Buy back of deferred shares at below nominal value

Company buying back 50,000 x £1 deferred shares for £1 in total

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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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By paul.benny
28th Mar 2019 10:33

Looks about right. End result - deferred share capital nil, CRR £49,999

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Replying to paul.benny:
Psycho
By Wilson Philips
02nd Apr 2019 10:47

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)

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John Toon
By John Toon
01st Apr 2019 18:51

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)

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