Cabalida, Anne Margarette A.
3rd Year BS Accountancy
ACT160
CHAPTER 8
ACCOUNTING FOR MUSYARAKAH INVESTMENT
TRANSACTION
PRACTICE QUESTIONS:
A. Theory questions
1. Explain the definition of musyarakah investment!
A musyarakah investment is a partnership wherein two or more parties pool
their resources and/or labor to establish a business. The partners distribute the profits
in accordance with a predetermined proportion, and the partners divide the losses in
accordance with the contribution ratio.
2. Explain the difference between transactions with musyarakah schemes and mudharabah
schemes!
A mudharabah is an agreement wherein two or more entities work
collaboratively toward a shared business objective while still maintaining separate
roles of being the capital provider who contributes all of the capital or funds needed
and the manager who contributes their expertise and labor to the business venture or
project. In the case of losses, the capital provider absorbs its entirety, while the
manager simply does not receive any compensation for the effort and expertise that
they have provided to the business.
On the other hand, a musyarakah is similar to a conventional partnership
arrangement wherein two or more parties all contribute capital towards a business
project or venture. Here, all the parties involved share in the ownership of the assets
as well as losses resulting from the venture, if any.
3. Explain the pillars of musyarakah transactions!
The three pillars of musyarakah transactions are:
● Transactors (two parties) - The parties involved are referred to as partners who
should be of legal age and capable enough to understand and agree to the
terms of the contract.
● Musyarakah object (capital, work, and profit and loss)
○ Capital - cash, commodities, or labor put into the business
○ Work - expertise or skills in producing goods or services, sales and
marketing, etc.
○ Profit - shared according to the ratio agreed upon between the parties at
the beginning of the contract
○ Loss - shared according to the ratio of contributions
● Ijab & Kabul - These show the agreement between the two transacting parties
4. Explain the difference between declining musyarakah and permanent musyarakah!
In declining musyarakah, also known as musyarakah mutanaqhisha, the funds
of one of the partners are transferred progressively to the other partner, thus
decreasing their share as time passes by and resulting in the other partner becoming
the full owner of the business by the end of the contract period. This is commonly
done with purchasing homes wherein the lender, usually, a bank, acquires property
and the buyer pays the lender regularly (usually monthly) until the entire balance is
paid off and the buyer becomes the new owner of the property.
On the other hand, in permanent musyarakah, the share of each partner is
fixed from the beginning of the contract period until its end. This method is common
for projects or ventures that require long-term financing.
5. Explain the difference between revenue sharing, profit sharing, and gross profit sharing!
Also explain the advantages and disadvantages of each method of profit sharing!
● Revenue sharing - Gross profit serves as the basis for sharing results from
operations
○ Advantage: Does not take into account expenses yet, therefore
investors receive more funds from operations
○ Disadvantage: Incomes from other sources are not taken into account
and this also does not reflect the actual profitability of the business
● Profit sharing - Net profit (Gross profit less expenses relating to investment
management) serves as the basis for sharing results from operations
○ Advantage: Only when the business earns a profit from its activities is
the amount shared.
○ Disadvantage: Expenses are inflated and absorbed by the business
● Gross profit sharing - Only direct costs, such as those associated with raw
materials, direct labor, energy, etc., that are supported by musyarakah, and all
indirect costs should be voluntarily assumed by the industrialist rather than
being distributed from the net profit.
○ Advantage: The performance of the products and services of the
business is highlighted, allowing for comparison with operational
performances from other previous and future periods
○ Disadvantage: Difficulties in determining the indirect expenses as well
as measuring the profitability of the business
6. Pay attention and take screen shots of presentations and disclosures related to musyarakah
financing transactions in the financial statements of one of the Islamic banks. Analyze
whether the practices carried out have followed the provisions contained in PSAK 106
and PAPSI 2013.
The Statement of Accounting Standards (PSAK) No. 106 of 2007 is where the
accounting provisions for musyarakah are regulated. To be specific, PAPSI 2013
states that musyarakah financing is presented under the customer's musyarakah
financing balance to the bank.
As seen in the image attached here, the financial statement (consolidated
statement of financial position) of the bank that I have chosen to examine, Bank
Syariah Indonesia, has conformed to the abovementioned standards when it comes to
the presentation and disclosure of musyarakah financing transactions.
References
Berry, J. (n.d.). What Is Musharakah? Meaning and How It Works in Finance. Investopedia.
Retrieved April 7, 2023, from https://www.investopedia.com/terms/m/musharakah.asp
Hussain G. (n.d.). Financing Through Musharaka: Principles And Application. University of
West
Georgia.
Retrieved
April
7,
2023,
from
https://www.westga.edu/~bquest/2004/musharaka.htm
Shariah partnerships: Mudarabah and Musharakah compared | Malaysia notes. (2021,
September
23).
HSF
Notes.
Retrieved
April
9,
2023,
from
https://hsfnotes.com/malaysia/2021/09/23/shariah-partnerships-mudarabah-and-mush
arakah-compared/
B. Case study
Case 1
On January 12, 20XA, BPRS Bangun Marwah Warga (BMW) and Mr. Hendra signed a
permanent musyarakah agreement to finance a photocopying business of IDR 40,000,000
consisting of IDR 30,000,000 BPRS contribution and IDR 10,000,000 contribution of Mr.
