CHAPTER ONE
1.1 BACKGROUND OF THE STUDY
Histories of various developed countries have shown that industrial revolution had been the main cause for their economic survival. Their great financial strength have come principally through the acquisition of industrial and technological power. Small – scale industries undisputedly constitute the bedrock for any meaningful industrial development and for the acquisition of this industrial and technological power.
Without exception, all big industrial organization be they multi – national or indigenous, started in a small way. Small scale industrial set – ups abound, but most of them are buying and selling outfits. Considering the economic situation in the country, the entrepreneurs in the state, now more than ever need to branch out into some other areas outside buying and selling. One would appreciate the fact that one can make quicker and more money by buying and selling. But this is only for a short term investment in the production of goods (manufacturing), though it has a longer payback period ensures a longer lasting profit. This could not only be a safer investment for the entrepreneur in the long run, but it is also a sure way of providing employment for our teeming high school and university graduates.
The Nigerian economy in the last two decades has passed through various stages. From the oil boom era of the seventies to the period of wasteful spending and painlessness of the early eighties and the present economic down turn.
One must appreciate the fact that the survival of the sole proprietor in the Nigerian economy today would depend of his initiative, drive and quick adaptation to the environment. The age of “buy, buy, buy” and “sell, sell, sell” is permanently over in this country. The sole proprietor must appreciate this fact and more to study the economy and develop interest in some manufacturing no matter how small the scale, so as to be sure of the survival in today or future Nigeria.
Most traders especially if Imo state origins who are seeing the writing on the wall of destiny are gradually investing in industries and where necessary, are working with foreign or indigenous experts to make the enterprise successful. There are in this state numerous Engineers, Accountants, Economists and other people in other fields who possess the intellectual ability to set up an industry but hardly find the necessary fund to do so.
Ezinihitte Local Government Area on which the research work is based, is one of the local government area of Imo state. It is stated on the Eastern side of the state and lies on the boarder axis between Abia and Imo state. Ezinihitte local government is made up of various Autonomous communities with a total population of about six hundred thousand people. A greater percentage of the people are engaged in Agriculture while others are engaged in trading as well as traditional and industrial activities such as pot moulding, basket and mat weaving, hair dressing. Others are block moulding, Bakery, poultry, soap making, food processing e.t.c. Most of those activities are small scale establishments and sole proprietorship and partnership oriented.
A good number of people have shown their concern over the development of Ezinihitte local government area and Imo state in general. People like Engr. Roy Umenyi who had carried a study of this nature, discovered a lot of bottle – necks in the development of the local government in question. Such studies also revealed that answers to poor development of the area could be found largely on the insufficient investment in industrial activities. This has struck the mind of the project writer to carry out a research into the problems militating against the establishment and development of small scale industries in Ezinihitte local government area.
1.2 STATEMENT OF PROBLEM
Industrialization has been identified as a basic tool for rural development. Ezinihitte local government area which is primarily a rural area is faced with multifarious problems in its efforts towards industrialization of the locality.
Thus, this study title “Accounting and management problems of small scale industries in Imo state (a case study of small scale industries in Ezinihitte local government Area, attempts to determine why:
1.3 PURPOSE OF STUDY
The main purpose of this study are:-
4.1 IMPORTANCE OF THE STUDY
It is felt that this study would be of immense benefits to a number of individuals and firms in the following ways:
1.5 SCOPE AND DELIMITATION OF THE STUDY
This study titled “Accounting and management problems of small scale industries in Imo state” a case study of small – scale industries in Ezinihitte local government area would have been extended to cover the whole of Imo state and beyond and also to cover all aspects of problems of business establishment but in view of the huge financial requirement involved coupled with the short period within which the study would be completed, the project writer is compelled to limit the scope of the study to only the accounting and management problems of small scale industries in Ezinihitte local government area of Imo state.
1.6 WORKING HYPOTHESIS
having reviewed the theories and opinions of different authors and business giants, the project writer wishes to formulate the following working hypothesis:
1.7 DEFINITION OF TERMS
At this juncture, the project writer deems if necessary to define and explain some of the cause of this study.
ACCOUNTING: “Accounting may be defined as a process by which data relating to the economic activities of an organization are recorded, measured and communicated to interested parties for analysis and interpretation”.
From the definition we discover that accounting is made up of three major branches.
Financial Accounting: Can be said to be the process of classifying and recording of actual transaction of an entity in monetary terms in accordance with established concept, principles, accounting standard and legal requirement and presents as accurate a view as possible of the effect of those transaction over the period and at the year end.
Management Accounting:- In the terminology of management and financial accounting published by LCMA, management Accounting is said to be “the application of professional knowledge and skill in the preparation and presentation of accounting information in such a way as to assist management in the formulation of policies and in the planning and control of the operations of the undertaker”. (ICMA).
Cost Accounting: Is said to be “that part of management accounting which establishes budgets and standard costs and actual cost of operation, processes, department or product and the analysis of variances, profitability or social use of funds. (ICMA).
Book Keeping: This can be said to be the art of recording business transaction in such a manner that the financial position of the enterprise can be readily ascertained.
BUSINESS ENTITY CONVENTION:- This may be defined as the convention which tends to distinguish the affairs of the business from the personal affairs of the owners. In effects, the capital injects into the business represents a measure of the business indebtedness to the owners. For this convention to be observed, there must be proper books of account.
DEPRECIATION: This has four different meanings depending upon the circumstances, but the project writer is concerned with the cost allocation of the fixed assets. He is concerned with the recovery of money invested in the assets in question. Based on this view, the writer defines depreciation as the systematic allocation of the cost of fixed assets to expenses over the accounting periods making up their useful life.
INDUSTRY:- For the purpose of this study, the word industry shall be used in a limited sense, that is we shall be referring to a plant under a single management and not a collection of undertakings producing identical or related products or services with different ownership and management.
Meanwhile the research defines industry as an economic organization that employs both economic, technical and human resources to produce goods and services.
SMALL SCALE INDUSTRY:- The definition of small scale enterprises varies form time to time and according to institutions. For instance, the Central Bank of Nigeria’s (CBN) Monetary policy circular No. 22 of 1988 defined small – scale enterprises (excluding general commerce) as enterprises in which total investment (including land and working capital) did not exceed N500,000 and or the annual turnover did not exceed N5 million. Following the persistent depreciation in the exchange rate of the naira, the maximum size of capital investment has been raised to N5 million and the turnover to N25 million since 1990. In the 1993 Budget, the Federal Government of Nigeria defined small – scale enterprises, for purposes of commercial Bank loans, as those enterprises with annual turnover not exceeding N500,000 and for merchant bank loans those enterprises with capital investment not exceeding N2 million (excluding cost of land) or a maximum of N5 million. The national Economic reconstruction fund (NERFUND) puts the ceiling for small – scale industries at N10 million. Section 376(2) of the companies and Allied Matters Decree of 1990 defines a “small company” as one with:
In this project work, the writer wishes as those enterprises whose total cost, excluding cost of land but, including working capital, are above N1 million but not exceeding N10 million, which are owned, managed and controlled by one or few persons, and family influenced in decision making, have relatively small share of the market and employ not more than fifty people.
However, for the purpose of this research, it is pertinent to classify industries under the following headings;
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