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      Question

      How are fictitious assets treated in the balance sheet

      under Indian GAAP?
      A Shown under Tangible Fixed Assets Correct Answer Incorrect Answer
      B Shown under Intangible Fixed Assets Correct Answer Incorrect Answer
      C Deducted from Share Capital Correct Answer Incorrect Answer
      D Shown under "Miscellaneous Expenditure" until written off Correct Answer Incorrect Answer
      E Added to Current Liabilities Correct Answer Incorrect Answer

      Solution

      Under Indian GAAP (AS), fictitious assets, such as preliminary expenses, discount on issue of shares, or heavy advertising expenditure, are not assets in the sense of having realisable value. Instead, they represent deferred revenue expenditures that have already been paid but whose benefit is expected to accrue over multiple years.  They are grouped under the heading Miscellaneous Expenditure (to the extent not written off or adjusted) on the asset side of the Balance Sheet. These are systematically charged to the Profit and Loss account over a period (usually 3 to 5 years) until the balance becomes zero. This is known as amortization.

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