Upload
lenhi
View
216
Download
3
Embed Size (px)
Citation preview
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 1
Advanced CIFE™in Islamic AccountingLive Session IV
Recap: Module VII And VIII
• Accounting for Salam
• Reporting in Salam
• Measurement of Salam commodity value
• Recognition of delivery in Parallel Salam
• Accounting for Istisna
• Islamic bank as manufacturer
• Islamic bank as purchase orderer
• Accounting for provisions
• Accounting for reserves
• Accounting for Salam
• Reporting in Salam
• Measurement of Salam commodity value
• Recognition of delivery in Parallel Salam
• Accounting for Istisna
• Islamic bank as manufacturer
• Islamic bank as purchase orderer
• Accounting for provisions
• Accounting for reserves
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 2
Accounting for Salam
Accounting for Salam
• How Salam works:
• Step 1: The client approaches the Islamic bank, and sellsthe commodity under Salam. The bank, as purchaser, paysthe purchase price to client
• Step 2: The Islamic bank finds a purchaser for thecommodity, and sells the same commodity under anotherSalam (Parallel Salam). The bank, as seller, receives thesale price from the buyer
• Step 3: The client delivers the commodity on the agreeddate
• Step 4: The bank delivers the commodity to the 3rd partybuyer
• How Salam works:
• Step 1: The client approaches the Islamic bank, and sellsthe commodity under Salam. The bank, as purchaser, paysthe purchase price to client
• Step 2: The Islamic bank finds a purchaser for thecommodity, and sells the same commodity under anotherSalam (Parallel Salam). The bank, as seller, receives thesale price from the buyer
• Step 3: The client delivers the commodity on the agreeddate
• Step 4: The bank delivers the commodity to the 3rd partybuyer
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 3
Accounting for Salam
Accounting for Salam
• Salam financing recognized when payment made toclient
• Accounting entry
• Parallel Salam recognized when payment received from3rd party
• Accounting entry
• Salam financing recognized when payment made toclient
• Accounting entry
• Parallel Salam recognized when payment received from3rd party
• Accounting entry
Dr. Cash xxx
Cr. Parallel Salam xxx
Dr. Salam financing xxx
Cr. Customer account xxx
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 4
Accounting for Salam
• In case of default in delivering the Salam commodity
• Accounting entry
• In case goods need to be bought from the market to bedelivered to Parallel Salam buyer
• Accounting entry
• In case of default in delivering the Salam commodity
• Accounting entry
• In case goods need to be bought from the market to bedelivered to Parallel Salam buyer
• Accounting entry
Dr. Commodity xxx
Cr. Cash xxx
Dr. Provision xxx
Cr. Salam financing xxx
Accounting for Salam
• Delivery of Salam commodity by buyer
• Accounting entry
• Delivery by bank to purchaser under Parallel Salam
• Accounting entry
• Delivery of Salam commodity by buyer
• Accounting entry
• Delivery by bank to purchaser under Parallel Salam
• Accounting entry
Dr. Parallel Salam xxx
Cr. Commodity xxx
Cr. Profit xxx
Dr. Commodity xxx
Cr. Salam financing xxx
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 5
Accounting for Istisna
Accounting for Istisna
• How Istisna works with the Islamic bank as manufacturer:
• Step 1: The client approaches the Islamic bank tomanufacture a certain commodity. The bank agrees to buythat commodity when it is manufactured, and pays thepurchase price
• Step 2: Upon completion of manufacturing, the Islamic banktakes possession of the commodity
• Step 3: The bank or its agent sells the commodity in themarket, and receives the sale price. In case the bank hadentered into a Parallel Istisna, the commodity is delivered tothe third party
• How Istisna works with the Islamic bank as manufacturer:
• Step 1: The client approaches the Islamic bank tomanufacture a certain commodity. The bank agrees to buythat commodity when it is manufactured, and pays thepurchase price
• Step 2: Upon completion of manufacturing, the Islamic banktakes possession of the commodity
• Step 3: The bank or its agent sells the commodity in themarket, and receives the sale price. In case the bank hadentered into a Parallel Istisna, the commodity is delivered tothe third party
