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Module 3
Cooperatives – Part 1 (Financial Reporting)
Learning Outcomes

At the end of this module, you should be able to:

1. Understand the financial reporting framework for cooperatives;
2. Differentiate the important provisions of the Philippine Financial Reporting Framework
(PFRF) for Cooperatives and the Philippine Financial Reporting Standards; and
3. Determine whether a financial statement of a cooperative is appropriately stated in
accordance with the PFRF for Cooperatives.

INTRODUCTION

By now, after having undergone all of your intermediate accounting courses, you are already
familiar with financial statement preparation in accordance with the provisions of the Philippine
Financial Reporting Standards. This time, however, we will discuss the financial reporting for
cooperatives. Financial reporting for cooperatives is slightly different than those for non-
cooperative entities. It does not entirely follow the requirements of neither the Philippine
Financial Reporting Standards (PFRS) nor the PFRS for SMEs. The financial reporting
requirements covering cooperatives in the Philippines is called the Philippine Financial Reporting
Framework (PFRF) for Cooperatives.

The PFRF for cooperatives applies to all cooperatives registered with the Cooperative
Development Authority, regardless of size, except:

1. Cooperative banks
 These are mandated to apply full PFRS by the Bangko Sentral ng Pilipinas, but
taking into consideration Cooperative laws, rules, regulations and principles.

2. Cooperatives engaged in insurance

 These are required to follow the framework prescribed by the Insurance
Commission.

3. Electric cooperatives
 These cooperatives use the financial reporting framework required by the
National Electrification Administration (NEA).

The PFRF for cooperatives is effective for 2016 audited financial statements as per CDA MC
2015-06. An amended PFRF for cooperatives was issued in 2022 per CDA MC 2022-25.

This module is divided into three parts:

1. Background on cooperatives
2. Financial statements for cooperatives
3. PFRF for Cooperatives provisions for specific accounts balances and transactions

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BACKGROUND ON COOPERATIVES

A cooperative is an autonomous and duly registered association of persons, with a common

bond of interest, who have voluntarily joined together to achieve their social, economic and
cultural needs and aspirations by making equitable contributions to the capital required,
patronizing their products and services and accepting a fair share of risks and benefits of the
undertaking in accordance with the universally accepted cooperative principles.

Types of Cooperatives

1. Credit cooperative
 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 and other related financial services to its members for productive and
provident purposes

2. Consumer cooperative
 The primary purpose is to procure and distribute commodities to members and
non-members

3. Producers cooperative
 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 of and for the account of the cooperative, shall be deemed a
product of the cooperative and its members

4. Marketing cooperative
 One which engages in the supply of production inputs to members and markets
their products

5. Service cooperative
 One which engages in medical and dental care, hospitalization, transportation,
insurance, housing, labor, electric light and power, communication, professional
and other services

6. Multi-purpose cooperative
 Combines two (2) or more of the business activities of these different types of
cooperatives

7. Advocacy cooperative
 A primary cooperative which promotes and advocates cooperativism among its
members and the public through socially-oriented projects, education and
training, research and communication, and other similar activities to reach out to
its intended beneficiaries

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8. Agrarian reform cooperative

 One organized by marginal farmers, majority of which are agrarian reform
beneficiaries for the purpose of developing an appropriate system of land tenure,
land development, land consolidation or land management in areas covered by
agrarian reform

9. Cooperative bank
 One organized for the primary purpose of providing a wide range of financial
services to cooperatives and their member

10. Dairy cooperative

 One whose members are engaged in the production of fresh milk which may be
processed and/or marketed as dairy products

11. Education cooperative

 One organized for the primary purpose of owning and operating licensed
educational institutions, notwithstanding the provisions of Republic Act No.
9155, otherwise known as the Governance of Basic Education Act of 2001

12. Electric cooperative

 One organized for the primary purpose of undertaking power generation,
utilizing renewable resources, including hybrid systems, acquisition and operation
of sub transmission or distribution to its household members

13. Financial service cooperative

 One organized for the primary purpose of engaging in savings and credit services
and other financial services

14. Fishermen cooperative

 One organized by marginalized fishermen in localities whose products are
marketed either as fresh or processed products

15. Health services cooperative

 One organized for the primary purpose of providing medical, dental, and other
health services

16. Housing cooperative

 One organized to assist or provided 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

17. Insurance cooperative

 One engaged in the business of insuring life and property of cooperatives and
their members

18. Transport cooperative

 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 RA 9520
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19. Water service cooperative

 One organized to own, operate and manage water systems for the provision and
distribution of potable water for its members and their households.

