Murabaha Question 7.2

Kuwait Finance House (KFH) is a newly setup Malaysian subsidiary of a foreign Islamic bank which is in the process commencing operations in Malaysia. It started its operations by providing a BBA financing facility of RM1 million to Bumi Venture Berhad to purchase its factory machinery. The terms of the contract are:

1. Mark-up 10% on cost
2. Period of financing 4 years
3. Repayment in four equal yearly instalments
4. Early payment rebate 50% of outstanding profit

Bumi Venture paid all the instalments for the first 3 years on schedule. At the end of the 3^rd year Bumi Venture informed the bank that it wanted to settle the financing immediately and asked the bank to inform it of the balance after rebate.

You are required to:

1. Show journal entries for the transactions for the 3 years in the book of KFH bank.
2. Show the extract of the balance sheet and income statements of KFH in respect of the above transactions at the end of the first 3 years and the beginning of the fourth year showing clearly what the amount owing by Bumi Venture after rebate.