Tax and Zakat Accounting

 

 

 

 

 

Tax and Zakat Accounting

Student’s Name

Institution Affiliation

 

 

 

 

 

 

 

 

 

Question 1

Gains or losses acquired by the business on disposing of an asset is calculated by differentiating the initial cost and the compensation acquired from the disposal. The gain implies that the asset/commodity earned a profit, and losses mean the item was sold at a lower price than the buying price. The compensation depends on the depreciation and market value of the item at the moment of disposal. According to the law, gains and losses incurred upon asset disposal are not taken into account apart; modifications are included in the initial cost; if there is partial disposal, the amount is apportioned with the item’s market value when it was acquired. An example is a car bought for $132,000 and used it for official businesses for a year. However, the business decides to sell the car and buy an economy car to save on cost. Thus, they sell the car at $115,000. The loss on disposal is ($132,000-$115,000) which is $17,000 loss on depreciation. In this case, the company will be exempted from paying taxes on the item due to liability. But if the car sales had resulted in gains, the company would have to include the information when filing tax returns and pay tax on the proceeds.

Question 2

ALM is split between risk management and strategic planning; thus, it focuses on managing long-term risks and optimizing complex liabilities to increase asset profitability. The ALMs cover the high-risk assets and assist in coordinating the assets and liabilities in the business. The ALMs focus on long term risks and high current risks in the industry. As such, an asset benefit from ALM as it helps manage liabilities strategically to manage uncertainties of the future. Also, ALM is required to maximize asset profitability when there is a decrease in the borrowed asset value. Thus, it transfers risks to interest rates. However, some assets require asset-liability management (ALM), such as goodwill, intangibles, and Deposits with third parties. However, for assets that are either low risk and have short-term liabilities, they do not require the ALMs. If the assets can meet the assumed or actual growth, the company does not need to pay the ALMs.

Question 3

Zakat is one of the five pillars and thus considered compulsory. It involves sharing one’s earnings for the year ended. It is a way of sharing with the poor and needy and also purifying themselves and the business. Growth is Zakat explains that an asset can generate profit, and only the gains from investments are Zakatable. Thus Islam considers businesses essential and only asks for a percentage of the revenues to safeguard the companies but still save them from greed and help those in need. The rule of Zakat enhances equality but still leaves enough for business and personal use.

Question 4

In economics, we state that externality has a tremendous positive or negative effect on a business deal party. Thus, owned private asset rights are considered the heart of externalities. In Islam, Property and land vest in God, but human beings are temporarily enjoying its benefits. Thus, they are trusted and given responsibility for land and property and can only deduce alms from their gains from the ground and stuff they have.  As such, established laws that help protect private ownership rights are useful in distributing costs and benefits given that we can measure economic impact on them. If there no clarity in these rights, market failure might occur (Hamat, 2009). Therefore, this explains why ownership rights do not deduce alms assets.

Question 5

Depreciation is allowed if the asset bought is to be used. Also, if the asset is of depreciation nature, for example, a car, i.e., it loses value because of the use depreciation rate is applicable. The value of such an asset must extend beyond one year. If an entity owns the asset, as outlined in the ownership document for constructions and invoices assets, the asset is subjected to a deprecation rate (Ahmed et al., 2016). AS well, asset depreciation is permitted even though investment is not used during the tax year.

 

Question 6

For tax purposes, depreciation of an asset is calculated as follows: – the depreciation of assets is categorized on five bases.

 

 

Photo credit: (Hamat, 2009)

For the tax report, the decline-balance method of depreciation is followed. However, Zakat regulations allow the use of straight-line depreciation methods.

For example, if you bought an asset at $10000, with a salvage value of $1000 and has a 10-year life. Assuming the asset depreciates at 30% every year, then the expense is $2700in the first year, $1890 for the second year, and $1320, the third, and so on.

 

 

 

 

 

 

References

Ahmed, E. R., Aiffin, K. H. B., Alabdullah, T. T. Y., & Zuqebah, A. (2016). Zakat and accounting valuation model. Journal of Reviews on Global Economics, 5, 16-24.

Hamat, Z. (2009, July). Business zakat accounting and taxation in Malaysia. In Conference on Islamic perspectives on management and finance (Vol. 322).