Fictitious Assets: Characteristics and Examples

Fictitious Assets: Characteristics and Examples

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Jaya
Jaya Sharma
Assistant Manager - Content
Updated on Apr 9, 2025 18:46 IST

Fictitious assets have no realizable value yet they are represented in the assets column of a financial statement. These assets do not have any lifespan. Every company indicates these assets as cash expenditure in their book of accounts.

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In this article on fictitious assets, we will discuss the details of these assets along with their examples and representation on the balance sheet.

Table of Contents

What are fictitious assets?

Fictitious assets are the type of assets that have no physical existence. This means that such assets do not have any realizable value. However, they are reported as actual cash expenditures in financial statements. These are expenses and losses that are not offset in the profit and loss account. This means that these remain unclaimed during the period of their occurrence. 

Such assets are to be written off in profit and loss account by reducing the value in the balance sheet. They are spread across an accounting period of one or more years. As the word ‘fictitious’ means fake, these are not actually the assets of a company even though they are represented in the assets of the balance sheet. Explore accounting courses to learn the about different types of assets in detail.

Types of Fictitious Assets

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The following are the main types of fictitious assets among which most of the assets are included:

  • Preliminary Expenses: This is the first fictitious asset owned by a company. It includes expenses incurred during the formation of company, registration fees, legal charges, printing cost and consultation fees during setup among other preliminary expenses.
  • Formation expenses: These include fictitious assets such as expenses for promoting and establishing the business, underwriting commission, brokerage fees and documentation preparation cost.
  • Discount on Debentures/ Issue of Shares: When shares/debentures are issued at a price below the face value, in that case, the difference between face value and discount is treated as a fictitious asset.
  • Research and Development Expenses: These are also counted under fictitious assets since these will ultimately reap profits in the future. Testing and prototype development costs are also included within fictitious assets.
  • Deferred Revenue Expenses: These are those expenses that will lead to profits in the future. This includes large non-recurring expenses over multiple  years, advertising campaigns, training programs and major repairs. 

Representation on Balance Sheet

fictitious assets on balance sheet

As shown in the above-given image, these are recorded in the assets section of the balance sheet. These are not considered to be expenditures in the current accounting period. These assets are represented on the balance sheet. Here, goodwill is not considered a fictitious asset. 

This is done since the organization finds the probability of receiving returns from these expenses over time similar to assets. Since these are intangible assets, there is no possibility of depreciation. Due to this, they are amortized with time.

Characteristics of Fictitious Assets

The following are the characteristics of fictitious assets:

  1. Indicates the miscellaneous expenditure that is recorded in books.
  2. These are intangible assets which means they have no existence in reality.
  3. They are categorized as assets only to be written off in the future.
  4. Not realizable in the market, due to which they have no resale value.
  5. They include only those assets that have the nature of deferred revenue expenditures.
  6. These are the expenses incurred while running a business. 
  7. Amortized for over more than a single profitable accounting period.

Fictitious Asset Example

Let us now discuss the different example of fictitious assets:

  1. Preliminary expenses: These are the incorporation expenses incurred during the formation of the enterprises. These include the cost of drafting MOA and AOA, the company’s registration fees, printing the statutory books of the company, and other expenses related to the building of the company’s corporate structure. 
  2. Underwriting commission: It refers to the payment that firms receive as compensation for underwriting a public offering or placing an issue in the market instruments. 
  3. Marketing expenditure: These are the expenses incurred by the company on marketing campaigns expecting returns in more than one year. These expenses are amortized systematically over the years so that their value is reduced periodically. 
  4. Net Loss of the company: In certain cases, debit balance of the P/L account is considered a fictitious asset.
  5. Discount on the issue of shares: Whenever a company issues its shares at a price that is lower than its face value, the discount occurs. Let us consider that the company issued a share having 30 rupees which had a face value of 35 rupees. In this case, the company is offering a 5 rupee of discount. When a company issues multiple shares at a discount, it will have to bear a ‘5n’ discount (where n is the number of shares). This loss is considered a miscellaneous expenditure.  
  6. Loss on Issue of Debenture: This is also known as a capital loss. It happens when a premium that is payable on redemption of debenture is issued at a discount. Do note that such loss is reduced with time. 
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Fictitious Assets Vs Intangible Assets

Both intangible and fictitious assets do not have physical existence. However, these two differ on the basis of certain parameters. In the following table, we will discuss the difference between intangible and fictitious assets:

Parameter Fictitious Assets Intangible Assets
Revenue  These do not contribute to revenue generation. Actively contribute to revenue generation since they add value.
Realizable Not realizable, due to which these assets cannot be sold in the open market. Realizable in nature, due to which these assets can be sold in the open market.
Usage Limited usage in the firm. A broad spectrum of usage in the business.
Examples

Some example of fictitious assets include:

1. Promotional and preliminary expenses
2. Loss on the issue of debentures and shares
3. Underwriting commission

Some example of intangible assets include:

1. Goodwill 
2. Franchises
3. Logos
4. Copyrights
5. Patents
6. Licenses
7. Broadcasting Rights
8. Trademarks

Conclusion

Hope that through this article, you have been able to understand fictitious assets in detail. These assets have no physical form, yet they are included in the balance sheet. To understand their benefits, it is important to avail of more than one accounting period. 

FAQs

Is Goodwill a fictitious asset?

No. goodwill is an intangible asset and therefore cannot be considered as fictitious asset.

Is prepaid rent considered to be an asset?

Yes, prepaid rent is an asset in accounting since it is recorded as an asset on the balance sheet.

What is the difference between wasting asset and fictitious asset?

Wasting assets are real but their time value keeps on diminishing until it reaches zero. Vehicles and machines are types of wasting assets. There is a lifespan of wasting assets. On the other hand, fictitious assets do not have any lifespan. 

Is advertising suspense a fictitious asset?

Yes, advertising suspense is considered as a fictitious asset. It occurs whenever a company incurs advertising expenses that has not yet received the services that comes with those expenses.

Is Patent a fictitious asset?

No, a patent is not a fictitious asset. Patents are legally recognized intellectual property rights that will grant the owner with exclusive rights to an invention for a limited period of time. Patents are considered intangible assets rather than fictitious assets. Intangible assets are the type of non-physical assets that have value because of the rights and privileges they provide to their owner.

Is cash a fictitious asset?

No, cash is not a fictitious asset. Cash is considered a real, tangible asset and is one of the most fundamental types of assets in accounting and finance. Cash is categorized as a current asset on a balance sheet and represents actual monetary value that a company or individual possesses. It includes physical currency (coins and bills) as well as money in checking or savings accounts that is readily available.

Is Debtors a fictitious asset?

No, debtors (or accounts receivable) are not fictitious assets. They are considered real assets in accounting and represent legitimate economic value. Debtors represent money that is owed to a business by customers or clients who have purchased goods or services on credit. These are recorded as current assets on a company's balance sheet because:

  1. They represent a legal claim to receive money in the future
  2. They are expected to convert to cash within a normal operating cycle
  3. They arise from actual business transactions (sales) that have occurred
  4. They have economic value that can be reasonably estimated
About the Author
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Jaya Sharma
Assistant Manager - Content

Jaya is a writer with an experience of over 5 years in content creation and marketing. Her writing style is versatile since she likes to write as per the requirement of the domain. She has worked on Technology, Fina... Read Full Bio