LEMBAGA PIAWAIAN PERAKAUNAN MALAYSIA MALAYSIAN ACCOUNTING STANDARDS BOARD MASB TECHNICAL RELEASE 1 (revised) Share Buybacks - Accounting

and Disclosure
(Issued April 1999) The accounting principles, which have been set in bold type, should be read in the context of the Foreword to Financial Reporting Standards and Other Technical Pronouncements. Financial Reporting Standards and Other Technical Pronouncements are not intended to apply to immaterial items. The Malaysian Accounting Standards Board (herein called the Board) has approved the issuance of this revised Technical Release TR1. The Technical Release presents the Board's view on the appropriate accounting treatments and disclosures on share buybacks within the law and the principles established in generally accepted accounting standards. It also has due regard to international developments. Accordingly, the Board expects reporting public listed companies to comply with the requirements of this revised Technical Release.

Introduction 1. The original Technical Release TR1, Share Buybacks and Financial Assistance, was drafted based
on the original Section 67A of the Companies Act 1965. Section 67A was subsequently amended to permit shares repurchased to be held as treasury shares. However, the amendment removes the provisions relating to the giving of financial assistance. Additionally, the amendment allows for the use of the share premium account to provide for the consideration of shares repurchased. Accordingly, this revised TR1 is drafted to reflect the amendment to Section 67A of the Act. It supersedes the original Technical Release TR1, Share Buybacks and Financial Assistance, issued on 1 July 1998. This revised Technical Release sets out the accounting methods for share buybacks by public listed companies. It prescribes the use of either the treasury stock method, the share retirement method, or a combination of both methods. If a public listed company uses the treasury stock method, this revised Technical Release requires that treasury shares should be measured and carried at cost. This revised Technical Release also deals with the disclosures for share buybacks by public listed companies. In the circumstance when share buybacks change an investor's interests in a listed subsidiary company or a listed associated company, this revised Technical Release prescribes it as an acquisition of additional equity interest. In prescribing the accounting methods for share buybacks, this revised Technical Release considers the statutory provisions of Section 67A (as amended) of the Companies Act 1965, the Bursa Malaysia Berhad's revised Guidelines Governing Purchase of Own Shares by Listed Companies, and generally accepted accounting principles on equity instruments.

2.

3.

Scope 1. This revised Technical Release applies only to Malaysian public listed companies for the
purpose of share buybacks which are transacted in accordance with Section 67A (as amended) of the Companies Act 1965.

The Conceptual Issues 1. A conceptual recognition issue concerns whether shares repurchased by the issuing company can
be considered as an asset, such as an investment. In accounting literature, an asset is defined as "a resource controlled by an enterprise as a result of past transactions or events and from which

2.

future economic benefits are expected to flow to the enterprise". Shares repurchased do not satisfy the recognition criteria of an asset. Thus, when a company repurchases its own shares, the shares so repurchased are no longer outstanding (i.e., no longer in issue) insofar as the company is concerned. Accordingly, there should be a derecognition of the amount of the company's issued capital instrument. The accounting issue is not whether or not statutes require those shares to be cancelled, but is on how the repurchased shares should be eliminated or derecognised from shareholders' equity. Even if the law does not require those shares to be cancelled, the shares repurchased cannot be treated as an asset (for example, as an investment) because a company cannot possibly have a claim on itself or even own part of itself. The shares repurchased must either be retired, formally, by a cancellation, or if a country's laws permit, constructively, by a setoff against the equity of the company. Another conceptual recognition issue concerns whether share repurchases should be considered as income transactions or equity transactions. In accounting literature, income is defined as "an increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decreases of liabilities that result in increases in equity, other than those relating to contributions from equity participants". Similarly, expense is defined as "a decrease in economic benefits during the accounting period in the form of outflows or depletion of assets or incurrence of liabilities that result in decreases in equity, other than those relating to contributions to equity participants". Share repurchases, like share issues, are transactions between a company and its shareholders, and are therefore contributions to or from equity participants. Accordingly, such transactions are not income or expense in nature, but are equity transactions that should be dealt with directly in shareholders' equity. Thus, when shares are repurchased, any premium or discount arising on the repurchase should be shown as a movement in reserves, rather than recognised as an expense or income in the profit and loss account. Similarly, when repurchased shares are reissued subsequently, any difference between the resale price and the carrying amount of the repurchased shares should be shown as a movement in reserves, rather than recognised as a gain or loss on resale of repurchased shares.

