CRITICAL APPRAISAL OF THE ACCOUNTING METHOD IN THE PETROLEUM/PETROCHEMICAL INDUSTRY (A Case Study Of Eleme Petrochemical Company LtdA Case Study Of Eleme Petrochemical Company Ltd)
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CRITICAL APPRAISAL OF THE ACCOUNTING
METHOD IN THE PETROLEUM/PETROCHEMICAL INDUSTRY (A Case Study Of Eleme
Petrochemical Company LtdA Case Study Of Eleme Petrochemical Company Ltd)
ABSTRACT
Accounting
has been described as the language of business. This is true; in fact it could
be seen as the language of life because everybody is involved in accounting
consciously or unconsciously in their daily life.
The research
work is on the topic “A Critical Accounting Appraisal of Accounting Method in
the Petroleum/Petrochemical Industry.
Accounting
methods have been defined as the medium through which the fundamental
accounting concepts are applied to financial transactions and to the
preparation of financial statement. It is the item of adopted in recognizing,
measuring and valuing an item of revenue, expenses, gain, loss or any asset or
liability. Because of the existence of more than one accounting methods due to
the complexity of business types and transactions arose need for the research.
In this
work, therefore, the researcher has been conducted a study into the accounting
methods as applicable in petroleum /petrochemicals industry with a direct
contact at Eleme Petrochemical Company Ltd. It is directed to find out, if
there exist accounting methods and whether they conform with the required
standard.
The study
has been divided into (5) five chapters. It had taken us through the background
of the study, information about the company and variety of reviewed literature.
In the
process of research, various research instruments and methodology have been
employed to arrive at eh conclusion gotten. To this effect, some
recommendations have been made in areas of lapses. The researcher therefore
believes that if this work is not neglected by the parties involved. It will be
grant help to them.
TABLE OF
CONTENTS
Title Page
Approval
Page
Certification
Dedication
Acknowledgement
List of
Tables and Graphs
Abstracts
CHAPTER ONE
1.0
INTRODUCTION
1.1
Statement of the problems
1.2 Need for
the Study
1.3
Objectives of the Study
1.4 Research
Questions and Hypothesis
1.5 Scope of
the Study
1.6
Assumptions of the Study
1.7
Limitations of the Study
1.8
Definition of Terms
CHAPTER TWO
2.0
LITERATURE REVIEW
2.1
Evolution and Nature of Accounting
2.2
Definition, Meaning and Purpose of Accounting
2.3
Conceptual Framework of Accounting
2.4
Accounting Equation and Systems
2.5
Accounting Methods
2.6
Accounting Process, Cycle and Classification of Accounts
2.7
Petroleum Accounting Methods
2.8 Oil and
Gas Accounting Methods
2.9 Other
Accounting Treatment
CHAPTER
THREE
3.0
THEORETICAL FRAMEWORK AND METHODOLOGY
3.1
Introduction
3.2
Theoretical Framework
3.3
Rationale for Choice of Variables
3.4 The
Methodology
3.5 Data
Selection and Analysis
CHAPTER FOUR
4.0
PRESENTATION AND ANALYSIS OF DATA
4.1
Introduction
4.2 Data Presentation,
Classification and Calculations
4.3 Analysis
of Data, According to Research Hypothesis
4.4 Analysis
of Data to Test of Hypothesis
4.5
Interpretation of Results
CHAPTER FIVE
5.0 SUMMARY,
CONCLUSION AND RECOMMENDATIONS
5.1 Summary
5.2
Conclusion
5.3
Recommendations
5.4 Areas of
Further Study
Bibliography
Appendices
CHAPTER ONE
1.0
INTRODUCTION
This is the
introductory chapter of the chapter, it briefly explains the brief history,
statement of the problem, objective, assumption, scope and limitation of the
study, hypothesis and research questions about the subject matter are also
discussed under this chapter including other relevant information.
The need for
a petrochemical industry in Nigeria was conceived for quite a long time. It was
however not until 1978 that the idea of using some refinery by-products as
feedstock to produce some petrochemical products was conceptualized.
Due to the
capital intensive nature of the petrochemical industry, the Nigeria National
Petroleum Corporation (NNPC) adopted a phased approach in the establishment of
upstream petrochemical plants. The business mission of the Eleme Petrochemicals
Company is to profitably manufacture a range of petrochemical products and to
market these products locally and abroad.
Eleme
Petrochemical Company Limited (EPCL) plants commercial operations with a total
number of 1,376 staff, made up of 138 expatriates technical backup services
(TBS) and 1,246 Nigerian staff. The Technical Back-up Services were provided by
Foster wheeler management operations Ltd. UK (31). Technimont SPA, Italy (66)
and Comerint SPA, Italy (33).
Some Nigeria
staff were trained in similar facilities abroad while bulk of the Nigeria
operation and maintenance staff were trained at the Petroleum Training
Institute (PTI), Warri and at the Kaduna, Warri and Port Harcourt Refineries.
However, in
1999 EPCL started a gradual phase out of the TBD personnel as most Nigerian
staff gained adequate experience on the operation and maintenance of the plant.
As 138
expatriates TBS Personnel the cost of about $2million per month was abominable
as it had negative impact on the cost of operations and cash flows for the
company. Today, the cost stands at about $0.64 million for 43 TBS personnel.
Historically,
the Eleme Petrochemical Complex project was started in the project engineering
division of the NNPC and Mr. S. A. Kufeji as the general manager, championed by
Dr. E. I. Onyia as manager petrochemicals. In 1982m, the petrochemical division
of the NNPC was created with Mr. O.O. Lolomari as the general manager, while
Dr. E. I. Onyia continued his lead push for the petrochemicals programme. Later
that year, NNPC signed the consultancy agreement with foster wheeler
International Corporation of Reading, UK following a major reorganization of
NNPC in October 1985. Dr. T.M. John was appointed the coordinator of the
petrochemical sector. During another restructuring of the NNPC in 1988, Dr.
James M. John became the first managing director of EPCL in April 1990, when
Dr. T. M. John moved to NNPC Corporation headquarters as the group manager
directors of NNPC. It was during chief Oyibo tenure that the foundation stone
of the EPCL was laid in December 1991, chief Oyibo move to Lagos to become the
first group Executive Director, upstream and gas and later the group managing
director of NNPC in 1993. Dr. Edet I. Oahimin – Akhimien took over from Chief Oyibo
as the third managing director of EPCL in 1992, and piloted the construction of
the complex until August 7, 1995, when he handed over to Dr. Andrew C. Uzoigwe
as the managing director who was also the first project coordinator of the
project in 1999. Dr. Andrew C. Uzoigwe moved to the corporate headquarters as a
group executive director. Exploration and production and handed over to Dr.
Dannnar the present managing director of the Eleme Petrochemicals Company
limited. The complex is of great strategic importance to the country.
This
research work is focused on a critical appraisal of the accounting methods in
the petroleum petrochemical industry, with the Eleme Petrochemical Company
Limited (EPCL) as a case study. It is directed at analyzing the various methods
of accounting system used in the operation of the industry if such methods
exist and if it conform with the required and recommended standards by the
management and the regulatory bodies.
In Nigeria,
the operation of the industry – the petroleum petrochemicals industry is being
controlled by the NNPC as such the RPCL is a subsidiary to the corporation. The
activities of the industry is divided into the acquisition of mineral interest
in properties, exploration development and production of crude and gas.
Downstream activities involve transporting referring and marketing of oil, gas
and derivation F. O. Agboroh (1999:221).
It involves
the cracking of the NNPC/AGIP/PHILIPS Joint venture NGL extracted plant.
Located at Obiafu / Obrikron, down into broken down to produce other grades of
the various components from further action. The complex is involved in the
production of mostly plastic raw material, which may serve as raw material down
to produce, their end – use products. The plastic raw material induces the
following:
Low density
polythene (LDPE), High Density Polythene (HDPE) and Polypropylene (PP). some of
their end use application involve; film packaging, processed food packaging,
bread wrap, textile products.
Injection
Moulding;
squeezable
bottle for cosmetics, pharmaceuticals and toiletry products, agricultural
construction, green housing for multiple season cropping etc.
Blow
Moulding:
Jerry cans,
industrial cans, cosmetics and oil containers etc. other include, cups, ropes,
yean, prayer mat, film wrapper etc. EPCL commission manual (1999:29).
The project
or research work is aimed at researching into how these things are effectively
costed from each production process to the other, the method of costing used.
How effective it is, how their machine and equipment are valued depreciated.
Also, to research in the valuation of these materials (stock).
PETROCHEMICAL
OPERATIONS OF PETROCHEMICAL INDUSTRY
Petrochemical
operations can be sub divided into feedstock acquisition, feedstock storage
processing, packaging finished products storage and sales. Cracking under high
temperature or treated with chemical and catalyzed. In the case of Olefin base
plant, natural hydrocarbon gas are passed through an olefin plant where
ethylene and propylene are produced. Polymerized into poly ethylene and
polypropylene into polyethylene and polypropylene refines used for he
manufacture of plastics, F. O. Agboroh (1999:351)
1.1
STATEMENT OF THE PROBLEMS
The basic
statement of the problem of this research work is to research into and find out
or examine whether or not accounting methods exist in the petroleum industries
and how well it has been practiced if it exist. To also find out if such
conform with the required standard.
The
statement of the problem will also lead the research into finding out if at all
the common book keeping and accounting process are observed under the industry
in question.
The next
thing is to identify the actual accounting methods on the particular sector,
make a formal appraisal and analysis and finally, make recommendation for
improvement where necessary.
1.2. THE
NEED FOR THE STUDY
The need for
this research work is to expose and acquaint us with the operations of the
petroleum sectors and the organizations under study. The understanding of the
frame work and implementation of the accounting methods in the sector – a case
study of Eleme Petrochemical Company Limited.
There is
also the need for us to know the level of accounting of the sector in the areas
of recommendations of Nigerian Accounting Standard Board under the statement of
Accounting Standard (SAS).
