1. Chapter 15 Appendix 15A Chapter 15 Appendix 15A Par Value and Treasury Shares Prepared by: Dragan Stojanovic, CA Rotman School of Management, University of Toronto

2. 2 Par Value Shares No new share issues may have a par value attached to them (per CBCA) –Par value has no link to the share market value Allowed under certain provincial business corporations acts Common in the U.S. Accounting issues are only for par value shares currently issued and outstanding

3. 3 Par Value Shares Issuing par value shares requires following equity accounts –Preferred or Common Shares Credited with the par value amount of shares issued –Contributed Surplus Difference between the par value of the shares issued and the value of asset received

4. 4 Par Value Shares Given: 100 shares – par value $5.00, issued for $1,100 cash Par value of issued shares: 100 shares x $5.00= $ 500 Value of asset received 1,100 Contributed Surplus $ 600

5. 5 Par Value Shares Journal Entry to Par Value Share Issue: Cash 1,100 Common Shares500 Contributed Surplus 600

6. 6 Treasury Shares Repurchased shares that are not cancelled Not permitted under CBCA, but permitted in U.S. and some provinces Accounted for using the single transaction method

7. 7 Single Transaction Method The repurchase, and subsequent re-sale, of the shares recorded as a single transaction Treasury Share account reported as separate line item within Shareholders’ Equity section

8. 8 Accounting for Treasury Shares Shares Repurchased Dr. Treasury Shares Cr.Cash, etc. Shares Re-sold Dr. Cash Cr.Treasury Shares If shares are sold for an amount different from the repurchase price?

9. 9 Accounting for Treasury Shares Treasury Shares Re-Sold May be sold for more (or less) than paid when re-purchased If sold for more, Contributed Surplus is credited If sold for less, debit Contributed Surplus (if it is related to the same class of shares), then debit Retained Earnings Dividends on treasury shares should be reversed since a company cannot receive dividends on its own shares

10. 10 Reporting Treasury Shares Shareholders’ Equity: Share Capital (Common and Preferred)$x,xxx Retained Earnings x,xxx x,xxx Less: Cost of Treasury Shares xxx Total Shareholders’ Equity$x,xxx

11. 11 Copyright © 2010 John Wiley & Sons Canada, Ltd. All rights reserved. Reproduction or translation of this work beyond that permitted by Access Copyright (The Canadian Copyright Licensing Agency) is unlawful. Requests for further information should be addressed to the Permissions Department, John Wiley & Sons Canada, Ltd. The purchaser may make back-up copies for his or her own use only and not for distribution or resale. The author and the publisher assume no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information contained herein. COPYRIGHT