Professional Documents
Culture Documents
ON MUSHARAKA
Topic 3
Spring 2012/2013
University College of Bahrain
01/09/16
Nature
Nature of
of Musharaka
Musharaka Financing
Financing
A partnership between the Islamic bank and its clients
where both parties:
Contribute equal or varying amounts of capital to
establish a new project or share in an existing one;
Capital can be on permanent or declining (capital) basis
and will have his due share of profits ; and
Partners share proportionate losses according to the
capital contribution and not otherwise
Musharaka
Musharaka principles
principles
Competent contracting
parties
The capital shall be in
cash, gold, silveror
equivalent; realty
(goods,real estate
machines); or intangible
rights (patents) or
equivalents
The partner does not
guarantee another
partners capital or
funds except in the case
of negligence or
omission
Journal
Journal entries
entries
Dr. Musharaka Financing
Cr. Cash
(Being financing for customers / partners)
Dr. Cash/ Account Receivable
Cr. Musharaka Financing
(Being repayment by customers/ partners)
Dr. Cash/ Account Receivable
Cr. P/L Account (Profit)
(Being profit received from Musharakah financing)
Dr. P/L Account
Cr. Musharaka Financing
(Off-setting the loss against capital repayment by
customer/ partners)
4
TYPES
TYPES OF
OF MUSHARAKAH
MUSHARAKAH
CONSTANT Musharakah- The partners share in
Musharakah capital remains (constant) throughout
the period.
Musharaka DIMINISHING to Ownership- One party
has the right to purchase a part of other partys
share which declines until one become the sole
proprietor of all capital (Musharaka Mutanaqisah)
Illustration
Illustration of
of Diminishing
Diminishing
Musharaka
Musharaka (Musharaka
(Musharaka Mutanaqisa)
Mutanaqisa)
A
Constant CCR or
PSR?
Accounting
Accounting TreatmentTreatment- Musharaka
Musharaka
Financing
Financing (FAS
(FAS 4)
4)
RECOGNITION &
MEASUREMENT
Upon receipt or when
deposited in a
Musharaka Account
known as Musharaka
Financing
DIMINISHING
MUSHARAKA CAPITAL
Measured at historical
cost after excluding the
sold portion (fair value)
is the basis of
measurement.
Any difference
CONSTANT MUSHARAKA between fair value and
historical cost is the
CAPITAL
The capital at the end banks profit or loss
UPON TERMINATION
of period is measured
based on historical cost Outstanding capital
becomes receivable.
7
Recognition
Recognition of
of Capital:
Capital:
Bank Capital in Musharaka shall be recognized
when :
When Paid to partner.
Or
When Made available to him.
Presentation:
Presentation:
Bank capital in Musharaka shall be presented as
follows:
In books of A/Cs as Musharaka Financing
with name of partner.
In financial statements under Musharaka
Financing:.
Measurement
Measurement of
of Capital
Capital at
at time
time of
of
Contracting:
Contracting:
if paid in cash .
Measurement
Measurement of
of Capital
Capital after
after
contracting:
contracting:
For Constant Musharaka Capital is measured at Historical
Cost .
Cont.
Cont.
On liquidation of diminishing Musharaka before
complete transfer: Amount recovered should be
credited to Musharaka financing A/C.
Recognition
Recognition of
of Musharaka
Musharaka
Profits/losses:
Profits/losses:
At time of liquidation for transactions falling within financial
period.
At Time of distributing profits- end of each accounting
period for transactions continuing for more than one
financial period.
Losses are recognized to the extent they are deducted from
bank capital
Cont.
Cont.
Bank share of profits not received at time of liquidation or
termination of Musharaka shall be recognized as Receivables
due from partner.
Losses due to negligence/misconduct of partner shall be
recognized as Receivables due from him.
Provisions should be created if Musharaka Receivables are
doubtful.
Disclosure
Disclosure Requirements:
Requirements:
Bank should disclose in Notes if a Provision was made for
Musharaka Receivables.
Musharakah
Musharakah Accounting
Accounting Question
Question 11
Musha
Musharakah
rakah Accounting
Accounting Question
Question 11
continued
continued
Journal
Journal Entry
Entry -- Year
Year 11
400,000
400,000
Dr. CASH
Cr. Musharakah Financing
100,000
100,000
Dr. Cash
Cr. (P/L) Musharakah
54,000
54,000
54
Journal
Journal Entry
Entry -- Year
Year 22
Dr. Cash
Dr. P/L
Dr. Receivable
Cr. Musharakah Financing
50,000
33,750
16,250
100,000
Journal
Journal Entry
Entry -- Year
Year 33
Dr. Cash
Cr. p/l Musharakah
33,000
33
33,000
Dr. Cash
Cr. Musharakah Financing
Cr. Receivable
108,125
100,000
8,125
Journal
Journal Entry
Entry -- Year
Year 44
Dr. Cash
Dr. p/l
Dr. Receivable
Cr. Musharakah Financing
59,000
6,000
35,000
100,000
Dr. Cash
Cr. Receivable
8,125
8,125
Musharakah
Musharakah Accounting
Accounting Question
Question 22
Mu
Musharakah
sharakah Question
Question 22 continued
continued
Journal
Journal Entry
Entry -- Year
Year 11
600,000
600,000
Dr. CASH
Cr. Musharakah Financing
100,000
100,000
Dr. Cash
Cr. P/L Musharakah
54,000
54,000
54
Journal
Journal Entry
Entry -- Year
Year 22
Dr. Cash
Dr. P/L
Dr. Receivable
Cr. Musharakah Financing
40,000
37,500
22,500
100,000
Journal
Journal Entry
Entry -- Year
Year 33
Dr. Cash
Cr. p/l Musharakah
44,000
44
44,000
Dr. Cash
Cr. Musharakah Financing
Cr. Receivable
111,250
100,000
11,250
Journal
Journal Entry
Entry -- Year
Year 44
Dr. Cash
p/l
Receivable
Cr. Musharakah Financing
38,000
12,000
50,000
100,000
Dr. Cash
Cr. Receivable
11,250
11,250
Journal
Journal Entry
Entry -- Year
Year 55
Dr. Cash
Cr. Receivable
Cr. Musharakah Financing
250,000
50,000
200,000
Dr. Cash
Cr. p/l Musharakah
40,000
40,000
Prese
Presentation
ntation and
and Disclosure
Disclosure of
of Musharakah
Musharakah Financing
Financing
BALANCE SHEET
Musharakah Financing
XX
(XX)
XX
INCOME STATEMENT
Musharakah income
XX