Accounting for Musharakah Ithmaar Bank provides a working capital to Hameed construction based on the principle of diminishing musharakah amounting to BD 750,000 Profit and loss sharing ratio (PSR) as agreed by both parties is similar to the capital contribution ratio (CCR) which is 40 60 (bank customer) at the initiation of the contract The repayment shall be equal during the contract lifespan However, Hameed construction had financial distress in year 2 and this managed to pay 40 of the agreed repayment amount Half of the amount outstanding in year 2 has been paid in year 3 and another half was paid in year 4 Its also worth that Hameed construction also faced financial problem in year 4 whereby the repayment outstanding at the end of the year was BD 45,000 The profit and loss for the project as follows Year 1 Profit BD 270,000 Year 2 Loss BD 250,000 Year 3 Profit BD 325,000 Year 4 Loss BD 100,000 Required Prepare extract journal entries from the beginning until the end of the contract to record the recognition of asset and profit loss of diminishing musharakah financing provided by Ithmaar Bank

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Accounting for Musharakah Ithmaar Bank provides a working capital to Hameed construction based on the principle of diminishing musharakah amounting to BD 750,000. Profit and

Accounting for Musharakah

Ithmaar Bank provides a working capital to Hameed construction based on the principle of diminishing musharakah amounting to BD 750,000. Profit and loss sharing ratio (PSR) as agreed by both parties is similar to the capital contribution ratio (CCR) which is 40:60 (bank : customer) at the initiation of the contract.

The repayment shall be equal during the contract lifespan. However, Hameed construction had financial distress in year 2 and this managed to pay 40% of the agreed repayment amount. Half of the amount outstanding in year 2 has been paid in year 3 and another half was paid in year 4. Its also worth that Hameed construction also faced financial problem in year 4 whereby the repayment outstanding at the end of the year was BD 45,000.

The profit and loss for the project as follows:

Year 1 Profit BD 270,000
Year 2 Loss BD 250,000
Year 3 Profit BD 325,000
Year 4 Loss BD 100,000

Required:

Prepare extract journal entries from the beginning until the end of the contract to record the recognition of asset and profit/loss of diminishing musharakah financing provided by Ithmaar Bank.