Topic: POLICIES ON ACCOUNTING FOR EQUITY

Policy # : AP 008

Supersedes/Amends

Effective Date: January 1, 2008

Purpose:
To properly account the equity of Mediatrix Multi-Purpose Cooperative.
Policy:

MAIN FEATURES AND CONTROL

A. MEMBERS EQUITY
1. Subscribed and Paid-Up Share Capital
For registration purposes, the Cooperative Code of the Philippines
provides that at least 25% of the total authorized share capital is
subscribed and at least 25% of the subscribed share capital is paid
provided that in no case shall the paid-up share capital be less than
two thousand pesos (P2,000.00). Common shares are issued to regular
members while preferred shares are issued to regular and associate
members If the subscribed share capital is more than the authorized
capital, the excess is called "watered stock" in the corporate
terminology. If this happens in the cooperative, the excess shall be
presented in the Statement of Financial Condition as "Deposits for
Share Capital Subscription" until such time that the Articles of
Cooperation is amended.
2. Treasury Shares-Common
This account is used only in the event that there are no members
willing to buy the share of the outgoing regular members. In practice,
when a member resigns, the share capital is used to settle loan
balances, otherwise, it is paid in cash.
3. Treasury Shares-Preferred
This account is used to record capital shares redeemed by the
cooperative from the outgoing members (regular and associate
members).
B. DONATION AND GRANTS
1. Some cooperatives that have established a good performance record
can access donations and grants either from the government or from
foreign funding institutions or from private entities. Donations and
grants are usually given for the following purposes:
a. Administrative or project expenses;

2.

3.
4.
5.

b. Revolving loan capital; and

c. Acquisition of property and equipment
Donations and grants covering administrative or project expenses are
credited to Project Subsidy Fund Payable. Donations and Grants
covering revolving loan capital and acquisition of property and
equipment are credited to Donations and Grants.
The Donations and Grants shall be disbursed in accordance with the
approved purpose.
The Donations and Grants shall not be available for distribution to
members.
The Donations and Grants account intended for revolving loan capital
or acquisition of property and equipment is reflected in the Equity
Section after the Members' Equity while Donations and Grants
intended for training, salaries and wages and other expenses are
reflected as Project Subsidy Fund under Other Liabilities.

C. STATUTORY FUNDS
1. NET SURPLUS AVAILABLE FOR DISTRIBUTION
The net surplus of cooperatives shall be determined in accordance
with the Cooperative Code and the cooperatives by-laws. Every
cooperative shall determine its net surplus at the close of every fiscal
year. The net surplus shall not be construed as profit but as excess of
payments made by the members for the loans borrowed, or for goods
and services bought by them from the cooperative and which shall be
deemed to have been returned to them if the same is distributed as
prescribed by the Cooperative Code.
2. DISTRIBUTION OF NET SURPLUS
The undivided net surplus is distributed to the different statutory
accounts (i.e., prescribed by law such as the Cooperative Code or the
cooperatives own by-laws) and interest on share capital and patronage
refund.
a. RESERVE FUND
1. At least 10% of the net surplus is set aside annually for the
stability of the cooperative and to meet the net losses in its
operations.
2. Utilization of the Reserve Fund requires the approval of the
General Assembly.
3. Since the Reserve Fund is intended, among others, to meet
operational losses, all losses incurred by the Cooperative in
its business operation shall be charged against this Fund.
4. Consistent with the accounting principle of conservatism
and the going concern theory, all charges against the Reserve
Fund shall subsequently be offset by the following modified

