8286987552

7045760704
8928059123
 BUY BACK OF SHARES

MEANING :-
Repurchase of shares by company from
Equity Shares Holders under companies
act, 2013 (sec. 68) usually at a higher price i.
e Premium.
LEGAL PROVISIONS:- (sec 68)

 Special Resolution (75% voting) passed at

general meeting
 Must be authorized by its articles.
 The buy back is 25% or less of aggregate of
paid-up capital and free reserves of the company
 Debt equity ratio should not exceed 2:1
 Punishment for Defaults. For every officer
who is in default

Fine:- 1 lack to 3 lack

Imprisonment:- may extend to 3 years &1 or with
Sources of Buy-Back:- sec 68(1)
1. Free Reserve:- which are free for distribution or buy
back of shares.

Free Reserve/Divisible profit:-

 Profit & Loss
 General Reserve
 Dividend Equalization Reserve

Unfree Reserve/ Non-Divisible Profit:-

 Security Premium
 Capital Reserve
 C.R.R
2. Fresh Issue of Shares

3. Security Premium

4. C.R.R

5. Investment Asset Sold

 Conditions and Limits of Buy Back

When offer price When offer price

Given not given
 When Offer Price is Given
Particulars Amt Amt
1. 25% of Shareholders Fund
Share capital (Equity + Preference) xx 25% of
Reserves & Surplus(Gen Res+P&L etc) xx TSF
Total Shareholder Fund xx XXX

2.Minimum Own Fund Debt-Equity 2:1

Total Shareholders Fund xx
(-) 50% of Debt (Debenture, loan) (xx) xxx

3.Paidup Equity
(No. of equity shares *25%) * offer price
Total Buy Back Amount xxx
(Lowest of Above 3)
Number of Buy Back Shares =
Total Buy Back Amount
Offer Price
 When Offer Price is Not Given
Particulars Amt Amt
1. 25% of Shareholders fund
Share capital (Equity + Preference) xx 25% of
Reserves & surplus (Gen Res+P&L etc) xx TSF
Total Shareholders Fund xx xxx

2. Minimum Own Fund

Total Shareholders Fund xx
(-) 50% of Debt (Debenture, loan) (xx) xxx

3. Total Reserves & Surplus

(Gen Res+ Rev Res+ etc)
Total Buy Back Amount xxx
(Lowest amount of above 3)
No. of share Buy Back=25% of Number of equity
shares

Offer Price =
Total Buy Back Amount
No. of Shares Buy Back
 STEPS FOR SOLVING ANY BUY BACK
QUS.

1. Fully Paid up
2. Buy Back Due
3. Investment sold
4. Fresh Issue
5. C.R.R
6. Premium Adjusted
7. Paid
 JOURNAL ENTRIES
1. Balance/unpaid due and Received (for fully
Paid-up)
Cash/ Bank A/c Dr.
To Equity Share Capital A/c
(No. of Shares * unpaid)

2. (A) Buy Back Of Shares Due (At Par)

Equity Share Capital A/c Dr.
To Equity Shareholder A/c
(B) Buy Back Of Shares Due (At. Premium)
Equity Share Capital A/c Dr.
Premium on Buy Back A/c Dr.
To Equity Shareholder A/c
3. (A) Investment/Assets Sold (No Profit, No
Loss)
Cash / Bank A/c………………….Dr.
To Assets / Investment A/c
(B) Investment / Assets Sold ( At Profit)
Cash / Bank A/c………………….Dr.
To Assets / Investment A/c
To Profit & Loss A/c
(C) Investment / Assets Sold (At Loss)
Cash / Bank A/c………………….Dr.
Profit & loss A/c………………….Dr.
To Assets / Investment A/c
4. (A) Fresh Issue Of Shares (At Par)
Cash / Bank A/c………………………..Dr.
To Preference Share Capital A/c
(B) Fresh Issue Of Shares (At Premium)
Cash / Bank A/c……………………….Dr.
To Preference Share Capital A/c
To Security Premium A/c
5. Capital Redemption Reserve Created
Free Reserve A/c……………………..Dr.
To Capital redemption A/c
6. Premium on Buy Back Of Shares Adjusted
Security Premium/Free Reserve A/c………Dr.
To Premium on Buy Back A/c

