Question

Huge advertising expenses are incurred to introduce a new product in the market. This is a —.

• A. Capital expenditure
• B. Revenue expenditure
• C. Deferred revenue expenditure
• D. Fictitious asset

Answer 1

Answer:

C. Deferred revenue expenditure

• When a company launches a new product, it often spends a large amount on advertising and promotion to establish the product in the market.

• Although the entire expense is incurred in one accounting period, the benefit of this expenditure extends over several future years.

• Therefore, it is not treated as a regular revenue expenditure, but rather as a deferred revenue expenditure, which means:

• It is initially shown as an asset.

• Then written off (amortized) over a few years.