## Buy Back of Equity Shares
### Concept
A company repurchases its own equity shares from existing shareholders, permanently cancelling them and reducing paid-up capital. Governed by Sections 68–70, Companies Act 2013.
### Sources of Funds for Buy Back
1. Free reserves (General Reserve, Revenue Reserve, Surplus in P&L)
2. Securities Premium Account
3. Proceeds of any shares / specified securities (but NOT proceeds of the same kind of shares being bought back)
### Mandatory: Capital Redemption Reserve (CRR)
On buy back, CRR must be created equal to the nominal (face) value of shares bought back.
- Funded from free reserves only (Revenue Reserve, General Reserve, P&L)
- Securities Premium cannot fund CRR
- CRR is treated as paid-up capital and can only be used to issue fully-paid bonus shares
### Step-by-Step Journal Entries
Step 1 – Record buy-back obligation
```
Equity Share Capital A/c Dr [Face Value × No. of shares]
Premium on Buy Back A/c Dr [Buy Back Price – Face Value] × Shares
To Equity Shares Bought Back A/c [Buy Back Price × No. of shares]
```
Step 2 – Make payment
```
Equity Shares Bought Back A/c Dr [Total buy-back price]
To Bank A/c [Total buy-back price]
```
Step 3 – Utilise Securities Premium for the premium portion
```
Securities Premium A/c Dr [Premium on BB]
To Premium on Buy Back A/c [Premium on BB]
```
(Securities Premium is applied first; only the shortfall is borne by free reserves)
Step 4 – Create CRR equal to face value of shares bought back
```
Revenue Reserve / General Reserve A/c Dr [Face Value portion]
Profit & Loss A/c (if reserves short) Dr [Shortfall]
To Capital Redemption Reserve A/c [Face Value of shares bought back]
```
### Notes to Accounts Treatment
In the balance sheet:
- Equity Share Capital → reduced by face value of bought-back shares
- Securities Premium → reduced by premium used
- Revenue Reserve → reduced by amount transferred to CRR
- CRR → increased by face value transferred
- Cash/Bank → reduced by total buy-back outflow