Capitalized or deferred revenue expenditure

Definition

Heavy expenditure of revenue nature, the benefit of which is available for a period of two or three or even more years is known as “capitalized or deferred revenue expenditure“.

Explanation

This expendituré is not written off from the profits of the year in which this expenditure is incurred but are spread over a number of years up to which their benefit is expected to last. In order to maintain steady growth, it is advisable to spread this expenditure equally over the number of years for which it is anticipated the benefit would be enjoyed by the business.

Examples

For example, exceptional repairs of a non-recurring nature by way of overhauling of the plant and machinery, advertising payment made under contact extending over a period more than one year or heavy amount expended on advertisement in one year in order to popularize a new product.

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