10 BULLETIN" 541, U. S. DEPARTMENT OF AGRICULTURE. 



At the end of each year, each patron receives a statement or certifi- 

 cate of indebtedness which shows the amount he has contributed 

 during the year, less his proportionate share of the interest and 

 depreciation. In accordance with the plan previously outlined, 

 these certificates will be taken up five years after they are issued. 

 It will therefore be necessary to continue the special assessment for 

 this purpose throughout the life of the association. In other words, 

 $1,450 will be provided annually in this manner. 



It is important that sufficient provision for the creation of an 

 adequate reserve fund for depreciation be made. Unless this is done 

 the face value of the outstanding certificates soon will be greater than 

 the assets of the organization. Of course, if provision for a reserve 

 fund for depreciation is made in connection with the general operating 

 expense, a charge for this purpose should not be included as a part of 

 the special assessment. 



The payment of interest on the certificates is desirable because the 

 patronage of each individual is likely to fluctuate from year to year 

 so that a member's financial interest in the organization may not 

 always be exactly in proportion to the use he makes of the organiza- 

 tion. The payment of interest also will give retiring members a 

 return on their investment as long as they continue to hold a financial 

 interest in the association. 



An objection that some may have to offer, to the revolving plan of 

 financing a cooperative association, is that it requires a complicated 

 system of bookkeeping. This objection is not serious for it must be 

 remembered that the same records will be required in order to dis- 

 tribute the patronage refunds, and the only additional labor will be 

 in connection with the issuance and redemption of the certificates of 

 indebtedness. 



For some classes of business and for some organizations this plan 

 of financing may not prove practicable because of the effect it may 

 have on the immediate returns to the farmer for his products. In 

 such instances it may be advisable to extend the period of repaying 

 the loans, or some other plan may be found more feasible. Thus, an 

 organization may be incorporated for 20 years and loans be secured 

 for this period. When the 20 years have elapsed, a reorganization 

 will be necessary and the new organization will be incorporated for 

 another 20 years if the business is to be continued. The old loans 

 will be paid up and the new organization will obtain new loans. 

 Adequate provision for depreciation should be made so that the 

 organization will be in a position to pay up old loans in full when 

 due. A fair rate of interest should be paid on such loans. 



SECTION 6 AND EXISTING ORGANIZATIONS. 



Associations which are already engaged in business and which are 

 not formed in accordance with the provisions of section 6 of the 



