Ijarah Contract

Lease is a contractual agreement in which a party use the assets of another person with paid amount. Lease consists on different contracts, which are to be considered in this study related to Ijarah. Ijara contract is a typical concept, which is consisting of different goods and services paid temporarily for wage. This is an Arabic word, which indicates the meaning in the same context. In this contract, an individual can find the required good and services on rent from different parties in form of banks. Therefore, it is concluded that, this concept in Islamic banking indicates the right of a person to use the property for a certain period without any ownership. Ijara concepts is also included the rent or lease good or services from banks for a certain period according to the requirement of customers.  (Saleem, 2012). There is several leasing agreement in this concept regarding the Islamic banking. Therefore, This is a fact that a lessor will have to conduct the maintenance while having a good on lease in the certain period. The Ijara contract in the Islamic banking is necessary of the same design as an installment leasing agreement. For example, in Ijara contract, the lessor is responsible for major maintenance in the conventional lease contracts. 

This is a fact that (IFAS) named as Islamic Finance Accounting Standard was issued by the charted accountants of Pakistan. Therefore, they started their operations from July 1, 2007 with sustaining the following features.

Study on Ijarah Contract By ABC Date: Ijarah Contract: Lease is a contractual agreement in which a party use the assets of another person with paid amount. Lease consists on different contracts, which are to be considered in this study related to Ijarah. Ijara contract is a typical concept, which is consisting of different goods and services paid temporarily for wage. This is an Arabic word, which indicates the meaning in the same context. In this contract, an individual can find the required good and services on rent from different parties in form of banks. Therefore, it is concluded that, this concept in Islamic banking indicates the right of a person to use the property for a certain period without any ownership. Ijara concepts is also included the rent or lease good or services from banks for a certain period according to the requirement of customers. (Saleem, 2012). There is several leasing agreement in this concept regarding the Islamic banking. Therefore, This is a fact that a lessor will have to conduct the maintenance while having a good on lease in the certain period. The Ijara contract in the Islamic banking is necessary of the same design as an installment leasing agreement. For example, in Ijara contract, the lessor is responsible for major maintenance in the conventional lease contracts.  This is a fact that (IFAS) named as Islamic Finance Accounting Standard was issued by the charted accountants of Pakistan. Therefore, they started their operations from July 1, 2007 with sustaining the following features. • This is necessary that leaser must own the asset until the period of lease as transferring is not allowed. • This is interesting that if lessee fails to pay the goods or services back to the leaser then there will not be any compound interest (Ahmad, 2009) • Goods or services are only used for the purpose which is mentioned on the contract. This is a form of exchange transaction with various advantages regarding different resources. It is made accessible consequently for an installment, however where responsibility for resource itself is not exchanged. Ijara contract is much similar with the renting assertion. Owner owns the property and has in hands at the end of certain period. Therefore, in various cases there are working rents regarding amortizations and quality results. In this contract or concept renter may purchase the benefit toward the end of the lease period in which this lease tackles the way of a contract buy known as Ijara we intone (actually, rent and possession). Therefore, it is concluded that some of the prominent scholar does not allow this contract and its last plan because of ensured monetary system for the clients while leaser starts to conduct. Therefore, it is concluded that Interest based money lease is also a barriers to this effective and beneficial system for the people in Islamic banking. Ijara is sufficient and adaptable to be connected with a contract relative to a worker by a head honcho, as it is an altered compensation (Iqbal & Mirakhor, 2011). There are some following points regarding which we can relate • Resident can acquire the lease item based on consumption of the lease item. Conditions are also to be considered in these lease items and with proper undertakings. This is important for leaser to forward the lease item in finished mod to the renter. • Delivery of incomplete lease items would not be considered right in the contract.• The usufruct is the very important fact to be considered (Ahmad, 2009)• Sum and timing are important elements in lease items but this is not important to have these elements f time and sum in a uniform form. • Usufruct is happened due to the complete timetable of lease item and there installments but usufruct is dependence on leaser which may exist or not. (Napier & Haniffa, 2011).