Legal and Other Considerations

1. Section 67A (as amended) of the Companies Act 1965 allows a public company with a share
capital, if so authorised by its articles, to purchase its own shares. The Act further specifies the following pre-requisite conditions that must be met first: o the company is solvent at the date of the purchase and will not become insolvent by incurring the debts involved in the obligation to pay for the shares so purchased; o the purchase is made through the Stock Exchange on which the shares of the company are quoted and in accordance with the rules of the Stock Exchange; and o the purchase of shares is made in good faith and in the interests of the company. The amended subsection (3A) of section 67A allows a public listed company which has repurchased its own shares either: o to cancel the shares so purchased, o to retain the shares so purchased in treasury (referred to as "treasury shares" in the Act), or o to retain part of the shares so purchased as treasury shares and cancel the remainder. Subsection (3B) of section 67A provides that the directors of the company may: o distribute the treasury shares as dividends to shareholders in the form of share dividends (commonly known as bonus shares); or o resell the treasury shares on the market of the stock exchange on which the shares are quoted, in accordance with the relevant rules of the stock exchange.

2.

3.

4. However, subsection (3C) of section 67A states that while the shares are held as treasury shares,
the rights attached to them as to voting, dividends and participation in other distribution and otherwise are suspended and the treasury shares shall not be taken into account in calculating the number or percentage of shares or of a class of shares in the company for any purposes. In effect, this is a constructive retirement which, from the accounting view point, requires that the repurchased shares should neither be treated as an asset (such as an investment) nor be considered as outstanding shares in issue, but must be offset against equity on presentation in the balance sheet. Subsection (3D) of section 67A requires that where the treasury shares are distributed as share dividends, the costs of the original purchase shall be applied in the reduction of either the share premium account or the funds otherwise available for distribution as dividends (i.e. distributable reserves) or both. Subsection (3E) of section 67A requires that where the directors resolve to cancel the shares repurchased, or cancel any treasury shares, the issued share capital of the company shall be diminished by the shares so cancelled and the amount by which the company's issued capital is diminished shall be transferred to the capital redemption reserve. The original subsection (3) of section 67A has been substituted by a revised subsection (3) which effectively permits a company to apply its share premium account to provide the consideration for the purchase of its own shares. However, the original provision relating to the giving of financial assistance to any person for the purpose of purchasing its shares has been removed. In other words, a public listed company is not permit to give financial assistance to any person for the purpose of share repurchases [see subsections (1) and (2) of section 67A of the Act respectively]. The Bursa Malaysia Berhad's (Bursa Malaysia) revised Guidelines Governing Purchase of Own Shares by Listed Companies require that a listed company's purchases of its own shares must be made wholly out of retained profits and/or the share premium account [Rule 2(1)]. Bursa Malaysia has made it clear that there are no restrictions on the types of funds which can be utilised so long as the buybacks are backed by an equivalent amount of retained profits and/or share premium. The use of borrowings as a funding source is entirely within the ambit envisaged by Bursa Malaysia's Guidelines. However, the listed company is not permitted to use the amount of retained profits and share premium available on a group basis as a basis of computing the total amount of retained profits and/or share premium available for effecting a buyback.

5.

6.

7.

8.

Commentary 1. With the amendment to Section 67A of the Act, two alternative methods of accounting for share
buybacks are permissible and they are as follows: (a) the treasury stock method; and (b) the share retirement method.

