Accounting for commodity future contracts

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

03 October 2011 Dear Members,

we have bought future contract for Silver @ 100 kg.now we have to pay 10 lacs for margin.but for get rid from daily mark to margin payment hurdle we have paid 15 lacs margin.so please :
1) Suggest accounting treatment for this margin
2) what about daily mark to margin
I have gone through with Guidence note but have little bit confused with mark to margin a/c.in my opinion in this case there is no need to open mark to market margin a/c because we already laid lumpsum amount for this.pl suggest???

Preety Parik

Preety Parik (Expert)
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03 October 2011 In such business, margin money is obtained as a security for performance of contract. If there is a loss and the said amount is not paid by you then the amount of margin is utilised for the arrears. You can show margin money under Deposits with proper title as Margin Money.

Querist : Anonymous

Querist : Anonymous (Querist)

03 October 2011 you mean there is no need to account for daily mark to margin !

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CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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05 October 2011 As per the Guidance note, you r reqd toa ccount for the Mark-to Market margin account on daily basis

The entry in given case will be

Initial Margin - Equity Derivative Instruments
Account' A/c DR 15,00,000
To Bank A/c

CA Pushpendra Gaur

CA Pushpendra Gaur (Expert)
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05 October 2011 Sometimes, the Client may deposit a lumpsum
amount with the Clearing/Trading Member in
respect of margin money instead of paying/receiving
margin money on daily basis. The amount so paid is
in the nature of a deposit and should be debited to an
appropriate account, say, 'Deposit for Margin
Money Account'. The amount of initial margin
received into/paid from such account should be
debited/credited to the 'Deposit for Margin Money
Account' with a corresponding credit/debit to the
'Initial Margin - Equity Derivative Instruments
Account'. At the year-end, any balance in the
'Deposit for Margin Money Account' should be
shown as a deposit under the head 'Current Assets'.