Question

In: Accounting

On the 1 January 2015, Maybank Islamic bought 500 tonnes of wheat from Sanisbury Green Corporation on the basis of Salam contract.

On the 1 January 2015, Maybank Islamic bought 500 tonnes of wheat from Sanisbury Green Corporation on the basis of Salam contract. The purchase price of this quantity of wheat was RM500,000 (RM1,000 @ 500 tonnes) paid in full to Sanisbury on the day the contract was signed. It was agreed that Sanisbury would deliver the commodity in two shipments as follows:

First shipment on June 15, 2015 for the delivery of 300 tonnes.

Second shipment on July 30, 2015 for delivery of 200 tonnes.

On 5 January 2015. the bank entered into a Parallel Salam contract with a trading company Pasta Dell Incorporation, to sell them 500 tonnes of wheat for a total value of RM750,000 (RM1,500 @ 500 tonnes). The bank signed the contract to deliver the commodity in two shipments as follows:

First shipment on June 20, 2015 for the delivery of 300 tonnes.

Second shipment on August 5, 2015 for delivery of 200 tonnes.

On 30 July 2015, Sanisbury was not able to deliver the remaining 200 tonnes of wheat to the bank as their crop field was badly affected by drought. The bank then had to purchase 200 tonnes of wheat of the agreed quality from the market at RM1,750 per tonne to fulfill its commitment to Pasta. It was agreed that the extra RM750 per tonne was to be borne by Sanisbury. After four months, Sanisbury delivered the remaining 200 tonnes of wheat to the bank and paid the extra cost of the wheat to the bank.

 

Required:

 

Record journal entries for the Salam and Parallel Salam transactions in the books of the bank.

Solutions

Expert Solution

 

1/1/2015

Debit. Salam Financing

  Credit. Cash

(Purchase of commodities paid in full on the spot)

RM500,000

  RM500,000

5/1/2015

Debit. Cash

  Credit. Parallel Salam

(Entered into Parallel Salam with the customer)

RM750,000

  RM750,000

15/6/2015

Debit. Salam Commodities

  Credit. Salam Financing

(Received first shipment from seller 300 tonnes @ RM1,000)

RM300,000

  RM300,000

20/6/2015

Debit. Parallel Salam

  Credit. Salam Commodities

(Transfer of commodities to customer 300 tonnes)

RM300,000

  RM300,000

30/7/2015

Debit. Salam Commodities

  Credit. Cash

(Purchased remaining commodities 200 tonnes)

RM350,000

  RM350,000

30/7/2015

Debit. Account Receivable

  Credit. Profit or Loss

(Profit from cost charged to the seller)

RM150,000

  RM150,000

5/8/2015

Debit. Parallel Salam

  Credit. Salam Commodities

(Transfer of commodities to customer 200 tonnes)

RM350,000

  RM350,000

5/8/2015

Debit. Parallel Salam

  Credit. Profit from Parallel Salam

(Transfer of commodities worth RM650,000 for RM750,000 = RM100,000 profit)

RM100,000

  RM100,000

31/11/2014

Debit. Salam Commodities

Debit. Cash

  Credit. Salam Financing

  Credit. Account Receivable

(Received second shipment from the seller and paid the extra cost borne)

RM200,000

RM150,000

  RM200,000

  RM150,000

Journal  entries are illustrated in the light of AAOFI financial accounting standard on Salam sale.

NURSYAHIRAH MOHAMAD NIZAL answered 2 years ago
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