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A query in f & o

krina (student) (1263 Points)

22 September 2013

Hello Everyone..

Can someone please tell me the how is the turnover Limit decided in case of a person doing speculation in F & O (Futures & Options) ..

Also if Possible, please tell me the accounting of the same..

Thanks a lot in advance..

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Deepak Gupta (CA Student) (15922 Points)
Replied 22 September 2013

The turnover in such types of transactions is to be determined as follows:
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(i) The total of favourable and unfavourable differences shall be taken as turnover.
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(ii) Premium received on sale of options is also to be included in turnover.
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(iii) In respect of any reverse trades entered, the difference thereon, should also form part of the turnover..
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Refer Para 5.12(b) of Guidance Note on Tax Audit (2013)

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krina (student) (1263 Points)
Replied 24 September 2013

Thanks for the reply but could you please clarify as to what is favorable & un favorable in this context.

Thanks in advance ..;-)

Deepak Gupta (CA Student) (15922 Points)
Replied 24 September 2013

In speculative transactions, contract is settled without delivery. The contract notes are issued for the full value of the asset purchased or sold but entries in the books of account are made only for the differences. Accordingly, the aggregate of both positive and negative differences is to be considered as the turnover of such transactions.

Illustration:

(a) Mr. X offered to purchase 5000 shares of Reliance Ltd at a cost of Rs. 1000 each and also offered to sell 5000 shares of Reliance Ltd. at a cost of Rs. 1100 each.
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(b) He also offered to purchase 1000 shares of L&T at a cost of Rs. 3000 each and also offered to sell 1000 shares of L&T at a cost of Rs. 2800 each.
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Thus, the turnover of Mr. X will be calculated as under:
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(i) Turnover in (a) above, Rs. 5500000- 5000000 = Rs. 500000
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(ii) Turnover in (b) above, Rs. 2800000- 3000000 = Rs. (200000)
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Thus, the net turnover of Mr X. would be (i) + (ii) = Rs. 700000