Class: Senior Secondary School 1 (SS1, SS 1, SSS1, SSS 1)
Term: 3rd Term
Week: 2
Age: 15 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Financial Accounting
Previous Lesson: Trading, Profit and Loss Account Adjustments & Bad Debt.
Topic: TRADING PROFIT AND LOSS ACCOUNT
Subject Matter: Adjustments in Profit and Loss Account, posting of prepayments to ledger, posting of accruals to ledger, provision for depreciation on fixed assets, meaning of depreciation, calculation of depreciation, entries for depreciation in ledger and final accounts.

Specific Objectives

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

Cognitive Domain:

Define prepayments and accruals.
State the meaning of depreciation.
Explain the methods of calculating depreciation.
Describe how to treat prepayments, accruals, and depreciation in the final accounts.

Affective Domain:

Appreciate the importance of adjustments in preparing accurate financial statements.
Understand why depreciation is provided on fixed assets.

Psychomotor Domain:

Post prepayments and accruals to the ledger accounts.
Calculate depreciation using simple methods.
Record depreciation entries in the ledger and final accounts.

Participate actively in class discussions and calculations.

Reference Materials

The following resources were used in planning this lesson:

Senior Secondary Education Curriculum for Financial Accounting.
State Unified Scheme of Work for Senior Secondary Schools.
Olawale, F. (2018). Simplified and Amplified Financial Accounting for Senior Secondary Schools. Lagos: Learn Africa Plc.

Instructional Materials

The teacher will teach this lesson with the aid of:

Charts showing examples of prepayments, accruals, and depreciation calculations.
Whiteboard and markers.
Financial Accounting textbook.

Rationale for the Lesson

This lesson helps pupils understand how to adjust accounts for items that are not fully paid or consumed within the accounting period. Understanding these adjustments is important for preparing accurate financial statements, which allows businesses to know their true financial position and performance.

Prerequisite/Previous Knowledge

Pupils should have a basic understanding of ledger accounts, journal entries, and the components of final accounts (Trading, Profit and Loss Account, and Statement of Financial Position).

Lesson Content/Board Summary

TRADING PROFIT AND LOSS ACCOUNT: ADJUSTMENTS

Adjustments in Profit and Loss Account

Adjustments are made at the end of an accounting period to ensure that expenses and revenues are recognized in the period they relate to, regardless of when cash is paid or received. This helps in presenting a true and fair view of the business’s financial performance and position.

Prepayments (Expenses Paid in Advance)

Prepayments are expenses that have been paid for but not yet fully incurred or consumed within the current accounting period. The unexpired portion is treated as an asset.

The following is the treatment of prepayments:

In the Ledger: The expense account is credited with the prepaid amount, and a Prepayment Account (asset) is debited.
In the Profit and Loss Account: Only the portion of the expense incurred during the current period is charged.
In the Statement of Financial Position: The unexpired prepaid amount is shown as a current asset.

Accruals (Expenses Due but Unpaid)

Accruals are expenses that have been incurred or consumed during the current accounting period but have not yet been paid for. The unpaid portion is treated as a liability.

The following is the treatment of accruals:

In the Ledger: The expense account is debited with the accrued amount, and an Accrual Account (liability) is credited.
In the Profit and Loss Account: The full expense incurred for the period (paid + unpaid) is charged.
In the Statement of Financial Position: The unpaid accrued amount is shown as a current liability.

Meaning of Depreciation

Depreciation is the systematic allocation of the cost of a tangible fixed asset over its estimated useful life. It reflects the wear and tear, obsolescence, or consumption of the asset.

Reasons for providing depreciation include:

To match the expense of using the asset with the revenue it generates (matching concept).
To present a true and fair view of the asset’s value and the business’s profit.
To ensure funds are set aside for the eventual replacement of the asset.

Methods of Calculating Depreciation

The following are common methods for calculating depreciation:

Straight-line Method: Charges an equal amount of depreciation each year over the asset’s useful life.
- Formula: (Cost of Asset – Salvage Value) / Useful Life (in years)
Reducing Balance Method (Diminishing Balance Method): Charges a higher amount of depreciation in the earlier years and a lower amount in later years. A fixed percentage is applied to the carrying amount (book value) of the asset each year.
- Formula: Percentage Rate × Carrying Amount (Cost – Accumulated Depreciation)

Entries for Depreciation in Ledger and Final Accounts

Depreciation is an expense to the business. The entries are:

Journal Entry: Debit Depreciation Expense Account, Credit Provision for Depreciation Account (or Accumulated Depreciation Account).
Ledger Entries:
- Depreciation Expense Account: Debited with the depreciation amount. This account is closed to the Profit and Loss Account at year-end.
- Provision for Depreciation Account (or Accumulated Depreciation Account): Credited with the depreciation amount. This is a contra-asset account.
Presentation in Final Accounts:
- Profit and Loss Account: Depreciation expense is shown as an operating expense, reducing the net profit.
- Statement of Financial Position (Balance Sheet): Fixed assets are shown at their cost less accumulated depreciation (also known as net book value or carrying amount).

