A company's repurchase of its own shares - why is this done? The reorganization continues: we are repurchasing shares from “dissatisfied” shareholders. The repurchase of shares is reflected at cost.

Shareholders can demand the repurchase of their shares from the JSC that made the decision on the reorganization if they voted against it (or did not take part in the voting at all). And the joint stock company in this case has no right to refuse them pp. 1, 3 tbsp. 75 of the Law of December 26, 1995 No. 208-FZ (hereinafter referred to as Law No. 208-FZ). Let's look at how to reflect the repurchase of shares in accounting.

Share repurchase

As is known, an organization can use no more than 10% of the value of its net assets to repurchase its own shares. This standard is calculated on the date of the decision that caused the repurchase Order of the Ministry of Finance No. 10n, FCSM No. 03-6/pz dated January 29, 2003. The total number of shares that a JSC can repurchase is determined by dividing the amount that, according to the standard, the JSC can use to repurchase shares by the redemption price, which must be indicated in the notice of a general meeting on the issue of making a decision on reorganization. clause 2 art. 76 of Law No. 208-FZ.

If the number of shares offered for repurchase is greater than the total number of shares that the JSC can repurchase taking into account the standard, then the claims of shareholders who voted against (or did not vote at all) are not paid off in full, but in part. To do this, you first need to determine the share of shares that can be repurchased, taking into account the standard, in the total number of shares presented for repurchase by shareholders. It is in this share that the shareholder’s claims will be repaid clause 5 art. 76 of Law No. 208-FZ.

Own shares purchased from shareholders are not financial investments and are not an asset at all for the joint-stock company, since the repurchase of shares leads to a decrease in capital and not to the emergence of economic benefits clause 3 PBU 19/02. They are reflected in account 81 “Own shares repurchased from shareholders” in the amount of the actual costs of their repurchase by posting a debit to account 81 – credit to account 51 “Current account”. In the balance sheet, such shares are shown in section III “Capital and reserves” on line 1320 “Own shares purchased from shareholders” in parentheses, since this indicator reduces the total amount of equity capital.

The fate of the repurchased shares

As a general rule, repurchased shares can either be redeemed or resold.

To redeem shares means reducing the authorized capital (debiting account 80 “Authorized capital” – crediting account 81 “Own shares purchased from shareholders”). But if, as a result of reorganization, the company ceases to exist, then the redemption of shares is a simple formality; you can leave them in account 81. After all, shares purchased from shareholders are, in fact, unpaid authorized capital. Therefore, even if you do not repay them, nothing bad will happen; they will still not be converted into shares of newly emerged companies clause 9.4.5 of the Standards for issuing securities and registering securities prospectuses, approved. By Order of the Federal Financial Markets Service dated July 4, 2013 No. 13-55/pz-n.

But the repeated sale of repurchased shares can help increase the transferred assets (money).

Organizations that cease to operate as a result of a reorganization may sell their shares before the reorganization is completed. Organizations that do not cease their activities upon completion of the reorganization (for example, separating or acquiring organizations) can sell their own shares within a year after their redemption or redeem them within the same period.

The sale of repurchased shares must be reflected by posting the debit of account 51 - credit of account 81:

• <если>the price of the new placement is less than the redemption price, then an entry must be made for the amount received from the sale of shares. The difference (that is, the “unclosed” balance on account 81) should be written off against retained earnings by posting a debit to account 84 “Retained earnings (uncovered loss)” - credit to account 81;
• <если>the price of the new placement is greater than the redemption price, then an entry is made for the amount of the redemption price (that is, within the balance of account 81), and the difference (that is, the “unclosed” balance on account 51) is written off to additional capital by posting the debit of account 51 - credit of account 83 “Additional capital”, this is the so-called share premium clause 68 of Order of the Ministry of Finance dated July 29, 1998 No. 34n.

REMIND THE MANAGER

If the company didn't manage to re-sell repurchased shares within a year, then your own shares will still have to be redeemed.

Please note that income and expense items cannot be used; profits or losses from transactions with own shares must be reflected in capital accounts paragraph 33 of IAS 32 “Financial instruments: presentation of information”.

