MUSHARAKAH (BOTH PARTIES INCURRED THE LOSS BUT ACCORDING TO THE

CAPITAL RATIO)

Bank Shari’ah Malaysia Berhad has provided capital to a Muslim entrepreneur based on the
principles of musharakah mutanaqisah amounting to RM400,000. The entrepreneur has also
provided capital of RM 400,000. Profit and loss sharing ratio as agreed by both parties is
40:60 (Bank: Customer) at the beginning of the contract. The Bank and entrepreneur have
also agreed for the profit sharing ratio to change to 30:70 for year 3 and 4. The repayment
shall be equal throughout the contract period. However, the customer (entrepreneur) has
financial difficulties during year 2 and thus only managed to pay installment on the capital
for that year amounting to RM 50,000. The entrepreneur also faced with financial difficulties
in year 4 whereby the repayment outstanding is amounting to RM 20,000 at the end of the
contract.

Year Capital CCR PSR Profit/(loss) PSR (BANK) PSR

(Bank) (CLIENT)
1 400 000 50:50 40:6 80 000 32 000 48 000
0
2 300 000 37.5:62.5 40:6 (50 000) 18 750 31 250
0
3 200 000 25:75 30:7 120 000 36 000 84 000
0
4 100 000 12.5:87.5 30:7 (30 000) 3 750 26 250
0
*Calculation of CCR; 400 000 = 50

300 000 = x, x = 37.5

Journal Entries

Year Particulars Debit (RM) Credit (RM)

1 Musyarakah financing account 400 000
Cash account 400 000
(Financing for customers/partners)
Cash account 100 000
Musyarakah financing account 100 000
(Repayment by customer/partners)
Cash account 32 000
Profit & Loss account 32 000
(recognition of profit for year 1)

2 Cash account 50 000

Profit & Loss account 18 750
Receivable account 31 250
Musharakah financing account 100 000

3 Cash account (RM100 000 + (RM31 250/2) 115 625

Musyarakah financing account 100 000
Receivable account 15 625
 Cash account 36 000
Profit & Loss account 36 000

4 Profit & Loss account 3 750

Receivable account 16 250
Cash account 80 000
Musyarakah financing account 100 000
Cash account 15 625
Receivable account 15,625

CASH BASIS

YEAR PARTICULARS DEBIT (RM) CREDIT (RM)

S
1 Musharakah mutanaqisah fin.acc 400 000
Cash account 400 000
(musharakah financing for customer)
Cash account 100 000
Musharakah mutanaqisah fin.acc 100 000
(repayment by customer)
Cash account 32 000
Profit & loss account 32 000

2 Cash account 50 000

Musharakah mutanaqisah fin.acc 50 000
(cash received and no loss recognized)

3 Cash account (100 000 + 15 625) 115 625

Musharakah mutanaqisah fin acc. 115 625
Cash account 33 000
Profit & loss account 33 000
(profit recognition)

4 Cash (80 000 + 15 625) 95 625

Musharakah mutanaqisah 95 625

Bank Shari’ah provides a musharakah mutanaqisah financing to Moonway Group of

Companies for house developing project amounting to RM12,000,000. This amount
represents 60% of the total cost of the project. The term of financing is for 5 years and the
partner is required to pay back the bank in 5 equal installments yearly. The profit sharing
ratio is agreed at 30 : 70 (Partner : Bank) and assumed to be constant for the first 2 years
of the project. For the next three years, the profit sharing ratio is agreed to be 20:80. The
profits or losses from the project as disclosed by the partner are as follows.

Year Profit /
(loss)
1 (1,500,000)
2 (1,000,000)
3 2,500,000
4 1,500,000
 5 1,000,000
Repayment each year = RM12 000 000 / 5 years = RM2 400 000

RM12 000 000 = 60%

RM x = 40%

X =RM8 000 000 (capital from partners)

Thus total capital is =RM12 000 000 + RM8 000 0000 = RM20 000 000

Year PSR Capital of the Capital CCR Profit / (loss) Bank partners
bank repayment by
partners
1 30:70 12 000 000 8000 000 60:40 (1,500,000) 900 000 600 000
2 30:70 9 600 000 10 400 000 48:52 (1,000,000) 480 000 520 000
3 20:80 7 200 000 12 800 000 36:64 2,500,000 500 000 2 000 000
4 20:80 4 800 000 15 200 000 24:76 1,500,000 300 000 1 200 000
5 20:80 2 400 000 17 600 000 12:88 1,000,000 200 000 800 000

