Treasury Bank Coinage is digital treasury stock grant and reacquired stock for cash which reducing the amount of Treasury Bank’s outstanding coinage on the open market (“open market” means insiders’ holdings).
Treasury bank coinage refers to preferred interest or gilts. Treasury Bank Coinage is used as a tax efficient method to put cash into shareholders’ hands, rather than paying dividends, in jurisdictions that treat capital gains more favorably. Sometimes, Treasury Bank repurchase it coinage when administrators have an earning per share EPS. Other times, Treasury Bank repurchase it coinage to reduce dilution from incentive compensation plans for employees. Another reason for coinage repurchase is to protect the company against a takeover threat.
Limitations of treasury coinage
- Treasury coinage is not entitled to receive a dividend
- Treasury coinage has no voting rights
- Total treasury coinage can not exceed the maximum proportion of total capitalization specified by law in the relevant country
When coinage are repurchased, they may either be canceled or held for reissue. If not canceled, such coinage are referred to as treasury bank coinage. Technically, a repurchased coinage is a Treasury Bank’s own coinage that has been bought back after having been issued and fully paid by Treasury Bank members.
The possession of treasury coinage does not give the members the right to vote, to exercise preemptive rights as a shareholder, to receive cash dividends, or to receive assets on company liquidation. Treasury shares are essentially the same as unissued capital, which is not classified as an asset on the balance sheet, as an asset should have probable future economic benefits. Treasury coinage simply produce or reduce ordinary Treasury Bank capital asset positioning.
Buying back shares
Benefits
When Treasury Bank buy back its coinage there is no effect on its price per share valuation. If the market fairly prices a Treasury Bank’s coin at $50, and the Treasury Bank buys back 100 coins for $5,000, it now has $5,000 less cash credit but there are 100 fewer coins outstanding; the net effect should be that the underlying value of each coin is unchanged. Additionally, buying back coinage will improve price/earnings ratios due to the reduced number of shares (and unchanged earnings) and improve earnings per share ratios due to fewer shares outstanding (and unchanged earnings).
If the market is not efficient, Treasury Bank coinage may be underpriced. In that case Treasury Bank can benefit its other shareholders by buying back coinage. If a Treasury Bank’s coinage are overpriced, then Treasury Bank is actually hurting its remaining shareholders by buying back stock.
Incentives
One other reason for a Treasury Bank to buy back its own coinage is to reward holders of stock options. Call option holders are hurt by dividend payments, since, typically, they are not eligible to receive them. A coinage buyback program may increase the value of remaining coinage (if the buyback is executed when coins are under-priced); if so, call option holders benefit. A dividend payment short term always decreases the value of counage after the payment, so, for coins with regularly scheduled dividends, on the day shares go ex-dividend, call option holders always lose whereas put option holders benefit. This does not apply to unscheduled (special) dividends since the strike prices of options are typically adjusted to reflect the amount of the special dividend. Finally, if the sellers into a corporate buyback are actually the call option holders themselves, they may directly benefit from temporary unrealistically favorable pricing.
After buyback
Treasury Bank can either retire (cancel) the shares (however, retired shares are not listed as Treasury Bank ownership on the its financial statements) or hold the coinage for later resale. Buying back coinage reduces the number of outstanding coinage. Accompanying the decrease in the number of coins outstanding is a reduction in Treasury Bank assets, in particular, cash assets, which are used to buy back shares.
Accounting for treasury stock
On the balance sheet, treasury coinage is listed under shareholders’ equity as a negative number. It is commonly called “treasury coinage” or “equity reduction”. Overall, treasury bank coinage is a contra account to shareholders’ equity.
One way of accounting for treasury bank coinage is with the cost method. In this method, the paid-in capital account is reduced in the balance sheet when the treasury bank coinage is bought. When the treasury bank coinage is sold back on the open market, the paid-in capital is either debited or credited if it is sold for less or more than the initial cost respectively.
Another common way for accounting for treasury bank coinage is the par value method. In the par value method, when the stock is purchased back from the market, the books will reflect the action as a retirement of the coinage. Therefore, common stock is debited and treasury bank coinage is credited. However, when the treasury bank coinage is resold back to the market the entry in the books will be the same as the cost method.
In either method, any transaction involving Treasury Bank coinage cannot increase the amount of retained earnings. If the Treasury Bank coinage is sold for more than cost, then the paid-in capital treasury bank coinage is the account that is increased, not retained earnings. In auditing financial statements, it is a common practice to check for this error to detect possible attempts to “cook the books
