Bank Muslim has entered into an Ijara contract with Barakah Construction to lease equipment for a period of 5 years. The bank purchased specialized equipment from a local manufacturer on 01 January 2017 for $1,100,000 and incurred a transportation cost of $100,000. The Bank also incurred a legal fee of $50,000 relating to the lara contract, which the bank considered to be material. Both parties have agreed that the installments are paid every quarter. The rental payment was agreed at $40,000 per month. The residual value of the equipment after 5 years is expected to be $ 200,000 based on the estimate of a certified valuer. In 2018 and 2020, Barakah Construction incurred repair costs due to mechanical default not due to the normal usage of the asset amounting to $ 50,000 and $40,000 respectively. Every year, Barakah Construction incurred routine maintenance costs due to wear and tear amounting to $20,000 per year on average. 

Required: 

(a) Prepare a profit statement to recognize the above ljara contract in the books of Bank Muslim for the five-year period based on ljara Muntahia Bitamleek (IMB ) through the Equivalent Value method as prescribed by AAOIFI FAS 8.

Answer rating: 100% (QA)

01Jan2017 Equipment Purchased Cost 1100000 Add Transportation 100000 Need to capitalize in cost o... View the full answer