Q.A heavy, one-time advertisement expenditure to launch a new product, whose benefit is expected to continue for the next 4 years, is best classified as:
(A) Capital Expenditure
(B) Revenue Expenditure, charged fully in the year incurred
(C) Deferred Revenue Expenditure, written off over the years expected to benefit
(D) A Capital Receipt

This is the textbook fact pattern for Deferred Revenue Expenditure: large amount, revenue in nature, benefit spread over several future years.

Work through each option against the rule stated above; it creates no fixed asset (ruling out Capital) and charging it fully in one year would understate that year's profit relative to the benefit it will keep delivering.

Deferred Revenue Expenditure is, in nature, a revenue item (advertisement never creates a fixed asset), but its unusually large size and multi-year benefit justify spreading it — the current year's instalment is debited to this year's Profit and Loss Account, and the un-written-off balance is carried forward as an asset until fully written off.

Option-by-option analysis:

• (A) Incorrect — no fixed asset is acquired or improved; advertisement is never capitalised as an asset in the ordinary Capital Expenditure sense.
• (B) Incorrect — charging the FULL amount in one year would badly understate that year's profit relative to the benefit the expenditure will keep delivering for years.
• (C) Correct — spreading it as Deferred Revenue Expenditure matches the cost to the years that actually benefit.
• (D) Incorrect — this is an expenditure, not a receipt.