Selling investment assets to pay down personal debt

Here's a question which was posed to me elsewhere - I thought some of our resident accountants might be able to shed some light onto the ATO's approach on the topic.

Scenario: PPOR with equity available, you set up a separate loan facility against the PPOR to access the equity and use that to fund an income producing investment. The interest on the new loan facility is deductible because it is used for investment purposes.

However, you now sell the asset and use the proceeds to pay down your personal debt on your PPOR (or for some other private use). I think it is clear that the purpose of the borrowed funds is no longer investment related and thus the interest is no longer deductible.

However, what about if you sell part of the asset (eg some shares or units in a fund) and use the proceeds to pay down private debt?

What about if the fund you've invested in grows by 20% and you sell part of that gain and use that gain to pay down private debt?

I did find this ruling about LOCs and redraw facilities, which I think covers some of these issues:

TR 2000/2 - Income tax: deductibility of interest on moneys drawn down under line of credit facilities and redraw facilities (As at 1 March 2000)

I take this to imply that you would need to either:

A) pay down the investment loan by the amount of the cost base of your shares/units ... ie. you sold 1000 units @ $1.20 originally purchased @ $1.00, you would pay $1000 into the investment loan and keep the remaining $200 for private use

OR

B) pay it all into the PPOR loan, but reduce the value of the borrowed funds when calculating the interest you claim by $1000 (eg your $100,000 loan @ 8% is now $99,000 so you only claim $7,920 in interest rather than the full $8,000)

Have I interpreted this correctly?