FINANCIAL MANAGEMENT

FOR
COOPERATIVES
ABC
MULTI-PURPOSE COOPERATIVE

Address
Date

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 “The beautiful thing
about learning is that
nobody can take it away
from you.”
B.B. King

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Seminar Objectives

To provide competent
recommendations and
Be able to provide and impart
financial solutions to the
both the basic knowledge and
future vanguards of our local
higher-level study of Financial
economy and to sustain their
Management to Cooperatives
economic growth leading to
our nation's progress.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Financial Management
MC2015-09-revised-guidelines-implementing-the-
new-training-requirements-of-coop-officers
Concepts Of Cooperative Financial
Management 1
Financial Standards 6
Annual Plans And Budget 1
Total Hours 8

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Financial Management

CONCEPTS OF COOPERATIVE
FINANCIAL 1hr
 Scope of Financial Management
 Sources & Uses of Funds

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Financial Management
FINANCIAL STANDARDS 6hrs
 Reading and understanding of
Statement of Operation,
Statement of Financial Condition,
Cash Flow Statement,
Statement of Changes in Equity and
Notes to Financial Statements
 Tools and Techniques of Financial Analysis
 Monitoring Financial Performance for Sustainability
 P.E.S.O.S and P.I.S.O.: Meaning & Interpretation
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Financial Management
ANNUAL PLANS AND BUDGET 1hr
 Scope of Budgeting
 Budgeting Process (Including Roles &
Responsibility of Board and GM)
 Approval of Plans and Budget (Powers of the
General Assembly)
 Implementation and Monitoring of the Plans
and Budget
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 What’s the most pressing
issue of your cooperative?
Why?
Financial Matter

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Finance may be defined as the
art and science of managing
money. It includes financial
service and financial
instruments.
Finance also is referred as the
WHAT IS provision of money at the time
Finance? when it is needed.

Finance function is the

procurement of funds and
their effective utilization in
business concerns.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
  the act or art of
managing : the conducting
or supervising of
something (such as a
business)

What is judicious (done with good

Management? judgment or sense) use of
means to accomplish an
end.

 the collective body of

those who manage or
AGRIZKAYA Coop Federation direct an enterprise.
PELAYO & BARRIENTOS CPAs
 Money & Capital
Markets
Areas of Finance Investments
Financial
Management

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

  Capital Markets: study of
financial markets and
institutions, which deals
with interest rates, stocks,
bonds, government
Areas of Finance
securities, and other
marketable securities. It
also covers Government
Reserve System and its
policies.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

  Investments: study of
security analysis,
Areas of Finance portfolio theory, market
analysis, and behavioral
finance.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

  Financial Management:
corporate finance, which
deals with decisions
related to how much and
what types of assets a
firm needs to acquire, how
Areas of Finance a firm should raise capital
to purchase assets, and
how a firm should do to
maximize its
shareholders wealth –
the focus of this seminar.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
  Financial Management
means planning,
organizing, directing and
Financial controlling the financial
activities such as
Management procurement and
defined utilization of funds of the
enterprise. It means
applying general
management principles to
financial resources of the
enterprise.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Fundamental Functions of
Management

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 1. Planning - It is the basic
function of management. It
deals with chalking out a
Fundamental future course of action &
functions of deciding in advance the
management most appropriate course of
actions for achievement of
pre-determined goals.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 2.1. Organizing - It is the process
of bringing together physical,
financial and human resources and
developing productive relationship
amongst them for achievement of
organizational goals.
2.2.Staffing - It is the function of
Fundamental manning the organization structure
and keeping it manned. Staffing has
Functions of
assumed greater importance in the
Management recent years due to advancement of
technology, increase in size of
business, complexity of human
behavior etc.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 3. Directing or Leading -It is
that part of managerial function
which actuates the
organizational methods to
work efficiently for achievement
Fundamental of organizational purposes. It is
Functions of considered life-spark of the
Management enterprise which sets it in motion
the action of people because
planning, organizing and
staffing are the mere
preparations for doing the
work

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 4. Controlling - It implies
measurement of
accomplishment against the
standards and correction of
deviation if any to ensure
Fundamental achievement of organizational
functions of goals. The purpose of controlling
management is to ensure that everything
occurs in conformities with the
standards. An efficient system of
control helps to predict
deviations before they actually
occur.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 5. Decision Making - a
series of steps taken by an
individual to determine the
best option or course of
Fundamental action to meet their needs.
functions of In a business context, it is a
management set of steps taken by
managers in an enterprise
to determine the planned
path for business initiatives
and to set specific actions in
motion.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Where to
Financial Start?
Management

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Always start at
the point that
geared towards
financial management the achievement
of cooperative’s
vision

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 What is your
Cooperative’s
Vision?

financial management

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 1) The Largest
Ricemill
Cooperative in
Financial Northern Luzon
Management 2) Center of
Excellence in Luzon
3) Leading
Cooperative in
Cagayan Valley

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 1) Nourishing and
Nurturing
Families World
Financial Wide - SMFI
Management 2) “True Mint of
Wisdom” - NC

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Vision vs. Goals
The primary difference
between visions and goals is
action. Goals are action-
oriented that need to produce
Financial results and drive business
Management efficiency. A vision is an end
in itself. However, visions are
long-term while goals are
short-term. You continue to
define visions as you achieve
one goal after another.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Vision Vs. Objectives
A vision provides a
direction for your goals
while objectives define
your goals. It helps define
Financial strategies or steps you
Management need to take to achieve
goals. By fulfilling an
objective, you progress
toward your goals and
ultimately, your vision.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 How to Measure
Vision?

• Benchmarking
Financial
Management
• Rating/Standing
• Assets
• Members
• Equity per Member
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 OBJECTIVES OF FINANCIAL
MANAGEMENT

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

  To ensure regular and adequate
supply of funds

 To ensure adequate returns to

the members which will depend
OBJECTIVES OF upon the earning capacity of the
FINANCIAL cooperative.
MANAGEMENT
 To ensure optimum funds
utilization. Once the funs are
procured, they should be utilized
in maximum possible way at least
cost.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

  To ensure safety on
investment, i.e. funds should
be invested in safe ventures
so that adequate rate of return
can be achieved.
OBJECTIVES OF
FINANCIAL
MANAGEMENT  To plan a sound capital
structure -the should be
sound and fair composition of
capital so that a balance is
maintained between debt and
equity capital.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
OBJECTIVES
OF
FINANCIAL
MANAGEMEN
T

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 1. Profit Maximization - process business firms
undergo to ensure the best output and price
levels are achieved in order to maximize its
returns. Influential factors such as sale price,
production cost and output levels are adjusted
by the firm as a way of realizing its profit
goals.
OBJECTIVES 2. High Efficiency means performing tasks in a
OF FINANCIAL
MANAGEMENT
timely and cost effective manner typically via
simplified and standardized processes that
leverage technology and consolidation /
elimination of non core activities through
shared services / outsourcing
3. Proper Mobilisation related to proper
placement and utilization of assets or
resources
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 4. Reduce Risk
Risk is defined in financial terms
as the chance that an outcome or
investment's actual gains will
OBJECTIVES OF differ from an expected outcome
FINANCIAL
MANAGEMENT or return.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 4. Reduce Risk – can we
eliminate risk?

OBJECTIVES OF
FINANCIAL
MANAGEMENT

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 How to Manage Risk?
• Prioritize

• Buy Insurance

• Manage Liability
OBJECTIVES OF
FINANCIAL
• Implement a Quality Assurance Program
MANAGEMENT
• Limit High-Risk Customers

• Control Growth

• Appoint a Risk Management Team

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 4. Business Survival – going
concern an accounting term
for a cooperative that has the
resources to continue making
OBJECTIVES OF enough money to stay afloat
FINANCIAL
MANAGEMENT
for the foreseeable future.

6. Balance Structure –
capital mix of the
firm/cooperative - leverage

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Functions Of Financial
Management

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 1. ESTIMATION OF CAPITAL
REQUIREMENTS: A Finance
Manager has to make
estimation with regards to
capital requirements of the
cooperative. This will depend
Functions of Financial
upon expected cost and profits
Management and future program and
policies of a concern.
Estimations have to be made
in an adequate manner which
increases earning capacity of
enterprise.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 2. DETERMINATION OF
CAPITAL COMPOSITION: once
the estimation have been made,
the capital structure have to
Functions of Financial decided. This involves short-term
Management and long-term debt equity
analysis. This will depend upon
the proportion of equity capital a
cooperative is possessing and
additional funds which have to be
raised from outside parties.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 3. CHOICE OF SOURCES
OF FUNDS: Additional
funds to be procured, a
cooperative has many
Functions of Financial choices like:
Management (a)Issuance of shares,
(b)Loans from banks and
financial institutions, and
(c)Deposits to be invested
by members/other
cooperatives.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 4. INVESTMENT OF
FUNDS: the manager has
Functions of Financial
to decide to allocate funds
Management into profitable ventures so
that there is safety on
investment and regular
returns is possible.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 5. Disposal of surplus: The
net profits decision have to be
made management. This can
be done in two ways:
Functions of Financial a. Dividend declaration - It
Management includes identifying the rate
of dividends and patronage
refund.
b. Retained profits - The
volume has to be decided which
will depend upon expansional,
innovational, diversification plans
of the company.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
  Anticipating financial
needs
Functions of Financial
Management  Acquiring financial
resources

 Allocating funds in
business
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 SCOPE OF FINANCIAL
MANAGEMENT

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 1. INVESTMENT DECISIONS
- This includes investment in
fixed assets (called as
SCOPE OF
F IN A N C IAL
capital budgeting/capital
M A N AG E MEN T outlay). Investment in
current assets are also a
part of investment decisions
called as working capital
decisions.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 2. FINANCIAL DECISIONS -
They relate to the raising of
finance from various resources
SCOPE OF
F IN A N C IAL which will depend upon
M A N AG E MEN T
decision on type of source,
period of financing, cost of
financing and the returns
thereby.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 3. DIVIDEND DECISION - The finance
manager has to take decision with
regards to the net profit distribution.
Net profits of the Cooperatives are
generally divided into two:

