74 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS

Module 5

COOPERATIVES

Overview

This module introduces us to the definition, concepts, and kinds of cooperative operation
in the Philippines.

Module Objectives

After thorough discussion of the topics, the learner will be able to:
Define and cite the characteristics of a cooperative
Understand and Compare government agencies, not-for-profit organizations, and
cooperatives
Identify the basic laws applicable to cooperatives
Apply the concepts in accounting for cooperatives.
Prepare simple financial statements of cooperative

Organization and Registration of Cooperatives

The primary objective of every cooperative is to help improve the quality of life of its
members.
A cooperative duly registered shall have limited liability.
A cooperative shall exist for a period not exceeding fifty (50) years from the date of
registration unless sooner dissolve or unless said period is extended.
All cooperatives applying for registration shall file with the Authority the Articles of
Cooperation which shall be signed by each of the organizers.
The articles of cooperation may also contain any other provisions not inconsistent with
any related laws.
Four copies of each Articles of cooperation,bylaws and the general statement shall be
submittes to the Authority.
Each cooperative to be registered under RA 9520 shall adopt bylaws not inconsistent
with the provisions of this Code. The bylaws shall be filed at the same time with the
Articles of Cooperation
Under Art. 10 of R.A 9520 Organizing a Primary Cooperative, Fifteen or more natural
persons who are Filipino citizens, of legal age having a common bond of interest and are
actually residing or working in the intended area of operation,may organize a primary
cooperative under this Code: Provided, that a prospective member of a primary
cooperative must have completed a Pre-Membership Education Seminar (PMES)
Any newly organized primary cooperative may be registered as multi-purpose
cooperative only after compliance with the minimum requirements for multipurpose
cooperative to be set by the Authority. A single-purpose cooperative may transform into
a mutipurpose or may create subsidiaries only after at least two (2) years of operations.
Under Article 16 of R.A 9520, a cooperative formed and organized under this code
acquires juridical personality from the date the Authority issues a certificate of registration
under its official seal. All applications for registration shall be finally disposed of by the
Authority within. period of sixty (60) days from the filing thereof, otherwise the application
is deemed approved, unless the cause of delay is attributable to the applicant: Provided,
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that in a case of a denial of application for registration, an appeal shall lie with the Office
of the President within ninety (90) days from receipt of such notice of denial.
Under Article 17 of RA 9520, Certificate of Registration, A certificate of registration issued
by the Authority under its official seal shall be conclusive evidence that the cooperative
therein mentioned duly registered unless it is proved that the registration thereof has
been cancelled.

Administration
The General Assembly shall be composed of such members who are entitled to vote
under the articles of cooperation and bylaws of the cooperatives.
The General Assembly shall be the highest policy-making body of the cooperative and
shall exercise such powers as are stated in RA 9520, in the Articles of cooperation and
bylaws of the cooperatives.
A regular meeting shall be held anually by the general assembly on a date fixed in the
bylaws, or if not ao fixed, on any dated within ninety (90) days after the clo
se of each fiscal year.
Whenever necessary, a special meeting of the general assembly may be called at any
time by a majority vote of the board of directors or as provided in the bylaws.
A quorum shall consists at least 25% of all the members entitled to vote.
Each member of a primary cooperative shall have only one (1) vote. In the case of
members of secondary or tertiary cooperatives, they shall have one basic vote and as
many incentive votes as provided for in the bylaws but not exceed 5 votes.
Unless otherwise provided in the bylaws, the direction and management of the affairs of
the cooperative shall be vested in a board of directors which shall be composed of not
less than 5 nor more than 15 members elected by the general assembly for a term of two
years and shall hold office until their succesors are duly elected,or until duly removed for
caused.
The board of directors shall be responsible for the strategic planning, direction-setting
and policy-formulation activities of the cooperatives.

