The Ins and Outs of Financial Statements

Without formal training in commerce or business administration, decoding your society’s financial statements might feel daunting. These tips will equip you to approach them with clarity and confidence.

Cash v/s Accrual 

There are two primary methods of accounting:

• Cash Basis
• Accrual Basis

Housing society accounts are typically maintained using the accrual basis method.

Let’s consider your society’s Passenger Lift AMC, for which you pay ₹1,10,000 annually to a vendor. The contract period spans July 1st to June 30th.

You won’t see the full ₹1,10,000 reflected directly in the financial statements. Instead, the amount is split across two accounting periods:

• ₹82,500 is allocated as AMC expense from July 1st to March 31st
• ₹27,500 is treated as AMC expense from April 1st to June 30th

Here’s how it appears in the books:

• The ₹27,500 portion (April to June) is recorded on the asset side of the balance sheet as ‘Prepaid Expenses’
• The ₹82,500 portion is added to the previous year’s prepaid expenses, and the total is shown in the Income and Expenditure Statement under ‘Passenger Lift AMC’

Capitalisation

Suppose your society purchases a new water pump for ₹25,000. Although the payment is made in the current financial year, you won’t see the full amount listed as an expense in the Income and Expenditure Statement.

Why? Because the pump is expected to serve the society for 8–10 years, and it would be inaccurate to treat the entire cost as a one-time expense. Instead, the pump is classified as an asset, and its cost is gradually expensed through annual depreciation.

Here’s how it works:

• Year 1:
• Depreciation @ 15% of ₹25,000 = ₹3,750
• The pump’s book value reduces to ₹21,250
• Year 2:
• Depreciation @ 15% of ₹21,250 = ₹3,187.50
• Book value becomes ₹18,062.50

And so on, until the asset is fully depreciated over its useful life.

This method ensures that expenses are matched with the period in which the asset is used, providing a more accurate financial picture. 

Budget Planning: A Complete Walkthrough

One of the AGM agenda points involves presenting the annual budget for the next financial year and securing its approval from the General Body.  Below are some insights worth considering. It is assumed that AGM is scheduled in September 2025.

Start by getting the approved copy of the annual budget for FY 2024-25. Then prepare an Excel sheet with these columns:

1. Expense Head
2. Column A: FY 2024–25 Budget
3. Column B: FY 2024–25 Actual
4. Column C: FY 2025–26 Budget
5. Column D: Comments

You will get FY 2024–25 Actual data from Income & Expenditure Sheet. 

Guidelines for entering data in Column ‘C’

• The budget is first prepared by the Managing Committee and then presented at the AGM. Committee members should be given the opportunity to express their opinions during internal discussions. After it’s shared with the General Body, all members of the committee are expected to stand by it at the AGM.
• The budget sets the spending cap for the Managing Committee. Add a contingency buffer to each expense head to help the committee manage unforeseen costs efficiently. 
• Prepare distinct budgets for operational expenses (routine) and capital expenses (one-time). The following steps apply to operational expenditure. For capital items like buying a laptop for the society, collect vendor quotations and record the quoted price in Column ‘C’.
• When Column ‘A’ and ‘B’ values are nearly the same, increase Column ‘C’ by 10% over Column ‘B’ to factor in inflation. Avoid relying solely on government inflation data, as actual market inflation tends to differ. For monthly payments like sweeper wages or security agency fees, apply the full 10% increase. 
• If Column ‘B’ is either higher or lower than Column ‘A’, discuss the discrepancy with the Secretary and Treasurer.
• If it’s a one-time variation, ignore it and add 10% to Column ‘A’ for Column ‘C’.
• If it’s a recurring expense, add 10% to Column ‘B’ and use that value in Column ‘C’.
• The General Body may propose changes to specific budget entries during the AGM. Please avoid disputing their input. If needed, ask the Chairman to conduct a vote on the concerned line items.

 The following is an example of the annual budget for a 15-member society for FY 2025–26.

Sr.	Expense Head	FY 2024-25 budget ₹	FY 2024-25 Actual ₹	FY 2025-26 budget ₹	Comments
1	Security	4,00,000	4,00,000	4,40,000
2	Sweeper's Salary	60,000	60,000	66,000
3	Power Cleaning	30,000	30,000	30,000
4	Society Manager and Accountant	65,000	60,000	66,000
5	Auditor	4,000	4,000	4,500
6	Electricity bills	1,80,000	1,43,807	1,58,188
7	Water Bills	35,000	34,026	37,429
8	Property Tax	3,000	4,060	4,466
9	Parking Lift (Puzzle Parking)	1,90,000	1,97,388	2,17,127
10	Passenger Lift	1,10,000	1,09,542	1,20,496
11	Pest Control	10,000	10,000	11,000
12	Fire Audit	20,000	20,296	22,326
13	Building Insurance	40,000	0	40,000
14	Electrician	20,000	10,000	11,000
15	Plumber	15,000	10,000	11,000
16	Tree Pruning	18,000	15,000	16,500
17	Water Tank cleaning	20,000	20,000	22,000
18	Bore Well Cleaning	20,000	20,000	22,000
19	Stationary, photocopies etc	6,000	4,000	4,400
20	Miscellaneous Expenses	6,000	8,000	8,800
21	Banking charges	2,000	1,568	1,725
	Total	15,58,000	10,15,090	13,69,500