The result from the sale of own shares does not form the indicator of the financial performance statement on line 2520 “Result from other operations not included in the net profit (loss) of the period" paragraph 7 of IFRS IAS 1 “Presentation of financial statements”.

Let us illustrate with an example how to reflect the repurchase and redemption of shares in accounting.

Example. Accounting for repurchase and redemption of own shares

/ condition / The authorized capital of the joint-stock company is 135,000 rubles, its net assets as of the date of the decision to reorganize by merger amounted to 200,000 rubles. No more than 20,000 rubles can be used to repurchase shares. (RUB 200,000 x 0.1). The shareholder submitted a demand for the redemption of 500 shares. There were no other demands from shareholders. The announced repurchase price is 100 rubles, the nominal price of the share is 10 rubles. The repurchased shares will subsequently be redeemed.

/ solution / JSC can only buy back 200 shares (RUB 20,000 / RUB 100). The remaining 300 shares of the shareholder will be converted into shares of the organization created during the reorganization.

In conclusion, we would like to add that in relation to LLCs, “forced” redemption of shares in connection with reorganization is not provided for by law. After all, if at least one LLC participant voted against the reorganization, then such a decision cannot be made on clause 1 art. 92 Civil Code of the Russian Federation; clause 1 art. 8, pp. 1, 2 tbsp. 23 of the Law of 02/08/98 No. 14-FZ.

Reading time: 7 minutes. Views 6.1k. Published April 11, 2017

From time to time, the issuer repurchases its own shares on the stock market. Why is this being done and what are the real reasons for these actions of companies on the stock exchange? Just like that, no one will buy back their assets. Companies pursue their own goals, which in turn should bring them certain benefits. But what about ordinary private investors? What should they do when a buyback is announced on the stock exchange? Sell, buy or stay away? Is it possible to make money from this and what steps should be taken if information about a ransom appears?

Reasons for buyback

By purchasing shares on the secondary market, a company primarily pursues its own interests and increases investor confidence in it, which in most cases has a positive effect on the further growth of quotes. Let's look at the main reasons for the buyout in order to understand how the situation on the stock exchange may develop in the future.

Falling quotes

Due to a significant decline in share prices and a further decline, investor confidence in these securities (as well as in the company itself) is also beginning to decrease. To stop further decline and increase the level of investor loyalty, the company is repurchasing shares on the market.

Such actions show the confidence of the company's management in the prospects for its development in the future. This has a positive effect on current quotes, causing them to grow a little. But usually this has a fairly short-term effect. Everything will depend on the volume of assets being purchased. With sufficiently large demand, you can observe quite significant growth, which can develop into long-term growth.

Undervaluation of shares by the market

If there is an opportunity to purchase shares on the secondary market at a good discount from their fair price and finances allow, then why not take advantage of it. Such deviations periodically occur in the market due to many factors, the main one of which is investor sentiment. The company can be quite stable in the market, show good rates of development and profits. But when just one negative factor appears, sometimes not even directly affecting the company’s activities, investors begin to sell off their existing assets, which leads to lower prices. But nothing happened to the business itself. He continues to work and develop. Only the capitalization of the company (and the shares themselves) may decrease by 20 - 30 - 40% during this time.

Such a discount is very attractive when, by purchasing its own shares at reduced prices today, the company is confident of their further growth. And after some time, when quotes are restored, they can be sold back, making decent money on the difference.

Excess money

With excess cash, a company can use it either to buy back its own shares or to develop its future business. And if the management’s choice falls on the first, this means that at the moment it considers this the most profitable option. What can we say again about the good prospects for the development of the company from the point of view of management.

Cost reduction

When paying dividends to their shareholders, companies are required to pay income tax. Purchasing your own shares reduces the total amount of dividend payments and, accordingly, the amount of tax. The shares themselves, no matter how much they grow, are not subject to taxation until they are sold. As a result, such a redistribution of cash flows towards increasing the number of shares and reducing dividend payments is more preferable for the company.

Potential pitfalls and manipulations

Share buybacks can be used for manipulation financial performance of the company . The withdrawal of a certain part of assets from free circulation leads to a change in an important ratio - earnings per share EPS.