Responsibilities, Rights and Privileges of Cooperatives

Capital, Property of Funds
ART. 71. Capital. - The capitalization of cooperatives and the accounting procedures
shall be governed by the provisions of this Code and the regulations which shall be
issued.
ART. 72. Capital Sources.- Cooperatives registered under this Code may derive their
capital from
and barrowings including deposits; "(3) Revolving capital which consists of the deferred
payment of patronage refunds, or interest on share capital; and "(4) Subsidies, donations,
legacies, grants, aids and such other assistance from any local or foreign institution
whether public or private: Provided, That capital coming from such subsides, donations,
legacies, grants, aids and other assistance shall not be divided into individual share
capital holdings at any time but shall instead form part of the donated capital or fund of
the cooperative. "Upon dissolution, such donated capital shall be subject to escheat.
ART. 73. Limitation on Share Capital Holdings.- No member of primary cooperative other
than cooperative itself shall own or hold more than ten per centum (10%) of the share
capital of the cooperative. "Where a member of cooperative dies, his heir shall be entitled
to the shares of the decedent: Provided, That the total share holding of the heir does not
exceed ten per centum (10%) of the share capital of the cooperative; Provided, further,
That the heir qualify and is admitted as members of the cooperative: Provided finally ,
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That where the heir fails to qualify as a member or where his total share holding exceeds
ten per centum (10%) of the share capital , the share or shares excess will revert to the
cooperative upon payment to the heir of the value of such shares.
"ART. 74. Assignment of Share Capital Contribution or Interest.- Subject to the provisions
of this Code, no member shall transfer his shares or interest in the cooperative or any
part thereof unless. "(1) He has held such share capital contribution or interest for not
less than one (1) year. "(2) The assignment is made to the cooperative or to a member
of the cooperative or to a person who falls within the field of the membership of the
cooperative; and "(3) The board of directors has approved such assignment.
"ART.78. Investment of Capital. - A cooperative may invest its capital in any of the
following: "(a) In shares or debentures or securities of any other cooperative; "(b) In any
reputable bank in the locality, or any cooperative; "(c) In securities issued or guaranteed
by the Government; "(d) In real state primarily for the use of the cooperative or its
members; or "(e) In any other manner authorized in the bylaws.
"ART. 79. Revolving Capital. The general assembly of any cooperative may authorize
the board of directors to raise a revolving capital to strengthen its capital structure by
deferring the payment of patronage refunds and interest on share capital or by the
authorized deduction of a percentage from the proceeds of products sold or services
rendered, or per unit of product or services handled. The board of directors shall issue
revolving capital certificates with serial number, name, amount, and rate of interest to be
paid
"ART. 51. Address. Every cooperative shall have an official postal address to which all
notices and communications shall be sent. Such address and every change thereof shall
be registered with the Authority.
"ART. 52. Books to be Kept Open.
(1) Every cooperative shall have the following documents ready and accessible to its
members and representatives of the Authority for inspection during reasonable office
hours at its official address: "(a) A copy of this Code and all other laws pertaining to
cooperatives; "(b) A copy of the regulations of the Authority; "(c) A copy of the articles of
cooperation and bylaws of the cooperative; "(d) A register of members; "(e) The books of
the minutes of the meetings of the general assembly, board of directors and committee;
"(f) Share books, where applicable; "(g) Financial statement; and "(h) Such other
documents as may be prescribed by laws or the bylaws.
(2) The accountant or the bookkeeper of the cooperative shall be responsible for the
maintenance of the cooperative in accordance with generally accepted accounting
practices. He shall also be responsible for the production of the same at the time of audit
or inspection. "The audit committee shall be responsible for the continuous and periodic
review of the books and records of account to ensure that these are in accordance with
generally accepted accounting practices. He shall also be responsible for the production
of the same at the time of audit or inspection. "(3) Each cooperative shall maintain records
of accounts such that the true and correct condition and the results of the operation of
the cooperative may be ascertained therefrom at any time. The financial statements,
audited according to generally accepted auditing standards, principles and practices,
shall be published annually and shall be kept posted in a conspicuous place in the
principal office of the cooperative.
"(4) Subject to the pertinent provisions of the National Internal Revenue Code and other
laws, a cooperative may dispose by way of burning or other method of complete
destruction any document, record or book pertaining to its financial and nonfinancial
operations which are already more than five (5) years old except those relating to
transactions which are the subject of civil, criminal and administrative proceedings. An
inventory of the audited documents, records and books to be disposed of shall be drawn
 ACCOUNTING FOR GOVERNMENT AND NOT-FOR-PROFIT ORGANIZATIONS 77

up and certified to by the board secretary and the chairman of the audit committee and
presented to the board of directors which may thereupon approve the disposition of said
records.

