Unit study guide · NISM Series XIII
Accounting and Taxation of Derivatives
6 questions in this unit
What this unit covers
- What does fair-value measurement of an outstanding derivative aim to reflect?
- What is an unrealized gain on an open derivative position?
- A long derivative is initially valued at ₹10 per unit and later at ₹14. What is its unrealized gain per unit?
- Under the Income-tax Act, 2025, how are qualifying exchange-traded securities-derivative transactions generally classified?
- Which record is specifically relevant to the Income-tax Act's eligible exchange-derivatives transaction conditions?
- A company holds 200 long futures units at ₹120. The reporting-date settlement is ₹114. Before other adjustments, what mark-to-market result is recognized?
Key ideas
From the practice bank · 1
What does fair-value measurement of an outstanding derivative aim to reflect?
Fair-value measurement aims to reflect the derivative's value at the relevant reporting date under applicable accounting standards. Remember: Derivative values can change before closeout.
Hint Common mistake: Do not freeze an open contract at its entry price. Focus on valuation at a reporting date.
XIII-140From the practice bank · 2
What is an unrealized gain on an open derivative position?
An unrealized gain is an increase in a position's value before final realization, subject to accounting treatment. Remember: Open positions can show unrealized gains or losses.
Hint Common mistake: Accounting recognition can occur before cash realization. Think about gains that exist on paper before closing.
XIII-141From the practice bank · 3
A long derivative is initially valued at ₹10 per unit and later at ₹14. What is its unrealized gain per unit?
Unrealized gain = ₹14 − ₹10 = ₹4 per unit, before accounting adjustments and costs. Remember: Fair-value movement compares two measurement dates.
Hint Common mistake: Do not mistake current position value for profit. Compare current value with the earlier carrying value.
XIII-142From the practice bank · 4
Under the Income-tax Act, 2025, how are qualifying exchange-traded securities-derivative transactions generally classified?
Section 66(31), read with section 66(33) of the Income-tax Act, 2025, excludes qualifying specified derivative transactions from speculative transactions. Remember: Tax classification depends on statutory eligibility criteria.
Hint Common mistake: Non-speculative does not mean tax-free. Look for the statutory exception for eligible exchange transactions.
XIII-143From the practice bank · 5
Which record is specifically relevant to the Income-tax Act's eligible exchange-derivatives transaction conditions?
The statutory eligible-transaction conditions refer to time-stamped contract-note evidence with prescribed details. Remember: Proper contract notes matter for transaction evidence.
Hint Common mistake: Do not substitute a profit screenshot for required records. Think about verifiable evidence of a regulated exchange trade.
XIII-144From the practice bank · 6
A company holds 200 long futures units at ₹120. The reporting-date settlement is ₹114. Before other adjustments, what mark-to-market result is recognized?
Change = ₹114 − ₹120 = −₹6 per unit. For 200 units, = −₹1,200. Remember: Mark-to-market can recognize a reporting-date loss.
Hint Common mistake: Notional contract value is not the accounting gain or loss. Measure the signed change in a long futures position.
XIII-145Margin is the money a participant must keep in place to carry a leveraged position.
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