Ch13: Shares and Securities

Question 1

What order are share disposals matched with acquisitions?

Answer 1

1. Same day acquisitions
2. Acquisitions in the 30 days following the sale
3. Shares in the share pool

Question 2

What price is used for shares that are gifted for CGT purposes?

Answer 2

The mid price i.e. average

Question 3

How are bonus and rights issues dealt with?

Answer 3

They are added to the share pool
Bonus issues = affect on shares, not cost
Rights issue - affects both

Question 4

How do you treat a small part disposal of share rights?

Answer 4

Treat as part of disposal of shares:
Proceeds = amount received for the rights sold
Cost = original cost of shares x A(rights proceeds)/ A + B (total share value after rights issuance)

Question 5

What is the exception to the treatment of small part disposal of share rights?

Answer 5

If proceeds are less than the higher of:

• £3000
• 5% of the shareholding giving rise to rights issue (shares held x price after rights issue)

If so then deduct the proceeds from the original cost of the shares, with no immediate gain arising.

Question 6

What types of consideration could a target company receive on takeover?

Answer 6

share
cash
loan stock

Question 7

How do you calculate the cost of shares at takeover?

Answer 7

MV @ T/O Original cost - time app.
based on MV @ T/O
shares x - use for future sales
cash x - im. gain unless small
loan stock x - calc gain, freeze
x x