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Questions
What is meant by Deferred Revenue Expenditure?
What do you understand by 'deferred revenue expenditure'?
Solution
- Deferred revenue expenditure refers to expenses that provide benefits beyond the current accounting year. However, this expenditure does not result in the acquisition of a permanent asset.
- For instance, introducing a new product to the market requires significant advertising cost. The business reaps long-term benefits from such investments. Therefore, such expenses should be spread over multiple years.
- A portion of this cost is charged to the Profit and Loss Account in the current year, while the remainder is recorded as an asset on the Balance Sheet. This sum is assessed as revenue expenditure in subsequent years.
The main examples of deferred revenue expenditure are as follows:- Heavy advertising expenses.
- Heavy repairs.
- Expenses incurred to remove the business to a more convenient place.
- Research expenses.
Notes
What do you understand by deferred revenue expenditure?
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