{"schema_version":2,"canonical_url":"https://asc.understandingaccounting.org/asc/505/30/","source":"FASB Accounting Standards Codification, Basic View","usage":"Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective.","number":"505-30","topic":"505","title":"Treasury Stock","area":"Equity","paragraphs":39,"summary":"ASC 505-30 governs how an entity accounts for repurchases of its own outstanding common stock (treasury stock) and the later constructive or actual retirement or resale of those shares. The core rule is that treasury stock transactions are capital transactions: no gain or loss may be recognized in income or charged directly to retained earnings as profit, and differences between repurchase and resale/par amounts are allocated among additional paid-in capital and retained earnings. When shares are bought at a price differing from open-market price (e.g., from a specific shareholder), only the fair value of the shares is treasury stock cost and the excess is allocated to the other rights or privileges obtained and accounted for by their substance.","concepts":["treasury stock","constructive retirement","additional paid-in capital","accelerated share repurchase program","standstill agreement","cost of treasury shares","capital transaction","allocation of repurchase price"],"categories":["Debt and equity","Presentation","Initial measurement","Disclosure"],"level":"intermediate","topic_title":"Equity","sections":[{"number":"00","label":"00 Status","anchor":"00-status","is_sec":false,"groups":[{"block":null,"heading":null,"paragraphs":[{"citation":"505-30-00-1","para":"00-1","html":"The following table identifies the changes made to this Subtopic.
This Subtopic addresses the accounting and reporting for an entity's repurchase of its own outstanding common stock as well as the subsequent constructive or actual retirement of those shares.
Entities may repurchase their own outstanding common stock for a variety of different purposes. Repurchased common stock is often referred to as treasury stock or treasury shares.
When entities repurchase their own common stock, laws applicable to those entities may affect the treatment and accounting for repurchased shares of stock. Entities sometimes pay more or less for the repurchased shares than either their
fair value or their original issue price.
The guidance in this Subtopic applies to all entities, unless more specific guidance is provided in other Topics.
The guidance in this Subtopic applies to all transactions involving the repurchase of an entity's own outstanding common stock as well as the subsequent constructive or actual retirement of those shares, unless more specific guidance for those transactions is provided in other Topics.
This Section addresses the accounting requirements for the differences in amounts that result in either of the following situations:
- a
An entity repurchases its own outstanding common stock for an amount that differs from the price obtainable in open market transactions.
- b
An entity subsequently resells previously repurchased common stock for an amount that differs from the repurchase amount paid.
This Section also identifies a program to acquire treasury shares, often described as an accelerated share repurchase program, as two separate transactions.
Laws of some states govern the circumstances under which an entity may acquire its own stock and prescribe the accounting treatment therefor. If such requirements are at variance with the requirements of paragraphs 505-30-25-7 and , the accounting shall conform to the applicable law. The facts and circumstances associated with a share repurchase may suggest that the total payment relates to other than the shares repurchased.
An entity offering to repurchase shares only from a specific shareholder (or group of shareholders) suggests that the repurchase may involve more than the purchase of treasury shares. Also, if an entity repurchases shares at a price that is different from the price obtainable in transactions in the open market or transactions in which the identity of the selling shareholder is not important, some portion of the amount being paid presumably represents a payment for stated or unstated rights or privileges that shall be given separate accounting recognition. See paragraph
505-30-30-3 for the measurement requirements associated with the different elements identified within such a transaction.
Payments by an entity to a shareholder or former shareholder attributed, for example, to a standstill agreement, or any agreement in which a shareholder or former shareholder agrees not to purchase additional shares, shall be expensed as incurred. Such payments do not give rise to assets of the entity.
An accelerated share repurchase program is a combination of transactions that permits an entity to repurchase a targeted number of shares immediately with the final repurchase price of those shares determined by an average market price over a fixed period of time. An accelerated share repurchase program is intended to combine the immediate share retirement benefits of a tender offer with the market impact and pricing benefits of a disciplined daily open market stock repurchase program.
An entity shall account for such an accelerated share repurchase program as the following two separate transactions: - a
As shares of common stock acquired in a treasury stock transaction recorded on the acquisition date
- b
As a forward contract indexed to its own common stock. Subtopic
815-40 provides guidance on the accounting for contracts that are indexed to an entity's own common stock.
Example 1 (see paragraph
505-30-55-1) provides an illustration of an accelerated share repurchase program that is addressed by this guidance.
After an entity's repurchase of its own outstanding common stock, sometimes it may either retire the repurchased shares and issue additional common shares, or, as an alternative, resell the repurchased shares. In either case, the price received may differ from the amount paid to repurchase the shares.
