Q.Under the MCS Act, 1960, the minimum portion of net profit that a co-operative society must carry to its Reserve Fund is:

Before a co-operative society distributes any profit, the law compels it to set aside part of that profit to strengthen itself.

The reserve fund is built first, as a cushion against future losses, and only the balance is available for dividend, bonus and other uses.

Because a co-operative works for stability and service rather than for maximum profit, the Act requires it to build its own strength before rewarding anyone. It therefore lays down that, out of its net profit, a society must carry at least one-fourth (25%) to the Reserve Fund before making any other appropriation.

Option-by-option analysis:

• (a) One-tenth (10%) — Wrong. This understates the compulsory transfer.
• (b) One-fifth (20%) — Wrong. The prescribed minimum is higher than this.
• (c) One-fourth (25%) — Correct. At least 25% of net profit must be carried to the Reserve Fund first.
• (d) One-half (50%) — Wrong. The law requires a minimum of one-fourth, not one-half.

Students often confuse the reserve-fund transfer with the dividend rate. The reserve-fund minimum is a fraction of net profit (25%), while dividend is a limited rate on paid-up share capital — two different things.