MAT . Capital expenditure. S. 115JA and 115JB – full Deferred Revenue Expenditure (DRE) is to be debited claimed in profit and loss account to be prepared even if in P & L account for shareholders a part is debited – window dressing to be eliminated for MAT It should not be debited to the Profit and Loss Account but to the Capital Account. However, this expenditure does not result in the acquisition of any fixed asset. Deferred revenue is a payment from a customer for future goods or services. The payment is not yet revenue because you haven’t earned it. 400 should be debited to A. Capital and Revenue Expenditures and Receipts-Test 1 . Alternatively same can be treated deferred expenses. Classifying K. Summarizing L. Analyzing . Incurs capital. Combined capital and deferred revenue expenditure depreciated. _____ is considered a Ledger as well as Journal. Material account. The balance is shown on the Liability side of the Balance Sheet as Deferred. Return Inward Book P. Bills Receivable . It should be treated as Revenue expenditure and should be debited to Profit and loss Account: Sourabh Kabra Bhilwara: As per para 55 and 56 of the AS 26, it should be recognised as expense. B) A debit to Deferred Revenue – Property Taxes. However, three items are returned. Material costing Rs.700 in the erection of the machinery and the wages 4 paid for it amounting to Rs. G. Deferred Revenue Expenditure H. Not an Expenditure . 8. Book keeping J. What is Deferred Revenue? Investments like a car a factory. The difference between revenue expenditures and capital expenditures is another example of two similar terms that are easily mixed up. In the above example, the maintenance contract costs 12,000 for 1 year, assuming the business produces monthly management accounts, each month 1,000 will be become recognized revenue and credited to the services revenue account in the income statement with the following journal entry . This test is Rated positive by 87% students preparing for CA Foundation.This MCQ test is related to CA Foundation syllabus, prepared by CA Foundation teachers. The new machine requires routine maintenance of $3,000 each month. Advantages. B. a) Revenue Expenditure b) Capital Expenditure c) Deferred Revenue Expenditure d) Not an Expenditure Q5] A firm has reported a profit of Rs.1,47,000 for the year ended 31-3-2014 after taking into consideration the following items. C. Fund Balance-Reserved for Inventories should be debited for $7,000. The preferable accounting term is contra accounts because they’re the opposite of the standard accounts. For example, heavy advertisement expenditure is incurred on introduction of a new product in the market. Journal Entry for Deferred … An amount spent on re conditioning of an old vehicle should be debited to. Deferred revenue is common in businesses where customers pay a retainer to guarantee services or prepay for a subscription. Revenue expenditure. 6. Capital expenditure or expenditure relating to the past period or the future should be excluded. 11. Expenses incurred to retain the title of a building is a A. Online exam in Rectification of Errors in Fundamentals of Accounting for preparation of professional exams of ca cpt, ca foundation, cs foundation, cma foundation,and also for,, MBA. In the accounts the assessee treated the expenditure as deferred revenue and debited only 1/4th of the same. At the time the service is performed the revenues are considered to have been earned and they are recorded in the revenue account Service Revenues with a credit. Answer: C 108.$60,000 of property tax owed to the city of Akron will not be collected within 60 days after year end. Accounting Treatment Of Deferred revenue expenditure Deferred revenue expenditure is written off. Business license fees are collected in advance of the year for which they apply. Revenue expenditure may be treated as deferred on this basis. Deferred revenue recognition will happen as soon as the service is provided. But its matching with revenue may be deferred considering the benefits to be accrued in future. Deferred Revenue Expenditure. This is so because repair and maintenance costs do not increase the earning capacity of the machine but only maintains it (i.e. Pages 161; Ratings 100% (1) 1 out of 1 people found this document helpful. Thanks for A2A. Wages account. This revenue must be debited to correct for the items that were returned. D) Deferred Revenues – Property Taxes. It is recurring and is paid repeatedly whenever goods are purchased. D. Fund Balance-Reserved for Inventories should be credited for $7,000. Such expenditure translates to investments for the business. (i) The cost of an asset Rs.23,000 has been taken as an expense (b) Expenditure of revenue nature alone, and that relating to only the period concerned, should be debited. Deferred revenue refers to payments customers give you before you provide them with a good or service. Estimated Revenues Control should be debited for $3,000,000. Example of Revenue Expenditure. Both (1) and (2) above. Neither (1) and (2) above. Revenues can be debited for a number of reasons. A piece of land a patent. Expenditures should be debited for $3,000. (1) only. The year end journal entry to record this information would include a: A) A credit to Revenues Control. Previous years Examination Questions Subject : Fundamentals of Accounts Questions: 30. Whereas the initial purchase and installation costs would be classified as capital expenditure, any subsequent repair and maintenance charges incurred in the future will be classified as revenue expenditure. B. M. Cash Book N. Sales Day Book O. (2) only. This preview shows page 92 - 95 out of 161 pages. The amount written off in a year is debited to. In which of the following circumstances should deferred revenues to be recorded in the General Fund? This article has been a guide to Deferred Revenue Journal Entry. Expenditure for the purpose of long term.. C. Deferred revenue