EPS = total company earnings / number of shares outstanding

As a result, shares become undervalued based on this fundamental indicator. And many investors, seeing such an attractive option, begin to buy supposedly cheap assets that are sold at a good discount.

Redemption volume. If the planned percentage of repurchased shares is small, then this will have virtually no effect on the quotes. In extreme cases, there will be a short-term effect of price changes. With sufficiently large repurchase volumes, it will be possible to observe a rather strong imbalance of demand over supply, which will naturally push quotes up.

Redemption percentage. When the purchase conditions become sufficiently attractive, mass buying by investors begins in order to make a profit from this procedure. As a result, supply far exceeds demand. And in order to satisfy all sellers, the company determines the total number and amount of their applications and distributes them among everyone in a certain proportion. For example, if the total planned volume of repurchase is 5 billion, and applications are submitted in the amount of 50 billion, then only 10% will be repurchased from each owner. As a result, after the redemption is completed, unclaimed shares begin to be “dumped” back onto the market. And the opposite situation arises when everyone wants to sell and there is a decline in quotes.

Price level. If the shares are trading at low levels at the time of the buyback, then this is good. Otherwise, when trying to buy back shares at all-time highs or at least at fairly high price ranges, there is cause for concern. Why would a company undertake this procedure, significantly overpaying, buying back shares at such high prices?

There may be price manipulation in order to artificially raise quotes even higher and make a profit using further changes in the price-earnings multipliers. To eliminate this possibility of an unwanted purchase, private investors just need to compare the industry average with company data. With a high P/E, there is no economic sense for a company to buy back its own shares.

Redemption procedure

There are 2 options by which a company can acquire its own assets:

1. on the open market;
2. through an option.

In the first case, the company simply begins to buy existing assets on the stock exchange at the current market price. Gradually buying the required amount. The investor can either agree to the sale or remain on the sidelines with the securities he has. Depending on the repurchase strategy, there may be a change in quotes. Aggressive buying is likely to result in greater growth than moderate trading in small chunks. But in any case, due to increased demand, current quotes will increase.

When repurchasing through an option, the issuer sends all shareholders an offer with a fixed repurchase price, valid for a certain period of time. The redemption price consists of the current market price and an additional premium. If, during a given period, the market price of shares becomes higher than the cost of the option, then it becomes unprofitable for shareholders to sell their assets. If prices go down, then the offer becomes quite attractive for them.

Shareholders have the right to accept or reject the purchase offer based on market conditions and their personal financial goals.

Benefit for the investor

Investors have a good opportunity to profit from a share repurchase program. The very process of starting a buyback is already a bullish signal to buy. Depending on the volume of assets being purchased, price movements can be quite significant. But as a rule, the percentage of securities repurchased from the market is not very high and the increase in quotes usually has a short-term effect. Therefore, this will mainly be of interest to players who enter into deals for a short period.

But if a company carries out these procedures with enviable regularity, gradually reducing the number of shares in free float, this is a signal for long-term investors to take a closer look at the securities. Subsequently, due to the constant decrease in offers for sale and constant demand, quotes may rise well over time.

There are several options.

1. If you already owned assets before the buyback was announced, then you just need to wait for the market to react to this news with an increase in quotations and calmly sell at a good price.
2. Buy assets immediately at the time of the redemption announcement, with a view to further selling them after price increases.
3. Take a short position before the end of the redemption. In most cases, quotes will fall.
4. Long-term investors can also participate. The strategy is as follows: at an increased price, then after a certain time, buy back the package of assets for less money.

Shares from shareholders can be purchased or redeemed. During an acquisition, the company buys shares from shareholders at their market value upon reaching agreement between the parties to such a transaction. The market price should be considered the price at which the seller, who has complete information about the value of the property and is not obligated to sell it, would agree to sell it, while the buyer, who has complete information about the value of the property and is not obligated to buy it, would agree to purchase it . If shares are quoted on a stock exchange and the purchase price, bid price or offer price is published in periodicals, then the market price should be recognized as the corresponding published price. To determine the market price, it is worth taking into account the size of the company's net assets per share.

