MCBROS DEVELOPMENT CORPORATION

FINANCIAL STATEMENTS
December 31, 2018 and 2017
 MCBROS DEVELOPMENT CORPORATION
STATEMENTS OF FINANCIAL POSITION

December 31
Note 2018 2017
ASSETS
Current Assets
Cash 10 P1,211,319 P980,831
Advances to a related party 5, 10 12,300,000 12,300,000
Receivables and other current assets 4, 10 772,368 673,707
Total Current Assets 14,283,687 13,954,538
Noncurrent Asset
Property and equipment - net 6 647,679 946,607
P14,931,366 P14,901,145

LIABILITY AND EQUITY

Current Liability
Accounts payable 7 P123,018 P117,236
Equity
Capital stock 9 14,375,000 14,375,000
Retained earnings 433,348 408,909
Total Equity 14,808,348 14,783,909
P14,931,366 P14,901,145

See Notes to the Financial Statements.

 MCBROS DEVELOPMENT CORPORATION
STATEMENTS OF PROFIT OR LOSS
AND OTHER COMPREHENSIVE (LOSS) INCOME

Years Ended December 31

Note 2018 2017
INTEREST INCOME 5, 10 P749,254 P748,858
OPERATING EXPENSES
Depreciation 6 298,929 298,929
Management fees 5 224,475 224,475
Taxes and licenses 112,200 81,519
Insurance expense 46,162 63,325
Outside services 15,750 15,000
Office Supplies - 61,635
Miscellaneous 20,033 9,849
717,549 754,732
(LOSS) INCOME BEFORE INCOME TAX 31,705 (5,874)
INCOME TAX EXPENSE 8 7,266 14,965
NET (LOSS) INCOME/TOTAL
COMPREHENSIVE (LOSS) INCOME P24,439 (P20,839)

See Notes to the Financial Statements.

 MCBROS DEVELOPMENT CORPORATION
STATEMENTS OF CHANGES IN EQUITY

Years Ended December 31

Note 2018 2017
CAPITAL STOCK 9 P14,375,000 P14,375,000
RETAINED EARNINGS
Balance at beginning of year 408,909 429,748
Net (loss) income for the year 22,439 (20,839)
Balance at end of year 433,348 408,909
P14,808,348 P14,783,909

See Notes to the Financial Statements.

 MCBROS DEVELOPMENT CORPORATION
STATEMENTS OF CASH FLOWS

Years Ended December 31

Note 2018 2017
CASH FLOWS FROM OPERATING
ACTIVITIES
(Loss) income before income tax P31,705 (P5,874)
Adjustments for:
Depreciation 6 298,929 298,929
Interest income 5, 10 (749,254) (748,858)
(412,865) (455,803)
Changes in:
Receivables and other current assets (111,683) (53,536)
Accounts payable 5,782 (408)
(518,766) (509,747)
Interest received 749,254 748,858
Net cash provided by operating activities 230,488 239,111
CASH FLOWS FROM AN INVESTING
ACTIVITY
Additions to property and equipment 6 - -
NET INCREASE (DECREASE) IN CASH
IN BANK 230,488 239,111
CASH IN BANK AT BEGINNING OF YEAR 980,831 741,720
CASH IN BANK AT END OF YEAR 10 P1,211,319 P980,831

See Notes to the Financial Statements.

 MCBROS DEVELOPMENT CORPORATION
NOTES TO THE FINANCIAL STATEMENTS

1. Reporting Entity

McBros Development Corporation (the Company) was registered with the Philippine
Securities and Exchange Commission (SEC) on May 9, 1991 as McBros Foods
Corporation to engage in the operation of restaurants. On April 11, 1998, the SEC
approved the change in the Company’s name to McBros Development Corporation
and the change in the Company’s primary purpose from the operation of restaurants
to construction business. Currently, the Company’s revenues come from income
derived from advances granted to a related party.

The Company is a wholly-owned subsidiary of Borromeo Bros. Estate, Inc.

(the Parent Company), a domestic entity duly organized and registered under the
laws of the Republic of the Philippines. Its operating, accounting and administrative
functions are handled by the employees of the Parent Company (see Note 5b).

The Company’s registered office address is at Suite 202, Centro Maximo Bldg.,
D. Jakosalem St., Cebu City.

2. Basis of Preparation

Basis of Accounting
These financial statements have been prepared in accordance with Philippine
Financial Reporting Standards (PFRS). They were approved and authorized for
issue by the Company’s Board of Directors (BOD) on _____________.

The Company qualifies as a small and medium-sized entity (SME) based on the
criteria set under Securities Regulation Code (SRC) Rule 68, As Amended. As
provided under the SRC Rule 68, As Amended, the Company availed of the
exemption from the mandatory adoption of the PFRS for SMEs on the basis that the
Company is a subsidiary of a parent company reporting under full PFRS.

This is the first set of the Hotel’s annual financial statements in which the PFRS 15,
Revenue from Contracts with Customers, and PFRS 9, Financial Instruments, have
been applied. Changes to significant accounting policies are described in Note 11.

Basis of Measurement
The financial statements have been prepared on the historical cost basis.

Functional and Presentation Currency

The financial statements are presented in Philippine peso, the Company’s functional
and presentation currency. All financial information is rounded to the nearest peso,
unless otherwise stated.