SCOPE OF (a) Statutory Fund - Amount of earnings

F IN A N C IAL
M A N AG E MEN T
has to be finalized which will depend upon
future loss, expansion and diversification
plans of the enterprises.
(b) Interest On Share Capital And
Patronage Refund - Earnings which to be
distributed to Members.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Financing Decision
Cost of capital

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Capital Component – are items on
the balance sheet after asset portion

Example:
1. Debt
2. Preferred Shares
Financing
3. Member’s Equity
Decision

Cost of
Capital

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Component Cost

Example:
1. Debt at 10%
2. Preferred Shares 5%
Financing 3. Member’s Equity
decision 10%

Cost of Capital

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Cost of Debt Computation

After tax cost of Debt is use to

calculate the Weighted
Average Cost of Capital
Financing (WACC)
decision
Formula:
Cost of Capital
Cost of Debt = Kd(1-T)
Kd = interest rate of debt before
tax
T = Tax Rate
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Cost of Debt Computation

Formula: Cost of Debt = Kd(1-T)

Kd = interest rate of debt before tax
T = Tax Rate
Financing Example:
decision Debt rate is 10%
Tax rate 35%
Cost of Capital
Compute Cost of Debt
=10%(1-.35)
= 6.50%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Cost of Debt Computation

If a 5M project that will yield a 8% and it

will be finance by a debt of 11% what will
be your recommendation? Accept or
reject? Assuming that the tax rate is 35%.
Financing
decision
Compute Debt Cost of Capital
Cost of Capital =kd (1-T)
=11%(1-35%)
=7.15%

Decision 7.15% is lower than project’s

yield of 8%. Decision is to Accept the
project.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Cost of Debt Computation

Assuming that you accept the

project and made the loan.
On the 2nd year, there’s another
5M project that yield 8% that may
Financing be supported by13% debt. Are
decision you going to accept or not?

Cost of Capital Cost of Capital

=13%(1-35%)
= 8.45%

Accept or Reject?

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Cost of Debt Computation

The debt might be specific

purpose the flow is not. In deciding
whether to accept it or not is to
apply the weighted average cost
Financing of capital
decision
2 projects each cost 5M financed by
Cost of Capital debts with 11% & 13% interest rates

>>>>excel file

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Cost of Debt Computation

If Cost of Debt is
After-Tax, how could
Financing we compute in the
decision case of Cooperative,
Cost of Capital which most of the
cases are tax-exempt?

>>>excel file
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Financing Concept of Tax Savings or
decision Shield
Cost of Capital HOW?

>>>>excel file

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Cost of Preferred Shares

Formula:

Financing Dividend per share/Market

Decision Price per share

Cost of Capital Dividend is P10/share

Market Price P97/Share

=10/97
=10.30%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Cost of Capital Surplus &
Share Capital

Is there a cost in issuing

additional Share Capital?
Financing
Surplus Allocation as dividend
decision
and Patronage Refund.

Cost of Capital If, immaterial, apply Opportunity

Cost principle.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Investment decision
Capital Budgeting

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Capital Budgeting – the process
of planning expenditures on
assets whose cash flows are
expected to extend beyond one
year

Example of Capital
Investment Budget/Outlay
Decision 1. Building new Plant
2. New Warehouse
Capital 3. Purchase of Equipment
4. Upgrading Major Equipment
Budgeting 5. Enterprise Resource Planning
System installation/set-up
6. New Building

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Methods use in Evaluating
Capital Expenditures (CAPEX)

1. Payback
2. Discounted Payback
3. Net Present Value
Investment 4. Internal Rate of Return
Decision

Evaluation
Method

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 The payback period is the length of time it
takes to recover the cost of an investment or
the length of time an investor needs to reach
a breakeven point.
Shorter paybacks mean more attractive
Investment investments, while longer payback periods
decision are less desirable.
The payback period is calculated by dividing
payback the amount of the investment by the
annual cash flow.
Account and fund managers use the payback
period to determine whether to go through
with an investment.
One of the downsides of the payback period
is that it disregards the time value of money.
>>>excel
AGRIZKAYA Coop Federation file PELAYO & BARRIENTOS CPAs
 Required Rate of Return (RRR)
Investment
decision is the minimum acceptable
It also referred to as;
RRR
• Discount Rate
• Hurdle Rate
• Cost of Capital

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 The discounted payback period is used as
part of capital budgeting to determine which
projects to take on.
More accurate than the standard payback
period calculation, the discounted payback
Investment period factors in the time value of
money.
Decision
The discounted payback period formula
shows how long it will take to recoup an
Discounted investment based on observing the present
Payback value of the project's projected cash flows.
The shorter a discounted payback period
is, means the sooner a project or
investment will generate cash flows to
AGRIZKAYA Coop Federation cover the initial cost. PELAYO & BARRIENTOS CPAs
 Net present value (NPV) is used to
calculate the current value of a future
stream of payments from a company,
project, or investment.
To calculate NPV, you need to estimate
Investment the timing and amount of future cash
Decision flows and pick a discount rate equal to the
minimum acceptable rate of return.
NPV The discount rate may reflect your cost of
capital or the returns available on
alternative investments of comparable
risk.
If the NPV of a project or investment is
positive, it means its rate of return will be
above the discount rate.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 The internal rate of return
(IRR) is a metric used in
financial analysis to
estimate the profitability
of potential investments.
Investment IRR is a discount rate that
Decision
makes the net present
IRR value (NPV) of all cash
flows equal to zero in a
discounted cash flow
analysis.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 The internal rate of return (IRR) is the
annual rate of growth that an
investment is expected to generate.
IRR is calculated using the same
concept as net present value (NPV),
except it sets the NPV equal to zero.
Investment
The ultimate goal of IRR is to identify
Decision
the rate of discount, which makes
the present value of the sum of annual
IRR nominal cash inflows equal to the
initial net cash outlay for the
investment.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 IRR is ideal for analyzing capital
budgeting projects to understand and
compare potential rates of annual
return over time.
Investment In addition to being used by
Decision companies to determine which capital
projects to use, IRR can help investors
IRR determine the investment return of
various assets.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Investment Decision
Working Capital

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Working capital, also known as
net working capital (NWC), is the
difference between a
company’s current assets—such
Investment as cash, accounts
decision receivable/customers’ unpaid bills,
and inventories of raw materials
working capital
and finished goods—
and its current liabilities, such as
accounts payable and debts. It's a
commonly used measurement to
gauge the short-term health of an
organization.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Working capital is a measure of a company’s
liquidity and short-term financial health.

A company has negative working if its ratio of

current assets to liabilities is less than one (or
Investment if it has more current liabilities than current
decision assets).
Positive working capital indicates that a
working company can fund its current operations and
capital invest in future activities and growth.
High working capital isn’t always a good
thing. It might indicate that the business has
too much inventory, not investing its excess
cash, or not capitalizing on low-expense debt
opportunities.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 What is the treatment of the net movement
of Working Capital in Net Present Value?

Investment • if working capital increases year over

decision year, the company has tied up more cash
in working capital. This will be reflected
working as a reduction in cash in the NPV
capital calculation. If working capital decreases,
the company has released cash and so
this is reflected as an increase in cash in
the NPV calculation.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 • Accordingly, cash flow
decreases as accounts
Investment
receivables increase or accounts
decision payables decrease. Therefore, as
working capital changes from
working capital period to period, it has an effect
on cash flow, which in turn
affects NPV.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Financing Decision

Capital Structure Decision

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 What Is Capital Structure?
Capital structure is the particular
combination of debt and equity used
by a company to finance its overall
Financing operations and growth.
Decision Equity capital arises from ownership
shares in a cooperative and claims
Capital to its future cash flows and profits.
Structure Debt comes in the form of bond
Decision issues or loans, while equity may
come in the form of common stock,
preferred stock, or retained earnings.
Short-term debt is also considered to
be part of the capital structure.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Points to Consider

Capital structure is how a cooperative

funds its overall operations and growth.
Financing Debt consists of borrowed money that
Decision is due back to the lender, commonly
with interest expense.
Capital Equity consists of ownership rights in
Structure the cooperative, without the need to pay
Decision back any investment.
The debt-to-equity (D/E) ratio is useful
in determining the riskiness of a
company's borrowing practices.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Financing Decision

Leverages

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 What Is the Degree of Operating
Leverage (DOL)?

The degree of operating leverage

Financing (DOL) is a multiple that measures
Decision how much the operating income of
a company will change in response
Leverages to a change in sales. Companies
with a large proportion of fixed
costs to variable costs have higher
levels of operating leverage.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Formula and Calculation of
Degree of Operating Leverage.
Financing
Decision DOL = Contribution Margin
Operating Income
Leverages

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 For example, Cooperative A sells 500,000 products
for a unit price of Php6 each. The company’s fixed
costs are Php800,000. It costs Php0.05 in
variable costs per unit to make each product.

