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CMA Foundation · Fundamentals of Financial and Cost Accounting · Capital and Revenue Transactions

Anand Textiles incurred Rs 2,40,000 on an advertising campaign that is expected to benefit the business for 4 years. It wrote off Rs 60,000 in the first year. The firm then spent Rs 30,000 on routine monthly newspaper advertisements in the second year. Considering only these items, what is the total advertising charge to the Profit and Loss Account for the second year, assuming equal write-off of the campaign?

The charge is Rs 90,000. The campaign cost of Rs 2,40,000 over 4 years gives Rs 60,000 a year, and the routine newspaper advertisements of Rs 30,000 are fully revenue expenses of that year. Adding the two gives the total second-year advertising charge.

  1. ARs 30,000
  2. BRs 90,000Correct
  3. CRs 60,000
  4. DRs 2,70,000

Explanation

Campaign write-off for year two = 2,40,000 / 4 = Rs 60,000. Routine advertisements are ordinary revenue expense, charged in full at Rs 30,000. Total = 60,000 + 30,000 = Rs 90,000. Rs 2,70,000 wrongly charges the whole campaign again, and Rs 60,000 ignores the routine advertisements.

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