An investigation into the Accounting and Financing of Courts Jamaica Limited.

Name : Alex Ellis

School : Oberlin High

Territory : Jamaica

Registration # : 100086

Teacher : Ms Coleman

Centre # : 100086

Date : April 2011

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Content Page

Acknowledgement 3

Aims 4

Introduction and Objectives 5

Methodology Employed 6

Report 7 - 12

Conclusions and Recommendations 13

Bibliography 14

Appendices 15 - 20

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This project is the fruit of concerted efforts. A project of this magnitude was effectively compiled with

the assistance and contribution of a number of individuals; gratitude must be extended to such persons.

The researcher would like to thank God almighty for giving him the health and strength he need to

complete this Management of Business Internal Assessment, so as to meet the requirements of the Caribbean

Advanced Proficiency Examination syllabus.

The researcher would like to give credit to his teacher Miss Coleman for the role she played in

outlining the task I am expected to perform.

I would like to express my warmest thanks to my friends at school who contributed significantly to my

project.

Finally, I would like to say thanks to the staff at the school’s computer labs that went beyond the call

of duty to ensure that the necessary resources were available and the attention was forth coming so that my

project was completed efficiently.

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The aim of this research is to concentrate on the systematization of Courts Jamaica Limited. The focus

is on the Business Accounting and Finances- Module 3. The objectives of the business are to provide

affordable furniture and appliances to the Jamaican people, create values for their stockholders by providing

quality goods and services, make huge amounts of profit and sell large amounts of shares. This research was

done in the context grasping the business aspects of the business environment, including theoretical

knowledge of these aspects from a practical standpoint of owning business. Also, this research gives me a

chance to start my examinations with twenty percent (20%) of the available marks.

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This project is designed to thoroughly research a legal form of business. The project involved the

relevant information that will give students the general understanding of how such a firm operates. The

contents of the research seeks to give a comprehensive round up of all the areas of the business, however,

specific attention was focused in three broad areas in the operation field. This project covers the areas that are

included in the unit one Caribbean Advanced Proficiency Examination (CAPE) syllabus for Management of

Business.

This project will look specifically on Module three of the syllabus which deals with the company

Accounting and Financing. The areas which will be covered are:

The business source of finance

Criteria for seeking finance

Use of accounting information

Accounting procedures and measures

Financial statement and analysis

Major concepts

This project also contains a chapter that looks at the business published accounts. The information

placed in this section was those obtain from the secondary source of data collection

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In order to accurately obtain the relevant information needed to complete this project both primary and

secondary methods of data collection were used. The primary mean of collecting data involved the use of

questionnaire. The questionnaire consisted of twenty questions, of open and closed ended questions. The

questionnaire was very simple to use and answered all the questions the researcher needed to effectively

compile his project, hence, the method effective and widespread. A total of three questionnaires were issued

using a random sampling approach.

Secondary means of data collection involved the use of textbooks, newspapers and magazines. This

method of data collection also played an important role in the effective compilation of my project. The

textbook used in the data collection process, contained the general information that corresponded with the

CAPE syllabus, these information provided a linkage between what is being thought and what it is actually

like in the business place. The information that the newspapers and magazines contained was vital in effective

completion of the research. The published accounts of the firm were found in these means of data collection.

These two sources used in the data collection process were sufficient to complete my research.

The researcher during the research faced few problems such as: limited amount to have a

thorough research on the topic, due to the fact the researcher time had to be balanced out with other internal

assessments. Another problem faced by the researcher was that he did not have enough equipment to get the

assessment done on time.

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The Courts Jamaica Limited as the name suggested is a public limited company, that is to say that the

business is privately owned by shareholders and its shares are listed on the Jamaica Stock Exchange and these

shares are freely transferable of the company are published on a yearly basis in the form of annual reports and

are open to public scrutiny. This means that the business has little privacy in its operation. It is domiciled in

Jamaica and also a subsidiary of Courts Furnishers (Overseas) Limited which is incorporated in England and

which is seventy nine point nine percent (79.9%) of the company’s issued stock units.

An economic system is the framework design to allocate the scarce resources of a country. The

resources of Jamaica are allocated through a mixed economic system; in this system there is some private and

some public ownership of its economic resources. In this type of economic system, Courts Jamaica Limited is

forced to produce a wide range of quality furniture and appliances at an affordable price to the Jamaican

consumers, in order to effectively compete on the local market. In this type of economy the company also

forces restrictions and laws, which may affect its operation.

