NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies adopted in the preparation of these consolidated financial
statements are discussed in this note. These policies have been consistently applied to the years
presented, unless otherwise stated.

2.1 Basis of preparation

Statement of compliance

The consolidated financial statements of the Group have been prepared in accordance with Philippine
Financial Reporting Standards (PFRSs); the Parent Company being an entity that is required to file
financial statements under Part II of Securities Regulation Code (SRC) Rule 68, as amended.

The term PFRSs in general includes all applicable PFRSs, Philippine Accounting Standards (PAS) and
interpretations of the Philippine Interpretations Committee (PIC), Standing Interpretations Committee
(SIC) and International Financial Reporting Interpretations Committee (IFRIC), which have been
approved by the Philippine Financial Reporting Standards Council and adopted by the SEC.

Presentation of consolidated financial statements

The consolidated financial statements are presented in accordance with PAS 1 (Revised), Presentation
of Financial Statements. The Group presents all items of income and expense in a single consolidated
statement of comprehensive income, with profit or loss and other comprehensive income (OCI)
presented in two sections. It is required to present a consolidated statement of financial position as at
the beginning of the earliest comparative period when the Group applies an accounting policy
retrospectively, makes a retrospective restatement of items in its consolidated financial statements,
or reclassifies items in the consolidated financial statements and said retrospective application,
retrospective restatement or reclassification has a material effect on such third consolidated statement
of financial position. The related notes to the third consolidated statement of financial position are not
required to be disclosed.

These consolidated financial statements are presented in Philippine Peso (P), which is also the Group’s
functional currency and all values are rounded to the nearest peso. Functional currency is the currency
of the primary economic environment in which the entity operates or in which it primarily generates
and expends cash, while presentation currency is the currency in which the consolidated financial
statements are presented.

Basis of measurement

The Group’s consolidated financial statements have been prepared on historical cost basis, as modified
by the revaluation of FVPL and investment properties.

Use of judgments and estimates

The preparation of consolidated financial statements in compliance with PFRSs requires the use of
certain critical accounting estimates. It also requires the Group’s management to exercise its judgment
in the process of applying the Group's accounting policies. The areas where significant judgments and
estimates have been made in preparing the consolidated financial statements and their effects are
disclosed in Note 3.

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2.2 Changes in accounting policies and disclosures

The accounting policies applied are consistent with those of the previous year, except for the following
new standards and amendments which were adopted as of January 1, 2018. Except as otherwise
indicated, the adoption of these new standards and amendments did not have a significant impact on
the Group’s consolidated financial statements.

Amendments to PFRS 2, Share-Based Payment: Classification and measurement of share-based

payment transactions

The amendments clarify the effects of vesting and non-vesting conditions on the measurement of cash-
settled share-based payments; provide guidance on the classification of share-based payment
transactions with net settlement features for withholding tax obligations; and clarify accounting for
modification to the terms and conditions of a share-based payment that changes the classification of
the transaction from cash-settled to equity-settled.

The amendments are effective for annual periods beginning on or after January 1, 2018, to be applied
prospectively.

PFRS 9, Financial Instruments (2014)

In July 2014, the PFRS 9 (2014) was published which incorporated the final requirements on all three
phases of the financial instruments projects - classification and measurement, impairment, and hedge
accounting.

Phase 1: Classification and measurement of financial assets and financial liabilities

The original version of PFRS 9, issued in 2009, introduced new criteria for the classification and
measurement of financial assets to be measured at amortized cost. In order to qualify for amortized
cost measurement, a two-stage test is applied. Firstly, the entity’s business model must be to collect
the contractual cash flows from the asset, rather than selling it to realize its fair value. Secondly, the
asset must have contractual cash flows which are comprised solely of the principal amount due plus
interest on the principal amount outstanding (which is only time value plus a margin for credit risk),
often referred to as Solely Payments of Principal and Interest (or SPPI). Financial assets that pass those
two tests are measured at amortized cost, with all others being measured at fair value. The criteria are
applied to the assets as a whole, with the previous guidance in PAS 39, Financial Instruments:
Recognition and Measurement for embedded derivatives no longer applying to financial assets.

PFRS 9 (2014) introduces amendments to the previously finalized classification and measurement
requirements for financial assets. A third measurement category has also been added for debt
instruments - Fair value through OCI. This new measurement category applies to debt instruments that
meet the SPPI contractual cash flow characteristics test and where the entity is holding the debt
instrument to both collect the contractual cash flows and to sell the financial assets. Additional
application guidance was included to clarify the requirements for contractual cash flows of a financial
asset to be regarded as giving rise to payments that are SPPI.

The classification and measurement requirements for financial liabilities were first added to PFRS 9 in
2010 and have been carried forward from PAS 39 largely unchanged, including a continuation of the
requirement to separate embedded derivatives. However, a significant change is that, if a financial
liability is designated (under the option available in PFRS 9) as at fair value through profit or loss (FVPL),
changes in the fair value of that financial liability that are attributable to changes in the entity’s own
credit risk will typically be recorded in OCI instead of profit or loss. This change has been made in order
to prevent a deterioration in an entity’s financial position (and hence, credit status) resulting in gains
being reported in profit or loss.

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The existing guidance for derecognition of financial assets and financial liabilities has been carried
forward from PAS 39 unchanged, with some improvements to disclosure requirements being added to
PFRS 7.

Phase 2: Impairment methodology

The impairment model under this standard reflects expected credit losses (ECL), as opposed to incurred
credit losses under PAS 39. Under the impairment approach of this standard, it is no longer necessary
for a credit event to have occurred before credit losses are recognized. Instead, an entity always
accounts for ECL and changes in those ECL. The amount of ECL should be updated at each financial
reporting date to reflect changes in credit risk since initial recognition.

Phase 3: Hedge accounting

The general hedge accounting requirements for this standard retain the three types of hedge
accounting mechanism in PAS 39. However, greater flexibility has been introduced to the types of
transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify
as hedging instruments and the types of risk components of non-financial items that are eligible for
hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the
principle of economic relationships. Retrospective assessment of hedge effectiveness is no longer
required. Far more disclosure requirements about an entity’s risk management activities have been
introduced.

The standard is effective for annual reporting periods beginning on or after January 1, 2018. Earlier
application is permitted.

The Group has applied PFRS 9 with an initial application date of January 1, 2018. It has not restated
the comparative information, which continues to be reported under PAS 39. The adoption of PFRS 9
did not have material impact on the Group’s consolidated financial statements.

Amendments to PFRS 4, Applying PFRS 9, Financial Instruments with PFRS 4, Insurance Contracts

The amendments address concerns arising from implementing PFRS 9, the new financial instruments
standard before implementing the new insurance contracts standard. The amendments introduce two
options for entities issuing insurance contracts: a temporary exemption from applying PFRS 9 and an
overlay approach. An entity may elect the overlay approach when it first applies PFRS 9 and apply that
approach retrospectively to financial assets designated on transition to PFRS 9. The entity restates
comparative information reflecting the overlay approach if, and only if, the entity restates comparative
information when applying PFRS 9.

The amendments are effective for annual periods beginning on or after January 1, 2018.

PFRS 15, Revenue from Contracts with Customers

PFRS 15 replaces all existing revenue requirements in PFRSs and applies to all revenue arising from
contracts with customers, unless the contracts are in the scope of other standards, such as PAS 17. Its
requirements also provide a model for the recognition and measurement of gains and losses on
disposal of certain non-financial assets, including property, equipment and intangible assets.

The standard outlines the principles an entity must apply to measure and recognize revenue. The core
principle is that an entity will recognize revenue at an amount that reflects the consideration to which
the entity expects to be entitled in exchange for transferring goods or services to a customer.

4
The principles in PFRS 15 will be applied using a five-step model. The standard requires entities to
exercise judgment, taking into consideration all of the relevant facts and circumstances when applying
each step of the model to contracts with their customers.

The standard also specifies how to account for the incremental costs of obtaining a contract and the
costs directly related to fulfilling a contract.

Application guidance is provided in PFRS 15 to assist entities in applying its requirements to certain
common arrangements, including licenses of intellectual property, warranties, rights of return,
principal-versus-agent considerations, options for additional goods or services and breakage.

The standard is effective for annual periods beginning on or after January 1, 2018. Earlier application
is permitted.

Amendments to PFRS 15, Clarifications to PFRS 15

The amendments, which are effective from January 1, 2018, clarify how companies:

 identify a performance obligation - the promise to transfer a good or a service to a customer - in a

contract;
 determine whether a company is a principal (the provider of a good or service) or an agent
responsible for arranging for the good or service to be provided; and
 determine whether the revenue from granting a license should be recognized at a point in time or
over time.

Earlier application of the amendments is permitted.

Amendments to PAS 40, Transfers of Investment Property

The amendments clarify when an entity should transfer property, including property under
construction or development into, or out of investment property. The amendments state that a change
in use occurs when the property meets, or ceases to meet, the definition of investment property and
there is evidence of the change in use. A mere change in management’s intentions for the use of a
property does not provide evidence of a change in use.

The amendments are effective for annual periods beginning on or after January 1, 2018. Earlier
application is permitted.

Philippine Interpretation IFRIC-22, Foreign Currency Transactions and Advance Consideration

The interpretation clarifies that in determining the spot exchange rate to use on initial recognition of
the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or
non-monetary liability relating to advance consideration, the date of the transaction is the date on
which an entity initially recognizes the non-monetary asset or non-monetary liability arising from the
advance consideration. If there are multiple payments or receipts in advance, then the entity must
determine a date of the transactions for each payment or receipt of advance consideration.
Retrospective application of this interpretation is not required.

The interpretation is effective for annual periods beginning on or after January 1, 2018. Earlier
application is permitted.

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Annual Improvements to PFRSs (2014-2016 Cycle)

The annual improvements make amendments to the following standards:

 PFRS 1, First-time Adoption of Philippine Financial Reporting Standards

Deleted the short-term exemptions in paragraphs E3-E7 of PFRS 1 because they have now served
their intended purpose.

 PFRS 12, Disclosure of Interests in Other Entities

Clarified the scope of the standard by specifying that the disclosure requirements in the standard,
except for those in paragraphs B10-B16, apply to an entity’s interests listed in paragraph 5 that are
classified as held for sale, as held for distribution or as discontinued operations in accordance
with PFRS 5, Non-current Assets Held for Sale and Discontinued Operations.

 PAS 28, Investments in Associates and Joint Ventures

Clarified that the election to measure at FVPL an investment in an associate or a joint venture that
is held by an entity that is a venture capital organization, or other qualifying entity, is available for
each investment in an associate or joint venture on an investment-by-investment basis, upon initial
recognition.

The amendments to PFRS 1 and PAS 28 are effective for annual periods beginning on or after
January 1, 2018 and the amendment to PFRS 12 for annual periods beginning on or after January 1,
2017.

New standards and amendments issued but not yet effective

New standards and amendments issued but not yet effective up to the date of issuance of the Group’s
consolidated financial statements are listed below. The Group intends to adopt the new standards and
amendments that will be applicable to them when they become effective.

Effective beginning on or after January 1, 2019

Amendments to PFRS 9, Prepayment Features with Negative Compensation

Under PFRS 9, a debt instrument can be measured at amortized cost or at fair value through OCI,
provided that the contractual cash flows are “SPPI on the principal amount outstanding” (the SPPI
criterion) and the instrument is held within the appropriate business model for that classification. The
amendment to PFRS 9 clarify that a financial asset passes the SPPI criterion regardless of the event or
circumstance that causes the early termination of the contract.

The amendments should be applied retrospectively and are effective from January 1, 2019, with earlier
application permitted.

PFRS 16, Leases

PFRS 16 will replace PAS 17, Leases and the related Philippine Interpretations. The new standard sets
out the principles for the recognition, measurement, presentation and disclosure of leases for both
parties to a contract, the customer (“lessee”) and the supplier (“lessor”). The standard brings most
leases on-balance sheet for lessees under a single model, eliminating the previous classifications of
operating and finance leases.

6
Practical expedients and targeted reliefs were introduced including an optional lessee exemption for
leases with a term of 12 months or less and low-value items, as well as the permission of portfolio-
level accounting instead of applying the requirements to individual leases. The on-balance sheet
treatment will result in the grossing up of the balance sheet due to right-of-use assets being recognized
with offsetting liabilities. Lease accounting for lessors essentially remains unchanged except for a
number of details including the application of the new lease definition, new sale-and-leaseback
guidance, new sub-lease guidance and new disclosure requirements. New estimates and judgmental
thresholds that affect the identification, classification and measurement of lease transactions, as well
as requirements to reassess certain key estimates and judgments at each reporting date were
introduced.

PFRS 16 is effective for annual periods beginning on or after January 1, 2019. Earlier application is
permitted for entities that apply PFRS 15 at or before the date of initial application of PFRS 16.

Amendments to PAS 19, Employee Benefits, Plan Amendment, Curtailment or Settlement

The amendments to PAS 19 address the accounting when a plan amendment, curtailment or
settlement occurs during a reporting period. The amendments specify that when a plan amendment,
curtailment or settlement occurs during the annual reporting period, an entity is required to:

 Determine current service cost for the remainder of the period after the plan amendment,
curtailment or settlement, using the actuarial assumptions used to re-measure the net defined
benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that
event.

 Determine net interest for the remainder of the period after the plan amendment, curtailment or
settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the
plan and the plan assets after that event; and the discount rate used to re-measure the net defined
benefit liability (asset).

The amendments also clarify that an entity first determines any past service cost, or a gain or loss on
settlement, without considering the effect of the asset ceiling. This amount is recognized in profit or
loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment
or settlement. Any change in that effect, excluding amounts included in the net interest, is recognized
in other comprehensive income.

The amendments apply to plan amendments, curtailments or settlements occurring on or after the
beginning of the first annual reporting period that begins on or after January 1, 2019, with early
application permitted.

Amendments to PAS 28, Long-term Interests in Associates and Joint Ventures

The amendments clarify that an entity applies PFRS 9 to long-term interests in an associate or joint
venture to which the equity method is not applied but that, in substance, form part of the net
investment in the associate or joint venture (long-term interests). This clarification is relevant because
it implies that the ECL model in PFRS 9 applies to such long-term interests.

The amendments also clarified that, in applying PFRS 9, an entity does not take account of any losses
of the associate or joint venture, or any impairment losses on the net investment, recognized as
adjustments to the net investment in the associate or joint venture that arise from applying PAS 28,
Investments in Associates and Joint Ventures.

The amendments should be applied retrospectively and are effective from January 1, 2019, with early
application permitted.

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Philippine Interpretation IFRIC-23, Uncertainty over Income Tax Treatments

The interpretation addresses the accounting for income taxes when tax treatments involve uncertainty
that affects the application of PAS 12 and does not apply to taxes or levies outside the scope of PAS
12, nor does it specifically include requirements relating to interest and penalties associated with
uncertain tax treatments.

The interpretation specifically addresses the following:

 Whether an entity considers uncertain tax treatments separately

 The assumptions an entity makes about the examination of tax treatments by taxation authorities
 How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits
and tax rates
 How an entity considers changes in facts and circumstances

An entity must determine whether to consider each uncertain tax treatment separately or together
with one or more other uncertain tax treatments. The approach that better predicts the resolution of
the uncertainty should be followed.

Annual Improvements to PFRSs 2015-2017 Cycle

 Amendments to PFRS 3, Business Combinations, and PFRS 11, Joint Arrangements, Previously
Held Interest in a Joint Operation

The amendments clarify that, when an entity obtains control of a business that is a joint operation,
it applies the requirements for a business combination achieved in stages, including re-measuring
previously held interests in the assets and liabilities of the joint operation at fair value. In doing so,
the acquirer re-measures its entire previously held interest in the joint operation.

A party that participates in, but does not have joint control of, a joint operation might obtain joint
control of the joint operation in which the activity of the joint operation constitutes a business as
defined in PFRS 3. The amendments clarify that the previously held interests in that joint operation
are not re-measured.

An entity applies those amendments to business combinations for which the acquisition date is on
or after the beginning of the first annual reporting period beginning on or after January 1, 2019 and
to transactions in which it obtains joint control on or after the beginning of the first annual reporting
period beginning on or after January 1, 2019, with early application permitted.

 Amendments to PAS 12, Income Tax Consequences of Payments on Financial Instruments

Classified as Equity

The amendments clarify that the income tax consequences of dividends are linked more directly to
past transactions or events that generated distributable profits than to distributions to owners.
Therefore, an entity recognizes the income tax consequences of dividends in profit or loss, other
comprehensive income or equity according to where the entity originally recognized those past
transactions or events.

An entity applies those amendments for annual reporting periods beginning on or after January 1,
2019, with early application is permitted.

