This a MCQ (Multiple Choice Question) based practice test of Chapter 8- Financial Statements and their Analysis of Accountancy of Class XII (12) for the quick revision/preparation of School Board examinationsQ Which of the following is a fictitious Asset?a)Preliminary Expenseb)Loose Toolsc)Goodwilld)Income TaxCorrect answer is option 'A'. Can you explain this answer?

Question

Answer

Explanation:
Fictitious Assets are those assets which do not have any physical existence but are shown in the Balance Sheet of the company for a certain period of time. These assets cannot be used for the purpose of generating income but are incurred for the purpose of running the business.

Preliminary Expense is a type of fictitious asset which is incurred during the formation of a company. It includes expenses incurred for the formation of the company such as legal charges, registration fees, printing and stamping charges, etc. These expenses are not related to the current operations of the company but are incurred for the purpose of setting up the company.

Loose Tools are tangible assets that are used in the manufacturing process and are used for generating income for the company. They are not considered as fictitious assets.

Goodwill is an intangible asset which is acquired by the company when it buys another company and pays more than its net assets. Goodwill is shown in the Balance Sheet of the company as an asset.

Income Tax is a liability and not an asset. It is the amount of tax that a company is liable to pay to the government on its income.

Therefore, among the given options, the correct answer is option 'A' - Preliminary Expense is a fictitious asset.

Answer

Ans:
Fictitious assets are used to keep track of assets that cannot be RECORDED under normal accounting categories such as PREPAYMENT or DEFERRED revenues.
Fictitious assets are the result of an ACCOUNTING ENTRY. No physical item backs up the entry reported on the company’s financial statements.
A common example of a fictitious asset is business START-UP COSTS. Accountants record these costs as an asset because they do bring some value to the new business. The company may need to write off this fixed asset against earnings, however, to properly report all tangible and intangible assets on the balance sheet.
Its not the actual assets , its the expenditure occurred at the tine of commencement of firm ( capital expenditure )like PRELIMINARY EXPENSES discount on issue on debenture/shares, underwriting commission etc.

Answer

Discount on issue of debenture   is shown in which head ?

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