Courts Jamaica Limited and all other businesses are faced with the problem of financing business

activities. The company has the need to finance its working capital and it’s the day to day finance, needed to

pay bills and expenses and to build up stocks. Businesses also need to finance investments such as special

projects and expansions. Courts Jamaica Limited finance the needed to increase the firm’s capital assets when

the company undertakes expansion, the company on occasion pay for research and development of new

products.

In general companies have a variety of sources which it can finance from; these sources are normally

internal or external sources. The internal sources of finance include retained profit (is profit after tax that has

not been returned to owners), working capital and sale of asset. External sources include share capital, loan

capital such as mortgage; and debentures also bank overdraft and trade credit. The diagram below shows the

company sources of finances.

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Courts finances its businesses activities through stockholders equity and profits retained. As a limited

company Courts issues shares, the capital raised from this venture is used to finance business activities. If a

company is trading profitability some of these profits will be taken in by the government as corporate tax and

some is nearly always paid out to shareholders this is known as dividends. If any profits remain; this retained

in the business and become a source of finance for future activities this is known as capital reserve, which can

also be used to redeem shares. The profit retained by Courts is its first source of finance. Accounting act as

system, which process business data so that stakeholders can be provided with means understanding how well

an organization is performing. As it’s with Courts accounting information is particular important to the

company financial decision makings. The company makes choices that are in its best financial interest. In

recording accounting information Courts use Profit and Loss account Statement of Cash flows and Statement

of changes in stockholders’ equity.

When Courts Jamaica Limited is about to seek finance it has certain criteria for selecting the source of

financing these include; cost, use of funds and its financial situation. The cost criterion deals with choosing

sources which are less expensive both in terms of interest and interest payments administrative costs. When

undertaking heavy capital expenditure the company normal funds this by the use of long term sources which

is normally an external source.

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SOURES OF FUND

INTERNAL EXTERNAL

RETAINPROFIT

WORKING CAPITAL

SALE OF ASSETSHARE CAPITAL TRADE

CREDIT

LOAN CAPITAL

The company’s accounting information is used by various groups and the company financial statements

have to be published. The users of the company financial statements include owners, employees, tax

authority, competitors, management and government. The need for the company financial information by the

different groups are different where employees use it when discussing wage bargains, managers when

recording, analyzing and controlling the company operations, owners for assessing performance, tax

authorities to show proof of income, competitors for analyzing the company stability and performance, and

the government for statistics on companies.

The company when recording its financial information it has several accounting concepts which it has to

follow in order for the business to reflect a true and fair view of its financial position. These concepts are the

accruals concept, consistency concept, separate entity, money terms and historical cost. The accruals concept

that costs and revenues should be matched with the period in which they occur. The consistency concept

states that when one decision has been made about the treatment of a transaction it should not be change. A

business is a legal person in its own right and has a separate identity from that of the owners is what is

outlined by the separate entity concept. Money terms indicates that when business transactions are being

recorded it should be recorded in a monetary value while historical cost stipulates that all assets are valued

according to their original cost rather than what they currently worth.

Financial statements are formal records of the financial activities of a business. A limited company set of

financial statements includes a balance sheet (a summary at a point in time of business assets, liabilities and

capital), income statement (shows the a business income after expenses and tax from operating profit), cash

flow statement (shows a company sources and uses of cash in a trading period) and notes which explained the

figures in the other financial statements.

The financial statements of the company are structured in a particular manner and must certain key

elements which they must consist. Each financial statement has its own purpose as stated above where a brief

description of their purpose where given.

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The balance of the company should contain the following: the company assets, its liabilities and the

company equities. The balance sheet should have the company name on it the date for which it had been

prepared for and the currency which it being expressed in. The assets should be listed first then followed by

the liabilities then equities.

The income and cash flow statement should enlist the revenues, the gains, expenses, profits or losses and

the comprehensive income. They should also give the company name, the date for which it is prepared for and

the currency which it is expressed in.

Ratio analysis is done by comparing and assessing a company performance by means of accounting data.

The net profit margin as a profitability ratio assesses how successful the management of a business has been

at earning profits for the business. The ratio compares the business net profits for the business. The ratio

compares the business net profits for the business net profit with its sales.

Gross Profit Margin (%) = Gross Profit x 2,552,273 x 100 = 55.6%` Sales Turnover 4,591,907

Courts Jamaica Limited gross margin is high; this gross profit is only fifty five point six percent (55.6%)

of its sales turnover. This is indicated by figure 2 in the appendices, where it explains that sales is sixty four

percent (64%) and gross profit is thirty six percent (36%) given a ratio of 1.8:1, therefore for every one dollar

eighty cents ($1.80) of sales one dollar ($1.00) goes to gross profit. This is a good sign since it will yield a

good net profit margin as indicated by figure 3 where the sales is eighty four percent (84%) and net profit is

sixteen percent (16%), showing that there is a ratio of 5.1:1, therefore the company the company makes one

dollar profit from every five dollar ten cents. The profitability ratio compares the profit of the business with

sales, assets and capital employed. The gross profit margin is a good indicator of how effectively managers

have added value to the cost of goods sold.

