Catherine Butler
Trojan Stockpiles Case
June 1, 2015
Trojan Industries Inc.

Trojan Industries Inc. (Trojan), a publicly traded company in the United States and producer of metal products, has just changed the way that they account for share repurchases. The issue at hand is whether this accounting change represents a correction of an error or a change in accounting principle. In addition, if Trojan were required to issue financial statements in conformity with IFRSs, would Trojan’s accounting for its share retirements be impacted? By definition, ASC 250-10-20 defines an error as “mistakes in the application of generally accepted accounting principles” and “a change from an accounting principle that is not generally accepted to one that is generally accepted.” Per ASC 505-30-30-8, when a corporation’s stock is retired, or repurchased for constructive retirement, the corporation has two options of allocating the excess of repurchase price over par or stated value. This excess may be allocated between additional paid-in capital and retained earnings or charged entirely to retained earnings. Trojan began accounting for its share retirements by recognizing the excess of the purchase price over the par value of the retired shares as a reduction of additional paid-in capital. In March 20X2, they concluded that instead of accounting for it by reducing APIC, they would allocate it across both APIC and retained earnings. Since the first method Trojan used was not accepted per ASC 505-30-30-8, this transition would be treated as a correction of an error. In alignment with ASC 250-10-20, this change is the definition of an error: “a change from an accounting principle that is not generally accepted to one that is generally accepted”. Per IAS 32, “where an entity purchases its own equity shares, these shares should be presented as a deduction from equity. No gain or loss