The second term of SS2 Accounting introduces essential concepts in business acquisitions, company formation, financial systems, shares, and capital markets. This guide will provide students with a clear, comprehensive understanding of these topics, while breaking down complex subjects into digestible, easily understandable explanations for beginners. Each topic is explored in-depth with examples, reading assignments, and evaluation questions to ensure mastery of the material.
Week 1: Revision of Key Concepts
Revision is a crucial step in consolidating knowledge before diving into new topics. In this week, students should review the core concepts learned in the previous terms to ensure a strong foundation for the topics ahead.
- Key areas for revision:
- The principles of business accounting, including double-entry bookkeeping.
- Fundamental financial statements (balance sheet, income statement).
- Basic understanding of cost concepts and financial ratios.
Reading Assignment:
- Review previous class notes on business accounting principles.
- Study the concept of double-entry bookkeeping in detail.
Evaluation Questions:
- What is the purpose of double-entry bookkeeping?
- Explain the difference between an income statement and a balance sheet.
Week 2: Acquisition/Purchases of Business
In this week, we focus on the process and rationale behind acquiring or purchasing a business, as well as the preparation of financial records related to such transactions.
1. Purchase Consideration and Goodwill
- Purchase Consideration: The total value paid to acquire a business, which may include both tangible assets (e.g., land, machinery) and intangible assets (e.g., patents, trademarks). It is usually agreed upon in a purchase contract and may involve cash, shares, or other forms of payment.
Example: If Company A buys Company B for $500,000, this amount is the purchase consideration.
- Goodwill: The excess amount paid over the net value of a business’s assets during an acquisition. This is due to intangible factors like brand reputation, customer loyalty, and market position.
Formula: Goodwill = Purchase Consideration – Net Asset Value of Acquired Business
2. Meaning, Reason for Acquisition, Format, and Working Capital
- Meaning: Acquisition refers to the process of buying another company’s assets or shares. It is often done to gain access to new markets, technologies, or resources.
- Reason for Acquisition: Companies acquire others for several reasons, including expanding their market share, diversifying their portfolio, or gaining strategic advantages.
- Format: The format of acquisition usually involves legal documentation, due diligence, and agreement on purchase consideration.
- Working Capital: The difference between a company’s current assets and current liabilities, which is vital in managing day-to-day operations post-acquisition.
Reading Assignment:
- Research the process of company acquisitions and the concept of goodwill in financial accounting.
Evaluation Questions:
- How is goodwill calculated in a business acquisition?
- What are some reasons companies might engage in acquisitions?
Week 3: Purchase of Business – Format and Preparation of New Business Accounts
This week focuses on how to account for the purchase of a business, including preparing the necessary financial statements to reflect the acquisition.
- Format: The purchase agreement outlines the key terms, including the purchase price, assets acquired, liabilities assumed, and the method of payment.
- New Business Account: After the acquisition, the purchasing company will need to prepare a new set of financial records, consolidating the acquired business’s balance sheet, income statement, and cash flow.
Example:
- Suppose Company A acquires Company B. The new business account will include:
- Consolidated balance sheet showing the combined assets and liabilities.
- Income statement that incorporates revenue and expenses from both companies.
- Cash flow statement reflecting the cash inflow and outflow after the acquisition.
Reading Assignment:
- Study the format of a business acquisition document and the steps in preparing the financial accounts of an acquired company.
Evaluation Questions:
- What is the first step in preparing the new business account after an acquisition?
- How do you combine the financial records of two companies after an acquisition?
Week 4: Company Amalgamation – Reason, Process, and Working Exercises
Amalgamation involves the merging of two or more companies into a single entity, often to create a larger or more competitive organization.
Reason for Amalgamation
- Economic Efficiency: Combining resources for better use.
- Market Share Growth: Gaining a larger share of the market through merger.
Process of Amalgamation:
- Due diligence to assess the financial health and potential risks.
- Negotiation of terms (assets, liabilities, and equity shares).
- Legal approval and documentation of the merger.
Example: When Company A merges with Company B, their assets and liabilities are combined, and shareholders of both companies receive new shares in the merged entity.
Reading Assignment:
- Research case studies of major company amalgamations.
Evaluation Questions:
- What are the key reasons for companies to engage in amalgamation?
- Describe the process of amalgamation in a business.
Week 5: Company Formation – Private, Public Companies, Quoted and Unquoted
Understanding the differences between types of companies is essential in the study of business law and financial systems.
Private vs. Public Companies:
- Private Company: Owned by a small group of individuals or entities, and shares are not publicly traded.
- Public Company: Shares are available to the public and are traded on the stock exchange.
