Page 102 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 4: Buy Back of Securities by Private Limited and Unlisted Public Limited Companies

Notes
Situation I Situation II Situation III
Shares outstanding test (WN # 1) 7.5 7.5 7.5
Resources test (WN # 2) 6 6 6
Debt Equity ratio test (WN # 3) 10.67 4
Maximum number of shares for 6 4

buy back - LEAST of the above
Situation I Situation II
Particulars
Debit Credit Debit Credit
Shares bought back A/c Dr. 180 120 120
To Bank A/c 180
[Being purchase of shares from
public]
Share capital A/c Dr. 60 40
Dr.
Securities premium A/c 100 80
Dr.
General reserve A/c (balancing 20
figure) 180

To Shares bought back A/c 120

[Being cancellation of shares bought
on buy back]
General Reserves A/c To Capital
Redemption Reserve A/c
[Being transfer of reserves to capital
redemption reserve to the extent
capital is redeemed]

Notes Under situation III, the company does not qualify the debt equity ratio test. Therefore
the company cannot perform the buy back of shares (Under section 77A of the Companies
Act, 1956)
Working Notes:
WN # 1: Shares outstanding test

Particulars Amount
No. of shares outstanding 30 crores
25% of shares outstanding 7.5 crores

WN # 2: Resources test
Particulars ( in Crores) Amount
Paid up capital 300
Free reserves 420
Shareholders fund (a + b) 720
25% of shareholders fund 180
Buyback price per share 30
Number of shares that can be bought back 6 Crore

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