7. Buy Back Amount Paid

Equity Shareholder A/c……………………..Dr.
To Bank A/c
 VERTICAL BALANCE ESHEET

Particulars Note Amt

No.
I. EQUITY AND LIABILITIES
(1)Shareholder’s Funds
(a)Share Capital XX
(b)Reserves and Surplus XX
(c)Money received against share XX
warrants

(2) Share application money pending

allotment
 Particulars Note Amt
No.
(3) Non-Current Liabilities
(a)Long-Term borrowings XX
(b)Deferred tax liabilities (Net) XX
(c)Other Long-Term liabilities XX
(d)Long-Term provisions XX

(4) Current Liabilities

(1)Short-Term borrowings XX
(2)Trade payables XX
(3)Other Current liabilities XX
(4)Short-Term provisions XX
Total XXX
 Particulars Note Amt
No.
II. Assets
(1)Non-Current Assets
(a)Fixed Assets
(i) Tangible Assets XX
(ii) Intangible Assets XX
(iii) Capital work-in-progress XX
(iv) Intangible Assets under XX
development
(b) Non-Current investments XX
(c) Deferred tax Assets (net) XX
(d) Long-Term loans and advances XX
(e) Other Non-Current Assets XX
 Particulars Note Amt
No.
(2) Current Assets
(a)Current investments XX
(b)Inventories XX
(c)Trade receivables XX
(d)Cash and cash equivalents XX
(e)Short-Term loans and advances XX
(f) Other current assets XX

Total XXX
Illustration 1:

Zaveri Ltd. resolved to buy back 3,00,000 of its fully paid

equity shares of Rs 10 each at Rs 12 per share. For the
purpose, it issued 10,000 13% preference shares of Rs
100 each at par, the total sum being payable with
applications. The company uses Rs 8,50,000 of its
balance in Securities Premium Account apart from its
adequate balance in General Reserve Account to fulfill
the legal requirements regarding buy-back.
Q.2 Following is the Balance Sheet of Suyog Ltd. As on 31st March 2018
Liabilities Amt. Assets Amt.

Share Capital: Fixed Assets:

Authorised: Land and Building 30,00,000
10,00,000 Equity Shares of Plant and Machinery 30,00,000
Rs. 10 each 1,00,00,000 Furniture 22,00,000
Issued: Investment: 15,00,000
8,00,000 Equity shares of Current Assets:
Rs. 10 each, Rs. 8 paid up 64,00,000 Debtors 47,00,000
Reserve: Bills Receivables 10,00,000
General Reserve 10,00,000 Bank Balance 40,00,000
Profit and Loss Account 50,00,000 Stock 20,00,000
Securities Premium 20,00,000
Secured Loans:
11% Debentures 20,00,000
Unsecured Loans: 20,00,000
Current liabilities:
Creditors 15,00,000
Bills Payable 15,00,000
Total 2,14,00,000 Total 2,14,00,000
 The Company Decides to buy back the maximum
number of equity of shares as may be permitted at a
price of Rs. 20 per share. Find out maximum numbers of
shares to be bought back and pass journal entries and
prepare Balance sheet after buy back.
Q.3 Following is the summarised Balance sheet of Ms. Mandangad Ltd.
As on 31st march 2018

Liabilities Amt. Assets Amt.

