MASB Technical Release i -1

Accounting for Zakat on Business

 

OBJECTIVE

1

The objective of this Technical Release is to prescribe the accounting treatment and presentation for zakat on business in the financial statements of entities that pay zakat. It sets out the overall considerations as well as requirements pertaining to the recognition and assessment of zakat, determination of zakat base used in the zakat assessment, presentation, measurement and disclosure of zakat information in the financial statements.

 

SCOPE

2

This Technical Release shall be applied in accounting for, and presentation of, zakat on business in the financial statements of entities that pay zakat.

 

RECOGNITION

3

Zakat for the current period shall be recognised when:

(a)

an entity has a current zakat obligation as a result of a zakat assessment; and

(b)

an outflow of resources embodying economic benefits will be required to satisfy the zakat obligation.

4

The amount of zakat assessed shall be recognised as an expense in the period in which it is incurred.

5

When an entity pays zakat on its business assets, such amount of zakat is recognised as an expense and included in the income statement for the period in which it is incurred.

 

ASSESSMENT OF ZAKAT

6

Zakat shall be assessed when the entity has been in operation for at least 12 months, i.e for the period known as haul. Zakat on business shall be calculated by multiplying zakat rate with zakat base.

 

Zakat Rate

7

The rate of zakat on business, as determined by National Fatwa Council, is 2.5% of zakat base.

 

Zakat Base

8

Zakat base is the net adjusted amount of zakat assets and liabilities used for or derived from business activities. An entity is advised to refer to the relevant zakat authorities for further guidance in determining the net adjusted amount of zakat assets and liabilities.

9

For the purpose of this Technical Release, the term "zakat assets and liabilities" refers to assets and liabilities that carry the same meaning as defined in MASB's A Proposed Framework for the Preparation and Presentation of Financial Statements.

 

Determination of Zakat Base

10

In determining zakat base, an entity may apply one of the following methods as recommended by the Malaysian Islamic Development Department (JAKIM) in Panduan Zakat di Malaysia, 2001:

(a)

Adjusted Working Capital method; or

(b)

Adjusted Growth method.

11

The adjusted working capital method calculates zakat base as net current assets, adjusted for items that do not meet the conditions for zakat assets and liabilities.

12

The adjusted growth method calculates zakat base as owners' equity and long-term liabilities, deducted for property, plant and equipment and non-current assets, and adjusted for items that do not meet the conditions for zakat assets and liabilities as determined by the relevant zakat authorities.

13

The method used for the determination of zakat base shall be applied consistently from one period to another.

 

Measurement of Assets and Liabilities for Zakat

14

On the date zakat is assessed, an entity shall measure zakat assets and liabilities on the same measurement basis as used in the preparation of its financial statements.

 

PRESENTATION

15

The amount of zakat assessed for the current period shall be presented as a line item on the face of the income statement.

 

DISCLOSURE

16

An entity shall disclose in the notes accompanying the financial statements the following:

(a)

method used in the determination of zakat base;

(b)

its responsibility towards payment of zakat on business; and

(c)

major components of zakat.

17

Components of zakat may include:

(a)

current zakat expense;

(b)

zakat payment;

(c)

zakat liability; and

(d)

any adjustments recognised in the period for zakat of prior periods.

 

TRANSITIONAL PROVISIONS

18

This Technical Release shall be applied on a prospective basis only.

 

EFFECTIVE DATE

19

An entity shall apply this Technical Release for annual periods beginning on or after 1 July 2006. Earlier application is encouraged. If an entity applies this Technical Release for a period beginning before 1 July 2006, it shall disclose that fact.

 

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