Financial Reporting For Islamic Financial Institutions Accounting Standards Interpretation And Application 1st Edition Abdul Rauf Mahar, Ayesha Bhatti, Muhammad Junaid Ashraf, Asfand Zubair Malik - Solutions

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ETHICAL DECISION MAKING Scenario 2 You are working in a medium sized startup, ImageCo, which is looking to disrupt the medical imaging industry by providing an $X$-ray machine that is simple and cheap enough for people to have one at home. To realise this ambition ImageCo needs to secure a new
ETHICAL DECISION MAKING Scenario 3 You have been at HospitalCo (a large private hospital) for just under a month and have been primarily responsible for following up unpaid hospital bills. It is Friday lunchtime and you look up to see your boss at your desk. 'I'm really sorry to ask this of you
CODE OF CONDUCT You have just joined FairCo, an emerging financial services company that aims to provide greater access to financial products to disadvantaged groups while employing a diverse range of genders and ethnicities at all levels. The current code of conduct comprises a single statement:
MORAL RELATIVISM Your company has just acquired GameCo, a small but very profitable online casino. You are part of the team responsible for integrating GameCo's financial records into the parent company's accounting system. As part of your review you become concerned that GameCo may not be
What are the key sources of regulation in Australia for a listed company?
Distinguish between the roles of the FRC and the AASB.
Discuss whether the financial reports prepared in accordance with the requirements of Corporations Act must be audited and lodged with ASIC.
Australia has adopted International Financial Reporting Standards since 2005. Does this mean all accounting standards issued in Australia are the same as the IFRS standards?
Explain the potential benefits and problems that can result from the adoption of IFRSs in Australia.
What is the difference between Australian Accounting Standards and IFRSs?
One of the functions of the FRC is to ensure that the Australian Accounting Standards are 'in the best interests of both the private and public sectors in the Australian economy'. How might the FRC assess this?
The AASB or NZASB Visit the AASB website (www.aasb.gov.au) or NZASB website (www.xrb.govt.nz) and answer the following:1. Who is the Chair of the organisation?2. Who are the members?3. Which accounting standards have been issued in the past year?4. What are the standard setting policies and
The IASB Visit the website of the International Accounting Standards Board (www.ifrs.org). Report on:1. the resources that are provided by the IASB for the accounting profession 2. the funding of the IASB 3. the goals and the mission statement of the IASB.4. a current project being undertaken by
ASICVisit the website of the Australian Securities and Investments Commission (www.asic.gov.au). Report on:1. what ASIC is and its role2. the types of investigations and enforcement performed by ASIC3. the policy statements and practice notes issued by ASIC.
The FRC or The XRBVisit the website of the Financial Reporting Council (www.frc.gov.au) or the XRB website (www.xrb.govt.nz). Locate its strategic plan and report on:1. the strategic priorities of the organisation’s current strategic plan.2. the key environmental factors that impact the
Maple Red Pty Ltd is a research institute operates in Queensland. It has developed and owned more than 40 intellectual property. The company’s accounting record shows that it has total assets of $$63$ million, total liabilities of $$39$ million and revenue of $$50$ million. It has 20
Middleborough is a proprietary company operates in South Australia. It has total assets of $$48$ million and total liabilities of $$25$ million. Its revenue for the current year was $$45$ million. It has 76 full-time and 20 part-time employees. Neither ASIC nor shareholders have made a
While a store you own was being cleaned, a customer slipped on the wet floor and fell, resulting in a serious and costly injury. The customer has sued your company. Your lawyers advised that while they will vigorously defend you in the lawsuit, the company should expect to lose $25 000 to cover the
An entity purchases a rental property for $$5$ 000 000 as an investment. The building is fully rented and is in a good area. At the end of the current year, the entity hires an appraiser who reports that the fair value of the building is $$7$ 500 000 plus or minus 15%. Depreciating the building
What measurement principles might be most appropriate for a company that has ceased to be a going concern (e.g. creditors have appointed a receiver who is seeking buyers for the company’s assets)?
