FAR658: ZAKAT

ACCOUNTING
CHAPTER 7: ZAKAT ACCOUNTING ON ISLAMIC 1
BANKING
 Zakat Al –Badn’ (Zakat
Fitrah)

Live stocks

Agriculture products

Traditional Wealth Mineral and Marine Wealth

Type of
Zakat
Gold and Silver

Commercial Trade

Exploited Assets

Zakat Al-Mal Modern Wealth Income (Salaries & Wages)

Companies Financial Securities

Sole Proprietors
Individual
Partnership

Islamic Banking

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LECTURE OUTLINE
 Islamic Banking
 Source of Regulation
 General Condition
 Measurement
 Disclosure
 Example

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ZAKAT ON ISLAMIC
BANKING– SOURCE OF
REGULATION
 Based on AAOIFI, Financial Accounting Standard No 9 stated that in
the Statement of Concept – allows the Islamic Bank to pay zakat on
behalf of the shareholders.
 Islamic Bank paid zakat based onthe following circumstances:
 Requirement by laws
 A requirement by its charter or by-laws
 Resolution in AGM

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ZAKAT ON ISLAMIC
BANKING– CONDITION
1. Complete Ownership of Property - Right to use, dispose and legally
own the property.
2. Growth - Reproduction or intention to trade
3. Achieve nisab (following trade income) – 85 gram of gold
4. One year passage – complete 12 months.

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ZAKAT ON ISLAMIC BANKING
– MEASUREMENT
Net Assets Approarch Net Invested Fund Approarch

 2.5% X zakat base  2.5% X zakat base

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ZAKAT ON ISLAMIC BANKING
– MEASUREMENT (NET
ASSETS APPROACH)
 This method is based on the premise that zakat should be based on Urudh
At-Tijarah or Net Trade (Current) Assets (according to Mazhab Hanafi
and Syafie)

 The zakat base (or zakatable amount) for this method is assets subjected
to zakat less liabilities that are due during the next accounting period
(Current or Short Term Liabilities)

 The assets subjected to zakat would include the assets acquired for trading
(e.g. inventory, marketable securities, dealing securities, investment
securities), financing assets (e.g. Mudarabah financing, Musharakah
financing, Salam, Istisna’, Ijarah, etc.), cash and receivables (e.g. bills
receivables, net of provision for doubtful debts)
ZAKAT ON ISLAMIC BANKING
– MEASUREMENT (NET
ASSETS APPROACH)
 The liabilities to be deducted from the assets base would include current
or short term liabilities (payables or creditors etc.), equity of
unrestricted investment accounts, minority interest, equity owned by the
government, equity owned by endowment funds (Waqaf) as well as
equity owned by charities etc

 When using Net Asset approach, we can straight away assess the zakat
due based on the cash equivalent value of the trade asset (if the amount
is available)
 NET ASSETS APPROACH RM RM Basis of
Valuation
Cash and cash equivalent xx Cash equivalent

ZAKAT ON Receivables (Murabaha)

Mudarabah financing
xx
xx
Cash equivalent
Cash equivalent
Musyarakah financing xx Cash equivalent
ISLAMIC Salam
Istisna’a
xx
xx
Cash equivalent
Cash equivalent
BANKING – Real estate (for trading)
Inventory (for trading)
xx
xx
Cash equivalent
Cash equivalent
MEASUREMENT Marketable securities (for trading)
Total
xx
xx
Cash equivalent

(NET ASSETS Less:

Liabilities

APPROACH) Current accounts

Payables
xx
xx
Book value
Book value
Other liabilities (due to be paid during the xx Book value
next financial period
Minority interest xx Book value
Other liabilities due to be paid during the next xx Book value
financial period
Equity of unrestricted investment account xx Book value
holders
Equity owned by government, equity owned by xx Book value
endowment, equity owned by charity, and
equity belonging to not-for-profit organizations
excluding those that are owned by individuals
Total (xx)
Zakat base yy
Zakat for the period = yy x 2.5%√ zz
ZAKAT ON ISLAMIC BANKING –
MEASUREMENT (NET INVESTED
FUNDS APPROACH)
 Zakat base (or zakatable amount) for this method is equity minus (less)
fixed or long term assets

 Equity here includes the paid-up capital, reserves, retained earnings, net
income (profit for the year) and long term liabilites (due more than a
year)

