FIN624 Assignment Solution By Raheel Raaj
#1

Question no. 1                                                                               6 Marks
Mr. Ahmed and Mr. Zia are renowned businessmen in Pakistan. They have more than 20 years of business experience. Mr. Ahmed and Mr. Zia want to establish a new venture for textile sector on Musharakah basis. In Musharakah contract both parties agreed on the following conditions:
1.[font=Times New Roman]     [/font]Business will be on the basis of Musharakah
2.[font=Times New Roman]     [/font]Partner ‘A’ will invest Rs. 1,000,000/-
3.[font=Times New Roman]     [/font]Partner ‘B’ will invest Rs. 500,000/-
4.[font=Times New Roman]     [/font]Partner ‘A’ will be a working partner.
5.[font=Times New Roman]     [/font]Partner ‘B’ will be a silent partner.
Scenario I: Each will get percentage of profit based on their capital proportion.      
Scenario II: Partner ‘B’ will get percentage of profit more than the capital proportion.      
By applying the basic rules of distribution of profit what do you think that, are the above scenarios valid as per shari’ah in opinion of Imam Abu Hanifa (R.A) or not. If ‘YES’ then on which grounds? If ‘NO’ then why? Elaborate your answer with strong logical arguments by explaining the rules of distribution of profit with reference to Musharakah.
 
Solution:
Scenario I: Each will get percentage of profit based on their capital proportion.    
Yes this is vaild, The ratio of profit for each partner must be determined in proportion to the actual profit accrued to the business, and not in proportion to the capital invested by him. It is not allowed to fix a lump sum amount for any one of the partners, or any rate of profit tied up with his investment
Scenario II: Partner ‘B’ will get percentage of profit more than the capital proportion.
It is not vaild because if one or more partners choose to become non-working or silent partners. The ratio of their profit cannot exceed the ratio which their capital investment bears so the total capital investment in Musharakah.
According to Imam Abu Hanifah, the ratio of profit distribution may vary, however, for silent partners (non-active partners, who only contribute capital), it cannot be any higher than the ratio of investment.
 
 
Write down any four basic rules of distribution of profit in Musharakh financing.
üThe profit ratio of each partner must be determined proportionally to the actual profit of the business and not in proportion to the capital invested by him.
üIt is prohibited to set a fixed amount for any partner or attach any specific rate of profit to his investment.
üIt is allowed for both partners to agree on profit percentage according to their investment, no matter if both of them work or not.
üIf an investor is working, his profit share can be more than his capital investment, no matter if the other partner is working or not.
 
 


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