8
 Amendments to PAS 23, Borrowing Costs, Borrowing Costs Eligible for Capitalization

The amendments clarify that an entity treats as part of general borrowings any borrowing originally
made to develop a qualifying asset when substantially all of the activities necessary to prepare that
asset for its intended use or sale are complete.

An entity applies those amendments to borrowing costs incurred on or after the beginning of the
annual reporting period in which the entity first applies those amendments. An entity applies those
amendments for annual reporting periods beginning on or after January 1, 2019, with early
application permitted.

Effective beginning on or after January 1, 2020

Amendments to PFRS 3, Definition of a Business

The amendments to PFRS 3 clarify the minimum requirements to be a business, remove the
assessment of a market participant’s ability to replace missing elements, and narrow the definition
outputs. The amendments also add guidance to assess whether an acquired process is substantive and
add illustrative examples. An optional fair value concentration test is induced which permits a
simplified assessment of whether an acquired set of activities and assets is not a business.

An entity applies those amendments prospectively for annual reporting periods beginning on or after
January 1, 2020, with earlier application permitted.

Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,

Changes in Accounting Estimates and Errors - Definition of Material

The amendments refine the definition of material in PAS 1 and align the definitions used across PFRSs
and other pronouncements. They are intended to improve the understanding of the existing
requirements rather than to significantly impact an entity’s materiality judgments.

An entity applies those amendments prospectively for annual reporting periods beginning on or after
January 1, 2020, with earlier application permitted.

Effective beginning on or after January 1, 2021

PFRS 17, Insurance Contracts

PFRS 17 is a comprehensive new accounting standard for insurance contracts covering recognition and
measurement, presentation and disclosure. Once effective, PFRS 17 will replace PFRS 4, Insurance
Contracts. This new standard on insurance contracts applies to all types of insurance contracts (i.e.,
life, non-life, direct insurance and re-insurance), regardless of the type of entities that issue them, as
well as to certain guarantees and financial instruments with discretionary participation features. A few
scope exceptions will apply.

The overall objective of PFRS 17 is to provide an accounting model for insurance contracts that is more
useful and consistent for insurers. In contrast to the requirements in PFRS 4, which are largely based
on grandfathering previous local accounting policies, PFRS 17 provides a comprehensive model for
insurance contracts, covering all relevant accounting aspects. The core of PFRS 17 is the general model,
supplemented by:

 A specific adaptation for contracts with direct participation features (the variable fee approach)
 A simplified approach (the premium allocation approach) mainly for short-duration contracts

9
PFRS 17 is effective for reporting periods beginning on or after January 1, 2021, with comparative
figures required. Early application is permitted.

Deferred Effectivity

PFRS 9, Financial Instruments (2009), PFRS 9, Financial Instruments (2010) and PFRS 9, Financial
Instruments (2013)

PFRS 9 (2009) introduces new requirements for the classification and measurement of financial assets.
Under PFRS 9 (2009), financial assets are classified and measured based on the business model in which
they are held and the characteristics of their contractual cash flows. PFRS 9 (2010) introduces additions
relating to financial liabilities.

PFRS 9 (2013) introduces the following amendments:

 A substantial overhaul of hedge accounting that will allow entities to better reflect their risk
management activities in the financial statements;
 Changes to address the so-called 'own credit' issue that were already included in PFRS 9, Financial
Instruments to be applied in isolation without the need to change any other accounting for financial
instruments; and
 Removes the January 1, 2015 mandatory effective date of PFRS 9, to provide sufficient time for
preparer of financial statements to make the transition to the new requirements.

The International Accounting Standards Board (IASB) is currently discussing some limited amendments
to the classification and measurement requirements in IFRS 9 and is also discussing the ECL impartment
model to be included in IFRS 9. Once those deliberations are complete the IASB expects to publish a
final version of IFRS 9 that will include all of the phases: Classification and Measurement; Impairment
and Hedge Accounting. That version of IFRS 9 will include a new mandatory effective date.

Amendments to PFRS 10, Consolidated Financial Statements and PAS 28, Investments in Associates
and Joint Ventures: Sale or contribution of assets between an investor and its associate or joint
venture

The amendments address the conflict between PFRS 10 and PAS 28 in dealing with the loss of control
of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that
a full gain or loss is recognized when a transfer to an associate or joint venture involves a business as
defined in PFRS 3. Any gain or loss resulting from the sale or contribution of assets that does not
constitute a business, however, is recognized only to the extent of unrelated investors’ interests in the
associate or joint venture. Corresponding amendments have been made to PAS 28 to reflect these
changes. In addition, PAS 28 has been amended to clarify that when determining whether assets that
are sold or contributed constitute a business, an entity shall consider whether the sale or contribution
of those assets is part of multiple arrangements that should be accounted for as a single transaction.

The amendments must be applied prospectively.

On January 13, 2016, the Financial Reporting Standards Council decided to postpone the original
effective date of January 1, 2016 of the above amendments until the IASB has completed its broader
review of the research project on equity accounting that may result in the simplification of accounting
for such transactions and of other aspects of accounting for associates and joint ventures.

The management, however, expects no significant impact from the adoption of the new standards and
amendments on the Group’s consolidated financial position and financial performance.

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2.3 Consolidation

The consolidated financial statements consist of the financial statements of the Group which present
the financial performance and financial position of the Parent Company and its subsidiaries as if they
form a single entity.

The subsidiaries are entities over which the Parent Company exercises significant control or over which
the Parent Company has the power, either directly or indirectly, to govern the financial and operating
policies generally accompanying shareholdings of more than 50% of the voting rights. The Parent
Company obtains and exercises control through voting rights.

Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement
with the investee and has the ability to affect those returns through its power over the investee.
Specifically, the Group controls an investee, if and only if, the Group has:

 Power over the investee (i.e. existing rights that give it the current ability to direct the relevant
activities of the investee);
 Exposure, or rights, to variable returns from its involvement with the investee; and
 The ability to use its power over the investee to affect its returns.

Generally, there is a presumption that majority of voting rights results in control. To support this
presumption and when the Group has less than majority of voting rights or similar rights of an investee,
the Group considers all relevant facts and circumstances in assessing whether it has power over an
investee, including:

 The contractual arrangement(s) with the other vote holders of the investee;
 Rights arising from other contractual arrangements; and
 The Group’s voting rights and potential voting rights.

The Group reassesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins
when the Group obtains control over the subsidiary and ceases when the Group loses control of the
subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the
year are included in the consolidated financial statements from the date the Group gains control until
the date the Group ceases to control the subsidiary.

Profit or loss and each component of OCI are attributed to the equity holders of the Group and to the
non-controlling interests, even if this results in the non-controlling interests having a deficit balance.
When necessary, adjustments are made to the financial statements of subsidiaries to bring their
accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities,
equity, income, expenses and cash flows relating to transactions between members of the Group are
eliminated in full on consolidation.

A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.

If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill),
liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is
recognized in profit or loss. Any investment retained is recognized at fair value.

11
Non-controlling interests represent the portion of profit or loss and net assets in the subsidiaries not
held by the Group and are presented separately in the consolidated statement of comprehensive
income and within equity in the consolidated statement of financial position, separately from equity
attributable to equity holders of the Group.

The Parent Company’s direct and indirect subsidiaries are as follows:

Controlling
Name of subsidiaries Principal activities interest (%)
Subsidiaries of Abacore Capital Holdings, Inc.
PRIDE Investment house 100.00
KPI Real estate 100.00
VRC Real estate 100.00
AbaCoal Coal exploration 100.00
AbaGold Gold mining 99.70

Subsidiaries of PRIDE
Tagapo Realty Company, Inc. (TRC) Real estate 100.00
Omnicor Industrial Estate (Omnicor) Real estate 100.00
Philippine Sinohydro Dev’t Corp. Holdings 60.10
Philippine International Infrastructure Fund, Inc. (PIIF) Investment company 100.00
Total Mall Philippines, Inc. (Total Mall) Wholesaler/retailer 100.00

Subsidiaries of TRC
Ala-eh Knit, Inc. Real estate 100.00
Assurance Realty Corporation Real estate 100.00
Countrywide Leverage Holdings Corporation Holdings 100.00
In-town Wholesale Marketing, Inc. Wholesaler/retailer 100.00
System Organization, Inc. Real estate 100.00

Subsidiaries of Omnicor
Montemayor Aggregates and Mining Corporation
(MAMCor) Mining and exploration 100.00
Adroit Realty Corporation Real estate 100.00
Allegiance Realty Corporation Real estate 100.00
Asean Publishers, Inc. Publisher 100.00
Export Affiliates for Service and Trade, Inc. Importer/exporter 100.00
Fair Field Realty Estate Company, Inc. Real estate 100.00
Logic Realty Corporation Real estate 100.00
Sanctuary Transcendental Havens, Inc. Non-stock corporation 100.00
Three Fold Realty Corporation Real estate 100.00
Aerosonic Land, Inc. Real estate 100.00
International Pilgrimage Shrine at Montemaria, Inc. Non-stock corporation 100.00
Montemaria Asia Pilgrims, Inc. (MAPi) Non-stock corporation 100.00
Verde Island Passage (VIP) Marine Sanctuary, Inc. Non-stock corporation 100.00

Subsidiaries of MAMCor
Asean Traders and Exporters, Inc. Importer/exporter 100.00
Batangas Stock Development Farms, Inc. (BSDFI) Real estate 100.00
Channel Minerals and Exploration and Development
Corporation Mining and exploration 100.00

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 Controlling
Name of subsidiaries Principal activities interest (%)
Subsidiaries of BSDFI
Banalo Mining Corporation Mining 100.00
Calatagan Aquafarms, Inc. Aqua and fishery 100.00
Him Management and Associates, Inc. Trading 100.00

Subsidiaries of KPI
Aerotropic Land, Inc. Real estate 99.99
Barit Resort & International Tour Corporation Real estate 99.99
Batangas Beef Business, Inc. Manufacturing 99.99
Warehousing of
cement, aggregates,
limestones or their
Batangas Cement Park, Inc. derivatives 99.99
Candor Realty Corporation Real estate 99.99
Epulare Properties, Inc. Real estate 99.96
Focus Real Estate Corporation Real estate 99.99
Management parent
GMTM Management Company, Inc. company 99.99
Hedge Tropical Farmlands, Inc. Real estate 99.96
Hewdon Land, Inc. Real estate 99.96
Hillside Orchards & Parks, Inc. Agriculture 99.99
JAP Aggregates Network, Inc. Cement production 99.99
Pasture View Real Properties, Inc. Real estate 99.99
Quilib Cattle Corporation Real estate 99.99
Quilib Pasture Estates, Inc. Real estate 99.96
Quilib Quality Farms, Inc. Agriculture 99.99
San Isidro Catholic Memorial Park and Development
Corporation Real estate 99.99
Vinterra Realty Corporation Real estate 99.96

Subsidiaries of VRC
Omnilines Maritime Network, Inc. Maritime commerce 99.99
Hedge Inter Market Technologies, Inc. Games technology 99.99
D r M Development Corp. Trading 99.99
Management of real 99.99
Friendship Management Corporation property
Haves Insurance Management and Liability Agency, Inc. Insurance agency 99.99
All Lemery Assets Enterprises Holdings, Inc. Real estate 99.99
Far Pacific Manufacturing Corp. Manufacturing 99.99
Munera Real Estate Company, Inc. Real estate 99.99
Certain Corporation Construction 99.99
Manivest Development Corp. Real estate 99.99

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A brief summary of the direct subsidiaries’ nature of business and operations are as follows:

Philippine Regional Investment Development Corporation

PRIDE is a domestic corporation which was registered with the SEC on September 26, 1979 as Manila
Equities Corporation. It served as a stock brokerage firm for the first four years until the SEC granted it
on March 2, 1983 a license to operate as an investment house. The license was confirmed by the then
Central Bank of the Philippines, which is now known as Bangko Sentral ng Pilipinas. On July 26, 1995,
it changed its name to Philippine Regional Investment Development Corporation. Presently, it has no
quasi-banking license.

PRIDE is an institution by and through which comprehensive financial products and service lines shall
be offered and provided to clients, either through its own operations or through affiliations,
conformably with the provisions of existing laws. Its registered address is at No. 28 N. Domingo Street,
New Manila, Quezon City.

PRIDE was acquired by the Parent Company on January 18, 2006 from Blue Stock Development
Holdings, Inc. (BSDHI) in exchange for the Parent Company’s share capital.

In 2009, PRIDE issued additional 1,500,000 shares amounting to P150,000,000. The Parent Company
exercised its pre-emptive rights and subscribed to all the additional shares by partial payment, through
offsetting of its advances to PRIDE which amounted to P64,352,238.

PRIDE also declared its P50,000,000 worth of shares as stock dividends to its shareholders in October
2009; out of which, the Parent Company received 481,978 additional shares.

In a special meeting held on December 7, 2013, the stockholders approved the amendment of Article
Seventh of the Articles of Incorporation increasing the authorized capital stock from P500,000,000
divided into 5,000,000 shares with par value at P100 each, to P1,000,000,000 divided into 10,000,000
shares with par value at P100 each. The increase in the authorized capital stock was approved by the
SEC on March 24, 2014. Of the said increase, P125,000,000 was subscribed and paid in cash.

Kapuluan Properties, Inc.

KPI is a domestic corporation registered with the SEC on April 8, 1996. Its primary purpose is to engage
in the purchase, subdivision, sale, leasing and holding for capital appreciation real estate together with
their appurtenances. Its registered address is at 2F SEDDCO I Building, Rada St., Legaspi Village, Makati
City.

KPI was acquired by the Company from BSDHI in December 2009 through a share-for-share swap.
BSDHI assigned the entire outstanding share capital of KPI in favor of the Parent Company in exchange
for its new shares amounting to P359,660,802.

Vantage Realty Corporation

VRC is a domestic corporation registered with the SEC on October 10, 1996. Its primary purpose is to
engage in the purchase, subdivision, sale, leasing and holding for capital appreciation real estate
together with their appurtenances.

VRC was acquired by the Parent Company from BSDHI in December 2009 through a share-for-share
swap. BSDHI assigned the entire outstanding share capital of VRC in favor of the Parent Company in
exchange for its new shares amounting to P294,869,018.

Its registered address is at 2F SEDDCO I Building, Rada St., Legaspi Village, Makati City.

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Abacus Coal Exploration and Development Corporation

AbaCoal is a domestic corporation registered with the SEC on November 9, 2007. Its primary purpose
is to engage in the exploration, exploitation, operation, production and development of coal and its
derivative products in the Philippines.

Its registered office address is at No. 28 N. Domingo Street, New Manila, Quezon City.

In 2008, the Parent Company transferred its Coal Operating Contract (COC) with the Department of
Energy (DOE) to AbaCoal in exchange for shares amounting to P3,047,512.

On April 20, 2015, AbaCoal entered into a Development and Exploration Agreement with Oriental
Vision Mining Philippines Corporation (ORVI). The agreement covers the development, extraction and
mining of Coal Block 85 and likewise the simultaneous exploration of Blocks 84 and 86, which areas are
covered by the COC No. 148 issued by the DOE. Upon signing of the agreement, ORVI shall give an
advance royalty to AbaCoal amounting to P10,000,000 which shall be deductible from AbaCoal's future
royalties.

In February 2015, AbaCoal submitted to the DOE the required feasibility study and a 5-year work
program covering the Coal Blocks CBS 138-84 and L38-85 relative to the application for conversion of
COC No. 148 from exploration phase to development and production phase.

On April 12, 2011, the DOE approved the conversion of COC No. 148 from exploration phase to
development and production phase. As of the date of the approval of the accompanying consolidated
financial statements, Environmental Compliance Certificate (ECC) was received only for the proposed
South Surigao Coal project located within COC No. 148 at Sitio Mimi, Barangay Layog, Tago, Surigao
del Sur dated March 15, 2016. For the other projects, AbaCoal is still completing the post-approval
requirements prior to actual operation, namely, the ECC and the Clearance from the National
Commission on Indigenous Peoples.

The Parent Company also entered into a Heads of Agreement (the Agreement) with Lodestar
Investment Holdings Corporation (Lodestar) and MUSX Corporation (MUSX - formerly Music
Semiconductors Corporation) to transfer its outstanding shares in AbaCoal including its interest in a
coal property located in Tago, Surigao del Sur.

This Agreement was amended in 2009 whereby MUSX assigned its right to acquire 55% participation
and equity interest in AbaCoal to Lodestar. The purchase price is in the form of exchange of shares
whereby 225,000,000 shares of AbaCoal at par value of P1 per share are swapped with 25,000,000
shares of Lodestar valued at P9 per share or a total value of P225,000,000. As a consequence of this
exchange of shares, Lodestar shall gain control of 75% of the overall outstanding share capital of
AbaCoal.

