What Is Sukuk, Types Of Sukuk, And Characteristics Of Sukuk

Sukuk definition:  

The sukuk concept is based on the premise that any Islamic financing contract representing ownership of a tangible asset can be bought or sold, and hence can be structured in the form of tradable securities. 

A sukuk represents:                         

An undivided proportionate beneficial ownership interest in an asset or portfolio.

The corresponding right to the Islamically acceptable income streams generated by the asset or portfolio.

A sukuk is similar to a conventional bond in most respects – such as trading, listing, and rating – but is structured in a Shariah-compliant manner. The sukuk structure has several advantages, one of which is that it provides access to a growing Islamic liquidity pool in addition to the conventional investor base.

Different Types of Sukuk:

A sukuk can be structured in a number of ways, depending on its underlying assets and business purpose. Some of the generic sukuk structures used for international sovereign and corporate structures are: Read the rest of this post »

December 9, 2009   Posted in: Islamic Capital markets  No Comments

What is Activity based budgeting and briefly describe how it could bring improvements to the budgeting process of an organization

Activity based budgeting(ABB) is a method of budgeting which is based on an activity framework, utilizing cost driver data rather than the more traditional functional cost centres and overhead absorption ratios.

ABB involves defining the activities that underlies the financial figures in each function and using the level of activity to decide how much resource should be allocated, how well it is being managed and to explain variances from budgets.

Some of the improvements that ABB can brings to the budgeting process might include the following:

  • costs will be better managed and understood between ABB recognizes that the aim is to control the causes(drivers) of costs rather than the costs themselves Read the rest of this post »

December 5, 2009  Tags: ABB, activity based budgeting  Posted in: Budgeting  No Comments

Limitations Of Zero-based-budgeting system

Earlier article describes the history/background and the various benefits of using/implementing zero based budgeting system.

However, the following are some of the limitations or disadvantages of using zero-based budgeting:-

  1. A large volume of extra-paperwork will be created
  2. It can be costly and time-consuming process
  3. Management may not possess the necessary skills in decision analysis
  4. Managers may feel threatened by the need to justify expenditure for each budget
  5. Manager may resent being continually questioned about how efficiently they utilized resources.

December 5, 2009  Tags: limitations, limitations of zero based budgeting  Posted in: Budgeting  No Comments

Activity Based Costing Question No.5 (with answer)

A company manufactures two products, X and Y, using the same equipment and similar processes. Data for the production of these items in one period is shown below:

Data:

Quantity produced per period

X

Y

Material cost per unit

20,000

10,000

Direct labor hours per unit

$20

Machine hours per unit

½

Set-ups per period

4

Orders handled per period

70

Cost per direct labor hour

160

Overhead costs

$
Relating to machine activity

300,00
Relating to set-ups of production runs

50,000
Relating to handling of orders

70,000

Question: Using activity-based costing, what is the full production cost per unit X?

Answer:

$

$
a Machine hour driven costs 300,000/80,000 m/c hr 3.75
b Set-up driven costs 50,000/100 set ups 500 per set up
c Order driven costs 70,000/200 orders 350 per order
Overhead costs of X

$
Machine driven costs(40,000x$3.75)

150,000
Set-ups(30 x$500)

15,000
Orders handled(40x$350)

14,000

179,000

Units produced

20,000
Overhead cost per unit

$8.95
Full cost per unit ($5+$4+$8.95)

$17.95

December 5, 2009  Tags: Activity based costing questions, Activity based costing questions and answers  Posted in: Activity-Based Costing  No Comments

Activity Based System Question No 4 (with answer)

Question:

1(a) For below table, please fill up the following values

(i)   Overhead per cost driver unit

(ii)  Total Overhead per product per activity

(iii) Cost per item

Activity

Total Overheads

Total Cost driver units

Overhead per cost driver unit

Cost driver units per product

Total overhead per product per activity

$

Units

X

Y

Z

X

Y

Z
Machinery set-ups

20,000

230

140

80

100

-

-

-
Materials handling

12,000

90

12

14

14

-

-

-
Quality Control

24,000

120

75

55

70

-

-

-
Supervision

6,000

40

10

15

25

-

-

-
Maintenance

6,450

25

4

6

5

-

-

-

-

-

-

Number of units produced

1,100

450

450

$

$

$

Cost per item

Question

1(b): What is a cost driver unit, what do you understand by the term “cost driver unit”. Give an example for each activity listed in the above table.

SUGGESTED SOLUTION:

Part 1(a) is a simple illustration to identify all of the steps necessary to do the numerical part of an ABC question.

Activity

Total Overheads

Total Cost driver units

(i)         Overhead per cost driver unit

Cost driver units per product

(ii)                                                                           Total overhead per product per activity

$

Units

X

Y

Z

X

Y

Z
Machinery set-ups

20,000

230

86.96

140

80

100

12,174

6,957

8,696
Materials handling

12,000

90

133.33

12

14

14

1,600

1,867

1,867
Quality control

24,000

120

200.00

75

55

70

15,000

11,000

14,000
Supervision

6,000

40

150.00

10

15

25

1,500

2,250

3,750
Maintenance

6,450

25

258.00

4

6

5

1,032

1,548

1,290

31,306

23,621

29,602

Number of units produced

1,100

450

450

$

$

$

(iii)  Cost per item

28.46

52.49

65.78

Answer 1(b)

A cost driver is “an activity which generates cost”, such as number of quality inspections, or number of deliveries. The cost driver unit, therefore is one inspection, one delivery and so forth. Hours or weight may be cost driver units, depending upon the cost driver in question

Examples for each of the activities in the table are as follows:

Activity                                Possible cost driver unit

Machinery set-ups              Number of set-ups

Material handling                Kilograms of material handled

Quality control                    Inspection hour

Supervision                        Number of work teams

Maintenance                      Maintenance staff hours

December 4, 2009  Tags: Activity based costing questions, Activity based costing questions and answers  Posted in: Activity-Based Costing  No Comments

An Example To Illustrate How To Classify A Lease As Finance Lease

Below example demonstrate how to classify a lease into a finance lease:

Question:

ABC Ltd enters a lease agreement on 1 January 2009 to have the right to use the asset for 10 years. The economic life of the asset is 11 years. The fair value of the asset is $12 million. The lessee agreed to pay $1.6 million annually for 10 years at the beginning of each year. The present value of the minimum lease payment is $10.5 million.

Required: How should the lease be classified?

Answer: Read the rest of this post »

December 2, 2009  Tags: Finance Lease, finance lease example  Posted in: Accounting for Lease  No Comments

How To Recognize Franchise Fee As Revenue

Franchise fees may cover the supply of initial and subsequent services, equipment and other tangible assets, and know-how 

Extracted from the appendix to Malaysia FRS 118 revenue, the following are noted in the event we need to recognize revenue from the varying aspect of franchising: 

Supplies of equipment and other tangible assets.

  • The amount, based on the fair value of the assets sold, is recognized as revenue when the items are delivered or title passes. 

Supplies of initial and subsequent services. Read the rest of this post »

December 2, 2009  Tags: Franchise fee, revenue recognition  Posted in: Franchising  No Comments


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