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

A trader pays an initial margin of ₹80,000 on index futures and the amount is debited to the books. How is initial margin paid in cash to the clearing member normally treated in the trader's accounts according to the standard guidance on accounting for equity index and stock futures?

Initial margin paid in cash is recorded as an asset under deposits, since it is refundable when the position closes. It is not an expense, not part of any premium, and not a reserve. Margin given in the form of securities is merely disclosed.

  1. AShown as an asset under 'Deposits', not expensedCorrect
  2. BCharged to the profit and loss account as an expense
  3. CAdded to the cost of the futures contract as a premium
  4. DCredited to the capital reserve

Explanation

Initial margin is a deposit that is refundable on closing the position, so it is shown as an asset (deposit) and not expensed. Where margin is given as securities rather than cash, it is only disclosed. Treating it as expense or premium is wrong since it is not a cost.

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