Deferred Revenue Expenditure is a revenue expenditure that is incurred during an accounting period but it's benefit extends beyond that accounting period ,i.e., is not exhausted within the accounting period . Such an expenditure is unusually larger than the normal expenditure under the head . An example of this large expense , say on advertisement a new product . The expenditure so incurred will give benefit in the periods beyond the accounting period in which the expenditure was incurred . It will thus , be proper to spread the expenditure over a period and not debit the entire amount to Profit and Loss Account for the year in which the expense is incurred .
Sometimes even large loss , arising from an accident or other unforeseen circumstances , may be spread over three or four years instead of being charged wholly against the revenues of the year in which the loss is suffered . The loss of a building because of an earthquake may be treated in this manner . Such loss is also treated as Deferred Revenue Expenditure .
It should be noted that Deferred revenue expenditure and prepaid expenses are two fir terms . In case of deferred revenue expenditure , benefit available cannot be precisely estimated but in case of prepaid expenses , like Payment of rent in advance , benefits available can be precisely estimated .
Treatment of Deferred Revenue Expenditure : Amount not to be written off in the current year is shown on the assets side of Balance Sheet as fictitious asset .
Deferred Revenue Expenditure is a Fictitious Asset : Although it appears on the assets side of the Balance Sheet , it is not really an asset to the business .
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