Accounting lesson note for SS2 Third Term is now available for free. The State and Federal Ministry of Education has recommended unified lesson notes for all secondary schools in Nigeria, in other words, all private secondary schools in Nigeria must operate with the same lesson notes based on the scheme of work for Accounting.
Accounting lesson note for SS2 Third Term has been provided in detail here on schoolgist.ng
For prospective school owners, teachers, and assistant teachers, Accounting lesson note is defined as a guideline that defines the contents and structure of Accounting as a subject offered at SS level. The lesson note for Accounting for SS stage maps out in clear terms, how the topics and subtopics for a particular subject, group works and practical, discussions and assessment strategies, tests, and homework ought to be structured in order to fit in perfectly, the approved academic activities for the session.
To further emphasize the importance of this document, the curriculum for Accounting spells out the complete guide on all academic subjects in theory and practical. It is used to ensure that the learning purposes, aims, and objectives of the subject meant for that class are successfully achieved.
Accounting Lesson note for SS2 carries the same aims and objectives but might be portrayed differently based on how it is written or based on how you structure your lesson note. Check how to write lesson notes as this would help make yours unique.
The SS2 Accounting lesson note provided here is in line with the current scheme of work hence, would go a long way in not just helping the teachers in carefully breaking down the subject, topics, and subtopics but also, devising more practical ways of achieving the aim and objective of the subject.
The sudden increase in the search for SS2 Accounting lesson note for Third Term is expected because every term, tutors are in need of a robust lesson note that carries all topics in the curriculum as this would go a long way in preparing students for the West African Secondary Examination.
This post is quite a lengthy one as it provides in full detail, the Accounting-approved lesson note for all topics and sub-topics in Accounting as a subject offered in SS2.
Please note that Accounting lesson note for SS2 provided here for Third Term is approved by the Ministry of Education based on the scheme of work.
I made it free for tutors, parents, guardians, and students who want to read ahead of what is being taught in class.
SS2 Accounting Lesson Note (Third Term) 2024
FINANCIAL ACCOUNTING
SS2 OMEGA TERM
SCHEME OF WORK
WEEK TOPIC
- REVISION
- Acquisition/purchases of business
- purchase consideration, goodwill.
–Meaning, Reasons for acquisition, format and working capital
- Purchase of business—Format, preparation of new business account.
- Company Amalgamation –Reasons, process and working exercises
- Company formation, private, public companies, quoted and unquoted companies.
- Nigeria Financial system—Meaning, component, features, operators, money market and capital market functions
- Types of shares, issue of shares, distinction between classes of shares, issue of shares at par, Discount and Premium.
- Preparation of accounts for issue of shares at par, discount, and premium bonus shares, Right issues
- Loan capital-Debenture types, Distinction between shares and Debentures, preparation of accounts relating to issue of all classes of shares.
Distinction between shares and Debenture, preparation of accounts relating to issue of all classes of shares
10 .Capital market—Requirement for enlisting in capital market, Second—Tier Security Market. Advantages of capital market to:
- Individuals
- Investors
- Government
- Economy.
- Individual
11&12 Revision
NOTES
WEEK 1
TOPIC: Acquisition /Purchase of Business
Meaning: Purchase of business is the system of acquiring a business as a going concern by another business.
TERMINOLOGIES:
GOODWILL: Goodwill is the excess of the purchase consideration over the net value of assets .The difference will be posted to the Goodwill account
CAPITAL RESERVE: This is the excess of identifiable assets or net value of assets over the purchase consideration .the difference will be posted to capital reserve account.
PURCHASE CONSIDERATION: This can be defined as the price which a purchaser will pay to the vendor in order to acquire his business .The purchase of a business must involve agreement between parties.
VENDOR: The person or firm that sells its business to another firm or company is referred to as the Vendor .In some cases, the vendor may be given shares in the new company to be found.
