ch7: share disposals

Why do we need matching rules for shares?

Because shares are identical, we cannot identify which exact shares were sold → so we use matching rules to determine cost.

What is the order of matching shares sold?

1. Same day acquisitions

2. Next 30 days (FIFO basis)

3. Share pool (average basis, all remaining shares)

What is a bonus issue?

Free shares given to exisitng shareholders

• No cost added

• Increases number of shares

• Reduces average cost per share

How are shares matched if bought on the same day as sale?

Matched first with shares acquired on the same day

How are shares matched within 30 days?

Matched next with shares acquired within 30 days after disposal
→ on a FIFO basis

What is the share pool?

all shared acquiried up to the day before disposal

How do you calculate cost from share pool?

Cost =
(Shares sold ÷ Total shares in pool) × Total pool cost

How are bonus shares treated for CGT?

• treated as acquired at same time as original shares

• No adjustment to cost

What is a rights issue?

Right to buy additional shares at a discount to market value

for bonus and right issue calculation:

1 for 2 bonus:

½ x total shares x share price