Accounting for Treasury Shares

SEC-EAD * OPINIONACCOUNTING FOR TREASURY SHARESWhen a corporation reacquires its issued and fully paid shares of stock from its stockholders or from the stock market, the shares acquired are known as treasury shares. Treasury shares are recorded at cost and may again be disposed of for a reasonable price as may be determined by the Board of Directors. llcdThe acquisition and disposition of treasury shares are regulated by the SEC Rules Governing Redeemable and Treasury Shares. These rules are prefaced with the provision that the outstanding capital stock of a corporation shall constitute a trust fund held by the corporation for the benefit of its creditors. Corollary to this, unless otherwise provided for under the SEC rules, a corporation cannot validly acquire its outstanding shares in treasury unless it has an adequate amount of unrestricted retained earnings to support the cost of the treasury shares.The reason for the presence of unrestricted retained earnings is understandable. This means that when treasury shares are acquired, the cost of such shares is paid out of unrestricted retained earnings,...