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Buy back of shares

19 April 2012

Can Anyone help me please?

Buy Back Of Shares.

I have learnt that when we buy back shares we have to compliance with the sec 77A,77AA,77AB

Pls Help me with this example>> A co. bought back 10,000 shares of Rs. 100 each at Rs. 150 and there is no other capital except this. Balance sheet shows P&L 10,00,000 , General reserve 10,00,000 & Sec Premium 15,00,000?

The book that i am following says that CRR would be made out of Sec Premium(Compliance entry). I am confused because there is sufficient balance in P&L acc, why dont ther use P&L instead of Sec Premium

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8 Replies

praveen (Chartered Accountant) (6971 Points)
Replied 19 April 2012

See security premium, general reserve, p&l account balances shall be used to buy back the shares. But for the capital that you have bought back you need to create another reserve account called as the CRR. if the face value of the shares is 100 and you are buying back 150 shares then CRR to be created = 100 x 150.

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chinmoy thakuria (Student) (42 Points)
Replied 19 April 2012

"See security premium, general reserve, p&l account balances shall be used to buy back the shares. But for the capital that you have bought back you need to create another reserve account called as the CRR. if the face value of the shares is 100 and you are buying back 150 shares then CRR to be created = 100 x 150."

Thanks for replying

But I have not understand what you have written sir, for the above example we have to transfer Rs.1,00,000 to CRR isnt it?...my question is about which account is to be debited to transfer the amount to CRR so that from the said amount the company cannot distribute dividend.

praveen (Chartered Accountant) (6971 Points)
Replied 19 April 2012

right !!!! i just gave you an example I dint take the figures from your question

MY appologies

chinmoy thakuria (Student) (42 Points)
Replied 19 April 2012

As per as my knowledge ,

When co buy back shares, 1st entry for converting shares into liability

Share Capital a/c...........dr(par value)

Loss on buyback a/c.....dr(balancing figure)

To Share-holder (agreed amt)

2nd entry for the compliance with Sec 77A,77AA,80

P&L a/c or General resrve...........dr(par value of the share buyback)

To CRR

3rd entry for the payment

Shareholder a/c.......dr

To Bank

4th entry for writting off loss

Share Premium a/c.............dr(1st preference)

Capital Reserve a/c............dr(2nd preference)

P&L a/c..................................dr(as the case may be)

To Loss on buy back

(Some time instead of loss on buy back we say premium on buy back)

PLEASE CORRECT ME IF I AM WRONG.

chinmoy thakuria (Student) (42 Points)
Replied 19 April 2012

I think it should be

P&l a/c dr 100,000

To CRR 100,000

But the book i am following, says

Sec Premium a/c dr 100,000

To CRR 100,000

Which 1 is Correct(according to the above example)

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Abhijeet Deshpande (Co-Founder & Manager @ Tax-Yantra) (1171 Points)
Replied 19 April 2012

Balance in Share Premium account has a limited usage as compared to P&L A/c. One of the usage is to debit the share premium account when one buys back the shares. Hence, preferrable share premium account is debited instead of P&L account.