JKSSB Written 2022
Answer & Explanation
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Correct Answer:
Option A —
fictious asset
Expenses incurred to start a business (such as legal fees, registration charges, and promoter expenses) are known as Preliminary Expenses. Because these are large costs that benefit the company for many years, they aren't written off all at once. Instead, they are treated as "assets" on the balance sheet temporarily, even though they have no physical form or scrap value.Why it is a Fictitious Asset:
No Real Value: Unlike a building (Fixed Asset) or cash (Current Asset), you cannot sell "preliminary expenses" to a third party. They have no market value.
Accounting Treatment: They are technically "losses" or "expenses" that haven't been charged to the Profit & Loss account yet. They are gradually written off over a period of 3 to 5 years.
Why the other options don't fit:
B) Fixed asset: These are physical items like machinery, land, or vehicles used to produce income. Preliminary expenses are not physical objects.
C) Current asset: These are assets expected to be converted into cash within one year (like inventory or accounts receivable).
D) Liability: A liability is an amount the business owes to outsiders (like a bank loan). Startup expenses are money already spent by the business.
Answer verified by Quintessence Classes faculty — Karan Nagar, Srinagar.