KANLURAN BUILDERS AND MAINTENANCE SERVICES COMPANY

NOTES TO FINANCIAL STATEMENTS

1. Corporate Information

Kanluran Builders and Maintenance Services Company (the “Company”) was organized in the Philippines
and registered with the Securities and Exchange Commission (SEC) on April 28, 2005 with registration
no. PG200507230.

The Company’s primary purpose is to engage in the business of construction, house repair, and painting.

The registered office address is at No. 39 Gumamela St., Bonair Homes, Molino, Bacoor, Cavite.

The financial statements for the year ended December 31, 2015 were authorized for issue by the General
Partners on April 12, 2016.

2. Summary of Significant Accounting and Financial Reporting Policies

Basis of Preparation
The accompanying financial statements have been prepared under the historical cost convention and are
presented in Philippine peso (Peso) which is the Company's functional and reporting currency. All values
are rounded to the nearest Peso except when otherwise indicated.

Statement of Compliance
The financial statements of the Company have been prepared in compliance with the Philippine Financial
Reporting Standards for Small and Medium-sized Entities (PFRS for SMEs),

Cash
Cash and cash equivalents include cash on hand, demand deposits and other short-term highly liquid
investments with original maturities of three months or less.

Financial Instruments - Initial Recognition and Subsequent Measurement

Date of Recognition. The Company recognizes a financial asset or a financial liability in the statement of
financial position when it becomes a party to the contractual provisions of the instrument. In the case of a
regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done
using settlement date accounting. Regular way purchases or sales are purchases or sales of financial assets
that require delivery of assets within the period generally established by regulation or convention in the
marketplace.

Initial Recognition. Financial instruments are recognized initially at fair value, which is the fair value of
the consideration given (in case of an asset) or received (in case of a liability). The initial measurement of
financial instruments is fair value with changes in fair value recognized in profit or loss.

Determination of Fair Value. The fair value of financial instruments traded in active markets at the
reporting date is based on their quoted market price or dealer price quotations (bid price for long positions
and ask price for short positions), without any deduction for transaction costs. When current bid and
asking prices are not available, the price of the most recent transaction provides evidence of the current
fair value as long as there has not been a significant change in economic circumstances since the time of
the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using
appropriate valuation techniques. Valuation techniques include net present value techniques, comparison
to similar instruments for which market observable prices exist, option pricing models, and other relevant
valuation models.

Classification of Financial Instruments. Subsequent to initial recognition, the Company classifies its
financial instruments in either of the following categories: 1) amortized cost or cost less impairment or 2)
fair value with changes in fair value recognized in profit or loss. The category depends on the purpose for

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which the instruments are acquired and whether they are quoted in an active market. Management
determines the category of its financial instruments at initial recognition and, where allowed and
appropriate, re-evaluates such designation at each financial year-end.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and any impairment in value.

The initial cost of property and equipment comprises its purchase price, and other directly attributable
costs of bringing the asset to its working condition and location for its intended use. Manufacturers’
credits that reduce the price of property are recorded upon delivery of the property. Such credits are
applied as a reduction from the cost of the property and equipment.

Expenditures incurred after the property and equipment have been put into operation, such as repairs and
maintenance costs, are normally charged to income in the period in which the costs are incurred. In
situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the
future economic benefits expected to be obtained from the use of an item of property and equipment
beyond its originally assessed standard of performance, the expenditures are capitalized as additional cost
of property and equipment.

Depreciation, which commences when the asset is available for use, is computed on a straight-line basis
over the following estimated useful lives of the assets:

The estimated useful lives, depreciation method and residual values are reviewed periodically to ensure
that the periods and method of depreciation and residual values are consistent with the expected pattern of
economic benefits from items of property and equipment. Any changes in estimate arising from the review
are accounted for prospectively.

When assets are sold or retired, their costs, accumulated depreciation and any impairment in value and
related revaluation increment are eliminated from the accounts. Any gain or loss resulting from their
disposal is recognized as income and included in the statement of comprehensive income.

