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Notes to Financial Statements

Note 1- General Information

The entity is a single proprietorship owned by MS. GRACE N. BENITO. It is registered with the
Bureau of Internal Revenue in the same name and form primarily to engage as retailer of goods.

The registered address of the company is at Brgy. 17 Tabug, Batac, llocos Norte

The Notes to Financial Statements covers the year ended December 31, 2019 with comparative
figure in CY 2018.

The accompanying financial statements were authorized for issue on May 10, 2020. MS. GRACE
N. BENITO is still empowered to make amendments even after the date of issue.

Note 2- Status of Operations

The Proprietorship is using Philippine Financial Reporting Standards for Small Entity (PFRS for SE)
and the Proprietorship sets out the following procedures that an entity must follow when it adopts
PFRS for SE for the first time as the basis for preparing its general purpose financial statements.

a. The Proprietorship, in its opening statement of financial position as of its date of transition
to PFRS for SE shall:
 recognize all assets and liabilities whose recognition is required by the PFRS for
SE
 not recognize items as assets or liabilities if the PFRS for SE does not permit such
recognition
 reclassify items that it recognized under PFRS for SME as one type of asset,
liability or component of equity, but are a different type of asset, liability or
component of equity under the PFRS for SE
 apply the PFRS for SE in measuring all recognized assets and liabilities

b. The accounting policies that an entity uses in its opening statement of financial position
under the PFRS for SE may differ from those that it used for the same date using its
previous financial reporting framework. The resulting adjustments arise from transactions,
other events or conditions before the date of transition to the PFRS for SE. Therefore, the
Proprietorship shall recognize those adjustments directly in retained earnings (or, if
appropriate, another category of equity) at the date of transition to the PFRS for SE

c. On first-time adoption of the PFRS for SE, the Proprietorship shall not retrospectively
change the accounting that it followed under the PFRS for SME for either of the following
transactions:

 DE recognition of financial assets and financial liabilities. Financial assets and

liabilities derecognized under the PFRS for SME before the date of transition
should not be recognized upon adoption of the PFRS for SE.
 Conversely, for financial assets and liabilities that would have been derecognized
under the PFRS for SE in a transaction that took place before the date of
transition, but that were not derecognized under the PFRS for SME, the
Proprietorship may choose to derecognize them on adoption of the PFRS for SE or
to continue to recognize them until disposed of or settled.

d. The Proprietorship may use one or more of the following exemptions in preparing its first
financial statements that conform to the PFRS for SE

 Fair value as deemed cost. A first-time adopter may elect to measure an item of
property, plant and equipment on the date of transition to the PFRS for SE at its
fair value and use that fair value as its deemed cost at that date.
 Revaluation as deemed cost. A first-time adopter may elect to use a previous
revaluation of an item of property, plant and equipment at, or before, the date of
transition to the PFRS for SE as its deemed cost at the revaluation date.
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Notes to Financial Statements

 Deferred income tax. A first-time adopter is not required to recognize, at the date
of transition to the PFRS for SE, deferred tax assets or deferred tax liabilities
relating to differences between the tax basis and the carrying amount of any assets
or liabilities for which recognition of those deferred tax assets or liabilities would
involve undue cost or effort.
 Arrangements containing a lease. A first-time adopter may elect to determine
whether an arrangement existing at the date of transition to the PFRS for SE
contains a lease on the basis of facts and circumstances existing at that date,
rather than when the arrangement was entered into).

e. If it is impracticable for the entity to restate the opening statement of financial position at
the date of transition for one or more of the adjustments required, the entity shall apply for
such adjustments in the earliest period for which it is practicable to do so.

Note 3- Basis of Preparation and Presentation of Financial Statements

The accompanying financial statements have been prepared assuming that the Entity will continue
as a going concern which contemplates the realization and the satisfaction of liabilities on the
normal course of business.

The accompanying financial statements as at and for the year ended December 31, 2018 are
prepared in accordance with the PFRS for Small Entities (the “Framework” as approved by the
Financial Reporting Standards Council, Board of Accountancy, and Securities and Exchange
Commission (SEC). They have been prepared on a historical cost basis.

Note 4- Summary of Changes in PFRS for SEs Adopted

New amendments to standards are effective for annual periods beginning after January 1, 2019
and have been applied in preparing these financial statements. None of these is expected to have
a significant effect on the financial statements of the proprietorship, which became mandatory for
the Proprietorship’s 2018 financial statements and change the classification and measurement of
assets. The Proprietorship adopted these standards earlier and the extent of the impact has been
determined.

