Module No.
1: Buy Back of Shares
Accounting Treatment for Buy Back of Shares
Particulars Dr/Cr Debit (₹) Credit (₹)
1. When there is fresh issue of shares for the purpose of buy back of shares;
Bank a/c Dr. XXXX
To, Preference share capital a/c Cr. XXXX
2. When there is sale of ay asset/Investment for the purpose of buyback of shares;
In case of profit on sale:
Bank A/c Dr. XXXX
To Asset / Investment A/c Cr. XXXX
To Profit and Loss Account Cr. XXXX
In case of loss on sale:
Bank account Dr. XXXX
Profit and Loss account Dr. XXXX
To Asset / Investment account Cr. XXXX
3. Amount due on buyback of shares
Equity Share Capital A/c Dr. XXXX
Premium payable on buy-back (if any) Dr. XXXX
To Equity Shareholders A/c or Equity shares buy back a/c Cr. XXXX
4. Payment made for buyback of shares
Equity Shareholders A/c or Equity shares buy back a/c Dr. XXXX
To Bank A/c Cr. XXXX
5. Premium payable on buyback charged from securities premium account
Securities Premium A/c Dr XXXX
Profit & Loss account (If securities premium a/c is not sufficient) Dr XXXX
To premium payable on buy-back a/c XXXX
6. Creation of capital redemption reserve to the extent of the shares bought back
Securities Premium a/c Dr XXXX
Profit & Loss a/c Dr XXXX
General Reserve a/c Dr XXXX
To Capital Redemption Reserve A/c XXXX
Illustrations:
1. A company buys back 50,000 shares of ₹10 each at ₹25 per share. The reserves of the company are as
follows;
Securities premium - ₹15,00,000 and General reserves - ₹23,00,000
Pass journal entries in the books of a company for buy back of shares.
2. Following information is available from the books of a company;
1,20,000 equity shares of ₹10 each – 12,00,000
Security premium ₹70,000
General reserves ₹3,50,000
The company decided to buy back 25% of the equity share capital at ₹12 per share. Pass journal entries for
buy back of shares.
3. N Ltd (a non-listed company) had issued capital of ₹1,00,00,000 of ₹10 equity shares. The balance in the
security premium account was ₹ 1,00,000 and General reserve ₹14,00,000. The company decided to buy-
back 20% of its share direct from its shareholders at ₹ 8 per share. The company had issued ₹5,00,000,
10% Preference shares two months back for the purpose of buy back. Record the transactions in the books
of the company in accordance with the provisions of companies act, 2013.
4. The balance sheet of Cindrella Ltd as on 31st March 2023, was as under:
Liabilities ₹ Assets ₹
Equity share capital 2,40,000 Fixed assets 4,05,000
(shares of ₹10 each) Investments 14,800
Securities premium 35,000 Stock 1,20,000
General reserve 93,000 Sundry debtors 52,000
Profit and loss account 34,000 Cash and bank balances 74,000
9% debentures 1,50,000
Sundry creditors 75,000
Provision for taxation 39,000
6,66,000 6,66,000
On 1 April 2023, the company announced buy back of 25% of its equity shares at ₹15 per share. For the
st
purpose, it sold all of its investment for ₹15,000 and issued 200, 9% preference shares of ₹100 each at par,
the entire amount was received with application. Pass the journal entries for all the transactions.
5. RS (P) Ltd. purchases 50,000 equity shares of ` 10 each @ ` 40 per share. No fresh issue is made for this
purpose. There is a balance of ` 50 lakhs in General Reserve Account. Pass journal entries in the books of
the company in accordance with the provisions of company law.
6. Sangeeta Ltd., an unlisted company, had issued capital of ` 50 lakh divided into equity shares of ` 10 each.
The balance in the Security Premium Account was ` 2 lakh and General Reserve ` 3 lakh. The company
decided to buy-back 1,00,000 shares of ` 10 each at ` 8 per share. The company had issued 50,000, 10%
Preference Shares of ` 10 each 3 months back for the purpose of buy-back of equity shares. Record the
transaction in the Journal of the company.
7. Smriti Ltd., decided to buy back 1,20,000 equity shares of ₹10 each at a premium of 25%. For this it issues
10,000, 7.5% Preference shares of ₹100 each at par. The company has ₹1,60,000 in General reserve,
₹2,00,000 of credit balance in profit and loss account, ₹2,40,000 in Capital reserve and ₹2,00,000 in
security premium. It decided to utilise profits and reserves also. Give journal entries for these transactions.
