Professional Documents
Culture Documents
The following Illustrative Financial Statements are prepared for the exclusive use of the staff members of
Diaz Murillo Dalupan and Company (DMD). It is intended to assist auditors in evaluating financial
statements of various clients in compliance with the requirement of the Philippine Financial Reporting
Standard for Small Entities. The compiled Illustrative Financial Statements were prepared after a
thorough evaluation of the PFRS for Small Entities. The disclosures presented in this Illustrative
Financial Statements are based on the views of DMD’s Technical Standards Group after consulting with
DMD’s partners, managers and supervisors. Although the Illustrative Financial Statements are prepared
from the requirements of the PFRS for Small Entities, however, it is not a replacement for reading the
requirements and contents of the PFRS for Small Entities and we strongly advise users of these
Illustrative Financial Statements to read and evaluate the contents of the standards.
Page
Topics Number
A. Preface....................................................................................................................... 3
B. Summary of the Contents of the PFRS for Small Entities............................................. 4
C. SEC Definition of Small Entities and
Entities that are Exempt from Mandatory Adoption.................................................... 6
D. Statements of Financial Position.................................................................................... 8
E. Statements of Income...................................................................................................... 10
F. Statements of Changes in Equity.................................................................................... 11
G. Statements of Cash Flows............................................................................................... 12
H. Notes to Financial Statements........................................................................................ 15
Appendices
This Illustrative Financial Statements is applicable to all entities which meet the Philippine Securities
and Exchange Commission criteria for Small Entities. The Illustrative Financial Statements is not all
inclusive; it only contains the minimum disclosure requirements as required by the PFRS for Small
Entities. The Company should assess the need to provide additional disclosure that will enable users
of financial statements to have a better understanding about the Company’s financial position,
performance and cash flows.
References are provided to the specific section in the PFRS for Small Entities that requires the
disclosure as included in the notes to financial statements. Additional footnotes are provided for
disclosure in which the Company is not required comparative figures in the notes. Also footnotes are
provided for instances which the Company has an accounting policy option to present the gains and
losses in either profit or loss or in other income.
The engagement team should consult the Technical Standards Group in regards to any contentious
issues regarding application of accounting policies and required disclosures.
Section 4: Subsidiaries
Section 8: Inventories
1. Total assets of between ₱3 million to ₱100 million or total liabilities of between ₱3 million
to ₱100 million. If the entity is a parent company, the said amounts shall be based on the
consolidated figures;
2. Are not required to file financial statements under Part II (Issuers of Securities to the Public)
of SRC Rule 68;
3. Are not in the process of filing their financial statements for the purpose of issuing any class
of instruments in public market; and
Small entities shall use as their financial reporting framework the PFRS for Small Entities as adopted
by the SEC. However, entities that have operations or investments that are based or conducted in a
different country with different functional currency shall not apply this Framework and should
instead apply the full PFRS or PFRS for SMEs. The following small entities shall also be exempt
from the mandatory adoption of the PFRS for Small Entities and may instead apply, as appropriate,
the full PFRS or PFRS for SMEs:
1. A small entity which is a subsidiary of a parent company reporting under the full PFRS or
PFRS for SMEs;
2. A small entity which is a subsidiary of a foreign parent company which will be moving
towards International Financial Reporting Standards (“IFRS”) or IFRS for Small and
Medium-sized Entities (“IFRS for SMEs”) pursuant to the foreign country’s published
convergence plan;
3. A small entity, either as a significant joint venture or associate and is part of a group that is
reporting under full PFRS or PFRS for SMEs;
5. A small entity which has a short term projection that show that it will breach the quantitative
thresholds set in the criteria for a small entity. The breach is expected to be significant and
continuing due to its long-term effect on the company’s asset size;
6. A small entity which has been preparing financial statements using full PFRS or PFRS for
SMEs and has decided to liquidate.
7. Such other cases that the SEC may consider as valid exceptions from the mandatory adoption
of PFRS for Small Entities.
If a small entity that uses the PFRS for Small Entities in a current year breaches the floor or ceiling
of the size criteria at the end of that current year, and the event that caused the change is considered
“significant and continuing”, the entity shall transition to the applicable financial reporting
framework in the next accounting period. If the event is not considered “significant and continuing”,
the entity can continue to use the same financial reporting framework it currently uses.
The determination of what is “significant and continuing” shall be based on management’s judgment
taking into consideration relevant qualitative and quantitative factors. As a general rule, 20% or
more of the consolidated total assets would be considered significant.
As at December 31
2017 –
As adjusted
2018 (Note 24)
ASSETS
Current Assets
Cash and cash equivalents - note 4 ₱29,257,543 ₱27,122,345
Short-term investments - note 5 9,855,885 9,546,165
Financial assets at fair value (net) - note 6 1,509,525 1,515,600
Trade and other receivables (net) - note 7 6,473,916 9,064,306
Inventories (net) - note 8 5,655,274 6,477,810
Prepayments and other current assets - note 9 1,516,783 752,595
54,268,926 54,478,821
Noncurrent Assets
Property, plant and equipment (net) - note 10 37,793,512 36,513,501
Investment property - note 11 1,323,090 458,042
Intangible assets (net) - note 12 282,600 281,575
Investment in associate - note 13 3,141,300 3,141,300
Due from related parties - note 23 782,449 798,098
Deferred tax assets - note 25 1,335,649 1,038,079
44,658,600 42,230,595
TOTAL ASSETS ₱98,927,526 ₱96,709,416
A full set of financial statements must be prepared at least annually. When the entity’s 3.19
reporting year-end changes and the financial statements are prepared for a longer period or
shorter than one year, the following must be disclosed:
a. The fact that the financial statements are presented for a period longer or shorter 3.19 (a)
than one year;
b. The reason for using a longer or shorter period; and 3.19 (b)
c. The fact that the comparative amounts are entirely comparable. 3.19 (c)
An entity shall disclose comparative information in respect of the previous comparable 3.21
periods for all amounts presented in the current period’s financial statements. As a result, a
complete set of financial statements shall present, as a minimum, two of each of the required
financial statements.
The entity shall present an analysis of expenses using based on the following: 3.40
a. Nature of expense – under this method, expenses are aggregated in the statement of 3.40 (a)
income according to their nature (for example, depreciation, purchases of materials,
transport costs, employee benefits and advertising costs), and are not reallocated
among various functions within the entity.
b. Function of expense – under this method, expenses are aggregated according to their 3.40 (b)
function as part of costs of sales, for example, the costs of distribution or
administrative activities. At a minimum, an entity discloses its cost of sales under
this method separately from other expenses (the above statement is presented using
function of expense method).
As at December 31
2017 –
As adjusted
2018 (Note 24)
Reporting formats
There are two available reporting formats for the statements of cash flows: 3.44 &
a. The Indirect Method – whereby the profit or loss is adjusted for the effects of non- 3.45
cash transactions, any deferrals or accruals of past or future operating cash receipts
or payments, and items of income or expense associated with investing or financing
cash flows (the statements of cash flows above is presented using the indirect
method); or
b. The Direct Method – whereby major classes of gross cash receipts and gross cash
payments are disclosed.
An entity shall present separately the cash flows from interest and dividends received and
paid. These can be disclosed in any of the three categories set out above provided that it is
done so consistently from one period to the next.
Cash flows arising from taxes on income shall be separately disclosed and shall be classified
as cash flows from operating activities unless they can specifically identified with financing
and investing activities.
An entity must exclude all investing and financing transactions that do not require the use of
cash or cash equivalents. These transactions must be disclosed elsewhere in the financial
statements in a way that provides all the relevant information about these investing and
financing activities.
1. CORPORATE INFORMATION
3.29(b) DMD Manufacturing Corporation (the “Company”) was incorporated in the Philippines and
registered with the Securities and Exchange Commission (SEC) on October 4, 1989. The Company’s
primary activities are distribution and selling of range of beverages through a network of independent
retailers and company-owned retail outlets.
