When a company purchases its own shares from existing shareholders through the open market, it is called Buy-back of Shares.
In this transaction, the company is reducing its share capital by repurchasing shares worth Rs 5,00,000 from the market. This is done to:
- Return surplus cash to shareholders
- Improve earnings per share (EPS)
- Enhance shareholder value
- Reduce equity base
The other options represent different concepts:
Re-issue of Shares → Reissuing previously forfeited shares to new shareholders
Bonus Issue → Issuing free shares to existing shareholders from reserves/profits
Forfeiture of Shares → Cancelling shares due to non-payment of call money by shareholders
Since the company is actively purchasing its own shares from the market using cash, this is a classic case of buy-back.