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

Which of the following best describes deferred revenue expenditure?

Deferred revenue expenditure is revenue expenditure whose benefit extends over several accounting years. It is therefore not fully charged in the year it is incurred but written off gradually over the benefit period, with the unwritten balance carried forward in the Balance Sheet.

  1. ARevenue expenditure whose benefit extends over several accounting years, so it is written off over a period instead of in the year it is incurredCorrect
  2. BCapital expenditure that is charged fully to the Profit and Loss Account in the year it is incurred
  3. CExpenditure incurred to buy a fixed asset and shown permanently in the Balance Sheet
  4. DRevenue expenditure that has been incurred but remains unpaid at the year end

Explanation

Deferred revenue expenditure is revenue in nature but its benefit spreads over more than one year, such as a heavy advertising campaign. A part is charged to profit each year and the unwritten balance is carried forward. Option B reverses the idea, and option D describes an outstanding expense.

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