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

Bose Textiles Ltd. incurred Rs 8,00,000 on an advertising campaign, of which one-fourth is treated as deferred revenue expenditure to be written off equally over 4 years, starting this year. Along with this, it spent Rs 1,00,000 on routine repairs, fully charged this year. What total amount is charged to profit and loss this year for these items, assuming the remaining three-fourths of the campaign is charged fully this year?

The total charge is Rs 7,50,000. Three-fourths of the campaign, Rs 6,00,000, is expensed fully; the deferred Rs 2,00,000 contributes Rs 50,000 this year; and repairs add Rs 1,00,000. Together they come to Rs 7,50,000.

  1. ARs 7,50,000Correct
  2. BRs 6,50,000
  3. CRs 7,00,000
  4. DRs 8,50,000

Explanation

Deferred portion = 8,00,000 / 4 = 2,00,000; written off this year = 2,00,000 / 4 = 50,000. Remaining 6,00,000 charged fully. Repairs 1,00,000. Total = 6,00,000 + 50,000 + 1,00,000 = Rs 7,50,000. Rs 8,50,000 wrongly charges the whole deferred portion.

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