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I got to know two things about treasury shares:
No.1:When treasury shares are sold for a price equal to
or less than the price the company paid for them,
the proceeds of sale can under the Act be treated as
realised profits, but if the sale price is more, the excess
is treated as capital and must be transferred to a
share premium account. The excess is not therefore
distributable. WHY?
No.2:To make a purchase of its own shares for treasury, the
company must have sufficient distributable profits. If
the shares are purchased from the proceeds of a fresh
issue of shares, the shares purchased must be cancelled.
WHY?Hi Wahab
I have to admit that I was not aware of either of those provisions. As far as I understood, whenever treasury shares were reissued, the proceeds were to be treated as realised profits and I was not aware that, if they were sold for more than the company paid, then that excess had to be credited to Share Premium.
Additionally, I knew that the financing for the repurchase had to be from profits which would otherwise have been available for distribution, but I was not aware that, if the finance for the repurchase came out of proceeds of a fresh issue, then the shares had to be cancelled.
Now you have pointed these issues out to me, I shall begin to work through them in my mind in terms of double entries.
Thank you for your observations 🙂
Alright can you explain that why, “whenever treasury shares are reissued, the proceeds are to be treated as realised profits”?
That’s what I read when I was doing my research in preparation before I wrote the article for OT! I don’t remember where I read it. Maybe you could check it out from whichever study text you are using – or is that where you learned the two bits above in your original post?
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Hello sir… i wanted to ask you that if treasury shares and bribery act are important? and if they are. can a question come from it?
They are new additions to the syllabus! Of course they are important – so much so that I cannot believe that at least one of them won’t come up. I’m actually tipping both topics for June 2012
Hello Mr.Mike,
My question regarding treasury shares is, are there any advantages and disadvantages to the company of treasury shares? And can you please summarise the money laundering regulation 2007 for f4 students.
Warm Regards.
Shuraim.Hi
Ads and disads? If a company has surplus cash, it could buy back some shares thus reducing the number of shares in issue. If ( and it’s a big IF ) the company can maintain its level of earnings, then earnings per share will be improved. Disads – the company has paid out some cash which, presumably, it could have used to generate profits for the improvement of earnings for EPS
Aren’t the Money Laundering regulations sufficiently explained within the course notes?
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