ACCA Advanced Taxation (ATX) Practice Exam

How is the value of quoted shares calculated for CGT purposes?

1. The closing price on the day of sale

2. The average price over a month

3. The mid price

4. The highest price of the year

The correct answer is: The mid price

For Capital Gains Tax (CGT) purposes, the value of quoted shares is generally determined using the mid price at the time of the transaction. This mid price is calculated as the average of the highest buying price and the lowest selling price at which the shares were traded on the relevant exchange. Using the mid price helps to provide a fair valuation that reflects market conditions, rather than being skewed by unusual spikes or dips in prices. This method of valuation is consistent with the principles of ensuring that the calculated gain or loss on the sale of shares accurately reflects market dynamics rather than the volatility that can occur on single days or during particular trading periods. Therefore, for CGT, relying on the mid price method provides a balanced approach to establishing the value at which the shares are deemed to have been disposed of. Other options, such as the closing price on the day of sale or the average price over a month, do not provide the necessary level of accuracy and fairness deemed essential for CGT calculations. These methodologies could understate or overstate the actual economic value realized, affecting the calculation of any potential gain or loss. Similarly, considering only the highest price of the year would not accurately represent the value at which the asset was sold, potentially leading to incorrect