1. The appropriateness of each method depends on the intention of the company which repurchases
its own shares. The treasury stock method is said to be more appropriate when a company which repurchases its own shares intends to reissue the repurchased shares subsequently. This method is based on the notion of a two-phase transaction; the first being the repurchase of shares, and the second being the reissue of shares. Any share repurchase is thus viewed as a temporary phenomenon. Under the treasury stock method, the shares repurchased are not cancelled but are held as treasury stock, which may be viewed as an equivalent of unissued share capital. The treasury stock is usually carried at cost (known as the cost method) by debiting the treasury stock account and crediting the cash account. The treasury stock may also be carried at the nominal value (known as the nominal value method) of the repurchased shares, and under this carrying basis, any premium paid would be setoff against reserves.

2.

3. As treasury shares are not an asset of the company, their carrying amount, whether at cost or at
nominal value, must be setoff against equity on presentation in the balance sheet and considered as an equivalent of unissued shares. Subsequently, when the treasury shares are reissued by re-sale in the open market, any difference between the sales proceeds and the carrying amount of the treasury shares is adjusted to or against equity. The share retirement method is said to be more appropriate when the company intends to cancel the shares repurchased. For example, when a company has surplus funds which it intends to return to its shareholders, the shares repurchased should be retired immediately. Thus, when shares repurchased are to be retired immediately, the shares should be cancelled by a debit to the share capital account for the nominal value of the shares diminished. In such cases, the shares so diminished cannot possibly be reissued (although there is generally no prohibition for the company to issue new shares subsequently, unless restricted by laws or similar regulations). The complexities of the share retirement method stem largely on the types of reserves which can be utilised to setoff any premium paid on the shares repurchased. In many jurisdictions, the use of any reserve may be prescribed in company laws or other regulations. For example, in Malaysia, the amendment to section 67A now permits the use of the share premium account to provide for the consideration of shares repurchased. Many jurisdictions (including Malaysia) further require a capital conservation adjustment to the capital redemption reserve account from available reserves. It is noted in the accounting literature that share buybacks may be used as a substitute for cash dividends although empirical studies on this subject have not been able to conclusively support this motive for share buybacks. Thus, the issue of whether share buybacks constitute a return of capital, a distribution of profits, or a combination of both, has not been resolved to date even in the more developed economies. In some overseas jurisdictions, only the excess of the repurchased price over the originally issued price is considered a distribution of profits. The Board deliberated on the relevance of this issue to the share buybacks provision of the Companies Act 1965 and concluded that it is neither appropriate nor practicable to allocate prices of repurchased shares into their respective capital and dividend portions. Accordingly, the scope of this revised Technical Release is restricted to share buybacks by public listed companies within the provisions of section 67A of the Companies Act 1965.

4.

5.

Accounting Treatment 1. When a public listed company repurchases its own shares, the shares repurchased should be 2.
accounted for either under the treasury stock method, the share retirement method, or a combination of both methods. The amendment to section 67A of the Companies Act 1965 allows a public listed company which has repurchased its shares to either cancel the shares so purchased, to retain the shares as treasury shares, or to retain part of the shares so purchased as treasury shares and cancel the remainder. This revised TR does not prescribed a standard or preferred method because the free choice is provided for in the Companies Act, and the fact that the appropriateness of each method depends largely on the intention of the repurchasing company with regards to its share buybacks.

Shares Repurchased Cancelled 1. Where the share retirement method is applied, the nominal value of the shares repurchased
should be cancelled by a debit to the share capital account. An amount equivalent to the nominal value of the shares repurchased should be transferred to a capital redemption reserve. The consideration, including any acquisition cost and premium or discount arising from the shares repurchased, should be adjusted directly to the share premium account or any other suitable reserve.

2.

In the circumstance where there is no or insufficient share premium, the consideration, or its balance thereof, should be adjusted to any other suitable reserve.

