ACCA Advanced Taxation (ATX) Practice Exam

How is the value of shares or securities quoted ex-interest derived in the context of a death estate?

1. By using the market value of the shares only

2. By applying the 'lower of' rule and adding the next interest payment

3. By taking the average price from the past month

4. By calculating the gross value without tax considerations

The correct answer is: By applying the 'lower of' rule and adding the next interest payment

In the context of a death estate, determining the value of shares or securities quoted ex-interest requires an understanding of how accrued interest impacts the valuation of those shares at the time of death. When shares are quoted ex-interest, it indicates that the buyer of those shares will not receive the next interest payment upcoming, as it has already been accounted for with the previous holder. The correct approach to deriving the value is to apply the 'lower of' rule, which considers both the market value of the shares and the upcoming interest payment. This method ensures that the valuation reflects the accurate financial position at the time of the individual's death, accounting for what the estate can rightfully claim without inflating the value due to the inclusion of interest that will not be received. Consequently, this method provides a fair valuation that properly reflects the market realities and the interests of the beneficiaries involved. The use of market value alone would not give a full picture, as it could overlook critical impending interest payments. Similarly, averaging past prices or disregarding net tax implications may lead to an inaccurate assessment, failing to meet legal requirements for the valuation of a death estate. Thus, using the 'lower of' rule and incorporating the next interest payment accurately aligns the value of shares or