(This Question Paper Consists of 7 Printed Pages With 5 Questions)
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Set 1 2 Question 1 AAAOIFIs Financial Accounting Standards 11 (FAS 11) focuses on the profit equalization reserve and investment risk reserve. This is in line with the prudence concept. However, these reserves are not free from controversy. Required: (i) Define profit equalization reserve and investment risk reserve as per AAOIFIs FAS 11. [4 marks] (ii) What are the issues arising from the application of profit equalization reserve and investment risk reserve? [6 marks] [Total: 10 marks]
Set 1 3 Question 2 Asian Islamic Bank entered a three-year Istisnaa contract to construct a bungalow for a total price of RM1,200,000 commencing 1 J anuary 2008. The following costs were estimated at the time of concluding the contract.
31 December 2008 31 December 2009 31 December 2010 Total Materials 120,000 180,000 50,000 350,000 Wages 180,000 120,000 50,000 350,000 Total 300,000 300,000 100,000 700,000
Billings were made in year 2008 for RM600,000 RM300,000 in year 2009 and the remaining balance was billed at the end of year 2010. Following is the payment schedule that was agreed with the client of KL Islamic Bank: Year % of total price 2008 10% 2009 10% 2010 20% 2011 30% 2012 30%
There was a substantial increase in material cost in 2010 due to the liquidation of a major supplier for the said material. Accordingly, the bank revised its cost estimate for material to increase by 10% higher from overall original cost. In order to anticipate the increase in cost, the customer and the bank has agreed to incorporate the increase in the selling price by the same amount. The bank recognizes profit based on the percentage of completion method.
Set 1 4 Required: i. Prepare ledger accounts in the books of KL Islamic Bank for all relevant transactions for the accounting periods ending 31 st December 2008 31 st December 2009 31 st December 2010 31 st December 2011 and 31 st December 2012
(16 marks)
ii. Prepare the Statements of Financial Position (extract) and Income Statements (extract) for the year 2008 to 2010 to present the transactions relating to the contract. (14 marks) [Total: 30 marks]
Set 1 5 Question 3 The Statement of Financial Position for KL Islamic Bank Berhad at 31st December 2010 is given below . Statement of Financial Position as at 31 st . December 2010. Assets (RM) 000 Cash and balances with banks and agents 350,000 Deposits and placements with financial institutions 1,700,000 Dealing securities 1,100,000 Investment securities 300,000 Statutory deposits with Bank Negara Malaysia 250,000 Financing of customers 4,700,000 Bills receivable 300,000 Fixed Assets 500,000 Total Assets 9,200,000 Liabilities Deposit from customers 7,300,000 Deposits and placements of banks and other financial institutions 60,000 Bills payable 100,000
Shareholders Funds Share capital 600,000 Reserves 1,140,000 9,200,000
Additional information are as follows: i. It is found that 25% of the bills receivable is non-recoverable and need to be written off. This provision has not been provided in the above statement of financial position. ii. A total of RM150,000 value of investment securities has been treated as a long term investment where the bank has no intention to liquidate. Set 1 6 iii. Dealing securities include quoted securities of RM 100,000 and unquoted securities of RM 1,000,000. The market value of quoted securities as at 31 st
December 2010 was RM 180,000. iv. An amount of RM50,0000 of banks bills payable are non-tradable. v. Included in the owners equity is an amount owed to charity amounting to RM 35,000. Required: i. You are to calculate the amount of zakat payable by the bank for financial year 2010 using the two methods recommended by AAOIFIs FAS 9. (15 marks) ii. According to AAOIFIs FAS 9, assets subjected to Zakat need to be valued at cash equivalent value. Why is this necessary? Identify two (2) most important zakatable assets of Islamic banks that should be valued at cash equivalent value. (5 marks) [Total: 20 marks] Question 4
For the accounting year ending 31 st December 2010, Bank Islam Berhad earns a gross profit of RM 2,500,000 from its Mudaraba investments. Its overhead expenses during that year were RM 550,000. Additionally, its income from other sources of investment amounted to RM 300,000. The profit sharing ratio between Mudaraba deposit account holders and the bank is 6:4 respectively. The following details the deposit types, average balance, and the weights used for Mudaraba deposit account of the bank in 2010.
Deposit Types Average Balance in Year 2008 Weights 6 months & less 20,000,000 0.50 9 months & less 30,000,000 0.75 12 months & less 45,000,000 1.0 More than 12 months 55,000,000 1.25 150,000,000
Set 1 7 Required:
i. Distinguish the difference between the pooling and separate investment account method of profit distribution. (4 marks)
ii. Given the above, which method of profit distribution policy would Bank Islam adopt? (2 marks)
iii. Using your answer to (ii) above, calculate the a. weighted average balance for each deposit type; b. depositors share of profit based on the weighted average balance; and, c. depositors rate of return for each deposit type d. Ahmad is an investor who has invested RM 450,000 from 1 st March 2010 to 15 th September 2010. Calculate the profit due to him. (14 marks)
[Total: 20 marks]
Question 5
Reza Islamic Bank, an Islamic bank operating in Iran, bought heavy machinery on 10th December 2007 for RM 160,000 paying for it in cash. Legal cost, which the bank regarded as material, amounted to RM 9,000.
On 1 st J anuary 2008, the machine was leased to a housing developer, Mehmet Enterprise for 3 years ending on 31 st December 2010. The fair value of the machinery on 1 st J anuary 2008 was RM 160,000 and the fair value of the machinery on 31 st December 2010 was RM 25,000. The estimated residual value of the machine at the end of its useful life was RM 10,000. Mehmet Enterprise paid the lease payments of RM 36,000 every 6 months. The first payment was made on 1 st J anuary 2008.
Total expenditure on maintenance and repairs incurred by Reza Islamic Bank in the second year of the Ijarah totaled RM 25000. The bank agreed that major repairs undertaken by the lessee will be reimbursed. In the third year, the lessee paid RM 18000 for such repairs. In addition to this, the lessee also paid routine maintenance expenses amounting to RM 2000 each year.
Mehmet Enterprise was given the option to purchase the machinery for RM5,000 at the end of the lease and the company took up the option.
Set 1 8 Required:
i. J ournal entries to record the relevant transactions of Reza Islamic Bank in the accounting period ending 31st December 2007. (3 marks) ii. J ournal entries to record the above Ijarah contract in the books of Reza Islamic Bank assuming the lease was treated as an Ijarah Muntahia Biltamleek for the three accounting periods ending 31 st December 2008, 2009 and 2010. (10 marks)
iii. The extracts of the income statement for the years ending 31st December 2008, 2009 and 2010. (4 marks)
iv. The extracts of the balance sheet as at 31st December 2008, 2009 and 2010. (3 marks)