3. Use of Judgments and Estimates

In preparing these financial statements, management has made judgments,

estimates, and assumptions that affect the application of the Company’s accounting
policies and the reported amounts of assets, liabilities, income and expenses. Actual
results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions
to estimates are recognized prospectively.

Estimation Uncertainties
Information about estimation uncertainties that have significant risk of resulting in a
material adjustment within the next financial year is as follows:

Impairment Losses on Receivables and Advances to a Related Party

The Company uses the expected credit losses (ECL) model in estimating the level of
allowance which includes forecasts of future events and conditions. A credit loss is
the difference between the cash flows that expected to be received discounted at the
original effective interest rate. The model represents a probability-weighted estimate
of the difference over the remaining life of the receivables. The maturity of the
Company’s receivable is less than one year so the lifetime ECL and the 12-month
ECL are similar. In addition, management assessed the credit risk of the receivables
as at the reporting date as low, therefore the Company did not have to assess
whether a significant increase in credit risk has occurred.

As at December 31, 2018 and 2017, based on the assessment of the Company,
there is no indication of impairment on receivables and advances to a related party.

Useful Lives of Property and Equipment

The Company estimates the useful lives of its property and equipment based on the
period over which the asset is expected to be available for use. The Company
reviews annually the estimated useful lives of property and equipment based on
factors that include asset utilization, internal technical evaluation, technological
changes, environmental and anticipated use of the assets tempered by related
industry benchmark information. It is possible that future results of operation could
be materially affected by changes in these estimates brought about by changes in
factors mentioned. An increase in the estimated useful lives of property and
equipment would decrease depreciation expense and would increase noncurrent
assets.

As at December 31, 2018 and 2017, the carrying amount of property and equipment
amounted to P647,679 and P946,607, respectively (see Note 6).

Impairment of Nonfinancial Assets

The Company assesses at each reporting date whether there is an indication that
the carrying amounts of its nonfinancial assets may be impaired. If such indication
exists, the Company makes an estimate of the assets’ recoverable amount. At the
reporting date, the Company also assesses whether there is any indication that
previously recognized impairment losses may no longer exist or may have
decreased. If such indication exists, the recoverable amount is estimated.

Based on management’s assessment, there is no indication of impairment of the

Company’s property and equipment as at December 31, 2018 and 2017.

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4. Receivables and Other Current Assets

This account consists of:

2018 2017
Prepaid taxes P767,530 P662,404
Prepaid insurance - 9,303
Accounts receivable 893 -
Others 2,000 2,000
P770,423 P673,707

5. Related Party Transactions

Outstanding
Balance
Amount Advances to
Nature of of the a Related
Related Party Transaction Year Note Transaction Party Terms and Conditions
Parent Company Advances and 2018 a P748,250 P12,300,000 6% annual interest;
interest 2017 P748,250 P12,300,000 no impairment; unsecured
Management fees 2018 b 224,475 -
2017 224,475 -
Total 2018 P972,725 P12,300,000

Total 2017 P972,725 P12,300,000

The nature of the transactions and the outstanding balances are explained as
follows:

a. The Company has extended P12,300,000 advances to the Parent Company

bearing an interest rate at 6% per annum.

Total interest earned in 2018 and 2017 on the advances amounted to P748,250.

b. Management fees amounting to P224,475 in 2018 and 2017, relates to services

rendered by the Parent Company for and in behalf of the Company.

6. Property and Equipment

Movements in this account are as follows:

For the Year Ended December 31, 2018

Office
Transportation Furniture and
Equipment Equipment Total
Cost
Beginning balance P2,804,102 P102,100 P2,906,202
Ending balance 2,804,102 102,100 2,906,202
Accumulated Depreciation
Beginning balance 1,857,495 102,100 1,959,595
Depreciation for the year 298,928 - 298,928
Ending balance 2,156,423 102,100 2,258,523
Carrying Amount P647,679 P - P647,679

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 For the Year Ended December 31, 2017
Office
Transportation Furniture and
Equipment Equipment Total
Cost
Beginning balance P2,804,102 P102,100 P2,906,202
Ending balance 2,804,102 102,100 2,906,202
Accumulated Depreciation
Beginning balance 1,558,566 102,100 1,660,666
Depreciation for the year 298,929 - 298,929
Ending balance 1,857,495 102,100 1,959,595
Carrying Amount P946,607 P - P946,607

7. Accounts Payable

This account consists of:

2018 2017
Accounts payable P103,471 P103,471
Accrued expenses 17,641 11,859
Withholding tax payable 1,906 1,906
P123,018 P117,236

Accounts payable are noninterest-bearing and are normally on a 30-day term.

Accrued expenses pertain to accruals for utilities and other payables of the
Company.

