Tx notes fa22 Final

June 2023 to March 2024 exams
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Example 3 
Y Ltd acquired 3,000 shares in X Ltd on 20 July 1994 for £10,000. In February 1996 X Ltd made a 1:3 
bonus issue.
Y Ltd sold 2,000 shares in March 2023 for £12,000.
Calculate the gain on the disposal of the shares in March 2023 
Indexation factors are as follows:
July 1994 to February 1996
0.087
July 1994 to December 2017
0.991
February 1996 to December 2017
0.904

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June 2023 to March 2024 exams
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6. Takeovers 
(a)
Where a takeover is a share for share deal or paper for paper transaction, shareholders of the 
company taken over acquire shares in the acquiring company. This normally does not 
constitute a chargeable disposal.
(b)
The new shares are deemed to have been acquired for the same cost as the original shares.
(c)
Mixed consideration: 
A takeover may involve attributing the cost of the original holding to the 
di
ff
erent component parts of the new holding, if a mix of consideration is received e.g. a 
combination of ordinary and preference shares. This is done by allocating the cost of the 
original holding to the new shares according to the market value of what is received at the time 
of the takeover. Use the answer to example 4 below to see how the technique is applied.
Example 4
 
 
Z Ltd acquired 10,000 A Ltd shares in August 1989 for £10,000. In July 2022 B plc takes over A Ltd 
and for each share in A Ltd, Z Ltd receives:
2 B plc ordinary shares valued at £1.50 each and, 1 B plc preference shares valued at £1 each.
The preference shares are sold in March 2023 for £15,000.
Indexation factor from August 1989 to December 2017 is 1.357