8. Indus India Ltd decides to buyback 10% of ₹100 crores paid up equity capital. The face value per equity
share is ₹10 but the market value per share is ₹15. Indus India Ltd takes the following steps for buy back of
shares:
a) To issue 14% debentures of ₹100 each at par for face value of ₹10 crores.
b) To utilise general reserve.
c) To sell investments of ₹7 crores for ₹8 crores.
d) To buy back the shares at a market price.
e) To immediately cancel the shares bought back.
Journalise the above transactions.
9. Following is the balance sheet of Padma Ltd., on 31st March 2023;
Particulars ₹
Assets
Non-current assets
Property, plant & Equipment 2,75,000
Non-current investments 5,00,000
Current assets
Inventories 1,00,000
Trade receivables 2,00,000
Cash and cash equivalents 1,00,000
11,75,000
Equity and liabilities
Shareholders’ funds
Share capital 5,00,000
Reserves and surplus 6,31,000
Non-current liabilities
Long term borrowings 40,000
Current liabilities
Trade payables 4,000
11,75,000
Notes to accounts
Particulars ₹
Property, plant & equipment
PPE: Cost 3,00,000
Less: provision for depreciation (25,000)
Net carrying value 2,75,000
Share capital
Authorised, issued and subscribed capital;
30,000 equity shares of ₹10 each fully paid up 3,00,000
2,000, 9% Preference shares of ₹100 each 2,00,000
5,00,000
Reserves and surplus
Capital reserve 1,000
Revenue reserve 4,00,000
Security premium 50,000
Profit and loss account 1,80,000
6,31,000
Long term borrowings
10% debentures 40,000
40,000
The company passes a resolution to buy-back 20% of its equity capital @ ₹15 per share. For this purpose,
it sold its investments of ₹3,00,000 for ₹2,50,000. You are required to pass journal entries.
10. Gayathri Ltd., furnished the following balance sheet as on 31st March 2023;
Particulars ₹
Assets
Fixed assets 40,00,00,000
Current assets
Current investments 40,00,000
Inventories 10,00,00,000
Trade receivables 10,00,00,000
Cash and cash equivalents 60,00,000
70,00,00,000
Equity and liabilities
Shareholders’ funds
Share capital 10,00,00,000
Reserves and surplus 40,00,00,000
Non-current liabilities
Long term borrowings 50,00,000
Current liabilities
Trade payables 10,00,00,000
Other current liabilities 50,00,000
70,00,00,000
Notes to accounts
Particulars ₹
Fixed assets
Land and building 3,00,000
Plant and machinery (25,000)
Furniture 2,75,000
Share capital
Authorised;
5 crore equity shares of ₹10 each 50,00,000
15 crore, 12% preference shares of ₹10 each 15,00,00,000
20,00,00,000
Issued, subscribed and paid up capital:
2.5 crore equity shares of ₹10 each 25,00,000
7.5 crore, 12% preference shares of ₹10 each 75,00,000
10,00,00,000
Reserves and surplus
General reserve 26,00,00,000
Security premium 25,00,000
Profit and loss account 11,50,00,000
40,00,00,000
The company bought back 5,00,000 equity shares of ₹10 each at ₹50 per share. The payment for this was
made out of the bank balance. Pass journal entries to record the transactions.
11. Iyer Ltd., has furnished the following balance sheet as on 31st March 2023;
Particulars ₹
Assets
Fixed assets 85,00,000
Current assets
Current investments 10,80,000
Inventories --------
Trade receivables 5,40,000
Cash and cash equivalents 21,13,000
1,22,33,000
Equity and liabilities
Shareholders’ funds
Share capital 80,00,000
Reserves and surplus 36,80,000
Non-current liabilities 3,00,000
Long term borrowings
Current liabilities
Trade payables ---------
Other current liabilities 2,53,000
1,22,33,000
Notes to accounts
Particulars ₹
Fixed assets
Land and building 30,00,000
Plant and machinery 45,00,000
Furniture 10,00,000
85,00,000
Share capital
Authorised;
10,00,000 equity share of ₹10 each 1,00,00,000
Issued, subscribed and paid up capital:
8,00,000 equity shares of ₹10 each fully paid up 80,00,000
Reserves and surplus
General reserve 7,00,000
Security premium 25,00,000
Profit and loss account 4,80,000
36,80,000
On 1 April 2021, the company announced the buyback of its 25% equity shares at ₹20 per share. For that
st
purpose, the company sold its entire investments at ₹12,00,000 and issued 8,000, 10% Preference shares of
₹100 each. The company utilised 50% of the general reserve, 100% of the profit and loss account and the
rest was taken from the Securities premium account. Show necessary entries.