• Determinations are also a most important factor of lease. • Utilization must be expressed effectively as it will be better for lease contract. • Leaser should have complete responsibility and access towards the processing while giving on rent. (Eisenberg, 2012). • Existing of lease items is necessary through the lease contract and tenure. Defective or devoured things cannot lift for rent. • there is more obligations under Ijara agreement as compared to the traditional methods of renting as it is more secure than the previous ones. • A cost cannot be fixed for the offer of the benefit at the expiry of the lease agreement, which comes under the contract of Ijara. Therefore, it is concluded that This is allowed in the contract that leaser and renter can have continuous process regarding the lease when they have near the time of termination according to set time. (Ayub, 2009). • The Ijara may be ended quickly due to the installment process and problems.• Lessee has to provide any guarantee to the leaser in terms of payments after termination of Ijara contract. Islamic Financial Institutions used Ijara contracts with different combinations of such as ADCB (Abu Dhabi Commercial Bank. Therefore, it is concluded that Moreover, different Islamic countries have banks to offer the car financing based on Ijara contract and purchase contract. Therefore, it is concluded that Sharia has some principles for Islamic financing and consists on different arrangements for guidance. All those instructions of Sharia related to the Ijara contract are as under. Lease-ending ownership According to the set contract, a lessee has to lease the asset that he acquired at the end of period. Therefore, it is concluded that This is not allowed to buy or sell the lease item in the contract, as it must be returned to the leaser. Therefore, it is concluded that although bank may offer some think different related to the ownership. (Ayub, 2009). In this contract, which comes under the Sharia lwa, that leaseholder can only make the promises related to buying or selling the lease item and purchase price will be decided on the market value of the item Operating lease-operatingoperating Ijara): Therefore, This type of Ijara contract based on lease does not offer anything related to buying or selling the lease item at the end of the certain period. There may be some improvisation with the consent of the leaser. (Mourik & Walton, 2013).  Forward lease (Ijara mawsoofa bil thyme): It is based on redeemable leasing and construction finance (istisna) agreement. This lease is set of agreements based on future dates. This is called forward leasing based on different projects, which are mostly considered as construction project. This type of leasing offers differently regarding the different construction projects while initiating or winding up. (Eisenberg, 2012). Major Differences between Accounting of Ijarah and Finance Leasing: There are some differences in finance, leasing, and Ijara leasing and as following Finance leasing & Ijara Based leasing In finance leasing leaser are recorded in finance book or in the book of bank while Ijara consists on impairment and depreciation. Therefore it is concluded that Unearned income is being recorded in the inception of lease Un-earned income such as excess of the aggregate rentals over cost of the asset are recorded at the inception of lease and this is important for accountants to recognized them as only income on accrual basis. Therefore, it is concluded that it is concluded that Effectiveness in recording the data is based on the provisions on debts, which are calculated only according to the provided criteria. Apart with this there are different regulations regarding the depreciations in the banks chargeable to the assets in income statements. This is the big difference that leasers are supposed to be disclosed of provisions suspense and unearned cash. Lease of the assets are classified depends on the nature and difference in the assets such as plant, machinery and automobile Therefore, it is concluded that another different is the revenue, which is recorded in the income portions of the rental based for having and constant and suitable rate of return. There is impairment testing to have definite assets relative to the requirements if IAS 36. Abbreviation if IAS is Impairment of assets. (Source: Iqbal & Mirakhor, 2011) Differing Accounting Treatment of These Contracts: This is clear that Ijara accounting is much different from leasing accounting due to many aspects. These differences are described as below. Ijara accounting policy is the different with the lease accounting that are described in the below Ijarah Asset Recognition: Assets acquired for Ijarah is used for recording the transactions. Sum of all costs are incurred through the bank, which is the big difference. The other terms are • This is normal tat assets are to be shown at their cost less depreciation, which is supposed to be accumulated . • Asset contains the depreciation and charge. It reflects the pattern and indicates the future benefits regarding economy by the bank. • While considering the addition and disposal of assets, this is necessary for accountants to charge the depreciation from acquisition and end with the disposal month. (Ayub, 2009).Revenue recognition: This typical contract is consisting on lease contract in which, rentals are to be recognized as income on accrual basis. It is based on the lease period and stated in a different systematically order. This is clear that company sales it products or services to generate the revenue but it is important to indentify the resources that how to collect and generate the revenues. (Greuning & Iqbal, 2008). Expenses recognize: In Ijarah lease contract, caring costs are prominent and containing the depreciations> these depreciations are included in incurred income. This may include in both Owner statements and bank statements. Relative to this study, expenses reorganization is very important regarding Ijarah when process of leasing exists. Leaser and lessee both have to consider the expenses that are to be incurred in the process with proper identifications. (Eisenberg, 2012).  