Call Options – Summary
- The accounting treatment of call options prima facie will depend upon the intention with which the call options are purchased—hedging or speculation (nonhedging).
- If the position is taken as a hedge against some other position, then the relevant accounting standards for hedge accounting will be applicable and there are certain conditions that are to be fulfilled for the same.
- If the call is purchased purely as a speculative trade, then the premium paid towards purchase of the call option is taken to the expense and the premium received on sale of the options is treated as revenue.
- However, the value of the option is written back on the valuation date and shown as an asset in the case of purchase of call options. In effect, the net result of this method of accounting and the one shown for hedging activity would be the same.