There are two methods for accounting treasury stocks, the cost method and the par method. In cost method the treasury stock is recorded at cost and in par method, it is done at par.
Two additional capital accounts, paid in capital from treasury stock and paid in capital from treasury stock requirement, are used in these methods.
I would prefer to simplify the recording of treasury stocks, without using either of the additional capital accounts.
For eg: if 100 shares of 100 par are bought back for 140, we just need to record the transaction as follows, irrespective of what the ratio of par to premium /discount
treasury stock 10000
paid in capital in excess of par 4000
cash 14000
if paid in capital account has a balance of only 2000, then,
treasury stock 10000
paid in capital in excess of par 2000
retained earnings 2000
cash 14000
if we sell these shares at 180 later, then
treasury stock 10000
paid in capital in excess of par 8000
cash 18000
while retiring
treasury stock 10000
common stock 10000
if donated and FMV = 180 then
treasury stock 10000
paid in capital in excess of par 8000
donated capital 18000
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