UNIVERSITY OF SOUTHERN MINDANAO EMPLOYEES CREDIT

COOPERATIVE

Prepared by:
Francis Ralph T. Valdez
John Cesar Padernal
Nerliza Necesito
Sittie Alleah Hughes
Dannah Licudo
 Coop Accounting
What are the types of financial statements prepared for the different users
and stakeholders?

1. Statement of Operation
2. Statement of Financial Condition
3. Statement of Changes in Equity
4. Statement of Cash Flow
5. Notes to Financial Statements

What are the underlying principles in the preparation of financial

statements?

According to IASB Framework the underlying assumptions are:

 Going Concern
 Accrual Basis of accounting

According to IAS 1 general features of financial statements are:

 Fair presentation and compliance with IFRSs

 Going concern
 Accrual basis of accounting
 Materiality and aggregation
 Offsetting
 Reporting annually
 Disclosure of comparative information
 Consistency of presentation

Statement of Operation

What information is provided by a statement of operation? How are revenues and

expenses determined for reporting purposes? (basis of accounting)
Statement of Operation is assessed by giving a summary of how the business incurs
its revenues and expenses through both operating and non-operating activities.
What are the usual revenue accounts that are reflected in a statement of
operations?
-Service fees, Membership fees, Other Income

What are the usual expense accounts that are shown in a statement of operations?
-Salaries and Wages, Employee Benefit, Office Supplies, Professional Fee, Miscellaneous
Expense, Depreciation Expense, Taxes & License, Insurance Expense

What is the bottom line in a corporation? Is it the same bottom line in a

cooperative?
The Bottom Line in Corporation is Net Income while in cooperative is Net Surplus

How is cooperative’s net surplus allocated and distributed?

Generally, the distribution of a co-operatives surplus is determined by-laws. Surplus is
determined at the close of a co-ops fiscal year or as prescribe by its by-laws. A co-operatives
surplus is not profit in the usual sense of the word. 

As far as the co-op is concerned, this excess
payment or surplus is considered as having been returned to the members if the surplus is
distributed in the following manner. First priority goes generally to the reserve fund at least 10
percent of the net surplus. The reserve fund is meant to stabilize co-op operations and may be
used only for investments allowed by the code. 

Second priority goes to Education and
Training, which is generally not more than 10 percent of net surplus. 

Third priority is an
optional fund, a land and building fund, community development fund and any other necessary
funds. After all these have been allocated, the remainder is available to the general membership
in the form of interest on his investment and patronage refund. Nevertheless, interest in share
capital should exceed normal rate of return on investment.

What are the statutory funds? What are the purposes of each?
 Reserve Funds
Used for the stability of the cooperative and to meet net losses in its operations. The general
assembly may decrease the amount allocated to the reserve fund when reserve fund already
exceeds the share capital.
  Cooperative Education & Training Fund
Under this subsection may be spent by the cooperative for education and training and other
purposes; while the other half shall be credited to the education and training fund of the
respective apex organization of which the cooperative is a member. An apex organization may
be a federation or union.

 Optional Fund
A fund not exceeding two (2) percent of the net surplus of the AUFCOOP shall be set aside for
land and building development and other necessary improvements.

 Community Development Fund

At least three (3) percent of the net surplus shall be set aside for projects or activities that will
benefit the community where the AUFCOOP operates.

What are the other accounts in the distribution of net surplus?

1. Interest on Share Capital
2. Patronage Fund

How are the rates of interest on capital and patronage refund computed?

 Rate of Interest on share capital (ISC) = % (Net Surplus - Statutory Reserves)/ Total
Average share Month (TASM)

 Rate of Patronage Refund (PR) = % (Net Surplus - Statutory Reserves)/ Interest on

Loans

Why is there no provision for income taxes in the statement of operations?

The tax exemption privilege under the Code was made to enable the cooperatives develop into
viable and responsive economic enterprises and thereby fulfill its purpose of serving the need of
the members. Cooperatives conduct their business activities not for profit but for the
sustenance of its members.
How is this compared to corporation’s statement of operations or Income
statement?

In a cooperative the difference between revenues and expenses is called net surplus that is
allocated in accordance with the Cooperative Code or the cooperative’s bylaws while in
Corporations Income statement the difference between revenues and expenses is called net
income/loss.

Statement of Changes in Equity

What are the equity accounts of a cooperative?

 Share Capital
 Loan Redemption Fund
 Reserve Fund
 Cooperative Education & Training Fund
 Land & Building Fund
 Community Development Fund

Statement of Financial Condition (Balance Sheet)

What is a statement of financial condition?

The statement of financial position is another name for the balance sheet. It is one of the
main financial statements and it reports an entity's assets, liabilities, and the difference in their
totals. The amounts reported on the statement of financial position are the amounts as of the
final moment of an accounting period.