Qty Per Qty Total

Sales 500,000.00 6.00 3,000,000.00
Variable Cost 500,000.00 0.05 ( 25,000.00)
Contribution Margin 2,975,000.00
Fixed Cost ( 800,000.00)
Net Income 2,175,000.00

DOL = Contribution Margin / Net Income

Degree of Operating Leverage 1.37

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Increased by
Total 10% 20%
Sales 3,000,000.00 3,300,000.00 3,600,000.00
Variable Cost ( 25,000.00) ( 27,500.00) ( 30,000.00)
Contribution Margin
2,975,000.00 3,272,500.00 3,570,000.00
Fixed Cost ( 800,000.00) ( 800,000.00) ( 800,000.00)
Net Income 2,175,000.00 2,472,500.00 2,770,000.00
Amount Increased 297,500.00 595,000.00
Percent Increased 14% 27%

DOL = Contribution Margin / Net Income DOL x Percent Sales Increased

Degree of Operating Leverage
1.37 14% 27%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Decreased by
Total -10% -30%
Sales 3,000,000.00 2,700,000.00 2,100,000.00
Variable Cost ( 25,000.00) ( 22,500.00) ( 17,500.00)
Contribution Margin
2,975,000.00 2,677,500.00 2,082,500.00
Fixed Cost ( 800,000.00) ( 800,000.00) ( 800,000.00)
Net Income 2,175,000.00 1,877,500.00 1,282,500.00
Amount Increased - 297,500.00 - 892,500.00
Percent Increased -14% -41%

DOL = Contribution Margin / Net Income DOL x Percent Sales Increased

Degree of Operating Leverage
1.37 -14% -41%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Operating leverage can tell managers,
investors, creditors, and analysts how
risky a cooperative may be.

Financing When the economy is booming, a

Decision high DOL may boost a firm’s
profitability.
Leverages
In the case of an economic downturn,
their earnings may plummet because
of their high fixed costs and low
sales.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 What Is Financial Leverage?
Financial leverage results from using
borrowed capital as a funding source
when investing to expand the firm's
Financing asset base and generate returns on
Decision risk capital.

Leverages Leverage is an investment strategy

of using borrowed money—
specifically, the use of various
financial instruments or borrowed
capital— to increase the potential
return on an investment.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Key Points

• Leverage refers to the use of debt

(borrowed funds) to amplify returns from
an investment or project.
Financing • Companies use leverage to finance their
Decision assets—instead of issuing stock to raise
capital, companies can use debt to invest
Leverages in business operations in an attempt to
increase shareholder value.
• There is a range of financial leverage
ratios to gauge how risky a company's
position is, with the most common being
debt-to-assets and debt-to-equity.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 ABC Cooperative (No Debt/Unleveraged)
Current Assets 50 Debt 0
Fixed Assets 50 Member's Equity 100

Total Assets 100 Total L & ME 100

Good Expected Bad

Sales 150 100 75
Operting Cost Fixed 45 45 45
Variable 60 40 30
Total Operating Cost 105 85 75
Income (EBIT) 45 15 0
Interest (10%) 0 0 0
Income Before Tax 45 15 0
Tax Rate (30%) 13.5 4.5 0
Net Income After Tax 31.5 10.5 0
Return on Equity 32% 11% 0%
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 ABZ Cooperative (Some Debt/Leveraged)
Current Assets 50 Debt 50
Fixed Assets 50 Member's Equity 50
Total Assets 100 Total L & ME 100
Good Expected Bad
Sales 150 100 75
Operting Cost Fixed 45 45 45
Variable 60 40 30
Total Operating Cost 105 85 75
Income (EBIT) 45 15 0
Interest (10%) 5 5 5
Income Before Tax 40 10 -5
Tax Rate (30%) 12 3 -1.5
Net Income After Tax 28 7 -3.5
Return on Equity 56% 14% 0%
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Part II Financial Management
FINANCIAL STANDARDS
 Reading and understanding of
Statement of Operation,
Statement of Financial Condition,
Cash Flow Statement,
Statement of Changes in Equity and
Notes to Financial Statements
 Tools and Techniques of Financial Analysis
 Monitoring Financial Performance for Sustainability
 P.E.S.O.S and P.I.S.O.: Meaning & Interpretation
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Financial Reporting
 MC 2015-06 | Philippine Financial
Reporting Framework for Cooperatives
September 16, 2015

 MC 2022-25 | Amended Philippines

Financial Reporting Framework for
Cooperatives
September 05, 2022

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Philippine Financial Reporting Framework for
Cooperatives

Section 3. Rationale
The main objective of this PFRF is to guide the
cooperatives in presenting their financial
condition and performance in the financial
statements.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Philippine Financial Reporting Framework for Cooperatives

Objective of Financial Statements of

Cooperative
The objective of financial statements of a
cooperative is to provide information about the
financial condition, performance and cash flows of
the cooperative that is useful for economic
decision-making
Financial statements also show the results of the
stewardship and the accountability of
management for the resources entrusted to it.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Philippine Financial Reporting Framework for Cooperatives

Qualitative Characteristics of Information in

Financial Statements
1. Understandability. The information provided in
financial statements should be presented in a way that
makes it comprehensible by users who have a
reasonable knowledge of business and economic
activities and accounting and a willingness to study
the information with reasonable diligence. However,
the need for understandability does not allow relevant
information to be omitted on the grounds that it may
be too difficult for some users to understand.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Philippine Financial Reporting Framework for Cooperatives

Qualitative Characteristics of Information in

Financial Statements
2. Relevance. The information provided in financial
statements must be relevant to the decision-making
needs of users. Information has the quality of
relevance when it is capable of influencing the
economic decisions of users by helping them
evaluate past, present or future events or
confirming, or correcting, their past
evaluations.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Philippine Financial Reporting Framework for Cooperatives

Qualitative Characteristics of Information in Financial Statements

3. Materiality. Information is material—and therefore has
relevance—if its omission or misstatement could
influence the economic decisions of users made on the
basis of the financial statements. Materiality depends on
the size of the item or error judged in the particular
circumstances of its omission or misstatement. However,
it is inappropriate to make, or leave uncorrected,
immaterial departures from this framework to achieve a
particular presentation of a cooperative’s financial
condition, financial performance or cash flows .

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Philippine Financial Reporting Framework for Cooperatives

Qualitative Characteristics of Information in Financial

Statements
4. Reliability. The information provided in financial
statements must be reliable. Information is reliable
when it is free from material error and bias and
represents faithfully that which it either purports to
represent or could reasonably be expected to represent.
Financial statements are not free from bias if, by the
selection or presentation of information, they are
intended to influence the making of a decision or
judgment in order to achieve a predetermined result or
outcome.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Philippine Financial Reporting Framework for Cooperatives

Qualitative Characteristics of Information in

Financial Statements
5. Substance Over Form Transactions and other
events and conditions should be accounted for
and presented in accordance with their substance
and not merely their legal form. This enhances
the reliability of financial statements.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Philippine Financial Reporting Framework for Cooperatives
Qualitative Characteristics of Information in Financial
Statements
6. Prudence. The uncertainties that inevitably surround many
events and circumstances are acknowledged by the
disclosure of their nature and extent and by the exercise of
prudence in the preparation of the financial statements.
Prudence is the inclusion of a degree of caution in the
exercise of the judgments needed in making the estimates
required under conditions of uncertainty, such that assets
or income are not overstated and liabilities or expenses are
not understated. However, the exercise of prudence does not
allow the deliberate understatement of assets or income, or
the deliberate overstatement of liabilities or expenses. In
short,
AGRIZKAYA Coopprudence
Federation does not permit bias. PELAYO & BARRIENTOS CPAs
 Philippine Financial Reporting Framework for Cooperatives

Qualitative Characteristics of Information in

Financial Statements
7. Completeness. To be reliable, the information
in financial statements must be complete and
within the bounds of materiality and cost. An
omission can cause information to be false or
misleading and thus unreliable and deficient in
terms of its relevance.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Philippine Financial Reporting Framework for Cooperatives
Qualitative Characteristics of Information in Financial Statements
8. Comparability. Users must be able to compare the financial
statements of a cooperative through time to identify trends in its
financial condition and performance. Users must also be able to
compare the financial statements of different cooperatives to
evaluate their relative financial condition, performance and cash
flows. Hence, the measurement and display of the financial
effects of like transactions and other events and conditions must
be carried out in a consistent way throughout a Cooperative and
over time for that Cooperative and in a consistent way across
cooperative. In addition, users must be informed of the
accounting policies employed in the preparation of the financial
statements, and of any changes in those policies and the effects
of suchCoop
AGRIZKAYA changes.
Federation PELAYO & BARRIENTOS CPAs
 Philippine Financial Reporting Framework for Cooperatives
Qualitative Characteristics of Information in Financial
Statements
9. Timeliness. To be relevant, financial information must
be able to influence the economic decisions of users.
Timeliness involves providing the information within the
decision time frame. If there is undue delay in the
reporting of information it may lose its relevance.
Management may need to balance the relative merits of
timely reporting and the provision of reliable
information. In achieving a balance between relevance
and reliability, the overriding consideration is how best to
satisfy Coop
AGRIZKAYA theFederation
needs of users in making economic decisions.
PELAYO & BARRIENTOS CPAs
 Philippine Financial Reporting Framework for Cooperatives

Qualitative Characteristics of Information in

Financial Statements
10. Balance Between Benefit and Cost. The
benefits derived from information should exceed
the cost of providing it. The evaluation of benefits
and costs is substantially a judgmental process.
Furthermore, the costs are not necessarily borne by
those users who enjoy the benefits, and often the
benefits of the information are enjoyed by a broad
range of external users.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Complete Set of Financial Statements

(a) a Statement of Financial Condition as of reporting

date.
(b) a Statement of Operations for the reporting period.
(c) a Statement of Changes in Equity, Statutory
Reserves and Donations and Grants for the reporting
period.
(d) a Statement of Cash Flows for the reporting period.
(e) Notes, comprising a summary of significant
accounting policies and other explanatory information.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF FINANCIAL
CONDITION
 The statement of financial condition
presents a cooperative’s assets,
liabilities and equity as of a specific
date—the end of the reporting period.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 ABC Multi-Purpose Cooperative
Statement of Financial Condition
As of December 31, 20xx

Assets Php xxx

Liability Php xxx

Equity xxx
Total Liability & Equity Php xxx

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Definition
 An asset is a resource controlled by the cooperative as
a result of past events and from which future
economic benefits are expected to flow to the
cooperative.
 A liability is a present obligation of the cooperative
arising from past events, the settlement of which is
expected to result in an outflow from the cooperative
of resources embodying economic benefits.
 An equity is the residual interest in the assets of the
cooperative after deducting all its liabilities.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF FINANCIAL
CONDITION
Current/Non-Current Distinction
 A cooperative shall present current and non-
current assets, and current and non-current
liabilities, as separate classifications in its
statement of financial condition, except when a
presentation based on liquidity provides
information that is reliable and more relevant.
When that exception applies, all assets and
liabilities shall be presented in order of
approximate liquidity (ascending or descending).
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF FINANCIAL CONDITION
Current Assets
A cooperative shall classify an asset as current when:
 (a) it expects to realize the asset, or intends to sell or consume it, in the normal
operating cycle;

 (b) it holds the asset primarily for the purpose of trading;

 (c) it expects to realize the asset within twelve months after the reporting date; or

 (d) the asset is cash or a cash equivalent, unless it is restricted from being
exchanged or used to settle a liability for at least twelve months after the
reporting date.

