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NISM Certifications · NISM-Series-VIII: Equity Derivatives · Accounting and Taxation

A client sells 1 lot of 50 units of an index futures at 20,000. On the expiry day the final settlement price is 19,880. What is the correct accounting result on final settlement?

The short futures position gains because the price fell from 20,000 to 19,880. Profit is 120 x 50 = Rs 6,000, recognised in the profit and loss account on final settlement. Options showing a loss have the wrong sign, and Rs 120 omits the lot size.

  1. ALoss of Rs 6,000 recognised in profit and loss account
  2. BProfit of Rs 6,000 recognised in profit and loss accountCorrect
  3. CProfit of Rs 120 recognised in profit and loss account
  4. DLoss of Rs 120 recognised in profit and loss account

Explanation

Short position gains when price falls: (20,000 - 19,880) x 50 = 120 x 50 = Rs 6,000 profit. This is recognised in the profit and loss account on final settlement. A loss would arise only if the price had risen, and Rs 120 ignores the lot size.

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