What accounts are presented in this statement?

Current Assets- Cash and Cash Equivalents, Accounts Receivable, Loans Receivable, Unused
Supplies
Non-Current Assets- Property and Equipment, Other Funds and Deposits, Miscellaneous
Assets
Current Liabilities- Accounts Payable, Savings Deposits, Interest on Share Capital &
Patronage Refund Payable
Non-Current Liabilities-Special Savings Deposit
Statutory Fund- Reserve Fund, Cooperative Education & Training Fund, Optional Fund,
Community Development Fund
Members` Equity- Subscribed Capital Stock

How are these accounts classified?

- A classified balance sheet presents information about the cooperative assets, liabilities, and
members' equity that is classified into subcategories of accounts.

 Current Assets
 Non-Current Assets
 Current Liabilities
 Non-Current Liabilities
 Members’ Equity

What accounts are peculiar that are shown only in the statement of financial
condition of a cooperative?
Statutory Fund- Reserve Fund, Cooperative Education & Training Fund, Optional Fund,
Community Development Fund

What is the major difference between the statement of financial condition of a

cooperative from that of a corporation?
The Major difference of Statement of Financial Condition of Cooperative is in Their Equity
section because the Cooperative has a peculiar account called Statutory Fund.

What are the equity accounts presented in the balance sheet?

Statutory Fund- Reserve Fund, Cooperative Education & Training Fund, Optional Fund,
Community Development Fund
Members` Equity- Subscribed Capital Stock
What are the features of the members’ equity account?
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.

How is book value per share of share capital computed in a corporation? In a

cooperative?

 Corporation Book Value Per Share

Book Value per Share= Total Shareholders` Equity-Preferred Equity/Total Outstanding Shares

 Cooperative
Book Value per share= Authorized Capital Stock/Subscribed shares

How is the donation and grant presented in the statement of financial condition?
A donation and grant is assistance by another entity in the form of a transfer of resources to a
cooperative in return for past or future compliance with specified conditions relating to the
operating activities of the cooperative.

How are statutory funds presented?

The mandatory order of distribution of the net surplus of the Cooperative is set forth in Article
86, Act No. 9520, as follows:
1. An amount for the reserve fund which shall be at least ten per centum(10%) of net surplus:
Provided, That, 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.
2. An amount for the education and training fund, shall not be more than ten per centum(10%)
of the net surplus. Half of the amounts transferred to the education and training fund annually
under this subsection shall be spent by the cooperative for education and training purposes;
while the other half may be remitted to a union or federation chosen by the cooperative or of
which it is a member.
3. An amount for the community development fund, which shall not be less than three per
centum(3%) of the net surplus.
4. An optional fund, a land and building, and any other necessary fund the total of which shall
not exceed seven per centum(7%).
5. The remaining net surplus shall be made available to the members in the form of interest on
share capital not to exceed the normal rate of return on investments and patronage refunds:
Provided, that any amount remaining after the allowable interest and the patronage refund
have been deducted shall be credited to the reserve fund.

Statement of Cash Flow

What information is provided in the statement of cash flow?

1. Cash flow from operating activities

2. Cash flow from investing activities
3. Cash flow from financing activities
4. Determines the amount separately for each head and presents discloses of the same.

What is the major objective of this statement?

The main Objective of Statement of Cash flow is to provide information about cash receipts,
cash payments, and the net change in cash resulting from the operating, investing, and financing
activities of a company during the period.

How are the items presented in the statement classified?

 Cash flow from operating activities.
 Cash flow from investing activities.
 Cash flow from financing activities.
 Notes to Financial Statements

What information is provided by the Notes to Financial Statements?

Footnotes may provide additional information used to clarify various points. This can include
further details about items used as reference, a clarification of any applicable policies, a variety
of required disclosures or adjustments made to certain values. While much of the information
may be considered required in nature, providing all the information within the body of the
statement may overwhelm the document, making it more difficult to read and interpret by those
who receive them.

Why is it necessary to attach this to the major financial statements?

Using footnotes allows the general flow of a document to remain appropriate by providing a way
for the reader to access additional information if they feel it is necessary. It allows an easily
accessible place for complex definitions or calculations to be explained should a reader desire
the additional information.

Often, the footnotes will be used to explain how a particular value was assessed on a specific line
item. This can include issues such as depreciation or any incident where an estimate of future
financial outcomes had to be determined.

What details should be included in the notes to financial statements?

Items that do not qualify for recognition in those statements. It also describes the accounting
policies and the measurement basis/bases used in the preparation of the financial statement.
 Analysis of Financial Statements

What is the process of analysing financial statements?

