on 31 Jan, so should not we add 240000 x 6% x 1/12 also?
The question presumably asks for the assessment in the 2018/19 tax year – what tax year does 31 January 2018 fall into? You should know the basis of assessment.
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