Things You Need to Know About Collective Responsibility of Managing Committee

Bye-law 136 stipulates that the Managing Committee bears collective responsibility for all decisions taken by the Secretary, Chairman, or any individual committee member. However, the Mumbai High Court has offered a nuanced interpretation of this provision.

On 29th April 2025, the Deputy Registrar issued an order disqualifying all Managing Committee members of Jal Ratan Deep CHSL for a period of five years. This action followed complaints from two society members alleging non-compliance with Section 75 of the Maharashtra Cooperative Societies Act, which pertains to the Annual General Meeting (AGM). The cited lapses included:

• Failure to present the annual budget
• Absence of a plan for disposal of surplus funds
• Non-submission of the rectification report for previous audits

The petitioners’ counsel contended that the blanket disqualification was excessively punitive, especially since the Committee had complied with the remaining provisions of Section 75. Notably, 95 other society members expressed their support for the Committee.

Justice Amit Borkar concurred with this argument. He emphasised that when considering disqualification, penalties, or the appointment of an administrator, the Registrar must apply appropriate legal standards. Specifically, the nature of the default must be assessed—whether it is core or ancillary, intentional or inadvertent, malicious or due to genuine constraints. He observed:

“In the present case, the Registrar has treated all omissions equally, without distinguishing between serious and technical lapses.”

Justice Borkar further clarified that the Registrar must identify which office-bearers—such as the Secretary, Chairman, or Treasurer—were statutorily or functionally responsible for preparing and presenting the relevant documents. Ordinary committee members who had no direct involvement cannot be disqualified without clear evidence of complicity.

Implications and Open Questions for the Registrar

This judgement introduces several complexities for the Deputy Registrar:

• How should one determine whether a default is core or ancillary, wilful or inadvertent, malicious or due to genuine difficulty?
• If disqualification is deemed excessive, can alternative penalties be imposed? For instance:
• A fine of ₹5,000 on the Secretary if monthly Managing Committee meetings are not held.
• A fine of ₹2,000 if the annual budget is not presented at the AGM.
• Can the bye-laws be amended to explicitly map specific defaults to corresponding penalties? Without such clarity, enforcement may become subjective and inconsistent.

You may refer to the related news article here.

 

Facts About Property Tax and Maintenance Charges

 We pay property tax to the local municipal authority, which in turn provides essential services such as garbage collection, road maintenance, street lighting, and public healthcare. These services are extended to all residents, regardless of the amount of property tax they contribute.

Similarly, our housing society’s Managing Committee operates on a comparable principle. Members pay maintenance charges, and the Committee ensures the upkeep of common facilities—clean premises, functional lifts, operational water pumps, and regular pest control.

Given that both the Municipality and the Managing Committee follow a uniform service model, it raises a pertinent question: Why is property tax calculated based on the carpet area of a flat, while society maintenance charges are levied as a flat rate per member, irrespective of flat size?

As the Maharashtra government reconsiders the Maharashtra Cooperative Societies Act, now is the right time to raise a long-standing concern: society maintenance charges should be calculated based on the carpet area of each flat, ensuring a fairer and more transparent system. 

AGM: The Do’s and the Don’ts

Not all members come from a corporate background, so AGM protocols may be new to them. These practical tips will help the Secretary and the Chairman manage the meeting with confidence and clarity.

 

