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Wattle Ltd decided to repurchase 250 000 of its ordinary shares under a buy-back

ID: 2474589 • Letter: W

Question

Wattle Ltd decided to repurchase 250 000 of its ordinary shares under a buy-back scheme for $5.70 per share. At the date of the buy-back, the equity of Wattle Ltd consisted of:

Share capital (3 000 000 shares fully paid)

General reserve

Retained earnings

$

6 000 000

680 000

1 230 000

Therefore, the highlighted entry is also correct.

as it is a new issue of debentures.The costs of the buy-back scheme amounted to $3800.

Required

A. Prepare the journal entries to account for the buy-back, assuming:

     (i)    that the original amount of the shares is eliminated from Share Capital, and then any remaining buy-back price adjusted equally against the General Reserve and Retained Earnings accounts.

     (ii)   that the buy-back is not adjusted against share capital, but is adjusted firstly against the General Reserve account, then any remaining against the Retained Earnings account.

Share capital (3 000 000 shares fully paid)

General reserve

Retained earnings

$

6 000 000

680 000

1 230 000

Explanation / Answer

WATTLE LTD

General Journal

A.       

(i)         General Reserve                                              Dr                  464 400

            Retained Earnings                                           Dr                   464 400

            Share Capital                                                   Dr                   500 000

                  Cash                                                          Cr                                        1 428 800

            (Repurchase of 250 000 ordinary shares

            under a buy-back scheme plus costs)

(ii)        General Reserve                                              Dr                  680 000

            Retained Earnings                                           Dr                   748 800

                        Cash                                                    Cr                                        1 428 800

            (Repurchase of 250 000 ordinary shares

            under a buy-back scheme plus costs)

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