Page 227 - Bank-Muamalat_Annual-Report-2023

ANNUAL REPORT 2023
OUR NUMBERS

2. MATERIAL ACCOUNTING POLICIES (CONT’D.)
2.2 Material accounting policy information (cont’d.)

(o) Income recognition
Income is recognised to the extent that it is probable that the economic benefits will flow to the Group
and the Bank and the income can be reliably measured. The following specific recognition criteria must also be
met before revenue is recognised:
(i) Profit and income from financing

For all financial assets measured at amortised cost, profit bearing financial assets classified as FVOCI
and financial assets designated at FVTPL, profit income or expense is recorded using the effective profit
rate, which is the rate that exactly discounts estimated future cash payments or receipts through the
expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount
of the financial asset or financial liability. The calculation takes into account all contractual terms
of the financial instrument (for example, payment options) and includes any fees or incremental costs
that are directly attributable to the instrument and are an integral part of the effective profit rate, but not
future credit losses.

For impaired financial assets, profit/financing income continues to be recognised using the effective profit
rate, to the extent that it is probable that the profit can be recovered.

(1) Bai’ Bithaman Ajil
This contract involves the purchase and sale of an asset by the Bank to the customer on a deferred
payment basis either to be paid in lump sum or instalment basis within an agreed period of
time at a price which includes a profit margin agreed by both parties. Financing income is recognised
on effective profit rate basis over the period of the contract based on the principal amount
outstanding.

(2) Ijarah Thumma Al-Bai’
This contract involves lease ending with transfer of ownership from the lessor to the lessee in the
form of sale transaction based on agreed terms and conditions. There are two (2) contracts involved
in this arrangement. The first contract is Ijarah where the lessee enjoys the usufruct of the assets
for an agreed rental during an agreed period of time while the ownership remains with the lessor.
The second contract is the sale contract which may take place at the end of the Ijarah period or
at any point of time during the period subject to the agreed terms and conditions between
the contracting parties. Financing income is recognised on effective profit rate basis over the
lease term.

(3) Bai’ Inah
This contract involves sale and purchase of an asset whereby the Bank sells an asset to the customer
on a deferred basis and subsequently buys back the asset at a cash price lower than the deferred
sales price. Financing income is recognised on effective profit rate basis over the period of the contract
based on the principal amount outstanding.

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