How is consideration paid or received for treasury shares recognized?

When consideration is paid or received for treasury shares, it is recognized directly in equity. This treatment reflects the nature of treasury shares as a reduction of the total equity of the company. When a company buys back its own shares, it reduces the amount of outstanding shares in circulation, which directly impacts shareholders' equity. The cost associated with acquiring treasury shares does not go through the profit and loss account because it is not an expense in the same way that operating costs are.

Instead, the amount paid for the treasury shares is deducted from total equity, specifically from the equity attributable to shareholders. This is done in the equity section of the balance sheet, which delineates the various components of equity, including share capital and reserves. By recognizing transactions involving treasury shares directly in equity, the financial statements maintain clarity about the company's ownership structure and how it affects equity as a whole.