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- 3. ekstogiveacomprehensiveroundupofalltheareasofthebusiness,however,specificattentionwasfocusedinth reebroadareasintheoperationfield.ThisprojectcoverstheareasthatareincludedintheunitoneCaribbeanAdv ancedProficiencyExamination(CAPE)syllabusforManagementofBusiness.Thisprojectwilllookspecificallyon ModulethreeofthesyllabuswhichdealswiththecompanyAccountingandFinancing.Theareaswhichwillbecov eredare: Thebusinesssourceoffinance Criteriaforseekingfinance Useofaccountinginformation Accounti ngproceduresandmeasures Financialstatementandanalysis MajorconceptsThisprojectalsocontainsacha pterthatlooksatthebusinesspublishedaccounts.Theinformationplacedinthissectionwasthoseobtainfromth esecondarysourceofdatacollection5
- 5. hequestionnaireconsistedoftwentyquestions,ofopenandclosedendedquestions.Thequestionnairewasver ysimpletouseandansweredallthequestionstheresearcherneededtoeffectivelycompilehisproject,hence,th emethodeffectiveandwidespread.Atotalofthreequestionnaireswereissuedusingarandomsamplingapproa ch.Secondarymeansofdatacollectioninvolvedtheuseoftextbooks,newspapersandmagazines.Thismethodo fdatacollectionalsoplayedanimportantroleintheeffectivecompilationofmyproject.Thetextbookusedinthe datacollectionprocess,containedthegeneralinformationthatcorrespondedwiththeCAPEsyllabus,theseinfo rmationprovidedalinkagebetweenwhatisbeingthoughtandwhatitisactuallylikeinthebusinessplace.Theinfo rmationthatthenewspapersandmagazinescontainedwasvitalineffectivecompletionoftheresearch.Thepubl ishedaccountsofthefirmwerefoundinthesemeansofdatacollection.Thesetwosourcesusedinthedatacollecti onprocessweresufficienttocompletemyresearch.Theresearcherduringtheresearchfacedfewproblemssuch as:limitedamounttohaveathoroughresearchonthetopic,duetothefacttheresearchertimehadtobebalanced outwithotherinternalassessments.Anotherproblemfacedbytheresearcherwasthathedidnothaveenoughe quipmenttogettheassessmentdoneontime.6 1. An investigation into the Accounting and Financing of Courts Jamaica Limited.Name : Alex EllisSchool : Oberlin HighTerritory : JamaicaRegistration # : 100086Teacher : MsColemanCentre # : 100086Date : April 2011 1 2. Content PageAcknowledgement 3Aims 4Introduction and Objectives 5Methodology Employed 6Report 7 - 12Conclusions and Recommendations 13Bibliography 14Appendices 15 - 20 2 3. This project is the fruit of concerted efforts. A project of this magnitude was effectively compiled withthe 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
- 6. need tocomplete this Management of Business Internal Assessment, so as to meet the requirements of the CaribbeanAdvanced Proficiency Examination syllabus. The researcher would like to give credit to his teacher Miss Coleman for the role she played inoutlining the task I am expected to perform. I would like to express my warmest thanks to my friends at school who contributed significantly to myproject. Finally, I would like to say thanks to the staff at the school’s computer labs that went beyond the callof duty to ensure that the necessary resources were available and the attention was forth coming so that myproject was completed efficiently. 3 4. The aim of this research is to concentrate on the systematization of Courts Jamaica Limited. The focusis on the Business Accounting and Finances- Module 3. The objectives of the business are to provideaffordable furniture and appliances to the Jamaican people, create values for their stockholders by providingquality goods and services, make huge amounts of profit and sell large amounts of shares. This research wasdone in the context grasping the business aspects of the business environment, including theoreticalknowledge of these aspects from a practical standpoint of owning business. Also, this research gives me achance to start my examinations with twenty percent (20%) of the available marks. 4 5. This project is designed to thoroughly research a legal form of business. The project involved therelevant information that will give students the general understanding of how such a firm operates. Thecontents 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 areincluded in the unit one Caribbean Advanced Proficiency Examination (CAPE) syllabus for Management ofBusiness. This project will look specifically on Module three of the syllabus which deals with the companyAccounting 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 informationplaced in this section was those obtain from the secondary source of data collection 5 6. In order to accurately obtain the relevant information needed to complete this project both primary andsecondary methods of data collection were used. The primary mean of collecting data involved the use ofquestionnaire. The questionnaire consisted of twenty questions, of open and closed ended questions. Thequestionnaire was very simple to use and answered all the questions the researcher needed