On July 21, 2015, the parties agreed to cancel all agreements relative, pertinent and concerning the
acquisition of AbaCoal and the coal property as well as the merger due to some corporate constraints.
Lodestar, despite two attempts, failed to gather enough quorum and votes from its shareholders to
approve the merger. Without the approval, the merger may thus not be legally undertaken. Lodestar
does not foresee that the required quorum and votes may be achieved with its current condition and
corporate structure.

For and in consideration of the signing of this agreement, the Parent Company shall pay Lodestar the
following amounts:

a) P3,500,000 upon signing of the agreement;

b) P3,500,000 payable within fifteen days from signing of the agreement; and

15
c) P10,000,000 on demand.

Abacus Goldmines Exploration and Development Corporation

AbaGold is a domestic corporation registered with the SEC on April 28, 2008. The company is engaged
to carry on the business of operating gold mines and of prospecting, exploration and of mining, milling,
concentrating, converting, smelting, treating, refining, preparing for market, manufacturing, buying,
selling, exchanging and otherwise producing and dealing in all other kinds of ores, metals and minerals,
hydrocarbons, acids and chemicals, and in the products and by-products of every kind and description
and by whatsoever process, the same can be or may hereafter be produced; to purchase, lease, option,
locate, or otherwise acquire, own, exchange, sell or otherwise dispose of pledge, mortgage, deed in
trust, hypothecate and deal in mines, mining claims, mineral lands, gold lands, timber lands, water and
water rights, and other property, both real and personal. Its registered office address is at No. 28 N.
Domingo Street, New Manila, Quezon City.

On December 27, 2011, the Parent Company executed a Deed of Assignment of Mining Rights in
Exchange for Shares of Stock in favor of AbaGold with supplemental Deed of Assignment executed on
February 17, 2012.

The parties agree that AbaGold shall increase its authorized capital stock from P40,000,000 to
P500,000,000, or an increase of P460,000,000, and that the Parent Company assigns, transfers and
conveys its entire title and interests in its gold mining rights unto and in favor of AbaGold, in exchange
for 490,000,000 new fully paid and non-assessable common shares of AbaGold with a par value of P1
per share in favor of the Parent Company. The increase in authorized capital stock was approved by
the SEC on April 4, 2012. Consequently, the ownership of the Parent Company increased to 99.70%.

The estimated fair value of gold mining rights is P2,625,013,991, based on the appraisal report of an
independent appraiser dated December 31, 2011.

2.4 Accounting for business combination

Business combinations are accounted for using the acquisition method. The cost of an acquisition is
measured as the aggregate of the consideration transferred, which is measured at acquisition date fair
value and the amount of any non-controlling interests in the acquiree. For each business combination,
the Group elects whether to measure the non-controlling interests in the acquiree either at fair value
or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs
incurred are recognized as expense and included in administrative expenses.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for
appropriate classification and designation in accordance with the contractual terms, economic
circumstances and pertinent conditions as at the acquisition date. This includes the separation of
embedded derivatives in host contracts by the acquiree. Any contingent consideration to be
transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent
consideration classified as equity not remeasured and its subsequent settlement is accounted for
within equity. Contingent consideration classified as an asset or liability that is a financial instrument
and within the scope of PFRS 9 is measured at fair value with the changes in fair value recognized in
the consolidated statement of comprehensive income in accordance with PFRS 9. Other contingent
consideration that is not within the scope of PFRS 9 is measured at fair value at each reporting date
with changes in fair value recognized in profit or loss.

16
Goodwill is initially measured at cost (being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interests and any previous interest held
over the net identifiable assets acquired and liabilities assumed). If the fair value of the net assets
acquired is in excess of the aggregate consideration transferred, the Group reassesses whether it has
correctly identified all of the assets acquired an all of the liabilities assumed and reviews the
procedures used to measure the amounts to be recognized at the acquisition date. If the reassessment
still results in an excess of the fair value of net assets acquired over the aggregate consideration
transferred, then the gain is recognized in profit or loss.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the
purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group’s cash-generating units that are expected to benefit from the
combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those
units. Where goodwill forms part of a cash-generating unit and part of the operation within that unit
is disposed of, the goodwill associated with the operation disposed of is included in the carrying
amount of the operation when determining the gain or loss on disposal of the operation. Goodwill
disposed of in this circumstance is measured based on the relative values of the operation disposed of
and the portion of the cash-generating unit retained.

2.5 Cash

Cash includes cash in banks and petty cash fund. Cash in banks, which are stated at face amount,
comprise deposits held at call with banks which earn interest at the prevailing bank deposit rates and
are unrestricted as to withdrawal.

2.6 Financial instruments

PFRS 9 replaces PAS 39 for annual periods beginning on or after January 1, 2018, bringing together all
three aspects of the accounting for financial instruments: classification and measurement, impairment
and hedge accounting.

Classification, measurement and impairment of financial assets in accordance with PFRS 9

Initial recognition and measurement

The classification of financial assets at initial recognition depends on the financial asset’s contractual
cash flow characteristics and the Group’s business model for managing them. On initial recognition, a
financial asset is classified as measured at amortized cost, fair value through OCI, and FVPL. Financial
assets are not reclassified subsequent to their initial recognition unless the Group changes its business
model for managing financial assets, in which case, all affected financial assets are reclassified on the
first day of the first reporting period following the change in the business model.

Subsequent measurement

For purposes of subsequent measurement, financial assets are classified in four categories:

i. Financial assets at amortized cost (debt instruments)

ii. Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt
instruments)
iii. Financial assets designated at fair value through OCI with no recycling of cumulative gains and
losses upon derecognition (equity instruments)
iv. Financial assets at FVPL

17
Financial assets at amortized cost (debt instruments)

The Group measures a financial asset at amortized cost if both of the following conditions are met:

i. It is held within a business model whose objective is to hold assets to collect contractual cash flows;
and
ii. Its contractual terms give rise on specified dates to cash flows that are SPPI on the principal amount
outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest method and
are subject to impairment. Gains and losses are recognized in profit or loss when the asset is
derecognized, modified or impaired.

The Group’s financial assets at amortized cost as at December 31, 2018 include cash, receivables and
advances (other than advances to officers and employees), and advances to related parties.

Financial assets at fair value through OCI (debt instruments)

The Group measures debt instruments at fair value through OCI if both of the following conditions are
met:

i. The financial asset is held within a business model with the objective of both holding to collect
contractual cash flows and selling; and
ii. The contractual terms of the financial asset give rise on specified dates to cash flows that are SPPI
on the principal amount outstanding.

For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and
impairment losses or reversals are recognized in profit or loss and computed in the same manner as
for financial assets measured at amortized cost. The remaining fair value changes are recognized in
OCI. Upon derecognition, the cumulative fair value change recognized in OCI is recycled to profit or
loss.

The Group does not have financial assets at fair value through OCI (debt instruments) as at
December 31, 2018.

Financial assets designated at fair value through OCI (equity instruments)

Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity
instruments designated at fair value through OCI when they meet the definition of equity under
PAS 32, Financial Instruments: Presentation and are not held for trading. The classification is
determined on an instrument-by-instrument basis. Gains and losses on these financial assets are never
recycled to profit or loss. Dividends are recognized as other income in profit or loss when the right of
payment has been established, except when the Group benefits from such proceeds as a recovery of
part of the cost of the financial asset, in which case, such gains are recorded in OCI. Equity instruments
designated at fair value through OCI are not subject to impairment assessment.

The Group does not have financial assets at fair value through OCI (equity instruments) as at
December 31, 2018.

18
Financial assets at FVPL

Financial assets at FVPL include financial assets held for trading, financial assets designated upon initial
recognition at FVPL, or financial assets mandatorily required to be measured at fair value. Financial
assets are classified as held for trading if they are acquired for the purpose of selling or repurchasing
in the near term. Financial assets with cash flows that are not SPPI are classified and measured at
FVPL, irrespective of the business model. Notwithstanding the criteria for debt instruments to be
classified at amortized cost or at fair value through OCI, as described above, debt instruments may be
designated at FVPL on initial recognition if doing so eliminates, or significantly reduces, an accounting
mismatch.

Financial assets at FVPL are carried in the consolidated statement of financial position at fair value with
net changes in fair value recognized in profit or loss. Dividends on listed equity investments are also
recognized as other income in profit or loss when the right of payment has been established.

The Group does not have financial assets at FVPL as at December 31, 2018.

Impairment of financial assets

The Group recognizes an expected credit loss (ECL) for all debt instruments not held at FVPL. ECLs are
based on the difference between the contractual cash flows due in accordance with the contract and
all the cash flows that the Group expects to receive, discounted at an approximation of the original
EIR. The expected cash flows will include cash flows from the sale of collateral held or other credit
enhancements that are integral to the contractual terms. ECLs are recognized in two stages: (a) for
credit exposures for which there has not been a significant increase in credit risk since initial
recognition, ECLs are provided for credit losses that result from default events that are possible within
the next 12 months (a 12-month ECL); and (b) for those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a loss allowance is required for credit losses
expected over the remaining life of the exposure, irrespective of the timing of the default (a lifetime
ECL).

To assess whether there is a significant increase in credit risk, the Group compares the risk of default
occurring on the asset as at the financial reporting date with the risk of default as at the date of initial
recognition. It considers available reasonable and supportive forward-looking information which
includes the following:

i. Internal/external credit rating

ii. Actual or expected significant adverse changes in business, financial or economic conditions that
are expected to cause a significant change to the debtor’s ability to meet its obligations
iii. Actual or expected significant changes in the operating results of the debtor
iv. Significant increases in credit risk on other financial instruments of the same debtor
v. Significant changes in the expected performance and behavior of the debtor, including changes in
the payment status of debtor and changes in the operating results of the debtor

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

19
Classification, measurement and impairment of financial assets in accordance with PAS 39

Initial recognition and measurement

Financial instruments are recognized in the consolidated statement of financial position when the
Group becomes a party to the contractual provisions of the instrument. In the case of a regular way
purchase or sale of financial assets, recognition is done at trade date, which is the date on which the
Group commits to purchase or sell the asset.

At initial recognition, the Group measures a financial asset or financial liability at its fair value plus, in
the case of a financial asset or financial liability not at FVPL, transaction costs that are incremental or
directly attributable to the acquisition or issue of the financial asset or financial liability. Transaction
costs of financial assets and financial liabilities carried at FVPL are expensed in profit or loss.

Subsequent measurement

Financial assets are assigned to the different categories by management on initial recognition,
depending on the purpose for which the investments were acquired and their characteristics. For
purposes of subsequent measurement, financial assets are classified into the following categories:
financial assets at FVPL, held-to-maturity (HTM) investments, loans and receivables, and available-for-
sale (AFS) financial assets.

(a) Financial assets at FVPL

Financial assets at FVPL are financial assets held for trading. A financial asset is classified in this
category if acquired principally for the purpose of selling in the short term or if so designated by
management. Subsequent to initial recognition, the financial assets at FVPL are measured at fair value
with changes in fair value recognized in profit or loss.

The Group reclassifies financial assets at FVPL if, and only if, it changes its model for managing financial
assets at FVPL or if the financial assets are no longer held for the purpose of being sold or repurchased
in the near term.

For financial assets reclassified out of financial assets at FVPL, the reclassification is applied
prospectively from the reclassification date. Any gains or losses previously recognized in profit or loss
are not restated in OCI. Once reclassified, the Group is not allowed to reclassify the AFS financial assets
to financial assets at FVPL. Any subsequent unrealized gains or losses from change in market value are
recognized in OCI until the financial assets are derecognized.

The Group does not have financial assets at FVPL as at December 31, 2017.

(b) HTM investments

HTM investments are quoted non-derivative financial assets with fixed or determinable payments and
fixed maturities for which the Group’s management has the positive intention and ability to hold to
maturity. After initial measurement, these investments are measured at amortized cost using the
effective interest method, less impairment in value. Amortized cost is calculated by taking into account
any discount or premium on acquisition and fees or costs that are an integral part of the effective
interest rate (EIR). Gains and losses are recognized in profit or loss when the HTM investments are
derecognized or impaired, as well as through the amortization process.

The Group does not have HTM investments as at December 31, 2017.

20
(c) Loans and receivables

These assets are non-derivative financial assets with fixed or determinable payments (i) that are not
quoted in an active market, (ii) with no intention of trading, and (iii) that are not designated as financial
assets at FVPL or AFS financial assets. They are initially recognized at fair value plus transaction costs
that are directly attributable to their acquisition or issue, and are subsequently carried at amortized
cost using the effective interest method, less provision for impairment losses.

The Group’s loans and receivables as at December 31, 2017 include cash, receivables and advances
(other than advances to officers and employees), and advances to related parties.

(d) AFS financial assets

AFS financial assets include investments in equity and debt securities. Equity investments classified as
AFS are those which are neither classified as held for trading nor designated at FVPL. Debt securities in
this category are those which are intended to be held for an indefinite period of time and which may
be sold in response to needs for liquidity or changes in market conditions.

After initial measurement, AFS financial assets are subsequently measured at fair value with unrealized
gains or losses recognized in OCI in the consolidated statement of comprehensive income until the
investments are derecognized, at which time the cumulative gains or losses are recognized in profit or
loss, or determined to be impaired, at which time the cumulative losses previously recognized in OCI
in the consolidated statement of comprehensive income are recognized in profit or loss.

The Group evaluates its AFS financial assets whether the ability and intention to sell them in the near
term are still appropriate. When the Group is unable to trade these financial assets due to inactive
markets and management’s intention to do so significantly changes in the foreseeable future, the
Group may elect to reclassify these assets for the foreseeable future or until maturity. Reclassification
to the HTM category is permitted only when the Group has the ability and intention to hold the
financial asset accordingly.

For a financial asset reclassified out of the AFS category, any previous gain or loss on that asset that
has been recognized in equity is amortized to profit or loss over the remaining life of the investment
using the EIR. Any difference between the new amortized cost and the expected cash flows is also
amortized over the remaining life of the asset using the EIR. If the asset is subsequently determined to
be impaired, then the amount recorded in equity is reclassified to profit or loss.

When the fair value of AFS financial assets cannot be measured reliably because of lack of reliable
estimates of unobservable inputs such as in the case of unquoted equity instruments, these assets are
allowed to be carried at cost less impairment, if any.

The Group does not have AFS financial assets as at December 31, 2017.

Impairment of financial assets

Assessment of impairment

The Group assesses at each financial reporting date whether a financial asset is impaired and objective
evidence of impairment exists.

21
The determination of impairment loss for financial assets is inherently subjective because it requires
material estimates, including the amount and timing of expected recoverable future cash flows. These
estimates may change significantly from time to time, depending on available information. The
methodology and assumptions used for estimating future cash flows are reviewed regularly by the
Group to reduce any difference between loss estimates and actual loss experience.

Evidence of impairment

Objective evidence that financial assets are impaired can include default or delinquency by a borrower,
restructuring of a loan or advance by the Group on terms that it would not otherwise consider,
indications that a borrower or issuer will enter bankruptcy or the disappearance of an active market
for a security.

Impairment on assets carried at amortized cost

If there is objective evidence that an impairment loss on financial assets carried at amortized cost has
been incurred, the amount of loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows (excluding future credit losses) discounted at the
financial asset’s original EIR (i.e., the EIR computed at initial recognition). The carrying amount of the
asset shall be reduced either directly or through the use of an allowance account. The amount of loss
shall be recognized in profit or loss.

Impairment on assets carried at cost

If there is objective evidence that an impairment loss has been incurred on an asset carried at cost, the
amount of the loss is measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows discounted at the current market rate of return for a similar
financial asset.

Impairment on AFS financial assets

For AFS financial assets, the Group assesses at each financial reporting date whether there is objective
evidence that a financial asset is impaired.

In the case of equity securities classified as AFS financial assets, indicators of impairment would include
a significant or prolonged decline in the fair value of the securities below cost. Where there is evidence
of impairment, the cumulative loss, measured as the difference between the acquisition cost and the
current fair value, less any impairment loss on the equity securities previously recognized in profit or
loss, is removed from equity and recognized in profit or loss for the period.

In the case of debt instruments classified as AFS financial assets, impairment is assessed based on the
same criteria as financial assets carried at amortized cost. Future interest income is based on the
reduced carrying amount and is accrued based on the rate of interest used to discount future cash
flows for the purpose of measuring impairment loss. Such accrual is recognized in profit or loss as part
of interest income.

Reversal of impairment loss

If, in a subsequent period, the amount of the impairment loss decreases or the fair value of a debt
instrument increases and the said decrease or increase can be related objectively to an event occurring
after the impairment was recognized, the previously recognized impairment loss is reversed. Any
subsequent reversal of an impairment loss is recognized in profit or loss, to the extent that the carrying
amount of the asset does not exceed its cost or amortized cost at the reversal date.

