CIRD13260 - Core computational rules: realisation of assets: partial realisation
CTA09/PART8/S737
On the part realisation (see CIRD13230) of an intangible asset on the balance sheet the deduction for the tax written down value of the asset (or sometimes its cost) is limited to a proportion of what would have been deductible under CIRD13250 on a complete realisation. That proportion is calculated by reducing that amount in the ratio the reduction in the accounting value of the asset as a result of the realisation bears to the accounting value immediately prior to the realisation. The accounting value of an asset is its net book value - see CIRD12770.
1) No divergence between tax written down value and accounting value
In the simple case, where the tax written down value has not diverged from the accounting value, the effect of applying this formula ensures that the taxable credit or deductible debit is always equal to the profit or loss on sale recognised for accounting purposes.
Example
Assume that an asset with an accounting value of 拢1000 is partially realised for 拢750 and the accounting value of the part of the asset retained is 拢375. The profit on sale for accounting purposes is 拢125 (拢750 - 拢625 [拢1000 - 拢375]). In the case where the tax and accounting values prior to the realisation are the same the tax value of the asset to be set off against the proceeds of 拢750 is simply the accounting value of 拢1000 x 拢625 / 拢1000. That gives 拢625 to be set off against the 拢750 proceeds.
2) Divergence between tax written down value and accounting value
The effect of the formula where there is a divergence is illustrated below.
Example
If in the above example the tax written down value of the asset was, not 拢1000, but 拢800 the sum to be set off against the proceeds of 拢750 would be the tax value adjusted under the formula in the ratio which the reduction in the book value bears to the book value prior to the realisation. That is 拢800 x 拢625 / 拢1000, which is 拢500, giving a taxable credit of 拢250.
Asset on balance sheet but not written down for tax
In this situation (see CIRD13250) simply substitute the tax cost of the asset (CIRD12720) for the tax written down value to arrive at the proportion of the cost to be set against the net realisation proceeds.
Sums written off asset following part realisation
For the computation of the deductible debits for sums written off an asset following its part realisation, see: