Sources of buy back Free reserves Security premium 25 of owned fund Share capital Free reserves Security premium X 25 Owned fund after buy back Owned fund ½ Borrowed fund ID: 1029218
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1. 1- If offer price is not given:Sources of buy back = Free reserves + Security premium25% of owned fund = (Share capital + Free reserves + Security premium) X 25%Owned fund after buy back = Owned fund – ½ Borrowed fundMax. no.of equity shares = Equity share capital X 25% Face valueOffer Price = Least of 1/2/3 Max.shares
2. 2- If offer price is given:Sources of buy back = Free reserves + Security premium25% of owned fund = (Share capital + Free reserves + Security premium) X 25%Owned fund after buy back = Owned fund – ½ Borrowed fundMax. no.of equity shares = Equity share capital X 25% Face value = Max shares X Offer priceMaximum Shares = Least of 1/2/3/4 Offer Price
3. Free ReservesNon Free ReservesMeaningFree reserves are those reserve which can be utilised for any purpose. It is also called as divisible profit.Non free reserves are created for specific purpose. It is also called as non-divisible profit.PurposeTo declare dividend, bonus, remove losses.To write off specific lossesExamplesP&L, General Reserve, Revenue Reserve, Reserve Fund, Dividend Equalisation Reserve, **Investment Allowance Reserve(Unutilised).Capital Reserve, CRR, Security Premium, DRR, Statutory Reserve, Forfeited Shares A/c.
4. Journal Entries in the books of Co. (Buy Back)S-F-T-W-C-P-B-ESale of InvestmentTo Convert Partly Paid-up Equity Shares into Fully Piad-upEquity Share Final Call A/c …………Dr No.of Shares X Unpaid Amt To Equity Share Capital A/c No.of Shares X Unpaid AmtBank A/c ……………………………Dr (Same Amt) To Equity Share Final Call A/c (Same Amt)Bank A/c……………………………...Dr XXXP&L A/c (Loss)……………………….Dr X To P&L A/c (Profit) X To Investment A/c XXXFresh Issue of Preference SharesBank A/c…………………………….Dr. XXX To Security Premium A/c (Issued @ Premium) X To Pref. Share Capital A/c XXX
5. Transfer of ESC, Premium on B.B to ESHEquity Share Capital A/c ………..Dr XXXPremium on B.B A/c ………….. ..Dr X To Equity Share Holder A/c XXXWriting Off Premium on B.B (S.P to P)Security Premium A/c ………….Dr XXX To Premium on B.B A/c XXXCreation of CRR (CRR= ESC – PSC)Free Reserves A/c ………………Dr XXXSecurity Premium A/c …………...Dr X To CRR A/c XXXPayment to ESHESH A/c ………………………….Dr XXX To Bank A/c XXX
6. Bonus to ESHCRR A/c …………………………Dr XXXOther Res. A/c ………………… ..Dr XX To Bonus to ESH A/c XXXBonus Trnsfr to ESCBonus to ESH A/c…………………Dr XXX To ESC A/c XXX
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