Capitalisation of Deferred Revenue Expenditure

Chartered Accounatnt


As per the revised Schedule VI of the Companies Act, there is no item for Deferred Revenue Expenditure in Balance Sheet format.

Could anybody please inform us as to under which head of the Balance Sheet, deferred revenue expenditure is to be included.

Note : Deferred Revenue Expenditure comprises of the following :

1. Expense relating to increase in Share Capital

2. Expenses relating to Advertisement.



More About Capital and Revenue Expenditures:

Capitalized or Deferred Revenue Expenditures:

Where a certain revenue expenditure incurred is of such a nature that its benefit is likely to be spread over a certain number of years, or where it is of non-recurring and special nature and large in amount, in such circumstances, instead of debiting the entire amount to the profit and loss account of the year in which it has been incurred, it may be spread over a number of years, a proportionate amount being charged to each year's profit and loss account. The remaining portion of the expenditure is carried forward and is known as capital expenditure or or deferred revenue expenditure and is shown as an asset in the balance sheet. Item such as preliminaryexpenses, cost of issue of debentures are examples that may be classified under this head.

Exceptions to General rules:

There are certain expenses which are usually of a revenue in nature but under certain circumstances they become capital expenditures. The following are the examples of expenses which are usually revenue but under certain circumstances become capital.

Legal Charges:

These are, as a rule, revenue charges, but legal charges incurred in connection with the purchase of a fixed asset are capital expenditures as they form an additional cost of the asset acquired.


Wages are ordinary a revenue expenditure. But in a manufacturing business where the firm's own men are employed in making of fixed asset, the wages paid for such purpose would be capitalized. For example if the firm's own men are employed in making extension to the factory building or in erection of plant or manufacturing tools for own requirements. the wages and salaries paid to the persons are not revenue but capital expenditures.

Brokerage and Stamp Duty:

Normally these are revenue expenditures, but brokerage paid on acquisition of a property and stamp duty involved thereon can be capitalized.

Freight and Carriage:

This is revenue charge, but freight and carriage paid on newly acquired plant or fixed assets are capital expenditures.


Ordinarily amount expended on advertising is revenue charge but the cost of special advertising undertaken for the purpose of introducing a new line of goods may be capitalized.

Development Expense:

In concern like collieries, mines, tea, rubber etc., all expenses incurred during the period of development are treated as capital.

Preliminary Expenses:

These are the expenses incurred in connection with the formation of a public company. These expenses although are revenue in nature but are allowed to be capitalized and can be shown as an asset in the balance sheet.


Dear Vishal,

According to me, there is as such no concept of deferred revenue expenditure, rather only prepaid expenses , hence the said are shown under Other Current Assets and Other Non Current Assets, on the basis of criteria. Kindly clarify your query since the same concept has already been changed.


Any can give the answer whrther up gradation of plant and machinery in a factory is treated as deffered revenue expenditure or should be capitalised.


manas ji



CA Final CS Professional M.Com(Finance)

Dear all

Preliminary expenses are defined as expenses relating to formation of an enterprise. These include legal, accounting, and share issue expenses incurred for formation of enterprise. (eg; Legal consultant expenses, Registrar of companies fees, stamp duty etc)

· Schedule VI to Companies act allowed the following costs to be carried forward under the head miscellaneous expenditure.
o Preliminary expenses
o Share issue expenses
o Discount allowed on the issue of shares or debentures

· AS 26 specified that preliminary expenses should be expensed when incurred, hence these should be charged to Profit and Loss account.

· With the introduction of the Companies Accounting standard Rules, 2006, accounting Standard 26 has been notified.

· The conflict between Schedule VI of Companies Act 1956, and Accounting standard 26 has been resolved, now all preliminary expenses need to be written off in the year when incurred.

· What about Share issue expenses including public issue expenses, stamp duty paid on increase in Authorized Share Capital?

o AS 26 is not applicable to such expenses.. This gives scope for Companies to defer the cost related to share issue expenses under the head Miscellaneous expenditure as permitted by Schedule VI

· However under Income tax, if Preliminary and share issue expenses are for the first time issue and falling under section 35D, it is to be claimed in 5 installments as expenditure, this requires accounting of deferred tax asset/liability due to timing difference.

· In case of subsequent increase in authorized share capital, stamp duty paid is treated as capital expenditure and disallowed under Income tax act.

CA Pardeep Rohilla (Hisar)




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