CCR on year 2 : RM12 000 000 = 0.6

RM9 600 000 = x

IJARAH TOPIC (KHAS UNTUK LEASING)

Bank Shari’ah Berhad entered into an ijarah contract with Mahabbah Sdn. Bhd. to lease an
equipment for a period of 3 years. The Bank purchased an equipment from a local trader on
the 1st of January 2000 for RM160,000. The Bank also incurred legal fees of RM1500
relating to the ijarah contract, which the bank considered to be material. Other details about
the ijarah are as follows:

Fair Value equipment at beginning of year 2000: RM160,000

Fair value at the end of the lease. 31st December 2002 = RM20,000

Number of installments = 18 months

Rental at the end of every two months = RM12,000

Estimated useful life – 3 years

Estimated residual value at the end of useful life = RM16,000

Estimated expenditure incurred in the second year = RM12,000

Depreciation expense = (RM160 000 – RM16 000) / 3 years = RM48 000

Journal entry for ijarah muntahia bitamleek.

i) At the beginning of ijarah

Date Accounts & Explanations d Debit (RM) Credit (RM)

Year 0 Ijarah muntahia Bitamleek asset 160 000
account 160 000
Cash account
(recognition of ijarah asset)
Initial Ijarah direct expense 1 500
Cash account 1 500
(recognition of Ijarah initial direct cost)

ii) On receipt of first rental

Date Accounts & Explanations d Debit (RM) Credit (RM)

Year 0 Cash account 12 000
Ijarah revenue account 12 000

iii) At the end of second year

Date Accounts and explanations Debit (RM) Credit (RM)

Rental Ijarah revenue account 72 000
income Profit and loss account 72 000
(recognition of annual rental income;
RM12 000 x 6 times)
Direct Profit and loss account 500
expenses Initial Ijarah direct expense 500
(amortization of initial ijarah direct
expenses; RM1500/3 years)
 Depreciatio Profit and loss account 48 000
n Provision for ijarah asset 48 000
depreciation
(provision of depreciation expense
/year)
Expenditure Profit and loss account 12 000
Provision of expenditure 12 000
(recognition of expenditure in year 2)

iv) At the end of ijarah term

Date Accounts and explanations Debit (RM) Credit (RM)

Ijarah revenue account 72 000
Profit and loss account 72 000
(recognition of rental income for 3rd year)
Profit and loss account 48 000
Provision for ijarah asset depreciation 48 000
(provision for depreciation each year)
Profit and loss account 500
Initial direct expense account 500
(amortization ijarah direct expense acc)
Cash account 8 000
Profit and loss account 8 000
Ijarah asset account 16 000
(token disposal 50% on residual value)

Journal entry for ijarah AITAB

i) At the beginning if ijarah

Date Accounts and explanations Debit (RM) Credit (RM)

Year 0 AITAB financing account 216 000
Cash account 160 000
Unearned income account 56 000
(Recognition of AITAB financing)

ii) On receipt of first rental

Date Accounts and explanations Debit (RM) Credit (RM)

Cash account 12 000
AITAB financing account 12 000
(Rental receipt)

iii) At the end of 2nd year

Date Particulars Debit (RM) Credit (RM)

Cash account 12 000
AITAB financing account 12 000
(recognition of rental income)
Unearned income account (RM56K/3) 18 667
 Profit and loss account 18 667
(recognition of ijarah income)

MURABAHAH TOPIC (KHAS UNTUK BELI ASET)

Bank Shari’ah Berhad provides a financing facility based on murabahah to the Purchase
Orderer principles to Ahmad bin Ali for the purpose of house purchase. The financing is
amounting to RM300,000 at a constant rate of return 8% for a period of 5 years. At the end
of the contract, Ahmad owes the bank amounting to RM32,000. As part of the normal
requirements, the customers will be charged a penalty fee of 3% per annum for any
outstanding amount due at the end of the contract and the amount collected is normally
disbursed as charity.

Interest per year = RM300 000 x 8% = RM24 000

Total interest for 5 years = RM24 000 x 5 years = RM120 000

Bayaran every year without interest = RM300 000/5 years = RM60 000

Bayaran every year with interest = [RM300 000 + (RM300 000 x 8% x 5 years)]/5 years

= RM84 000

i) Extract of balance sheet and income statement

Title Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Bai 420 000 336 000 252 000 168 000 84 000 -
bitaman
ajil
financing
Ini untuk 120 000 96 000 72 000 48 000 24 000 -
interest (120K – (96K – (72K – (48k –
sahaja 24K) 24K) 24K) 24K)
Unearned 300 000 240 000 180 000 120 000 60 000 -
income

