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

Topics: Balance sheet, Income statement, Petroleum Pages: 8 (2091 words) Published: May 15, 2010


Demoore Suleman

Conventional Manufacturing Account
1.Definition: Manufacturing account, the term I use to describe business organizations engaged in the manufacture of goods for sale. These company maintain a manufacturing account. 2. Cost Method: Expenses are the cost of unsold products and are reported as assets. These expenses include wages, electricity in offices outside of the factory (sales and marketing, general administrative offices) are reported immediately as expenses in the accounting period that they are used cost outside of the factory do not become part o the product cost.

Under the accrual method of accounting, period cost such as selling, general and administrative expenses are reported in the income statement in the accounting period in which they are used up or explore. Variances from purchase are recorded at that time the raw materials are purchased and re – classified into raw materials inventory,

Accounting for oil and gas operation
1.Definition : Oil and Gas Account: The term is used to describe the books of account of companies involved in the exploration an development of crude oil and natural gas.

2. Cost Method
Accounting for oil and gas operations follow one of two methods of financial accounting. a. Full Cost Method: All property acquisition exploration and development cost, even dry hole cost are capitalized as oil and gas properties. These cost represent fixed asset, amortized on a country – by country basis using a unit of production method based on volume produced and remaining proved reserves. Acquisition and development activities are capitalized expenses irrespective of whether or not the activities resulted in the discovery of reserve. b. The successful effort (SE) method: allows a company to capitalize only those expenses associated with successful locating new oil and natural gas reserves.

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 No 6 Element of financial statements which defines terms as expenses, loses, revenues, assets e.t.c

3. Accounting Policies
Goodwill is not subject to amortization instead the companies must conduct periodic impairment testing. The Net unauthorized capitalized costs are also amortized on unit of production method whereby property acquisition cost are amortized over proved reserves and property development cost are amortized over proved developed reserves. The Net Unamortized capitalized cost of oil and gas properties less related deffered income taxes may not exceed a ceiling consisting primarily of a computed present value of projected future cash flows, after income taxes , from the proved reserves. Amortization is computed by lease or property) or field. Accounting standard disclose for the petroleum downstream activities engaged in a. Refining and petrochemical

b. Marketing and Distribution
c. Liquefied Natural Gas

Accounting Policies are captioned rather than as notes in the financial statements.

work in process inventory, finished goods inventory, and cost of good sold. Profit margins set are Standardized cost and represented graphically as break even point analysis.

3. Accounting Policies
a. Disclosure requirement for balance sheet:-
Goodwill are reported in the balance sheet as deffered charges and are long term asset.
Accounting policies prominently disclosed as note to individual items in the financial statement of conventional manufacturing accounting. Disclosure requirement refers to the minimum amount of information...

References: J. Vitalome , Accounting for Differences in Oil and Gas
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), Information to be Disclosed in Financial Statement, Statement of
Accounting Standard 2
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