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2. Measurement After acquisition a. Purchase orderer is obliged to fulfill his promise Historical cost should be used b. Purchase orderer is NOT obliged to fulfill his promise The asset value shall be measured at the cash equivalent value. If there is a decline in the value of asset, a provision for decline in the asset value shall be created.
3. Discount on asset acquired by the bank Generally any discount received by the bank from the supplier shall not be considered as part of revenue but it will reduce the cost of goods by the amount of discount.
Murabaha Receivables
Short term & long term Murabaha receivable shall be recorded at the time of contract at their face value. Murabaha receivable are measured at the end of the end of
financial period at their cash equivalent value i.e. amount due from the customers at the end of financial period less any provision for doubtful debts.
Profit Recognition
a. On cash (or credit less then the financial period) May be recognized at the time of contracting b. On credit (lump sum or installment) a. Proportionate allocation of profits over the period of credit irrespective of whether cash is received or not. (preferred) b. As and when the installments are received. However, in both a & b, the revenue & cost of goods sold shall be recognized at the time of Sale, subject to the deferral of profit Deferred profit Deferred profit shall be offset against Murabaha receivables in the statement of financial position.
Insolvency
If it becomes evident that the clients non-payment is due to insolvency, than the Islamic bank cannot ask to pay additional amount by way of penalty
Scenario - 1
When there is bullet payment of profit and Cost (Principal) at the end of the period: 1- At the time of payment to the client for the purchase of goods on behalf of bank or directly to the 1
supplier by the bank the transaction will be accounted for as follows:
2- On January 15, 2010, at the time of signing of Declaration i.e. customer acting as an agent of
f the bank that he has utilized z the amount for f procurement p of f goods, g the the bank informs following entries would be passed:
Scenario 1 Cont
3- On January 15, 2010, at the culmination of Murabaha i.e. at the time of sale of goods to the January 15, 2010
Dr Dr Cr Cr customers with signing of Murabaha Contract by the bank and the client, the following entries would be passed: 1,000 100
1,000 100
4- At the time of Booking of Accrual @ 10% profit rate each month the following entry would be
passed. For instance at the end of January 31, 2010 [(1000 x 10%) x 31 / 365]
Scenario 1 Cont
5- On Maturity of Murabaha transaction i.e. on December 31, 2010 and at the time of receiving of
final payment following entry would be passed:
1 100 1,100
1,000 100
In case Declaration & Murabaha Contract is not received on January 15, 2010 and is received on February 15, 2010:
6- At the time of payment to the client for the purchase of goods on behalf of bank or directly to the
supplier by the bank the transaction will be accounted for as follows: 1,000
Scenario 1 Cont
8- At the end of First Month i.e. January 31, 2010
No entry would be passed for accruals of profit, as Declaration has not been received from the customer.
9- On February 15, 2010, at the time of signing of Declaration i.e. customer acting as an agent of
the bank informs the bank that he has utilized the amount for procurement of goods, the following entries would be passed: 1,000
1 000 1,000
Scenario 1 Cont
10- On February 15, 2010, at the culmination of Murabaha i.e. at the time of sale of goods to the
customers with signing of Murabaha Contract by the bank and the client, the following entries would be passed:
1,000 100
1,000 100
11- At the time of Booking of Accrual @ 10% profit rate each month the following entry would be
passed. In this case the accrual would be for TWO months and would be passed on February , 2009 in the following f g manner: 28, [(1000 x 10%) x (31+28) / 365] 16.164 16.164
NOTE: In case the Murabaha declaration is NOT received on the due date, NO Entry would be passed until the Murabaha Declaration is received.
Scenario 2
When there is a bullet payment of Cost (Principal) at the end and profit is payable on monthly basis: 1- At the time of payment to the client for the purchase of goods on behalf of bank or directly to the
supplier by the bank the transaction will be accounted for as follows:
1,000
1,000
2- On J January y 15, 2010, at the time of f signing g g of f Declaration i.e. customer acting g as an agent g of f January 15, 2010
Dr Cr the bank informs the bank that he has utilized the amount for procurement of goods, the following entries would be passed: 1,000 1,000
Scenario 2 Cont
3- On January 15, 2010, at the time of culmination of Murabaha i.e. at the time of sale of goods to the customers with signing of Murabaha Contract by the bank and the client, the following entries would be passed:
1,000 100
1,000 100
4- At the time of Booking of Accrual @ 10% profit rate EACH month the following entry would be passed. For instance at the end of January 2010 [(1000 x 10%) x 31 / 365]
8.49
8.49
And so on this entry will be passed at the end of EACH month till maturity.
