Fictitious assets meaning
Fictitious assets are intangible, non-physical assets that the company still considers valuable. These types of assets do not have immediate cash values and are not a source of cash inflows, but they are worth holding on to in the long run due to their potential value in the future.
Fictitious assets are included in the financial accounts of companies as a matter of good accounting practice, but they are not actual assets in practical terms. In most cases, these are losses and expenses that were not written off when they occurred for whatever reason. Initially, they are shown as assets in the financial accounts, but they will subsequently be written off.
Difference between Fictitious Assets and Intangible Assets
While both fictitious and intangible assets are not visible and cannot be touched, the biggest difference between the two is that intangible assets can easily be sold for cash. Examples of intangible assets include Copyrights, IP rights, trademarks, patents etc. The bottom line here is that most intangible assets have documentation that carry legal weight.
Fictitious assets in balance sheet
Like any other assets, fictitious assets are recorded under the assets section of balance sheets. In order of listing, they typically follow unmovable assets like buildings and machinery and current assets like cash on hand and inventory in the ledger.
These assets also typically appear in company earnings reports in over multiple accounting periods. In essence, they are spread out across time and amortised. All these appear in the company’s profit and loss account in the income statement. They are considered income for the accounting period and are reported as revenue. This is important, as it helps in giving a more accurate picture of the company’s income and profit or loss.
Fictitious assets examples
- Discount given on share issuance: This type of discount arises whenever a company sells its stock for less than its actual worth/face value.
- Goodwill: This refers to the value placed on a company’s brand, reputation and name. A company ascribes some value to its brand after being in business for a period of time. While this cannot translate to liquid cash, it is a valuable component during acquisitions or sales. A company must register goodwill if it pays more than the book value to purchase another company.
- Underwriting commission: Financial institutions get underwriting commissions when they place market instruments or underwrite public offerings.
- Deferred charges: These are costs that a company cannot avoid, but which will not be incurred until a later time period. This may include instances where a company has to pay for things associated with long-term contractual commitments etc.