Accounting for Share Buy Back - Methods and Implications

Running head: ACCOUNTING
Accounting
Name of the Student:
Name of the University:
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1ACCOUNTING
Table of Contents
Part A.........................................................................................................................................2
Part B..........................................................................................................................................5
Reference....................................................................................................................................7

2ACCOUNTING
Part A
Accounting for Share Buy Back
Introduction
In this essay discussion is made for accounting for buy back of shares. The company
repurchase their own shares from the investors or shareholders, a share buyback take place in
such circumstance. To state it briefly, it can be said that the companies purchase the
outstanding shares that are issued to the shareholders earlier and after repurchasing the share,
the total value of shares will be accounted in the books of the company as Treasury Stocks.
This treasury stock is being regarded as the contra-equity account and thus cannot be
considered as an asset (Maaset al. 2016).
Discussion
The company made payment for repurchasing the stocks cannot be regarded as an
investment as the stocks of the company was issued by themselves. But the stocks can be
included in the balance sheet of the company where it can be used to reduce the owner’s
equity of the company. In case of purchasing the stocks along with other assets, the company
will be consider the purchase of the asset as a credit purchase as the company made this
purchase along with the repurchase of the shares. The company can repurchase the sold
shares for various reasons such as; the diluted ownership of the company is being reduced by
implementing share buy backs (Schaltegger and Burritt 2017). It can also strengthen the
relative individual position of the investors by omitting the number of investors by the
company and can also be helpful for getting better financial metrics of the company. By
implementing the share buyback, the company can increase both of the return on capital and
return on equity that reflect the operational improvement of the companies while analysing