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

For a futures position, the initial margin paid by a client to the broker and held by the clearing corporation is accounted for by the client as which of the following?

Initial margin is shown as an asset in the form of a deposit, because it is refundable on closing the position. It is not charged to profit and loss; only the mark-to-market losses on the futures are recognised as expenses.

  1. AAn expense in the profit and loss account
  2. BAn asset, shown as a depositCorrect
  3. CRevenue from operations
  4. DA liability to the exchange

Explanation

Initial margin is a refundable deposit that is returned when the position is closed, so it is recorded as an asset (deposit). It is not an expense or revenue. Only MTM losses are recognised in the profit and loss account.

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