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Accounting Lesson Note for SS2 (Third Term) 2024

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

Accounting Lesson Note for SS2 (Third Term) [year] 1

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




WEEK                                                        TOPIC

  1.                   REVISION
  2.               Acquisition/purchases of business
  • purchase consideration, goodwill.

–Meaning, Reasons for acquisition, format and working capital

  1.         Purchase of business—Format, preparation of new business account.
  2.        Company Amalgamation –Reasons, process and working exercises
  3.           Company formation, private, public companies, quoted and unquoted                                          companies.
  4. Nigeria Financial system—Meaning, component, features, operators, money market and capital market functions
  5. Types of shares, issue of shares, distinction between classes of shares, issue of shares at par, Discount and Premium.
  6. Preparation of accounts for issue of shares at par, discount, and premium bonus shares, Right issues
  7. 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:

  1. Individuals
  2. Investors
  3. Government
  4. Economy.
  5. Individual

11&12 Revision





TOPIC: Acquisition /Purchase of Business

Meaning: Purchase of business is the system of acquiring a business as a going concern by another business.


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.


  1. Agreed purchase price

DR     Business purchase account

CR     Vendor account

  1. Take over value of assets

DR   Assets account

CR Business purchase account

  1.  Agreed valuation of liabilities taken over

DR Business purchase account.

CR Liabilities account

  1. Excess of purchase consideration over net assets.

DR Goodwill account

CR Business purchase account.

  1. Excess of assets over purchase consideration

DR Business purchase account.

CR Capital reserve account.

  1. Settlement of the vendors account with shares

DR Vendor account

CR Bank account

  1. 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




DR                                                                                                                        #            CR

VENDOR                                             X




DR                              SHARE CAPITAL ACCOUNT                                                CR






Goodwill account                                                             CR

DR                                                          #

Business purc a/c                                x




DR                                 CAPITAL RESERVE ACCOUNT                                               CR


PURCASE ACCOUNT                              X






CAPITAL                                             X         FIXED ASSETS                                            X

CURRENT ASSETS                                 X                                                                                                CAPITAL RESERVE                            X

X                   GOODWILL                                           X

CREDITORS                                           X

——                                                                        —

XX                                                                        XX

—–                                                                         —–





ASSETS:           FIXTURE                                                                          X

MOTOR VAN                                                                X

DEBTOR                                                                        X


STOCK                                                                          X

GOODWILL                                                                X

LIABILITIES:          CREDITORS                                                                                          X

PURCHASE CONSIDERATION                                                                X


Purchas of business account                                                                 x


Vendor account                                                                                                                    x


Vendor account                                                                                     x

Bank account                                                                                                                       x


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.


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

  1. The purchase consideration to be #200000
  2. All the assets and liabilities were taken over with the exception of bank
  3. 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.

  1. Journal entries in respect of the acquisition.
  2. ledger entries
  3. balance sheet.










ASSETS:        Premises                                                   140000

Fixtures                                                    40000

Motor car                                                 57000

Debtors                                                     13000

Stock                                                           10000

Goodwill                                                     10000



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



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

——–                                                          —————-


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.

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Steps to be followed;

1.Adjust the assets and liabilities of the first sole trader in order to calculate his capital.

  1. Adjust the assets and liabilities of the second sole trader in order  to calculate his capital.
  2. 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:

  1. kunle is to be credited with goodwill of #21000
  2. Dare land and building to be valued at #75000, stock at #16500
  3. Kunle, s fixture to be valued at #99000, Debtors #19200, stock #21600


  1. 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

  1. Purchase consideration
  2. Capital reserve
  3. Goodwill

ASSIGNMENT: Take assignment from book-keeping &accounting textbook revision question 5 page 486








                                        WEEK 5


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


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;

  1. Private limited companies.
  2. 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

  1. Limits the number of its members to fifty
  2. Prohibits any invitation to the public to subscribe to its shares .
  3. The name of the private company must end with “Limited “for example ,Midgal Nigeria Limited.

Characteristics of Private Limited Liability Company


Such business is owned by sharesholders who may be between two and fifty persons in number


The main aim of such business is to make profits for its members.


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


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


There is continuity of business operations as the withdrawal or death of a shareholder may not affect the existence of the company.


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

  1. Allow the public to subscribe to its shares
  2. Must have a minimum of seven persons , but no maximum number prescribed.
  3. Allow the shares to be transferred
  4. Its name must end with “plc.” for example, zenith bank Plc., UBA PLC,and so on





coy ltd by shares                    coy ltd by




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;


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.


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.


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;

  1. Memorandum of association
  2. Articles of association
  3. Statement of nominal capital
  4. 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

  1. Feasibility study
  2. Prospectus
  3. 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.



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

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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

  1. Such companies can raise its capital from the stock exchange
  2. Quoted companies are expected to publish its annual audited accounts for public


  1. Its shares are traded with or transferable from one holder to the other.
  2. Its shares are listed on the stock exchange.
  3. All its operations must be in conformity with laid down of security Exchange commission (SEC)

Features of unquoted company

  1. It cannot raise its shares on the stock exchange
  2. Its shares are not transferable.
  3. Unquoted companies run its affairs privately and confidentially
  4. Value of such company’s shares is difficult to ascertain.
  5. Such companies are mostly private companies



  1. Differentiate between quoted company and unquoted company.
  2. State four steps involved in the formation of a company.

ASSIGNMENT: State five contents each of the under listed;

  1. Memorandum of association

B .Articles of Association

C .Prospectus

  1. Differentiate between certificate of incorporation and certificate of operation





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.


