Meezan Bank 2 - IslamicFinancialAccountingStandard 2 IJARAH

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Islamic Financial Accounting Standard- 2 IJARAH Interpretation and Implementation   Ahmed Ali Siddiqui Meezan Bank Limited
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Scope of Presentation The scope of this presentation comprises of the following; - Definition and Salient feature of Ijarah - Application of the Standard - Major difference Between Accounting of Finance Lease and Ijarah (Operating Lease) - Accounting Policies and Recording Procedures of Ijarah transaction as per the requirements and guidelines of IFAS-2 - Accounting Policies for Ijarah - Recording procedure and disclosure requirements of Ijarah transaction as per IFAS-2 - Points for discussion
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Concept of Ijarah
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Ijarah is an Islamic alternative of Leasing. Leasing  backed  by  an  acceptable  contract  is  an  acceptable transaction under Shariah.     “Ijarah  is  a  contract  whereby  the  owner  of  an  asset,  other than consumable, transfers its usufruct to another  person  for  an  agreed  period  at  an  agreed  consideration.” Definition and salient Feature of Ijarah
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 Salient Feature of Ijarah §  Contrary to Finance Lease, in Ijarah the ownership of the assets  remains with Lessor (the bank) and only its right of usage is transferred  to the lessee. §  Until the assets to be leased are delivered to the lessee, no lease  rental become due and payable. (i.e. Ijarah cannot be recorded until the  subjected asset is delivered to the lessee.) §  The title of the assets remains with the Lessor during the entire lease  term. §  The Lessor bears all the risk and reward associated with the  ownership to the asset. §  All cost associated with the asset to bring it into usable form and  condition should be borne by the lessor .
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   Types/Classification of Ijarah 1. Operating Ijarah   Operating  Ijarah  is  a  lease  that  does  not  include  a  promise that the legal title in the leased asset will pass to  the lessee at the end of the lease
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2. Ijarah Muntahia Bittamleek (Ijarah wa Iqtina) It  is  a  lease  that  concludes  with  the  legal  title  in  the  asset  passing  to  the  lessee  after  Ijarah.  Ijarah  Muntahia 
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Meezan Bank 2 - IslamicFinancialAccountingStandard 2 IJARAH

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