Mumtaz Bank has entered into ijarah muntahia bit tamleek contract with Fatima Company to finance the purchase
Question:
Mumtaz Bank has entered into ijarah muntahia bit tamleek contract with Fatima Company to finance the purchase of machine at BD 650,000 and incurred custom duty of BD 50,000. The terms are as follows:
Rental payment is BD 25,000 quarterly for 5 years. The residual value at the end of period will be BD 75,000. Ownership is to be transferred at token price of BD 45,000
During the ijarah period, Fatima Co. paid the following expenses related to the machine
Takaful insurance in year 2 and 3 for fire and theft, respectively BD 5,500 and BD 6,500
Machine broke down for 6 months and was repaired for BD 50,000
Mumtaz Bank also had to pay certain expenses:
Legal expenses of BD 15,000 before signing the ijarah muntahia bittamlek contract, which is considered material
Takaful expenses for year 1, 4, and 5 for fire and theft for BD 6,000
Required:
a.Calculate total instalment (re-payment) and depreciation expense for the machine (2 marks)
b.Make the journal entries for Mumtaz Bank for 5 years (5 marks)
c.Provide an extract of the balance sheet and income statement (3 marks)
South-Western Federal Taxation 2020 Comprehensive
ISBN: 9780357109144
43rd Edition
Authors: David M. Maloney, William A. Raabe, James C. Young, Annette Nellen, William H. Hoffman