A person ‘X’ is a manufacturer of clothing. He has the following assets and liabilities at the end of the Zakah year.
1. House 2,000,000
2. Furniture & Household Effects 25,000
3. Motor Vehicle 600,000
4. Gold 100,000
5. Diamonds 50,000
6. Cash 1,500,000
7. Stock-in-trades 1,000,000
8. Machinery 500,000
9. Receivable from others 800,000
10. Vacant Land 800,000
11. Bank overdraft 50,000
12. Trade creditors 500,000
13. Loans 700,000
Total Liabilities 1,250,000
Calculation of Zakah
Assets subject to Zakah
1. Gold 100,000
2. Cash 1,500,000
3. Stock-in-trades 1,000,000
Less Liabilities 1,250,000
Two and a half % of 1,350,000 is 33,750
Hence X is obliged to pay 33,750 as Zakah.
1, 2 and 3: the house, furniture and fittings and motor vehicle are not subject to Zakah unless they are purchased for trade.
4: Gold is subject to Zakah whether for personal use or otherwise.
5: Diamonds, precious stones and metals are not subject to Zakah unless acquired for trading purposes. The same applies to all metals other than gold and silver.
6 and 7: Cash and stock in trades are subject to Zakah by consensus of jurists, because they are assets capable of growth through commerce and economic activity.
8: Machinery is a means of production which depreciates in value over time and is not an asset capable of growth. Hence, they are not subject to Zakah.
9: Account Receivables from others are subject to Zakah but the obligation to pay Zakah thereon only arises upon receiving of the debts in question in which event, the Zakah of preceding years must also be paid on such debts.
10: Zakah is not obligatory on land unless acquired for trade. Even if they are purchased for rent, Zakah is not obligatory.
11, 12 and 13: These debts must be deducted because the assets of the debtors are correspondingly exposed to the claims of creditors, according to Hanafi Law. However, if the mortgage bond or bank overdraft or other long term liability is of such a large amount so as to nullify the Zakah liability then such debts must not be taken into account according to Shafi law.