Cooperative Accounting

JUNETH LOURDES F. MIRANDA, CPA PH.D

PROFESSOR

CONCEPT OF COOPERATIVES/COOPERATIVE
SOCIETY
The business activities prime objective is to provide

service to the members.

The main intention is not to generate and grow but
rather earn profit is for sustainability and survival in
the market.
The resources from the members are pooled and
utilize in the best possible manner, and the benefits
are shared by the members.

CONCEPT OF COOPERATIVES/COOPERATIVE
SOCIETY
The cooperative works in the principles of mutual

and self-help.
The main objective is to provide support to
members.
Earning a profit is just a secondary objective of the
members of cooperative society.
People come forward as a group, pool their
individual resources, utilize them in the best possible
manner, and derive some common benefit out of it.

COOPERATIVE ACCOUNTING
The cooperatives accounting system is a method of

recording and reporting the financial results of its

business transactions.
The accountant records the business transactions of
the cooperative in a daily journal.
These records are then used to generate various
financial reports that provide an historical record of
the cooperatives business activity.

COOPERATIVE ACCOUNTING
The basic financial reports used in business are the

balance sheet, income statement, statement of cash

flows and the statement of changes in equity .
The cooperative provided reports on the financial
position, its performance over a given time period,
and its ability to meet cash obligations.
These reports are the basis for planning future
operations. Each report contains different, but
interrelated information that together give a
complete picture of the financial operations of the
cooperative.

COOPERATIVE ACCOUNTING
Managers, accountants and board members should

be able to understand and interpret these reports so

they can make informed business decisions about
the future of the cooperative.
In summary, the financial statements that are

prepared in the cooperative accounting are same

with financial statements that are made in other
companies

OBJECTIVES COOPERATIVE ACCOUNTING

The main objective is to ensure that co-op society are

managed efficiently by ways of:
a) Keeping and maintaining proper books of

accounts
b) Safeguarding co-op society resources and funds as
well as those of members.

OBJECTIVES COOPERATIVE ACCOUNTING

It also ensure members are paid as high as possible in

form of income and dividends. This can be done by:
a) Assisting the members to produce more by and

training to them.
b) Improving and maintaining the quantity and
quality of the produce before it reaches the factory
c) Reducing expenditure
d) Through investment, members leave part of their
money due to them after sale of produce in the form
of shares to the society.

VARIOUS REPORTS IN COOPERATIVE ACCOUNTING

Operational Reports
Daily collection report
Summary of Daily collection report
Monthly collection report
Summary of booklets
Pre-collection list
Collection efficiency report
Daily cash disbursement report
Over-payment/withdrawal report
Monthly loan released report
Schedule of delinquents report
Schedule of payments report
Repayment report

VARIOUS REPORTS IN COOPERATIVE ACCOUNTING

General Ledger Reports

Trial balance report
Financial condition report
Financial condition monthly comparative
Financial condition yearly comparative
Subsidiary Ledger Reports
Member s master list
Member s statement of account
Member s subsidiary ledger statement
Subsidiary ledger status

VARIOUS REPORTS IN COOPERATIVE ACCOUNTING

Computation Reports
Savings interest computation report
Distribution of dividend and patronage refund report
CONCLUSION
The main objective of the cooperative form of business
organization is to provide service rather than to earn profit.
The cooperative society is the only alternative to protect the
weaker sections of the society and to protect the economic
interest of the people.
In certain situations when it is not possible to achieve the
target by individual effort, collective effort in the form of
cooperative society is preferred.
Cooperative accounting is not different from the accounting
for non-business organizations.

Accounting Concepts and Conventions

The Business Entity Concept

This concept suggests that the business is separate
from the owner. Therefore, all accounts are kept in
respect of the business entities transactions, which
are separate from persons who own or manage them.
It then follows that the personal financial affairs of
the owners are never inter mingled with those of the
business for which the accounting is being
performed.

Accounting Concepts and Conventions

Money as a common unit of Account

The accounts are expressed in monetary terms which
can be added or subtracted.
The implication of this concept is that any
information that cannot be measured in money
terms, such as the quality and experience of workers,
is usually not included in the financial statements.

