FICTITIOUS ASSETS —MEANING, FEATURES AND EXAMPLES

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A fictitious asset is an asset that has neither a physical existence nor a realizable value.

Fictitious assets do not actually count as assets even though they are listed on the asset side of the balance sheet because they have no real worth.

They are included in the assets column of the financial statements because they are actual cash outlays in the financial statement that are not written off during the accounting period in which they occur.

Fictitious assets are expenses that span more than one accounting period. The part of the fictitious asset that have been used in an accounting period are charged to the income statement, while the remaining balance of the expenses will be recorded in the balance sheet.

Features of fictitious asset

1. Lacks physical existence: Fictitious assets do not have a real, tangible physical existence. That is why they are sometimes considered part of intangible assets.

2. No realizable value: The company cannot recover these expenses since they are administrative expenses incurred by the operation of the business. 

Therefore, these expenses lack realizable value.

3. Amortized over several years: Fictitious assets are usually amortized over multiple profitable fiscal years.

Expenditures on fictitious assets are spread out over several years rather than being accounted for in one year.

Examples of Fictitious assets

1. A company's promotional or marketing costs.

2. The loss from the issuance of the debentures

3. Discount allowed on the issuance of the shares.

4. Cost of incorporation

5. License and legal fees.

In conclusion, a fictitious asset is one that is neither real nor has a realizable value

Three things define fictitious assets: they don't exist physically, they don't have realizable values, and they are amortized over a number of accounting periods.

Some of the most well-known examples of fictional assets include advertising expenses, licensing costs, and discounts allowed on shares issuance.

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