accounting for islamic banks
TRANSCRIPT
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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!
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)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"
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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,@