SAMPLE COMPANY

NOTES TO FINANCIAL STATEMENTS

AS OF AND FOR THE FISCAL YEAR ENDED MARCH 31, 2019
(With comparative figures for the fiscal year ended March 31, 2018)

1. General information
SAMPLE COMPANY (hereinafter referred to as Entity) was incorporated in the
Philippines and registered with the Securities and Exchange Commission on October 30,
2018 per Reg. No. CS201XXXX. The Entity’s primary purpose is to establish and
operate educational institution offering courses in computer technology along the fields
of computer system operation, repair, troubleshooting and computer maintenance, to
train the nation’s manpower in the required technical skills for national development and
to engage in such other computer related business activities as maybe necessary to
further the aims and purposes of this corporation.

The establishment, operation, administration and management of said school shall be

subjected to the existing laws, rules and regulations, policies and standards pursuant to
Batas Pambansa no. 232 otherwise known as the Education Act of 1982 and of the
Commission on Higher Education (CHED) pursuant to the Republic Act no. 7722
otherwise known as the Higher Education Act of 1994 for the degree courses and
Republic Act no. 7796 otherwise known as TESDA Act of 1994, or the Technical
Education and Skills Development Authority for the non-degree courses and technical-
vocational education. (As amended on April 16, 1998).

The Entity’s registered address is at Ground to 4th Floor sample building Manila.

Approval and authorization for issue of financial statements

The Entity’s financial statements as of and for the fiscal years ended March 31, 2019 and
2018 were approved and authorized for issue by the Board of Directors on July 10, 2020.
The Board of Directors is empowered to make revisions even after the date of issue.

2. Basis of preparation and summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements
are set out below and in the succeeding pages. These policies have been consistently
applied to all the years presented, unless otherwise stated.

Statement of compliance
The accompanying financial statements have been prepared in accordance with
Philippine Financial Reporting Standard (PFRS) for Small and Medium-sized Entities
(SMEs). The PFRS for SMEs were adopted by the Financial Reporting Standards
Council (FRSC) from the International Financial Reporting Standard (IFRS) for Small and
Medium-sized Entities issued by the International Accounting Standard Board.

Basis of preparation
The financial statements of the Entity have been prepared under historical cost
convention. Historical cost is generally based on the fair value of the consideration given
in exchange for assets.

The financial statements are presented in Philippine peso, which is the Entity’s functional
currency. All amounts are rounded to the nearest Philippine peso, except when
otherwise indicated.
The preparation of financial statements in conformity with PFRS for SMEs requires the
use of certain critical accounting estimates. It also requires management to exercise its
judgment in the process of applying the Entity’s accounting policies. The areas involving
a higher degree of judgment or complexity, or areas where assumptions and estimates
are significant to the financial statements are disclosed in Note 3.

Accounting policies adopted

 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

The following sections of IFRS for SMEs that have been published by the International
Accounting Standards Board (IASB) and adopted by the FRSC which became effective
for accounting periods beginning on or after July 1, 2009 were adopted by the Entity:

Section 3 Financial Statement Presentation

Section 4 Statement of Finanial Position
Section 5 Statement of Comprehensive Income and Income Statement
Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings
Section 7 Statement of Cash Flows
Section 8 Notes to Financial Statements
Section 10 Accounting Policies, Estimates and Errors
Section 11 Basic Financial Instrument
Section 17 Property, Plant and Equipment
Section 20 Leases
Section 21 Provisions and Contingencies
Section 22 Revenue
Section 23 Liabilites and Equity
Section 27 Impairment of Assets
Section 28 Employee Benefits
Section 29 Income Tax
Section 32 Events after the End of the Reporting Period
Section 33 Related Party Disclosures

The adoption of the above sections did not have any significant effect on the Entity’s
financial position and results of operation. These, however, require additional
disclosures on the Entity’s financial statements.

