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»Ê¹ÚÌåÓýapp basic mechanics of incorporation relief in a straightforward case are illustrated in the example below.

A transferred his business with all its assets to X Ltd in consideration for an issue of 8,000 shares in X Ltd. Liabilities in the sum of £15,000 were transferred with the business.

»Ê¹ÚÌåÓýapp balance sheet of the business was as follows:

Ìý	£	Ìý	£
Ìý	Business assets:	Ìý	Ìý
Ìý	Ìý	Ìý	Ìý
Capital & Reserves	70,000	non-chargeable	49,000
Creditors	15,000	chargeable (at cost)	23,000
Ìý	cash	13,000	Ìý
Ìý	85,000	Ìý	85,000

It was agreed in the course of the negotiations that the current market values of the assets of the business were:

non-chargeable assets	£55,000
chargeable assets	£50,000

and these values were adopted for the purpose of determining the consideration payable to A.

Gains on the transfer of chargeable assets:

Ìý	£
Market value on transfer	50,000
Less Cost	23,000
Ìý	27,000

»Ê¹ÚÌåÓýapp whole of the consideration received by the transferor in exchange for the business was 8,000 shares in X Ltd.

»Ê¹ÚÌåÓýapp value of the shares was £103,000:

Ìý	£
Non-chargeable business assets	55,000
Chargeable business assets	50,000
Cash	13,000
Ìý	118,000
Less creditors	15,000
Value of consideration	103,000

Proportion of aggregate net gains appropriate to the consideration in shares:

Gains	£27,000 x	103,000(A)	= £27,000
Ìý	103,000 (B)	Ìý	Ìý

»Ê¹ÚÌåÓýapp base cost of the shares to be used on the occasion of their disposal is £76,000 (£103,000 - £27,000).