While the net asset value of the shares of common stock outstanding in the hands of the public may be increased or decreased by such repurchase and retirement, such transactions relate to the capital of the corporation and do not give rise to corporate profits or losses. There is no essential difference between the following: - a
The repurchase and retirement of a corporation's own common stock and the subsequent issue of common shares
- b
The repurchase and resale of its own common stock.
Even though there may be cases where the transactions involved are so inconsequential as to be immaterial, as a broad general principle, such transactions shall not be reflected in retained earnings (either directly or through inclusion in the income statement). The qualification shall not be applied to any transaction that, although in itself inconsiderable in amount, is a part of a series of transactions that in the aggregate are of substantial importance.
The difference between the repurchase and resale prices of a corporation's own common stock shall be reflected as part of the capital of a corporation and allocated to the different components within stockholder equity as required by paragraphs . This Section provides guidance on measuring amounts that arise from repurchases of an entity's own outstanding common stock. The measurement issues addressed include both of the following:
- a
Determining the allocation of amounts paid to the repurchased shares and other elements of the repurchase transaction
- b
Further allocation of amounts allocated to repurchased shares to various components of stockholder equity upon formal or constructive retirement.
An allocation of repurchase price to other elements of the repurchase transaction may be required if an entity purchases treasury shares at a stated price significantly in excess of the current market price of the shares. An agreement to repurchase shares from a shareholder may also involve the receipt or payment of consideration in exchange for stated or unstated rights or privileges that shall be identified to properly allocate the repurchase price.
For example, the selling shareholder may agree to abandon certain acquisition plans, forego other planned transactions, settle litigation, settle employment contracts, or restrict voluntarily the ability to purchase shares of the entity or its affiliates within a stated time period. If the purchase of treasury shares includes the receipt of stated or unstated rights, privileges, or agreements in addition to the capital stock, only the amount representing the fair value of the treasury shares at the date the major terms of the agreement to purchase the shares are reached shall be accounted for as the cost of the shares acquired. The price paid in excess of the amount accounted for as the cost of treasury shares shall be attributed to the other elements of the transaction and accounted for according to their substance. If the fair value of those other elements of the transaction is more clearly evident, for example, because an entity's shares are not publicly traded, that amount shall be assigned to those elements and the difference recorded as the cost of treasury shares. If no stated or unstated consideration in addition to the capital stock can be identified, the entire purchase price shall be accounted for as the cost of treasury shares. Transactions do arise, however, in which a reacquisition of an entity's stock may take place at prices different from routine transactions in the open market. For example, to obtain the desired number of shares in a tender offer to all or most shareholders, the offer may need to be at a price in excess of the current market price. In addition, a block of shares representing a controlling interest will generally trade at a price in excess of market, and a large block of shares may trade at a price above or below the current market price depending on whether the buyer or seller initiates the transaction. An entity's reacquisition of its shares in those circumstances is solely a treasury stock transaction properly accounted for at the purchase price of the treasury shares. Therefore, in the absence of the receipt of stated or unstated consideration in addition to the capital stock, the entire purchase price shall be accounted for as the cost of treasury shares.
An entity that repurchases its own outstanding common stock may be required under paragraph
505-30-30-3 to allocate a portion of the repurchase price to other elements of the transaction.
Once the cost of the treasury shares is determined under the requirements of this Section, and if a corporation's stock is acquired for purposes other than retirement (formal or constructive), or if ultimate disposition has not yet been decided, paragraph 505-30-45-1 permits the cost of acquired stock to either be shown separately as a deduction from the total of capital stock, additional paid-in capital, and retained earnings, or be accorded the following accounting treatment appropriate for retired stock. The difference between the cost of the treasury shares and the stated value of a corporation's common stock repurchased and retired, or repurchased for constructive retirement, shall be reflected in capital.
When a corporation's stock is retired, or repurchased for constructive retirement (with or without an intention to retire the stock formally in accordance with applicable laws), an excess of repurchase price over par or stated value may be allocated between additional paid-in capital and retained earnings. Alternatively, the excess may be charged entirely to retained earnings in recognition of the fact that a corporation can always capitalize or allocate retained earnings for such purposes. If a portion of the excess is allocated to additional paid-in capital, it shall be limited to the sum of both of the following: - a
All additional paid-in capital arising from previous retirements and net gains on sales of treasury stock of the same issue
- b
The pro rata portion of additional paid-in capital, voluntary transfers of retained earnings, capitalization of stock dividends, and so forth, on the same issue. For this purpose, any remaining additional paid-in capital applicable to issues fully retired (formal or constructive) is deemed to be applicable pro rata to shares of common stock.
