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Commercial property sale under FRS102

Would the cost price on disposal be the FV or the original cost price adjusted for indexation

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Would really appreciate if someone could advice please. A commercial property purchased in 2011, annual fair value adjusted under FRS102 and sold in 2021. For the profit/loss on disposal computation would you take the current FV as the original cost or take the initial cost in 2011 and then adjust for indexation till Dec2017, or the combniation of the two. Purchased for £200k in 2011, current FV £250k and sold for £400k. If someone could advice then will really appreciate.  

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By Paul Crowley
19th Sep 2021 17:29

An accounting question or a tax question?

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Replying to Paul Crowley:
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By AZaka
19th Sep 2021 17:33

Hi Paul,
A tax question I guess, because I am trying to work out the profit on sale for tax purpose

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Replying to AZaka:
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By AZaka
19th Sep 2021 17:46

Sorry just to expand on this. The accounts at present state the FV.

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paddle steamer
By DJKL
19th Sep 2021 22:44

ACCOUNTS
Dr bank 400
Cr Gain on sale 400

re proceeds ( also you need to post selling costs to gain on sale)

Dr Gain on sale 250
Cr Invest Prop 250

To remove current value from assets

If you keep a memo note re realised/ unrealised profits you need to reduce unrealised by 50 increase realised profits by 50 in your workings and maybe your non statutory accounts notes

TAX

Re tax comp, you have :

profit per accounts, these get adjusted for disallowables/add backs as normal including reducing by 150k for the book gain on the property

calculate chargeable gain as sale 400, cost 200, unindexed gain 200, indexation then to Dec17 deducted

(You may also quite likely have some loan relationship debits and credits to unravel)

Sum the total and calculate tax on the profits, indexed gain, loan relationship debit (or credit)

Once you work out

ACCOUNTS

Dr CT charge
Cr CT liability

Finally if you had deferred tax (as you ought) you need to rework any calculation and post the movement in the accounts, most likely:

Dr Deferred tax
Cr CT tax charge

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By AZaka
20th Sep 2021 09:18

Dear DJKL, thank you for the detailed reply. I really appreciate.
I will go through the answer. Kind regards

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By Duggimon
20th Sep 2021 10:18

The cost for the accounts is the fair value, the cost for the tax comp is actual + indexation. DJKL has provided the details but that's the gist of it.

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By Luke Spooner
20th Sep 2021 10:22

from tax perspective I believe this would be how you would do it:

Proceeds of sale
less incidental costs of sale (survey fees, estate agents etc)
= total proceeds X

Less:
Actual cost of purchase
Incidental costs of purchase (things lie sol fees, survey fees, stamp duty on purchase)
Any capital/enhancement expenditure
= total cost base (X)

= capital gain before indexation X

less indexation allowance (x) (calculated as index at sale less index at purchase / index at purchase x cost base)

= Capital Gain after indexation

May be different in the accounting side, but that's how I think the chargeable gain comp should go.

Thanks

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Replying to Luke Spooner:
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By AZaka
20th Sep 2021 10:48

Thank you Luke and Doggimon.

Kind regards

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