MODFIN PORTFOLIO

Reflection paper presented

To the Accountancy Department

In partial fulfillment
Of the course requirement
In MODFIN4

Ng, Alyna Jae, L.

K34
Shareholders’ equity accounts
Equity is the residual interest of the entity after deducting its liabilities
from its assets. PHINMA Energy Corporation provided a note where it
disclosed the movements of its equity. It provided the disclosure of its
capital stock first which includes the number of shares that was authorized,
issued and outstanding at the beginning of the year, the issuance during the
year, and the ending balance of the issued and outstanding shares.

The only issuance of shares that occurred during the year was through
the exercise of its stock grants, for 2017, and stock options for 2016. The
company was also able to present a table which provides the track record of
the registration of its capital stock, since it increases its authorized capital
stock as the Securities and Exchanges Commission approves of it.

Its Capital Stock only consists of common shares, otherwise known as

ordinary shares. It does not have any preferred shares. Thus, the
computation of its cash dividends is simpler compared to those corporations
who has preference shares. However, it does not mean that the company
cannot subscribe to the preference shares of other companies. PHINMA

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Energy Corporation has provided disclosures that is has subscribed to the
preferred shares of another corporation, namely, Trans-Asia Renewable
Energy Corporation. It has also complied with the minimum requirement of
the Securities and Exchanges Commission, which is to pay at least twenty
five percent of the subscribed preferred shares.

The company declared cash dividends last 2017 and 2016. However,
not all dividends declared were paid immediately, thus the company has a
liability for its unpaid cash dividends which is under the “Due to
stockholders” account. Under note 35, which was titled as “Other Matters”,
the company disclosed that it has distributed both cash and property
dividends in the form of shares last 2014.

Treasury shares are the company’s own equity instruments that are
reacquired and are deducted from the equity. The share options of the
company that were exercised during the reporting period are satisfied with
its treasury shares. The company has also disclosed that it has a wholly-
owned subsidiary, namely PHINMA Power, that was a result from last 2013,
thus considering this wholly-owned subsidiary’s shares of stock as the Parent
company PHINMA Energy as treasury shares. Accordingly, the cash
dividends declared includes the dividends on shares held by PHINMA Power.

Its Other equity reserve is the account where they recognize the
corresponding values of the company’s equity-settled share-based payment
transaction as part of the company’s remuneration which is expounded in its
Stock Option Plan. Since the company’s Stock Options that was granted in
2013 have already expired last 2015, since its vesting period is three years,
its other equity reserve was nil as of 2016 and 2017. The forfeiture of the
unexercised options was also reclassified to Additional Paid-in capital last

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2016. In addition, this is also the account where they recognize other equity
reserves from joint ventures and the effect of the distribution of property
dividends from PHINMA Petroleum shares last 2014.

Statement of changes in equity

The company’s accumulated share in other comprehensive income of
joint venture decreased due to the remeasurement loss on a benefit plan. An
increase in the retained earnings was made due to a higher profit in 2016.
This was already net of the dividends declared during the year, since the
declaration of dividends also affects the retained earnings account.

The elements of the company’s statement of changes in equity

includes the balance at the beginning of the year, following the presentation
of its total comprehensive income as a separate line item, and other equity-
related transactions, which will arrive to the ending balance of the equity. Its
comprehensive income includes remeasurement gains on defined benefit
obligation and unrealized fair value losses on its available-for-sale
investments, which are both presented as net of tax.

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Share-based payments
Share-based payment arrangements are agreements which entitles
another party to receive either cash or other assets of the entity or equity
instruments of another entity (IFRS 2). PHINMA Energy Corporation has an
equity-settled share-based payment transaction, rather than a cash-settled
share-based payment transaction. An example of an equity-settled share-
based payment transaction that PHINMA has are share options. The only
difference that the equity-settled has with the cash, is that upon the receipt
of the equity instruments, the other party, or the employee and/or
executives, will not be given an obligation to settle the transaction.

PHINMA Energy Corporation accounts its stock options and grant in

accordance with PFRS 2. The entity’s stock options awards’ cost is measured
using the fair value of the options on their corresponding grant dates. The
entity utilizes the binomial method to determine the fair value of the options,
because the entity believes that this is the most appropriate valuation
model, based on the terms and conditions of the share-based payment
arrangement. In accordance with PFRS 2, the entity also recognizes a
corresponding increase in equity when the cost of the stock options are
recognized, in which point that the performance or the service conditions
have been fulfilled. The entity will continue to recognize such increase in
equity until the entitled employees have become fully entitled to the award.
According to IFRS 2, the entity will be the one to estimate the length of the
expected vesting period. Accordingly, PHINMA Energy Corporation disclosed
that the expected life of the stock options that they have is based on the
expected exercise behavior of the stock options.

