Question

Preliminary expenses are an example of ________.

• A. Deferred Revenue Expenditure
• B. Revenue Expenditure
• C. Capital Expenditure
• D. Common Expenditure

Answer 1

Answer: (A)

Deferred Revenue Expenditure

Where a certain revenue expenditure incurred is of such a nature that its benefit is likely to be spread over a certain number of years, or where it is of non-recurring and special nature and large in amount, in such circumstances, instead of debiting the entire amount to the profit and loss account of the year in which it has been incurred, it may be spread over a number of years, a proportionate amount being charged to each year's profit and loss account.

The remaining portion of the expenditure is carried forward and is known as capital expenditure or or deferred revenue expenditure and is shown as an asset in the balance sheet.

Item such as preliminary expenses, cost of issue of debentures are examples of deferred revenue expenditure.