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MC Question 21

Kitten is the controlling shareholder in Kat Ltd, an unquoted trading company.

Kat Ltd
Kat Ltd sold a freehold factory on 31 May 2015 for £364,000, which resulted in a chargeable gain of £120,700. The factory was purchased on 1 October 2003 for £138,600, and further capital improvements were immediately made at a cost of £23,400 during the month of purchase. Further improvements to the factory were made during the month of disposal. The relevant retail prices indexes (RPIs) are as follows:

October 2003      182·6
May 2015            258·0

Kat Ltd is unsure how to reinvest the proceeds from the sale of the factory. The company is considering either purchasing a freehold warehouse for £272,000, or acquiring a leasehold office building on a 40-year lease for a premium of £370,000. If either reinvestment is made, it will take place on 30 September 2016.

All of the above buildings have been, or will be, used for the purposes of Kat Ltd’s trade.
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What amount of indexation allowance will have been deducted in calculating the chargeable gain of £120,700 on the disposal of Kat Ltd’s factory?

A £47,304
B £40,471
C £66,906
D £57,242