Zakat Base Addition

If the value of current liabilities exceeds the value of current assets, the difference is added to the Zakat base. If it is proven to the authority that a current liability is treated as a non-current liability; for example, if the Zakat payer renews a debt classified as current with the same creditor for the same purpose, or if the debt is rescheduled with the same creditor for the same purpose. Adding liabilities also requires verifying the deducted assets and their nature for the following reasons: A. To determine the amount of deducted assets that serve as a limit for adding liabilities. B. To distinguish between deducted and current assets, as well as between undeducted and non-current assets for placement purposes. The detailed provisions for adding required liabilities will be reviewed in paragraph 4 of this Guideline. 3. The difference between adjusted net profit/loss and book net profit/loss after Zakat and tax: Adding this item is directly linked to equity items, as the equity items added to the Zakat base include the addition of retained earnings item at the end-of-period balance. It is known that the retained earnings item includes the book net profit for the year, which may contain certain expenses that are not accepted to be deducted for Zakat purposes or some undeclared revenues. Based on this, the difference between the book net profit and the adjusted net profit is added to the Zakat base as an amount that should be reinstated to the book net profit previously added to the Zakat base under equity items. The detailed provisions for adding the difference between adjusted net profit/loss and book net profit/loss - after Zakat and tax - will be reviewed in paragraph 5 of this Guideline. 3.1.2. Distinguishing Between Equity Items and Liabilities From an accounting perspective, a distinction is made between equity and liabilities. International Accounting Standard 1 (IAS 1) - Presentation of Financial Statements - refers to the information that financial statements provide about the entity, which is related to the following: Assets. 2. Liabilities. 3. Equity. 4. Income and expenses, including gains and losses. 5. Owner contributions and distributions to owners. 6. Cash flows. Accordingly, a distinction is made between liabilities and equity for accounting purposes, as follows: Equity refers to the rights of the entity’s owners and includes the amounts invested in the entity, along with the profits or losses resulting from its operations. Liabilities are the commitments of the entity to third parties in exchange for receiving goods, services, or loans. From a Zakat perspective, the provisions for addition related to equity differ from provisions for addition related to liabilities in several aspects, as follows: There is no limit to adding equity and its equivalents to the Zakat base, while liabilities required to be added are included up to the limit of deductible items in the base. No adjustments or corrections are made when adding equity and its equivalents to the base, whereas corrections must be made when adding liabilities to the base in specific cases according to the placement provisions outlined in Article 25 of the regulation. Equity and its equivalents in addition to the difference between the net book profit or loss and the adjusted net profit or loss, represent the maximum limit of the Zakat base, whereas this does not apply to the items of liabilities required to be added to the base.