8. Income Tax

The reconciliation of the income tax expense computed at the applicable statutory
rate to the income tax expense shown in the statement of profit or loss and other
comprehensive (loss) income is as follows:

2018 2017
(Loss) income before income tax P31,705 (P5,874)
Income tax at the applicable statutory rate of 30% P9,512 (P1,762)
Tax effects of:
Unrecognized deferred tax assets on net
operating loss carry-over (NOLCO) and
minimum corporate income tac (MCIT) - 16,910
Interest income subjected to final tax (302) (183)
Recognition of the previously unrecognized
NOLCO (1,945) -
Income tax expense P7,265 P14,965

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 Details of NOLCO are as follows:

Applied
Year Prior Current Expired Remaining
Incurred Expiry Date NOLCO Years Year Amount Amount
2017 December 31, 2020 P6,483 P6,483 P - P -

Details of MCIT are as follows:

Applied
Year Prior Current Expired Remaining
Incurred Expiry Date MCIT Years Year Amount Amount
2018 December 31, 2021 P14,965 P - P - P - P14,965
2017 December 31, 2020 14,965 - - - 14,965

9. Equity

Capital Stock
Details of capital stock as at December 31, 2017 and 2016 are as follows:

Number of
Common Shares Amount
Authorized, at P1 par value each 25,000,000 P25,000,000
Issued and outstanding 14,375,000 P14,375,000

Capital Management
The Company’s equity consists of common stock and retained earnings as shown in
the statement of changes in equity.

The primary objective of the Company’s capital management is to ensure its ability to
continue as a going concern and to maintain a strong credit rating and healthy
capital ratios in order to support its business and maximize shareholder value.

The Company manages its capital structure and makes adjustments to it, in light of
changes in economic conditions. To maintain or adjust the capital structure, the
Company may adjust the dividend payment to shareholders, return capital to
shareholders or issue new shares. No changes were made in the objectives, policies
or process in 2018 and in 2017.

10. Financial Risk Management

The Company’s financial assets and liability comprise of cash, advances to a related
party, accounts receivable, and accounts payable. The main purpose of these
financial instruments is to raise finances for the Company’s operations.

The main risks arising from the financial assets and liability of the Company are
credit risk and liquidity risk. The Company’s management reviews and approves
policies for managing each of these risks. These are summarized as follows:

5
 Credit Risk
Credit risk is the risk of financial loss to the Company if a customer or counterparty to
a financial instrument fails to meet its contractual obligations. The Company’s
significant credit risk relates mainly to its bank deposits, advances to a related party
and accounts receivable with maximum exposure equal to the carrying value as
follows:

Note 2018 2017

Cash in bank P1,211,319 P980,831
Advances to a related party 5 12,300,000 12,300,000
Accounts receivable 4 893 -
P13,512,212 P13,280,831

Total interest income earned from cash in bank, net of final tax, amounted to P1,004
and P608 as at December 31, 2018 and 2017, respectively.

As at December 31, 2018 and 2017, the Company’s advances to a related party and
accounts receivable are neither past due nor impaired.

The Company’s exposure to credit risk is influenced mainly by individual

characteristics of each customer. Management considers the factors that may
influence the credit risk of its customer base and limits exposure to customers in
experiencing economic volatility.

Liquidity Risk
Liquidity risk is the risk that the Company will encounter difficulty in meeting
obligations associated with its financial liabilities. The Company’s approach to
managing liquidity is to ensure, as far as possible, that it will always have sufficient
funds to meet its liabilities when due, under both normal and stressed conditions,
without incurring unacceptable losses or risking damage to the Company’s
reputation.

The Company monitors and maintains a level of cash deemed adequate by the
management to finance the Company’s operations and mitigate the effects of
fluctuations in cash flows. Additional short-term funding is obtained from related party
advances and short-term loans when necessary.

As at December 31, 2018 and 2017, the Company’s financial liabilities are all
payable on demand.

Fair Value of Financial Instruments

The carrying amount of cash in bank, advances to a related party, accounts
receivable and accounts payable approximate their fair values due to relatively short
term maturities of the financial instruments.

11. Significant Accounting Policies

The accounting policies set out below have been applied consistently to all years
presented in these financial statements except for the changes in accounting policies
as explained below.

6
The Company has adopted the following amendments to standards starting
January 1, 2018 and accordingly, changed its accounting policies. Except as
otherwise indicated, the adoption of these amendments to standards did not have
any significant impact on the Company’s financial statements.

 PFRS 9, Financial Instruments (2014). PFRS 9 (2014) replaces PAS 39,

Financial Instruments: Recognition and Measurement and supersedes the
previously published versions of PFRS 9 that introduced new classifications and
measurement requirements (in 2009 and 2010) and a new hedge accounting
model (in 2013).

PFRS 9 includes revised guidance on the classification and measurement of

financial assets that reflects the business model in which assets are managed
and their cash flow characteristics, including a new forward-looking expected
credit loss model for calculating impairment, and guidance on own credit risk on
financial liabilities measured at fair value. PFRS 9 incorporates new hedge
accounting requirements that represent a major overhaul of hedge accounting
and introduces significant improvements by aligning the accounting more closely
with risk management.

The Company has used an exemption not to restate comparative information for
prior periods with respect to classification and measurement (including
impairment) requirements. Differences in the carrying amounts of financial assets
and financial liabilities resulting from the adoption of PFRS 9 are recognized in
retained earnings and reserves as at January 1, 2018. Accordingly, the
information presented for 2017 does not generally reflect the requirements of
PFRS 9, but rather those of PAS 39.

 PFRS 15, Revenue from Contracts with Customers replaces PAS, 11

Construction Contracts, PAS, 18 Revenue, International Financial Reporting
Interpretations Committee (IFRIC) 13, Customer Loyalty Programmes, IFRIC 18,
Transfer of Assets from Customers and SIC-31 Revenue - Barter Transactions
Involving Advertising Services. The new standard introduces a new and more
comprehensive revenue recognition model for contracts with customers which
specifies that revenue should be recognized when (or as) a company transfers
control of goods or services to a customer at the amount to which the company
expects to be entitled.

