Question

what is the effect of the purchase of treasury stocks

Answer 1

Treasury stocks :-

Any organisation which issued shares to the public are reacquired by the same organisation by using retained earnings are reserves or profits by doing operations.

Effect of purchase of treasury stock :-

1. Reduction in total outstanding shares in the hands of public

2. Decrease in cash reserves of the organisation.

3. Decrease in general reserve aur any other free reserves.

4. Increase in stockholders equity in the form of treasury stocks.

5. If any dividend declared on the the shares outstanding by the organisation then this treasury stocks also get dividend.

6. Control in decision making in an organisation.

7. Reducing the voting power of general public through purchase of these treasury stocks.

8. If there is any increase in share price in secondary market then the company myself this treasury stocks at the current market price.

9. These treasury stocks cannot be considered as investment but included in owners equity.

10. Treasury stocks cannot be treated as asset but included in stockholders equity.

These are all the effects of the purchase of the treasury stock.

I hope, all the above mentioned information and explanations are useful and helpful to you.

Thank you.