Will the costs of converting UPS trucks from diesel to electric be capitalized or expensed?

Source: Wikipedia

UPS is working with the New York State Energy Research and Development Authority to develop new technology that will allow UPS to convert its diesel-fueled delivery trucks to electric-fueled. UPS hopes to have a working model of the converted delivery truck ready sometime in 2018. The plan is to convert 1,500 of the company’s delivery vehicles in New York City, representing 66% of its fleet there, by the year 2022.

UPS wants to convert its fleet to be all-electric because electric-fueled trucks eliminate harmful emissions, noise, and dependence on fossil fuels. UPS drivers will use the electric trucks during the day and recharge them overnight.

Questions

1. What is the difference between capitalizing an expenditure versus expensing that expenditure?
2. What information would you need to be able to determine if UPS should capitalize or expense the cost of converting the trucks to be all-electric?
3. Do you think UPS will capitalize or expense the cost of converting to electric vehicles?

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.

• Student handout (pdf) (word) (contains entire blog posting + discussion questions)
• PowerPoint file (brief article overview + discussion questions)

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