MusyarakahPrepared By Raihan Iskandar(1201103040016)Laura DeswitaFonna(1201103040014)Cut Chaira Ashdiqa(1201103040010)Yulia Sasmita (1201103040007) Shiddiq Multazam (1201103040021) Yasir Hadi Satria (1201103040019)Muhammad Faizal (1201103040015)

1. Definition of MusharakahMusharakah is a joint enterprise or partnership structure with profit or loss sharing implications that is used in Islamic finance instead bearing loans. Musharakah allows each party involved in a business to share in the profit and risks. Instead of charging interest as a creditor, the financier will achieve a return in the form of a portion of the actual profits earned, according to a predetermined ratio. However, unlike a traditional creditor, the financer will also share in any losses.

2. Profit sharing and loss in MusharakahProfit Sharing:The proportion of profit to be distributed between the partners must be agreed upon at the time of effecting the contract. If no such proportion has been determined. The contract is not valid in shariah. The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him. It is not allowed to fix a lump sum amount for any one of the partners or any rate of profit tied up with his investment.Share loss:In the case of loss, all the Muslim jurists are unanimous on the profit that each partner shall suffer the loss exactly according to the ratio of investment. Therefore, if a partner have instead 40% of the capital, he must suffer 40% of the loss, not more, no less, and any condition to the contrary shall render the contract invalid. There is a complete consensus of jurists on this principle.The meaning from Al-Quran:Profit is based on the agreement of the parties, but loss is always subject to the ratio of investment.3. Kinds of Musharakah1. Shirkat-ul-milk (Partnership by joint ownership): It means joint ownership of two or more persons in a particular property. This kind of "Shirkah" divided in two different ways:a) Optional (Ikhtiari): At the option of the parties e.g., if two or more persons purchase equipment, it will be owned jointly by both of them and the relationship between them with regard to that property is called "Shirkat-ul-Milk Ikhtiari" Here this relationship has come into existence at their own option, as they themselves elected to purchase the equipment jointly.b) Compulsory (Ghair Ikhtiari): This comes into operation automatically without any effort/action taken by the parties. For example, after the death of a person, all his heirs inherit his property, which comes into their joint ownership as a natural consequence of the death of that person.

2. Shirkat-ul-Aqd (Partnership by contract): It means a partnership effected by a mutual contract. For the purpose of brevity it may also be translated as "joint commercial enterprise." Shirkat-ul-Aqd is further divided into three kinds:a) Shirkat-ul-Amwal (Partnership in capital) where all the partners invest some capital into a commercial enterprise.b) Shirkat-ul-Aamal (Partnership in services) where all the partners jointly undertake to render some services for their customers, and the fee charged from them is distributed among them according to an agreed ratio. For example, if two people agree to undertake tailoring services for their customers on the condition that the wages so earned will go to a joint pool which shall be distributed between them irrespective of the size of work each partner has actually done, this partnership will be a shirkat-ul-aamal which is also called Shirkat-ut-taqabbul or Shirkat-us-sanai or Shirkat-ul-abdan.c) Shirkat-ul-wujooh (Partnership in goodwill). The word has its root in the Arabic word Wajahat meaning goodwill. Here the partners have no investment at all. They purchase commodities on deferred price, by getting capital on loan because of their goodwill and sell them at spot. The profit so earned is distributed between them at an agreed ratio.Each of the above three types of Shirkat-ul-Aqd are further divided into two types:a) Shirkat-Al-Mufawada: (Capital & labour at par): All partners share capital, management, profit, and risk in absolute equals. It is a necessary condition for all four categories to be shared amongst the partners; if any one category is not is not shared, then the partnership becomes Shirkat-ul-Ainan. Every partner who shares equally is a Trustee, Guarantor and Agent on behalf of the other partners.b) Shirkat-ul-Ainan: A more common type of Shirkat-ul-Aqd where equality in capital, management or liability might be equal in one case but not in all respect meaning either profit is equal but not labour or vice versa.

