Question 4 Allocated Mark = 10 marks a. Highlight the differences between Salam and Istisna' contracts...

 

 

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Question 4 Allocated Mark = 10 marks a. Highlight the differences between Salam and Istisna' contracts by completing the table below. (2 marks) Product Delivery Price Costs Period Risk exposures Features of Salam contract Advance full payment Short-term within trade cycles Materials Wages Total Features of Istisna' contract 31 December 2020 120,000 180,000 300,000 Pre-determined at agreed rate b. Gulf Islamic Bank entered into a two-year Istisna' contract to construct a solar panel power system for a total price of $600,000 commencing 1 January 2020. The following costs were estimated at the time of concluding the contract. Credit, market, non-delivery risk 31 December 2021 60,000 120,000 180,000 Billings were made in tear 2020 for $ 225,000 and the remaining balance was billed at the end of year 2021. Following is the payment schedule that was agreed with the client of Gulf Islamic Banks: Year % of total price 2020 2021 10% 10% The Gulf Islamic Bank incurred general and administration expenses total $ 5,000 during 2020. Substantial increase in material cost occurred in 2021 due to the covid-19 pandemic. Accordingly, the bank revised its cost estimate for material to be $60,000 higher than previous planned. The bank recognises revenue based on the percentage of completion method. Required: Prepare all necessary journal entries for the years 2020 to 2021 to record the above transactions in the Question 4 Allocated Mark = 10 marks a. Highlight the differences between Salam and Istisna' contracts by completing the table below. (2 marks) Product Delivery Price Costs Period Risk exposures Features of Salam contract Advance full payment Short-term within trade cycles Materials Wages Total Features of Istisna' contract 31 December 2020 120,000 180,000 300,000 Pre-determined at agreed rate b. Gulf Islamic Bank entered into a two-year Istisna' contract to construct a solar panel power system for a total price of $600,000 commencing 1 January 2020. The following costs were estimated at the time of concluding the contract. Credit, market, non-delivery risk 31 December 2021 60,000 120,000 180,000 Billings were made in tear 2020 for $ 225,000 and the remaining balance was billed at the end of year 2021. Following is the payment schedule that was agreed with the client of Gulf Islamic Banks: Year % of total price 2020 2021 10% 10% The Gulf Islamic Bank incurred general and administration expenses total $ 5,000 during 2020. Substantial increase in material cost occurred in 2021 due to the covid-19 pandemic. Accordingly, the bank revised its cost estimate for material to be $60,000 higher than previous planned. The bank recognises revenue based on the percentage of completion method. Required: Prepare all necessary journal entries for the years 2020 to 2021 to record the above transactions in the

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