If a company wants to buy back its shares and it does not have enough free reserves + securities premium to transfer the nominal value of shares its buying back to CRR what entry has to be made ? Is buy back even possible ?
1 Replies
Rama chary Rachakonda
(Master in Accounts & high court Advocate)
(8565 Points)
Replied 30 July 2015
Record the journal entry for the share buyback. The journal entry is very simple: the firm debits Treasury Stock for the total purchase price and credits Cash for the same amount.
- Treasury stock is a contra-equity account. It is not treated as an asset, because a company cannot legally invest in its own stock. Rather, treasury stock is presented on the balance sheet, where it reduces the total amount of owner's equity.
- If the shares are purchased with another asset (for example, land instead of cash), that asset account should be credited instead.
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