Impairment of non-financial asset

At each reporting date, property and equipment are reviewed to determine whether there is any indication
that assets have suffered an impairment loss. If there is an indication of possible impairment, the
recoverable amount of any affected asset (or group of related assets) is estimated and compared with its
carrying amount. If an estimated recoverable amount is lower, the carrying amount is reduced to its
estimated recoverable amount, and an impairment loss is recognized immediately in profit or loss.

If an impairment loss subsequently reverses, the carrying amount of the asset (or group of related assets)
is increased to the revised estimate of its recoverable amount, but not in excess of the amount that would
have been determined had no impairment loss been recognized for the asset (or group of related assets) in
prior year. A reversal of an impairment loss is recognized immediately in profit or loss.

Prepayments

Prepayments are initially measured at the amounts paid and subsequently recognized as expense over the
period on which the prepayments apply.

Accounts payable and accrued expenses

Accounts payable and accrued expenses are obligations on the basis of normal credit terms and do not
bear interest. These are recognized initially at the transaction price and subsequently measured at
amortized cost using the effective interest method.

Liabilities
Advances from related parties, accrued expenses and other liabilities, which are based on normal credit
terms and do not bear interest, are recognized in the period in which the related money, goods or services
are received when a legally enforceable claim against the Company is established.

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Revenue
Revenue is recognized when it is probable that the economic benefits associated with the transaction will
flow to the Company and the amount of the revenue can be reliably measured. Revenue is measured at the
fair value of the consideration received. The Company assesses its revenue arrangements against specific
criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is a
principal in all of its revenue arrangements. The following specific recognition criteria must also be met
before revenue is recognized:

Rendering of Services
General construction installation fees and other allied activities are recognized when the services have
been performed.

Cost and Expenses

Cost and expenses are decreases in economic benefits during the accounting period in the form of
outflows or decreases of assets or incurrence of liabilities that results in decrease in equity. Costs and
expenses are recognized in the Expenses are recognized when incurred and measured at the fair value of
the consideration paid or payable,

Employee Benefits
Employee benefits are all forms of consideration given by the Company in exchange for service rendered
by employees, including directors and management. The Company recognizes the cost of all employee
benefits to which its employees have become entitled as a result of service rendered to the Company
during the reporting period.

Post-employment Benefit Plans

Post-employment benefits are employee benefits (other than termination benefits) that are payable after
the completion of employment, such as retirement benefits. The Company has no defined retirement
benefit plan for its employees, but the Company provides long-term benefits to entitled employees in
accordance with the provisions of Republic Act No. 7641 which states that:

“An employee is entitled to retirement benefit if the following conditions are met:
a. upon reaching the age of sixty (60) years or more , but not beyond sixty-five (65) years which is
declared the compulsory retirement age; and
b. who has served at least five (5) years in the Company

The retirement pay is computed at one-half (1/2) month salary for every year of service, a fraction of at
least six (6) months is considered one whole year. The term one-half (1/2) month means fifteen (15) days
plus one-twelfth (1/12) of the 13th month pay and the cash equivalent of not more than five (5) days of
service incentive leave.

The Company could not provide for retirement benefit because of high employee turnover, with an
average tenure of only 1.5 years in service.

Termination Benefits
Termination benefits are employee benefits payable as a result of either an entity’s decision to terminate
an employee’s employment before the normal retirement date, or an employee’s decision to accept
voluntary redundancy in exchange for those benefits. Because termination benefits do not provide the
Company with future economic benefits, the Company recognizes them as an expense in profit or loss
immediately.

The Company has not paid any termination benefits for the years 2015 and 2014.

Income Taxes
Current income tax

Current income tax assets and liabilities are measured at the amounts expected to be recovered from or
paid to the taxation authorities, The tax rates and tax laws used to compute the amount are those that are
enacted or substantively enacted at the end of the reporting period.

