ACCOUNTING SYSTEM IN AN OIL INDUSTRY
(A CASE STUDY OF SHELL PETROLEUM DEVELOPMENT COMPANY)
This oil industry in Nigeria has grown tremendously since its discovery in 1908. it has become a major source of revenue and foreign exchange earner for the country.
Accounting for over 90% of total revenue of into nation. This write up which has been divided into five chapters including the introductions, which later the documentation of transactions and preparations of the financial statement in this industry with particular reference to shell petroleum Development company of Nigeria Limited.
The second chapter which is the literature, review, covers the contents of the financial statement and the underlying assumption, made classification of costs and methods of accounting, made in its presentation. It also dealt with my case of study shell petroleum Development company of Nigeria limited; its historical background, organization structure and mode of records keeping.
The third and fourth chapters are about the methods of research sources analysis of the data.
Accounting system in an oil industry. The oil industry in Nigerian has grown tremendously since its discovery in 1908. it has become a major sources of revenue and become a foreign exchange earner for the country.
The paramount aims of this research are to highlight the significance of the accounting system maintained by the oil industry, in this respect, shell petroleum Development Company of Nigeria united. This write up has made me to achieved so many thing. It has been divided into five chapters.
In order to critically appraise the system of accounting for the operations of any business or organizations, an under standing of the methods of operations and the peculiarities of the business are important and fundamental to the achievement of the objective.
TABLE OF CONTENT
1.1 History of the study an overview
1.2 Statement of the problem
1.3 Objectives of the study
1.4 Relevance of the study
1.5 Problem analysis
1.7 Scope of the study
1.9 Definitions of terms
2.1 Definition and explanation of accounting
2.2 Explanation of accounting system
2.3 Model of accounting
2.4 Classification of costs
2.5 Methods of accounting
2.6 Financial statement discourses in accounting
system of an oil industry
2.7 Historical back ground of shell
2.8 Nature of business
2.9 Organization structure
2.10 Accounting system maintained by the company
3.2 Sources of data
3.3 Method of data collection
3.4 Selection of sample size
3.5 Sample size
Data Presentation and Analysis
4.1 Research data
4.2 Limitations of study
Summary Conclusion and Recommendations
APPENDIX: Interview Schedule
Specimen Balance sheet
Of S.P.D.C Ltd
Specimen P & L Account of S.P.D.C Ltd.
In order to critically appraise the system of accounting for the operations of any business of organizations, an understanding of the method of operations and the peculiarities of the business are important and fundamental to the achievement of this objective. Accounting in an oil industry is no exception as in the case of shell petroleum Development company of Nigeria. Therefore, before going into the peculiarities of accounting in oil and gas operations we are going to take time to discuss the dynamics of the oil industry in general and the mandating sector in particular.
1.1 HISTORY OF STUDY AN OVERVIEW
The world has make use of oil from time mimeruorial. It was used as mater and war paint by the Babyloians and the Indians. By the 18th century it was used as a lubricant and oil lamps were being used by the 19th century. How either nobody was able to produce it in large enough quantities to justify commercial exploitation , they either dup pits where it seeped through the earths crust or skimmed it off the surface of streams. That was the situation until 1859 when Edwin L. Drake struck oil at a depth of just under 70 feet in his well in intuitive Pennsylvania. The well produced 30 barrels or oil per day under its own indention. At the rate of 20 per barrels, a daily income of N600 on day could not be kept quiet for long speculators rushed into the oil business increasing production considerably and causing the price to fall to N2 per barrel by 1860.
At this time, the man who saw the opportunity must clearly for consolidation was John D. Rockefeller. After establishing as commission agency in the early, 1860s and refinery which, by 1865 was the biggest in Cleveland. Rockefeller incorporated the standard oil company in January 1870. later that year standard oil started taking over some of the smaller Cleveland concerns and by 1871 it was the largest refining company in the united states of America. Rockefeller main advantage was that he found a use for all parts of the crude oil which were refined. Vileness many other refineries threw away various by products and made use only of the kerosene.
In January 1901 the Taxes oil industry was born when spicdlelop, a mershy hillock produced in its first year it produced as much oil as 3700 smaller wells were producing in the eastern states of the 19 .s. The major oil company that grew in taxes was the taxes oil company. In 1907 the Royal Dutch petroleum company and the shell Transport and Fading company merged to form the Royal Dutch / Shell Group and was a major player in Russia, Eastern Europe and Dutch East Indies. Mean while, in may 1911 U.S. Supreme court in the U.S. applying antitrust laws valued that major subsidiaries of standard oil should be severed from the holding company and established of standard oil should be severed from the bolding company established as independent concern.