Accounting Concepts and Conventions

The Cost Concept

The historical cost concept, as this may be called,
says that assets (resources acquired by a business)
are reflected at cost, which means that for their
subsequent treatment in the measurement of the
income of the business, the price paid on such
acquisitions form the basis instead of their real or
market values.

Accounting Concepts and Conventions

The Going Concern Concept

This concept assumes that the business will continue
operations for the foreseeable future, that is, it has
no plans to either liquidate or cut down significantly
any major line of its operations in the nearest future.
The Accrual Concept
The concept accommodates all revenues and
expenses to be received or charged in a given
accounting period irrespective of what is actually
received or paid.

Accounting Concepts and Conventions

Realization Concept
The realization concept assumes that revenue is earned on the day which it is
realised, and that is, when goods are transferred to the customer in exchange for a
valuable consideration.
Accounting Conventions
- Conservatism / Prudence
The possible losses are anticipated and taken into books, while all possible future
profits will be ignored.
- Consistency

There should be consistency in the use of a particular accounting method for a

reasonable period of time so that comparisons between accounting periods will be
meaningful.
- Materiality

The size of an amount will influence its treatment in the books of account, depending
on individual entities. Therefore, what may be considered material in any circumstance
is judgemental.

Books of Account

Subsidiary Books
The subsidiary books, the Day books, books of
original entry, and the books of prime entry all mean
one and the same thing.
Subsidiary books are books into which transactions
are recorded on a daily basis from the source
documents and from which postings are made
periodically to the relevant accounts in the ledger.
This practice prevents the ledger from containing too
many details.

Books of Account
Subsidiary Books
Sales Day book (or sales journal) for recording credit sales.
Purchase Day book (or purchases journal) for recording credit purchases.
Returns Inward Day book (or returns inward journal or sales returns day
book) for recording returns from customers.
Returns Outward Day book (or returns outward journal or purchases
returns day book) for recording returns to suppliers.
Cash book for recording receipt and payment of money.
Journal proper for recording other transactions like:
- the purchase and sale of fixed assets on credit;
- opening entries;
- correction of errors;
- transfer from one account to another;
- taking of goods by the owner from the business for his private use;
- end-of- period adjustments; and
- any other transaction which cannot be recorded in
any of the other subsidiary books.

Books of Account

Subsidiary Ledger - Property Plant and

Equipment
KMU Coop purchase one unit Samsung
computer for office use of $10,000 on
January 1, 2014
KMU Coop purchase photocopying machine
$40,000 on February 1, 2014 from Epson
Office Equipment

Cost

Life

Yearly
depreciation

Book
value

1/01/14

Samsung

10,000

5 years

2,000

8,000

2/01/14

Epson

40,000

10 years

3,666.67

36,333.33

Books of Account

Ledger Book
The ledger is the main or principal book of account
where accounts are maintained for income, assets,
expenses as well as individuals (or organisations)
who may be debtors or creditor s to the firm.
Entries made or posted into the ledger (usually in
summarised form) are expected to be preserved over
a reasonable period.
As we said earlier , the ledger is written-up
periodically, and is the ultimate destination of all
entries made in the subsidiary books.

Books of Account

Ledger - Property Plant and Equipment

KMU Coop purchased one unit Samsung
computer for office use of $10,000 on
January 1, 2014
KMU Coop purchased photocopying machine
$40,000 on February 1, 2014 from Epson
Office Equipment

PR

Debit

Credit Balance

1/01/14

Cash voucher

001

10,000

10,000

2/01/14

Cash voucher

002

40,000

50,000

Books of Account

Comparing the ledger book and the subsidiary

book :
General Ledger
Office Equipment

PR

Debit

Credit Balance

1/01/14

Cash voucher

001

10,000

10,000

2/01/14

Cash voucher

002

40,000

50,000

Subsidiary ledger
Office Equipment

Cost

Life

Yearly
depreciation

Book
value

1/01/14

Samsung

10,000

5 years

2,000

8,000

2/01/14

Epson

40,000

10 years

3,666.67

36,333.33

Accounting Information Generating Process

General
ledger
CB
CRJ/CDJ
FINANCIAL
STATEMENT

OR/CV

GJ
Subsidiary
ledger

MEMBER TRANSACTION SYSTEM

MTS
The system applied in the recording of members
transaction in a co-operative organization.
They are the kind of systems common to all co-operative
society.
They define the procedure for recording the transaction
that take place in a co-operative organization between itself
and its members.
Every member transaction is recorded as it occurs.

