CA KAMAL GARG

Nevertheless, derivative instruments give a lot of options, and flexibility to the businesses. A decision gone right or gone wrong can turn the fortunes of the firms and sometimes the industry. Traders have to be on their toes and, each second counts. Opportunities are unlimited; the returns are high, and a lot is at stake. But all this come, with a warning – “Handle with Care”. Irrespective of the traditional use of derivatives as instruments for hedging risk , they have been historically used by traders to speculate and gamble in pursuit of windfall gains .  Traders in lure of big money take positions which are out of their authority and control. The MONEY at stake is sometimes so huge that a derivative decision gone wrong WIPES OUT the complete company and spoils the hard reputation earned by the firm IN SECONDS .  There are numerous instances of huge losses from derivatives trading but there are a few cases in the derivatives history which stand out.  Let’s look at some of the bigg

Real vs Financial Options Financial options are on assets such as stocks that are traded in markets.  Real options are options on some underlying that are not traded in any market. Example of real options include valuation of a company, deciding to invest in R&D project, valuing natural resource options. Option to delay an investment opportunity Growth Option - Valuing the growth potential of a firm Growth Option – Option to expand a business Valuing Natural Resource Options Option to Delay an Investment Opportunity Investment To open a restaurant in your city as part of a major chain, which can be opened immediately or after 1 year. If you do neither, you lose the right. Cost of opening the restaurant is $5 million now or after 1 year. If you open now, you will get free cash flow (FCF) of $600,000 which will grow @2% p.a. Cost of capital is 12%. After 1 year, cost of opening is still $5 million. The risk-free interest rate is 5%. The volatility of the value of the restaurant as ob

Definition of Derivatives Derivative is a product  whose value is derived  from the value of one or more variables, called underlying.  The underlying asset can be equity, index, foreign exchange (forex), bonds, commodity, precious metals or any other asset.  Derivative products initially emerged as hedging devices against fluctuations in commodity prices and commodity derivatives remained the sole form of such products for almost three hundred years.  The financial derivatives came into spotlight in post-1970 period due to growing instability in the financial markets. However, since their emergence, these products have become very popular and by 1990s, they accounted for approx 66% of total transactions in derivative products.  Types of Derivatives Four most common examples of derivative instruments are Forwards, Futures, Options and Swaps. Forwards Futures Options Swaps Long and Short Positions Long and short positions are used to denote buying and selling respectively.  Long posit

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Forward Contracts Forward contract is an over-the-counter (OTC) contract between two parties  to exchange  agreed quantity of an asset*  for cash  at a certain date in future  at a predetermined price, specified in that agreement.  *Asset may be currency, commodity, instrument, etc. OTC contracts involve only the buyer and the seller. Both the parties have to perform the contract. There is no payment of any initial margin. The maturity and size of the contract may be customized. Settlement takes place only on the date of maturity. Credit or counter party risk is high. Markets for forward contracts are not very liquid. Physical delivery takes place on the maturity date. Some major forward contracts traded in India are: a) Currency Forward One of the most popular examples of a forward market in India is the Dollar Forward Market. In a dollar-forward contract; importers, exporters and foreign currency borrowers hedge their risk. An importer and foreign currency borrower having dollar paya

  The tax-saving season is around the corner.  Everyone who is liable to pay taxes is seeking investment products  that will allow them to save part of their hard-earned money.  And we are certain that all of you must be looking for tax-saving opportunities as well.  Why you should save taxes with Equity Linked Savings Scheme (ELSS)? Potential to provide Returns over 12%p.a. Dual Benefits- Tax saving and Wealth creation The shortest Lock-in-period of all section 80C options i.e. 3 years Hence we encourage you to invest in ELSS Mutual Funds through our mutual fund platform.  Under Section 80C of the Income Tax Act 1961,  the investment into an ELSS fund qualifies as a deduction.  You can claim a deduction of up to INR 1.5 Lakhs from your taxable income.  Hence, if you invest an equivalent amount in the fund, you can save up to Rs. 46,800/- in taxes every year.

Case 1:  It was observed that the accounting policies were disclosed as: -"Intangible assets are recognized and accounted at cost in accordance with Accounting Standard 26 Intangible Assets" - "Deferred Tax Asset/Lability has been provided for in the books of accounts as per AS-22" Ans:   Merely quoting Accounting Standard does not constitute Full disclosure of relevant policies.  Accounting policies should be more explicit to help the readers to understand the Financial statements.  Paragraph 11 of AS 1 describes the meaning of accounting policy as follows: The accounting policies refer to  the specific accounting principles and the methods of applying those principles adopted by the enterprise  in the preparation and presentation of financial statements Case 2: The abstract of the accounting policy adopted to determine the cost of inventories read as follows:  " Work in Process at raw material cost ."  Question: Whether the above accounting policy is ten

What is PMFME Scheme?  Pradhan Mantri Formalisation of Micro food processing Enterprises (PMFME) Scheme was launched under the Aatmanirbhar Bharat Abhiyan,  The Pradhan Mantri Formalisation of Micro food processing Enterprises (PMFME) Scheme is a centrally sponsored scheme that aims  to enhance the competitiveness of existing individual micro-enterprises in the unorganized segment of the food processing industry and  to promote formalization of the sector and  provide support to Farmer Producer Organizations, Self Help Groups, and Producers Cooperatives along their entire value chain.  the scheme envisions to directly assist the 2,00,000 micro food processing units for providing financial, technical, and business support for up-gradation of existing micro food processing enterprises.    The Ministry of Food Processing Industries aims to encourage the micro food processing enterprises (MFPEs) across the country about the vision, efforts, and initiatives of the Government to formalis

It is important that we understand the need for a statutory audit to be carried out.  In case of a company, the owners of the company are the shareholders. However, they do not run or manage the day to day affairs of the company. This is done by the board of directors and the management of the company. The shareholders cannot vouch or verify each transaction of the books of accounts. They only have right for obtaining financial statements.  Thus, they need the financial statement should be reliable & free from misstatements.  Therefore, the shareholders needs assurance that the accounts maintained and published by the company are authentic and genuine.  Therefore, the law requires that an independent auditor to conduct a statutory audit.  The shareholders in the Annual General Meeting (AGM) of the company, appoint a person as statutory auditor.   The independent auditor has full authority to check the financial records of the company and publish his findings via an auditor’s r