Introduction
Having worked in a construction site immediately after I left high school made me develop an interest in construction matters and the processes involved in material supply and procurement procedures. Over the years when I was in college I nurtured the interest and finally I have decided to explore my hobbies with a view of transforming the hobby into a full time employment opportunity.
To supply material to a construction site requires a lot of feasibility studies related to material purchases and transport systems. The distance and location of the quarries where the aggregate is mined and crushed into sizeable products known as ballasts. The Sizes involved and the method of quantifying the loads. Construction material supply is machine intensive and human labour is limited to drivers, mechanics, clerks and trip checkers.
As a cashier working in construction cum quarry site, I developed a customer list whose needs were urgent delivery of aggregate, building stones and sand. These customers ordered for materials and since they required transportation to their respective sites, I was mostly compelled to arrange and coordinate their transport operations as the company I worked for didn’t provide any transportation. Over time I developed a list of over 100 customers whose requirements I was well aware of. The cost centers are mostly on capital expenditure, fuel, repairs and maintenance, material purchases and loans.
Technical details
The material is purchased in terms of tonnage and the type of material required. The cost of material varies with the quality and quantity purchased. Customers specify the type and tonnage of material required. Their orders are mostly done in accordance with carriage load of the vehicle as the trucks charge a full load of material even if the tonnage is less. This is because the fuel used is the same regardless whether the truck is loaded or not. The schedule of costs and initial operation profits and the figures are in American dollars. The materials are purchased from the quarry mines and supplied to the customers sites.
| Material requirements and the cost of transport | |||||||
| Purchases | sales | ||||||
| Material | Rate/ton | Tonnage | Total | Rate | Tonnage | Total | |
| Ballast 3/4 *1/2 | 10 | 20 | 200 | 15 | 20 | 300 | |
| ballast 3/4 *1/4 | 8 | 20 | 160 | 12 | 20 | 240 | |
| Ballast 3/4 plain | 12 | 20 | 240 | 18 | 20 | 360 | |
| Ballast 1/2 plain | 12 | 20 | 240 | 18 | 20 | 360 | |
| Ballast 1/4 Plain | 4 | 20 | 80 | 6 | 20 | 120 | |
| sand | 3 | 20 | 60 | 5 | 20 | 100 | |
| Total | 980 | 1480 | |||||
| Profit per | Trip (2 Trucks) | 500 | |||||
| 12 Trips per year each year at 500 | 30000 | ||||||
| The material purchases are paid directly by the customers | |||||||
| and the Profit paid directly to our banks. | |||||||
| The mark-up of 50% on the rates for sales are for transport | |||||||
| and other Expenses. | |||||||
To achieve the results above the following expenses are expected to be used and also a projection for the following four years is included to show the profitability of the project and its viability. The costs include loan repayment schedule for $20000 at an interest rate of 10% per annum which is repayable after three years. The major costs are the Dump trucks fuel and the salaries of the drivers, their helpers and also the cost of dump trucks maintenance. The cost of two security guards and also a clerk who is also a cleaner. Their payment rates are; (Drury, 1992)
To get to the actual values the figures should be multiplied by 10. For instance 12 trips in a year refer to 120 per year. And the profit is 5000 per trip.
| wages | ||
| 2 drivers @ 20 | 1200 | |
| 2 helpers@ 15 | 900 | |
| Clerk @ 10 | 300 | |
| Security 2@ 10 | 600 | |
| Total | 3000 | |
| Year 1 | Year 2 | year 3 | year 4 | ||
| Projected Income/Bal | 90 | 180 | 270 | ||
| Total Revenue | 30000 | 30000 | 30,000 | 30000 | |
| Direct Expenses | |||||
| Diesel | 15000 | 15000 | 15000 | 15000 | 15000 |
| GP | 15000 | 15,090 | 15,180 | 15,270 | |
| Expenses | |||||
| Wages | 3000 | 3000 | 3000 | 3000 | |
| Loan repayment | 6670 | 6670 | 6670 | 0 | |
| Loan interest | 2000 | 2000 | 2000 | 0 | |
| Directors salaries | 1400 | 1400 | 1400 | 1400 | |
| MV maintenance | 1240 | 1240 | 1240 | 1240 | |
| Miscellaneous Ex | 300 | 300 | 300 | 300 | |
| other expenses | 300 | 300 | 300 | 300 | |
| Total Cost | 14910 | 14910 | 14910 | 6240 | |
| Net profit | 90 | 180 | 270 | 9,030 | |
| Balance | 90 | 180 | 270 | 9,030 | |
As collateral against the $20,000 loan, this together with the 10% interest will amount to $26,000 as the total value of the required loan. The collateral is the land and building which I inherited from my parents and also my savings as illustrated below.
