Case study 1
In the year 2016, Peoples Islamic bank earned an annual profit attributable to Unrestricted
Mudharabah Investment Account (Mudharabah mutlaqah) before distributing profit to the Bank,
amounting to $10,000,000. Depositors profit sharing ratio under Mudharabah h deposit account
is currently at 70:30 between depositors and the Bank, respectively. The following is the
information pertaining to deposit types, average balance, and the weights used for Mudharabah
deposit account in the Bank for the year 2016.
Deposit
Type Average Balance WTS
6 months 30,000,000 0.60
9 months 40,000,000 0.80
12 months 10,000,000 1.00
> 12 months 20,000,000 1.20
100,000,000
(a)You are required to compute and determine:
i Weighted average balance for each deposit type.
ii Depositors share of profit based on the weighted average balance.
iii Depositors rate of return for each deposit type.
(b) Based on the depositors rate of return as computed in part (a) above, determine the profit
attributable to the following depositors in the Mudharabah General Investment Account of Bank
Ummah:
i A who invested $500,000 for the duration of 6 months.
ii B who invested $420,000 for the duration of 12 months.
iii C who invested $230,000 from 1st January 2016 to 15 October 2016.
Case study 2
In the year 2015, Peoples Islamic bank earned annual profit attributable to Unrestricted
Mudharabah Investment Account (Mudharabah mutlaqah) before distributing profit to the Bank,
amounting to $100,000. Depositors profit sharing ratio under Mudharabah h deposit account is
currently at 72:28 between depositors and the Bank, respectively. The following is the
information pertaining to deposit types, average balance, and the weights used for Mudharabah
deposit account in the Bank for the year 2015.
Average Balance WTS
Deposit
Type
6 months 100,000 0.6
9 months 300,000 0.9
12 months 250,000 1.0
> 12 months 350,000 1.2
(a)You are required to compute and determine:
iv Weighted average balance for each deposit type.
v Depositors share of profit based on the weighted average balance.
vi Depositors rate of return for each deposit type.
(b) Based on the depositors rate of return as computed in part (a) above, determine the profit
attributable to the following depositors in the Mudharabah General Investment Account of
Peoples Islamic Bank:
iv A who invested $500,000 for the duration of 7 months?
v B who invested $620,000 for the duration of 11 months.
vi C who invested $230,000 from 1st January 2012 to 31st April 2015.
Case study 3
Bank Shariah provides Musharakah mutanaqisah financing to Moonway Corporation for house
developing project amounting to N10,000,000. 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)
N
1 (1, 500,000)
2 (1, 000,000)
3 2,500,000
4 1,500,000
5 1,000,000
You are required to determine the profits or losses to be recognised by both Bank Shariah and
Moonway Corporation from Year 1 to Year 5.
Case study 4
Bank Shariah Nigeria provided working capital to Tijarah Construction Co. Kano based on the
principle of Musharakah mutanaqisah amounting to N 400,000. Profit and loss sharing ratio as
agreed by both parties is similar to the ratio of capital contribution which is 30:70 (Bank:
Customer) at the beginning of the contract. The repayment shall be equal throughout the contract
period. However, Tijarah Construction had financial difficulties during year 2 and thus only
managed to pay 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. Tijarah Construction also
experienced financial difficulties in year 4 whereby the repayment outstanding at the end of the
year was amounting to N 35,000. The profit and loss for the above project is as follows:
Year 1 Profit of N 180,000
Year 2 Loss of (N 150,000)
Year 3 Profit of N 220,000
Year 4 Loss of (N 80,000)
Required:
a. Prepare extract of journal entries from the beginning until the end of the contract to record
the recognition of asset and profit/loss of Musharakah Mutanaqisah financing provided by
Bank Shariah Nigeria.
b. Prepare the accounting transactions using both the accrual basis and the cash basis of income
recognition.
