Unit-13 Capital and Revenue

In this unit you will learn about the distinction between capital and revenue and the need for such distinction.

What is deferred revenue expenditure? Give four examples.

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Learning Pundits Content Team

Written on Jun 25, 2019 5:15:51 PM

Sometimes, certain expenditure which is normally treated as revenue may be unusually heavy. Its benefit is likely to be available in more than one year. It is considered appropriate to spread the cost of such expenditure over a number of accounting years. Hence, it is capitalized and only a portion of the total amount spent is charged to the Profit and Loss Account for the current year. The balance is shown as an asset which will be written off during the subsequent accounting years. Such expenditure is called a Deferred Revenue Expenditure because the charge to Profit and Loss Account is deferred to future years. Some examples of such expenditure are:

i.Expenditure incurred on advertising campaign to introduce a new product in the market.

ii.Expenditure incurred on formation of a new company (preliminary expenses).

iii.Brokerage charges, underwriting commission paid and other expenses incurred in connection with the issue of shares and debentures.

iv.Cost of shifting the plant and machinery to a new site which may involve dismantling, removing and re-erection of the plant and machinery.

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