Fictitious Assets

Fictitious Assets

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Fictitious Assets

Fictitious Assets-    

Fictitious Assets are those assets that neither have any real value nor have any physical form, but are called assets on the basis of legal grounds.

Or

Fictitious assets are the expenses or losses which are not fully written off (not offset in the Profit and Loss A/c) during particular accounting period. These are to be shown on the assets side of  the balance sheet.

Fictitious Assets are neither tangible assets nor intangible assets.

  • Fictitious assets represent expenses or losses that cannot be classified as regular assets.
  • They don’t have any inherent or intrinsic value and wouldn’t generate future economic benefits for the company.
  • They are essentially accounting entries used to ensure proper recording and presentation of financial statements.

Key characteristics:

  • Non-physical: Fictitious assets are intangible, meaning they have no physical form. You can’t touch or see them.
  • Accounting purpose: Their primary purpose is for accounting purposes. They help balance the books by accounting for certain expenses that can’t be directly written off in the current accounting period.
  • Limited economic value: Unlike traditional assets, fictitious assets don’t hold any realizable value and won’t generate future cash flow for the company.

Examples of Fictitious Assets-

  1. Advertisement Suspense Account,
  2. Discount on issue of debentures,
  3. Underwriting Commission,
  4. Preliminary Expenses,
  5. Profit and loss (Debit balance),
  6. Deferred revenue Expenditure,
  7. Expenses on issue of debentures,
  8. Expenses on issue of Shares etc.

Also read: Golden Rules Of Accounting

DEFERRED REVENUE EXPENDITURE-

The expenditure which is revenue in nature, but the heavy amount spent and benefit likely to be derived over a number of years called deferred revenue expenditure.

A heavy revenue expenditure, the benefit of which may be extended over a number of years, and not for the current year alone is called deferred revenue expenditure. For example, a new firm may advertise

very heavily in the beginning to capture a position in the market. The benefit of this advertisement

campaign will last for quite a few years. It will be better to write off the expenditure in three or four years and not only in the first year.

       CHARACTERISTICS DEFERRED REVENUE EXPENDITURE

  1. The benefit is enjoyed for more than one year.
  2. It is non-recurring in nature.

    EXAMPLES OF DEFERRED REVENUE EXPENDITURE

  1. Expenses incurred on research and development
  2. Abnormal loss arising out of fire or lightning (in case the asset has not been insured).
  3.  Huge amount spent on advertisement.

Also read : Types of Insurance