Share :
Buyback journal entry

Buyback of shares means the purchase of its own shares by a company. Share buyback results in a decrease in the share capital of the company. A company having sufficient cash may decide to buy back its own shares. 

According to section 68(1) of Companies Act, 2013, buyback of shares can be made out of -

(a) free reserves;

(b) securities premium account; or

(c) proceeds of the issue of any shares or other specified securities.

However, the buyback cannot be made out of proceeds of an earlier issue of the same kind of securities. 

Journal entries for buyback of shares

Particulars

Dr/Cr

Debit (Rs)

Credit (Rs)

1. Investment sold for the purpose of buyback of shares

Bank A/c

Dr.

XXXX

 

To Investment A/c

Cr.

 

XXXX

2. Amount due on buyback of shares

Equity Share Capital A/c

Dr.

XXXX

 

Premium payable on buy-back (if any)

Dr.

XXXX

 

To Equity Shareholders A/c

Cr.

 

XXXX

3. Payment made for buyback of shares

Equity Shareholders A/c

Dr.

XXXX

 

To Bank A/c

Cr.

 

XXXX

4. Premium payable on buyback charged from securities premium account

Securities Premium A/c

Dr

XXXX

 

To premium payable on buy-back

   

XXXX

5. Creation of capital redemption reserve to the extent of the shares bought back

Revenue reserve A/c

 

XXXX

 

To Capital Redemption Reserve A/c

   

XXXX

6. Expenses incurred on buy-back

Buy-back Expenses A/c

 

XXXX

 

To Bank A/c

   

XXXX

7. Buyback expenses transferred to P/L account

Profit & Loss A/c

 

XXXX

 

To Buy-back Expenses A/c

   

XXXX

Frequently asked questions (FAQs)

When the shares are issued/ redeemed/ forfeited at a premium, the excess amount charged on the face value of the share is called Security Premium.

A capital redemption reserve (CRR) account is a type of reserve maintained by a company limited by shares. When a company purchases its own shares out of free reserves or securities premium account, a sum equal to the nominal value of the shares so purchased shall be transferred to the capital redemption reserve account.


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CA Rupali Gupta

CA Rupali Gupta