ACCOUNTING ENTRIES
- Agreed purchase price
DR Business purchase account
CR Vendor account
- Take over value of assets
DR Assets account
CR Business purchase account
- Agreed valuation of liabilities taken over
DR Business purchase account.
CR Liabilities account
- Excess of purchase consideration over net assets.
DR Goodwill account
CR Business purchase account.
- Excess of assets over purchase consideration
DR Business purchase account.
CR Capital reserve account.
- Settlement of the vendors account with shares
DR Vendor account
CR Bank account
- Settlement of the vendors account with shares
DR Vendor account
CR Share capital account.
DR Business purchase account CR
Liab taken over x Assets taken over x
Goodwill x
Purchase price x
Capital reserve x
— —
xx xx
— —
DR Vendor account CR
#
Bank x purc consideration x
Shares x
—– —–
Xx xx
—— ——
DR Liabilities Account CR
Business purc account x
DR ASSETS ACCOUNT CR
BUSINESS PURC A/C X
Bank ACCOUNT
DR # CR
VENDOR X
DR SHARE CAPITAL ACCOUNT CR
AMOUNT PAID TO VENDOR X
Goodwill account CR
DR #
Business purc a/c x
DR CAPITAL RESERVE ACCOUNT CR
#
PURCASE ACCOUNT X
BALANCE SHEET
CAPITAL X FIXED ASSETS X
CURRENT ASSETS X CAPITAL RESERVE X
X GOODWILL X
CREDITORS X
—— —
XX XX
—– —–
JOUNAL ENTRIES
#
ASSETS: FIXTURE X
MOTOR VAN X
DEBTOR X
STOCK X
GOODWILL X
LIABILITIES: CREDITORS X
PURCHASE CONSIDERATION X
ASSETS &LIABILITIES TAKEN OVER
Purchas of business account x
Vendor account x
Vendor account x
Bank account x
Or
Share capital account x
Cash or share paid in full settlement
NB: Students should note that the assets to be debited or liabilities to be credited would depend on the information given in the question.
SETTLEMENT OF THE VENDOR ACCOUNT WITH CASH
ILLUSTRATION: Oando had taken over the business of Arik on 31st January1998 on the basis of the last balance sheet which is as follows;
#
Capital 180000 premises 100000
Fixtures 45000
Motor car 55000
Creditors 60000 Debtors 15000
Accruals 10000 stock 5000
Bank 30000
———— ———-
250000 250000
————- ———
Additional information
- The purchase consideration to be #200000
- All the assets and liabilities were taken over with the exception of bank
- Assets to be revalued are as follows ; #
Premises 140000
Fixtures 40000
Motor car 57000
Debtors 13000
Stocks 10000
5, The purchase price was paid on January 10th 1998
You are required to prepare.
- Journal entries in respect of the acquisition.
- ledger entries
- balance sheet.
SOLUTION
- JOUNNAL
#
DR
ASSETS: Premises 140000
Fixtures 40000
Motor car 57000
Debtors 13000
Stock 10000
Goodwill 10000
LIABILITIES:
creditors 60000
Accruals 10000
Purchase consideration 200000
Assets and liabilities
Purchase of business account 200000
Vendor account 200000
Purchase price as per agreement
Vendor account 200000
Bank account 200000
Cash or share paid in full settlement
Business purchase account
LIABILITIES TAKEN OVER ASSETS TAKEN OVER
Creditors 60000 Premises 140000
Accruals 10000 Fixtures 40000
Purchase price 200000 motor car 57000
Debtors 13000
Stock 10000
Goodwill 10000
———— ————- 270000 270000
———- ———–
Workings: calculation of goodwill : #
Assets premises 140000
Fixtures 40000
Motor car 57000
Debtors 13000
Stock 10000
Liabilities: ————- 260000
Creditors (60000)
Accruals (10000
——— 190000
Goodwill =purchases consideration –net assets
#200000-190000= 10000
Bank Account
Dr # cr
Vendor 200000
Vendor account
Dr # # cr
Bank 200000 purc consideration 200000
dr Goodwill account cr
#
purchase of business 10000
Balance sheet
Capital 200000 premises 140000
Creditors 60000 fixtures 40000
Accruals 10000 motor car 57000
Debtors 13000
Stock 10000
Goodwill 10000
———— ——–
270000 270000
——– —————-
AMALGAMATION OF SOLE TRADING
Two sole trading business can emerge together to form a partnership firm .The sole trader must prepare their respective balance sheets at the of amalgamation.Adjustment will be made in the books and a new balance sheet will be prepared.