 Fixed assets, on the other hand, include tangible net fixed assets after
depreciation (e.g. land, buildings etc), intangible fixed assets, long term
investment and losses (if there is any).
ZAKAT ON ISLAMIC BANKING –
MEASUREMENT (NET INVESTED
FUNDS APPROACH)
 In Malaysia, Islamic Banks will also deduct the statutory deposits placed with Bank
Negara Malaysia (Malaysian Central Bank) as well as those placed with the
Accountant General Malaysia. All banks in Malaysia are required by BNM to
maintain reserves with the latter.
 Since NIF does not involve any trade assets, all items are valued using book value
figure.
 As such, adjustments need to be made to address the difference between cash
equivalent value (CEV) and book value (BV) figure.
 If the total CEV is more than BV, the increase needs to be added to zakat due and vice
versa
 NET INVESTED FUNDS APPROACH RM RM
Total owner’s equity xx
Add:
Difference between cash equivalent value of the xx
assets for trading and their value in the SOFP
Long-term liabilities xx

ZAKAT ON Provision for investment risk

Total
xx
xx

ISLAMIC Less:
Assets for rent xx
BANKING – Fixed assets (net)
Investment not for trading
xx
xx (xx)

MEASUREMENT Zakat base

Zakat for the period = yy x 2.5%√
yy
zz

(NET INVESTED
FUNDS
APPROACH)
DISCLOSURE REQUIREMENTS FOR FINANCIAL
STATEMENTS ON ZAKAT FOR ISLAMIC BANKS
AND FINANCIAL INSTITUTIONS

a) Methods used for determining zakat base and items included in the base.
b) The ruling of the Syari’ah Board (SB) of the Islamic bank on issues related to zakat
that are not included in the standard. For instance, if the SB has rulings which are
not covered by AAOIFI.
c) Statement on whether the Islamic Bank as a holding company pays its share of Zakat
obligation of its subsidiaries. For example, whether Bank Islam Malaysia Berhad
(BIMB) (holding) pays zakat for Takaful Malaysia Sdn. Bhd. (BIMB’s subsidiary).
d) In the case the Islamic bank does not pay zakat, the amount of zakat due for each
share should also be disclosed so that it would be helpful for the shareholders should
they want to pay their zakat on shares.
DISCLOSURE REQUIREMENTS FOR FINANCIAL
STATEMENTS ON ZAKAT FOR ISLAMIC BANKS
AND FINANCIAL INSTITUTIONS

e) Whether the Islamic bank collects and pays zakat on behalf of the holders of the
investment accounts and other accounts (i.e. for investment holders)
f) Restrictions imposed by the Syari’ah Supervisory Board of the Islamic bank in
determining zakat base.
g) The disclosure requirements of FAS No.1: General Presentation and Disclosure in
the Financial Statements of Islamic Banks and Financial Institutions shall be
observed. Since FAS No.1 provides the disclosure structure on where we should
show the zakat figure, there is a need to cross-check between the two standards.
REFERENCES
 Fiqh Al-Zakah (Volume I) A Comparative Study of Zakah, Regulations and
Philosophy in the Light of Qur’an and Sunnah/Yusuf Al Qardawi; Translated by:
Monzer Kahf, Scientific Publishing Center, King Abdulaziz University, Jeddah,
Kingdom of Saudi Arabia
 Fiqh Al-Zakah (Volume II) A Comparative Study of Zakah, Regulations and
Philosophy in the Light of Qur’an and Sunnah/Yusuf Al Qardawi; Translated by:
Monzer Kahf, Scientific Publishing Center, King Abdulaziz University, Jeddah,
Kingdom of Saudi Arabia
 Fiqih Islam Wa Adillatuhu 3/Wahbah az-Zuhaili; Translated by, Abdul Hayyie al-
Kattani; Editor: Budi Permadi, Cetakan Pertama, Kuala Lumpur: Darul Fikir, Januari
2011
 Sumber Maklumat al-Ahkam al-Fiqhiyyah (e-SMAF), JAKIM, Retrieved from:
JAKIM : E-SMAF V1 (islam.gov.my)
 Kitab Al-Zakat, The Book of Zakat, Translation of Sahih Muslim, Book 5, Retrieved
from: SAHIH MUSLIM, BOOK 5: The Book of Zakat (Kitab Al-Zakat) (iium.edu.my)

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