Financial Accounting Review: Retirement of Treasury Shares

Whenever there are problems on financial accounting for treasury shares, this topic can never be out.  So let’s have a review.

1. If the treasury shares/stocks are subsequently retired, the entry would be:

Share Capital (dr) – at par value or stated value

Treasury shares (cr) – at cost

Notice here that (PAR=COST).

2. If the treasury shares are subsequently retired and the par value exceeds the cost of treasury shares (PAR>COST), then there is a GAIN, which will be credited to share premium from treasury shares.

3. If the treasury shares are subsequently retired and the cost of the treasury shares is greater than the par value (PAR<COST), then there is a LOSS, which will be debited in the following order of priority:

a. Share premium from the original issuance

b. Share premium from treasury shares

c. Retained earnings