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CHAPTER 12 ACCOUNTING FOR ISTISNA' FINANCING AND PARALLEL ISTISNA' Question 1 KL Islamic Bank entered a two-year, Istisna' contract to construct a power generator for a total price of $600,000 commencing 1 January 2007. The following costs were estimated at the time of concluding the contract. 31 December 2007 31 December 2008 Materials Total 120,000 60,000 180,000 Wages 180,000 120,000 300,000 Total 300,000 180,000 480,000 Billings were made in year 2008 for $225,000 and the remaining balance was billed at the end of year 2008. Following is the payment schedule that was agreed with the client of KL Islamic Bank: Year % of total price 2007 25% 2008 30% 45% 2009 327There was a substantial increase in material cost in 2008 due to the liquidation of a major supplier for the said material. Accordingly, the bank revised its cost estimate for material to be $60,000 higher than previously planned. The bank recognizes revenue based on the percentage of completion method. Required: a. Prepare all necessary journal entries for the years 2007 to 2009 to record the above transactions in the books of KL Islamic Bank. b. Prepare the Statement of Financial Position (extract) and Income Statements (extract) for the year 2007 and 2008 to present the transactions relating to the contract