Derivative Accounting

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jitendra (Querist)
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17 July 2008 in case of accounting for private limited company who is engaged in investments in derivative segment-
Whether the daily mark to market margins as accounted at the broker's end should be accounted on daily basis for each future contract upto its settlement/sqarring up?

The movement of the funds will not have direct bearing on my bank account rather it will affect my fund account maintained by the broker. While accounting in the books of company, whether one needs to also maintain mirror account of the brokers transactions in the Fund Account?

Please guide on the accounting treatment to be given in the Company's Books.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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17 July 2008 No, you may account for SPAN and Initial margins given at the time of contract and thereafter, the transactions may be adjusted at the time of squarring up or closure. You need not daily adjust as per MTM.

jitendra

jitendra (Querist)
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17 July 2008 Thanks for guidance. Please guide whether I have interpreted it coorectly,

The entry at the time of purchase will be-

Journal voucher,
Futures (equity/index) stock A/c Dr.
To Broker A/c

At the time of suarring/settlement

Journal voucher,
Broker A/c Dr.(with contract value)
Margin A/c Dr (if Loss)
To Futures (equity/index) stock A/c Dr.
To Margin A/c Dr (if Profit)

The balance in margin account will be transferred to P&L A/c.

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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17 July 2008 Loss or profit is not to be a/c for as a margin. The nomenclature of the heads and the accounting shoul be done as per under:

ABC-Future MTM A/c Dr
To Bank
(For payment of margins and day to day MTM)

ABC
To Profit/Loss in derivatives
To ABC-Future MTM A/c
(In case of profit at the time of settlement; Reverse if loss)

There will be Two accounts in the name of Broker; one for Margin another for settlement of trades on settlement. The second entry is meant to account for profit or loss and reversal of margins.

jitendra

jitendra (Querist)
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17 July 2008 In case of margin payments my bank account is not directly affected, insted broker is adjusting from the fund account, the daily margin. In that case credit cannot be given to Bank Account. Can we route the entry (JV) through Broker's Margin A/c?

Secondly the margin account copy given by the broker will be give a consolidated amount of margin at the day end, irrespective of number of future contracts invelved in day's transaction. In such a case it will be difficult to maintain the tract of each contract at the entry level(ABC-futures A/c). If is required to be done than ob every days settlement price for every future contract shall be maintained (receive / pay and net receivable or payable)?

CA RAMESH KUMAR AHUJA

CA RAMESH KUMAR AHUJA (Expert)
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17 July 2008 Ist Query; Yes u can route through Margin A/c.

2nd Query: Need not maintain it contract wise.

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