Lesson Note on Share Accounts: Cash, Premium, Discount and Share Capital Accounts for SSS 2

Class: Senior Secondary School 2 (SS2 / SSS 2)
Term: Third Term
Week: 7
Age: 16 years
Duration: 45 minutes
Subject: Financial Accounting
Curriculum Theme: Company Accounts
Previous Lesson: Issues of Shares: Terms and Share Accounts Preparation.
Topic: PREPARATION OF SHARE ACCOUNT (CONT)
Subject Matter: Cash or bank account, share premium account, share discount account, share capital accounts (preference shares account, ordinary share capital account)

Specific Objectives

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

Cognitive Domain:

• Distinguish between ordinary shares and preference shares.
• Differentiate between authorized share capital and issued share capital.
• Explain the terms ‘at par’, ‘at premium’, and ‘at discount’ in relation to share issue.
• State the appropriate journal entries for the issue of shares.

Affective Domain:

• Participate actively in discussions regarding share accounts.
• Appreciate the importance of proper accounting for share issues.
• Value accuracy in preparing financial records for share transactions.

Psychomotor Domain:

• Prepare journal entries for the issue of shares at par and at a premium.
• Post share issue transactions to relevant ledger accounts (Cash/Bank, Share Capital, Share Premium).
• Identify key features of a share certificate.

Social Domain:

• Collaborate effectively with peers during group activities on share account preparation.

Reference Materials

The following resources were used in planning this lesson:

• Senior Secondary Schools Education Curriculum
• State Unified Scheme of Work
• Oyebola, A. (2018). Simplified Financial Accounting for Senior Secondary Schools. Lagos: A. Johnson Publishers.
• https://www.sec.gov.ng/
• https://www.ngxgroup.com/

Instructional Materials

The teacher will teach this lesson with the aid of:

• Charts illustrating types of shares and share issue process.
• Pictures of share certificates.
• Publications from Securities and Exchange Commission (SEC) and Nigerian Exchange Group (NGX).
• Specimen share certificate.

Rationale for the Lesson

This lesson helps pupils understand how companies raise capital by issuing shares and how these transactions are recorded. It enables pupils to prepare accurate accounting records for share issues, which is important for financial reporting and compliance.

Prerequisite/Previous Knowledge

Pupils are expected to have prior knowledge of basic accounting principles, double-entry system, and an introduction to company accounts.

Lesson Content/Board Summary

Preparation of Share Accounts

Classes of Shares

Shares represent units of ownership in a company. They are primarily divided into two classes:

• Ordinary Shares: These carry voting rights and usually receive dividends only after preference shareholders have been paid. The dividend rate is not fixed and depends on the company’s profit.
• Preference Shares: These shares typically do not carry voting rights but have a preferential right to receive dividends at a fixed rate before ordinary shareholders. They also have a preferential right to repayment of capital in case of liquidation.

Authorized vs. Issued Share Capital

• Authorized Share 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 Share Capital: This is the portion of the authorized share capital that has actually been offered to and subscribed by the public or existing shareholders.

Issue of Shares

Shares can be issued at par, at a premium, or at a discount.

• Issue at Par: Shares are issued at their nominal (face) value. For example, a N1.00 share issued for N1.00.
• Issue at a Premium: Shares are issued at a price higher than their nominal (face) value. The excess amount over the nominal value is called share premium. For example, a N1.00 share issued for N1.50 (N0.50 is the premium).
• Issue at a Discount: Shares are issued at a price lower than their nominal (face) value. This is generally prohibited by company law in many jurisdictions, including Nigeria, except under specific circumstances.

Accounting for Share Issue

The accounting entries involve the Cash/Bank Account, Share Capital Account, and Share Premium Account.

Journal Entries for Share Issue

When shares are issued, the following journal entries are made:

1. Application for Shares (when cash is received):

   Debit: Bank Account (or Cash Account)
   Credit: Share Application Account

2. Allotment of Shares (when shares are allotted):

   Debit: Share Application Account
   Credit: Share Capital Account (for nominal value)
   Credit: Share Premium Account (if issued at a premium)

Worked Example 1: Issue of Shares at Par

A company issued 100,000 ordinary shares of N1.00 each at par, fully paid. All shares were subscribed for and paid in cash.

Step 1: Record receipt of application money.

Journal Entry:
Debit: Bank Account N100,000
Credit: Share Application Account N100,000
(Being cash received for 100,000 ordinary shares at N1.00 each)

Step 2: Record allotment of shares.

Journal Entry:
Debit: Share Application Account N100,000
Credit: Ordinary Share Capital Account N100,000
(Being allotment of 100,000 ordinary shares at N1.00 each)

Worked Example 2: Issue of Shares at a Premium

A company issued 50,000 ordinary shares of N2.00 each at N2.50 per share, fully paid. All shares were subscribed for and paid in cash.

