Fictitious Assets

Question

Define the terms Fictitious Assets?

Answer 1

There are some expenditures or expenses, the benefit of which is not restricted to one specific year. Hence, the whole of such expenses can’t be charged to the gain and loss account at once and therefore they are deferred.

For example: Discount of Issue of Debentures, Share Issue Expenses, and so forth.

As well the debit balance of Profit and Loss Account (loss) is a Fictitious Asset. This is to be cancelled out or adjusted with gain of subsequent years or reserves.

Fictitious Assets are not the assets, that are tangible and visible such as machinery, buildings, computer however the expenditure on several activity, that is considered as a Capital expenditure rather than Revenue expenditure. Whenever expenditure incurred amount is not debited to gain and loss A/C however shown as fictitious asset and over a period the amount is written off or debited to P & L account. For illustration Share issue expenses by a Corporate, it is not debited to P& L. Account in the year in which it is incurred however debited in installments as decided by the Management over few years.