MEMBER TRANSACTION SYSTEM

MEMBERS PERSONAL ACCOUNTS (MPA) )
This is an account in which all the individuals personal transactions
between a member and his/her society are summarized.
It carries on it the payment due to the members and the debts owed by
the member to society.
Payments due to the e members are usually on the bases of produce
delivered by member to the cooperative and come out in form of
payout.
Name:
Contact Info:

Date joined:
Date of birth:
Share Capital

Dat
e

Ite
m

Contributi
on

Balan
ce

MID#:
Loans Receivable

Release
d

Payme
nt

Interest
payment

Savings Deposit
Balan
ce

Deposit

Withdrawal

Purch
ases
Bala
nce

Total

MEMBER TRANSACTION SYSTEM

MEMBERS PERSONAL ACCOUNTS (MPA) )

Debts owed by members to cooperative are mainly
for services rendered by the members to the
cooperative. They are mainly based on credit sales
(CSJ) and debts extended to members in form of
loans (debtor member journal) such debts and credit
sales are usually offset (deduct) from members
payout. MP accounts usually have two types
a. Standard account member 01-42- cooperative with
a saving activity
b. Standard account 01-43 for other cooperative.

MEMBER TRANSACTION SYSTEM

MEMBERS PERSONAL ACCOUNTS (MPA) )

Example loans granted to a member
management committee or credit committee
Such information includes:

-Membership personal number

- Member identity number
- Committee meeting minute number
- Cheque number
-Authorization
- Amount granted

MEMBER TRANSACTION SYSTEM

Enrollment of a new member

For example a new member joins SACCO (coop)
pays registration fee and share capital
Loan released to member
Withdrawal/termination of membership
Coop Accounting Book
Cash received as entrance fee and
share capital in the journal and ledger
Record cash released as loan to
member in the journal and posted in
the ledger
Release of cash as payment of share
capital

Member Personal Account

Open MPA record and record the
share capital contribution and fee
(Member ledger)
Update member MPA
Record the withdrawal of share
capital and payment of account

Major Registers book

Asset Register
Share Register
Member Register
Asset Register

MAJOR REGISTER BOOK

Share Register- of particular importance as it is deemed to be evidence of

the named shareholders legal title to the shares, subject to any evidence to the

.
the names, in alphabetical order, and the last known
address of each person who currently is, or has been
within the last 10 years, a shareholder the number of
shares held by each shareholder within the last 10
years

the date of any issue of shares to each shareholder

within the last 10 years

the date of any transfer of shares by or to each

shareholder within the last 10 years, including the
name of the other party to the transfer
contrary

MAJOR REGISTER BOOK

Members Register-of particular importance as it is deemed to be

evidence of the named shareholders legal title to the shares, subject to any

evidence to the contrary.

The full name of the member

The date when he/she joined the co-operative
The address of the member

The number of shares held by the member

The occupation of the member
The place of domicile
The nationality of the member

Owners Share Capital

The changes made in compliance with the laws and

regulations and the decisions of the

cooperatives governing body and the meeting of all
members shall be reflected in share
capital account (i.e. increase in share capital by
recruiting new members, reinvesting
dividends etc.).

PATRONAGE REFUNDS

For Example

INTEREST ON CAPITAL
Determine how many shares of stock you hold. First, if you're not already

aware of how many shares of company stock you own, find out. You can usually
find this information by contacting your broker or investment agency or
checking the regular statements that are usually sent to a company's investors
via mail or email.
Determine the dividends paid per share of company stock. Next, find
your company's dividends per share (or "DPS") value. This represents the
amount of money that investors are awarded for each share of stock that they
own in the form of dividends. For a given time period, DPS can be calculated
with the formula DPS = (D - SD)/S where D = the amount of money paid in
regular dividends, SD = the amount paid in special, one-time dividends, and S =
the number of shares of company stock owned by investors.

