Capitalization on Contracts

[catherinec]

I need to know if I'm in accordance with GAAP rules. Can a company capitalize on a contract for the life of the contract? We are an oil and gas company. We have vessel contracts and I'm trying to find out if we can capitalize on the contract and move all the costs onto the balance sheet and off of the P&L. Are we going to be in compliance with GAAP? Please advise. Thanks!

 

[kirby]

Folks on this forum will need a LOT more info about what you are doing in order to help. "vessel" as in a dinghy? As in a supertanker? As in an FPSO? ????
And the contract term is a month? a year? 100 years?
And it is a contract to buy? to sell? to lease?

See what I mean? So ... as you said "Please advise"

 

[catherinec]

My apologies for being vague. To elaborate on my questions, we have an offshore construction vessel contract with a client for the duration of 6 months. The contract requires us to connect deepsea pipeline work for the client. We are trying to capitalize on the transit period of the vessel. It will take the vessel 30 days to transit to the United States. We see the transit of the vessel as a benefit since we are shifting the cost across periods and amortizing it. We are in accordance with IFRS, I just need to know if we are in compliance with GAAP.

 

[kirby]

Yes that is in compliance with GAAP. Typically costs for construction are capitalized into a "construction in progress" asset account until the asset is placed in service. In your case you are probably incurring preparation expenses that can be deferred until the vessel arrives.