BBS Stores — OpenTuition Forums

OOvick7y ago

Hi Sir, The part (a) of the question asks to look at the impact on the statement of financial postion for two different scenarios. The first scenario I have understood. But the second scenario is very confusing. My question is simple. When we do a share buy-back how does it effect our retained earnings ? Is there any formula to calculate the new retained earnings after we have completed the share buy back ?

John MoffatTutor7y ago#1

There is certainly no formula - this is basic financial accounts. When they buy-back shares (and cancel them) they pay the market value (here they have 871M available), and the double entry is to CR Cash with the 817M; DR Share capital with the nominal value of the shares (here 54M) and DR Reserves (retained earnings) with the remainder (here 817M).