Which of the following is an example of Deferred Revenue expenditure ?

Question

Accepted Answer

The correct option is 4:

Deferred Revenue Expenditure (DRE) is a crucial concept in accounting that refers to an expense which is revenue in nature but is incurred to secure a benefit that is expected to be realized over more than one accounting period. Because the amount of this expenditure is typically substantial and the benefit is long-lasting, it is considered a matter of accounting prudence to write off only a portion of the cost in the year it is incurred and carry forward the unwritten-off balance as an asset on the balance sheet. All three options listed—Specific Research expenses, Special advertisement expenses, and Heavy expenses for transferring business—perfectly fit this definition. Therefore, to be fully correct in identifying all examples provided, the answer must be "All these."

The incorrect option is 1: Specific Research expenses are certainly an example of Deferred Revenue Expenditure, as the cost of developing a new product or process is typically high but is expected to generate revenue for several years. However, selecting only this option would be incomplete and therefore incorrect because the question asks which of the following is *an* example, and more than one valid example is present. This expenditure is deferred to ensure that the current year’s profit is not unfairly understated by charging a massive cost whose benefit extends far into the future.

The incorrect option is 2: Special advertisement expenses, particularly those for initial product launches or major market penetration campaigns, are a classic instance of Deferred Revenue Expenditure. The substantial initial outlay on such a campaign creates an enduring brand presence or market advantage that benefits multiple future periods. Consequently, accounting principles dictate that this cost should be spread (amortized) over the expected benefit period. Choosing this as the sole answer overlooks the other valid examples in the list.

The incorrect option is 3: Heavy expenses for transferring business to a suitable place also constitute Deferred Revenue Expenditure. These are large, non-recurring expenses that are undertaken not just for the present, but for a strategic benefit that will increase efficiency or profitability over the long run. Since the benefit is long-term, expensing the entire cost in the year of the move would distort the financial statements, hence it is deferred. It is incorrect to select this option exclusively when "All these" is available and accurate.