 A cooperative shall classify all other assets as non-current. When the

cooperative’s normal operating cycle is not clearly identifiable, its duration is
assumed to be twelve months.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 ABC Multi-Purpose Cooperative

Statement of Financial Condition

As of December 31, 20xx

Assets

Current Assets Php xxx

Non-Current Assets xxx
Total Assets Php xxx

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF FINANCIAL CONDITION
Current Liabilities
A cooperative shall classify a liability as current when:
(a) it expects to settle the liability in the normal operating cycle;

(b) it holds the liability primarily for the purpose of trading;

(c) the liability is due to be settled within twelve months after the
reporting date; or

(d) the cooperative does not have an unconditional right to defer

settlement of the liability for at least twelve months after reporting
date.

A cooperative
AGRIZKAYA shall
Coop Federation classify all other liabilities asPELAYO
non-current.
& BARRIENTOS CPAs
 ABC Multi-Purpose Cooperative

Statement of Financial Condition

As of December 31, 20xx

Liabilities

Current Liabilities Php xxx

Non-Current Liabilities xxx
Total Liabilities Php xxx

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 ABC Multi-Purpose Cooperative

Statement of Financial Condition

As of December 31, 20xx

Equity

Members’ Equity Php xxx

Donation & Grants xxx
Revaluation Surplus xxx
Net Surplus xxx
Total Equity Php xxx

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF FINANCIAL CONDITION
Sequencing of Items and Format of Items in the Statement of
Financial Condition
This framework does not prescribe the sequence or format in which
items are to be presented. It simply provides a list of items that are
sufficiently different in nature or function to warrant separate
presentation in the statement of financial condition. In addition:
(a) line items are included when the size, nature or function of an item or
aggregation of similar items is such that separate presentation is
relevant to an understanding of the cooperative’s financial condition,
and

(b) the descriptions used and the sequencing of items or aggregation of

similar items may be amended according to the nature of the
cooperative and its transactions, to provide information that is
relevant
AGRIZKAYA Coopto an understanding of the cooperative’s
Federation financial
PELAYO condition.
& BARRIENTOS CPAs
 STATEMENT OF FINANCIAL CONDITION
Sequencing of Items and Format of Items in the
Statement of Financial Condition
The judgment on whether additional items are presented
separately is based on an assessment of all of the
following:
(a) the amounts, nature and liquidity of assets.
(b) the function of assets within the cooperative.
(c) the amounts, nature and timing of liabilities

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Equity = Assets - Liabilities

T1 -ABC MPC T2- ABC MPC

 Cash 1M  Cash 1.5M
 Liability  Liability 500K
 Equity 1M  Equity 1M

Transaction 1. ABC Coop collected total 1M of members’

contribution in cash

Transaction 2. Bank approved and released 500k loan of ABC

Coop

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Equity = Assets - Liabilities

T2 -ABC MPC T3- ABC MPC

 Cash 1.5M  Cash 1.5M
 Liability 500K  Mdse Inventory 1M
 Equity 1M  Liability 1.5M
 Equity 1M

Transaction 3. ABC Coop purchased mdse inventory worth 1M on

terms 2/10 net 30 days

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Equity = Assets - Liabilities

T3 -ABC MPC T4- ABC MPC

 Cash 1.50M  Cash 2.25M
 Mdse Inventory 1.00M  Accts Receivable 0.75M
 Liability 1.50M  Mdse Inventory 0.25M
 Equity 1.00M  Liability 1.50M
 Equity 1.75M

Transaction 4. ABC Coop sold mdse inventory with a cost of 750K

to 1.5M for the month of January 20XX, in which 50% paid in cash
and the remainder is on account net 20days. ABC closed its book in
Jan 20XX.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 List of Accounts

MEMORANDUM CIRCULAR NO. 2022 –

24
SUBJECT : REVISED STANDARD CHART
OF ACCOUNTS FOR COOPERATIVES

..\MC-2022-24-NPO. Chart of Accounts.pdf

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Statement of Financial Operation

Performance is the relationship of the

income and expenses of a cooperative
during a reporting period. Profits or losses
are frequently used as measures of
performance or as the basis for other
measures, such as return on investment.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Statement of Financial Operation
a) Income is increases in economic benefits during the
reporting period in the form of inflows or enhancements
of assets or decreases of liabilities that result in
increases in equity, other than those relating to
contributions from members and donations.

b) Expenses are decreases in economic benefits during the

reporting period in the form of outflows or depletions of
assets or incurrence of liabilities that result in decreases
in equity, other than those relating to distributions to
equity investors.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Statement of Financial Operation
Income
The definition of income encompasses both revenue and gains.
(a) Revenue is income that arises in the course of the
ordinary activities of a cooperative and is referred to by a
variety of names including sales, service income,
commission, interest, dividends, royalties and rent.

(b) Gains are other items that meet the definition of income but
are not revenue. When gains are recognized in the statement
of operation, they are usually displayed separately because
knowledge of them is useful for making performance
economic decisions.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Statement of Financial Operation
Expenses
The definition of expenses encompasses losses as well as those
expenses that arise in the course of the ordinary activities of the
cooperative.

(a) Expenses that arise in the course of the ordinary activities of the
cooperative include, for example, cost of sales, wages and
depreciation. They usually take the form of an outflow or depletion
of assets such as cash and cash equivalents, inventory, or property,
plant and equipment.

(b) Losses are other items that meet the definition of expenses and
may arise in the course of the ordinary activities of the cooperative.
When losses are recognized in the statement of operations, they are
usually presented separately because knowledge of them is useful
for making
AGRIZKAYA economic decisions.
Coop Federation PELAYO & BARRIENTOS CPAs
 ABC Multi-Purpose Cooperative
Statement of Financial Operation
For the Year Ended December 31, 20xx
Revenue Php xxx
Less: Cost of Sales (xxx)
Gross Revenue xxx
Less: Expenses
Financing xxx
Administrative xxx
Selling xxx xxx
Net Surplus Php xxx

General Reserve Fund %

Cooperative Education and Training Fund %
Due to Unions/Federations %
Community Development Fund %
Optional Fund %
Interest on Share Capital %
Patronage Refund %
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Statement of Financial Operation
 The Allocation of Net Surplus shall be presented in
the Statement of Operations in accordance with the
provisions of the cooperative by-laws which should
be consistent with Articles 85 and 86 of RA 9520
(Cooperative Code). 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.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 T3 -ABC MPC T4- ABC MPC
Financial Condition Statement of Operation
 Cash 2.25M  Sales 1.50M
  Cost of Sales 0.75M
Accts Receivable 0.75M
  Gross Profit 0.75M
Mdse Inventory 0.25M
 Expenses 0.00
 Liability 1.50M
 Net Surplus 0.75M
 Equity 1.75M

Transaction 4. ABC Coop sold mdse inventory with a cost of 750K

to 1.5M for the month of January 20XX, in which 50% paid in cash
and the remainder is on account net 20days. ABC closed its book in
Jan 20XX.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CHANGES IN EQUITY,
STATUTORY FUNDS AND
DONATIONS AND GRANTS
 The statement of changes in equity presents the
amounts of investments and withdrawals by
members, addition and utilization of statutory funds,
movement in donations and grants, and revaluation
surplus during the period.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF CHANGES IN EQUITY,
STATUTORY FUNDS AND
DONATIONS AND GRANTS
 Information to be Presented; 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 shares
(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
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENTS OF CHANGES IN EQUITY
For the years ended December 31, 2020 and 2019
(Amounts in Philippine Pesos)
DECEMBR 31
Notes
2020 2019

SHARE CAPITAL
Authorized 19,000 shares at Php 1,000 par value
Balance at beginning of year 2,392,670.85 2,277,070.85
Add: Receipts from Payment of Subscription 564,000.00 115,600.00
Total 2,956,670.85 2,392,670.85
Less: Adjustments/Withdrawals - -
Balance at end of year 22 2,956,670.85 2,392,670.85

DONATIONS/GRANTS
Balance at beginning of year 22,659,625.47 23,063,014.39
Add: Receipts 880,000.00 -
Total 23,539,625.47 23,063,014.39
Less: Withdrawals/Utilization 1,774,137.37 403,388.92
Balance at end of year 23 21,765,488.10 22,659,625.47

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATUTORY FUNDS
Reserve Fund
Balance at beginning of year (1,410,561.17) (1,820,783.91)
Add: Allocation from Net Surplus 188,913.98 410,222.74
Total (1,221,647.19) (1,410,561.17)
Adjustments - -
Balance at end of year 24 (1,221,647.19) (1,410,561.17)
Cooperative Education and Training Fund
Balance at beginning of year 18,406.96 2,629.16
Add: Allocation from Net Surplus 7,265.90 15,777.80
Total 25,672.86 18,406.96
Less: Expenditures/adjustments -
Balance at end of year 24 25,672.86 18,406.96
Community Development Fund
Balance at beginning of year 11,044.18 1,577.50
Add: Allocation from Net Surplus 4,359.54 9,466.68
Total 15,403.72 11,044.18
Less: Expenditures 11,044.17 -
Balance at end of year 24 4,359.55 11,044.18

