Question 1

Section B: Case 1 - Vanguard Robotics

Scenario: Vanguard Robotics was run as a sole trade by Liam, developing specialized robotic arms for manufacturing. Liam prepared accounts to 31 December each year. On 30 September 2023, Liam ceased trading as a sole trader and transferred the entire business as a going concern to a newly formed company, Vanguard Robotics Ltd, in exchange for shares.

Question: On incorporation, Liam transferred chargeable assets with a market value of £400,000 (original cost £150,000). The total market value of all business assets transferred was £600,000. In exchange, Vanguard Robotics Ltd issued 10,000 £1 ordinary shares to Liam (market value £500,000) and paid him £100,000 in cash.

What is the base cost of Liam's shares in Vanguard Robotics Ltd after applying Incorporation Relief (s.162)?

Accepted Answer

Calculate the total gain on the chargeable assets. Determine the proportion of consideration received in shares. Roll over that proportion of the gain against the market value of the shares.

Question 2

What mistakes do candidates make on this ACCA question?

Accepted Answer

Rolling over the entire gain against the shares, ignoring the cash element.

How to approach this question

Full Answer

Common mistakes

Practice the full ACCA TX — Taxation Practice Exam 1

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