Fictitious asset is used to account for expenses that are no related to real, tangible assets. The most common example is situation when the company begins its operation and expenses related to that start cannot be placed under normal account headings. The fictitious assets are written off after the company obtains first earnings.
Fictitious assets are simply some fake assets put into financial statements. However, it is not illegal, its normal accounting practice. The only purpose of registering fictitious assets is to keep statements balanced at the end of period. When fictitious assets are no more necessary, they are amortized or written off in following accounting periods.
The most popular examples of fictitious assets are:
- preliminary expenses (as described earlier),
- promotional expenses,
- discount on issue of shares,
- loss related to issue of debentures.
On the balance sheet fictitious assets can be found in asset part of it, e.g. under position Miscellaneous expenditures.
- Barth, M. E., Landsman, W. R., & Lang, M. H. (2008). International accounting standards and accounting quality. Journal of accounting research, 46(3), 467-498.
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