Optional Fund
Balance at beginning of year 29,739.09 7,650.17
Add: Allocation from Net Surplus 10,172.26 22,088.92
Total 39,911.35 29,739.09
Adjustments - -
Balance at end of year 24 39,911.35 29,739.09
TOTAL STATUTORY FUNDS (1,151,703.43) (1,351,370.94)

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF CASH FLOWS

 The statement of cash flows provides information

about the changes in cash and cash equivalents of a
cooperative for a reporting period, showing
separately changes from operating activities,
investing activities and financing activities.
 Cash equivalents are short-term, highly liquid
investments held to meet short-term cash
commitments rather than for investment or other
purposes. Therefore, an investment normally qualifies
as a cash equivalent only when it has a short maturity
of, say, three months or less from the date of
acquisition.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS

Operating Activities
 Operating activities are the principal revenue-
producing activities of the cooperative. Therefore,
cash flows from operating activities generally
result from the transactions and other events and
conditions that enter into the determination of
profit or loss (surplus or loss). Examples of cash
flows from operating activities are:

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF CASH FLOWS

Operating Activities
(a) cash receipts from:
(1) sale of goods;
(2) interest, penalties and other charges on loans receivables;
and
(3) rendering of services
(b) cash receipts from royalties, fees, commissions and
other revenue.
(c) cash payments to suppliers for goods and services.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF CASH FLOWS

Operating Activities
(d) cash payments to and on behalf of employees.
(e) cash payments for income tax (if applicable)
(f) cash receipts and payments from investments, loans and
other contracts held for dealing or trading purposes, which
are similar to inventory acquired specifically for resale.

Some transactions, such as the sale of an item of property,

plant and equipment, may give rise to gain or loss that is
included in profit or loss. However, the cash flows relating
to such transactions are cash flows from investing
activities.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS

Investing Activities
Investing activities are the acquisition and disposal of
long-term assets and other investments not included in
cash equivalents. Examples of cash flows arising from
investing activities are:

(a) cash payments to acquire property, plant and

equipment (including self-constructed property, plant and
equipment), intangible assets and other long-term assets.

(b) cash receipts from sales of property, plant and

equipment, intangibles and other long-term assets.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS
Investing Activities
Investing activities are the acquisition and disposal of long-
term assets and other investments not included in cash
equivalents. Examples of cash flows arising from investing
activities are:
(c) cash payments to acquire equity or debt instruments of other
cooperative and interests in joint ventures (other than payments
for those instruments classified as cash equivalents or held for
dealing or trading).

(d) cash receipts from sales of equity or debt instruments of other

cooperative and interests in joint ventures (other than receipts for
those instruments classified as cash equivalents or held for
dealingCoop
AGRIZKAYA or trading).
Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS

Financing Activities
Financing activities are activities that result in changes
in the size and composition of the members’ equity
and borrowings of a cooperative. Examples of cash
flows arising from financing activities are:

(a) cash proceeds from issuing shares

(b) cash payments to members to acquire or redeem the
cooperative’s own shares.
(c) cash proceeds from loans, notes, mortgages and
other short-term or long-term borrowings.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS
Financing Activities
Financing activities are activities that result in changes in the size
and composition of the members’ equity and borrowings of a
cooperative. Examples of cash flows arising from financing
activities are:

(d) cash repayments of amounts borrowed.

(e) cash payments by a lessee for the reduction of the outstanding

liability relating to a finance lease.

(f) cash payment for interest on share capital and patronage refund.

(g) utilization of statutory fund.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS
Reporting Cash Flows from Operating Activities
A cooperative shall present cash flows from operating activities
using either:

(a) the indirect method, whereby profit or loss is adjusted for

the effects of non-cash transactions, any deferrals or accruals of
past or future operating cash receipts or payments, and items of
income or expense associated with investing or financing cash
flows, or

(b) the direct method, whereby major classes of gross cash

receipts and gross cash payments are disclosed.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STATEMENT OF CASH FLOWS
Reporting Cash Flows from Operating Activities
Indirect Method
Under the indirect method, the net cash flow from operating
activities is determined by adjusting profit or loss for the effects of:

(a) changes during the period in inventories and operating

receivables and payables;

(b) non-cash items such as depreciation, provisions, accrued

income (expenses) not yet received (paid) in cash, and
unrealized foreign currency gains and losses.

(c) all other items for which the cash effects relate to investing or
financing.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS
Reporting Cash Flows from Operating Activities
Direct Method

Under the direct method, net cash flow from operating activities is presented by
disclosing information about major classes of gross cash receipts and gross
cash payments. Such information may be obtained either:

(a) from the accounting records of the cooperative; or

(b) (b) by adjusting sales, cost of sales and other items in the Statement of
Comprehensive Income (or the Income Statement, if presented) for:

i. changes during the period in inventories and operating receivables and

payables;

ii. ii. other non-cash items; and

iii. other items for which the cash effects are investing or financing cash flows.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 STATEMENT OF CASH FLOWS – Direct Method
Cash flows from operating activities
Cash receipts from Customers xx
Cash Paid to;
Suppliers (xx)
Employees (xx)
Interest (xx)
Taxes (xx)
Net cash from provided/ (used)
Operating Activities XXX

Note: Investing & Financing the same on both method

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 NOTES TO THE FINANCIAL STATEMENTS
Notes contain information in addition to that presented
in the Statement of Financial Condition, Statement of
Operations, Statement of Changes in Equity, and
Statement of Cash Flows.
Notes provide narrative descriptions or
disaggregation of items presented in those
statements and information about items that do not
qualify for recognition in those statements.
In addition to the requirements of this section,
nearly every other section of this framework
requires disclosures that are normally presented in
the notes
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 NOTES TO THE FINANCIAL STATEMENTS
Structure of the Notes
The notes shall:
 (a) present information about the basis of preparation
of the financial statements and the specific
accounting policies used;

 (b) disclose the information required by PFRF that is

not presented elsewhere in the financial statements;
and

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 NOTES TO THE FINANCIAL STATEMENTS
Structure of the Notes

 (c) provide information that is not presented

elsewhere in the financial statements but is relevant to
an understanding of any of them.

A cooperative shall, as far as practicable, present the

notes in a systematic manner. A cooperative shall
cross-reference each item in the financial
statements to any related information in the notes.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 NOTES TO THE FINANCIAL STATEMENTS
A cooperative normally presents the notes 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; and
(d) any other disclosures.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 FINANCIAL
STATEMENTS
Analysis

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 FINANCIAL STATEMENTS Analysis
Account Analysis Control Person Responsible
Cash Cash Flow Bank Reconciliation
Cash Budget Bank Confirmation
Cash Count Treasurer,Cashier,
Security Bond - Surety, Manager, Collectors, Audit
Safety deposit Committee, BOD
Policies and Procedures
Daily Cash Collection Report
Receivables Aging Report AR Confirmation
Receivable TurnoverCredit Rating System
Status of Litigated Accounts
Credit Granting Policy Credit Department, Audit
Top 10 Borrowers Collateral Committee, Manager, BOD,
Litiagtion Success Accounting
rate Background Check - CI
Borrowers' Master Data
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 FINANCIAL STATEMENTS Analysis

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 FINANCIAL STATEMENTS Analysis
High Ratios
A high receivables turnover ratio can indicate that
a company’s collection of accounts receivable is
efficient and that it has a high proportion of
quality customers, who pay their debts quickly.
A high receivables turnover ratio might also
indicate that a company operates on a cash basis.
A high ratio can also suggest that a company is
conservative when it comes to extending credit to
its customers.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 FINANCIAL STATEMENTS Analysis
Low Ratios
It may be due to an inadequate collection process,
bad credit policies, or customers that are not
financially viable or creditworthy.
A low turnover ratio typically implies that the
cooperative should reassess its credit policies to
ensure the timely collection of its receivables. In
some cases, though, low ratios aren't always bad.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 FINANCIAL STATEMENTS Analysis
Account Analysis Control Person Responsible
Inventory Inventory Turnover Conduct of Physical Count
Movement Report FIFO Policy
Aging Report Good Warehousing Practice
Quality Report Pest Control
Logistics, Quality,
Days Level Bio-Security Control
Accounting, Audit
Storage Utilization Rate Master Data
Committee, BOD
Returns, Spoilage, Rejects
Report
Production Efficiency
Top Ten Suppliers
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 FINANCIAL STATEMENTS Analysis
What Is the Cash Conversion Cycle (CCC)?
The cash conversion cycle (CCC) is a metric that expresses
the time (measured in days) that it takes for a company to
convert its investments in inventory and other resources
into cash flows from sales. Also called the net operating
cycle or simply cash cycle, CCC attempts to measure how
long each net input dollar is tied up in the production and
sales process before it gets converted into cash received.
This metric takes into account how much time the
company needs to sell its inventory, how much time it
takes to collect receivables, and how much time it has to
pay its bills.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 FINANCIAL STATEMENTS Analysis
​ ormula
F
CCC=DIO+DSO−DPO

where:
• DIO=Days of inventory outstanding(al
so known as days sales of inventory)
• DSO=Days sales outstanding
• DPO=Days payables outstanding​

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 FINANCIAL STATEMENTS Analysis

​DSI=(Avg. Inventory/COGS)​× 365 Days

DSO=Accounts Receivable/
Avg.Revenue Per Day​

​ DPO= Avg. Accounts Payable/ COGS Per Day

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 FINANCIAL STATEMENTS Analysis
Account Analysis Control Person Responsible
Liabilities Discount Analysis Conduct Internal Audit
Aging Report Feedback Mechanism
Accounting, Audit
Payment Processing Review of the contract/terms
Committee, BOD, Treasurer
Top Ten Creditors Master Data
Review of Contract
Investment Payback Strategic Planning
BOD, Managers, Treasury,
IRR
Accounting
NPV

Segment Cost-Volume-Profit Analysis

Segmentation - Business, Review of Capacity, Manning, BOD, Managers, Treasury,
Area Resources employed Accounting
ROI - Return on Investment

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Functional vs Behavioral
Expenditures

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Cost Behavior

 Cost behavior patterns demonstrate the way

in which costs are affected by changes in the
level of activity.
 It is the way that costs change as the level of
activity changes.