• The Secretary reports to the Managing Committee, which in turn reports to the General Body. Both the Managing Committee Meeting and the Annual General Body Meeting (AGM) are chaired by the Chairman.
• During the AGM, it is advisable that the Secretary and Chairman do not sit adjacent to each other. While they may share a cordial relationship outside official settings, it is important to maintain appropriate distance during formal proceedings to uphold neutrality and decorum.
• A Managing Committee Meeting must be held prior to the AGM. This serves as the appropriate forum for Committee Members to raise any queries or concerns. committee Members are expected to refrain from posing uncomfortable or confrontational questions during the General Body Meeting.
• Although the Secretary handles most operational decisions, the Managing Committee bears collective responsibility. Committee Members are expected to extend full support to the Secretary during the AGM.
• The Chairman presides over the AGM and is responsible for maintaining order. All members—including the Secretary and Managing Committee Members—must seek the Chair’s permission before speaking.
• If a Society Manager is present, he may attend the AGM in a supportive capacity. His role is limited to assisting the Secretary. He should not be asked to read the agenda, minutes, or conduct the meeting.
• The Chairman must remain impartial and refrain from expressing personal views on any agenda item. Neutrality is essential to ensure fair proceedings.
• The Secretary reads out each agenda item, after which it is opened for discussion. Members may share their views with the Chair’s permission. The Secretary, being a member, may also express opinions on the item.
• The first agenda item is usually the reading and approval of the minutes from the previous AGM. The Secretary presents the minutes, following which the Chairman seeks approval from the members present. Once approved, the Chairman signs the minutes.
• If required, the Chairman may call for a vote on any agenda item.
• After discussions conclude, the Secretary must summarise the outcome and clearly state how it will be recorded in the minutes. While this may often be procedural, careful drafting is essential for sensitive matters.
• The final agenda item is typically “Any other matter with the permission of the Chair.” Members may raise issues only after obtaining prior approval. The Chair reserves the right to deny permission, especially if the matter is deemed sensitive or critical.
• Following the AGM, a Managing Committee Meeting should be held to finalise the minutes. Once approved, the Secretary will circulate them to all members. Despite the Committee’s approval, the minutes retain a 'draft' status, allowing members an opportunity to share feedback on the wording and content.

A Practical Approach to Reserve Fund and Other Types of Funds

The Maharashtra Co-operative Societies Act, 1960 applies to both profit-oriented and not-for-profit societies. Co-operative housing societies fall under the latter category. In such societies, any surplus—defined as the excess of income over expenditure—is not considered 'profit'. This surplus typically remains in the society’s bank account or is invested in fixed deposits.

Section 66 of the Act mandates that 25% of profits be transferred to the reserve fund, which is relevant only for profit-making societies that declare dividends to shareholders. In those cases, the reserve fund allocation precedes dividend calculations.

However, for housing societies, which operate on a not-for-profit basis, it makes no sense to earmark surplus funds under specific fund names. Most housing societies do not maintain separate fixed deposits for each fund. In practice, the concept of 'funds' in financial statements often serves more as a presentational tool than a reflection of actual financial segregation. Attempts to reconcile the total of such funds with the sum of fixed deposits frequently prove unsuccessful.

Presenting the surplus or deficit directly in the balance sheet—without linking it to arbitrary fund labels—would offer a clearer and more accurate financial picture.

There should be distinct versions of the Co-operative Societies Act—one tailored for profit-making societies and another for not-for-profit entities. In the context of not-for-profit societies, terms such as 'surplus' and 'deficit' should not be equated with 'profit' or 'loss'. The conventional notions of profit and loss are not applicable to societies that do not operate with a profit motive.

Everything You Need to Know About AGM Minutes

When there’s nothing sensitive on the AGM agenda, drafting the minutes is usually a routine job. The Secretary can simply refer to older AGM minutes and prepare the draft accordingly. But if sensitive topics are involved, the Secretary’s drafting skills really come into play. It’s best if the Secretary reads out what will be recorded in the minutes after each point is discussed—especially for the sensitive ones. If there’s any disagreement about how something is worded, it should be sorted out right there in the meeting. Regardless of whether the AGM agenda includes sensitive matters, the Managing Committee and the Secretary must adhere to the following process.

Procedure for Finalising AGM Minutes

• The Managing Committee must approve the initial draft of the AGM minutes within three months from the date of the AGM.
• Upon approval, the status of the minutes changes from ‘draft’ to ‘draft1’.
• The ‘draft1’ minutes must be circulated to all members within 15 days of the Committee meeting in which the draft was finalised.
• The Secretary shall sign the ‘draft1’ minutes before circulation. 

Member Feedback and Finalisation

• If any member has objections or suggestions regarding the ‘draft1’ minutes, they must communicate them to the Secretary within 15 days of circulation.
• All member inputs shall be reviewed and discussed in the next Managing Committee meeting.
• Based on the feedback, the Committee will take suitable action and prepare the ‘draft2’ version of the minutes.
• The ‘draft2’ version is then entered into the minutes book. The Secretary then signs it. 

Approval and Final Status

• In next AGM, the Secretary reads out the ‘draft2’ minutes.
• The Chairman invites confirmation from all members regarding the contents.
• Once all members approve, the Chairman signs the minutes, and the status is updated from ‘draft2’ to ‘final’.

Modes of Circulation

The Managing Committee may use one or more of the following channels to share the ‘draft1’ minutes:

• Distribute hard copies to all members
• Send soft copies via email
• Share soft copies through WhatsApp
• Display hard copy on the society’s notice board

You can refer to Bye-law 107 for it.