The Company has the right to purchase shares from shareholders in the following cases:

1) in order to reduce the authorized capital (in this case, the acquired shares are redeemed);

2) for other purposes (for example, for sale to an investor) within 10% of the authorized capital of the company, which must either be sold within a year from the date of their acquisition or redeemed (in this case, the par value of the shares in circulation should not be less than 90% of the authorized capital). It should be noted that the law does not contain other restrictions on the acquisition of shares from shareholders, so formally nothing prevents the company from buying back 10% of shares from its shareholders several times during the year.

Unless otherwise provided by the charter, the acquisition of shares is carried out by decision of the board of directors, which cannot make such a decision if, as a result of the acquisition, the authorized capital of the company becomes less than the minimum amount established by law. Each shareholder has the right to demand the acquisition of his shares by the company, if such a decision has been made. If the number of shares owned by those wishing to sell them exceeds the number of shares that can be purchased, then the shares are purchased in proportion to the stated requirements. A company that has decided to purchase shares must notify its shareholders in writing no later than 30 days before the start of the acquisition, indicating the essential terms of the acquisition.

The company cannot make a decision to purchase shares in the following cases:

* until full payment of the authorized capital;

* if at the time of acquisition the company meets the signs of insolvency or the company will have such signs as a result of the acquisition of shares;

* if at the time of acquisition of shares the value of the company’s net assets is less than its authorized capital, reserve fund and the excess of the liquidation value of the placed preferred shares over the par value determined by the charter or becomes less than their size as a result of the acquisition of shares;

* the number of preferred shares remaining in circulation exceeds 25% of the total number of outstanding shares of the company;

* until the complete redemption of all shares in respect of which redemption demands have been made, which will be discussed below.

The norms of legislation on joint stock companies regarding the repurchase of shares by the company at the request of a shareholder are aimed at ensuring legal protection of the interests of small shareholders. A demand to repurchase shares can also be made in a limited number of cases:

* during the reorganization of a joint-stock company;

* when making a major transaction, the decision on which was made by the general meeting of shareholders;

* when making amendments and additions to the company's charter or approving a new version of the charter, limiting the rights of shareholders - owners of various categories of shares when deciding to place shares and securities convertible into shares through private subscription, except in cases of placement the mentioned securities by private subscription only among shareholders if they have the opportunity to purchase the placed shares and securities convertible into shares in proportion to the number of shares they own."

In order for a subjective right to arise to require the company to repurchase shares owned by a shareholder, it is also necessary that such shareholder votes against the above decisions of the general meeting or does not take part in voting at all. A joint stock company is obliged to create conditions for shareholders to exercise their rights. Based on the data from the register of securities owners, a list of shareholders who have the right to demand the redemption of their shares is compiled. The specified list is compiled on the day of drawing up the list of shareholders who have the right to participate in the general meeting, the agenda of which includes issues, voting on which may give rise to the right to demand the redemption of shares. If the shareholder did not have the right to participate in the general meeting (he became the owner of the shares after compiling a list of persons entitled to participate in the general meeting), then the company is obliged, within seven days from the moment the general meeting made a decision that gave rise to the right to demand the redemption of shares, notify such shareholder in writing about the latter’s right, indicating the redemption price. The repurchase price is the market price of the shares without taking into account its changes as a result of decisions that gave rise to the right to demand the repurchase of shares (clause 3 of Article 75 of the Law of the Russian Federation “On Joint-Stock Companies”). The issue of the repurchase price, however, is not completely clear: p 5 Article 76 of the Law of the Russian Federation "On Joint-Stock Companies" speaks of a different redemption price, namely, that indicated in the notice of the general meeting of shareholders. It seems a logical way out of such an uncertain situation to supplement the law with a provision on including in the notice of holding a general meeting of shareholders, namely the market price of the share.

A written demand from shareholders for the redemption of shares, indicating the place of residence of the shareholder and the number of shares, the redemption of which he requires, is sent to the company no later than 45 days from the date of adoption by the general meeting of shareholders of the decision that gave rise to the right to demand redemption. After the expiration of the specified period, the company is obliged to repurchase shares within 30 days from shareholders who have submitted the relevant requirements. The total amount of funds allocated by the company for redemption should not exceed 10% of the value of the company's net assets. If the total value of the shares in respect of which a redemption request is made exceeds the established limit, then the shares are redeemed in proportion to the stated requirements. Shares purchased during the reorganization are redeemed. in other cases, the company is obliged to sell the repurchased shares within a year or reduce the authorized capital by redeeming them.

