Sometimes some expenditure is incurred which by nature is
revenue expenditure, but its benefits are likely to be derived
over a number of years. If revenue expenditure is incurred
during the current year but paid as advance for the coming
year(s), such expenditure is called 'Deferred Revenue Expenditure'.
For example a firm may undertake a special advertising campaign
for a new product and say spends rupees one lakh over it.
The benefit of this advertisement may continue for say ten
years. As such only one-tenth of this expenditure should be
considered as revenue expense for the year and taken to P
& L A/c and the rest as Deferred Revenue Expenditure and
taken to balance sheet as asset. Such expenses are also sometimes
called Capitalized Expenditure. Usually the deferred revenue
expenditure are of the following types:
- Partly paid in advance. These are expenses, the
benefits of which accrue to the current year as also to
the future years. The utilized portion is accounted for
the current year and the unused portion is shown as asset
in the balance sheet.
- Wholly paid in advance. These are expenses, the
benefit of which does not accrue to the current year, but
the amount is paid during this period. As such the total
amount is shown as asset in the current balance sheet.
- Unusual and abnormal losses. The business may get
a shocking setback if the total abnormal losses are accounted
for in one year. Loss by theft or fire may have to be spread
over a few years. Some portion of it is accounted for in
the current year and the unwritten portion is shown as an
asset in the current balance sheet. Of course, this will
be a worthless and fictitious asset.
Thus, these are revenue expenditure of capital
nature. The following are its special features:
- Expenditure for development, improvement and alterations
are revenue expenditure but treated as capital expenditure.
- These expenditures are not immediately written off in
the year of actual expenditure but split over a period of
certain years as per the decisions and policies of the management.
- These expenditures are treated as assets and shown at
the assets side of the Balance Sheet.
Q. Short note on Deferred Revenue Expenditure. |
Accounts
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