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CFA Level I · CFA Level I Exam · Analyzing Balance Sheets

Under IFRS, a company repurchases some of its own ordinary shares and holds them rather than cancelling them. In the statement of financial position, the repurchased shares are most likely presented as:

Treasury shares are presented as a deduction within equity. A company cannot hold an investment in itself, so the repurchase reduces shareholders' equity rather than creating an asset, and total equity falls by the cost of the shares repurchased.

  1. AA deduction within equityCorrect
  2. BAn investment in financial assets
  3. CA reduction of retained earnings only after cancellation

Explanation

Treasury shares are shares reacquired by the issuer and not cancelled. They are not an asset because a company cannot own a claim on itself. They are shown as a contra-equity deduction, reducing total equity. The asset option is wrong for this reason.

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