PFRS 15 requires a contract with a customer to be legally enforceable and to

meet certain criteria to be within the scope of the standard and for the general
model to apply. It introduces detailed guidance on identifying performance
obligations which requires entities to determine whether promised goods or
services are distinct. It also introduces detailed guidance on determining
transaction price, including guidance on variable consideration and consideration
payable to customers. The transaction price will then be generally allocated to
each performance obligation in proportion to its stand-alone selling price.
Depending on whether certain criteria are met, revenue is recognized over time,
in a manner that best reflects the entity’s performance, or at a point in time, when
control of the goods or services is transferred to the customer.

The standard does not apply to insurance contracts, financial instruments or

lease contracts, which fall in the scope of other PFRSs. It also does not apply if
two companies in the same line of business exchange non-monetary assets to
facilitate sales to other parties. Furthermore, if a contract with a customer is
partly in the scope of another PFRS, then the guidance on separation and
measurement contained in the other PFRS takes precedence.

7
 Due to the transition method (cumulative effect method) chosen in applying
PFRS 15, comparative information has not been restated to reflect the new
requirements.

Financial Instruments
Non-derivative Financial Instruments
Non-derivative financial instruments consist of cash and cash equivalents, short-term
investments, trade and other current receivables, notes receivable, due from a
related party, refundable deposit, trade and other payables excluding statutory
payables and concessionaires and other deposits.

Recognition and Initial Measurement. Trade receivables and debt securities issued
are initially recognized when they are originated. All other financial assets and
financial liabilities are initially recognized when the Company becomes party to the
contractual provisions of the instrument.

A financial asset (unless it is a trade receivable without a significant financing

component) or financial liability is initially measured at fair value plus, for an item not
at fair value through profit or loss (FVTPL), transaction costs that are directly
attributable to its acquisition or issue. A trade receivable without a significant
financing component is initially measured at the transaction price.

Financial Assets
Financial assets - Subsequent measurement and gains and losses. Policy applicable
from January 1, 2018

Classification and Subsequent Measurement. On initial recognition, a financial asset

is classified as measured at: amortized cost; fair value through other comprehensive
income (FVOCI) - debt investment; FVOCI - equity investment; or FVTPL.

The Company’s category of financial assets includes loans and receivables

and AFS financial asset.

Financial assets are not reclassified subsequent to their initial recognition unless the
Company changes its business model for managing financial assets, in which case
all affected financial assets are reclassified on the first day of the first reporting
period following the change in the business model.

A financial asset is measured at amortized cost if it meets both of the following

conditions and is not designated as at FVTPL:

 It is held within a business model whose objective is to hold

assets to collect contractual cash flows; and

 Its contractual terms give rise on specified dates to cash

flows that are solely payments or principal and interest on the principal amount
outstanding.

The amortized cost is reduced by impairment losses. Interest income, foreign

exchange gains and losses and impairment are recognized in profit or loss. Any gain
or loss on derecognition is recognized in profit or loss.
Included in this category are the Company’s cash and cash equivalents, short-term
investment, trade and other current receivables, due from a related party and
refundable deposits.

8
Cash and Cash Equivalents
Cash and cash equivalents represents cash on hand and in banks and other short-
term highly liquid investments with original maturities of three months or less, which
are subject to insignificant risk of change in value and are used by the Company in
management of its short-term commitments.

Receivables
Receivables are nonderivative financial assets with fixed or determinable payments
and are not quoted in an active market. They arise when the Company provides
money, goods or services directly to a debtor with no intention of trading the
receivables. These are included in current assets if maturity is within twelve (12)
months from the reporting date. Otherwise, these are classified as noncurrent
assets.

Refundable deposits are payment made by the Company to its lessors at the
inception of the respective lease agreements entered into by the Company.

Business Model Assessment. The Company makes an assessment of the objective

of the business model in which a financial asset is held at a portfolio level because
this best reflects the way the business is managed and information is provided to
management. The information considered includes:

a. the stated policies and objectives for the portfolio and the operation of those
policies in practice. These include whether management’s strategy focuses on
earning contractual interest income, maintaining a particular interest rate profile,
matching the duration of the financial assets to the duration of any related
liabilities or expected cash outflows or realizing cash flows through the sale of
the assets;

b. how the performance of the portfolio is evaluated and reported to the Company’s
management;

c. the risks that affect the performance of the business model (and the financial
assets held within the business model) and how those risks are managed;

d. how managers of the business are compensated - e.g. whether compensation is

based on the fair value of the assets managed or the contractual cash flows
collected; and

e. the frequency, volume and timing of sales of financial assets in prior periods, the
reasons for such sales and expectations about future sales activity.

Financial Assets - Subsequent Measurement and Gains and Losses: Policy

Applicable from January 1, 2018

 Financial assets at amortized cost - subsequently measured at amortized cost

using the effective interest method. The amortized cost is reduced by impairment
losses. Interest income, foreign exchange gains or losses and impairment are
recognized in profit or loss. Any gain or loss on derecognition is recognized in
profit or loss.

Financial assets - Classification and Subsequent Measurement: Policy applicable

before January 1, 2018

9
The Company classified its financial assets into one of the following categories:
 loans and receivables;

 held-to-maturity;

 available for sale; and

 at FVTPL.

