Business StudiesISC Class 11 · Co-operative Organisations

How a Co-operative Shares its Surplus; Multi-state Societies (ISC Class 11)

Updated 17 October 2026 · Fact-checked

A co-operative society first sets aside a part of its surplus to a reserve fund and other funds as required by its bye-laws and the law, pays a limited dividend on share capital, and shares the rest among members in proportion to their purchases or business with the society (patronage). A multi-state co-operative society has members and operations in more than one state and is governed by the central law.

Notice the order: funds and a limited dividend come first, and the largest remaining share goes to members by how much they used the society.

Illustration drawn for QuestionBuddy.

Understand Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies

Surplus, not profit. The excess of income over expenditure of a society is a *surplus*, because the society serves members at near cost.

Order of distribution (typical).
1. *Reserve fund:* a fixed share of the surplus is transferred to the reserve fund every year (the percentage is laid down by the Act and bye-laws; a hypothetical rate is used in problems).
2. *Other funds:* education fund, common good fund, dividend equalisation and similar funds as the bye-laws prescribe.
3. *Dividend on share capital:* paid at a limited rate, often capped by the bye-laws.
4. *Patronage rebate (bonus):* the remaining surplus is distributed among members in proportion to the business each member did with the society (purchases from a consumer society, sales through a marketing society).

Why patronage? A co-operative belongs to its users, so rewards follow use, not capital.

Multi-state co-operative society (meaning). A society whose objects and members extend over more than one state and which is registered under the central law for multi-state co-operatives, with a board elected by members from the states. Examples of use: large marketing or credit societies serving farmers in several states.

Features. Operates in more than one state; one member, one vote; more regulation by central authority; its bye-laws stay uniform across states.

Comparison. A single-state society is registered under the state law of that state; a multi-state society is registered under the central law.

Advantages of patronage. Encourages loyalty and fair reward; reduces conflict between large and small shareholders.

Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies: key facts

Surplus: Surplus = Income - Expenditure | Shared as per bye-laws; Not profit.
Dividend on shares: Dividend = Share capital x Rate of dividend | Rate limited by bye-laws; Per cent of paid-up capital.
Patronage rebate: Rebate per Re 1 of purchases = Amount for rebate / Total purchases of members | Member rebate = Rate x Own purchases; Proportion to business.

How to answer Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies questions

Apply the order of distribution step by step.

1Compute the surplus.
2Deduct transfers to reserve and other funds.
3Compute the dividend on share capital.
4Distribute the balance in the ratio of members' purchases or business.

Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies in real life

The idea, met in an everyday situation. Answer the question in your own words, then compare with the model answer. The one-line hook is what to remember.

Patronage rebate

Suppose a consumer co-operative has Rs 30,000 left after reserve and dividend, and its members bought goods worth Rs 6,00,000 in the year. Meera bought goods worth Rs 24,000.

How much rebate does Meera receive?

Try it first, then show the solutionSolution

Rebate per rupee = 30,000 / 6,00,000 = Re 0.05.
Meera: 24,000 x 0.05 = Rs 1,200.

Answer: Rs 1,200

Memory hook: The more you buy, the more you get back.

Tricks to remember Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies

Short memory aids. Say each one aloud once, then use it on a question the same day.

R-D-P
Reserve, Dividend, Patronage.
Use it when: Order of sharing.
Use, not capital
Rewards follow use of the society.
Use it when: Patronage.
Multi = many states
More than one state, central law.
Use it when: Multi-state.

Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies: solved examples

Ordered from board level to HOTS. Try each one before you open the solution.

Example 1: Sharing basis · 1 mark · MCQBoard level

The balance of surplus of a co-operative is mainly distributed among members in proportion to:
(a) shares held (b) their business with the society (c) number of members (d) age

Try it first, then show the solutionSolution

Patronage: business done with the society.

Answer: (b) their business with the society

Example 2: Order of distribution · 3 marks · Short answerBoard level

State the order in which a co-operative society distributes its surplus. (3 marks)

Try it first, then show the solutionSolution

Transfer to reserve fund and other required funds.
Limited dividend on share capital.
Balance as patronage rebate.

Answer: Reserve fund and other funds first, then limited dividend on shares, and finally the balance on patronage.

Example 3: Surplus distribution · 7 marks · Long answerHarder board level

A consumer co-operative has a surplus of Rs 2,40,000. Suppose the rules transfer 25% to the reserve fund and 5% to an education fund, dividend is 8% on paid-up capital of Rs 2,50,000, and the rest goes as rebate on members' purchases of Rs 8,00,000. Find the rebate rate and the rebate for a member who purchased goods worth Rs 20,000. (7 marks)

Try it first, then show the solutionSolution

Reserve fund = 25% of 2,40,000 = 60,000; education fund = 12,000.
Dividend = 8% of 2,50,000 = 20,000.
Balance for rebate = 2,40,000 - 60,000 - 12,000 - 20,000 = 1,48,000.
Rebate rate = 1,48,000 / 8,00,000 = 0.185 per rupee (18.5 paise).
Member: 20,000 x 0.185 = Rs 3,700.

Answer: Rebate Rs 0.185 per rupee of purchase; the member receives Rs 3,700. (The 25% and 5% are assumed rates.)

