Lesson Note on Capital: Meaning, Types and Working Capital for SS 2

Class: Senior Secondary School 2 (SS2 / SSS2)
Term: Second Term
Week: 8
Age: 16 years
Duration: 45 minutes
Subject: Commerce
Curriculum Theme: Financial Accounting
Previous Lesson: Warehousing: Meaning, Types, Importance and Pros and Cons.
Topic: CAPITAL
Subject Matter: Meaning of capital (economist concept, accountant concept, layman concept), types of capital (authorized, registered, nominal, issued, called-up, owned), working capital

Specific Objectives

By the end of the lesson, pupils should be able to:

Cognitive Domain:

• Define capital from a layman’s, accountant’s, and economist’s perspective.
• Identify and explain various types of capital in a business.
• State the formula for calculating working capital.

Affective Domain:

• Appreciate the importance of different capital types in business finance.
• Show willingness to accurately calculate financial figures.

Psychomotor Domain:

• Distinguish between different types of capital in given scenarios.
• Calculate working capital from provided financial data.

Social Domain:

• Collaborate effectively when analyzing financial reports to identify capital types.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• A. O. Anyaele, Essential Commerce for Senior Secondary Schools, Tonad Publishers.
• https://www.waeconline.org.ng/e-learning
• https://www.flexisaf.com/education/lesson-plans/

Instructional Materials

The teacher will teach this lesson with the aid of:

• Copies of annual reports from different companies
• Whiteboard or chalkboard
• Markers or chalk
• Calculators

Rationale for the Lesson

Understanding capital is important for pupils to grasp how businesses are financed and how they operate. This lesson helps pupils understand different financial terms and apply them to real-world business situations, which is useful for future studies and careers.

Prerequisite/Previous Knowledge

Pupils have a basic understanding of business organizations, assets, and liabilities.

Lesson Content/Board Summary

CAPITAL

Meaning of Capital

Capital refers to the money or wealth used to start or operate a business. Its meaning varies depending on the context:

• Layman’s Concept: To a layman, capital is simply money, cash, or funds available for spending or investment.
• Accountant’s Concept: To an accountant, capital is the owner’s equity or the funds contributed by the owner(s) to the business. It is the excess of assets over liabilities.
• Economist’s Concept: To an economist, capital refers to all man-made resources used in the production of goods and services, such as machinery, buildings, and tools.

Types of Capital

The following are different types of capital in a company:

• Authorized Capital (Nominal or Registered Capital): This is the maximum amount of share capital that a company is legally permitted to issue to shareholders, as stated in its Memorandum of Association.
• Issued Capital: This is the portion of the authorized capital that has been offered to the public for subscription and has been allotted to shareholders.
• Called-up Capital: This is the portion of the issued capital that the company has requested shareholders to pay.
• Paid-up Capital: This is the portion of the called-up capital that shareholders have actually paid to the company.
• Uncalled Capital: This is the portion of the issued capital that the company has not yet requested shareholders to pay.
• Reserve Capital: This is a portion of the uncalled capital that a company decides, by special resolution, not to call up except in the event of liquidation.

Working Capital

Working capital is the difference between a company’s current assets and its current liabilities. It represents the capital available to a business for its day-to-day operations.

Formula:

Working Capital = Current Assets – Current Liabilities

Where:

• Current Assets: Assets that can be converted into cash within one year (e.g., cash, bank balance, debtors, stock, short-term investments).
• Current Liabilities: Debts or obligations that must be paid within one year (e.g., creditors, bank overdraft, short-term loans, accrued expenses).

Worked Examples:

Example 1:

A company has Current Assets of ₦500,000 and Current Liabilities of ₦200,000. Calculate its Working Capital.

Step 1: Identify Current Assets and Current Liabilities.

• Current Assets = ₦500,000
• Current Liabilities = ₦200,000

Step 2: Apply the Working Capital formula.

• Working Capital = Current Assets – Current Liabilities
• Working Capital = ₦500,000 – ₦200,000
• Working Capital = ₦300,000

Example 2:

A business has the following balances:

• Cash: ₦80,000
• Stock: ₦150,000
• Debtors: ₦70,000
• Creditors: ₦100,000
• Bank Overdraft: ₦30,000

Calculate the Working Capital.

Step 1: Calculate Total Current Assets.

• Current Assets = Cash + Stock + Debtors
• Current Assets = ₦80,000 + ₦150,000 + ₦70,000
• Current Assets = ₦300,000

Step 2: Calculate Total Current Liabilities.