The Company’s financial assets consist of loans and receivables only.

Financial Assets - Subsequent Measurement and Gains and Losses. Policy

Applicable before January 1, 2018

The Company’s loans and receivables are subsequently measured at amortized cost
using effective interest method.

The following table and the accompanying notes below explain the original
measurement categories under PAS 39 and the new measurement categories under
PFRS 9 for each class of the Company's financial assets as at January 1, 2018.
The effect of adopting PFRS 9 on the carrying amounts of financial assets at
January 1, 2018 relates solely to the new impairment requirements.
Original New Original Carrying New Carrying
No Classification Classification Amount Amount
te under PAS 39 under PFRS 9 under PAS 39 under PFRS 9
Financial Assets
Cash Loans and receivables Amortized cost P1,211,319 P1,211,319
Receivables and other current assets 5 Loans and receivables Amortized cost 770,423 770,423
Total Financial Assets P1,981,742 P1,981,742

Impairment of Financial Assets

PFRS 9 replaces the ‘incurred loss’ model in PAS 39 with an ECL model. The new
impairment model applied to financial assets measured at amortized cost, contract
assets and debt investments at FVOCI, but not to investments in equity instruments.
Under PFRS 9, credit losses are recognized earlier than under PAS 39.

For assets in the scope of the PFRS 9 impairment model, impairment losses are
generally expected to increase and become more volatile. The Company has
determined that the application of PFRS 9’s impairment requirements at
January 1, 2018 did not result in an additional allowance for impairment.

The Company considers the probability of default upon initial recognition of asset
and whether there has been a significant increase in credit risk on an ongoing basis
throughout each reporting period. To assess whether there is a significant increase in
credit risk, the Company compares the risk of a default occurring on the asset as at
reporting date with the risk of default as at the initial recognition. It considers
available reasonable and supportive forward-looking information. Especially the
following indicators are incorporated:

 Internal credit rating;

 External credit rating (as far as available);

 Actual or expected significant adverse changes in business, financial or

economic conditions that are expected to cause a significant change to the
debtor’s ability to meet its obligations;

 Actual or expected significant changes in the operating results of the debtor;

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 Significant increase in credit risk on other financial instruments of the same
debtor; and

 Significant changes in the expected performance and behavior of the debtor,

including changes in the payment status of debtor and changes in the operating
results of the debtor.

Financial assets are written off when there is no reasonable expectation of recovery.
The Company categorizes a loan or receivable for write off when a debtor fails to
make payments or when it is probable that the receivable will not be collected.
Where loans or receivables have been written off, the Company continues to engage
in enforcement activity to attempt to recover the receivable due. Where recoveries
are made, these are recognized in profit or loss.

Measurement of ECL
ECL are a probability-weighted estimate of credit losses. Credit losses are measured
as the present value of all cash shortfalls (i.e. the difference between the cash flows
due to the entity in accordance with the contract and the cash flows that the
Company expects to receive).

ECL are discounted at the effective interest rate of the financial asset.

Presentation of Allowance for ECL in the Statement of Financial Position

Loss allowances for financial assets measured at amortized cost are deducted from
the gross carrying amount of the assets.

Policy applicable before January 1, 2018

Financial assets not classified as at FVTPL were assessed at each reporting date to
determine whether there was objective evidence of impairment.

Objective evidence that financial assets were impaired included:

 default or delinquency by a debtor;

 restructuring of an amount due to the Company on terms that the Company

would not consider otherwise;

 indications that a debtor or issuer would enter bankruptcy;

 adverse changes in the payment status of borrowers or issuers;

 the disappearance of an active market for a security because of financial

difficulties; or

 observable data indicating that there was a measurable decrease in the

expected cash flows from a group of financial assets.

Financial Liabilities
PFRS 9 largely retains the existing requirements in PAS 39 for the classification and
measurement of the financial liabilities.

The adoption of PFRS 9 has not had a significant effect on the Company’s
accounting policies related to financial liabilities.

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Classification, Subsequent Measurement and Gains and Losses.
Financial liabilities are classified as measured at amortized cost or FVTPL. A
financial liability is classified as at FVTPL if it is classified as held-for-trading, it is a
derivative or it is designated as such on initial recognition. Financial liabilities at
FVTPL are measured at fair value and net gains and losses, including any interest
expense, are recognized in profit or loss. Other financial liabilities are subsequently
measured at amortized cost using the effective interest method. Interest expense
and foreign exchange gains and losses are recognized in profit or loss. Any gain or
loss on derecognition is also recognized in profit or loss.

The Company’s category of financial liabilities consists of other financial liabilities

only. The Company’s other financial liabilities include trade and other payables
(excluding statutory payables) and concessionaires and other deposits.

The following table and the accompanying notes below explain the original
measurement categories under PAS 39 and the new measurement categories under
PFRS 9 for each class of the Company's financial liabilities as at January 1, 2018.

Original Carrying New Carrying

Original Classification New Classification Amount Amount
Note under PAS 39 under PFRS 9 under PAS 39 under PFRS 9
Financial Liabilities
Trade and other payables 7 Other financial liabilities Other financial liabilities P123,018 P123,018
*Excluding statutory payables

Offsetting Financial Assets and Liabilities

Financial assets and financial liabilities are offset and the net amount presented in
the statement of financial position if, and only if, there is a currently enforceable legal
right to offset the recognized amounts and there is intention to settle on a net basis,
or realize the asset and settle the liability simultaneously. This is not generally the
case with master netting agreements, and the related assets and liabilities are
presented at gross in the statement of financial position.

