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.
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, _______
|Add: Net profit||Building|
| interest on Capital
|Less: Drawings||Plant & machine|
|Net Loss||Furniture & fixture|
|Non-Current Liabilities||Current Assets|
|long terms loans||Inventories|
|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|
|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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Also, check out the following Topics: –
- Assets – Meaning, Definition, Types, and Examples
- Fixed Assets – Meaning, Explanation with Examples
- Current Asset – Meaning and Explanation with Examples
- Tangible Assets – Meaning and Explanation with example