20. Workers cooperative

 One organized by workers, including the self-employed, who are at the 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

21. Other types of cooperatives as may be determined by the Authority

FINANCIAL STATEMENTS FOR COOPERATIVES

Cooperatives shall present a complete set of financial statements at least annually. At least one-
year comparative financial statement and note data shall also be presented.

The financial statements of cooperatives are as follows:

1. Statement of Financial Condition

 This is similar to the statement of financial position under PFRS.

 A current/noncurrent distinction is normally required for presentation unless the

liquidity basis is more reliable and relevant.

 Minimum information in the statement of financial condition:

a. Cash and cash equivalents
b. Loans and receivables
c. Financial assets (excluding amounts under a, b, i, j, and k)
d. Inventories
e. Property, plant and equipment
f. Investment property
g. Intangible assets
h. Biological assets
i. Investment in associates
j. Investment in joint ventures
k. Investment in subsidiaries
l. Trade and other payables
m. Interest on share capital payable
n. Patronage refund payable
o. Due to unions and federations
p. Financial liabilities (excluding amounts under l, m, n, o and s)
q. Liabilities and assets for current tax
r. Deferred tax liabilities and deferred tax assets

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s. Provisions
t. Members’ equity
u. Donations and grants
v. Statutory funds (Reserve Fund, Education and Training Fund, Optional
Fund, Community Development Fund)
w. Revaluation surplus
x. Net unrealized gain or loss on investments
y. Restricted capital for surety
z. Fund balance

2. Statement of Operations

 This presents the cooperative’s financial performance for the period. This is
similar to the statement of comprehensive income under PFRS (Take note, however,
that there is no other comprehensive income in cooperatives.)

 Minimum information in the statement of operations

a. Revenue
b. Cost of sales or services
c. Finance cost
d. Selling or marketing cost
e. Administrative cost
f. Other income or expense
g. Net surplus before income tax
h. Tax expense, if applicable
i. Net surplus for allocation of statutory funds and interest on share capital
and patronage refund (ISCPR)
j. Allocation of net surplus and ISCPR
 The allocation of net surplus shall be presented in the Statement
of Operations.
 The balance of each of the statutory funds after allocation shall
be incorporated in the presentation of the Statement of Financial
Condition for the year then ended.

 Accounts peculiar to cooperatives affecting the Statement of Operations.

A cooperative shall disclose the following income and expenses separately:

Other income accounts:

a. Project subsidy – amount deducted from the Project Subsidy fund to subsidize project
expenses. This is presented as a contra account to Subsidized Project Expenses in the
Statement of Operations.
b. Optional fund subsidy – amount deducted from Optional Fund to subsidize
depreciation of PPE funded by Optional Fund.
c. Donations/grants subsidy – amount deducted from Donation and Grant to subsidize
depreciation on PPE funded by donation/grant.
d. Education and training fund subsidy – amount deducted from CETF to subsidize
depreciation on PPE funded by CETF-Local
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e. CETF subsidy (for federations only)

Other expense accounts:

a. Provision for CGF (KBGF) – amount set up at the option of the coop for the provision
of CGF (KBGF). This is not part of the statutory fund.
b. Members’ benefit expense
c. Incidental expenses
d. General assembly meeting
e. Affiliation fee
f. Social and community service expense
g. School support fund
h. Subsidized project expense – portion of the Project Subsidy Fund expended for
training, salaries and wages and other activities.

 Revenues or sales made to members and non-members are disclosed in the

financial statements.

