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

A trader buys 200 units of a stock futures contract at Rs 500 and pays an initial margin. At the end of day 1, the settlement price is Rs 508. Under the standard accounting treatment, what entry is made in the trader's books for the daily mark-to-market on day 1?

The long position gains (508-500) x 200 = Rs 1,600, so the mark-to-market margin account is debited and the futures account is credited with Rs 1,600. It is a receivable gain, not an expense or loss, and must be multiplied by the quantity.

  1. AMark-to-market margin debited Rs 1,600 and credited to Equity Index/Stock Futures AccountCorrect
  2. BMark-to-market margin debited Rs 1,600 as an expense
  3. CMark-to-market margin credited Rs 1,600 as a loss
  4. DMark-to-market margin debited Rs 8 with no futures account entry

Explanation

Gain = (508 - 500) x 200 = Rs 1,600 for a long position. Since it is a gain, the mark-to-market margin account is debited (receivable) and the futures account is credited. The gain is not an expense, and the amount must be multiplied by the lot of 200, not Rs 8.

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