Buy back of shares

The following entries will be passed and accordingly effect on financial statements will be taken

1) ESC A/c  Dr.------------------B/S

Loss on buy back A/c Dr.--------P&L

                 To Bank-----------------B/S

2) Free reserves (e.g. p&l, general reserve) Dr.--------B/S

                    To Capital redemption reserve ----------------B/s

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Plz correct me if m wrng

Thanks boss could you also tell me if B co. want to acquire stake in A ltd co. of 20 % paid up capital than wat will be the accounting entry in A ltd co. books and B Ltd co. books?

In books of B ltd

Investment in A ltd. A/c Dr

                         To bank a/c

In books of A ltd.

Bank A/c Dr.

           To ESC A/c

plz correct me if m wrng

thanks sir for your reply one more query…. Why company buy back their own shares and I also see another companies bring an open offer for target company why co. bring open offer or buy back their own shares?

I think there will not be any entry in books of A ltd. if shares are purchased by B ltd from the shareholders of the A ltd.

Ashish......then how will youaccount for the cash recd by A ltd from B ltd for purchase of d stake?

cash will be given to the shareholders only and not to the company

here Bltd is directly purchasing the stake 4m Altd...rather than from the shareholders of A ltd sir from the market.........

i may b wrong too..dats y wrote above...."plz correct me if m wrng"

It depends upon the transaction i.e. whether or not A ltd is going to issue fresh shares to dilute the promoters holding.

Yeah!..............fully agreed wid dat

@ Pankaj:The main reason for a company doing buy back is:

1.The company is having surplus cash and there are no INVESTMENT avenues available to the company.

2.Shares of the company are trading in the market at a very lower rate which ultimately reduces the confidence of the shareholders,therefore the company purchases its own shares from the shareholders at a price higher than the market price to regain the confidence of the shareholders.

3.To prevent dilution of control.More shareholders means more dilution of control.

4.To cancel the odd lot shares.