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AAOIFI CPFAS study materials
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AAOIFI CPFAS practice questions

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Question 1Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is Zakat presented in the financial statements of an Islamic bank?

  1. As an operating expense of the bank in all cases regardless of obligation
  2. As part of the depositors' share of investment profits
  3. As a reduction of retained earnings only when declared by the general assembly
  4. As a liability of the bank when the bank is obligated to pay it on behalf of shareholders Correct answer.

Explanation

AAOIFI requires Zakat to be recognized as a liability when the bank has an obligation to pay it, typically where the bank is mandated to discharge Zakat on behalf of shareholders. Where the bank acts only as an agent collecting Zakat, it is not an expense of the bank. The presentation depends on whether the obligation rests with the bank or the individual holders.

Question 2Financial Accounting Standards (FAS)

In AAOIFI FAS, Murabaha receivables are initially measured at:

  1. Historical cost of the underlying asset
  2. Sale price including the agreed profit margin Correct answer.
  3. Fair value at the date of the contract only
  4. Present value discounted at the bank's cost of funds

Explanation

Under AAOIFI FAS, Murabaha receivables are recognized at the sale price, which comprises the cost of the asset plus the agreed profit margin. The profit is not recognized immediately in income but is deferred and recognized over the term. This reflects the credit sale nature of Murabaha.

Question 3Financial Accounting Standards (FAS)

How is deferred profit on a Murabaha transaction recognized under AAOIFI FAS?

  1. Only upon cash collection of the full sale price
  2. Fully at contract inception
  3. Over the term of the receivable using a method reflecting the time value of money Correct answer.
  4. At maturity of the contract in a single entry

Explanation

Deferred profit on Murabaha is amortized over the term of the receivable in a manner that reflects the time value of money, similar in substance to effective interest allocation. Recognizing it at inception or only at maturity would misstate periodic income. This allocation matches profit recognition with the financing period.

Question 4Financial Accounting Standards (FAS)

Under AAOIFI FAS for Ijarah, the lessor (Islamic bank) classifies an Ijarah contract as:

  1. A finance lease when substantially all risks and rewards transfer to the lessee Correct answer.
  2. An operating lease in all circumstances
  3. A partnership in profit and loss
  4. A sale with deferred payment

Explanation

AAOIFI distinguishes Ijarah operating leases from Ijarah ending in ownership transfer, which is treated akin to a finance lease where substantial risks and rewards pass to the lessee. The classification affects measurement of the leased asset and revenue recognition. A plain Ijarah without transfer remains an operating lease.

Question 5Financial Accounting Standards (FAS)

In an Ijarah Muntahia Bittamleek, the leased asset on the lessor's books is measured at:

  1. Fair value with changes in income
  2. Cost less accumulated depreciation Correct answer.
  3. Net realizable value each reporting date
  4. The expected residual value only

Explanation

The lessor continues to recognize the leased asset and depreciates it over its useful life, consistent with the lessor retaining ownership during the lease. Depreciation is charged based on cost less residual value over the useful life. Fair value remeasurement is not the AAOIFI basis for the leased asset.

Question 6Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are Ijarah rental revenues recognized by the lessor?

  1. On a straight-line basis over the lease term unless another systematic basis is more representative Correct answer.
  2. In a lump sum at contract signing
  3. Only when cash is received
  4. At the end of the lease term

Explanation

Ijarah rentals are recognized as revenue on a straight-line basis over the lease term unless another systematic and rational basis better reflects the pattern of benefit. This matches revenue with the usage of the leased asset. Cash timing does not govern recognition under accrual accounting.

Question 7Financial Accounting Standards (FAS)

In a Mudaraba, losses incurred by the Mudarib are generally:

  1. Borne entirely by the Rab-ul-Mal (capital provider) unless caused by the Mudarib's misconduct or negligence Correct answer.
  2. Recovered from the Mudarib's share of future profits
  3. Borne entirely by the Mudarib
  4. Shared equally between the Rab-ul-Mal and the Mudarib

Explanation

In Mudaraba, the capital provider bears financial losses while the Mudarib loses its effort, unless the loss results from the Mudarib's misconduct, negligence, or breach of contract. This follows the principle that the party providing capital bears the financial risk. Profit is shared per agreed ratio.

Question 8Financial Accounting Standards (FAS)

How does AAOIFI require an Islamic bank to treat its investment in a Mudaraba where it acts as Rab-ul-Mal?

