How the Islamic bank arrive at the periodic profit?

In-Depth Analysis

Since the assessment of the share of the profit for the bank and depositors passes through several stages of examination, verification and approval (including the Shariah board clearance), it is possible that depositors receive the profit in their account by up to a fortnight from the closing date. How does an Islamic bank come to the conclusion that it has actually had a profitable distribution period? This is done by the Islamic bank by ensuring that the value of all common pool investments on a constructive liquidation basis has not fallen below the opening balance for that period. Constructive liquidation takes place where, in a going concern, it is not possible to sell the assets since it will mean the end of the business operation. In such a situation, all non-cash assets are professionally assessed to arrive at a notional value as if such an amount would have been received had all the assets been sold on that day. An example could be the audited financials of a trading entity where the external auditors certify its snapshot position in monetary terms after having completed their examination of all assets and liabilities on the closing date of the entity's financial year. The auditors must gauge the present market value of all the assets besides the extent of liabilities to arrive at the net worth of an entity on a given date. Similarly, an Islamic bank, which is very much a going concern, does not follow the actual liquidation process but opts for constructive liquidation where all its common pool investments are valued on a periodic basis. Based on the dates it is required to close the accounts and determine the common pool profit for carrying out the required profit distribution.