Deferred income tax

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 Deferred income tax is provided, using the balance sheet liability method, on all temporary differences at
the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for
financial reporting purposes.

Deferred income tax assets are recognized for all deductible temporary differences and carry forward
benefits of unused net operating loss carryover (NOLCO). The amount of deferred income tax assets are
measured to the extent that it is probable that future taxable profits will be available against which the
deductible temporary differences and the carry forward benefits of unused tax losses can be utilized
through an allowance account, Deferred income tax liabilities are recognized for all taxable temporary
differences.
A valuation allowance is recognized against deferred income tax assets so that the net carrying amount
equals the highest amount that is more likely than not to be recovered based on current or future taxable
profit. The carrying amount of deferred income tax asset is reviewed at each balance sheet date and the
valuation allowance is adjusted to reflect the current assessment of future taxable profits. Such adjustment
is recognized in profit or loss.

Deferred income tax assets and deferred income tax liabilities are measured at the tax rates that are
expected to apply to the year when the asset is realized or the liability is settled, based on tax rates and tax
laws that have been enacted or substantively enacted at the end of the reporting period.
Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right
exists to set off current income taxes and the deferred income taxes relate to the same taxable entity and
the same taxation authority.

Provisions
Provisions are recognized under the following conditions: (a) the Company has a present obligation (legal
or constructive) as a result of a past event; (b) it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation; and (c) a reliable estimate of the amount of the
obligation can be made.

Contingencies
Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes to
financial statements unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the financial statements but disclosed in the notes to
financial statements when an inflow of economic benefits is probable.

Events After End of the Reporting Period

Post year-end events that provide additional information about the Company's position at the balance
sheet date (adjusting events) are reflected in the financial statements, Post year-end events that are not
adjusting events are disclosed in the notes to financial statements when material.

3. Significant Accounting Judgments

The preparation of the Company's financial statements in conformity with PFRS for SMEs requires
management to make judgments that affect the amounts reported in the financial statements and
accompanying notes. The judgments used in the financial statements are based upon management's
evaluation of the relevant facts and circumstances that are believed to be reasonable as of the date of the
financial statements. Actual results could differ from these estimates. The effect of any change in
estimates is reflected in the financial statements as it becomes reasonably determinable.

Judgments
In the process of applying the Company's accounting policies, management has made the following
judgments which have the most significant effect on the amounts recognized in the financial Statements:

Determination of functional currency

The Company, based on relevant economic substance of the underlying circumstances, has determined its
functional currency to be the Peso. It is the primary economic environment in which the Company
operates.

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 Revenue. The Organization assesses its revenue arrangements against specific criteria in order to
determine if it is acting as principal or agent. The Organization has concluded that it is acting as principal
in all of its revenue arrangements.

Classification of financial instruments

The Company classifies a financial instrument, or its component parts, on initial recognition, either as a
financial asset, a financial liability or an equity instrument in accordance with the substance of the
contractual arrangement and the definitions of a financial asset, a financial liability or an equity
instrument, The substance of a financial instrument, rather than its legal form, governs its classification in
the statement of financial position.

Financial assets and financial liabilities measured at amortized cost are presented in Note 11.

Recognition of valuation allowance against deferred income tax assets

The management reviews the carrying amounts of deferred income tax assets at each financial reporting
date and the valuation allowance is adjusted to reflect the current assessment of future taxable profits.

Repairs and maintenance

Repairs and maintenance incurred by the Company have not resulted in an increase in the future economic
benefit of its property and equipment, therefore charged to operations.

Estimates and Assumptions

The key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing material adjustment to the carrying amounts of assets
and liabilities within the next financial year are discussed below. The Company based its assumptions and
estimates on parameters available when the financial statements were prepared. Existing circumstances
and assumptions about future developments however, may change due to market changes or
circumstances arising beyond the control of the Company. Such changes are reflected in the assumptions
when they occur.