  1. As a fixed asset
  2. As a loan receivable at amortized cost
  3. As an equity instrument of the Mudarib
  4. As an investment measured at cost less impairment, with the share of profit recognized when earned Correct answer.

Explanation

Investments where the bank is the capital provider are recognized as investments, measured at cost subject to impairment, and the bank's share of profits is recognized when the right to receive it arises. They are not debt instruments. This reflects the profit-and-loss-sharing nature of the arrangement.

Question 9Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is a Musharaka investment measured by the partner (Islamic bank)?

  1. At fair value through profit or loss in all cases
  2. At the market value of the partnership's assets
  3. At the nominal capital contributed with no adjustments
  4. At cost plus the partner's share of profits less losses and distributions, subject to impairment Correct answer.

Explanation

Musharaka investments are carried at the contributing partner's share of the partnership's equity, effectively cost adjusted for the partner's share of profits, losses, and distributions, and tested for impairment. This reflects the shared ownership and results. Fair value measurement is not the general AAOIFI basis for Musharaka.

Question 10Financial Accounting Standards (FAS)

In Diminishing Musharaka, the bank's share in the jointly owned asset:

  1. Increases as the customer makes payments
  2. Decreases over time as the customer purchases the bank's units Correct answer.
  3. Is converted to a loan at inception
  4. Remains constant until the end of the arrangement

Explanation

In Diminishing Musharaka, the customer gradually acquires the bank's ownership units through separate purchase transactions, so the bank's share declines over time. Rent paid by the customer also declines as the bank's ownership share falls. The arrangement is not a loan.

Question 11Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is a Salam contract asset measured by the buyer at inception?

  1. At the seller's cost of production
  2. At the expected future market price
  3. At the amount of capital paid (advance price) Correct answer.
  4. At the fair value of the commodity on the contract date

Explanation

In Salam, the buyer pays the price in advance and recognizes the Salam asset at the amount paid. Upon receipt of the goods, the asset is measured at the lower of the advance price and fair value, with any difference treated appropriately. This reflects the prepayment nature of Salam.

Question 12Financial Accounting Standards (FAS)

When goods under a Salam contract are received and their fair value is below the advance price, AAOIFI requires the buyer to:

  1. Recognize the goods at the advance price with no adjustment
  2. Recognize a gain for the difference
  3. Defer all recognition until sale of the goods
  4. Recognize the goods at fair value and treat the difference as a loss Correct answer.

Explanation

The Salam asset on receipt is measured at the lower of the advance price and fair value. If fair value is lower, the asset is written down and the difference recognized as a loss. This applies prudence to the prepaid position.

Question 13Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is Istisna revenue recognized by the manufacturer (Islamic bank)?

  1. Only when the completed asset is delivered
  2. At contract signing in full
  3. On a percentage-of-completion basis as construction progresses Correct answer.
  4. When the customer makes the first payment

Explanation

Istisna revenue is recognized using the percentage-of-completion method when the outcome can be estimated reliably, matching revenue with the stage of completion. Where reliable estimation is not possible, revenue is recognized only to the extent of recoverable costs. This parallels construction contract accounting.

Question 14Financial Accounting Standards (FAS)

In an Istisna contract, costs incurred that are expected to be recovered are recognized as:

  1. A contingent liability
  2. An asset (work in progress) until revenue is recognized Correct answer.
  3. An expense immediately
  4. A reduction of equity

Explanation

Under percentage-of-completion accounting, recoverable contract costs are accumulated as work in progress and matched against recognized revenue. Only costs that are not expected to be recovered are expensed immediately. This produces a gross profit consistent with the stage of completion.

Question 15Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are funds received by an Islamic bank under a Mudaraba (investment accounts) classified?

  1. As revenue
  2. As equity of the bank
  3. As off-balance-sheet items only
  4. As liabilities or as equity-like investment account funds depending on the terms, presented separately Correct answer.

Explanation

Investment account funds are neither ordinary deposits nor shareholders' equity; AAOIFI requires separate presentation reflecting their profit-and-loss-sharing nature. Depending on the terms and the bank's obligation, they may be presented as liabilities or as a distinct equity-like category. They are not revenue.

Question 16Financial Accounting Standards (FAS)

In the AAOIFI framework, how are profits allocated between investment account holders (IAH) and the bank's shareholders?

