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Treatment of Mark to Market Gain in case of Derivatives

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An entity buys an option expiring in one year and pays a premium of Rs. 100 for the same. On the next quarterly reporting date of the entity fair value of the option is Rs. 80 and hence the entity books a loss of Rs. 20 immediately. On the second subsequent quarterly reporting date fair value of the option is Rs. 120. Is the entity allowed to:

a) book the entire gain of Rs. 40 (Rs. 120 - Rs. 80) in the financial statements immediately?

b) book gain of Rs. 20 immediately (Rs. 100 - Rs. 80) i.e. the loss which it had booked in the earlier quarter and ignore the remaining gain of Rs. 20 (Rs. 120 - Rs. 100) to be recognised in future periods?

c) ignore the entire gain of Rs. 40 (Rs. 120 - Rs. 80) to be recognised in the future periods?

Replies (1)

Dear Sir,

there is a separate chapter in the CA final. Pls ask for notes of any CA fianl person for that particular chapter

sunil
 


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