Q.A co-operative society earns a net profit of Rs. 2,00,000 for the year. Its paid-up share capital is Rs. 5,00,000 and its bye-laws permit a dividend of up to 15% on paid-up share capital. Calculate

The reserve fund is a fraction of net profit, while dividend is a rate applied to paid-up share capital — two separate bases.

This problem tests the two separate rules of profit distribution — the reserve-fund minimum (a fraction of net profit) and the dividend ceiling (a rate on paid-up share capital).

Given:

1. Minimum transfer to the Reserve Fund. The Act requires at least one-fourth (25%) of net profit to be carried to the Reserve Fund. Minimum Reserve Fund = 25% of Rs. 2,00,000 = (25 / 100) x 2,00,000 = Rs. 50,000.
2. Maximum dividend payable. Dividend is calculated on the paid-up share capital, at the rate permitted by the bye-laws (here 15%). Maximum dividend = 15% of Rs. 5,00,000 = (15 / 100) x 5,00,000 = Rs. 75,000. Verification (independent re-check).

• One-fourth of 2,00,000: 2,00,000 divided by 4 = 50,000. ✓ (matches the 25% figure)
• 15% of 5,00,000: 1% of 5,00,000 = 5,000, so 15% = 15 x 5,000 = 75,000. ✓ …

Reserve Fund = 25% of net profit = 2,00,000 / 4 = Rs. 50,000. Dividend = 15% of paid-up capital = 5,00,000 x 0.15 = Rs. 75,000. The two use different base …

The commonest error is to apply the 25% to the share capital or the 15% to the net profit. The reserve-fund minimum is a fraction of net profit, whereas divide …