  1. Profits are allocated per the Mudaraba ratio after deducting the Mudarib's share and provisions Correct answer.
  2. Profits are retained entirely by the bank
  3. All profits belong to shareholders
  4. Profits are distributed equally regardless of terms

Explanation

Profits from jointly financed investments are allocated between IAH and the bank according to the agreed Mudaraba profit-sharing ratio, after appropriate deductions such as the Mudarib's share and provisions. The allocation must follow the contractual terms. Neither party receives all profits by default.

Question 17Financial Accounting Standards (FAS)

What is the purpose of Profit Equalization Reserve (PER) under AAOIFI?

  1. To smooth the profit distribution rate to investment account holders by setting aside part of profits Correct answer.
  2. To cover losses on the bank's own investments
  3. To pay Murabaha deferred profit
  4. To fund Zakat payments

Explanation

The PER is an appropriation from profits used to smooth returns to investment account holders across periods, mitigating volatility. It is allocated from the share of profits before distribution. It is not a loss reserve for the bank's own investments.

Question 18Financial Accounting Standards (FAS)

Under AAOIFI FAS, Investment Risk Reserve (IRR) is:

  1. A provision for doubtful Murabaha receivables
  2. A reserve funded by shareholders to protect the bank's capital
  3. A statutory reserve required by central banks only
  4. Appropriated from the IAH's share of profit to absorb future investment losses Correct answer.

Explanation

The IRR is set aside from the investment account holders' share of profit to absorb future losses attributable to their investments. It protects IAH against volatility in returns. It is distinct from shareholder reserves and from receivables provisions.

Question 19Financial Accounting Standards (FAS)

How does AAOIFI require an Islamic bank to treat a Qard Hasan (benevolent loan) it gives?

  1. As a receivable recognized at the amount advanced, with no profit, subject to impairment Correct answer.
  2. As an investment earning profit
  3. As equity in the borrower
  4. As a donation expensed at inception

Explanation

Qard Hasan is a benevolent loan that generates no profit; it is recognized as a receivable at the amount advanced and is subject to impairment assessment. No return may be stipulated. It is not expensed at inception because repayment is expected.

Question 20Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are receivables from Islamic financing contracts generally assessed for impairment?

  1. Never, because Islamic financing is risk-free
  2. On a portfolio and individual basis using objective evidence of impairment, with provisions recognized Correct answer.
  3. Only when the customer becomes bankrupt
  4. Only at the end of the contract term

Explanation

AAOIFI requires impairment assessment using objective evidence, considering both individual and portfolio-level indicators, with provisions charged to income. Waiting for bankruptcy or contract maturity would delay recognition of losses. Islamic financing is not risk-free.

Question 21Financial Accounting Standards (FAS)

In AAOIFI FAS, how is the profit share of a Mudarib (the bank) recognized?

  1. As a reduction of the investment balance only
  2. As revenue when the Mudaraba profit is determined and the Mudarib's right is established Correct answer.
  3. As other comprehensive income
  4. As a liability until cash is received

Explanation

The Mudarib's share of profit is recognized as income when the profit is determined and the right to it is established under the contract. It is not deferred solely until cash receipt. It is not an equity movement or a liability.

Question 22Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are direct costs incurred in originating a Murabaha transaction treated?

  1. Expensed immediately in all cases
  2. Deducted from the profit margin after recognition
  3. Recognized as a separate intangible asset
  4. Included in the cost of the asset and thus in the computation of profit Correct answer.

Explanation

Direct costs that are necessary to complete the Murabaha, such as acquisition-related costs, are added to the cost base of the asset before the profit margin is applied. This ensures the sale price reflects the full cost. They are not expensed immediately where they form part of the asset cost.

Question 23Financial Accounting Standards (FAS)

Which of the following best describes the AAOIFI treatment of a Takaful operator's surplus distribution?

  1. Treated as a liability to shareholders
  2. Recognized according to the contractual arrangement, with the operator's share distinguished from participants' share Correct answer.
  3. Recognized as revenue of the operator in full
  4. Deferred indefinitely until liquidation

Explanation

Under AAOIFI, the operator's share of surplus is recognized per the Takaful contract, while the participants' share belongs to participants and is presented accordingly. The operator does not recognize the whole surplus as its revenue. This reflects the separation of participants' funds from operator funds.

