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Harry bought a copyright on 1 July 2009 for £20,000. The copyright is due to expire in July 2029. He sold it on 1 July 2013 for £22,000. Harry’s gain is?
Using the formula:
P/L * (C-S)won’t the period of ownership be 4 years from July 2009 to July 2013?
And the time of the asset is 20 years
Which should make the gains
£22,000 – 4/20 * (£20,000) ?Please clarify for me thanks
When Harry bought the copyright, he brought 20 years of useful life of the asset before the copyright expires. When he sold the copyright, he already used up 4 Years, therefore he sold the copyright with 20-4=16 years of useful life. That is the figure what you have to use for the pro rata calculation.
Sales proceeds of the copyright(useful for 16 years) 22,000
Less: Cost ( 16/20 * 20,000 ) 16,000
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Capital Gain 6,000What you have calculated, danique is the reduction in the allowable cost (the amount used by Harry) whereas Vanda has computed directly the amount of allowable (unexpired) cost.
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