Zakat on stock: cost price or selling price?
Why your balance sheet undervalues stock for zakat, and two ways to get the right figure.
Stock is often the largest zakatable asset of a shop, wholesaler or manufacturer, and the one most often valued wrongly. Your balance sheet shows what the stock cost. Zakat asks what it is worth.
Stock counts at its selling value
AAOIFI Shari’ah Standard 35 values trade goods at their selling price on the zakat date, where they are, using the way you normally sell: retail prices for a shop, wholesale prices for a wholesaler (5/2/2). Cost is allowed only when finding the selling price is extremely difficult. NZF agrees: stock counts at its retail value on your zakat anniversary.
Damaged, outdated or slow-moving stock counts at what it would really fetch in its current state, which can be well below the list price.
What counts as stock
- Goods bought to resell, and finished products.
- Raw materials that become part of your products, at market value (5/2/8).
- Work in progress, at its value in its current state, or at cost when that can’t be determined (5/2/9).
- Property, vehicles or anything else bought with the clear intention to sell it.
Supplies you use up yourself, such as fuel, cleaning products or office supplies, don’t count (5/2/8).
Only the balance sheet? Add your gross margin
NZF describes a method for when a stock count isn’t possible: take the stock figure from the balance sheet and add your gross margin.
- Take net sales and cost of sales from your profit and loss account.
- Gross profit is net sales minus cost of sales.
- Your gross margin is gross profit divided by net sales.
- Add that percentage to the stock figure.
Sales of 50,000 and a cost of sales of 40,000 give a gross profit of 10,000 and a margin of 20%. Stock of 10,000 in the balance sheet then counts as 12,000. NZF advises rounding up a little rather than down.
Intention decides
Only what you intend to sell is stock. NZF puts it this way: an asset bought clearly to resell counts; one bought for your own use doesn’t; and if you would only sell “if the price is right”, it doesn’t count either. A car dealer’s cars are stock; the company car isn’t.
How the app handles it
When you import a trial balance, stock accounts are recognised by name and code, for example Voorraad, Inventory, Stock, or Dutch RGS codes starting with BVrd. Enter the selling value of each. If you leave it empty, AAOIFI counts the book value and warns you; NZF adds the gross margin worked out from your revenue and cost-of-sales accounts. Try it in the free calculator.