Deferred Revenue Expenditure - Meaning, Definition, Example
Deferred revenue expenditure is that expenditure for which payment has been made or a liability incurred but which is carried forward on the presumption
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. In short, it refers to that expenditure that is, for the time being, deferred from being charged against income. Such suspension of ‘charging of’ operation may be due to the nature of expenses and the benefits expected there from.
Deferred Revenue Expenditure
Deferred revenue expenditure should be revenue expenditure by nature in the first instance. But its matching with revenue may be deferred considering the benefits to be accrued in future.
A thin line of difference exists between deferred revenue expenses and prepaid expenses. The benefits available from prepaid expenses can be precisely estimated but that is not so in case of deferred revenue expenses. For example, insurance premium paid say, for the year ending 30th June, 2015 when the accounting year ends on 31st March, 2015 will be an example of prepaid expense to the extent of premium relating to three months’ period i.e. from 1st April, 2015 to 30th June, 2015. Thus the insurance protection will be available precisely for three months after the close of the Year and the amount of the premium to be carried forward can be calculated exactly
|As per para 56 of AS 26 “Intangible Assets”, in some cases expenditure is incurred to provide future economic benefits (for more than one accounting period) which does not create an asset to be recognized in the books of an entity. Such expenses, should be charged to profit and loss account in the year the amount is incurred.