Q.Explain the order in which a co-operative society distributes (appropriates) its net profit.

A co-operative cannot spend its whole profit as it wishes; the law fixes what must be set aside first and what may be paid only afterwards.

A co-operative society must appropriate its net profit in the order laid down by the Act, the Rules and its bye-laws, which the general body then approves.

1. Arriving at the net profit. First, the net profit is worked out by charging against income all working expenses, interest on deposits and borrowings, depreciation on assets, and provision for bad and doubtful debts. Only this genuine surplus can be distributed.
2. Compulsory transfer to the Reserve Fund. Before anything else, at least one-fourth (25%) of the net profit is carried to the Reserve Fund, which belongs to the society and cushions it against future losses. This comes first and is not optional.
3. Contribution to the Education Fund. A prescribed contribution is made to the co-operative education fund of the state federation, to spread co-operative education and training.
4. Appropriations from the balance (with sanction). From what remains, and subject to the Rules and bye-laws, the general body may sanction:
   • a limited dividend on members' paid-up share capital, within the ceiling allowed;
   • a bonus to members in proportion to the business they have done with the society;
   • contributions to other funds — bad-debts fund, dividend-equalisation fund, building fund, staff welfare or charitable fund; …

The commonest error is to put dividend before the reserve fund. The reserve-fund transfer (at least 25%) comes first, before any divide …