Steps to be followed;
1.Adjust the assets and liabilities of the first sole trader in order to calculate his capital.
- Adjust the assets and liabilities of the second sole trader in order to calculate his capital.
- Prepare a combined balance sheet of the new business.
Illustration;Kunle and Dare have been friends and they both agreed to amalgamate their sole trading business and form a partnership with effect from 31st march 2000. Their balance sheet are as follows.
Kunle,s balance sheet
Capital 129000 fixtures 90000
Creditors 9000 stock 24000
Debtors 21000
Bank 3000
———- ——-
138000 138000
Dare,s balance sheet
Capital 111000 land and building 60000
Creditors 15000 fixtures 15000
Stock 18000
Debtors 27000
Bank 6000
———- ————
126000 126000
———– ————
Additional information:
- kunle is to be credited with goodwill of #21000
- Dare land and building to be valued at #75000, stock at #16500
- Kunle, s fixture to be valued at #99000, Debtors #19200, stock #21600
- All other assets and liabilities are taken as per the balance sheet.
You are required to prepare the opening balance sheet of the new partnership
Step1. Adjust Kunle, s balance sheet.
dr Balance sheet cr
Capital 154800 goodwill 21000
Creditors 9000 fixtures 99000
Debtors 19200
Stock 21600
Bank 3000
——– ———
163800 163800
——– ———-
Computation of capital =total assets-liabilities
#139500-#15000 =124500
Step:2 Dare,s adjusted balance sheet;
Balance sheet
#
Capital 124500 land building 75000
Creditors 15000 fixtures 15000
stock 16500
Debtors 27000
Bank 6000
——— ———-
139500 139500
———– ————
Capital computation: Total assets-liabilities
#139500-15000 =124500
Step. 3 prepared a combined balance sheet
Balance sheet of the partnership of Dare & Kunle
Capitals: goodwill 21000
Dare 154000 land building 75000?
Kunle 124500 fixtures (99000+15000) 114000
Creditors (9000+15000) 24000 stock (16500+21600) 38100
Debtors (19200+27000) 46200
Bank (3000+6000) 9000
———- ———–
303300 303300
——— ————
Evaluation: briefly explain the following terms
- Purchase consideration
- Capital reserve
- Goodwill
ASSIGNMENT: Take assignment from book-keeping &accounting textbook revision question 5 page 486
WEEK 5
COMPANY FORMATION, PRIVATE, PUBLIC COMPANIES, QUOTED AND UNQUOTED COMPANIES.
INTRODUCTION:This topic is about the formation , registration and natures of a company as form of business organization.
Definition:A company can be defined as a legal and artificial person or entity formed by group of people in accordance with the law for a defined objective.As a result of its legal entity , it can sue be sued .(Salmon v Salmon).Examples of companies in Nigeria are Cagbury plc, Dangote flour plc, Nigerian bottling co. plc and so on
KINDS OF COMPANIES
There are three kinds of companies which may be incorporated under the companies act;
.Unlimited companies:
In an unlimited company ,the liability of the members (shareholders) for the debts of the company is unlimited.Section21(1) of the companies and allied matters Act 2004 as amended
Companies limited by shares
This is a company whose liabilities or debts are limited to the amount invested in the business by the company,s members (shareholders) and as contained in the memorandum of Association .section 21 (1) of the companies and allied matters Act of 2004 as amended
Company limited by guarantee
These are companies whose liabilities or debts is limited to the amount guaranteed by the members (sharesholders) in the event of liquidation e.g. clubs, unions and so on
The most common kind of company in Nigeria is the limited companies by shares
These companies have profit as their motive of operation and are of two types ,namely;
- Private limited companies.