Section 3, “Financial Statement Presentation”, explains fair presentation of financial

statements, what compliance with the PFRS for SMEs requires, and what a complete set
of financial statements is. This section prescribes the basis for presentation of general
purpose financial statements for SMEs to ensure comparability both with the entity’s
financial statements of previous periods and with the financial statements of other
entities. It sets out overall requirements for the presentation of financial statements,
guidelines for their structure and minimum requirements for their content.

Section 4, “Statement of Financial Position”, sets out the information that is to be

presented in a statement of financial position and how to present it. The statement of
financial position (sometimes called the balance sheet) presents an entity’s assets,
liabilities and equity as of a specific date—the end of the reporting period and provides
the minimum line items that should be included in the statement of financial position,
however, additional line items, heading and subtotals shall be presented if they will be
relevant to an understanding of the entity's financial position.

Section 5, “Statement of Comprehensive Income and Income Statement”, requires an

entity to present its total comprehensive income for a period—i.e. its financial
performance for the period—in one or two financial statements. It sets out the
information that is to be presented in those statements and how to present it.

Section 6, “Statement of Changes in Equity and Statement of Income and Retained

Earnings”, sets out requirements for presenting the changes in an entity’s equity or a
period, either in a statement of changes in equity or, if specified conditions are met and
an entity chooses, in a statement of income and retained earnings.
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

Section 7, “Statement of Cash Flows”, sets out the information that is to be presented in
a statement of cash flows and how to present it. The statement of cash flows provides
information about the changes in cash and cash equivalents of an entity for a reporting
period, showing separately changes from operating activities, investing activities and
financing activities.

Section 8, “Notes to the Financial Statements”, sets out the principles underlying
information that is to be presented in the notes to the financial statements and how to
present it. Notes provide narrative descriptions or disaggregations of items presented in
those statements and information about items that do not qualify for recognition in those
statements. In addition to the requirements of this section, nearly every other section of
this PFRS requires disclosures that are normally presented in the notes.

Section 10, “Accounting Policies, Estimates and Errors”, provides guidance for selecting
and applying the accounting policies used in preparing financial statements. It also
covers changes in accounting estimates and corrections of errors in prior period financial
statements.

Section 11, “Basic Financial Instruments”, deals with recognizing, measuring and
disclosing basic financial instruments and is relevant to all entities. An entity shall
recognize a financial asset or a financial liability only when the entity becomes a party to
the contractual provisions of the instrument. When a financial asset or financial liability is
recognized initially, an entity shall measure it at the transaction price unless the
arrangement constitutes, in effect, a financing transaction.

Section 17, “Property Plant and Equipment”, prescribes the accounting treatment for
property, plant equipment so that users of the financial statements can discern
information about an entity’s investment in its property and equipment and the changes
in such investment. The principal issues in accounting for property, plant and equipment
are the recognition of the assets, the determination of their carrying amounts and the
depreciation charges and impairment losses to be recognized in relation to them. An
entity shall measure an item of property and equipment on initial recognition at cost. The
cost of an item of property and equipment is the cash price equivalent at the recognition
date. If payment is deferred beyond normal credit terms, the cost is the present value of
all future payments.

Section 20, “Leases”, applies to agreements that transfer the right to use assets even
though substantial services by the lessor may be called for in connection with the
operation or maintenance of such assets. This section does not apply to agreements that
are contracts for services that do not transfer the right to use assets from one contracting
party to the other. Its objective is to prescribe, for lessees and lessors, the appropriate
accounting policies and disclosure to apply in relation to leases.

Section 21, “Provisions and Contingencies”, outlines the recognition of provision only
when: (a) the entity has an obligation at the reporting date as a result of a past event; (b)
it is probable (i.e. more likely than not) that the entity will be required to transfer
economic benefits in settlement; and (c) the amount of the obligation can be estimated
reliably. Its objective is to ensure that appropriate recognition criteria and measurement
bases are applied to provisions, contingent liabilities and contingent assets and that
sufficient information is disclosed in the notes to enable users to understand their nature,
timing and amount.
Judgment is exercised by management to distinguish between provisions and
contigencies. Policies on recognition and disclosure of provision are discussed in Note
2.5
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

Section 22, “Liabilities and Equity”, establishes principles for classifying financial
instruments as either liabilities or equity and addresses accounting for equity instruments
issued to individuals or other parties acting in their capacity as investors in equity
instruments (i.e. in their capacity as owners).