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, reviews the previous lesson on final accounts, and then introduces the new topic, “Adjustments in Trading Profit and Loss Account,” explaining that final accounts need to reflect all revenues earned and expenses incurred, even if cash hasn’t been exchanged.
Pupils’ Activity: Pupils respond to greetings, recall previous knowledge, and listen attentively to the introduction of the new topic.
Learning Point: Pupils connect prior knowledge of final accounts to the need for adjustments to ensure accuracy.

Step 2: Prepayments

Time: 10 minutes
Teaching Skill: Explanation/Demonstration
Teacher’s Activity: The teacher defines prepayments, explains how they arise, and demonstrates with examples how to adjust an expense account for prepayments and post them to the ledger and present them in the final accounts. The teacher uses charts for illustration.
Pupils’ Activity: Pupils listen, take notes, ask questions for clarification, and copy the ledger postings.
Learning Point: Pupils understand the concept of prepayments and how to record them correctly in the books of accounts.

Step 3: Accruals

Time: 10 minutes
Teaching Skill: Explanation/Demonstration
Teacher’s Activity: The teacher defines accruals, explains their nature, and demonstrates with examples how to adjust an expense account for accruals and post them to the ledger and present them in the final accounts. The teacher uses charts for illustration.
Pupils’ Activity: Pupils listen, take notes, ask questions, and copy the ledger postings.
Learning Point: Pupils understand the concept of accruals and how to record them correctly in the books of accounts.

Step 4: Meaning and Purpose of Depreciation

Time: 5 minutes
Teaching Skill: Explanation/Questioning
Teacher’s Activity: The teacher explains the meaning of depreciation, using simple examples like a car losing value over time. The teacher discusses the reasons why businesses provide for depreciation.
Pupils’ Activity: Pupils listen and contribute to the discussion by giving examples of assets that depreciate.
Learning Point: Pupils understand what depreciation is and why it is important for financial reporting.

Step 5: Calculation of Depreciation

Time: 5 minutes
Teaching Skill: Demonstration/Problem Solving
Teacher’s Activity: The teacher briefly explains the straight-line method and the reducing balance method of calculating depreciation. The teacher demonstrates simple calculations for both methods on the board using hypothetical figures.
Pupils’ Activity: Pupils observe the calculations, participate in solving simple problems, and copy the examples.
Learning Point: Pupils learn how to calculate depreciation using common methods.

Step 6: Entries for Depreciation

Time: 5 minutes
Teaching Skill: Demonstration
Teacher’s Activity: The teacher demonstrates how to make journal entries for depreciation, post to the Depreciation Expense Account and Provision for Depreciation Account, and show how depreciation affects the Profit and Loss Account and the Statement of Financial Position.
Pupils’ Activity: Pupils observe the entries, ask questions, and copy the examples.
Learning Point: Pupils learn how to record depreciation in the ledger and present it in the final accounts.

Step 7: Evaluation/Review

Time: 5 minutes

Teaching Skill: Questioning/Assessment

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

Define the term ‘prepayment’.
State two reasons why depreciation is provided on fixed assets.
Mention two methods of calculating depreciation.
Explain how an accrued expense is treated in the Profit and Loss Account and the Statement of Financial Position.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 0 minutes
Teaching Skill: Summarisation
Teacher’s Activity: The teacher summarises the key points of the lesson, reiterating the importance of adjustments (prepayments, accruals, and depreciation) for accurate financial reporting. The teacher assigns homework for pupils to practice preparing adjustments.
Pupils’ Activity: Pupils listen to the summary and copy the assigned homework.
Learning Point: Pupils consolidate their understanding of the lesson.

Lesson Keywords

Prepayment – An expense paid in advance for a future period.
Accrual – An expense incurred but not yet paid for.
Depreciation – The systematic reduction in the value of a fixed asset over its useful life.
Straight-line method – A depreciation method that charges an equal amount each year.
Reducing balance method – A depreciation method that charges a higher amount in earlier years.
Provision for Depreciation – An account that accumulates the total depreciation charged on an asset.

Differentiation

For pupils who grasp concepts quickly, the teacher can provide additional complex scenarios involving multiple adjustments. For pupils who require more support, the teacher will provide simplified examples, offer one-on-one guidance, and encourage peer tutoring. Visual aids will be used to cater to different learning styles.

Note for teachers using this lesson plan

Ensure that pupils have a solid grasp of basic ledger entries before introducing adjustments. Use practical, relatable examples to illustrate prepayments, accruals, and depreciation. Encourage active participation and provide ample practice exercises. Emphasize the impact of these adjustments on the true and fair view of financial statements.