Fictitious Assets – Meaning and Explanation

Meaning-of-Fictitious-Assets

The fictitious assets are very different types of assets. It does not have any existence or any purchase value. In this article, we will discuss the meaning of fictitious assets, Their examples, and why they need to record them into the books. 

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Meaning of Fictitious Assets?

The Fictitious word, itself says “fake”. So Fictitious Assets are not an asset in the true sense but this is a huge amount of expenses or losses which are unclaimed in the profit/loss account during the year in which they are incurred. These types of expenses or losses are claimed/written off in the next more than one profitable financial year of the business enterprises. So, that’s why they are treated as an asset and shown in the balance sheet. It cannot be purchased from or sold to any other businesses. 

In other words, Businesses did not buy Fictitious Assets, they have just created them by accounting treatment. Just posting journal entry to convert the expenses which have huge value or not claimable in the current financial year into the assets accounts. 

Examples of the Fictitious Assets: –

  • Discount on issue of Debenture/Equity or Preference shares.
  • Preliminary Expenses.
  • Business promotion Expenses. (If it has huge value)
  • Any loss on issue of Debenture/Equity or Preference shares.

Place of Fictitious Assets in the Balance Sheet:

The Placement of Fictitious assets in the balance sheet is shown as under and highlighted with orange color.

Name of the Entity
Balance Sheet as on 31st March, _______
Liabilities  Amount Assets  Amount 
Capital   Fixed/Non-Current Assets  
Add:  Net profit    Building   
   interest on Capital
  Land   
Less:  Drawings    Plant & machine   
   Net Loss    Furniture & fixture   
    Goodwill   
Non-Current Liabilities    Current Assets   
long terms loans   Inventories   
Debentures    Bills payable   
Current Liabilities    Sundry Debtors   
Trade Creditors    Prepaid Expenses   
Bills Payable    Accrued Incomes   
Outstanding Expenses    Cash in hand   
Advance/Unearned Incomes   Cash at Bank  
Short term loans    Misc. Assets  
    Preliminary Expenses   
    Discount on issue of Debenture  
    Business promotion Expenses  
       

Now question is that why we treat expenses as Fictitious assets? 

To know why we treated a huge amount of expenses we have to know the meaning of Assets.

The assets are those valuable things or properties which the business or individual owns and get the benefits from it in the future or use in generating income.  The tangible objects and the intangible right owned by the business enterprises are known as an asset. 

So, according to the meaning of assets, all unclaimed expenses will provide benefits to the business in the near future when they are claimed or amortized. That’s why these types of expenses are treated as assets and shown in the balance sheet. 

Point to be noted while treating Fictitious assets: –

  • Fictitious assets have no physical existence or you can say these are intangible assets. 
  • These type of assets are just expenses which are treated as assets. 
  • They have no realizable value. 
  • They are amortized or written off in one then more profitable financial year.

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2 thoughts on “Fictitious Assets – Meaning and Explanation”

  1. Thanks for the Article. I really liked the points to be considered section. These are helpful. Keep up good work.

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