ACCA ATX ^UK Syllabus A2. Chargeable gains - Disposal of wasting assets - Notes ^{2 / 4}

A wasting asset is:

An asset that has a life of 50 years or less. For example,

1. Chattels (These are tangible, movable assets - and you know how to calculate capital gains for these already)

2. Intangible wasting assets, for example, copyrights and leases.

How to calculate the capital gain arising on an intangible wasting asset?

Sale proceeds 
Less (Allowable cost) (W1)
Capital gain

• Allowable cost (W1)

  (Remaining years after the sale / predictable life of the asset) * (total cost - scrap value)

  (Note: for leases you need to use the lease percentage tables rather than the years. These will be provided to you in the exam)

Illustration

On 01/12/2022 Jake bought a copyright for £25,000.

It had a predictable life of 30 years and scrap value of £1,000.

It was sold on 01/12/24 for £38,000.

What capital gain will arise?

• Solution

  Allowable cost;

  Jake owned it for 2 years. 
  Therefore, the remaining number of years = 30 - 2 = 28 years

  (28 years / 30 years) * (£25,000 - £1,000) = £22,400

  Sale proceeds £38,000
  Allowable cost (£22,400)
  Capital gain £15,600

  Disposal of short leases
  If the intangible asset is a lease, the lease percentage tables will need to be used - these will be provided in the exam.

  Illustration
  Jack bought a short lease in March 2003 for £50,000 and he sold it in March 2025 for £30,000 when it had 10 years left to run.
  The chargeable gain in disposal will be:
  Proceeds £30,000
  Less: Cost £50,000 x (46.695 (10yrs)/89.354 (32 years) £(26,129)
  Gain £ 3,871