<html> <head> <title>Rule 20:06:19:05 Accounting procedures for the purchase of call and put options.</title> <META NAME="Keywords" Content="Administrative Rules 20:06:19:05"> <META NAME="Description" Content="Administrative Rules 20:06:19:05 Accounting procedures for the purchase of call and put options."> <meta name=Generator content="Microsoft Office HTML Filter 2.0"> <meta http-equiv=Content-Type content="text/html; charset=windows-1252"> <meta name=Originator content="Microsoft Word 10"> <style> <!-- --> </style> </head> <body lang=EN-US> <div> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>20:06:19:05.&nbsp;&nbsp;Accounting procedures for the purchase of call and put options.</b> Accounting procedures for the purchase of call and put options must be in accordance with the following principles:</p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (1)&nbsp;&nbsp;Payment for call or put options will be recognized as a deferred asset;</p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (2)&nbsp;&nbsp;Treat call or put options not exercised prior to expiration as a sale of the option on the expiration date and recognize the loss as a capital loss;</p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (3)&nbsp;&nbsp;If a call option is exercised, add the consideration paid for it to the purchase price paid for the underlying securities and treat it as a capital expenditure;</p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (4)&nbsp;&nbsp;If a put option is exercised, deduct the consideration paid for it from the price received for the underlying security and treat it as reduction of proceeds;</p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (5)&nbsp;&nbsp;If a call or put option is terminated through a closing sale transaction, treat the difference between the consideration paid for the purchase of the call or put option and the consideration received for the closing sale transaction as a capital gain or loss.</p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Source:</b> 13 SDR 75, effective December 21, 1986.</p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>General Authority:</b> SDCL <A HREF="/statutes/DisplayStatute.aspx?Type=Statute&Statute=58-4-1">58-4-1</A>, <A HREF="/statutes/DisplayStatute.aspx?Type=Statute&Statute=58-27-7">58-27-7.</A></p> <p>&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; <b>Law Implemented:</b> SDCL <A HREF="/statutes/DisplayStatute.aspx?Type=Statute&Statute=58-27-7">58-27-7.</A></p> </div> </body> </html>