Section 23, “Revenue”, prescribes the accounting treatment of revenue arising from
certain types of transactions and events. The primary issue in accounting for revenue is
determining when to recognize revenue. Revenue is recognized when it is probable that
future economic benefits will flow to the entity and these benefits can be measured
reliably. This section identifies the circumstances in which these criteria will be met and,
therefore, revenue will be recognized. It also provides practical guidance on the
application of these criteria. An entity shall measure revenue at the fair value of the
consideration received or receivable.

Section 27, “Impairment of Assets”, prescribes the procedures that an entity applies to
ensure that its assets are carried at no more than their recoverable amount if its carrying
amount exceeds the amount to be recovered through use of or sale of the asset. If this
is the case, the asset is described to be impaired and the standard requires the entity to
recognize an impairment loss.

Section 28, “Employee Benefits”, deals with accounting and reporting by the plan to all
participants as a group. It does not deal with reports to individual participants about their
retirement benefit rights. An entity shall recognize the cost of all employee benefits to
which its employees have become entitled as a result of service rendered to the entity
during the reporting period: (a) as a liability (b) as an expense. This section shall be
applied in the financial statements of retirement benefit plans where such financial
statements are prepared.

Section 29, “Income Tax”, prescribes the accounting treatment for income taxes. For the
purpose of this Section, income taxes include all domestic and foreign taxes which are
based on taxable profits.

Section 32, “Events after the End of the Reporting Period”, defines events after the end
of the reporting period and sets out principles for recognizing, measuring and disclosing
those events. Events after the end of the reporting period are those events, favorable
and unfavorable, that occur between the end of the reporting period and the date when
the financial statements are authorized for issue. Its objective is to prescribe: (a) when
an entity should adjust its financial statements for events after the reporting period; and
(b) the disclosures that an entity should give about the date when the financial
statements were authorized for issue and about events after the reporting period. It also
requires that an entity should not prepare its financial statements on a going concern
basis if events after the reporting period indicate that the going concern assumption is
not appropriate.

Section 33, “Related Party Disclosures”, requires an entity to include in its financial
statements the disclosures necessary to draw attention to the possibility that its financial
position and profit or loss have been affected by the existence of related parties and by
transactions and outstanding balances with such parties. An entity shall disclose key
management personnel compensation

Summary of significant accounting policies

The significant sections and practices of the Entity are set forth to facilitate the
understanding of the financial statements:
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

Financial assets
Financial assets of the Entity include Cash and cash equivalents and Trade and other
receivables.

Cash and cash equivalents

Cash includes cash on hand; cash in banks and petty cash fund. Cash on hand as of the
end of the period were deposited the next banking day. Cash in banks are deposits held
at call with banks. The Entity reconciles the book and bank balances regularly as part of
its cash monitoring and internal control measures. Petty Cash Fund is used for small
payments not covered by checks.

Cash equivalents, if any, are short-term, highly liquid investments that are readily
convertible to known amount of cash with original or remaining maturities of three
months or less and that are subject to an insignificant risk of change in value.

Receivables
Trade and other receivables are recognized initially at the transaction price. They are
subsequently measured at amortized cost using the effective interest method, less
provision for impairment. A provision for impairment of trade and other receivables is
established when there is objective evidence that the Entity will not be able to collect all
amounts due according to the original terms of the receivables. The allowance for
impairment is estimated based on past collection experience and management’s review
of the current status of the long-outstanding receivables. The provision for impairment is
recognized in the statement of comprehensive income.

Prepayments
Prepayments are measured at amount paid and subsequently recognized as expense
over which the prepayment applies.

Property and equipment

Property and equipment are measured initially at its historical cost. Historical cost
includes expenditure that is directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by
management. After initial recognition, property and equipment are stated at cost less any
accumulated depreciation and any accumulated impairment losses.