22
Impairment losses on equity securities are not reversed to profit or loss but are recognized directly in
equity as part of OCI.

Financial liabilities

Financial liabilities are classified as (a) financial liabilities at FVPL (including financial liabilities held for
trading and those that are designated at fair value), and (b) other financial liabilities measured at
amortized cost.

A financial liability is classified as held for trading if it is acquired or incurred principally for the purpose
of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial
instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit taking. Gains and losses arising from changes in the fair value of financial liabilities
classified as held for trading are included in profit or loss.

Other financial liabilities pertain to issued financial instruments that are not classified or designated at
FVPL and contain contractual obligations to deliver cash or other financial assets to the holder or to
settle the obligation other than the exchange of a fixed amount of cash or another financial asset for
a fixed number of own equity shares. After initial measurement, other financial liabilities are
subsequently measured at amortized cost using the effective interest method.

The Group’s financial liabilities include accounts payable and accrued expenses (excluding government
liabilities), rental deposit payable, loans payable and advances from related parties.

Classification of financial instruments between debt and equity

Financial instruments are classified as debt or equity in accordance with the substance of the
contractual arrangement. Interest, dividends, gains and losses relating to a financial instrument or a
component that is a financial liability are reported as income or expense in profit or loss.

Derecognition of financial instruments

Financial asset

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

• the rights to receive cash flows from the asset have expired;
• the Group retains the right to receive cash flows from the asset, but has assumed an obligation to
pay them in full without material delay to a third party under a "pass-through" arrangement; or
• the Group has transferred its rights to receive cash flows from the asset and either: (a) has
transferred substantially all the risks and rewards of the asset; or (b) has neither transferred nor
retained substantially all the risks and rewards of the asset, but has transferred control of the
asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into a
'pass-through' arrangement, and has neither transferred nor retained substantially all the risks and
rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the
Group's continuing involvement in the asset. Continuing involvement that takes the form of a
guarantee over the transferred asset is measured at the lower of the original carrying amount of the
asset and the maximum amount of consideration that the Group could be required to pay.

23
Financial liability

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

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

Offsetting of financial instruments

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

Determination of fair value

The fair value of financial instruments traded in active markets is based on their quoted market price
or dealer price quotation (bid price for long positions and ask price for short positions). When the
current bid and ask prices are not available, the price of the most recent transaction provides evidence
of the current fair value as long as there has not been a significant change in economic circumstances
since the time of the transaction.

If the financial instruments are not listed in an active market, the fair value is determined using
appropriate valuation techniques which include recent arm’s length market transactions, net present
value techniques, comparison to similar instruments for which market observable prices exist, options
pricing models, and other relevant valuation models.

Fair value hierarchy

All assets and liabilities for which the fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the lowest
level input that is significant to the fair value measurement as a whole. Financial assets and financial
liabilities are classified in their entirety into only one of the three levels.

(a) Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
(b) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset
or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices); and
(c) Level 3: inputs for the asset or liability that are not based on observable market data
(unobservable inputs).

Disclosure of fair value is not required when the carrying amount is a reasonable approximation of fair
value.

2.7 Prepayments

Prepayments represent expenses not yet incurred but already paid in cash. Prepayments are initially
recorded as assets and measured at the amount of cash paid. Subsequently, these are charged to profit
or loss as they are consumed in operations or expire with the passage of time.

24
2.8 Investments in associates

An associate is an entity over which the Company has significant influence but not control and which
is neither a subsidiary nor a joint venture.

Investment in an associate is accounted for by the equity method of accounting. Under this method,
the investment is initially recognized at cost and adjusted thereafter by post-acquisition changes in the
Group’s share in the net assets of the associate and any impairment losses. The Group’s share of its
associate’s post-acquisition profits or losses is recognized in profit or loss. Share in post-acquisition
change in the associate’s net assets not recognized in profit or loss is directly recognized in the Group’s
equity. Dividends received from the associates are deducted from the carrying amount of the
investment.

The Group discontinues applying the equity method when their investments in associates are reduced
to zero. Accordingly, additional losses are not recognized unless the Group has guaranteed certain
obligations to the associate. When the associate subsequently reports net income, the Group will
resume applying the equity method but only after its share of that net income equals the share of net
losses not recognized during the period the equity method was suspended.

The reporting date of the associate and the Group are identical and the associates’ accounting policies
conform to those used by the Group for like transactions and events in similar circumstances.

2.9 Investment property

Initially, investment property is measured at cost including transaction costs. The cost of investment
property comprises its purchase price and any directly attributable expenditure.

Subsequent to initial recognition, investment property is stated at fair value, which reflects the market
conditions at the financial reporting date. Any gain or loss resulting from change in the fair value is
immediately recognized in profit or loss in the year in which it arises.

Transfers to, or from, investment property shall be made when, and only when, there is a change in
use, evidenced by:

(a) commencement of owner-occupation, for a transfer from investment property to owner-

occupied property;
(b) commencement of development with a view to sale, for a transfer from investment property to
inventories;
(c) end of owner-occupation, for a transfer from owner-occupied property to investment property;
or a commencement of an operating lease to another party, for a transfer from inventories to
investment property.

Investment property is derecognized when it has either been disposed or when it is permanently
withdrawn from use and no future benefit is expected from its disposal. Any gain or loss on the
retirement or disposal of an investment property is recognized in profit or loss in the year of retirement
or disposal.

25
2.10 Property and equipment

The initial cost of property and equipment comprises its purchase price, including any directly
attributable costs of bringing the asset to its working condition and location for its intended use.
Expenditures incurred after the property and equipment has been put into operation, such as repairs
and maintenance, are recognized in profit or loss in the period the costs are incurred. In situations
where it can be clearly demonstrated that the expenditures have resulted in an increase in the future
economic benefits expected to be obtained from the use of an item of property and equipment beyond
its originally assessed standard performance, the expenditures are capitalized as an additional cost of
property and equipment.

At the end of each financial reporting period, items of property and equipment, except for land, are
carried at cost less accumulated depreciation and any impairment in value. Land is carried at cost less
any impairment in value.

Depreciation is computed on a straight-line basis over the following estimated useful lives of the assets.

Building and improvements 5-50 years

Images 5-50 years
Welcome arch 15 years
Dive camp and stairway 10 years
Road and improvements 5-10 years
Machinery and other equipment 3-5 years

An asset is depreciated when it is available for use until it is derecognized even if during that period
the item is idle. Fully-depreciated assets still in use are retained in the consolidated financial
statements.

The estimated useful lives and depreciation method are reviewed when an indication that the
expected pattern of consumption of economic benefits associated with an item of property and
equipment has significantly changed. When an expectation differs, the useful lives and depreciation
method are changed to reflect the new pattern of consumption. This change is accounted for as a
change in accounting estimate.

An asset’s carrying amount is written down immediately to its recoverable amount if it is greater than
the estimated recoverable amount.

When an item of property and equipment is retired or otherwise disposed of, the cost and related
accumulated depreciation and any impairment in value are removed from the accounts and any
resulting gain or loss arising from the disposal, computed as the difference between the sales proceeds
and the carrying amount of the asset, or retirement of an asset is recognized in profit or loss.

Construction-in-progress is stated at cost. This includes cost of construction and other direct costs.
Borrowing costs that are attributable to the construction of property and equipment are capitalized
during the construction period. Construction-in-progress is not depreciated until such time as the
relevant assets are completed and put into operational use. Assets under construction are transferred
to the investment property account or reclassified to a specific category of property and equipment
when the construction and other related activities necessary to prepare the properties for their
intended use are completed and the properties are available for service.

26
2.11 Deferred exploration costs and mining rights

The Group's current treatment of Exploration and Evaluation (E&E) costs is to defer all costs incurred
on the basis of the viability of the mining project. Under PFRS 6, firms are allowed to continue with its
current treatment of deferring E&E costs as long as these are consistent and reliable. Deferral is
allowed whenever permit to explore is valid and (1) significant exploration is in progress, or
(2) exploration cost is expected to be recovered through eventual extraction or sale of mining right.

The recognition of these costs as mining assets or as a component thereof entails subsequent
depreciation upon the start of mining operations. The periodic charge against income is derived using
the units-of-production method which is based on the mineral resource and reserves.

Deferred exploration costs are stated at cost less impairment losses, and include deferred exploration
costs and other expenses incurred prior to the start of commercial operations, net of incidental
income.

Deferred exploration costs are accumulated separately for each area of interest. These include
acquisition costs, direct exploration and development costs and an appropriate portion of related
overhead expenditures, and exclude general overhead or administrative expenditures not specifically
identified with exploration activities.

Deferred exploration costs are carried in the books only if the costs related to an area of interest for
which the rights of tenure are current and such are expected to be recouped through successful
development and exploration or from sale of the area or exploration and evaluation activities in the
area as of financial reporting date have not reached a stage which permits a reasonable assessment of
the existence or otherwise of economically recoverable reserves, and active operations in, or relating
to, the area are continuing. Exploration costs, which do not satisfy the above criteria, are recognized
in profit or loss.

Revenues earned in connection with the exploration activities in an area of interest prior to the start
of commercial operations are offset against the expenditures of such are of interest.

The carrying value of each producing area of interest is reviewed regularly and, to the extent to which
this amount exceeds its recoverable amount (based on the higher of the net present value of estimated
future net cash flows and current realizable value), an allowance for impairment will be provided in
the year in which it is determined.

When further development expenditures are incurred on producing area of interest, such expenditures
are capitalized as part of the costs of such area of interest only when substantial economic benefits
are thereby established; otherwise, such expenditures are charged to cost of production.

2.12 Intangible asset

An intangible asset is defined as an identifiable non-monetary asset without physical substance. There
is no requirement that the asset be held for a particular purpose. Examples of E&E assets that may be
classified as intangible include acquired rights to explore; drilling rights; costs of conducting
topographical, geochemical and geophysical studies; exploratory drilling costs; trenching costs;
sampling costs and costs of activities in relation to evaluating technical feasibility and commercial
viability of extracting a mineral resource.

27
Measurement after recognition

After recognition, the Group applied the cost model to E&E assets. Intangible E&E assets with an
indefinite useful life are not amortized. However, due to the nature of the assets, it will be extremely
rare for an intangible E&E asset to be assessed as having an indefinite useful life. Depreciation or
amortization of an intangible asset commences only when the asset is available for use. Certain
identifiable E&E assets (e.g., an exploratory license, a vehicle or a drilling rig) may be available for use
immediately. Other E&E assets may not be available for use until a later date, that is, when
development of the mineral resource commences.

It is management's view that the units-of-production method for intangible E&E assets will be used to
amortize the intangible assets.

2.13 Impairment of non-financial assets

An assessment is made at each financial reporting date if there is any indication of impairment of any
asset, or if there is any indication that an impairment loss previously recognized for an asset may no
longer exist or may have decreased. If any such indication exists, the asset’s recoverable amount is
estimated. An asset’s recoverable amount is calculated at the higher of the asset’s value in use and its
net selling price.

Among others, the factors that the Group considers important which could trigger an impairment
review include the following:

 significant or prolonged decline in fair value of the asset;

 market interest rates or other market rates of return on investments have increased during the
period, and those increases are likely to affect the discount rate used in calculating the asset’s value
in use and decrease the asset’s recoverable amount materially;
 significant underperformance relative to expected historical or projected future operating results;
 significant changes in the manner of use of the acquired assets or the strategy for overall business;
or
 significant negative industry or economic trends.

If any such indication exists or when an annual impairment testing for an asset is required, the Group
makes a formal estimate of the asset’s recoverable amount. The recoverable amount is the higher of
an asset’s fair value less costs to sell and value in use. The fair value less costs to sell is the amount
obtainable from the sale of the asset in an arm’s length transaction. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that
reflects current market assessments of the time value of money and the risks specific to the asset.

Whenever the carrying amount of an asset exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount and an impairment loss is recognized in profit
or loss in the period in which it arises. An impairment loss is reversed if there has been a change in the
estimates used to determine the recoverable amount, only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have been determined, net of depreciation
or amortization, if no impairment loss had been recognized. Reversals of impairment are recognized in
profit or loss. After such reversal, the depreciation or amortization expense is adjusted in future
periods to allocate the asset’s revised carrying amount on a systematic basis over its remaining life.

28
2.14 Other non-current assets

Other non-current assets include security deposit and input Value-Added Tax (VAT) of Monte Maria
Asia Pilgrims, Inc. and are recognized at their nominal values. Other non-current assets are recognized
when the Company expects to receive future economic benefit from it and the amount can be reliably
measured.

2.15 Accrued expenses and other payables

Accrued expenses are liabilities for goods or services that have been received or supplied but have not
been paid, invoiced or formally agreed with the suppliers, including amounts due to employees. It is
necessary to estimate the amount or timing of accruals; however, the uncertainty is generally much
less than for provisions.

Other payables are recognized in the period in which the related money, goods or services are received
or when a legally enforced claim against the Group is established. They are recognized initially at fair
value and subsequently measured at amortized cost using the effective interest method.

2.16 Borrowings and borrowing costs

Borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are
subsequently carried at amortized cost; any difference between the proceeds (net transaction costs)
and the redemption value is recognized in profit or loss over the period of the borrowings using the
effective interest method.

Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the
extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is
deferred until the draw down occurs. To the extent there is no evidence that it is probable that some
or all of the facility be drawn down, the fee is capitalized as prepayment for liquidity services and
amortized over the period of the facility to which it relates.

Borrowing costs include interest expense and other costs incurred in connection with the borrowing
of funds. Borrowing costs not qualified for capitalization are expensed as incurred.

2.17 Deposit for sale of investment

Deposit for sale of investment is carried at face amount. This is treated as deposit until certain
condition of the agreement is met.

2.18 Equity

Share capital is determined using the par value of shares that have been issued.

Retained earnings include all current and prior period results of operations as disclosed in the
consolidated statements of comprehensive income and consolidated statements of changes in equity.

Shares held by subsidiaries at recognized at cost. These are shares of the Parent Company that are
owned by its subsidiaries.

Treasury shares are recognized at cost.

29
2.19 Revenue recognition

Prior to the adoption of PFRS 15, revenue is recognized when it is probable that economic benefits
associated with the transaction will flow to the Group and the amount of revenue can be reliably
measured.

Upon adoption of PFRS 15, revenue from contracts with customers is recognized when control of the
goods or services is transferred to the customer at an amount that reflects the consideration to which
the Parent Company expects to be entitled in exchange for those goods or services.

Revenue is recognized when the Parent Company satisfies a performance obligation by transferring a
promised good or service to the customer, which is when the customer obtains control of the good or
service. A performance obligation may be satisfied at a point in time or over time. The amount of
revenue recognized is the amount allocated to the satisfied performance obligation.

In addition, the following specific recognition criteria must also be met before any revenue is
recognized:

Interest income

Interest income earned on bank deposits, which is presented net of taxes withheld by banks, is
recognized as the interest accrues on a time proportion basis taking into account the effective yield on
the asset or EIR.

Share in net earnings and losses of associates

The proportionate share in net earnings and losses of the associates is recognized as soon as the basis
for the share, which is the audited financial statements of the associates for the current year, becomes
available.

Dividend income

Dividend income from investments is recognized when the shareholder’s right to receive payment has
been established.

Rental income

Rental income is recognized from leasing investment property to a third party under an operating lease
on agreed terms. Income is recognized on a straight-line basis over the lease term. Any income
received in advance is credited to unearned income.

Other income

Revenue is recognized at the point in time when there is an incidental economic benefit, other than
from the usual business operations, that will flow to the Group through an increase in asset or
reduction in liability that can be reliably measured.

2.20 Cost and expense recognition

The consolidated financial statements are prepared on accrual basis of accounting. Under this basis,
costs and expenses are recognized when incurred and are reported in the consolidated financial
statements in the periods to which they relate.

30
Costs and expenses are recognized in profit or loss when a decrease in future economic benefit related
to a decrease in an asset or an increase in a liability has arisen that can be reliably measured. They are
recognized (a) on the basis of a direct association between the costs incurred and the earning of
specific items of income; (b) 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 (c) immediately when an expenditure
produces no future economic benefits or when, and to the extent that, future economic benefits do
not qualify, or cease to qualify, for recognition in the consolidated statement of financial position as
an asset.

2.21 Employee benefits

Short-term benefits

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

Retirement benefits

Republic Act (RA) No. 7641, Retirement Pay Law, requires an entity to provide minimum retirement
benefits to qualified retiring employees. In compliance with the law, the Group provides for estimated
retirement benefits to all of its qualified regular and permanent employees.