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 The company was able to provide disclosures regarding the increase of
its additional paid-in capital that is in relation to the adjustments made due
to the unexercised stock options or the reclassification of the forfeited stock
options. The company was also able to disclose in its notes the grant date
which was on the second of April of the year 2007, with the corresponding
number of shares that was granted. The list of the employees entitled to the
grant was also disclosed along with the stock options that they will be
entitled to. Namely, stock grants will be awarded to the officers and
managers of the company, and stock options for the directors, officers and
employees of the parent company and its subsidiaries. They will be able to
exercise such grants and options under the terms and conditions that the
Executive Committee of the Board of Directors determined. Under the terms
of conditions, they were able to disclose to whom these stock grants and
options will be covered, the exercise price, the share price, the option price,
the vesting period, and the requirement in order to have the right to
exercise the option, which is also known as the vesting condition. The
vesting condition is the condition in which must be satisfied in order to
exercise the options and/or grants. The vesting condition of its stock options
plan is continuous employment. In case of resignation, termination or
retirement, the optionee will still be entitled but only to the extent where
their options are due, along with the requirement of full payment. In case of
another an unpredictable event such as the death of an optionee, the
optionee’s heirs, executers or administers will be given the right to exercise
the remaining balance of the options granted, with the payment of cash.
These are examples of modifications to the terms and conditions of the
arrangement, namely, the cancellation and early settlements of the
arrangement. Accordingly, the period in which the vesting conditions are to
be satisfied is called the vesting period. In the case of the company’s stock
grants plan, the vesting period will be upon the achievement of the

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Company’s goals and the determination of the payout. On the other hand,
the vesting period for its stock option plan is valid for three years from the
date of grant, which was presented with the corresponding percentages of
the allocated shares which will be allowed to be exercised during that period.

The company recognizes the equity-based compensation expense

under the “Salaries and directors’ fees” account. For 2017 and 2016, the
company did not recognize any expense since there were no stock options
outstanding and exercisable. The company has also forfeited a certain
number of stock options last 2016. Since the company’s vesting period was
three years, they provided a table which lists the inputs to the model used
for the Stock Options Plan that they have in 2013, which was the grant date,
up until 2015 which was the last date that the company recognized an
equity-based compensation expense related to stock options. However, the
company was able to settle stock grants to its officers and managers
through the issuance of shares this 2017.

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Events after the reporting period
The company is in compliance with IAS 10, as it was able to provide a
disclosure regarding the date of the authorization for issue of its financial
statements. Accordingly, it was disclosed that the Parent Company’s BOD
authorized the consolidated financial statements for issuance last February
28, 2018.

Operating segments
According to IFRS 8, the entity shall disclose what the company used
in order to identify the its reportable segments. The company’s operating
segments are organized and managed according to the nature of the
products and services provided. It was divided into two reportable segments,
which was Power and Petroleum. It also did not aggregate any of its
operating segments for the purpose of entity-wide disclosures. It provided a
narrative that the entity’s management is the one who monitors the results
of these business units to make decisions about resource allocation and
performance assessment.

Segment information was provided by the entity, including the

segments’ revenues, the segments’ profit or loss, their operating assets, and
operating liabilities for years 2015 to 2017. Following the segment
information is the reconciliation of the totals of segment revenues, profit or
loss, assets and liabilities to the corresponding entity amounts. PHINMA
Energy Corporation combined the segment information and the reconciliation
of its segments’ revenue, profit or loss, assets and liabilities to the revenue,
profit or loss, assets and liabilities that is presented in its consolidated

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financial statements, since it has only two reportable segments. After
providing the totals of the segments’ revenues, they provided the
adjustments and eliminations to arrive at the amount that the entity will
present as in its consolidated financial statements. It was also able to
restate the prior periods’ segment information and reconciliation in
accordance with IFRS 8.

Included in the adjustments and eliminations from the segments’

accounts are the current taxes, deferred taxes and certain financial
instruments which are not allocated to the operating segments. Assets such
as deferred tax assets are not to be included in the entity wide disclosures
as well, since these do not help in the normal operations of the business
segment.

One particular thing that was noticeable was that it did not provide any
entity-wide disclosures, such as the non-current assets and the revenues
from its major customers with their corresponding geographical areas. Even
though the segments’ total profits are within the range of the 75% of the
entity’s revenue, they did not provide any entity-wide disclosure. They did
not have to aggregate its operating segments since it has already reached
the minimum which is 75%, but they did not provide any disclosure. They
have only provided the narrative on the factors and the basis on how they
organized its operating segments, the corresponding information regarding
its segments and the reconciliation. This is still acceptable and in accordance
with IFRS 8, since they have complied with the minimum disclosure
requirements, however, the entity-wide disclosure is encouraged.

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Earnings per share
In the company’s face of its consolidated statements of income, it was
able to present its Basic/Diluted Earnings per share with its corresponding
note number which can be cross-referenced by the reader in order to see
how the entity computed for it. It was able to provide its Basic and Diluted
Earnings per share for the years 2017, 2016 and 2015.

The entity was able to disclose that it does not have any potential
ordinary shares or any other instruments that may entitle the holder to
ordinary shares, thus its basic earnings per share in the notes to its financial
statements is presented as the same as its diluted earnings per share from
2015 to 2017. The entity computed its basic and diluted earnings per share
in accordance with IAS 33, by dividing the net income attributable to equity
holders of Parent company to the weighted average common shares
outstanding. The weighted average common shares outstanding was
computed by adding the common shares outstanding at the beginning of the

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year, which was also provided with a computation in another note, to the
weighted average number of shares issued during the current year.

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