yr 7 betel See sREASURY SHARKS asury shares are an enti ested and then rencay ty ine 8 ON shares that have been to ut praia phree requisites to Walify ag | not canceled. q. The shares must be th treasury shares: of shares of anoth, investment, e entity's i a tity’ own shares. The acquisition entity is not treasury but an p. The shares must ha : requisite distinguishe, shares. ve been issued originally. This s treasury shares from unissued Treasury sh rpoUe any dane legally reissued at a discount Siietaiiedlat Eaters unissued shares ued at least at par or stated value.” ‘hi : In other respecte, treaury chars und unlaenad shares : me. Both are equity items rather than assets. ¢. The shares are reacquired but not canceled. Legal limitation on treasury shares The Revised Corporation Code provides that no corporation shall redeem, repurchase, or reacquire its own sharés, of whatever class, unless it has adequate amount of unrestricted retained earnings to support the cost of said shares. ‘Thus, the corporation can acquire treasury shares only to the extent of retained earnings balance. If the corporation were allowed to acquire treasury shares when it has no retained earnings balance or when it has a deficit, it would be tantamount to indirectly returning capital to shareholders, which is 2 violation of the trust fund doctrine. What is prohibited ¢ indirection. Therefore; in order to preserve the legal capital, the retained facaiaia ast BE ‘approprigted to the extent of the cost, of treasury shares, 20 the same must not be declared as dividend until the treasury shares ar subsequently reissued. 1 be done directly cannot be done by 755 Powered by @CamScanner QaN easury shares \ccounting for tr The cost method is used in accounting for treasury ne aoe jagal Limitation on acquisition of 8, The reason is the legal lim tent shares. all be recorded at cost, regardles, f shi Eee TEI re acquired below or above the pare, % whether the shares 4 Stated value! If the treasury shares are acquired for cash, the cost j, equal to the cash payment. If treasury shares are acquired for noncash consideration, PAS 32 does not provide explicit guidance. However, PAS 32, paragraph 33, provides that no gain or loss shall be recognized on the purchase, sale, issue or cancelation of an entity's equity instrument. Accordingly, if the treasury shares are acquired for noncash consideration, the cost is usually measured by the carrying amount of the noncash asset surrendered. Illustration An entity acquired 2,000 shares with par of P100 at P150 per share. ‘ ‘Treasury shares 300,000 Cash 300,000 The treasury shares are initially recorded at cost of acquisition. : oy = Subsequently, the treasury shares may be reissued or sold at cost, more than cost or below cost. ’ rescneny. ORM] Bool reqEO 75R Powered by (CamScanner Q