1. The shares cancelled and the adjustments made to share premium or reserves should be 2.
shown as a movement in the share capital account and the share premium or reserve account respectively. Under section 67A (as amended) of the Act, shares repurchased, including those held as treasury shares, may be cancelled or diminished. Thus, where the share retirement method is used to account for share buybacks the issued share capital of the company will be reduced after the repurchase. The Act further requires that when the shares are cancelled, an equivalent amount must be transferred to the capital redemption reserve. Also, the cancellation of shares shall not be deemed as a reduction of capital. The amendment to section 67A of the Act allows for the use of the share premium account to provide for the consideration of the shares repurchased. There is no specific requirement that the use of the share premium account should be applied ratably between the repurchased shares and the remaining shares in issue. Accordingly, the entire consideration of the shares repurchased, including any acquisition cost, premium or discount, may be provided out of the share premium account. In the circumstance where there is no or insufficient share premium, any other suitable reserve, to the extent that it is not prohibited by any law or regulation, may be utilised to provide for the consideration of the shares repurchased. To the extent that retained profits are utilised to provide for the consideration of the shares repurchased, it represents a reduction in the amount of profits otherwise available for distribution as dividends. [Examples 1 and 2 of the Appendix illustrate the application of these principles and their related disclosures in the financial statements.]

3.

Shares Repurchased Held as Treasury Shares 1. Where the treasury stock method is applied, the shares repurchased and held as treasury
shares should be measured and carried at the cost of repurchase on initial recognition and subsequently. It should not be re-valued for subsequent changes in the fair value or market price of the shares.

1. On presentation in the balance sheet, the carrying amount of the treasury shares should be
setoff against equity. The amount of outstanding shares in issue after the setoff should be disclosed. To the extent that the carrying amount of the treasury shares exceeds the share premium account, it should be considered as a reduction of any other reserves as may be permitted by Bursa Malaysia's Guidelines and that fact should be disclosed. In principle, treasury shares may be measured and carried at cost or at nominal value. However, this revised TR prescribes the use of the cost method only as the Board believes that a free choice of accounting methods in this regard may impair on the comparability objective of financial statements. The cost method is argued to be more transparent in relation to the disclosure of the price paid for the shares repurchased. Additionally, when the treasury shares are distributed as share dividends, the Act requires that the costs of the share repurchased should be applied against the share premium and/or any other reserves as may be permitted by Bursa Malaysia's Guidelines. Treasury shares should be setoff against equity on presentation in the balance sheet. These shares should not be recognised as an asset, but should be viewed as having been constructively retired for the purpose of calculating the number or percentage of outstanding shares in issue. Furthermore, subsection (3C) of section 67A of the Act specifically requires that the rights attaching to treasury shares as to voting, dividends and participation in other distribution and otherwise should be suspended. As treasury shares are viewed as the equivalent of unissued shares, their carrying amount should not be adjusted for subsequent changes in the fair value or market price of the shares.

2.

3.

4. Subsection (3) of section 67A of the Act permits a company to apply its share premium account to
provide for the consideration for the purchase of its own shares. The Bursa Malaysia's revised Guidelines Governing Purchase of Own Shares by Listed Companies require that the funding for the purchase of own shares must be made wholly out of retained profits and/or the share premium account of the listed company. When shares repurchased are held as treasury shares and carried at cost, there is an implied reduction in equity of the company, which would be the equivalent reduction if the treasury shares were cancelled. Therefore, when the carrying amount of the treasury shares exceeds the share premium account, the excess is considered as an implied reduction of the retained profits of the company, which should be disclosed because the implied reduction affects the amount of profits otherwise available for distribution as dividends. [ Examples 1 and 2 of the Appendix illustrate the application of these principles and their related disclosures in the financial statements ]

Subsequent Sale or Distribution of Treasury Shares 1. Where treasury shares are distributed as share dividends, the cost of the treasury shares 2. 3.
should be applied in the reduction of the share premium account or the distributable reserves, or both. Where treasury shares are reissued by re-sale in the open market, the difference between the sales consideration and the carrying amount of the treasury shares should be shown as a movement in equity. Treasury shares held and subsequently distributed to shareholders or re-sold in the open market are equity transactions between the company and its shareholders. Their distribution or re-sale are equivalent to re-issue of equity shares. Where treasury shares are distributed as share dividends, the costs of the treasury shares should be applied in the reduction of the share premium account and/or distributable reserves in accordance with subsection (3D) of section 67A of the Act. Similarly, where treasury shares are re-sold in the open market, no gain or loss should be recognised in such re-sale transactions. Instead the difference between the sales consideration and the carrying amount of the treasury shares should be shown as a movement in equity. In the circumstance where the consideration received is more than the carrying amount, the credit difference arising should be taken to the share premium account. Conversely, where the consideration is less than the carrying amount, the debit difference should be setoff against the share premium account or any other suitable reserves. [ Examples 3 and 4 of the Appendix illustrate the application of the above principles and their related disclosures in the financial statements.]