Hendra. Profit sharing is based on gross profit (sales minus paper costs) with a profit sharing
ratio of 20% for BPRS and 80% for Mr. Hendra. Profit sharing is agreed to be paid and
reported every 20th of February. Musyarakah investment is agreed to mature on April 20,
20XA. Journalize the following transactions:
1. On January 12, the BPRS (at the time of the contract) opened a musyarakah
investment reserve for Mr. Hendra
Date
Jan 12,
20XA
Account Title
Post against financing administrative
commitment
Financial administrative
commitment obligations
Debit
Credit
30,000,000
30,000,000
2. On January 12 (during the contract) the BPRS charges an administration fee of 0.2%
of the financing value and it will be taken directly from Mr. Hendra's account
Date
Jan 12,
20XA
Account Title
Customer account - Mr. Hendra
Administration income
Debit
Credit
60,000
60,000
3. On January 20, the BPRS transferred IDR 30,000,000 to Mr. Hendra's account as
payment for the investment portion of the BPRS.
Date
Jan 20,
20XA
Account Title
Debit
Musyarakah financing
Customer account - Mr. Hendra
30,000,000
Financial administrative commitment
obligations
Post against financing administrative
commitment
30,000,000
Credit
30,000,000
30,000,000
4. On 20 February 20XA Mr. Hendra reported his gross profit of IDR 5,000,000 and
on the same date he paid in cash the bank's portion of 20% of gross profit.
Date
Feb 20,
20XA
Account Title
Debit
Cash
1,000,000
Earning from musyarakah profit sharing
Credit
1,000,000
5. On 20 March 20XA Mr. Hendra reported his gross profit of IDR 4,000,000 and paid
in cash the bank's portion of 20% of the gross profit on 25 March 20XA.
Date
Mar 20,
20XA
Mar 25,
20XA
Account Title
Debit
Earnings receivable of musyarakah
profit-sharing
Earnings of musyarakah profit
sharing - Accrual
800,000
Cash
Earnings receivable of musyarakah
profit-sharing
800,000
Earnings of musyarakah profit sharing Accrual
Earnings of musyarakah profit
sharing
800,000
Credit
800,000
800,000
800,000
6. On April 20, 20XA, Mr. Hendra reported his gross profit of IDR 6,000,000 and on
the same date paid in cash the bank portion of 20% of gross profit.
Date
Apr 20,
20XA
Account Title
Cash
Earning from musyarakah profit
sharing
Debit
Credit
1,200,000
1,200,000
7. On April 20, 20XA, at maturity, Mr. Hendra paid off the musyarakah investment of
IDR 30,000,000 via debit account.
Date
Apr 20,
20XA
Account Title
Customer account - Mr. Hendra
Musyarakah financing
Debit
Credit
30,000,000
30,000,000
Case 2
The following is brief information on declining musyarakah investment:
●
●
●
●
The investment amount of the Amanah BPRS is IDR 4,000,000
The amount of customer investment is IDR 1,000,000
Principal installment is paid 10x in every month @ IDR 400,000
Profit sharing is determined based on the ratio of 60% gross profit for the Customer
and 40% for the Bank
● Disbursement was carried out January 10, 2015
● Principal installments and profit sharing are scheduled to be paid every 10th, i.e. 10
February 2015 to 10 November 2015
Requested:
Journalize the following transactions!
1. On January 10, 2015, the bank made a disbursement to the customer's account
Date
Jan 10,
2015
Account Title
Musyarakah financing
Customer account
Debit
Credit
4,000,000
4,000,000
2. On January 31, the Bank assessed the asset quality and provided an allowance for losses
of 1%.
Date
Jan 31,
2015
Account Title
Allowance for write-off expense
Allowance for write-off
Debit
Credit
40,000
40,000
3. During the months of February, March and April, customers regularly pay the principal
and profit sharing to Islamic banks in the following amounts:
Month
Total gross
profit (IDR)
Bank portion of
40% (IDR)
Total Principal
Installments
February
300,000
120,000
400,000
March
200,000
80,000
400,000
April
150,000
60,000
400,000
Date
Feb 10,
2015
Mar 10,
2015
Apr 10,
2015
Account Title
Debit
Customer account
Musyarakah financing
400,000
Customer account
Profit sharing earnings
120,000
Customer account
Musyarakah financing
400,000
Customer account
Profit sharing earnings
80,000
Customer account
Musyarakah financing
400,000
Customer account
Profit sharing earnings
60,000
Credit
400,000
120,000
400,000
80,000
400,000
60,000
4. On 10 May 2015, the customer did not pay the principal and profit sharing. Realized
profit is IDR 0. It is known that 7 days later, the customer's business stopped completely,
not because of the customer's carelessness. For this incident, the bank determines the
collectibility of the disbursed investment. Calculate the allowance that must be made,
how much the allowance is lacking and make an allowance journal
Allowance to be made: 100% x 2,800,000
Allowance made on 31 January 2015
Allowance still lacking
Date
2,800,000
(40,000)
2,760,000
Account Title
May 10, Allowance for write-off expense
2015
Allowance for write-off
Debit
Credit
2,760,000
2,760,000
5. Based on the approval of the Annual General Meeting (RUPS), on May 31, 2016, there
was a write-off of declining musyarakah investments.
Date
Account Title
May 31, Allowance for write-off
2016
Musyarakah financing
Debit
Credit
2,800,000
2,800,000