Question 24Financial Accounting Standards (FAS)

Under AAOIFI FAS, an Islamic bank acting as an agent (Wakeel) for investment typically recognizes:

  1. A share of profit as if it were a Mudarib
  2. No income at all
  3. The full investment as its own asset
  4. An agency fee as income when earned, without recognizing the invested funds as its assets Correct answer.

Explanation

Where the bank acts purely as an agent, it does not recognize the invested funds as its own assets; it recognizes the agency fee as income when the service is rendered. This distinguishes agency from Mudaraba, where the bank shares in profit. The fee is recognized when earned.

Question 25Financial Accounting Standards (FAS)

In AAOIFI FAS, how is foreign currency translation of monetary Islamic financing receivables treated at the reporting date?

  1. At the closing rate, with exchange differences recognized in profit or loss Correct answer.
  2. At the historical exchange rate at inception
  3. At the rate expected at settlement date
  4. At the average rate for the period

Explanation

Monetary items such as Murabaha receivables denominated in foreign currency are translated at the closing rate, and resulting exchange differences are recognized in profit or loss. Historical or average rates do not reflect the current monetary value. This is consistent with general translation principles.

Question 26Financial Accounting Standards (FAS)

Under AAOIFI FAS, what is the basic measurement basis for assets and liabilities in the financial statements of an Islamic bank, unless a specific standard requires otherwise?

  1. Realisable value
  2. Historical cost Correct answer.
  3. Fair value
  4. Present value

Explanation

AAOIFI's conceptual framework and general presentation standards use historical cost as the default measurement basis, with fair value or other bases applied only where a specific standard mandates it. This preserves reliability while allowing targeted exceptions.

Question 27Financial Accounting Standards (FAS)

An Islamic bank holds assets it intends to sell in the ordinary course of business. Under AAOIFI FAS, such assets are measured at:

  1. Fair value less costs to sell
  2. Amortised cost
  3. Replacement cost
  4. The lower of cost or net realisable value Correct answer.

Explanation

AAOIFI's inventory-type measurement requires assets held for sale in the ordinary course to be carried at the lower of cost or net realisable value, consistent with prudence. Any write-down is recognised in the income statement.

Question 28Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is a provision for doubtful Islamic financing receivables recognised?

  1. When there is objective evidence of impairment, based on expected recoverable amount Correct answer.
  2. Only when the receivable is formally written off
  3. Only after court judgment against the customer
  4. By direct reduction of the financing income in the year of origination

Explanation

AAOIFI requires recognition of impairment when objective evidence exists that amounts due will not be collected, measured by reference to the expected recoverable amount. The charge is recognised in the income statement.

Question 29Financial Accounting Standards (FAS)

An Islamic bank receives a security deposit (hamish jiddiyyah) from a customer to secure a Murabaha purchase promise. Under AAOIFI FAS, how is this deposit treated by the bank before any default occurs?

  1. Recognised as a reduction of the Murabaha cost
  2. Recognised as part of shareholders' equity
  3. Recognised as a liability until applied or refunded Correct answer.
  4. Recognised as revenue immediately

Explanation

A hamish jiddiyyah is a refundable security deposit, so it is recognised as a liability (an amount owed back to the customer) until it is applied against an actual loss from breach or refunded. It is not income at receipt.

Question 30Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are moneys held by an Islamic bank under current accounts (demand deposits) presented?

  1. As a contingent liability only
  2. As liabilities, since they are repayable on demand Correct answer.
  3. As investment account balances within equity
  4. As part of the bank's capital

Explanation

Current account balances are guaranteed and repayable on demand, so they meet the definition of liabilities and are presented as such. They do not share in profit or loss.

Question 31Financial Accounting Standards (FAS)

An Islamic bank provides a service and earns a fixed agency fee. Under AAOIFI FAS, when should the fee be recognised?

  1. At the end of the financial year regardless of performance
  2. When cash is ultimately received
  3. When the service is performed Correct answer.
  4. When the contract is signed

Explanation

Fee-based income is recognised when the service is actually rendered, because that is when the performance obligation is satisfied. Signing or cash receipt does not by itself determine recognition.

Question 32Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are general and administrative expenses of an Islamic bank recognised?

  1. Deducted directly from equity reserves
  2. On a cash basis when paid
  3. Capitalised and amortised over five years
  4. On an accrual basis in the period to which they relate Correct answer.

Explanation

AAOIFI follows accrual accounting, so expenses are recognised in the period in which they are incurred, regardless of when payment is made. This matches costs with the related period.

