Own-Share Accounting: Technical Guide

Date: 2025-11-03

Standards: ASC 505-30, IAS 32, ASC 815, ASC 718

> See also: Standards Crosswalk for the full mapping of owner-transaction tags and citations.

Overview

This guide documents how the accounting-conservation-framework models own-share

transactions—share repurchases, treasury stock, retirement method, accelerated

share repurchases (ASRs), the 1% IRA 2022 excise tax, and net share settlement.

The core idea: the treasury and retirement methods form a gauge pair. They

allocate effects differently inside equity accounts but must yield identical

changes in total equity and shares outstanding (Proposition B).

1. Treasury Stock vs. Retirement

Treasury Stock (Cost Method)

Standard: ASC 505-30-30

Journal Entry:


Dr. Treasury Stock (contra-equity)   $X
    Cr. Cash                                   $X

Effect:

Total equity decreases by $X
Shares outstanding decrease by N
Treasury stock is reported as contra-equity and may be reissued or retired

later without affecting total equity (Lemma A: reclassification neutrality)

Examples: Microsoft, Apple, Lowe’s

Retirement (Par-Value Method)

Standards: ASC 505-30-30 (US GAAP), IAS 32 (IFRS)

Journal Entry:


Dr. Common Stock (par)              $N × par
Dr. APIC (original premium)         $N × apic
Dr. Retained Earnings (plug)        $X - N(par + apic)
    Cr. Cash                                $X

Effect:

Total equity decreases by $X
Shares outstanding decrease by N
No treasury stock balance remains; sub-accounts absorb differences

Examples: Entities governed by state laws that mandate retirement (e.g.,

Washington RCW 23B.06.310)

Method-Invariance (Proposition B)

Claim:

ΔTotal Equity = −(cash paid + excise tax + costs)

ΔShares Outstanding = −N

See src/validation/own_share_accounting.py::validate_method_invariance and

tests/test_formal_proofs.py::test_proposition_b_method_invariance.

2. 1% Buyback Excise Tax (IRA 2022)

Law: U.S. Inflation Reduction Act §4501

Effective: Fiscal years beginning 2023

Rate: 1% of net repurchases (repurchases − issuances)

Accounting Treatment

Initial recognition:


Dr. Treasury Stock / Equity Accounts   $P
Dr. Excise Tax Payable                 $0.01 × P
    Cr. Cash                                    $P

When tax is paid:


Dr. Excise Tax Payable                 $0.01 × P
    Cr. Cash                                    $0.01 × P

Net effect: Total equity decreases by 1.01 × P. The tax is not a P&L

expense—it is a direct equity adjustment.

Real-World Example

Lowe’s (LOW) Q3 2024 10-Q: disclosed ~$40 million excise tax on $4 billion

of repurchases.

Framework Implementation

XBRL tags captured via buyback_excise_tax in src/parsers/extract_deep.py
Logic implemented in extract_excise_tax()
Validated by tests/test_own_share_accounting.py::test_extract_excise_tax_*

Structure

Company prepays cash (e.g., $100 million) to broker
Broker delivers shares immediately based on initial price
Company records equity reduction for delivered shares and a forward contract
At settlement, the forward adjusts via additional shares or cash

Accounting (ASC 815)

Initial shares: equity transaction (treasury or retirement method)
Forward contract: derivative (equity- or liability-classified)
Settlement: adjusts equity depending on additional shares/cash

Framework Implementation

Tags captured via asr_initial_delivery, asr_forward_fair_value,

asr_final_settlement

Logic implemented in handle_asr_derivative()
Unit coverage: tests/test_own_share_accounting.py::test_handle_asr_*

Process

Employee vests N RSUs
Company withholds M shares to cover payroll taxes
Company remits cash to authorities
Employee receives N − M net shares

Accounting (ASC 718)

Expense has already been recognised over the vesting period. The net settlement

cash is an equity transaction (reduction of APIC or retained earnings), not a

P&L charge.

