SS2 Second Term Financial Accounting Lesson Note – Issue of Shares

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WEEK 8        

TOPIC:  Issue of shares: (a) Terminologies (b) Share Capital account preparation (c) Application and Allotment account, Bank/Cash account; Calls account

 CONTENT:

1. Terminologies in issues of shares
2. Preparation of issue of shares transactions

Sub-topic 1. Terminologies in issues of shares

Definition

Shares are units of ownership of a limited liability company. They are the small units, of equal amount, into which the capital of a company is divided.

Classes of Shares

Shares can be classified into:

Preference Shares: These are shares which have the following characteristics:

• Their holders receive dividends at specified dates
• Their holders receive dividends ahead of ordinary shareholders; and
• Their holders are not entitled to partake in the surplus in liquidation unless the Articles of Association stipulate otherwise.

Preference shares may be any of the following types:

• Redeemable preference shares
• Irredeemable preference shares
• Cumulative preference shares
• Non-cumulative preference shares

Ordinary Shares: These are sharing whose holders receive dividend only after the preference shareholders have received dividend. They are regarded as the risk bearers because they bear the heaviest loss in the event of liquidation of the company. On the other hand, the surplus profits after appropriation and surplus of

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