What is Deferred Revenue Expenditure! With examples

Deferred Revenue Expenditure Meaning

Sometimes, some expenditure is of revenue nature but its benefit likely to be derived over a number of years. Such expenditure is called deferred revenue expenditure. The two examples of deferred revenue expenditure and their treatment in final accounts are as explained below:

Example 1:

When a new firm enters in to market, it undertakes special advertising campaign on which it spends heavy amount. The benefit of this expenditure will certainly come in some future years. Hence it will not be justified to charge this expenditure only in the profit and loss account of the year in which it incurred. This expenditure must be spread over the period over which the benefit is likely to lose. Suppose this expenditure will cover 3 years. Hence 1/3 of the expenditure must be charged to each year Profit and Loss Account.

Example 2

Sometimes even a big loss, arising from an accident or other unforeseen circumstances, may be spread over 3 or 4 years instead of being charged off wholly against the revenues of the year in which the loss is actually suffered. The loss of building because of an earthquake may be treated on this manner. This type of loss is treated as revenue expenditure. It may be note here that the amount which has not been charged off to the profit and loss account is shown in the balance sheet as a sort of asset.