Lesson Notes By Weeks and Term - Senior Secondary 2

Term: 3^rd Term

Week: 6

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Financial accounting

Topic:-       Issues of shares I

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

1. Define shares
2. List classes of shares
3. List issuing prices of shares.
4. List key ledger accounts

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 benefits of the capital market	Students pay attention
STEP 2 EXPLANATION	She defines shares and lists classes of shares	Students pay attention and participates
STEP 3 DEMONSTRATION	She lists the issuing prices of shares and key ledger account	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

ISSUING OF SHARES

Shares can be defined as the units of capital or ownership of a limited liability company.

CLASSES OF SHARES

1. ORDINARYSHARES

This class of shares makes the holders the real owner of the business. This class of shares has no fixed rate of returns. They rank after preference shares as regards dividends and returns on capital but carry voting rights.

Ordinary shares is also called Equities and a key component of balance sheet.

Ordinary shares can be divided into;

Deferred shares and preferred ordinary shares.

• Deferred Ordinary Shares: this is also known as Founders’ Shares. They are    usually issued to the founders or promoters of the business.
• Preferred Ordinary Shares: this class of ordinary shares confer on the    holders the right to receive dividends after the preference shares have been paid.

2. PREFERENCE SHARES

This is a class of shares that have fixed rate of returns.

 

ISSUING PRICES

Shares can be issued on the following terms:

1. Shares issued at par
2. Shares issued at premium
3. Shares issued at discount

 

SHARES ISSUED AT PAR

Shares are issued at par when the nominal price is equal to the issuing price. shares are issued at the actual price.

For example; shares of#1 nominal value was issued at #1.

ABC Limited makes an issue of #5000 ordinary shares of #1 each at #1.

 

SHARES ISSUED AT PREMIUM

Shares are issued at premium when the issuing value is more than the nominal value.

SHARES ISSUED AT DISCOUNT

 

Shares are issued at discount when the issuing value is less than the nominal value.

Example; shares of #1 nominal value was issued at 80 kobo. The difference of 20 kobo is regarded as Discount.

 

LEDGER ACCOUNTS

Under issue of shares, the following accounts will be prepared;

1. Cashbook/Bank Account
2. Application Account
3. Allotment Account
4. First Call Account
5. Second and Final Call Account
6. Share Capital Account, etc.

ILLUSTRATION

ABC Limited registered with an Authourised Share Capital of #200,000, consisting of 200,000 ordinary share of #1 each. The shares were issued and payable on the following terms:

• #0.40 on application
• #0.35 on allotment
• 25 kobo on first and final call.

All the shares were fully subscribed and paid for.

You are required to prepare relevant ledger accounts.

SOLUTION

Workings:

Application:         0.40×200,000=80,000

Allotment:  0.35×200,000=70,000

First&finalcall:0.25×200,000=50,000

 

EVALUATION:             1. What is shares?

2. List two classes of shares.
3. Mention three issuing prices of shares.

4. List three ledger accounts under issue of shares account.
5. State three differences between ordinary shares and preference shares.
6. State three features of ordinary shares.
7. BMX Limited issued out 30,000 ordinary shares of #2 each payable as follows;

      a. 70K on application

      b. 90K on allotment

      c. 30K on first call

      d. 10K on second call

      You are required to make the necessary entry in the company’s book.

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively