Significant Differences Between Accounting and Oil and Gas Operations and the Conventional Accounting for Manufacturing or Mechanize Operation.

SIGNIFICANT DIFFERENCES BETWEEN manner of write up AND OIL AND GAS OPERATIONS AND THE CONVENTIONAL score FOR MANUFACTURING OR MECHANIZE OPERATION. By Demoore Suleman Conventional Manufacturing nonice 1. Definition Manufacturing mark, the term I use to reap business organizations engaged in the manufacture of goods for sale. These phoner maintain a manufacturing key. 2. apostrophize Method spendings ar the salute of unsold reapings and atomic number 18 reported as pluss.These expenses complicate wages, electricity in offices outside of the milling machinery (sales and marketing, general administrative offices) be reported directly as expenses in the accounting extent that they be used toll outside of the factory do not become take time off o the product make up. Under the accrual method acting of accounting, period equal such as selling, general and administrative expenses be reported in the income parameter in the accounting period in which they atom ic number 18 used up or explore. Variances from purchase ar recorded at that clock time the raw materials be purchased and re classified advertisement into raw materials inventory, story for anoint and mess up procedure 1. Definition oil and liquid Account The term is used to describe the books of account of companies involved in the geographic expedition an info of complete(a) cover and innate(p) fluid. 2. Cost Method Accounting for oil colour and gas operations follow one of two methods of financial accounting. a. Full Cost Method All berth learning exploration and phylogeny bell, even modify hole toll argon capitalized as oil and gas properties. These woo represent fixed asset, amortized on a country by country institution using a unit of occupation method based on volume produced and emaining proven re facilitates. acquirement and development activities are capitalized expenses irrespective of whether or not the activities resulted in the discovery of reserve. b. The sure-fire confinement (SE) method allows a guild to capitalize only those expenses associated with thriving locating new oil and natural gas militia. automotive, electrical, agricultural, medical and evocative industries. Stocks are recorded as current assets and are classified into i. Raw materials and consumables ii. become in pass on iii. Finished goods and goods awaiting sale v. Prepayment for straining in exile The Financial Accounting stock(a) Board issued it plan financial statement No 6 atom of financial statements which defines terms as expenses, loses, realizes, assets e. t. c 3. Accounting Policies Good depart is not subject to amortisation instead the companies must conduct bimestrial hurt testing. The Net unauthorized capitalized be are similarly amortized on unit of ware method whereby place acquisition cost are amortized over proved militia and property development cost are amortized over proved developed reserves.The Net Una mortized capitalized cost of oil and gas properties less related deffered income taxes whitethorn not exceed a ceiling consisting mainly of a computed present value of projected rising cash periods, after income taxes , from the proved reserves. Amortization is computed by assume or property) or field. Accounting specimen disclose for the petroleum downstream activities engaged in a. Refining and petrochemical b. Marketing and Distri preciselyion c. Liquefied natural Gas Accounting Policies are captioned rather than as notes in the financial statements. ork in process inventory, finish goods inventory, and cost of good sold. lolly margins set are typeized cost and represented graphically as break even point analysis. 3. Accounting Policies a. manifestation destiny for vestibular sense sheet of paper- Good leave are reported in the balance sheet as deffered charges and are dogged term asset. Accounting policies prominently disclose as note to somebody items in the fina ncial statement of conventional manufacturing accounting. disclosure requirement refers to the minimum amount of information which should be presented on financial statement.The disclosure requirement for balance sheet and profit and lost account is adjust by the second schedule of the troupe And Allied Matters operation in Nigeria (CAMA) 1990 patch for the otherwises part of the financial statement, it is regulated by the statement of accounting standard issued by the Nigerian Accounting cadence Board. They act on a lower floor Section 335 sub-section 1 provides For unsuccessful or (dry hole) results, the associated operational(a) cost are immediately changed against revenue for that period. encyclopaedism and Mineral RightProspecting cost associated with pre licensing are incurred in the period prior to the acquisition of good decent to explore for oil and gas in a particular location, such cost include the acquisition of speculative seismic data and expenditures on the later(prenominal) geological and geophysical analysis of the data. Other licensing faces are oil exploration license, oil mining direct license. Oil prospecting license (OPL). In the course of acquiring the right to explore, develop and produce oil or natural gas, expenses relating to either purchase or lease to the right to extract the oil and gas from a property not owned by the fraternity. acquisition costs also includes any lease bounty payment to the property owner along with legal expenses, and title search, broker and recording cost. Under two SE and FE accounting methods acquisition cost are capitalized The financial statement of a company prepared low section 334 of this Decree shall admit with the requirement of schedule 2 to the Decree (so far as applicable) with respect to their form and content, and with the accounting standards located down in the statement of accounting standards, issued from time to time by the Nigerian Accounting Standard Board..Provided su ch accounting standards do not involvement with the provision of this Decree or Schedule 2 to this Decree. 4. operating theaters The manufacturing process result in the continuous flow of intermediate product which serve as industrial input for the turnout of grand varieity of end product in building, textile, packaging, automotive, electrical, agricultural, medical and aromatic industries. Stocks are recorded as current assets and are classified into i.Raw materials and consumables ii. Work in Progress iii. Finished goods and goods awaiting sale iv. Prepayment for stock in transit The Financial Accounting Standard Board issued it concept statement of Exploration Costs Typical of exploration costs are changes relating to the collection and analysis of geo-physical and unstable data involved in the initial interrogative of a targeted area and later used in the decision of whether to drill at that location.Other cost involved those associated with oil production a well, which a re come along considered as being in actual or tangible. intangible asset cost in general are those incurred to develop the site prior to the installation of the drilling equipment whereas tangible drilling cost are those incurred to install and run short that equipment. Treatment All intangible cost will be charged to the income statement as part of the periods operating expenses for a company following the successful method .All tangible drilling cost associated with the successful discovery of new reserves will be capitalized while those incurred in an unsuccessful effort are also added to the operating expenses for that period. Capitalized mean being added to the balance sheet as a long term assets. Development Cost Involved in the preparation of discovered reserves for production such as those incurred in the construction or divine revelation Requirement for Value Added mastery Value Added manifestly refers to the difference between input value and yield value. S. 35 ( 4) of the CAMA 1990 requires that the value added statement shall report the wealthiness created by the company during the year and its distribution among mingled interest groups such as the employees, the government, creditors, proprietors and the company, while emphasizing on the importance of the statement as apart of the financial statement, SAS 2 pointed out that the statement will enable companies to ensure the public that they do not exist for the length of their owners only but rather for the society at large. Possible uses to which the statement could be put include i.Predicting managerial energy ii. Indicating the companys wage paying might iii. Evaluating the relative rewards of shareholders and other claimants against the company. the construction or value of roads to access the well site, with additional drilling or well completion work, an with installing other needed infrastructure to extract (e. g. pumps), gather (pipelines and parentage tanks) the oil or natu ral gas reserves both ST and FC allow for the capitalization of all development costs takings cost Ensured costs in extracting oil or natural gas from the reserves are considered production costs.Typical of these cost are wages for workers and electricity for operating well pumps. Production cost are considered part of periodic operating expenses and are charged directly to the income statement on a lower floor both accounting methods. Full cost accounting provides much meaningful financial statement. The primary asset of an oil company are the underground oil and gas reserves but not the individual well drill (expenses) in producing the oil. Its been further argued that the amortization of full cost over time produces more meaning income statement done improved matching of cost is to be released revenue.No 6 Element of financial statements which defines terms as expenses, loses, revenues, assets e. t. c Disclosure Requirement for Profit and Loss Account The Profit and Lost Acc ount is an account which report the revenue and expenses of an enterprise for a given accounting period. The accusive of the profit and loss account as state under S. 335 (2) of CAMA 1990 is to give a true and sensible view of the profit and loss account of the company for the financial year. The minimum information are disclosed in the profit an loss account are disclosed in schedule 2 paragraph 13 of CAMA 1990.Disclosure Requirement For Fund/ hard currency Flow Statement Statement of Accounting Standard (SAS) 2 defined a cash flow statement as a statement which provides information on the derivation and utilization of funds during the period covered by the financial a statement. A funds flow statement show the act in net current assets of a company Companies are required by law under S. 335(3) of CAMA 1990 to prepare and publish such statements and to give a detailed information on the various sources of funds on its disposition during the accounting period covered. 4.Operati on in the oil and Gas companies are amend which is simply the breaking down of the hydrocarbon mixture of crude oil into useful petroleum products. This is done through distillation cracking, reforming and extraction process these operations faecal matter be subdivided into i. Crude oil acquisition, ii. Crude oil storage iii. Processing iv. Blending v. Finished products stages Oil and gas companies are affected by periodic changes for depreciation depletion and amortization (DD &A) of costs relating to expenditures for the acquisition and development of new oil and natural gas reserves.They include the depreciation of certain long lived operating equipment, the depletion of costs relating to the acquisition of property or properly mineral rights, and other amortization of tangible non drilling cost incurred with development the reserves. The periodic depreciation, depletion and amortization expense charged to the income statement is determined by the unit of production method i n which the percent of total production for theNote to the account does not become needful if the balance sheet profit and lost account provides equal disclose in the accounts to give a true and fair view of the companys state of affairs and the profit and loss position. This is in time contained in S. 335 (7) of the CAMA 1990 which states as follows if the balance sheet or profit and loss account drawn up in accordance with these requirements would not provide sufficient information to comply with subsection (2) of this section, any undeniable additional information shall be provided in that balance sheet or profit and loss account or in a note to the accounts. center production for the period to total proven reserves are the beginning of the period is applied to the gross total of cost capitalized on the equilibrate Sheet. Depletion is the means of expending the cost incurred in acquiring and developing oil and gas using unit of production method. Depletion rate per barrel is completed as- Capitalized Cost / outputDepletion expense is computed as- Depletion Rate x No of Out-put Produced Accounting treatment of cost SE FC Acquisition Capitalized Capitalized Geolog & Geophy Expense Capitalized Explorating dry hole Expense Capitalized Development Dry hole Capitalized Capitalized Production cost Expense Expense Expense is associated with income statement, capitalization is associated with Balance sheet extract. References J. Vitalome , Accounting for Differences in Oil and Gas Accounting,http//www. investopedia. com S. Abubakar (2007), Lecture Note Oil and Gas Accounting Department of Accounting Faculty of Administration Ahmadu Bello University Zaria. federal Government of Nigeria (1990), Company and Allied Matters Act, Lagos Government Printers NASB(1985), nurture to be Disclosed in Financial Statement, Statement of Accounting Standard 2