Question

On 3 July 2009 Simon sold half of his shares in ABC Ltd for $12 a share plus $90 brokerage. He had originally acquired 2,000 shares in ABC Ltd on 2 September 1986 at a price of $5 a share plus $80 brokerage. Required: Advise Simon of any capital gain/loss on sale of the shares.

Answer 1

Simon incurred a capital loss of $158,090 on the sale of his shares in ABC Ltd.

To determine the capital gain or loss on the sale of Simon's shares in ABC Ltd, we need to calculate the cost base and proceeds of the sale.

The cost base is the original purchase price plus any incidental costs, such as brokerage fees. The proceeds of the sale are the sale price minus any incidental costs.

Here are the calculations:

1. Cost base = (purchase price per share + brokerage fee per share) x number of shares purchased
2. Proceeds = (sale price per share - brokerage fee per share) x number of shares sold
3. Capital Gain/Loss = Proceeds - Cost base

Using the given information:

• Purchase price per share = $5
• Brokerage fee per share for purchase = $80
• Sale price per share = $12
• Brokerage fee per share for sale = $90
• Number of shares purchased = 2,000
• Number of shares sold = 1,000 (half of the original shares)

Cost base = ($5 + $80) x 2,000 = $170,000

Proceeds = ($12 - $90) x 1,000 = $11,910

Capital Gain/Loss = $11,910 - $170,000 = -$158,090

Therefore, Simon incurred a capital loss of $158,090 on the sale of his shares in ABC Ltd.