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

Under the accounting treatment for equity index futures followed by members and clients in India, the initial margin paid in cash to the clearing member for a futures position is shown as what?

Initial margin paid on equity index futures is recorded as a deposit under current assets in the balance sheet, because it is refundable when the position is closed. It is not an expense, a reduction of capital, or a contingent liability.

  1. AAn expense in the profit and loss account
  2. BA deposit in the balance sheet under current assetsCorrect
  3. CA reduction of the share capital
  4. DA contingent liability

Explanation

Initial margin paid for futures is not a cost; it is refundable on closing out the position. It is therefore shown as a deposit under current assets. Treating it as an expense or reducing capital is incorrect.

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