accounting for islamic banks

7/23/2019 accounting for islamic banks

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ACCOUNTING ISSUESON MUSHARAKA

1

01/09/16

Topic 3Spring 2012/2013

Universit Co!!ege o" #$%r$in


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N$t&re o" M&s%$r$'$ (in$ncingN$t&re o" M&s%$r$'$ (in$ncing

N$t&re o" M&s%$r$'$ (in$ncingN$t&re o" M&s%$r$'$ (in$ncing

A partnership between the Islamic bank and its clients

where both parties:

Contribute equal or varyin amounts o! capital to

establish a new pro"ect or share in an e#istin one$Capital can be on permanent or declinin %capital& basis

and will have his due share o! pro!its $ and

'artners share proportionate losses accordin to thecapital contribution and not otherwise

(


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M&s%$r$'$ princip!esM&s%$r$'$ princip!es

M&s%$r$'$ princip!esM&s%$r$'$ princip!es

)

Competent contractingparties

The capital shall be incash, gold, silverorequivalent; realty(goods,real estate

machines); or intangiblerights (patents) orequivalents

The partner does notguarantee anotherpartners capital orfunds except in the caseof negligence oromission

ny exchange or saleto the other partnershould not be athistorical cost but at thefair value at the time ofsale!

"ro#ts can vary $iththe agreement andcapital contribution andto be distributed uponcompletion

%oss to be sharedaccording to capitalcontribution (creditguarantee) and can becarried for$ard or o&set!


4/31

)o&rn$! entries)o&rn$! entries

)o&rn$! entries)o&rn$! entries

*

'r! usharaa *inancingCr! Cash

(Being fnancing or customers / partners)

'r! Cash+ ccount eceivable

Cr! usharaa *inancing

(Being repayment by customers/ partners)

'r! Cash+ ccount eceivable

Cr! "+% ccount ("ro#t)

(Being proft received rom Musharakah fnancing)

'r! "+% ccountCr! usharaa *inancing

(O-setting the loss against capital repayment bycustomer/ partners)


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T*+ES O( MUSHARAKAHT*+ES O( MUSHARAKAH

T*+ES O( MUSHARAKAHT*+ES O( MUSHARAKAH

C+,-.A,. usharakah .he partners share inusharakah capital remains %constant& throuhout

the period

usharaka 2II,I-3I,4 to +wnership +ne party

has the riht to purchase a part o! other party5s

share which declines until one become the sole

proprietor o! all capital %usharaka utanaqisah&


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Acco&nting Tre$t-ent M&s%$r$'$Acco&nting Tre$t-ent M&s%$r$'$

(in$ncing .(AS (in$ncing .(AS

Acco&nting Tre$t-ent M&s%$r$'$Acco&nting Tre$t-ent M&s%$r$'$

(in$ncing .(AS (in$ncing .(AS

7

-C./01T1.0 2-34--0T

4pon receipt or $hendeposited in a

usharaa ccountno$n as 5usharaa*inancing6

C.03T0T 4378

C"1T%The capital at the endof period is measuredbased on historical cost

'11013710/4378 C"1T%

easured at historicalcost after excluding the

sold portion (fair value)is the basis ofmeasurement!

ny di&erencebet$een fair value and

historical cost is thebans pro#t or loss

4".0 T-10T1.0

.utstanding capitalbecomes receivable!


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Recognition o" C$pit$!Recognition o" C$pit$!Recognition o" C$pit$!Recognition o" C$pit$!

