CG76792 - Wasting assets: computation: example 2: using the T(2) formula

TCGA92/S46

Mr S purchases from a descendant the copyright over the memoirs of a writer 20 years after the end of the year in which the writer died. That copyright is, therefore, a wasting asset since it now has a predictable life of fifty years, see CG76723. He pays the descendant 拢90,000 for it but does not expect it to have any residual value in fifty years鈥� time.

After five years, Mr S has to take action to prevent a breach of his copyright. This costs him 拢10,000 in allowable expenditure on legal fees.

He later sells after twenty years for 拢80,000.

The computation now becomes:

听 听 听 听 听 拢 听 听 听 听
听 Disposal proceeds 听 听 听 听 80,000 听 听 听
LESS Acquisition cost [E(1)] 听 听 听 90,000 听 听 听 听
听 Reduction as CG76791 听 听 听 36,000 听 听 听 听
听 Allowable cost 听 听 听 听 54,000 听 听 听
听 Legal expenses [E(2)] 听 听 听 10,000 听 听 听 听
听 T(1) - T(2) = 20 - 15 = 5 听 听 听 听 听 听 听 听
听 L - [T(1) - T(2)] = 50 - 5 = 45 听 听 听 听 听 听 听 听
听 听 听 听 听 听 听 听 听 听
听 E(2) x T(2) = 10,000 x 15 = 3,333 听
听 L - [T(1) - T(2)] 听 45 听 听 听 听 听 听
听 听 听 听 听 6,667 听 听 听 听
听 Allowable expenditure 听 听 听 听 60,667 60,667 听 听
听 Gain 听 听 听 听 19,333 听 听 听
听 听 听 听 听 听 听 听 听 听

NOTE. Companies and other concerns within the charge to Corporation Tax may be able to claim indexation allowance, see CG17200+.