Define fictitious assets
In accounting, fictitious assets are assets that do not have tangible or physical existence or economic value but are recorded in the books of accounts. These are typically expenses or losses that are treated as assets for the time being, with the expectation that they will be written off over a period of time. Fictitious assets do not represent real, usable resources and are often considered non-productive.
Examples of fictitious assets include:
- Preliminary Expenses: Costs incurred during the formation of a company, such as legal fees, registration fees, and promotional expenses.
- Discount on Issue of Shares and Debentures: The amount of discount allowed when shares or debentures are issued at a price lower than their face value.
- Underwriting Commission: Fees paid to underwriters for guaranteeing the subscription of shares or debentures.
- Deferred Revenue Expenditure: Large expenditures that are expected to benefit the company over several years, such as heavy advertising or research and development costs.
These assets are gradually amortized or written off from the books over a period, as they do not have a lasting value or represent an actual asset to the company.
