This is query for clarifications on zakaat calculation for business.
To our knowledge, we calculate zakaat annually as per info on company annual balance sheet, that is zakaat = current assets – (less) current liabilities.
The details for current assets and current liabilities of my company for which I work are as follows:
Cash on hand
Cash at Bank
Trade Accounts Receivable (Debtors)
Advances - Loan (if any)
Inventories – this includes physical inventories at cost and Goods in transit
Trade Accounts Payable (Creditors)
Advances – Loan (if any)
Other payables and Accrued Liabilities
Advances - Loan (if any)
Provisions for Employee Entitlement (sickleave, annual leave entitlement at balance date)
Provisions for Income Tax
When calculating zakaat that is current assets less current liabilities, we also take into account re-calculating inventories at market value since balance sheet shows inventories at cost.
1. We replace inventories at cost value with inventories at market value for zakaat calculation purpose only. Confirm?
2. Inventories value in balance sheet includes Goods in Transit as advised by Chartered Accountant. Goods in Transit are goods not received but overseas suppliers have shipped the goods and it is on the way before and at balance date. A separate journal entry is passed at the balance date; Dr Inventories Cr Creditors. And this entry is reversed the following Financial period and new Goods in transit value is picked up for new Financial period.
i) The questions arises will this Goods in transit be taken for calculating zakaat?
ii) If yes, will we have to recalculate Goods in transit value at market value?
3. Verify the details given for current assets and current liabilities. Confirm these are ok in regards to zakaat calculations.
4. Provide more notes if available in regards to business zakaat calculations.
Your response to above will be highly appreciated.
بِسْمِ اللهِ الرَّحْمنِ الرَّحِيْم
In the Name of Allah, the Most Gracious, the Most Merciful.
1) Yes, the market value of inventories (merchandise) must be used for zakat calculation purposes.
2) i) Once the company buys some goods (for resale), the company immediately becomes the owner thereof and must pay zakat on them (i.e. if they are still in the company's ownership on the zakat anniversary). This is regardless of whether or not those goods have been delivered and received.
ii) The market value of the goods must be used for zakat calculation purposes.
- Please explain: a) Prepayments; b) Advance payments.
- By “advances”, do you mean the amount the company is owed? If yes, then it is fine.
- All the other assets are fine.
- Note: As mentioned above, the market value of inventories (merchandise) must be used for zakat calculation purposes.
- By “advances”, do you mean the amount the company owes? If yes, then it is fine.
- The amount that the employees will be entitled to in the future (incl. salary, sick-leave entitlement etc.) is not a liability for zakat calculation purpose. However, the amount that has already become payable (i.e. on the zakat anniversary) to the employees will be counted as a liability for zakat calculation purpose.
- The amount that will have to be paid in the future as income tax is also not a liability for zakat calculation purpose. However, the amount that has already become payable (i.e. on the zakat anniversary) to the government as income tax will be counted as a liability for zakat calculation purpose.
- Regarding, dividend see answer no. 4.
- What is meant by “Other payables and accrued liabilities”?
-All the other liabilities are fine.
4) If there are multiple owners of the company, each co-owner will be responsible to pay zakat on his share of the zakatable assets (minus his share of the liabilities) of the company. If there are shareholders, they are also co-owners of the company and they must pay zakat on their share of the zakatable assets (minus their share of the liabilities) of the company.
And Allah Ta'ala knows best
Mufti Faizal Riza
Darul Ifta Australia answers questions pertaining to Shariah. Thereafter, some of these questions and answers are placed for public view on www.fatwa.org.au for educational purposes. However, many of these answers are unique to a particular scenario and cannot be taken as a basis to establish a ruling in another situation or another environment. Darul Ifta Australia bears no responsibility with regards to these questions being used out of their intended context.
- The Shariah ruling herein given is based specifically on the question posed and should be read in conjunction with the question.
- Darul Ifta Australia bears no responsibility to any party who may or may not act on this answer and is being hereby exempted from loss or damage howsoever caused.
- This answer may not be used as evidence in any Court of Law without prior written consent of Darul Ifta Australia.
- Any or all links provided in our emails, answers and articles are restricted to the specific material being cited. Such referencing should not be taken as an endorsement of other contents of that website.