Reference no: EM132969902

Bank Ummah Islam Berhad (BUIB) enters into a 4 year Musharakah Mutanaqisah contract with Fatihul Berhad with a capital amounting to RM400,000. Profit and loss sharing ratio as agreed by BUIB and Fatihul Berhad is 2:3 respectively. The repayment shall be equal throughout the contract period. However, Fatihul Berhad has financial difficulties during year 2 and thus only managed to pay installment on the capital for that year amounting to RM50,000. Additionally, Fatihul Berhad also faced financial difficulties in year 4 and the repayment outstanding amounted to RM20,000 at the end of the contract.

The profit and loss for the above project is as follows:

Year 1 Profit of RM80,000
Year 2 Loss of RM50,000
Year 3 Profit of RM120,000
Year 4 Loss of RM30,000

Required:

Problem a. Prepare journal entries for Year 1 to Year 4 recording the above transactions.

Problem b. Calculate the balance in the Musharakah Mutanaqisah Financing account as at the end of Year 3 for BUIB and Fatihul Berhad.

Problem c. Prepare an extract of the Statement of Financial Position as at the end of Year 4.