Impairment of Nonfinancial Assets

The carrying amounts of the Company’s property and equipment are reviewed at
each reporting date to determine whether there is any indication of impairment. If
such indication exists, the asset’s recoverable amount is estimated.

An impairment loss is recognized whenever the carrying amount of an asset or its

cash generating unit exceeds its recoverable amount. Impairment losses, if any, are
recognized in profit or loss unless the asset is carried at revalued amounts. Any
impairment loss on a revalued asset is treated as a revaluation decrease.

The recoverable amount is the higher of the asset’s fair value less costs of disposal
and value in use. Fair value less cost of disposal is the price that would be received
to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date, less the costs of disposal. In assessing value
in use, the estimated future cash flows are discounted to their present value using a
pretax discount rate that reflects current market assessments of the time value of
money and the risks specific to the asset. For an asset that does not generate cash
inflows largely independent of those from other assets, the recoverable amount is
determined for the CGU to which the asset belongs.
An impairment loss is reversed if there has been a change in the estimates used to
determine the carrying amount. An impairment loss is reversed only to the extent that
the carrying amount of the asset does not exceed the carrying amount that would
have been determined, net of depreciation, if no impairment loss had been
recognized. Reversals of impairment losses on assets recognized at cost are
recognized in profit or loss. A reversal of an impairment loss on a revalued asset is
recognized in the statement of changes in equity and increases the revaluation
surplus. However, to the extent that an impairment loss on the same revalued asset
was previously recognized in profit or loss, a reversal of that impairment loss is also
recognized in profit or loss.

Derecognition of Financial Assets and Liabilities

Financial Assets. A financial asset (or, where applicable, a part of a financial asset or
a part of a group of similar financial assets) is derecognized when:

 the rights to receive cash flows from the asset have expired;

 the Company retains the rights to receive cash flows from the asset, but has
assumed an obligation to pay them in full without material delay to a third party
under a “pass-through” arrangement; or

 the Company has transferred its rights to receive cash flows from the asset
and either: (a) has transferred substantially all the risks and rewards of the asset;
or (b) has neither transferred nor retained substantially all the risks and rewards
of the asset, but has transferred control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset
and has neither transferred nor retained substantially all the risks and rewards of the
asset nor transferred control of the asset, the asset is recognized to the extent of the
Company’s continuing involvement in the asset. Continuing involvement that takes
the form of a guarantee over the transferred asset is measured at the lower of the
original carrying amount of the asset and the maximum amount of the consideration
that the Company could be required to repay.

Financial Liabilities. A financial liability is derecognized when the obligation under the
liability is discharged, cancelled or has expired.

When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially
modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the
respective carrying amounts is recognized in profit or loss.

Fair Value Measurement

The valuation techniques used to measure fair value are based upon observable and
unobservable inputs. PFRS 13 establishes a three-level valuation hierarchy for
disclosure of fair value measurements. The valuation hierarchy is based upon the
transparency of inputs to the valuation of an asset or liability as at measurement
date. The three levels are defined as follows:

 Level 1: Inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets that the Company can
access at the measurement date.
 Level 2: Inputs to the valuation methodology include quoted prices for similar
assets or liabilities in active markets, and inputs that are observable for
the asset or liability, either directly or indirectly, for substantially the
same term of the financial instrument.
 Level 3: Inputs to the valuation methodology are unobservable and significant to
the fair value measurement.

In some cases, the inputs used to measure the fair value of an asset or a liability
might be categorized within different levels of the fair value hierarchy. In those cases,
the fair value measurement is categorized in its entirety in the same level of the fair
value hierarchy as the lowest level input that is significant to the entire measurement.

Equity
Capital stock is classified as equity and is determined using the nominal value of
shares that have been issued. Retained earnings include all current and prior period
results as disclosed in profit or loss less any dividends declared. Dividends are
recorded in the period in which the dividends are approved by the BOD.

Revenue Recognition
Revenue from Contracts with Customers
Revenue is recognized to the extent that it is probable that the economic benefits will
flow to the Company and the revenue can be reliably measured. Revenue is
measured by reference to the fair value of the consideration received or receivable.

In the comparative period, revenue was measured at the fair value of the
consideration received or receivable. Revenue from sale of goods and services was
recognized when the significant risks and rewards of ownership had been transferred
to the customer, recovery of the consideration was probable, the associated costs
and possible return of goods or services could be estimated reliably, there was no
continuing management involvement with the goods or services and the amount of
revenue could be measured reliably.

The following is a description of principal activity from which the Company generates
its revenue. Revenue is disaggregated by major products/service lines as reflected in
the statements of profit or loss.

 Interest income is recognized on a time proportion basis on the principal

outstanding and at the rate applicable.

Determination of whether the Company is Acting as a Principal or an Agent

The Company assesses its revenue arrangements against the following criteria to
determine whether it is acting as a principal or an agent:

 whether the Company has the primary responsibility for providing services;

 whether the Company has discretion in establishing prices; and

 whether the Company bears the credit risk.

