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MASLI Islamic Bank entered into an Istisna' contract with Pembinaan Berhad to build a factory in...

MASLI Islamic Bank entered into an Istisna' contract with Pembinaan Berhad to build a factory in Ipoh, Perak for RM500,000, to be completed in 2 years.Total costs is RM400,000 (including pre contract cost of RM 25,000). Additional detail information as follows:

Year 1 Year 2

Cumulative costs incurred 300,000 400,000

Billings 280,000 220,000

Collections from purchaser(almustasni)230,000 270,000

Required:

Journalise the above said transactions pertaining to the above istisna' assuming the bank adopts the percentage completion method.

Solutions

Expert Solution

Percentage completion method Year 1 Year 2
Cost incurred in till previous year 0 300000
ADD Cost incurred during the year 300000 100000
Total cost incurred till date 300000 400000
ADD Estimated cost to be incurred 100000 0
Total estimated cost to be incurred 400000 400000
Percentage of completion (A) 75% 100%
(cost incurred till date /total estimated cost )
Total revenue (B) 500000 500000
Total revenue recognized (A *B) 375000 500000
Less Revenue recognized in previous year 0 375000
revenue recognized in current year 375000 125000
Year 1 Year 2
Revenue 375000 125000
Less Cost incurred 300000 100000
Gross profit 75000 25000
Year 1
1 Construction in progress 300000
               Accounts payable 300000
2 Contracts receivable 280000
               Progress billings 280000
3 Construction in progress 75000
Construction expense 300000
               Construction revenue 375000
4 Cash 230000
          Contract receivable 230000
Year 2
1 Construction in progress 100000
               Accounts payable 100000
2 Contracts receivable 270000
               Progress billings 270000
3 Construction in progress 25000
Construction expense 100000
               Construction revenue 125000
4 Cash 270000
          Contract receivable 270000

ekkarill92 answered 2 years ago
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