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:

  1. Financial markets
  2. Financial institutions
  3. Financial instruments
  4. Regulatory authority



System                                                           institution



Financial system



instrument                                                                                markets





Real sector                                                    Financial


Commercial                                                  system                                     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.


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:

  1. Banks and other financial institutions
  2. Financial instruments
  3. Regulatory authority


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


There are many kinds of financial instruments being traded with by any of the above mentioned institutions under the money market


The financial instruments under the banks are as follows:

  1. Money in form of cash, cheques, drafts, foreign currencies, travelers’ cheque.
  2. Credit facilities in form of bank overdraft, loans, leasing, etc.


The financial instruments under the insurance in forms of insurance policy are as follows;

  1. Bad debts
  2. Goods on transit
  3. Group insurance
  4. Cash in transit
  5. Fidelity guarantee
  6. Export credit guarantee
  7. Plate glass
  8. Agricultural insurance
  9. Burglary, theft, robbery
  10. Consequential loss
  11. Contractor’s all risk
  12. Employers’ liability
  13. Aviation insurance
  14. Accident glass
  15. Motor vehicle
  16. Marine glass
  17. Life assurance
  18. 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

  1. It is a market where money and other money instruments can be raised or deployed in short term
  2. The price of borrowing and lending money as a stock in this market is interest.
  3. Money market is being represented in Nigeria as the banking sector
  4. The products in the money market are money, currencies, treasury bills treasury certificates, deposits, foreign currencies, and so on
  5. The regulatory authority in this market is the Central Bank of Nigeria.
  6. Banks and insurance companies that represent the institutions in the market are commercial in activities and for profit motive.


  1. Mention the components of the financial system.
  2. Mention four financial instruments traded under each of the following;


  1. Insurance companies


  1. What is capital market?
  2. State five functions of the regulatory authority in the money market






A company share can be classified mainly into:

  1. Preference shares
  2. Ordinary shares








Preference shares


Ordinary shares



Convertible                         founders share    preferred shares      stocks





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.




  1. They are types of company’s shares
  2. They are sources of long –term capital to companies
  3. They could be floated on the stock exchange.
  4. The returns of each types of shareholders is called dividend
  5. Their returns (dividend) are charged against profit after tax.




Amount of dividend                 fixed                                  fluctuation

Dividend & profit                      dividend are paid whe-

ther profit is made or

Not                                     dividend is paid if there is


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



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:

  1. A debenture is a special loan under the company’s seal deed
  2. It is usually a secured loan
  3. The interest on debenture is usually fixed
  4. The return receivable or payable on such loan stock is called interest.
  5. The interest return is charged against profit before tax
  6. 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

  1. They are the sources of company’s long –term capital
  2. They are paid returns at the end of every financial year
  3. Some forms of debentures and shares are irredeemable
  4. The two sources of finance have cost or or opportunity cost for their usage
  5. They can be issued to the public for subscription



Objective Questions

  1. How many markets make up financial system in Nigeria?

(a ) 5 (b) 3 (c) 4 (d) 2

  1. The regulatory authority of the capital market is (a) Central bank (b) Stock exchange (c) bank (d) security exchange commission
  2. The regulatory authority of the money market is

(a) Central bank (b) stock exchange (c) bank (d) security exchange commission

  1. The money market where foreign currencies could be bought and sold is called
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(a) Capital market (b) CBN (c) bank (d) foreign exchange

  1. Another name for capital is

(a) Money market (b) foreign exchange (c) stock exchange (d) stock market




Fill in the blanks

  1. Another name for Government security is———————
  2. The registration of securities on the capital market is carried out by ————–
  3. How many components make up a financial system? —————–
  4. The period of raising finances in the money market is ———————
  5. Another name for capital market is ————————-


WEEK 8 & 9



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


  1. Bank a/c                                                                                              xx

Application a/c                                                                                                  xx

(Being money paid for shares on application)

  1. 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


Value of shares =50000×1=#50000

  1.                                              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)

  1. 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.



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

———                                      ———–



DR                                                                                                           # CR

Application                       50000


Share premium a/c

DR                                                                                                               CR






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.








Journal entries


DR           CR


1 Bank (0.8×50000)                                                           40000

Applications                                                                                             40000

(Being money received on application for shares)

  1. Application                                                                    40000

Shares discount                                                               10000

Share capital                                                                                          50000

Being allotment of shares based on nominal price)






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



  1. Total application money=55000at 10k=#5500
  2. Allotment =(50000X4/5)at 20k =#8000
  3. Refunds =(55000-40000) at 10k =#1500
  4. First call =(50000 x4/5 ) at 40k =#16000
  5. Second call =( 50000 x 4/5 )at 30k =#12000



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


  1. Bank a/c                                                                                              xx

Debenture a/c                                                                                                   xx

(Being issue of debentures)

  1. p & L a/c                                                                                           xx

Deb .redemption a/c                                                                                         xx

(Being amount set aside annually to redeem the debenture)

  1. 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.



  1. Amount of the debenture =2000×100=#200000
  2. interest payable per year=10% at #200000= #20000 for 4 years= 20000×4=#80000
  3. Amount to be set aside per year=#200000 +#80000=#280000/4





Journal entries                                                            DR                CR


  1. Bank a/c                                                                                           200000

10% debenture a/c                                                                                                200000

(Being issue of debentures)

  1. p&L a/c                                                                                              70000

Debenture redemption a/c                                                                                 70000

(Being amount to be set aside yearly for 4 years (incl interest)

  1. 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

  1. Bank a/c                                                                                            280000

Red. Investment a/c                                                                                               280000

(Being proceeds from the sale of redemption deb inv.a/c

  1. 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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