Q.A business spent ₹1,00,000 on a heavy advertisement campaign to launch a new product in the year 2023-24, and management estimates the benefit will be enjoyed equally over 4 years starting from 2023-24. If the trader wrongly charged the ENTIRE ₹1,00,000 to the 2023-24 Profit and Loss Account (instead of treating it as Deferred Revenue Expenditure), and the Net Profit before this item was ₹3,00,000, show

Only ₹25,000 (one-fourth of ₹1,00,000, for the 4-year spread) should be charged to 2023-24; the remaining ₹75,000 should be carried forward as an asset, not expensed all at once.

Step 1 — Compute the correct annual instalment. The ₹1,00,000 advertisement cost benefits 4 years equally, so the correct instalment for 2023-24 is ₹1,00,000 ÷ 4 = ₹25,000.

Step 2 — What the trader actually did (the error). He charged the FULL ₹1,00,000 to 2023-24's Profit and Loss Account, instead of only the ₹25,000 instalment — an overcharge of ₹75,000 in this one year.

Step 3 — Correct the Net Profit.

Cross-check: over all 4 years combined, the total charged to Profit and Loss Account must equal exactly ₹1,00,000 (₹25,000 × 4) — no more, no less — confirming the deferral is genuinely …

A common error is writing off the deferred expenditure unevenly without a stated reason (or forgetting to write off any instalment at all in the very first year), and a second common error is treating the whole un-recovered balance as if it were a genuine, depreciable fixed asset — it is neither d …