Italy Treasury Shares

[Luca]

Hi everybody,

I just have a quick question about this kind of stock. We all know that they come back from a buyback of outstanding share capital and that gives the possibility to share holders to avoid takeovers but how's the accounting work?

I put down a doubly entry that goes like this:

Example: imagine that there is a company whose share capital is of 1000€. Its retained earnings are of 400€. Directors have in mind to buy back 300 shares (1€ each, no premium in first case).

My guess:

1)Share capital Account : 300D
1000C

Cash : 0D
300C

2)Retained Earnings : 300D
: 400C

Treasury Stock : 0D
300C

What if the buyback is made by a premium? Premium reserve account stood at 200€ before buyback. This is my guess:

1)Share capital Account : 300D
1000C

Cash : 0D
375C

Premium Reserve : 75D
: 200C

2)Retained Earnings : 375D
: 400C

Treasury Stock : 0D
375C

Is this journal entry reasonable? Any further advice?

Thanks and regards

L.