Useful Lives of Property and Equipment. The Company estimates the useful lives of property and
equipment based on the period over which the assets are expected to be available for use. The estimated
useful lives of these assets are reviewed at each financial year-end and updated if expectations differ from
previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other
limits on the use of these assets. In addition, the estimation of the useful lives of these assets are based on
the collective assessment of industry practice, internal technical evaluation and experience with similar
assets. It is possible, however, that future results of operations could be materially affected by changes in
estimates brought about by the changes in factors mentioned above. The amounts and timing of recorded
expenses for any period would be affected by changes in these factors and circumstances.

Impairment of Property and Equipment. The Company’s management conducts an impairment review of
its property and equipment when certain impairment indicators are present. This requires the Company’s
management to make estimates and assumptions of the future cash flows expected to be generated from
the continued use and ultimate disposition of such assets and the appropriate discount rate to determine the
recoverable value of the assets. Future events could cause the Company to conclude that these assets are
impaired. Any resulting impairment loss could have a material adverse impact on the Company’s financial
condition and results of operations.

4. Cash

5. Other Current Assets

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6. Property and equipment

A reconciliation of the carrying amounts at the beginning and end of 2015, and the gross carrying amounts
and accumulated depreciation of property, plant and equipment is shown below.

As of December 31, 2015

Jan. 01, 2015 Additions Retirement/Disposals Dec. 31, 2015
Cost:
Tools Equipment 349,000 - 349,000
OfficeEquipment 56,950 56,950
Office Furniture and Fixtures 64,500 - 64,500
-
470,450 - 470,450
Acc. Depreciation:
Tools Equipment 280,000 69,000 349,000
OfficeEquipment 52,000 4,950 56,950
Office Furniture and Fixtures 46,360 18,140 64,500
-
378,360 92,090 470,450
Carrying value 92,090 (92,090) -

7. Accounts Payable and Accrued Expenses

8. Operating Expenses

This account consists of:

2014 2015

Salaries 42,000 42,000

Miscellaneous 2,475 1,204

Light and Water 17,666

Office Supplies 1,192

Travel and Transportation 2,645

Communication 8,092

Taxes and Licenses 1,500 500

Deprecation 47,295 92,090

Loss Due to Flood 219,044

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 Expired Input VAT 58,086

122,865 412,924

9. Supplementary Information Required Under Revenue Regulations (RR) 15-2010 and 19-2011

The Bureau of Internal Revenue Issued Revenue Regulations 15-2010 and 19-2011which required certain
supplementary information to be disclosed as part of the notes to financial statements. The supplementary
information is, however, not a required part of the basic financial statements prepared in accordance with
Philippine Financial Reporting Standards for Small and Medium-sized Entities PFRS for SMEs.

The Company presented this tax information required by the Bureau of Internal Revenue as a supplementary
schedule filed separately from the basic financial statement.

10. Taxes and Licenses

In compliance with the requirements set forth by the Revenue Regulation No. 15-2010 hereunder are the
information on taxes, duties, and licenses fees paid or accrued during taxable year 2015.

SCHEDULE OF TAXES AND LICENSES

Notes 2015
Business Permit -
Community Tax Certificate 500
BIR annual registration fee -
TOTAL 500

In compliance with the requirements set for the by the BIR Revenue Regulations No. 15 -2010, hereunder
are the information of Value Added Tax (VAT) as reported by the company for the year 2015:

Tax Base VAT

Revenue/ Output Tax - -
Sales to private entities P - P -
Sales to government -
- -
Sources of Input Tax
Beginning of year P 58,086
Current purchases:
Goods for resale P - -
Services other than goods for resale - -
Capital goods not exceeding 1 million -
Purchases not qualified for input tax 43,705

Total available input tax 43,705 58,086

Deduction from input tax:
End of year - total allowable input tax 58,086
VAT before tax credits and other payments (58,086)
VAT payments
VAT withheld on sales to government
Excess input tax at the end of the year P (58,086)

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