INTEREST ON CAPITAL

Multiply the DPS by the number of shares. When you know the number of

stocks you own and your company's DPS for a recent time period, finding the
approximate amount of dividends you will earn is easy. Simply use the formula
D = DPS S where D = your dividends and S = the number of stocks you own.
Remember that since you're using a company's past DPS values, your estimate
for future dividend payments may end up differing somewhat.
For example, let's say that we own 1,000 shares of stock in a company that paid
$0.75 per share in dividends last year. Plugging our values into the formula
above, we get D = 0.75 1,000 = $750. In other words, if the company pays
about the same amount of dividends this year as it did last year, we'll make
about $750.

Owners share capital

The members share capital represents initial contributions of members, which is
defined in the Charter of the Cooperative.
A detailed record of contributions made by each member shall be maintained which
shall be reconciled with the trial account balance.
When a member makes his/her contributions in the cooperative, the following entries
shall be made on the basis of the decision of the authorized management to approve
the membership and the document evidencing the contributions:
Debit: Cash or other assets account
Credit: Share capital

When a member terminates his/her membership in the cooperative and withdraws

his/her investment, the following entry shall be made on the basis of the decision of
the governing body:
Debit: Share capital
Credit: Asset account

Special purpose funds

Special purpose funds shall be established from the retained earnings of the
cooperative in order to develop the cooperative, make up for losses, meet social
requirements of its members, enhance the knowledge and educational level of the
members etc.

The amount to be allocated to the funds and their expenditure shall be approved by
the meeting of all members.
When creating the special purposes funds from retained earnings on the basis of the
decision of the meeting of all members:
Debit: Retained earnings
Credit: Reserve fund, Social development fund, etc
The fund shall be reentered into retained earnings account at the amount expended
and closing shall be done. In parallel, related expenses shall be recorded.

Reporting of income and expense

summary
At the end of the accounting period, the cooperative shall close income account with
credit balance and expense account with debit balance in the income and expense
summary account and the profit/loss shall be closed in retained earnings account.
Closing of income accounts:

Closing of expense accounts:

Debit: All income accounts

Credit: Income summary

Debit: Income summary

Credit: All expense accounts

In case the cooperative operated

profitably:

In case the cooperatives operations

were unprofitable:

Debit: Income summary

Credit: Retained earnings

Debit: Retained earnings

Credit: Income summary

The closing records of the income and expense summary account ensure mutual
interrelation of the cooperatives Balance sheet, Income Statement and Statement of
Equity and shall be used in the reconciliation of assets and their resources.

Accounting for dividends

Dividends shall be distributed to the members from the cooperative's financial year
profit based on their contributions and date of entrance into cooperative in
accordance with the cooperative's Charter and internal regulations.
When a decision made by the meeting off all members to distribute dividends, the
following entry shall be made at amount announced:
Debit: Retained earnings
Credit: Dividends payable
When the dividends are paid in cash:

Debit: Dividends payable

Credit: Cash
A detailed record of dividends paid shall be maintained for each member.
When the member wishes to increase the amount of his/her share capital by the
amount of dividend received:
Debit: Dividends payable
Credit: Share capital

Chart of Accounts : Equity section

C

COOPERATIVE OWNERS EQUITY

EQUITY
3101 Share capital
3102 Revaluation reserve account
3103 (Long-term investments discount reserve)
OTHER PARTS OF EQUITY
3104 Donations
3105 Grants
SPECIAL PURPOSE FUNDS
3107 Reserve fund
3108 Social development fund
3109 Other funds
RETAINED EARNINGS (LOSSES)
3110 Net profit (loss) for the current period
3111 Retained earnings (losses) for the previous period

Classification of balance sheet accounts

Balance sheet items shall be classified as assets, liabilities and equity.
Assets are classified as follows:
Current assets
Non-current assets

Liabilities are classified as follows:

Short-term liabilities
Long-term liabilities

Owners' equity is classified as follows:

Share capital
Retained earnings
Owners equity
Other parts of owners equity
Owners equity shall be reported at present value;
Retained earnings and deficits shall be classified as of the current accounting period
and of previous periods;
Special purpose funds shall be reported by each purpose in the Retained Earnings
part;
Revaluation of fixed assets shall be shown in the Revaluation Surplus part;
All kinds of donations and premiums shall be reported separately as other parts of
Owners Equity.

