03-18-2007, 03:26 AM
Dear,
Can you please inform the contents of the agreement.
Now a days, finance lease agreements or musharika/ijarah agreements are much more common. First of all you must have to decide the nature of agreement.
Accounting treatment would be much more similar to the finance lease agreement. Only the interest rate would be determined in advance explicitly, instead of ascertaining IRR. Asset and liability would be simultaneously accounted for at agreed price with vendor. Repayments schedule would simply be prepared by bifurcating the rental being paid in interest and pricipal. It would be bifurcated by charging the rate of interest on the outstanding principal amount for the outstanding period. Outstanding period for any entry would be the gap between payment dates of two rentals. The principal repayment would be reduced from carrying amount of liability and interest would be the finance charge in profit and loss account. Asset would be depreciated at normal depreciation rate determined in accordance with the economic useful life.
More could be explained, if u post the contents of the agreement with financial details.
Best regards,
KAMRAN.
Can you please inform the contents of the agreement.
Now a days, finance lease agreements or musharika/ijarah agreements are much more common. First of all you must have to decide the nature of agreement.
Accounting treatment would be much more similar to the finance lease agreement. Only the interest rate would be determined in advance explicitly, instead of ascertaining IRR. Asset and liability would be simultaneously accounted for at agreed price with vendor. Repayments schedule would simply be prepared by bifurcating the rental being paid in interest and pricipal. It would be bifurcated by charging the rate of interest on the outstanding principal amount for the outstanding period. Outstanding period for any entry would be the gap between payment dates of two rentals. The principal repayment would be reduced from carrying amount of liability and interest would be the finance charge in profit and loss account. Asset would be depreciated at normal depreciation rate determined in accordance with the economic useful life.
More could be explained, if u post the contents of the agreement with financial details.
Best regards,
KAMRAN.
