ACCOUNTING FOR TREASURY SHARES

Treasury Shares. - Treasury shares are shares of stock which have been issued and fully paid for, but
subsequently reacquired by the issuing corporation by purchase, redemption, donation or through some
other lawful means. Such shares may again be disposed of for a reasonable price fixed by the board of
directors. (Sec. 9 Corporate Code of the Philippines)
ree Requisites in order to qualify the share as a treasury share
1. e share must be a corporation’s own share.
2. e share has been issued originally.
3. e share is reacquired but not cancelled.
Cost Method. - Treasury shares should be recorded at cost, regardless of whether the share is acquired
below or above the par or stated value (original issue price). If the treasury share is acquire for cash,
the cost is equal to the cash payment.
Illustration:

Ordinary Share Capital, 10,000 shares at ₧ 100 par 1,000,000

Ordinary Share Premium - Original Issuance 200,000

Ordinary Share Premium - Treasury Stock 20,000

Retained Earnings 500,000

Acquisition
Assume that the shares are acquired at ₧ 150 per share

Treasury Share 300,000

Cash 300,000
Re-issuance at cost
If treasury share is subsequently re-issued at ₧ 150 per share

Cash 300,000

Treasury Share 300,000

Re-issuance at more than cost
If the treasury share is subsequently re-issued at ₧ 200 per share, the excess of re-issue price over the
cost is treated as a premium from treasury share transactions.

Cash 400,000

Treasury Share 300,000

Share Premium - Treasury 100,000

Re-issuance at below cost
If the treasury share is subsequently re-issued at ₧ 100 per share, the excess of cost over the re-issue
price is charged to the following accounts in the order mentioned:
a. Share Premium-Treasury (Premium account must be of the same class)
b. Retained Earnings
In other words, the loss on the sale of treasury shares is debited to Share Premium - Treasury of the
same class, if any, and when the balance is exhausted, the amount is charged to the Retained Earnings
account.

Cash 200,000

Share Premium - Treasury 20,000

Retained Earnings 80,000

Treasury Share 300,000

Acquisition by donation
Received 50 donated shares from the stockholders

Treasury Share
(Received 50 donated shares)

Subsequently sold the donated shares at ₧ 115 per share

Cash 5,750

Share Premium - Donate Shares 5,750

Power to acquire own shares. - A stock corporation shall have the power to purchase or acquire its own
shares for a legitimate corporate purpose or purposes, including but not limited to the following cases:
Provided, at the corporation has unrestricted retained earnings in its books to cover the shares to be
purchased or acquired:
1. To eliminate fractional shares arising out of stock dividends;
2. To collect or compromise an indebtedness to the corporation, arising out of unpaid subscription,
in a delinquency sale, and to purchase delinquent shares sold during said sale; and
3. To pay dissenting or withdrawing stockholders entitled to payment for their shares under the
provisions of this Code. (n)