IFRIC 11 is a standard under IFRS 2 that provides guidance on how to account for group and treasury share transactions. In this article, we will discuss the definitions, explanations, examples, and case studies related to IFRIC 11.
Definitions:
Group Share Transactions: Transactions that involve the purchase or sale of equity instruments by a parent company or an entity in the same group as the parent.
Treasury Share Transactions: Transactions that involve the purchase or sale of the company’s own equity instruments.
Explanations:
IFRIC 11 provides guidance on how to account for group and treasury share transactions. In a group share transaction, the accounting treatment depends on whether the transaction is between entities in the same group or with an external party. If the transaction is between entities in the same group, the transaction is accounted for as equity transactions between the group entities. If the transaction is with an external party, it is accounted for as an equity transaction with a non-controlling interest.
In a treasury share transaction, the accounting treatment depends on whether the transaction involves the purchase or sale of the company’s own shares. If the company purchases its own shares, the transaction is accounted for as a deduction from equity. If the company sells its own shares, the transaction is accounted for as an increase in equity.
Examples:
Group Share Transaction: Entity A, a parent company, purchases 10% of the equity of Entity B, a subsidiary. This transaction is accounted for as an equity transaction between the two entities.
Treasury Share Transaction: Company C purchases 1,000 of its own shares. This transaction is accounted for as a deduction from equity.
Treasury Share Transaction: Company D sells 500 of its own shares. This transaction is accounted for as an increase in equity.
Case Studies:
Case 1:
Company E, a parent company, purchases 25% of the equity of Entity F, a subsidiary. Entity F is a listed company. In this case, the transaction is accounted for as an equity transaction between the two entities.
Case 2:
Company G purchases 2,000 of its own shares at a price of $10 per share. In this case, the transaction is accounted for as a deduction from equity.
Case 3:
Company H sells 1,000 of its own shares at a price of $15 per share. In this case, the transaction is accounted for as an increase in equity.
In conclusion, IFRIC 11 provides guidance on how to account for group and treasury share transactions. Group share transactions are accounted for as equity transactions between the group entities or as an equity transaction with a non-controlling interest. Treasury share transactions are accounted for as a deduction from equity or an increase in equity, depending on whether the company purchases or sells its own shares. These rules are important for companies to follow to ensure that their financial statements are accurate and compliant with IFRS 2.