Deferred Revenue Expenditure – Meaning, Definition, Example

Deferred profits expenditure is that expenditure for which payment has been made or a liability sustained but which is carried forward on the presumption that it will be of advantage over a subsequent duration or periods. Simply put, it refers to that expenditure that is, for the time being, deferred from being charged versus income. Such suspension of ‘charging of’ operation might be due to the nature of expenses and the advantages anticipated there from.

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Deferred Income Expense

Deferred profits expenditure need to be profits expense by nature in the first instance. Its matching with profits may be postponed thinking about the benefits to be accrued in future.

A thin line of difference exists in between deferred revenue expenditures and prepaid expenditures. The benefits offered from pre-paid expenditures can be precisely approximated but that is not so in case of deferred profits expenses. Insurance coverage premium paid say, for the year ending 30 th June, 2015 when the accounting year ends on 31 st March, 2015 will be an example of pre-paid expenditure to the level of premium relating to three months’ period i.e. from 1st April, 2015 to 30 th June,2015 Thus the insurance protection will be offered precisely for three months after the close of the Year and the quantity of the premium to be continued can be computed exactly

Based on para 56 of AS 26 “Intangible Possessions”, in some cases expense is incurred to supply future financial benefits (for more than one accounting duration) which does not create a property to be acknowledged in the books of an entity. Such expenditures, need to be credited profit and loss account in the year the amount is incurred.

However, it might be noted that accounting problems of specialised nature such as representing discount rate or premium relating to borrowings and ancillary expenses incurred in connection with the arrangement of loanings, share issue expenses and discount rate allowed on the concern of shares might be postponed for more than one accounting period.

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