Question

Which of the following expenditures is deferred revenue expenditure?

• A. Rs. 30,000 were spent on heavy advertising in connection with the introduction of a new product.
• B. Rs. 2,000 were paid as municipal tax in connection with a building which was purchased last year
• C. A temporary room constructed for Rs. 25,000 for storing raw material for the construction of a big building.
• D. All of the above

Answer 1

The correct option is A Rs. 30,000 were spent on heavy advertising in connection with the introduction of a new product.

Deferred revenue expenditure is an expenditure which is revenue in nature and incurred during an accounting period, but its benefits are to be derived in multiple future accounting periods. Municipal tax paid for building is not going to give benefit in future accounting periods. It is not revenue expenditure. It was one time expense. Room constructed is an asset. It is a capital expenditure. But amount spent on advertising will give benefit in future accounting periods. It will increase sale for many years.