Some of the most common modern Islamic finance product which are categorized as sale-based principle are Murabahah, Bai Bithaman Ajil ("BBA"), Bai Al-Salam, Bai Al-Istisna, Bai Al-Inah and Bai Al-Dayn.

 LEASE-BASED PRINCIPLE

Ijaraj is a contract which works on a lease-based principle. Ijara means to give something on rent. Ijara can operate on the operating lease mechanism or the financial lease mechanism. The notable difference between the two is that in an operating lease, the asset is returned to the owner at the end of the lease term whereas in a financial lease, the asset is transferred to the lessee at the end of the lease term. 

 

�The lease was treated as IjarahMuntahiaBiltamLeek through sale for a token consideration (agreed to be equivalent to 50% of the estimated residual value at the end of useful life).

Other details about the ijarah are as follows:

Fair value of the equipment:

  At the beginning of y2000  RM60,000

  At the end of the lease i.e. 31 December   RM2,000

Number of instalments on quarterly basis  12 times

Rentals at the end of each quarter  RM6,000

Estimated useful life   3 years

Based on the question given on your lecture slide , you are required to prepare journal entries to record the above Ijarah contract for the following periods:

1) At the beginning of Ijarah contract;
2) On receipt of first rental;

2.At the end of ijarah term.