Scenario 2 Cont
5- At the time of receiving of Profit amount at the end of EACH month the following entry would be passed:
8 49 8.49
8.49
6- At the maturity of the Murabaha period the last months remaining Murabaha income (December 2010) will be booked as per the following entry:
8.49
8.49 8. 9
7- Now at the end of the period the amount received from the client includes the whole amount of principal and last months profit, so the entry would be as follows:
1,008.49
1,000 8.49
Scenario 3
When there is a bullet payment of profit at the end of Murabaha period and Cost (Principal) is payable on monthly basis: 1- At the time of payment to the client for the purchase of goods on behalf of bank or directly to the
supplier by the bank the transaction will be accounted for as follows: 1,000
1,000
2- On January 15, 2010, at the time of signing of Declaration i.e. customer acting as an agent of the bank informs the bank that he has utilized the amount for procurement of goods, the following entries would be passed:
1,000
1,000
Scenario 3 Cont
3- At the Culmination of Murabaha i.e. at the time of sale of goods to the customers with signing of Murabaha Contract by the bank and the client on January 15, 2010 following entries
would be passed:
1,000 100
1,000 100
4- At the time of Booking of Accrual @ 10% profit rate EACH month the following entry would be passed. For instance at the end of January 2010 ( x 10%) ) x 31 / 365] [(1000
8.49
8.49
And so on this entry will be passed at the end of EACH month till maturity.
Scenario 3 Cont
5- As the principal is payable EVERY month the entry passed would be passed when installment is
received from the customer: [1000 / 12 = 83.33]
January 17, 2011 (On any date on which the installment is received)
Dr Cr Party A/c / Bank Murabaha Financing
83.33
83.33
6- As the amount of Profit is payable at the end of the period, the entry would be as follows:
100
100
Inventory against Credit Murabaha (NON FUNDED) Payable to Supplier-Credit Murabaha (NON FUNDED)
1,000
1,000
(Off Balance Sheet Accounting Entry) 2- At the Culmination of Murabaha i.e. at the time of sale of goods to the customers with signing of
Murabaha Contract by the bank and the client on April 01, 2010 following entries would be passed p d 1,000
Credit Murabaha Financing (NON FUNDED) Inventory against Credit Murabaha (NON FUNDED
1,000
Payable to Supplier-Credit Murabaha (NON FUNDED) Credit Murabaha- Financing (NON FUNDED) (FUNDED) (FUNDED) ( )
1,000
1,000
Murabaha- Financing Profit Receivable on Murabaha Party y account Deferred profit on Murabaha
1,000 , 100
3.33
Less:
7- Now at the end of the period the amount received from the client includes the whole amount of principal and last months profit, so the entry would be as follows:
FE25 Murabaha
All the procedure would remain the same, as is mentioned above in various cases, except for the fact that the amount would be in foreign currency.
1,000
1,000
2- On January 15, 2010, at the time of signing of Declaration i.e. customer acting as an agent of the bank informs the bank that he has utilized the amount for procurement of goods, the following f g entries would be passed: p
1,000
1,000
ERF From SBP (Part-I or Part II) Murabaha Profit Receivable ERF Inventory against ERF Deferred Murabaha Income ERF
1,000 49.31
1,000 49.31
4- At the time of Booking of Accrual @ 10% profit rate EACH month the following entry would be passed. For instance at the end of January 2010 ( x 10%) ) x 31 / 365] [(1000
8.21
8.21
And so on this entry will be passed at the end of EACH month till maturity.
6- At the maturity of the Murabaha period the remaining Murabaha income (June 29, 2009) will be booked as per the following entry:
7- Now at the end of the period the amount received from the client includes the whole amount of principal and last months profit, so the entry would be as follows:
4,000,000
4,000,000
2- On January 15, 2010, at the time of signing of Declaration i.e. customer acting as an agent of the bank informs the bank that he has utilized the amount for procurement of goods, the following entries would be passed:
1,000
1,000
No entry would be passed for accruals of profit, as Murabaha Contract has not been received from the customer.
4- At the First Partial Culmination of Murabaha i.e. at the time of sale of goods worth PKR 1 Million to the customers with signing of Murabaha Contract by the bank and the client on February 15, 2010 following entries would be passed.
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