3. Statement of Changes in Equity, Statutory Funds and Donations and Grants

 Should show a reconciliation between the carrying amount at the beginning and
the end of the period, separately disclosing changes resulting from

a. The amounts of investments and withdrawals by members, showing

separately issued shares, and treasury share transactions

b. Donations and Grants

c. Movements in Statutory Funds (includes allocation of net surplus as reconciled

with amounts per Statement of Operations)

d. Movements in Revaluation Surplus

e. Movements in Net Unrealized Gains/Losses on Investments

f. Movements in Restricted Capital for Surety

g. Movements in Fund Balances

4. Statement of Cash Flows

 Cash flows are divided into operating, investing and financing activities.
 Operating activities may be presented using either the direct or indirect approach.
 According to Section 7 of PFRF for Cooperatives, the cooperative shall present
separately cash flows from the following as part of operating activities:
o Interest on share capital
o Patronage refund paid and received
o Dividend received
o Other interest paid and received

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 According to Section 3.3 of PFRF for Cooperatives, the following are examples
of cash flows arising from financing activities:
o Cash payment for interest on share capital and patronage refund
o Utilization of statutory fund

 You may have noted the conflicting provisions regarding treatment of payment for interest on
share capital and patronage refund in the above discussion. According to section 3.3 of the
PFRF for cooperatives, this is an example of cash flow from financing activities. However,
Section 7, by using the word “shall”, requires the cooperatives to present this under operating
activities. Since section 3.3 only cites examples while Section 7 provides a requirement, we will
follow the provisions under Section 7 and present cash payment for interest on share capital and
patronage refund under operating activities.

5. Notes to the Financial Statements

 Presents information about the basis of preparation of the financial statements

and the specific accounting policies used, disclose information required by the
framework not disclosed elsewhere in the financial statements and provide
information that is not presented elsewhere in the financial statements but is
relevant to an understanding of any of them.

 A cooperative normally presents the notes to the financial statements in the

following order:
a. A statement that the financial statements have been prepared in compliance
with the Philippine Financial Reporting Framework for Cooperatives
b. A summary of significant accounting policies applied
c. Supporting information for items presented in the financial statements, in the
sequence in which each statement and each line item is presented
d. Any other disclosures

 The cooperative shall disclose the following in the notes:

a. Registration number
b. Date of registration
c. The address of its registered office (or principal place of business, if
different from the registered office address)
d. A description of the nature of the cooperative’s operations and its
principal activities
e. Area of operations

Assessment Task 01
Which of the following statements is correct?
A. PFRS for SMEs is the financial reporting framework applicable to cooperatives when they fall
under the small and medium entity category.
B. The financial statements for cooperatives include the statement of financial position,
statement of comprehensive income, statement of changes in equity and the statement of
cash flows.
C. Both A and B
D. Neither A nor B
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PFRF FOR COOPERATIVES PROVISIONS FOR SPECIFIC ACCOUNT

BALANCES AND TRANSACTIONS

Accounting Policies, Errors and Estimates

 Change in accounting policy is accounted for currently.

 Accounting estimates are accounted for currently and prospectively.

 Accounting errors are accounted for in the current period.

o Correction of the error will affect the current year financial statements only.
The entity will use the Prior Period Adjustment account in the Statement of
Operations.)

Basic Financial Instruments

a. Cash
 Cash is stated at face value. Cash denominated in foreign currency should be
translated into Philippine Peso using the closing rate as of the reporting date.

b. Debt instruments (such as account, note or loan receivable or payable)

 Receivables
o Loans receivable are presented net of unearned interest
o Accounts receivable are presented at undiscounted amount
o Impairment loss on receivables is determined using the Portfolio-at-Risk
approach.

c. Investment in publicly traded securities

d. Investment in non-publicly traded securities

Basic financial instruments – initial recognition

A cooperative shall recognize a financial asset or a financial liability only when the cooperative
becomes a party to the contractual provisions of the instrument.

