Question

Essay discussion covering all aspects (recognition, initial measurement, subsequent measurement issues, and derecognition) of the COMMON STOCK including treasury stock.

Answer 1

Ans Using points below you can also try to elaborate the essay.

Common Stock Over View

Common stock is a security that represents ownership in a corporation. Holders of common stock elect the board of directors and vote on corporate policies. This form of equity ownership typically yields higher rates of return long term. However, in the event of liquidation, common shareholders have rights to a company's assets only after bondholders, preferred shareholders, and other debtholders are paid in full. Common stock is reported in the stockholder's equity section of a company's balance sheet.

Treasury stock is stock repurchased by the issuer and intended for retirement or resale to the public. It represents the difference between the number of shares issued and the number of shares outstanding.

Common Stock Initial Recognition

Each share of common or preferred capital stock either has a par value or lacks one. The corporation’s charter determines the par value printed on the stock certificates issued. Par value may be any amount—1 cent, 10 cents, 16 cents, $ 1, $5, or $100. Low par values of $10 or less are common.

To record the issue of common (or preferred) stock, you will:

Initial Measurement

At the time of issue the common stock are valued or measured at the Par value at which the share is issued of a share as mentioned above.

Since the company may issue shares at different times and at differing amounts, its credits to the common stock account are not uniform amounts per share. This contrasts with issuing par value shares or shares with a stated value.

Subsequent Measurement

Generally, the common stock stays constant throughout, only time the value per share changes is at the time when share is split, which divides the share in 2 parts hence, resulting in half value of the share.

Derecognition

Shares are derecognised only at the time company is selling out its equity. Common stock holders are paid off at the end of lif cycle of the company or at the time of winding up in the same ratio as they hold shares.