Acquisition of Treasury Shares

SM Corporation acquired 1,000 shares of its previously issued share capital for a total cost - The par value and the market value of the shares of P85,000. The market value of the shares of acquired are not considered in recording the value stock at the time of purchase is P70 per share. of the shares - Accumulated profits are immediately appropriated The shareholders equity of SM Corp shows to the extent of the cost of the treasury shares the following: acquired Share Capital, 20,000 shares issued at par of P50 P1,000,000 Share Premium in excess of Par 100,000 Share Premium from Treasury Shares 6,000 Accumulated Profits 500,000 Reissuance of Treasury Shares at Cost If the 1,000 treasury shares were reissued at P85 per share Reissuance of Treasury Shares Above Cost If the 1,000 treasury shares were reissued at P95 per share Reissuance of Treasury Shares Below Cost If the 1,000 treasury shares were reissued at When treasury shares are issued below cost, the deficiency P50 per share shall be absorbed by the following accounts in the order of priority: a. Share Premium from treasury share of the same class of share capital b. Accumulated Profits The Share Premium from excess over par is not used to absorb the loss on sale of treasury shares, even if the Share Premium from treasury shares are exhausted, instead, the accumulated profits are charged to absorb the remaining loss.

Retirement of Treasury Shares If the 1,000treasury shares were not reissued When TS are retired resulting in a loss ( the cost of the but were retired treasury shares exceeds its par value), the loss shall be charged to the following accounts in the following order: 1. Share Premium, in excess of par to the extent of the credit when the share capital was

originally issued 2. Share Premium from Treasury Shares 3. Accumulated Profits When TS are retired resulting into a gain( par value of the TS exceed its cost), the excess is credited to the share premium from treasury shares. The accounting methods for treasury shares with stated value or no par value are the same as those of TS with par value. SHARE CAPITAL DONATION When a corporation acquired its own shares from its shareholders by mode of donation, such transaction is called Share Capital Donation or Stock Donation. The Stock Donation is in substance a treasury share provided that the related shares reacquired are not retired. Accordingly, the corporation can sell the donated shares to increase its share premium. The accounting issue usually encountered in relation to share capital donation is the valuation of the TS because they are acquired without any consideration. No Journal Entry. Only Memo Entry. WHY? Only effect it could provide is the reduction of the number of shares issued and outstanding.

Assume that SM Corp. received 1,000 shares of its own equity share capital from its shareholders as a donation The share capital has a par value and FMV per share of P50 and P60 respectively. The shares were subsequently sold for P60.