Process for Recruiting members

Process for Terminating members

PATRONAGE REFUNDS

When coops have profit left over at the end of

the fiscal year, they may distribute that profit
back to their member-owners in a form of
patronage refund.
These profits are distributed in direct
proportion to a co-op member-owners
patronage (purchases).
It refers to the refund or return to the
members of net savings or surplus generated
from the operation of the cooperation

PATRONAGE REFUNDS
Usually there are two component parts to a

patronage refund.
Cash Portion: The cash portion of the patronage

refund must be the total patronage refund declared.

Patronage Equity Portion: The patronage equity

is the remainder of the declared patronage refund

that is kept in the co-op in the form of Shares listed
in each members name. This portion may be used
for projected capital and other business needs
planned expansion.

PATRONAGE REFUNDS

Who is eligible for patronage refunds?

To be eligible, a member must have shopped for at
least some part of the fiscal. In addition, the
member-owner must be a current on the share
capital payments or on any account.
How the system work
Every time you shop at the Co-op, our cashiers will
swipe your Co-op owner (or household shopper)
card. The amount of member purchase will be posted
electronically into your personal members personal
account

PATRONAGE REFUNDS

How the system work

At the end of the Co-ops fiscal year, coop will
calculate the Co-ops annual profit (the excess of
sales over expenses) by having the financial records
audited by a Certified Public Accountant.
Calculate the owners share of the profit by dividing
the total of owners sales by total sales.
Then calculate the preliminary patronage refund
pool by multiplying the total profit by the owners
share of the profit.

PATRONAGE REFUNDS

How the system work

Once the preliminary patronage refund pool has
been calculated, the Board of Directors will decide
how much (if any) of that to hold onto as a
reasonable reserve.
After subtracting the reserve, the rest of the final
patronage refund pool will be divided amongst the
owners based on their respective shares of owners
patronage.

Calculating your patronage refund!

The Co-op must be profitable in order for patronage

refund to be available.
Decision 1: The Board decides whether or not to
declare a refund. For fiscal year 2015, the net income
of the amounted to $608,880 and the board
declared that 1/3 of the net income or $202,960 as
member patronage refund.
Decision 2: The Board decides what % of the
declared refunds to return to the Member-owners as
cash/store credit and for equity retention. Assuming
that the board made a decision to return 25% for
cash/credit and 75% as patronage equity of the
members.

Calculating your patronage refund!

Journal Entry
Retained earnings
Patronage refunds payable

$202,960
$202,960

To record patronage refund distribution in cash and equity

Patronage refunds payable
$202,960
Cash (25%)
$50,740
Share capital (75%)
152,220

Total Eligible purchases by all member-owners $581,144

Coop Member #0001

$698.18

Total Purchases for the year

$2,000

% of member share of the refund

.00344

Cash patronage refund

$174.54

Equity patronage refund

$523.64

Calculating your patronage refund!

Total Eligible purchases by all member-owners $581,144
Cash (25%)
$50,740
Share capital (75%)
152,220

Coop Member #0002

$2,800.84

Total Purchases for the year

$8,000

% of member share of the refund

Cash patronage refund
Equity patronage refund

.0138
$700.21
$2,100.63

Coop Member #0003

Total Purchases for the year

% of member share of the refund

$17,454.56
$50,000

.086

Cash patronage refund

$4,363.64

Equity patronage refund

$13,090.92

Calculating your patronage refund!

Total Eligible purchases by all member-owners $581,144
Cash (25%)
$50,740
Share capital (75%)
152,220

Total
Purchases

Equity
patronage

Cash
patronage

Total

Member 001

$2,000

$523.64

$174.54

$698.18

Member 002

$8,000

$2,100.63

$700.21

$2,800.84

Member 003

$50,000

$13,090.92

$4,363.64

$17,454.56

Members

Calculating your Interest on Capital!

