1. Which of the following is true? a) The credit balance of Hamish Jiddiyyah is presented in the asset side of the statement of financial position. b) Istisna receivables are presented within the investments. c) Deferred sales receivables are evaluated at fair value at the statement of financial position date. d) In income statement, the deferred sales income includes the effect of deferred sales funded by unrestricted investment accounts. Read the following and answer questions 2 and 3. Ahmad invested USD 200000 in an Islamic bank on 1/10/2008 on the basis of mudaraba contract in which he allowed to commingle his fund with the bank s own funds and to deduct 10% of profit as share of mudarib. The bank used the funds in funding a murabaha operation done with client Mahmoud on 1/11/2008 with a nominal value of USD 220000 (on 10 monthly installments). After 5 months of regular payments the client Mahmoud declared his bankruptcy which forced the bank to seize the asset (subject of murabaha contract) and sell it via auction at 1/4/2009 with a value of USD180000. 2. What is the accounting entry as at 1/4/2009? a) Dr. Cash 180000 Dr. Sales receivables deferred profit 10000 Cr. Payables Mahmoud 70000 Cr. Income deferred sales 10000 b) Dr. Cash 180000 Cr. Income deferred sales 70000 c) Dr. Cash 180000 Cr. Payables Mahmoud 70000 d) Dr. Cash 180000 Dr. Sales receivables deferred profit 10000 Cr. Payables Mahmoud 80000 Copyright protected - AAOIFI 1
3. What is the effect on the 3 parties? a b c d Ahmad 9000 10000 18000-20000 Bank 1000 1000 2000 0 Mahmoud - 30000 0-40000 0 4. Ahmad invested USD 200000 in an Islamic bank on the basis of unrestricted mudaraba contract in which the parties will share profits evenly, and the bank used these amounts in financing two operations. The first is a mudaraba contract signed with client Mahmoud for a value of USD 60000 in which they expect to have USD 5000 as profit and to share the profits on the ratio of 40% for the bank and 60% for Mahmoud. The second operation is musharaka contract signed with client Isam with a capital of USD 280000 funded equally with a profit distribution ratio 60% for the bank and 40% for Isam. If the results are USD1000 profit from mudaraba operation and USD 20000 losses from musharaka operation (with no due negligence), what is the effect on the involving parties? a b c d Ahmad - 5800-10200 - 9800-20000 Bank -5800 200 200 0 Mahmoud 600 600 600 300 Isam - 8000-10000 - 10000-8000 5. Upon receiving a binding purchase order to buy a car with market value of USD 11000, the bank collected from the client USD 1000 as Hamish Jiddiyyah on 25/10/2008, then signed and executed the related Murabaha contract at 1/11/2008 with the value of USD 10000 collectable via 10 monthly installments (and Hamish Jiddiyah was considered as payment for the first installment). Knowing that the car cost the bank USD 9000 and the client is paying the installments on regular basis, what is the effect of the operation on the bank accounts at 31/12/2008? a b c d Receivables -Client 8800 8000 8000 8000 Account Income deferred sales 2200 1000 200 200 Deferred profit 0 0 800 800 Unrecognized gains 0 1000 0 1000 Copyright protected - AAOIFI 2
6. Which of the following is false? I. Debt owed by either the Mudarib or another party to the capital provider can be used as capital in a Mudaraba contract. II. In a Murabaha contract, the institution is prohibited from selling any item before having acquired the item. III. Tradable bonds can be issued based on the debt from a Salam contract. IV. An Ijarah contract may be executed for an asset undertaken by the lessor to be delivered to the lessee according to accurate specifications, even if the asset so described is not owned by the lessor. V. In a Mudaraba contract, the capital provider (rab al maal) always permits the Mudarib to administer a Mudaraba fund without any restrictions. Answer: a) I and V b) II, III and V c) II, III, and IV d) I, III and V 7. For the purposes of financial accounting for Islamic Financial Institutions, how the effect of changes in the purchasing power of money is dealt with? a) Financial Statements are restated to reflect the changes in the purchasing power or money. b) Effect of such changes are accounted for in the Statement of Equity c) For the purposes of financial accounting, the stability of the purchasing power of the monetary unit is assumed. d) Effect of any changes in the purchasing power of money is accounted for in the income statement. 8. Which of the following is not a qualitative characteristic of accounting information? I. Relevance II. Substance over form III. Accrual concept IV. Reliability V. Comparability Answer: a) I and V Copyright protected - AAOIFI 3