3.29(a) The Company’s registered office address is No.143 D. Antonio Street, Salcedo Village, Makati City,
Philippines.
25.442 The financial statements of the Company as at and for the year ended December 31, 2018, including
its comparatives as at and for the year ended December 31, 2017, were authorized and approved for
issue by the Company’s Board of Directors (BOD) on March 31, 2019.
Additional disclosures may be necessary in the notes if management feels that compliance 3.57
with the specific requirements in this Framework is insufficient to enable users to understand
the effect of particular transactions, other events and conditions on the entity’s financial
position and financial performance.
The significant accounting policies and practices applied in the preparation of these financial
statements are set forth to facilitate the understanding of data presented in the financial statements.
These policies have been consistently applied to all the years presented, unless otherwise stated.
3.60(a) The financial statements of the Company have been prepared in compliance with the Philippine
Financial Reporting Standard for Small Entities (PFRS for SEs) approved by Financial Reporting
Standards Council (FRSC), Board of Accountancy and SEC. The principal accounting policies
applied in the preparation of these financial statements are set in this note.
3.60(a) The financial statements have been prepared using the measurement bases specified by the PFRS for
SEs for each type of asset, liability, income and expense. These financial statements have been
prepared on the historical cost convention, except otherwise stated, and are drawn up in accordance
with the provisions of the PFRS for SEs.
3.28 (e) All amounts are rounded to the nearest peso, except when otherwise indicated.
5.82 The Management assessed that the Company will qualify as a small entity in accordance with the SEC
Memorandum Circular No. 5 Series of 2018. As such, the Company opted to adopt the PFRS for SE
for its financial statements as at and for the year-ended December 31, 2018 and 2017 earlier than its
The Company applied the PFRS for SEs for the first time. The nature and effect of the changes as a
result of adoption are described below:
PFRS for SEs is intended for use by small entities. Some of the key simplifications introduced by the
framework include: (a) inventories are to be subsequently measured at the lower of cost and market
value; (b) investment properties can be carried either at cost or at fair value, depending on the policy
choice made by the entity; (c) there is no concept of finance lease and all lease receipts (payments) are
recognized as income (expense) as earned (incurred); (d) there is no accounting for onerous contracts;
(e) for equity-settled share-based payment transactions, an entity shall measure the goods or services
received, and the corresponding increase in equity with reference to the net asset value of the equity
instruments granted; (f) for defined benefit plans, an entity is required to use the accrual approach in
calculating benefit obligations in accordance with Republic Act (RA) 7641, The Philippine Retirement
Pay Law, or company policy (if superior than RA 7641); (g) entities are given a policy choice of not
recognizing deferred taxes in the financial statements; (h) biological assets can be carried either at cost
or at current market price, depending on the policy choice made by the entity; and (i) prior period
adjustments are captured in the opening balance of the current year, but with appropriate disclosures.
The framework is effective for annual period beginning on or after January 1, 2019 with early
application permitted.
In prior year, the financial statements of the Company are prepared under PFRS for Small and
Medium-sized Entities (SMEs) since it met all the criteria to be qualified as a SME entity set under
SRC Rule 68, as amended.
If the PFRS for SEs specifically addresses a transaction, other event or condition, an entity 5.80
shall apply these standards. However, the entity need not follow a requirement in the PFRS
for SEs if the effect of doing so would not be material.
When an entity undertakes a voluntary change in accounting policy which affects the current 5.93
or any prior period, the entity shall disclose the following:
a. the nature of the change in accounting policy;
b. the amounts of adjustments to the carrying amounts of assets and liabilities at the
beginning of the current period and any cumulative effect recognized as an
adjustment to the opening balance of retained earnings (or other component of
equity, as appropriate) of the current period; and
c. for each financial statement line item affected in the prior period, the amount of the
necessary adjustment and the adjusted amount had the new accounting policy been
applied in the prior period.
In the case of change in accounting policy, the entity should disclose the nature and amount 5.94
of changes that has an effect in the current period. Disclosure of those effects is not necessary
for estimates made each period in the ordinary course of accounting for items such as
uncollectible accounts or inventory obsolescence; however, disclosure is required if the
effect in the estimate is material.
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An entity shall disclose the following about prior period error: 5.95
a. the nature of the change in accounting policy;
b. the amounts of adjustments to the carrying amounts of assets and liabilities at the
beginning of the current period and any cumulative effect recognized as an
adjustment to the opening balance of retained earnings (or other component of
equity, as appropriate) of the current period; and
c. for each financial statement line item affected in the prior period, the amount of the
necessary adjustment and the adjusted amount had the new accounting policy been
applied in the prior period.
The PFRS for SEs does not address the presentation of segment information, earnings per
share, or interim financial reports by a small or medium sized entity. An entity making such
disclosures shall describe the basis for preparing and presenting the information.
Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known
amount of cash and which are subject to an insignificant risk of changes in value with original
maturities of three months or less.
Short-term investments
6.102 Short-term investments are initially recognized upon placement of the time deposit with banks and are
6.103 initially measured at the transaction price, including transaction costs which are equal to the amount
of the investments. Subsequently, these are carried at amortized cost using the effective interest
method. The amortized costs of the short-term investments are equal to its cost as these are short-term
in nature.
6.116 Short-term investments are derecognized upon maturity of the time deposits or upon pre-termination
by the Company.
6.102 Financial assets carried at fair value are recognized initially at the transaction price. Subsequently,
these are measured at fair value with changes in fair value recognized in profit or loss.
6.103 If a reliable measure of fair value is no longer available for financial asset measured at fair value, its
carrying amount at the last date the financial asset was reliably measurable becomes its new cost. The
Company measures the financial asset at its cost less impairment until a reliable measure of fair value
becomes available.
6.116 The Company derecognizes this financial asset only when the contractual rights to the cash flows
from the asset have expired or are settled, or when it transfers the financial asset and substantially all
the risks and rewards of ownership of the asset to another entity.
The carrying amounts of the Company’s financial assets carried at fair value at the end of each
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Page - 17
reporting date are shown in Note 6.
6.102 Trade and other receivables are recognized initially at the transaction price plus transaction cost.
6.103 These are subsequently measured at amortized cost using the effective interest method, less allowance
for impairment. A provision for impairment on receivables is established when there is objective
evidence that the Company will not be able to collect all amounts due, according to the original terms
of the receivables. The impairment loss is recognized immediately in profit or loss. Trade and other
receivables expected to be realized within one year after the reporting period or within the Company’s
normal operating cycle are classified as current assets in the statements of financial position.
Otherwise, these are classified as noncurrent assets.
6.116 Trade and other receivables are derecognized when the rights to receive cash flows from the
receivable have expired, or if the Company has transferred its rights to receive cash flows from the
receivable.
The Company’s trade and other receivable include trade and nontrade receivables, advances to
officers and employees, loan to related parties, accrued interest income and other receivables (see
Note 7)
Borrowings
6.102 Borrowings are recognized initially at the transaction price which is composed of the present value of
6.103 cash payable to the bank, including transaction costs. Borrowings are subsequently stated at amortized
cost.
19.343 All borrowing costs are recognized as an expense in profit or loss in the period incurred. Borrowing
costs are recognized on the basis of the effective interest method and are included under Finance costs
in the statements of income.
3.33 Borrowings are classified as current liabilities unless the Company has an unconditional right to defer
settlement of the liability for at least twelve (12) months after the reporting date.
An entity shall disclose the accounting policies in the notes and the carrying amounts of the 6.121
following categories of financial assets and liabilities at the reporting date, in total, either in
the statements of financial position or in the notes:
An entity shall disclose information that enables users of its financial statements to evaluate 6.122
the significance of financial instruments for its financial position and performance.