Interest on capital refers to the interest earned by the members paid-up to the capitalization of
the cooperative. It is based on the average capital contribution of members computed on a per
month basis against the pre-set amount earmarked by the board of directors for interest on
share capital.

Decision 1: The Board decides whether or not to declare a refund. For fiscal year

2015, the net income of the amounted to $608,880 and the board declared that 1/3
of the net income or $202,960 as member patronage refund.
Decision 2: The Board decides what % of the declared refunds to return to the
Member-owners as cash/store credit and for equity retention. Assuming that the
board made a decision to return 25% for cash/credit and 75% as patronage equity
of the members.
Decision 3: The Board decides that 1/3 of the net income of $202,960 as members
interest on capital
Decision 4: The Board decides 60% as cash payment and 40% as equity to the
cooperative

Calculating your Interest on Capital

(dividend)!

Journal Entry
Retained earnings
Interest on capital payable

$202,960
$202,960

To record dividend distribution in cash and equity

Interest on capital payable
$202,960
Cash (25%)
$121,776
Share capital (75%)
81,184

Total Average share capital contribution is $570,040

Coop Member #0001

Share capital contribution
Average Contribution: Jan $3,000, June $1,000 October $1,000
Share in the Interest on Capital

$1,359.83
$5,000
$3,833.33
.0067

Cash dividend

$815.90

Equity dividend

$543.93

Calculating your Interest on Capital!

Total Average share capital contribution is

$570,040

Total Interest on Capital (Dividends)

Cash (60%)
Share capital (40%)

202,960
$121,776
81,184

Coop Member #0002

$1,786.05

Share capital contribution

$5,000

Average Contribution: Jan $5,000

$5,000

Share in the Interest on Capital

.0088

Cash dividend
Equity dividend

$1,071.63
$714.42

Calculating your Interest on Capital!

Total Average share capital contribution is

$570,040

Total Interest on Capital (Dividends)

Cash (25%)
Share capital (75%)

202,960
$121,776
81,184

Coop Member #0003

$527.70

Share capital contribution

$9,000

Average Contribution: July $1,000, October $2,000 and Dec

$6,000

$1,500

Share in the Interest on Capital

.0026

Cash dividend

$316.62

Equity dividend

$211.08

Calculating your interest on capital!

Total Eligible purchases by all member-owners $581,144
Cash (25%)
$50,740
Share capital (75%)
152,220

Members

Share
Capital

Average
SC

Cash
Dividend

Equity
Dividend

Total

Member 001

$5,000

$3,833.33

$815.90

$543.93

$1,359.83

Member 002

$5,000

$5,000

$1,071.63

$714.42

$1,786.05

Member 003

$9,000

$1,500

$316.62

$211.08

$527.70

Calculating your interest on capital!

Total
Purchases

Equity
Patronage

Member 001

$2,000

Member 002
Member 003

Members

Cash
Patronage

Total

$523.64

$174.54

$698.18

$8,000

$2,100.63

$700.21

$2,800.84

$50,000

$13,090.92

$4,363.64

$17,454.56

Members

Share
Capital

Average
SC

Cash
Dividend

Equity
Dividend

Total

Member 001

$5,000

$3,833.33

$815.90

$543.93

$1,359.83

Member 002

$5,000

$5,000

$1,071.63

$714.42

$1,786.05

Member 003

$9,000

$1,500

$316.62

$211.08

$527.70

Cooperative Accounting Framework

STATEMENT OF CHANGES IN EQUITY
Section 1. Scope
This Chapter sets out requirements for presenting the changes in equity for a period in a statement of
changes in equity.
Section 2. Statement of Changes in Equity
2.1 Purpose
The statement of changes in equity presents the amounts of investments and withdrawals by members,
addition and utilization of statutory funds, movement in donations and grants, and revaluation surplus
during the period.
2.2 Information to be presented in the statement of changes in equity
A cooperative shall present a statement of changes in equity showing reconciliation between the carrying
amount at the beginning and the end of the period, separately disclosing changes resulting from:
(a) the amounts of investments and withdrawals by members, showing separately issued shares, and
treasury shares
(b) donations and grants
(c) movements in statutory funds (includes allocation of net surplus as reconciled with amounts per
statement of operations)
(d) movements in revaluation surplus
www.cda.gov.ph

