Lesson Notes By Weeks and Term - Senior Secondary 1

Instruments of business finance I

Get it on Google Play
Get it on the Apple App Store
  1. Home
  2. Lesson Notes By Weeks and Term
  3. Senior Secondary 1
  4. Instruments of business finance I

Term: 3rd Term

Week: 11

Class: Senior Secondary School 1

Age: 15 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Economics

Topic:-       Instruments of business finance I

SPECIFIC OBJECTIVES: At the end of the lesson, pupils should be able to

  1. Define instruments of business finance
  2. Define shares and ordinary/equity shares
  3. List and explain debentures

INSTRUCTIONAL TECHNIQUES: Identification, explanation, questions and answers, demonstration, videos from source

INSTRUCTIONAL MATERIALS: Videos, loud speaker, textbook, pictures

INSTRUCTIONAL PROCEDURES

PERIOD 1-2

PRESENTATION

TEACHER’S ACTIVITY

STUDENT’S ACTIVITY

STEP 1

INTRODUCTION

The teacher reviews the previous lesson on sources of funds for business

Students pay attention

STEP 2

EXPLANATION

She defines instruments of business finance

Students pay attention and participates

STEP 3

DEMONSTRATION

She explains some sources of funds for business.

Students pay attention and participate

STEP 4

NOTE TAKING

The teacher writes a summarized note on the board

The students copy the note in their books

 

NOTE                        

INSTRUMENT OF BUSINESS FINANCE

Instrument of business finance also called financial instrument is a physical or electronic document that has intrinsic monetary value or transfer value. Examples are cash, loans, insurance policies, shares, stock, debenture, bond, etc.

 

SHARES

Share is evidence of ownership of a company.

It may be defined as the individual portion of the company’s capital owned by shareholders.

 

TYPES OF SHARES

  1. Preference shares: these are shares in which the owners receive fixed rate of interest per annum provided that profits are made in that year. If profits are not made that year, there would be no dividend. There are three types of preference shares;
  2. Cummulative preference shares: In Cummulative preference shares, profits not paid in one year accumulates and will be paid in the next year in which profits are made.
  3. Participating preference shares: this type of share allows shareholders to receive a sum of the profit made in addition to their fixed dividend after other shareholders have received their dividend.
  4. Redeemable preference shares: they are those preference shares that the company can buy back.

 

ORDINARY/EQUITY SHARE

The ordinary shareholders are the real owners of the business. The holders are the risk bearers and they receive their dividends after all other shares have been paid. They can vote and be voted for. They have no fixed rate of dividend. There are two types of ordinary share. They are deferred and preferred ordinary shares.

  1. Deferred or founders ordinary shares are entitled to the remainder of profit after all other shares have been paid. They are issued to the founders or promoters of the business.
  2. Preferred ordinary shares receive dividend after the preference shares have been paid. They have preference over other classes of ordinary shares.
  3. Stock: stocks can be defined as the bundle of shares or mass of capital which can be transferred in fractional amounts.
  4. Or it is a collection of shares into a bundle.
  • Stocks are not issued but converted from shares issued. They are fully paid.
  1. Bonds: bonds are securities issued by the government as a way of raising funds from the stock exchange market.

 

DEBENTURES

A debenture is an acknowledgement of debt and written promise by a company to repay a loan collected by the company according to the terms laid down in the document. It’s called a certificate of indebtedness. They are creditors of a company and as such have no claim of ownership of the company. They are not concerned with the profit or loss of the business but get a fixed rate of interest.

 

TYPES OF DEBENTURES

  1. Ordinary/Simple/Naked Debentures: These kind of debentures are issued without security. The owner of these debentures are considered unsecured creditors at the time of winding up.
  2. Mortgage/Secured/debentures: These kind of debentures are secured against the property of the company. The holder of the debentures has the lawful right to sell the property and recover the credit if the company does not repay its debt at the agreed date.
  3. Redeemable debentures: on these debentures, actual interest is paid from time to time. It is repayable at a date which has been fixed.
  4. Irredeemable/perpetual debenture: These type of debentures is not refundable during the life time of the issuing company. They are only to be paid either at the time of any failure to pay interest or on the winding up of the company.

 

EVALUATION:    1. Define instruments of business finance

  1. List and explain shares and types of shares
  2. Define and explain the types of debentures

CLASSWORK: As in evaluation