Cooperatives under this Code shall be subject to an annual audit by an auditor who
satisfies all the following qualifications:
(1) He is independent of the cooperative being audited and of any subsidiary of the
cooperative; and
(2) He is a member of any recognized professional accounting or cooperative
qualifications
The auditor shall submit to the audit committee a report of the audit which shall contain
a statement of the assets and liabilities of the cooperative, including earnings and
expenses, amount of net surplus as well as losses and bad debts, if any.
The audit committee shall forthwith furnish the board of directors a copy of the audit
report. Thereafter, the board of directors shall present the complete audit report to the
general assembly in its next meeting.
A member shall have the right to examine the records required to be kept by the
cooperative under Article 51 of this Code during reasonable hours on business days and
he may demand, in writing, for a copy of excerpts from said records without charge except
the cost of reproduction.
Any officer of the cooperative who shall refuse to allow any member of the cooperative
to examine and copy excerpts from its records shall be liable to such member for
damages and shall be guilty of an offense which shall be punishable under Article 106 of
this Code: Provided, That if such refusal is pursuant to a resolution or order of the board
of directors, the liability under this article shall be imposed upon the directors who voted
for such refusal: Provided, further, That it shall be a defense of any action under this
article that the member demanding to examine and copy excerpts from the cooperative
records has improperly used any information secured through any prior examination of
the records of such cooperative or was not acting in good faith or for a legitimate purpose
in making his demand.
Every cooperative shall, at its principal office, keep and carefully preserve the records
required by this Code to be prepared and maintained. It shall take all necessary
precaution to prevent its loss, destruction or falsification.

Allocation and Distribution of Funds

Notwithstanding the provisions of existing laws, the net surplus of cooperatives shall be
determined in accordance with its bylaws. Every cooperative shall determine its net
surplus at the close of every fiscal year and at such other times as may be prescribed by
the bylaws.
Any provision of law to the contrary notwithstanding, the net surplus shall not be
construed as profit but as an excess of payments made by the members for the loans
borrowed, or the goods and services availed by them from the cooperative or the
difference of the rightful amount due to the members for their products sold or services
rendered to the cooperative including other inflows of assets resulting from its other
operating activities and which shall be deemed to have been returned to them if the same
is distributed as prescribed herein.
Order of Distribution
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1. An amount for the reserve fund which shall be at least ten per centum (10%) of
net surplus: Provided, That, in the first five (5) years of operation after registration,
this amount shall not be less than fifty per centum (50%) of the net surplus:
a. The reserve fund shall be used for the stability of the cooperative
and to meet net losses in its operations. The general assembly may
decrease the amount allocated to the reserve fund when the reserve
fund already exceeds the share capital. Any sum recovered on items
previously charged to the reserve fund shall be credited to such fund.
b. The reserve fund shall not be utilized for investment, other than those
allowed in this Code. Such sum of the reserve fund in excess of the share
capital may be used at anytime for any project that would expand the
operations of the cooperative upon the resolution of the general assembly.
c. Upon the dissolution of the cooperative, the reserve fund shall not be
distributed among the members. The general assembly may resolves:
(i) To establish a usufructuary trust fund for the benefit of anyfederation or
union to which the cooperative is affiliated; and
(ii) To donate, contribute, or otherwise dispose of the amount for the
benefit of the community where the cooperative operates. If the
members cannot decide upon the disposal of the reserve fund, the
same shall go to the federation or union to which the cooperative is
affiliated.
2. An amount for the education and training fund, shall not be more than ten per
centum (10%) of the net surplus. The bylaws may provide that certain fees or a
portion thereof be credited to such fund. The fund shall provide for the training,
development and similar other cooperative activities geared towards the growth
of the cooperative movement:
a. Half of the amounts transferred to the education and training fund
annually under this subsection shall be spent by the cooperative for
education and training purposes; while the other half may be
remitted to a union or federation chosen by the cooperative or of which
it is a member. The said union or federation shall submit to the
Authority and to its contributing cooperatives the following
schedules:
i. (List of cooperatives which have remitted their respective
Cooperative Education and Training Funds (CETF);
ii. Business consultancy assistance to include the nature and
cost; and
iii. Other training activities undertaken specifying therein the
nature, participants and cost of each activity.
b. Upon the dissolution of the cooperative, the unexpended balance of the
education and training fund appertaining to the cooperative shall be
credited to the cooperative education and training fund of the chosen
union or federation.
3. An amount for the community development fund, which shall not be less than
three per centum (3%) of the net surplus. The community development fund shall
be used for projects or activities that will benefit the community where the
cooperative operates.
4. An optional fund, a land and building, and any other necessary fund the total of
which shall not exceed seven per centum (7%).
5. The remaining net surplus shall be made available to the members in the form of
interest on share capital not to exceed the normal rate of return our investments
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and patronage refunds: Provided, That any amount remaining after the allowable
interest and the patronage refund have been deducted shall be credited to the
reserve fund.

