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

Deshmukh Ltd. spent Rs 90,000 on a large advertising campaign for launching an existing product in a new city. Under the usual treatment at this level, how is it classified?

The Rs 90,000 advertising campaign is treated as revenue expenditure and charged to the Profit and Loss Account in the current year. It does not create a tangible asset or add to the cost of plant, so it is not capitalised.

  1. ARevenue expenditure, charged to Profit and Loss in the current yearCorrect
  2. BCapital expenditure, added to Goodwill
  3. CCapital expenditure, added to Plant
  4. DCapital receipt

Explanation

Ordinary advertising is treated as revenue expenditure and charged to Profit and Loss, even if the benefit may extend somewhat beyond the year. Deferred revenue treatment is not applied at this level. It creates no tangible asset to capitalise.

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