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 6
Accounting for Istisna
Accounting for Istisna
• Istisna financing (or Istisna costs) are recorded as an asset.This is also known as the Istisna work in progress account
• Amount billed under Parallel Istisna is recorded as an asset.This is a mirror of the Istisna financing account
• Istisna financing (or Istisna costs) are recorded as an asset.This is also known as the Istisna work in progress account
• Amount billed under Parallel Istisna is recorded as an asset.This is a mirror of the Istisna financing account
Dr. Parallel Istisna receivable xxx
Cr. Istisna billing xxx
Dr. Istisna financing xxx
Cr. Customer account xxx
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 7
Accounting for Istisna
• Once the asset is manufactured and delivered, thefinancing account is reversed and asset is booked
• The asset is then delivered to the buyer under ParallelIstisna, and profit on transaction is recognized
• Once the asset is manufactured and delivered, thefinancing account is reversed and asset is booked
• The asset is then delivered to the buyer under ParallelIstisna, and profit on transaction is recognized
Dr. Istisna billings xxx
Cr. Istisna asset xxx
Cr. Profit xxx
Dr. Istisna asset xxx
Cr. Istisna financing xxx
Accounting for Istisna
• Once the payment is received from the buyer underParallel Istisna, the receivable is reversed
• Once the payment is received from the buyer underParallel Istisna, the receivable is reversed
Dr. Cash xxx
Cr. Parallel Istisna receivable xxx
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 8
Accounting for Provisions and Reserves
Accounting for Provisions
• Provisions indicate an impairment in an asset’s value
• Specific provision: Made against a specified asset
• Accounting entry
• General provisions: Estimated amount needed to cover apotential loss that may occur
• Accounting entry
• Provisions indicate an impairment in an asset’s value
• Specific provision: Made against a specified asset
• Accounting entry
• General provisions: Estimated amount needed to cover apotential loss that may occur
• Accounting entry
Dr. Bad and doubtful debts xxx
Cr. Provision – XYZ asset xxx
Dr. General provision expense xxx
Cr. Provision – XYZ class of assets xxx
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 9
Accounting for Provisions
Accounting for Provisions
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 10
Accounting for Reserves
• Reserve is an appropriation of income
• Profit equalization reserve: amount deducted fromMudarabah income before apportioning working partner’sshare
• Investment risk reserve: amount deducted fromMudarabah income after allocating working partner’sshare
• PER is used to maintain a consistent percentage ofincome, to minimize volatility
• IRR is used to cover losses
• Reserve is an appropriation of income
• Profit equalization reserve: amount deducted fromMudarabah income before apportioning working partner’sshare
• Investment risk reserve: amount deducted fromMudarabah income after allocating working partner’sshare
• PER is used to maintain a consistent percentage ofincome, to minimize volatility
• IRR is used to cover losses
Q&A
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 11
Q&A
How is the Salam commodity presented at recognitionand at end of financial period?How is the Salam commodity presented at recognitionand at end of financial period?
Q&A
In Istisna, why are administrative expenses and R&Dcosts not included in the cost of the asset?In Istisna, why are administrative expenses and R&Dcosts not included in the cost of the asset?
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 12
Q&A
What is the difference between the percentage completionmethod and the project completion method?What is the difference between the percentage completionmethod and the project completion method?
Q&A
What are the accounting entries when Istisna order ischanged?What are the accounting entries when Istisna order ischanged?
Dr. Parallel Istisna receivable xxx
Cr. Istisna billing xxx
Dr. Istisna financing xxx
Cr. Customer account xxx
Advanced CIFE™ in Islamic AccountingLive Session 4
© Ethica Institute Of Islamic Finance 13
Thank You