EXERCISE

ObjectveType:
State whether the following statements are 'True' or 'False':
1.
(0)
Ruyback of shares means purchase of own equity and preference shares by
acompany.
(0) Buy back of shares must be authorised by Articles of Association.
fi When the buy back of shares is less than 10p.c. of the total paid up capital, the
Board of Directors has the authority to buy back.
(v) Securities Premium AcCount cannot be used for buy back of shares.
(w tis mandatory to transfer an amount equal to the nominal value of shares
bought back to Capital Redemption Reserve Account irrespective of sources
of fund for buy back.
[Ans: (i) False; (i) True; (i) True; (iv)False,; (v) False.]
2. Fill in the blanks with appropriate wordwords.
The buy back of shares must not exceed percent of total paid up
capital and free reserves of the company.
The Provision for buy back is given in section of Companies Act, 2013.
(m) The Debt-Equity ratio after the buy back must be
(M) After the completion of buy back, shares so bought back must be
and

(M Buy back of shares must be completed within months from the date of
passing resolution for such buy back.
(m) Buy back of share means purchasing of equity shares of a company by the
itself.
:(0)25%; () 77A; (ii) 2:1: (iv)cancelled, destroyed: (v) 12. (vi) companyl
2.74 CORPORATE ACCOUNTING

Long Answer type:

suitable example.
1. Elaborate the meaning of buy back of shares with
2. Mention any four advantages of buy back of shares.
registered under the Companies Act 2013 purchase its own
3. Can a company support of your answer.
equity shares? Cite relevant provisions in a
after
conditions which are required to be fulfilled before and
4 State the shares?
company purchases its own equity
funds for buy back of shares?
5. What are the various sources of
6. What is Escrow Account?
briefly the Guidelines
SEBI regarding the opening of Escrow Account.
7. Mention
buy backof shares.
8 Explain the accounting treatment of expenses on
Practical Problems:
Equity shares of ? 10
1. ABC Ltd. has apart of its share capital in 70,000 shares at par
each, fully paid. The company purchased 3,000 of its equity
out of free reserves.
Pass necessary journal entries.
2. Baba Ltd. has 1,00,000 in equity shares of 10 each. It has ? 18,000
in General Reserve Account and 6,000 in Security Premium AccOunt.
The Company has passed necessary resolutions to buy back 2,000 equity
Debenture
shares at par. In order to carry out the resolution, ? 8,000, 10%
at 5% discount repayable after 5 years at par.
Give Journal entries relating to buy back of shares.
3. Share capital of Anupam Industries Ltd. consists of 50,000 in equity
shares of ? 10 each. It has ? 30,000 in general reserve, 7,000 in
securities premium account. The company resolved to buy back 1,000
eguityshares at par out of its free reserve. Total liabilities of the company
amounted to 80,000.
Pass necessary journal entries. Examine whether the legal conditions
have been complied with.
Bajaj Ltd. resolved to buy back 60,000 of its fuly paid equity shares of
10 each at ? 13per share. For this purpose, it issued 3,000 10% preference
shares of 100 each at par, payable in full along with applications. The
Company utlised 2,40,000 of its balance in Security Premium Account and
the remaining amount out of General Reserve account to futfil the legal
requirements regading buy-back.
Pass journal entries for all the transactions involving the buy-back.
 BUY BACK OF SHARES
2.75

5.
Caraswati Ltd. resolved to buy back 10,000 of its fuly paid equity shares
g40 each at R.15 per share. For this
purpose, it issued 500, 9%
Preference shares of 100 each at par, payable in full
The company utblised 40,000of its balance in Securitiesalong with applications.
Premium Account
and the remaining amount out of General Reserve to fulfil the
legal
onuirements regarding buy-back. Pass joumal entries for all the transactions
involving the buy-back.
6.
Thefollowing balances appeared in the books of AB Ltd as on 1st Aprit,
2019:
6,000 Equity shares of ? 100 each R 6,00,000
Securities Premium 90,000
Surplus ? 5,00,000
On the above date, the company decided to buy back 25% of its shares
at 90 per share. Pass necessary journal entries to give effect to the buy
back.

7. Following is the Balance Sheet of Satyam Ltd. as at 31st March, 2019.

Particulars Amount ()

: ASSETS:

(1) Non-current Assets

1,50,000
Property, Plant and Equipment
(2) Current Assets
50,000
(a) Inventories
(b) Financial Assets:
40,000
Cash and cash equivalents
2,40,000
Total Assets

:EQUITY AND LIABILITIES

EQUITY:
(a) Equity Share Capital : 80,000
paid up
8,000 Shares of 10each fully
(b) Other Equity : 40,000
General Reserve
 CORPORATE ACCOUNTING
2.76

LIABILITIES
Liablities :
(1) Non-current
(a) Financial Liabilities 76,000
Borrowings
(2) Curent Liabilities :
(a) Financial Liabilities
44,000
Trade Payables
2,40,000
TotalEquity and Llabilities

company passed a special resolution in the general meeting to buy

The The shares are bought
back the maximum number of shares permitted by law. shares the company
of
back at 10% premium. In order to facilitate the buy back
which is equal to the book
has disposed off its part of other assets at? 36,000
value. Expenses on buy back amount to 1,000.
Pass joumal entries and prepare the Balance Sheet after buy back.

8. The Balance Sheet of P BIndustries Ltd. is given below :

Particulars Amount ()
: ASSETS:

(1) Non-current Assets 3,75,000

(a) Property, Plant and Equipment
(b) Financial Assets
Investments 1,50,000
(2) Current Assets
(a) Inventories
3,00,000
(b) Financial Assets
(i) Trade receivables
1,00,000
(ii) Cash and cash equivalents 25,000
Total A6sets 9,50,000
 BUY BACK OF SHARES 2.77

I1: EQUITY AND LIABILITIES:

EQUITY:

(a) Equlty Share Capital :

50,000 Shares of 10 each fully paid up 5,00,000
(b) Other Equity :
Security Premium Reserve 25,000
General Reserve 2,50,000
LIABILITIES
(1) Non-current Liabilities :
Financial Liabilities

Borrowings 1,25,000
(2) Current Liabilities
Financial Liabilities
Trade Payables 50,000
Total Equity and Liabilities 9,50,000

The Company has passed a special resolution in the general meeting for
buy back of its shares to the extent of 12,500 shares at a premium of 10%. In
order to facilitate the buy back of shares the company has disposed off its
investment at book value. Expenses on buy back amounted to ? 2,000.
Give jourmal entries for the above transactions and prepare the Balance
Sheet after buy-back of shares.