Nism Series 8 | Chapter 9: Accounting And Taxation Part-1 | NISM Certification | NISM Exam |

Accounting-----
Accounting for Forward Contract as per Accounting Standard - 11
When forward contract is for hedging---
• The premium or discount (i.e., difference between the value at spot rate and
forward rate) should be amortized over the life of contract.
• Exchange difference (difference between the value of settlement date/ reporting
date and value at previous reporting date/ inception of the contract) is recognized
in Profit & Loss statement of the year.
• Profit/ loss on cancellation/ renewal of forward contract are recognized in P&L of
the year.
When forward contract is for trading / speculation---------------
• No premium or discount is recognized.
• A gain or loss i.e., the difference between the forward rate as per contract/
previous year end valuation rate and the forward rate available at the yearend
(reporting date) for remaining maturity period should be recognized in the P&L of
the period.
• Profit/ loss on cancellation / renewal of forward contract are recognized in P&L of
the year.
Accounting of Equity index and Equity stock futures in the books of the client --------
The Institute of Chartered Accountants of India (ICAI) has issued guidance notes on
accounting of index futures contracts from the view point of parties who enter into such
futures contracts as buyers or sellers. For other parties involved in the trading process,
like brokers, trading members, clearing members and clearing corporations, a trade in
equity index futures is similar to a trade in, say shares, and does not pose any peculiar
accounting problems. Hence in this section we shall largely focus on the accounting
treatment of equity index futures in the books of the client.
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