It is actually a deferred revenue expenditure not a prepaid expenditure

Understanding the Treatment of Carried Forward Advertisement Expenses
Carried forward advertisement expenses refer to the advertising costs that have not been fully utilized within the current accounting year and are instead moved to the next accounting period. Proper treatment of these expenses is crucial for accurate financial reporting.
Identification of Advertisement Expenses
- These expenses are typically incurred to promote products or services, enhancing business visibility.
- They may include costs for media advertisements, promotional campaigns, and marketing materials.
Carrying Forward the Expenses
- If the advertisement expenses exceed the budgeted amount or benefits are expected in future periods, they can be carried forward.
- This adjustment ensures that expenses align with the period in which the related revenue is generated.
Accounting Treatment
- Expense Recognition: Advertise expenses should be recognized in the profit and loss statement in the year incurred.
- Asset Recognition: Unused advertisement expenses can be recorded as a prepaid expense (an asset) in the balance sheet, reflecting future benefits.
Impact on Financial Statements
- Profit and Loss Account: The current year's profit may be overstated if all expenses are not recognized, affecting stakeholders' perceptions.
- Balance Sheet: Prepaid advertisement expenses will appear under current assets, impacting the total asset value and working capital.
Conclusion
Properly carrying forward advertisement expenses helps in maintaining the integrity of financial statements, ensuring that expenses and revenues are matched according to the period they relate to. This practice not only aids in compliance but also provides clearer insights into the company's financial health.