Scarflovers approached Al-Amin Bank to apply for financing on five machines for scarves. The purchase price of one machine is RM500,000. The shipping and takaful cost is RM200,000. The port handling expenses are RM100,000. Al-Amin Bank agreed to finance the transaction on the basis of Murabahah (Murabahah to purchase orderer) at a profit margin of 8% per annum for five years. Scarflovers paid 10% of the purchase price of one machine Hamish Jiddiyyah to Al-Amin Bank. The company needs to pay the installment every October for five years. However, in the second year and the third year, the company paid in November. The company agreed if they fail to pay on time, a penalty of 1% of the receivable amount will be charged for late payment. Following the guideline of the Shariah Advisory Council (SAC), RHB Islamic Bank will disburse the late payment charges to charity. 

(a) You are required to prepare journal entries for Al-Amin from Year 1 until Year 4 only. 

(b) Murabahah financing is different from the conventional deferred payment sale. Discuss the differences between Murabahah and co.

Answer rating: 100% (QA)

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