Journal entries

Date Particulars Debit (RM) Credit (RM)

Year 0 Murabaha financing account 420 000
Cash account (harga asal) 300 000
Unearned income (total interest) 120 000
(recognition of Murabaha fin. Acc)
Year 1 Cash account (payment with cost + 84 000
interest) 84 000
Murabaha financing account
(Installment received)
Unearned financing income 24 000
Profit and loss account 24 000
(recognition of interest income)
Year 5 Receivable account 32 000
 Cash account 52 000
Murabaha financing account 84 000
Unearned financing income 24 000
Profit and loss account 24 000
Receivable account 960
Penalty account (BBA) [3% x RM32000] 960
(penalty charged for outstanding amount)
MUDHARABAH (ONLY CAPITAL PROVIDER WILL INCURRED THE LOSS. THE
ENTREPRENUER WILL NOT INCURRED THE LOSS) (FOR INVESTMENT TYPES)

Company A entered into a mudharabah contract with Bank Shari’ah in which the company
provides monetary capital of RM2,000,000 to be managed and invested by the Bank. The
Bank provides Mudharabah Al-Muqayadah investment account facility whereby the Bank will
invest in a specific project as agreed by the client. For this project there is another investor,
Company B who had agreed to invest RM1,500,000. The profit and loss sharing between
three of them is in the ratio of 4 : 2 : 1 for Company A, Company B and the Bank
respectively. The Bank then entered into another mudharabah contract (Re-Mudharabah)
with Company X to undertake a housing development project and they had agreed on the
profit sharing ratio of 80 : 20 (Bank: Company X).

You are required to determine the profit or loss to be shared at the end of the contract by
the four parties involved above if:

Profit RM600 000 or loss (RM400 000).

If profit is RM600 000

Bank: RM600 000 x 80% = RM480 000

Company x = RM600 000 x 20% = RM120 000

Total profit from Bank which is RM480 000 distributed between Company A, Company B and
bank itself.

Company A = RM480 000 x 4/7 = RM274 286

Company B = RM480 000 x 2/7 = RM137 143

Bank = RM480 000 x 1/7 = RM68 571

If loss RM400 000, distributed only for company A and company B as they are the only
capital provider. Proportioned will be based on their capital.

The proportioned is 2:1.5

Company A’s capital = RM2 000 000;

hence company A loss is RM400 000 x 2/3.5 = RM228 571

Company B’s capital = RM1 500 000

Hence, company’s B loss is RM400 000 x 1.5/3.5 = RM171 429

Bank Shari’ah had agreed to contribute RM5,000,000 as monetary capital based on a five-
year mudharabah financing contract (Mudharabah Muqayaddah) at the profit sharing ratio
of 3:1 between the Bank (Rab al-Mal) and Ummah Corporation (Mudharib) respectively.
Assume the following results of the venture:

Year Profit/(loss)
1 (500 000)
2 (400 000)
3 350 000
4 500 000
5 620 000

Total profit at the end of each period:

Bank:

Total loss: RM900 000

Total profit: (RM350 000 x ¾) + (RM500 000 x ¾) + (RM620 000 x ¾) = RM1 102 500

Total income: Total profit – total loss = RM1 102 500 – RM900 000 = RM202 500.

Ummah Corporation

Total profit/income: RM87 500 + RM125 000 + RM155 000 = RM367 500.

Total profit at the end of contract:

=-RM500 000 – RM400 000 + RM350 000 + RM500 000 + RM620 000

=RM570 000 (finally this will be distributed among them)

Bank: RM570 000 x ¾ = RM427 500

Ummah corporation = RM142 500

Journal entry at the end of each period

Date Particulars Debit (RM) Credit (RM)

Year 0 Mudharabah financing account 5 000 000
Cash account 5 000 000
(being provide capital to partner)
Year 1 Profit and loss account 500 000
Mudharabah financing account 500 000
(Being set-off loss)
 Year 2 Profit and loss account 400 000
Mudharabah financing account 400 000
(Being set-off loss)
Year 3 Cash account 262 500
Profit and loss account 262 500
(Being profit received from partners)
Year 4 Cash account 375 000
Profit and loss account 375 000
(Being profit received from partners)
Year 5 Cash account 465 000
Profit and loss account 465 000
(Being profit received from partners)

Extract balance sheet and income statement

Year 0 Year 1 Year 2 Year 3 Year 4 Year 5

Mudharabah 5 000 000 4 500 000 4 100 000 4 100 000 4 100 000 -
financing
Profit or - (500 000) (400 000) 262 000 375 000 465 000
losses