Indexation of Disposal of shares Bus. Tax

anthony_12c

Hi, i am struggling to understand how to arrive at a figure when looking at the part disposal of shares. Specifically Question 4.5 from the Osborne books for Business taxation, the figure concerns the disposal that occurs on the 1/1/2000, 5,000 shares that cost £14,167, but how do you arrive at the index cost of £16,384?

Other info:
Purchase 1/1/92 = 3,000 shares at £3.00 each
Purchase 1/1/95 = 12,000 shares at £3,50 each
Bonus issue on 1/1/99 1 to 5 basis therefore 3,000 shares
Disposal of 5,000 shares on 1/1/2000

I understand the answer until the indexation cost of the disposal, any help would be greatly appreciated.

Thanks

leonag

No of Shares Cost Indexed Cost
Purchase 3000 9000 9000
Indexation to 1995 9000 x 0.077 693
Sub Total 3000 9000 9693
Purchase 12000 42000 42000
Subtotal 15000 51000 51693
Bonus shares 3000
Subtotal 18000 51000 51693
indexation to 2000 51693 x 0.141 7289
Subtotal 18000 51000 58982
Disposal 5000 (51000/18000 x 5000) (58982/18000x5000)
= 14167 =16384

leonag

There were 3 distinct columns when I wrote that out. The first number on each line is Number of shares the second is cost, and the third is indexed cost. The figure £14167 is derived from (51000/18000 x 5000) and the indexed cost of £16384 from (58982/18000x5000).

Leona

anthony_12c

thanks for your reply, it really helped