b) I and II c) II and III d) III and IV 9. How will you treat a correction of an error in prior period financial statements? I. Correct the error retroactively by restating the financial statements for all prior periods presented which have been affected by the error. II. Carry out the adjustments in the financial statements for the year in which the error was detected. III. Merely disclosing the error in the financial statements for the year in which the error was detected. IV. Adjust the Retained Earnings at the beginning of the first period presented to reflect the cumulative effect of the correction of the error on the periods which are not presented but which were affected by the error. Answer: a) I b) II and III c) IV d) I and IV 10. XYZ Ltd, the purchase orderer, in a binding promise under a Murabaha contract with an Islamic Bank agrees to buy goods worth USD 5,500 and pays USD 500 as Hamish Jiddiyyah. However, XYZ fails to fulfil its promise and, as a result, the Islamic Bank sells the goods to another client for USD 3,000. The accounting treatment for this in the Islamic Bank s books will be (assuming cost of goods for the bank was USD 5,000.) a) Consider Hamish Jiddiyyah paid (USD 500) as an obligation and treat it as a liability unless the Shari a supervisory board of the Islamic Bank decides otherwise. b) To record the losses incurred (USD 2,000) from sale of asset to another client in the income statement. c) To deduct the losses incurred (USD 2,000) first from Hamish Jiddiyyah paid and record the balance (USD 1,500) in income statement. d) To deduct the amount of actual loss (USD 2,000) from Hamish Jiddiyyah and record the balance losses (USD 1,500) as an amount due from the original purchase orderer. Copyright protected - AAOIFI 4
11. In Istisna a contract the price can be: a) Paid in advance b) Payable within a stipulated time c) Payable upon completion d) Any of the above 12. The rent in a lease contract may be in the form of: a) Use of asset. b) A fixed cash amount to be paid at the end of the lease period. c) An unspecified quantity of a commodity. d) (a) and (b) 13. It is not permissible for an Islamic Bank to charge its customer a fee for a Murabaha transaction, except for: a) Commitment fee, in exchange for the right to contract the Murabaha transaction. b) Credit facility fee, for the provision of the Murabaha credit facility. c) Syndicated financing fee, if such syndicated facility is arranged. d) None of the above 14. The owner of an asset can enter into; a) A lease contract of immediate effect b) A lease contract of future effect c) (a) only. d) (a) and (b). 15. In cases involving personal guarantee the guarantor may be entitled to; a) A lump sum fee b) A certain percentage of the guaranteed amount c) Reimbursement of expenses d) A reciprocating service Copyright protected - AAOIFI 5
XYZ Bank Statement of Financial Position as at 31/12/2009 (Amounts in USD) Current Year Assets Cash 50,000 Current Deposits 700,000 Net Murabaha Receivables 80,000,000 Deferred Profit from Murahaba Operations (5,000,000) Parallel Salam 4,750,000 Mudarab Receivables 10,000,000 Other receivables 1,500,000 Net Fixed Assets 2,500,000 Provisions for doubtful "other receivables" (150,000) Total Assets 94,350,000 Liabilities and Equities Liabilities Current Accounts Deposits 6,000,000 Hamish Jiddiyyah 4,000,000 Salam Financing 4,900,000 Suppliers 1,000,000 Long Term Financing 1,500,000 Payables - Profit Distribution for Unrestricted Investment Accounts 2,000,000 Equity of Unrestricted Investment Accounts Holders 52,850,000 General Provisions for Mudaraba Receivables 1,400,000 Total Liabilities 73,650,000 Owner's Equity Paid Up Capital 10,000,000 Retained Earnings 3,000,000 Investment Risk Reserves 6,000,000 Profit Equalization Reserves 2,000,000 Total Owner's Equity 21,000,000 Total Liabilities and Equities 94,650,000 Based on the above Statement of Financial Position, and from general accounting point of view, answer questions 16 to 20 (assuming that the trial balance that was used to prepare this statement of financial position is balanced, that there is no omission of any accounts, and that there is no mistake in the amounts). Copyright protected - AAOIFI 6
16 - What is wrong with the item Net Murabaha Receivables? A - Its amount, in relation to total assets, is too large. B Hamish Jaddiyyah should be deducted from Murabaha Receivables and thus constitute a part of Net Murabaha Receivables. C - Deferred Profit from Murabaha Operations should be included in Net Murabaha Receivables which in turn should become USD75,000,000. D - All of the above. 17 The Statement of Financial Position is not balanced due to (assuming that the trial balance that was used to prepare this statement of financial position is balanced, that there is no omission of any accounts, and that there is no mistake in the amounts): A - Calculation error B Provision for doubtful other receivables should be presented under liabilities. C Salam Financing should be presented under assets and Parallel Salam should be presented under liabilities. D - None of the above. 18 Assuming that the historical cost of the Fixed Assets amounts to USD 4,000,000 while the depreciation expenses were USD 300,000 for 2009, and that the accounting policies adopted by the bank do not allow revaluation of Fixed Assets, what is the amount for accumulated depreciation of the Fixed Assets? A USD300,000. B - USD1,500,000. C Nil. D USD2,500,000. 19 - What is your opinion about Investment Risk Reserves and Profit Equalisation Reserves? A - No opinion, due to the absence of detailed information. B - No problem with these accounts. C Profit Equalization Reserves should be reflected in Equity of Unrestricted Investment Account only. D Investment Risk Reserves should be presented in Equity of Unrestricted Investment Account only. 20 - Which of the following is/are wrongly presented? I Long Term Financing. II Payables - Profit Distribution for Unrestricted Investment Accounts. III General Provisions for Mudaraba Receivables. A (II). B (III). C (II) and (III). D (I), (II) and (III). Copyright protected - AAOIFI 7