Repurchase of Shares
 some corporations can repurchase their own shares and then
RETIRE or CANCEL the shares
 in some cases they can repurchase shares and re-issue them
later (Treasury Shares – see appendix)
Retiring Shares
 reduces the number of shares issued and outstanding
 can only be done if doesn’t jeopardize the creditors and
shareholders THEREFORE, limited to the balance in retained
earnings
 repurchasing shares – shows confidence by mgt. , increases
the market price
Accounting for Retiring Shares
Example:
Company has 150,000 shares of common stock issued and
outstanding with share capital of $1,125,000.
Average Issue Price = 1,125,000/150,000 shares = $7.50 per share
On Feb. 2 the company repurchases and retires 20,000 shares for
7.50 per share.
** here retirement price is same as avg. issue price – not likely to
happen
Feb. 2 Common Shares
Cash
150,000
150,000
NOTE: Always reduce the share capital account by the average
issue price at the time of retirement.
Here there is not ‘gain’ or ‘loss’ on retirement – we paid exactly
what we received when shares were issued.
On April 1 repurchase and retire 10,000 common shares for $5.25
per share.
Apr. 1 Common Shares
75,000
Contributed Capital From Retirement of Common Shares
Cash
22,500
52,500
NOtE: Here the average issue price stays the same –
retirement would not change it AND there was no additional shares
issued.
CCFROCS – is part of the “Contributed Capital” section – it goes
below the Common Shares amount.