The Entity adds to the carrying amount of an item of property and equipment the cost of
replacing parts of such an item when that cost is incurred if the replacement part is
expected to provide incremental future benefits to the Entity. The carrying amount of the
replaced part is derecognized. All other repairs and maintenance are charged to profit or
loss during the period in which they are incurred.

For financial reporting and income tax reporting purposes, depreciation is computed
using the straight-line method over the estimated useful lives of the depreciable assets
as follows:

Office Equipment 3 to 5 years

Computer Equipment 3 to 5 years
Air-condition unit 3 to 5 years
Leasehold Improvements 5 years

The property and equipment’s residual values, useful lives and depreciation methods are
reviewed and adjusted prospectively if appropriate, if there is an indication of a
significant change since the last reporting date.
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

The property and equipment’s carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater than its estimated
recoverable amount.

When an asset is disposed of, or is permanently withdrawn from use and no future
economic benefits are expected from its disposal, the cost and accumulated
depreciation, amortization and impairment losses, if any, are removed from the accounts
and any resulting gain or loss arising from the retirement or disposal is recognized in
profit or loss.

Rental and other deposits

Deposits on rental are presented at cost less impairment, if any.

Financial liabilities
Financial liabilities include Trade and other payables and Due to related party.

Payable
Trade payables are liabilities to pay for goods or services that have been received or
supplied and have been invoiced or formally agreed with the supplier. Trade payables
are non-interest bearing.

Other Payables includes accrued expenses and statutory obligations. Accrued expenses
include unpaid administrative and other expenses at the reporting date. Statutory
liabilities consist of obligations to SSS, Pag-ibig, Philhealth and Bureau of Internal
Revenue.

All of the above payables are initially recorded at their fair value and subsequently
measured at amortized cost.

Financial instruments
A financial instrument is any contract that gives rise to both a financial asset of one entity
and a financial liability or equity instrument of another entity. A financial instrument is
recognized when the entity becomes a party to a contractual provision.

Basic financial instruments

Basic financial instruments are: cash; simple debt instruments (such as loans payable or
receivable); a commitment to receive a loan; and an investment in non-convertible
preference shares and non-puttable ordinary and preference shares.

A debt instrument qualifies as basic if it satisfies the following conditions: 1) Unleveraged

returns to holders that are easily determined; 2) No contractual provision that could, by
its terms, result in the holder losing the principal amount or interest attributable to the
current or prior periods; 3) Contractual terms that permit early repayment are not
contingent on future events; and 4) No conditional returns or repayment provisions other
than those listed above.

Initial measurement
On initial recognition, a basic financial instrument is measured at transaction price,
unless the arrangement is in effect a financing transaction. In this case, it is the present
value of the future payment discounted using a market rate.

Subsequent measurement
At the end of each reporting period, basic financial instruments are measured as follows:
1) Debt instruments at amortized cost using the effective interest rate method; 2)
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

Commitments to receive a loan at cost (which could be nil) less impairment; 3)

Investments in non-convertible or non-puttable shares at fair value if the shares are
publicly traded or fair value can be measured reliably, otherwise at cost less impairment.

Fair value
Fair value is calculated in accordance with the following hierarchy: 1) the quoted price for
an identical asset in an active market; 2) If no active market exists, the price of a recent
transaction for an identical asset; 3) If neither of the above applies, by use of a valuation
technique.

Impairment of financial instruments measured at cost or amortized cost

Where there is any objective evidence of impairment of financial assets measured at
cost or amortized cost, an impairment loss is recognized immediately in profit or loss.

For an instrument measured at amortized cost, the impairment loss is the difference
between the asset’s carrying amount and the present value of estimated cash flows
discounted at the asset’s original effective interest rate. Where an asset is measured at
cost less impairment, the impairment loss is the difference between the asset’s carrying
amount and the best estimate of the amount that the Entity would receive for the asset in
a sale at the reporting date.

