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What is deferred revenue expenditure?

>> February 11, 2009

As a matter of fact , deferred revenue expenditure is capital expenditure . Because , it has both quality of revenue and capital items, so it is deemed as deferred revenue expenditure.

I take one example to make you understand this concept with better way

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Heavy advertisement expenses , because this is for promotion of sale so, it is revenue expenses but because amount is too large so it is also capital expenditure. Now, it will include in deferred revenue expenditure. If we fix the target of getting benefit for this advertisement is 10 years and advertising cost $ 500000. Now $ 500000 is divided by 10 years and we get $ 50000 and it will show as revenue expenses in profit and loss account and balance amount of $ 450000 will show in balance sheet. Every year one tenth part of Original and total advertising expenses will go to profit and loss account. This deferred revenue account will close in 10th year when there will not be any balance for showing as asset in balance sheet .

There are also other deferred revenue expenditures like underwriting commission, discount on issue of shares and debentures , brokerage paid on purchase of shares and debentures, research expenses and development expenses

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