Question:

What is the proper accounting treatment for costs incurred in hydrostatic testing of gas mains and pipelines to meet the requirements of the USAS N31.8, 1968 Code, which became Federal standards under legislation passed by Congress August 12, 1968?

Answer:

Costs incurred under a planned maintenance program which meet the standards of USAS B31.8, 1968 Code, should be treated as regular maintenance expenses.  When a utility had constructed a pipeline and its initial tests did not meet the requirements of the Code making it necessary to retest so that the full capacities could be utilized such costs could be capitalized.  When such costs are capitalized all prior testing costs related to the specific property should be retired in accordance with Gas Plan Instruction 10.  Testing costs on future construction should be capitalized provided that such testing meets the then prevailing reqired standards.