Lesson Note on Issues of Shares: Terms and Share Accounts Preparation for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS 2)
Term: 3rd Term
Week: 6
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Company Accounts and Finance
Previous Lesson: Capital Markets: Benefits to Investors, Government and Economy.
Topic: ISSUES OF SHARES
Subject Matter: Meaning of issues of shares (raising ownership capital by selling shares), terminologies used in share issue (authorized share capital, issued share capital, called-up capital, paid-up capital, par value, premium), shares accounts preparation, application account, allotment account, calls accounts

Specific Objectives

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

Cognitive Domain:

• Define issues of shares.
• Explain the various terminologies used in share issues.
• Differentiate between authorized and issued shares.
• State the differences between issuing shares at par and at a premium.

Affective Domain:

• Appreciate the importance of shares in raising capital for companies.
• Participate actively in discussions about share issues.

Psychomotor Domain:

• Prepare basic ledger accounts for the issue of shares.
• Illustrate a share certificate.

Social Domain:

• Collaborate with peers to solve problems related to share accounting.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• O. A. Longe, (2018). Simplified and Amplified Financial Accounting for Senior Secondary Schools.

Instructional Materials

The teacher will teach this lesson with the aid of:

• Charts showing examples of share accounts
• Pictures of share certificates
• Publications from the Securities and Exchange Commission (SEC)
• Publications from the Nigerian Exchange Group (NGX)
• An example of a share certificate

Rationale for the Lesson

This lesson helps pupils understand how companies raise capital from the public by selling shares. It enables pupils to comprehend the financial mechanisms of public companies and the accounting treatment of share issues, which is important for future studies and career paths in finance.

Prerequisite/Previous Knowledge

Pupils should have a basic understanding of company formation, types of business organizations, and simple ledger accounts.

Lesson Content/Board Summary

ISSUES OF SHARES

Meaning of Issues of Shares

Issues of shares refer to the process by which a company raises capital by offering its ownership units (shares) to the public or private investors. This capital is known as ownership capital or equity capital.

Terminologies Used in Share Issue

• Authorized Share Capital: The maximum amount of share capital that a company is legally permitted to issue, as stated in its Memorandum of Association.
• Issued Share Capital: The portion of the authorized share capital that has been offered and allotted to investors.
• Called-up Capital: The portion of the issued share capital that the company has formally requested its shareholders to pay.
• Paid-up Capital: The portion of the called-up capital that shareholders have actually paid to the company.
• Par Value (Nominal Value): The face value or stated value of a share, which is fixed at the time of issue.
• Premium: The amount received by a company over and above the par value of its shares when they are issued.

Types of Share Accounts

When shares are issued, several ledger accounts are used to record the transactions. These include:

• Share Application Account: Records money received from applicants for shares.
• Share Allotment Account: Records money due and received when shares are formally allotted to applicants.
• Share Calls Account: Records money due and received for installments called after allotment (e.g., First Call, Final Call).
• Share Capital Account: Records the par value of shares issued.
• Share Premium Account: Records any premium received on the issue of shares.
• Bank Account: Records all cash movements related to share issues.

Issue of Shares at Par and at a Premium

Shares can be issued at their par value or at a value higher than their par value (at a premium).

Issue of Shares at Par

When shares are issued at par, the issue price is equal to the nominal value of the share.

Example 1: Issue of Shares at Par

ABC Ltd. issued 100,000 ordinary shares of N1.00 each at par, payable as follows:

• N0.40 on application
• N0.30 on allotment
• N0.30 on first and final call

All monies were duly received.

Ledger Entries:

Step 1: Application Money Received

Dr. Bank Account N40,000 (100,000 shares x N0.40)

Cr. Share Application Account N40,000

Step 2: Application Money Transferred to Share Capital

Dr. Share Application Account N40,000

Cr. Share Capital Account N40,000

Step 3: Allotment Money Due

Dr. Share Allotment Account N30,000 (100,000 shares x N0.30)

Cr. Share Capital Account N30,000

Step 4: Allotment Money Received

Dr. Bank Account N30,000

Cr. Share Allotment Account N30,000

Step 5: First and Final Call Money Due

Dr. Share First and Final Call Account N30,000 (100,000 shares x N0.30)

Cr. Share Capital Account N30,000

Step 6: First and Final Call Money Received

Dr. Bank Account N30,000

Cr. Share First and Final Call Account N30,000

Issue of Shares at a Premium

When shares are issued at a premium, the issue price is higher than the nominal value. The excess amount over the par value is credited to a Share Premium Account.

Example 2: Issue of Shares at a Premium

XYZ Plc. issued 50,000 ordinary shares of N2.00 each at a premium of N0.50, payable as follows:

• N1.00 on application (including N0.20 premium)
• N0.80 on allotment (including N0.30 premium)
• N0.70 on first and final call

Total issue price = N2.00 (par) + N0.50 (premium) = N2.50 per share.

