Accounting and Taxation
8 questions. Each answer is explained.
Question 1 of 8Practice · Series XVI — Commodity Derivatives
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Learn these topics
More units in NISM Series XVI
- Introduction to Commodity Markets15
- Commodity Futures22
- Commodity Options22
- Commodity Indices12
- Uses of Commodity Derivatives23
- Trading Mechanism13
- Clearing Settlement and Risk Management of Commodity Derivatives20
- Legal & Regulatory Environment of Commodity Derivatives8
- Code of Conduct and Investor Protection Measures7
Exam format
| Questions | 100 · 1 mark each |
|---|---|
| Duration | 120 min · 2 hours |
| Pass mark | 60% · 60 of 100 marks |
| Negative marking | 25% · 0.25 marks off per wrong answer |
| Certificate validity | 3 years · from the date of the examination |
| Marks for this unit | Not published by NISM |
NISM Series XVI Commodity Derivatives
Exam rules read on NISM's site on 3 October 2026. Check the current rules on NISM's site (opens in a new tab)
What these answers assume, and when it was last checked
Each question uses the rules listed below. We last checked them on 5 September 2026. A Budget or SEBI circular can change a rate, lot size or expiry day. If a rule changes before your exam, treat the linked questions as out of date and check NISM's current workbook.
- NSE uses Tuesday expiry and BSE uses Thursday expiry. This applies from 1 September 2025.
- The January 2026 index lot sizes are NIFTY 65, BANKNIFTY 30, FINNIFTY 60, MIDCPNIFTY 120 and NIFTYNXT50 25.
- The October 2024 SEBI framework sets a minimum index contract value of Rs 15–20 lakh. Each exchange may list one weekly benchmark index.
- Option buyers pay the premium upfront from 1 February 2025. A short index option has an extra 2% Extreme Loss Margin on expiry day from 20 November 2024.
- Equity short-term capital gains are taxed at 20%. Long-term gains are taxed at 12.5% above Rs 1.25 lakh. Both rates apply from 23 July 2024.
- F&O income is non-speculative business income in ITR-3. NSE equity derivatives trade from 9:15 a.m. to 3:40 p.m.
- The final ten-minute session began on 3 August 2026. It aligns with the cash market Closing Auction Session.
- Most Securities Transaction Tax questions test the base and who pays. On an option sale, it is the premium and the seller pays. On a futures sale, it is the traded value and the seller pays.
- On exercise, Securities Transaction Tax uses intrinsic value: settlement price minus strike price. The buyer pays it.
- Two questions test the current rate. From 1 April 2026, option sales carry 0.15% on the premium and futures sales carry 0.05% on traded price. The earlier rates were 0.10% and 0.02% from 1 October 2024.
- This section uses the T+1 rolling settlement cycle. Obligations are fixed on T+1. A short delivery goes to buy-in auction on T+1 and settles on T+2.
- The trade-for-trade surveillance segment uses direct close-out. Funds pay in by 10:30 a.m. and pay out on or after 1:30 p.m. on settlement day.
- Securities pay in to the settlement pool by 10:30 a.m. They pay out directly to the client’s demat account by 3:30 p.m.
- The 3:30 p.m. deadline replaced 1:30 p.m. under SEBI’s 10 October 2024 circular. Direct client credit was required by SEBI’s 5 June 2024 circular.
- The optional T+0 cycle trades until 1:30 p.m. Obligations are fixed by 2:30 p.m. on the trade day. An early pay-in shortage is closed out directly.
- Cash-market Value at Risk margin is six times exponentially weighted moving-average volatility. It has a 9% floor for Group I, a 21.5% floor for Group II, and a fixed 50% or 75% level for Group III.
- Extreme Loss Margin is 3.5% for a share and 2% for a broad-market-index exchange traded fund. Mark-to-market margin is collected before the next day’s trading. The trade-for-trade segment has 100% upfront margin.
- Close-out uses the higher of the highest price from trade day to auction day and 20% above the auction day’s official close.
- A funds shortage costs 0.07% a day. The trading facility is withdrawn at a shortage of Rs 5 lakh or more.
- SCORES allows 21 calendar days, then two 15-day review levels. Online Dispute Resolution moves from conciliation to arbitration after the market participant and SCORES steps.
- At NSE, the Investor Protection Fund limit is Rs 35 lakh per investor for each defaulting or expelled member. This applies to claims arising after 13 August 2024.
- A Basic Services Demat Account has no annual maintenance charge up to Rs 4 lakh of holdings. It costs up to Rs 100 above that, until the Rs 10 lakh eligibility ceiling. These slabs apply from 1 September 2024.