- Public limited companies
Private limited companies
Section 28 of the companies Act defined such company by its articles as those ones that
1.Restrict the right to transfer its shares
- Limits the number of its members to fifty
- Prohibits any invitation to the public to subscribe to its shares .
- The name of the private company must end with “Limited “for example ,Midgal Nigeria Limited.
Characteristics of Private Limited Liability Company
Ownership
Such business is owned by sharesholders who may be between two and fifty persons in number
Objectives
The main aim of such business is to make profits for its members.
SOURCES OF CAPITAL
The required capital for such business are are normally raised through the issue of shares , loan capital ,bank finances and so on .Shares are not sold to the the public
Liability
The shareholders of such companies have limited liability .In the event of liquidation , the amount a shareholder can lose is limited to the fully paid –up value of his share or the capital he has invested in the business.
Legal entity
The business is a separate legal entity and is different from the owners of the business .It can sue or be sued
Continuity
There is continuity of business operations as the withdrawal or death of a shareholder may not affect the existence of the company.
Management
Such company,s management is elected by the board of directors.
Shares not transferable
Shares cannot be resold to other persons except with the consent of other shareholders
Public Limited Companies
Public limited liability company is defined by the provisions of the company law as one which by its articles
- Allow the public to subscribe to its shares
- Must have a minimum of seven persons , but no maximum number prescribed.
- Allow the shares to be transferred
- Its name must end with “plc.” for example, zenith bank Plc., UBA PLC,and so on
KINDS AND TYPES OF COMPANIES
Company
coy ltd by shares coy ltd by
Guarantee
Unlimited
Company’s private coy public coy
Characteristics of Public Limited Liability Company
Public Limited Liability Company can also be referred to as joint stock companies. The word public is used to imply that any member of the public is free to purchase shares in the business when shares are advertised for sale.
It features are as follows;
Ownership
It has minimum of seven members but there is no maximum number
Legal entity
It has a distinct personality from that of its owners .It can sue and be sued in its own name.
Perpetual existence
The death or withdrawal of any member will not bring an end to the company .It enjoys continuous existence.
Limited liability
The liability of shareholders is limited to the amount contributed to the company .The private properties of the shareholders will not be touched in the event of liquidation.
Formation
A public limited liability company must follow some special formalities before registration .They are registered by filling some statutory documents with the registrar of companies
Annual accounts
It is statutorily required that such company must keep certain prescribed books of accounts .The accounts must be audited and published annually
Ultra vires
A public limited liability company is authorized by law to carry on business specified in the object clause.
Ownership separated from management
Ownership is separated from management .The shareholders are regarded as owners of the company, while the management of the company is the responsibility of board of directors.
FORMATION OF A COMPANY
In order to form a company, the following steps should be followed;
Step 1.Group of individual or persons who have the same vision or conceive the idea to form a company will come together to undertake and fulfil this mission .They are called “PROMOTERS”
Step2. The promoters are required to secure the services of a solicitor to prepare certain documents to be filed with the registrar of companies at the corporate affairs commission (CAC). The documents are as follows;
- Memorandum of association
- Articles of association
- Statement of nominal capital
- Filling of forms C01-C08
A chartered accountant is required to prepare documents to raise capital and ascertain the degree of feasibility of the business. The documents are as follows
- Feasibility study
- Prospectus
- Financial projection report
Step3. All the above documents are to be stamped and lodged with the registrar of companies at the CAC
Step 4; Process of certificate of incorporation. This certificate is the artificial document that gives birth to the company.
Step5.Process of certificate of operation .This certificate authorizes the company to start its operation.
