Asset or Expense (Email)

Jacob Inc. is a pipeline operator that owns and operates miles of natural gas pipeline across five states. Noticing exterior corrosion in several regions of its pipeline, the company has invested $1 million to purchase and install steel sleeves that will prevent leaks and provide structural reinforcement to the existing pipe section. The installation work involves welding the sleeves to the existing in-service pipeline. By applying these steel sleeves, the company can avoid replacing full sections of the pipeline and temporarily shutting down operations involving the existing pipeline.

Assume that a plant accountant has contacted you to ask whether the steel sleeves (materials and installation) should be recorded as an asset or as an expense. Using guidance from the Conceptual Framework, analyze this issue and prepare and email response to the plant accountant.