Lesson Notes By Weeks and Term - Senior Secondary 2

Loan capital

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Term: 3rd Term

Week: 8

Class: Senior Secondary School 2

Age: 16 years

Duration: 40 minutes of 2 periods each

Date:       

Subject:      Financial accounting

Topic:-       Loan capital

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

  1. Define debentures
  2. List types of debentures
  3. List issue prices of debentures
  4. List relevant 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 issues of shares

Students pay attention

STEP 2

EXPLANATION

She defines and lists the types of debentures.

 

Students pay attention and participates

STEP 3

DEMONSTRATION

She lists issue prices of debentures and relevant ledger accounts

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

LOAN CAPITAL

A debenture is a medium to long-term debt that is used by companies to borrow money. A bond acknowledging a loan to a company under the company’s seal, bearing a fixed rate of interest is also known as Debenture. Debenture is a long term liability.

 

TYPES OF DEBENTURES

There are various types of debentures based on certain classifications.They includes;

  1. Redeemable Debentures
  2. Irredeemable/Perpetual Debentures
  3. Convertible Debentures
  4. Non-convertible Debentures
  5. Secured Debentures
  6. Unsecured Debentures
  7. First Mortgage Debentures
  8. Second Mortgage Debentures
  9. Registered Debentures
  10. Bearer Debentures

 

 

The types of debentures mentioned above can be classified as follows;

(A) Redemption/Tenure

(i) REDEEMABLE DEBENTURES: These are debentures which are redeemable (i.e.repayable) at a specified future date.

(ii)IRREDEEMABLE DEBENTURES: This is also known as perpetual debentures. Irredeemable debentures do not carry any date of redemption.

(B) Convertibility

(i) CONVERTIBLE DEBENTURES: Convertible debenture holders have an option of converting their holdings into equity shares.

(ii) NON-CONVERTIBLE DEBENTURES: These are debentures with no such option of getting converted into shares/ equity.

(C) Security

(i) SECURED OR MORTGAGE DEBENTURES: A secured debenture is secured by the charge on some asset or set of assets of the company.

(ii) UNSECURED DEBENTURES: It is also known as simple or naked debenture. These are debentures which carry no charge on the assets of the company.

(D) Transferability/Registration

(i) REGISTERED DEBENTURES: These are debentures that are registered with the company. In the case of registered debentures, the name, address, and other holding details are registered with the issuing company and whenever such debenture is transferred by the holder; it has to be informed to the issuing company for updating in its records.

(ii)UNREGISTERED/BEARER DEBENTURES: This type of debenture can be transferred by mere delivery to the new holder. They are not recorded in the register of the company.

 

ISSUE PRICE

Debenture may be issued at par, at premium or at a discount.

i. Debentures issued at par: in this type of issue, the debentures are issued at the nominal value. For example, N100 debentures are issued at N100.

ii. Debentures issued at a premium: debentures are issued at premium when the issue price is above the nominal price. The premium is the excess of the issue price over the nominal value. For example, debentures of N 100 are issued at N 120. Premium = N 120 – N 100 = N 20.

iii. Debentures issued at a discount: this means that the debentures are issued at a price below the nominal value. For example, debentures of N 100 are issued at N 90. Discount = N 100 – N 90 = N 10.

 

RELEVANT LEDGER ACCOUNT

  1. CashBook/Bank Account
  2. Debenture Application and Allotment Account
  3. Debenture First and Final Call Account
  4. %Debenture Account.
  5. Discount Account.
  6. Premium Account, etc.

ILLUSTRATION

Mibal Limited issued 10.0005% debentures of N1.00 each payable as follows:

30k on Application

50k on Allotment

20k on First and Final Call

All the debentures were applied for and allotted.

Required: Show the necessary ledger entries.

 

SOLUTION

Workings:

Application:        0.30×10,000=N3,000

Allotment: 0.50×10,000=N5,000

First and Final Call:     0.20×10,000=N2,000

EVALUATION:            

  1. What is debenture?
  2. Mention four types of debentures.
  3. Mention three issue prices of debentures.
  4. List four ledger accounts under issue of debentures.
  5. List the ledger accounts for issue of debentures.
  6. State three differences between shares and debentures.
  7. Jones Plc issued 15.0008% debentures of N1.00 at N1.20 each payable as follows:

       40k on application

                  60k on allotment(including premium)

                  20k on first and final call.

Required: Show the necessary ledger and journal entries..

CLASSWORK: As in evaluation

CONCLUSION: The teacher commends the students positively