(a) Where a company has purchased its own shares, the directors of the company may resolve to retain the shares so purchased as treasury shares, reducing the number of shares outstanding on the open market.

Q2. (b)
Section 127 - Purchase by a company of its own shares, etc.
(1) a company whose shares are quoted on a stock exchange may purchase its own shares if so authorized by its constitution.
(2) A company shall not purchase its own shares unless—
(a) the company is solvent at the date of the purchase and will not become insolvent by incurring the debts involved in the obligation to pay for the shares so purchased;
(b) the purchase is made through the stock exchange on which the shares of the company are quoted and in accordance with the relevant rules of the stock exchange; and
(c) the purchase is made in good faith and in the interests of the comp any.

(3) Notwithstanding paragraph (2)(b), a company may purchase its own shares otherwise than through a stock exchange if the purchase is—
(a) permitted under the relevant rules of the stock exchange; and
(b) made in accordance with such requirements as may be determined by the stock exchange.

(4) Where a company has purchased its own shares, the directors of the company may resolve—
(a) to cancel the shares so purchased;
(b) to retain the shares so purchased in treasury which is referred to as “treasury shares” in this Act; or
(c) to retain part of the shares so purchased as treasury shares and cancel the remainder of the shares.

(5) Shares that are purchased by a company under this section, unless held in treasury, shall be deemed to be cancelled immediately on purchase.

(6) Where shares are held as treasury shares, the company shall hold such shares in a securities account in accordance with the relevant rules of the stock exchange or the central depository as defined in section 146, as the case may be.

(7) Where such shares are held as treasury shares, the directors of the company may—
(a) distribute the shares as dividends to shareholders, such dividends to be known as “share dividends”;
(b) resell the shares or any of the shares in accordance with the relevant rules of the stock exchange;
(c) transfer the shares, or any of the shares for the purposes of or under an employees’ share scheme;
(d) transfer the shares, or any of the shares as purchase consideration;
(e) cancel the shares or any of the shares; or
(f) sell, transfer or otherwise use the shares for such other purposes as the Minister may by order prescribe.

(8) The holder of treasury shares which are held under subsection (5) shall not confer—
(a) the right to attend or vote at meetings and any purported exercise of such rights is void; and
(b) the right to receive dividends or other distribution, whether cash or otherwise, of the company’s assets including any distribution of assets upon winding up of the company.

(9) While the shares are held as treasury shares, the treasury shares shall not be taken into account in calculating the number or percentage of shares or of a class of shares in the company for any purposes including, without limiting the generality of this provision, the provisions of any law or requirements of the constitution of the company or the listing requirements of a stock exchange on substantial shareholding, takeovers, notices, the requisitioning of meetings, the quorum for a meeting and the result of a vote on a resolution at a meeting.

(10) Where the directors decide to distribute the treasury shares as share dividends, the costs of the shares on the original purchase shall be applied in the reduction of the funds otherwise available for distribution as dividends.

(11) This section shall not be taken to prevent—
(a) an allotment of shares as fully paid bonus shares in respect of the treasury shares; or
(b) the subdivision of any treasury shares into treasury shares of a larger number, or consolidation of any treasury shares into treasury shares of a smaller number.

(12) In the circumstances in which subsection (2) applies, any shares allotted as fully paid bonus shares in respect of the treasury shares shall, for the purposes of this Act, be treated as if the shares were purchased by the company at the time the shares were allotted. 142 Laws of Malaysia Act 777

(13) Where the directors resolve to cancel the shares so purchased or to cancel any treasury shares, the costs of the shares shall be applied in the reduction of the profits otherwise available for distribution as dividends.

(14) Where the directors resolve to cancel the shares so purchased, or cancel any treasury shares, the issued capital of the company shall be diminished by the shares so cancelled.

(15) A cancellation of shares made under paragraph (4)(a) or paragraph (7)(e) shall not be deemed to be a reduction of share capital within the meaning of this Act.

(16) A company shall lodge with the Registrar and the stock exchange a notice of the purchase of the shares in a manner to be determined by the Registrar within fourteen days from the purchase of the shares.

(17) The company, every officer and any other person or individual who contravene subsection (2) commit an offence and shall, on conviction, be liable to a fine not exceeding five hundred thousand ringgit or to imprisonment for a term not exceeding five years or to both.

(18) The company and every officer who contravene subsection (16) commit an offence and shall, on conviction, be liable to a fine not exceeding fifty thousand ringgit and, in the case of a continuing offence, to a further fine not exceeding one thousand ringgit for each day during which the offence continues after conviction.

Q2. (c) Accounting for repurchase of shares can be made in following two methods:

The Cost Method

The simplest and most widely-used method for accounting for the repurchase of stock is the cost method. The accounting is:

• Repurchase. To record a repurchase, simply record the entire amount of the purchase in the treasury stock account.

• Resale. If the treasury stock is resold at a later date, offset the sale price against the treasury stock account, and credit any sales exceeding the repurchase cost to the additional paid-in capital account. If the sale price is less than the repurchase cost, charge the differential to any additional paid-in capital remaining from prior treasury stock transactions, and any residual amount to retained earnings if there is no remaining balance in the additional paid-in capital account.

• Retirement. If management decides to permanently retire stock that it has already accounted for under the cost method, it reverses the par value and additional paid-in capital associated with the original stock sale, with any remaining amount being charged to retained earnings.