Page 89 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Accounting for Companies-I

Notes The Company generally resorts to it for the following reasons:
1. to enhance the true or intrinsic value of its shares.
2. to return surplus cash to its shareholders.
3. to achieve desired capital structure.

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Caution The buy-back of the shares or other specified securities, if listed on a stock exchange,
shall be carried out in accordance with the Regulations framed by the SEBI.
However, in the case of securities of unlisted companies, the buy-back shall be done as per the
guidelines framed by the Central Government.

Securities include:
1. shares, scrips, stocks, bonds, debentures, debentures stock or other marketable hybrid
securities of a like nature in or of any incorporated company or other body corporate;

2. derivative;
3. units or any other instruments issued by any collective investment scheme to the investors
in such schemes;

4. Government securities;
5. Such other instruments as may be declared by the Central Government to be securities:
(not so far) and

6. Rights or interest in such securities.
“Hybrid means any security which has the character of more than one type of securities,
including their derivatives”.

4.2 Funds for Financing Buy Back

A Company may buy back its own shares by utilising the money only out of the following
heads:
1. Free reserves;
2. The proceeds of any issue of shares or specified securities other than proceeds of an earlier
issue of the same kind of shares or same kind of specified securities which are proposed to
be bought back;

3. Cash reserves of the Company. However, the money borrowed from Banks/Financial
Institutions can not be utilised for the same.

Notes Free reserves mean those reserves which as per the latest audited Balance Sheet are
free for distribution of dividend and shall include the amount to the credit of securities
premium account and balance kept in the Profit and Loss Account. The share application
amount and revaluation reserve will not form part of free reserve.

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