to effectivelycompile his project, hence, the method effective and widespread. A total of three questionnaires were issuedusing a random sampling approach. Secondary means of data collection involved the use of textbooks, newspapers and magazines. Thismethod of data collection also played an important role in the effective compilation of my project. Thetextbook used in the data collection process, contained the general information that corresponded with theCAPE syllabus, these information provided a linkage between what is being thought and what it is actuallylike in the business place. The information that the newspapers and magazines contained was vital in effectivecompletion 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 athorough research on the
- 7. topic, due to the fact the researcher time had to be balanced out with other internalassessments. Another problem faced by the researcher was that he did not have enough equipment to get theassessment done on time. 6 7. 7 8. The Courts Jamaica Limited as the name suggested is a public limited company, that is to say that thebusiness is privately owned by shareholders and its shares are listed on the Jamaica Stock Exchange and theseshares are freely transferable of the company are published on a yearly basis in the form of annual reports andare open to public scrutiny. This means that the business has little privacy in its operation. It is domiciled inJamaica and also a subsidiary of Courts Furnishers (Overseas) Limited which is incorporated in England andwhich 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. Theresources of Jamaica are allocated through a mixed economic system; in this system there is some private andsome public ownership of its economic resources. In this type of economic system, Courts Jamaica Limited isforced to produce a wide range of quality furniture and appliances at an affordable price to the Jamaicanconsumers, in order to effectively compete on the local market. In this type of economy the company alsoforces restrictions and laws, which may affect its operation. Courts Jamaica Limited and all other businesses are faced with the problem of financing businessactivities. The company has the need to finance its working capital and it’s the day to day finance, needed topay bills and expenses and to build up stocks. Businesses also need to finance investments such as specialprojects and expansions. Courts Jamaica Limited finance the needed to increase the firm’s capital assets whenthe company undertakes expansion, the company on occasion pay for research and development of newproducts. In general companies have a variety of sources which it can finance from; these sources are normallyinternal or external sources. The internal sources of finance include retained profit (is profit after tax that hasnot been returned to owners), working capital and sale of asset. External sources include share capital, loancapital such as mortgage; and debentures also bank overdraft and trade credit. The diagram below shows thecompany sources of finances. 8 9. SOURES OF FUND INTERNAL EXTERNALRETAIN SALE OF ASSETPROFIT SHARE CAPITAL TRADE CREDIT WORKING CAPITAL LOAN CAPITAL 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
- 8. 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. 9 10. The company’s accounting information is used by various groups and the company financial statementshave 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 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 showproof of income, competitors for analyzing the company stability and performance, and the government forstatistics on companies. The company when recording its financial information it has several accounting concepts which it has tofollow in order for the business to reflect a true and fair view of its financial position. These concepts are theaccruals concept, consistency concept, separate entity, money terms and historical cost. The accruals conceptthat costs and revenues should be matched with the period in which they occur. The consistency concept statesthat when one decision has been made about the treatment of a transaction it should not be change. A businessis a legal person in its own right and has a separate identity from that of the owners is what is outlined by theseparate entity concept. Money terms indicates that when business transactions are being recorded it should berecorded in a monetary value while historical cost stipulates that all assets are valued according to theiroriginal cost rather than what they currently worth. Financial statements are formal records of the financial activities of a business. A limited company set offinancial statements includes a balance sheet (a summary at a point in time of business assets, liabilities andcapital), income statement (shows the a business income after expenses and tax from operating profit), cashflow statement (shows a company sources and uses of cash in a trading period) and notes which explained thefigures in the other financial statements. The financial statements of the company are structured in a particular manner and must certain keyelements which they must consist. Each financial statement has its own purpose as stated above where a briefdescription of their purpose where given. 