This led to standard oil (New Jersey) becoming Esso or Exxon and standard oil (New York ) become mobil. Also split up to from Gulf and taxes, Gulf was later take over sychedron.
Indeed by the micklle of this century there were 7 dominants companies operating in oil industry who were popularly refered to as the seven sister.
1.2 STATEMENT OF THE PROBLEM
This study was designed to seek answer to the following questions;
i To what extent is the accounting system in an oil industry differ and peculiar to other forms of business organization.
Ii to what extent the financial statement prepared by the oil Industry provides information for the need of all interest concerns.
Iii Compliance with financial statements disclosures
1.3 OBJECTIVES OF THE STUDY
The paramount aims of this research are to highlight the significance of the accounting system maintained by the oil industry in this respect, shell petroleum development company of Nigeria limited.
Accounting system are indispensable both to private and public corporations due to vital functions they perform these includes:-
I Enabling management to compare past targets with present targets and review achievement standards for future, targets to be set and also to check whether the targets set are attain and not changes should be effected.
Ii Assisting management in decision taking as regard expansions.
Iii The determination of the effectiveness and efficiency of the enterprise
Iv The notes attached to the statement will generally provide the method adopted in the preparation of the accounts and whether it conform with the reigned standards. Therefore, the rationale of this research is to ascertain whether the methods adopted by shell development production company as regards the reporting of it’s affairs is effective enough and adequate; whether necessary records are kept in accordance with the company’s policies.
1.4 RELEVANCE OF THE STUDY
Accounting information about a business entity of enterprise is required by a variety of users. This need dictates the fundamental objectives of accounting and the mode reporting information. Firms, organizations or enterprises carry on business activities in a given economic, social and political environment and there is public interest in their operations. Examples are:-
a. Individuals, financial institutions or group of investors need accounting information to determine the liquidity, profitability and viability of the enterprise.
b. Managers in an enterprise need accounting information to measure performance, plan and control operation of the business.
c. Employees and customers of an enterprise need accounting information in order to assess the ability of the enterprise to produce goods or to render services on a continuous basis.
d. Government and regulatory bodies need accounting information in order to be able to impose and collect taxes, e=regulate certain business activities plan, execute and evaluate government projects.
Thus, the information expected to be provided in financial statement are those that are quantitative and qualitative in nature to aid users in making informed economics decisions. Financial statements are expected to be simple, clear and to be understood by all users. Also financial statements are means of communicating to interested parties information on the resources, obligation and performances of the reporting enterprises.
1.5 PROBLEM ANALYSIS
Now that Nigeria is going computerized , there is the problem, of not getting enough facts to help with the project. Like the rest of the world, shell development production company in Nigeria now has a computerized accounting system.
It is believed that a critical review of the controllers department will help in exploring how decision making affects the preparation of accounting system. A member of hypothesis have been formulated to guide in this study:
a. That shell petroleum Development company keeps a fixed assets register in which items of capital nature (mostly construction of oil wells) are recorded
b. That on accurate financial statements which includes balance sheet, profit and loss account, statement of sources and application of funds and notes on the accounts.
c. That the company makes a return of its activities to Nigerian national petroleum corporations, EIF, and AGIP in the ration of NNPC 60% SPX 3% EIF5% and AGIP5% of their joint venture operation.
d. Taxes are deducted on behalf of the federal Inland Revenue Service department on transactions the contractors and shell petroleum Development company of Nigeria Limited.
1.7 SCOPE PF THE STUDY
Owing to the importance of the financial system in a business organization. It attracts greater attention of the manager to the accounts department. This study is concerned with the accounting system in shell Development production company Nigeria with respect to elements of accounting method of accounting and classification of cost. This study will dwell on the treatment of accounting books and returns. The study will also look into the final accounts of the company.
Finally, the study will look into the relevance of final accounts to the statutory requirements.
For proper understanding of the financial system, proper references would be made as follows:
This will involve oral interview with members of staff of the controller department. A technique of data collection which throws more high on the data not very sure of as to ensure that the real preventing situation is ascertained.
This will involve the review of text books, various similar write ups, the use of professional journals and other materials of importance.
1.9 DEFINITION OF TERMS
1. SPDC: shell petroleum development company of Nigeria limited.
2. Spectrum activities: upstream activities involve the acquisition of mineral interest in properties, exploration (including prospecting) development and production of crude oil and gas.
3. Downstream Activities: downstream activities involves transporting refrying and marketing of oil, gas and derivatives.
4. Joint venture operation: This is the camping together of multi-national companies and the NNPC in order to transact a business that is capital interims, but mostly in favour of the loss ting parties interest.
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