Financial Statement of the Cooperative Society

Financial Statement of the Cooperative Society

The Balance Sheet is also called the Financial Statement of the Cooperative Society and provides a picture of our Society’s financial status at the end of a particular financial year. The information provided in the Balance Sheet shows the financial result of management decisions.

Distribution of Financial statements should be done 14 days prior to the AGM. So that members can study and raise any query related financial figures reflected in the Statement, as members have the right, to know where their contribution is spent or invested by the Society, and the Committee should know how to study the Financial Statement and analyze it.

To start with, all the members and the Managing Committee should know the various components of the Financial Statement –

Income and Expenditure Statement
Balance Sheet

Components of Income and Expenditure Statement

Income side:

• Members’ contribution: The important item of income for housing society is the members’ contribution towards the maintenance charges.
• Interest from the bank: Interest income includes interest fixed deposits, interest from a savings bank account, and interest from members on arrears.
• Other income: This includes miscellaneous income received by the Society.

Expenditure side:

• Expenses related to the property of the Society: It includes electricity charges, property tax, water charges, NA tax, building insurance, etc.
• Expenses related to the maintenance of the Society: It includes Repairs and Maintenance-related expenses incurred for maintenance of the Society, which can be related to electrical work, plumbing work, repair and maintenance of interior and exterior of the Society
• Expenses related to the administration of the Society: It includes administrative expenses which are incurred for the day to day smooth functioning of the Society. For example, salary, security charges, conveyance, printing and stationery, accounting charges, audit, etc.

Components of Balance Sheet There are two components of a Balance Sheet:
(1) Assets (2) Liabilities
Assets are things of financial value that a housing society owns, such as cash balance, bank balance, investments in FDs, dues from members, fixed assets of the Society, and TDS receivable from parties.
Liabilities are the financial obligations of a housing society. They are the amounts payable to others in the future. For example, the Society receives a bill for electricity in the month of March, which is payable in April. Then this is a liability on the Society.

What should a Managing Committee view in the Income and Expenditure Statement?

• In the Income and Expenditure Statement, first, refer to the Income side. Under the column ‘Members’ Contribution, the Committee should compare the previous year’s figure and the current year’s figure.
• The Committee should review whether there is any income that was not collected in the previous year but has been collected in the current year. For example, rent income was not received in the previous year but has been received in this year
• Review the interest received on FDs from the bank. If the interest received is less in comparison to the previous year. The Committee should check the reason for the same.
• Committee members should know the bifurcation of miscellaneous income i.e. what the different sources of miscellaneous income are.
• Under the Expenditure column, if expenses incurred in the current year are more as compared to the previous year and if this increase is not due to inflation, then the ledger of that particular head should be viewed and analyzed. For example, if in the previous year, the expenditure on Security was Rs. 50,000/- but in the current year, it has drastically increased in Rs. 90,000/-. Is it due to an increase in the security staff or due to the appointment of any other security agency?
• In this manner, the Committee should view each expenditure head. Everybody will accept a small increase in expenses, the increase is above the limit, then the Committee is answerable to the members. Thus, it is necessary to review and analyze all the expenses before finalizing the Balance Sheet.
• Check whether the Society has paid the Education Fund and the Federation’s subscription fees and utilized Education Fund.
• The Committee should see if any expenses made by the Society on behalf of the members are billed and collected from the members, otherwise, the expense will have to be borne by the Society. All the expenses made by the Society should be rightly recorded and claimed
• If there is an excess of Income over Expenditure, then, as per Bye-Law no. 148 (a), 25% of the net profit shall be placed at the credit of the Reserve Fund of the Society.

What should a Managing Committee view in the Balance Sheet statement?

1. In a Balance Sheet, first view the Assets side. A commonly asked question about the Balance Sheet is regarding the good bank balance of the Society. If the bank balance is much more than the liability of the Society, then the surplus income should be invested in Fixed Deposits. The reason is that the rate of interest is lesser in the Savings account in comparison to Fixed Deposits. Thus, if the Society is assured that the bank balance will not be of any use for a certain specific period, then it should be converted into a short-term FD. Another option is a Sweep Account or Flexi Account. Contact your bank for more information.
2. Another important head to be reviewed is a Sinking Fund Deposit. The Sinking Fund Deposit should match with the sinking amount collected from members.
3. In the case of TDS deduction by the bank, the Committee should see that they collect Form 16 A from the bank and see to it that TDS is claimed by filing Income Tax Returns.
4. Under the Liabilities side, review the General Reserve Fund. Check whether, in case of the transfer of a flat, the transfer premium has been collected (Rs. 25000/- is the maximum, Rs. 500/- as share transfer fee and Rs. 100/- as membership fee).
5. If the liability is carried forward for more than two years, then the Committee should know the reasons why the payment has not been made so far, for example, when retention money is kept on the Liability side for years. Thus, if it is not payable, then write off the amount or treat it as an income of the Society.
6. The Committee should see that these liabilities are paid in time.
7. In case the Society is waiving off members’ dues or any kind expense, then the Committee should know the reason for the same.

There are annexures attached to the Financial Statement
1. Members Arrears list
2. Fixed Deposit details
3. Fixed Asset details

From the Arrears list, the Committee gets a review of the arrears receivable from members. This list helps the Managing Committee to take recovery action against defaulters. The Fixed Deposit details contain details like the principal amount rate of interest, maturity amount, maturity date, and interest accrued. Thus, at a glance, the Committee can view the details of the FD.

Fixed Assets are assets that society owns, which get used up over time and so, their value gets depreciated. The rate of depreciation is different for different types of assets -it is 10% on furniture and fixtures, 15% on plant and machinery, 60% on the computer, printer and software, 15% on water pumps, or any kind of pumps. The reason behind the comparison of all components is to know whether the reason for an increase or decrease in income of the society is due to practical reasons or if there is any mismanagement. For comparison, the Committee may refer to the books of accounts and keep all answers to the queries prepared.

The Committee should write an instruction in the notice of the AGM, asking the members to give their queries related to the Financial Statement at least five days before the AGM. This would help the Committee to study and prepare the answers. In addition to this, the Committee should plan activities for the collection of arrears from defaulters and make a budget that should be presented for approval in the AGM.

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