MASB Technical Release 1 (Revised) Summary
MASB Technical Release 1 (revised), Share Buybacks - Accounting and Disclosure
This MASB Technical Release 1 (revised), Share Buybacks - Accounting and Disclosure (revised TR 1) sets out the accounting methods and the disclosure requirements for share buybacks by public listed companies (PLCs). In prescribing the accounting methods, this revised TR 1 considers the statutory provisions of Section 67A (as amended) of the Companies Act 1965, the Kuala Lumpur Stock Exchange (KLSE) revised Guidelines Governing Purchase of Own Shares by Listed Companies, and generally accepted accounting principles on equity instruments. In Summary
- Section 67A allows a PLC with a share capital, if so authorised by its articles, to purchase its own shares. The Act further specifies the following pre-requisite conditions that must be met:
- the company is solvent at the date of purchase and will not become insolvent by incurring additional debts involved in the obligation to pay for the shares so purchased;
- the purchase is made through KLSE;
- and the purchase of shares is made in good faith and in the interests of the company.
Effective Date: 1 January 1999
- The amended subsection (3A) of section 67A allows a public listed company which has repurchased its own shares either to: cancel the shares purchased; retain the shares purchased in treasury; or to retained part of the shares purchased and cancel the remainder. Further, the amended subsection (3B) of section 67A provides that the treasury shares may be distributed as dividends or resold on the market in accordance with the relevant rules of the KLSE.
- The accounting methods prescribed for the shares repurchased are the treasury method, the share retirement method, or a combination of both methods.
- In the treasury method, the shares repurchased and held as treasury shares should be measured and carried at the cost of repurchase irrespective of the subsequent changes in the market price of the shares. On the presentation in the balance sheet, the carrying amount of the treasury shares should be setoff against equity. The following should be disclosed: the amount of outstanding shares in issue after the setoff; and the reduction of any other reserves as may be permitted by the KLSE Guidelines in the event that the carrying amount of the treasury shares exceeds the share premium account. Where the treasury shares are distributed as share dividends, the cost of the treasury shares will be reduced against the share premium account or the distributable reserves, or both. Where treasury shares are reissued by resale in the open market, the difference between the sales consideration and the carrying amount will be shown as a movement in equity.
- In the share retirement method, the nominal value of the shares repurchased will be cancelled by a debit to the share capital account and an equivalent amount will be transferred to the capital redemption reserve. The consideration, including any acquisition cost and premium or discount arising from the shares repurchased, will be adjusted directly to the share premium account or any other suitable reserve. The shares cancelled and the adjustments made to share premium or reserves should be shown as a movement in the share capital account and the share premium or reserve account respectively.
- Additional disclosure requirements:
- the purpose or reason, nature and terms of the share repurchase transactions;
- the funding of the shares repurchased;
- method used to account for shares repurchased;
- amount of treasury shares distributed as share dividends; and
- the reason, terms and amount of treasury shares reissued.
- When a public listed associated or subsidiary company repurchase its own shares, the accretion of an investor's percent equity interest in the company should be treated as an acquisition of additional equity interest for which the goodwill or negative goodwill should be determined separately.