I have a client company whose capital consists of 50,000 x £1 deferred shares and 1,500 x £1 ordinary shares. Capital and reserves are as follows
- Share capital £51,500
- Share premium £4,600,000
- P&L reserve is £1,400,000
The Articles have a clause allowing the company to buy back the deferred shares for £1 in total. The company is considering triggering the buy back which will be at a significant discount to the nominal value of the deferred shares. What would the accounting entries be? I have it written down as below but I may be wrong:
ENTRY 1:
- Debit: Share capital £50,000
- Credit: Bank £1
- Credit: P&L reserve / Share premium account £49,999
ENTRY 2:
- Debit: P&L reserve / Share premium account £50,000
- Credit: Capital redemption reserve £50,000
I arrived at these entries by looking at what happens if shares are bought back at a premium over nominal value in which case Entry 1 would have the premium amount being a debit to P&L reserve/Share premium account.
Help would be appreciated.
Thanks
Replies (3)
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Surely the end result is CRR £50,000 (with £1 debit to P&L)?
(Which is what the questioner ends up with using his entries)
You can't touch the share premium account unless this relates to the premium on the deferred shares.
You'll also need to produce a Statement of Changes in Equity in the client accounts assuming you are reporting under FRS 102 (or 1A)