The need for
identification of the actual accounting common book keeping and accounting
principles, conventions and concepts used the sector in the case of Eleme
Petrochemical Company Limited.
1.3 THE
OBJECTIVES OF THE STUDY
The
objective of this study is to research into financial operations and accounting
methods used in its operations.
It is aimed
at enhancing the understanding of the effect of the use of these methods on the
company operations
The research
work is directed at knowing whether or not the area under study have actually
toed the line, doctrine, principles, and practices recommended by the Nigerian
Accounting Standard Board (NASB) under the Statement of Accounting Standard
(SAS). The researcher work is also aimed at discovering the application of the
various methods of accounting in the day – to – day running of the organization
and its contributions to the success of the operations of the organization as
well.
1.4 RESEARCH
QUESTIONS AND HYPOTHESIS
i. Are the
existing accounting methods in use in the operations of small company?
ii. Are the
methods in use in line with the company policies on accounting standards and
operations?
iii. Do the
company’s policy on accounting methods and such method in use are in line with
the recommended standard and practice by the Nigerian Accounting Standard Board
(NASB) under the Statement of Accounting Standard (SAS) and / or any other
regulatory bodies?
HYPOTHESIS 1
Ho: There
are no accounting methods in use in the financial operations of the
organization as required and recommended by the Nigerian Accounting Standard
Board (NASB) under the Statement of Accounting Standards (SAS) on Petroleum and
petrochemicals operations in Nigeria.
Hi: There
are accounting methods in use in the financial operations of the operations as
required recommended by the Nigerian Accounting Standard Board (NASB)
Under the
statement of Accounting Standard (SAS) on petroleum and petrochemicals
operations in Nigeria
HYPOTHESIS 2
Ho: The
method use in not is in line with the company’s policies on accounting standard
and operation.
Hi: The
method use is in line with the company’s policies on standard and operation.
1.5 SCOPE OF
THE STUDY
The scope of
this work is somehow broaden because it has to do with the operations of this
petroleum/petrochemicals sectors which is the largest and predominant sector in
the Nigerian economy. The added advantage is the reference to a case study
which will unite such scope.
The work
will involve an appraisal of the literature review of the accounting methods
used in recognizing measuring and valuing an item of expenses, gains, loss or
any asset and liability.
The review
is also made on the petroleum accounting operations and their various
applications; it is also extended to methods of accounting on sales (export and
domestic sales) stock assets valuation and depreciation, materials, revenue and
expenses measure methods etc. The researcher also made a review of the roles
functions of these methods on management and the economic resources available
to the organization leading its effect.
1.6
SIGNIFICANCE OF THE STUDY
On the
completion of this study, it is believed that the findings and the
recommendations thereafter will go along way to expose and acquaint us with the
operations of the petroleum sector and the organization under the study.
The study
will help us to understand the structural framework and implementation and the
petroleum industry in particular – Eleme Petrochemicals Company Limited.(EPCL)
The study
will expose us to the differences between the operations and financial
structure of the petroleum/petrochemicals industry – EPCL in particular and
other manufacturing and sectoring companies in the Nigerian Economy.
The study
with its recommendations will aid the management function of planning,
organizing, coordinating and controlling if properly relied upon.
Generally,
its overall assumption is that it will go a long way to assist those who will
take time to read and rely upon the recommendations that will be made at the
end of this study both individual students intellectuals and the organization
understudy in the performance of their functions and duties, decision making
both at present and in the future.
1.7 THE
LIMITATIONS OF THE STUDY
Nothing can
be completed without one obstacle, hindrance or the other and as such in the
course of this work, the researcher encountered some limiting factors which
included:
i. Time
Constraints
ii.
Financial Constraints
iii. Data
Collection Constraints
iv. The
effect of nature on human health sickness such that the researcher had to
undergo a period of breakdown during the research work which caused the greater
part of the constraints.
1.8
DEFINITION OF TERMS
CATALYSTS:
Are chemical substances that are used to speed up the cracking of hydrocarbons.
CRACKING: Is
a process whereby large hydrocarbon molecules are broken down into one through
heating process and use catalysts.
FEEDSTOCK:
Is a raw material for petroleum refining petrochemicals process units and liquefied
natural gas plant.
HYDROCARBON:
Is a compound of carbon and hydrogen or a carbon of such components which may
exist in solid, liquid or gaseous form.
NNPC:
Nigerian National Petroleum Corporation.
NATIONAL
GAS: Are liquids which can be extracted from natural gas field liquid (NGL)
facilities. They generally include prepare and heavier fractions such as butane
and in some cases ethane.
OLEFINS: Are
classes of hydrocarbons which include ethylene and propylene.
PETROCHEMICALS:
Is a chemical derived from petroleum or natural gas processing.
POLYMERIZATION:
Is the process of chemically joining molecules of hydrocarbon into long chains
of complex molecules.
REFINING: Is
the process of distilling crude oil into light or heavy fractions or cracking
heavy products into lighter ones thereby converting them into usable products
feedstock.
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