Q.Give reasons: A co-operative society must transfer a part of its profit to the Reserve Fund every year.

A prudent co-operative does not hand out all its profit; it keeps part of it back to make itself stronger.

It is true that a co-operative society must set aside part of its profit as a reserve fund every year (at least one-fourth of net profit). There are sound reasons for this:

1. The law requires it. The Act makes the transfer of at least 25% of net profit to the reserve fund compulsory before any other appropriation, so the society has no choice but to build it.
2. It strengthens the society's finances. The reserve fund is the society's own money, belonging to it as a whole and not to individual members. It gives the society a cushion of capital over and above members' shares and deposits.
3. It meets future losses. Bad debts, unexpected losses or lean years are a real risk for any society handling credit. The reserve fund absorbs such losses without shaking the society's stability or the confidence of its members. …

A 'give reasons' answer must give reasons, not just define the reserve fund. Do not confuse the reserve fund with share capital or deposits — the reserve fund is …