Disclosure Requirements
36. In addition to the presentation requirements in paragraphs 25 and 29, a public listed company should: (a) disclose the purpose or reason, nature and terms of the share repurchase transactions undertaken in the reporting period; (b) the funding of the shares repurchased, whether by internally generated funds, by borrowings or by other financial arrangements; (c) the method used to account for shares repurchased; (d) the amount of treasury shares distributed as share dividends during the reporting period; and (e) the reason, terms and amount of treasury shares re-issued during the reporting period.

Changes in Group Structures 1. When a public listed associated or subsidiary company buys back its own shares in the open
market, the accretion of an investor's per cent equity interest in the company should be treated as an acquisition of additional equity interest for which the goodwill or negative goodwill should be determined separately. The investor should treat any capitalisation of retained profits by the public listed company to be deemed out of pre-acquisition profits first and any balance out of post-acquisition profits. Changes in an investor's corporate group structure arise when subsidiary companies and/or associated companies change their issued share capital accounts, such as special issues or rights issues of shares. In such cases, the investor's share of the net assets and the corresponding minorities' share of the net assets of the subsidiary companies and/or associated companies would also change depending upon the extent of dilution or accretion of equity interests and the relationship of the issue price and the net asset value per share. When a listed subsidiary company or a listed associated company buys back its own shares, the investor's per cent equity interest in the subsidiary company or associated company would increase. The conventional practice of treating a change in a corporate group structure is to adjust the accretion or dilution in the shares of net assets as an adjustment in group's reserves. This treatment of adjusting the change directly in reserves is supported on the grounds that a change in group structure is essentially part and parcel of an internal group arrangement or reorganisation and that the transaction is under the control of the investor and may not be at arm's length. Accordingly, any change in share of net assets in the subsidiary or associate should not be viewed as an independent or realised transaction but should be adjusted against group reserves. However, in the case of share buybacks by a subsidiary company or an associated company, it is unlikely that this conventional treatment will appropriately reflect the increase in the investor's percent equity interest in the subsidiary company or associated company. Accordingly, the increase in the investor's interest should be recognised as a deemed purchase of additional interest in the subsidiary company or associated company, for which any goodwill or negative goodwill should be determined separately. This deemed purchase treatment is considered more appropriate because the substance of the increase is similar to any increase in stake if the investor were to buy the shares of the subsidiary directly from minority shareholders. In other words, from the viewpoint of the group as a single economic entity, it does not matter whether the purchase of shares from minority interest is made by the parent, the subsidiary itself or another subsidiary of the group; acquisition accounting applies in any such purchase of shares from minorities. Furthermore, the price paid for the shares repurchased would be at arm's length market price since the repurchase must be through the open market. Thus, arbitrariness in the setting of prices, which may be evident in the case of internal group reorganisations, is not an issue in the case of share buybacks by a listed subsidiary or listed associated company. The proposed FRS 1272004: Consolidated Financial Statements and Investments in Subsidiaries requires that when the change in a group's stake is evidenced by a cash transaction and the price has been established at fair value, any increase in stake should be accounted for as an acquisition. This revised Technical Release takes the view that in a share buyback from the open market, the conditions for this accounting treatment are satisfied.

2. 3.

4.

5.

6.

Effective Date 1. The accounting treatments and disclosures required by this revised Technical Release should
be adopted in financial statements relating to accounting periods commencing on or after 1 January 1999. However, earlier adoption of this revised Technical Release is encouraged.

