Active learning ideas
As businesses grow, they often need to move beyond simple bank loans to more complex methods of raising capital. This topic examines how companies finance their operations through the issuance of shares (equity) and debentures or bonds (debt). Students learn to record these transactions in the company ledger, including the application and allotment process for new share issues. This aligns with VCE and QCE standards on accounting for corporate financing and understanding the capital structure of a company.
Activity 01
Small groups act as 'start-up' companies looking to raise capital. They must decide how many shares to issue and at what price, then 'pitch' their offer to the rest of the class (the investors). The class then records the resulting share issue transactions.
What are the differences between debt and equity financing?
Activity 02
Divide the class into two sides. One side argues that a company should always use debt to maintain control, while the other argues that equity is safer because it doesn't require fixed interest payments. Students must use the concept of 'gearing' to support their points.
How are share issues recorded in the company ledger?
Activity 03
Provide a scenario where a company issues 100,000 shares at $2.00 each, with $1.00 payable on application. Students individually draft the journal entries, pair up to check their 'Application' and 'Share Capital' accounts, and share their work with the class.
What are the risks associated with high corporate debt?
A few notes on teaching this unit
Watch Out for These Misconceptions
Issuing shares is 'free money' for a company.
Students often forget that shareholders expect a return in the form of dividends and capital growth. Use a simulation to show that while there is no legal obligation to repay the capital, failing to provide a return will cause the share price to drop and make future capital raising impossible.
Dividends are an expense that reduces profit.
Students frequently misclassify dividends. Peer discussion can help clarify that dividends are a distribution of profit to owners, not an expense of earning that profit, and therefore appear in the Statement of Changes in Equity rather than the Income Statement.
Methods used in this brief
The Conceptual Framework and Accounting Standards
Introduces the Australian Accounting Standards Board (AASB) and the Conceptual Framework. Students explore the regulatory environment governing corporate reporting in Australia.
8 methodologies
Preparing Corporate Financial Statements
Students prepare complex financial statements for reporting entities, including the Statement of Changes in Equity. They apply relevant accounting standards to ensure accurate disclosure.
8 methodologies
Analysing Corporate Annual Reports
Focuses on the interpretation of published annual reports of Australian public companies. Students analyse the directors' report, auditor's report, and financial notes.
8 methodologies