Required:

1. Prepare journal entries in the books of Asian Islamic Bank for all relevant transactions for the accounting periods ending

31^st December 2008;

31^st December 2009; and

31^st December 2010.

2. Prepare the Statements of Financial Position (extract) and Income Statements (extract) for the year 2008 to 2010 to present the transactions relating to the contract.

1. Example: Istisna' Asian Islamic Bank entered into a three-year Istisna contract to construct a bungalow for a total price of RM1,200,000 commencing 1 January 2008. The following costs were estimated at the time of concluding the contract: 31 December 2008 Materials Wages RM120,000 RM180,000 31 December 2009 Materials Wages RM180,000 RM120,000 31 December 2010 Materials Wages RM50,000 RM50,000 Billings were made in year 2008 for RM600,000, RM300,000 in year 2009 and the remaining balance was billed at the end of year 2010. Following is the payment schedule that was agreed with the client of Asian Islamic Bank: Year % of total price 2008 10% 2009 10% 2010 20% 2011 30% 2012 30% There was a substantial increase in material cost in 2010 due to the liquidation of a major supplier for the said material. Accordingly, the bank revised its cost estimate for materials to increase by 10% from the overall original cost. In order to cover the increase in cost, the customer and the bank agreed to incorporate the increase into the selling price by the same amount which will be paid in 2012. The bank recognizes profit based on the percentage of completion method