For investment in shares, the entity shall disclose the basis for determining the fair value. 6.123
For loans payable, recognized at the reporting date for which there is a breach of terms or 6.124
Inventories
Inventories are recognized initially at cost. Subsequently, inventories are stated at the lower of cost
8.156
and market value. Cost of inventories is determined using the first-in, first-out (FIFO) method. The
8.171(a)
cost of finished goods and work in process comprises packaging costs, raw materials, direct labor,
8.160
other direct costs and related production overheads based on normal operating capacity.
8.161
At each reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying
21.362
amount is reduced to its market value and recognized the impairment loss immediately in profit or
21.364
loss. Market value is determined as the probable selling price to willing buyers as of reporting date.
The Company makes an assessment of market value at each subsequent reporting date. A reversal of
impairment is recognized when the circumstances that previously caused inventories to be impaired
no longer exist or when there is clear evidence of an increase in market value. Any impairment
reversal is recognized in profit or loss, but is limited to the amount of the original impairment loss
recognized.
When inventories are sold, the carrying amount of inventories is recognized as an expense in the
8.169
period in which the related revenue is recognized.
Commentary - Inventories
There are two other cost formula available to entities aside from FIFO Method: 8.168
a. Specific Identification Method – for items which are not ordinarily interchangeable
with other goods or services produced.
b. Weighted Average Cost Method
All inventories of a similar nature should be measured using the same cost formula, for
inventories of a different nature it may be justified to use a different cost formula.
13.253 Prepayments are recognized when payments for goods or services are made in advance for the
21.365 delivery of the goods or the rendering of the services. Prepayments are carried at cost less utilized
portion and any impairment loss. Prepayments are derecognized upon consumption or usage. An
impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount. Prepayments that are expected to be realized for no more than twelve (12)
months after the reporting period are classified as current assets. Otherwise, these are classified as
noncurrent assets.
The Company’s prepayments and other current assets consist of prepaid rent, prepaid membership
fees and dues, input value added tax (VAT), prepaid insurance and unused office supplies (see Note
9).
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Input VAT is the indirect tax paid by the Company on the local purchase of goods or services from a
VAT-registered person. Input VAT is deducted from the output VAT in arriving at the VAT due and
payable. Claims for input VAT are stated at face value less provision for impairment, if any.
Allowance for unrecoverable input VAT, if any, is maintained by the Company at a level considered
adequate to provide for potential uncollectible portion of the claims. The Company, on a continuing
basis, makes a review of the status of the claims designed to identify those that may require provision
for impairment losses.
Prepaid items are apportioned over the period covered by the payment and charged to the appropriate
accounts in the statement of income when incurred.
12.216 Property, plant and equipment are initially recognized at cost. Cost includes purchase price, including
12.217 legal and brokerage fees, import duties and non-refundable purchase taxes, after deducting trade
12.220 discounts and rebates, plus 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, the property, plant and equipment, except land are subsequently measured at
cost less accumulated depreciation and any accumulated impairment losses. Land is subsequently
measured at cost less any accumulated impairment losses.
12. 214 Items such as spare parts, stand-by equipment and servicing equipment are property, plant and
equipment if the entity expects to use them during more than one (1) period or if they can be used in
connection with an item of property, plant and equipment. Otherwise, such items are classified as
inventories.
12.235(a) Depreciation is charged so as to allocate the cost of assets over their estimated useful lives using the
straight-line method. The estimated useful lives range is as follows:
12.235(b) In Years
Plant and equipment 3-5
Building and improvements 3-20
Office furniture and fixtures 3-5
Transportation equipment 5
12.228 The assets’ useful lives and depreciation methods are reviewed, and are adjusted prospectively if
appropriate, if there is an indication of a significant change since the last reporting date.
Fully depreciated assets are retained until they are no longer in use and no further depreciation is
charged against current operations.
21.365 An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s
carrying amount is greater than its estimated recoverable amount.
12.231 An item of property, plant and equipment is derecognized upon disposal or when no future economic
12.232 benefits are expected from its use or disposal. When assets are sold or retired, their costs, their
12.234 accumulated depreciation and accumulated impairment losses are eliminated from the accounts. Gains
and losses on disposals are determined by comparing the net disposal proceeds with the carrying
amount and are recognized in profit or loss.
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Commentary – Property, plant and equipment
An entity shall choose as its accounting policy either the cost model or the fair value model 12.220
and shall apply that policy to an entire class of property, plant and equipment.
An entity shall measure an item of property, plant and equipment at fair value at each 12.229
reporting date with changes in fair value recognized in profit or loss.
If a reliable measure of fair value is no longer available without undue cost or effort for an 12.230
item of property, plant and equipment measured using the fair value model, the entity shall
thereafter account for that item under the cost model. The carrying amount of the property,
plant and equipment on that date becomes its cost.
The fair value of an asset is the amount for which the asset could be exchanged between 12.12
knowledgeable, willing parties in an arm’s length transaction. An entity shall use the
following hierarchy to estimate the fair value of an asset:
a. the best evidence of fair value is a price in a binding sale agreement in an arm’s
length transaction or a quoted price for an identical asset in an active market.
b. if there is no binding sale agreement or active market for an asset, the price of a
recent transaction for an identical asset provides evidence of fair value as long as
there has not been a significant change in economic circumstances or a significant
lapse of time since the transaction took place.
c. If there is no binding sale agreement or active market for an asset and recent
transactions of an identical asset on their own are not a good estimate of fair value,
an entity estimates the fair value by using another valuation technique.
Entities applying the fair value model shall disclose the following: 12.236
a. whether an independent valuer was involved;
b. the methods and significant assumptions applied in determining the fair value of
investment property;
c. for each class of property, plant and equipment, the carrying amount that would
have been recognized had the assets been carried under the cost model;
d. a reconciliation between the carrying amounts of property, plant and equipment at
the beginning and end of the period, showing separately:
i. additions, disclosing separately those additions resulting from acquisitions
through business combinations;
ii. net gains or losses from fair value adjustments;
iii. transfers to cost model when a reliable measure of fair value is no longer
available without undue cost or effort;
iv. transfers to and from inventories and investment property; and
v. other changes
The entity shall also disclose the existence and carrying amounts of property, plant and
equipment to which the entity has restricted title or that is pledged as security for liabilities.
11.204 Investment properties are measured initially at cost. Cost of purchased investment property includes
its purchase price and any directly attributable expenditure such as legal and brokerage fees, property
11.205 transfer taxes and other transaction costs. After initial recognition, the investment property is
11.206 subsequently measured using fair value model with changes in fair value recognized in profit or loss.
11.207 The fair value of investment properties are derived from the current market prices for comparable real
estate determined annually by external valuator. The valuator uses observable market prices, adjusted
if necessary for any difference in the nature, location or condition of the specific asset.
11.208 If a reliable measure of fair value of investment property is no longer available without undue cost or
effort for an item of investment property measured using the fair value model, the entity shall
thereafter account for that item under the cost model in accordance with property, plant and
equipment. The carrying amount of the investment property on the date of the change becomes its
cost.
Investment property is derecognized upon its disposal or when the investment property is permanently
withdrawn from use and no future economic benefits are expected from its disposal. Gains and losses
on disposals are determined by comparing the proceeds with the carrying amount and are recognized
in profit or loss.
An entity shall choose as its accounting policy either the cost model or the fair value model 11.202
and shall apply that policy to an entire class of investment property.
The disclosure requirements for investment property measured at cost model or fair value
model is the same with the disclosure requirements for property, plant and equipment.
Intangible assets
13.247 Separately acquired trademarks and licenses are measured initially at cost. After initial recognition,
13.255 trademarks, licenses and customer-related intangible assets are carried at cost less any accumulated
13.256 amortization and any accumulated impairment losses. Amortization is calculated using the straight-
13.265 line method to allocate the cost of trademarks, licenses and customer-related intangible assets over
their estimated useful lives as follows:
In Years
Trademarks 10
Customer-related intangible assets 5
Computer software licenses 3-5
13.261 The amortization period and amortization method are reviewed when there are indicators that such has
13.260 changed from the previous estimate. If current expectations differ from previous estimates, the
amortization period and method will be amended. The Company assumes that the residual values of
these intangible assets are zero.
