BWFS 3023 / ISLAMIC ACCOUNTING A131 EXERCISE

SALAM AND PARALLEL SALAM FINANCING On 1st February 2012, Bank Shariah Malaysia Berhad entered into a salam financing contract with Perak Islamic Rubber Growers Cooperative to supply 100 metric tons of RSS1 (superior grade) ruvbber on the 1st week of June 2012 at $1,000 a metric ton. As security, the Cooperatives clubhouse was pledged to the bank. The amount was paid to the muslam ileihi on the same day. On 25th of May 2012, the bank entered into a parallel salam contract to supply the same to Bata shoe Malaysia Bhd. at $1,200 a metric ton on 1st week of June 2012. On the 1st week of June 2012, the cooperative only delivered only half the promised quantity of RSS1 rubber. It also delivered 25 tons of RSS2 (lower grade) rubber which the bank accepted to take. The cooperative informed that since it is insolvent, it cannot afford to pay the difference to the bank.

Meanwhile, Bata refuse to take delivery of the RSS2 rubber. The bank was forced to buy RSS1 from the market at $1,150 per metric ton to deliver to fulfil its commitment to Bata. RSS2 rubber had a cash equivalent value of $950 per metric ton at the end of the year on 31st December 2012. In August 2012, the security pledged by the cooperative was sold for $50,000 and the appropriate amount refunded to the cooperative. Required: i. ii. Show the journal entries in the books of Bank Shariah for all the above entries. Extract Income Statement for the year ended 31 Dec 2013

BWFS 3023 / ISLAMIC ACCOUNTING A131 EXERCISE

Solutions:

RM Feb 1 '12 Dr Salam Financing account Cr Cash account cash payment for salam to perak Islamic cooperative Cash account Cr Parallel Salam Financing account cash received for 100 metric tons of RSS1 from Bata Parallel Salam Financing account Inventory RSS2 rubber Accounts receivable -perak Cr Salam Financing account delivery of 50 tons to bata and 25 tons of RSS2 to inventory and the rest charged to cooperative Parallel Salam Financing account Cr Cash account Cr Profit and Loss account - profit on parallel salam purchase of 50mt of RSS1 to fulfil parallel salam contract and profit and net profit on parallel salam Aug'12 Dr Cash account Cr Account receivable - perak Cr Cash account proceeds from sale of security set off against amount owing and balance refunded Profit and Loss account Cr Inventory RSS2 Reduction of inventory to C.E.V (1000-950)x25 tons Exctract Income Statement profit from parallel salam loss from devaluation of inventory 50,000 100,000

RM

100,000

May_25

Dr

120,000 120,000

Jun'12

Dr Dr Dr

50,000 25,000 25,000 100,000

Jun'12

Dr

70,000 57,500 12,500

25,000 25,000

Dec_31

Dr

1,250 1,250

12,500 1,250