Ptc

Andrewh26

Can somebody please help me out with this.. on December 2003 exam. There is a purchase in June 2000. Why is this not dealt with at the start like in other papers? And a crucial bit that for some reason can't quite understand..

The balance before the final disposal is 2200. It says 2000 are sold. The figure sold in the answers is 1500. Is this simply because of the purchase of 500, or if it is 'matched' to where? i can't quite get this for some reason, and i know it's important.

Mike_Leeds

The key thing to remember is that the shares bought pre-April 1998 are held in the pool, whereas any shares bought after this date are kept separate. This is because, for individuals, indexation allowance ceased in April 1998 when taper relief was introduced.

I find it easiest to approach the question as follows:

1) Look at how many shares are being sold in the disposal in our year. In this question, 2000 shares are sold in March 2003 (our year).

2) We know that we sold 2000 shares for £61,560. So we have the sales proceeds. What we now need, therefore, in order to calculate the gain, is the cost. The issue we have is that we are not disposing of all our shares, so we need to match the relevant shares so we get the right cost figure.

3) The purchase in April 2000 is dealt with first (I think the AAT answer has set out the pool first as it is the larger part of the question, not to suggest we look at the pool first). We bought 500 shares in April 2000 for £9800 (given in question). The sales proceeds are just a 'pro rata' of the full 2000 shares - i.e. 2000 shares were sold for £61,560 therefore 500 shares are a quarter of that amount = £15,390.

4) So we have matched 500 shares to the cost, leaving 1500 to match. Working on a LIFO basis, there are no other purchases after April 1998 so we must look to the pool for the remaining 1500 shares.

5) I think from your post you know how to work out the figures in the pool. The balance before the disposal is 2200, there are 1500 more shares to dispose of (match), so we take the 1500 shares from the pool. The cost and indexation allowance are pro rata amounts = cost of £21,150 and indexation allowance of £5,011 (£26,161 - £21,150).

6) The proceeds are the remainder unused from the sale of the 500 shares bought in June 2000, i.e. £61,560 - £15,390 = £46,170.

7) We keep the two gain computations separate. It is important to remember this. From the workings above, the respective gains (before taper relief) are £5590 for the June 2000 purchase, and £20,009 from the shares in the pool.

In conclusion, I don't think there is any particular reason behind the answer putting the pool first other than ease of layout. When calculating the gains you do take the June 2000 purchase first. The golden rule is that the share disposals are matched on a 'LIFO' (last in, first out) basis.

I hope the above helps with your query.

Andrewh26

Thanks this helped, and hopefully will help others. I've completed the exam now. As expected the majority of mistakes were in section 2. calculated 3 out of the 4 items wrong. Ironically getting only the shares correct, I believe. But the format for calculating the net gains, income tax, etc, I think was right at least to the figures I got. So bit unsure, but I'm hoping I passed.