Derecognition of financial assets

The Entity only derecognizes a financial asset when: 1) The rights to the cash flows from
the assets have expired or are settled; 2) The entity has transferred substantially all the
risks and rewards relating to the financial asset; or 3) It has retained some significant
risks and rewards but has transferred control of the asset to another party. The asset is
therefore derecognized, and any rights and obligation created or retained are
recognized.

Derecognition of financial liabilities

Financial liabilities are derecognized only when they are extinguished – that is, when the
obligation is discharged, cancelled or expired.

Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported 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 an intention to settle on a net basis, or to
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 gross in
the statement of financial position.

Impairment of non-financial assets

Assets that are subject to depreciation or amortization are assessed at each reporting
date to determine whether there is any indication that the assets are impaired. Where
there is any indication that an asset may be impaired, the carrying value of the asset (or
cash-generating unit to which the asset has been allocated) is tested for impairment. An
impairment loss is recognized for the amount by which the asset’s carrying amount
exceeds its recoverable amount. The recoverable amount is the higher of an asset’s (or
CGU’s) fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately
identifiable cash flows (CGUs). Non-financial assets other than goodwill that suffered
impairment are reviewed for possible reversal of the impairment at each reporting date.

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
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

recognized for the asset (group of related assets) in prior years. A reversal of an
impairment loss is recognized immediately in profit or loss.

The Entity assesses impairment on its property and equipment whenever events or
changes in cisrcumstances indicate that the carrying amount of an asset may not be
recoverable. The factors considered by the School which could trigger an impairment
review include significant underperformance relative to expected historical or projected
future operating results and significant changes in the manner of use of the acquired
asset or the strategy for overall business.

Provisions
Provisions, if any, are recognized when the Entity has a present obligation, (legal or
constructive), as a result of a past event, it is probable that an outflow of resources
embodying economic benefits will be required to settle the obligation, and a reliable
estimate can be made of the amount of the obligation.

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 are disclosed in the notes to consolidated financial statements
when an inflow of economic benefits is probable.

Related party transactions and relationships

Related party relationship exists when one party has the ability to control, directly or
indirectly through one or more intermediaries, the other party in making financial and
operating decisions. Such relationship also exists between and/or among entities which
are under common control with the reporting entity, or between, and/or among the
reporting entity and its key management personnel, director, or its shareholders. In
considering each possible related party relationship, attention is directed to the
substance of the relationship and not merely the legal form. A related party transaction is
a transfer of resources, services or obligations between related parties, regardless of
whether a price is charged.

The Entity’s transactions with related parties are accounted for at arms' length prices or
on terms similar to those offered to non-related entities in an economically comparable
market.

Equity
Total equity comprises of share capital and retained earnings.

Share capital represents the nominal value of shares that have been issued. Share
capital are measured at fair value of cash and other resources received, net of
transaction costs and any related income tax benefits.

Retained earnings represent the cumulative balance of periodic net income or loss,
dividend distributions, prior period adjustments, effect of changes in accounting policy
and other capital adjustments. When the retained earnings account has a debit
balance, it is called “deficit”. A deficit is not an asset but a deduction from equity.
Unappropriated retained earnings represent that portion which is free and can be
declared as dividends to shareholders. Appropriated retained earnings represent that
portion which has been restricted and, therefore, not available for dividend declaration.

Statement of comprehensive income

 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

The Entity presents all items of income and expenses in a single statement of
comprehensive income. There were no items considered as other comprehensive
income for the years 2018 and 2017.

Revenue recognition
Revenue is recognized to the extent that the revenue can be reliably measured, it is
probable that the economic benefits will flow to the Entity, and the costs incurredor to be
incurred can be measured reliably. In addition, the following specific recognition criteria
must also be met before revenue is recognized:

a) Course fee revenue – Course fees are recognize as income over the corresponding
school term.

b) Other income – Other income is recognized upon collection when there is a

reasonable degree of certainty as to their collectability.

Revenue is measured by reference to the fair value of consideration received or

receivable by the School for services rendered, less scholarships and discounts.

