Whether your excavated and salvaged pipe is considered an asset or liability depends on the specific circumstances and accounting principles applied. Here are some factors we take into consider when making this determination:
The primary purpose of the excavation plays a significant role in classification. Obviously, when one of our pipeline excavations is conducted with the intention of using or selling the salvaged pipe, it is more likely to be considered an asset. Likewise, if one of our pipeline excavations is due to environmental or regulatory requirements, it will be considered a liability and proper handling/disposal methods need to be addressed.
When we are salvaging line pipe that is in good working condition, it will be considered an asset since it can be used in future projects. If the line pipe we are salvaging is damaged, corroded, or no longer usable, we consider it to be a liability. David Howell wrote a two part article: Methods for Determining the Value of Pipelines, Part 1 & Part 2 published in Pipeline & Gas Technology.
If your organization owns the line pipe to be salvaged, it is more than likely considered an asset on the books. If the pipe belongs to a third party, it may be treated as a liability or contingent liability. It is important to consider the accounting standards or principles applicable to your organization. Different standards (e.g., Generally Accepted Accounting Principles or International Financial Reporting Standards) may have specific guidelines in place for the treatment of salvaged pipeline. If the excavation and salvage are related to environmental cleanup or regulatory compliance, this may affect the classification. Environmental liabilities are often treated as obligations or liabilities on the balance sheet.
Salvaged line pipe that has future economic benefits and plans to use it is definitely an asset.
Many factors go into determining whether excavated and salvaged pipe is an asset or liability including the purpose of excavation, condition of the pipe, ownership, accounting standards, regulatory considerations, management’s intent, and materiality.
“Our goal is always to keep the salvaged pipe above the scrap value and sell it into the structural market. The most destruction of good structural grade steel pipe results from contractors or equipment operators who do not understand the value of this product and treat it as junk. And junk it becomes at the hands of the uninformed. At that point, it has value only for what it will bring at the local scrap yard.” – David Howell
Contact Pipeline Equities for any questions regarding salvaged pipeline.