The Conceptual Framework defines an asset as a present economic resource controlled by the entity as a result of past events. At the same time the Conceptual Framework establishes that an asset is to be recognised only if it provides information to the users of the financial statements that is
A government gives a grant to a medical research company to develop a vaccine to protect people from getting seriously ill if infected COVID-19. The grant will be paid in 3 payments over two years. Discuss whether the government grant can be recognised as an income and when this should take place.
Verocia Ltd is the guarantor for its subsidiary’s bank loan. Explain how Verocia Ltd should account for this event, if:(a) You have no reason to believe the subsidiary will default on the loan.(b) As the subsidiary is in serious financial difficulties, you think it likely that it will default
Moscow Legal and Associates issued an invoice to one of its clients $7850 for legal advice provided to the client. Explain how Moscow Legal and Associates should record this event, justifying your answer by reference to relevant Conceptual Framework’s definition and recognition criteria. Would
A retail store of Savemart Ltd was broke in and $21 000 was stolen from night safe. Explain how Savemart should account for this event, justifying your answer by reference to relevant Conceptual Framework definitions and recognition criteria.
The following events occurred in relation to assets and liabilities recognised by Watson Ltd.(a) Watson Ltd settled (paid) an account payable.(b) Watson Ltd sold an item of inventory to a customer.(c) Watson Ltd had been using the fair value measurement base for its plant but estimates of fair
Which of the following statements about Islamic banking is not true?a. Interest (known as Riba) is prohibited.b. Conventional interest is considered by scholars to result in inequality and injustice in society.c. Trading-based and risk-sharing transactions are impermissible.d. Speculation-based
Which of the following statements is true?a. Murabaha, an equity instrument, is a sales contract in which the asset is sold by the bank to the customer at costplus-profit.b. Salam is a forward contract where a sale of an item is made before it is produced.c. Musharakah is a rental lease agreement
Which of the following statements is true?a. Money is a commodity as well as a medium of exchange in a conventional mode of financing.b. Money is not a commodity and is a medium of exchange and store of value in the Islamic mode of financing.c. In Islamic finance, the concept of the time value of
The relationship between an Islamic bank and its customers is that of a:a. Partner/investorb. Buyer and sellerc. Lessor/lesseed. All of the above
In general, financial accounting can be broken down into the following steps:a. Identifying and recording economic transactionsb. Recording and communicating economic transactionsc. Identifying, recording, and communicating economic transactionsd. None of the above
Which of the following statements is true regarding the information needs of users of an IFI’s financial statements?a. They require information about the institution’s Shariahcompliant transactions.b. They require information that can assist in evaluating the institution’s compliance with
The standards-setting body of the IFRS Foundation isa. International Accounting Standards Board (IASB)b. IFRS Foundation Monitoring Boardc. IFRS Interpretations Committeed. IFRS Foundation Trustees
The Shariah governance frameworka. Gives comprehensive guidance to ensure compliance with Shariah principlesb. Helps to enhance the confidence of stakeholders and the financial markets in the credibility of the IFIs operating within a jurisdictionc. Defines the roles and responsibilities of the
Which of the following statements is not true?a. AAOIFI is responsible for the development and issuance of standards for the Islamic finance industry.b. All IFIs across the world are required to follow the accounting standards issued by AAOIFI.c. AAOIFI aims to harmonise the accounting policies and
Under AAOIFI code of ethics, accounting is:a. A necessary evilb. Required only for larger organisationsc. A Farz-e-Kifayad. Important for investment decision-making by investor
Which of the following statements is true about why AAOIFI Framework was introduced?a. AAOIFI Framework was introduced because there was no existing framework for banking industry.b. AAOIFI Framework was introduced to enable the development of a common accounting and reporting framework for IFIs
Which of the following are considered to be common information needs of users?a. Information about the institution’s transactions, its economic resources and claims against the institution or on specific economic resources, its operations and other financial data assisting to assess the overall