AAOIFI standards and IFRS Accounting Treatment of the Ijarah: The Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) standards and International Financial Reporting Standards (IFRS) are the institutes recommended by the banks. These are the best sources to conduct the Ijarah contracts. Now we will discuss the some difference, which are relative to the AAOIFI and IFRS. Classification of leases  Money lease is suitable for many people as it refers to the exchanges the dangers and prizes accidental to possession. Another lease is named a working lease in the event which is opposite to the money lease and does not contain the exchanges of dangers and prizes All leases should be classified as an  Operating lease. It is a lease, which has a term compared to the useful life of the asset. This is an effective way of lease and used in acquiring the equipments by the banks. (REDmoney, 2014)Leases in the financial statements of lessees  When we start the lease, process there should perceive the money by the residents with their resources and liabilities. There should be a proper and effective estimation of the property, which is helpful to conduct the installments or rents to be paid by the lease. Mark down rate is the best choice to have perfect utilization of estimation regarding the assets. Therefore, it is concluded that Understanding the interest rate related to these estimations with assets are necessary to impose the interest rates. Estimations of all cost that are perceived for installments in lease terms are beneficial. Starting direct expenses of the tenant are added according to the need to the sum perceived as a benefit (Ayub, 2009). Therefore, it is concluded that In the event of Ijarah consummation with an exchange of possession, the tenant would perceive lease installments as costs all through the lease term. When we will have changed benefit to the tenants, there will be an effective advantage for the resident while conducting the leasing process. , the resident would perceive the advantage obtained (Eisenberg, 2012). Leases in the financial statements of leaser Leaser can obtain the resources through rented fund according to their announcements they conduct in monetary positions. Therefore it is concluded that These are to sustain and retain as receivable related to the interest rates. (Hassan, & Lewis, 2014).  Ijara consummation is beneficial for party involved with lesser terms of agreements. Reason behind is lease and budgetary positions of such party. Lesser party witness both misfortune and increase in return ( Atmeh & Abu-Serdaneh, 2012). Conclusion: It is recommended based on above-mentioned discussion that, variation in interpretation can be reconciled with different methods, approaches, rules and regulations. For instance, financial statement record analysis can be affectively used for such interpretations. Therefore it is concluded that It is regarded as one of the most effective approach in this regard. Moreover, Ijara contracts have significant role in establishment of Islamic banking system. Therefore it is concluded that The Ijara contract in the Islamic banking is necessary of the same design as an installment leasing agreement. This is a form of exchange transaction with various advantages regarding different resources. Some of the prominent scholar does not allow this contract and its last plan because of ensured monetary system for the clients while leaser starts to conduct. Moreover, different Islamic countries have banks to offer the car financing based on Ijara contract and purchase contract. Therefore, it is concluded that there should be a proper and effective estimation of the property, which is helpful to conduct the installments or rents to be paid by the lease. Ijara is regarded as Islamic instrument, which contributes in improvement of overall economy in efficient and effective manner (Godfrey & Chalmers, 2007). Therefore, it is concluded that Furthermore, it is the responsibility of the government of respective Islamic Nations that they arrange for legislation, which strengthen the Islamic instruments such as Ijara to make efficient and affective implementations. References: • Ahmad, A.U.F. (2009) Theory and Practice of Modern Islamic Finance: The Case Analysis from Australia. USA: Universal-Publishers.• Atmeh, M. A., & Abu-Serdaneh, J. A. R. (2012). A Proposed Model for Accounting Treatment of Ijarah. International Journal of Business and Management, 7(18), p. 49-56.• Ayub, M. (2009) Understanding Islamic Finance. USA: John Wiley & Sons.• Eisenberg, D. (2012). Islamic Finance: Law and Practice. USA: Oxford University Press.• Godfrey, J.M. & Chalmers, K. (2007). Globalisation of Accounting Standards. UK: Edward Elgar Publishing. • Greuning, H.V & Iqbal, Z. (2008). Risk Analysis for Islamic Banks. USA: World Bank Publications. • Hassan, M.K. & Lewis, M.K. (2014). Handbook on Islam and Economic Life. UK: Edward Elgar Publishing. • Iqbal, Z. & Mirakhor, A. (2011) An Introduction to Islamic Finance: Theory and Practice (2nd ed.). USA: John Wiley & Sons.• Monash studies in global movements series• Mourik, C. & Walton, P. (2013). The Routledge Companion to Accounting, Reporting and Regulation. UK: Routledge. • Napier, C. & Haniffa, R. (2011). Islamic Accounting. UK: Edward Elgar. • REDmoney, (2014) The Islamic Finance Handbook: A Practitioner's Guide to the Global Markets. USA: John Wiley & Sons. • Saleem, M.Y. (2012). Islamic Commercial Law. USA: John Wiley & Sons

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