Group Assignment

BEDER INTERNATIONAL UNIVERSITY
ACCOUNTING FOR ISLAMIC FINANCIAL TRANSACTIONS
COURSE CODE IBF214
MASTERS DEGREE IN ISLAMIC BANKING AND FINANCE
GROUP ASSIGNMENT
Answer all the questions and provide detailed answers
I. MIS Islamic bank reported a profit of 25,000,000 before distribution to unrestricted mudarabah
investment account holders. The agreed profit sharing ratio is 80:20 between depositors and the
bank respectively. The bank calculates the profits for the different deposit types using the
information in the table below. In addition, The bank reported extraordinary earnings of
1,000,000 and overhead expenses of 1,100,000
Deposit Type Average Weights Weighted Depositor’s Depositors

Balance average share of rate of
balance profit return
40,000,000 0.50
60,000,000 0.70
20,000,000 0.90
30,000,000 1.10
150,000,000
A. Fill out the table above by calculating the weighted average balance, depositors’ share
of profit based on the weighted average balance, depositors’ rate of return? Show your
working out.
B. Use the depositors rate of return above to calculate the profit attributable to the
following depositors?
 Depositor A, who invested £50,000,000 for the duration of 6 months.
 Depositor B, who invested $ 100,000,000 for the duration of 8 months.
 Depositor C, who invested $ 25,000,000 for the duration of 11 months.
1. Which profit distribution method do you think the bank would prefer, Pooling Method
or Separate Investment Account Method? Show your working out.
2. Discuss in detail the IFSB shariah guidance regarding the profit distribution methods?
3. Explain in detail the reasons why Islamic banks use mudarabah investment when they
are acting as mudarib but are reluctant to use mudarabah financing when they are acting
as rabul mal?
II. Bootaan approaches an Islamic bank for the purchase of a bus on Murabaha which the bank
already owns prior to his request. The bank discloses the cost of the bus to the bank as $40,000
and requires 20% profit margin on top of the costs. The bank also requires the full amount to be
paid within four years in equal instalments. At the end of 4th year (end of contract) there is an
outstanding balance of $68600 which Bootaan still owes the bank. As part of the bank’s policy
for late payment penalty, the bank charges 2.5% of the outstanding amount which the bank
transfers to a local charity.
1. Calculate the full cost of the bus to Bootaan (asset cost and profit margin)
2. Calculate the mark up, selling price, instalments per year and income of the transaction
3. Prepare an extract of the balance sheet and income statement of the bank reflecting the
duration of the contract to show the amount of net receivable and Murabaha income?
4. Prepare journal entries for the bank to record all the transactions and the penalty fee?
5. Explain the disclosure requirement for the provision of doubtful Murabaha financings?
III. MIS Islamic bank entered into a Salam contract on 1st January 2022 with Berbera Fisheries for
the supply of 200 metric tons of tinned tuna to be delivered on 30th June 2022. The price agreed is
$1000 per metric ton, which was paid to Berbera Fisheries on 1st January 2022. Furthermore, the
two parties agreed the fishing boat of Berbera Fisheries as collateral to safeguard the capital of the
bank. MIS Islamic bank entered a parallel salam contract with Jigjiga Fish Importers for the
supply of 200 metric tons of tinned tuna with a price of $1350 per metric ton.
On 30th June, Berbera Fisheries managed to deliver only 100 metric tons of tinned tuna due to
excessive tuna fishing which diminished the fish stocks and bad weather. However, Berbera
Fisheries offered the bank 50 metric tons of tinned salmon instead which is considered a superior
quality than tuna for $1000 per metric ton which the bank accepted. Unfortunately for the bank,
Jigjiga Fish Importers refused to accept the salmon and the bank was forced to purchase the
remaining 100 metric tons of tinned tuna from the market at a price of $1250 per ton. On 1st July
2022 The bank sold the collateral (the boat ) in an auction and raised $80,000 which the bank
deducted the appropriate amount and the remaining amount was refunded Berbera Fisheries.
The market price of salmon in 31st December 2022 was $1400 per metric ton.
1. Prepare Journal entries for the bank using the above information?
2. Prepare extract of balance sheet and income statement for year end 31st December 2022?
3. Explain in detail the difference between salam and forward sale? Why salam is permissible
and forward sale is prohibited?

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BEDER INTERNATIONAL UNIVERSITY

ACCOUNTING FOR ISLAMIC FINANCIAL TRANSACTIONS

COURSE CODE IBF214

MASTERS DEGREE IN ISLAMIC BANKING AND FINANCE

Answer all the questions and provide detailed answers

Deposit Type Average Weights Weighted Depositor’s Depositors

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