Faithful representation of financial information includes which of the following?a. Relevance, Neutrality, Substance and Form, Transparencyb. Materiality, Prudence, Consistency, Relevancec. Neutrality, True and Fair View, Substance and Formd. Quasi-Equity, Prudence, True and Fair View, Consistency
Which of the following statements is the correct definition for net return on quasi-equity?a. Return attributable to holders of owners’ equity during the period covered by the financial statements.b. Profit earned by the IFI during the period covered by financial statements.c. Return attributable
Which of the following options shows the correct hierarchical level for selection and application of accounting policies in ascending order (4 being the first step)?a. i. The management’s judgement if in line with the Conceptual Framework and the Shariah principles and rules ii. FAS on Similar
The AAOIFI Conceptual Framework includes the following chapters, except:a. Users, objectives, and limitations of financial informationb. Concepts of capital and capital maintenancec. Financial accounting processd. Financial statements and the reporting institution
General-purpose financial statements comprisea. Primary statements and explanatory notes including accounting policiesb. Primary statements onlyc. Statements of cash flows and explanatory notesd. Special-purpose reports, explanatory notes including accounting policies
Derecognition of an asset might occur when:a. The control of an asset is transferred to a third party, for example, through sale or gift.b. No future economic benefits are expected from the asset.c. The institution has earned the right to receive income from the asset.d. Both a and b.
Which of the following statements is true?a. Historical cost of an asset refers to the amount received by the institution when the liability was incurred, or cash or cash equivalents are expected to be paid.b. When deciding to use fair value, entities should ensure consistency in the use of the
The AAOIFI Conceptual Framework defines the following elements of the financial statements:a. Assets, liabilities, quasi-equity, owners’ equity, and income and expensesb. Assets, liabilities, owners’ equity, and income and expensesc. Assets, liabilities, quasi-equity, and income and expensesd.
Falah Islamic Bank acquired an asset on Dec 30, 2022, for USD 1,000. A creditworthy client made a binding promise to purchase the asset on Jan 1, 2023, at 20% markup. However, on Dec 31, 2022, the asset was damaged in a fire, and its fair value was reduced to USD 900.The bank should record the
Mr Hamad made a non-binding promise to an Islamic bank that he would buy a vehicle from the bank and paid USD 240 as Hamish Jiddiyyah. The bank purchased a car for USD 500 and offered it to Mr Hamad for USD 650. Mr Hamad decided not to buy the car at this price and so the bank sold the car for USD
On Dec 31, 2022, a client made a non-binding promise to purchase a car from the bank as a part of a Murabaha arrangement. The bank purchased the car on Jan 1, 2023, at a cost of USD 1000 and sold the car to the client at a price of USD 1,500 on Jan 2, 2023. At the time of purchase, the bank will
As per the Murabaha contract, the selling price of USD 1,500 is due from the client in five equal instalments of USD 300 at the end of each year. What entry should be passed by the bank at the time of the sale in respect of the profit element of the transaction:a. Dr. Receivables (Asset) 500; Cr.
Barkat Islamic Bank purchased an item of machinery for sale on Jan 2, 2022, for USD 10,000. The equivalent cash price of the machinery through a spot sales contract was USD 11,000. The machinery is to be sold at a markup of 25% on cost. The sales contract between the bank and the client was
JITB Islamic Bank purchased a motor vehicle which it intends to sell under a Murabaha contract. The cost of the car was USD 1,000,000. Other costs related to the acquisition were:At what value will JITB Islamic Bank record the purchase of the vehicle?a. USD 1,052,000b. USD 1,077,000c. USD
Rehmat Islamic Bank sells a generator under a Murabaha contract which it acquired for Rs 1,000,000. The terms of the contract require that instalment are due over a period of three years. The annual instalment payment is Rs 400,000. At the time of sale, the cash equivalent price of the generator
If an IFI expects that some of the proceeds under a Murabaha contract will not be recovered, what entry should be made in the accounts of the IFI?a. Cr. Receivable; Dr. Provision for Doubtful Debtsb. Cr. Provision for Doubtful Debts, Dr. Receivablec. Dr. Cash, Cr. Receivabled. Dr. Receivable, Cr.
