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ACCOUNTING
SYSTEM IN AN OIL INDUSTRY
(A
CASE STUDY OF SHELL PETROLEUM DEVELOPMENT COMPANY)
ABSTRACT
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.
PROPOSAL
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
CHAPTER ONE
1.0
Introduction
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
1.6
Hypothesis
1.7
Scope of the study
1.8
Methodology
1.9
Definitions of terms
CHAPTER TWO:
Literature Review
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
Reference
CHAPTER THREE:
Research Methodology
3.1
Introduction
3.2
Sources of
data
3.3
Method of data collection
3.4
Selection of sample size
3.5
Sample size
CHAPTER FOUR:
Data Presentation and Analysis
4.1
Research data
4.2
Limitations of study
CHAPTER FIVE:
Summary Conclusion and
Recommendations
5.1
Objectives
5.2
Conclusion
5.3
Recommendations
Bibliography
APPENDIX:
Interview Schedule
Specimen Balance sheet
Of S.P.D.C Ltd
Specimen P & L Account of S.P.D.C Ltd.
CHAPTER ONE
1.0
INTRODUCTION
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.
There were:-
Exxon
Royal Dutch/Shell
Mobil
British Petroleum
Texaco
Cheilron
Gulf
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.
1.6
HYPOTHESIS
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.
1.8
METHODOLOGY
For proper understanding of the financial system, proper references would be
made as follows:
PRIMARY DATA
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.
SECONDARY
DATA
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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