5.8 d rivativ the ban enters into various arbitrage

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Unformatted text preview: 5.8 D rivativ The Ban enters into various arbitrage transactions whereby a permisible security is purchased in the ready mar et and promised to be sold in uture mar et. The promise to sel is considered to be a derivative and acounted or at air value. However, such transactions are not considered to be a hedge acording to management's judgement. 6. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 6.1 Ca h and ca h uival nt Cash and cash equivalents comprise o cash and balances with treasury and other ban s. 6.2 R v nu r cognition 6.2.1 Income rom Murabaha is acounted or on consumation o Murabaha transaction. However, pro it on that portion o revenue not due or payment is de ered by acounting or unearned Murabaha income with a coresponding credit to de ered Murabaha income which is recorded as a liability. The same is then recognised as revenue on a time proportionate basis. 6.2.2 Income rom Istisna'a is recognised on a weighted time aportionment basis. 6.2.3 Income rom Ijarah contracts is recognised on a patern re lecting a constant periodic return on the net investment outstanding in acordance with International Acounting Standard 17 : Leases. 26 6.2.4 Pro it on Diminishing Mushara a is recognised on an acrual basis. 6.2.5Provisional pro it o Mushara a / Modaraba inancing is recognised on acrual basis. Actual pro it / los or los on Mushara a and Modaraba inancings is adjusted or declaration o pro it by Mushara a partner / modarib or at liquidation o Mushara a / Modaraba. 6.2.6 Dividend income is recognised when the right to receive dividend is established. 6.2.7 Fe on isuance o leter o credit and aceptance is recognised on receipt basis as generaly the transaction consumates within an acounting period. Fe on guarantes, i considered material, is recognised over the period o guarante. 6.3 Financing Financings are inancial products originated by the Ban and principaly comprise Murabaha, Istisna'a, Ijarah and Diminishing Mushara a receivables. These are stated at amortised cost except or Murabaha which is acounted or at gros receivable net o general and speci ic provisions. Provision against non-per orming inancing is made in acordance with the requirements o the Prudential Regulation isued by the State Ban o Pa istan and charged to pro it and los acount. Speci ic provisions are made or identi ied doubt ul inancing in adition to general provisioning requirements. Murabaha is the sale o comodities and asets at cost plus an agred pro it mar up whereby the seler in orms the purchaser o the price at which he purchases the product and also stipulates an amount o pro it. Istisna'a is a sale contract betwen a contract owner and a contractor whereby the contractor based on an order rom the contract owner underta es to manu acture or otherwise acquire the subject mater o the contract acording to speci ications, and sels it to the contract owner or an agred upon price and method o setlement whether that be in advance, by instalments or de ered to a speci ic uture time....
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5.8 D rivativ The Ban enters into various arbitrage...

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