Barkat Bank acquires an asset from a vendor to be sold under a Murabaha contract to its client. At what point should the bank recognise the inventory in its books?a. When the legal title is transferred to the bankb. When the Murabaha contract is signedc. At the time the bank makes cash payment to
Which of the following statements is true about the subject matter under Salam?a. The subject matter has to be specific with unique attributes that make them different from one another.b. The subject matter and Salam capital must be of the same nature and kind.c. The subject matter must be in the
Which of the following is true?a. The buyer in a Salam contract may form a Parallel Salam contract acting as the seller.b. Parallel Salam contract can’t be formed with the seller of associated Salam contract.c. Parallel Salam is dependent in terms of performance on the Salam contract.d. Parallel
Which of the following statements is true?a. Price in Parallel Salam contract should be greater than the price in Salam contract.b. Price in Salam contract should be greater than the price in Parallel Salam contract.c. Price in Salam contract has no relationship with the price in Parallel Salam
When the Salam commodity is sold in the open market, then the Salam profit is equal to:a. The difference between the historical price of the Salam commodity and the price paid to the seller in the Salam contractb. The difference between the market price of the Salam commodity and the price paid to
At the end of each period, under IFRS, the difference between the fair value of the Salam receivable and its historical value is:a. Recognised as a lossb. Recognised as a bad debt expensec. Recognised as a separate receivabled. None of the above
Which of the following is not a method for disposing Salam inventory?a. Selling in the open marketb. Entering into a Parallel Salam contractc. Entering into a traditional forward contract to sell the commodityd. Selling in the open market with a pre-promise
Under AAOIFI, if an Islamic bank recovers receivables through pledged securities and the recovered amount exceeds the outstanding amount, the bank will:a. Debit cash, Credit accounts receivable, and Credit pledged securitiesb. Debit cash and Credit Salamc. Debit cash, Credit accounts receivable,
Price risk of Al-Muslam Fihi refers to a scenario where:a. The client will be unable to deliver the commodity as promised in the contract.b. The carrying value of the commodity exceeds the book value.c. The market price of the commodity rises more than expected.d. None of the above
Dhafer Islamic Bank (DIB) enters into a Salam contract with Hadi Corporation to receive a predetermined quantity of sugar on Aug 19, 2022. The advance payment for the sugar was Tunisian Dinars(TND) 565,000. When Hadi Corporation delivers the commodity to DIB, the entries DIB makes in its books will
On Jan 1, 2023, ABC Islamic Bank entered into a Salam contract with a farmer to buy 3 tons of wheat at USD 2,000 per ton to be delivered on Jun 30, 2023. The bank paid USD 6,000 at the date of entering the agreement and also formed a Parallel Salam contract with another client on Jan 10, 2023, to
Istisna’a is a sales contract betweena. Al-Mustasni’ and Al-Sani’b. Al-Mustasni’ and Al-Masnoo’c. Al-Mustasni’ and clientd. Al-Sani’ and the manufacturer
Al-Mustasni’ in an Istisna’a contract isa. Sellerb. Buyerc. Manufacturerd. Bank
In an Istisna’a contract, the manufacturer promises to deliver the specifically manufactured asset at an/a:a. Unspecified date but pre-set priceb. Specific date and fair value price at the time of delivery of the productc. Within one year at the fair value price at that timed. Specific date at a
In a Parallel Istisna’a contract, compared to primary Istisna’a, a third party is involved which is:a. Buyerb. Sellerc. Manufacturerd. Bank
After signing an Istisna’a contract, how would the pre-contract cost be recorded in the books of the bank?a. Debit deferred (pre-contract) cost, Credit Istisna’a WIPb. Debit Istisna’a WIP, Credit deferred (pre-contract) costc. Debit deferred (pre-contract) cost, Credit cash/payable/bankd.