2.22 Leases

The determination of whether an arrangement is, or contains, a lease is based on the substance of the
arrangement at inception date of whether the fulfillment of the arrangement is dependent on the use
of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is
made after inception of the lease only if one of the following applies:

(a) there is a change in contractual terms, other than a renewal or extension of the arrangement;
(b) a renewal option is exercised or extension granted, unless that term of the renewal or extension
was initially included in the lease term;
(c) there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
(d) there is a substantial change to the asset.

Where a reassessment is made, lease accounting shall commence or cease from the date when the
change in circumstances gives rise to the reassessment for scenarios (a), (c) or (d) above, and at the
date of renewal or extension period for scenario (b).

Lease where the lessor retains substantially all the risks and benefits of ownership of the asset is
classified as an operating lease.

The Group as lessee

Operating lease payments are recognized as an expense in profit or loss on a straight-line basis over
the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

31
The Group as lessor

Operating lease payments received by the Group are recognized as an income in profit or loss on a
straight-line basis over the lease term.

2.23 Provisions and contingencies

Provisions are recognized when (a) the Group has a present obligation (legal or constructive) as a result
of a past event; (b) it is probable that an outflow of resources embodying economic benefits will be
required to settle the obligation; and (c) a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market assessments
of the time value of money and, where appropriate, the risks specific to the liability. Where discounting
is used, the increase in the provision due to the passage of time is recognized as interest expense.
Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized
as a separate asset only when the reimbursement is virtually certain. The expense relating to any
provision is charged against profit or loss, net of any reimbursement. Provisions are reviewed at each
financial reporting date and adjusted to reflect the current best estimate.

Contingent liabilities are not recognized in the Group’s consolidated financial statements but are
disclosed unless the possibility of an outflow of resources embodying economic benefits is remote.

Contingent assets are not recognized in the Group’s consolidated financial statements but are
disclosed in the notes to consolidated financial statements when an inflow of economic benefits is
probable.

2.24 Foreign exchange transactions and translation

Transactions in foreign currencies are recorded in Philippine Peso based on the exchange rates
prevailing at the date when the transaction took place. Foreign currency-denominated assets and
liabilities of the Group are translated using the prevailing exchange rate as of the financial reporting
date. Gains or losses arising from these transactions and translations are credited or charged to
income.

2.25 Income taxes

Income tax expense represents the sum of the current and deferred taxes.

Current tax

Current tax assets and current tax liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities, determined at the end of
every quarter, subject to adjustments at the end of the period when a final adjustment return is filed
and the corresponding annual income tax is computed and determined to be recovered or paid.

The tax currently payable is based on taxable income for the period. Taxable income differs from net
income (loss) as reported in profit or loss because it excludes items of income or expense that are
taxable or deductible in other periods and it further excludes items that are never taxable or
deductible. The Group’s liability for current tax is calculated on the basis of the tax rates and tax laws
enacted or substantively enacted at the financial reporting date.

32
Deferred tax

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

Deferred tax is determined using tax rates and tax laws that have been enacted or substantively
enacted at the financial reporting date and are expected to apply when the related deferred tax asset
is realized or the deferred tax liability is settled.

Deferred tax liabilities are recognized for all taxable temporary differences while deferred tax assets
are recognized for all deductible temporary differences to the extent that it is probable that sufficient
taxable income will be available in future periods against which the deductible temporary differences
can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each financial reporting period
and reduced to the extent that it is no longer probable that sufficient taxable income will be available
in future periods to allow all or part of the deferred tax assets to be utilized.

Deferred tax assets and deferred tax liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and they relate to income taxes levied by the
same taxation authority and the Group intends to settle its current tax assets and current tax liabilities
on a net basis.

Current and deferred taxes are recognized as an expense or income in profit or loss, except when they
relate to items that are recognized outside profit or loss (whether in OCI or directly in equity account),
in which case, the tax is also recognized outside profit or loss.

2.26 Segment reporting

The operating businesses are organized and managed separately according to the nature of the
products and services provided, with each segment representing a strategic business unit that offers
different products and serves different markets.

2.27 Basic earnings per share (EPS)

Basic EPS is calculated by dividing the net income (loss) for the period by the weighted average number
of shares outstanding during the period.

2.28 Related parties

Related party transactions are transfers of resources, services or obligations between the Group and
its related parties, regardless of whether a price is charged.

Parties are considered to be related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial and operating decisions. These include:
(a) individuals owning, directly or indirectly through one or more intermediaries, control or are
controlled by, or under common control with the Group; (b) associates; and (c) individuals owning,
directly or indirectly, an interest in the voting power of the Group that gives them significant influence
over the Group and close members of the family of any such individual.

Related parties may be individuals or corporate entities. The key management personnel of the Group
are also considered to be related parties. In considering each possible related party relationship,
attention is directed to the substance of the relationship, and not merely the legal form.

33
2.29 Events after the financial reporting date

Post year-end events up to the date the consolidated financial statements are authorized for issue by
the BOD that provide additional information about the Group’s position at the financial reporting date
(adjusting events) are reflected in the consolidated financial statements. Post year-end events that are
not adjusting events are disclosed in the notes to consolidated financial statements when material.

NOTE 3 - SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGMENTS

The preparation of the accompanying consolidated financial statements in accordance with PFRSs
requires the Group’s management to make judgments and estimates that affect the application of
accounting policies, reported amounts of assets, liabilities, revenues and expenses, and disclosure of
contingent assets and contingent liabilities. Future events may occur which will cause the judgments
and assumptions used in arriving at the estimates to change. The effects of any change in judgments
and estimates are reflected in the consolidated financial statements as they become reasonably
determinable.

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. Revision to accounting estimate is recognized in the period in which the estimate is
revised if the revision affects only that period or in the period of the revision and future periods if the
revision affects both current and future periods.

Judgments

In the process of applying the Group’s accounting policies, management has made the following
judgments, apart from those involving estimates, which have the most significant effect on the
amounts recognized in the consolidated financial statements:

(a) Determining functional currency

Based on the economic substance of the underlying circumstances relevant to the Group, the
functional currency has been determined to be the Philippine Peso.

The Group considers the following factors in determining its functional currency:

(i) the currency that mainly influences its sale of services and the cost of providing the same;
(ii) the currency in which the funds from financing activities are generated; and
(iii) the currency in which the receipts from operating activities are usually retained.

(b) Classifying financial instruments

The Group classifies a financial instrument, or its component parts, on initial recognition as a
financial asset, a financial liability or an equity instrument in accordance with the substance of
the contractual agreement and guidelines set by PAS 32 on the definitions of a financial asset, a
financial liability or an equity instrument. The substance of a financial instrument, rather than its
legal form, generally governs its classification in the consolidated statement of financial position.

The classification of financial instruments is set out in Note 4.

34
(c) Significant increase of credit risk

ECL is measured as an allowance equal to 12-month ECL or lifetime ECL. An asset moves to the
next stage when its credit risk has increased significantly since initial recognition. PFRS 9 does not
define what constitutes a significant increase in credit risk. In assessing whether the credit risk of
an asset has significantly increased, the Group takes into account qualitative and quantitative
reasonable and supportable forward looking information.

(d) Classifying between operating and finance leases

Judgment was exercised by management to distinguish the agreement as either an operating or

a finance lease by looking at the transfer or retention of significant risks and rewards of ownership
of the property covered by the agreement.

The Group has entered into lease agreements both as a lessor and as a lessee. As a lessor, the
Group has retained all the significant risks and rewards of ownership of the leased property, and
thus it accounted for the lease agreements as operating leases. As a lessee, the lessor has
retained all the significant risks and rewards of ownership of the leased property, and thus it
accounted for the lease agreements as operating leases.

(e) Distinguishing between provisions and contingencies

Judgment is exercised by management to distinguish between provisions and contingencies.

Accounting policies on recognition and disclosure of provisions are discussed in Note 2.23. The
Group has determined that no contingencies will materially affect its consolidated financial
statements, hence, no provisions were recognized in 2018, 2017 and 2016.

Estimates and assumptions

The following are the key assumptions concerning the future and other key sources of estimation
uncertainty at the financial reporting date that have a significant risk of causing a material adjustment
to the carrying amounts of assets within the next financial year:

(a) Estimating loss allowance for expected credit losses

The Group measures ECL of a financial instrument in a way that reflects an unbiased and
probability-weighted amount that is determined by evaluating a range of possible outcomes, the
time value of money and information about past events, current conditions and forecasts of
future economic conditions. When measuring ECL, the Group uses reasonable and supportable
forward-looking information, which is based on assumptions for the future movement of different
economic drivers and how these drivers will affect each other.

In addition to specific allowance against individually significant loans and receivables, the Group
also makes a collective impairment allowance against exposures which, although not specifically
identified as requiring a specific allowance, have a greater risk of default than when originally
granted. This level of allowance is based on the status of the accounts receivable, past collection
experience and other factors that may affect collectibility.

Prior to the adoption of PFRS 9, the Group reviews its receivables at each financial reporting date
to assess whether an allowance for impairment should be recognized. In particular, judgment by
management is required in the estimation of the amount and timing of future cash flows when
determining the level of allowance required. Such estimates are based on assumptions about a
number of factors that affect collectibility.

35
 There is no allowance for impairment recognized on the Group’s financial assets as at
December 31, 2018 and 2017.

(b) Estimating useful lives of property and equipment

The Group estimates the useful lives of property and equipment based on the period over which
these assets are expected to be available for use. The estimated useful lives are reviewed at least
annually and are updated if expectations differ from previous estimates due to physical wear and
tear, and technological obsolescence on the use of these assets. In addition, the estimation of
the useful lives of property and equipment is based on collective assessment of industry practice,
internal technical evaluation and experience with similar assets. It is possible, however, that
future results of operations could be materially affected by changes in estimates brought about
by changes in the factors mentioned. The amounts and timing of recorded expenses for any
period would be affected by changes in these factors and circumstances. A reduction in the
estimated useful lives of property and equipment would decrease the total assets and increase
recorded expenses.

The net carrying value of property and equipment amounted to P567,098,628 and P550,213,887
as at December 31, 2018 and 2017, respectively. Accumulated depreciation amounted to
P63,226,259 and P49,735,842 as at December 31, 2018 and 2017, respectively (see Note 11).
There is no change in the estimated useful lives of these assets in 2018 and 2017.

(c) Determining the fair value of investment property

The Group’s investment property is valued by an independent appraiser to reflect its market
conditions at financial reporting date. The value of the land is estimated by using the sales
comparison approach. This is a comparative approach to value that considers the sales of similar
or substitute properties and related market data and establishes a value estimate by processes
involving comparison. Listings and offerings may also be considered. Factors considered in the
appraisal include the market reactions between buyers and sellers, location, desirability,
neighborhood, utility, size and the time element involved. Investment properties amounted to
P9,007,983,210 and P5,383,909,787 as at December 31, 2018 and 2017, respectively (see Note
10).

(d) Determining impairment of non-financial assets

PFRSs require that an impairment review be performed when certain impairment indicators are
present. The Group’s policy on estimating the impairment of non-financial assets is discussed in
detail in Note 2.13. Determining the fair value of non-financial assets, which requires the
determination of future cash flows expected to be generated from the continued use and ultimate
disposition of such assets, compels the Group to make estimates and assumptions that can
materially affect the consolidated financial statements. Future events could cause the Group to
conclude that a non-financial asset is impaired.

The preparation of the estimated future cash flows involves significant judgments and estimates.
Though management believes that the assumptions used in estimating the fair values reflected in
the consolidated financial statements are appropriate and reasonable, significant changes in
these assumptions may materially affect the assessment of recoverable values and any resulting
impairment loss could have a material adverse effect on the financial position and results of
operations of the Group.

36
 Deferred exploration costs and mining rights

The application of the Company's accounting policy for exploration and evaluation expenditures
requires judgment in determining whether it is likely that future economic benefits are likely
either from future exploitation or sale or when activities have not reached a stage which permits
a reasonable assessment of the existence of reserves.

The determination of a reserve is itself an estimation process that requires varying degrees of
uncertainty depending on sub-classification and these estimates directly impact the point of
deferral of exploration and evaluation expenditure. The deferral policy requires management to
make certain estimates and assumptions about future events or circumstances, in particular
whether an economically viable extraction operation can be established. Estimates and
assumptions made may change if new information becomes available. If, after expenditure is
capitalized, information becomes available suggesting that the recovery of expenditure is unlikely,
the amount capitalized is written off in profit or loss in the period when the new information
becomes available.

Goodwill and intangible assets

Goodwill acquired in business combination is initially measured at cost as the excess of cost of a
business combination over the Group’s interest in the net fair value of the identifiable assets,
liabilities and contingent liabilities. Following initial recognition, goodwill is measured at cost less
any accumulated impairment losses.

The Group reviews its goodwill for impairment annually or more frequently, if events or changes
in circumstances indicate that the carrying value may be impaired.

Negative goodwill, which is the excess of the Group’s interest in the net fair value of acquired
identifiable assets, liabilities and contingent liabilities over cost, is charged directly to income.

Transfers of assets between commonly controlled entities are accounted for under historical cost
accounting.

No impairment loss was recognized by the Group on its non-financial assets in 2018, 2017 and
2016.

(e) Recognizing deferred tax asset

Management reviews the carrying amount of deferred tax asset at each financial reporting date
and reduces the same to the extent that it is no longer probable that sufficient taxable income
will be available in future periods to allow all or part of the deferred tax asset to be utilized.
Management believes that there is no assurance that sufficient future taxable income will be
generated to allow all or part of the deferred tax asset to be utilized, thus, the Parent Company
did not recognize deferred tax asset on certain temporary differences identified in Note 21.

(f) Determining provision for income taxes

The Group is subject to income tax in several jurisdictions and significant judgment is required in
determining the provision for income taxes.

37
 During the ordinary course of business, there are transactions and calculations for which the
ultimate tax determination is uncertain. As a result, the Group recognizes tax liabilities based on
estimates of whether additional taxes and interest will be due. These tax liabilities are recognized
when, despite the Group’s belief that its tax return positions are supportable, the Group believes
that certain positions are likely to be challenged and may not be fully sustained upon review by
tax authorities. The Group believes that its accruals for tax liabilities are adequate for all open
audit years based on its assessment of many factors including past experience and interpretations
of tax laws.

NOTE 4 - FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The following table shows the carrying values of the Group’s financial assets and financial liabilities as
at December 31:

2018 2017
Financial assets
Cash (Note 5) P80,620,305 P96,340,100
Trade and other receivables (Note 6)* 334,427,508 162,109,862
Advances to related parties (Note 14) 152,151,442 23,426,889
P567,199,255 P281,876,851

Financial liabilities
Accrued expenses and other payables (Note 15)** P194,769,988 P211,457,199
Advances from related parties (Note 14) 44,438,187 22,597,049
Loans payable (Note 16) 164,750,000 178,800,000
Rental deposit payable 142,712 142,712
P404,100,887 P412,996,960

* except advances to officers and employees amounting to P384,080 in 2018 and P487,711 in 2017
** except government liabilities of P293,349 in 2018 and P865,018 in 2017

The above carrying amounts of financial instruments, which are carried at amortized cost, are assumed
to approximate their fair values due to their relatively short-term maturities and their being subject to
an insignificant risk of changes in value.

As stated in Note 2.6, the disclosure of fair value is not required when the carrying amount is a
reasonable approximation of fair value.

None of the Group’s financial assets has been pledged as collateral for liabilities or contingent
liabilities.

Items of income and expense with respect to financial instruments recognized in profit or loss follow:

2018 2017 2016

Interest income (Notes 5 and 18) P4,257,069 P316,196 P265,386
Unrealized foreign exchange gain (Note 5) 9,305 730 9,287
Finance cost (Note 16) (14,211,726) (12,815,639) (7,501,368)
(P9,945,352) (P12,498,713) (P7,226,695)

Financial risk management

The Group’s activities expose it to a variety of financial risks, namely (a) credit risk,
(b) liquidity risk, and (c) interest rate risk.

38
Similar to all other businesses, the Group is exposed to risks that arise from its use of financial
instruments. This note describes the Group's objectives, policies and processes for managing those
risks and the methods used to measure them. Further, quantitative information in respect of these
risks is presented throughout these consolidated financial statements.

There have been no significant changes to the Group's exposure to financial instrument risks, its
objectives, policies and processes for managing those risks or the methods used to measure them from
previous periods unless otherwise stated in this note.

General objectives, policies and processes

The BOD has overall responsibility for the Group’s financial risk management, which includes
establishment and approval of risk strategies, policies and limits. The main objective of the financial
risk management is to minimize the adverse impact of financial risks on the Group’s financial
performance and financial position due to the unpredictability of financial markets.