Question 33Financial Accounting Standards (FAS)

An Islamic bank is the lessee in an Ijarah contract. Under AAOIFI FAS, how is the leased asset and the related obligation presented by the lessee?

  1. Only the lease obligation is recognised
  2. Neither the asset nor the obligation is recognised by the lessee
  3. The leased asset and the lease obligation are recognised in the lessee's statement of financial position Correct answer.
  4. Only the leased asset is recognised

Explanation

AAOIFI requires the lessee to recognise the leased asset and the corresponding lease liability, with rental payments split between a finance charge and reduction of the obligation. This reflects the substance of the right to use and the obligation to pay.

Question 34Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is Zakah on the bank's own funds treated in the financial statements?

  1. As a deduction from investment account holders' profits
  2. As an operating expense in the income statement
  3. As a contingent liability disclosed only in the notes
  4. As a distribution to owners, presented in the statement of changes in equity Correct answer.

Explanation

Zakah payable by the bank on its own funds is treated as a distribution to owners and presented in the statement of changes in equity, not as an operating expense. Zakah collected on behalf of others is a separate agency matter.

Question 35Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are assets received as a gift (hibah) by an Islamic bank recognised?

  1. Not recognised until sold
  2. As a reduction of owners' equity
  3. At nominal value only
  4. At fair value when reliably measurable, with the gain recognised appropriately Correct answer.

Explanation

Gifts received are recognised at fair value when it can be measured reliably, with the corresponding income recognised. This reflects the economic benefit obtained by the bank.

Question 36Financial Accounting Standards (FAS)

Under AAOIFI FAS, what is the treatment of a provision for liabilities of uncertain timing or amount?

  1. Recognised at the maximum possible amount in all cases
  2. Recognised when a present obligation exists, an outflow is probable, and the amount can be reliably estimated Correct answer.
  3. Disclosed only, never recognised
  4. Recognised only when the obligation becomes legally certain

Explanation

AAOIFI requires recognition of a provision when a present obligation exists, an outflow of resources is probable, and a reliable estimate can be made. Measurement reflects the best estimate of the expenditure required.

Question 37Financial Accounting Standards (FAS)

An Islamic bank enters a contract where it acts as an agent for another party and earns a commission. Under AAOIFI FAS, how is the commission recognised?

  1. Only when the principal party confirms receipt
  2. As gross revenue equal to the full transaction value
  3. As net income when the agency service is performed Correct answer.
  4. As a deferred item amortised over ten years

Explanation

An agent recognises only its commission (net income), not the gross value of transactions it handles, because it does not control the underlying goods or services. Recognition occurs when the agency service is performed.

Question 38Financial Accounting Standards (FAS)

Under AAOIFI FAS, how should an Islamic bank account for a change in accounting estimate?

  1. Prospectively, affecting current and future periods Correct answer.
  2. By restating prior period financial statements
  3. By disclosing only, with no financial statement effect
  4. By adjusting opening retained earnings

Explanation

Changes in accounting estimates are applied prospectively, affecting the period of change and future periods. Prior periods are not restated because the change results from new information, not an error.

Question 39Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is a prior period error that is material treated?

  1. Corrected retrospectively by restating comparative figures Correct answer.
  2. Disclosed only in the notes without adjustment
  3. Ignored if immaterial to the current year
  4. Corrected prospectively in the current year's income

Explanation

Material prior period errors are corrected retrospectively, restating comparative amounts and adjusting opening retained earnings. This ensures comparability and faithful presentation.

Question 40Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are the costs of a merger or acquisition of another Islamic financial institution treated?

  1. Expensed as incurred Correct answer.
  2. Recognised as a contingent asset
  3. Deducted from the purchase consideration
  4. Capitalised as an intangible asset and amortised over twenty years

Explanation

Transaction costs associated with a business combination are expensed as incurred, not capitalised as part of the acquisition cost. This reflects that they are not part of the fair value of the acquired net assets.

Question 41Financial Accounting Standards (FAS)

An Islamic bank holds a non-current asset classified as held for sale. Under AAOIFI FAS, how is it measured?

  1. At the lower of carrying amount and fair value less costs to sell Correct answer.
  2. At fair value with gains recognised in equity
  3. At cost less accumulated depreciation
  4. At historical cost with no depreciation adjustment

Explanation

Assets held for sale are measured at the lower of carrying amount and fair value less costs to sell, and depreciation ceases. This reflects the recoverable amount through sale rather than continued use.

