An investigation into the Accounting and Financing of Courts Jamaica Limited.Name : Alex EllisSchool : Oberlin HighTerritory : JamaicaRegistration # : 100086Teacher : Ms ColemanCentre # : 100086Date : April 2011Content PageAcknowledgement 3Aims 4Introduction and Objectives 5Methodology Employed 6Report 7 - 12Conclusions and Recommendations 13Bibliography 14Appendices 15 - 20This project is the fruit of concerted efforts. A project of this magnitude waseffectively compiled with the assistance and contribution of a number ofindividuals; gratitude must be extended to such persons.The researcher would like to thank God almighty for giving him the health andstrength he need to complete this Management of Business Internal Assessment, soas to meet the requirements of the Caribbean Advanced Proficiency Examinationsyllabus. The researcher would like to give credit to his teacher Miss Coleman for therole she played in outlining the task I am expected to perform.I would like to express my warmest thanks to my friends at school whocontributed significantly to my project. Finally, I would like to say thanks to the staff at the school’s computerlabs that went beyond the call of duty to ensure that the necessary resourceswere available and the attention was forth coming so that my project wascompleted efficiently. The aim of this research is to concentrate on the systematization ofCourts Jamaica Limited. The focus is on the Business Accounting and Finances-Module 3. The objectives of the business are to provide affordable furniture andappliances to the Jamaican people, create values for their stockholders byproviding quality goods and services, make huge amounts of profit and sell largeamounts of shares. This research was done in the context grasping the businessaspects of the business environment, including theoretical knowledge of theseaspects from a practical standpoint of owning business. Also, this researchgives me a chance to start my examinations with twenty percent (20%) of theavailable marks.This project is designed to thoroughly research a legal form of business. The
project involved the relevant information that will give students the generalunderstanding of how such a firm operates. The contents of the research seeks togive a comprehensive round up of all the areas of the business, however,specific attention was focused in three broad areas in the operation field. Thisproject covers the areas that are included in the unit one Caribbean AdvancedProficiency Examination (CAPE) syllabus for Management of Business.This project will look specifically on Module three of the syllabus which dealswith the company Accounting and Financing. The areas which will be covered are:The business source of financeCriteria for seeking financeUse of accounting informationAccounting procedures and measuresFinancial statement and analysisMajor conceptsThis project also contains a chapter that looks at the business publishedaccounts. The information placed in this section was those obtain from thesecondary source of data collectionIn order to accurately obtain the relevant information needed to complete thisproject both primary and secondary methods of data collection were used. Theprimary mean of collecting data involved the use of questionnaire. Thequestionnaire consisted of twenty questions, of open and closed ended questions.The questionnaire was very simple to use and answered all the questions theresearcher needed to effectively compile his project, hence, the methodeffective and widespread. A total of three questionnaires were issued using arandom sampling approach. Secondary means of data collection involved the use of textbooks,newspapers and magazines. This method of data collection also played animportant role in the effective compilation of my project. The textbook used inthe data collection process, contained the general information that correspondedwith the CAPE syllabus, these information provided a linkage between what isbeing thought and what it is actually like in the business place. Theinformation that the newspapers and magazines contained was vital in effectivecompletion of the research. The published accounts of the firm were found inthese means of data collection. These two sources used in the data collectionprocess were sufficient to complete my research. The researcher during the research faced few problems such as: limitedamount to have a thorough research on the topic, due to the fact the researchertime had to be balanced out with other internal assessments. Another problemfaced by the researcher was that he did not have enough equipment to get theassessment done on time.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 itsshares are listed on the Jamaica Stock Exchange and these shares are freelytransferable of the company are published on a yearly basis in the form ofannual reports and are open to public scrutiny. This means that the business haslittle privacy in its operation. It is domiciled in Jamaica and also asubsidiary of Courts Furnishers (Overseas) Limited which is incorporated inEngland and which is seventy nine point nine percent (79.9%) of the company’sissued stock units. An economic system is the framework design to allocate the scarceresources of a country. The resources of Jamaica are allocated through a mixedeconomic system; in this system there is some private and some public ownershipof its economic resources. In this type of economic system, Courts JamaicaLimited is forced to produce a wide range of quality furniture and appliances atan affordable price to the Jamaican consumers, in order to effectively competeon the local market. In this type of economy the company also forcesrestrictions 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 itsworking capital and it’s the day to day finance, needed to pay bills andexpenses and to build up stocks. Businesses also need to finance investmentssuch as special projects and expansions. Courts Jamaica Limited finance theneeded to increase the firm’s capital assets when the company undertakesexpansion, the company on occasion pay for research and development of newproducts.In general companies have a variety of sources which it can finance from; thesesources are normally internal or external sources. The internal sources offinance include retained profit (is profit after tax that has not been returnedto owners), working capital and sale of asset. External sources include sharecapital, loan capital such as mortgage; and debentures also bank overdraft andtrade credit. The diagram below shows the company sources of finances.Courts finances its businesses activities through stockholders equity andprofits retained. As a limited company Courts issues shares, the capital raisedfrom this venture is used to finance business activities. If a company istrading profitability some of these profits will be taken in by the governmentas corporate tax and some is nearly always paid out to shareholders this isknown as dividends. If any profits remain; this retained in the business andbecome a source of finance for future activities this is known as capitalreserve, which can also be used to redeem shares. The profit retained by Courtsis its first source of finance. Accounting act as system, which process businessdata so that stakeholders can be provided with means understanding how well anorganization is performing. As it’s with Courts accounting information isparticular important to the company financial decision makings. The companymakes choices that are in its best financial interest. In recording accountinginformation Courts use Profit and Loss account Statement of Cash flows andStatement of changes in stockholders’ equity.When Courts Jamaica Limited is about to seek finance it has certain criteria forselecting the source of financing these include; cost, use of funds and itsfinancial situation. The cost criterion deals with choosing sources which areless expensive both in terms of interest and interest payments administrativecosts. When undertaking heavy capital expenditure the company normal funds thisby the use of long term sources which is normally an external source.The company’s accounting information is used by various groups and the companyfinancial statements have to be published. The users of the company financialstatements include owners, employees, tax authority, competitors, management andgovernment. The need for the company financial information by the differentgroups 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 thegovernment for statistics on companies.The company when recording its financial information it has several accountingconcepts which it has to follow in order for the business to reflect a true andfair view of its financial position. These concepts are the accruals concept,consistency concept, separate entity, money terms and historical cost. Theaccruals concept that costs and revenues should be matched with the period inwhich they occur. The consistency concept states that when one decision has beenmade about the treatment of a transaction it should not be change. A business isa legal person in its own right and has a separate identity from that of theowners is what is outlined by the separate entity concept. Money terms indicatesthat when business transactions are being recorded it should be recorded in amonetary value while historical cost stipulates that all assets are valuedaccording to their original cost rather than what they currently worth.
