I'm having a problem finding a definitive answer within GAAP.  So please provide any thoughts, guidance, etc.

The entity is a government operated water and sewer system, accounted for as a proprietary fund.  In other words, it's GAAP is set by GASB, but uses full-acrual accounting.

The question has to do with whether the costs of demolition of an existing plant are capitalizable.

As far as I can tell, demolition costs are not capitalizable except under the following circumstances.  First, if the plant were demolished soon after acquisition so that the land could be used for some other purpose.  Second, if the plant were demolished in order to build a replacement plant.

I think option two may apply, but the question is if the replacement plant was built elsewhere.  In other words, what if the demolition isn't a neccessary action to build the new plant?