4. Termination of MusharakahIt is agreed upon by the jurists that a partnership is terminated if:1. One of the partners terminates the partnership; every partner has a right to terminate the musharakah at any time after giving his partner a notice to this effect, whereby the musharakah will come to an end. In this case, if the assets of the musharakah are in cash form, all of them will be distributed the same amount between the partners. But if the assets are not liquidated, the partners may agree either on the liquidation of the assets, or on their distribution or partition between the partners as they are. If there is a dispute between the partners in this matter i.e. one partner seeks liquidation while the other wants partition or distribution of the non-liquid assets themselves, the latter shall be preferred, because after the termination of musharakah, all the assets are in the joint ownership of the partners, and a co-owner has a right to seek partition or separation, and no one can compel him on liquidation. However, if the assets are such that they cannot be separated or partitioned, such as machinery, then they shall be sold and the sale-proceeds shall be distributed.2. One of the partners dies (where the heirs get the choice to continue the partnership or liquidate it to draw their share from the partnership);3. One of the partners becomes insane or otherwise becomes incapable of effecting commercial transactions, the musharakah stands terminated.If the remaining partners want to continue the business under any of the above scenarios, it is achievable with mutual agreement. The remaining partners would have to purchase the share of the out-going partner.Another question raised is whether the partners can agree, at the time of contracting, that the partnership will not be terminated unless all partners agree to the termination. Though the earlier fiqh books are silent on the issue, there is nothing in the Shariah that would prohibit such an arrangement

5. Accounting for Musyarakah(continued to next pages)

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TransactionActive Partner (AP)Passive Partner (PP)Business

January 1, 20X1

Active partner gives a capital as much Rp. 20.000,000 and passive partner as much Rp. 10,000,000 and the ratio of the sharing is 4:1

In this contract, Pre contract cost is not agreed as part of investment.

Musharakah Investment-cash 20,000,000 Cash 20,000,000

Musharakah Investment-cash 10,000,000 Cash 10,000,000

Cash 30,000,000 Temporer Syirkah Funds-AP 20,000,000 Temporer Syirkah Funds-PP 10,000,000

December 31, 20X1

The business gains Rp. 15,000,000 as income and Rp. 5,000,000 as expenses

Profit Sharing payment:AP: x 10,000,000 = Rp. 8,000,000

PP: x 10,000,000 = Rp. 2,000,000

Cash 8,000,000 Profit Sharing Revenue 8,000,000

If the profit sharing not share directlyProfit Sharing Revenue Receivables 8,000,000 Profit Sharing Revenue 8,000,000

The profit sharing payment:Cash 8,000,000 Profit Sharing Receivables 8,000,000

Cash 2,000,000 Profit Sharing Revenue 2,000,000

If the profit sharing not share directlyProfit Sharing Revenue Receivables 2,000,000 Profit Sharing Revenue 2,000,000

The profit sharing payment:Cash 2,000,000 Profit Sharing Receivables 2,000,000Income:Cash/ Account Receivable 15,000,000 Revenue 15,000,000

Expenses:Expenses 5,000,000 Cash/Payable 5,000,000

Revenue 15,000,000 Expenses 5,000,000 Unshared Revenues 10,000,000

Profit Sharing Expense 10,000,000 Cash 10,000,000

If the profit sharing not share directlyProfit Sharing Expense 10,000,000 Profit Sharing Payable 10,000,000

Profit Sharing payment:Profit Sharing Payable 10,000,000 Cash 10,000,000

December, 31 20X1Closing entries for profit sharingUnshared Revenue 10,000,000 Profit Sharing Expense 10,000,000

Financial Statement (Balance Sheet)Asset:Musharakah Investment 20,000,000Allowance for Losses 0Net Investment 20,000,000Asset:Musharakah Investment 10,000,000Allowance for Losses 0Net Investment 10,000,000Liability :Musharakah Profit Sharing Payable 0 Temporer Syirkah Funds 30,000,000Allowance for Losses 0Temporer Syirkah Funds 30,000,000

December 31, 20X2

The business gains Rp. 12,000,000 as revenue and Rp. 15,000,000 as expenses

The losses sharing as the ratio of the capital 2:1AP: x 3,000,000= Rp. 2,000,000PP: x 3,000,000= Rp. 1,000,000

Losses 2,000,000 Allowance for losses 2,000,000

Losses 1,000,000 Allowance for losses 1,000,000

Income:Cash/Account Receivable 12,000,000 Income 12,000,000

Expenses:Expenses 15,000,000 Cash/Account Payable 15,000,000

Revenue 12,000,000Allowance for losses 3,000,000 Expenses 15,000,000

Financial Statement (Balance Sheet)Asset :Musharakah Investment 20,000,000Allowance for losses (2,000,000)Net Investment 18,000,000Asset :Musharakah Investment 10,000, 000Allowance for losses (1,000,000)Net Investment 9,000,000

Liability :Musharakah Profit Sharing Payable 0Temporer Syirkah Funds 30,000,000Allowance for losses (3,000,000) Temporer Syirkah Funds 27,000,000

January 1, 20X2

Musharakah Investment PaybackCash 18,000,000 Allowance for losses 2,000,000 Mudharabah Investment 20,000,000Cash 9,000,000Allowance for losses 1,000,000 Mudharabah Investment 10,000,000Temporer Syirkah Funds 30,000,000 Allowance for losses 3,000,000 Cash 27,000,000