PES Question- accounting

Exercise 2.1 Salam

On the 1 st of March 2003 Gulf Finance House (an Islamic Bank) bought 25 tons of aluminum from Alba- a local Aluminum pro
on the basis of Bai-asalam (Salam) contract. The purchase price of this quantity of aluminum was $25,000 ($10,000 per ton) p
the day the contract was signed. It was agreed that Alba would deliver the commodity in two shipments as follows: First shipme
2003 for the delivery of 10 tons. Second shipment on July 30th, for delivery of 15 tons.

On April the 5th 2003 the bank entered into a parallel Salam contract with a trading company based in Kuwait to sell them 25 t
($11,000 per ton). The bank signed-up to deliver the commodity in two shipments as lows: First shipment on the 20th of June 2
10 tons. Second shipment on the 5th of August 2003 for delivery of 15 tons

Required:
1. Record the journal entries for the Salam and Parrallel Salam transactions in the books of the bank if deliveries, in both trans
2. If Alba defaulted on the second delivery and the bank had to buy equal quantity of commodity from another company for $17
company in Kuwait, how will this case affect the bank's books of accounts?

(1) both delivery were made as contracted

Date Journal Entries

1-Mar-03 Salam Financing- ALBA 250,000

cash 250,000
cash payment to ALBA for salam financing 25 ton x @RM 10,000.

5-Apr-03 cash 275,000

Paralel Salam - Trading Co 275,000
cash payment from Kuwait for paralel salam 25 ton x @RM 11,000.

15-Jun-03 inventory aluminium 100,000

Salam Financing- ALBA 100,000
1st delivery of salam from ALBA- 10 ton @ RM 10,000

20-Jun-03 Paralel Salam - Trading Co 110,000

inventory aluminium 100,000
Profit from paralel salam 10,000
1st delivery of paralel salam to Trading- 10 ton @ RM 11,000 at the cost of @ RM 10,000

30-Jul-03 inventory aluminium 150,000

Salam Financing- ALBA 150,000
2 of 2 delivery of salam from ALBA- 15 ton @ RM 10,000

5-Aug-03 Paralel Salam - Trading Co 165,000

inventory aluminium 150,000
Profit from paralel salam 15,000
2 of 2 delivery of paralel salam to Trading- 15 ton @ RM 11,000 at the cost of @ RM 10,000
(2) ALBA 30/7/03 delivery default, replacement goods paid at RM 170,000

Date Journal Entries

1-Mar-03 Salam Financing- ALBA 250,000

cash 250,000
cash payment to ALBA for salam financing 25 ton x @RM 10,000.

5-Apr-03 cash 275,000

Paralel Salam - Trading Co 275,000
cash payment from Kuwait for paralel salam 25 ton x @RM 11,000.

15-Jun-03 inventory aluminium 100,000

Salam Financing- ALBA 100,000
1st delivery of salam from ALBA- 10 ton @ RM 10,000

20-Jun-03 Paralel Salam - Trading Co 110,000

inventory aluminium 100,000
Profit from paralel salam 10,000
1st delivery of paralel salam to Trading- 10 ton @ RM 11,000 at the cost of @ RM 10,000

30-Jul-03 A/R Alba 150,000

Salam Financing- ALBA 150,000
default of (2 of 2) delivery of salam from ALBA- 15 ton @ RM 10,000

30-Jul-03 Inventory aluminium 170,000

Cash 170,000
buy aluminium due to default of 2 of 2 delivery of salam from ALBA at the cost 15 ton @ RM 11,333

5-Aug-03 Paralel Salam - Trading Co 165,000

Loss from paralel salam 5,000
inventory aluminium 170,000
2 of 2 delivery of paralel salam to Trading- 15 ton @ RM 11,000 at the cost of @ RM 11,333
 Alba- a local Aluminum producing company-
$25,000 ($10,000 per ton) paid in full to Alba on
ents as follows: First shipment on June 15th,

d in Kuwait to sell them 25 tons of aluminum for total value of $275,000

pment on the 20th of June 2003 for delivery of

nk if deliveries, in both transactions, were made as contracted.

om another company for $170,000 and delivered it to the trading
PES Question- accounting
Question 2.2 Murabahah convertion to ijarah

Bank Muamalah Berhad provides a financing facility based on the principles Murabaha to the Purchase Orderer to Barakah C
Bhd. to purchase a specialized equipment to be used for their business project. The financing amounted to RM500,000 at a co
return of 10% for a period of 5 years. The annual installment payment is RM150,000. Barakah constructions signed the agree
the machine from the bank. However after the third installment was paid, Baraka constructions started to have cash flow prob
the bank to refinance the balance, Bank Muamalah bought the machine back for the remainder of the installments and rented
Baraka constructions on an Ijarah Muntahia BiTamleek (through gift). Over the next five years. It wanted to a make a constant
for years.

(i) Calculate the murabah sale price and the yearly rental which should be paid by Bank Muamalah Bhd on refinancing.
(iI) show the balance sheet and income statement extract of Bank Muamalah from inception of the contract to end of the ijarah

Answer:
(i) Calculate the murabah sale price and the yearly rental which should be paid by Bank Muamalah Bhd on refinancing.

