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PLEASE SOLVE IT BY STEPS TO UNDERSTAND EVERYTHING UT Bank Sharia entered into an Ijara contract with Mahabbah Company to lease an equipment for a
PLEASE SOLVE IT BY STEPS TO UNDERSTAND EVERYTHING
UT Bank Sharia entered into an Ijara contract with Mahabbah Company to lease an equipment for a period of 3 years. The Bank purchased an equipment from a local trader on 01 January 2018 for $160,000. The Bank also incurred legal fees of $1,500 relating to the ljara contract, which the bank considered material. Other details about the ljara are as follows: Fair value of equipment: $ At the beginning of 2018 - 160,000 At the end of the lease i.e. 31 December 2020- 20,000 Number of installments on bi-monthly basis - 18 Rentals at the end of every two months - 12,000 Estimated useful life - 3 years Estimated residual value at the end of useful life - 16,000 Estimated expenditure incurred in the second year - 12,000 Required: (a) Prepare journal entries to record the above ljara contract in the books of Bank Sharia assuming the lease was treated as: (i) Ijara Muntahia Bitamleek through sale for a token consideration (agreed to be equivalent to 50% of the estimated residual value at the end of useful life) (ii) Al-Ijara Thumma al-bay' (AITAB) The journal entries should cover the following periods: At the beginning of ljara; On receipt of first rental; At the end of second year; and, At the end of Ijara term. (20 marks)
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