(P) December 16, 2026; (N) December 16, 2026
105-10-65-10When a corporation's stock is retired, or repurchased for constructive retirement (with or without an intention to retire the stock formally in accordance with applicable laws), an excess of repurchase price over par or stated value may be:- a
Allocated between additional paid-in capital and retained earnings. If a portion of the excess is allocated to additional paid-in capital, it shall be limited to the sum of both of the following:
- 1
All additional paid-in capital arising from previous retirements and net gains on sales of treasury stock of the same issue
- 2
The pro rata portion of additional paid-in capital, voluntary transfers of retained earnings, capitalization of stock dividends, and so forth, on the same issue. For this purpose, any remaining additional paid-in capital applicable to issues fully retired (formal or constructive) is deemed to be applicable pro rata to shares of common stock.
- b
Reflected entirely to retained earnings in recognition of the fact that a corporation can always capitalize or allocate retained earnings for such purposes.
- c
Reflected entirely as a deduction from additional paid-in capital as long as additional paid-in capital does not become negative.
When a corporation's stock is retired, or repurchased for constructive retirement (with or without an intention to retire the stock formally in accordance with applicable laws), an excess of par or stated value over the cost of treasury shares shall be credited to additional paid-in capital.
Gains on sales of treasury stock not previously accounted for as constructively retired shall be credited to additional paid-in capital; losses may be charged to additional paid-in capital to the extent that previous net gains from sales or retirements of the same class of stock are included therein, otherwise to retained earnings.
If a corporation's stock is acquired for purposes other than retirement (formal or constructive), or if ultimate disposition has not yet been decided, the cost of acquired stock may be shown separately as a deduction from the total of capital stock, additional paid-in capital, and retained earnings, or may be accorded the accounting treatment appropriate for retired stock specified in paragraphs . This Section establishes incremental disclosure requirements that apply to specific circumstances in which an entity repurchases its own outstanding common stock.
State laws may effect an entity's repurchase of its own outstanding common stock. If state laws relating to an entity's repurchase of its own outstanding common stock restrict the availability of retained earnings for payment of dividends or have other effects of a significant nature, those facts shall be disclosed.
A repurchase of shares at a price significantly in excess of the current market price creates a presumption that the repurchase price includes amounts attributable to items other than the shares repurchased. A repurchase of shares at a price significantly in excess of the current market price may require an entity to allocate amounts to other elements of the transaction under the requirements of paragraph
505-30-30-2.
The allocation of amounts paid to the treasury shares and other elements of the transaction requires significant judgment and consideration of many factors that can significantly affect amounts recognized in the financial statements. Disclosure of the allocation of amounts and the accounting treatment for such amounts is necessary to enable the user of the financial statements to understand the nature of significant transactions that may affect, in part, the capital of the entity. The allocation of amounts paid and the accounting treatment for such amounts shall be disclosed.
This Example illustrates the guidance in paragraph
505-30-25-5 by identifying the two separate transactions, namely a treasury stock purchase and a forward contract, that are present in what is sometimes described as
an accelerated share repurchase program. The treasury stock purchase is as follows.
Investment Banker, an unrelated third party, borrows 1,000,000 shares of Company A common stock from investors, becomes the owner of record of those shares, and sells the shares short to Company A on July 1, 1999, at the fair value of $50 per share. Company A pays $50,000,000 in cash to Investment Banker on July 1, 1999, to settle the purchase transaction. The shares are held in treasury. Company A has legal title to the shares, and no other party has the right to vote those shares. The forward contract is as follows.
Company A simultaneously enters into a forward contract with Investment Banker on 1,000,000 shares of its own common stock. On the October 1, 1999, settlement date, if the volume-weighted average daily market price of Company A's common stock during the contract period (July 1, 1999, to October 1, 1999) exceeds the $50 initial purchase price (net of a commission fee to Investment Banker), Company A will deliver to Investment Banker cash or shares of common stock (at Company A's option) equal to the price difference multiplied by 1,000,000. If the volume-weighted average daily market price of Company A's common stock during the contract period is less than the $50 initial purchase price (net of a commission fee to Investment Banker), Investment Banker will deliver to Company A cash equal to the price difference multiplied by 1,000,000.
Under the guidance in paragraph
505-30-25-5,
an entity would account for this accelerated share repurchase program as two separate transactions: - a
As shares of common stock acquired in a treasury stock transaction recorded on the July 1, 1999, acquisition date
- b
As a forward contract indexed to its own common stock.
See Example 13 (paragraph
260-10-55-88) for the effect on earnings per share (EPS) for this Example.
For the income statement classification requirements applicable to the costs incurred by an entity to defend itself from a takeover attempt or the cost attributed to a standstill agreement, see Subtopic 220-20. For the determination of the effect of a treasury stock transaction and the effect of a forward contract that may be settled in stock or cash on the computation of earnings per share (EPS), see Topic 260.