The following amendments that have been published and issued by the Philippine Financial
Reporting Standards Council which became effective for accounting periods beginning on or after
January 1, 2018 are adopted by the proprietorship:

Section 1: Scope of the Framework- Entities who have operations or investments that are based
or conducted in a different country shall not apply this Framework and should instead apply the full
Philippine Financial Reporting Standards (PFRSs) or Philippine Financial Reporting Standard for
Small and Medium-sized Entities (PFRS for SMEs), as appropriate.

Section 2: Concepts and Pervasive Principles- This Section provides information about the
financial position, performance and cash flows of the entity that is useful for economic decision
making by a broad range of users who are not in a position to demand reports tailored to meet their
particular information needs.

Section 3: Financial Statement Presentation- This Section states that financial statements shall
present fairly the financial position, financial performance and cash flows of an entity. An entity that
meets the requirements of this Framework and whose financial statements comply with this
Framework, shall make an explicit and unreserved statement of compliance with this Framework in
the notes to the financial statements.

Section 5: Accounting Policies, Estimates and Errors - This Section refers to the specific principles,
bases, conventions, rules and practices applied by an entity in preparing and presenting financial
statements. An entity shall select and apply its accounting policies consistently for similar
transactions, other events and conditions. An entity need not follow a requirement in this
Framework if the effect of doing so would not be material.
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Notes to Financial Statements

Section 6: Basic Financial Instruments- This Section refers to the scope, measurement, impairment
and derecognition of financial asset and financial liabilities. However, the following financial
instruments are not accounted for in accordance with this section and are covered by other sections
of this Framework: a) financial instruments that meet the definition of an entity’s own equity covered
by Section 17 - Equity; b) leases covered by Section 15 - Leases. However, the derecognition
requirements apply to lease payables recognized by a lessee; and c) employers’ rights and
obligations under employee benefit plans covered by Section 22 - Employee Benefits.

Section 8: Inventories– This Section simplifies the measurement of inventories at lower of cost or
market value. Section 21- Impairment of Assets covers impairment requirements for inventories.
This Section does not apply to: a) work in progress arising under construction contracts, including
directly related service contracts (Section 18 - Revenue); b) financial instruments (Section 6 - Basic
Financial Instruments, and Section 7 – Other Financial Instruments).

Section 12: Property, Plant and Equipment - This Section provides information on the scope,
recognition, measurement, derecognition and basic disclosures for each class of property, plant
and equipment. Property, plant and equipment accounted for under this Section are tangible assets
that: a) are held for use in the production or supply of goods or services, for rental to others, or for
administrative purposes; and b) are expected to be used during more than one period.

Section 15: Leases- This Section provides information on the scope, recognition, measurement,
and basic disclosures. Some arrangements do not take the legal form of a lease but convey rights
to use assets in return for payments. Such arrangements are in substance leases of assets, and
they should be accounted for under this section.

Section 16: Provisions and Contingencies- This Section applies to all provisions (i.e., liabilities of
uncertain timing or amount), contingent liabilities and contingent assets except those provisions
covered by other sections of this Framework. These include provisions relating to: a) employee
benefit obligations (Section 22 - Employee Benefits); and b) income tax (Section 23 - Income Tax).
The requirements in this Section do not apply to executory contracts.

Section 17: Equity- This Section provide information on the classification, recognition and
measurement of issuance of original shares or other equity instruments and on the distribution to
owners. Furthermore, this section classifies Equity as: (a) the residual interest in the assets of an
entity after deducting all its liabilities. It includes investments by the owners of the entity, plus
additions to those investments earned through profitable operations and retained for use in the
entity’s operations, minus reductions to owners’ investments as a result of unprofitable operations
and distributions to owners; and (b) members’ shares in co-operative entities and similar
instruments are equity if: (i) the co-operative entity has an unconditional right to refuse redemption
of the members’ shares; or (ii) redemption is unconditionally prohibited by local law, regulation or
the entity’s governing charter.
Section 18: Revenue- This Section provides information on the scope, measurement, identification
of the revenue and general disclosures. Furthermore, this Section applies to the accounting for
revenue arising from the sale of goods, rendering of services, construction contracts in which the
entity is the contractor, royalties or dividends, deposits or receivables yielding interest and dividends
from investments in shares of stock that are not accounted for using the equity method. It does not
apply to revenue or income arising from transactions and events dealt with in other sections of this
Framework

Section 21: Impairment of Assets- This Section shall be applied in accounting for the impairment
of all assets other than the following, for which other sections of this Framework establish
impairment requirements (a) assets arising from employee benefits (Section 22-Employess
Benefits) and (b) financial assets within the scope of Section 6 - Basic Financial Instruments.

Section 22: Employee Benefits- This Section provides information on the general recognition
principle and disclosures for all employee benefits as follows: (a) short term (b) Post-employment
benefit plans (c) other long-term employee benefits and (d) termination benefits. This Section
requires that an entity shall recognize the cost of all employee benefits to which its employees have
become entitled as a result of service rendered to the entity during the reporting period as: (i) a
liability, after deducting amounts that have been paid directly to the employees; and (ii) as an
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Notes to Financial Statements

expense, unless another section of this Framework requires the cost to be recognized as part of
the cost of an asset.