Question 42Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is goodwill arising on acquisition treated after initial recognition?

  1. Revalued annually to fair value
  2. Tested for impairment and not amortised Correct answer.
  3. Written off immediately against equity
  4. Amortised over a fixed period of forty years

Explanation

Goodwill is not amortised; instead it is tested for impairment at least annually, with any impairment recognised in the income statement. This reflects the indefinite life assumption for goodwill.

Question 43Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is a finance lease-type Ijarah Muntahia Bittamleek treated by the lessor?

  1. As an operating lease with rental income recognised as earned
  2. As a financing arrangement, recognising a receivable and finance income over the term Correct answer.
  3. As a sale recognised fully at inception
  4. As a contingent asset until the transfer of ownership

Explanation

Where the lease transfers substantially all risks and rewards of ownership, the lessor treats it as financing, recognising a receivable and allocating rentals between finance income and principal. This mirrors the substance of the arrangement.

Question 44Financial Accounting Standards (FAS)

Under AAOIFI FAS, what is the required treatment of an Islamic bank's investment in a subsidiary?

  1. Recognised as a financial asset at fair value through profit or loss
  2. Consolidated, with the parent presenting consolidated financial statements Correct answer.
  3. Measured at cost in all financial statements
  4. Accounted for using the equity method in all cases

Explanation

Where the bank controls another entity, it prepares consolidated financial statements combining the subsidiary's assets, liabilities, income and expenses. Separate financial statements, if presented, use a different measurement basis.

Question 45Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is an investment in an associate accounted for in the investor's consolidated financial statements?

  1. At cost
  2. By full line-by-line consolidation
  3. At fair value through other comprehensive income
  4. Using the equity method Correct answer.

Explanation

Significant influence without control is accounted for using the equity method, recognising the investor's share of the associate's results and net assets. Full consolidation would be inappropriate because control is absent.

Question 46Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are the proceeds and costs of an interest-free loan (Qard Hasan) received by an Islamic bank presented?

  1. As a contingent asset
  2. As a liability to be repaid, with no income recognised on receipt Correct answer.
  3. As income in the income statement
  4. As part of shareholders' equity

Explanation

A Qard Hasan received creates an obligation to repay, so it is recognised as a liability; receipt of borrowed funds is not income. Any voluntary gift on repayment is treated separately.

Question 47Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is an investment in a joint venture accounted for by the venturer?

  1. At cost with no subsequent adjustment
  2. Using the equity method in consolidated financial statements Correct answer.
  3. By proportionate consolidation in all cases
  4. At fair value through profit or loss

Explanation

Interests in joint ventures are accounted for using the equity method, recognising the venturer's share of the venture's results and net assets. Proportionate consolidation is not the required approach under AAOIFI.

Question 48Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is revenue from the sale of goods recognised?

  1. When the goods are ordered by the buyer
  2. When the contract is signed
  3. When the buyer pays in full
  4. When the significant risks and rewards of ownership are transferred to the buyer Correct answer.

Explanation

Sale revenue is recognised when the significant risks and rewards of ownership pass to the buyer, along with the other recognition criteria. This marks the point at which the seller has substantially performed.

Question 49Financial Accounting Standards (FAS)

Under AAOIFI FAS, how are assets and liabilities denominated in a foreign currency translated at the reporting date?

  1. At the rate expected at settlement
  2. At the average rate for the year
  3. At the closing rate at the reporting date Correct answer.
  4. At the historical rate on the transaction date

Explanation

Foreign currency monetary items are translated at the closing rate at the reporting date, with exchange differences recognised in the income statement. Historical rates are used only for non-monetary items measured at historical cost.

Question 50Financial Accounting Standards (FAS)

Under AAOIFI FAS, how is a Mudaraba investment made by the bank where it acts as Rab-ul-Mal measured when the Mudarib reports a loss due to the Mudarib's negligence?

  1. The loss is borne entirely by the Rab-ul-Mal as normal business risk
  2. The loss is shared equally regardless of cause
  3. The Mudarib is liable for the loss caused by its negligence or breach Correct answer.
  4. The loss is deferred to future periods

Explanation

While the Rab-ul-Mal normally bears business losses, the Mudarib is liable where the loss results from negligence, misconduct, or breach of the contract terms. This preserves the fiduciary nature of the Mudarib's role.