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Difficulty: MediumCooperative Societies: Types, Principles, Features, and Operation

A Cooperative Thrift and Credit Society recorded a net operating surplus at the end of its financial year. If two members hold equal share capital, but one member transacted significantly more business with the society during the year than the other, how is this net surplus primarily distributed to them?

  1. The surplus is shared primarily as patronage dividends calculated according to the volume of business transacted by each member with the society.Answer
  2. B
    The surplus is shared strictly in equal amounts because both members hold equal share capital in the society.
  3. C
    The surplus is allocated based on the total number of votes cast by each member during the Annual General Meeting.
  4. D
    The surplus is transferred in full to the regulatory ministry of commerce as a statutory tax levy.

Answer

The surplus is shared primarily as patronage dividends calculated according to the volume of business transacted by each member with the society.
A core Rochdale principle of cooperative societies is 'Dividend on Patronage'. Under this principle, the net surplus generated by the society is shared among members based on the proportion of business or volume of transactions each member conducted with the cooperative during the trading period. Consequently, the member with higher transaction volume receives a higher dividend despite having equal share capital.

Step-by-Step Solution

1
Identify the key economic principles governing cooperative operations.
Cooperative societies operate on Rochdale principles, which mandate democratic control and equitable distribution of surplus.
Unlike joint-stock companies that reward equity capital, cooperatives exist to serve member-users.
2
Differentiate between return on capital and patronage dividend in a cooperative.
Interest on share capital is strictly limited, while the bulk of the net trading surplus is returned to members as a patronage refund/dividend based on usage.
Members who utilize the cooperative's services more contribute more to the generated surplus and are rewarded accordingly.

Key Concept

Patronage Dividend Principle in Cooperative Societies
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Topics

Cooperative Societies: Types, Principles, Features, and Operation

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