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The best way to understand fictitious assets is to memorize the meaning of the word “fictitious” which means “not true” or “fake”. Fictitious assets are not assets at all however they are shown as assets in the financial statements only for the time being. In fact, they are expenses & losses which for some reason couldn’t be written off during the accounting period of their incidence.
Fictitious assets are written off against the firm’s earnings in more than one accounting period. Basically, they are amortized over a period of time. They are recorded as assets in financial statements only to be written off later.
Examples of Fictitious Assets:
Promotional expenses of a business
Preliminary expenses
Discount allowed on issue of shares
Loss incurred on issue of debentures
Fictitious assets are shown in the balance sheet on the asset side under the head “Miscellaneous Expenditure”.
Asset created by an accounting entry (and included under assets in the balance sheet) that has no tangible existence or realizable value but represents actual cash expenditure.
Examples of Fictitious Assets;
Fictitious assets are deffered revenue expenditure whose benefit is derived over long period of time. Even accumulated losses are also fictitious assets as they are written off over a period of time. Example of Fictitious Assets – preliminary expenses, discount on issue on debenture and shares, underwriting commission, miscellaneous expenditure and Unamortized Loss on Issue of Shares etc.
The fictitious asset is an asset recorded on the balance sheet and has value to the business, but does not relate to a real asset or have a resale value. We use fictitious assets are to keep track of assets that cannot be recorded under normal accounting categories, such as prepaid expenses, refundable deposits or deferred interest.
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Assets that appear in the balance sheet but do not represent any defined asset (tangible or intangible), rather represent expenses incurred during establishment of the business for which there was no appropriate account head under which those expenses could be reported.
These expenses are charged to (fictitious assets are written down against) initial periods' income.
