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? asked in Business & FinancePersonal Finance · 5 days ago

Can someone help with this question of Islamic accounting?

A Bank provides a financing to Mr. Adrien’s business based on the contract of musharakah mutanaqisah amounting to BD 1,200,000. At the initiation of contract, the capital contribution ratio (CCR) agreed by both parties is 45:55 (bank : customer). However, the contract stipulated that profit/loss sharing ratio (PSR) of the business is NOT EQUAL with capital contribution ratio (CCR), whereby the agreed PSR is 50:50 (bank : customer).

The repayment shall be equal during the contract lifespan. However, Mr. Adrien’s business had financial distress in year 2 and this managed to pay only 50% of the agreed repayment amount. Half of the amount outstanding in year 2 has been paid in year 3 and another half was paid in year 4. Notice that Mr. Adrien’s business also faced financial problem in year 4 whereby the repayment outstanding at the end of the year was BD 50,000.

The profit and loss for the project as follows:

• Year 1​​Profit​BD 300,000

• Year 2 ​​Loss ​BD 350,000

• Year 3​​Profit​BD 420,000

• Year 4 ​​Loss​BD 150,000

 

Required:

a. Calculate the amount of musaharakah mutanaqisah contribution provided by Mr. Adrien

b. Calculate total repayment amount (instalment) by Mr. Adrien

c. Prepare capital contribution schedule

d. Prepare profit/loss sharing schedule

e. Prepare journal entries from the beginning until the end of the contract (Year 0 – Year 4) to record the recognition of asset and profit/loss of musharakah mutanaqisah financing provided by bank 

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