The case of a subsidiary purchasing treasury shares and reinvesting in the parent company

In case the subsidiary repurchases treasury shares and reinvests in the parent company (illustrative image)

Article 17 Circular 202/2014/TT-BTC specifically regulates the case when a subsidiary repurchases treasury shares and the case when a subsidiary reinvests in the parent company. To be specific:

1. In the case the subsidiary repurchases treasury shares

When a subsidiary repurchases treasury shares from non-controlling shareholders, the parent company's ownership proportion in the subsidiary's net assets will increase. However, after the subsidiary repurchases treasury shares, the value of the subsidiary's net assets held by the parent company may increase or decrease compared to before the subsidiary repurchased the treasury shares, depending on the purchase price of the treasury shares.

The parent company must determine its ownership proportion in the subsidiary's net assets at the time before and after the subsidiary repurchases treasury shares. The difference in net asset value is recognized directly in the "Unappropriated profit after tax" item of the consolidated Balance Sheet.

In the case the net asset value held by the parent company in the subsidiary increases after the subsidiary repurchases treasury shares, record:

- Debit Non-controlling interest;- Credit Unappropriated profit after tax of the current period (the period the subsidiary repurchases treasury shares);- Credit Unappropriated profit after tax accumulated until the end of the previous period (the periods after the subsidiary repurchases treasury shares).

In the case the net asset value held by the parent company in the subsidiary decreases after the subsidiary repurchases treasury shares, record:

- Debit Unappropriated profit after tax of the current period (the period repurchasing treasury shares);- Debit Unappropriated profit after tax accumulated until the end of the previous period (subsequent period);- Credit Non-controlling interest.

2. In the case the subsidiary reinvests in the parent company

For subsidiaries not restricted by law when repurchasing the parent company's shares, the accountant must present the book value of the shares the subsidiary buys from the parent company in the "Treasury shares" item of the consolidated Balance Sheet. Based on the subsidiary's Balance Sheet, the accountant must decrease the value of the parent company's shares being held by the subsidiary (reflected in the relevant items), record:

- Debit Treasury shares.- Credit Trading securities; or- Credit Investments in other entities.

If subsidiaries invest equity in the parent company and the parent company is not a joint-stock company, they must also follow the accounting entries as specified in point a mentioned above but must clearly state in the Notes to the consolidated Financial Statements that the "Treasury shares" item reflects the equity contribution value of the subsidiary to the parent company in a form other than share purchase.

Besides that, this Circular stipulates that for the case when an associate repurchases treasury shares, the investor's ownership proportion in the associate's net assets will increase and if sufficient to control, the investor will become the parent company, and the associate will become the subsidiary. In this case, the investor applies the sequential-step business combination accounting method according to the provisions of Article 15 and Clause 1, Article 16 of this Circular.

Details can be found at Circular 202/2014/TT-BTC effective from February 27, 2015.

Ty Na

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