The provisions of Articles 75. 76 of the Law of the Russian Federation “On Joint-Stock Companies” do not contain restrictions on the redemption of shares that are established by law for their acquisition. Meanwhile, a situation may arise when, as a result of the repurchase of shares, the company shows signs of insolvency. On the one hand, these norms protect the interests of small shareholders, and on the other hand, their thoughtless application can lead to the economic “death” of the company. When purchasing shares, the buyer acts at his own peril and risk; he may lose all or part of his investments as a result of bankruptcy, a sharp drop in the market value of the stock, etc., which is why the author proposes to apply rules to relations governing the repurchase of shares by a joint stock company Clauses 1 and 2 of Article 73 of the Law of the Russian Federation “On Joint-Stock Companies”, establishing a ban on repurchase in the presence of certain (listed above) conditions. This decision seems fair, because there is no need to encourage the economic infantilism of shareholders.

conclusions

1) A joint stock company is an ideal entity, not consisting of material parts, and exists in legal consciousness. Accordingly, shareholders, members of the board of directors (supervisory board), person(s) performing the functions of the executive body, members of the counting commission, members of the audit commission (auditor) are not parts of the joint-stock company as a subject of law and are in civil legal relations with it. These relations form the organizational and legal form of a joint stock company as a legal phenomenon. Through the implementation of the content of these relations, the joint-stock company acts in civil circulation.

2) The agreement of the founders on the creation of a joint-stock company is mixed, combining elements of an agreement on joint activities and an agreement on the paid acquisition of shares by the founders into ownership (purchase and sale or exchange agreement). In terms of the obligations of the founders to pay for the shares distributed in their favor, this agreement is an agreement in favor of a third party - a joint stock company.

3) The charter of a joint stock company has a complex legal nature and is one of the legal acts of a special kind (constituent acts). The charter lies at the basis of the emergence of a joint stock company and determines its continued existence. In addition, the charter has the qualities of a unilateral transaction of a joint stock company.

4) Shareholder legal relationship (legal relationship on shares) is a relative property civil legal relationship between the shareholder 6

(creditor) and a joint-stock company (debtor), in which the shareholder has only rights, and the company only obligations. It is necessary to distinguish between a complete shareholder legal relationship and an incomplete shareholder legal relationship. In a full shareholder relationship, the shareholder has the entire scope of powers provided for by law and the decision on the issue of securities. In an incomplete shareholder relationship, the acquirer of shares has a limited set of rights that arise before the issue of shares is completed.

5) The issue of shares is a set of actions performed by the joint stock company - the issuer, authorized administrative bodies and purchasers of shares, and in cases provided for by law, by other persons specified in the law, in the form and sequence established by law, necessary and sufficient for the emergence of full shareholder legal relations.

6) The general meeting of shareholders and the board of directors (supervisory board) of the joint-stock company are both will-forming and will-expressing bodies of the joint-stock company. Their decisions aimed at the emergence, change or termination of civil rights and obligations are civil transactions.

7) A person performing the functions of the executive body of a joint-stock company is a representative of the joint-stock company (representative in the broad sense) and is empowered to act on behalf and in the interests of the company.

8) Based on the analysis of the concept of a major transaction contained in Article 78 of the Federal Law “On Joint-Stock Companies”, it was concluded that the delimitation of major transactions from other transactions of the company should be made without the criterion of “ordinary business activity”, and the corresponding ones should be included in the law changes.

The case when a company buys back previously sold shares from shareholders is quite common. In this case, own shares purchased from are accounted for in account 105, or, more precisely, in two secondary accounts of account 105, which are called “Own shares...” and “Own shares...”. The difference is simple: shares - for OJSC (CJSC), shares - for LLC.

Both accounts are active. Attaching additional information is mandatory. The inventory must contain the security number, par value and other information necessary to clarify the composition of shareholders. Moreover, the “nominal value” is information relating to the share: for shares of LLC participants, accounting occurs differently - depending on the size of the company’s authorized capital corresponding to this share. Thus, the basis for accounting for own shares and shares is proportionality, and, of course, the current legislation.

