DEFERRED REVENUE EXPENDITURE

Deferred Revenue Expenditure is the expenditure which is revenue in nature but the benefit of which is likely to be derived over a number of years. The benefit of these expenditures generally last from 3-7 years. That is why the full amount of deferred revenue expenditure is not debited to Profit and Loss Account of the current year but it is spread over the years for which the benefit is likely to last. So, only a part of deferred revenue expenditure is charged to the Profit and Loss Account or Income Statement of the current year. The amount left uncharged in the current year is posted on the Assets side of Balance Sheet.

FOR INSTANCE

A firm spent a huge amount of ₹2,00,000 on advertising to introduce a new product in the market. It is estimated that the benefit of ₹2,00,000 will last for 4 years. In this case, ₹50,000 (2,00,000/4) will be charged to the Profit and Loss Account or Income Statement of consecutively 4 years.

In the first year: ₹50,000 will be shown on the debit side of Profit and Loss Account and the balance of ₹1,50,000 will be shown on the Assets side of Balance Sheet.

In the second year: Again, ₹50,000 will be shown on the debit side of Profit and Loss Account and the balance of ₹1,00,000 will be shown on the Assets side of Balance Sheet.

In the third year: Again, ₹50,000 will be shown on the debit side of Profit and Loss Account and the balance of ₹50,000 will be shown on the Assets side of Balance Sheet.

In the fourth or last year: Again, ₹50,000 will be shown on the debit side of Profit and Loss Account and no balance will be shown on the Assets side of Balance Sheet.

In this way, the whole advertisement expenditure is written off over the useful life of expenditure.

EXAMPLES OF DEFERRED REVENEUE EXPENDITURE

• Preliminary expenses
• Brokerage on issue of shares and debentures
• Underwriting commission
• Discount on issue of debentures
• Exceptional heavy expenditure on machinery repairs
• Research and development expenses
• Heavy expenditure on special advertising campaign
• Cost of removal of works from one place to another favourable place
• Cost of dismantling and removal and re-installing of machinery

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Accounting	Non profit organisation	Depreciation	Liquidity ratios
Nature of Accounting	Receipts and Payments Account	Depreciation Accounting	Acid Test Ratio
Benefits of Accounting	Scope of accounting	Hire Purchase Accounting	Cash Ratio
Difference between cost accounting and financial accounting	Financial accounting, cost accounting and management accounting	Difference between hire purchase and instalment system	Financial ratio analysis
Difference between transaction and event	Transactions	Users of Accounting	Ratio analysis
Limitation of Accounting	Capital Expenditure	Instalment System	Difference between consignment and sale
Book Keeping	Revenue Expenditure	Reserves Accounting	Abnormal loss vs normal loss in consignment
Accountancy	Difference between capital and revenue expenditure	Provisions	Treatment of loss on consignment
Accounting as science or an art	Accounting Equation	Single entry system	Accounting treatment of consignment
Book Keeping vs accounting	Deferred Revenue Expenditure	Difference between statement of affairs and balance sheet	Joint venture vs consignment
Book keeping vs accountancy	Capital receipt	IFRS	Departmental Accounting
Accounting vs accountancy	Revenue receipt	Balance Sheet	Methods of departmental accounting
Basis of Accounting	Difference between capital and revenue receipt	Profit and loss Account	Allocation of expenses in departmental accounting
Branches of accounting	Difference between accounting concepts and conventions	Trading Account	Inter-departmental transfers
Cash and mercantile system of accounting	Accounting Standards	Voyage Account	Different types of branches
Accounting Principles	Objectives of Accounting	Accounting for Incomplete Voyage	Departmental vs Branch accounting
Golden ru les of accounting	Process of Accounting	Joint venture	Methods of branch accounting
Double entry system of book keeping	Scope of Accounting	Joint Venture Vs Partnership	Incorporation of branch trial balance
Double entry vs Single entry system	Accounting Concepts vs Accounting conventions	Methods of recording transactions in Joint Venture	Garner VS Murray Rule
History of Accounting	Difference between provisions and reserves	Consignment