AGRIZKAYA Coop Federation 162 PELAYO & BARRIENTOS CPAs

 i. Variable costs
 These are directly proportional to the level of
activity.
 If the number of units produced doubles, then
variable production costs will double also.
 An example;
The cost of raw materials
Direct labor costs
Sales commission

AGRIZKAYA Coop Federation 163 PELAYO & BARRIENTOS CPAs

 Graph of total variable cost
Variable Cost
600
500
Variable Cost

400
300 Variable Cost
200
100
0
0 10 20 30 40 50
Units Sold

AGRIZKAYA Coop Federation 164 PELAYO & BARRIENTOS CPAs

 ii. Fixed costs
 It’s a cost which tends to be unaffected in total by
increases or decreases in the volume of output.
 Fixed costs are a period charge, in that they relate to
a span of time; as the time span increases, so too will
the fixed costs
 Examples;
The salary of the manager (per month or per annum)
The rent of a single factory building (per month or per
annum)
Straight line depreciation of a single machine (per
month or per annum)
AGRIZKAYA Coop Federation 165 PELAYO & BARRIENTOS CPAs
 Graph of total fixed cost

Fixed Cost
20,000
15,000
Fixed Cost

10,000
5,000
-
0 10 20 30 40 50
Units Sold

AGRIZKAYA Coop Federation 166 PELAYO & BARRIENTOS CPAs

 Mixed costs (or semi-variable costs
or semi-fixed costs)
 Mixed costs (semi-variable/semi-fixed costs)
are partly fixed and partly variable, and
therefore only partly affected by changes in
activity levels.

AGRIZKAYA Coop Federation 167 PELAYO & BARRIENTOS CPAs

 Graph of total semi-variable cost

Variable Cost Fixed Cost

6,000
5,000
4,000
Cost

3,000
2,000
1,000
-
0 10 20 30 40 50
Units Sold

AGRIZKAYA Coop Federation 168 PELAYO & BARRIENTOS CPAs

 Graph of Costs
8,000
7,000 Total Cost

6,000
5,000
Variable Cost
Cost

4,000
3,000 Fixed Cost
2,000
1,000
-
0 10 20 30 40 50
Units Sold

AGRIZKAYA Coop Federation 169 PELAYO & BARRIENTOS CPAs

 Question 1
 A mail order cooperative distributes sales
items by post. All other communication is
by email or the internet. Are postage costs
likely to be:
 A. Fixed
 B. Variable
 C. Mixed
 D. I don’t know
AGRIZKAYA Coop Federation 170 PELAYO & BARRIENTOS CPAs
 Question2
 A cooperative rents a factory that will allow
production of up to 10,000 units per month. If the
Cooperative is considering a new order that
would push production to 15,000 units, rental
costs will be:
 A. Fixed
 B. Variable
 C. Mixed
 D. I don’t Know
AGRIZKAYA Coop Federation 171 PELAYO & BARRIENTOS CPAs
 Question 3
 A Cooperative pays its staff a basis wage
plus a bonus based on production. Wage
costs are likely to be:
 A. Fixed
 B. Variable
 C. Mixed
 D. I don’t know

AGRIZKAYA Coop Federation 172 PELAYO & BARRIENTOS CPAs

 Cost-Volume-Profit Analysis

(CVP Analysis)

AGRIZKAYA Coop Federation 173 PELAYO & BARRIENTOS CPAs

 Learning Objective

Understand the assumptions

underlying cost-volume-profit
(CVP) analysis.

AGRIZKAYA Coop Federation 174 PELAYO & BARRIENTOS CPAs

 Cost-Volume-Profit Assumptions
and Terminology

1. Changes in the level of revenues and costs arise

only because of changes in the number of product
(or service) units produced and sold.
2. Total costs can be divided into a fixed component
and a component that is variable with respect to
the level of output.

AGRIZKAYA Coop Federation 175 PELAYO & BARRIENTOS CPAs

 Cost-Volume-Profit Assumptions
and Terminology

3. When graphed, the behavior of total revenues

and total costs is linear (straight-line) in relation
to output units within the relevant range
(and time period).
4. The unit selling price, unit variable costs, and
fixed costs are known and constant.

AGRIZKAYA Coop Federation 176 PELAYO & BARRIENTOS CPAs

 Cost-Volume-Profit Assumptions
and Terminology

5. The analysis either covers a single product or

assumes that the sales mix when multiple
products are sold will remain constant as the
level of total units sold changes.
6. All revenues and costs can be added and
compared without taking into account the time
value of money.

AGRIZKAYA Coop Federation 177 3 - 177

PELAYO & BARRIENTOS CPAs
 Cost-Volume-Profit Assumptions
and Terminology

Operating income
= Total revenues from operations
– Cost of goods sold and operating costs
(excluding income taxes)
Net income = Operating income – Income taxes

AGRIZKAYA Coop Federation 178 3 - 178

PELAYO & BARRIENTOS CPAs
 Learning Objective 2

Explain the features

of CVP analysis.

AGRIZKAYA Coop Federation 179 PELAYO & BARRIENTOS CPAs

 Essentials of Cost-Volume-Profit
(CVP) Analysis Example
Assume that the Cooperative can purchase a pair of pants
for P32 from a local factory; other variable costs
amount to P10 per unit.
The local factory allows the Cooperative to
return all unsold pants and receive a full P32
refund per pair of pants within one year.
The average selling price per pair of pants is P70
and total fixed costs amount to P84,000.
AGRIZKAYA Coop Federation 180 PELAYO & BARRIENTOS CPAs
 Essentials of Cost-Volume-Profit
(CVP) Analysis Example

How much revenue will the business receive if

2,500 units are sold?
2,500 × P70 = P175,000
How much variable costs will the business incur?
2,500 × P42 = P105,000
P175,000 – 105,000 – 84,000 = (P14,000)

AGRIZKAYA Coop Federation 181 PELAYO & BARRIENTOS CPAs

 Essentials of Cost-Volume-Profit
(CVP) Analysis Example

What is the contribution margin per unit?

P70 – P42 = P28 contribution margin per unit
What is the total contribution margin when
2,500 pairs of pants are sold?
2,500 × P28 = P70,000

AGRIZKAYA Coop Federation 182 PELAYO & BARRIENTOS CPAs

 Essentials of Cost-Volume-Profit
(CVP) Analysis Example

Contribution margin percentage (contribution

margin ratio) is the contribution margin per
unit divided by the selling price.
What is the contribution margin percentage?
P28 ÷ P70 = 40%

AGRIZKAYA Coop Federation 183 PELAYO & BARRIENTOS CPAs

 Essentials of Cost-Volume-Profit
(CVP) Analysis Example

If the business sells 3,000 pairs of pants,

revenues will be P210,000 and contribution
margin would equal 40% × P210,000 = P84,000.

AGRIZKAYA Coop Federation 184 PELAYO & BARRIENTOS CPAs

 Learning Objective

Determine the breakeven point

and output level needed to achieve
a target operating income using
the equation, contribution
margin,
and graph methods.
AGRIZKAYA Coop Federation 185 PELAYO & BARRIENTOS CPAs
 Breakeven Point

Variable Fixed
Sales – expenses = expenses

Total revenues = Total costs

AGRIZKAYA Coop Federation 186 PELAYO & BARRIENTOS CPAs

 Abbreviations

SP = Selling price
VCU = Variable cost per unit
CMU = Contribution margin per unit
CM% = Contribution margin percentage
FC = Fixed costs

AGRIZKAYA Coop Federation 187 PELAYO & BARRIENTOS CPAs

 Abbreviations

Q = Quantity of output units sold

(and manufactured)
OI = Operating income
TOI = Target operating income
TNI = Target net income

AGRIZKAYA Coop Federation 188 PELAYO & BARRIENTOS CPAs

 Equation Method

(Selling price × Quantity sold) – (Variable unit cost

× Quantity sold) – Fixed costs = Operating income
Let Q = number of units to be sold to break even
P70Q – P42Q – P84,000 = 0
P28Q = P84,000
Q = P84,000 ÷ P28 = 3,000 units

AGRIZKAYA Coop Federation 189 PELAYO & BARRIENTOS CPAs

 Contribution Margin Method

P84,000 ÷ P28 = 3,000 units

P84,000 ÷ 40% = P210,000

AGRIZKAYA Coop Federation 190 PELAYO & BARRIENTOS CPAs

 Graph Method
Breakeven
378
336 e
294 e n u
Re v
252 s ts
P(000)

l c o
210 Tota
168
126 Fixed costs
84
42
0
0 1000 2000 3000 4000 5000
Units
AGRIZKAYA Coop Federation 191 PELAYO & BARRIENTOS CPAs
 Target Operating Income

(Fixed costs + Target operating income)

divided either by Contribution margin
percentage or Contribution margin per unit

AGRIZKAYA Coop Federation 192 PELAYO & BARRIENTOS CPAs

 Target Operating Income

Assume that management wants to have an

operating income of P14,000.
How many pairs of pants must be sold?
(P84,000 + P14,000) ÷ P28 = 3,500
What dollar sales are needed to achieve this income?
(P84,000 + P14,000) ÷ 40% = P245,000

AGRIZKAYA Coop Federation 193 PELAYO & BARRIENTOS CPAs

 Learning Objective

Explain CVP analysis

in decision making and
how sensitivity analysis helps
managers cope with uncertainty.