Basic financial instruments – initial measurement

When a financial asset or financial liability is recognized initially, a cooperative shall measure it at
the transaction price (including transaction costs except in the initial measurement of financial
assets and liabilities that are measured at fair value through profit or loss) unless the arrangement
constitutes, in effect, a financing transaction.

If the arrangement constitutes a financing transaction, the cooperative shall measure the
financial asset or financial liability at the present value of the future payments discounted at a
market rate of interest for a similar debt instrument.

Basic financial instruments – subsequent measurement

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a. Debt instruments – at amortized cost

b. Short-term debt instruments – undiscounted amount

c. Financial assets invested in publicly-traded securities with quoted price in the form of
debt or equity securities that are held for trading – at fair value with changes in fair
value recognized in profit and loss

d. Financial assets invested in publicly-traded securities with quoted price in the form of
debt of equity securities not intended to be disposed within 12 months – at fair value
with changes in fair value recognized in equity

e. Investments in non-publicly-traded securities, mutual funds, as well as other externally

managed funds – at cost less impairment

Basic financial instruments – dividends

The cooperative shall recognize dividends and other distributions received from the equity
investment as income without regard to whether the distributions are from accumulated profits
of the investee arising before or after the date of acquisition.

Stock dividends, however, do not involve transfer of resources from the investee. Accordingly,
stock dividends received shall not be recognized as income.

Inventories

 Measured at the lower of cost and net realizable value (estimated selling price less costs to
complete and sell)

 Cost is determined using

o Specific identification – for items that are not ordinarily interchangeable
and goods/services produced and segregated for specific projects
o FIFO or weighted average for others

 Inventory cost includes costs to purchase, costs of conversion and costs to bring the
asset to present location and condition

Investment in Associates, Joint Ventures, Subsidiaries

 These shall be accounted for using the cost model (cost less any accumulated
impairment losses).
o Note: This requires auditors to test for impairment, as the model encourages cooperatives not to
take into consideration losses of their investee.

Investment Property

 These shall be accounted for initially at cost, and subsequently at cost less accumulated
depreciation and accumulated impairment losses.

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 This is to be presented as a separate line item in the Statement of Financial Condition.

Property, Plant and Equipment

 Cost model – cost less accumulated depreciation and impairment

 Revaluation model – this is allowed for land only and subject to guidelines issued by the
Authority.
 Appraisal increase shall be classified as revaluation surplus under the equity section

Intangible Assets

 All costs incurred to internally develop intangible assets such as research and
development costs are charged to expense.

 Intangible assets must be measured using cost-amortization-impairment model.

 Revaluation of intangible asset is not permitted

 All intangible assets are considered to have a finite life. If unable to estimate the useful
life of an intangible asset, the life is presumed to be 10 years.

Leases

 Leases are either finance or operating leases.

 Finance leases result in substantially all the risks and rewards incidental to ownership
being transferred to the lessee, while operating leases do not.

 Operating lease – expensed out

 Finance lease – capitalized

 Note that any change or development in PFRS or PFRS for SMEs regarding leases will
not affect cooperatives unless the CDA issues a memorandum circular adopting such
change.

Provisions and contingencies

Provisions are recognized only when

1. there is a present obligation as a result of a past event,
2. it is probable that the entity will be required to transfer economic benefits, and
3. the amount can be estimated reliably.

Contingent liabilities are not recognized as liabilities. They are disclosed if reasonably possible or
probable but not estimable.

Contingent assets are not recognized as assets. These are disclosed if probable.
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Revenue recognition

Sale of goods and services – accrual

Interest Income for Savings and Credit Cooperatives – interest is recognized when earned AND
received.

Donations and Grants

 This refers to an assistance by another entity in the form of a transfer of resources to a

cooperative in return for past or future compliance with specified conditions relating to
the operating activities of the cooperative.

 Recognized in equity when received and measured at fair value of asset received

 Even donations for working capital purposes shall remain as equity.

 When a donation/grant is in the form of a depreciable asset, any donation/grants initially

recognized in equity shall be recognized in profit or loss over the useful life of the
depreciable asset. The reporting entity will use the “Donation and Grants Subsidy”
account to offset depreciation expense.

