Indexation: example: capital allowances exceed value on 31/3/82
F Ltd purchased a ship in 1975 for £2,000,000.
The market value on 31 March 1982 was £1,000,000.
It was sold in March 1993 for £500,000.
The net capital allowances were £1,500.000.
In this case the capital allowances exceed the market value on 31 March 1982. However the market value can only be reduced or eliminated. It cannot become negative expenditure.
|LESS||Market value 31.3.82||1,000,000|
|Deduct capital allowances (restricted)||1,000,000||NIL|
|0.753 x 500,000||376,500|
As TCGA92/S41 cannot give rise to a gain, but only eliminate a loss, the loss is nil, and there is no gain.