QUOTED AND UNQUOTED COMPANIES
When a company can issue its shares, through the stock exchange market by the given approval ,such a company is described as being QUOTED OR LISTED while those who cannot raise capital through the stock exchange are described as being UNQUOTED OR UNLISTED
A quoted company is any company that has been authorized to raise its long –term capital through and on the stock exchange (i.e. capital market) .Examples are UBA PLC, DANGOTE SUGAR PLC, and ZENITH BANK PLC and so on
Unquoted company is any company that has no authority to raise its long –term capital through the stock exchange .Examples are Midgal Nigeria ltd, Adebowale Electronic stores Nigeria ltd and so on
Features of quoted company
- Such companies can raise its capital from the stock exchange
- Quoted companies are expected to publish its annual audited accounts for public
Consumption
- Its shares are traded with or transferable from one holder to the other.
- Its shares are listed on the stock exchange.
- All its operations must be in conformity with laid down of security Exchange commission (SEC)
Features of unquoted company
- It cannot raise its shares on the stock exchange
- Its shares are not transferable.
- Unquoted companies run its affairs privately and confidentially
- Value of such company’s shares is difficult to ascertain.
- Such companies are mostly private companies
EVALUATION:
- Differentiate between quoted company and unquoted company.
- State four steps involved in the formation of a company.
ASSIGNMENT: State five contents each of the under listed;
- Memorandum of association
B .Articles of Association
C .Prospectus
- Differentiate between certificate of incorporation and certificate of operation
WEEK 6
FINANCIAL SYSTEM
INTRODUCTION:
This topic explains what makes a financial system in an economy .It also explains the components of the financial system .In addition, the functions and roles of the components (markets) are also detailed in the topic.
Meaning;
Financial system can be defined as an integrating system that consists of financial institutions, instruments, markets, dealers, and the regulatory authorities that interact to finance the real sectors and other sectors of the economy .Both the financial system, the productive and commercial systems jointly make up what is called an economic system
Financial system, therefore, is an organized system whereby finances, short, medium and long term, could be raised to any economic activities.
A financial system consists of:
- Financial markets
- Financial institutions
- Financial instruments
- Regulatory authority
COMPONENTS OF FINANCIAL SYSTEM
Regulatory
System institution
Financial system
instrument markets
Real sector Financial
Economic
Commercial system system
Sector
INTERACTION OF THE FINANCIAL SYSTEM
The interacting system between the sub-systems that make up an economic system is in dual ways. There is always an exchange with a feedback .The degree of those exchange and feedback determines the level of an economy.
FINANCIAL INSTITUTIONS
Under the financial system, there are basically two types of markets:
A.Money market
B.Capital market
Money market
This is an organized market structure where money or finances could be raised on a short –term basis. The components of this market are as follows:
- Banks and other financial institutions
- Financial instruments
- Regulatory authority
BANKS AND OTHER FINANCIAL INSTITUTIONS
BANK: This is a commercial institution which performs various financial activities for example accepting and handling of deposits of its customers.
INSURANCE: It can be defined as an agreement, whereby one party promises to indemnify or pay another party a sum of money in the event of his suffering a specified loss or damage.
FOREIGN EXCHANGE: This is an organization structure under the banking system that makes available foreign currencies for individual or corporate outfits to buy or sell foreign currencies. The foreign currencies could be in form of cheques, bankers, cheques, currencies and so on
FINANCIAL INSTRUMENTS
There are many kinds of financial instruments being traded with by any of the above mentioned institutions under the money market
Banks
The financial instruments under the banks are as follows:
- Money in form of cash, cheques, drafts, foreign currencies, travelers’ cheque.
- Credit facilities in form of bank overdraft, loans, leasing, etc.
INSURANCE
The financial instruments under the insurance in forms of insurance policy are as follows;
- Bad debts
- Goods on transit
- Group insurance
- Cash in transit
- Fidelity guarantee
- Export credit guarantee
- Plate glass
- Agricultural insurance
- Burglary, theft, robbery
- Consequential loss
- Contractor’s all risk
- Employers’ liability
- Aviation insurance
- Accident glass
- Motor vehicle
- Marine glass
- Life assurance
- Fire
Regulatory Authority
The regulatory authority in the money market is the Central Bank of Nigeria (CBN)
Features of money market
Money market has the following features
- It is a market where money and other money instruments can be raised or deployed in short term
- The price of borrowing and lending money as a stock in this market is interest.
