Using the information in Question 1, and on the basis of AAOIFI’s standard on investments, you are required to provide (for each of the 5 years) the following:

a. The accounting entries in the books of LBJ

b. The income statement and the statement of financial position of LBJ

Question 1

LBJ Enterprise, a Malaysian-based company, requires $150 million for its expansion project in Indonesia. At its recent board meeting, the chairman proposed that the funds should be raised through issuing sukuk ijarah using an SPV. On January 1, 2020, LBJ sets up an SPV and sells its office building to the SPV for $150 million. The sukuk is for 5 years.

The SPV then issued $150 million worth of sukuk to investors

(sukuk holders) and holds the office building in trust for sukuk holders.

LBJ agrees to buy back the office building at $175 million 5 years from the date the sukuk were issued. The SPV then leases the office building to LBJ for $5 million annually.

You are to assume the following: 

■ LBJ makes a profit of $200 million annually. For each of the 5 years and using IFRS, you are required to provide the following:

a. The accounting entries in the books of LBJ

b. The income statement and the statement of financial position of LBJ