13.264 Intangible assets are derecognized upon disposal or when no future economic benefits are expected
from its use and disposal. Any gain or loss on derecognition are included in the profit or loss.
9.174 Associates are all entities over which the Company has significant influence and that is neither a
subsidiary nor an interest in a joint venture, generally accompanying a shareholding of 20% to 50% of
the voting power of the associate.
As there is no published price quotation available for the Company’s investment in associates, the
Company has elected to account for investments in associates at cost less any accumulated
impairment losses.
9.177 The Company recognized dividends and other distributions received from the investment as income
without regard to whether the distributions are from accumulated profits of the associate arising
before or after the date of acquisition and included under other operating income in the statements of
income.
The following are the two accounting options available to account for investments in 9.175
associates:
21.367 Assets that are subject to depreciation or amortization are assessed at each reporting date to determine
21.365 whether there is any indication that the assets are impaired. Where there is any indication that an asset
21.366 may be impaired, the carrying amount of the asset 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 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. The impairment loss is recognized in profit or loss.
21.384 Non-financial assets other than goodwill that suffer impairment are reviewed for possible reversal of
the impairment at each reporting date. If the estimated recoverable amount of the asset exceeds its
carrying amount, the carrying amount is increased to recoverable amount. The reversal of an
impairment loss shall not increase the carrying amount of the asset above the carrying amount that
would have been determined had no impairment loss been recognized for the asset in prior years. A
reversal of an impairment loss is recognized immediately in profit or loss.
6.102 Trade and other payables are recognized in the financial statements when the Company becomes a
6.103 party to a contract that gives rise to a receivable of another entity. These are initially recognized at the
transaction price including transaction costs and subsequently measured at amortized cost using the
3.33 effective interest method. These are included in current liabilities, except for maturities greater than
twelve (12) months after the reporting period, which are then classified as noncurrent liabilities.
The Company’s trade and other payables include trade and nontrade payables, due to government
agencies, accrued utilities and other payables. (see Note 14)
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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.
Accrued expenses represents expenses incurred for the period, but not yet paid as at the reporting date.
6.117 Trade and other payables are derecognized from the statements of financial position only when the
obligations are extinguished either through discharge, cancellation or expiration.
22.392 The liability recognized in the statements of financial position in respect of post-employment benefit
22.393 plans is the net total of the accrued amount of the retirement benefits at the reporting date minus the
fair value of plan assets, if any, at the reporting date out of which the obligations are to be settled
directly. The defined benefit obligation is measured using the accrual approach. Accrual approach is
applied by calculating the expected liability as of reporting date using the current salary of the entitled
employees and the employees’ years of service, without consideration of future changes in salary rates
and service periods.
An entity should account for the post-employment benefit plan using the accrual approach in 22.393
accordance with minimum retirement benefits required under RA No. 7641 or the Philippine
Retirement Pay Law, or company policy if superior than that provided by RA No. 7641.
Accrual approach is applied by calculating the expected liability as of reporting date using
the current salary of the entitled employees and the employees’ years of service, without
consideration of future changes in salary rates and service periods. The entity shall recognize
the liability for such post-employment benefit plan at the net total of the following amounts:
a. the accrued amount of the retirement benefits at the reporting date; less
b. the fair value of plan assets (if any) at the reporting date out of which the
obligations are to be settled directly.
For each category of other long-term benefits the entity provides to its employees, the entity
shall disclose:
a. nature of the benefit;
b. the amount of its obligation; and
c. extent of funding at the reporting date
26.446 Related party transactions are transfers of resources, services or obligations between the Company and
its related parties, regardless whether a price is charged.
26.447(a) Related party relationship exists when (a) a person or a close member of that person’s family has
control or joint control, has significant influence or is a member of the key management personnel of
26.447(b) the reporting entity or of a parent of the reporting entity; and (b) when any of the following conditions
apply: (i) the entity is related to the Company are members of the same group; (ii) one entity is an
associate or joint venture of the other entity; (iii) both entities are joint ventures of the same third
party; (iv) one entity is a joint venture of a third entity and the other entity is an associate of the third
party; (v) the entity is a post-employment benefit plan for the benefit of employees of the Company;
(vi) the entity is controlled or jointly controlled by a person as identified in (a) above; (vii) a person
identified in (a) above has significant influence over the entity or is a member of the key management
personnel of the entity or of a parent of the entity.
26.448 In considering each possible related party relationship, attention is directed to the substance of the
relationships, and not merely to the legal form.
Equity
17.317 Equity instruments are measured at the amount of cash received, net of the direct costs of issuing the
equity instruments. If payment is deferred and the time value of money is material, the initial
measurement is on a present value basis.
Capital stock represents the par value of shares that have been issued at the end of the reporting
period.
Additional paid-in capital (APIC) includes any premium received on the issuance of capital stock.
Any transaction costs associated with the issuance of shares are deducted from APIC, net of any
related income tax benefits.
17.319 Retained earnings include all current and prior period results as disclosed in the statements of income
and statements of changes in equity. Prior period adjustments are accounted for by restating the
carrying amounts of the preceding period and adjusting the opening balance of retained earnings for
the cumulative effect. Adjustments applicable to prior periods arise from changes in accounting
policies or from the corrections of errors. These do not include normal recurring adjustments or
corrections of accounting estimates made in prior periods.
18.322 Revenues are measured at the fair value of the fixed consideration received or receivable by the
Company for the sale of goods in the ordinary course of the Company’s activities.
18.323 Revenue is recognized when it is probable that future economic benefits will flow to the Company,
the amount of revenue can be reliably measured and specific criteria have been met for each of the
Company’s activities.
The Company manufactures and sells a range of beverage products in the wholesale market. Sales of
goods are recognized when a Company entity has delivered products to the wholesaler, it has full
discretion over the channel and price to sell the products, and there is no unfulfilled obligation that
could affect the wholesaler’s acceptance of the products. Delivery does not occur until the products
have been shipped to the specified location, the risks of obsolescence and loss have been transferred to
the wholesaler, and either the wholesaler has accepted the products in accordance with the sales
contract, the acceptance provisions have lapsed, or the Company has objective evidence that all
criteria for acceptance have been satisfied.
18.326 The Company operates a chain of retail outlets for selling wine. Sales of goods are recognized when a
group entity sells a product to the customer as control passes to the customer on the day the
transaction takes place. Retail sales are usually in cash or by credit card.
Sale of services
The Company renders service on their partner retail outlets. Revenue is recognized upon rendering of
management services by the Company.
Interest earned from banks is recognized on a time proportion basis using the effective interest
method.
Rental income
Rental income from investment property that is leased to a third party under an operating lease is
recognized in the statement of income on a straight-line basis over the lease term and is included in
other operating income.
Dividend income
18.338 Dividend income from associates is recognized when the Company’s right to receive payment has
been established and is included in other operating income.
Expense recognition
Expenses are recognized in profit or loss when decrease in the future economic benefit is related to a
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decrease in an asset or an increase in liability has arisen that can be measured reliably. Expenses are
recognized in profit or loss: on the basis of a direct association between the cost 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 benefit or when, and to the extent that, future economic benefits do not
qualify, or cease to qualify, for recognition in the statements of financial position of an asset..
15.292 Leases
Company as Lessee
Lease which do not transfer to the Company substantially all the risks and benefits of ownership of the
asset are classified as operating leases. Operating lease payments are recognized as expense in the
statements of income on a straight-line basis over the lease term. Associated costs, such as
maintenance and insurance, are expensed as incurred.
