Understanding Islamic Finance - Doha Academy of Tertiary Studies

274 Understanding Islamic FinanceBox 10.12:(Continued)Late delivery of commodityThe Islamic bank shall take compensation from the performance bond in the caseof negligence or fault on the part of the seller. An allowance for doubtful debtsshall be made if the performance bond is not sufficient to cover the amount ofcompensation.Commodity not conforming to the specification• If the commodity is declined by the bank due to nonconformity to specifications,any unrecovered progress payments made to the seller shall be recorded as accountsreceivable and an allowance for doubtful debts shall be made, if necessary.• If the bank does not decline a discrepant commodity, it shall be measured at thelower of the cash equivalent value or the historical cost. Any loss shall be recognizedin the income statement in which the loss is realized.Buyer refuses to receive the commodity (parallel contract)On refusal to receive a commodity due to its being discrepant, it shall be measured at thelower of the cash equivalent value or the historical cost. Any loss shall be recognizedin the income statement in which the loss is realized.Box 10.13: Housing Finance through Istisna‘a 60Rs. 5 million+ Rent over a periodof 10 yearsDeferredBANK Rs. 5 M DIMINISHING MUSHARAKAH Rs. 2 M CUSTOMERSpotSpotRs. 7 M(ISTISNA’A)CONTRACTOR60 The author is grateful to Mr Omer Mustafa Ansari of Fords Rhodes Sidat Hyder & Co., Karachi for his guidance on accountingtreatment and help in preparation of case studies on Istisna‘a and the flowcharts.