Questions on treasure stock and share buy back

[wahkao]

Questions on treasure stock and share buy back

Sorry, I want to ask a bit of financial analysis questions

Q: If a public listed company buyback its own stock on the open market , it becomes treasury stock in their current assets right? What is the value of this current asset on the balance sheet? Market price or buying cost price?

Q:No matter how much the public listed company buy back, shares outstanding (diluted/ undiluted) does not change right? The action of buying back stock from market and putting it into treasure stock will have no effect on the number of shares outstanding(diluted/ undiluted) right?

Q:When a company buy back its own shares, where is this reported in the income statement?Is it in SG&A ??

Q: When a company buy back its own shares, where is this reported in the cash flow statements? Is it in cash flow from investing activities?

[weijian]

P.S. I am not accounting trained but i will try. Hoping for someone more qualified to correct my mistakes (if any).

Q: If a public listed company buyback its own stock on the open market , it becomes treasury stock in their current assets right? What is the value of this current asset on the balance sheet? Market price or buying cost price? If the company decides to keep it as treasury stock, there is a seperate line item for treasury shares under the "equity attributed to holders of company" section and it is negative in value. As such, i believe treasury shares are not accounted for in the asset portion in the balance sheet.

Q:No matter how much the public listed company buy back, shares outstanding (diluted/ undiluted) does not change right? The action of buying back stock from market and putting it into treasure stock will have no effect on the number of shares outstanding(diluted/ undiluted) right? When a company buy back shares, share outstanding (diluted/undiluted) is reduced. When the shares are cancelled, then it is permanently reduced. When the shares are re-issued back to meet employee stock options/issuance, then reduction will only be temporary.

Q:When a company buy back its own shares, where is this reported in the income statement?Is it in SG&A ?? It is reported under 'Statement of Changes in Equity". There is a seperate line item.

Q: When a company buy back its own shares, where is this reported in the cash flow statements? Is it in cash flow from investing activities? Some of the companies i tracked that had share buybacks (negative cash flow) or proceeds from employee exercising stock options (positive cash flow), reported it under 'financing activities'.

[kikababoo]

hi, have two follow up questions here, would be great if anyone can provide some op/ans. sry ts hijack ur post abit.

(i) Proceeds from exercise of share options by employees, the accounting entries would be

Debit Cash Credit Common stock (at par value) + Additional Paid in Capital (at the difference between the exercise price and par value). Is this correct?

(ii) I have read about this line item in US-listed companies' cash flow statement called Excess tax benefits on Stock-based compensation. It seems to me that it's sth that arise when Co record stock based comp expense (upon granting of options) at fair value derived from black scholes model. Whereas for tax accounting purposes, the stock option is only tax deductible afterwards upon actual exercise of the options (and very often this is after some time upon granting of option, and therefore the share price rose). I read that the full market value of the share price upon exercise of stock option by employee is then tax deductible. Is this correct? and also does anyone have experience modelling for stock-based compensation/tax impact of stock based compensation in DCF model?? mind sharing how to do it right?

Thanks in adv!