## Journal Entries for Buyback of Shares
The accounting follows a standard four-entry sequence. The key principle: ESC is always reduced at face value; the premium is routed through a temporary clearing account.
---
### Entry 1 — Record the Buyback Obligation
| Account | Dr/Cr | Amount |
|---|---|---|
| Equity Share Capital A/c | Dr | FV × n |
| Premium on Buyback A/c | Dr | Premium per share × n |
| Equity Shares Buyback A/c | Cr | BB Price × n |
Opens a temporary liability account (Equity Shares Buyback) for the total consideration.
---
### Entry 2 — Pay Shareholders
| Account | Dr/Cr | Amount |
|---|---|---|
| Equity Shares Buyback A/c | Dr | BB Price × n |
| Bank / Current Investments A/c | Cr | BB Price × n |
Closes the temporary liability; cash goes out.
---
### Entry 3 — Fund the Premium on Buyback
| Account | Dr/Cr | Amount |
|---|---|---|
| Securities Premium A/c | Dr | Premium per share × n |
| Premium on Buyback A/c | Cr | Premium per share × n |
Securities Premium is a permitted source for premium on buyback (Sec 52). Alternatively, debit General/Revenue Reserve if Sec Premium is insufficient.
---
### Entry 4 — Create Capital Redemption Reserve
| Account | Dr/Cr | Amount |
|---|---|---|
| General Reserve / Revenue Reserve A/c | Dr | FV × n |
| Capital Redemption Reserve A/c | Cr | FV × n |
Always equal to the nominal value of shares bought back.
---
## Balance Sheet Presentation
### Notes to Accounts — Share Capital
```
Equity Share Capital (opening) ₹X
Less: Bought back during the year (₹Y) [Y = FV × n]
Equity Share Capital (closing) ₹Z
```
### Notes to Accounts — Reserves & Surplus
```
Securities Premium
Opening balance ₹A
Less: Premium on Buyback (₹B) ₹(A−B)
Revenue Reserve / General Reserve
Opening balance ₹C
Less: Transfer to CRR (₹D) ₹(C−D)
Capital Redemption Reserve
Transfer during year ₹D
Total Reserves & Surplus ₹ ...
```
### Other Current Assets / Cash & Bank
Deduct total cash paid = BB Price × n (not face value — the full consideration leaves the bank).
---
### Note on Total Debt for D:E Ratio
When assessing the D:E ratio, Total Debt may include other current liabilities and other non-current liabilities. If trade payables are given separately, they should ideally be excluded. ICAI permits alternative assumptions — state your assumption clearly in the answer.