CORPORATION ACCOUNTING

Treasury Shares
The issuing corporation sometimes reacquires shares issued to
shareholders. Such shares are held in the name of the corporation and
these are called treasury shares. The corporation may reissue these
shares at some future date.
Reasons for Acquiring Treasury Shares
1. To obtain stock to be used in the acquisition of plant assets.
2. To improve earnings per share by reducing the number of shares
outstanding.
3. To invest excess cash temporarily.
4. To support the market price of the shares.
5. To increase the ratio of liabilities to shareholders equity.
6. To obtain shares for conversion of other securities such as
preference shares.
Two Accounting Methods to Record Treasury Shares
1. Cost method This is the method prescribed under Philippine
accounting standards.
2. Par value method
Two Kinds of Treasury Shares
1. Reacquisition by purchase under the cost method
a. Treasury shares are recorded at cost.
b. When treasury shares are reissued or sold at more than
cost the indicated gain is credited to an account called
!Share Premium " Treasury Shares#.
c. When treasury shares are reissued or sold at less than
cost the indicated loss is debited to
Share Premium " Treasury Shares $until exhausted%
&ccumulated Pro'ts
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Pro-forma Entries
(eacquisition by Treasury shares xxx
Purchase )ash xxx
(eissue at more )ash xxx
)ost Treasury shares xxx
Share premium " treasury
shares
xxx
(eissue at less )ash xxx
than cost Share premium treasury
shares
xxx
&ccumulated pro'ts xxx
Treasury shares xxx
2. Reacquisition by onation
Pro-forma Entries
(eacquisition by (eceived *** shares from +r. &
,onation as donation.
Sale of donated )ash xxx
Shares Share premium " donated
capital
xxx

Special Notes
1. Treasury shares do not have the status of outstanding shares.
2. Treasury shares do not entitle the holder to the rights of a
shareholder.
3. Treasury share is not vie-ed as an asset $investment in trading
securities% but as a reduction to total corporate capital.
4. To protect creditors the la- requires that a portion of retained
earnings shall be restricted equal to the cost of the treasury
shares!
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5. Retaine earnin"s#Accumu$ate pro%ts&$osses' is the
account (hich ho$s the accumu$ation of the net earnin"s
of the corporation.
Classroom Exercises
1. The follo-ing transactions occurred
a. ./0 )orporation bought 1222 shares from a shareholder
at P324 per share.
b. 3222 treasury shares -ere re"issued at P324.
c. 3222 treasury shares -ere re"issued at P352.
d. 6422 treasury shares -ere re"issued at P322.
e. The remaining treasury shares -ere sold the follo-ing
accounting period at P322 per share.
2. Shareholder & donated 72 shares to &8) )orporation. 9ater the
donated shares -ere sold at P552 per share.
(equired: (ecord the above transactions. ;se cost method.
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<uly 5237
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