Firms use this method when management and the governing board do not intend to reissue shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares.

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The constructive retirement method is used to account for shares that have been reacquired by the firm but are not intended to be reissued. This method removes the shares from the company's outstanding share count and reduces shareholders' equity. It is appropriate when the firm does not intend to reissue the shares within a reasonable amount of time or when jurisdiction-specific corporation laws define reacquired shares as retired shares. The cost and par value methods are not applicable in this scenario.

Firms Use This Method When Management and the Governing Board