Are you trading in Futures and Options but confused about Turnover calculation?
Futures and options are derivatives, that derive their value from an underlying asset. While the futures is a contract to buy or sell on a future date, the options allow an investor to protect their investment against fluctuating prices.
Turnover basically means the total sales made by a person in a particular time frame. Turnover is calculated to get a brief idea of the business and if turnover exceeds certain threshold limits then a tax audit is also applicable.
Unlike a regular business, Futures, and options are settled by paying the differential amounts without the actual delivery. Therefore the turnover calculation is quite different from the regular calculation.
To calculate the turnover, the difference of the purchase price and the sales price is taken. The negative signs are ignored and you need to sum up all the differences, which is called Absolute Profit and Loss and is also considered the turnover.
Let’s say Mr. Dave is involved in trading in Futures and Options Contracts. He has entered into some transactions. The details of the transactions entered by him are as follows:
Instance 1: Futures Transactions
In the above case, though there is a loss of ₹2,00,000, for the purpose of calculating turnover the negative is ignored and the loss is added to profits.
Instance 2: Options Transactions
In the above case also the negatives of losses are ignored for calculating turnover and are added to profit.
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