A reporting entity may decide, or be required by state law, to retire the common shares it acquires. When shares are retired, the number of issued and outstanding shares decreases; retired shares are equivalent to authorized, unissued shares.
To retire shares, a reporting entity should debit the common stock account for an amount equal to the number of shares being retired multiplied by the par or stated value. ASC 505-30-30-8 provides guidance on how to account for the amount paid to repurchase the shares in excess of the par or stated value. Figure FG 9-5 summarizes the methods described in ASC 505-30-30-8.
Figure FG 9-5
Methods of accounting for a repurchase price paid in excess of par or stated value
Retained earnings
Record the excess entirely in retained earnings
Retained earnings / additional paid-in capital
Allocate the excess between retained earnings and additional paid-in capital; the balance recorded in APIC is limited as discussed below
We also believe that the excess can be recorded entirely in additional paid-in capital (although the balance recorded to APIC is limited as discussed below). This method is not explicitly mentioned in ASC 505-30-30-8; however, it was contained in the guidance in ARB 43, and we believe it may still be applied.
If a reporting entity chooses to record an amount to additional paid-in capital, it should be limited as discussed in ASC 505-30-30-8.

Excerpt from ASC 505-30-30-8

If a portion of the excess is allocated to additional paid-in capital, it shall be limited to the sum of both of the following:

  1. All additional paid-in capital arising from previous retirements and net gains on sales of treasury stock of the same issue
  2. The pro rata portion of additional paid-in capital, voluntary transfers of retained earnings, capitalization of stock dividends, and so forth, on the same issue. For this purpose, any remaining additional paid-in capital applicable to issues fully retired (formal or constructive) is deemed to be applicable pro rata to shares of common stock.

A reporting entity should elect one method and follow it consistently. The method elected should be disclosed in the reporting entity’s financial statements if considered to be a significant accounting policy.
If a reporting entity repurchases shares for retirement at a price less than the par or stated value, the difference between the par or stated value and the cost of the treasury stock should be credited to additional paid-in capital as discussed in ASC 505-30-30-9.
When a reporting entity retires shares, it should consider consulting legal counsel to make sure that its accounting entries and financial statements conform to applicable state laws, including whether the share retirement results in a reduction of the number of authorized shares.
Expand Expand

Welcome to Viewpoint, the new platform that replaces Inform. Once you have viewed this piece of content, to ensure you can access the content most relevant to you, please confirm your territory.

signin option menu option suggested option contentmouse option displaycontent option contentpage option relatedlink option prevandafter option trending option searchicon option search option feedback option end slide