What is Murabaha Accounting?
Murabaha accounting refers to the financial reporting of shariah-compliant cost-plus-profit sales in which a financier buys an asset and resells it to the customer at the cost plus an agreed profit margin, on a deferred-payment basis.
How It Works
- Recognise the purchase of the underlying asset by the financier.
- Sell the asset to the customer at cost plus an agreed profit margin.
- Recognise a murabaha receivable for the deferred selling price.
- Spread profit recognition over the financing period using the effective profit rate.
- Test the receivable for expected credit loss at each reporting date.
Saudi Context
Murabaha is the workhorse of Saudi Islamic retail and corporate lending — vehicles, equipment, working capital, and goods financing. Saudi Islamic banks under SAMA supervision use a combination of AAOIFI standards and SOCPA-adopted IFRS for measurement.
Example
A bank buys equipment for SAR 1,000,000 and sells it to a client for SAR 1,200,000 payable over 24 months. The SAR 200,000 deferred profit is recognised monthly using the effective profit rate.