Co-operative Society

A co-operative society is a non-profit organisation that is owned and controlled by its members, who are
also its customers. They utilise the services of the society and therefore provides its income.

Principles of co-operatives
1. Open membership: no restriction to membership based on social, political, racial or religious
grounds.
2. Democratic control: each member has a say in the operations regardless of the number of
shares owned.
3. Limited interest on capital: since the main focus is to provide a service, interest on shares is
minimal.
4. Patronage refund: returns distributed to members are fairly carried out
5. Continuous education: all members are entitled to be educated on the general operations of
the society
6. Co-operation: working in the best interest of its members by working alongside other co-
operatives.

Types of co-operatives

There are 2 types of co-operatives:

1. Service co-operatives
2. Production co-operatives

The members of a service co-operative buy and sell from it. Example transport co-ops, insurance,
housing etc.

The members of a production co-operative not only trade with it but are also employed by it. Example
agricultural, entertainment etc.

Raising finance
The primary source of finance is through its members purchasing goods and service. Other ways of
raising financing include:
Sale of shares
Registration fees
Grants
Donations
Interest on deposits
Journal entries to record opening capital of a co-operative society

GENERAL JOURNAL
Receipts and Payments 1 500 000
Share Capital Account 1 500 000
Funds raised from issuing 15000 shares
@$100 each

Q1. A group of farmers decided to form a co-operative society called the Western Farm Co-operative.
They will provide marketing advice and services to its members. There was 8000 members and each
member had to pay $50 for an opening share.
a. Prepare the opening journal to record the transaction
b. Identify the type of co-operative.

Solution:
a.
GENERAL JOURNAL
Receipts and payments account 400 000
Share capital 400 000
Funds raised from issuing 1 $50 share to each
of the 8000 members

b. Service Co-operative

Q2. The City Builders Co-op has been newly formed with a membership of 50 builders. Each member has
14000 shares at the price of $1 per share.
a. Prepare the opening journal entries
b. Identify the type of co-operative this is.

GENERAL JOURNAL
Receipts and payments account 700 000
Share capital 700 000
Funds raised from issuing 14000 $1 shares to
each of the 50 members

Production Co-operative
End of Year Financial Statements

A co-operative operates primarily to fulfil the needs of its members not to make a profit, making it a
non- profit organisation. However, since the members buy shares and receive dividends in addition to
being owned by multiple persons; the financial statements must reflect the same. Therefore the
financial statements prepared by a co-operative are:
1. Income and Expenditure Account
2. Appropriation Account
3. Statement of Financial Position
Statutory Reserve: this reserve is a transfer of a fixed percentage of any net or surplus income. This is a
legal requirement.

Honorarium: a voluntary payment to the members of the management committee as a token of

appreciation for their services.