ExpertMedium2 marksMultiple Choice
ACCA · Question 28 · Chargeable gains for individuals
Section B: Case 3 - SteelForge Partners
Scenario: SteelForge Partners is a partnership manufacturing specialized alloys. On 1 May 2023, the partnership sold its old factory for £800,000, realizing a chargeable gain of £150,000. On 1 October 2023, they purchased a new factory for £700,000.
Question: The partnership also sold a piece of heavy machinery for £40,000. It originally cost £60,000. Capital allowances of £60,000 had been claimed on it. What is the chargeable gain or allowable loss on the disposal of this machinery for CGT purposes?
Section B: Case 3 - SteelForge Partners
Scenario: SteelForge Partners is a partnership manufacturing specialized alloys. On 1 May 2023, the partnership sold its old factory for £800,000, realizing a chargeable gain of £150,000. On 1 October 2023, they purchased a new factory for £700,000.
Question: The partnership also sold a piece of heavy machinery for £40,000. It originally cost £60,000. Capital allowances of £60,000 had been claimed on it. What is the chargeable gain or allowable loss on the disposal of this machinery for CGT purposes?
Answer options:
A.
£20,000 allowable loss
B.
£40,000 chargeable gain
C.
£0 (Nil)
D.
£20,000 chargeable gain
How to approach this question
Calculate the basic CGT position: Proceeds - Cost. If it's a loss, apply the rule that allowable losses must be restricted by any capital allowances claimed on the asset. Since the capital allowances (£60k) exceed the loss (£20k), the loss is reduced to zero.
Full Answer
C.£0 (Nil)✓ Correct
For Capital Gains Tax, the basic calculation is Proceeds (£40,000) - Cost (£60,000) = £20,000 loss. However, machinery is a wasting chattel that has been used in the business and on which capital allowances have been claimed. Any CGT loss must be restricted by the capital allowances claimed. Since £60,000 of allowances were claimed, the £20,000 loss is fully restricted to £0. (Note: The £40,000 proceeds will be dealt with in the capital allowances computation, likely creating a balancing charge, but there is no CGT gain or loss).
Common mistakes
Claiming a £20,000 capital loss, forgetting the restriction for capital allowances.
Practice the full ACCA TX — Taxation Practice Exam 5
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