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    05A Examples of Profit Computation PDF

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    Sharifah Amrina
    This document provides examples of calculating profit rates for various Islamic deposit products using different methods such as accumulated daily average balance and daily balance, and also shows how to calculate early withdrawal amounts. Multi-tiered profit rates are demonstrated based on account balance thresholds. Computation of overall profit rates for different product types are presented based on funds pooled, assigned weights, income distribution ratios, and depositor profits.

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    05A Examples of Profit Computation PDF

    Uploaded by

    Sharifah Amrina
    147 views5 pages
    This document provides examples of calculating profit rates for various Islamic deposit products using different methods such as accumulated daily average balance and daily balance, and also shows how to calculate early withdrawal amounts. Multi-tiered profit rates are demonstrated based on account balance thresholds. Computation of overall profit rates for different product types are presented based on funds pooled, assigned weights, income distribution ratios, and depositor profits.

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    05A Examples of Profit Computation.pdf

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    This document provides examples of calculating profit rates for various Islamic deposit products using different methods such as accumulated daily average balance and daily balance, and also shows how to calculate early withdrawal amounts. Multi-tiered profit rates are demonstrated based on account balance thresholds. Computation of overall profit rates for different product types are presented based on funds pooled, assigned weights, income distribution ratios, and depositor profits.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    147 views5 pages

    05A Examples of Profit Computation PDF

    Uploaded by

    Sharifah Amrina
    This document provides examples of calculating profit rates for various Islamic deposit products using different methods such as accumulated daily average balance and daily balance, and also shows how to calculate early withdrawal amounts. Multi-tiered profit rates are demonstrated based on account balance thresholds. Computation of overall profit rates for different product types are presented based on funds pooled, assigned weights, income distribution ratios, and depositor profits.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 5

    ISF 1101 Foundation of Islamic Finance

    E X A M P LE S OF P R OF I T /D I V I DEN D /H I BA H C OM P U T A TI O N

    Example 1

    The following daily balances were observed.

    Date Daily Balance Date Daily Balance


    1-May 15,000 17-May 7,000
    2-May 15,000 18-May 2,000
    3-May 12,000 19-May 2,000
    4-May 12,000 20-May 2,000
    5-May 12,000 21-May 12,000
    6-May 10,000 22-May 12,000
    7-May 15,000 23-May 13,500
    8-May 15,000 24-May 18,500
    9-May 14,500 25-May 18,500
    10-May 12,500 26-May 18,500
    11-May 12,500 27-May 18,500
    12-May 10,000 28-May 12,500
    13-May 3,000 29-May 10,500
    14-May 3,000 30-May 12,000
    15-May 7,500 31-May 12,000
    16-May 7,500
    Total 348,000

    The profit/hibah rate is 4%.

    To calculate the profit/hibah using the Accumulated Daily Average Method,

    Total of End of Day Balances for the Month


    Monthly Average Daily Balance (MADB) 
    No. of Days in the Month
    348,000
      11,225.81
    31
    No. of days in the Month
    Profit for the Month  MADB x Profit/Hibah Rate x
    365
    31
     11,225.81 x 0.04 x  38.14
    365

    In the Daily Balance Method, profit is calculated on a daily basis, using the following formula,

    1
    Daily Profit  End of Day Balance x Profit/Hibah Rate x
    365

    Deposit Products Page 1 of 5


    ISF 1101 Foundation of Islamic Finance

    Example 2

    The following daily balances were observed.

    Date Daily Balance Date Daily Balance


    1-Jun 10,000 16-Jun 5,000
    2-Jun 10,000 17-Jun 5,000
    3-Jun 8,000 18-Jun 7,500
    4-Jun 4,000 19-Jun 7,500
    5-Jun 6,000 20-Jun 6,000
    6-Jun 6,000 21-Jun 5,000
    7-Jun 4,000 22-Jun 7,000
    8-Jun 2,500 23-Jun 7,000
    9-Jun 2,500 24-Jun 7,000
    10-Jun 2,000 25-Jun 9,000
    11-Jun 4,000 26-Jun 9,000
    12-Jun 4,000 27-Jun 9,000
    13-Jun 7,000 28-Jun 9,000
    14-Jun 1,000 29-Jun 7,000
    15-Jun 1,000 30-Jun 3,000
    Total 175,000

    The following multi-tiered profit/hibah rates are applied:

    Tier Range of balance Rate


    1 Up to 1,000 2.05%
    2 1,001 to 5,000 3.40%
    3 5,001 and above 4.55%

    To calculate the profit/hibah using the Accumulated Daily Average Method,

    Total of End of Day Balances for the Month


    Monthly Average Daily Balance (MADB) 
    No. of Days in the Month
    175,000
      5,833.33
    30
    No. of days in the Month
    Profit for the Month  MADB x Profit/Hibah Rate x
    365

    Tier Calculation Profit for the Tier


    30
    1 1,000 x 2.05% x 1.68
    365
    30
    2 4,000 x 3.40% x 11.18
    365
    30
    3 833.33 x 4.55%x 3.17
    365
    Total 16.03

    Deposit Products Page 2 of 5


    ISF 1101 Foundation of Islamic Finance

    Example 3

    20,000 was placed in a 6-month mudarabah investment account, from 22 Jan 2014 to 22 Jul 2014.

