Reference no: EM132975956

Question - Al-Rajhi Bank provides a murabaha financing facility to purchase construction equipment for AZHRB Construction at a price of RM3,000,000. The price increase (mark-up) is agreed at 10% per annum on the initial selling price of the equipment. The sale of murabaha will be paid in installments amounting to RM900,000 over the next 5 years. It was agreed that late payment of a fine of 5% of the total installments to be paid from AZHRB, should they not pay on time. The board of Al-Rajhi Bank has decided that the penalty should be credited to a charity account. The following transactions take effect within five years.

1. 1 Jan, Year One (2016) a murabaha contract was signed and the bank purchased equipment for RM3,000,000 which was delivered directly to the customer's construction site. The bank pays for the equipment in cash.

2. 31 Dec, Year One (2016), the customer paid the bank RM900,000 as scheduled.

3. 31 Dec, Second Year (2017), the customer paid the bank RM900,000 as scheduled.

4. 31 Dec, Year Three (2018), the customer was unable to pay on time but then paid RM900,000 and a fine on 28 February 2019.

5. 31 Dec, Year Four (2019), the customer paid the bank RM900,000 as scheduled.

6. On 31 Jan 2020, AZHRB decided to settle the assets in full and asked for a rebate to Al-Rajhi. Al-Rajhi decided to give a 50% rebate pro rata (to the nearest month) on the remaining profits. On the same day, AZHRB settled the difference.

Be required:

i. Show journal entries for all transactions involving murabaha.

ii. Show an excerpt of the income statement balance sheet at the end of each year to the fifth year (2020).