Assets are vital to every company and are considered an essential part of the balance sheet. They are either bought or created to increase an organization’s value or benefit its operations. An asset is generally thought of as something that can reduce expenses and generate cash flow in the future.
There are various types of assets, and each one is as important as the other. However, there is a lot of curiosity about a fictitious assets example list and what it truly means. Fictitious asset is a fundamental asset type that confuses several ordinary folks.
This article talks in detail about the essential aspects of fictitious assets to understand the concept better.
What it essentially means
As the name suggests, fictitious assets are “fake” or unreal. They do not physically exist and, therefore, have no realizable value. But they are an essential part of accounting, with companies showing them as cash expenditures in their book of accounts.
Fictitious assets become part of the assets column in a company’s financial statements. They are either losses or expenses that are not written off during the accounting period in which they occur.
What are its features?
The list of features of fictitious assets below will help you understand the concept better.
- They have no physical existence as they are not real.
- Most often, fictitious assets are the expenses incurred while running a business. They are categorized as expenses in the financial statements. The idea behind this concept is that, just like assets, these expenses will bring returns back to the firm over an extended period.
- These assets have no resale value as the company cannot recover them.
- Fictitious assets are amortized over several years. In simple terms, it means that their recognition is deferred to future accounting periods. Consequently, none of these assets is accounted for in a single year but is spread over multiple years.
Examples of fictitious assets
Study the below fictitious assets example list to get a fair idea of what it typically means.
- Preliminary expenditures – The expenses a business incurs during the initial stages to get itself up and running are categorized under this critical head. Examples of such costs include licensing and legal fees, Cost of Incorporation, stamp and logo costs, consultation charges, etc.
- Promotional costs – All businesses look at marketing expenditure as investments that will bring invaluable returns for more than a year. Therefore, they amortize these expenses systematically over several years and reduce their value periodically.
- Loss on the issue of debentures – When companies issue debentures, they treat any loss on them as fictitious assets and record them as such in their accounting books.
- Discount on the issue of shares – All companies systematically issue shares to various institutions and individual investors. But they do not treat the discount on these shares as losses or expenses. Instead, they are filed under the assets column as fictitious assets.
Summary
While it is clear that fictitious assets play a significant role in business accounting, it must also be noted that they cannot be compared to intangible assets like patents, copyrights, or goodwill. That’s because fictitious assets aren’t tangible, whereas intangible ones have realizable values, bringing returns to the company. Nevertheless, fictitious assets are vital to completing any business’ book of accounts.