Murabahah sale price

Cost 500,000
profit 250,000 (10% x 5 years x RM 500,000)
Total 750,000

Profit per year 50,000 (=10% x RM 500,000)

Installment 150,000 (=Murabahah Sale Price RM 750,000 / 5 years)

Yearly Rental in Ijarah Contract

Acquisition Cost 200,000 (=balance at the end of murabahah contract on Y3)

rate 5% per year
Rental Rate 10,000 per year

(iI) show the balance sheet and income statement extract of Bank Muamalah from inception of the contract to end of the ijarah

Bank Muammalat
Balance Sheet - Extract Murabahah Financing----------------------------------------------------------
Y0 Y1 Y2 Y3
Murabahah Financing - Al Baraka Construction 750,000 600,000 450,000 300,000
Earned Out Income (250,000) (200,000) (150,000) (100,000)
Net Receivable 500,000 400,000 300,000 200,000

Income Statement - Extract

Murabahah Income 50,000 50,000

Bank Muammalat
Balance Sheet - Extract Ijarah Financing-------------------------------------------------------------------
 Y4 Y5 Y6 Y7
t=1 t=2 t=3 t=4

Investment Ijarah Asset - Al Baraka Construction 200,000 200,000 200,000 200,000

Accummulated Depreciation

Income Statement - Extract

Income - Ijarah 10,000 10,000 10,000 10,000
Depreciation Expenses
Loss - Ijarah Asset Disposal as gift
 e Purchase Orderer to Barakah Construction Sdn.
ng amounted to RM500,000 at a constant rate of
ah constructions signed the agreement and bought
ons started to have cash flow problems. It requested
der of the installments and rented out the machine to
rs. It wanted to a make a constant rate of return of 5%

amalah Bhd on refinancing.

of the contract to end of the ijarah term

amalah Bhd on refinancing.

0,000 / 5 years)

hah contract on Y3)

of the contract to end of the ijarah term

--------------------------------------------

50,000

----------------------------------------------------------------------------
Y8
t=5

10,000

(200,000)
PES Question- accounting
Ex 2.3 BBA

Shahul Hameed (SH) wanted to purchase a house in Subang Alam for $600,000. He paid a deposit of $100,000 to the develop
Properties Ltd. SH then signed a Sales and Purchase Agreement with the developer. He then approached Bank Islam For fina
Islam agreed to do so at 5% constant rate of return for 10 years. The bank requested Shahul Hameed to sign a PPA selling the
at RM$500000 which will be paid to the developer directly and signing a Bai Bithaman Ajil sales agreement with the bank for th
Illustrate using a diagram the whole process using actual prices and amounts paid and the amount of installment paid per mon
Why is this BBA product controversial in the Middle East?

Answer:
(1) Developer sells the house to shahul hameed
S&P Agreement $600,000
Shahul Hameed Subang Alam Properties Ltd
Buyer minus Deposit $ 100,000 Developer
balance due = RM 100,000

(2) Shahul sell the house to bank

PPA - Property Purchase Agreement (3) payment cash from ban
$ 500,000 , profit = 5% x 10 years $500,000

(3) Bank Islam sell the house to Shahul

PPS - Property Sale Agreement
$ 6,250 / month x 10 years Bank Islam
Financier

working Controversial in ME because of the bay al inah (no2 and 3)

cost 500,000
ror 5%
time 10 year = 120 month
profit 250000
sale price 750000
instalment 6250
 sit of $100,000 to the developer Subang Alam
proached Bank Islam For financing balance. Bank
meed to sign a PPA selling the house to the bank
greement with the bank for the selling price.
nt of installment paid per month x 120 months.

Alam Properties Ltd

(3) payment cash from bank to developer

al inah (no2 and 3)

PES Question- accounting
question 3.1

The answer :
Al baraka Motor takaful Ltd Al baraka Motor takaful Ltd
Takaful Participant revenue Account Income statement (extracted)
For the year end 31-12-2007 For the year end 31-12-2007

Gross Contribution received during the year 3,000 wakalah fee

add: movement in contribution reserve (600-400) 200 mudarib dshare of inves profit
Gross Contribution earned 3,200 Jualla comm
Total earnings from takaful and investme
Less : Retakaful contribution (1,400) profit from investment of sharehodlers fu
Net Contribution Earned 1,800 total income

Less Expenses
Claim incured but not reported 200
Claim incured but and paid this year 400
Total Gross claim 600
Retakaful claim reimbursable on 2007 claim (300)
Net claim payable 300
Operating Exp chargebleto fund 600
Wakalah fee for operator 200
Total fund exp 1,100

underwriting fund surplus 700

Less: juallah com (20% of (700 - 300) (80)
Surplus attributable to participant 620

add.profit from investment of participant fund (gross) 100

less operator share (50%) -50
50
Surplus for the year 670
Surplus brought forward from 2006 200

Surplus before distribution 870

Distribution to participant (600)
Balance c/f 270
ka Motor takaful Ltd
statement (extracted)
year end 31-12-2007

200
dshare of inves profit 50
80
nings from takaful and investment operation 330
m investment of sharehodlers fund 500
830