Cooperative Accounting Framework

ALLOCATION AND DISTRIBUTION OF NET SURPLUS
Section 1. Scope
This Chapter shall be applied in the accounting of the allocation and distribution
of net surplus as required
Net surplus shall be determined as follows:
(a) In accordance with the cooperatives by-laws;
(b) Every cooperative shall determine its net surplus at the close of every fiscal
year and at such other times as may be prescribed by the by-laws;
(c) Shall not be construed as profit but as an excess of payments made by
the members for loans borrowed, or the goods and services availed by them from
the cooperative or the difference of the rightful amount due to the members for
their products sold or services rendered to the cooperative including other inflows
of assets resulting from its other operating activities and which shall be deemed to
have been returned to them if the same is distributed

Cooperative Accounting Framework

All cooperatives are mandated to allocate and distribute their net surpluses as follows:
a) At least ten per centum (10%) for Reserve Fund to be used for the stability of cooperative
and to meet net losses in its operations;
In the first five (5) years of operation after registration, this amount shall not be less than
fifty per centum (50%) of the net surplus:
i.The reserve fund shall be used for the stability of the cooperative and to meet net
losses in its operations. Net loss incurred for the period shall be charged against the
reserve fund. The general assembly may decrease the amount allocated to the reserve fund
when the reserve fund already exceeds the share capital.
ii.The reserve fund shall not be utilized for investment, other than those allowed in the
Cooperative Code. Such sum of the reserve fund in excess of the share capital may be used
at anytime for any project that would expand the operations of the cooperative
upon the resolution of the general assembly.

iii.Upon the dissolution of the cooperative, the reserve fund shall not be distributed
among the members.

Cooperative Accounting Framework

b) Not more than ten per centum (10%) for Cooperative Education and
Training Fund;
c) Not less than three per centum (3%) for the Community
Development Fund;
d) Not more than seven per centum (7%) for the Optional Fund;
e) The remaining net surplus shall be made available to the members in
the form of interest and patronage refunds not to exceed the normal rate of
return on investments and patronage refund
Cooperatives can only be granted exemption from payment of taxes if at
least twenty-five per centum (25%) of their net income (net surplus) is
returned to the members in the form of interest and/or patronage refunds.

Allocation and distribution of net surplus

Year 1

Year 2

Year 3

Year 4

Year 5

Income from
sales, 4
harvests

163,840

163,840

163,840

163,840

163,840

Less: Cost of
Sales

132,912

101,200

101,200

101,200

101,200

Farm Materials/
seedstock

31,712

Labor

94,000

94,000

94,000

94,000

94,000

Overhead Exp

7,200

7,200

7,200

7,200

7,200

Gross Margin

30,928

62,640

62,640

62,640

62,640

Less:
Admin/Sell Exp

6,000

6,000

6,000

6,000

6,000

Savings before
Interest

24,928

56,640

56,640

56,640

56,640

Less: Interest
Charges, 15%

6,063

5,164

4,130

2,941

1,573

NET INCOME
(SURPLUS OR
SAVINGS)

18,865

51,476

52,510

53,699

55,067

Allocation and distribution of net surplus

NET INCOME (SURPLUS OR
SAVINGS)

Reserve Fund, 20%

Educational Fund, 10%
Interest, 12% on paid
up capital
Patronage Refund

18,865

51,476

52,510

53,699

55,067

Year 1
3,773
1,886

Year 2
10,295
5,148

Year 3
10,502
5,251

Year 4
10,740
5,370

Year 5
11,013
5,507

600

600

600

600

600

6,259

16,043

16,353

16,710

17,120

Journal Entry to record the distribution and allocation of net surplus

Retained earnings
14,964
Reserve funds
3,773
Education fund
1,886
Dividends payable
600
patronage refund
6,259