Question 4

Prepare journal entries for from year 1 to year 4.

Calculation:

Hamish Jiddiyah Total financing (Cost + markup) - 8 years

12% x $250,000= $30,000 $297,500 + $142,800 = $440,300
Total acquisition cost Total financing - 1 year
$250,000 + $30,000 + $2,500 + $15,000 $440 300 / 8 years = $55,038
= $297,500
The unearned income -1 year Late payment charges
$297,500 x 6% = $17,850 $55,038 x 3% = $1,651
The unearned income - 8 years Payment of receivables – 2nd instalment
$17,850 x 8 = $142,800 $55,038 + $1,651 = $56,689

Journal Entries
Yea
r Item DR CR
0 Cash $30,000
Customer $30,000
Receive Hamish Jiddiyah

Asset $250,000
Shipping expense $30,000
Takaful expense $2,500
Port handling expense $15,000
Cash $297,500
Purchase of assets by bank

Customer $30,000
Cash $30,000
If the contract is concluded, Hamish Jiddiyah is refunded in full to the customer for
the binding contract.

Murabahah financing $440,300

Asset $297,500
Unearned income $142,800
Recognition of Murabahah

1 Cash $55,038
Murabahah financing $55,038
1st instalment is received

Unearned income $17,850

Profit and Loss $17,850
Recognition of income

2 Receivables $1,651
Charity Payable $1,651
Late payment charges
3 Cash $56,689
Receivables $56,689
Payment of 2nd instalment and late payment charges

Cash $55,038
Murabahah financing $55,038
3rd instalment is received

Unearned income $17,850

Profit and Loss $17,850
Recognition of Income

4 Cash $55,038
Murabahah financing $55,038
4th instalment is received

Unearned income $17,850

Profit and Loss $17,850
Recognition of Income
Question 5
Calculation:

Hamish Jiddiyah Total financing (Cost + markup) - 5 years

10% x $4,000,000 = $400,000
Total acquisition cost
$4,000,000 + $100,000 + $50,000 = $4,150,000
The unearned income -1 year
$4,150,000 x 8% = $332,000
The unearned income - 5 years
$332,000 x 5 = $1,660,000
$4,150,000 + $1,660,000 = $5,810,000
Total financing - 1 year
$5,810,000 / 5 years = $1,162,000
Last payment charge
$1,162,000 x 1% = $11,620
Payment of receivables – 30 Sep 2013
$1,162,000 + $11,620 = $1,173,620

a. Journal entries up till 30 June 2013.

Year Item DR CR
2012 Cash $400,000
Jan-15 Customer $400,000
Receive Hamish Jiddiyah

Feb-01 Asset $4,000,000

Shipping expense $100,000
Port handling expense $50,000
Cash $4,150,000
Purchase of assets by bank

Customer $400,000
Cash $400,000
If the contract is concluded, Hamish Jiddiyah is refunded in full to the customer for
the binding contract.

Jun-30 Murabahah financing $5,810,000

Asset $4,150,000
Recognition of Murabahah $1,660,000

Cash $1,162,000
Murabahah financing $1,162,000
1st installment is received

Unearned income $332,000

Profit and Loss $332,000
Recognition of Income

2013
Jun-30 Receivables $1,162,000
Murabahah financing $1,162,000
Instalment is due but not yet received

Unearned income $332,000

Profit and Loss $332,000
Recognition of Income
 Jul-13 Receivables $11,620
Charity Payable $11,620
Late Payment Charges

Sep-30 Cash $1,173,620

Receivables $1,173,620
Payment of receivables

2014
Jun-30 Cash $1,162,000
Murabahah financing $1,162,000
3rd installment is received

Unearned income $332,000

Profit and Loss $332,000
Recognition of Income

b. What will happen to Murabahah financing amount if the amount paid by Simplycity on 15
January 2012 is Urboun and the customer concludes the sale?
The amount of Urboun will be deducted from the purchase cost so Murabahah financing is
reduced.
c. Discuss the differences between Murabahah and conventional deferred payment sale.

Aspect Conventional deferred Murabahah

payment
Subject matter Amount of money Commodity

Parties Lender and borrower Financier and finance and/or

expertise seeker

Compensation Interest Profit

a.
Question 6
a. Prepare an extract of the Statement of Financial Position and the Income Statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

BBA Financing $700,000 $630,000 $560,000 $490,000 $420,000 $350,000
Unearned
Income $200,000 $180,000 $160,000 $140,000 $120,000 $100,000
$500,000 $450,000 $400,000 $350,000 $300,000 $250,000

Income Statement
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Earned Income $20,000 $20,000 $20,000 $20,000 $20,000 $20,000

b. Prepare all relevant journal entries for the first, fifth and sixth year only
Year Item DR CR
0 Asset $500,000
Cash $500,000
Purchase of assets by bank

BBA financing $700,000

Asset $500,000
Unearned income $200,000
Recognition of BBA

1 Cash $70,000
Murabahah financing $70,000
1st installment is received

Unearned income $20,000

Profit and Loss $20,000
Recognition of Income

2-5 Cash $70,000

Murabahah financing $70,000
1st instalment is received

Unearned income $20,000

Profit and Loss $20,000
Recognition of Income

6 Profit and Loss $35,000

Murabahah financing $35,000
Rebate for early payment (350,000 x 10%)

Cash / Receivables $315,000

Murabahah financing $315,000
Termination of contract