Types and Categories of Cooperatives

Credit Cooperative is one that promotes and undertakes savings and lending services
among its members. It generates a common pool of funds in order to provide financial
assistance to its members for productive and provident purposes;
Consumers Cooperative is one of the primary purpose of which is to procure and
distribute commodities to members and non-members;
Producers Cooperative is one that undertakes joint production whether agricultural or
industrial. It is formed and operated by its members to undertake the production and
processing of raw materials or goods produced by its members into finished or processed
products for sale by the cooperative to its members and non-members. Any end product
or its derivative arising from the raw materials produced by its members, sold in the name
and for the account of the cooperative, shall be deemed a product of the cooperative and
its members;
Marketing Cooperative is one which engages in the supply of production inputs to
members and markets their products;
Service Cooperative is one which engages in medical and dental care, hospitalization,
transportation, insurance, housing, labor, electric light and power, communication,
professional and other services;
Multipurpose Cooperative is one which combines two (2) or more of the business
activities of these different types of cooperatives;
Cooperative Bank is one organized for the primary purpose of providing a wide range
of financial services to cooperatives and their members;
Dairy Cooperative is one whose members are engaged in the production of fresh milk
which may be processed and/or marketed as dairy products;
Financial Service Cooperative is one organized for the primary purpose of engaging in
savings and credit services and other financial services;
Fishermen Cooperative is one organized by marginalized fishermen in localities whose
products are marketed either as fresh or processed products;
Health Services Cooperative is one organized for the primary purpose of providing
medical, dental and other health services;
Housing Cooperative is one organized to assist or provide access to housing for the
benefit of its regular members who actively participate in the savings program for housing.
It is co-owned and controlled by its members;
Insurance Cooperative is one engaged in the business of insuring life and poverty of
cooperatives and their members;
Transport Cooperative is one which includes land and sea transportation, limited to
small vessels, as defined or classified under the Philippine maritime laws, organized
under the provisions of this Code;
Water Service Cooperative is one organized to own, operate and manage waters
systems for the provision and distribution of potable water for its members and their
households;
Workers Cooperative is one organized by workers, including the self-employed, who
are at same time the members and owners of the enterprise. Its principal purpose is to
provide employment and business opportunities to its members and manage it in
accordance with cooperative principles; and
Advocacy Cooperative is a primary cooperative which promotes and advocates
cooperativism among its members and the public through socially-oriented projects,
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education and training, research and communication, and other similar activities to reach
out to its intended beneficiaries;
Electric Cooperative is one organized for the primary purposed of undertaking power
generations, utilizing renewable energy sources, including hybrid systems, acquisition
and operation of subtransmission or distribution to its household members;

Merger and Consolidation of Cooperatives

Dissolution of Cooperatives
Voluntary dissolution where no creditors are affected - The dissolution may be
affected by the majority vote of the board of directors, and by a resolution duly adopted
by the affirmative vote of at least ¾ of all the members with voting rights.
Voluntary dissolution where creditors are affected. - The petition for the dissolution
shall be filed with authority.
Involuntary Dissolution - The cooperative may be dissolved by order of competent court
after due hearing on the grounds of:
o Violation of any law, regulation or provision of its bylaws; or
o Insolvency
Dissolution by order of the authority - The authority may suspend or revoke, after due
notice and hearing the certificate of registration of a cooperative on any of the following
grounds:
o Having obtained its registration by fraud.
o Existing for an illegal purpose.
o Willful violation despite notice by authority of the provisions of this code or its
bylaws
o Willful failure to operate on a cooperative basis; and
o Failure to meet the required minimum number of members in the cooperative.
Dissolution by failure to organize and operate

Accounting Policies for Cooperatives

The legal basis for this Rule is based on Article 71, as follows:
o Capital The capitalization of cooperatives and the accounting procedures shall
be governed by the provisions of this Code, and the regulations which shall be
issued.
Capital Sources:
o
o Loans and Borrowings including deposits
o Revolving Capital
o Subsidies, donations, legacies, grants, aids and such other assistance form any
local or foreign institutions.
Financial Statement Presentation
o Fair presentation
o Complete set of financial statements
o Going Concern
o Accrual
o Comparative
o Consistency
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Financial Statements:
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Readings

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