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

Under the ICAI guidance on accounting for equity index and stock futures, the initial margin paid by a client to the broker in cash is shown as:

Initial margin paid in cash is recorded as a deposit, which is an asset, in a separate initial margin account. It is not charged to profit and loss, since it is refundable on closure or expiry of the contract, unlike mark-to-market losses.

  1. AAn expense in the profit and loss account
  2. BA deposit asset, not as an expenseCorrect
  3. CPart of the cost of the futures contract expensed on expiry
  4. DA reduction in share capital

Explanation

Initial margin is a deposit with the broker and is recorded as an asset, labelled 'Initial margin - Equity index/stock futures account'. It is not an expense. Only MTM losses and final settlement differences hit profit and loss. It is released on closing out or expiry.

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