ACCOUNTING FOR TREASURY SHARES Treasury Shares . - Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some other lawful means. Such shares may again be disposed of for a reasonable price xed by the board of directors. (Sec. 9 Corporate Code of the Philippines) ree Requisites in order to
qualify the share as a treasury share 1. e share must be a corporation’s own share.
2.
e
share has been issued originally.
3. e share is reacquired but not cancelled. Cost Method. - Treasury shares should be recorded at cost, regardless of whether the share is acquired below or above the par or stated value (original issue price). If the treasury share is acquire for cash, the cost is equal to the cash payment. Illustration: Ordinary Share Capital, 10,000 shares at
₧
100 par
1,000,000
Ordinary Share Premium - Original Issuance
200,000
Ordinary Share Premium - Treasury Stock
20,000
Retained Earnings
500,000
Acquisition
Assume that the shares are acquired at
₧
150 per share
Treasury Share
300,000
Cash
300,000
Re-issuance at cost
If treasury share is subsequently re-issued at
₧
150 per share
Cash
300,000 Treasury Share
300,000
Re-issuance at more than cost
If the treasury share is subsequently re-issued at
₧
200 per share, the excess of re-issue price over the
cost is treated as a premium from treasury share transactions. Cash
400,000 Treasury Share
300,000
Share Premium - Treasury
100,000
Re-issuance at below cost
If the treasury share is subsequently re-issued at ₧ 100 per share, the excess of cost over the re-issue price is charged to the following accounts in the order mentioned: a. Shar Sharee Premi Premiumum-T Treasury reasury (Premium (Premium account must be of the same class) b. Reta Retain ined ed Earn Earnin ings gs In other words, the loss on the sale of treasury shares is debited to Share Premium - Treasury of the same class, if any, and when the balance is exhausted, the amount is charged to the Retained Earnings account. Cash
200,000
Share Premium - Treasury
20,000
Retained Earnings
80,000
Treasury Share
300,000
Acquisition by donation
Received 50 donated shares from the stockholders Treasury Treasur y Share (Recei (Received ved 50 dona donated ted shar shares) es)
Subsequently sold the donated shares at
₧
115 per share
Cash
5,750 Share Premium - Donate Shares
5,750
Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including but not limited to the following cases: Provided, at the corporation has unrestricted retained earnings in its bo oks to cover the shares to be purchased or acquired: 1. To eliminate eliminate fractiona fractionall shares shares arising arising out of of stock dividend dividends; s; 2. To collect or compro compromise mise an indebtedness to the corporation, corporation, arising out of unpaid subscription, subscription, in a delinquency sale, sal e, and to purchase delinquent shares sold during said sale; and 3. To pay dissenting or or withdrawing withdrawing stockholders entitled to payment for their shares under the provisions provisions of this Code. (n)
