Fictitious assets are expenses or losses not written off entirely in the profit and loss account during the accounting year in which they occur. Fictitious assets have no realizable value or physical existence. In the above, (C) preliminary expense is a fictitious asset. Preliminary expenses are theRead more
Fictitious assets are expenses or losses not written off entirely in the profit and loss account during the accounting year in which they occur. Fictitious assets have no realizable value or physical existence.
In the above, (C) preliminary expense is a fictitious asset. Preliminary expenses are the expenses incurred before the incorporation of a business. 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.
Since the benefit of a fictitious asset is received over a period of time, the whole amount is not charged to the profit and loss account. The amount is amortized over several years. These expenses are non-recurring in nature. These expenses are shown as assets under the head miscellaneous expenditure. Also known as deferred revenue expenditure.
For example: A company incurred $50,000 as promotion costs before the formation of the business. This promotion cost will be deferred over 5 years. In the first year, $10,000 will be charged to the profit and loss account and the remaining $40,000 will be shown as an asset under the heading miscellaneous expenditure. Subsequently, $10000 will be charged to profit and loss for the next 4 years. The amount of $50,000 will be deferred over a span of 5 years.
Some other examples of fictitious assets :
- Promotional expenses: Expenses incurred for the promotion of business before the formation of the company such as advertising expenditures are amortized over many years.
- Loss on the issue of shares or debentures: When a company issues shares or debentures at a discount, the discount is classified as a fictitious asset and is not treated as an expense or loss. It is amortized over several years.
- Incorporation costs: Costs incurred during the formation of a business are incorporation costs. These include registration costs, licensing fees, legal fees and other costs incurred in setting up the business. These are fictitious assets and are amortized over several years.
- Loss on Sale of Machinery: When a loss is incurred on the sale of machinery or equipment, that loss is also treated as a fictitious asset and is amortized over several years.
Goodwill
Goodwill is not a fictitious asset because goodwill has a realizable value and can be sold in the market. Goodwill is an intangible asset which does not have a physical existence but can be traded for monetary value. Goodwill has an indefinite life and is sold when the business is sold. Goodwill can be self-generated or purchased. Goodwill is shown as an intangible asset under the heading fixed asset in the financial statements.
Patents
Patents are intangible assets which do not have a physical existence but have realizable value and can be sold in the market. So, patents do not come under the category of fictitious assets. Patents are basically intellectual property. The purchase price of the patent is the initial purchase cost which is amortized over the useful life of the asset. Patents are shown as intangible assets under the heading fixed asset in the balance sheet of the company.
Claim receivable
Claim receivable is an asset if the claim has been authorized by the insurance company. Claim receivable has a monetary value, so does not come under the category of a fictitious asset. If the claim is not yet authorized by an insurance company, it will be shown as a footnote in the financial statements. Authorized claim receivable is shown as a current asset in the financial statement.
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Meaning of Partnership Deed A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement. Contents of a Partnership Deed A Partnership Deed shall mainly include the following contents: Name of the Partnership firmRead more
Meaning of Partnership Deed
A Partnership Deed is a written agreement between partners who are willing to form a Partnership Firm. It is also called as a Partnership Agreement.
Contents of a Partnership Deed
A Partnership Deed shall mainly include the following contents:
Importance of Partnership Deed
Format of a Partnership Deed
The Partnership Deed shall originally be executed on an Indian Non-Judicial stamp paper.
The format of the Partnership deed is given below with an assumption that 4 partners are forming the Partnership.
PARTNERSHIP DEED
This deed of partnership is made on [Date, Month, Year] between:
1. [First Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FIRST PARTNER.
2. [Second Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as SECOND PARTNER.
3. [Third Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as THIRD PARTNER.
4. [Fourth Partner’s Name], [Son/Daughter] of [Mr. Father’s Name], residing at [Address Line 1, Address Line 2, City, State, Pin Code] hereinafter referred to as FOURTH PARTNER.
Whereas, the parties hereto have agreed to commence business in partnership and it is expedient to have a written instrument of partnership. Now, this partnership deed witnesses as follows:
1. BUSINESS ACTIVITY
The parties hereto have mutually agreed to carry on the business of [Description of Business Activity Proposed].
2. PLACE OF BUSINESS
The principal place of the partnership business will be situated at [Address Line 1, Address Line 2, City, State, Pin Code]
3. DURATION OF PARTNERSHIP
The duration of the partnership will be at will.
4. CAPITAL OF THE FIRM
Initially, the capital of the firm shall be Rs. [Total Partners Contribution].
5. PROFIT SHARING RATIO
The profit or loss of the firm shall be shared equally among all the partners and transferred to the partner’s current account.
6. MANAGEMENT
The [First Partner] of the firm shall be Managing Partner and he will look after all the day-to-day transactions of the firm and any legal activities in the name of the firm and the remaining partners shall cooperate to do so.
7. OPERATION OF BANK ACCOUNTS
The firm shall open a current account in the name of [Partnership Firm Name] at any bank and such account shall be operated by [First Partner] and [Second Partner] jointly as declared from time to time to the Banks.
8. BORROWING
The written consent of all Partners will be required for the partnership to avail credit facilities from any financial institution.
9. ACCOUNTS
The firms shall regularly maintain in the ordinary course of business, true and correct accounts of all its transactions and also of all its assets and liabilities, the property books of account, which shall ordinarily be kept at the firm’s place of business. The accounting year shall be the financial year from 1st April onwards and the balance sheet shall be properly audited and the same shall be signed by all the Partners. Every Partner shall have access to the books and the right to verify their correctness.
10. RETIREMENT
If any partner shall at any time during the subsistence of the partnership, be desirous of retiring from the firm, it shall be competent from his to do so, provided he shall give at least one calendar month’s notice of his intention of doing so. The remaining partner shall pay the retiring partner or his legal representatives of the deceased partner, the purchase money of his share in the assets of the firm.
11. DEATH OF PARTNER
In the event of the death of any partners, one of the legal representatives of the deceased partner shall become the partner of the firm and in the event, the legal representative shows their denial to point the firm, they shall be paid part of the purchase amount calculated as on the date of the death of the partner.
12. ARBITRATION
Whenever there by any difference of opinion or any dispute between the partners shall refer the same to the arbitration of one person. The decision of the arbitration so nominated shall be final and binding on all partners, such arbitration proceedings shall be governed by Indian Arbitration Act, which is in force.
In witness whereof, this deed of partnership is signed sealed, and delivered this [Day, Month, Year] at [City, State]:
FIRST PARTNER SECOND PARTNER
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
THIRD PARTNER FOURTH PARTNER
[Address Line 1] [Address Line 1]
[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]
WITNESS ONE WITNESS TWO
[Address Line 1] [Address Line 1]
See less[Address Line 2] [Address Line 2]
[City, State, Pin Code] [City, State, Pin Code]