Q3.X Ltd. has Unit C which is not functioning satisfactorily. The following are the details of its fixed assets: Asset Date of acquisition Book value (Rs. lakh ) Land Goodwill (raised in books on 31st March, 2005) Machinery Plant 10th February, 2003 5th April, 1999 12th April, 2004 30 10 40 20 The written down value (WDV) is Rs. 25 lakh for the machinery, and Rs.15 lakh for the plant. The liabilities on this Unit on 31st March, 2011 are Rs.35 lakh. The following are two options as on 31st March, 2011: Option 1: Slump sale to Y Ltd for a consideration of 85 lakh. Option 2: Individual sale of assets as follows: Land Rs.48 lakh, goodwill Rs.20 lakh, machinery Rs.32 lakh, Plant Rs.17 lakh. The other units derive taxable income and there is no carry forward of loss or depreciation for the company as a whole. Unit C was started on 1st January, 2005. Which option would you choose, and why? (Computation of capital gain for both the options 4 marks; Computation of tax liability for both the options 4 marks ; Conclusion 2 marks) 10marks
Answer : Total price of the unit is :Option 1 :
The net wealth of the undertaking (aggregate value of the total assets of the undertaking minus the value of the
liabilities as appearing in books of accounts) shall be deemed to be the cost of acquisition and the cost of improvement for the purpose of computation of capital gains. No indexation would be given even in the case of LTCG.
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