Islamic Equity Financing
Question 4
Muamalat Bank Bhd entered into a Musharakah Mutanaqisah contract with Halim Construction Sdn Bhd on 1 January 2012. Based on the agreement, Muamalat Bank Bhd will supply equipment which valued at RM500,000 together with RM1,000,000 cash financing. On the other hand, Halim Construction will provide the remaining RM500,000 cash to complete the capital requirement for the venture. The term of financing is 5 years, and the repayments are to be made in 5 equal installments.
Profit is to be shared between Bank and partner at 60:40 during the first and second year of financing. The next three years, profit sharing ratio is to be \( 30: 70 \) between the bank and partner.
During the financing period, Halim Construction severed poor financial in year 2 and thus only managed to pay \( 60 \% \) of the agreed repayment amount. Half of the outstanding repayment of year 2 will be paid in year 3 and another half in year 5. Besides, Halim Construction also had financial difficulties in year 4 and were not able to pay RM40,000 of the agreed repayment amount for that year. All outstanding were completely settled in year 5.
The profit or (losses) for the ventures were as follows:
\begin{tabular}{|c|c|c|}
\hline Year & Financial Period & Profit / (losses) \\
\hline Year 1 & 1 Jan 2012 - 31 Dec 2012 & RM36,000 \\
\hline Year 2 & 1 Jan 2013 - 31 Dec 2013 & (RM80,000) \\
\hline Year 3 & 1 Jan 2014 - 31 Dec 2014 & RM120,000 \\
\hline Year 4 & 1 Jan 2015 - 31 Dec 2015 & (RM60,000) \\
\hline Year 5 & 1 Jan 2016 - 31 Dec 2016 & RM360,000 \\
\hline
\end{tabular}
REQUIRED
(a) Tabulate the distribution of profit / (losses) to the Muamalat Bank Bhd and Halim Construction Sdn Bhd for year 1 to year 5.
(b) Prepare journal entries to record all the transactions took place on the following date:
(i) At the beginning of the contract,
(ii) At the end of year 2 , and
(iii) At the end of year 5 .