AGRIZKAYA Coop Federation 194 PELAYO & BARRIENTOS CPAs

 Using CVP Analysis Example

Suppose the management anticipates

selling 3,200 pairs of pants.
Management is considering an advertising
campaign that would cost P10,000.
It is anticipated that the advertising will
increase sales to 4,000 units.
Should the business advertise?
AGRIZKAYA Coop Federation 195 PELAYO & BARRIENTOS CPAs
 Using CVP Analysis Example
3,200 pairs of pants sold with no advertising:
Contribution margin P89,600
Fixed costs 84,000
Operating income P 5,600
4,000 pairs of pants sold with advertising:
Contribution margin P112,000
Fixed costs 94,000
Operating income P 18,000
AGRIZKAYA Coop Federation 196 PELAYO & BARRIENTOS CPAs
 Using CVP Analysis Example

Instead of advertising, management is

considering reducing the selling price
to P61 per pair of pants.
It is anticipated that this will increase
sales to 4,500 units.
Should management decrease the selling
price per pair of pants to P61?
AGRIZKAYA Coop Federation 197 PELAYO & BARRIENTOS CPAs
 Using CVP Analysis Example

3,200 pairs of pants sold with no change

in the selling price:
Operating income = P5,600
4,500 pairs of pants sold at a reduced selling price:
Contribution margin: (4,500 × P19) P85
Fixed costs
Operating income
AGRIZKAYA Coop Federation 198 PELAYO & BARRIENTOS CPAs
 Sensitivity Analysis and
Uncertainty Example

Assume that the Cooperative can sell

4,000 pairs of pants.
Fixed costs are P84,000.
Contribution margin ratio is 40%.
At the present time the business cannot
handle more than 3,500 pairs of pants.

AGRIZKAYA Coop Federation 199 PELAYO & BARRIENTOS CPAs

 Sensitivity Analysis and
Uncertainty Example

To satisfy a demand for 4,000 pairs, management

must acquire additional space for P6,000.
Should the additional space be acquired?
Revenues at breakeven with existing space are
P84,000 ÷ .40 = P210,000.
Revenues at breakeven with additional space are
P90,000 ÷ .40 = P225,000
AGRIZKAYA Coop Federation 200 PELAYO & BARRIENTOS CPAs
 Sensitivity Analysis and
Uncertainty Example

Operating income at P245,000 revenues with

existing space = (P245,000 × .40)
– P84,000 = P14,000.
(3,500 pairs of pants × P28) – P84,000 = P14,000

AGRIZKAYA Coop Federation 201 PELAYO & BARRIENTOS CPAs

 Sensitivity Analysis and
Uncertainty Example

Operating income at P280,000 revenues with

additional space = (P280,000 × .40) – P90,000
= P22,000.
(4,000 pairs of pants × P28 contribution margin)
– P90,000 = P22,000

AGRIZKAYA Coop Federation 202 PELAYO & BARRIENTOS CPAs

 Learning Objective

Use CVP analysis to plan

fixed and variable costs.

AGRIZKAYA Coop Federation 203 PELAYO & BARRIENTOS CPAs

 Alternative Fixed/Variable Cost
Structures Example

Suppose that the factory the Cooperative is using to

obtain the merchandise offers the following:
Decrease the price they charge from P32 to P25 and
charge an annual administrative fee of P30,000.
What is the new contribution margin?

AGRIZKAYA Coop Federation 204 PELAYO & BARRIENTOS CPAs

 Alternative Fixed/Variable Cost
Structures Example

P70 – (P25 + P10) = P35

Contribution margin increases from P28 to P35.
What is the contribution margin percentage?
P35 ÷ P70 = 50%
What are the new fixed costs?
P84,000 + P30,000 = P114,000

AGRIZKAYA Coop Federation 205 PELAYO & BARRIENTOS CPAs

 Alternative Fixed/Variable Cost
Structures Example
Management questions what sales volume
would yield an identical operating income
regardless of the arrangement.
28x – 84,000 = 35x – 114,000
114,000 – 84,000 = 35x – 28x
7x = 30,000
x = 4,286 pairs of pants
AGRIZKAYA Coop Federation 206 PELAYO & BARRIENTOS CPAs
 Alternative Fixed/Variable Cost
Structures Example

Cost with existing arrangement

= Cost with new arrangement
.60x + 84,000 = .50x + 114,000
.10x = P30,000  x = P300,000
(P300,000 × .40) – P 84,000 = P36,000
(P300,000 × .50) – P114,000 = P36,000

AGRIZKAYA Coop Federation 207 PELAYO & BARRIENTOS CPAs

 Learning Objective

Adapt CVP analysis to situations

in which a product has more
than one cost driver.

AGRIZKAYA Coop Federation 208 PELAYO & BARRIENTOS CPAs

 Multiple Cost Drivers Example

Suppose that the business will incur an additional

cost of P10 for preparing documents associated
with the sale of pants to various customers.
Assume that the business sells 3,500
pants to 100 different customers.
What is the operating income from this sale?

AGRIZKAYA Coop Federation 209 PELAYO & BARRIENTOS CPAs

 Multiple Cost Drivers Example
Revenues: 3,500 × P70 P
Variable costs:
Pants: 3,500 × P42 147,000
Documents: 100 × P10 1,000
Total
Contribution margin
Fixed costs
Operating income

AGRIZKAYA Coop Federation 210 PELAYO & BARRIENTOS CPAs

 Multiple Cost Drivers

Would the operating income of the Cooperative

be lower or higher if the business sells pants
to more customers?
The cost structure depends on two cost drivers:
1. Number of units
2. Number of customers

AGRIZKAYA Coop Federation 211 PELAYO & BARRIENTOS CPAs

 Learning Objective 9

Distinguish between
contribution margin
and gross margin.

AGRIZKAYA Coop Federation 212 PELAYO & BARRIENTOS CPAs

 Contribution Margin versus
Gross Margin

Contribution income statement emphasizes

contribution margin.
Financial accounting income statement
emphasizes gross margin.

AGRIZKAYA Coop Federation 213 PELAYO & BARRIENTOS CPAs

 Performance
Audit Report
for
Cooperatives
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Performance Audit Report for
Cooperatives
MC 2013-13 Revised Template
MC 2013-15 Revised Performance Report Standards

 P-Portfolio Quality
 E-Efficiency
 S-Stability
 O-Operations
 S- Structure of Assets

 P-Profitability Performance
 I-Institutional Strength
 S-Structure of Assets
 O-Operational Strength

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Performance Audit Report for
Cooperatives
MC 2021-04 Performance Audit Report (PAR)
for Cooperatives

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 By MC2013-15 MC2021-4
 Title  Performance  Performance
Report Audit Report
Standard
 Identify 
 Purpose Identify Weak &
problem areas Strong Areas

 Same 
 Covered Same

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 By MC2013-15 MC2021-4
 Report  4 Major  3 Parts
Components Govt & Mgt
Basic Info Report (GMR)
Non-Financial w/ four (4)
Area components
Social Aspects Financial
Performance of
Rating System
Coop (STEPS)
Summary Report

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 By MC2013-15 MC2021-4
 Rating  Financial 35%  STEPS 60%
System  Non-Financial  GMR 40%
65%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 By MC2013-15 MC2021-4
 Adjectival  Large & Med  Large
Rating
Excellent  91-100%  96-100%
V. Satisfactory  81-90%  91-95%
Satisfactory  71-80%  86-90%
Fair  61-70%  81-85%
NI  60% & Below  Below 81%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 By MC2013-15 MC2021-4
 Adjectival  Large & Med  Medium
Rating
Excellent  91-100%  93-100%
V. Satisfactory  81-90%  85-92%
Satisfactory  71-80%  77-84%
Fair  61-70%  69-76%
NI  60% & Below  Below 69%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 By MC2013-15 MC2021-4
 Adjectival  Small  Small
Rating
Excellent  81-100%  90-100%
V. Satisfactory  71-80%  80-89%
Satisfactory  61-70%  70-79%
Fair  51-60%  60-69%
NI  50% & Below  Below 60%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 By MC2013-15 MC2021-4
 Adjectival  Micro  Micro
Rating
Excellent  75-100%  87-100%
V. Satisfactory  61-74%  75-86%
Satisfactory  51-60%  63-74%
Fair  41-50%  51-62%
NI  40% and below  below 51%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 PERFORMANCE
AUDIT FOR
COOPERATIVES

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 -Good Governance
MC 2021 -04 –
PERFORMANCE
AUDIT REPORT Effective Management
FOR Practices
COOPERATIVES Healthy Financial
Condition

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Art 80 of RA
9520

Cooperative under
this Code shall be
Legal subject to an annual
financial,
Basis
performance and
social audit.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Legal Basis

 Rule 8, Section 2 (b) of the

Implementing Rules and Regulations
of R.A. 9520 specifies Performance
Audit Report as one of the
mandatory reports to be submitted
to the Authority

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 PERFORMANCE AUDIT REPORT

Submission to the Authority must

include the Semi-Annual Report
on Mediation and Conciliation as
received by the Authority
pursuant to EO 97.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Governance and Management –
DEFINITION OF refers to Part 1 of the
TERMS Performance Audit Report
covering the and implementation
of the policies, systems and
procedures

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Financial Performance- refers
DEFINITION OF to Part II of the PAR which
TERMS measures the overall financial
health condition of the
cooperative over a given period
of time.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Impaired Assets – assets
with recoverable value which
is less than its book value.
DEFINITION OF
TERMS Liquid Assets - can be easily
converted to cash and cash
equivalent within 90 days
without any loss in the value ,
such as Cash and Cash
Equivalents.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Net Surplus Before Other Items – net
surplus before adding or deducting
special transactions e,g, Project subsidy,
Gain or Loss on Sale of Assets, Prior
DEFINITION OF
Period adjustments, etc.
TERMS
Net Worth – refers to equity, inclusive
of members’ equity, donations/grants
and statutory funds, less unbooked
allowance for probable losses on loans ,
investments and other assets, and other
capital adjustments.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Non Earning Assets – assets that are
not producing income to the coop , e.g.
Cash on Hand, Petty Cash Fund,
Revolving Fund, Prepaid Expenses,
DEFINITION OF Property, Plant and Equipment.
TERMS
Performance Audit – an audit of the
efficiency and effectivity of the
cooperative as a whole, its management
and officers, and its various
responsibility centers. As a basis for
improving individual, team or overall
performance.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Risk Assets refers to total assets less the
following :

a) Cash on hand
DEFINITION OF
TERMS b) Evidence of Indebtedness of the
Republic of the Phils. and the BSP and other
evidences of indebtedness or obligations the
servicing and repayment of which are fully
guaranteed by the govt.

c) Loans to the extent covered by hold-

outs or assignments of deposits maintained
in the coop and held in the Phils.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 d) Land owned by the coop being used
for operations;

e) Building and Land improvements, net

of depreciations;

DEFINITION f) Furniture, Fixtures and Equipment net

OF TERMS of Depreciations;

g) Real Estate Mortgage Loans insured

by the Home Guaranty Corp to the extent to
the amount of the insurance; and

h) Other non risk items as the CDA may

AGRIZKAYA Coop Federation
from time to time determine.
PELAYO & BARRIENTOS CPAs
 Service Receivables - refers to the
service which have already been
rendered but payment has not yet been
received.
Definition of
Terms Short Term Payables- refer to
obligations which are reasonable
expected to be settled within the
coop’s normal operating cycle or
12 month period .

