If you recently conducted an audit in your company and found huge expenses or losses which were unclaimed in the financial year, then you have reached the right place.
You can write off these financial transactions as fictitious asset meaning fake assets which do not have any physical existence. You can still include those in the balance sheet of your company’s general ledger.
As these assets cannot be touched or explicitly viewed, they are intangible and permanent in the business account.
Read on to understand more about fictitious assets and how they are placed in journals.
Examples of Fictitious Assets
Fictitious assets are recorded as miscellaneous expenditure in the balance sheet of a company’s account ledger.
According to a case study on auditing firms, a financial statement auditor can be a co-defendant for an organization involved in accounting allegations involving fictitious assets.
Here are some common examples of fictitious assets that a company can declare.
Promotional Expenses of a Business
Investing in promotional marketing has very high returns on investment for a company. For companies who host promotional events to launch a new product or service, the benefits will be reaped over time.
These expenses are reimbursed in the long term and are considered as fictitious assets meaning intangible assets.
Preliminary Expenditures
When you are just setting up your business, you may have to face a lot of expenses. These include licensing and permit fees, infrastructure charges, and other expenditures needed to get the company running.
Although you may spend a considerable amount setting up a new organization, these expenses are calculated as fictitious assets that can be retrieved back in the long run.
Discount in Issue of Shares
When a company issues new shares, it sometimes offers them to prospective shareholders at discounted prices. The discount amount is not considered as a loss or an extra expenditure. This fictitious asset is then gained back in the next fiscal year.
Underwriting Commission
According to a legal definition, underwriting commission is the compensation an investment banker charges for underwriting a security issue. It is calculated as a discount from the price of the new issue.
These charges are written off as fictitious assets in the company’s balance sheet.
Loss of Issue on Debentures
This expense is known as a capital loss. The redemption period of debentures is more than one year. Hence, these are calculated as current assets in the balance sheet.
The amount is charged either as securities premium reserve or from the statement of profit or loss account.
Difference Between Fictitious and Intangible Assets
Intangible assets are non-monetary assets that a company acquires by purchase. They are legally under the control and view of the organization.
Some common examples of intangible assets are goodwill, patent, license, trademark, or software. Fictitious assets are just an added expense that the company can reimburse over a specific period. Hence, they can generate profits in the long run.
Final Thoughts
Fictitious expenses have no physical existence and no realizable value. Most of the time, fictitious assets are written off before the expected date. A company can do this when it makes a significant profit to bear a considerable loss or expense.