If the Company has determined it as a principal, the Company recognizes revenue

on a gross basis with the amount remitted to the other party being accounted as part
of the costs and expenses. If the Company has determined it is acting as an agent,
only the net amount retained is recognized as revenue.

The Company assessed its revenue arrangements and concluded that it is acting as
principal in all arrangements.

3
Cost and Expense Recognition
Expenses are recognized in profit or loss upon utilization of the service or at the date
they are incurred.

Prepaid Expenses
Prepaid expenses represent expenses not yet incurred but are already paid. Prepaid
expenses are initially recorded as assets and measured at the amount of cash paid.
Subsequent to initial recognition, these are charged to the statement of profit or loss
and other comprehensive income as they are consumed in operations or expire with
the passage of time.

Prepaid expenses are classified in the statement of financial position as current

assets when the cost of goods or services related to the prepayments are expected
to be incurred within one year or the Company’s normal operating cycle, whichever is
longer. Otherwise, they are classified as noncurrent assets.

Income Taxes
Income tax expense comprises current and deferred tax. Current and deferred tax
are recognized in profit or loss except to the extent that they relate to items
recognized in other comprehensive income (OCI) or directly in equity, in which case
they are recognized respectively therein.

Current Tax
Current tax is the expected tax payable on the taxable income for the year, using tax
rates enacted at the reporting date, and any adjustment to tax payable in respect of
previous years.

Current tax relating to items recognized directly in equity is recognized in equity and
not in profit or loss. Management periodically evaluates positions taken in the tax
returns with respect to situations in which applicable tax regulations are subject to
interpretation and establishes provisions where appropriate.

Deferred Tax
Deferred tax is recognized in respect of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts
used for taxation purposes. Deferred tax is not recognized for:

 temporary differences on the initial recognition of assets or liabilities in a

transaction that is not a business combination and that affects neither accounting
nor taxable profit or loss;

 temporary differences related to investments in subsidiaries and jointly controlled

entities to the extent that it is probable that they will not reverse in the
foreseeable future; and

 taxable temporary differences arising on the initial recognition of goodwill.

Deferred tax is measured at the tax rates that are expected to be applied to
temporary differences when they reverse, based on the laws that have been enacted
or substantively enacted by the reporting date.

4
Deferred tax assets are recognized for deductible temporary differences,
carryforward benefits of unused tax credits from excess of MCIT over RCIT and
unused NOLCO, to the extent that it is probable that sufficient future taxable profits
will be available against which the deductible temporary differences, carryforward
benefits of unused tax credits from excess of MCIT over RCIT and unused NOLCO
can be utilized. Deferred tax liabilities are recognized for all taxable temporary
differences.

The carrying amount of deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient future taxable profit
will be available to allow all or part of the deferred tax assets to be utilized.
Unrecognized deferred tax assets are reassessed at the end of each reporting
period and are recognized to the extent that it has become probable that sufficient
future taxable profits will allow the deferred tax asset to be recovered. It is probable
that sufficient future taxable profits will be available against which a deductible
temporary difference can be utilized when there are sufficient taxable temporary
difference relating to the same taxation authority and the same taxable entity which
are expected to reverse in the same period as the expected reversal of the
deductible temporary difference. In such circumstances, the deferred tax assets is
recognized in the period in which the deductible temporary difference arises.

Deferred tax relating to items recognized in OCI or directly in equity is recognized in

the statement of other comprehensive income and statement of changes in equity
and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset if there is a legally
enforceable right to offset current tax assets and liabilities, and they relate to income
taxes levied by the same tax authority on the same taxable entity, or on different tax
entities, but they intend to settle current tax assets and liabilities on a net basis or
either tax assets and liabilities will be realized simultaneously.

Provisions and Contingencies

A provision is a liability of uncertain timing or amount. A provision is recognized when
the Company has a legal or constructive obligation as a result of a past event, it is
probable that an outflow of economic benefits will be required to settle the obligation
and a reliable estimate can be made. The amount to be recognized as provision shall
be the best estimate of the expenditure required to settle the present obligation at
the end of the reporting period.

When it is not probable that an outflow of economic benefits will be required, or the
amount cannot be estimated reliably, the obligation is disclosed as a contingent
liability, unless the probability of outflow of economic benefits is remote. Possible
obligations, whose existence will only be confirmed by the occurrence or non-
occurrence of one or more future events, are also disclosed as contingent liabilities
unless the probability of outflow of economic benefits is remote.

When the Company expects a provision to be reimbursed, the reimbursement is

recognized as a separate asset only when the reimbursement is virtually certain.

A contingent asset is an asset that arises from past events and whose existence will
be confirmed only by the occurrence or non-occurrence of one or more uncertain
future events not wholly within the control of the entity. This is not recognized in the
financial statement but disclosed only when material.

5
Related Party Transactions and Relationships
A related party relationship exists when one party has the ability to control, directly or
indirectly through one or more intermediaries, the other party or exercise significant
influence over the other party in making financial and operating decisions. Such
relationships also exist between and/or among entities which are under common
control with the reporting enterprise, or between, and/or among the reporting
enterprise and its key management personnel, directors, or its stockholders. In
considering each possible related party relationship, attention is directed to the
substance of the relationship, and not merely the legal form.