Expense recognition
Expenses are recognized in the statement of comprehensive income when a decrease in
future economic benefit related to a decrease in an asset or an increase of a liability has
arisen that can be measured reliably. Expenses are recognize on the basis of direct
association between the costs incurred and the earning of specific items of income; on
the basis of systematic and

rational allocation procedures when economic benefits are expected to arise over
several accounting periods and the association with income can only be broadly or
indirectly determined; or immediately when an expenditure produces no future economic
benefits or when, and to the extent that, future economic benefits do not qualify or cease
to qualify, for recognition in the statement of financial position as an asset.

Expenses in the statement of comprehensive income are presented using the function of
expense method. All finance costs are reported in the profit or loss. Finance costs are
reported on an accrual basis and are recognized using the effective interest rate.

Employees’ compensation and other benefits

Short-term benefits
The Entity recognizes a liability net of amounts already paid and an expense for services
rendered by employees during the accounting period. Short-term benefits given by the
Entity to its employees include salaries and wages, social security contributions, short-
term compensated absences, bonuses and other non-monetary benefits.

Long-term benefits
The Entity provides retirement benefits to entitled employees equivalent to the provision
mandated by law, if any.

Lease – Entity as lessee

Lease of property where a significant portion of the risks and rewards of ownership is
retained by the lessor is classified as operating lease. Payments made under operating
leases are charged to the statement of comprehensive income on a straight-line basis
over the period of the lease.

When the Entity enters into an arrangement, comprising a transaction or a series of

related transactions that does not take the legal form of a lease but conveys a right to
use an asset or is dependent on the use of a specific asset or assets, the Entity
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

assesses whether the arrangement is, or contains, a lease. The Entity does not have
such type of arrangements.

Income taxes
The tax expense for the period comprises current and deferred tax. Tax is recognized in
profit or loss, except to the extent that it relates to an item recognized directly to equity or
other comprehensive income

Current income tax

Current income tax is the expected tax payable on the taxable income for the period
using the tax rate enacted at the reporting date, together with adjustments to tax payable
in respect to prior years.

Deferred income tax

Deferred tax is provided for all temporary differences and the carry-forward of unused tax
credits from excess minimum corporate income tax (MCIT) over the regular corporate
income tax (RCIT) and unused net operating loss carry-over (NOLCO), with few
exceptions such as the initial recognition of goodwill and the outside basis differences
from foreign investments that are essentially permanent in duration.

Deferred tax assets and liabilities are measured at the tax rates that are expected to
apply to the period when the asset is realized or the liability is settled, based on tax rates
(and tax laws) that apply or have been enacted or substantively enacted by the end of
the reporting period. Deferred tax assets and liabilities are not discounted. Management
recognizes a valuation allowance against deferred tax assets that are not likely to be
recovered.

The net carrying amount of the deferred tax asset is reviewed at each reporting date and
the valuation allowance is adjusted to reflect the current assessment of future taxable
profits.

Special tax rate

Under Section 27 (B) of National Internal Revenue Code, Proprietary educational
institutions and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their
taxable income except those covered by Subsection (D) hereof: Provided, that if the
gross income from 'unrelated trade, business or other activity' exceeds fifty percent
(50%) of the total gross income derived by such educational institutions or hospitals from
all sources, the tax prescribed in Subsection (A) hereof shall be imposed on the entire
taxable income.

Event after the end of the reporting period

Any post-year-end events that provide additional information about the Entity’s financial
position at the reporting date (adjusting event) is reflected in the financial statements.
Post-year-end events that are not adjusting events, if any, are disclosed when material in
the notes to financial statements.

3. Summary of critical estimates and judgments

The preparation of the Entity’s financial statements in conformity with PFRS for SMEs
requires management to make estimates and assumptions that affect the amounts
reported in the Entity’s financial statements and accompanying notes. The estimates and
assumptions used in the Entity’s financial statements are based upon management’s
evaluation of relevant facts and circumstances as of the date of the Entity’s financial
statements. Actual results could differ from such estimates.
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

Estimates and judgments are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to
be reasonable under the circumstances.

