A group of retail traders in Ibadan established a Cooperative Consumers' Society to purchase manufactured goods in bulk directly from producers. At the end of the financial year, a disagreement arose among members regarding the allocation of financial returns. Which of the following correctly describes how capital reward and net surplus must be treated according to cooperative principles?
- Interest on share capital is restricted to a limited fixed rate, and the remaining net surplus is distributed in proportion to the value of purchases made by each member.Answer
- BDividends are distributed strictly in proportion to the number of shares held by each member, while trading surplus is held entirely as indivisible reserves.
- CInterest on share capital varies directly with annual trading profits, while net surplus is divided equally among all registered members regardless of purchases.
- DShare capital yields no return, and the entire net surplus is distributed based on each member's length of membership in the society.
Answer
Interest on share capital is restricted to a limited fixed rate, and the remaining net surplus is distributed in proportion to the value of purchases made by each member.
In accordance with Rochdale cooperative principles, share capital in a cooperative society receives only a limited and fixed rate of interest. The major portion of the net trading surplus is returned to members as a patronage dividend calculated strictly according to the value or volume of purchases each member made through the society during the financial year.
Step-by-Step Solution
Key Concept
Limited Interest on Capital and Patronage Dividend Principles
Estimated Time:1m 30s