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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 ?
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).
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