Payments out of capital

Payments out of capital

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Looking at the legislation for purchase of own shares out of capital, 'capital' isn't defined so it looks as though a share premium is treated as capital for this purpose. In fact section 709 simply says that any payment made in accordance with the provisions will be treated as a payment out of capital even if it weren't so. So, for example (assuming no reserves) - share capital of £10,000 and share premium of £40,000. They want to buy back 5,000 £1 shares for £25,000. What is the accounting? Is it as simple as reducing issued capital by £5k and premium by £20k? Or is one reduced in priority to the other?

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