Current Ratio (%) = Current Assets x 4,043,643 x 100 = 600.95%` Current Liabilities 672,873

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Liquidity ratio assesses a business ability to pay its short-term debts. Current ratio, as a current ratio

compared to current assets with current liabilities. Current ratio of Courts is 6:1 and the company high current

ratio suggests that the company is able to pay off its creditors six times. This is show in figure 1 in the

appendices where it indicates that of the total current assets and current liabilities, current assets total eighty

four percent (86%) while current liabilities total fourteen percent (14%). This is a good ratio because a

business current asset should be at least two times its current liabilities and the company ratio is 6:1.

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Courts Jamaica Limited is a public listed company incorporated and resides in Jamaica. It is a

subsidiary of Courts Furnishers (Overseas) Limited which is incorporated in England and which holds 79.9%

of the company’s issued stock units. The ultimate holding company is Courts PLC, which is also incorporated

in England. The principal activities of Courts Jamaica Limited consist of the retailing and the hire purchase

financing of furniture and appliances. When Courts started its operations, furniture was being imported;

however this has changed. The change being referred to is a switch in 1965 to all locally manufactured

furniture in the company’s effort to assist in the development of the domestic furniture manufacturing

industry.

It could be concluded that Courts Jamaica Limited has various sources of finance and has criteria for

choosing the source of funds. It could also be concluded that the company follow some of the major

accounting concepts and a lot of different groups of people uses the company accounting information for

various reasons.

The researcher would like to recommend that the company continue to using the accounting concepts

it’s using now and adopt other principles was well as conventions. The recommends that Courts Jamaica

Limited increase on the availability of internal sources of fund so has to reduce the cost associated with

borrowing.

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Hall, D., Jones, R., Raffo, C., Chambers, I., & Gray, D. (2004). Business Studies. London: Pearson

Education.

Wood, F., & Sangster, A. (2008). Business Accounting 2. London: Prentice Hall.

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Questionnaire

1. What form of business does the company operate?

( ) Sole Trader ( ) Partnership ( ) Limited Company ( ) Corporation ( ) Cooperatives

2. What is the objective of your business?

____________________________________________________________________________________

____________________________________________________________________________________

_____________________________________________________

3. What line of business is the firm engaged in? ______________________________________

4. Which management style is employed?

( ) Directive ( ) Paternalistic ( ) Constitutional ( ) Participative

5. Is this management style effective? ( ) Yes ( ) No

b). Explain your response.

____________________________________________________________________________________

________________________________________________________________

6. What is the span of control like in the organization?

__________________________________________________________________________

7. How is information communicated within the company? ( ) Vertical ( ) Horizontal

8. Are job descriptions issued to prospective employees? ( ) Yes ( ) No

B) What do they include?

____________________________________________________________________________________

________________________________________________________________

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9. What are the factors of production employed by the business?

____________________________________________________________________________________

________________________________________________________________

10. State the scale of production – e.g. 50 sales per day, 1000 products made each week?

__________________________________________________________________________

11. Is the business labour or capital intensive? _______________________________________

12. Are there normally any production/sales problems that this enterprise encounters?

( ) Yes ( ) No

B). If so what are they?

____________________________________________________________________________________

________________________________________________________________

13.What are the business sources of capital? ( ) Loans ( ) Shares ( ) Retained Profit ( ) Dividend ( ) Other

If other state ___________________________________________________________________

14. What kind of collateral is used by the business to secure loans and what are the terms of repayment?

____________________________________________________________________________________

________________________________________________________________

15. How profitable is the business and what contributes to this?

____________________________________________________________________________________

________________________________________________________________

16. Does the business provide employment to citizens? ( ) Yes ( ) No

17. Do the working conditions for employees meet the legal guidelines? Explain.

____________________________________________________________________________________

________________________________________________________________

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18. Explain the safety procedures followed, if any:

____________________________________________________________________________________

________________________________________________________________

19. Are the products of the business exported? ( ) Yes ( ) No

20. How does the business help in the development of the country?

____________________________________________________________________________________

________________________________________________________________

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FIGURE 1

FIGURE 2

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FIGURE 3

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