 Reported as a separate line item in the Statement of Financial Condition

Borrowing Costs

 A cooperative shall recognize all borrowing costs as an expense in the period they are
incurred.

 Borrowing costs that are directly attributable to the acquisition, construction or

production of a qualifying asset may be capitalized as part of the cost of that asset. The
amount of borrowing costs eligible for capitalization should be determined in accordance
with this framework.

 Such borrowing costs are capitalized as part of the cost of the asset when it is probable
that they will result in future economic benefits to the cooperative and the costs can be
measured reliably.

 Only those borrowing costs applicable to the borrowings of the entity may be capitalized.
When the carrying amount or the expected ultimate cost of the qualifying asset exceeds
its recoverable amount or the net realizable value, the carrying amount is written down or
written off in accordance with the requirements of other international and/or national
accounting standards. In certain circumstances, the amount of the write-down or write-
off is written back in accordance with those other standards.

 Capitalization of borrowing costs should be suspended during extended periods in which

active development is interrupted, and expensed. Borrowing costs may be incurred
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during an extended period in which the activities necessary to prepare an asset for its
intended use or sale are interrupted. Such costs are costs of holding partially completed
assets and do not qualify for capitalization.

 Issue on borrowing costs: How to separate borrowing costs used in operations and used
for qualifying assets?

o Cooperatives must be able to segregate which part of the borrowings were used
for the qualifying asset and auditors must perform substantive tests to validate
such.

o Take note that if the interest incurred was for the purchase of an asset on which
income may be readily derived, the related interest should be expensed as
incurred (matching principle).

Impairment of Assets

Inventories
 Write down, in profit or loss, to lower of cost and selling price less costs to complete and sell.

All other assets

 Write down, in profit or loss, to recoverable amount, if recoverable amount is below carrying
amount.

When circumstances that led to the impairment no longer exist, the impairment is reversed
through profit or loss in the Statement of Operations.

Post-Employment Benefits: Defined Benefit Plans

 If able, without undue cost or effort, the cooperative shall use the projected unit credit
method to measure its defined benefit obligation and related expense
 Vested past service costs are recognized immediately in the Statement of Operations
 Unvested past service cost shall be amortized over the remaining vesting period
 Actuarial gains or losses are recognized immediately in the Statement of Operations

Foreign Currency Transaction

 Foreign currency transaction gains and losses are recognized in the Statement of
Operations

 Report Cash in Bank held in foreign currency at the amount in Philippine peso using the
closing rate at the end of the reporting period.

Events After the End of the Reporting Period

Events after the end of the reporting period are classified as

1. Adjusting events
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 Those that provide evidence of conditions that existed at period end

2. Non-adjusting events
 Those that are indicative of conditions that arose after period end

Related Party Disclosure

 Disclose parent-subsidiary relationships, including the name of the parent and (if any)
the ultimate controlling party.

 Disclose key management personnel compensation in total for all key management.

 Disclose the following for related party transactions:

o Amount of the transaction

o Provisions for uncollectible receivables
o Any expense recognized during the period in respect of an amount owed by a
related party

Specialized Activities – Agriculture

 Biological assets are measured at cost less accumulated depreciation and impairment
 At harvest, agricultural produce is to be measured at cost

Specialized Activities – Extractive Activities (example: mining)

A cooperative using this framework that is engaged in the exploration for, evaluation or
extraction of mineral resources (extractive activities) shall account for expenditure on the
acquisition or development of tangible or intangible assets for use in extractive activities.

When a cooperative has an obligation to dismantle or remove an item, or to restore the site, such
obligations and costs are accounted for in accordance with Section on Provisions and Contingences.

