Why is discount/loss on issue of debentures a Deferred Revenue Expenditure/Fictitious Asset???
How does it give a benefit which exceeds one accounting year???
Can the discount offered by a retailer be treated as Deferred Revenue Expenditure???
In this case the discount may attract new buyers to enter the shop and purchase/try products and if they like those products they may become regular customers of the Retailer
So discount has the potential of creating new customers for a Retailer who would make Repeat Purchases year after year
So isnt this a Deferred Revenue Expenditure???
Dear Student,
Deferred revenue expenditure are those expenditure which have been incurred in an accounting period and they do not create any assets but their benefits is spread in more then one accounting periods.
Discount on issue of debentures is given to lure prospective debenture holders. Since generally debenture are issued for more than one accounting year, it means that company uses funds i.e. enjoy credit for more than one accounting year.
Discount given to customers to lure prospective customers cannot be regarded as deferred revenue expenditure as there is no certainty that more customers will attract.
Whereas in above case of debentures there is certainty that company will enjoy credit facility and as per accrual concept which is one of the fundamental accounting assumption, company should recognise profits only as and when they accrue.
​Regards
Deferred revenue expenditure are those expenditure which have been incurred in an accounting period and they do not create any assets but their benefits is spread in more then one accounting periods.
Discount on issue of debentures is given to lure prospective debenture holders. Since generally debenture are issued for more than one accounting year, it means that company uses funds i.e. enjoy credit for more than one accounting year.
Discount given to customers to lure prospective customers cannot be regarded as deferred revenue expenditure as there is no certainty that more customers will attract.
Whereas in above case of debentures there is certainty that company will enjoy credit facility and as per accrual concept which is one of the fundamental accounting assumption, company should recognise profits only as and when they accrue.
​Regards