The main risks arising from the Group’s use of financial instruments are summarized as follows:

Credit risk

Credit risk is the risk where a counterparty defaults on its obligation to the Groups, thus, resulting in a
financial loss to the Group.

The Group’s maximum exposure to credit risk is equal to the carrying amount of the financial assets as
shown on the face of the consolidated statement of financial position or in the detailed analysis
provided for in the notes to the consolidated financial statements. Such financial assets pertain to the
following:

2018 2017
Cash in banks (Note 5) P80,546,754 P96,278,769
Trade and other receivables (Note 6)* 334,427,508 162,109,862
Advances to related parties (Note 14) 152,151,442 23,426,889
P567,125,704 P281,815,520

*except advances to officers and employees amounting to P384,080 in 2018 and P487,711 in 2017

These financial assets are neither past due nor impaired and viewed by management as “high grade”
considering their collectibility and the credit history of the counterparties.

The evaluation of the credit quality of the Group’s financial assets considers the payment history of
the counterparties.

a. High grade - counterparties that have good paying history and are not expected to default in settling
their obligations. Credit exposure from these financial assets is considered to be minimal.

b. Standard grade - counterparties for which sufficient credit history has not been established.

Liquidity risk

Liquidity risk pertains to the Group not being able to meet its financial obligations as they fall due.

The Group is mainly exposed to liquidity risk through its maturing liabilities. The Group has a policy of
regularly monitoring its cash position to ensure that maturing liabilities will be adequately met.

39
The details of the maturity analysis of the Group’s liabilities as at December 31 are as follows:

2018
On <3 3-12
Total demand months months 1-5 years
Accrued expenses and
other payables (Note 15) P194,769,988 P194,769,988 P- P- P-
Advances from related
parties (Note 14) 44,438,187 - - 44,438,187 -
Loans payable (Note 16) 164,750,000 - - 164,750,000 -
Rental deposit payable 142,712 - - - 142,712
P404,100,887 P194,769,988 P- P209,188,187 P142,712

2017
On <3 3-12
Total demand months months 1-5 years
Accrued expenses and
other payables (Note 15) P211,457,199 P211,457,199 P- P- P-
Advances from related
parties (Note 14) 22,597,049 - - 22,597,049 -
Loans payable (Note 16) 178,800,000 - - 178,800,000 -
Rental deposit payable 142,712 - - - 142,712
P412,996,960 P211,457,199 P- P201,397,049 P142,712

Interest rate risk

Interest rate risk is usually classified between cash flow and fair value interest rate risk. Cash flow
interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because
of changes in market interest rates. Fair value interest rate risk is the risk that the fair value of a
financial instrument will fluctuate due to changes in market interest rates.

The Group’s financial instruments that are interest sensitive include only cash in banks and loans
payable. Considering that the interest rate on loans payable is fixed and that the interest rate risk on
cash in banks is negligible, the Group’s exposure to interest rate risk is not significant. The Group
maintains its cash deposits in established universal and commercial banks to manage credit risk.
Interest income amounted to P120,506, P186,797 and P155,657 in 2018, 2017 and 2016, respectively
(see Note 5). Interest expense amounted to P14,211,726, P12,815,639 and P7,501,368 in 2018, 2017
and 2016, respectively (see Note 16).

Capital management

The primary objective of the Group's capital management is to ensure its ability to continue as a going
concern and that it maintains a strong credit rating and healthy capital ratios to support its business
and maximize shareholder value.

The President has overall responsibility for monitoring of capital in proportion to risk. Profiles for
capital ratios are set in light of changes in the Group's external environment and the risks underlying
the Group's business operations and industry.

The Group monitors capital on the basis of the debt-to-equity ratio, which is calculated as total debt
divided by total equity. Debt-to-equity ratio as at December 31, 2018 and 2017 is 0.30 and 0.32,
respectively.

There were no changes in the Group's approach to capital management during the year.

40
The Group is not subject to statutory capital requirement except for PRIDE and PIIF which are subject
to minimum capital requirements. PRIDE is in compliance with the statutory minimum capital
requirement of P300,000,000 set by the Investment House Law. PIIF also meets the minimum capital
requirement of P50,000,000 set by the Investment Company Act.

NOTE 5 - CASH

The account at December 31 consists of:

2018 2017
Cash in banks P80,546,754 P96,278,769
Cash on hand 73,551 61,331
P80,620,305 P96,340,100

Cash in banks include current and savings accounts which generally earn interest at the prevailing bank
deposit rates. Interest income earned from bank deposits amounted to P120,506, P186,797 and
P155,657 in 2018, 2017 and 2016, respectively.

Included in the cash in banks is an account that is denominated in currency other than the Group's
functional currency in the amount of P184,503 (US$3,509) and P174,885 (US$3,502) as at
December 31, 2018 and 2017, respectively. Unrealized foreign exchange gain recognized in profit or
loss amounted to P9,305, P730 and P9,287 in 2018, 2017 and 2016, respectively.

NOTE 6 - TRADE AND OTHER RECEIVABLES

The account at December 31 consists of:

2018 2017
Advances to officers and employees P384,080 P487,711
Other receivables 334,427,508 162,109,862
P334,811,588 P162,597,573

Advances to officers and employees are non interest-bearing and payable through salary deduction.

Other receivables include the following:

i. Receivable arising from the rescission of the sale of land in Malinis, Lemery, Batangas sold in 2015
of P96,870,375. The account is treated as a receivable until the delivery of the land title.

ii. Retention receivable from the sale of two parcels of land located at Lemery-Calaca Highway,
Barangay Malinis, Batangas City amounting to P16,798,320. The balance shall be paid upon
surrender or delivery of the Certificate Authorizing Registration (CAR) issued by the Bureau of
Internal Revenue (BIR) authorizing the transfer/registration of the property in the name of the
buyer.

iii. Receivable from certain banks and institutions amounting to P14,935,139. Specifically, the Parent
Company has claims receivable from PNB-IBJL Leasing and Finance Corporation (PNB Leasing) in the
amount of P11,641,124, which claim is already the subject of Civil Case No. R-QZN-17-00452-CV
and still pending before the Regional Trial Court of Quezon City. As of the date of the approval of
the accompanying consolidated financial statements, the case against PNB Leasing et al. is still
being litigated at RTC Branch 223 in Quezon City.

41
iv. The Parent Company is also expecting to receive the amounts of P2,988,390 and P305,625 from
BOT Lease and Finance Philippines, Inc. (BOT) and Mapfre Insular Insurance Corporation,
respectively, for payments that were previously made with reservation. On June 23, 2017, a
complaint was filed that involves the claim of BOT for sum of money/replevin against defendants
arising from a lease agreement allegedly entered into with BOT involving the lease of certain
equipments. The case is still on pre-trial stage.

Other receivables in 2018 include receivable from the sale of investment properties of Total Mall, VRC
and KPI amounting to P135,386,951, P34,707,920 and P10,370,915, respectively (see Note 10).

The above accounts are subject to impairment testing. No allowance for impairment was provided for
because management believes that the accounts are collectible.

NOTE 7 - PREPAID AND OTHER CURRENT ASSETS

The account at December 31 consists of:

2018 2017
Prepaid expense P1,868,851 P1,710,176
Creditable tax 145,271 144,496
Input VAT 52,273 4,398,129
Others - 31,748
P2,066,395 P6,284,549

NOTE 8 - INVESTMENTS IN ASSOCIATES

The account pertains to the investments in shares of stock of Pacific Online Systems Corporation
(POSC), Abacus Global Technovisions, Inc. (AbaGT) and Phil Star Development Bank, Inc. (PSDBI)
(formerly Pride Star Development Bank, Inc.), which are accounted for using the equity method. The
details of the Parent Company’s ownership in its associates are as follows:

Percentage of ownership
Principal Amount of investment 2018 2017
activity 2018 2017 Direct Indirect Direct Indirect
POSC Gaming P295,039,446 P163,627,801 4.89% - 1.85% -
AbaGT Holding 26,858,310 26,858,310 9.64% - 9.64% -
PSDBI Banking 49,006,344 48,354,176 - 40.00% - 40.00%
P370,904,100 P238,840,287

The Group accounts for its investments in POSC and AbaGT as investments in associates although it
holds less than 20% of their issued share capital since the Group has the ability to exercise significant
influence due to its voting power, both through its equity holdings and its representation in key
decision-making committees. The Group holds three out of nine seats in both POSC and AbaGT’s BODs.

POSC

POSC is registered with the SEC and is engaged in the development, design and management of online
computer systems, terminals and software for the gaming industry. POSC’s shares are traded in the
PSE. Its registered office address is located at the 22nd Floor, West Tower, Philippine Stock Exchange
Centre, Ortigas Center, Pasig City.

42
The fair value of the Group’s interest in POSC which is traded in the PSE as of December 31, 2018 was
P218,590,840 and P91,774,423 in 2017 at fair value per share of P9.99 and P11.10 on December 31,
2018 and 2017, respectively.

The cash dividend received from POSC is P6,616,157, P4,960,779 and P6,449,013 in 2018, 2017 and
2016, respectively.

During the year, no sale was made for this investment. Additions to investment in POSC shares
amounted to P149,787,975 in 2018.

AbaGT

AbaGT is registered with the SEC on June 21, 1993 and is a majority-owned subsidiary of BSDHI. In July
2009, AbaGT amended its primary purpose, to purchase, subscribe for, or otherwise acquire, own,
hold, use, sell, assign, transfer, mortgage, pledge, exchange or dispose of real and/or personal
properties of every kind and description, including shares of stock, voting trust certificates for shares
of capital stock and other securities, contracts or obligations of any corporation or association,
domestic or foreign, and to pay therefore, in whole or in part, in cash or in property or by exchanging
stocks, bonds of other corporation and in general, to do every act and thing covered by the
denomination "holding company" without engaging as a stockbroker, dealer in securities or
investment company. The revised Articles of Incorporation was approved by the SEC on July 30, 2009.

The Amended Articles of Incorporation was further revised amending its primary purpose to own,
develop, operate and manage hotels, condotels and other establishments that provide lodging, food,
refreshments and allied services to tourists, travelers and other transients. Such amendment was
approved by the SEC on June 9, 2010. This was further amended on July 10, 2014 to include in the
primary purpose the phrase “in this connection to trade in, buy, sell and/or import equipment,
furniture and fixtures and other properties needed for the said activities, which was approved by the
SEC on November 9, 2014.

AbaGT merged with Batangan Plaza, Inc. and Alpa Asia Hotel and Resorts, Inc. AbaGT has 100%
shareholdings in two subsidiaries: Simlong Realty Corporation and Pride Resources Infrastructure
Development Corporation.

Its registered business address is at 28 N. Domingo Street, New Manila, Quezon City.

In January 2008, the Parent Company’s investment in AbaGT amounting to P199,470,100 was declared
by the BOD as property dividends to shareholders of record as of March 11, 2008. This reduced its
ownership in AbaGT from 66.67% to 9.64%. Thus, the investment has been accounted for as
investment in associate starting 2008.

PSDBI

PSDBI is a corporation organized and domiciled in the Philippines and has started operations on
August 29, 1956. On January 21, 2006, the term of existence of the corporation was extended for
another 50 years from and after the date of expiry on March 2, 2006.

PSDBI is registered with the SEC and the Bangko Sentral ng Pilipinas primarily to engage in accumulating
deposits and extending rural credits to small farmers and tenants and deserving rural industries or
enterprises. In 2008, investment in PSDBI’s shares was diluted to 40% due to lesser amount of
subscription in PSDBI’s additional authorized capital stock of P90,000,000 from P10,000,000 to
P100,000,000 or from 100,000 shares to 1,000,000 shares at P10 par value per share.

43
In 2009, PSDBI was converted from a rural bank to a private development bank to upgrade its purpose
of giving further services in the countryside and economic development in the province of Batangas.

The management believes that the Parent Company still has a significant influence over the associates.

The movements in investments in associates are as follows:

2018 2017
Acquisition cost
Balance at January 1 P21,186,416 P21,186,416
Acquisitions during the year 149,787,975 -
Balance at December 31 170,974,391 21,186,416

Accumulated equity in net earnings

Balance at January 1 217,653,871 229,730,274
Equity in net earnings (losses), net (6,147,226) 9,047,913
Dividends (6,616,157) (4,960,779)
Adjustments (4,960,779) (16,163,537)
Balance at December 31 199,929,709 217,653,871
P370,904,100 P238,840,287

The summary of the Group’s share in net earnings (losses) in POSC, AbaGT and PSDBI is as follows:

2018 2017
Share in net earnings (losses) - POSC (P6,799,394) P7,764,900
Share in net earnings - PSDBI 652,168 1,283,013
Share in net earnings - AbaGT - -
(P6,147,226) P9,047,913

The Company’s investments in associates are not impaired.

44
Summarized financial information for POSC and AbaGT which are accounted for using equity method are as follows:

POSC AbaGT Total

2018 2017 2018 2017 2018 2017
Financial position
Current
Cash P571,260,258 P447,130,976 P1,676,361 P4,424,389 P572,936,619 P451,555,365
Other current assets (excluding cash) 585,707,573 796,655,561 32,246,285 42,624,348 617,953,858 839,279,909
Total current assets 1,156,967,831 1,243,786,537 33,922,646 47,048,737 1,190,890,477 1,290,835,274
Financial liabilities 264,450,929 532,437,668 5,799,431 5,516,378 270,250,360 537,954,046
Other current liabilities 24,716,526 43,197,069 - - 24,716,526 43,197,069
Total current liabilities 289,167,455 575,634,737 5,799,431 5,516,378 294,966,886 581,151,115
Non-current
Assets 946,111,550 1,390,060,541 462,789,328 234,508,378 1,408,900,878 1,624,568,919
Financial liabilities 15,995,011 35,374,474 - - 15,995,011 35,374,474
Other liabilities 37,297,139 2,762,995 38,433,436 21,328,790 75,730,575 24,091,785
Total non-current liabilities 53,292,150 38,137,469 38,433,436 21,328,790 91,725,586 59,466,259
Net assets P1,760,619,776 P2,020,074,872 P452,479,107 P254,711,947 P2,213,098,883 P2,274,786,819

Comprehensive income
Revenue P1,935,943,996 P2,319,993,376 P7,076,061 P83,249,369 P1,943,020,057 P2,403,242,745
Costs and expenses (1,614,488,192) (1,652,402,460) (20,166,951) (30,612,215) (1,634,655,143) (1,683,014,675)
Other income 161,422,797 54,155,446 189,107,674 2,152,904 350,530,471 56,308,350
Income before income tax 482,878,601 721,746,362 176,016,784 54,790,058 658,895,385 776,536,420
Income tax expense (178,830,586) (228,880,374) (8,949,482) - (187,780,068) (228,880,374)
Net income 304,048,015 492,865,988 167,067,302 54,790,058 471,115,317 547,656,046
Other comprehensive income (loss) (294,405,180) 120,246,512 30,028,583 353,978 (264,376,597) 120,600,490
Net comprehensive income P9,642,835 P613,112,500 P197,095,885 P55,144,036 P206,738,720 P668,256,536

45
NOTE 9 - GOODWILL

The account at December 31, 2018 and 2017 consists of goodwill from the following investments:

Amount
Philippine Regional Development Corporation P252,559,554
Kapuluan Properties, Inc. 61,372,057
Vantage Realty Corporation 34,899,548
P348,831,159

The management believes that the Parent Company’s goodwill is not impaired as at December 31,
2018 and 2017.

NOTE 10 - INVESTMENT PROPERTIES

The details and movements of the account as at December 31 are as follows:

2018 2017
Cost
Balance at January 1 P397,066,646 P428,109,634
Additions 226,954 5,921,832
Disposals (67,447,365) (36,964,820)
Balance at December 31 329,846,235 397,066,646

Fair value adjustment

Balance at January 1 4,986,843,141 5,018,691,321
Disposals (139,653,362) (30,522,180)
Fair value adjustment 3,830,947,196 -
Adjustments - (1,326,000)
8,678,136,975 4,986,843,141
Fair value P9,007,983,210 P5,383,909,787

The fair values of the investment properties were determined by independent, certified professional
firm of appraisers accredited with the SEC and were arrived at based on sales and listings of
comparable properties registered within the immediate vicinity of the properties.

On June 9, 2017, one of the subsidiaries donated a parcel of land with an area of 10,000 square meters
located in Mabacong, Batangas City to the Dao De Gong Temple Inc. Total cost of the donated property
is P18,000,000. The donation was covered by CAR No. 2016-004-02522.

The BOD, in a meeting held on March 20, 2018, ratified the exchange of shares of subsidiary Munera
with Asean Commodity Enterprises Inc. for cash worth P10,191,000. Asean had previously exchanged
land covered by land titles TCT No. 83846 and TCT No. 80552 for shares of Munera, but later, proposed
to exchange cash instead of land to Munera, which the board approved.

