Advertising campaign to launch a new product.a)Capital expenditureb)Re...
Deferred Revenue Expenditure Explanation:
Deferred revenue expenditure refers to an expenditure that is incurred during the current accounting period but its benefits are expected to be derived over a number of future years. In the case of an advertising campaign to launch a new product, the expenditure incurred on advertising can be considered as a deferred revenue expenditure.
Reasoning:
- When a company launches a new product, it invests in advertising campaigns to create awareness and attract customers. The benefits of this expenditure will not be realized immediately but over a period of time as the product gains popularity and sales increase.
- The advertising campaign is a one-time expense that will continue to benefit the company in the future by increasing brand recognition, customer loyalty, and ultimately generating revenue.
- As the benefits of the advertising campaign are expected to be realized over a period of time, the expenditure can be classified as a deferred revenue expenditure.
Accounting Treatment:
- In the accounting books, the expenditure incurred on the advertising campaign would be recorded as a deferred revenue expenditure and would be amortized over the period during which the benefits are expected to be derived.
- The amount spent on the advertising campaign would be spread out over the future years, ensuring that the costs are matched with the revenues generated as a result of the campaign.
In conclusion, the advertising campaign to launch a new product would be considered a deferred revenue expenditure due to the benefits expected to be derived over a number of future years. This classification allows for the proper accounting treatment of the expenditure and ensures that the costs are recognized in a manner that accurately reflects the benefits received.
Advertising campaign to launch a new product.a)Capital expenditureb)Re...
Deferred Revenue Expenditure
Deferred revenue expenditure refers to an expense incurred for the launch of a new product that will provide benefits over multiple accounting periods. In the case of an advertising campaign to launch a new product, this would fall under deferred revenue expenditure.
Explanation
- Capital Expenditure: Capital expenditure refers to expenses incurred on acquiring or improving assets that will provide benefits over multiple accounting periods. An advertising campaign would not fall under this category as it does not result in the acquisition of a long-term asset.
- Revenue Expenditure: Revenue expenditure refers to expenses incurred on day-to-day operations of a business that benefit the current accounting period. While advertising expenses are necessary for promoting the new product, they do not directly result in generating immediate revenue.
- Deferred Revenue Expenditure: Deferred revenue expenditure refers to expenses that are incurred for a specific purpose but the benefits of which are expected to be realized over multiple accounting periods. In the case of an advertising campaign for a new product, the expenses incurred will contribute to the long-term success of the product by creating brand awareness and driving sales over time.
Therefore, launching a new product through an advertising campaign would be classified as deferred revenue expenditure as the benefits of the campaign are expected to be realized over the product's lifecycle rather than in the immediate accounting period.
In conclusion, the advertising campaign to launch a new product would be considered deferred revenue expenditure due to the long-term benefits it is expected to bring to the business.
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