Ledger Entries:

Step 1: Application Money Received

Dr. Bank Account N50,000 (50,000 shares x N1.00)

Cr. Share Application Account N50,000

Step 2: Application Money Transferred to Share Capital and Share Premium

Dr. Share Application Account N50,000

Cr. Share Capital Account N40,000 (50,000 shares x N0.80 par portion)

Cr. Share Premium Account N10,000 (50,000 shares x N0.20 premium portion)

Step 3: Allotment Money Due

Dr. Share Allotment Account N40,000 (50,000 shares x N0.80)

Cr. Share Capital Account N25,000 (50,000 shares x N0.50 par portion)

Cr. Share Premium Account N15,000 (50,000 shares x N0.30 premium portion)

Step 4: Allotment Money Received

Dr. Bank Account N40,000

Cr. Share Allotment Account N40,000

Step 5: First and Final Call Money Due

Dr. Share First and Final Call Account N35,000 (50,000 shares x N0.70)

Cr. Share Capital Account N35,000 (50,000 shares x N0.70 par portion)

Step 6: First and Final Call Money Received

Dr. Bank Account N35,000

Cr. Share First and Final Call Account N35,000

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 introduces the topic by asking pupils how large companies raise money for their operations. The teacher will also show a sample share certificate.
Pupils’ Activity: Pupils respond to questions and observe the share certificate.
Learning Point: Pupils connect prior knowledge to the new topic and get an overview of what shares look like.

Step 2: Meaning of Issues of Shares

Time: 5 minutes
Teaching Skill: Explanation
Teacher’s Activity: The teacher defines issues of shares as the process of raising ownership capital by selling shares to the public.
Pupils’ Activity: Pupils listen attentively and write down the definition.
Learning Point: Pupils understand the core concept of issuing shares.

Step 3: Terminologies Used in Share Issue

Time: 8 minutes
Teaching Skill: Explanation/Discussion
Teacher’s Activity: The teacher explains key terminologies such as authorized share capital, issued share capital, called-up capital, paid-up capital, par value, and premium, encouraging questions.
Pupils’ Activity: Pupils ask questions for clarification and note down the definitions.
Learning Point: Pupils gain a clear understanding of the specific terms used in share issues.

Step 4: Differences between Classes of Shares and Authorized vs. Issued Shares

Time: 5 minutes
Teaching Skill: Explanation/Comparison
Teacher’s Activity: The teacher discusses the differences between ordinary and preference shares (if not covered previously, otherwise focuses on authorized vs. issued shares). The teacher highlights the distinction between authorized and issued share capital.
Pupils’ Activity: Pupils participate in the discussion and understand the differences.
Learning Point: Pupils can differentiate between classes of shares and the various stages of share capital.

Step 5: Issue of Shares at Par and at a Premium

Time: 8 minutes
Teaching Skill: Explanation/Demonstration
Teacher’s Activity: The teacher explains what it means to issue shares at par and at a premium, providing simple numerical examples.
Pupils’ Activity: Pupils follow the explanations and examples, asking questions as needed.
Learning Point: Pupils understand the conditions under which shares are issued at par or premium.

Step 6: Preparation of Shares Accounts

Time: 8 minutes
Teaching Skill: Demonstration/Practice
Teacher’s Activity: The teacher demonstrates how to prepare the application, allotment, and calls accounts using the examples discussed, showing the debit and credit entries.
Pupils’ Activity: Pupils observe the demonstration and copy the ledger entries into their notes.
Learning Point: Pupils learn the practical accounting treatment for share issues.

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. What is meant by the issue of shares?
2. List any three terminologies used in share issues.
3. Differentiate between authorized share capital and issued share capital.
4. Explain the difference between issuing shares at par and at a premium.

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 summarizes the key points of the lesson, emphasizing the importance of understanding share issues in financial accounting.
Pupils’ Activity: Pupils listen and ask any final questions.
Learning Point: Pupils consolidate their understanding of the lesson.

Lesson Keywords

• Shares – Units of ownership in a company.
• Authorized Capital – Maximum capital a company can issue.
• Issued Capital – Capital offered to investors.
• Par Value – Face value of a share.
• Premium – Amount received above par value.
• Application Account – Account for money received from applicants.
• Allotment Account – Account for money due/received on allotment.
• Calls Account – Account for money due/received on calls.

Differentiation

For pupils who grasp the concepts quickly, the teacher can provide additional complex problems involving oversubscription or forfeiture of shares. For pupils needing more support, the teacher will provide simplified examples and one-on-one guidance during practice sessions.

Note for teachers using this lesson plan

Teachers should ensure that they have a clear understanding of the accounting entries for share issues, especially the treatment of share premium. Using visual aids like charts and a real share certificate can greatly enhance pupil comprehension. Encourage pupils to attempt the examples on their own after the demonstration.