- Money market is being represented in Nigeria as the banking sector
- The products in the money market are money, currencies, treasury bills treasury certificates, deposits, foreign currencies, and so on
- The regulatory authority in this market is the Central Bank of Nigeria.
- Banks and insurance companies that represent the institutions in the market are commercial in activities and for profit motive.
EVALUATION;
- Mention the components of the financial system.
- Mention four financial instruments traded under each of the following;
a.Banks
- Insurance companies
ASSIGNMENT:
- What is capital market?
- State five functions of the regulatory authority in the money market
WEEK 7
TYPES SHARES, ISSUE OF SHARES, DISTINCTION BETWEEN CLASSES OF SHARES, ISSUE OF SHARES AT PAR, DISCOUNT, AND PREMIUM
TYPES OF SHARES:
A company share can be classified mainly into:
- Preference shares
- Ordinary shares
TYPES OF SHARES
Shares
Preference shares
Ordinary shares
Redeemable
Irredeemable
Convertible founders share preferred shares stocks
Cumulative
Non-cumulative
Participating
Non-participating
PREFERENCE SHARES: It is a type of share which has priority in terms of dividend payment and repayment of capital in the event of winding up .They have a fixed rate of dividends. Preference shares are classified into convertible, cumulative, etc.
ORDINARY SHARES: They are also called equities. The ordinary shareholders are the real owners of the business .The holders are the risk bearers and they receive their dividend only after all other shares have been paid. They can vote be voted for.
SIMILARITIES BETWEEN ORDINARY SHARES AND PREFERENCE
- They are types of company’s shares
- They are sources of long –term capital to companies
- They could be floated on the stock exchange.
- The returns of each types of shareholders is called dividend
- Their returns (dividend) are charged against profit after tax.
DIFFERENCES BETWEEN ORDINARY SHARES AND PREFERENCE SHARES
PREFERENCE SHARES ORDINARY SHARES
Amount of dividend fixed fluctuation
Dividend & profit dividend are paid whe-
ther profit is made or
Not dividend is paid if there is
Profit
Priority to dividend take dividend before take dividend after
Ordinary shares preference shares
Voting right has no voting right has voting rights
Capital redemption it is a redeemable capital it is not redeemable
Risk not a risk bearer a risk bearer
Debentures:
It is a bond acknowledging a loan ,generally under the company’s seal and bearing a fixed rate of interest and usually giving security for the repayment of interest.
Features of debentures:
- A debenture is a special loan under the company’s seal deed
- It is usually a secured loan
- The interest on debenture is usually fixed
- The return receivable or payable on such loan stock is called interest.
- The interest return is charged against profit before tax
- A debenture could be of various kinds, such as mortgage debenture, naked debenture, redeemable debenture, irredeemable debenture ,cumulative, non-
Cumulative, convertible, participating debenture and so on
NB: Mortgage debenture is a type of debenture secured on the properties or assets of the company .It gives a charge upon the whole or part of the company’s assets upon the liquidation.
Differences between debentures and shares
Debenture shares
Holders are creditors to the company Holders are owners of a company
They receive interest as return they receive dividend as return
Holders have no voting right Holders have voting rights
Holders have prior rights before share-
Holders holders take dividend after the
Debenture interest
Holders have fixed rate of return Holders have no fixed rate of return
Secured loan capital Unsecured and risk bearer
Holders cannot become director of the
Company Holders can become director of
The company.
Similarities between debenture and shares
- They are the sources of company’s long –term capital
- They are paid returns at the end of every financial year
- Some forms of debentures and shares are irredeemable
- The two sources of finance have cost or or opportunity cost for their usage
- They can be issued to the public for subscription
EVALUATION:
Objective Questions
- How many markets make up financial system in Nigeria?
