Treasury stock is created when a reporting entity reacquires its own common stock.

5.9.1 Balance sheet presentation

As discussed in ASC 505-30, Treasury Stock, a reporting entity that repurchases its shares may account for the shares as treasury stock or retire them. If the treasury stock is not retired upon its reacquisition, the reporting entity may present it on the balance sheet as a reduction from common stock, additional paid-in capital (APIC), or retained earnings. If a reporting entity retires the share, it should follow the guidance in ASC 505-30-30-7 to ASC 505-30-30-10, which govern the retirement of treasury stock, including the accounting for the amount paid to repurchase the shares in excess of the par or stated value. See FG 9.4 for information on the accounting for share retirement.

5.9.2 Disclosure

Reporting entities with treasury stock should disclose its terms, similar to the disclosures for common stock. Reporting entities should consider disclosing the following:
  • Basis at which it is carried
  • Number of shares
  • Commitments to repurchase capital stock
  • Restrictions imposed by state law
  • Reasons for acquisition
Shares may be repurchased at a price that is significantly in excess of the current market price. As indicated in ASC 505-30-50-3, when this occurs there is a presumption that the repurchase price includes amounts attributable to items other than the shares. As a result, a reporting entity may be required to allocate amounts of the repurchase price to other elements of the transaction as required by ASC 505-30-30-2. There is significant judgment involved in allocating amounts between treasury shares and other items. Disclosure is required in the footnotes of the allocation of the amounts paid and the accounting treatment for these amounts in accordance with ASC 505-30-50-4.
See FG 9.3 for accounting considerations related to treasury stock.

5.9.3 Parent's presentation of a subsidiary investment in a parent

A consolidated subsidiary may hold an investment in its parent company's common stock. In consolidation, the presentation guidance in ASC 810-10-45-5 requires that such shares not be treated as outstanding shares. Rather, such shares would be eliminated and reflected as treasury shares in the consolidated financial statements. The treatment of intercompany dividend payments in consolidation would eliminate dividend income at the subsidiary against dividends paid by the parent.
If a noncontrolling interest is present at the subsidiary that owns an interest in the parent, a question arises regarding how the parent should allocate income or loss to the noncontrolling interest. The answer will depend on how the subsidiary accounts for the investment in the parent, as detailed in FSP 5.9.4. If the subsidiary accounts for its parent's shares as investment, the noncontrolling interest holder will reflect its proportionate share of the subsidiary-owned parent shares' dividend income (if any). If the subsidiary accounts for its investment as contra-equity, no additional income or loss attribution to the noncontrolling interest would be required.
The attribution of income or loss to the noncontrolling interest should also consider the accounting for equity investments as required by ASC 321-10-35-1, which requires all equity investments to be measured at fair value with changes in fair value recognized in net income. However, companies may choose to reflect equity investments with no readily determinable fair value at cost minus impairment, plus or minus changes in value resulting from observable price changes. If the subsidiary accounts for its ownership of parent shares as an investment, the income or loss attribution to the noncontrolling interest holder would include its proportionate interest in any measurement changes associated with the subsidiary's parent's shares.

5.9.4 Subsidiary's presentation of an investment in its parent

A subsidiary may hold an investment in its parent company's common stock. The manner in which the subsidiary presents its investment in the parent company's common stock in the standalone subsidiary financial statements will depend on whether the parent company is deemed to have substance.
If the parent company's only significant asset is its investment in the subsidiary, then the parent company would not be considered substantive and the subsidiary would present its investment in its parent as a reduction of the subsidiary's stockholders' equity balance. This substance-based presentation approach treats the subsidiary's investment in the parent company as treasury stock. If the parent's only asset is the investment in the subsidiary, there is no distinction between the subsidiary directly acquiring its own shares or indirectly acquiring shares through the acquisition of an interest in its parent. When a subsidiary's investment in the stock of its parent is classified as a reduction to stockholders' equity, any dividends received from the parent should be recorded as a capital contribution.
If the parent company has other significant assets in addition to its investment in its subsidiary, the subsidiary may account for its interest in the parent as either an investment or as contra equity, similar to treasury stock. See LI 2 for information on the accounting for equity investments and FG 9 for information on the accounting for treasury stock. The subsidiary should also disclose the nature of the related party transaction.
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