Company as Lessor
Leases where the Company does not transfer substantially all the risks and benefits of ownership of
the assets are classified as operating leases. Rental income from operating leases are recognized as
income in the statements in income on a straight-line basis over the lease term.
3.56 Items included in the financial statements of the Company are measured using the functional currency.
3.28(d) Functional currency is the currency of the primary economic environment in which the Company
24.431 operates. The financial statements are presented in Philippine Peso (₱), the Company's functional and
presentation currency.
24.432 Transactions denominated in foreign currencies are recorded in Philippine Peso using the exchange
24.433 rate between the functional currency and the foreign currency prevailing at the date of transaction. At
the end of each reporting period, foreign currency monetary items are translated using the closing rate.
Foreign exchange gains and losses are recognized in the profit or loss.
Income taxes
23.403 The Company recognized a current tax liability for tax payable on taxable profit for the current and
23.405 past periods. Current tax asset is recognized when there is an excess in the amount paid for the current
and past periods over the amount payable for those periods. There is no discounting of current tax
assets and liabilities.
23.404 The current tax liabilities (assets) are calculated on the basis of the tax laws that have been enacted or
substantively enacted as at reporting date.
The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss,
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23.406 except to the extent that it relates to items recognized in other income or directly in equity.
The current income tax is calculated on the basis of the tax laws that have been enacted or
23.404 substantively enacted as at reporting date.
23.414 Deferred income tax is recognized on temporary differences (other than temporary differences
associated with unremitted earnings from foreign associates to the extent that the investment is
essentially permanent in duration, or temporary differences associated with the initial recognition of
goodwill) arising between the tax bases of assets and liabilities and their carrying amounts in the
financial statements and on unused tax losses or tax credits of the Company. Deferred income tax is
determined using tax rates and laws that have been enacted or substantively enacted as at the reporting
date.
23.419 The carrying amount of deferred tax assets are reviewed at each reporting date. The Company reduced
the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be
available to allow the benefit of part or all of that recognized deferred tax asset to be utilized. Any
such reduction will be reversed to the extent that it becomes probable that sufficient taxable profit will
be available.
23.424 Deferred income tax assets and liabilities can offset when there is a legally enforceable right to offset
current tax assets against current tax liabilities and when the deferred income tax assets and liabilities
relate to income taxes levied by the same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle the balances on a net basis.
Provisions
16.298 Provisions are recognized when present obligations will probably lead to an outflow of economic
resources and they can be estimated reliably even if the timing or amount of the outflow may still be
uncertain. A present obligation arises from the presence of a legal or constructive commitment that
has resulted from past events.
16.302 Provisions are measured at the estimated expenditure required to settle the present obligation, based
on the most reliable evidence available at the end of the reporting period, including the risks and
uncertainties associated with the present obligation. Any reimbursement expected to be received in the
course of settlement of the present obligation is recognized, if virtually certain as a separate asset, not
exceeding the amount of related provision. Where there are a number of similar obligations, the
likelihood that an outflow will be required in settlement is determined by considering the class of
obligations as a whole. In addition, where time value of money is material, long-term provisions are
discounted to their present values using a pretax rate that reflects market assessments and the risks
specific to the obligation.
Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best
estimate.
In those cases where the possible outflow of economic resources as a result of present obligations is
considered improbable or remote, or the amount to be provided for cannot be measured reliably, no
liability is recognized in the financial statements.
Similarly, possible inflows of economic benefits to the Company that do not met the recognition
criteria of an asset are considered contingent assets, hence, are not recognized in the financial
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statements. On the other hand, any reimbursement that the Company can be virtually certain to collect
from a third party with respect to the obligation is recognized as a separate asset not exceeding the
amount of the related provision.
Commentary – Provisions
16.308 Contingencies
Contingent liabilities are not recognized in the financial statements. These are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. Contingent assets are
not recognized in the financial statements but disclosed when an inflow of economic benefits is
probable. Contingent assets are assessed continually to ensure that the developments are appropriately
reflected in the financial statements. If it has become virtually certain that an inflow of economic
benefits will arise, the asset and the related income are recognized in the financial statements.
Commentary – Contingencies
Contingent Liabilities
Unless the possibility of an outflow of economic resources is remote an entity shall disclose, 16.311
separately for each class of contingent liability) a brief description of the nature of the
liability and when practicable:
a. An estimate of its financial effects
b. An indication of the uncertainties relating to the amount or timing of any outflows
c. The possibility of any reimbursement.
Contingent Assets
When it is probable but not virtually certain that the entity will receive an inflow of 16.312
economic benefits it shall disclose the description of the nature of the contingent asset and if
practicable without undue cost or effort an estimate of the financial effect. If impracticable
this needs to be stated.
In extremely rare cases, disclosure of some or all of the information required to be disclose 16.313
can be expected to prejudice seriously the position of the entity in a dispute with other parties
on the subject matter of the provision, contingent liability or contingent asset. If this is the
case, the entity need not disclose the information, but must disclose the general nature of the
dispute, together with the fact and reason why the information has not been disclosed.
The preparation of the financial statements requires management to make judgments and estimates
that affect amounts reported in the financial statements and related notes. These judgments and
estimates 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.
The Company believes the following represent a summary of these significant judgments and
estimates and related impact and associated risks in the financial statements.
21.386 Determining the carrying amount of assets requires the determination of future cash flows expected to
be generated from the continued use and ultimate disposition of such assets, involves significant
judgment and estimations. Though assumptions made by the Company are appropriate and
reasonable, significant changes in those assumptions may materially affect the assessment of
recoverable values and may lead to future impairment charges under the PFRS for Small Entities.
As at December 31, 2018 and 2017, management evaluated that there are no indicators of impairment
on its property, plant and equipment, intangible assets and investment property, thus, no impairment
losses were recognized.
8.156 The Company maintains allowance for doubtful accounts at a level considered adequate to provide for
potential uncollectible receivables. The level of this allowance is evaluated by the management on the
basis of factors that affect the collectability of the accounts. These factors include, but not limited to,
the length of relationship with the customers, the customer’s payment behavior and known market
factors. The Company then reviews the allowance on a continuous basis.
The Company’s trade and other receivables has a carrying amount of ₱6,473,916 and ₱9,064,306 as at
December 31, 2018 and 2017, net of allowance for doubtful accounts of ₱1,234,560 and ₱733,819,
respectively (see Note 7).
The Company carries inventories at market value when this becomes lower than cost due to damage,
physical deterioration, obsolescence, changes in price levels or other causes.
The carrying amount of inventories as at December 31, 2018 and 2017 amounted to ₱5,655,274 and
₱6,477,810, respectively, net of allowance for inventory obsolescence on raw materials of ₱478,428
and ₱277,690, respectively (see Note 8).
(c) Estimating the useful lives of property, plant and equipment and intangible assets
11.207 The Company estimates the useful lives of property, plant and equipment and intangible assets based
on the period over which the assets are expected to be available for use. The estimated useful lives
are reviewed and updated, if expectations differ from previous estimates due to physical wear and
tear, technical or commercial obsolescence and legal or other limits on the use of the assets. The
estimation of the useful lives of the property, plant and equipment and intangible assets is based on a
collective assessment of industry practice and experience with similar assets. It is possible, however,
that future results of operations could be materially affected by changes in estimates brought about by
changes in factors mentioned above. A reduction in the estimated useful lives of the property, plant
and equipment and intangible assets would increase recorded operating expenses and decrease
noncurrent assets.
The carrying amount of the Company’s property, plant and equipment as at December 31, 2018 and
2017 amounted to ₱37,793,512 and ₱36,513,501, respectively (see Note 10).
The carrying amount of the Company’s intangible assets as at December 31, 2018 and 2017 amounted
to ₱282,600 and ₱281,575, respectively (see Note 12).
The fair value of investment property is derived from the current market prices of comparable real
estate. The fair value is based on a valuation made by independent appraisers who hold a recognized
and relevant valuation license and have recent experience in valuing office buildings in the same
location as the Company’s investment property.
