journal entry

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Rajesh274 (Querist)
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03 July 2010 dear all...
what will be journal entry at the time of 1)initial margin 2)mark-to-margin 3)final settlement...
what will be heads of accounts in the above mentioned case.

Ashok Malhotra

Ashok Malhotra (Expert)
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05 July 2010 Dear Rajesh

I believe you are refering to Initial Margin, Mark to Market, Maintenance Margin & Final Settlement.

There could be two situations:

1. Margins can in Cash or cheque

2. Margins can be given in the form of securities.

However in stock market transactions normally serial number one above is prevelant.

You canmaintain two different accounts if the volume of transactions are very large namely a) Initial Margin in F & O Market A/C & b) Maintenance Margin Account. Normally there could be two deifferent percentages for initial as well as for maitenance margins.

Once the percentage of exposure is less than the maitenance margin, margin calls are initiated by the brokers and Stock exchange.

Transactions / exposure in the capital markets can be initiated with initial margin.

Dr. Initial Margin Account
Cr. Cash or Bank with same ammount

Thereafter margin call will be made based on the price movement of your exposure.

If the movement is favourable, you will be marked to market and you will get credit for the same in your "Maintenance Margin Account"

Dr. Cash or Bank
Cr. Maintenance Margin Account

If the movement of the market is unfavourable and the margin level has dropped below maintenance margin percentage, Margin call will be made and you have to deposit cash or cheque for the short fall

Dr. Maintenance Margin Account
Cr. Cash or Debit

This pricess will be repeated till you exit from the matket for that particilar exposure. Once you decided to exit the market.

The differential Sale and purchase price will be adjusted in the margin.

CA Ashok K Malhotra