Skip to content

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

Which of the following is treated as deferred revenue expenditure in the books of a firm?

Heavy advertising for a new product launch is deferred revenue expenditure. It is revenue in nature but its benefit spreads over several years, so it is written off over that period. Patent purchase and land legal fees are capital items, while routine repairs are fully revenue expenses.

  1. AHeavy advertising campaign cost for launching a new product, whose benefit is expected over three yearsCorrect
  2. BPurchase of a patent right for ten years
  3. CRepair cost of a machine paid during the year
  4. DLegal fees paid to acquire land

Explanation

Deferred revenue expenditure is a revenue expense whose benefit extends over several years, so it is written off over that period. A heavy launch advertising campaign is the standard example. The patent and land legal fees are capital expenditure, and ordinary repairs are plain revenue expenditure.

Did you get it right without looking?

One question tells you little. A timed set on Capital and Revenue Transactions shows your real accuracy, how long you take and where you lose marks.

Practise Capital and Revenue TransactionsFree diagnostic mock

More Capital and Revenue Transactions questions