Treasury stock accounting method
1. Cost method
In this method, the exchange of treasury shares is considered as a single exchange, the repurchase of shares is not considered as a separate event from the reissuance of shares, and if in some cases, the business entity buys back its shares for reasons and re-issues them at an appropriate time. to sell, such as two parts of one exchange, at the time of purchase, the “treasury stock account” is debited at the cost of acquisition, and at the time of sale, it is credited at the cost of acquisition. Repurchase of shares temporarily reduces the rights of the shareholders, and its re-issuance increases the rights of the shareholders. If the treasury shares are purchased at different prices, the cost price of the purchased shares can be measured based on one of several assumptions related to the cost flow (such as the average price, the first issued from the first entered, etc.), and at the time of sale. Again, the treasury stock account becomes a creditor. If the treasury shares are sold for more than the purchase price (cost price), the surplus represents the increase in the amount of shares resulting from the exchange of treasury shares and does not affect the classification of shareholders’ rights in the legal capital of the company, and the legal capital remains unchanged. If the treasury shares are sold at a price lower than the purchase price (completed purchase price), the excess of the purchase price over the sale represents the repayment of the capital and should be allocated to the account of the same class of shares, and in case of a deficit, it will be deducted from the accumulated profit. .
2. Nominal value method
This method is considered as a “dual exchange” approach, meaning two independent and unrelated exchanges, because in this method, the repurchase of shares from the company’s own shareholders is known as the withdrawal of a group of shareholders and a contraction in the company’s capital. Likewise, the sale or re-issue of treasury shares in this approach is considered as the entry of a new group of shareholders, at the time of purchase, the acquired shares are debited to the treasury shares account at nominal (or determined) value. In cases where the total price of the treasury shares is more than the initial price of the issued shares, any additional amount is paid compared to the nominal value in the amount required during the issuance of the shares in the creditor of the stock account, this debit account, up to the amount spent on Reduced zero, and any type of zero surplus paid for the collection of treasury shares is referred to the “paid capital resulting from treasury stock exchanges” account, and the final balance of the remaining debtor will be transferred to the accumulated profit (loss) account.
This post is written by Acc77M