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Liquidity-Based Financial Statements The statement addressed the classification of assets and liabilities in financial statements based on liquidity. This is done to determine current and non-current items. Financial statements prepared on a liquidity basis refer to those in which assets and liabilities in the statement of financial position are arranged based on the item’s liquidity, rather than being classified as current and non-current based on their maturities. Assets Cash and Cash Equivalents Murabaha Deposits Inventory Prepaid Expenses Due from Related Parties Property and Equipment Intangible Assets Investment Properties Liabilities Loans Employee Benefits Liabilities Creditors Accrued Expenses Zakat Provision Equity Capital Statutory Reserve Retained Earnings Current Assets Cash and Cash Equivalents Murabaha Deposits Inventory Prepaid Expenses Non-Current Assets Property and Equipment Intangible Assets Investment Properties Current liabilities Creditors Accrued Expenses Zakat Provision Non-Current liabilities Loans Employee Benefits Liabilities Equity Capital Statutory Reserve Retained Earnings Statement of Financial Position Presented on a Liquidity Basis Statement of Financial Position Presented on a Liquidity Basis Statement of Financial Position Classified by Maturity into Current and Non-Current Article 19 of the regulation defines "current" as referred to in the regulation for companies that classify their financial statements based on liquidity. It refers to any asset or liability expected to be realized, recovered, or settled within a period not exceeding 365 days after the end of the Zakat year. This includes, for example, but is not limited to: cash and cash equivalents, inventory, commercial receivables, or any asset held by the Zakat payer for trading purposes. This definition and clarification underscore the importance of accounting classification for the purposes of calculating the Zakat base, as outlined in the principle of Assets and Liabilities Equality. The treatments and assumptions related to current assets and liabilities differ from those related to non-current assets, and many provisions for addition and deduction are linked to this classification. From a procedural perspective, if the financial statements are presented on a liquidity basis, the Zakat payer must determine the current and non-current assets and the current and non- current liabilities according to the above criteria. The calculation of the zakat base, as will be fundamentally explained, relies on this classification. For example, if the Zakat payer’s liabilities whose financial statements, presented on a liquidity basis, include a bank loan, it is necessary to determine whether this loan is current or non-current. This is done by considering the term for settling and repaying the portion of the loan. If this term exceeds 365 days after the end of the zakat year, that portion of the loan is considered non-current for the purpose of calculating the zakat base. Classifying financial statements based on liquidity is common in some sectors and activities, such as the banking sector, the insurance sector, financing activities, and investment funds. Therefore, what has been mentioned for such activities should be taken into account, provided it does not conflict with the specific provisions for these activities as stipulated in the regulation. The following data is for a company that presents its financial statements on a liquidity basis as of December 31, 2024: The machinery and equipment are used in the company's operations and are not held for trading purposes. The period for repaying the loan is three years. The period for repaying the bank facility is six months. Customer advances are typically settled within a year. How are assets and liabilities items treated for Zakat purposes? Assets Cash and Cash Equivalents 50,000 SAR Machinery and Equipment 30,000 SAR Liabilities 40,000 SAR Non-Current Assets Bank Loan 20,000 SAR Bank Facilities 15,000 SAR Advance Payments from Customers 30,000 SAR Accrued Expenses 5,000 SAR Equity Equity 10,000 SAR Example (12) The solution: Machinery and equipment are considered non-current assets as they are not held for trading purposes and thus are deducted from the Zakat base if other deduction conditions are met. Loans are considered non-current liabilities, as they will repaid in more than 365 days, and thus are added to the Zakat base. Cash and cash equivalents, customer advances, and accrued expenses are considered current items. Equity is not affected by presenting financial statements based on liquidity or maturities, as equity is always added to the Zakat base.