- The rupee pairs are USD-INR, EUR-INR, GBP-INR and JPY-INR. The cross-currency pairs are EUR-USD, GBP-USD and USD-JPY.
- Each contract covers 1,000 units of the foreign currency, except JPY-INR. JPY-INR covers 100,000 yen and is quoted in rupees per 100 yen.
- The tick is 0.25 paise, or Rs 0.0025. It equals Rs 2.50 a contract.
- Rupee pairs trade from 9:00 a.m. to 5:00 p.m. A monthly contract stops trading at 12:30 p.m. two working days before the expiry month’s last business day.
- Final settlement is in cash at the FBIL reference rate on expiry day. FBIL, Financial Benchmarks India, has published this rate in place of the Reserve Bank since 2018. Premium-style European options are quoted in rupees. The buyer pays the premium in cash on T+1.
- Daily settlement is on T+1 and final settlement is on T+2.
- NSE Clearing circular 026/2020 sets SPAN margin plus Extreme Loss Margin. The futures margin is 0.50% for USD-INR, 0.15% for EUR-INR, 0.25% for GBP-INR and 0.35% for JPY-INR. A short option has 0.75%. These figures apply from 1 June 2020.
- A USD-INR client may hold 6% of total open interest or USD 20 million, whichever is higher. A trading member may hold 15% or USD 100 million.
- A resident user has one USD 100 million equivalent limit across all rupee pairs and exchanges. No document is needed below that limit, but a valid underlying contracted exposure must still exist. This clarification applies from 3 May 2024.
- The currency segment has no Securities Transaction Tax.
The exam figures (questions, time, pass mark, negative marking and certificate validity) come from NISM's own pages, read on 3 October 2026. Timed practice uses the same figures. Study with the official workbook as well.
The written-out answers on this page are hidden while your timed set runs.
All 8 questions on Accounting and Taxation, with answers
Q1An entity applying Ind AS 109 buys a commodity option for ₹12 per unit covering 2,000 units. The premium equals its initial fair value. There are no transaction costs. What is the initial derivative asset recognised?
Option A. ₹24,000 — Correct answer
Option B. ₹0 until the option is exercised
Why it is wrong: It assumes no asset can exist until exercise, despite the purchased option’s stated fair value.
Option C. ₹12
Why it is wrong: It records only one unit’s premium.
Option D. ₹2,000
Why it is wrong: It mistakes the covered physical quantity for a monetary asset value.
Answer: A. A purchased derivative is initially recognised at its fair value, not at the underlying commodity’s full notional value. Total premium paid = ₹12 per unit × 2,000 units = ₹24,000. The question states that this amount equals initial fair value and that transaction costs are absent. The initial derivative asset is therefore ₹24,000. This does not represent physical inventory ownership. Remember: Convert per-unit option quotes to total fair value before recording the derivative.
Hint, shown before you answer in practice mode: Common mistake: Treating an option’s underlying quantity as its carrying value, or deferring all recognition until exercise.
XVI-064mediumnumerical
Q2A written commodity option is accounted for at fair value through profit or loss and is not in a hedge-accounting relationship. Its opening liability is ₹12,000 and its closing liability is ₹9,000. There are no settlements or other changes. What is the remeasurement result?
Option A. ₹3,000 gain — Correct answer
Option B. ₹3,000 loss
Why it is wrong: It treats the liability as though it were an asset whose value declined.
Option C. ₹9,000 gain
Why it is wrong: It reports the closing balance as a period gain.
Option D. ₹21,000 loss
Why it is wrong: It adds opening and closing balances instead of finding the change.
Answer: A. A decrease in the fair value of a derivative liability produces a gain under the stated profit-or-loss measurement basis. The liability decreases from ₹12,000 to ₹9,000, a decrease of ₹3,000. Under the given fair-value-through-profit-or-loss basis, this reduction is a ₹3,000 gain. The full closing liability is not itself the period’s profit, and the two balances are not added together. Remember: For a liability, distinguish a decrease in carrying value from a loss in asset value.
Hint, shown before you answer in practice mode: Common mistake: Applying the asset-value sign convention to a written option liability.
XVI-065mediumnumerical
Q3A company buys commodity futures to offset a forecast input purchase. It claims hedge accounting is automatic because management calls the position a hedge. Which additional matter is required under Ind AS 109’s qualifying criteria?
Option A. Only a favourable gain on the futures at the reporting date, proving the hedge worked.
Why it is wrong: A gain is an outcome, not proof that the relationship met inception and other qualifying conditions.