Example 4: Dividend and rebate · 5 marks · Long answerHarder board level

Two members hold shares of Rs 10,000 and Rs 40,000. Their purchases are Rs 60,000 and Rs 20,000. The dividend rate is 6% and the rebate is 4% of purchases. Find the total receipts of each and explain who gains more from capital and who from patronage. (5 marks)

Try it first, then show the solutionSolution

Member 1: dividend 600; rebate 2,400; total 3,000.
Member 2: dividend 2,400; rebate 800; total 3,200.
Capital gives member 2 more dividend; patronage gives member 1 more rebate.

Answer: Member 1 gets Rs 3,000 (600 + 2,400); member 2 gets Rs 3,200 (2,400 + 800). Member 2 gains more from capital, member 1 from patronage.

Example 5: Multi-state society case · 4 marks · Short answerHOTS / competency

A society of farmers from three adjoining states wants to market its produce under one name. Decide whether a state-registered or multi-state co-operative is suitable, with three reasons. (4 marks)

Try it first, then show the solutionSolution

Members and operations span more than one state, so a single state law is inadequate.
A multi-state society registered under the central law can operate in all three.
Uniform bye-laws and a board with representation from each state ease management.

Answer: A multi-state co-operative society is suitable because members and business are in several states.

Where students lose marks in Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies

The slips examiners see most often, and what to write instead.

Mistake: Distributing surplus by share capital only
Company habit.
Wrong working
Surplus shared as per shares held
Right working
Balance shared on patronage
Do this: Rewards follow business done.
Usually costs: 2 marks.
Mistake: Calling the surplus profit
Wording.
Wrong working
Profit of the society
Right working
Surplus
Do this: Use "surplus".
Usually costs: 1 mark.
Mistake: Dividend on authorised capital
Wrong base.
Wrong working
8% of authorised capital
Right working
8% of paid-up capital
Do this: Use paid-up capital.
Usually costs: 1-2 marks.

Exam tips

State the percentages as assumptions when the problem says "suppose".
Show each step of the waterfall.
Always give the rebate rate before the member's share.

Practice questions on Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies

Write each answer on paper first. Open the hint only if you are stuck, and the answer only when you have finished.

Q1 · 1 mark · MCQBoard level
A multi-state co-operative society has members and operations in:
(a) one state only (b) more than one state (c) one district only (d) only urban areas
Hint
Name gives the answer.
Answer
(b) more than one state
Q2 · 3 marks · Short answerBoard level
Why is a co-operative surplus shared on patronage and not only on shares? (3 marks)
Hint
Users own the society.
Answer
The society exists to serve its members; those who use it more help its income more, so rewards follow business done. Share capital earns only limited dividend.
Q3 · 6 marks · Long answerHarder board level
A marketing society has a surplus of Rs 1,50,000. Rules transfer 30% to reserve fund; dividend is 6% on paid-up capital Rs 1,00,000; the balance is shared as rebate on sales of members' produce through the society of Rs 5,00,000. Find the rebate rate and the rebate for a member who sold produce worth Rs 40,000. (6 marks)
Hint
Reserve 45,000.
Answer
Reserve = 45,000; dividend = 6,000; rebate pool = 1,50,000 - 45,000 - 6,000 = 99,000; rate = 99,000 / 5,00,000 = 0.198; member gets 40,000 x 0.198 = Rs 7,920.
Q4 · 5 marks · Long answerHarder board level
A credit society earns Rs 90,000 surplus. It transfers 20% to reserve and pays 5% dividend on Rs 4,00,000 paid-up capital. The balance is shared among 3 members who borrowed Rs 2,00,000, Rs 1,50,000 and Rs 50,000 in the year in proportion to interest paid by them. Find each member's share assuming interest is at one rate. (5 marks)
Hint
Pool 52,000.
Answer
Reserve 18,000; dividend 20,000; pool = 90,000 - 18,000 - 20,000 = 52,000. Shares in ratio 4:3:1: Rs 26,000, Rs 19,500, Rs 6,500.
Q5 · 4 marks · Short answerHOTS / competency
A member with a large shareholding argues that the surplus should be shared mostly by shares. Evaluate using the co-operative principles and a numerical illustration with shares of Rs 50,000 against a small member with shares of Rs 5,000 who buys four times as much. (4 marks)
Hint
Use vs capital.
Answer
Co-operatives pay limited interest on capital and share the surplus by use. If rebate were by shares, the large holder would get ten times the share although the small member contributes four times the business, defeating the purpose of mutual benefit.

Test your recall

Answer in your head or on paper first, then open the card. Pulling an answer out of memory makes it stick far better than re-reading.

1.Surplus first goes to?Show answer
Reserve fund.
2.Patronage means?Show answer
Share of surplus by business done with the society.
3.Dividend is on?Show answer
Paid-up capital at a limited rate.
4.Multi-state society operates in?Show answer
More than one state.
5.Law for multi-state societies?Show answer
The central co-operative law.

Sharing the Surplus in a Co-operative and Multi-state Co-operative Societies: frequently asked questions

Is the percentage to reserve fixed?

Set by law and bye-laws; problems give it.

Is surplus taxed?

Not covered here.

Do all members get dividend?

Yes, at the declared limited rate on shares.

Can a member withdraw?

Subject to bye-laws.