Events After the Reporting Period

The Company identifies post year-end events as events that occurred after the
reporting period but before the date when the financial statement were authorized for
issue. Any post year-end events that provide additional information about the
Company’s financial position or performance at the end of a reporting period
(adjusting events) are recognized in the financial statement. Events that are not
adjusting events are disclosed in the notes to the financial statement when material.

New Standards and Amendments to Standards and Interpretations Not Yet Adopted
A number of new standards and amendments to standards and interpretations are
effective for annual periods beginning after January 1, 2018. However, the Company
has not applied the following new or amended standards and interpretations in
preparing these financial statements. Unless otherwise stated, none of these are
expected to have a significant impact on the Company’s financial statements.

To be Adopted January 1, 2019

 PFRS 16, Leases supersedes PAS 17, Leases and the related Philippine
Interpretations. The new standard introduces a single lease accounting model for
lessees under which all major leases are recognized on-balance sheet, removing
the lease classification test. Lease accounting for lessors essentially remains
unchanged except for a number of details including the application of the new
lease definition, new sale-and-leaseback guidance, new sub-lease guidance and
new disclosure requirements. Practical expedients and targeted reliefs were
introduced including an optional lessee exemption for short-term leases (leases
with a term of 12 months or less) and low-value items, as well as the permission
of portfolio-level accounting instead of applying the requirements to individual
leases. New estimates and judgmental thresholds that affect the identification,
classification and measurement of lease transactions, as well as requirements to
reassess certain key estimates and judgments at each reporting date were
introduced.

 Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

clarifies how to apply the recognition and measurement requirements in PAS 12,
Income Taxes when there is uncertainty over income tax treatments. Under the
interpretation, whether the amounts recorded in the financial statements will
differ to that in the tax return, and whether the uncertainty is disclosed or
reflected in the measurement, depends on whether it is probable that the tax
authority will accept the Company’s chosen tax treatment. If it is not probable
that the tax authority will accept the Company’s chosen tax treatment, the
uncertainty is reflected using the measure that provides the better prediction of
the resolution of the uncertainty - either the most likely amount or the expected
value. The interpretation also requires the reassessment of judgments and
estimates applied if facts and circumstances change - e.g., as a result of
examination or action by tax authorities, following changes in tax rules or when a
tax authority’s right to challenge a treatment expires.

6
12. Supplementary Information Required Under Revenue Regulations No. 15-2010 of
the Bureau of Internal Revenue (BIR)

In addition to the disclosures mandated under PFRS, and such other standards
and/or conventions as may be adopted, companies are required by the BIR to
provide in the notes to the financial statements, certain supplementary information
for the taxable year. The amounts relating to such supplementary information may
not necessarily be the same with those amounts disclosed in the basic financial
statements which were prepared in accordance with PFRS. The following is the
supplementary tax information required for the taxable year ended December 31,
2018:

A. Value-added Tax (VAT)

Output VAT Recognized

Output VAT declared in 2018 amounted to P89,790, which is related to the
Company’s vatable receipts pertaining to the interest income received from the
Company’s advances to a related party amounting to P748,250.

Input VAT Claimed

The Company has input VAT from its domestic purchases of services amounting
to P68,527, which was applied against its output VAT. The Company made
payments during the year for the excess output VAT over input VAT.

B. Withholding Taxes

Expanded withholding taxes paid or accrued during the year amounted to

P22,447. These pertain to withholding taxes on payment of management fees
and other outside services by the Company.

C. All Other Taxes (Local and National)

Other taxes paid during the year which were recognized as “Taxes and licenses”
under “Operating expenses” in the statement of profit or loss and other
comprehensive (loss) income are as follows:

Documentary stamp tax

Annual business permit
Community tax and barangay clearance
Annual VAT registration

D. Deficiency Tax Assessments/ Tax Cases

As at December 31, 2018, the Company has no deficiency tax assessments

and/or any tax cases.

7
 C O V E R S H E E T
for
AUDITED FINANCIAL STATEMENTS

SEC Registration Number

C S 0 9 1 0 0 0 0 2 9

COMPANY NAME

M C B R O S D E V E L O P M E N T C O R P O R A T I O N

PRINCIPAL OFFICE ( No. / Street / Barangay / City / Town / Province)

S u i t e 2 0 2 , C e n t r o M a x i m o B l d g .

D . J a k o s a l e m S t . , C e b u C i t y

Form Type Department requiring the report Secondary License Type, If Applicable

A F S 1 8

COMPANY INFORMATION
Company's email Address Company's Telephone Number/s Mobile Number

No. of Stockholders Annual Meeting (Month / Day) Fiscal Year (Month / Day)

6 December 31

CONTACT PERSON INFORMATION

The designated contact person MUST be an Officer of the Corporation

Name of Contact Person Email Address Telephone Number/s Mobile Number

TERESITA R. BARONDA bros@borromeo.ph (032)-253-3027

CONTACT PERSON's ADDRESS

Note 1: In case of death, resignation or cessation of office of the officer designated as contact person, such incident shall be reported to the
Commission within thirty (30) calendar days from the occurrence thereof with information and complete contact details of the new contact person
designated.
2: All Boxes must be properly and completely filled-up. Failure to do so shall cause the delay in updating the corporation's records with
the Commission and/or non-receipt of Notice of Deficiencies. Further, non-receipt of Notice of Deficiencies shall not excuse the corporation from
liability for its deficiencies.