SOCIAL AUDIT

COMPUTATION OF INTEREST ON SHARE CAPITAL

AND PATRONAGE REFUND

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 ALLOCATION and DISTRIBUTION OF NET
SURPLUS

LEGAL BASIS – CHAPTER 10 ART. 86 OF

RA9520
Order of Distribution
The net surplus of every cooperative shall
be distributed as follows:

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 ALLOCATION OF NET SURPLUS AND
ITS USES

1. An amount for the reserve fund (RF)

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:

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 ALLOCATION OF NET SURPLUS AND
ITS USES

a. The RF shall be used for the stability of

the cooperative and to meet losses in
its operations. The GA may decrease
the amount allocated to the RF when
RF already exceeds the share capital.

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 Allocation of Net Surplus and its Uses

Any sum recovered on items previously

charged to the RF shall be credited to such
fund.
b. The RF shall not be utilized for investment,
other than those allowed in this Code. Such
sum of the RF 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 GA. 5
 Allocation of Net Surplus and its Uses

c. Upon the dissolution of the

cooperative, the RF shall not be
distributed among the members, the GA
may resolve:
(i) To establish a usufructuary trust fund
for the benefit of any federation or
union to which the cooperative is
affiliated; and
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 Allocation of Net Surplus and its Uses

(ii) To donate, contribute, or otherwise

dispose of the amount for the benefit
of the community where the
cooperative operates.
If the members cannot decide upon the
disposal of the RF, the same shall go to
the federation which the cooperative is
affiliated.
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 PROCEDURES IN THE COMPUTATION
OF ISCPR
An amount of the education and training
fund (ETF), shall not be more than ten per
centum (10%) of the net surplus. The by-
laws may provide that certain fees or a
portion thereof be credited to such fund.
The fund shall provide for the training,
development and similar other coop.
activities geared towards the growth of the
coop. movement.
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 PROCEDURES IN THE COMPUTATION
OF ISCPR

a. Half of the amount transferred to the

education & training fund annually
shall be spent by the cooperative for
education & 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.

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 Allocation of Net Surplus and its Uses

The said union or federation shall submit

to the Authority and to its contributing
cooperatives the following schedules:
(i)list of cooperatives which have remitted
their respective CETF;

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 Allocation of Net Surplus and its Uses

(ii)business consultancy assistance to

include the nature and cost; and
(iii)other training activities undertaken
specifying therein the nature,
participants and cost of each activity.

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 Allocation of Net Surplus and its Uses

Upon the dissolution of the cooperative,

the unexpended balance of the
education and training appertaining to
the cooperative shall be credited to
cooperative education and training fund
of the chosen union or federation.

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 Allocation of Net Surplus and its Uses

3. An amount for the community

development fund, which shall not be
less than three per centum (3%) of the
net surplus. It shall be used for projects
or activities that will benefit the
community where the cooperative
operates.

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 Allocation of Net Surplus and its Uses

3. An optional fund, a land and building,

and any other necessary fund, the total
of which shall not exceed seven per
centum (7%).

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 Allocation of Net Surplus and its Uses

. 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.

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 Allocation of Net Surplus and its Uses

The sum allocated for patronage refunds

shall be made available at the same rate
to all patrons of the cooperative in
proportion to their individual patronage:
Provided, That:

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 Allocation of Net Surplus and its Uses

a. In the case of a member patron with

paid-up share capital contribution, his
proportionate amount of patronage
refund shall be paid to him unless he
agrees to credit the amount to his
account as additional share capital
contribution.

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 Allocation of Net Surplus and its Uses

b. In the case of a member patron with

unpaid share capital contribution, his
proportionate amount of patronage
refund shall be credited to his account
until his share capital contribution has
been fully paid;

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 ALLOCATION OF NET SURPLUS AND
ITS USES

c. In the case of a non-member patron, his

proportionate amount of patronage
refund shall be set aside in a general
fund for such patrons and shall be
allocated to individual non-member
patrons only upon request and evidence
of the amount of his patronage.

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 ALLOCATION OF NET SURPLUS AND
ITS USES

The amount so allocated shall be credited

to such patron toward payment of the
minimum capital contribution for
membership. When a sum equal to this
amount has accumulated at any time
within a period specified in the by-laws,

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 ALLOCATION OF NET SURPLUS AND
ITS USES

such patron shall be deemed and

become a member of the cooperative if
he so agrees or requests and complies
with the provisions of the by-laws for
admission to membership;

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 ALLOCATION OF NET SURPLUS AND
ITS USES
d. If within any period of time specified in
the by-laws, any subscriber who has not
fully paid his subscribed share capital or
any non-member patron who has
accumulated the sum necessary for
membership but who does not request
nor agree to become a member or fails to
comply with the provisions of the by-laws
for admission to membership,
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 ALLOCATION OF NET SURPLUS AND
ITS USES

• the amount so accumulated or credited

to their account together with any part
of the general fund for non-member
patrons shall be credited to the RF or to
the ETF of the cooperative, at the option
of the cooperative.