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Unbooked Allowance – refers to the
insufficient amount on the provision of
allowance for probable losses on receivables
DEFINITION based on PAR with 30 days grace period and
OF TERMS Assets that are already impaired, in accordance
with the Standards issued by the authority.

Volume of Business – the gross receipts from

all types of services and Net Sales ad for credit
operations, it refers to the Gross Loans
Releases during the year.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Unbooked Allowance – refers to the
insufficient amount on the provision of
allowance for probable losses on receivables
based on PAR with 30 days grace period and
Assets that are already impaired, in
DEFINITION accordance with the Standards issued by the
OF TERMS authority.

Volume of Business – the gross receipts

from all types of services and Net Sales ad
for credit operations, it refers to the Gross
Loans Releases during the year.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 COVERAGE
This Guidelines shall cover all registered
cooperatives regardless of types and
categories.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Four 3 Parts
1) The Governance and
Management Reports (GMR)
Performance ANNEX A
Audit Report
2) The financial
consists of : Performance Standards –
STEPS ANNEX B
3) Summary ANNEX C

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 1) The Governance Report
– consists of reports on
The Governance actions undertaken by
and Management the different
Report responsibility centers, to
(4 Components) wit: General Assembly,
- Board of Directors,
Different Committees
and other Officers of the
Cooperatives

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 2) MANAGEMENT
REPORTS/RECORDS
Consists of records and
The reports of the Human
Governance Resource, Organizational
and Structures, Systems and
Management Procedures, and Compliance
Report to and Certificates from
different Government
Agencies.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 3. PARTNERSHIP,
NETWORKING AND
LINKAGING
The pertains to involvement,
Governance
participation and affiliation
and
Management of cooperatives to different
Report organizations and
activities/undertakings.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 4. MEMBERSHIP
PARTICIPATION
pertains to direct
The participation of
Governance members to
and
Managemen governance and
t Report cooperative affairs,
programs and
activities.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 The report reflects the financial
performance of the cooperative using
the following as indicators ( STEPS)

S – Stability
FINANCIAL T -Turn Over Ratio
PERFORMA
E – Efficiency
NCE
(ANNEX B) P - Profitability and

S - Structure of Assets

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Performance Standards Part II.

The report contains the overall

observations and findings gathered from
the Governance and Management Report
- Part 1 and Financial Performance
SUMMARY Standards Part II.
REPORT It contains the strong areas of the
(ANNEX C) cooperative and the areas to be improved
for compliance as reflected in the
Governance and Management Report.
The cooperative shall provide the actions
needed and timeline for areas to be
improved or for compliance.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Governance Management
Report
200pts x 50% x 40%
RATING
SYSTEM STEPS 100pts x 60%

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Adjectival Rating
Large Medium5 Small Micro Adjectival
Rating

96-100% 93-100% 90-100% 87-100% Excellent

91-95% 85 – 92% 80-89% 75-86% Very

Satisfactory

86-90% 77-84% 70-79 63-74% Satisfactory

81-85% 69-76% 60-69% 51-62% Fair

Below 81% Below 69% Below 60% Below 51% Needs

Improvemen
t

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Submission of PAR

 Within 120 days after

the end of each
calendar year using the
CDA on line system

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 SANCTIONS OFR NON
SUBMISSION OF PAR
1)Non Issuance Of Certificate Of Good
Standing

2) Fine Of Php100.00 Per Day Of Delay

3)The Authority May Dissolve/Revoke,

After Due Process The COR With The CDA

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 FIELD
INSPECTION
VALIDATION OF CDS
OF PAR

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 ANNEX A – GOVERNANCE AND
MANAGEMENT REPORT

2) WITH
1)ANSWERAB CORRESPONDING
LE BY YES POINTS
OR NO

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

  GENERAL ASSEMBLY OR
MEMBERS

WHO ARE  BOARD OF DIRECTORS

REQUIRED TO  AUDIT COMMITTEE
COMPLY WITH  ELECTION COMMITTEE
THE GOOD  EDUCATION COMMITTEE
GOVERNANCE  ETHICS COMMITTEE
PRACTICES  GAD COMMITTEE
 GENERAL MANAGER
 SECRETARY
 TREASURER
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 GMR Points
A. Governance Report 151
A.1 General Assembly 18
A.2 Board of Directors (BODs) 46
A.3 Election Committee 7
A.4 Audit Committee 8
A.5 Education Committee 11
A.6 GAD Committee 10
A.7 Mediation and Conciliation Committee
11
(Medcon)
A.8 Ethics Committee 9
A.10 Secretary 15
A.11 Treasurer 9
A.12 General Manager / C.E.O. / or its equivalent 7

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 GMR Points
B. Management Reports/Record 41
B.1 Organizational/Operational Structure 3
B.2 Systems and Procedures 18
B.3 Human Resource Records 4
B.4 Performance Evaluation 2
B.5 Compensation and Benefits 4
B.6 Compliance to Government Requirements 10
C. Partnership, Networking and Linkaging 5
D. Membership Participation 3
TOTAL POINTS 200

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 STEPS Points
Financial Points
S Stability 19
T turnover ratio 6
E Efficiency 38
P Profitability 15
S Structure Of Assets 22
Total Points 100

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Organizational Chart

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting
A strategy is the use of assets though
long-run planning and development
to ensure success. Strategic planning
is a step-by-step determination of
where you are, where you want to
go, how you wish to get there, when
you want to arrive, who will do the
work, and how much you are willing
to pay.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Budgeting
Article 37 of RA 9520 provides, “Unless otherwise
provided in the by‐laws, the direction and
management of the affairs of a cooperative shall be
vested in a board which shall be composed of xxx
elected by the general assembly xxx.”

Therefore, Cooperative directors have the

responsibility to originate and maintain a long-term
perspective of where the cooperative is headed.
They are concerned with how the cooperative can
better serve members’ needs and what general
changes may be necessary in organizational and
operational policies.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Budgeting
ART. 38. Powers of the Board of Directors. – The
board of directors shall be responsible for the
strategic planning, direction-setting and policy-
formulation activities of the cooperatives.

The manager is action and tactic oriented in

running the day-to-day operations in response to
the goals and objectives set by the board.
A well-thought-out strategy plan is the best
management tool that a board of directors can give
its manager.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting
Strategic planning is long-term planning. It
differs from short term or annual budgeting.
Annual budgeting with cash-flow
projections is usually sufficient for 1 year.

However, this kind of short-term planning,

on a year-to-year basis only, is akin to
committing business suicide when factors
in the business world change.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting
While long-term strategic planning doesn’t
guarantee success, it improves the odds of success.
The strategic planning process is a formal and
systematic endeavor to determine where the
cooperative is and where it is going in the future.
The planning horizon is usually 3 to 10 years.

Strategic planning is goal oriented and focuses on

specific measurable actions.
It is based on available and factual information
and assumptions regarding the future.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting
It clarifies relationships, promotes
understanding of established objectives, and
assigns specific responsibilities, tasks, and
time schedules.

It includes orderly reviews of progress.

Strategic planning uses the cooperative’s
strengths to put it in the best possible
position while change is occurring.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting
• It also devises steps to minimize the
cooperative’s weaknesses, or even better,
devises steps that turn its weaknesses into
strengths.

• Strategic planning helps obtain the

confidence of lenders and investors. It
evaluates alternative actions. In short,
strategic planning makes a cooperative
proactive, instead of reactive.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting - Strategic

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting - Strategic

• The basic idea of strategic planning is to gather and

present information on trends and forces affecting
the cooperative.

The planning group helps decide what are the

cooperative’s values and beliefs are and how it will
conduct business.

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

 Budgeting - Strategic
• With these belief statements in mind, an overall
mission or purpose is developed.

• Goals are established. Measurable objectives are

then developed for measuring progress.

• Activities are assigned to people and financial and

time resources allocated. Terms of performance are
set for evaluating progress.

• The plan is implemented and its effects are

evaluated.
AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 Budgeting - Strategic
• Strategic planning takes time and commitment. It
is not unusual to spend three or four days in the
first three phases, gathering facts, producing a
mission statement, and identifying strengths,
weaknesses, opportunities, and threats (SWOT) to
the cooperative.

• This is especially true if the planning group is

entering the strategic planning process for the first
time

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs
 “Anyone who stops
learning is old,
whether at twenty or
eighty. Anyone who
keeps learning stays
young.” – Henry Ford

-End-

AGRIZKAYA Coop Federation PELAYO & BARRIENTOS CPAs