BWFS 3023 / ISLAMIC ACCOUNTING A131 EXERCISE
SALAM AND PARALLEL SALAM FINANCING
On 1st February 2012, Bank Shari’ah Malaysia Berhad entered into a salam financing contract with Perak Islamic Rubber Growers Cooperative to supply 100 metric tons of RSS1 (superior ( superior grade) ruvbber on the 1st week of June 2012 at $1,000 a metric ton. As security, the Cooperative’s clubhouse was pledged to the bank. The amount was paid to the muslam ileihi on
the same day. On 25 th 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 1 st 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 31 st 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.
Show the journal entries in the books of Bank Shari’ah for all the above entries.
ii.
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
RM
100,000
Cash account
100,000
cash payment for salam to perak Islamic cooperative May_25
Dr
Cash account Cr
120,000
Parallel Salam Financing account
120,000
cash received for 100 metric tons of RSS1 from Bata Jun'12
Dr
Parallel Salam Financing account
50,000
Dr
Inventory RSS2 rubber
25,000
Dr
Accounts receivable -perak
25,000
Cr
Salam Financing account
100,000
delivery of 50 tons to bata and 25 tons of RSS2 to inventory and the rest charged to cooperative Jun'12
Dr
Parallel Salam Financing account
70,000
Cr
Cash account
57,500
Cr
Profit and Loss account - profit on parallel salam
12,500
purchase of 50mt of RSS1 to fulfil parallel salam contract and profit and net profit on parallel salam Aug'12
Dr
Cash account
50,000
Cr
Account receivable - perak
25,000
Cr
Cash account
25,000
proceeds from sale of security set off against amount owing and balance refunded Dec_31
Dr
Profit and Loss account Cr
1,250
Inventory RSS2
1,250
Reduction of inventory to C.E.V (1000-950)x25 tons Exctract Income Statement
profit from parallel salam loss from devaluation of inventory
12,500 1,250