10 11. The balance of the company should contain the following: the company assets, its liabilities and thecompany equities. The balance sheet should have the company name on it the date for which it had beenprepared for and the currency which it being expressed in. The assets should be listed first then followed bythe liabilities then equities. The income and cash flow statement should enlist the revenues, the gains, expenses, profits or losses andthe comprehensive income. They should also give the company name, the date for which it is prepared for andthe 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 atearning profits for the business. The ratio compares the business net profits for the business. The ratiocompares 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 fourpercent (64%) and gross profit is thirty six
- 9. percent (36%) given a ratio of 1.8:1, therefore for every one dollareighty cents ($1.80) of sales one dollar ($1.00) goes to gross profit. This is a good sign since it will yield agood net profit margin as indicated by figure 3 where the sales is eighty four percent (84%) and net profit issixteen percent (16%), showing that there is a ratio of 5.1:1, therefore the company the company makes onedollar profit from every five dollar ten cents. The profitability ratio compares the profit of the business withsales, assets and capital employed. The gross profit margin is a good indicator of how effectively managershave added value to the cost of goods sold. Current Ratio (%) = Current Assets x 4,043,643 x 100 = 600.95% ` Current Liabilities 672,873 11 12. Liquidity ratio assesses a business ability to pay its short-term debts. Current ratio, as a current ratiocompared to current assets with current liabilities. Current ratio of Courts is 6:1 and the company high currentratio suggests that the company is able to pay off its creditors six times. This is show in figure 1 in theappendices where it indicates that of the total current assets and current liabilities, current assets total eightyfour percent (86%) while current liabilities total fourteen percent (14%). This is a good ratio because abusiness current asset should be at least two times its current liabilities and the company ratio is 6:1. 12 13. Courts Jamaica Limited is a public listed company incorporated and resides in Jamaica. It is asubsidiary 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 incorporatedin England. The principal activities of Courts Jamaica Limited consist of the retailing and the hire purchasefinancing 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 manufacturedfurniture in the company’s effort to assist in the development of the domestic furniture manufacturingindustry. It could be concluded that Courts Jamaica Limited has various sources of finance and has criteria forchoosing the source of funds. It could also be concluded that the company follow some of the majoraccounting concepts and a lot of different groups of people uses the company accounting information forvarious reasons. The researcher would like to recommend that the company continue to using the accounting conceptsit’s using now and adopt other principles was well as conventions. The recommends that Courts JamaicaLimited increase on the availability of internal sources of fund so has to reduce the cost associated withborrowing. 13 Hall, D., Jones, R., Raffo, C., Chambers, I., 14. & Gray, D. (2004).Business Studies. London: Pearson Wood, F., Education. & Sangster, A. (2008).Business Accounting 2. London: Prentice Hall. 14 15. 15 16. 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? ( )
- 10. Directive ( ) Paternalistic ( ) Constitutional ( ) Participative5. 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 ( ) Horizontal8. Are job descriptions issued to prospective employees? ( ) Yes ( ) No B) What do they include? ____________________________________________________________________________________ ________________________________________________________________ 16 17. 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 ( ) No17. Do the working conditions for employees meet the legal guidelines? Explain. ____________________________________________________________________________________ ________________________________________________________________ 17 18. 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? ____________________________________________________________________________________ ________________________________________________________________ 18 19. FIGURE 1FIGURE 2 19