In 2018, the subsidiaries sold four parcels of land with an aggregate area of 295,901 sqm. with total
carrying value of P207,100,727 at a gain of P500,917,987 recognized in profit or loss. Portion of the
selling price remains unpaid as at December 31, 2018 (see Note 6).

In 2017, the subsidiaries sold two parcels of land with an aggregate area of 20,892 sqm. with total
carrying value of P39,296,000 at a gain of P34,382,180 recognized in profit or loss.

46
Corresponding deferred tax liability of P2,285,410,614 and P1,394,355,835 as at December 31, 2018
and 2017, respectively, had been recognized on the revaluation increment on investment properties.

The extent to which the fair values of the investment properties are based on the valuation by an
independent appraiser is P9,007,983,210 and P5,383,909,787 as at December 31, 2018 and 2017,
respectively.

Rental income from lease of investment properties recognized in profit or loss amounted to P497,895,
P646,053 and P309,836 in 2018, 2017 and 2016, respectively.

An investment property with a total area of 174,058 sqm. located in Brgy. Matoco, Batangas City with
market value of P439,700,000 is used as collateral to secure the Parent Company’s loan from Philippine
Business Bank (PBB) (see Note 16).

47
NOTE 11 - PROPERTY AND EQUIPMENT

The details and movements of property and equipment are as follows:

Machinery
Building and and other Construction- Road and Welcome Dive camp
Land improvements equipment in-progress improvements arch Images and stairway Total
Cost
At January 1, 2017 P293,541 P38,225,825 P62,987,358 P402,283,169 P16,057,310 P2,260,262 P16,570,105 P- P538,677,570
Additions - 53,451,504 189,837 189,734 7,060,629 - 380,455 - 61,272,159
Transfer - - - (13,576,079) 639,297 - - 12,936,782 -
At December 31, 2017 293,541 91,677,329 63,177,195 388,896,824 23,757,236 2,260,262 16,950,560 12,936,782 599,949,729
Additions - - 1,252,537 26,442,561 2,680,060 - - - 30,375,158
At December 31, 2018 293,541 91,677,329 64,429,732 415,339,385 26,437,296 2,260,262 16,950,560 12,936,782 630,324,887

Accumulated depreciation
At January 1, 2017 - 2,593,336 31,096,901 - 4,632,058 - - - 38,322,295
Depreciation expense - 2,606 10,053,333 - 63,930 - - 1,293,678 11,413,547
At December 31, 2017 - 2,595,942 41,150,234 - 4,695,988 - - 1,293,678 49,735,842
Depreciation expense - - 1,967,873 - 6,558,163 678,078 2,992,625 1,293,678 13,490,417
At December 31, 2018 - 2,595,942 43,118,107 - 11,254,151 678,078 2,992,625 2,587,356 63,226,259

Net book value

December 31, 2017 P293,541 P89,081,387 P22,026,961 P388,896,824 P19,061,248 P2,260,262 P16,950,560 P11,643,104 P550,213,887
December 31, 2018 P293,541 P89,081,387 P21,311,625 P415,339,385 P15,183,145 P1,582,184 P13,957,935 P10,349,426 P567,098,628

48
The management assesses the condition of the Group’s property and equipment annually. As at
December 31, 2018 and 2017, management has not recognized any condition of impairment and based
on its assessment, has not recognized any impairment loss.

Construction-in-progress pertains to continuation of works on the main statue, podium and memorial
vaults of the MAPI project. In addition, projects that were already 100% complete were transferred to
the pertinent property and equipment account.

To add the viability of the Mother of All Asia Shrine as a pilgrimage destination, in addition to those
already completed, the following works were added:

1. Construction of mezzanine floor from 7th to 9th floor

2. Cross - increase the height of cross from 8 meters to 14 meters
3. Construction of ceiling at the 15th floor
4. Construction of sewage system as per guidelines of Department of Environment and Natural
Resources (DENR)
5. Improvement of electrical system from MERALCO post to the monument and purchase of 750
KVA transformer to supply the needed electrical power of shrine (main line)
6. Installation of additional fire detection and alarm system from ground to 15th floor
7. Increase the water pump capacity to attain the supply of water to the sprinkler at the 15th floor
(view deck)
8. Additional lightings including electrical wires from ground to 7th floor
9. Installation of lightning arrester equipment at the top of the cross
10. Construction of esplanade
11. Installation of temper glass at the crown
12. Exterior lightings of dress of Mama Mary

NOTE 12 - DEFERRED EXPLORATION COSTS AND MINING RIGHTS

This account represents the Group’s accumulated intangible costs related to its Coal Operating
Contract (COC) and gold mining claims in Surigao del Sur and Agusan del Sur.

The recovery of deferred exploration costs is dependent upon the success of future exploration and
development activities and events, the outcome of which cannot be presently determined. In
September 2008, the Parent Company transferred its COC to AbaCoal in exchange for AbaCoal’s
304,751,200 new shares at its par value of P0.01 per share equivalent to P3,047,512.

As discussed in Note 2.3, in 2008, the Parent Company entered into an Agreement with Lodestar and
MUSX to transfer its outstanding shares in AbaCoal including its interest in a coal property located in
Tandag, Surigao del Sur.

On April 12, 2011, the DOE approved the conversion of COC No. 148 from exploration phase to
development and production phase. As of the date of the approval of the accompanying consolidated
financial statements, ECC was received only for the proposed South Surigao Coal project located within
COC No. 148 at Sitio Mimi, Barangay Layog, Tago, Surigao del Sur dated March 15, 2016. For the other
projects, AbaCoal is still completing the post-approval requirements prior to actual operation, namely,
the ECC and the Clearance from the National Commission on Indigenous Peoples.

On December 27, 2011, the Parent Company executed a Deed of Assignment of Mining Rights in
Exchange for Shares of Stock in favor of AbaGold with supplemental Deed of Assignment executed on

49
February 17, 2012. The parties agree that AbaGold shall increase its authorized capital stock from
P40,000,000 to P500,000,000, or an increase of P460,000,000, and that the Parent Company assigns,
transfers and conveys its entire title and interests in its gold mining rights unto and in favor of AbaGold,
in exchange for 490,000,000 new fully paid and non-assessable common shares of AbaGold with a par
value of P1 per share. The increase in authorized capital stock was approved by the SEC on April 4,
2012. Consequently, the ownership of the Parent Company increased to 99.7%. As at December 31,
2018 and 2017, the accumulated mining claims amounted to P797,486,548 and P799,765,732,
respectively.

NOTE 13 - OTHER NON-CURRENT ASSETS

The account as at December 31, 2018 and 2017 includes the unutilized input VAT of MAPI of
P44,052,032 and P41,240,171, respectively. This will be applied against output VAT in the future
periods when it starts its commercial operations.

NOTE 14 - RELATED PARTY TRANSACTIONS

Related party transactions consist of non interest-bearing advances to/from related parties for working
capital requirements and other related expenses which will be liquidated either through cash or equity
shares of the borrower. There were no guarantees received or given during the year. The details of
the Group’s direct subsidiaries are disclosed in Note 2.3.

The details of advances to related parties are as follows:

Related party Nature of relationship 2018 2017

Hedge Integrated
Management Group
Inc. (HIMGI) Under common directorship P136,879,169 P7,473,964
Arras Project Elements Under common directorship 10,273,500 10,273,500
Geyser, Inc. (Geyser) Under common directorship 4,998,773 4,998,773
BSDFI Under common directorship - 670,842
AbaGT Under common directorship - 9,810
P152,151,442 P23,426,889

The summary of the Group’s advances to related parties in the normal course of business is as follows:

2018
Outstanding
Related party Transactions balance Terms and conditions
HIMGI P129,405,205 P136,879,169 No term, non-interest bearing, unsecured, no impairment
Arras Project Elements - 10,273,500 No term, non-interest bearing, unsecured, no impairment
Geyser - 4,998,773 No term, non-interest bearing, unsecured, no impairment
BSDFI (670,842) - No term, non-interest bearing, unsecured, no impairment
AbaGT (9,810) - No term, non-interest bearing, unsecured, no impairment
P128,724,553 P152,151,442

50
 2017
Outstanding
Related party Transactions balance Terms and conditions
HIMGI P3,401,342 P7,473,964 No term, non-interest bearing, unsecured, no impairment
Arras Project Elements - 10,273,500 No term, non-interest bearing, unsecured, no impairment
Geyser - 4,998,773 No term, non-interest bearing, unsecured, no impairment
BSDFI (63,252,746) 670,842 No term, non-interest bearing, unsecured, no impairment
AbaGT (789,549) 9,810 No term, non-interest bearing, unsecured, no impairment
(P60,640,953) P23,426,889

The details of advances from related parties are as follows:

Related party Nature of relationship 2018 2017

BSDFI Under common directorship P22,306,112 P-
AbaGT Under common directorship 18,646,504 18,717,329
Asean Commodity Under common directorship 2,094,000 2,094,000
Fluvion Real Estate Under common directorship 1,138,882 1,533,032
Batangas Harbor
Individual Estate Under common directorship 252,689 252,688
P44,438,187 P22,597,049

The summary of the Group’s advances from related parties in the normal course of business is as
follows:

2018
Outstanding
Related party Transactions balance Terms and conditions
HIMGI P22,306,113 P22,306,113 No term, non-interest bearing, unsecured
Arras Project Elements (70,825) 18,646,504 No term, non-interest bearing, unsecured
Geyser - 2,094,000 No term, non-interest bearing, unsecured
BSDFI (394,150) 1,138,882 No term, non-interest bearing, unsecured
AbaGT - 252,688 No term, non-interest bearing, unsecured
P21,841,138 P44,438,187

2017
Outstanding
Related party Transactions balance Terms and conditions
AbaGT P18,717,329 P18,717,329 No term, non-interest bearing, unsecured
Asean Commodity 2,094,000 2,094,000 No term, non-interest bearing, unsecured
Fluvion Real Estate (453,450) 1,533,032 No term, non-interest bearing, unsecured
Batangas Harbor
Individual Estate - 252,688 No term, non-interest bearing, unsecured
P20,357,879 P22,597,049

Key management compensation

The remuneration given to key management personnel amounted to P8,827,330, P6,766,235 and
P4,436,374 in 2018, 2017 and 2016, respectively. Remuneration includes short-term employee
benefits, such as wages, salaries and social security contributions, paid annual leave and sick leave,
bonuses and other non-monetary benefits.

51
NOTE 15 - ACCRUED EXPENSES AND OTHER PAYABLES

The account at December 31 consists of:

2018 2017
Trade payables P23,888,362 P21,659,779
Accrued expenses 13,338,200 11,707,729
Others 157,836,775 178,954,709
P195,063,337 P212,322,217

Trade payables, accruals and other liabilities are payable within one year after the financial reporting
date.

Substantial portion of trade payables in 2017 represents the advances from a certain individual for the
ongoing projects in Batangas City. In 2018, P30,342,776 of this accounts payable was closed to
advances from related parties.

Accrued expenses pertain to Group’s liability for professional services and other related expenses.

Substantial portion of other payables represents partial payment on the sale of land in Malinis,
Batangas in the amount of P96,870,375.

NOTE 16 - LOANS PAYABLE

This represents loans obtained by the Parent Company from PBB and Luzon Development Bank (LDB)
to finance its short-term working capital requirements. Details are as follows:

Bank Amount Maturity date Interest rate

2018 2017 2018 2017 2018 2017
Philippine Business Bank P12,600,000 P13,000,000 19-Mar-2019 4-Jan-2018 9.00% 7.50%
Philippine Business Bank 9,315,000 10,350,000 26-Jun-2019 3-Jan-2018 9.00% 7.50%
Philippine Business Bank 10,530,000 16,200,000 26-Jun-2019 2-Feb 2018 9.00% 7.50%
Philippine Business Bank 9,000,000 13,500,000 31-May-2019 6-Feb 2018 9.00% 7.50%
Philippine Business Bank 19,035,000 12,600,000 18-Mar-2019 21-Feb 2018 9.00% 7.50%
Philippine Business Bank 16,200,000 10,000,000 6-Mar-2019 6-Jun-2018 8.50% 7.75%
Philippine Business Bank 12,150,000 18,000,000 30-Jan-2019 13-Mar-2018 8.00% 7.75%
Philippine Business Bank 11,340,000 14,000,000 15-Feb-2019 19-Mar-2018 8.50% 7.75%
Philippine Business Bank 14,580,000 21,150,000 29-Jan-2019 21-Mar-2018 8.00% 7.70%
Luzon Development Bank 50,000,000 50,000,000 23-Sept-2019 4-Jun-2018 8.00% 7.75%
P164,750,000 P178,800,000

Movements of loans payable are as follows:

2018 2017
Balance at January 1 P178,800,000 P145,500,000
Proceeds 50,000,000 50,000,000
Payments (64,050,000) (16,700,000)
Balance at December 31 P164,750,000 P178,800,000

52
The loans in PBB are secured by 8,267,966 shares of stock of POSC owned by the Parent Company with
market value of P82,596,980 as at December 13, 2018 and real estate mortgage over a 174,058 square
meter property located in Brgy. Matoco, Batangas City with market value of P439,700,000 and a
continuing suretyship executed by an officer (see Note 10).

The loan in LDB is secured by the property located in Barrio Sambat Ibaba, Municipality of Batangas
covered by Transfer Certificate of Title Nos. 052-2016001955 with an area of 2,006 sqm more or less
and TCT 052-2016001956 with an area of 590 sqm more or less which forms the land area where Alpa
Hotel stands.

Interest expense amounted to P14,211,726, P12,815,639 and P7,501,368 in 2018, 2017 and 2016,
respectively.

Interest payments on the loans amounted to P14,305,592, P12,610,281 and P6,050,920 in 2018, 2017
and 2016, respectively.

NOTE 17 - SHARE CAPITAL

The account at December 31, 2018 and 2017 consists of the following:

Number of
shares Amount

Authorized - at P1 par value per share

Class A shares (including Class B shares reclassified in 2008) 5,000,000,000 P5,000,000,000

Paid-up capital
Subscribed 3,186,084,834 P3,186,084,834
Subscriptions receivable (292,764,075)
P2,893,320,759

Treasury shares, at cost 150,790 P150,790

NOTE 18 - INCOME

Gain on sale of investment is the income earned by Omnicor from disposal of its shares in MAPI.

Trading gain is the income earned by the Group from trading of equity securities of the Parent Company.

Interest income in 2018 includes interest earned by Total Mall from the sale of its investment property
amounting to P4,136,563. Other receivables disclosed in Note 6 include an unsecured loan granted to
ANR Ecuisine Corporation with interest rate of 1.5% per month. Interest income earned from this loan
amounted to nil, P129,399 and P109,729 in 2018, 2017 and 2016, respectively.

NOTE 19 - EXPENSES

Professional and other services include expenses incurred by the Group for security services, outside
services, audit and legal fees, and management, professional and technical consultant fees.

Compensation and benefits include the salaries and wages of employees of the Group as well as their
13th month pay and monthly contributions to SSS, Philhealth and Pag-ibig Fund.

53
Taxes and licenses pertain to business taxes paid for permits, licenses and property taxes incurred in
the normal course of the Group’s business operations.

Management and director’s fees pertain to remuneration paid to the directors of the Group when
board meetings are held.

Miscellaneous expenses include membership dues and other operating expenses of the Group. The
account in 2018 includes the donation made by Total Mall of the proprietary shares of MAPI to the
University of Asia Pacific and/or other affiliated organizations amounting to P19,500,000.

NOTE 20 - RETIREMENT BENEFIT COST

The Group is required by RA No. 7641, Retirement Pay Law, to pay retirement benefits for all
employees who have reached the retirement age of 60 and have rendered a minimum continued
service of five years. Under the law, the retirement pay is equivalent to at least half of the final monthly
salary of the employee for every year of service.

Under PAS 19R, Employee Benefits, the cost of defined retirement benefits, including those mandated
under RA No. 7641, should be determined using projected unit credit method.

No retirement liability is recognized on the books of the Group because management believes that the
effect of such in the consolidated financial statements is not significant considering the current number
of its employees.

Retirement expense incurred in 2018, 2017 and 2016 amounted to nil, P11,472,649 and P354,948,
respectively.

NOTE 21 - INCOME TAXES

The component of the Group’s provision for (benefit from) income tax is as follows:

2018 2017 2016

Current P145,371 P31,886 P9,471
Deferred 933,133,149 (179,790) 69,012,712
P933,278,520 (P147,904) P69,022,183

Domestic corporations are subject to regular corporate income tax (RCIT) of 30% pursuant to RA No.
9337. The regulations also provide for minimum corporate income tax (MCIT) of 2% on modified gross
income and allow a net operating loss carryover (NOLCO). MCIT is recognized when it is higher than
the RCIT. The MCIT and NOLCO may be applied against the Group’s income tax liability and taxable
income, respectively, for the three immediately succeeding taxable years.

