Corporate Accounting and Reporting

Running head: CORPORATE ACCOUNTING AND REPORTING
Corporate accounting and reporting
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1CORPORATE ACCOUNTING AND REPORTING
Part A
Accounts for share buy-backs
Buyback of share is the process that allows the company purchasing its
shares from the existing shareholders generally at the price that is near to or higher
as compared to the prevailing price in the market. While the company purchase back
its shares it decreases the outstanding shares in market that increases percentage
of the shareholdings for remaining shareholders. Under the buy-back, generally the
entity offers the shareholders an option for tendering a percentage of shares within
the specific time frame and at the specified price. The price compensates
shareholders for tendering the shares instead of holding on them. However, the
entities sometimes buy back the shares from open market over the extended time
period (Andriosopoulos and Lasfer 2015).
Major obvious reason of buying back the shares is that it enhances the long
term value of the shareholder and EPS (earning per share), offers exit route to the
shareholders when shares are thinly traded or under-valued, assists in achieving
optimum structure for capital and assists go get cash return surplus to the
shareholders. Apart from this, this technique of capital reduction is favoured by the
corporate is that it does not need any approval. As a shareholders he / she may
receive the offer from the entity for buying back all or some of the shares in the
company (Zhang, Donohue and Cui 2015). If the shareholders disposes of the
shares back to the entity under the arrangement of share buy back the shareholder
may make the capital loss or capital gain. Capital proceeds from the buy-back will be
considered as value of the share market that would have been if buy back would not
have taken place reduced by the dividend amount paid in buy- back, if 2 conditions

2CORPORATE ACCOUNTING AND REPORTING
are fulfilled – (i) price of buy back is lower as compared to the market value of the
share that would have been if buy back would not have taken place or proposed and
(ii) shares were not bought back by the entity in ordinary business course of the
stock exchange. Under this circumstance, the entity may deliver the market value. If
the buy-back price is equal to the market value of share if buy back would not have
taken place or proposed, capital proceeds is the paid amount excluding the amount
of dividend payment (Bonaimé 2015).
Provisions of share buy-back were made simple for making the buy-back
procedure more accessible to the Australian entities through replacing the
mandatory procedure that involves experts, auditors, declarations with the new
safeguards for the shareholders as well as creditors that is focussed on continuing
the solvency of the entity, advertisements, disclosure of all the relevant information
and fairness to the shareholders (Bhullar, Bhatnagar and Gupta 2018). The provision
identifies 5 basis types of the share buy-back methods – (i) equal access (ii)
employee share scheme (iii) on – market (iv) minimum holding and (v) selective buy-
back. Different types of rules are also applied within these types of buy-back
between the share buy-back that involves 10% or lower than 10% of total shares
proposed to be purchased within 12 month period and the buy-back that involves
over 10% of the shares. Sometimes this is called as 10/12 limit and it is mentioned in
s257B(4) and 257B(5) of Corporation Act 2001. Requirements for the share buy-
back within 10/12 limit are considered as less onerous as compared to those which
are over limit (Mitchell, Izan and Lim 2015).
Equal access buy-back is considered as the most straightforward method. All
the ordinary shareholders are offered reasonable opportunity for considering the
offer that is buying back the equal percentage of ordinary shares held by them. This