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Fictitious Assets

Last Updated On -06 Mar 2025

In accounting, fictitious assets are temporary assets written off over time. As we know, not all assets possess physical existence or financial value. When a company spends money on promotional costs, the amount is treated as a fictitious asset, which is gradually adjusted against profits over time. In the following sections, we will explore the meaning and examples of fictitious assets.

What are Fictitious Assets?

Fictitious Assets are not considered tangible assets but expenses or losses that have already been incurred but not yet consumed. They are recorded gradually but do not contribute directly to business value. They are recorded on the assets side of the balance book but are written off after a while as they do not add any market value.

Understanding the fictitious assets includes:

Analysing the financial health of a company
Writing off the fictitious asset gradually ensures an accurate financial report
Assessing the fictitious assets helps businesses plan for future investments and expenses

Key Characteristics of Fictitious Assets

The Fictitious Assets do not have any physical existence
They cannot be converted to cash
They depict expense and loss to be written off over time

Examples of Fictitious Assets

Expenses like legal fees and registration fees that occurred before the company started
Promotional expenses
Issuance of shares loss
Losses from previous years that are not yet written off

Accounting of Fictitious Assets

Accuracy is much needed, from recording the fictitious assets in the balance sheet to writing it off over time.

The step-by-step accounting process of accounting of the fictitious assets is mentioned below:

Recording the fictitious assets under the assets section of the balance sheet
The assets are written off gradually over multiple years, which depends on the accounting standard of the company
If the company earns profit, the fictitious assets can be written off over a year; however, in case of loss, it takes time.
The fictitious assets should be minimised for better financial health, as they do not provide any economic benefits.

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Frequently Asked Questions (FAQs)

Why are fictitious assets written on the balance sheet if they are not tangible assets?

They are gradually written off over time and represent the deferred expenses or losses to check the company's health.

What is the difference between fictitious assets and intangible assets?

Fictitious assets are deferred expenses or losses that do not have market value and are gradually written off. Intangible assets are non-physical valuable assets which add value to the company and are shown as long-term assets in the balance sheet.