8ank Capital in usharaka shall be reconied

when :

hen 'aid to partner

+r

hen ade available to him


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+resent$tion+resent$tion+resent$tion+resent$tion

8ank capital in usharaka shall be presented as

!ollows:

In books o! A/Cs as ;usharaka

with name o! partner

In !inancial statements under ;usharaka:


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Me$s&re-ent o" C$pit$! $t ti-e o"Me$s&re-ent o" C$pit$! $t ti-e o"

Contr$ctingContr$cting

Me$s&re-ent o" C$pit$! $t ti-e o"Me$s&re-ent o" C$pit$! $t ti-e o"

Contr$ctingContr$cting

easured by ;Amount Paid; i! paid in cash

easured by Fair Value of Assets> i! provided in kind


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Me$s&re-ent o" C$pit$! $"terMe$s&re-ent o" C$pit$! $"ter

contr$ctingcontr$cting

Me$s&re-ent o" C$pit$! $"terMe$s&re-ent o" C$pit$! $"ter

contr$ctingcontr$cting


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Cont4Cont4Cont4Cont4

+n liquidation o! diminishin usharaka be!ore

complete trans!er: Amount recovered should be

credited to usharaka !inancin A/C

+n liquidation or termination o! usharaka: npaid

capital shall be reconied as receivables


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Recognition o" M&s%$r$'$Recognition o" M&s%$r$'$

+ro"its/!osses+ro"its/!osses

Recognition o" M&s%$r$'$Recognition o" M&s%$r$'$

+ro"its/!osses+ro"its/!osses

At time of liquidation> !or transactions !allin within !inancial

period

At ;Time of distributing profits end ofeach accountingperiod> !or transactions continuin !or more than one

!inancial period

Bosses are reconied to the e#tent they are deducted !rombank capital


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Cont4Cont4Cont4Cont4

8ank share o! pro!its not received at time o! liquidation or

termination o! usharaka shall be reconied as eceivables

due !rom partner

Bosses due to nelience/misconduct o! partner shall be

reconied as eceivables due !rom him

'rovisions should be created i! usharaka eceivables aredoubt!ul


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,isc!os&re Re&ire-ents,isc!os&re Re&ire-ents,isc!os&re Re&ire-ents,isc!os&re Re&ire-ents

8ank should disclose in ,otes i! a 'rovision was made !or

usharaka eceivables

4eneral disclosure requirements as per


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ACCOUNTING QUESTIONS &

ANSWERS ON MUSHARAKAH


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usharakah Accounting Question 1

usharakah Accounting Question 1

Bank Islam provided a working capital to Tijarah Constructions based

on the principal of Musharakah Mutanaqisah amounting to

$400,000 for a 4!ear periods" #rofit and loss sharing ratio as

agreed b! both parties is similar to the ratio of capital contribution

which is 0%&0 'Bank%Customer( at the beginning of the contract"The repa!ment shall be e)ual throughout the contract period"

*owever Tijarah had financial problems in !ear + and this managed

to pa! 0- of the agreed repa!ment amount" *alf of the amount

outstanding in !ear + has been paid in !ear and another half was

paid in !ear 4" Tijarah also e.perienced difficulties in !ear 4 wherethe repa!ment outstanding at the end of the !ear was $,000"


18/31

usha

rakah

akah Accounting Question 1

ontin ed

usha

rakah

akah Accounting Question 1

ontin ed

.he pro!it and loss !or the pro"ect is below:Dear 1 E 'ro!it F1G0@000

Dear ( E Boss F10@000

Dear ) E 'ro!it F ((0@000

Dear * E Boss F G0@000

#repare the e.tract of the journal entries using the accrual basis as

recommended b! //I1I" 2hich data will go to the balance sheet and which to the income

statement3


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Journal Entry - Year

1

ournal Entry - Year

1

'r! usharaah *inancing 9::,:::

Cr! Cash 9::,:::

'r! C37 ::,:::Cr! usharaah *inancingusharaah *inancing ::,:::

'r! Cash


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Journal Entry - Year

2

ournal Entry - Year

2

'r! Cash


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Journal Entry - Year 3

ournal Entry - Year 3

'r! Cashash ====,:::Cr! p+l usharaahp+l usharaah ==,:::

'r! Cash :A,@

accounting for islamic banks

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