Zakat and charity

[Shahid_fss]

Hello ppl. Shahid again with "new problem".
The problem is
What is Zakat for an accountant. Is it involved in business or is the private masla of owners? How it is treated in accounting?
The next q is that why charity is shown in income statement? is it an expense?

```*``` I love stars;
*`*`*`* Shining;
`*`*`*` and Smiling;
*`````* Always.
http//www.shahid-fss.tk

[maani]

Hi,
If zakat is paid under Zakat and Ushr Ordinance. then it is allowed as deduction...it is involved in the computation of total income of the taxpayer...so it is the personal matter of the taxpayer...and if Zakat is not paid under Zakat and Ushr Ordinance then no deduction will be allowed...
Examples
Total Income of the tax payer(including business income)is Rs 500000
Zakat is paid under Zakat and Ushr Ordinance during the year Rs 25000
Income tax will be calculated on Rs 475000(500000-25000)

Total Income of the tax payer(including business income)is Rs 500000
Zakat paid not according to Zakat and Ushr Ordinance during the year Rs 25000
Income tax will be calculated on Rs 500000...

In both the cases Zakat will not appear in the Financial Statements...So its not concerned with accounting...

Your second question is of the same nature...Charity recieved is shown in the income statement only...It is income if received...
If charity is paid it ll not appear in the income statement...however it ll be considered for tax purposes...same like Zakat...

Ace

[Shahid_fss]

Thank's a lot

According to the answer what I have understood is that
1- Zakat has no concern with business.
2- Charity is concerned with business but is not shown in the income statement as an expense. It means that it will be treated as drawings by the proprieter. OK?

Actually I asked the questions because expenses like these can't be charged to the cost of production (if manufacturing business) because that meanse the owner is giving away the charity by taking from other people (increase in cost will be charged to the price), which is unfair.



```*``` I love stars;
*`*`*`* Shining;
`*`*`*` and Smiling;
*`````* Always.
http//www.shahid-fss.tk

[maani]

You have misinterpreted a bit about the matter of Charity...
Charity recieved is shown in income statement as an income...it is concerned with financial statements...and will appear on the credit side of Profit and Loss Account...
Charity paid (donation) is not concerned with financial statement...it is not a business expense...its even not a drawing...but tax authorities gives some relief in tax calculations if the tax payer has given donations during the year...its treatment is the same like zakat...

Ace

Edited by - maani on Jan 16 2005 122248 AM

[Shahid_fss]

Thank's a lot for your help and correction.
I think it's clear to me know...

```*``` I love stars;
*`*`*`* Shining;
`*`*`*` and Smiling;
*`````* Always.
http//www.shahid-fss.tk

[maani]

Hi shahid...
I have checked more details relating "donations"...
another point comes to my knowledge that if donations are given to "recognized" Angioes and the documented records are present then these donations can be calimed as expenes in financial statements...
ExampleABD Ltd donates to Shaukat Khanam Cancer Hospital (a recognized institute by govt.) Rs 100000....then ABD Ltd can present these Rs 100000 as expense in the profit and loss account...
The above details are from Javaid Zuberi's book "Company Accounts"...
Other than that i have never seen donations as expenses in the financial statements...

Ace