has provided capital to Asnaf Maju Sdn. Bhd. based on the principles 

of musharakah mutanaqisah amounting to RM500,000 for a project. Profit and loss 

sharing ratio as agreed by both parties is 40:60 (Bank:Customer) at the beginning of the 

contract. The Bank and Asnaf Maju Sdn. Bhd. have also agreed for the profit-sharing ratio 

to change to 30:70 for year 3 and 4. The repayment shall be equal throughout the 

contract period. 

However, Asnaf Maju Sdn. Bhd. has financial difficulties during year 2 and thus only 

managed to pay 50% instalment on the capital for that year. The entrepreneur also faced 

with financial difficulties in year 4 whereby the repayment outstanding is amounting to 

RM 10,000 at the end of the contract.

The profit and loss for the above project is as follows:

Year 1 Profit of RM90,000

Year 2 Loss of RM40,000

Year 3 Profit of RM120,000

Year 4 Loss of RM50,000

a) You are required to prepare extract of journal entries from the beginning until the 

end of the contract to record the recognition of asset and profit/loss of musharakah 

mutanaqisah financing provided by Bank Faisal Berhad based on the following 

recognition methods:

i. Accrual basis

ii. Cash basis

(50 Marks)

b) Discuss about the cash basis and accrual basis approaches in recognition of profit or 

income in the contract of Musharakah?

(10 Marks)