Effective July 2008, RA No. 9504 was approved giving corporate taxpayers an option to claim itemized
deductions or optional standard deduction equivalent to 40% of gross income. Once the option is made,
it shall be irrevocable for the taxable year for which the option was made. The Group opted to continue
claiming itemized deductions for the years ended December 31, 2018, 2017 and 2016.

The deferred tax asset in the consolidated statements of financial position consists of the following:

2018 2017 2016

MCIT P8,176 P6,004 P126,424

54
The deferred tax liabilities in the consolidated statements of financial position consist of the following:

2018 2017 2016

Revaluation increment in investment
properties (Note 10) P2,285,410,614 P1,394,355,835 P1,409,185,033
Unrealized foreign exchange gain 2,792 219 2,786
P2,285,413,406 P1,394,356,054 P1,409,187,819

No deferred tax assets were recognized by the Parent Company on the following temporary differences
because management believes that it will not have sufficient taxable income in the future to utilize
their benefits.

2018 2017 2016

NOLCO P79,088,200 P69,936,039 P41,993,246
Unrealized foreign exchange gains (13,011) (6,755) (6,263)
P79,075,189 P69,929,284 P41,986,983
At 30% P23,722,557 P20,978,785 P12,596,095
MCIT 4,783 6,635 4,047
Unrecognized deferred tax assets P23,727,340 P20,985,420 P12,600,142

NOTE 22 - BASIC EARNINGS (LOSS) PER SHARE

The following table presents information necessary to calculate basic earnings (loss) per share.

2018 2017 2016

Net income (loss) attributable to
equity holders of the Parent
Company P3,297,044,153 (P38,087,495) P103,416,440
Weighted average number of
common shares outstanding
during the year 2,959,281,447 2,992,201,447 2,992,201,447
Earnings (Loss) per share P1.11414 (P0.01273) P0.03456

The diluted earnings (loss) per share for the years ended December 31, 2018, 2017 and 2016 have not
been calculated since no diluting events existed during those years.

NOTE 23 - LEASES

Group as lessee

PRIDE has entered into a cancellable operating lease agreement, renewable every year. The basic
terms and conditions of which, among others, are as follows:

i. The lessor agrees to lease out the condominium units located at Unit 1, Bricville Condominium
Bldg., No. 28 N. Domingo St., Brgy. Valencia, Quezon City at a monthly rental of P33,000 plus VAT
beginning October 1, 2015, subject to an annual increase of 10%.
ii. The lessee shall deposit with the lessor an amount equivalent to two months’ deposit which shall
be refunded upon expiration of the agreement and after the lessee shall have completely and
satisfactorily vacated and delivered the leased premises to the lessor from said deposit and two
months’ advance rental to be applied on the last two months of the lease.

55
iii. Care and maintenance of leased premise, utilities and taxes are for the own expense of the lessee.
iv. The lease agreement does not have any purchase options, sub-leases and other restrictions.

MAPI is a lessee under a non-cancellable operating lease covering its office space in Kumintang Ibaba,
Batangas with a monthly rent of P20,000, inclusive of VAT. The lease commenced upon signing of the
contract and shall remain in full force and effect for a term of one year with a renewal option unless
sooner terminated or in the event of the sale of the property to a third party, renewable upon mutual
agreement of the parties. There is no sub-lease, escalation rate, purchase options and restrictions
imposed by the lease agreement.

Rental expense in 2018, 2017 and 2016 amounted to P723,282, P642,919 and P646,329, respectively.

Group as lessor

Omnicor has lease agreements that are renewable upon mutual agreement with the following lessees:

Lessee Monthly rate

Asean Publishers, Inc. P180,000
Adroit Realty Corporation 317,895

Rental deposits amounted to P142,712 as at December 31, 2018 and 2017.

Rental income in 2018, 2017 and 2016 amounted to P497,895, P646,053 and P309,836, respectively.

NOTE 24 - COMMITMENTS AND CONTINGENCIES

Heads of Agreement with MUSX and Lodestar

As discussed in Note 2.3, in 2008, the Parent Company entered into an Agreement with MUSX and
Lodestar to transfer its outstanding shares in AbaCoal including its interest in a coal property located
in Tandag, Surigao del Sur. The parties also executed an Implementation of Heads of Agreement in
December 2009 under whose terms the purchase price remains to be in the form of exchange of shares
whereby P225,000,000 worth of shares of AbaCoal at par value are swapped with 25,000,000 shares
of Lodestar valued at P9 per share or a total value of P225,000,000. As a consequence of this exchange
of shares, Lodestar gained control of 75% of the overall outstanding share capital of AbaCoal. Lodestar
is also granted an option to acquire the remaining P75,000,000 worth of shares of AbaCoal.

In 2009, the Parent Company received advances from Lodestar amounting to P15,000,000 in addition
to the P15,000,000 received in 2008 as agreed upon in the Agreement and a partial payment for the
cancellation of the Heads of Agreement amounting to P7,000,000. These amounts, or P23,000,000 net,
are presented as “Deposit for the sale of investment” under the non-current liabilities section of the
consolidated statements of financial position.

On July 21, 2015, the parties agreed to cancel all agreements relative, pertinent and concerning the
acquisition of AbaCoal and the coal property as well as the merger due to some corporate constraints.

56
Agreement with Lite Aviation Holdings Limited (LAHL)

On October 26, 2011, the Parent Company entered into an agreement with LAHL wherein the following
matters were agreed upon: (a) LAHL will issue shares to the Parent Company at agreed rate of $1 per
share based upon the amount drawn down each milestone; (b) LAHL hereby also grants the Parent
Company, or assign, an option at a second one million dollar ($1,000,000) investment into LAHL. The
intent to invest the “second million” option must be declared on or before January 31, 2012; (c) to
secure the place of the Parent Company as an investor in LAHL, it agrees to a deposit of fifty thousand
dollars ($50,000). The fifty thousand dollars ($50,000) shall also be deducted from the initial one
million US dollar ($1,000,000) investment; (d) both parties agree to negotiate for a share swap
conversion on their respective shares up to the amount of $100,000 under such terms and conditions
acceptable to the parties within one month from the date of signing of Memorandum of Agreement
(MOA). The security deposit paid by the Parent Company amounting to P2,140,000 is reported as part
of other non-current assets.

The Parent Company declares through MOA its intent to invest one million dollars ($1,000,000) in LAHL
to support LAHL’s 49% interest in PT Lite Airways Indonesia and other aviation-related business. For
this purpose, the Parent Company shall utilize its fully-owned subsidiary, Tagapo Realty Company, Inc.,
or assign, as its investing vehicle, and may change TRC’s name to Lite Aviation Philippines, Inc., or to a
similar name as may be approved by the SEC.

Development and Exploration Agreement with ORVI

On April 20, 2015, AbaCoal entered into a Development and Exploration Agreement with ORVI. Upon
signing of the agreement, ORVI gave an advance royalty to AbaCoal amounting to P10,000,000 which
shall be deductible from AbaCoal’s future royalties. Such amount was recognized as “Deferred income”
under the non-current liabilities section of the consolidated statements of financial position.

Legal cases

The transactions covered by leases with BOT and PNB Leasing are currently under litigation for being
unauthorized transactions entered into by persons not authorized by the Parent Company to conduct
business with said entities. Any amounts already deposited to them prior to litigation were deposited
with reservation subject to investigation of said transactions and those persons liable (see Note 6).

NOTE 25 - JOINT VENTURE AGREEMENT (JVA)

PRIDE represented Omnicor and its subsidiaries (the Owners) in a JVA with Solar Resources, Inc. (Solar),
executed on February 18, 2007 involving properties of the Owners amounting to P42,163,200. The
pertinent terms of the JVA are as follows:

 Solar undertakes to develop the property into a residential/commercial subdivision;

 Solar shall, as soon as practicable, stall the construction and development work in the project
after all the necessary permits and clearances to commence development works shall have been
completely secured;
 Solar shall develop the project by way of phases and commits to complete all construction and
development works on each phase within three (3) years or longer from the commencement
thereof but the period maybe shortened or lengthened depending on the sales performance of
the project;
 Expenses in securing the approval from the Department of Agrarian Reform of the land conversion
of the properties to residential/commercial use, or its exemption from conversion shall be shared
by Solar and the Owners on a 65%-35% ratio;

57
 As and by way of return on the respective contributions of the parties, the net saleable area in
the residential/commercial subdivision shall be divided between Solar and the Owners on a 65%-
35% ratio; and
 As part of the agreement, PRIDE shall acknowledge the receipt of P10 million from Solar as cash
advance from the joint venture. This cash advance shall be paid by PRIDE to the joint venture thru
successive deductions from any and all collections received from the sale of the Owners’ 35% lot
share in the project. Advances received amounted to P9,500,000 for both years.

The JVA was terminated in 2013 and the Group made an initial payment to Solar amounting to
P5,500,000.

NOTE 26 - SEGMENT INFORMATION

Business segments

For management purposes, the Group is organized into four main business segments - holding, real
estate, financial services and hotel. These are also the basis of the Group in reporting its primary
segment information.

The holding segment is primary engaged in purchasing, owning, holding, transferring, or disposing of
real properties of every kind and description, including shares of stock and other securities, contracts
or obligations of any corporation or association.

The real estate segment includes purchases of land for appreciation.

The financial services segment is involved in the accumulation of deposits and extension of rural credits
to small farmers and tenants and to deserving rural industries or enterprises. This segment only existed
in 2007 when PSDBI is still a subsidiary of PRIDE. It was deconsolidated in 2008 when the ownership of
PRIDE in PSDBI was diluted to 40%.

The hotel segment is basically engaged to own, lease, operate, manage and administer
hotels/hometels, apartment hotels, restaurants and all facilities, accommodations adjunct and
accessories appurtenants to general hostelry business. This segment was also deconsolidated in 2008
when ownership of the Parent Company in AbaGT was reduced to 9.64%.

Other segments include the mining and exploration, investment and other small divisions of the Group.
These are monitored by the Group's management as well.

Segment assets and liabilities

Segment assets include all operating assets used by a segment and consist principally of operating
cash, receivable and property and equipment, net of allowances and provisions and investment
property. Segment liabilities include the operating liabilities and consist principally of accounts, wages,
taxes currently payable and accrued liabilities. Segment assets and liabilities do not include deferred
income taxes.

Inter-segment transactions

Segment revenues, expenses and performance include revenue and expenses between business
segments. Such revenues and expenses are eliminated in consolidation.

58
 Holding Real estate Others Consolidated

2017 2016 2017 2016

2018 2017 2016 2018 2017 2016 2018 (As restated) (As restated) 2018 (As restated) (As restated)
Revenue
Gain on sale of
investment property P- P- P- P- P34,382,180 P- P500,917,987 P- P- P500,917,987 P34,382,180 P-
Gain on revaluation 900,685,946 - - 1,194,778,850 - 114,095,167 1,735,482,400 - 115,747,400 3,830,947,196 - 229,842,567
Rental income - - - - 421,053 174,836 497,895 225,000 135,000 497,895 646,053 309,836
Interest income 93,876 233,919 218,627 4,633 3,007 3,000 4,158,560 79,270 43,759 4,257,069 316,196 265,386
Unrealized foreign
exchange gain 6,256 492 6,263 - - - 3,049 238 3,024 9,305 730 9,287
Other income (expense) 760,557,448 9,875,792 4,226,695 (28,182,572) 5,215,265 1,423,960 (727,347,386) 209,661 304,790 5,027,490 15,300,718 5,955,445

Expenses
Depreciation expense 1,191,808 1,208,303 1,241,899 - 5,692,476 3,446,328 12,298,609 4,512,768 3,756,414 13,490,417 11,413,547 8,444,641
Interest expense - 12,815,639 6,982,323 - - 519,045 14,211,726 - - 14,211,726 12,815,639 7,501,368
Other expenses 22,732,188 40,176,186 24,885,906 17,742,465 15,350,723 11,518,519 40,821,368 23,509,422 18,044,583 81,296,021 79,036,331 54,449,008
Provision for (Benefit
from) income tax 54,054,774 (177,201) 62,137 358,448,050 25,104 34,235,827 520,775,696 4,193 34,724,219 933,278,520 (147,904) 69,022,183

Segment assets 2,452,787,555 1,240,692,897 1,014,032,479 3,788,560,679 3,054,785,536 2,886,027,007 5,472,732,216 3,359,678,827 3,691,348,861 11,714,080,450 7,655,157,260 7,591,408,347
Segment liabilities 304,583,986 437,128,011 247,282,278 1,191,177,958 683,083,966 708,244,580 1,231,688,953 725,526,661 726,884,930 2,727,450,897 1,845,738,638 1,682,411,788

59
NOTE 27 - OTHER MATTER

In April 2017, PRIDE entered into a JVA with Xentroland Realty Corporation, developer, a corporation
engaged in the business of real estate and construction in the development of high-rise mixed-use
condominiums. PRIDE, which owns a parcel of land located at Malinis, Lemery, Batangas with a total
area of 32-36 hectares, is offering part of the subject property (more or less 67% of total land area of
24 hectares), as initial site of basic land development construction, hereinafter referred to as the
Project.

 Developer agrees to do the basic land development and construction of the project amounting to
P150,000,000 and likewise its expertise in real estate and construction;
 Developer shall contribute the said amount for basic land development and 80% or P120,000,000
of which is allotted for purchase of Waltermart Mall properties situated and as part of total land
area and the remaining shall be allotted for land development construction costs;
 The total cost of the project for the land and construction by the corporations is P1,200,000,000;
and
 Taxes, administrative fees and other fees related to the project operations and the like shall be
charged to capital expenditure infusion.

Pending compliance to certain deliverables, investment in the JVA has not yet been effected in the
consolidated financial statements as of financial reporting date.

NOTE 28 - PRIOR PERIOD ADJUSTMENT

In 2018, an adjustment was made to correct the amount of deferred tax liability recognized on
investment property in prior year. Instead of using a tax rate of 30% based on the fair value gain, a 6%
tax rate was applied on appraised value in determining the amount of deferred tax liability. This
resulted in a prior period adjustment which reduced the amount of previously recognized deferred tax
liability and increased the retained earnings by the same amount.

The notes to financial statements affected by the adjustment have been modified. Such prior period
adjustment was in compliance with the requirements of PAS 1 (Revised) and PAS 8, Accounting Policies,
Changes in Accounting Estimates and Errors. A statement of financial position as at the beginning of
the earliest comparative period was presented as the retrospective restatement made has a material
effect on such third statement of financial position.

Below summarizes the impact of the adjustment made:

As previously
Financial statement line item reported Adjustment As restated
2017
Deferred tax liabilities P1,470,356,068 (P76,000,014) P1,394,356,054
Retained earnings 2,818,520,997 76,000,014 2,894,521,011

2016
Deferred tax liabilities 1,485,367,622 (76,179,803) 1,409,187,819
Retained earnings 2,912,786,825 76,179,803 2,988,966,628

60
 BSDHI

56.69%
“SCHEDULE I”

42.94% ACHI

Abacus
Vantage Kapuluan Goldmines PRIDE Abacus Coal
% 9.64% ABA-GT

99.70%%

Barit Resort Philippine Intl. OMNICOR Phil.

All Lemery Total Mall
Infrastructure TAGAPO Sinohydro Pride Star
Batangas Beef (formerly:CTZ Dev't. Bank
DRM Dev Holdings)
Export Aff.
Hillside Orchs Assurance
60% 40%
Haves Insurance Asean Pub
Quilib Cattle
Allegiance Countrywide
Omnilines Quilib Quality Leverage
Simlong Realty
Threefold
Manivest Quilib Pasture In-town
Logic Wholesale Pride Resources
Far Pacific Candor Realty (Formerly:Better
Santuary Systems Resources)
Organization
Asean Properties Focus Real
Fairfield
Ala-Eh Knit
Friendship Mgt. GMTM
Adroit Realty
JAP Aggregates
Certain Corp. MAMCOR
BatangasCement
Asean Traders
Hedge Intermarket
Pasture View Channel Minerals
Epular
Munera Real e Batangas Stock
Estate Company Aerotrophic
(Asean Property)
Banalo
Vinterra
Calatagan
Pride Aeropark
HIM Mgt
San Isidro
Aerosonic Land
Hewdon Land

Harborworks R+ house @ Montemaria

Construction
(Note: 100% owned except where otherwise indicated) 55.00% Montemaria Asia Pilgrims

Verde Island Passage (VIP)