Capital redemption reserve accounting treatment

Capital redemption reserve accounting treatment

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On review of a new client I have taken on recently, during 2004 shares were bought back by the company.

1) Dr Share Capital (nominal value of shares)

Cr Capital Redemption Reserve (nominal value of shares)

2) then the following entries were made (with monies paid for the shares)

Dr CRR 

Cr Bank 

3) A couple of years later, the net balance on the CRR was released to the current year profit and loss as an expense.

I believed the treatment for step 2 would have been to post the monies paid for the shares as a Cr to the Bank and Dr to the P&L reserve, and therefore not hitting the current year profit and loss at all.  Also, that the CRR balance should remain and only be used to issue bonus shares.

I wasn't 100% sure though as to whether the Companies Act 1985 adopted a different treatment.

Any advice would be appreciated.

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By bill turpin
14th Sep 2012 09:08

Yes, the treatment you

Yes, the treatment you describe is the correct one. CA85 was the same as CA2006 in this respect so the 2004 (and 2006) accounts were incorrect.

bill

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