What is recorded in the books when a joint-stock company issues shares and buys back its own shares?

«Zarafshon Keramika» JSC wants to raise money for a new kiln. Instead of a loan, the shareholders approved issuing additional shares. For chief accountant Gulbahor the question is simple: how to record the subscription, the incoming money, the amount above face value, the broker's fee and, later, the buyback of the company's own shares? We answer only with specific rows of NAS No. 21; next to each entry is the paragraph and row number.

Who decides on issuing shares, how they are registered and what rights a shareholder has are governed by the legislation on joint-stock companies and the securities market; this article covers only the accounting side. Paragraph 344 of NAS No. 21 itself states one important limit: charter capital may be increased or reduced only on the basis of the founders' decision and only after the relevant changes are made to the founding documents.

Hypothetical data

Additional shares issued: 100,000 ordinary shares with a face value of 2,000 soums.
Price to investors: 2,300 soums, i.e. 300 soums above face value per share.
Broker and other services related to the issue: 4,500,000 soums.
Later the company buys back 10,000 of its own shares at 2,400 soums.

Calculation	Result, soums
Face value: 100,000 × 2,000	200,000,000
Amount above face value: 100,000 × 300	30,000,000
Total paid by investors: 100,000 × 2,300	230,000,000
Buyback: 10,000 × 2,400	24,000,000

Step 1. The new size of charter capital is recorded

NAS No. 21, paragraph 198, row 1: "Declared size of charter capital in the amount of participants' contributions (in the amount of share subscription) (after the entity is registered)" Dr 4610 – Cr 8310, 8320, 8330. The same correspondence is in row 1 of paragraph 348.

Dr 4610 "Founders' debt for contributions to charter capital" – Cr 8310 "Ordinary shares": 200,000,000.

Only the face value goes to 8310: paragraph 346 requires shares to be carried at face value. Paragraph 345 requires separate analytical records for each issue of declared, issued (subscribed) and outstanding ordinary shares, so this issue is recorded on a separate analytical account under 8310.

Step 2. Money comes in from investors

The face value part closes 4610: paragraph 226, row 11 "Receipt of contributions from founders who previously subscribed to shares" Dr 5110 – Cr 4610: 200,000,000.

The part above face value goes to a separate account: paragraph 226, row 12 "Receipt of share premium from shares sold above face value" Dr 5110 – Cr 8410: 30,000,000. Paragraph 350 assigns account 8410 "Share premium" precisely to amounts received above face value on the initial sale of shares; row 1 of paragraph 352 gives the same correspondence.

If an investor pays at the cash desk, the correspondences are with cash: paragraph 223, row 6 (Dr 5010, 5020 – Cr 8410) and row 7 (Dr 5010, 5020 – Cr 4610).

Shares can also be paid for with property instead of money. For such cases paragraph 198 provides the following rows: - row 2: construction in progress, equipment, fixed assets: Dr 0110–0190, 0710–0720, 0810 – Cr 4610; - row 3: intangible assets: Dr 0410–0490 – Cr 4610; - row 4: long-term and short-term investments: Dr 0610, 5810 – Cr 4610; - row 5: inventories: Dr 1010–2990 – Cr 4610; - row 6: cash: Dr 5010–5530 – Cr 4610; - row 7: if the contribution is withheld from the founder's salary: Dr 6710 – Cr 4610.

Step 3. Issue costs

Broker, registration and similar services are recorded on account 9630 "Expenses for issuing and distributing securities": under paragraph 425 these expenses are debited to 9630 in correspondence with liability and cash accounts.

Dr 9630 – Cr 6990 (amount owed to the service provider) or Cr 5110 (if paid at once): 4,500,000.

Note: NAS No. 21 provides for recording this cost on 9630 as a finance expense rather than deducting it from share premium (8410).

Result: what changed in equity after the issue?

Account	Change, soums
8310 Ordinary shares	+200,000,000
8410 Share premium	+30,000,000
5110 Settlement account	+230,000,000 (225,500,000 after paying the costs)
9630 Finance expense	4,500,000

Step 4. The company buys back its own shares

A year later one shareholder wanted to exit, and the company, in the manner set by legislation and the charter, bought back 10,000 shares at 2,400 soums.

Paragraph 362, row 1: "Purchase from shareholders of shares belonging to them ... at purchase cost" Dr 8610, 8620 – Cr 5110–5530, 6620. When paid through the bank, row 14 of paragraph 226 is the same: Dr 8610 – Cr 5110.

Dr 8610 "Treasury shares — ordinary" – Cr 5110: 24,000,000.

8610 is recorded at the actual purchase price (paragraph 360), not at face value. It is a contra-liability account to charter capital: on the balance sheet it is deducted from charter capital on line 440. Since the shares have not been cancelled yet, 8310 does not change. Under paragraph 359 such shares are bought back for later resale or cancellation. Let us look at both paths.

Step 5 (a). 4,000 shares are resold

The company sold 4,000 shares to a new investor at 2,700 soums: proceeds 4,000 × 2,700 = 10,800,000 soums, their purchase cost 4,000 × 2,400 = 9,600,000 soums.

Paragraph 362, row 2 (resale above purchase price): - for the purchase cost: Dr 5110 – Cr 8610: 9,600,000; - for the difference above purchase cost: Dr 5110 – Cr 9590 "Other income from financial activities": 1,200,000.

When resold for less, row 3 of paragraph 362 applies: for the sale value Dr 5010–5530 – Cr 8610, for the difference Dr 9690 – Cr 8610.

Step 5 (b). The remaining 6,000 shares are cancelled

The remaining 6,000 shares were cancelled by reducing charter capital (by the founders' decision and with amendments to the founding documents). They were bought at 2,400 soums, i.e. above face value (2,000 soums): - face value part: 6,000 × 2,000 = 12,000,000 soums; - part above face value: 6,000 × 400 = 2,400,000 soums; - total purchase cost: 14,400,000 soums.

Face value part: paragraph 362, row 5 Dr 8310 – Cr 8610: 12,000,000.

For the 2,400,000 soums above face value, NAS No. 21 itself sets out two different paths:

Path	Journal entry	Basis
Difference to expense	Dr 9690 – Cr 8610	last subparagraph of paragraph 360; paragraph 362, row 5; paragraph 348, row 5
Difference from share premium	Dr 8410 – Cr 8610	paragraph 350 (8410 is debited "when the difference between the purchase cost and the face value is covered on cancelling treasury shares"); paragraph 352, row 2

The standard does not separately specify which path applies in which case. So state the chosen approach clearly in the accounting policy. In our example 8410 holds 30,000,000 soums of share premium, so the second path is technically possible too.

If the shares were bought below face value, row 4 of paragraph 362 applies: for the purchase cost Dr 8310, 8320 – Cr 8610, for the difference below face value Dr 8310, 8320 – Cr 9590.

Final position

Indicator	Calculation	Amount, soums
Closing balance of 8310 (1,200,000,000 before the issue)	1,200,000,000 + 200,000,000 − 12,000,000	1,388,000,000
Balance of 8610	24,000,000 − 9,600,000 − 14,400,000	0
Income recognised on 9590	from resale	1,200,000

Checklist

Is there a founders' decision and an amendment to the founding documents on the change in charter capital (paragraph 344)?
Do 8310 and 8320 show only face value (paragraph 346)?
Is the amount above face value recorded on 8410 and issue costs on 9630?
Are separate analytical records kept for each issue (paragraph 345)?
Are treasury shares carried on 8610 or 8620 at actual price and deducted on the balance sheet (paragraph 360)?
Does the accounting policy set how the difference above face value is recorded on cancellation?