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| Corporate Accounting Treatment |
Mudaraba Term Deposit Interest Calculation Sheet-With Practical Examples:
Mudaraba is an Islamic finance concept where one party provides capital while the other party provides expertise and management for a business venture. In the context of a Mudaraba Term Deposit, an investor deposits money with a financial institution, which then uses that capital to engage in Sharia-compliant investments. The profits generated are shared between the investor and the institution based on a pre-agreed profit-sharing ratio.
Key Features of Mudaraba Term Deposit:
Capital Provider: The depositor (investor) provides the capital.
Manager: The financial institution manages the funds and invests them.
Profit Sharing: Profits are shared according to a pre-agreed ratio (e.g., 70/30, 50/50).
No Guaranteed Return: The return is not fixed or guaranteed; it depends on the actual profits generated from investments.
Term Duration: Can vary (e.g., 1 month, 6 months, 1 year).
Calculation of Profit from Mudaraba Term Deposit:
To illustrate how profit is calculated in a Mudaraba Term Deposit, let's consider the following example:
Practical Example:
Deposit Amount (Capital): $10,000
Profit Sharing Ratio: 70% to the investor, 30% to the institution
Total Profit Earned from Investments: $2,000
Deposit Term: 1 year
Step-by-Step Calculation
Step 1: Calculate the Investor's Share of Profit
Total Profit Earned: $2,000
Investor’s Share (70%):