| Funds Application and collateral | ||
| land & Bld | 5000 | |
| van (additional) | 2200 | |
| Cash on hand | 8000 | |
| Capital | 15200 | |
| Loan | 20000 | |
| Total | 35200 | |
The service van will cost $4000 and I will finance the first $2200 dollars. The total value of my collateral for the value is $15,200. The deficit for my project is $20,000. This amount I require to facilitate the acquisition of two reconditioned dump trucks that I will use to supply the materials to various sites. The following is a summary of the loan requirement schedule. (Khan, 1993)
| Loan Requirements | |||
| Amount required | 20000 | ||
| Interest | 6000 | ||
| 2 Nos. 10 Tonnes Dump Trucks | 18000 | ||
| (Reconditioned) | |||
| Furniture | 200 | ||
| Service Van | 1800 | ||
| 0 | |||
| Total | 20000 |
The balance sheet shows the total liabilities and the value of the assets and equity. The project is expected to breakeven before the end of the third year. At the end of the fourth year, Jtec suppliers will be free of any debts. (Vance, 2003)
Jtec Suppliers
Balance Sheet
| Jtec Building Material Supplier | |||
| Non-Current Assets | |||
| Dump Truck 10 Tones(2nos) | 18,000 | ||
| Furniture | 200 | ||
| Land & Building | 5,000 | ||
| Service Van | 4,000 | ||
| Current Assets | |||
| Cash on Hand | 8,000 | ||
| Total Assets | 35,200 | ||
| Non-Current Liabilities | |||
| Long-term Loan | 20000 | ||
| Current Liabilities | |||
| wages | 1200 | ||
| Loan Interest (10% for 3yrs) | 6000 | ||
| Total liabilities | 27200 | ||
| Equity | 7910 | ||
| Add profit | 90 | ||
| Total Equity and Liabilities | 35200 |
Operations Details.
The main difference between the GAAP accounting concepts mostly adopted in the USA and the IFRS is essentially the concepts and treatment of capital and its maintenance as authorized or directed by the IFRS. The US GAAP authorizes only two capitals and its maintenance concept mostly during either low inflation or deflation i.e. financial capital maintenance as written in nominal monetary currency or units. (Traditional or Historical Cost Accounting) Part 45 to 48 of the FASB No. 5. The US GAAP doesn’t recognize or recommend the third concept or theory of financial capital and the capital maintenance basically during low inflation and during deflation suchas financial capital maintenance as written in units of constant or steady purchasing power as directed or authorized by the IFRS in part 104 section (a) in the years 1989.
The objective of GAAP is to ensure that there is a standard in all companies concerning financial reporting which should be transparent and consistent from one company to the other.
The actual fundamental concepts and principles of accounting are outlined in the Statement of Standard Accounting Practice No.2 under disclosure of accounting policies. There are four fundamental accounting concepts and principles which are I have identified and followed when preparing accounts. These four concepts and principles are included in the company law and which companies must follow when preparing accounts. These concepts are the accruals, consistency, prudence, and going concern. (Lucey, 1996)
The major accounts that I will be using are the three column cash book, the ledger, trading profit and loss account, Trial Balance and also the Balance sheet. The ledger for the clients who have been supplied with materials and the payments made and the cash book monitors the use of cash.
| Debtors Account | ||||||
| Dr | Cr | |||||
| Material supplied 3/4 * I/2 | 10 tones @ 10 | 100 | ||||
| Paid | 100 | |||||
| 100 | 100 | |||||
| Cash Book | Dr | Cr | ||||
| Cash received for customers | 100 | |||||
| wages paid | 3000 | |||||
| Bank contra | 2900 | |||||
| 3000 | 3000 |
Controls
The major weakness in the transport management process is mostly on mileage, fuel and material control in terms of quality and tonnage (quantity). The debtors are invoiced once the deliveries and supporting documents have been signed and returned to the office. The deliveries made in distant towns and cities are treated differently as most of sales are paid once the goods have arrived in their destinations. Other additional measures have been taken to ensure proper revenue recognition and timely record keeping and accurate cut off procedures to distinguish one financial period from the other. (Arnold, 1996)
The invoices are pre-numbered, easy to use, contain all the necessary information, consistent and contain the serial numbers of their respective deliveries and copies of them attached to the original invoice. Other controls should include electronic and mechanical controls of records and other service records including the operation and maintenance processes. These controls are for instance cash safes, electric fences, cash registers, employee identity cards, fireproof files and electronic data processing and management information systems. The security guards are also rotated on weekly basis and the employees must carry their employment identity cards when reporting to work.
Sarbanes-Oxley Act of the year 2002 was enacted on 30th July 2002. The other name of the act is the Public Company Accounting reform and the investor Protection Act in the house of the senate and the accountability and the Responsibility Act in the house or the Sarbanes-Oxley as It’s popularly known. It’s a federal law that was enacted to enhance the United States boards or the management of public companies and the public accounting companies or firms.
Jtec Suppliers have complied with Section 404 of the Sarbanes-Oxley Act that makes it mandatory for all companies to include in their annual reports the internal control reports which must include the management responsibility statement for the establishment and maintenance of adequate and essential internal control measures, structures and procedures in its financial reporting standards. (Hartman, 2005) I have assessed the structure and procedures of Jtec Suppliers and internal control system and they are in accordance with the provisions of the act. (Kimmel, Paul, Weygandt, Jerry, Kieso, Donald, 2011).
In conclusion, most of the accounting procedures are meant to stream line the accounting records in a company to ensure consistency with other companies. These procedures provide sufficient grounds for trustworthy employees to maintain accurate records. The internal control procedures will certainly keep the clerk and security guards under control. But the success of these methods rests with the management which should encourage and motivate the staff to work hard and achieve the company’s objective
Reference
Arnold J. (1996) Accounting for management decisions. Prentice Hall Europe
Drury C. (1992) Management and Cost Accounting. London: Chapman & Hall
Hartman, T. (2005) The cost of being public in the era of Sarbanes-Oxley. Foley and Lardner
Presentation. June 2005. Hay, D.C., W
Kimmel, Paul D., Weygandt, Jerry J., Kieso and Donald E. (2011). Financial Accounting, 6th Edition. Wiley
Khan, M. (1993). Theory & Problems in Financial Management. Boston: McGraw Hill
Higher Education.
Lucey T. (1996) Management accounting. London: DP publications
Vance, D. (2003) Financial analysis and decision making: tools and techniques to solve
financial problems and make effective business decisions. New York: McGraw-Hill.
