NISM Series VIII: Equity Derivatives | Chapter 9 MCQs | 31 Solved Accounting & Tax Questions

Chapter 9: Accounting & Taxation - 31 Solved MCQs

📑 TAX & AUDIT FOCUS:

This chapter focuses on journal entries and STT rates. Remember the Prudence Principle: Account for losses immediately, but ignore anticipated profits. Click to reveal the logic!

1. According to AS-11, how should premium/discount on a hedging forward contract be treated?

A) Recognized immediately in P&L
B) Amortized over the life of the contract
C) Deferred until settlement
D) Ignored for accounting

View Answer & Logic

Answer: B) Amortized over the life of the contract

2. In a hedging forward contract, how is the exchange difference recognized?

A) Deferred to Balance Sheet
B) Recognized in the P&L of the year
C) Amortized over the life of the contract
D) Ignored

View Answer & Logic

Answer: B) Recognized in the Profit & Loss statement of the year

3. For speculation forward contracts, how are year-end gains/losses determined?

A) Difference between contract and spot rate
B) Difference between spot rates at initiation and year-end
C) Difference between contract rate and prev year rate
D) Difference between contract rate and year-end forward rate for remaining maturity

View Answer & Logic

Answer: D) Difference between forward rate as per contract and forward rate at year-end for the remaining maturity period

4. Initial margin paid for entering a futures contract should be:

A) Debited to "Initial Margin - Equity Index/Stock Futures Account"
B) Recorded as an expense in P&L
C) Recorded as a liability in Balance Sheet
D) Credited to bank account

View Answer & Logic

Answer: A) Debited to "Initial Margin - Equity Index/Equity Stock Futures Account"

5. If a client provides bank guarantees instead of cash margin, how is it handled?

A) Recorded as a liability
B) Recorded as an asset
C) No disclosure needed
D) Disclosed in the notes to financial statements

View Answer & Logic

Answer: D) Disclosed in the notes to the financial statements

6. Payments made/received due to daily settlement are debited/credited to:

A) Deposit for MTM Margin Account
B) MTM Margin - Equity Index/Stock Futures Account
C) Balance Sheet Asset side
D) Initial Margin Account

View Answer & Logic

Answer: B) Mark-to-Market Margin - Equity Index/Equity Stock Futures Account

7. Provision for loss on futures outstanding at balance sheet date is created by:

A) Debiting P&L account
B) Crediting P&L account
C) Debiting MTM account
D) Crediting Initial Margin account

View Answer & Logic

Answer: A) By debiting the Profit & Loss account

8. A credit balance (anticipated profit) in MTM account should be recognized in P&L. True or False?

View Answer & Logic

Answer: False

Explanation: Per the principle of Prudence, anticipated profits are ignored and not credited to P&L.

9. Journal entry for a loss on final settlement of an equity futures contract?

A) Debit Bank, Credit Margin
B) Credit P&L, Debit MTM
C) Debit MTM, Credit P&L
D) Debit P&L, Credit MTM Margin Account

View Answer & Logic

Answer: D) Debit to "Profit & Loss Account" and credit to "Mark-to-Market Margin Account"

10. At balance sheet date, MTM margin account balance is shown under "Non-Current Assets". True or False?

View Answer & Logic

Answer: False

Explanation: It is shown under "Current Assets" as it is related to trading positions.

11. Which account should an option seller debit for initial margin paid?

A) Bank Account
B) Equity Index/Stock Option Margin Account
C) Premium Account
D) P&L Account

View Answer & Logic

Answer: B) Equity Index/Stock Option Margin Account

12. Opening balance in "Provision for Loss on Options" should be Adjusted against current year provision. True or False?

View Answer & Logic

Answer: True

13. In the buyer's balance sheet, where is the Option Premium Account shown?

A) Current Assets
B) Fixed Assets
C) Current Liabilities
D) Non-Current Liabilities

View Answer & Logic

Answer: A) Current Assets

14. Excess market premium over premium paid is recognized in buyer accounts. True or False?

View Answer & Logic

Answer: False

Explanation: Per prudence, we don't recognize mark-to-market gains on options bought until they are closed.

15. Profit/Loss on multiple options of same stock/strike/expiry uses:

A) LIFO method
B) Specific Identification
C) FIFO method
D) Weighted average method

View Answer & Logic

Answer: D) Weighted average method

16. Margin paid by seller is released when an option gets exercised. True or False?

View Answer & Logic

Answer: True

17. On exercise, the buyer recognizes favorable price difference as a loss. True or False?

View Answer & Logic

Answer: False

Explanation: A favorable difference is recorded as income.

18. In seller's books, premium received is recognized as:

A) Income
B) Expense
C) Liability
D) Asset

View Answer & Logic

Answer: A) As an income

19. Option expiring unexercised follows accounting similar to:

A) Delivery settled options
B) Cash-settled options
C) Equity stock options
D) Index options

View Answer & Logic

Answer: B) Cash-settled options

20. Accounting policies for options MUST be disclosed by the enterprise. True or False?

View Answer & Logic

Answer: True

21. STT for delivery-based equity transactions is:

A) 0.0625%
B) 0.0125%
C) 0.125%
D) 0.1%

View Answer & Logic

Answer: D) 0.1%

Note: This is payable by both buyer and seller in cash segment.

22. How many years can derivative losses be carried forward?

A) 10 years
B) 8 years
C) Indefinitely
D) 5 years

View Answer & Logic

Answer: B) 8 assessment years

23. Presumptive tax rate (Section 44AD) for derivative trading gains?

A) 8%
B) 7%
C) 5%
D) 6%

View Answer & Logic

Answer: D) 6% of the turnover

24. Entity responsible for remitting STT to the government?

A) Investor
B) Clearing member
C) Recognized stock exchange
D) Broker

View Answer & Logic

Answer: C) Recognized stock exchange

25. Value of taxable transaction for an EXERCISED option?

A) Exercise price
B) Market price
C) Option premium
D) Settlement price

View Answer & Logic

Answer: D) Settlement price

26. STT is applicable on BOTH buy and sell for futures. True or False?

View Answer & Logic

Answer: False

Explanation: In derivatives, STT is typically charged only on the sale side (sell transactions).

27. STT paid on derivative trades is deductible under Income Tax. True or False?

View Answer & Logic

Answer: True

28. Derivative trading gains are taxed under which head?

A) Capital Gains
B) Profits and Gains from Business or Profession (PGBP)
C) Other Sources
D) Salary

View Answer & Logic

Answer: B) Profits and Gains from Business or Profession (Ordinary Business Income)

29. For FPIs, gains from derivative trading are taxed as:

A) Business Income
B) Capital Gains
C) Dividend Income
D) Speculative Income

View Answer & Logic

Answer: B) Capital Gains

30. STT on sale of an option in securities (older rate)?

A) 0.0125%
B) 0.0625%
C) 0.125%
D) 0.1%

View Answer & Logic

Answer: B) 0.0625% (on premium)

31. To carry forward derivative losses, the ITR must be filed:

A) Before expiry of year
B) On or before due date
C) Any time within 8 years
D) Only if auditor approves

View Answer & Logic

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Dhaval Visariya

AMFI Registered Distributor (ARN-327925) | Software Developer & Finance Enthusiast

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