The carrying amount of the Company’s investment property as at December 31, 2018 and 2017
amounted to ₱1,323,090 and ₱458,042, respectively (see Note 11).
The Company reviews its deferred tax assets at each reporting date and reduces the carrying amount
to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or
part of the deferred tax asset to be utilized.
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The carrying amount of deferred tax asset recognized in the statements of financial position amounted
to ₱1,335,649 and ₱1,038,079 as at December 31, 2018 and 2017, respectively (see Note 25).
The Company accounted its post-employment benefit plan using accrual approach. Accrual approach
is applied by calculating the expected liability as of reporting date using the current salary of the
entitled employees’ year of service, without consideration of future changes in salary rates and service
periods. The details are presented in Note 24.
The carrying amount of the Company’s retirement benefit obligation as at December 31, 2019 and
2018 amounted to ₱2,739,176 and ₱2,448,753, respectively (see Note 24).
Cash in banks generally earn interest based on the daily bank deposit rates of 0.5% and 1.50% during
2018 and 2017, respectively. Cash equivalents are made for varying periods up to three (3) months
depending on the immediate cash requirements of the Company and earn interest of 2.85% and 4.19%
in 2018 and 2017, respectively.
6.125(b) Interest income earned from bank deposits and cash equivalents amounting to ₱140,826 in 2018 and
₱135,527 in 2017 are disclosed under Other operating income in the statements of income (see Note
20).
5. SHORT-TERM INVESTMENTS
This investment in short-term unit investment trust funds (UITF) bears an annual interest of 3.38%
and 4% for the years ended December 31, 2018 and 2017, respectively.
6.125(b) Interest income earned from short-term investments is disclosed as part of “Interest income” under
Other operating income in the statements of income amounting to ₱309,720 and ₱305,478 for 2018
and 2017, respectively (see Note 20). Moreover, accrued interest amounting to ₱24,305 and nil as at
Financial assets at fair value include equity instruments that are traded in the market.
6.123 The amounts presented have been determined directly in reference to published prices quoted in the
stock market.
6.125(b) Unrealized fair value loss amounting to ₱6,075 in 2018 is presented in Other operating expenses and
unrealized fair value gain amounting to ₱10,627 in 2017 is presented in Other operating income (see
Notes 20 and 22).
Trade receivables represent amounts collectible from the Company’s customers arising from the sale
of goods on account. These receivables have normal credit terms of 30 days and do not bear any
interest.
Advances to officers and employees refer to duly approved cash advances for official business to the
Company’s officers and employees that are subject to liquidation.
Accrued interest income represents the amount of interest earned arising from the Company’s time
deposit investments with a local bank, but not yet received as at December 31, 2018 (see Note 5).
Other receivables mainly represent the income earned from rentals of investment property, but not yet
received.
2018 2017
Balance at January 1 ₱733,819 ₱532,417
Provision for impairment - note 21 500,741 201,402
Balance at December 31 ₱1,234,560 ₱733,819
8. INVENTORIES (NET)
2018 2017
3.35(c) At cost:
Finished goods ₱1,353,155 ₱1,123,531
8.171(b) Work in process 2,126,918 3,325,141
Factory supplies 515,321 235,136
3,995,394 4,683,808
At market value:
Raw materials 2,138,308 2,071,692
Allowance for inventory obsolescence (478,428) (277,690)
1,659,880 1,794,002
₱5,655,274 ₱6,477,810
All inventories are carried at cost, except for raw materials which are stated at market value.
The details and movement of the allowance for inventory obsolescence follows:
2018 2017
Balance at January 1 ₱277,690 ₱277,690
Provision for inventory obsolescence 200,738 -
Balance at December 31 ₱478,428 ₱277,690
8.171(d) The Company has recognized an impairment loss amounting to ₱200,738 in 2019 due to inventory
obsolescence of raw materials.
8.171(c) The cost of inventories recognized as expense and included under Cost of goods sold in the statements
of income amounted to ₱74,009,691 and ₱58,993,160 in 2019 and 2018, respectively (see Note 19).
Commentary – Inventories
2018 2017
Prepaid rent ₱1,318,631 ₱621,278
Prepaid membership fees and dues 102,544 99,673
Input VAT 45,972 -
Prepaid insurance 24,636 7,644
Others 25,000 24,000
₱1,516,783 ₱752,595
Others mainly consist of unused office supplies amounting to ₱16,000 in 2018 and ₱14,000 in 2017.
Office
Plant and Building and furniture Transportation
Land equipment improvements and fixtures equipment Total
3.35(a) Cost
Balance, beginning ₱3,500,000 ₱12,044,081 ₱30,838,370 ₱1,345,736 ₱6,089,015 ₱53,817,202
Addition - 3,215,112 - 86,799 766,000 4,067,911
Disposal - (45,000) - - - (45,000)
Balance, end ₱3,500,000 ₱15,214,193 ₱30,838,370 ₱1,432,535 ₱6,855,015 ₱57,840,113
Accumulated
12.235(d) depreciation
Balance, beginning ₱- ₱3,539,725 ₱11,533,550 ₱403,721 ₱1,826,705 ₱17,303,701
Depreciation - 1,171,947 965,241 102,881 502,831 2,742,900
Balance, end - 4,711,672 12,498,791 506,602 2,329,536 20,046,601
Net carrying amount
December 31, 2018 ₱3,500,000 ₱10,502,521 ₱18,339,579 ₱925,933 ₱4,525,479 ₱37,793,512
2018 2017
Cost of goods sold - note 19 ₱2,137,188 ₱3,059,864
General and administrative expenses - note 21 605,712 684,751
₱2,742,900 ₱3,744,615
12.237 The Company sold equipment with a carrying amount of ₱45,000 for total proceeds of ₱30,000. The
difference of ₱15,000 is recognized as loss on sale of equipment included under Other operating
expenses in the 2018 statement of income (see Note 22).
The land was used as a security for the loan obtained from a local bank (see Note 16).
The reconciliation is required only for the current year and need not be presented for prior 12.235
The entity shall also disclose the the existence and carrying amounts of property, plant and 12.236
equipment to which the entity has restricted title or that is pledged as security for liabilities.
11.211(a) The Company owns an office building that is held to earn rental income and for long-term capital
11.211(b) appreciation. The property is leased to a third party under an operating lease. The fair value of
11.211(c) investment properties are derived from the current market prices for comparable real estate determined
annually by external valuator. The valuator uses observable market prices, adjusted if necessary for any
difference in the nature, location or condition of the specific asset.
Rental income earned from the leased of investment property amounted to ₱35,063 in 2018 and
₱ 34,054 in 2017 (see Note 20).
Customer-
related Computer
intangible software
Trademarks assets licenses Total
13.265(e) Cost
Balance, at beginning of year ₱131,290 ₱70,840 ₱200,120 ₱402,250
Additions - - 45,000 45,000
Disposals - - - -
Balance, at end of year 131,290 70,840 245,120 447,250
13.265(c) Accumulated Amortization
Balance, at beginning of year 39,387 24,252 57,036 120,675
Amortization – note 21 13,129 6,655 24,191 43,975
Disposals - - - -
Balance, at end of year 52,516 30,907 81,227 164,650
₱78,774 ₱39,933 ₱163,893 ₱282,600
13.265(d) Amortization expense amounting to ₱43,975 in 2018 and ₱40,225 in 2017 are disclosed under General
and administrative expenses in the statements of income (see Note 21).
9.180 (a) The Company owns 30% interest in ABC Company whose shares are not publicly-traded. ABC
9.180 (b) Company is located at 5F Don Jacinto Building, Dela Rosa cor. Salcedo Sts., Legaspi Village, Makati
9.180 (c) City.
9.180 (d) The carrying amount of the investment in associate which is measured at cost amounting to
₱3,141,300 as at December 31, 2018 and 2017.
