What is not a fictitious asset?
What is not a fictitious asset?
The correct option is B Discount on issues of shares and debentures
Fictitious assets can be defined as the assets that cannot be realised in cash or no further benefit can be derived from those assets. These assets include a debit balance of profit and loss A/c and the expenditure not yet written off such as advertising expenses etc.
Among the given options Discount on issues of shares and debentures is not the example of fictitious assets.
Writing Off Discount
The loss or discount on issue of debentures is basically a capital loss or a fictitious asset and, therefore, has to be written-off during the debentures’ lifetime. The amount of loss or discount on issue of debentures has to be not be written-off during the year of issue because the benefit of the debentures would accumulate to the enterprise till their restitution or redemption. The loss or discount is now considered as a capital loss. The discount can be charged to either Securities Premium Account or might be written-off over 3 to 5 years through a statement of Profit and Loss as per guidance that is circulated by The Institute of Chartered Accountants of India (ICAI). If no capital profits are found or if the capital profits are insufficient, then the amount of such loss or discount can be written-off against the revenue profits every year by passing the below-mentioned in journal entry :
- Statement of Profit and Loss Dr.
- To Discount/Loss on Issue of Debentures A/c (Discount/loss on issue of debentures written-off)
In general, there are 2 procedures, that can be accepted to write off loss or discount on issue of debentures against the revenue profits. They are listed below
Fixed Instalment Method: When the debentures are recovered during the end of a particular period, the amount of the discount should be written off in equivalent instalments of a fixed amount over that time frame.
Fluctuating Instalment Method: When debentures are paid back in instalments or by annual drawings, the discount should be written-off in the ratio of debentures that is outstanding as during the closure of every accounting financial year. The amount of the discount goes on reducing in every upcoming year. This method is referred to as Reducing Instalment Method.
Discount on issues of shares and debentures
Fictitious assets can be defined as the assets that cannot be realised in cash or no further benefit can be derived from those assets. These assets include a debit balance of profit and loss A/c and the expenditure not yet written off such as advertising expenses etc.
Among the given options Discount on issues of shares and debentures is not the example of fictitious assets.
Writing Off Discount
The loss or discount on issue of debentures is basically a capital loss or a fictitious asset and, therefore, has to be written-off during the debentures’ lifetime. The amount of loss or discount on issue of debentures has to be not be written-off during the year of issue because the benefit of the debentures would accumulate to the enterprise till their restitution or redemption. The loss or discount is now considered as a capital loss. The discount can be charged to either Securities Premium Account or might be written-off over 3 to 5 years through a statement of Profit and Loss as per guidance that is circulated by The Institute of Chartered Accountants of India (ICAI). If no capital profits are found or if the capital profits are insufficient, then the amount of such loss or discount can be written-off against the revenue profits every year by passing the below-mentioned in journal entry :
- Statement of Profit and Loss Dr.
- To Discount/Loss on Issue of Debentures A/c (Discount/loss on issue of debentures written-off)
In general, there are 2 procedures, that can be accepted to write off loss or discount on issue of debentures against the revenue profits. They are listed below
Fixed Instalment Method: When the debentures are recovered during the end of a particular period, the amount of the discount should be written off in equivalent instalments of a fixed amount over that time frame.
Fluctuating Instalment Method: When debentures are paid back in instalments or by annual drawings, the discount should be written-off in the ratio of debentures that is outstanding as during the closure of every accounting financial year. The amount of the discount goes on reducing in every upcoming year. This method is referred to as Reducing Instalment Method.