Statutory Funds

This consist of:

1. Reserve fund
 Shall be used for the stability of the cooperative and to meet net operating losses in
its operation. Net losses incurred for the period shall be charged against the reserve
fund. The GA may decrease the amount allocated to the reserve fund when the
reserve fund already exceeds the share capital.
 Direct charging of uncollectible, write-offs or inventory losses is prohibited.
 This shall not be utilized for investment, other than those allowed in the Cooperative
Code. Such sum of the reserve fund in excess of the share capital may be used
anytime for any project that would expand the operations of the cooperative upon
the resolution of the GA.
 Upon dissolution, this shall not be distributed to members. The GA may resolve to:

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o establish a usufructuary trust fund for the benefit of any cooperative

federation or union to which the cooperative is affiliated; or
o donate, contribute or otherwise dispose of the amount for the benefit of the
community where the cooperative operates.
 A corresponding fund should be set up either in the form of time deposit with local
banks or government securities.

2. Cooperative Education and Training Fund

 Shall be used for the training, development and other similar cooperative activities
geared towards the growth of the cooperative movement.
o Allocation:
 ½ to be spent by the cooperative for their own education and training
purposes
 ½ may be remitted to a union or federation chosen by the
cooperative
 Upon the dissolution of the cooperative, the unexpended balance of the fund
appertaining to the cooperative shall be credited to the cooperative education and
training fund of the chosen union or federation.

3. Community Development Fund – shall be used for projects or activities that will benefit the
community where the cooperative operates.

4. Optional Fund
 shall be used for acquisition of land and/or building, machinery and equipment,
replacement fund for PPE, members’ benefits, and other necessary funds.
 A corresponding fund should be set up with local banks and shall be used in
accordance with approved plans and budget.

 The manner of distribution of Net Surplus into its Statutory Funds, Interest on Share Capital
and Patronage Refund, shall be presented on the Statement of Operations.

 Movements in the Statutory Funds (i.e., Allocation from Net Surplus and Deductions), shall
be accounted for in the Statement of Changes in Equity.

 Statutory Funds shall be allocated in accordance with Article 86 of RA 9520 and the
Cooperative’s By-Laws.
a. RESERVE FUND
i. At least 10% of net surplus
ii. Note: For new cooperatives, reserve fund should be at 50% of net surplus for
the first 5 years.

b. COOPERATIVE EDUCATION & TRAINING FUND

i. Not more than 10%-
1. ½ to be recorded as DUE TO UNIONS AND FEDERATIONS
2. ½ to be recorded as COOPERATIVE EDUCTION AND
TRAINING FUND-LOCAL

c. COMMUNITY DEVELOPMENT FUND

i. Not less than 3%
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d. OPTIONAL FUND
i. Not more than 7%

In no case shall the total community development fund and optional fund be more than 10%.

Distribution of net surplus – recovery of prior years’ losses

 Since the reserve fund account is intended, among others, to meet operational losses, all
accumulated losses incurred by the cooperatives in their business operations shall
therefore be charged against this Fund which shall be decided upon by the Board of
Directors.

 All charges against the Reserve Fund shall be subsequently be offset by the following
modified allocation and distribution of net surpluses until such time the debit balance of
the Reserve Fund account shall have been offset:

o 25% shall be declared as interest on share capital and patronage refund

o CETF – ½ of the per cent as provided in the by-laws
o Community Development Fund – ½ of the per cent as provided in the by-laws
o Optional Fund – one half of the per centum as provided in the by-laws
o Reserve Fund – remaining amount of net surplus

Assessment Task 02
Determine whether each of the following statements is True or False?
1. Actuarial gains and losses on retirement benefits is recognize in the Statement of Operations
and not directly in equity.
2. Interest income for savings and credit cooperatives is recognized when earned.
3. Investment property is measured at cost or fair value whichever is more relevant and reliable.
4. Biological assets are measured at fair value.
5. At point of harvest, agricultural produce are measured at cost.

ANSWERS TO ASSESSMENT TASKS

1. D
2. 1. True
2. False
3. False
4. False
5. True

REFERENCES

www.cda.gov.ph
CDA Memorandum Circular 2022-24 – Revised Chart of Accounts for Cooperatives
CDA Memorandum Circular 2022-25 – Amended Philippine Financial Reporting Framework for
Cooperatives

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