1. Selecting the information relevant to the decision under consideration from the total
information contained in the financial statements.
2. Arranging the information in a way to highlight significant relationships.
3. Interpretation and drawing of inferences and conclusions.

What is achieved when financial statements are analysed?

Today's needs for precise planning and decision making are very crucial. Therefore, the
application of the analysis is inevitable. The application of the analysis will first examine and
explain the results presented in the financial statements. Hence, we will see the data which will
confirm the financial strength of the business entity which has been the subject of analysis.
Namely, for the realization of the effects achieved with building business plans, are used ratio
indicators which are the centre and also the derive source for developing ideas. It follows that
the applied analysis with ratio indicators tends to give us a reference how and where to direct
ourselves in creating business policy, and to enable us to access the results of operations.
Despite these conclusions we can say that the results obtained through the financial statements
would be even better perceived through individual observations by ratio analysis.

What are required to perform financial analysis?

 Calculated using reliable, accurate financial information
 Calculated consistently from period to period
 Used in comparison to internal benchmarks and goals
 Used in comparison to other companies in your industry
 Viewed both at a single point in time and as an indication of broad trends and issues
over time
 Carefully interpreted in the proper context, considering there are many other important
factors and indicators involved in assessing performance.
What are the uses of financial analysis?
(i) Ratios help in analyzing the performance trends over a long period of time.
(ii) They also help a business to compare the financial results to those of competitors.
(iii) Ratios assist the management in decision making.
(iv) They also point out problem and weak areas along with the strength areas.
(v) Ratios to help to develop relationships between different financial statement items.
(vi) Ratios have the advantage of controlling for differences in size.

What are the basic tools in financial analysis?

 Ratio Analysis
 Comparative Financial Statement analysis or Horizontal Analysis
 Common Size Statement analysis or Vertical Analysis and
 Trend Analysis

What are financial ratios?

Liquidity Ratio
a. Current Ratio-Measures the time that the current liabilities could be paid with the
available current assets

Profitability Ratios
A. Net Income Margin
B. Return on Investment
C. Loan Portfolio Profitability

Solvency Ratio
A. Debt to Total Assets Ratio
 What are the objectives of financial ratios?
1] Measure of Profitability
Profit is the ultimate aim of every organization. So if I say that ABC firm earned a profit of 5
lakhs last year, how will you determine if that is a good or bad figure? Context is required to
measure profitability, which is provided by ratio analysis. Gross Profit Ratios, Net Profit Ratio,
Expense ratio etc provide a measure of profitability of a firm. The management can use such
ratios to find out problem areas and improve upon them.
2] Evaluation of Operational Efficiency
Certain ratios highlight the degree of efficiency of a company in the management of its assets
and other resources. It is important that assets and financial resources be allocated and used
efficiently to avoid unnecessary expenses. Turnover Ratios and Efficiency Ratios will point out
any mismanagement of assets.
3] Ensure Suitable Liquidity
Every firm has to ensure that some of its assets are liquid, in case it requires cash immediately.
So the liquidity of a firm is measured by ratios such as Current ratio and Quick Ratio. These
help a firm maintain the required level of short-term solvency.
4] Overall Financial Strength
There are some ratios that help determine the firm’s long-term solvency. They help determine
if there is a strain on the assets of a firm or if the firm is over-leveraged. The management will
need to quickly rectify the situation to avoid liquidation in the future. Examples of such ratios
are Debt-Equity Ratio, Leverage ratios etc.

What are the major categories of financial ratios?

Liquidity or Solvency Ratios
The liquidity or solvency ratios focus on a firm's ability to pay its short-term debt obligations.
As such, they focus on the firm's current assets and current liabilities on the balance sheet.
The most common liquidity ratios are the current ratio, the quick ratio, and the burn rate
(interval measure). The quick ratio, as the name implies, determines how much money is
available in the nearest term to pay current liabilities.
The current ratio is a similar, but less stringent liquidity evaluation ratio. Burn rate measures
how long a business can continue when current expenses exceed current income. It's a
common measure used in evaluating start-ups, which almost always lose money as they begin
to do business. Burn rate answers the important question: how long at the current rate is the
company going to be able to keep its doors open.
Financial Leverage or Debt Ratios
The financial leverage or debt ratios focus on a firm's ability to meet its long-term debt
obligations. It looks at the firm's long-term liabilities on the balance sheet such as bonds.
The most common financial leverage ratios are the total debt ratios, the debt/equity ratio, the
long-term debt ratio, the times interest earned ratio, the fixed charge coverage ratio, and the
cash coverage ratio.
Although all slightly different, these financial leverage ratios all tell you about different aspects
of the company's overall financial health and, in most instances, quantify shareholder equity.
Asset Efficiency or Turnover Ratios
The asset efficiency or turnover ratios measure the efficiency with which the firm uses its
assets to produce sales. As a result, it focuses on both the income statement (sales) and the
balance sheet (assets).
The most common asset efficiency ratios are the inventory turnover ratio, the receivables
turnover ratio, the days' sales in inventory ratio, the days' sales in receivables ratio, the net
working capital ratio, the fixed asset turnover ratio, and the total asset turnover ratio.
Asset efficiency ratios are particularly valuable in describing the business from a dynamic
viewpoint. Used together, they describe how well the business is being run, telling how fast the
company's products are selling, how long customers take to pay and how much capital is tied
up in inventory.