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 RULES & REGULATIONS IMPLEMENTING
CERTAIN PROVISIONS OF RA 9520

RULE 10 –CAPITALIZATION AND

ACCOUNTING PROCEDURES OF
COOPERATIVES
Section 9. INTEREST ON SHARE CAPITAL
Interest on Share Capital shall not exceed the Rate of
Return on Investment.
Unless otherwise provided for in the By-laws of the
cooperative, share capital shall earn interest: the
rate of interest shall be computed as follows:
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 PROCEDURES IN THE COMPUTATION
OF INTEREST ON SHARE CAPITAL &
PATRONAGE REFUND
X(Net Surplus less Statutory
Reserves
Rate of = -----------------------------------
Interest Total Average Share Months
Where: X shall be a percentage to be
determined by the Board of Directors
allocated for interest on share capital
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 PROCEDURES IN THE COMPUTATION
OF ISCPR

Section 11. Patronage Refund

Under the principle, the Net Surplus shall
not be construed as profit, but as excess
payments made by them from the
cooperative and which shall be deemed
to have been returned to them if the
same is distributed by the Code and by
this Rule.
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 PROCEDURES IN THE COMPUTATION
OF ISCPR

Provided, however, That the amount

allocated for patronage refund shall not
be less than thirty percent (30%) of the
net surplus after deducting the statutory
reserves based on the principle of
equity. Provided, further, That in no
case shall the rate of patronage refund
be more than twice the rate of interest
on share capital. 27
 PROCEDURES IN THE COMPUTATION
OF ISCPR

A. Interest on Share Capital

1. Prepare a 26-column worksheet (for our
practice set w/ PR for credit and
consumers). Update postings to the
individual subsidiary ledgers of
members share capital up to the end of
the year for which distribution is being
computed.
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 PROCEDURES IN THE COMPUTATION
OF ISCPR

2. Enter names of members on the 1st

column (col. 1). For the next 12 money
columns (January to December, columns
2 to 13), post outstanding monthly
balances of each member ’ s paid-up
contributions,

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

For our purposes, cut-off date of

members’ contribution is the 7th date of
the month. Contributions paid between
the 8th to the 31st date of the month
shall be credited for the succeeding
month. This shall be added to the
regular monthly contribution of the
member for the succeeding month.
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 PROCEDURES IN THE COMPUTATION
OF ISCPR

3. Add horizontally the share months of

each member to arrive at their Total
Share Month (TSM, column 14)
4. Divide TSM by 12 to get Average Share
Month (ASM, column 15)
5. Add individual ASM to arrive at the
Total Average Share Month)

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

6. Determine the rate by using the

formula (the rate should be taken up to
the 7th digit or more so that the total
amount available for interest on share
capital will be distributed up to the last
centavo. (rate -column 16 )

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

7. Multiply the ASM of each member by

the rate of interest obtained in
procedure 6 to arrive at the individual
interest on share capital. (interest on SC
column 17)

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

B. Patronage Refund
1. using the same worksheet for the
computation of interest on share capital,
the next money column (column 18, for
our exercise, interest on loans) shall be
provided for the total amount of
business that each member made with
the cooperative for the year.
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 PROCEDURES IN THE COMPUTATION
OF ISCPR
CREDIT COOPERATIVE INTEREST ON LOANS
EARNED AND RECEIVED BY
THE COOP
CONSUMERS COOPERATIVE NET SALES
SERVICE COOPERATIVE
For member-user Service Income
For member as provider Payroll

PRODUCERS COOPERATIVE
For Factory Type Payroll
Individually sold through Coop Value of Raw Material and
Equipment
Sold to Coop Value of Finished Product
Delivered by members 35
 PROCEDURES IN THE COMPUTATION
OF ISCPR
Multi Purpose Sale of Agricultural
Cooperative Produce
Agricultural Inputs/Deliveries of
Non Agricultural Members

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

2. Add the individual interest on loans if

credit cooperative (column 18),
individual net sales if consumers
(column 21), etc. resulting in Total
Interest on Loans or Total Net Sales, etc.
The sum of each account should
reconcile with the amounts reflected in
Statement of Operations of the
cooperative for the year. 37
 PROCEDURES IN THE COMPUTATION
OF ISCPR

3. Determine the rate of patronage

refund by applying the following
formula:

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

Rate of Patronage Refund:

a. Credit Cooperative:
Amount Available for Patronage Refund
= -------------------------------------------------------
Total Interest on Loans Earned and Collected
(column 19 for the rate), then multiply rate by
individual interest paid (column 20)

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

b. Consumers Cooperative:
Amount Available for Patronage Refund
= ------------------------------------------------------
Total Net Sales
( column 21 for the rate) then multiply rate by
individual net sales (column 22)

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 PROCEDURES IN THE COMPUTATION
OF ISCPR

5. Add columns 20 and 23 to arrive at the total

Patronage Refund due to each member.
(column 24)
6. Add columns 17 and 24 to arrive at the total
dividends of each member. (column 25)
7. Signature of Member (column 26). Each
member should affix his/her signature upon
receipt of dividends due him/her.

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.

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