Framework Implementation

Tag captured via net_share_settlement_withholding
Logic in handle_net_share_settlement()
Tests: tests/test_own_share_accounting.py::test_handle_net_share_settlement_*

5. Written Put Obligations (IAS 32¶23, ASC 480)

When a company writes a put option over its own shares, it creates a present

obligation to repurchase those shares at the holder's discretion. Standards

require liability classification at the present value of the redemption amount.

Lifecycle

Inception (Day 0) — recognise liability

```

Dr Equity (APIC / Retained Earnings) XXX

Cr Liability - Written Put XXX

```

- Liability measured at present value of strike × shares (IAS 32¶23).

- Equity decreases by same amount (reclassification, no P&L).

Subsequent measurement — remeasure at fair value

```

Dr P&L (Remeasurement Loss) XXX

Cr Liability - Written Put XXX

```

- Changes in fair value flow through profit or loss unless hedge accounting

applies (IFRS 9 / ASC 820).

Settlement paths

- Cash settlement: pay strike, derecognise liability, record treasury

stock or retirement.

- Physical settlement: deliver treasury shares; any difference adjusts

equity directly.

- Net share settlement: contract specific; liability reduced by shares

delivered and equity hits remain within own-share accounts.

Expiry unexercised — reclassify back to equity

```

Dr Liability - Written Put XXX

Cr Equity (APIC - Expired Options) XXX

```

- No profit or loss (IAS 32.33 mandates own-share transactions stay within

equity).

Equity Bridge Impact

The conservation equation incorporating written puts:


ΔE = NI + OCI - Div
     - Liability_inception
     + Liability_expiry_or_settlement

Remeasurement effects are already captured in NI when the fair value changes

run through profit or loss.

Framework Implementation

Module: src/validation/written_put_accounting.py
Tests: tests/own_share_derivatives/test_written_put_liability.py
Taxonomy tags: ObligationToRepurchaseOwnShares,

WrittenPutOnOwnSharesFairValue, WrittenPutExpiredUnexercised

Comparison to ASR

Feature	ASR Forward	Written Put
Classification	Equity or liability (depends on ASC 815-40)	Liability (IAS 32¶23, ASC 480)
Who controls settlement?	Company	Holder
Inception P&L	None (equity-classified)	None (reclassification)
Remeasurement	Depends on classification	Always through P&L (if FV)

6. Standards References

US GAAP

IFRS

IAS 32

Practitioner Guides

7. Validation Checklist

Unit tests: pytest tests/test_own_share_accounting.py -v
Integration: pytest tests/test_formal_proofs.py::test_proposition_b_method_invariance -v
Case studies: notebooks/case_studies_negative_equity.ipynb (LOW, DPZ, HD, MSFT)

8. Common Questions

Does treasury vs. retirement change total equity?

No. Proposition B proves both methods yield identical ΔTotal Equity and ΔShares.

Is the 1% excise tax a P&L expense?

No. It is recorded directly in equity.

How do ASRs affect equity?

Initial cash reduces equity immediately; the forward contract adjusts at

settlement.

Why is net share settlement cash not an expense?

The compensation expense was recognised over vesting. Cash remitted for

withholding is recorded directly in equity.

Overview

1. Treasury Stock vs. Retirement

Treasury Stock (Cost Method)

Retirement (Par-Value Method)

Method-Invariance (Proposition B)

2. 1% Buyback Excise Tax (IRA 2022)

Accounting Treatment

Real-World Example

Framework Implementation

3. Accelerated Share Repurchases (ASR)

Structure

Accounting (ASC 815)

Framework Implementation

4. Net Share Settlement (Share-Based Compensation)

Process

Accounting (ASC 718)

Framework Implementation

5. Written Put Obligations (IAS 32¶23, ASC 480)

Lifecycle

Equity Bridge Impact

Framework Implementation

Comparison to ASR

6. Standards References

US GAAP

IFRS

Practitioner Guides

7. Validation Checklist

8. Common Questions