## Notes to Accounts: Share Capital and Reserves After Buy Back
### What Changes in the Balance Sheet?
When a company buys back shares, three notes are affected: Share Capital, Reserves & Surplus, and Cash & Cash Equivalents (or the relevant asset used for payment).
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### Note 1 — Share Capital
| Head | ₹ |
|---|---|
| Equity Share Capital | |
| Opening balance | xxx |
| Less: Bought back during the year | (xxx) |
| Add: New issue during the year (if any) | xxx |
| Closing balance | xxx |
| Preference Share Capital | |
| Opening balance | xxx |
| Add: New issue | xxx |
| Closing balance | xxx |
| Total Share Capital | xxx |
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### Note 2 — Reserves & Surplus
This note captures all movements. Key movements triggered by buy back:
1. Securities Premium A/c — Debited for excess of buy-back price over face value (to the extent available). Any shortfall is then debited to Capital Redemption Reserve or P&L.
2. Capital Redemption Reserve (CRR) — Created (credited) equal to the face value of shares bought back. Funded by transferring from:
- Free reserves (Revenue Reserve, Profit & Loss), OR
- Securities Premium (only when free reserves are insufficient)
3. Revenue Reserves / P&L — Reduced by the amount transferred to CRR.
4. Securities Premium may also increase if debentures/preference shares are issued during the same period at a premium.
#### Sample Reserves & Surplus Note Structure
| ₹ | ₹ | |
|---|---|---|
| a. Capital Reserve | xxx | |
| b. Securities Premium | ||
| Opening balance | xxx | |
| Add: Premium on debenture/preference issue | xxx | |
| Less: Premium used on buy back | (xxx) | xxx |
| c. Revenue Reserve | ||
| Opening balance | xxx | |
| Less: Transfer to CRR | (xxx) | xxx |
| d. Profit & Loss Account | ||
| Opening balance | xxx | |
| Add: Profit on sale of investments | xxx | |
| Less: Transfer to reserves | (xxx) | xxx |
| e. Dividend Equalisation Fund | xxx | |
| f. Capital Redemption Reserve (CRR) | ||
| Created via transfer from free reserves | xxx | |
| Less: Utilised for bonus issue | (xxx) | xxx |
| Total Reserves & Surplus | xxx |
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### Key Rule for CRR Creation
> CRR = Face value of shares bought back
The source of funding is free reserves (Revenue Reserve, P&L, General Reserve). Securities Premium can fund CRR only when free reserves are insufficient — not as a first choice.
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### Cash & Cash Equivalents Note
Since buy back is paid in cash, the note shows buy back payment as a cash outflow. Other items like proceeds from fresh debenture or preference share issue appear as inflows.