Cash equivalent value in an Istisna’a contract isa. The expected cost to complete the contractb. The difference between the expected Istisna’a profit and the expected cost to complete the contractc. The difference between the contract price and the expected cost to complete the contractd. The
The revenue and related profit under an Istisna’a contract are recorded in each financial period using:a. Percentage of completion method onlyb. Cost to complete method onlyc. Percentage of completion method or cost to complete methodd. Percentage of completion or completed contract method
An Islamic bank has an Istisna’a agreement to construct a football stadium within a period of four years. The Istisna’a revenue is USD 200 million, and the estimated profit in the contract is USD 80 million. It is agreed in the contract that the bank will bill the client based on the stage of
Under the completed contract method, in case the percentage of completion is unknown, how should the bank recognise the revenue and cost in the income statement?a. Equally divide revenue and cost over the period of the contractb. Full revenue and cost at end of year one of the contractc. Full
An Islamic bank entered an Istisna’a contract with a client to produce 500 chairs for USD 30,000 in one year. The bank also signed a Parallel Istisna’a contract with a furniture manufacturer to produce 500 chairs for USD 20,000 in one year.What would be the journal entry to record the payment
In Ijarah Muntahia Bittamleek, transfer of ownership can happen in the following ways except:a. An ordinary or conditional giftb. A sale transactionc. An auctiond. Gradual transfer of ownership
All of the following are benefits of Ijarah transactions except:a. Ijarah allows companies to completely finance their longterm assets.b. Ijarah can effectively reduce the risk of obsolescence.c. The rental payments made by the lessee are 100% taxdeductible.d. Simpler financial reporting
Which of the following topics on Ijarah is covered by FAS 32?a. Sale and Ijarah-back transactionsb. Sukuk agreement in which underlying asset is based on Ijarah transactionc. Ijarah transactions concerning licensing agreements of certain itemsd. Labour contracts, hiring of professional services,
In the books of the lessee, the right-of-use asset should initially be recorded at:a. Cost less expected depreciationb. Fair value less costs to sellc. Market price less estimated expenses of the asset over its useful lifed. Purchase price plus initial direct costs incurred by the lessee and
According to FAS 32, operating Ijarah is:a. Also termed as finance Ijarahb. An Ijarah that is not accompanied with an option of transfer of ownership of the underlying asset to the lesseec. Equivalent in terms of Murabahad. None of above
In the books of the lessor, revenue from the Ijarah contract is recognised:a. As the estimated revenue income at the beginning of each accounting periodb. Proportionately in each accounting period on an accrual basisc. Proportionately in each accounting period on a cash basisd. As and when received
How are material initial direct costs (other than costs related to Ijarah assets) treated by the lessor?a. Expensed in the income statement in the period in which they are incurredb. Added to the cost of the Ijarah assetc. Capitalised and allocated over the lease term in a manner consistent with
The accounting entries in the lessor’s books for the transfer of Ijarah assets through a gift transaction in Ijarah MBT will be:a. Dr. Ijarah Asset; Cr. Accumulated Depreciationb. Dr. Cash; Cr. Ijarah Assetc. Dr. Accumulated Depreciation; Cr. Ijarah Assetd. None of the above
Which of the following is not a minimum disclosure requirement for Ijarah transactions in the lessor’s books?a. Estimated amounts of assets to be financed using Ijarah within the next 12 monthsb. Amortisation of initial direct costsc. Accounting policies adopted for Ijarah transactionsd. Ijarah
Which of the following is a key difference between Ijarah and a finance lease?a. The Islamic bank does not own the asset in Ijarah, while the bank owns the asset in a finance lease.b. The client bears all risks incidental to ownership in Ijarah, while the bank bears these risks in a finance
Under a Mudaraba contract:a. Profit-sharing ratios are decided by the Rab al-Maal at the start of the contract.b. The Rab al-Maal bears all losses except those incurred due to the negligence of the Mudarib.c. All parties are required to contribute capital.d. One party provides the investment for
