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

Content

Page

Acknowledgement

Aims

Introduction and Objectives

Methodology Employed

Report

7 - 12

Conclusions and Recommendations

13

Bibliography

14

Appendices

15 - 20

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 schools 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.

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.

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

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.

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 companys 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 its 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 firms 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.

SOURES OF FUND

INTERNAL
RETAIN
PROFIT

EXTERNAL
SALE OF ASSET

SHARE CAPITAL

WORKING CAPITAL

TRADE
CREDIT
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 its 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.

The companys 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.

10

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
Sales Turnover

2,552,273
4,591,907

x 100 = 55.6%

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
Current Liabilities

4,043,643 x 100 = 600.95%

672,873

11

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.

12

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 companys 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 companys 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
its 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.

13

 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.

14

15

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?
____________________________________________________________________________________
________________________________________________________________

16

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.
____________________________________________________________________________________
________________________________________________________________

17

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?
____________________________________________________________________________________
________________________________________________________________

18

FIGURE 1

FIGURE 2

19

FIGURE 3

20