In accordance with the latter, owners can demand that the company's management repurchase shares. This situation may arise if the following changes occur:

• Reorganization of the company (for example, transformation of an OJSC into a CJSC).
• Change in the size of the authorized capital towards its increase.
• An investment of company funds in a transaction that was voted on without the participation of the holders of voting shares, or where the relevant shareholders voted against it.

The company itself can also make a counterproposal to repurchase shares, but this decision is made strictly by the Board of Directors. There are two main variations of the goals pursued by management in this situation:

• Repurchase of shares for the purpose of their subsequent cancellation.
• Repurchase for the purpose of resale to other shareholders.

The first option is a move taken to reduce the authorized capital of the company. It is logical that in this case there will be a reduction in the number of shareholders. It is noteworthy that the company does not have the right to redeem shares selectively: all participants have the right to sell securities. Therefore, the redemption is carried out proportionally, depending on the number of holders and the number of shares of a certain category (subject to redemption) in the hands of these shareholders.

By reselling the repurchased shares, the issue of changing the composition of shareholders is resolved. In any case, the repurchase of own shares must be permitted by the organization's charter.

Repurchased shares – for accounting!

Accounting for own shares purchased from shareholders reflects all related changes in capital - authorized or additional. This can happen both during resale and cancellation. At the same time, the funds spent on this event are not financial investments of the company. True, one of the Accounting Regulations (PBU) considers these costs to be short-term financial investments, but there is a newer document, and the decisive “vote” is given to it (controversial issues in Russian legislation are encountered very often - nothing can be done about it).

Shares are purchased not at par, but at market value. However, this does not mean that the difference does not need to be taken into account: when canceling repurchased shares, it is charged to the “Other income and expenses” account.

Two wires are generated: the first in any case means a reduction in the authorized capital by an amount equal to the product of the par value and the number of repurchased shares (we are still talking about cancellation). The second contains information about the difference written off. If the acquisition price exceeds the par value, then the difference will be charged, accordingly, to “expense” (written off from account 91-2), and if the shares were purchased cheaper - to subaccount 91-1 “Other income”.

When reselling (secondary placement) of shares, the company does not make a profit, regardless of whether the redemption price was lower or higher than the par value: all the same, the shares will be sold at the same market price. The exception is the case when resale is carried out at a higher price - then the profit will no longer be attributed to account 91, but to account 83 “Additional capital”. The same thing happens during the initial placement of newly issued shares, except that then the amount received (due to the difference between the par value and the sale price) is issued. The economic content of the operation is the same in both cases.

Re-listing shares (if resold) can be costly for the company. This applies to cases when shares are resold at a lower price than the one at which they were purchased from the previous shareholders. In this case, funds for placement are borrowed from the company’s additional capital. It may also happen that it will not be enough. Then you will need to use account 84 “Uncovered losses”.

Why do you need your own shares? When purchasing such securities, you are investing your money with the expectation of receiving future income. You will be paid interest on the purchase of qualifying assets by the organization that offered them for sale. In turn, organizations can repurchase their securities in order to increase their value.

What are own shares

First you need to understand the term. A share is a document reflecting the share of ownership of a company, which secures the rights of its owner to receive income from the joint stock company in the form of dividends.

Own shares that are purchased from shareholders are securities issued by the organization itself and subsequently purchased by it. Most share repurchases take place on the stock exchange. It should also be said that shares can be preferred and ordinary.

Types of shares

There are ordinary and preferred shares, documentary and uncertificated, registered and bearer. Ordinary shares give their owner the right to vote at meetings and income from the results of the organization's work. Preferred securities do not give their owner the right to vote, but at the same time they guarantee the payment of money, since settlement of debts begins with preferred shares.

Certificated shares are shares that are issued on paper, but their popularity is falling in our time. Nowadays they mostly use the non-documentary form. Registered securities contain all the information of the owner, and he cannot sell such a share without notifying the joint stock company. In bearer shares, the name of the owner is not indicated, and the ownership rights belong to the owner of the certificate.

Features of own shares purchased from shareholders

The holders of such shares do not have voting rights, dividends are not paid on them, and they are not taken into account when votes are counted. The period for using its own shares must be at least one year, otherwise the company will be forced to reduce its authorized capital by redeeming its securities.

