Journal Entries – Step-by-Step for Equity Share Buyback and Preference Redemption

# Journal Entries for Buy Back and Preference Redemption — Four-Step Framework

## Part A: Preference Share Redemption (if in the same question)

Handle preference redemption before equity buyback so you know the residual Securities Premium available for BB premium.

Step PR-1: Record redemption liability

```

Preference Share Capital A/c Dr [Nominal value]

Premium on Redemption A/c Dr [Redemption premium]

To Preference Shareholders A/c [Total redemption price]

```

Step PR-2: Pay preference shareholders

```

Preference Shareholders A/c Dr [Total]

To Bank A/c [Total]

```

Step PR-3: Fund the premium on redemption

```

Securities Premium A/c Dr [Amount used]

To Premium on Redemption A/c [Total pref premium]

```

Step PR-4: Create CRR for preference redemption

```

General Reserve / P&L A/c Dr [Nominal value of pref redeemed − fresh issue proceeds]

To Capital Redemption Reserve A/c [Same]

```

---

## Part B: Equity Share Buyback

Step BB-1: Record buyback obligation

```

Equity Share Capital A/c Dr [FV × no. of shares bought back]

Premium on Buy Back A/c Dr [(BB price − FV) × no. of shares]

To Equity Shares Buy Back A/c [BB price × no. of shares]

```

Step BB-2: Pay shareholders

```

Equity Shares Buy Back A/c Dr [Total BB price]

To Bank A/c [Total BB price]

```

Step BB-3: Fund the premium on buyback

First exhaust residual Securities Premium (after pref redemption), then General Reserve, then P&L:

```

Securities Premium A/c Dr [Residual balance available]

General Reserve A/c Dr [Shortfall portion]

P&L A/c Dr [Further shortfall, if any]

To Premium on Buy Back A/c [Total premium = (BB price − FV) × shares]

```

Step BB-4: Create CRR for equity buyback

```

General Reserve A/c Dr [From GR — after Step BB-3 deduction]

P&L A/c Dr [Balance required]

To Capital Redemption Reserve A/c [Nominal value of shares BB − fresh equity/pref issue]

```

Step BB-5: Write off Buy Back expenses (if any)

```

Buy Back Expenses A/c Dr [Amount]

To Bank A/c [Amount]

P&L A/c Dr [Amount]

To Buy Back Expenses A/c [Amount]

```

---

## Computing Residual Securities Premium (Key Calculation)

```

Available Sec Prem for BB Premium =

Opening Sec Prem

+ Premium received on fresh issue (debs, shares)

− Premium used for preference redemption

```

If Available Sec Prem ≥ BB Premium → fund entirely from Sec Prem

If Available Sec Prem < BB Premium → fund shortfall from General Reserve, then P&L