Question

In: Finance

On 31 July 2018, Sipho bought 1 000 ordinary shares in ABC Ltd at a cost...

On 31 July 2018, Sipho bought 1 000 ordinary shares in ABC Ltd at a cost of R2 750. On 31 December 2018 the company made a 1 for 10 bonus issue. On 31 March 2019, Sipho sold 300 shares for R800. The chargeable gain or allowable loss arising on the disposal is:

Loss R50

Gain R250

Gain R50

Loss R25

Solutions

Expert Solution

Solution:-

Cost of 1000 Ordinary Shares is R 2750.

Company made 1 for 10 bonus shares, that means 1 bonus share for 10 shares held

Hence, Bonus Shares issued to Sipho are : Shares held * 1/10

: 1000 *1/10

   Bonus shares : 100 Shares

Now Sipho has total 1100 shares (i.e 1000 shares Plus 100 Bonus shares)

Cost of 1100 shares is remain R 2750 (Note : No Additional payment for 100 bonus shares)

Hence, cost of one share to Sipho : Total Cost paid for shares / Total number of shares

Cost of one share to Sipho : R 2750 /1100

Cost of one share to Sipho : R 2.50

(Calculation of Gain or Loss on Disposal of 300 shares)

Sale price of 300 shares by Sipho : R 800 (given)

Cost Price of 300 Shares by Sipho : 300*2.50 = R 750

Hence, Gain on Disposal of 300 Shares : Sale Price of 300 Shares - Cost of 300 Shares

Gain on Disposal of 300 shares : R 800 - R 750

Gain on Disposal of 300 shares : R 50

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