9.180 (e) Dividend income amounting to ₱524,400 and ₱499,429 for 2018 and 2017, respectively, is recognized
in Other operating income in the statements of income (see Note 20).
Trade payables represent the amount owed to various suppliers on the Company’s purchases of raw
materials. The average credit period on these payables is 30 days.
Due to government agencies include Social Security System (SSS) payables, Home Development
Mutual Fund (HDMF) payables, withholding taxes and other taxes payable to government agencies.
Others mainly pertain to the accrual of salaries and rentals during the period but are not yet paid as at
the reporting date.
15. LEASES
In January 5, 2017, the Company has entered into a lease agreement with Pa-Renta Corporation where
its new office is located. The term of the lease is for a period of three (3) years until December 31,
2019 and renewable upon the mutual agreement of the parties. Monthly rental amounted to ₱24,683
for 2018 and 2017.
15.294(b) The Company entered into a lease contract with Pa-Upahan Warehouse, Inc. on March 31, 2017 for
the lease of a storage warehouse. The lease is effective for a period of three (3) years commencing on
July 16, 2017 until June 15, 2020, renewable upon the mutual agreement of the parties for another
period of three (3) years. Annual rental for the years ended December 31, 2018 and 2017 amounted to
₱2,585,000 and ₱2,635,837, respectively. The annual rent is subject to an escalation rate as agreed
upon by the parties.
2018 2017
Cost of goods sold – Note 19 ₱2,635,837 ₱1,184,791
General and administrative expenses – Note 21 296,198 296,198
₱2,932,035 ₱1,480,989
The current and non-current portion of the loans payable as at December 31 follows:
2018 2017
Balance ₱31,500,000 ₱30,000,000
Less non-current (27,000,000) (28,000,000)
Current ₱3,500,000 ₱2,000,000
Long-term loans
6.122 On April 1, 2016, the Company entered into loan agreement with NUV Alley Co., Inc. (NACI), an
affiliate, amounting to ₱27,000,000 for ten (10) years which bears an annual interest rate of 2%
payable annually starting on April 1, 2016 and will end on April 1, 2026. No collateral was provided
nor required to secure any of the above loans. These loans will be settled through cash payment (see
Note 23).
12.237 On January 5, 2017, the Company entered into loan agreement with a local bank amounting to
₱2,000,000 for twenty (20) years which bears an annual interest of 2% with grace period on the
principal. The payment for principal amounting to ₱1,000,000 is payable annually starting on
December 20, 2018 and will end on December 20, 2038.
The loans is secured with the land owned by the Company with a carrying amount of
₱3,500,000 (see Note 10).
Short-term loans
On February 19, 2017, the Company entered into a loan agreement with a local bank for the purpose
of financing its business operations amounting to ₱1,000,000 with a term of one (1) year which bears
an interest of 1.875% per annum. The interest is paid every 19th of the month and the principal will be
paid in lump sum upon maturity of the loan. The loan was paid in full on February 19, 2018.
On June 15, 2018, the Company entered into a loan agreement with a local bank for the purpose of
financing its business operations amounting to ₱3,500,000 with a term of one (1) year which bears an
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interest of 4% per annum. The interest is paid every end of the month and the principal will be paid in
lump sum upon maturity of the loan. No collateral was provided nor required to secure this loan.
19.344 Total interest expense charged to operations for the above long-term and short-term loans for the years
ended December 31, 2018 and 2017 amounted to ₱1,707,861 and ₱1,266,001, respectively.
17. EQUITY
Capital stock
The Company has one class of common shares which carry no right to fixed income.
APIC
The 2,800,000 shares are issued in exchange for ₱30,185,353 or issue price of ₱10.78 resulting to an
APIC of ₱2,185,353.
18. REVENUES
Commentary – Revenue
With regards to revenue from construction contracts the following disclosures are required: 18.340
a. The amount of contract revenue recognized as revenue in the period.
b. The methods used to determine the contract revenue recognized in the period.
c. The methods used to determine the stage of completion of contracts in progress.
2018 2017
Raw materials used ₱49,217,343 ₱41,710,696
Direct labor 12,376,875 9,224,932
Factory overhead
Rent - note 15 2,635,837 1,184,791
Employee benefits 2,551,401 1,522,006
Depreciation - note 10 2,137,188 3,059,864
Utilities 2,032,025 1,467,856
Factory supplies 1,695,304 1,054,412
Repairs and maintenance 395,119 529,447
Total manufacturing cost 73,041,092 59,754,004
Add: Work in process, beginning 3,325,141 2,122,205
Total cost of goods put into process 76,366,233 61,876,209
Less: Work in process, ending 2,126,918 3,325,141
Total cost of goods manufactured 74,239,315 58,551,068
Add: Finished goods, beginning 1,123,531 1,565,623
Total cost of goods available for sale 75,362,846 60,116,691
Less: Finished goods, ending 1,353,155 1,123,531
₱74,009,691 ₱58,993,160
18.339 (a) The Company has recognized an income by way of government grant when it completed the required
feasibility studies and tests on its new harvesting machine before the end of year. The income was
recognized in full since there are no other obligations that need to be fulfilled by the Company.
The Company, in the normal course of business, has transactions with the following related parties:
5.451 (a) The Company’s transactions with affiliated companies represent various reimbursements of
25.453(a) expenses and cash advances with a total amount of ₱2,608,163 and ₱3,660,326 for the years
25.453(b) ended December 31, 2018 and 2017, respectively. Total outstanding balances amounting to
25.453(c) ₱782,449 and ₱798,098 as at December 31, 2018 and 2017, respectively are presented as Due
from related parties in the statements of financial position. These are unsecured, non-interest
bearing, unguaranteed and have no fixed repayment terms.
25.453(a) (b) On January 25, 2018, the Company granted an unsecured loan to an affiliate which bears interest
25.453(b) of 4% payable in 12 months. Interest income from loans amounted to ₱72,917 for the year ended
25.453(c) December 31, 2018 (see Note 20).
All transactions with related parties will be settled through cash payment. No impairment is
recognized from the above receivables for the years ended December 31, 2018 and 2017.
The remuneration of the Company’s key management personnel in aggregate form for each of the
following categories are as follows:
The standard provides the following examples of transactions with related parties that must 26.455
be disclosed:
a. Purchases or sales of goods (finished or unfinished)
b. Purchases or sales of property and other assets;
c. Rendering or receiving of services;
d. Leases;
e. Transfers of research and development;
f. Transfers under license agreements;
g. Transfers under finance agreements (including loans and equity contributions in
cash or in kind);
h. Provision of guarantees or collateral;
i. Settlement of liabilities on behalf of the entity or by the entity on behalf of another
party; and
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j. Participation by a parent or subsidiary in defined benefit plan that shares risks
between group entities.
The Company has defined benefit plan for qualifying employees. Under the plan, the employees are
entitled to retirement benefits equal to one hundred percent (100%) of the Plan Salary for every year
of credited service on attainment of a retirement age of 55 or 15 years of service, whichever is earlier.
The Company’s retirement benefits was computed using the accrual approach
The amounts included in the statements of financial position arising from the Company’s obligations
in respect of its defined benefit plan as at December 31 are as follows:
22.393 2017 –
22.398 2018 As adjusted
Defined benefit obligation ₱3,265,561 ₱2,838,544
Fair value of plan assets (526,385) (389,791)
₱2,739,176 ₱2,448,753
Movements in the present value of defined benefit obligation for the years ended December 31 are as
follow:
22.398 2017 –
2018 As adjusted
Balance at January 1 ₱2,448,753 ₱2,153,949
Retirement benefit expense – Note 21 411,923 399,804
Benefits paid (121,500) (105,000)
Balance at December 31 ₱2,73,176 ₱2,448,753
5.93 Under PFRS for SMEs, the Company’s retirement benefit obligations were calculated on the basis of
the project unit credit method. Under PFRS for SEs, the Company is required to use the accrual
approach to calculate the retirement benefit obligations.
