In the previous chapter, we referred to the bona fide murabahah transaction when a bank actually owns the asset to be the subject of sale on its books. We demonstrate in this section how a deferred sale transaction can be recorded in the books of an Islamic bank. A deferred payment sale is referred to as bai mu'ajjal. For illustration purposes we work through a simple example involving Bank A and Customer B, starting with the data in Table 5.1.
Table 5.1 Islamic Bank A's Balance Sheet
|Islamic Bank A's Balance Sheet|
|Asset subject to buy and sale||$100|
Islamic Bank A has capital of $200, and no deposits at this stage. The Bank purchases an asset for $100 from its capital and keeps $100 in cash on its balance sheet with the remainder. Islamic Bank A is approached by Customer B, who wishes to purchase the asset from A for a credit price of $120, payable in 90 days. Islamic Bank A would earn a profit of $20 on the sale. Customer B contracts to make monthly payments to Islamic Bank A of $40, which would include a partial principal repayment of $33.33 and a partial profit payment of $6.66 (Table 5.2).
Table 5.2 Accounting Entries for Deferred Sales Transaction
|Islamic Bank A|
|Islamic Bank sells asset to B||Balance sheet||Asset||$100|
|Islamic Bank A books a Murabahah financing asset for $120||Balance sheet||Murabahah financing||$120|
|Islamic Bank ...|