FAS 3 applies to:a. Where the Islamic bank is acting as Rab al-Maalb. The accounting of the Mudaraba transactions in the books of Mudaribc. Accounting treatment of unrestricted investment accounts characterised as Mudarabad. Gains and losses attributable to Mudaraba contracts
Under an unrestricted Mudaraba contract:a. The investment account holder authorises the Islamic bank to invest their funds in a manner deemed appropriate by the Islamic bank.b. Certain limitations are placed as to where, how, and for what purpose the funds should be invested.c. The Islamic bank
Subsequent to initial recognition, Mudaraba capital must:a. Be recognised at fair valueb. Continue to be recognised at initial recognition costc. Be remeasured periodicallyd. Be amortised over time using an appropriate amortisation method
If there is a loss at Mudaraba liquidation:a. The Rab al-Maal can require a Mudarib to provide a guarantee against his/her negligence if there has been any.b. If a Mudarib fails to pay the cash on liquidation or losses are due to misconduct or his/her negligence, the Islamic bank should not record
On 12 April, 2023, Tayeb Islamic Bank transferred cash of USD 400,000 and an apartment to a client as contribution to a Mudaraba arrangement. The bank acquired the apartment for USD 300,000, and the current book value of the apartment is equal to USD 250,000. Partners in Mudaraba agreed that the
On 23 March, 2023, Somer Islamic Bank transferred cash of USD 400,000 and an apartment to a client as contribution to a Mudaraba arrangement. The bank acquired the apartment for USD 300,000, and the current book value of the apartment is equal to USD 250,000. Partners in Mudaraba agreed that the
On 12 January, 2023, Half Islamic Bank signed a Mudaraba contract with a client for the construction of a housing unit. The bank provided USD 500,000 for the construction. Both parties agreed to a profit-sharing ratio of 70:30. Because of the damage to the property, the business suffered a loss of
Tamaam Islamic Bank made a five-year Mudaraba investment on January 12, 2023. The total Mudaraba investment capital provided by the bank was USD 200,000. On liquidation, only USD 160,000 could be recovered. The loss was due to normal business factors.How will the bank recognise the transaction at
Al-Ain Islamic Bank provided financing of USD 4,000,000 to a client under a multi-period Mudaraba contract. During the first year of operations, the Mudaraba earned a profit of USD 500,000.The profit-sharing ratio between the bank and the client is 80% and 20%, respectively. The bank received its
Two parties decided to construct a commercial building. Party A will invest SAR 1,500,000, and Party B will invest SAR 850,000.Both parties agreed that profit and loss will be shared in proportion of the equity each partner holds. In addition, Party A also agreed to purchase the equity share of
On Mar 23, 2023, MLA Islamic Bank transferred cash of PKR 300,000 and an apartment to a client. The bank had acquired the apartment for PKR 200,000, and the current book value of the apartment is equal to PKR 150,000. Partners in Musharakah agreed that the apartment was worth PKR 300,000. What is
On May 12, 2023, TRS Islamic Bank transferred cash of SAR 300,000 and an apartment to a client. The bank had acquired the apartment for SAR 200,000, and the current book value of the apartment is equal to SAR 150,000. Partners in Musharakah agreed that the apartment was worth SAR 300,000. What
HUK Islamic Bank advanced BD 200,000 to a client under a Musharakah arrangement and owns 40% of the equity of the business. At the end of the period, on December 31, 2023, as stipulated in the contract, the client paid back BD 100,000 of the principal. The accounting entry will be:a. Debit Cash by
For a single-period Musharakah, whether constant Musharakah or diminishing Musharakah, the profit or loss shall be recognised:a. When the profit is distributed to the partnersb. At the year-endc. When the Musharakah is liquidatedd. At the start of the accounting period

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Financial Reporting For Islamic Financial Institutions Accounting Standards Interpretation And Application 1st Edition Abdul Rauf Mahar, Ayesha Bhatti, Muhammad Junaid Ashraf, Asfand Zubair Malik - Solutions

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