Critical management judgments in applying accounting policies

In the process of applying the Entity’s accounting policies, management has made the
following judgment, apart from those involving estimation, which have the most
significant effect on the amount recognized in the financial statements:

Provisions and contingencies

Judgment is exercise by management to distinguish between provisions and
contingencies. Policies on recognition and disclosure of provisions and disclosure of
contingencies are discussed in Note 2 and relevant disclosures are presented in Note 16.

4. Cash and cash equivalents

This account consists of:
2019 2018

Cash in bank 489,513 704,070

Petty Cash Fund / Marketing Fund 22,000 22,000

511,513 726,070

Cash in banks represent savings/current account in reputable local bank. A reasonable

amount of Petty cash fund is maintained to cover small payments not covered by checks,
such as transportation, small amount of office supplies, and other payments as defined
by management and not exceeding P500 per single payment.

5. Trade and other receivables

This account consists of:
2019 2018

Advances to Employee's 425,697 299,467

Account Receivables - Trade 1,541,829 1,499,836

1,967,526 1,799,303

Accounts receivable – trade consists mostly of unpaid tuition fee of students. This is
usually collectible within the school term. Advances to employees are non-interest
bearing and is subject to liquidation and/or salary deduction with the Entity’s normal
operating cycle. All of these receivables are collectible per management assessment;
hence, there is no need to provide allowance for impairment.

6. Prepayments
This account consists of:
2019 2018

Prepayment 1,435,323 1,174,610

Other current assets 36,126 33,407

1,471,449 1,208,017

This consists of prepaid supplies and other are subject to amortization within the
prescribed period.
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

7. Property and equipment – net

The roll-forward analysis of the Entity’s property and equipment is shown below:
Furniture,
Leasehold Fixture and Computer
Training Aid Total
Improvement Office Equipment
Equipment

April 1, 2018 1,631,113 5,745,989 2,985,251 2,934,416 13,296,768

Additions 2,988 - 220,700 - 223,688
Disposal -
March 31, 2019 1,634,101 5,745,989 3,205,951 2,934,416 13,520,456

Accumulated depreciation
April 1, 2018 1,606,873 5,689,060 2,214,452 2,590,671 12,101,056
Depreciation 27,227 17,977 380,457 80,111 505,772
Disposal
March 31, 2019 1,634,100 5,707,037 2,594,909 2,670,782 12,606,829

Net amount
April 1, 2018 24,240 56,929 770,799 343,755 1,195,722
March 31, 2019 1 38,952 611,042 263,634 913,628

All depreciation and impairment charges (or reversals if any) are included within
depreciation, amortization and impairment of non-financial assets'. was provided.

8. Other asset
This pertains to non-interest bearing security deposits for the Entity’s leased premises.
This deposit is refundable at the end of the lease contract, if not renewed.

9. Trade and other payables

This account consists of:
2019 2018

Accrued Expenses 4,245,287 2,760,407

Accounts payable 219,206 213,547
Statutory Liabilities 95,414 88,143
Other Creditors 297,864 84,034
4,857,770 3,146,130

Accounts payable represent the unpaid portion of the Entity’s purchases from its
suppliers. They do not earn interest and expected to be settled within a short period of
time. Accrued expenses include accrual of 13th month pay. Statutory benefits are
normally remitted on the following months.

10. Equity

Share Capital
Changes on Share Capital are due to 2018 error, Over declaration of dividend and prior
period adjustment deducted in the Share capital but its supposedly deducted in Retained
Earnings.

Retained Earnings
On March 29, 2019 the BOD approved the appropriation of retained earnings amounting
to P1,500,000 to use in acquisition of Computer Equipment.
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

11. Revenue
This account consists of:
2019 2018

Course Fee 11,654,873 14,668,727

Registration & Program Fee 139,900 50,400
Other Income 3,319,457 3,055,688
Total 15,114,229 17,774,814
Less: Sales discounts - -
15,114,229 17,774,814

This consists of miscellaneous income which compose of fees collected from students
including laboratory, computer income, apprenticeship, logbook, library, medical, dental
and other related fees.