(a ) 5 (b) 3 (c) 4 (d) 2
- The regulatory authority of the capital market is (a) Central bank (b) Stock exchange (c) bank (d) security exchange commission
- The regulatory authority of the money market is
(a) Central bank (b) stock exchange (c) bank (d) security exchange commission
- The money market where foreign currencies could be bought and sold is called
(a) Capital market (b) CBN (c) bank (d) foreign exchange
- Another name for capital is
(a) Money market (b) foreign exchange (c) stock exchange (d) stock market
ASSIGNMENT:
Fill in the blanks
- Another name for Government security is———————
- The registration of securities on the capital market is carried out by ————–
- How many components make up a financial system? —————–
- The period of raising finances in the money market is ———————
- Another name for capital market is ————————-
WEEK 8 & 9
PREPARATION OF ACCOUNTS FOR ISSUE OF SHARES AT PAR, DISCOUNTS, AND PREMIUM, BONUS SHARES, RIGHT ISSUES
Shares Payable in Full on Application
This will be treated with respect to the terms; at par, premium, or discount. The amount will be paid on application
Shares issued at par
In this case, shares will be issued at the nominal price stated in the memorandum of association and will be paid for in full on application.
.
Accounting entries-journal
- Bank a/c xx
Application a/c xx
(Being money paid for shares on application)
- Application xx
Share capital xx
Being allotment of shares after receipts of the application
Illustration: Anikulapo ltd issue shares at #1 (at par) on 1 July 2009 .Application together with the money for the shares was received.
You are required to record the above transactions through journal and ledger entries
Solution:
Value of shares =50000×1=#50000
- Journal entries Dr Cr
Application a/c 50000
Being money received on application for shares
Application a/c 50000
Share capital a/c 50000
(Being allotment of shares on receipts of application money)
- ledger entries
Bank a/c
Application 50000
Application a/c
DR # # CR
Share capital 50000 Bank 50000
DR SHARE CAPITAL A/C CR
#
Application 50000
Shares Issued at a premium
Shares are issued at premium when it is issued at a price above the company’s nominal price .It can also be fully paid on application
Accounting entries
DR CR
BANK XX
Application (being money received on application) xx
Application xx
Share capital xx
Share premium (being allotment of shares ) xx
Illustration 2
On 1 July 2009 ,Adenuga ltd issued 50000 shares of #1 each at #1.30. Application and money for the shares were received and fully paid.
You are required to raise the appropriate entries using journal and ledgers.
Solution:
Workings:
Premium:=0.3×50000= #50000
Journal entries DR CR
Bank a/c 65000
Application a/c 65000
Being money received on application for shares )
Application a/c 65000
Share capital a/c 50000
Share premium a/c 15000
Being allotment of shares on application)
DR BANK A/C CR
Application 65000
DR Application a/c CR
Share capital 50000 bank 65000
Share premium 15000
——— ————-
65000 65000
——— ———–
SHARE CAPITAL A/C
DR # CR
Application 50000
Share premium a/c
DR CR
#
15000
Shares issued at a discount
In this case, shares are issued at a discount and payable in full on application. Shares are issued at a discount when it is issued at a price below the nominal price of the shares.
Accounting entries –journal
DR CR
BANK A/C XX
Application a/c (being money received) xx
Application a/c xx
Shares discount a/c xx
Share capital a/c (being money received on allot of share xx
ILLUSTRATION 3:On 31st July 2009 ,Ubah ltd issued 50000 shares of #1 each at #0.80.Application and money for the shares were received and fully paid.
You are required to raise the appropriate entries using the journal and ledgers.
