- 14 Marks
Question
Alero Manufacturing Limited, Abeokuta, Ogun State, purchased a chargeable asset on hire purchase in year 2014. The deposit paid for the purchase was N800,000. The balance was to be paid in forty instalments of N75,000. The cash price of the asset was N2,400,000.
Required:
Calculate the capital gains, assuming the asset was sold as detailed below:
(i) For N4,200,000 after payment of thirty instalments. (7 Marks)
(ii) For N4,500,000 after payment of all the instalments. (7 Marks)
Answer
(i) Disposal After 30 Instalments
| Description | Amount (N’000) |
|---|---|
| Sales Price | 4,200 |
| Less: Cost of the Asset | |
| – Deposit | 800 |
| – Instalments Paid (30 x N75,000) | 2,250 |
| – Less: Interest Element (30 x N35,000) | (1,050) |
| Adjusted Instalment Cost | 1,200 |
| Total Cost | (2,000) |
| Capital Gains | 2,200 |
(ii) Disposal After Full Payment
| Description | Amount (N’000) |
|---|---|
| Sales Price | 4,500 |
| Less: Cost of the Asset | |
| – Deposit | 800 |
| – Full Instalments (40 x N75,000) | 3,000 |
| – Less: Interest Element (40 x N35,000) | (1,400) |
| Adjusted Instalment Cost | 1,600 |
| Total Cost | (2,400) |
| Capital Gains | 2,100 |
Workings on Interest Element
| Description | Amount (N’000) |
|---|---|
| Deposit | 800 |
| Total Payments by Instalment (40 x N75,000) | 3,000 |
| Total Hire Purchase Price | 3,800 |
| Less: Cash Price | (2,400) |
| Interest Element | 1,400 |
| Number of Instalments | 40 |
| Interest per Instalment | 35 |
- Tags: Capital gains tax, Disposal, Hire Purchase, instalment payments, Interest Element
- Level: Level 3
- Topic: Capital Gains Tax (CGT)
- Series: MAY 2018
- Uploader: Dotse