12. Direct Cost

This account consists of:
2019 2018

Salaries 8,004,149 6,936,472

Training and Education 64,047 66,061
Lecturers Fee's 87,012 187,800

8,155,208 7,190,333

13. Administrative expenses

This account consists of:
2019 2018

Depreciation Expenses and Amortization 505,772 554,976

Rental Expenses 3,625,901 3,520,293
Communication, Light & Water 1,762,432 1,942,702
Repair and Maintenance 442,882 492,889
Security Services 288,000 288,000
Marketing Expenses 271,202 295,359
Insurance Expenses 234,828 231,813
Janitorial Services 108,391 65,839
Miscellaneous Expenses 44,061 24,183
Legal & Professional Fee 258,339 366,037
Taxes and Licenses Expenses 617,154 578,826
Office Supplies 114,882 147,636
Travel and Transportation Expenses 244,148 112,261
Interest Expenses 306,000 271,551
Bank Charge and Other Charges 5,329 1,850
8,829,321 8,894,215
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

14. Income tax expense

Being a proprietary educational institution with permit to operate issued by Commission

on Higher Education (CHED) and Technical Education and Skill Development Authority
(TESDA), the Entity is subject to special tax rate of 10% of net profit.

15. Commitment and contingencies

Operating lease commitments – Entity as lessee

The Entity leases its school premises and office space from Banco de Oro Unibank, Inc.
at Mezzanine, 2, 3, and 4th floor, BDO CM Recto – San Sebastian Branch Building, 2070
CM Recto Avenue, Manila for a period of five (5) years commencing on June 01, 2016 to
May 31, 2021, renewable at the option of both parties under certain terms and
conditions. Such lease agreements were recognized under operating lease method.

The monthly rentals shall be increase by 3% per annum, on the second year and every
year thereafter.

Contingencies
The Entity has no impending liabilities, direct claims, contingent liabilities or matters in
which there is a reasonable possibility of an outcome which might materially affect the
Entity’s financial position or result of operations as of March 31, 2019. The Entity has no
contingent assets.

16. Post reporting date events

No adjusting or significant non-adjusting events have occurred between the reporting

date and the date of authorization.

17. Supplementary information required by Bureau of Internal Revenue

Presented below is the supplementary information which is required by the Bureau of

Internal Revenue (BIR) under the exisiting revenue regulations to be disclosed as part of
the notes to financial statements. The supplementary information is not a required
disclosure under PFRS for SMEs.

Requirements under Revenue Regulation (RR) 15 - 2010

The information on taxes and license fees paid or accrued during the taxable year 2019
as required by RR 15 – 2010 are as follows:
Output VAT / Input VAT
The Entity being a proprietary educational institution is VAT exempt, hence, no output
tax were charge to client/student. Input tax on purchases is being recorded as part of
expenses.

Taxes and licenses

The breakdown of taxes and licenses for the year 2019, which is included in the
Administrative Expense account (Note 13) are as follows:
2019 2018

Business Permits 616,654 578,326

BIR Renewal 500 500
617,154 578,826
 SAMPLE COMPANY
NOTES TO FINANCIAL STATEMENTS
AS OF AND FOR THE FISCAL YEARS ENDED MARCH 31 2019 AND 2018

Withholding taxes
The amount of withholding tax paid and/or accrued by the Entity for the year 2019 is
broken down as follows:
2019 2018

Tax on compensation and benefits 138,120 669,849

Creditable withholding taxes 255,135 274,684

393,255 944,532

Deficiency tax assessments and tax cases

As of March 31, 2019, the Entity does not have any final deficiency tax assessments with
the BIR or tax cases outstanding or pending in courts or bodies outside of the BIR in any
of the open years.

Requirements under Revenue Regulation 19 – 2011

This was superseded with the issuance of Revenue Regulation 2 -2014 and succeeding
regulations and circulars pertaining to the income tax returns.