    The bank determined (quoted) the following profit rates for the following monthly intervals.

    Monthly interval Rate


    16 Jan – 15 Feb 2014 3.50%
    16 Feb – 15 Mar 2014 3.35%
    16 Mar – 15 Apr 2014 3.30%
    16 Apr – 15 May 2014 3.20%
    16 May – 15 Jun 2014 3.37%
    16 Jun – 15 Jul 2014 3.25%
    16 Jul – 15 Aug 2014 3.45%

    Profit to be distributed can be calculated using the following method.

    No. of
    Monthly interval Rate Calculation Profit
    days
    25
    22 Jan – 15 Feb 25 3.50% x 3.50%x RM20,000 RM47.95
    365
    28
    16 Feb – 15 Mar 28 3.35% x 3.35%x RM20,000 RM51.40
    365
    31
    16 Mar – 15 Apr 31 3.30% x 3.30%x RM20,000 RM56.05
    365
    30
    16 Apr – 15 May 30 3.20% x 3.20%x RM20,000 RM52.60
    365
    31
    16 May – 15 Jun 31 3.37% x 3.37%x RM20,000 RM57.24
    365
    30
    16 Jun – 15 Jul 30 3.25% x 3.25%x RM20,000 RM53.42
    365
    7
    16 Jul – 22 Jul 7 3.45% x 3.45%x RM20,000 RM13.23
    365
    Total RM331.89

    Deposit Products Page 3 of 5


    ISF 1101 Foundation of Islamic Finance

    In the event of early/pre-mature withdrawal, profit distributed will be calculated based on


    balance held until the time of withdrawal, subject to certain restrictions and conditions.

    For instance, using the same example above, assume that the entire deposit was withdrawn on
    28 May 2014.

    No. of
    Monthly interval Rate Calculation Profit
    days
    25
    22 Jan – 15 Feb 25 3.50% x 3.50%x RM20,000 RM47.95
    365
    28
    16 Feb – 15 Mar 28 3.35% x 3.35%x RM20,000 RM51.40
    365
    31
    16 Mar – 15 Apr 31 3.30% x 3.30%x RM20,000 RM56.05
    365
    30
    16 Apr – 15 May 30 3.20% x 3.20%x RM20,000 RM52.60
    365
    12
    16 May – 27 May 12 3.37% x 3.37%x RM20,000 RM22.16
    365
    Total RM230.16

    Deposit Products Page 4 of 5


    ISF 1101 Foundation of Islamic Finance

    Example Computation of Profit/Hibah Rate

    Funds Assigned Weighted Income Depositor Depositor Profit


    Product Type Pooled Weight Balance Distribution Ratio Profit Rate
    (A) (B) (C) (D) (E) (F) (G)

    Savings 5,000,000 0.95 4,750,000 25,000 50% 12,500 3.00%

    1-month
    2,600,000 0.95 2,470,000 13,000 65% 8,450 3.90%
    Mudarabah

    3-month
    3,000,000 0.95 2,850,000 15,000 70% 10,500 4.20%
    Mudarabah

    6-month
    1,800,000 0.95 1,710,000 9,000 75% 6,750 4.50%
    Mudarabah

    9-month
    350,000 0.95 332,500 1,750 80% 1,400 4.80%
    Mudarabah

    12-month
    250,000 0.95 237,500 1,250 85% 1,063 5.10%
    Mudarabah

    12,350,000
    Total 13,000,000 65,000 40,663
    (H)

    Assume:

    Total income earned (y) for a period of one month (x = 1) is RM65,000.

    Computational Notes:

    Funds Pooled (A) = Total balance of all accounts for the given product type

    Assigned Weight (B) = Based on guidelines/stipulations by regulatory authority

    Weighted Balance (C) = Funds Pooled (A) x Assigned Weight (B)

    Weighted Balance (C)


    Income Distribution (D) = x Total Income Earned( y )
    Total Weighted Balance (H)

    Depositor Ratio (E) = Profit Sharing Ratio, as agreed with the depositor (in the case of
    mudarabah) or discretionary on the part of the bank (in the case of hibah)

    Depositor Profit (F) = Income Distribution (D) x Depositor Ratio (E)

    DepositorProfit (F) Total no. of months in a year


    Profit Rate (G) = x x 100%
    Funds Pooled (A) No. of months income earned over ( x )

    Deposit Products Page 5 of 5

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