ACCOUNTING AT THETIMi OF PAYMENT/RECEIPT OF MARGIN
Payments made or received by the seller/writer for the margin should be credited/debited to the bank account and the corresponding debit/credit for the same should also be made to “Equity Index option Margin Account” or to “Equity Stock Option Margin Account, free trading tips as the case may be. Sometimes, the client deposit a lump sum amount with the trading/clearing member in respect of the margin instead of paying/receiving margin on daily basis. In such case, the amount of margin paid/received from/into such accounts should be debited/credited to the “Deposit for Margin Account”. At the end of the year the balance in this account would be shown as deposit under “Current Assets”.
The Equity Index Option premium Account and the Equity Stock Option Premium Account should be shown under the head Current Assets or Current-Liabilities, as the case may be.
In the books of the buyer/holder, a provision should be made for the amount by which the premium paid for the option exceeds the premium prevailing on the balance sheet date. The provision so created should be credited to “Provision for Loss on Equity stock market Index Option Account” to the Provision for Loss on Equity Stock Option Account, as the case may be. The provision made as above should be shown as deduction from “Equity Index Option Premium” or “Equity Stock Option Premium”, which is shown under “Current Assets”.
In the books of the seller/writer, the provision should be made for the amount by which premium prevailing on the balance sheet date exceeds the premium received for that option. The stock futures provision should be credited to “Provision for Loss on Equity Index Option Account” or to the “Provisions for Loss on Equity Stock Option Account”, as the case may be, with a corresponding debit to profit and loss account. “Equity Index Options Premium Account” or “Equity Stock Options Premium Account” and Provisions for Loss on Equity Index Options Account or Provision for Loss on Equity Stock Options Account should be shown under Current Liabilities and Provisions.
In case of any opening balance in the Provision for Loss on Equity Stock Options Account or the Provision for loss on Equity Index Options Account, the same should be adjusted against the provision nifty future required in the current year and the profit and loss account be debited/credited with the balance provision required to be made/excess provision written back.
ACCOUNTING AT THE TIME OF FINAL SETTLEMENT
On exercise of the option; the buyer/holder will recognize premium as an expense and debit the profit and loss account by crediting Equity Index Option Premium Account or Equity Stock Option Premium Account. Apart from the above, the buyer/holder will receive favorable difference, if any, between final settlement price as on the technical analysis exercise/expiry date and the strike price, which will be recognized as income. On exercise of the option, the seller/writer will recognize premium as an income and credit the profit and loss account by debiting “Equity Index Option Premium Account” or “Equity Stock Option Premium Account”. Apart from the above, the seller/writer, will pay the adverse difference if any, between the final settlement price as on the bse india exercise/ expiry date and the strike price. Such payment will be recognized as a loss. As soon as an option gets exercised, margin paid towards such option would be released by the exchange, which should be credited to “Equity Index Option Margin Account” or to “Equity Stock Option Margin Account”, as the case maybe, and the bank account will be debited.
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