12. Monica Ltd., furnishes the following balance sheet as on 31st March 2023;
13. Particulars ₹
Assets
Non-current assets
Property, plant and equipment 27,50,000
Non-current investments 50,00,000
Current assets
Inventories 10,00,000
Trade receivables 20,00,000
Cash and cash equivalents 10,00,000
1,17,50,000
Equity and liabilities
Shareholders’ funds
Share capital 50,00,000
Reserves and surplus 63,10,000
Non-current liabilities
Long term borrowings 4,00,000
Current liabilities
Trade payables 40,000
1,17,50,000
Notes to accounts
Particulars ₹
Share capital
Authorised, issued and subscribed capital;
3,00,000 equity shares of ₹10 each fully paid up 30,00,000
20,000, 9% Preference shares of ₹100 each 20,00,000
Total 50,00,000
Reserves and surplus
Capital reserve 10,000
Revenue reserve 40,00,000
Security premium 5,00,000
Profit and loss account 18,00,000
Total 63,10,000
Long term borrowings
10% Debentures 4,00,000
Property, plant and equipment
PPE: Cost 30,00,000
Less: provision for depreciation 2,50,000
Net carrying value 27,50,000
The company passed a resolution to buy-back 20% of its equity capital at ₹15 per share. For this purpose,
it sold its investments of ₹30,00,000 for ₹25,00,000. You are required to pass necessary journal entries.
14. D Limited furnishes the following balance sheet as at 31st March 2023;
Particulars ₹
Assets
Non-current assets
Property, plant & Equipment 93,00,000
Non-current investments 30,00,000
Current assets
Inventories 5,00,000
Trade receivables 2,00,000
Cash and cash equivalents 8,00,000
1,38,00,000
Equity and liabilities
Shareholders’ funds
Share capital 27,00,000
Reserves and surplus 97,00,000
Current liabilities
Trade payables 14,00,000
1,38,00,000
Notes to accounts
Particulars ₹
Share capital
Authorized, issued and subscribed capital; 25,00,000
2,50,000 equity shares of ₹10 each fully paid up 2,00,000
2,000, 10% Preference share of ₹100 each
(issued two months back for the purpose of buy back)
Total 27,00,000
Reserves and surplus
Capital reserve 10,00,000
Revenue reserve 30,00,000
Security premium 22,00,000
Profit and loss account 35,00,000
Total 97,00,000
The company passed a resolution to buy back 20% of its equity capital at ₹50 per share. For this purpose, it
sold all of its investments for ₹22,00,000. You are required to pass journal entries and prepare the balance
sheet.
15. KG Limited furnishes the following balance sheet as at 31st March 2021;
Particulars ₹
Assets
Non-current assets
Property, plant and equipment 20,26,000
Non-current investments 74,000
Current assets
Inventories 6,00,000
Trade receivables 2,60,000
Cash and cash equivalents 7,40,000
37,00,000
Equity and liabilities
Shareholders’ funds
Share capital 12,00,000
Reserves and surplus 8,10,000
Non-current liabilities
Long term borrowings 7,50,000
Current liabilities
Trade payables 7,45,000
Cash and cash equivalent 1,95,000
37,00,000
Notes to accounts
Particulars ₹
Share capital
Authorised, issued and subscribed capital;
Equity shares capital (fully paid-up shares ₹10 each) 12,00,000
Reserves and surplus
Securities premium 1,75,000
General reserve 2,65,000
Capital redemption reserve 2,00,000
Profit and loss account 1,70,000
Total 8,10,000
Long term borrowings
12% Debentures 7,50,000
Property, plant and equipment
Land and building 18,00,000
Plant and machinery 2,26,000
Net carrying value 20,26,000
On 1 Aril, 2021, the company announced the buyback of 25% of its equity shares at ₹15 per share. for
st
this purpose, it sold all of its investments for ₹75,00,000.
On 5th April, 2021, the company achieved the target of buy back. On 30th April 2021 the company issued
on fully paid-up share of ₹10 by way of bonus for every four equity shares held by the equity shareholders.
You are required to:
(1) Pass necessary journal entries for the above transactions
(2) Prepare balance sheet of KG Limited after bonus issued of the shares.
