Deferred Revenue Expenditure Explained: Accounting MCQ

The question asks to identify a deferred revenue expenditure. A deferred revenue expenditure is a revenue expense that is recognized or accounted for over a period longer than one accounting year, typically because its benefits are expected to extend into future periods. These are substantial costs related to revenue generation activities but whose benefits span multiple years.

Option Analysis for Deferred Revenue Expenditure

• Option 1: Legal expenses on land purchase - These are capital expenditures. Costs incurred to acquire a capital asset like land are added to the asset's cost, not treated as revenue expenses.
• Option 2: Mega advertisement campaign for new product launch - This is a deferred revenue expenditure. A large campaign benefits the product over several years, so the cost is spread (amortized) over those future periods.
• Option 3: Installation expenses for a new machine - These are capital expenditures. Installation costs are necessary to make a machine ready for use and are capitalized as part of the machine's cost.
• Option 4: Wages for constructing an additional room - This is a capital expenditure. Building an extension increases the value and useful life of the property, hence it's capitalized.

Conclusion on Deferred Revenue Expenditure

Based on the analysis, the expenses for a mega advertisement campaign during a new product launch represent a cost whose benefits extend beyond the current year. Therefore, it is classified as a deferred revenue expenditure.

The correct option is the one describing the advertisement campaign costs.