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Sir you have defined it in one of your lectures as:
“It is created on redemption of shares other than out of the proceeds of issue of new shares, and in that situation where shares are bought back by a company other than out of the proceeds of issue of new shares then an amount equal to the capital value of shares bought back less any proceeds of issue , shall be transferred out of profits which would otherwise been available for distribution to an account called the capital redemption reserve”
Can you please explain it ,cause i do not understand it , at all?Are you buying back shares? Yes? Are you making a new issue of shares to raise the finance so you can buy back the original shares? Yes? Are you going to raise enough from the fresh issue to pay for the whole cost of buying back the original shares? No? Oh dear – that means your buffer fund will be reduced. We can’t have that! So, let’s transfer ( out of profits ( retained earnings ) which would otherwise have been available for distribution ( ie available to finance a dividend ) an amount equal to the nominal value of original shares bought less the PROCEEDS of a fresh isuue made to finance that re-purchase.
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Sir, I would like to know more about accounting treatment for share buy back with no new issue of shares. What is a Capital redemption Reserve (CRR)? Is a CRR needed for a private company who is not listed on Stock Exchange? Is there any IAS which covers this explicitly? Thank you.
“Is there any IAS which covers this explicitly? ” – this has nothing to do with accounting standards! It’s the LAW!
“Is a CRR needed for a private company who is not listed on Stock Exchange?” – yes, it’s the LAW
But how many private companies do you know that are likely to be looking to buy back their shares?
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