Financial statements are formal records of the financial activities of abusiness. 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 fromoperating profit), cash flow statement (shows a company sources and uses of cashin a trading period) and notes which explained the figures in the otherfinancial statements.The financial statements of the company are structured in a particular mannerand must certain key elements which they must consist. Each financial statementhas its own purpose as stated above where a brief description of their purposewhere given.The balance of the company should contain the following: the company assets, itsliabilities and the company equities. The balance sheet should have the companyname on it the date for which it had been prepared for and the currency which itbeing expressed in. The assets should be listed first then followed by theliabilities 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 givethe company name, the date for which it is prepared for and the currency whichit is expressed in.Ratio analysis is done by comparing and assessing a company performance by meansof accounting data. The net profit margin as a profitability ratio assesses howsuccessful the management of a business has been at earning profits for thebusiness. The ratio compares the business net profits for the business. Theratio compares the business net profits for the business net profit with itssales.Gross Profit Margin (%) = Gross Profit x 2,552,273 x 100 =55.6% ` Sales Turnover 4,591,907Courts Jamaica Limited gross margin is high; this gross profit is only fiftyfive point six percent (55.6%) of its sales turnover. This is indicated byfigure 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 profitmargin as indicated by figure 3 where the sales is eighty four percent (84%) andnet 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 dollarten cents. The profitability ratio compares the profit of the business withsales, assets and capital employed. The gross profit margin is a good indicatorof 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 672,873Liquidity ratio assesses a business ability to pay its short-term debts. Currentratio, 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 thatthe company is able to pay off its creditors six times. This is show in figure 1in the appendices where it indicates that of the total current assets andcurrent liabilities, current assets total eighty four percent (86%) whilecurrent liabilities total fourteen percent (14%). This is a good ratio because abusiness current asset should be at least two times its current liabilities andthe company ratio is 6:1.Courts Jamaica Limited is a public listed company incorporated and resides inJamaica. It is a subsidiary of Courts Furnishers (Overseas) Limited which isincorporated 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 inEngland. The principal activities of Courts Jamaica Limited consist of theretailing and the hire purchase financing of furniture and appliances. WhenCourts started its operations, furniture was being imported; however this haschanged. The change being referred to is a switch in 1965 to all locallymanufactured furniture in the company’s effort to assist in the development ofthe domestic furniture manufacturing industry.It could be concluded that Courts Jamaica Limited has various sources of financeand has criteria for choosing the source of funds. It could also be concludedthat the company follow some of the major accounting concepts and a lot ofdifferent groups of people uses the company accounting information for variousreasons.The researcher would like to recommend that the company continue to using theaccounting concepts it’s using now and adopt other principles was well asconventions. The recommends that Courts Jamaica Limited increase on theavailability of internal sources of fund so has to reduce the cost associatedwith borrowing.Hall, D., Jones, R., Raffo, C., Chambers, I., & Gray, D. (2004). BusinessStudies. London: Pearson Education.Wood, F., & Sangster, A. (2008). Business Accounting 2. London: Prentice Hall.Questionnaire1. What form of business does the company operate?( ) Sole Trader ( ) Partnership ( ) Limited Company ( ) Corporation ( )Cooperatives2. 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 ( ) Participative5. Is this management style effective? ( ) Yes ( ) Nob). Explain your response.____________________________________________________________________________________________________________________________________________________6. What is the span of control like in the organization?__________________________________________________________________________7. How is information communicated within the company? ( ) Vertical ( )Horizontal8. Are job descriptions issued to prospective employees? ( ) Yes ( ) NoB) What do they include?____________________________________________________________________________________________________________________________________________________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 enterpriseencounters?( ) Yes ( ) NoB). If so what are they?____________________________________________________________________________________________________________________________________________________13. What are the business sources of capital? ( ) Loans ( ) Shares ( ) RetainedProfit ( ) Dividend ( ) OtherIf other state___________________________________________________________________14. What kind of collateral is used by the business to secure loans and what arethe terms of repayment?____________________________________________________________________________________________________________________________________________________15. How profitable is the business and what contributes to this?____________________________________________________________________________________________________________________________________________________16. Does the business provide employment to citizens? ( ) Yes ( ) No17. Do the working conditions for employees meet the legal guidelines? Explain.____________________________________________________________________________________________________________________________________________________18. Explain the safety procedures followed, if any:____________________________________________________________________________________________________________________________________________________19. Are the products of the business exported? ( ) Yes ( ) No20. How does the business help in the development of the country?____________________________________________________________________________________________________________________________________________________FIGURE 1 FIGURE 2 FIGURE 3