40,000 Equity shares of Fixed Assets 1,20,00,000
Rs.100 each fully paid 40,00,000 Investment 8,80,000
20,000, 10% Redeemable Stock 14,00,000
preference shares of Rs.100 Debtors 14,00,000
each fully paid 20,00,000 Bank Balance 4,00,000
Capital Redemption Reserve 4,00,000
Security Premium 3,20,000
General Reserve 8,00,000
Profit and Loss Account 4,00,000
11% Debentures 40,00,000
Creditors 41,60,000
Total 1,60,80,000 Total 1,60,80,000
On the same date it was decided to buyback the
maximum number of equity shares at the maximum
price possible under the law.
In case of storage of funds, Bank overdraft was to be
arranged.
The company decided to utilize profit and loss
account to the minimum extent.
Pass journal entries for the above transactions and
prepare the Balance sheet after buyback in Revised
Schedule.
Q.4 Following is the s Balance sheet of Surya Ltd. As on 31st march 2018.

Liabilities Amt. Assets Amt.

16,00,000 Equity shares of Rs. Land and Building 60,00,000
10 each, Rs. 8 paid up 1,28,00,000 Plant and Machinery 60,00,000
Profit and Loss A/c 1,20,00,000 Furniture 44,00,000
Security Premium 40,00,000 Investment 30,00,000
10% Debentures 40,00,000 Debtors 94,00,000
Bank Team Loan 40,00,000 Bank Balance 1,00,00,000
Creditors 60,00,000 Stock 40,00,000
Total 4,28,00,000 Total 4,28,00,000

The company decides to buy back maximum number of equity shares as may
be permitted at a price of Rs. 20 per share being the current market price.
Assuming that the buy-back is actually carried out, you are required to:
(a) Pass necessary Journal Entries in the books of the Company Ltd.
(b) Prepare Notes to Accounts of share capital and Reserves & Surplus as they
would appear in Notes to Accounts forming part of the Balance Sheet of
Surya Ltd. as on 31st March 2018. (Do not prepare the Balance sheet).
(Sale of investments, Issue of Debentures; Bonus Shares)
Q.5 Following is the summary Balance Sheet of x Ltd. (a non-listed Company)
as on 31-3-2018
Liabilities Amt. Assets Amt.
Share Capital Land and Building 10,00,000
2,00,000 Equity Shares of Plant and Machinery 10,00,000
Rs.10 each fully paid 20,00,000 Furniture 1,00,000
Securities premium A/c 2,50,000 Investment 2,00,000
Profit & Loss A/c 3,00,000 Debtors 3,80,000
General reserve A/c 3,00,000 Bank Balance 3,00,000
Creditors 3,00,000 Stock 1,70,000
Total 31,50,000 Total 31,50,000
The company decides to buy back 20% of its equity share capital out of profits.
All the legal formalities were duly completed. The company sold its
investments for Rs.2,05,000 and issued 500. 85 Debentures of Rs.100 each
which amount was received in full. After the buy back the company issued
bonus share to equity shareholders in the ratio of 1 bonus share to 2 equity
shares held using the least possible amount our of the profit & loss account.
Pass journal entries and Prepare the balance sheet after buy back and issued
of bonus shares.
Q.6 The balance sheet to ketan Ltd. (a non-listed company) as on 31st march
2018 is as follows.
Liabilities Amt. Assets Amt.
Equity shares of Rs. 10 each 6,00,000 Fixed Assets 20,90,000
10% Preference shares of Investments 6,00,000
Rs.10 each 1,50,000 Current Assets 8,10,000
Securities premium 1,20,000 (including bank balance
General Reserves 2,00,000 Rs.1,25,000)
Profit and Loss A/c 1,80,000
10% Debentures 10,00,000
Term Loan from Dena bank 8,00,000
Current Liabilities 4,50,000
Total 35,00,000 Total 35,00,000

Keeping in view all the legal requirements, ascertain the maximum no. of equity
shares that Ketan Ltd. Can buy back @ Rs 50 per share. Assume that the
buy back is acutally Carried out. Investment costing Rs. 3,00,000.
Pass Journal Entries.
(Maximum Buy-Back at given offer price)
Q.7 The Summary Balance Sheet of M Ltd. (a non-listed company) as on
31-3-2018 is as follows.
Liabilities Amt. Assets Amt.
Equity Shares of RS. 10 each 3,00,000 Net Block of Fixed Assets 8,00,000
Preference Shares of Rs.100 Long Term Investments 1,00,000
each 1,00,000 Bank 7,50,000
Securities Premium A/c 1,50,000
General Reserve A/c 1,00,000
Profit & Loss A/c 1,00,000
Debentures 8,00,000
Trade Payables 1,00,000
Total 16,50,000 Total 16,50,000