Quoted vs. Unquoted Companies:
- Quoted Company: A public company whose shares are listed on a stock exchange.
- Unquoted Company: A company that does not have shares listed on a public exchange, though it may still be a private company.
Example:
- Private Company: Company X, whose shares are owned by family members.
- Public Company: Company Y, whose shares are traded on the Nigerian Stock Exchange.
Reading Assignment:
- Study the legal and financial requirements for the formation of a private or public company.
Evaluation Questions:
- What is the main difference between a private and a public company?
- How does being a quoted company affect its operations?
Week 6: Nigeria Financial System – Meaning, Components, Features, Operators, Money Market and Capital Market Functions
This topic provides a deep dive into Nigeria’s financial system, including its structure, functions, and the key players involved.
Meaning:
The financial system refers to the system that facilitates the flow of funds in an economy, including banks, investors, and markets.
Components:
- Banks: Commercial, central, and development banks.
- Financial Institutions: Including insurance companies and pension funds.
- Markets: Money market and capital market.
Money Market and Capital Market Functions:
- Money Market: Deals with short-term borrowing and lending, typically in the form of government treasury bills, certificates of deposit, etc.
- Capital Market: Deals with long-term securities like stocks and bonds.
Reading Assignment:
- Research the role of money and capital markets in Nigeria’s economy.
Evaluation Questions:
- What is the difference between the money market and the capital market?
- How do banks and financial institutions contribute to the financial system?
Week 7: Types of Shares – Issue of Shares, Distinction Between Shares, and Issue of Shares at Par, Discount, and Premium
This week focuses on understanding shares, the methods for issuing them, and the distinction between different types of shares.
Types of Shares:
- Ordinary Shares: The most common type of share, giving owners voting rights and dividends.
- Preference Shares: Give priority for dividend payments over ordinary shares but typically do not carry voting rights.
Issue of Shares:
- At Par: Shares issued at their nominal value.
- At Discount: Shares issued at a price below their nominal value.
- At Premium: Shares issued above their nominal value.
Reading Assignment:
- Study the impact of issuing shares at par, discount, and premium on a company’s capital structure.
Evaluation Questions:
- What is the difference between issuing shares at par, discount, and premium?
- How do ordinary and preference shares differ?
Week 8: Preparation of Accounts for Issuing Shares at Par, Discount, and Premium, Bonus Shares, and Rights Issues
This week focuses on the accounting procedures for issuing shares, including at par, discount, premium, and handling bonus shares and rights issues.
Preparation of Accounts:
- At Par: The entry reflects the issuance of shares at face value.
- At Discount/Premium: Accounts are prepared by recording the difference between the issue price and the nominal value of the shares.
Bonus Shares and Rights Issues:
- Bonus Shares: Issued to existing shareholders, free of charge, based on the number of shares they already hold.
- Rights Issue: Giving current shareholders the right to purchase additional shares at a discounted price.
Reading Assignment:
- Review case studies of companies that have issued shares at par, discount, or premium.
Evaluation Questions:
- How does the issuance of bonus shares affect the company’s equity?
- What is the accounting treatment for shares issued at a premium?
Week 9: Loan Capital – Debenture Types, Distinction Between Shares and Debentures, and Preparation of Accounts
This week delves into the financing mechanism of debentures and the difference between shares and debentures.
Debentures:
- Meaning: A type of long-term loan capital that companies issue to raise funds. Debenture holders are creditors, not owners.
- Types of Debentures: Secured, unsecured, convertible, non-convertible.
Distinction Between Shares and Debentures:
- Shares: Represent ownership in the company, with voting rights.
- Debentures: Represent loans to the company, with no voting rights.
Reading Assignment:
- Research the different types of debentures and their implications for the company.
Evaluation Questions:
- What are the main differences between shares and debentures?
- How is a debenture issued and accounted for in the financial statements?
Week 10: Capital Market – Requirements for Enlisting in the Capital Market, Second-Tier Security Market
The capital market is where long-term securities are bought and sold. This week will focus on the process and advantages of entering the capital market.
Requirements for Enlisting in the Capital Market:
- A company must meet specific financial, legal, and regulatory requirements to list on the stock exchange.
Second-Tier Security Market:
- A secondary market for securities that may not meet the primary listing criteria but still offer investment opportunities.
Reading Assignment:
- Study the benefits of listing a company in the capital market.
Evaluation Questions:
- What are the key requirements for listing a company in the capital market?
- How does the second-tier market differ from the primary market?
Conclusion
By understanding these essential topics, students will gain a comprehensive overview of business acquisitions, company formation, financial systems, and capital markets. This knowledge is vital for those pursuing careers in accounting, finance, or business management.
