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Bank Amanah Berhad entered into an ijarah contract with Sincere Quality SDN BHD to lease

equipment for a period of 3 years. Bank Amanah Berhad purchased equipment from a local
trader on 1
st
of January 2000 for RM60, 000. The bank also incurred legal fees of RM500
relating to the ijarah contract, which the bank considered to be material.
Other details about the ijarah are as follows:
Fair value of equipment:
At the beginning of 2000 RM60, 000
At the end of the lease:
31 December 2002 RM2, 000

Number of installments on quarterly basis 12
Rentals at the end of each quarter RM6, 000
Estimated useful life 3 years
Estimated residual value at the end of useful life RM4, 000
Estimated expenditure incurred in the second year RM1, 200

Question:
Prepare journal entries to record the above ijarah contract in the books of Bank Amanah Berhad
assuming the lease was treated as Ijarah Muntahia Bitamleek through sale for a token
consideration (agreed to be equivalent to 50% of the estimated residual value at the end of useful
life) for the following periods:
At the beginning of ijarah
On receipt of first rental
At the end of first year; and
At the end of ijarah term





On 1
st
January 2007 Bank ISLAM Pakistan Ltd arranged an Ijarah Muntahiya Bitamleek
financing for Pakistan Car Rental for a 4 year period. The package was for 10 proton gen 2 cars
from the Malaysian manufacturer at a cost of RM100, 000 (total cost) at a yearly of RM37, 500.
The bank entered into a maintenance contract with Proton for a major service at a yearly cost of
RM500 per car.
The rentals to be paid in yearly installments over the four years in advance. During discussion
with Pakistan Car Rental, the bank considered the following options:
Option A:
The bank promises to give the cars as a gift at the end of the contract.

Option B:
Pakistan Car Rental to undertake a binding promise to buy the cars at RM2, 000 per car at the
end of the ijarah period. However, in this case, the ijarah rentals to be RM35, 000 per year
payable yearly.


Question:
i) Work out the profits for the bank in each case and advise the customer which is the
best option for them in terms of cost.
ii) Provide in columnar form, the balance sheet and the income statement extracts from
inception until the expiry of lease for both options.

Answer
i)
Option A Option B
Total installment


Sale price


Total revenue


(less)
Cost of car


Maintenance cost


Total cost


Profit



ii) Balance sheet and income statement for option A
Balance sheet as at
31.12
2007 2008 2009 2010
Investment in Ijarah
Assets

(less) depreciation


Net Book Value


Income Statement for year ended
31
st
December 2007 2008 2009 2010
Ijarah Rental


(less) depreciation


(less) maintenance


Total Direct Cost


Net Profit on Ijarah



Balance sheet and income statement for option B

Balance sheet as at
31.12
2007 2008 2009 2010
Investment in Ijarah
Assets

(less) Acc
depreciation

Net Book Value


Income Statement for year ended
31
st
December 2007 2008 2009 2010
Ijarah Rental


(less) depreciation


(less) maintenance


Total Direct Cost


Net Profit on Ijarah