Understanding Islamic Finance - Doha Academy of Tertiary Studies

346 Understanding Islamic FinanceBox 12.7:(Continued)Measurement at the end of the financial period• share in constant Musharakah capital is measured at historical cost;• share in Diminishing Musharakah is measured at historical cost after deducting theshare transferred to the partner. Such transfer is made by sale at fair value (in DMon Shirkah al ‘Aqd). The difference between the historical cost and the fair value isrecognized as profit or loss;• if Diminishing Musharakah is liquidated before complete transfer is made to thepartner, the difference between the book value and the recovered amount is recognizedin the income statement of the bank;• if Musharakah is terminated or liquidated, any amount that remains unpaid is recognizedas a receivable due from the partner.Recognition of the Islamic bank’s share in profits or losses• profits or loss on Musharakah transactions which commence and culminate duringthe same financial period are recognized at the time of (constructive) liquidation;• the Islamic bank’s share of profits on Musharakah financing that continues for morethan one financial period is recognized to the extent of profit distribution and shareof loss is deducted from the Musharakah capital;• the treatment mentioned in the above point shall apply to a Diminishing Musharakahafter taking into consideration the decline in the Islamic bank’s share in Musharakahcapital and its profits or loss;• share of profits is recognized as a receivable due from the partner if he does not paythe Islamic bank’s due share of profits after liquidation or settlement of account ismade;• loss incurred due to negligence or misconduct of the partner is recognized as areceivable due from the partner.