Appendix 1
The appendix is illustrative only and does not form part of the principles. The purpose of the appendix is to illustrate the application of the principles to assist in clarifying their meaning.

Example 1
The share capital of ABC Bhd consists of 50,000,000 ordinary shares of RM1 each. On 31 December 20-01, ABC Bhd purchased 5,000,000 of its equity shares from the open market at a price of RM3.00 each. Brokerage fees and commissions totaled RM150,000. The share premium account and retained profits of ABC Bhd on this date were RM10,000,000 and RM20,000,000 respectively. If ABC Bhd adopts the share retirement method, the journal entries to record the repurchase and to retire the shares so purchased would be as follows: Dr Share capital account Dr Share premium Dr Retained profits Cr Cash account RM5,000,000 RM10,000,000* RM5,150,000 RM15,150,000

Cr Capital redemption reserves RM5,000,000 - to record and cancel the shares repurchased, and to effect transfer to capital redemption reserves. Note*: This entry assumes that the company has availed subsection (3) of section 67A of the Companies Act 1965 to firstly make use of the share premium account to provide for the consideration of the shares repurchased, and the balance from retained profits. Alternatively, the company may also make use of the retained profits first or a ratable combination of share premium and retained profits to provide for the consideration of the shares repurchased. The shares repurchased should be disclosed as follows:

ABC Bhd Shareholders' Funds For the year ended 31 December 20-01 RM 000 Share capital: Issued and fully paid ordinary shares of RM1 each Balance at 1 January 20-01 - 50,000,000 shares Shares cancelled on repurchased - 5,000,000 shares Balance at 31 December 20-01 Capital redemption reserve Share premium account: Balance at 1 January 20-01 Consideration paid for shares repurchased Balance at 31 December 20-01 10,000 (10,000)

50,000 (5,000) 45,000 5,000

Retained profits Total shareholders' funds

14,850 64,850 ======

The shareholders of the company, by a special resolution passed in a general meeting held on 31 October 20-01, approved the company's plan to repurchase its own shares. The directors of the company are committed to enhancing the value of the company to its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders. During the year, the company repurchased 5,000,000 of its issued share capital from the open market. The average price paid for the shares repurchased was RM3.00 per share. The repurchase transactions were financed by internally generated funds. The shares repurchased were cancelled and an amount equivalent to their nominal value was transferred to the capital redemption reserve in accordance with the requirement of Section 67A of the Companies Act 1965. The transfer to capital redemption reserve and the premium paid on the shares repurchased were made out of the share premium and retained profits.

If ABC Bhd adopts the treasury stock method, the journal entry to record the shares repurchased would be as follows: Dr Treasury shares, at cost RM15,150,000 Cr Cash account - to record shares repurchased and held in treasury

RM15,150,000

The shares repurchased and held as treasury shares should be disclosed as follows:

ABC Bhd Shareholders' Funds As at 31 December 20-01 RM 000 Share capital of RM1 each Share premium account Retained profits Less: 5,000,000 treasury shares, at cost 50,000 10,000 20,000

(15,150) 64,850 ====== The shareholders of the Company, by a special resolution passed in a general meeting held on 31 October 20-01, approved the Company's plan to repurchase its own shares. The Directors of the company are committed to enhancing the value of the Company to its shareholders and believe that the repurchase plan can be applied in the best interests of the Company and its shareholders.

During the year, the Company repurchased 5,000,000 of its issued shares capital from the open market. The average price paid for the shares repurchased was RM3.00 per share. The repurchase transactions were financed by internally generated funds. The shares repurchased are being held as treasury shares in accordance with the requirement of Section 67A of the Companies Act 1965.

Note on Share Capital Issued and fully paid ordinary shares of RM1 each

RM 000 50,000 ======

Of the total 50,000,000 issued and fully paid ordinary shares, 5,000,000 are held as treasury shares by the Company. As at 31 December 20-01, the number of outstanding shares in issue and fully paid is 45,000,000 ordinary shares of RM1 each.

Note on Retained Profits Of the RM20,000,000 retained profits at year end, RM5,150,000 is utilised for the purchase of the treasury shares and is considered as non-distributable.

