Question

The accounting for treasury stock retirements under IFRS

a. is to charge the entire amount to paid-in capital.
b. may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock.
c. is to charge the excess of the cost of treasury stock over par value to retained earnings.
d. is to allocate the difference between paid-in capital and retained earnings.

Answer 1

Under IFRS, the accounting treatment for treasury stock retirements may involve excess being charged to paid-in capital, based on the initial issuance transaction. Capital gains occur when an investor sells a stock for more than they paid for it.

Step-by-step explanation:

The question pertains to the accounting treatment of treasury stock retirements under International Financial Reporting Standards (IFRS). When a company repurchases its own shares, these shares become treasury stock. According to IFRS, when treasury stock is retired, the accounting treatment may have the excess charged to paid-in capital, depending on the original transaction related to the issuance of the stock.

Understanding the concept of capital gains is also important in the context of issuing shares and stock repurchases. When a financial investor buys and later sells a share at a higher price, the profit made is referred to as a capital gain. The treatment of treasury stock impacts the firm’s financial capital and ultimately affects the rate of return for investors.