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.
.
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