ACCA Strategic Professional · Advanced Taxation (UK) · Capital gains tax and trusts
Mei owns 10,000 ordinary shares in Dale plc, bought for £30,000. Dale plc makes a 1 for 2 bonus issue, so Mei receives 5,000 further shares. Dale plc then makes a rights issue of 1 for 5, and Mei takes up her entitlement in full at £4 per share. What is her total allowable cost for the enlarged holding after both issues?
The total allowable cost is £42,000. The bonus issue adds shares at no cost, leaving £30,000 for 15,000 shares. The rights issue adds 3,000 shares costing £12,000, which is added to the pool, giving £42,000 for 18,000 shares.
- A£30,000
- B£36,000
- C£42,000Correct
- D£33,000
Explanation
The bonus issue gives 5,000 new shares at nil cost, so the holding is 15,000 shares with a cost of £30,000. The rights issue is 1 for 5, so she takes 3,000 shares at £4 = £12,000. The rights shares are added to the pool at cost. Total cost = £30,000 + £12,000 = £42,000, covering 18,000 shares. The £30,000 option ignores the rights issue cost.
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