CHAPTER 8 ACCOUNTING FOR MUSHARAKAH FINANCING Question 1 Syamimi wants to open a computer shop in Klang, Selangor. In order to start her business, she needs a capital of $2,500,000. Syamimi chooses to enter into Mudarabah agreement with Am Islamic Bank Berhad which agreed to provide the financing for 5 years. In the agreement, both parties agreed that the profit sharing ratio between Syamimi and the bank is 40:60 respectively. Profit and losses for the first three years of the agreement are as follows: Year Result of the Business Amount Year 1 Profit Year 2 Loss $460,000 $370,000 (50% of the loss is due to Syamimi's negligence) $750,000 Year 3 Profit Syamimi's business is doing well after 3 years. She then decided to move into the next level which is to become a partner with Am Islamic Bank. At the end of year 3, they agreed to convert the Murdarahah to a Musharakah Mutanaqisah with Syamimi placing $650,000 as capital. The new profit sharing ratio between Syamimi and the bank is in the ratio of 70:30 respectively. The profit and loss of the Musharakah Mutanaqisah are as follows: Year Result of the Business Amount Year 4 Profit $900,000 (1st year of Musharakah Mutanaqisah) $300,000 Year 5 Loss In the beginning of Year 4, Syamimi decided to buy 30% of the bank's share of capital at $740,000. Another 30% of the bank's share of capital was sold to Syamimi in the beginning of Year 5 at $650,000. In the beginning of Year 6, the bank agreed to sell the remaining of its capital at $690,000. The Musharakah Mutanaqisah terminated at Year 6 when the entire bank's share of capital was sold to Syamimi. Required: a. Show the journal entries for Am Islamic Bank Berhad for Year 1, 2, 3, 4, 5 & 6. Show the capital contribution schedule for Am Islamic Banks Berhad and Syamimi for Year 4, 5 & 6. Question 2 Rafflesia Spa Essentials (RSE), a wholesale and retail unit of Rafflesia Wellness Sdn Bhd opened officially for business on 1 January 2009 at Warisan Square, Kota Kinabalu, Sabah. RSE aspires to be a one-stop wholesale and retail spa. It also targets to become a preferred choice destination for individual shoppers looking for typical spa products such as aromatherapy, natural bath gel, body scrubs and lotion, face masks, essential and fragrance oils. The spa products are sold under the company's very own label, Rafflesia, a registered trademark owned by RSE. RSE entered into a Musharakah Mutanaqisah contract with HSBC Amanah on January 2015 to expand its business. The total capital for the partnership was $320,000 of which 70% was supplied by the bank. LISBC Amanah's capital contribution is made up of a property valued $124,000. The book value of the property was $140,000. In addition, the bank contributed monetary capital of $80,000 and spa equipments with a value of $20,000. RSE has a very good team of employees and is able to attract a lot of customers. Based on the skills and reputation that RSE possesses, HSBC Amanah agreed that, should there be a profit, RSE will get 12% of the profit for managing the partnership. The remaining profic is then divided between RSE and HSBC Amanah in the ratio of 40:60 respectively. It was also agreed that RSE would gradually purchase the bank's share in the partnership. For the year ending 31" December 2015, the partnership made a profit of $76,000. The bank's share of profit was settled on 25 March 2016. In the beginning of 2011, RSE purchased 25% of the bank's share in the partnership for $72,000. 305 a In the middle of 2016, there was a fire in RSE property. As a result, RSE suffered a loss amounting to $40,000. At the end of 2016, RSE also agreed to purchase another 25% of the remaining share of the partnership from HSBC Amanah for $32,000. In addition, HSBC Amanah made a provision for loss equal to 20% of the balance of the Musharakah Mutanaqisah account. Required a. Journal entries for the bank for 2015 and 2016. h. An extract of Income Statement for che year ending 31" December 2015 and 2016 An extract of the Statement of Financial Position as at 31" December 2015 and 2016. c
