Transfer of a business to a company: example: consideration wholly in shares
A transferred his business with all its assets to X Ltd in consideration for an issue of 8,000 shares in X Ltd. Liabilities in the sum of £15,000 were transferred with the business.
The balance sheet of the business was as follows:
|Capital & Reserves||70,000||non-chargeable||49,000|
|Creditors||15,000||chargeable (at cost)||23,000|
It was agreed in the course of the negotiations that the current market values of the assets of the business were:
and these values were adopted for the purpose of determining the consideration payable to A.
Gains on the transfer of chargeable assets:
|Market value on transfer||50,000|
The whole of the consideration received by the transferor in exchange for the business was 8,000 shares in X Ltd.
The value of the shares was £103,000:
|Non-chargeable business assets||55,000|
|Chargeable business assets||50,000|
|Value of consideration||103,000|
Proportion of aggregate net gains appropriate to the consideration in shares:
|Gains||£27,000 x||103,000(A)||= £27,000|
The cost figure of the shares to be used on the occasion of their disposal is £76,000 (£103,000 - £27,000).