ACCOUNTING IN CASE OF DEFAULT
When a client defaults in making payment in respect of a daily settlement, the contract is closed out. The amount not paid by the client is adjusted against the initial margin. In the books of the client, the amount so adjusted should be debited to Mark to Market Equity Index Futures account with a corresponding credit to ‘Initial Margin – Equity index futures account’. The amount of initial margin on the contract, in excess of the amount adjusted against the mark to market margin not paid, will be released. The accounting treatment in this regard will be the same as explained above. In case, the amount to be paid on the daily settlement exceeds the initial margin the excess is a liability and should be shown as such under the head “current liabilities and provisions”, if it continues to exist on the balance sheet date. The amount of profit or loss on the contract so closed out should be calculated and recognized in the profit and loss account in the manner dealt above.
DISCLOSURE REQUIREMENTS
The amount of bank guarantee and book value as also the market value of securities lodged should be disclosed in respect of contracts having open positions at the year end, where initial margin money has been paid by way of bank guarantee and/or lodging of securities.
Total number of contracts entered and gross number of units of equity index futures traded (separately for buy or sell) should be disclosed in respect of each series of equity index futures.
The number of equity index futures contracts having open position, number of units of equity index futures pertaining to those contracts and the daily settlement price as of the balance sheet date should be disclosed separately for long and short positions, in respect of each series of equity index futures.
ACCOUNTING FOR EQUITY INDEX OPTIONS AND EQUITY STOCK OPTIONS
The institute of chartered accountants of India issued guidance note on accounting for index options and stock options from the view point of the parties who enter into such contracts as buyers/holders or sellers/writers. Following are the guidelines for accounting treatment in case of cash settled index options and stock options.
ACCOUNTINGAT THE INCEPTION OF A CONTRACT
The seller/writer of the options is required to pay initial margin for entering into the option contract. Such initial margin paid would be debited to “Equity Index Option MaiginAccount” orto ” Equity Stock Option Margin Account” as the case may be. In the balance sheet, such account should be shown separately under the head “current assets”. The buyer/holder of the option is not required to pay any margin. He is required to pay the premium. In his books, such premium would be debited to “Equity Index Option Premium Account” or Equity Stock Option Premium Account” as the case may be. In the books of the seller/writer, ■ such premium received should be credited to “Equity Index Option Premium Account” or Equity
ACCOUNTING IN CASE OF DEFAULT
When a client defaults in making payment in respect of a daily settlement, the contract is closed out. The amount not paid by the client is adjusted against the initial margin. In the books of the client, the amount so adjusted should be debited to Mark to Market Equity Index Futures account with a corresponding credit to ‘Initial Margin – Equity index futures account’. The amount of initial margin on the contract, in excess of the amount adjusted against the mark to market margin not paid, will be released. The accounting treatment in this regard will be the same as explained above. In case, the amount to be paid on the daily settlement exceeds the initial margin the excess is a liability and should be shown as such under the head “current liabilities and provisions”, if it continues to exist on the balance sheet date. The amount of profit or loss on the contract so closed out should be calculated and recognized in the profit and loss account in the manner dealt above.
DISCLOSURE REQUIREMENTS
The amount of bank guarantee and book value as also the market value of securities lodged should be disclosed in respect of contracts having open positions at the year end, where initial margin money has been paid by way of bank guarantee and/or lodging of securities.
Total number of contracts entered and gross number of units of equity index futures traded (separately for buy or sell) should be disclosed in respect of each series of equity index futures.
The number of equity index futures contracts having open position, number of units of equity index futures pertaining to those contracts and the daily settlement price as of the balance sheet date should be disclosed separately for long and short positions, in respect of each series of equity index futures.
ACCOUNTING FOR EQUITY INDEX OPTIONS AND EQUITY STOCK OPTIONS
The institute of chartered accountants of India issued guidance note on accounting for index options and stock options from the view point of the parties who enter into such contracts as buyers/holders or sellers/writers. Following are the guidelines for accounting treatment in case of cash settled index options and stock options.
ACCOUNTINGAT THE INCEPTION OF A CONTRACT
The seller/writer of the options is required to pay initial margin for entering into the option contract. Such initial margin paid would be debited to “Equity Index Option MaiginAccount” orto ” Equity Stock Option Margin Account” as the case may be. In the balance sheet, such account should be shown separately under the head “current assets”. The buyer/holder of the option is not required to pay any margin. He is required to pay the premium. In his books, such premium would be debited to “Equity Index Option Premium Account” or Equity Stock Option Premium Account” as the case may be. In the books of the seller/writer, ■ such premium received should be credited to “Equity Index Option Premium Account” or Equity Stock Option Premium Account” as the case may be.
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Account” as the case may be.
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