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

For accounting of equity index futures by a trader, the initial margin paid in cash to the clearing member is generally recorded as which of the following?

Initial margin paid on futures is accounted for as an asset, shown as a deposit under current assets, since it is returned when the position is closed. It is not treated as an expense or income; only mark-to-market losses go to the profit and loss account.

  1. AAn expense in the profit and loss account
  2. BAn asset, shown as deposit under current assetsCorrect
  3. CIncome from derivatives
  4. DA reduction of the share capital

Explanation

Initial margin paid is a deposit that is refunded on closing the position, so it is recorded as an asset (margin deposit) and not expensed. It is not income or capital reduction. Only losses on MTM are recognised in the profit and loss account.

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