(1)To begin with it needs to be understood that the concept of Deferred Revenue Expenditure is alien to the Income tax

Act which recognizes only the capital and revenue expenditures. Deferred revenue expenditure is essentially a concept denoting expenditure, for which a payment has been made or liability incurred, which is revenue in nature, but which for various reasons (quantum, period of expected future benefits, consideration of impact on the bottom line) and also on the presumptions that the same will result in the benefits over a subsequent period or periods is spread out and written off over a period of time and not wholly in the year in which it is incurred. (2)Sometimes, revenue expenditure incurred during the year is very large and it is expected to not to benefit only for the current year but also for subsequent period or periods. As the benefit from this accrues in future periods also, it not charged to the profit and loss account of the current year but is capitalized. (3)For example: a new firm may advertise very heavily in the beginning to capture a position in the market. The benefit of this advertising campaign will last quite a few years. It will be better to write off the expenditure in 3 or 4 years and not only in the first year. When loss of a specially heavy and exceptional nature is sustained, it can also be treated as deferred revenue expenditure. If a building is destroyed by fire or earthquake, the loss may be written off in 3 or 4 years. The amount not yet written off appears on the asset side of balance sheet. But it should be noted, loss resulting from transactions entered into such a speculative purchase or sale of a large quantity of a commodity, cannot be treated as deferred revenue expenditure, only loss arising from circumstances beyond ones control can be so treated . Suppose at the end of 1999-2000, a company owed 1,00,000$ expressed in Rs 46,00,000, suppose in 2000-2001 the rupee was devalued to Rs 4750 per dollar raising the liability in term of Rs 47,50,000. This increase is a loss unless it relates to a specific asset; it can be treated as deferred revenue expenditure and spread over a few years. Receipts can be classified into two categories: (1) capital receipt (2) revenue receipt (4)Capital receipt: capital receipts are the amount received in the form of additional capital introduced in the business, loans received and the sale

proceeds of the fixed assets. (5) It consists of additional payments made to the business either by the shareholders of the company or by the proprietor of the business or receipts from the sale of the fixed assets of the business. For example: the amount raised by the company by the way of share capital is a capital receipt. Similarly if a firm sells machinery for a sum of Rs 10,000 the receipt is a capital receipt. The capital receipt is different from the capital profit. Receipt denotes receiving payments in cash; moreover the whole of it may or may not be a capital profit. For example: if a plant costing Rs 10,000 is sold for Rs 12,000 then the capital receipt is Rs 12,000 and the capital profit is Rs 2,000. Revenue receipt: (4) revenue receipts are the amount received in the normal and regular course of business mainly by sale of goods and services. An important feature of revenue receipts has been that the amount received does not need to be returned to any one. They are treated as incomes. Hence these are shown on the credit side of profit and loss account. (5)In the business most of the receipts are revenue receipts. However a revenue receipt is also different from revenue profit or revenue income. Receipts denote receiving payment in cash whereas the entire amount of receipts may or may not be revenue income. For example: if goods costing Rs 20,000 are sold for Rs 25,000 then the revenue receipt is Rs 25,000 and the revenue income is Rs 5000. (3)The distinction between the capital and revenue receipt is also important. The amount realized by way of loans, sale of permanent fixed assets is capital receipts, although if the amount realized is more than the book figure, the difference may be treated as revenue receipts. The best example of revenue receipt is sale of goods dealt in or of such things as old newspapers or packing cases. In order to ascertain the profit made by a business only revenue receipts should be taken into account. Capital receipts like capital expenditure have no bearing on the profit or loss incurred during the year. Differences between capital and revenue receipts are:

(1) Capital receipts are those which are derived from the activities which are not a part of normal trading activities of the business, whereas revenue receipts are related to normal activities of the business.(6) (2) Capital receipts appear as capital or liability in the balance sheet whereas revenue receipts appear on the credit side of the profit and loss account.(6) (3) Capital receipts are normally of nonrecurring in nature whereas revenue receipts are normally of recurring nature.(2) (4) Capital receipts are normally not available for payment as profit to the owner of the business whereas revenue receipts net of revenue expenses are available for distribution to the owner of the business.(2) (5) Examples of capital receipts: receipts of cash brought in by partners, shareholders, debenture holders and bank loans whereas Examples of revenue receipts: receipts from sales of goods and services, rent, commission and interest on bank deposits received by the business.(6)