Treasury shares

A company may buy back its own shares — to return surplus cash, offset dilution from employee share plans, or signal confidence. Shares it buys back and holds are treasury shares.

IAS 32.33 sets the rule: treasury shares are deducted from equity. They are not an asset — a company can't own a claim on itself — and no gain or loss is recognised in profit or loss on their purchase, sale, issue or cancellation. Any consideration paid or received is recognised directly in equity.

Cost method. The usual practice is to debit a Treasury shares account (a negative component of equity) with the amount paid. Share capital is left unchanged, because the shares are still legally issued.

Reissuing treasury shares. When treasury shares are sold again: - credit Treasury shares with their cost; - the difference between proceeds and cost goes to another component of equity — typically share premium, or retained earnings, depending on company law (IFRS doesn't say which). It's never income or expense.

Cancelling treasury shares. On cancellation, share capital is reduced by the nominal value, and the excess of cost over nominal is charged to share premium or retained earnings (some jurisdictions require a capital redemption reserve).

Treasury shares affect other numbers: they don't receive dividends, they aren't counted as outstanding in earnings per share (IAS 33), and the number held must be disclosed (IAS 1.79). US GAAP (ASC 505-30) also keeps treasury stock out of profit or loss; under its cost method, "gains" on reissue go to additional paid-in capital and "losses" reduce paid-in capital from earlier treasury transactions first, then retained earnings.