Company buy back of own shares

Legend100

Been looking online and can't find the answer to this anywhere.

if for eg, a company has 3 shareholders each with one €1 share each

Company is buying back one share with nominal value €1 from one of the shareholders.

Lets say company is paying 10,000 for the €1 share buyback,

Does anyone know what the journal entries for this are???

dbran

Hi Legend

If you are redeeming shares at a premium then AFAIK they must be redeemed out of revenue reserves. Also an amount equal to the nominal value of the shares redeemed must be transferred into a capital undistributable reserve called the Capital Redemption Reserve.

So Journal 1 would be:

Share capital issued Dr €1
P/L Reserve Dr €9,999
Bank Cr €10000
(Being redemption of shares)

Journal 2

P/L reserve DR €1
Capital Redemption reserve CR €1
(Being t/f to CRR)

If the shares were origionally issued at at a premium you can use the the share premium account instead of the P/L reserve for journal 1.

NB...... The shares must be redeemable shares...check the articles.
NB.......The company must have sufficient revenue reserves to be able to do the redemption otherwise it is illegal under company law. The reason being you cannot reduce the share capital of the company unless you go the the high court.

Hope this helps

dbran

HeinekenTicket

Have a look at the following miscellaneous technical statement which sets out the authoritative accounting guidance


M31 Accounting for the redemption and purchase of own shares by companies in the Republic of Ireland