What is Deferred Revenue Expenditure? With Examples

Deferred revenue expenditure is most of all heavy expenditures of a revenue nature and their benefits are likely to extend beyond the year in which it was in god.

This revenue expenditure is calculated at end of the financial year.

What is Deferred Revenue Expenditure?

Deferred revenue expenditure is carried forward and is written off in subsequent accounting years.

The deferred revenue expenditure examples:

1. Heavy expenditure on advertisement and publicity for introducing.
2. New product preliminary expenses.
3. Brokerage and underwriting Commission on the issue of securities.
4. Discount on the issue of securities.
5. Research and development expenses cost of removing the business to more convenient premises.
6. Cost of heavy repairs.
7. Abnormal heavy losses like loss by fire load an earthquake etc.

You can consider capital expenditure and revenue expenditure to understand your deferred revenue expenditure.

In conclusion and to clarify the following Questions is Deferred Revenue Expenditure:

Questions:

1. Legal expenses incurred in raising a loan.
2. Cost of experimenting with the chemical product which did not result in success
3. $5000 was Expended on Dismantling, Removing, and Reinstalling of Plant and Machinery to a more Convenient location, and $3,000 was paid for the removal of stock to the new site.
4. $20000 was spent on heavy advertisement in connection with the introduction of a new product.

Answers:

1. Expenses incurred from obtaining own or borrowed capital of the business is capital expenditure, but no asset is created by it. Hence, it is treated as deferred revenue expenditure.
2. Generally, the amount spent on experimenting with a product should be treated as deferred revenue expenditure and the return of the following years.
3. the factory has been removed to a more convenient site and the benefits from the removal are long-lasting. $8,000 are carried forward and written off in the following accounting years.
4. Most of all expenses incurred on the introduction of a new product are deferred revenue expenditures. because the benefits of the expenditure will occur for several years.

While making your revenue expenditure, you can consider your capital payments and revenue payments.

Difference between Capital Expenditure and Deferred Revenue Expenditure

Generally, the benefit of capital expenditure and deferred revenue expenditure will accrue to the business enterprise for a long time. But in case of sale or winding up of business.

Thus, capital expenditure is capable to convert into cash by selling fixed assets but in the case of Deferred Revenue Expenditure, the business enterprise cannot sell it to other firms.