Keeping in view all the legal requirements, ascertain the maximum no. of
equity shares That M Ltd. Can buy back @Rs.30 per share, being the current
market price. Assume that the buy back is carried out actually on the changed
terms and accordingly record the entries in the journal of M Ltd. And prepare
its balance sheet thereafter.
Q.8 The summary Balance Sheet of Manish Ltd. (a non-listed company) as on
31-3-2018 is as follows:

Liabilities Amt. Assets Amt.

Share Capital: Fixed Assets:
Authorised, Issued, Net Block 40,00,000
Subscribed and Called-up: Trade Investments 15,00,000
Equity Shares of Rs. 10 each 25,00,000 Current Assets:
Reserves & Surplus: Current assets
Security Premium 5,00,000 (Including Bank Balance 35,00,000
General Reserves 10,00,000 Rs.15,00,000)
Profit & Loss A/c 10,00,000 Loan and advances 5,00,000
Secured Loan:
10% Debentures 25,00,000
Current Liabilities:
Sundry Creditors 15,00,000
Bills Payable 5,00,000
Total 95,00,000 Total 95,00,000

Keeping in view all the legal requirements ascertain:

(1) Maximum number of equity shares that Manish Ltd. Can buy back.
(2) The maximum price it can offer.
Assume that the buy back is carried out actually on the legally permissible terms,
Record the entries in the journal of Manish Ltd. And prepare its balance sheet
(Buy Back and Bonus)
Q.9 KG Limited (a non-listed company) furnishes the following summary
balance sheet as at 31-3-2018
Liabilities Amt. Assets Amt.
Equity Share Capital 1,200 Machinery 1,800
(fully paid up shares of Rs.10 Furniture 226
each) Investment 74
Securities premium A/c 175 Stock 600
General reserve A/c 265 Debtors 260
Capital redemption reserve 200 Cash at Bank 740
Profit and Loss A/c 170
12% Debentures 750
Sundry Creditors 745
Other Current Liabilities 195
Total 3,700 Total 3,700
On 1st April 2018, the company announced the buy back of 25% of its Equity Shares
@Rs.15 per share. For this purpose, it sold all of its investments for Rs.75 Lakhs.
On 5th April 2018, the company achieved the target of buy back. On 30th April 2018
The company issued one fully paid up Equity Share of Rs.10 by way of bonus for every
four equity shares held by the equity shareholders.
(1) Pass necessary journal entries for the above transactions.
(2) Prepare Balance Sheet of KG limited after bonus issue of the shares.
Q.10 Following is the Balance Sheet of M/s Satya Ltd. as on 31st March 2018

Liabilities Amt. Assets Amt.

Equity Share (Rs.10) 50,00,000 Fixed Assets 6,00,000
Securities premium A/c 5,00,000 Investments 50,00,000
General reserve A/c 20,00,000 Bank 30,00,000
Profit and Loss A/c 25,00,000 Other Current Assets 50,00,000
10% Debentures 40,00,000
Bank Loans 10,00,000
Sundry Creditors 40,00,000
Total 1,90,00,000 Total 1,90,00,000

The company decided to buy back its equity shares. For this purpose the
company took the following steps:
1. Issued 3,000, 8% preference shares of Rs.100 each at a premium of 5%
2. Issued 2,000, 10% Debentures of Rs.100 each at a premium of 10%
3. Sold 70% of Investments at a profit of 10%
Ascertain:
a. Maximum number of equity shares that can be bought back
b. Maximum price it can for buy back.
c. Pass journal entries in the books of the company