In almost any country, the repurchase of one's own shares is quite common. The reasons include an increase in the amount of income, the need to provide better conditions on the stock exchange for its own valuable instruments, etc. We can also determine how many shares the organization can buy back. To do this, multiply the amount of net assets by 10%, divide by 100% and by the redemption value of one share.

Federal Law No. 208

Federal Law No. 208 “On Joint-Stock Companies” states that a joint-stock company can buy shares issued by it by acquiring part of such shares in order to reduce their number when such a verdict is made by the general meeting. But one requirement must be met: the initial price of shares should not be lower than the minimum value of the organization’s authorized capital. Own shares purchased from shareholders for the purpose of subsequent sale or cancellation are not considered financial investments.

Own shares in accounting

Own shares purchased from shareholders are reflected on account 81 “Own shares”. This account is active, and it records information about existing shares purchased by the organization from shareholders. The debit accounts for the costs of their redemption from shareholders, and the credit reflects their cancellation. The debit balance shows how many shares the company has at the end of the reporting period. If own shares were purchased from shareholders, the posting will be as follows: debit 81 and credit the cash value account for the amount of actual costs.

If they are cancelled, then an entry is made: debit 80, credit 81. The difference that arises between the costs of purchasing securities and their nominal value is charged to account 91 “Other income and expenses.” The register for synthetic accounting of personal shares is journal order No. 12. The repurchase of such a security occurs at a value determined by the board of directors, but it should not be lower than the market price, which must be determined by an independent appraiser. The joint stock company must repurchase the security no later than thirty days after the expiration of the requirement to repurchase the share.

According to IFRS, own equity instruments are not considered financial assets and should be deducted from the company's capital. According to the application of the chart of accounts instructions, personal shares purchased from participants must be taken into account in the amount of expenses incurred for their acquisition. According to the same instructions, if the amount of sale of our shares turned out to be higher than the costs of their acquisition, then this difference is recorded in additional capital as share premium. In the balance sheet, own shares are reflected on line 1320. We must reflect all profits or losses received from transactions with own shares in the capital accounts of the enterprise.

Own shares on balance sheet

As we know, an organization can use no more than 10% of the value of its net assets to repurchase its own shares. Own shares are not assets for a joint stock company, since there will be no increase in economic benefits from them, but only a decrease in capital.

In the balance sheet, treasury shares purchased from shareholders are reflected in the third section, which is called “Capital and Reserves” on line 1320, but in parentheses, because it leads to a decrease in the organization’s capital. Then there are two options for the continued existence of assets: either their resale or cancellation. We cancel with the following posting: debit 80, credit 81. If they are sold, we can increase the value of assets and therefore we make the following posting: debit 51, credit 81. A competent specialist must be able to determine the shares owned by the organization and correctly reflect them on the corresponding accounts when carrying out transactions.

Redemption methods

The first method is when, at open auctions on the stock exchange, an organization buys its previously sold shares at a set price until the required number is purchased. The downside for the buyer is that the seller may increase the original price of the stock. The second way is to buy through an option. An option is a contract that allows you to purchase an asset. The issuer sends you an offer to enter into a transaction at a specified price for the asset. You can agree or refuse to enter into this type of transaction. The option can also be open.

In this case, the buyer must submit an application to purchase such an asset himself, since it will be freely available on the market. The second method attracts investors more. Participation in the stock exchanges can help you make good money if you understand the economy, are aware of the latest and future news about the state of the economy, and move in relevant circles. If an organization is going to re-acquire its own securities, then this indicates its stable financial position or that it believes that its shares have become too cheap. Thanks to this operation, the organization maintains the price of equity instruments in times of crisis, thereby guaranteeing the safety of your investments in the long term.

Price manipulation

But there is also an unscrupulous side to the issue. That is, issuers of their own securities can purposefully manipulate prices. Due to the buyback procedure, specialists will be forced to record an increase in the value of shares and, accordingly, the organization itself. To avoid falling into this trap, you need to study the market environment in which such a transaction took place. If you notice that the acquisition occurred at the moment of the highest price that has ever been in history, then we can talk about price manipulation.