Example 2

Assume that ABC Bhd had repurchased its 5,000,000 shares at below par value for a consideration of RM3,500,000 (inclusive of brokerage fees and commission). Under the share retirement method, the journal entry to record the repurchase and to retire the shares so purchased would be: Dr Share capital account RM5,000,000

Dr Share premium account RM3,500,000 Cr Cash account RM3,500,000 Cr Capital redemption reserves RM5,000,000 - to record and cancel the share repurchased, and to effect transfer to capital redemption reserves The movements in the shareholders' funds should be disclosed as follows:

ABC Bhd

Statement of Retained profits For the year ended 31 December 20-01 RM 000 Share capital: Issued and fully paid ordinary shares of RM1 each Balance at 1 January 20-01 Shares cancelled on repurchased - 5,000,000 shares Balance at 31 December 20-01 Capital redemption reserve Share premium account: Balance at 1 January 20-01 Consideration paid for shares repurchased Balance at 31 December 20-01 Retained profits Total shareholders' funds 10,000 (3,500) 6,500 20,000 76,500 =====

50,000 (5,000) 45,000 5,000

Under the treasury stock method, the journal entry to record the share repurchased would be as follows: Dr Treasury shares, at cost RM3,500,000 RM3,500,000

Cr Cash account - to record shares repurchased and held in treasury

The shares repurchased and held as treasury shares would be presented as follows:

ABC Bhd Shareholders' Funds As at 31 December 20-01 RM 000 Share capital of RM1 each Share premium Retained profits Less: 5,000,000 treasury shares, at cost Shareholders' funds 50,000 10,000 20,000 (3,500) 76,500 =====

Example 3
If ABC Bhd, in Example 1, had used the treasury stock method and had subsequently distributed the treasury shares as share dividends, the journal entry to record the distribution would be as follows:

Dr Share premium account Dr Retained profits

RM10,000,000 RM5,150,000

Cr Treasury shares, at cost RM15,150,000 - to record distribution of treasury shares as share dividends The movements in the share premium account and retained profits, and the disclosure of the distribution of share dividends would be as follows: Share premium account: RM 000 Balance at the beginning of the year Distribution of treasury shares as share dividends Balance at the end of the year Retained profits: RM 000 Retained profits available for appropriation Distribution of treasury shares as share dividends Balance at the end of the year 20,000 (5,150) 14,850 ====== 10,000 (10,000) ======

During the year, the Company distributed 5,000,0000 treasury shares as share dividends to its shareholders in a ratable ratio of one for every nine shares. The cost of the original repurchase had been applied against the share premium account and retained profits in accordance with section 67A of the Companies Act 1965. With this distribution, the number of outstanding issued and fully paid ordinary shares is restored to 50,000,0000 ordinary shares of RM1 each.

Example 4
1. If ABC Bhd, in Example 1, had instead re-sold the 5,000,000 shares in the open market for RM4.00 per share, the journal entry to record the re-sale of treasury shares would be as follows: RM20,000,000 RM4,850,000 RM15,150,000

Dr Cash account Cr Share premium account

Cr Treasury shares, at cost - to record re-sale of treasury shares

The disclosure for the re-issue of treasury shares would be as follows:

During the year, the Company re-issued 5,000,000 treasury shares by re-sale in the open market. The average re-sale price of the treasury shares was

RM4.00 per share. The proceeds from the re-sale will be utilised for capital expansion purposes.

1.

If the treasury shares were instead sold for RM2.00 per share, the journal entry to record the resale would be:

Dr Cash account Dr Share premium account

RM10,000,000 RM5,150,000

Cr Treasury shares, at cost RM15,150,000 - to record re-sale of treasury shares The disclosure for the re-issue of treasury shares would be as follows:

During the year, the company re-issued 5,000,000 treasury shares by re-sale in the open market. The average re-sale price of the treasury shares was RM2.00 per share. The proceeds from the re-sale will be utilised to retire a term loan which is due for repayment in the following financial year.