Fictitious Assets - Explained in Hindi - YouTube

Subscribe to the Asset Yogi channel and press the bell icon

To watch the latest finance videos above all.

Music

Namaskar, my name is Mukul

And you are welcome to the Asset Yogi

Where we unlock the knowledge of finance

When you analyze the financial statement of a business

especially when you are researching about stock for investing

Then sometimes in the balance sheet, in other assets portion, you get to

see discounts and other expenses. What discounts and other expenses

are doing on in the balance sheet? Actually, these are not assets

They are fictitious assets. In many financial ratios,

we have to use this fictitious asset. So I thought

in this quick video, I will explain the concept of a fictitious asset to you

So keep watching the video till the end.

Let's go straight towards the blackboard.

First, we will understand the definition of an asset.

I had already discussed it with you in the previous video.

It is a resource that can be owned by any individual or company

which provides you with the cash flow in the future over the long term

or it gives any economic benefit.

So the first condition is

it is a resource that is providing benefits in the long term.

And the second condition is its ownership.

Any individual or company can own it.

And its third condition is that there is an economic value in this

That means it can be exchanged

And it can be sold also. So if I talk about the example

Let's say there is a factory and there is land and buildings,

plant and equipment in it.

All these help you to gain long-term benefits.

You get profit from whatever you sell.

So now we will talk about fictitious asset

whether it fits in the

definition of an asset or not

So what are fictitious assets?

These are expenses or losses

Expenses mean the expenditure

The company has done such types of expenses.

Or incurred such losses in any accounting

period or within any year

which hasn't been written off in that year

This means assuming the expenditure was 1 crore

So the company is saying that the expenditure of 1 crore or loss

We don't want it to show this in one year, we want to show it for 10 years

And until then we will consider it as an asset.

Because if there is some expense through which I am getting a long term benefit

Then why will I show it at once, I will show it in 10 years

But if we talk about its definition

Then it doesn't fit into the definition. We will assume

that we have done its amortization for over a period of time

We will also assume that its economic value will come over a period of time.

Let's say if any company has done advertising expense then

its value may come in 10 years

But are the rest of the conditions fulfilled?

Is this a resource? No, it's not a resource.

Can it be owned? No, it cannot be owned.

Is it an economic value that can be exchanged or sold?

No, it does not meet this condition also

So this doesn't meet any condition of an asset

That's why it is called a fictitious asset. We are only giving it accounting treatment

to it just like an asset but this is not an asset.

So it doesn't qualify the definition of an asset.

Now we will see how its treatment is done.

Now I will explain it to you with the help of an example.

Assume any company has introduced a special offer,

done marketing.

Marketing and advertising are classic examples of this.

Assume the company said in marketing and advertising

that we want to give some promotional offers. We may get its

benefit in the long term. So the company has spent

1 crore Rs at once during a year

And the company says that we will get its value in 10 years

So we will amortize the expense of it in 10 years

So what company does is

It divides 1 crore in 10 lakhs per year for 10 years

So the expenditure for every year,

the amortized amount

It shows 10 lakhs Rs.

How much will be the fictitious asset?

If the amortized amount of 10 lakhs is shown in the first year

So 90 lakhs as a fictitious asset will be shown in the balance sheet

So this will be shown in the balance sheet.

And you will see the

amortized amount in the income statement

Ideally, the company should have

shown the amount of 1 crore in the first year

This is the ideal amount.

But we are not talking ideally.

The company shows this amount in 10 years

And it shows it like this because if they show the expense of 1 crore at once

then maybe the company would have to show the losses. And the company

doesn't want that. So the company divides it into 10 years. So we talk about more

examples of fictitious assets then I have already discussed marketing

and advertising expenses with you. Maybe you faced some losses

You faced the loss of 1 crore

Due to any reason, for example, we are talking about the bank's NPA

Maybe the banks will write off their NPA gradually

They may have to write off the losses also.

Discount on issue of shares

Sometimes the company issues shares at a discount

So the discount portion

is amortized slowly.

Similarly,

if the loss is incurred in the debentures

Then it also comes under the fictitious asset

And it is expensed gradually.

So I think the concept of fictitious assets is clear to you.

So that's all in this video.

I enjoyed making this video a lot.

If you liked this video then like and share the video.

If you have any suggestions or you want to suggest any topic for future videos

Or if you want to share your thoughts with the community

Then please comment below. And if you haven't subscribed to the channel yet

Then subscribe to the channel and press the bell icon.

So that you will get the notification of my latest video.

Because I keep coming up with interesting videos related to finance and investment

So let's meet in the next video.

Till then keep learning, keep earning, and be happy.