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

Gupta Foods Ltd. spent Rs 6,00,000 on a heavy advertising campaign to launch a new brand, and the benefit is expected to last 5 years. If it is treated as deferred revenue expenditure and written off equally, what amount remains to be written off at the end of the second year?

The unwritten balance is Rs 3,60,000. Rs 6,00,000 spread over 5 years gives Rs 1,20,000 a year; after two years Rs 2,40,000 has been charged, leaving Rs 3,60,000 to appear as deferred revenue expenditure in the balance sheet.

  1. ARs 3,60,000Correct
  2. BRs 2,40,000
  3. CRs 1,20,000
  4. DRs 4,80,000

Explanation

Annual write-off = 6,00,000 / 5 = Rs 1,20,000. After two years written off = 2,40,000. Balance = 6,00,000 - 2,40,000 = Rs 3,60,000. Rs 2,40,000 is wrong because it is the amount already written off, not the balance.

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