What are Fictitious Assets?
Fictitious assets have no physical existence or realisable value, but the company shows them as a cash expenditure in the books of accounts. They are a part of the assets column in the financial statements, and they are expenses or losses that do not get written off during the accounting period of their occurrence.
Features of Fictitious Assets
Some of the features of Fictitious Assets are as follows:
- No physical existence- These assets have no tangible existence. They are a part of Intangible Assets.
- Expenses incurred in running a business – Fictitious assets are expenses incurred in running a business. But companies categorize them as an asset in the Balance Sheet. The principle behind this concept is that, like assets, these expenses will give back returns to the organisation over an extended period.
- No resale value – Since these items are expenses incurred in running the company, the business cannot recover them. Thus, these expenses have no realisable value.
- Amortized over several years – The recognition of these expenses is delayed and deferred to future accounting periods. They are not accounted for in a single year but get spread over multiple years.
Examples of Fictitious Assets
Some examples of fictitious assets are as follows:
- Promotional Expenses of a business – Firms see marketing expenditure as an investment in the company that will fetch returns for more than a year. They are amortized on a systematic basis over many years to reduce their value periodically.
- Preliminary Expenditures – Expenses at the initial stages of a business get categorised under this head. They include Cost of Incorporation, legal and licensing fees and other expenses made to get the company up and running. They are treated as fictitious assets and amortized over several years.
- Discount on issue of shares – When the company issues shares to individual investors and institutions, they do not treat the discount on them as an expense or a loss. It is categorised under fictitious assets and then systematically reduced over the years.
- Loss on issue of debentures – When a company issues debentures, any loss is treated as a fictitious asset and amortized in the books of accounts.
Difference between Fictitious Assets and Intangible Assets
The main differences between Fictitious Assets and Intangible Assets are as follows:
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Fictitious Assets |
Intangible Assets |
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Definition |
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Fictitious assets do not have a tangible existence or any realisable value, but they get reported as actual cash expenditure in the financial statements. |
Intangible assets do not have a physical existence, but they still add value by generating revenue for the business. |
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Resale Value |
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FIctitious Assets have no resale value. |
Intangible assets have a resale value. |
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Scope |
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Since Fictitious Assets are a part of Intangible Assets, they have a much narrower scope. |
Intangible Assets have a broader scope. |
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Examples |
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Some examples of fictitious assets are:
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Some examples of intangible assets are:
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Conclusion
Fictitious Assets are deferred revenue expenditures with no resale value. These Intangible assets are unclaimed expenses incurred in running a business and are amortized, hoping that they will benefit the company in the long run.
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