Heavy advertisement expenditure should be treated as :a)Deferred Revenue Expenditureb)Revenue expenditurec)Capital Expenditured)None of these.Correct answer is option 'A'. Can you explain this answer?

Question

Accepted Answer

Deferred revenue expenditure is that expenditure for which payment has been made or a liability incurred but which is carried forward on the presumption that it will be of benefit over a subsequent period or periods. Heavy advertisement expenditure is the expenditure made in the present which will benefit the organization in the future upcoming years and hence it is a deferred revenue expenditure.

Answer

Because cost incurred on advertising will give profit for the long time to the respective firm.

Answer

Heavy advertisement expenditure should be treated as Deferred Revenue Expenditure.

Explanation:

1. Definition of Deferred Revenue Expenditure:
Deferred Revenue Expenditure refers to an expenditure that is incurred in the current accounting period but its benefits are expected to be derived over a number of years. These expenditures are not written off as expenses in the year they are incurred, but they are spread over a number of years and treated as assets on the balance sheet.

2. Heavy Advertisement Expenditure:
Heavy advertisement expenditure refers to the high amount of money spent on advertising activities to promote a company's products or services. Advertising is an essential part of business operations as it helps in creating brand awareness, attracting customers, and increasing sales. However, the benefits of advertising are not realized immediately but over a period of time.

3. Treatment as Deferred Revenue Expenditure:
Heavy advertisement expenditure is treated as Deferred Revenue Expenditure because the benefits of advertising are expected to be derived over a number of years. The expenditure incurred on advertising campaigns is not immediately written off as an expense but is spread over a period of time.

4. Accounting Treatment:
When heavy advertisement expenditure is treated as Deferred Revenue Expenditure, it is recorded as an asset on the balance sheet under the head 'Deferred Revenue Expenditure' and is gradually written off over a number of years. The amount is amortized or spread evenly over the expected benefit period.

5. Example:
For example, if a company spends a significant amount on advertising campaigns that are expected to yield benefits for the next five years, the expenditure will be divided equally over the five years and recorded as an asset on the balance sheet. Each year, a portion of the expenditure will be transferred from the balance sheet to the income statement as an expense.

Conclusion:
In conclusion, heavy advertisement expenditure should be treated as Deferred Revenue Expenditure because the benefits of advertising are not realized immediately but over a period of time. It is important for companies to account for these expenditures properly to accurately reflect the financial position and performance of the business.

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