Option B. Only a verbal statement from management that it expects input prices to rise.
Why it is wrong: A verbal expectation is not the required documented designation.
Option C. Formal designation and documentation at inception, plus the other qualifying criteria. — Correct answer
Option D. Only the use of an exchange-traded futures contract rather than a bilateral forward contract.
Why it is wrong: Trading venue alone does not establish a qualifying accounting relationship.
Answer: C. An economic risk-management purpose does not by itself satisfy the accounting conditions for hedge accounting. Ind AS 109 paragraph 6.4.1 includes formal designation and documentation at inception of the hedge relationship. Other qualifying conditions also apply, including eligibility and the required effectiveness relationship. A profit, an intention or exchange trading alone does not establish all those conditions. Remember: Separate the commercial purpose of hedging from eligibility for hedge accounting.
Hint, shown before you answer in practice mode: Common mistake: Assuming any derivative used to reduce business risk automatically qualifies for special accounting.
XVI-066mediumconceptual
Q4In a qualifying cash flow hedge under Ind AS 109, the cumulative hedging-instrument gain is ₹95,000 and the cumulative adverse change in the hedged item’s expected cash flows, measured for the effectiveness test, is ₹85,000. The reserve starts at zero. What amounts are recognised in the cash flow hedge reserve and profit or loss, respectively?
Option A. ₹95,000 gain in reserve and no profit-or-loss amount
Why it is wrong: It puts the entire instrument gain into the reserve despite the lower effective amount.
Option B. ₹10,000 gain in reserve and ₹85,000 gain in profit or loss
Why it is wrong: It reverses the effective and ineffective portions.
Option C. ₹85,000 gain in reserve and ₹10,000 loss in profit or loss
Why it is wrong: The excess is part of a gain. It is not a ₹10,000 loss.
Option D. ₹85,000 gain in reserve and ₹10,000 gain in profit or loss — Correct answer
Answer: D. For the stated qualifying cash flow hedge, the effective accumulated portion is limited using the lower absolute cumulative amount, with remaining ineffectiveness in profit or loss. Lower absolute amount = min(₹95,000, ₹85,000) = ₹85,000. This effective part of the instrument’s gain enters the cash flow hedge reserve through other comprehensive income. The remaining instrument gain is ₹95,000 − ₹85,000 = ₹10,000 and is recognised in profit or loss as ineffectiveness. ₹85,000 + ₹10,000 reconciles to the full ₹95,000 derivative gain. Remember: Preserve both the lower-amount limit and the sign when splitting a qualifying cash flow hedge result.
Hint, shown before you answer in practice mode: Common mistake: Sending all derivative gains to the reserve or treating every ineffective amount as a loss.
XVI-067hardnumerical
Q5A qualifying forecast commodity purchase results in inventory initially priced at ₹5,00,000. A ₹20,000 accumulated gain in the cash flow hedge reserve relates entirely to that purchase. Applying Ind AS 109 paragraph 6.5.11(d)(i), what is the inventory’s initial cost after the hedge basis adjustment? Ignore all other items.
Option A. ₹5,20,000
Why it is wrong: It adds a gain to cost as though the reserve represented a hedging loss.
Option B. ₹4,80,000 — Correct answer
Option C. ₹5,00,000
Why it is wrong: It omits the specified basis adjustment.
Option D. ₹20,000
Why it is wrong: It records only the adjustment and ignores the underlying purchase.
Answer: B. When the specified qualifying hedge results in a non-financial asset, the related reserve amount is included in that asset’s initial cost rather than left as an unrelated balance. The commodity purchase gives an unadjusted inventory cost of ₹5,00,000. The accumulated hedge gain offsets ₹20,000 of that purchase cost. Adjusted initial cost = ₹5,00,000 − ₹20,000 = ₹4,80,000. An accumulated hedge loss would have the opposite sign under the same basis-adjustment mechanism. Remember: Track the sign of the hedge reserve when it is included in a purchased non-financial asset’s cost.
Hint, shown before you answer in practice mode: Common mistake: Treating removal from the hedge reserve as necessarily an immediate profit-or-loss gain.
XVI-140hardnumerical
Q6A commodity derivative measured through profit or loss changes from a ₹15,000 asset at the previous reporting date to an ₹8,000 liability at this reporting date. No cash flows or other adjustments occur between the dates. What is the period’s fair-value result?
Option A. ₹7,000 loss
Why it is wrong: It subtracts the magnitudes as though both balances were assets.
Option B. ₹7,000 gain
Why it is wrong: It reverses that magnitude-only comparison and still ignores the sign change.