• Current Liabilities = Creditors + Bank Overdraft
• Current Liabilities = ₦100,000 + ₦30,000
• Current Liabilities = ₦130,000

Step 3: Apply the Working Capital formula.

• Working Capital = Current Assets – Current Liabilities
• Working Capital = ₦300,000 – ₦130,000
• Working Capital = ₦170,000

Teaching Methods/Instructional Techniques

Discussion, Lecture, Demonstration, Question and Answer, Visual Aids

Instructional Procedures

Step 1: Introduction

Time: 5 minutes
Teaching Skill: Set Induction
Teacher’s Activity: The teacher greets the pupils and asks them what they understand by the term ‘money’ in a business context. The teacher then relates their answers to the concept of capital.
Pupils’ Activity: Pupils respond to the teacher’s questions and share their ideas about money in business.
Learning Point: Pupils are introduced to the concept of capital and its relevance to business.

Step 2: Meaning of Capital

Time: 7 minutes
Teaching Skill: Explanation/Definition
Teacher’s Activity: The teacher explains the meaning of capital from the layman’s, accountant’s, and economist’s perspectives, using simple examples.
Pupils’ Activity: Pupils listen attentively and ask questions for clarification.
Learning Point: Pupils understand the different interpretations of capital.

Step 3: Types of Capital

Time: 10 minutes
Teaching Skill: Explanation/Demonstration
Teacher’s Activity: The teacher explains the various types of capital (authorized, issued, called-up, paid-up, uncalled, reserve). The teacher then shows pupils examples of these capital types in the provided annual reports.
Pupils’ Activity: Pupils listen, take notes, and identify the different types of capital in the annual reports.
Learning Point: Pupils can identify and differentiate between various types of capital.

Step 4: Working Capital Concept

Time: 7 minutes
Teaching Skill: Explanation/Formula Derivation
Teacher’s Activity: The teacher defines working capital, explains its importance, and introduces the formula: Working Capital = Current Assets – Current Liabilities. The teacher also explains what current assets and current liabilities are.
Pupils’ Activity: Pupils listen, copy the definition and formula, and ask questions about current assets and liabilities.
Learning Point: Pupils understand the concept and formula for working capital.

Step 5: Working Capital Calculation

Time: 8 minutes
Teaching Skill: Demonstration/Problem Solving
Teacher’s Activity: The teacher works through the two examples of working capital calculations on the board, explaining each step clearly.
Pupils’ Activity: Pupils follow the examples, ask questions about the steps, and copy the solutions into their notebooks.
Learning Point: Pupils learn how to apply the formula to calculate working capital.

Step 6: Class Activity/Discussion

Time: 5 minutes
Teaching Skill: Application/Guided Practice
Teacher’s Activity: The teacher provides a simple set of data (current assets and current liabilities) and asks pupils to calculate the working capital individually or in pairs. The teacher monitors and provides assistance.
Pupils’ Activity: Pupils work on the calculation and present their answers.
Learning Point: Pupils practice calculating working capital independently.

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

Teacher’s Activity: The teacher evaluates the learning by asking the following questions:

1. Define capital from an accountant’s perspective.
2. List three types of capital.
3. State the formula for calculating working capital.
4. If a company has Current Assets of ₦750,000 and Current Liabilities of ₦300,000, what is its working capital?

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 1 minute
Teaching Skill: Summarization
Teacher’s Activity: The teacher briefly summarizes the key points of the lesson on capital and its types, and assigns homework.
Pupils’ Activity: Pupils listen to the summary and copy down the homework.
Learning Point: The lesson is concluded with a recap and assignment for reinforcement.

Lesson Keywords

• Capital – Funds used to start or operate a business.
• Authorized Capital – Maximum amount of shares a company can issue.
• Issued Capital – Shares offered and allotted to the public.
• Called-up Capital – Portion of issued capital requested from shareholders.
• Working Capital – Current Assets minus Current Liabilities.
• Current Assets – Assets convertible to cash within one year.
• Current Liabilities – Debts payable within one year.

Differentiation

For pupils who grasp concepts quickly, the teacher can challenge them to analyze more complex annual reports or discuss the implications of positive vs. negative working capital. For those who need more support, the teacher can provide additional simplified examples and one-on-one guidance during calculations, focusing on one type of capital at a time.

Note for teachers using this lesson plan

Ensure that the annual reports brought to class are current and relevant to the Nigerian business context. Guide pupils through the reports section by section, pointing out where different capital figures are usually found. Emphasize the practical application of working capital calculations for business management. Encourage pupils to use calculators for accuracy in computations.