Solution
Workings
Discount=0.2×50000=#10000
Journal entries
DR CR
1 Bank (0.8×50000) 40000
Applications 40000
(Being money received on application for shares)
- Application 40000
Shares discount 10000
Share capital 50000
Being allotment of shares based on nominal price)
LEDGERS ENTRIES
DR Bank a/c CR
#
Application 40000
DR Application a/c CR
bank 40000
Share capital 50000 share discount 10000
DR share discount a/c CR
Application 50000
Shares issued payable by instalment
When shares are issued, payments are usually made by instalments, and the following procedures will be followed.
Step 1: Application are received with the money
Step2: They are treated and shares are allotted.
Step 3: excess application money are refunded to unsuccessful applicants
Step 4: Allotment will be made on pro –rata basis where there is over subscription
Step 5: Allotment money are received.
Step 6: calls are made and money received for every call made with these details ,such as application ,allotment first call, second call, etc,have to be opened to record each step involved in the issue of shares .In some cases ,both the application and allotment accounts could joined together.
Accounting entries when shares are issued at par
Accounting entries when shares are issued at par
DR CR
BANK A/C XX
Application a/c xx
(Being money received on application)
Allotment a/c xx
Share capital xx
(Being allotment of shares on application)
Application a/c xx
Share capital a/c xx
(being money received on application for share capital)
Bank a/c xx
Allotment a/c xx
(being money received on allotment of shares)
Application/ allotment a/c xx
Bank a/c xx
(Being money refunded to the unsuccessful applicants)
Calls a/c xx
Share capital a/c xx
(Being entries on making )
Bank a/c xx
Calls a/c xx
(Being money received on making calls)
Illustration: TCC LTD issued 40000 shares of #1 each payable as follow
10k on application
20k on allotment
40k on first call
30k on allotment
55000 applications were received and money returned to all unsuccessful applications. Shares are allotment on 4 shares for every 5. The excess application money is set – off against allotment money. All calls were made and payments were paid
You are required to record the above transactions using journal and ledger entries
Solution:
Workings
- Total application money=55000at 10k=#5500
- Allotment =(50000X4/5)at 20k =#8000
- Refunds =(55000-40000) at 10k =#1500
- First call =(50000 x4/5 ) at 40k =#16000
- Second call =( 50000 x 4/5 )at 30k =#12000
ISSUED OF DEBENTURES
The procedure for issuing debentures is similar to that of shares except that debentures are to be redeemable on due date. The redemption of debentures is provided for by appropriating a predetermined sum against the yearly profits over the period the debenture will be on.On due date, the company will pay the debenture with the accrued interest.
Accounting entries for issue of debentures DR CR
- Bank a/c xx
Debenture a/c xx
(Being issue of debentures)
- p & L a/c xx
Deb .redemption a/c xx
(Being amount set aside annually to redeem the debenture)
- deb. Redemption investment a/c xx
Ded redemption a/c xx
Being amount set aside for investment to redeem the deb. a/c
Illustration: Lisabi ltd issued 2000 stocks of debenture at par which is usually #100. The debenture is repayable over 4 years with 10% p.a. interest .You are required to show the journal entries for this transaction.
Solution
Workings
- Amount of the debenture =2000×100=#200000
- interest payable per year=10% at #200000= #20000 for 4 years= 20000×4=#80000
- Amount to be set aside per year=#200000 +#80000=#280000/4
4
Journal entries DR CR
- Bank a/c 200000
10% debenture a/c 200000
(Being issue of debentures)
- p&L a/c 70000
Debenture redemption a/c 70000
(Being amount to be set aside yearly for 4 years (incl interest)
- Red debenture investment a/c 70000
Bank a/c 70000
Being amount of yearly investment provided for to redeem the
Debenture for 4 years annually).
10% debenture a/c 280000
Debenture redeem a/c 280000
(Being redemption of 10% debentures
- Bank a/c 280000
Red. Investment a/c 280000
(Being proceeds from the sale of redemption deb inv.a/c
- deb. Red a/c 280000
Bank a/c 280000
(Being red. Of the debenture
Fund a/c 280000
Capital a/c 280000
(Being capitalization of red. Funds in the books)
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