Business tax Practice assesment 1 task 11

storres
storres Registered Posts: 8
edited June 2021 in Business Tax
Hello everyone I hope you can help me with this, as I understand a bonus issue is not an operative event, however in this example bonus indexation has been calculated, should I calculate indexation for bonus and right issue?




https://lms.aws.aat.org.uk/courses/business-tax/playlist#object/4264

Comments

  • Pian32
    Pian32 MAAT Posts: 472
    The indexation factors are given but that doesn't mean you'd use them.

    Questions at this level will often give extra information that you don't need but should know not to use.

    For indexation a bonus issue does not require a calculation but a rights issue does.

    The reason for this is fairly simple on a bonus issue there is no change in value to the total shares. This means that whether you do 2 calculations to include the bonus index or 1 to miss it out you'll get the same result.

    On a rights issue the total value does change so you need to adjust the original value before adding on the new amount.
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    storres
  • storres
    storres Registered Posts: 8
    Pian32 thank you. I am still not sure how to work out index as in this example they use the one for march and the other one for december how can?


  • Pian32
    Pian32 MAAT Posts: 472
    Okay so following it though.

    March 10 you get the initial share purchase. This goes down at value.

    April 11 you have the bonus issue the number of shares increases but there is no change in value.

    Nov 12 Rights issue you first need to index the total already held from March 10 - Nov 12, this is the value in your right hand table of 0.113. (0.113 * 125,000) = 14,125 this is added to the current total (14125+125000 = 139125) and the value of the new shares is added 67500. This gives the new totals in the answer.

    For the last 2 transactions the index has been frozen since Dec 17 this means you index up to that date. If you were given later figures they would need to be ignored. You go from Nov 12 - Dec 17 giving an index factor of 0.132 as per the table. This gives you the totals before the last 2 transactions and they are applied from there. (The purchase is used in the sale which is why it's not shown on for the final value.)

    I hope this helps.
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM -
  • storres
    storres Registered Posts: 8
    Pian32 said:

    Okay so following it though.

    March 10 you get the initial share purchase. This goes down at value.

    April 11 you have the bonus issue the number of shares increases but there is no change in value.

    Nov 12 Rights issue you first need to index the total already held from March 10 - Nov 12, this is the value in your right hand table of 0.113. (0.113 * 125,000) = 14,125 this is added to the current total (14125+125000 = 139125) and the value of the new shares is added 67500. This gives the new totals in the answer.

    For the last 2 transactions the index has been frozen since Dec 17 this means you index up to that date. If you were given later figures they would need to be ignored. You go from Nov 12 - Dec 17 giving an index factor of 0.132 as per the table. This gives you the totals before the last 2 transactions and they are applied from there. (The purchase is used in the sale which is why it's not shown on for the final value.)

    I hope this helps.

    It does really help. Thank you for your guidance
  • JSmith
    JSmith Registered Posts: 18
    @Pian32

    Please could you explain how the sale figures are calculated if possible?

  • Pian32
    Pian32 MAAT Posts: 472
    JSmith said:

    @Pian32

    Please could you explain how the sale figures are calculated if possible?

    Sure.

    There is a purchase of 1500 shares on the 10th of October 20 these have not been added to the pool.

    This has been deducted from the sale of 2750 leaving, 1250 shares that are been taken from the pool.

    The associated costs to the main pool are then included both as unindexed and indexed costs.

    (1250 * average cost of share)
    AAT Level 4, MAAT
    ACCA in progress
    F4- Passed Aug 2020
    F5- Passed Dec 2020
    F6- Passed Sep 2020
    F7- Passed June 2021
    F8 - Passed Sep 2021
    F9 - Passed June 2021

    SBL
    SBR - Passed Mar 22
    ATX - Passed Dec 21
    APM -
  • JSmith
    JSmith Registered Posts: 18
    @Pian32 Thank you!
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