Reference no: EM132587440

Point 1: On 1st January 2015, Bernas Berhad entered into Salam contract with Raihan Islamic Bank to finance paddy crops,which is expected to be harvested in the year 2015.The bank will buy 75,000kg of paddy for $300,000 to be delivered after 6 months from the date of signing the contract.Raihan Islamic Bank paid the full amount of the contract into the account of Bernas Berhad.

Point 2: On 1st February 2015,Rihan Islamic Bank entered into a separate parallel Salam contract with chicken Rice Sendirian Berhad and Ayam Penyet Sendirian Berhad and it was agreed that the farmer will sell,to Chicken Rice Sendirian Berhad and Ayam Penyet Sendirian Berhad,50,000kg of paddy for $250,000 and 25,000kg of paddy for $125,000 respectively.The specifications of the paddy are identical to those that will be supplied by Bernas Berhad and it was agreed by all parties that Raihan Islamic Bank would deliver the paddy after 5 months from the date signing the contract.On 15th February 2015,Chicken Rice Sendirian Berhad paid half of the amount of the contract to Raihan Islamic Bank.

Point 3: On 30th June 2015,Bernas Berhad delivered 50,000kg of paddy,based on the earlier specifications,to Raihan Islamic Bank.The bank then delivered these paddy to Chicken Rice Sendirian Berhad.Chicken Rice Sendirian Berhad paid the remaining amount owned for the paddy on the same day.Due to problems with harvest,Bernas Berhad was unable to deliver the remaining 25,000kg of paddy to the bank.

Point 4: The bank then had to purchase 25,000kg of paddy,with the quality requested by Ayam Penyet Berhad,from the market at $4.50 per kg to fulfil its commitment to Ayam Penyet Berhad.Ayam Penyet Berhad then paid the remaining amount to Raihan Islamic Bank after having received the crops.

Point 5: It is the bank's policy to ask for a refund in the case of non-delivery in Salam contract and to charge a penalty of 1% on the outstanding balance.The shariah advisory council agreed that the penalty should be donated to charity.After two months,Bernas berhad delivered the remaining 25,000kg of paddy to the bank and paid the penalty.

Question 1: Prepare Journal entries in the books of Raihan Islamic Bank to record the Salam and parallel salam contracts.