2.

5 Treasury Shares “People don’t know how much you know, until they know how much you care.”-John Maxwell
“I choose to be friendly, courteous, and respectful to all.”

Treasury share is a corporation’s own capital stock that (1) has been fully paid for by shareholders,
(2) has been legally issued, (3) is reacquired by the corporation, and (4) is being held by the
corporation for future reissuance.

Treasury stock is not an asset because the corporation may not own shares of itself; instead, it is
reported as a deduction from the total shareholders’ equity.

Purposes of Treasury shares

A. To reissue the shares to officers or employees
B. To increase trading thereby enhancing market value
C. To have additional shares available for use in acquisitions of other companies
D. To reduce the number of shares outstanding and thereby increase earnings per
share
E. To rid the company of disgruntled investors, perhaps to avoid a takeover
“Let your word be your bond.”
2.5.1 Methods of Recording Treasury Shares “I choose to fulfill my promises.”

The method that is generally accepted for recording transactions of the treasury shares is the cost
method, where the treasury share is recorded in a special equity account until the shares are
reissued or retired, and
A. Recorded by debiting a treasury share account for the total amount paid to repurchase
the shares.

To illustrate, assume GMA Corp. has 100,000 shares of 5 par value ordinary shares
outstanding (all issued at par value) and it decides to acquire 4,000 shares of its stock
at P 8 per share, the entry is:
Treasury shares 32,000
Cash 32,000
To record purchase of 4,000 shares of treasury stock at 8 per
share.

B. If treasury share is reissued at a higher price, paid-in capital from treasury share is
credited for the excess.

Assume that 1,000 shares of treasury stock of GMA Corp., previously acquired at 8 per
share, are sold at 10 per share on July 1. The entry is:
Cash 10,000
Treasury shares 8,000
Share Premium-Treasury 2,000
To record sale of P1,000 shares of treasury stock above cost.

C. If treasury share is reissued at a lower price, paid-in capital from treasury share and/or
retained earnings is debited for the difference.

Assume instead that Mead, Inc. sells an additional 800 shares of treasury stock on
October 1 at P 7 per share, the entry is:
Cash 5,600
Share Premium-Treasury 800
Treasury Shares 6,400
To record sale of P1,000 shares of treasury stock above cost.

1
 Note:
Kindly check out your study planner. To indicate that you have finished grasping the key points at
this part of the module, tick on the checklist for Treasury Shares. This is a form of self -assessment
so you can personally monitor your learning progress. 

Self-Check
GABON Corp. has the following capital account balances:
Contributed Capital:
Share Capital
Ordinary Share, authorized to issue
1,000 shares, par value, P100 issued 900 shares P90,000
Share Premium 10,000
Accumulated Profits (Losses) 50,000
On September 1, GABON Corp. acquired its own shares of 200 at P105. Journalize this
transaction.
Refer to the Answer Key.

ANSWERS KEY

GABON, INC.

A. The journal entry to record the acquisition is:

Treasury Share P21,000
Cash P21,000
To record acquisition of 200 shares of Treasury Share at P105.

The treasury shares were acquired above par value. While the par value is P100, the
acquisition cost is P105. The cost of the Treasury Shares therefore, is P21,000 (200 shares
at P105). Had the treasury shares been acquired at P95, below its par value, the cost could
have been P19,000.

B. An entry is then prepared to appropriate a portion of the Accumulated Profits and

Losses for the acquisition of the treasury shares is presented below:
Accumulated Profits (Losses) P21,000
Accumulated Profits (Losses)-
Appropriated for Treasury Shares P21,000
To record appropriation of Accumulated Profits (Losses) for
acquisition for treasury shares.