Advertisement suspense account

What is advertisement suspense account? How do we record for it in partnership accounts? Why is it shown in the assets side of the balance sheet?

asked Feb 18, 2017 in Partnership-Fundamentals by Feba Rajeev (71 points) 6,152 views

1 Answer

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In normal circumstances Advertisement expenses are considered to be of revenue nature.  But some times when the expenditure is very heavy and its benefit is likely to be reaped over a period of 2-3 years, then we can capitalise the Advertisement Expenditure.  This capitalised Advertisement Expenditure is called Deferred Advertisement Expenditure or 'Advertisement Suspense Account' (such capitalised revenue expenses are called Deferred Revenue Expenditure).  This kind of deferred revenue expenditure is written off over a period of 2-3 years (during the period over which the benefit is supposed to be accruing).

Such Deferred Revenue Expenditure is shown in the Balance Sheet as an asset till it is written off to Profit & Loss A/c.  Reason for this is very simple. Whenever we make a payment or incur a liability, it is for either buying assets or paying expenses.  In both the cases Assets A/c or Expense A/c is debited. From the ledger the debit balance of an asset account will go to the asset side of the Balance Sheet and the debit balance in an expense account will go to the debit side of Trading A/c or Profit & Loss A/c.  This is the reason why Advertisement Suspense Account appears as an asset in the Balance Sheet.

answered Feb 19, 2017 by jbsclasses (3,971 points)
Thank you! And how is it recorded in partnership sums?
Question: on 1.4.2014 An amount of Rs.15,000 has been spent on adverting campaign which is expected to give benefits for a period of three years.  Accounting year of the firm is from 1st April to 31st March.  Give journal entries for three years pertaining to this advertisement expense.

Ans: Since a part (1/3) of total amount spent belongs to the current year (2015-15), it will be treated as this years' expense and the rest will be treated as an asset. The journal entries will be as given below:

1.4.2014      Advertisement A/c                         Dr.   5000                                Expense

                      Advertisement Suspense A/c      Dr. 10000                                Asset

                         To Cash/Bank                                                         15000

                      (Being amount spent on advertising campaign)

31.3.2016    Advertisement A/c                         Dr.   5000

                          To Advertisement Suspense A/c                          5000

                      (Out of Rs.10000 outstanding, Rs.5000 written off, balance Rs.5000 to be shown in Balance Sheet)

31.3.2017    Advertisement A/c                         Dr.   5000

                          To Advertisement Suspense A/c                          5000

                      (Out of Rs.5000 outstanding, Rs.5000 written off, now no amount will be shown in Balance Sheet)