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-fuelled delivery trucks to electric-fuelled. UPS hopes to have a working model of the converted delivery truck ready sometime in 2020. The plan is to convert 1,500 of the companys 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-fuelled 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?