expenditure. Let's assume that a company made a capital expenditure of $100,000 to install a high efficiency machine. Deferred revenue expenditure should be revenue expenditure by nature in the first instance. So see this is a pretty easy concept which is taught under Accounting Standard-10,"Accounting for Fixed Assets" (Page on us. Actual Revenues for the year ended June 30, 2005 amounted to $17,000,000. Understanding how each should be tracked can … In this case, revenue, which is usually posted as a credit, also includes a debit. (xxx) `500 paid as wages for erecting a machinery should be debited to (a) repair account (b) capital account (c) furniture account (d) Machine account (b) State whether the following statements are True (or) False. Gotham City acquires $25,000 of inventory on November 1, 2007, having held no inventory previously. And are generally shown on the asset side of the balance sheet for example. Property tax bills are mailed and a receivable is recorded in advance of the year for which they are levied. The other account involved, however, cannot be the asset Cash since cash was not received. Recommendation Article . They’re easy mistakes to make, but they can have serious unintended consequences for your business. 7. Octroi duty paid on goods is a revenue expenditure because goods mean saleable goods. In closing the budgetary accounts at June 30, 2005, Revenues Control should be debited for $3,000,000. Deferred revenue is listed as a liability on the balance sheet because, under accrual accounting, the revenue recognition process has not been completed. Part of the expenditure should be debited to Profit & Loss account every year. Deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written-off over a period of time e.g. Some non-recurring and special nature of expenditure for which heavy amount incurred and benefit for the same will spread in up-coming years, to be treated as capital expenditure and will be shown as the assets of the firm. The recipient of such prepayment records unearned revenue … So far as the expenditure of Rs. An amount spent on re conditioning of an old vehicle. C. Purchases account. Click hereto get an answer to your question ️ The adjustment entry to write off deferred revenue expenditure is?Deferred Revenue Expenditure A/cTo Profit & Loss A/cDr.Expense A/cTo Profit & Loss A/cDr.Profit & Loss A/cTo Provision for Expense A/cDr.Profit & Loss A/cTo Deferred Revenue Expenditure … D. None of the above. The seller records this payment as a liability, because it has not yet been earned.Deferred revenue is common among software and insurance providers, who require up-front payments in exchange for service periods that may last for many months. The process of recording financial data upto Trial Balance is… I. Deferred revenue is sometimes called unearned revenue, deferred income, or unearned income. (The treatment in the case of joint stock companies is different). [12×1=12] (i) The accrual concept is based on recognition of both cash and credit transactions. In the return, the assessee claimed the entire expenditure as revenue in nature. Expenditure and deferred revenue expenditure. A thin line of difference exists between deferred revenue expenses and prepaid expenses. expenditure on advertisement, sales promotion etc.. Auditor’s Steps in Vouching of Deferred Revenue Expenditure • Accuracy of Transaction – Auditor should examine whether the DRE and the DRE written off are treated correctly in the books i.e. over the period of benefit or a reasonable period. The account to be debited is the asset account Accounts Receivable. Dec 22,2020 - Test: Capital And Revenue Expenditures And Receipts - 1 | 30 Questions MCQ Test has questions of CA Foundation preparation. For both expenditures motor car A/C is debited (vi) Capital expenditure. On the other side, it should be disallowed under IT act as capital in nature: Ramesh Kumar Baheti New Delhi: It should be debited to P/L account. Etc are capital expenditures of the business. 12. (v) Revenue expenditure. Deferred Revenue Expenditure: This is a revenue expenditure, the benefit of which is not confined to one accounting year - it extends to future accounting year or years also. (3) Expenditure coming under the category “Deferred Revenue Expenditure” should be spread over three or four years; say, only one-third or one-fourth of the expenditure should be charged to Profit and Loss Account. Deferred revenue, or unearned revenue , refers to advance payments for products or services that are to be delivered in the future. D. Machinery account. Hence Deferred Revenue refers to the advance Revenue the Company receives for Sale of Products/Services for a particular period, and only a small portion of it is recognized as Earned Revenue. Octroi duty A/c is debited. Profit & Loss Account and credited to the deferred revenue expenditure account. A business. School Dutch Delta University; Course Title UNKNOWN 101; Uploaded By bjuttame. Capital and Revenue Expenditures and Receipts. Deferred revenue expenditure denotes expenditure for which a payment has been made or a liability incurred, which is essentially revenue in nature but which for various reasons like quantum and period of expected future benefit etc., is written off over a period of time e.g., expenditure on advertisement, sales promotion etc. You might confuse your deferred revenue with your fulfilled revenue or with your backlog, for instance. revenue expenditure is that from which the organization derives benefit only for a period of one year and it only helps in maintaining the earning capacity of the business. he should see that the written off portion of the DRE is charged or debited to the profit and loss account and the unwritten off portion of the DRE is carried forward as an asset. The unwritten off part of deferred revenue Revenues Control should be credited for $20,000,000.
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