MFRS Standards: Analyzing Savings Deposits Contract Accounting

This report provides a detailed analysis of the relevant Malaysian Financial Reporting Standards (MFRS) concerning savings deposits contracts, focusing on recognition, measurement, presentation, and disclosure. It identifies key MFRS standards such as MFRS 139, which deals with the recognition and measurement of financial instruments, including assets, liabilities, and derivatives, and MFRS 132, which addresses presentation and disclosure requirements for financial instruments, emphasizing fair valuation and proper classification. The report also examines various Islamic banking contracts like Tawarruq, Murabahah, Musyarakah Mutanaqisah, and Qard, explaining their application in the context of MFRS compliance. It further discusses how financial instruments are classified as either liabilities or equity based on contractual agreements, ensuring transparent financial reporting. The analysis includes references to relevant literature, highlighting the practical application of MFRS in clarifying legal and financial drafting.

Accounts savings deposits contract

Identify the relevant MFRS for the saving deposits contract
• 1. Tawarruq arrangement-
• This is contract between three or more of the parties for intending
to receive cash by selling of the goods and services.
• The tawarruq arrangement is done for obtaining cash from selling
commodities.
• The Islamic banks usually uses it for framing the contractual agreement
between three parties or even more than that.
• This contract follows wakalah which means that Islamic banks will be
representing as purchasing and selling agent on behalf of the parties
involve in the agreement.
• It also includes commodity murabahah which means that sale of goods
will be settled at a future time period.
• This commodity murabahah involves goods such as non precious metals
and crude oil for the purpose of trading.

Cont.
• 2. Murabahah contract-
• This is the simple term of contract where seller of
commodities expresses cost plus sale to the purchaser.
• It is highly simple to understand and is the most use in
Malaysian contracts.
• This is contract is commonly used for financing of assets and
for trading purpose.
• The murabahah contract is used for short term financing
usually which is less than a year.
• This is simple to explain as seller adds cost to the commodity
and conveys profit earned on that commodity to the purchaser
of good.

Cont.
• 3. Musyarakah Mutanaqisah contract
• The above said Islamic bank contract is commonly used for
the purpose of acquiring assets which is used for effective
functioning.
• The asset which is acquired from third party and is jointly
acquired by parties involve in the contractual agreement.
• This is followed on a principle which says that one party
leases share of ownership to other party and the party which is
known as the lessee will acquire the asset and will become the
full owner of the acquired asset.
• This contractual agreement is used for equity financing by the
Islamic banks.

Cont.
• 4. Qard contract-
• The qard contract literally means humble to others.
• This is a contractual agreement which is transferred to needy borrowers by
the lenders without demanding any return in form of profit or interest.
• This is the contract which is solely based on helping the needy without
expecting anything in return of the amount paid to him.
• It is solely for helping the needy.
• The qard contract is based on social welfare as intended in holy book
Quran.

Discuss how the MFRSs deal with the Recognition,
measurement, presentation and disclosure.
• The MFRS (Malaysian Financial Reporting Standards) deals with the parameters
like recognition, measurement, presentation and disclosure.
• The MFRS 139 deals with the recognition and measurement for financial
instruments.
• It also includes hedge accounting requirements. MFRS 139 is applied to all
financial instruments which includes assets and liabilities and derivatives in it.
• Under MFRS 139, financial assets and financial liabilities are classified under
recognition. These classifications are made for the purpose of smooth accounting
treatment.
• The MFRS 139 carries out fair value of surplus or deficit. The reason behind is that
the financial instruments are held for trading purpose.
• As such, MFRS 139 is used to guide and support recognition and measurement in
the MFRS professional body.

Cont.
• The financial principle of MFRS 132 deals with presentation and disclosure. The MFRS
professional body states that financial instruments which includes financial assets and
liabilities must be recognised as either liability or equity depending on the contract of
agreement and not on its legal type.
• This is an important regulation regarding fair disclosure and presentation of financial tools
with much ease.
• A financial tool is equity tool only if this raises no contractual liability to transfer cash to any
other business enterprise.
• It is also an equity instrument if a derivative that will be met by returning or exchanging same
and predetermined amount in cash for a predetermined amount of its own equity tools.
• The MFRS 132 which includes disclosure states that the financial statements of enterprise
should disclose assets and liabilities which should be assessed at fair value of surplus or
deficit.
• It should also disclose loans and receivables from customers and also to long term
investments.
• When there exist de-recognition of asset in the entity, then the same should be included in the
disclosure.

REFERENCES
Allen, S. E., 2016. Navigating the Murky Waters of Foreign Maritime Liens: How
effective is a US choice of law in a bunker supply contract between the supplier
and time charterer for obtaining a necessaries lien? (Master's thesis).
Chen-Wishart, M., Loke, A. and Ong, B. eds., 2016. Studies in the Contract Laws of
Asia: Remedies for Breach of Contract. Oxford University Press.
Cheong, M. F. and Lee, Y. H., 2016. Specific remedies and money awards in the
protection of the performance interest under Malaysian Contract Law.
Chong, H. Y. And et.al., 2016. A practical approach in clarifying legal drafting: Delphi
and case study in Malaysia. Engineering, Construction and Architectural
Management. 23(5). pp.610-621.

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