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.
They 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 in a future period.
Examples of Fictitious Assets
- Promotional expenses of a business
- Preliminary expenses
- Discount allowed on issue of shares
- Loss incurred on issue of debentures
They are shown in the balance sheet on the asset side under the head “Miscellaneous Expenditure”. (To the extent not written off or adjusted)
The above examples are provided to demonstrate few expenses which may not be treated as an expenditure for the accounting period in which they are incurred, hence they will be recorded as fictitious assets in the balance sheet of a business.