Profitability Ratios
The profitability ratios are just what the name implies. They reveal a firm's ability to generate a
profit and an adequate return on assets and equity. These ratios measure how efficiently the
firm uses its assets, how effectively it manages its operations, and they answer such basic
questions as "How profitable is this business?" and "How does it measure up to its
competitors?" Common profitability ratios include the gross profit margin, net income margin,
return on assets, and return on equity.

Market Value Ratios

Market value ratios can be calculated for publicly traded companies only as they relate to stock
price. There are many market value ratios, but a few of the most commonly used are
price/earnings (P/E), book value to share value and dividend yield.
What are the limitations of financial ratios and other tools of financial analysis?
 The firm can make some year-end changes to their financial statements, to improve
their ratios. Then the ratios end up being nothing but window dressing.

 Ratios ignore the price level changes due to inflation. Many ratios are calculated using
historical costs, and they overlook the changes in price level between the periods. This
does not reflect the correct financial situation.

 Accounting ratios completely ignore the qualitative aspects of the firm. They only take
into consideration the monetary aspects (quantitative)

 There are no standard definitions of the ratios. So firms may be using different formulas
for the ratios. One such example is Current Ratio, where some firms take into
consideration all current liabilities but others ignore bank overdrafts from current
liabilities while calculating current ratio

 And finally, accounting ratios do not resolve any financial problems of the company.
They are a means to the end, not the actual solution.

Tools used in evaluating financial performance of cooperatives

What are the standard evaluation tools that are used by cooperatives in compliance
with directives of the Cooperative Development Authority?

1. COOP-PESOS
2. PESOS Plus

What are the components of COOP-PESOS?

Indicators on management compliance to administrative requirements

C – Compliance with administrative and legal requirements
O – Organizational Structure and Linkages
O – Operation and Management
P – Plans and Programs
Indicators of financial performance
P – Portfolio quality
E – Efficiency
S – Stability
O – Operations
S – Structure of assets

How are coops rated according to results of ratio analysis?

The Equivalent rating of overall actual raw score:

1 – 90 to 100 – Excellent
2 – 80 to 90 – Very Good
3 – 70 to 80 – Good
4 – 60 to 70 – Fair
5 – below 60 – Poor

What is PESOS Plus? What are the coops that use PESOS Plus?

PESOS Plus is a performance standards for Philippine Cooperatives that will be used by them as
a supervisory and regulatory tool and management tool. Credit, consumer, producers,
marketing, service and many other types of Cooperative can use PESOS Plus depending on the
cooperative management decision.

What are the objectives of PESOS Plus?

1. To provide the managers and Board of Directors appropriate tool in monitoring the
quality and all level of risk of the loan portfolio of the cooperatives.

2. To determine whether financial services can be delivered to its members in a sustained

manner

3. To determine the ability of the Cooperative to generate sufficient income to cover

expenses on operations

4. To ascertain the quality and the structure of the assets of the Cooperative
What are the ratios under PESOS Plus?

PORTFOLIO QUALITY RATIOS

Portfolio at Risk Ratio
Allowance for Probable Loan Losses

EFFICIENCY RATIOS
Assets Yield
Operational Self-Sufficiency
Rate of Return on Members` Share
Loan Portfolio Profitability
Cost per Peso Loan
Administrative Efficiency
STABILITY RATIOS
Solvency
Liquidity
Net Institutional Capital
OPERATIONS
Performance of Membership Growth
Trend in External Borrowings
STRUCTURE OF ASSETS
Asset Quality
Asset Structure
Total Deposits/Total Assets
Total Loans Receivable/ Total Assets
Total Members` Share Capital

How does PESOS Plus differ from that of COOP-PESOS?

PESOS Plus considers only the indicators of financial performance while COOP-PESOS
considers the indicators of financial performance and indicators on management compliance
to administrative requirements.

What are the ratings used in PESOS Plus?

PORTFOLIO QUALITY RATIOS 25%

EFFICIENCY RATIOS 20%
STABILTYY RATIOS 30%
OPERATIONS 10%
STRUCTURE OF ASSETS 15%
100%