The following reconciliations show the effect of the transition from PFRS for SMEs to the PFRS for
SEs on the Company’s equity as at January 1, 2017 and December 31, 2017 and the Company’s profit
for the year ended December 31. 2017.
Effects of
As previously transition to
reported PFRS for SEs As adjusted
Statements of Financial Position
Deferred tax asset ₱843,642 (₱109,016) ₱734,626
Retirement benefit obligations 2,812,141 (363,388) 2,448,753
Retained earnings 21,660,099 254,372 21,914,471
2017
Profit for the year under PFRS for SMEs ₱51,180
Adjustment of provisions for employee benefit obligations 254,372
Profit for the year under PFRS for SEs ₱305,552
23.402(b) The major components of tax expense as reported in the statements of income for the years ended
December 31 are as follows:
2017 –
23.426(a) As Adjusted
2018 (Note 24)
Current tax expense ₱1,348,675 ₱714,436
Deferred tax benefit (297,570) (148,862)
₱1,051,105 ₱565,574
The reconciliation of provision for income tax computed at the statutory income tax rate to provision
for income tax as shown in the statements of income is as follows:
2018 2017
Income before tax ₱2,198,115 ₱871,126
Tax at the applicable tax rate of 30% 659,435 261,338
Add (deduct) tax effect of:
Non-taxable interest income (135,164) (132,302)
Non-deductible portion of interest 56,319 60,126
Nondeductible depreciation 385,940 308,752
Rental payment 84,575 67,660
Income tax expense ₱1,051,105 ₱565,574
2017 –
As adjusted
2018 (Note 24)
Retirement benefit obligation ₱821,753 ₱734,626
Allowance for doubtful accounts 370,368 220,146
Allowance for inventory obsolescence 143,528 83,307
₱1,335,649 ₱1,038,079
The following information is presented for purposes of filing with the BIR and is not a required part
of the basic financial statements.
On December 28, 2010 the BIR issued RR No.15-2010, which amended certain provisions of RR No.
21-2002 prescribing the manner of compliance with any documentary and/or procedural requirements
in connection with the preparation and submission of financial statements and income tax returns.
Section 2 of RR No. 21-2002 was further amended to include in the Notes to Financial Statements
information on taxes, duties and license fees paid or accrued during the year in addition to what is
mandated by PFRS for SEs.
The following is the tax information required for the taxable year ended December 31, 2018:
Gross Output
revenues VAT
Sales subject to 12% VAT
Sale of goods ₱xxx ₱xxx
Rendering of services xxx Xxx
xxx Xxx
Zero-rated sales
Sale of goods xxx Xxx
Rendering of services xxx Xxx
xxx Xxx
Exempt
Sale of goods xxx Xxx
Rendering of services xxx Xxx
xxx Xxx
₱xxx ₱xxx
Note: Please provide legal basis for zero-rated sales and exempt sales.
(Option 1)
Details of the Company's landed cost of imports and the amount of custom duties and tariff fees paid
and accrued during the year are as follows:
(Option 2)
The Company has no transactions subject to taxes on importation for the year ended December 31,
2018.
(Option 1)
The Company has no transactions on excise tax for the year ended December 31, 2018.
(Option 1)
(Option 2)
The Company has not paid any documentary stamp tax, as there is no related transaction that requires
the payment of the said tax for the year ended December 31, 2018.
Final withholding taxes pertain to withholding taxes for dividends paid during the year.
(Option 1)
Year
2018 ₱xxx
2017 xxx
2016 xxx
₱xxx
The taxable year 2018 is currently under investigation by the BIR. The Company is contesting the
above tax assessments. Management, based on consultation with the Company's legal counsel,
believes that the final settlement, if any, would not adversely affect the Company's financial position
or result of operations.
(Option 2)
The Company has no deficiency tax assessment paid during the year.
(i) The Company has no tax cases under preliminary investigation, litigation and/or prosecution in
courts or bodies outside the BIR.
* * *
Opinion
We have audited the financial statements of DMD Manufacturing Corporation (the “Company”),
which comprise the statements of financial position as at December 31, 2018 and 2017, and the
statements of income, statements of changes in equity and statements of cash flows for the years then
ended, and notes to the financial statements, including a summary of significant accounting policies.
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial
position of the Company as at December 31, 2018 and 2017, and its financial performance and its cash
flows for the years then ended in accordance with Philippine Financial Reporting Standard for Small
Entities (PFRS for SEs).
We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audits
of the Financial Statements section of our report. We are independent of the Company in accordance with
the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the
ethical requirements that are relevant to our audits of financial statements in the Philippines, and we have
fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Responsibilities of Management and Those Charged with Governance for the Financial Statementsii
Management is responsible for the preparation and fair presentation of the financial statements in
accordance with PFRS for SEs, and for such internal control as management determines is necessary to
enable the preparation of financial statements that are free from material misstatement, whether due to
fraud or error.
In preparing the financial statements, management is responsible for assessing the Company’s ability to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the
i
The sub-title “Report on the Audits of the Financial Statements” is unnecessary in circumstances when the second
sub-title “Report on Other Legal and Regulatory Requirements” is not applicable.
ii
Throughout these illustrative auditors’ reports, the terms management and those charged with governance may
need to be replaced by another term that is appropriate in the context of the legal framework in the particular
jurisdiction.
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going concern basis of accounting unless management either intends to liquidate the Company or to cease
operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting process.
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are
free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that
includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an
audit conducted in accordance with PSAs will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in the
aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of these financial statements.
As part of an audit in accordance with PSAs, we exercise professional judgment and maintain
professional skepticism throughout the audits. We also:
• Identify and assess the risks of material misstatement of the financial statements, whether due to fraud
or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that
is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material
misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve
collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures
that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
• Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditors’
report to the related disclosures in the financial statements or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our
auditors’ report. However, future events or conditions may cause the Company to cease to continue as
a going concern.
• Evaluate the overall presentation, structure and content of the financial statements, including the
disclosures, and whether the financial statements represent the underlying transactions and events in a
manner that achieves fair presentation.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audits.
Opinion date
In case of independent auditor’s report for consolidated financial statements such as the
illustrative financial statements for PFRS for SEs, the “Report on Supplementary Information
required by BIR” is not a required component of the report.
iii
SRC Rule 68 section iv.iii provides that the auditors’ report of a Company mentioned under paragraph (B) (i) of
this section shall likewise indicate the signing auditor/partner’s accreditation number, category and expiration of
accreditation.
None of the partners of the firm have any financial interest in the Company or any family relationships
with its president, managers or principal stockholders.
The supplementary information on taxes and licenses is presented in Note XX to the financial
statements.
Opinion date
iv
SRC Rule 68 section iv.iii provides that the auditors’ report of a Company mentioned under paragraph (B) (i) of
this section shall likewise indicate the signing auditor/partner’s accreditation number, category and expiration of
accreditation.
We have audited the accompanying financial statements of DMD Manufacturing Corporation as at and
for the year ended December 31, 2018, on which we have rendered the attached report dated (opinion
date). In connection with our audit, we obtained a certification from the Company’s corporate
secretary (we have inspected the stock and transfer book) as to the number of stockholders and their
corresponding shareholdings as at December 31, 2018. In relation to the certification issued by the
corporate secretary (our inspection of the stock and transfer book), we conducted certain tests
necessary to validate the related Company’s entries and balances.
In compliance with SRC Rule 68 and based on the certification received from the Company’s
corporate secretary (inspection of the stock and transfer book) and the results of the work performed,
as at December 31, 2018, the Company has ______ stockholders owning one hundred (100) or more
shares each.
Opinion date
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APPENDIX F: COMPARISON OF PFRS FOR SMES and PFRS FOR SMALL ENTITIES