Chapter 7Question 1 (a) Bank Shari’ah provides a house financing facility based on Bai’ Bithaman Ajil (BBA) principles to Aminah. The financing details are as follows: Financing Amount RM500,000 Term of Financing 10 Years (To begin on 1 st . January 2000) Rate of Return (Constant) 4% per annum Aminah has paid by installments as stated in the agreement for the first 5 years and agreed to settle all the payment outstanding in full at the beginning of year 6. The Bank has agreed to give the customer a 10% rebate of the total outstanding amount due to be paid to the Bank. Required: i.. Prepare an extract of the Balance Sheet and the Income Statement of Bank Shari’ah from the beginning till the end of year 5 to show the amount of net receivable and BBA income (5 Marks) ii. Prepare all relevant journal entries to record the recognition of assets and income for the first, fifth and sixth year only in the book of Bank Shari’ah (including the treatment on rebate). (13 Marks) (b) Why do you think among the objectives of accounting for Islamic financial institutions as stipulated by AAOIFI are to determine rights and obligations of interested parties, and to safeguard entity assets and rights of others? Use example in part (a) above to support your answer. (7 Marks) (Total: 25 Marks) (Q2 Final exam sem 1 2008/2009) Question 2 Bank Islam provided a Murabaha financing facility amounting to RM 100,000 to Bina Construction to purchase equipment on 1st January 2011. The mark-up was agreed at 10% per year on the initial sale price of the equipment. The Murabaha installments were to be paid in equal installments annually at the end of the year over the next 5 years. It was agreed that a late penalty payment of 5% of the installments receivable was to be charged to Bina Construction if they fail to pay on time. The Sharia Supervisory Board of the bank has decided that the penalty should be treated as part of the bank’s income. The following events took place in the following four years to 31st December 2014. Jan 1, 2011: The Murabaha contract was signed and the bank purchased the equipment for RM 100,000 which was delivered directly to the client’s construction site. The bank paid for the equipment in cash. Dec 31, 2011: The client paid the bank the installment as scheduled. Dec 31, 2012: The client could not pay on time but subsequently paid the installment and the penalty on March 31, 2013. Dec 31, 2013: The client paid the bank the installment as scheduled. Jan 1, 2014: Bina Construction decided to pay off the amount in full and requested the bank for a rebate. The bank decided to give a 7.5% rebate on the outstanding balance in the Murabaha account. On the same day, Bina Construction settled all payments. Required: i. Journal entries for Jan 1, 2011. ii. Journal entries for Dec 31, 2011. iii. Journal entries for Dec 31, 2012. iv. Journal entries for March 31, 2013. v. Journal entries for Jan 1, 2014. vi. Extract of the Income Statement for year ending 2011, 2012, 2013 and 2014. vii. Extract of the Balance Sheet as at 31 December 2011, 2012, 2013 and 2014. [Total: 20 marks] (Q2 Mid term sem 1 2011/2012) Question 3 Bank Shari’ah Islami provides a house financing facility based on Bai’ Bithaman Ajil (BBA) to Asiah. The financing details are as follows: Financing Amount RM500,000 Term of Financing 10 Years (To begin on 1 st . January 2005) Rate of Return (Constant) 4% per annum Asiah paid by installments for the first 5 years and agreed to settle all the payment outstanding in full at the beginning of year 6. The Bank has agreed to give the customer a 10% rebate of the total outstanding amount due to be paid to the Bank. Required: i.. An extract of the Balance Sheet and the Income Statement of Bank Shari’ah Islami from the beginning till the end of year 5 to show the amount of net receivable and BBA income (5 Marks) ii. Prepare all relevant journal entries to record the recognition of assets and income for the first, fifth and sixth year only in the books of Bank Shari’ah Islami. (10 Marks) (Q2 Mid term sem 1 2010/2011) Question 4 PLA Company is a contracting firm based in Malaysia. The company approached Kuwait Finance House (M) for the funding of an order of 5 trucks to be imported from Japan for use in Malaysia. The bank agreed to finance the transaction on Murabaha basis at a Murabaha margin of 5% per annum. The customer is obliged by his promise would pay the bank 10% of the purchase price of the trucks as “Hamish Jiddiyyah” on the day of the order. The customer also agreed to settle Murabaha debts over a five years period on equal quarterly installments. It was agreed that penalty of 1% of the receivable amount will be charged for the late payment and the penalty will be charged to the charity. The bank fully paid the purchase price of the shipment on 5 January 2006. The following are the details of the transaction:- Shipment related costs Date Amount (RM) Purchase price 5 January 2006 950,000 Shipping and Insurance 20 January 2006 50,000 Port handling expenses 25 March 2006 20,000 Murabaha Transaction Murabaha signature date 1 April 2006 Hamish Jiddiyyah 4 January 2006 Discount (unexpected received 1 May 2006) 20% of purchase price Installments Grace period 3 months Number of installments 20 First installment date 1 July 2006 Second installment 1 October 2006 Customer only paid on 31 December 2006 Third installment 31 December 2006 Note: Ignore any foreign exchange effects on this transaction. Required: a. Prepare the necessary JOURNAL ENTRIES for this transaction in the books of the bank at the commencement of the transaction, delivery of the shipment and payment of the first 3 installments. [9 marks] b. Draft a set of financial statements for the year ended 31 December 2006 (Income Statement and Balance Sheet) showing the effect of the transaction. [4 marks] c. What will happen to the Murabaha financing amount if the amount paid by the customer on 4 January 2006 is Urboun and the customer concludes the sale? [2 marks] d. What will be the journal entries if after the 19 th installments, the customer informed the bank that it wanted to settle the financing immediately and the bank agreed to give an ibra’ of 50% of the outstanding profit? [2 marks] e. What are the main differences between Murabaha, Murabaha to the Purchase Orderer and Bai Bithaman Ajil? [3 marks] [Total 20 marks] (Q2 Mid term sem 1 2007/2008) Question 5 Bahrain Muamalat Bank is a newly setup Islamic bank which recently commenced operations in Bahrain. It started its operations by providing a Murabaha to Purchase Orderer financing facility of RM500,000 to Taqwa PLC to purchase its factory machinery. The terms of the contract are: Start day 1 January 2005 Mark up 8% per annum on initial cost Period of financing 3 years Repayment in 3 equal yearly instalments Early payment rebate 50% of outstanding profit at pro rata basis Late payment penalty 1% of the receivable Urboun 10% of the total costs paid on 1 January 2005 The Bahrain Muamalat Bank incurred legal costs of RM10,000 which was charged to the financing facility but the bank agreed not to take any profit on this RM10,000. Taqwa PLC paid all the instalments for the first two years on schedule. On 1 July 2007, Taqwa PLC informed the bank that it wanted to settle the financing immediately and asked the bank to inform it of the balance after rebate as at 31 July 2007. After the bank informed the amount, Taqwa PLC settled the amount agreed on 15 August 2007. The bank did not charge any penalty for the few days after July before the amount was settled. Required: a. Show JOURNAL entries for the transactions for all the relevant periods in the books of Bahrain Muamalat Bank until the transaction is concluded. (18 marks) b. Show the extract of the balance sheet and income statements of Bahrain Muamalat Bank in respect of the above transactions at the end of the first 2 years and on 1 July 2007, showing clearly the amount owing by Taqwa PLC after the rebate. (4 marks) c. What will be the journal entries if Taqwa PLC is not able to pay one of the instalments, and the Shariah Advisory Board agreed to charge penalty and the penalty given to the charity? (3 marks) (Total: 25 marks) (Q2 Mid term sem 2 2007/2008)