deferred revenue expenditure
This query is : Resolved
15 July 2016
Deferred revenue expenditure is the expenditure where the benefit of the expenditure would be for more than one year and thus the expenditure can be deferred for the years the benefit is expected to flow. For example, for advertising expenses incurred for launching any product. The benefit of this advertisement expenses would be for more than one year and it would be considered as deferred revenue expenditure
15 July 2016
As 26 prohibits for deferring Advt expenditure
since any resource is not come under control of entity by this....so how Can we defer this
15 July 2016
AS 26 discuss about intangible assets where the advertisement expenses are not considered. We are discussing about revenue expenses. Both are different.
20 July 2024
Advertising expenses are generally recognized as expenses in the period in which they are incurred. However, there are certain circumstances where advertising expenses can be deferred and recognized over a period of time. Here are some scenarios where advertising expenses might be deferred:
1. **Prepaid Advertising Costs:**
- If a company pays for advertising in advance but the advertising campaign will run over multiple accounting periods, the prepaid amount can be recognized as an asset (prepaid expenses) and amortized (expensed) over the period during which the advertisements are expected to benefit the company.
2. **Long-Term Advertising Contracts:**
- If a company enters into long-term advertising contracts (e.g., for a year or more) and the payments are made upfront or periodically, the expense related to these contracts can be deferred and recognized over the contract period.
3. **Capitalized Advertising Costs:**
- In some cases, advertising costs associated with developing or maintaining an advertising campaign or brand can be capitalized as intangible assets if they meet specific criteria under accounting standards (e.g., enhancing future economic benefits beyond the current period).
### Accounting Treatment:
- **Prepaid Advertising Costs:** Recorded initially as an asset (prepaid expenses) on the balance sheet and expensed (amortized) over the period during which the advertising benefits are realized.
- **Long-Term Advertising Contracts:** Payments are typically recorded as prepaid expenses initially and expensed over the contract period on a systematic basis (e.g., monthly or quarterly).
- **Capitalized Advertising Costs:** These are treated as intangible assets and amortized over their useful life, typically on a straight-line basis, unless their useful life is indefinite.
### Example:
Suppose a company pays $12,000 for an annual advertising contract at the beginning of the year. Instead of expensing the entire amount upfront, it recognizes $1,000 as advertising expense each month for the next 12 months.
**Journal Entry Example:**
```
Month 1:
Prepaid Advertising (Asset) $12,000 (Balance Sheet - Asset)
Cash (or Accounts Payable) $12,000 (Balance Sheet - Current Asset)
Subsequent Months:
Advertising Expense (Income Statement) $1,000 (Recognized Expense)
Prepaid Advertising (Asset) ($1,000) (Amortization/Reduction of Asset)
```
### Compliance and Reporting:
- **Financial Statements:** Deferred advertising expenses are reported on the balance sheet under current assets (if expected to be consumed within one year) or non-current assets (if expected to benefit beyond one year). They are expensed through the income statement over the periods benefited.
- **Disclosure:** Companies must disclose their accounting policies for advertising expenses in the notes to the financial statements, including how and when expenses are recognized and any significant judgments or estimates made.
In conclusion, while advertising expenses are typically recognized as expenses in the period incurred, certain types of advertising costs can be deferred and recognized over future periods based on specific circumstances and accounting standards.
1. **Prepaid Advertising Costs:**
- If a company pays for advertising in advance but the advertising campaign will run over multiple accounting periods, the prepaid amount can be recognized as an asset (prepaid expenses) and amortized (expensed) over the period during which the advertisements are expected to benefit the company.
2. **Long-Term Advertising Contracts:**
- If a company enters into long-term advertising contracts (e.g., for a year or more) and the payments are made upfront or periodically, the expense related to these contracts can be deferred and recognized over the contract period.
3. **Capitalized Advertising Costs:**
- In some cases, advertising costs associated with developing or maintaining an advertising campaign or brand can be capitalized as intangible assets if they meet specific criteria under accounting standards (e.g., enhancing future economic benefits beyond the current period).
### Accounting Treatment:
- **Prepaid Advertising Costs:** Recorded initially as an asset (prepaid expenses) on the balance sheet and expensed (amortized) over the period during which the advertising benefits are realized.
- **Long-Term Advertising Contracts:** Payments are typically recorded as prepaid expenses initially and expensed over the contract period on a systematic basis (e.g., monthly or quarterly).
- **Capitalized Advertising Costs:** These are treated as intangible assets and amortized over their useful life, typically on a straight-line basis, unless their useful life is indefinite.
### Example:
Suppose a company pays $12,000 for an annual advertising contract at the beginning of the year. Instead of expensing the entire amount upfront, it recognizes $1,000 as advertising expense each month for the next 12 months.
**Journal Entry Example:**
```
Month 1:
Prepaid Advertising (Asset) $12,000 (Balance Sheet - Asset)
Cash (or Accounts Payable) $12,000 (Balance Sheet - Current Asset)
Subsequent Months:
Advertising Expense (Income Statement) $1,000 (Recognized Expense)
Prepaid Advertising (Asset) ($1,000) (Amortization/Reduction of Asset)
```
### Compliance and Reporting:
- **Financial Statements:** Deferred advertising expenses are reported on the balance sheet under current assets (if expected to be consumed within one year) or non-current assets (if expected to benefit beyond one year). They are expensed through the income statement over the periods benefited.
- **Disclosure:** Companies must disclose their accounting policies for advertising expenses in the notes to the financial statements, including how and when expenses are recognized and any significant judgments or estimates made.
In conclusion, while advertising expenses are typically recognized as expenses in the period incurred, certain types of advertising costs can be deferred and recognized over future periods based on specific circumstances and accounting standards.
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