Some consider Goodwill as a Fictitious Asset. Do you think this statement is correct.?

November 26th, 2010 Comments off
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Some of us draw the conclusion that goodwill is a fictitious asset since it is an “ invisible” item – re: cannot be seen or touch.It might be true that goodwill is an intangible asset, but it cannot be called a fictitious asset because:

  • Even though these intangible assets (examples beside goodwill are patents and trademark) do not have a physical existence, these are resources owned and used in the normal operation of the business. Note that an asset can be tangible like  plant & machinery, land, and intangible goodwill but both assets are in fact necessary for the operation of a business

On the other hand, a fictitious asset is not an asset as no benefit is derived from these items whether at present or in the future. Examples of fictitious assets are (a) debit balance in Income Statement (b) discount of issue of shares & debentures (c) expenses incurred and are to be written off over a period of time.

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Financial Accounting

 
 

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