Manual Dividends Workaround

As suggested by Binny based on his interactions with Cooperative Banks.

I have been working with other cooperative banks who want to give dividend to their shareholders and I have recommended to them to use a normal savings account (with 0% interest) like a Share Holdings account and to post dividend like a normal deposit.

Below is the step-by-step approach that I follow:

1)      Create a new savings product called “Share Holdings”. This is a normal savings account with 0% interest.

2)      Declaring dividends – The calculation of the total amount that is to be distributed as dividend to shareholders may be specific for each organization. The total dividend amount that is payable to shareholders is manually computed outside Mifos based on income statement and other considerations (like reserves to be made etc., retained earnings etc.).

3)      Create the following manual accounting entry in Mifos X to allocate the total declared  dividendamount from Retained earnings to Dividend Payable

– Example if total dividend is declared as 320,000 on 31-Dec-2013:

Retained Earnings account debited 320,000

Dividend Payable credited 320,000 MIFOSXTEST-57 - Getting issue details... STATUS

4)      Using the Client Savings Summary report – I find the balance in the “Share Holdings” accounts for customers as on a particular date for example – 31-Dec-2014. I export these balances to an excel sheet and then allocate the total declared dividend among these accounts based on their available balance in the “Share Holdings” account.

Example: finally, total dividend (320,000) is to be distributed as follows (based on their balances in the “Share Holdings” account):

                Customer 1 – “Share Holdings” Account 1 – 40,000

                Customer 2 – “Share Holdings” Account 2 – 60,000

                Customer 3 – “Share Holdings” Account 3 – 70,000

                Customer 4 – “Share Holdings” Account 4 – 80,000

                Customer 5 – “Share Holdings” Account 5 – 50,000

                Customer 6 – “Share Holdings” Account 6 – 20,000

Note: Dividend may be paid after 31-Dec-2013, and there may be shareholders who have closed their accounts after 31-Dec-2013, but still would need to be paid dividend. These are decisions that each organization may need to deal with. This is the reason the splitting is done manually on excel sheet.

5)      Create new asset account called “Dividend Payable Contra Account” (this needs to be an asset account as Mifos X allows only Asset accounts to specified as fund source for savings accounts.

6)      Create a new payment type called “Dividend”

7)      In product level accounting rules, attach this payment type to “Dividend Payable Contra Account” for the “Share Holdings” product under Cash Accounting.

Steps:

- for the “Share Holdings” product definition

- under “Advanced Accounting Rule”

- under “Configure Fund Sources for Payment Channels”

- click on “Add” button

- select “Payment Type” as “Dividend” and “Fund Source” as “Dividend Payable Contra Account”

- click on submit

8)      Assuming dividends are actually paid out on 21^st Jan, make dividend transactions for 21^st Jan – 6dividend deposits via Dividend payment type (The dividends could be paid to accounts on different dates too)

a)      On 21^st Jan – make an accounting entry to transfer the dividend payable to the  “DividendPayable Contra Account” (asset):

“Dividend Payable” account debit – 320,000

“Dividend Payable Contra Account” credit – 320,000

b)      Make 3 deposits to the Customer’s “Share Holdings” accounts as follows. (make sure to use the payment type as “Dividend”)

Customer 1 – “Share Holdings” Account 1 – deposit 40,000

                Customer 2 – “Share Holdings” Account 2 – deposit 60,000

                Customer 3 – “Share Holdings” Account 3 – deposit 70,000

                Customer 4 – “Share Holdings” Account 4 – deposit 80,000

                Customer 5 – “Share Holdings” Account 5 – deposit 50,000

                Customer 6 – “Share Holdings” Account 6 – deposit 20,000

9)      The sum of debits and credits for “Dividend Payable Contra Account” should match – i.e there should be no debit or credit balance in this account once all dividends are paid out.

I have not asked the Mifos X development team to look into share holdings and dividend accounts as I feel that the above approach can be used.

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