allocation and distribution of net surplus until such time

that the negative balance of the Reserve Fund account shall
have been fully offset, viz:
i. Reserve Fund - not more than sixty-five percent (65%);
ii. Education and Training Fund - not more than five per
cent (5%);
iii. Optional Fund - not more than five per cent (5%); and
iv. Interest on Share Capital and Patronage Refunds the
remaining net surplus but not less than twenty-five per
cent (25%).
b. EDUCATION AND TRAINING FUND
1. Not more than 10% of the net surplus is set aside annually
for education and training. Fifty percent (50%) of this
allocation shall be used for the local education and training
while the other fifty percent (50%) shall be remitted to the
Apex Federation/Union.
2. Disposal of the Education and Training Fund shall be
approved by the Board of Directors;
3. Unclaimed patronage refund, if any, may be transferred to
this fund, as approved by the Board of Directors; and
4. In case losses of the cooperative in previous years are
charged to the Reserve Fund, not more than 5% of the net
surplus shall be allocated for Education and Training Fund.
c. OPTIONAL FUND
1. Not more than 10% of the net surplus shall be set aside
annually for optional fund.
2. Utilization of the fund shall be approved by the Board of
Directors and/or the General Assembly.
3. In case losses of the cooperative in previous years are
charged to the Reserve Fund, not more than 5% of the net
surplus shall be allocated for Optional Fund.
d. INTEREST ON SHARE CAPITAL AND PATRONAGE REFUND
1. This represents the remaining balance of the net surplus
after allocation to the statutory funds;
2. Allocation of interest on the share capital and patronage
refund should be in accordance with RA 6938 and Rule 4 of
Implementing
Rules
and
Regulations,
subject
to
amendments;
3. The percentage share for interest on share capital and
patronage refund shall be in accordance with the decision of
the General Assembly, subject to the Cooperative Code and
the cooperatives by-laws;

4. The interest rate should not exceed the normal rate of return
on investment as determined by CDA and such interest
should be non-cumulative (Art. 7, RA 6938).
5. In case losses of the cooperative in previous years are
charged to the Reserve Fund, not less than 25% of the net
surplus shall be allocated for interest on share capital
and/or patronage refund, as mentioned in Section 7.8.4.1.
6. The sum allocated for patronage refund shall be made
available at the same rate to all patrons of the cooperative in
proportion to their individual patronage provided that:
i. In the case of a member patron with paid up share
capital contribution, his/her proportionate amount
patronage refund shall be paid to him/her unless
he/she agrees to credit the amount to his/her account
as additional share capital contribution.
ii. In the case of member patron with unpaid share
capital contribution, his/her proportionate patronage
refund shall be credited to his/her account until
his/her share capital contribution has been fully paid.

PROCEDURES IN COMPUTING INTEREST ON SHARE CAPITAL AND

PATRONAGE REFUND
A. INTEREST ON SHARE CAPITAL
1. Update posting to the individual subsidiary ledger of members up to
the end of the year.
2. If you are using a computer, open Excel. Otherwise, use a 24-column
worksheet. Enter the names of member on the first column. Make next
12 columns representing the 12 months (January to December
Column 2-13). Enter outstanding monthly balances of each members
paid-up share capital/contribution. Choose a cut-off date of members
contribution say, 7th day of the month. This is called the Share
Month.
3. Add horizontally the share months of each member to arrive at
his/her Total Share (TS) month (Col. 14).
4. Divide TS by 12 to get average share month (ASM Col. 15).
5. Add individual ASM to arrive at the Total Average Share Month (TASMCol. 16).
6. Determine the rate by using Rule 4 Section 2 of the Implementing
Rules and Regulations (Col. 17).
Rate of Interest = [Net Surplus less Statutory Funds] X [Percentage allocated for
Interest on Share Capital] Total Average Share Month (TASM)

7. Multiply the ASM of each member by the rate of interest obtained in

Procedure f, Column 18.

Interest on Share Capital for each member = ASM of member X Rate of Interest

B. PATRONAGE REFUND
1. Using the same spreadsheet for the computation of interest on share
capital, the next money column (Col. 19) shows the total amount of
interest on loan each member has paid to the cooperative for the year.
Basis of computing patronage refund varies according to type of
cooperatives. For savings and credit cooperative, it is based on interest
on loans using the Individual Loan Ledger, cash disbursement book
and official receipts as the references.
2. Add the individual interest income on loans resulting in total income
loan (Col. 20). The sum of the individual interest on loan should
reconcile with the amounts reflected in the Interest on Loans shown in
Statement of Operation of the cooperative for the year.
3. Determine the rate of patronage refund by applying the following
formula:
Rate of Patronage Refund = [Net Surplus less Statutory Reserves] X [Percentage
allocated for Patronage Refund]Total Interest Income on Loans

4. Multiply the individual interest income on loans by the rate of the

patronage refund obtained in Procedure No. 3 to get the patronage
refund of each member Column 21.
Total Interest on Share Capital and Patronage Refund = Add
Columns 18 and 21 to arrive at the total dividend due to each
member Column 22.
5. Each member should affix his/her signature upon receipt of dividends
due him/her Column 23.

Authored by:
MERLYN I. GOMEZ, CPA
General Manager

Approved by:
Board of Directors

Resolution No.
No. 88 s. 2007

Issuance Date:
August 15,
2007

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