Option C. ₹23,000 gain
Why it is wrong: It obtains the size of the movement but reverses the direction.
Option D. ₹23,000 loss — Correct answer
Answer: D. An asset-to-liability transition crosses zero, so the two positive magnitudes cannot simply be subtracted. Represent the opening asset as +₹15,000 and the closing liability as −₹8,000. Change in value = −₹8,000 − ₹15,000 = −₹23,000. The stated profit-or-loss basis therefore gives a ₹23,000 loss for the period. Remember: Put asset and liability values on a signed scale before calculating the period change.
Hint, shown before you answer in practice mode: Common mistake: Subtracting the two displayed positive carrying amounts without accounting for their different balance-sheet sides.
XVI-141mediumnumerical
Q7For this question only, assume a commodity transaction levy is 0.02% of selling notional, irrespective of trading profit. A sale of 3,000 units occurs at ₹300 per unit and the trade makes a loss. What is the levy? Ignore rounding and every other charge.
Option A. ₹0
Why it is wrong: It replaces the specified transaction base with a profit-based test not given in the question.
Option B. ₹1,800
Why it is wrong: It converts 0.02% as 0.2%, making the charge ten times too large.
Option C. ₹60
Why it is wrong: It applies 0.02 as a number to 3,000 units instead of applying the stated percentage to monetary notional.
Option D. ₹180 — Correct answer
Answer: D. A transaction-based charge uses its specified transaction base, which need not be the investor’s profit. Selling notional = 3,000 × ₹300 = ₹9,00,000. Convert 0.02% to 0.0002. Levy = ₹9,00,000 × 0.0002 = ₹180. The trading loss does not change the explicitly assumed levy rule. This does not establish a current statutory CTT rate or exemption. Remember: Identify whether a tax or fee is based on transaction value, premium, income or another measure before calculating it.
Hint, shown before you answer in practice mode: Common mistake: Assuming a loss-making trade is automatically exempt from every transaction-based charge.
XVI-142mediumnumerical
Q8For this calculation, brokerage is ₹100 and an exchange service charge is ₹50. Assume GST is 18% on exactly these two charges. A separate transaction levy of ₹200 is expressly outside this assumed GST base. What is the total amount of all charges including GST?
Option A. ₹377 — Correct answer
Option B. ₹413
Why it is wrong: It applies 18% to ₹350, wrongly including the separate levy in the GST base.
Option C. ₹350
Why it is wrong: It adds the three pre-GST charges but omits ₹27 GST.
Option D. ₹227
Why it is wrong: It includes the separate levy and GST but omits the two service charges themselves.
Answer: A. A tax calculation must use the specified taxable base without automatically including every separately listed levy. The assumed GST base is ₹100 + ₹50 = ₹150. GST = ₹150 × 18% = ₹27. Total charges = brokerage ₹100 + exchange charge ₹50 + separate levy ₹200 + GST ₹27 = ₹377. The calculation is confined to the supplied base and rates. It does not settle legal GST treatment for a real invoice. Remember: Calculate the tax on its defined base, then reconcile it into the complete invoice.
Hint, shown before you answer in practice mode: Common mistake: Applying a percentage to the final pre-tax bill without checking exclusions from the tax base.
XVI-143mediumnumerical
Accounting and Taxation: common questions
How many practice questions are there on Accounting and Taxation?
8 questions, all written out on this page with the correct answer and why each other option is wrong. This unit is one of the 10 practice topics for NISM Series XVI, which has 150 questions in total.
Are these real NISM Series XVI questions on Accounting and Taxation?
No. LearnNifty wrote every question from NISM's public syllabus. NISM does not publish its question bank, so nobody can offer you the real paper. Use these questions to check that an idea has gone in. Use the official NISM workbook to see what is examined.
Does negative marking apply to NISM Series XVI?
Yes. NISM takes off 25% of a question's marks for a wrong answer. On a 1-mark question that is 0.25 marks off. A blank question earns nothing and loses nothing, so a wrong guess costs marks on this paper. Timed practice here uses the same rule.
Are these practice questions kept up to date?
Each question is written against the rules printed on this page, last checked on 5 September 2026. A Budget or a SEBI circular can change a rate, a lot size or an expiry day. If one of those rules changes before your exam, treat the questions that use it as out of date. Then check NISM's current workbook.
Legal & Regulatory Environment of Commodity Derivatives
8 questions on Legal & Regulatory Environment of Commodity Derivatives. Its quiz opens on that unit.
Open Legal & Regulatory Environment of Commodity Derivatives