Will Uber capitalize or expense the renovations to its headquarters in San Francisco?

Uber-LogoUber, is a startup with a mobile app for connecting passengers with drivers of vehicles for hire. Uber arranges rides in several North American cities (for example, New York, Chicago, and San Francisco) and has recently expanded to include countries outside of North America (for example, United Kingdom and France).

Recently, it was reported that Uber has spent more than $12 million to renovate the space (88,134 square feet – the entire 4th floor of the building on Market Street) that it occupies as its headquarters in San Francisco. (The same building also houses Square, a mobile payments startup.) Renovations included room dividers, millwork, fire sprinklers, and other improvements.

Uber signed a 10-year lease for its headquarters in July 2013.

Questions

  1. Would the $12 million that Uber spent on renovations during 2013 have been capitalized or expensed by Uber? Why?
  2. Assume that the $12 million was capitalized by Uber.  What balance sheet account would habe been increased by the renovation expenditures?
  3. Now let’s assume that the renovations to the building are expected to last 25 years.  However, the lease covers a 10-year period.  What would be the useful life of the renovations for the purpose of depreciation calculations?  What assumptions or additional information might you need to answer this question?

Instructor Resources

These resources are provided to give the instructor flexibility for use of Accounting in the Headlines articles in the classroom. The blog posting itself can be assigned via a link to this site OR by distributing the student handout below.  Alternatively, the PowerPoint file below contains a bullet point overview of the article and the discussion questions.  The YouTube video link below is a narration of the blog post article (no discussion questions are included in the YouTube video; those can be assigned separately.)

  • Student handout (pdf) (word) (contains entire blog posting + discussion questions)
  • PowerPoint file (brief article overview + discussion questions)
  • YouTube video (narrated article in shareable YouTube link)

Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial 3.0 Unported License.

About Dr. Wendy Tietz, CPA, CMA, CGMA

Dr. Wendy Tietz is a professor of accounting at Kent State University in Kent, Ohio, USA. She is also a textbook author with Pearson Prentice-Hall.

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