30 March 2022
Sir I am a student of class 12. My question is why advertisement suspense accounts is written off when a partner is retires like accumulated losses when it is considered as deffered revenue expenditure.
11 July 2024
In accounting, the term "advertisement suspense account" is not commonly used. However, based on the context you've provided, it seems you are referring to an account where advertising expenses are initially recorded and then written off or transferred when a partner retires. Let's break down the concepts involved:
### Advertising Expenses and Deferred Revenue Expenditure
1. **Advertisement Expenses**: These are expenses incurred by a business for promotional activities, such as advertising campaigns, marketing events, etc. These expenses are typically considered revenue expenditures because they are incurred to generate immediate benefits (increased sales, brand visibility, etc.).
2. **Deferred Revenue Expenditure**: This refers to expenses that are incurred in a particular accounting period but provide benefits over multiple periods. Instead of being fully written off as expenses in the period they are incurred, they are spread over several accounting periods. Examples include preliminary expenses, advertising expenses, etc.
### Partner's Retirement and Accounting Treatment
When a partner retires from a partnership, it often triggers a revaluation of assets and liabilities. Here’s how advertising expenses and deferred revenue expenditure might be treated in such a scenario:
- **Initial Treatment**: Advertising expenses are initially recorded as expenses in the books of accounts. However, if they are significant and are expected to provide future benefits beyond the current accounting period, they may be treated as deferred revenue expenditure.
- **Retirement of Partner**: When a partner retires, the partnership agreement or the terms of retirement may stipulate how outstanding expenses or deferred revenue expenditures (like advertising expenses) are to be settled or adjusted.
- **Accounting Adjustment**: If there is an amount outstanding in an "advertisement suspense account" or similar account related to advertising expenses, it may be adjusted against partners' capital accounts during the retirement process. This adjustment ensures that all liabilities and expenses related to the partnership are properly accounted for before the partner's exit.
### Why Advertisement Suspense Accounts are Written Off
- **Closure of Accounts**: The closure of an "advertisement suspense account" or similar account during a partner's retirement is essentially a process of clearing outstanding balances. It ensures that all outstanding expenses, including deferred revenue expenditures, are accounted for before the partner's capital is settled.
- **Deferred Revenue Expenditure**: Although advertising expenses are revenue expenditures initially, if they are considered deferred (meaning they benefit future periods), they might be treated differently in partnership accounting. They could be amortized over a specific period or written off when no longer expected to provide future benefits.
### Conclusion
In summary, advertisement expenses (especially if considered deferred revenue expenditure) may be adjusted or written off during a partner's retirement to ensure accurate representation of the partnership's financial position. This adjustment aligns with accounting principles and ensures that all expenses and liabilities are appropriately settled before the partner's capital account is finalized.
If you have further questions or need clarification on specific accounting practices or scenarios, feel free to ask!
CAclubindia