Step 1: Record receipt of application money.

Journal Entry:
Debit: Bank Account (50,000 x N2.50) N125,000
Credit: Share Application Account N125,000
(Being cash received for 50,000 ordinary shares at N2.50 each)

Step 2: Record allotment of shares.

Journal Entry:
Debit: Share Application Account N125,000
Credit: Ordinary Share Capital Account (50,000 x N2.00) N100,000
Credit: Share Premium Account (50,000 x N0.50) N25,000
(Being allotment of 50,000 ordinary shares at N2.00 each with N0.50 premium)

Share Certificate

A share certificate is a document issued by a company to its shareholders, certifying ownership of a specified number of shares. It includes details such as the company’s name, shareholder’s name, number of shares, class of shares, and distinctive numbers.

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 reviews the previous lesson on the introduction to company accounts, asking pupils to recall types of business organizations.
Pupils’ Activity: Pupils respond to the teacher’s questions and share their understanding of company accounts.
Learning Point: Pupils recall previous knowledge relevant to the current lesson.

Step 2: Discussion of Classes of Shares and Share Capital

Time: 8 minutes
Teaching Skill: Explanation/Discussion
Teacher’s Activity: The teacher explains the differences between ordinary and preference shares, and authorized and issued share capital, using a chart.
Pupils’ Activity: Pupils listen attentively, ask questions, and contribute to the discussion.
Learning Point: Pupils understand the different classes of shares and share capital terminology.

Step 3: Explanation of Share Issue Terms

Time: 8 minutes
Teaching Skill: Explanation/Illustration
Teacher’s Activity: The teacher explains what it means to issue shares ‘at par’, ‘at a premium’, and ‘at a discount’, providing simple numerical examples.
Pupils’ Activity: Pupils listen and take notes, asking for clarification on new terms.
Learning Point: Pupils grasp the concepts of issuing shares at par, premium, and discount.

Step 4: Demonstration of Journal Entries for Share Issue

Time: 8 minutes
Teaching Skill: Demonstration/Problem Solving
Teacher’s Activity: The teacher demonstrates how to prepare journal entries for the issue of shares at par and at a premium using the worked examples on the board.
Pupils’ Activity: Pupils observe the demonstration, copy the journal entries, and attempt to follow the logic of the accounting treatment.
Learning Point: Pupils learn how to record share issue transactions in the journal.

Step 5: Demonstration of Ledger Accounts

Time: 8 minutes
Teaching Skill: Demonstration/Practical Application
Teacher’s Activity: The teacher shows how the journal entries from Step 4 are posted to the relevant ledger accounts (Bank, Share Application, Share Capital, Share Premium).
Pupils’ Activity: Pupils copy the ledger accounts and practice posting the entries.
Learning Point: Pupils understand the impact of share issue on ledger accounts.

Step 6: Illustration with a Share Certificate

Time: 3 minutes
Teaching Skill: Visual Aid/Practical Insight
Teacher’s Activity: The teacher displays a specimen share certificate and highlights its key features to the pupils.
Pupils’ Activity: Pupils examine the share certificate and identify the various details on it.
Learning Point: Pupils recognize the physical representation of share ownership.

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. Differentiate between ordinary shares and preference shares.
2. Explain the terms ‘authorized share capital’ and ‘issued share capital’.
3. State the journal entries for issuing 20,000 ordinary shares of N1.00 each at N1.20 per share, fully paid.
4. Mention two key features found on a share certificate.

Pupils’ Activity: Pupils answer orally and in writing.

Learning Point: Pupils demonstrate understanding of the lesson.

Step 8: Conclusion

Time: 2 minutes
Teaching Skill: Summarization
Teacher’s Activity: The teacher summarizes the key points of the lesson and assigns homework for pupils to prepare ledger accounts for the examples discussed.
Pupils’ Activity: Pupils listen to the summary and copy the homework assignment.
Learning Point: Pupils consolidate their understanding and prepare for further practice.

Lesson Keywords

• Ordinary Shares – Shares that carry voting rights and variable dividends.
• Preference Shares – Shares with fixed dividends and preferential rights to capital repayment.
• Authorized Share Capital – Maximum share capital a company can issue.
• Issued Share Capital – Share capital actually offered and subscribed.
• Share Premium – The amount received above the nominal value of a share.
• Share Certificate – Document certifying ownership of shares.

Differentiation

For struggling learners, the teacher will provide simplified examples and extra guidance during the preparation of journal entries and ledger accounts. Advanced learners will be challenged with additional complex scenarios involving oversubscription or calls in arrears for homework.

Note for teachers using this lesson plan

Teachers should ensure that pupils have a clear understanding of the double-entry system before introducing share accounts. Emphasize the distinction between the nominal value and the issue price of shares. Practical examples and real-life scenarios should be used to make the lesson relatable.