Section 23: Income Tax- This Section establishes principles for the recognition, measurement,
presentation, and disclosure of income taxes in an entity’s financial statements.

Section 25: Events After the End of the Reporting Period - This Section provides information on the
recognition and measurement for the adjusting events and non-adjusting events. This Section
defines events after the end of the reporting period, are those events, favorable and unfavorable,
that occur between the end of the reporting period and the date when the financial statements are
authorized for issue.

Section 26: Related Party Disclosures- This Section requires that disclosures about an entity’s
related parties are necessary in the entity’s financial statements to draw attention to the possibility
that its financial position and profit or loss may have been affected by the existence of related
parties and by transactions and outstanding balances with those parties. There are no specific
measurement requirements for related party transactions.

Section 29: Transition to the Framework- This Section applies to a first-time adopter of this
Framework regardless of whether its previous accounting framework was full PFRSs or PFRS for
SMEs.

Note 5- Summary of Significant Accounting Policies

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

5.1 Cash and Cash Equivalent

Cash is stated at face value. Cash and cash equivalents include cash on hand, demand
deposits and other short-term highly liquid investments with original maturities of three months
or less

5.2 Trade Receivables

Trade receivables are recognized initially at the transaction price. They are subsequently
measured at amortized cost using the effective interest method. A provision for impairment of
trade receivables is established when there is objective evidence that the company will not be
able to collect all amounts due to the original terms of the receivables.

5.3 Inventories

Merchandise Inventories are stated at the lower of cost or market value (i.e., the probable
selling price to willing buyers as at the reporting date). Cost is determined using the first-in, first
out (FIFO) method.

The costs of purchase of inventories comprise the purchase price, and other taxes (other than
those subsequently recoverable by the entity from the taxing authorities), and transport,
handling and other costs directly attributable to the acquisition of goods. Trade discounts,
rebates and other similar items are deducted in determining the costs of purchase.

The entity includes other costs, if there are any in the cost of inventories only to the extent that
they are incurred in bringing the inventories to their present location and condition.

5.4 Other current assets

Other current assets consist of prepaid expenses, unused supplies, VAT input tax and prepaid
income tax if any. These items are measured at the transaction cost.
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Notes to Financial Statements

5.5 Property, plant and equipment

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

Land is not depreciated. Depreciation on other classes of property, plant and equipment is
charged so as to allocate cost of assets less their residual values over their estimated useful
lives, using the straight-line method. The estimated useful lives of the Company’s depreciable
assets range as follows:

Furniture and Fixtures 3-10 years

Equipment 5-10 years
Vehicles 5-10 years
Buildings 30-50 years

The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted
prospectively if appropriate, if there is an indication of a significant change since the last
reporting date.

5.6 Impairment of assets other than inventories

Assets such as property, plant and equipment, investment property, intangible assets and
investment in associate are assessed at each reporting date to determine whether there is any
indication that the assets are impaired. When an impairment indicator is identified, the carrying
value of the asset is tested for impairment. An impairment loss is recognized for the amount by
which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is
the higher of an asset’s fair value less costs to sell and value in use. If the recoverable amount
cannot be estimated for an individual asset, the company estimates the recoverable amount of
cash-generating unit to which the asset belongs. A cash-generating unit is the smallest
identifiable group of assets that generates cash flows from other assets within the company.

If an impairment indicator no longer exists or the recoverable amount has increased

subsequently, the company will determine the amount of impairment loss that can be reversed
to the extent that the reversal should not result in a carrying amount of the asset is higher had
no impairment loss was recognized in the prior years.

5.7 Trade and other payables

Trade payables pertain to accounts payable and other payable pertains to accrued expenses.
These are initially measured at transaction price (undiscounted amount owed to the supplier,
which is normally the invoice price) and are subsequently measured at undiscounted amount
of cash or other considerations expected to be paid.

Trade payables are obligations to pay goods or services that have been acquired in the ordinary
course of business from suppliers. Trade payables are classified as current liabilities if payment
is due within one (1) year or less (or in the normal operating cycle of the business is longer). If
not, they are presented as non-current liabilities.

Accruals, are liabilities to pay for goods or services that have been received or supplied but
have not been paid, invoiced or formally agreed with the supplier, 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

5.8 Provisions

Provisions are recognized when: the company has an obligation as a result of past events; it is
probable that a transfer of economic benefits will be required to settle the obligation; and the
amount can be reliably estimated.. Provisions are not recognized for future operating losses.
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Notes to Financial Statements

When the effect of time value is material, provisions are measured at the present value of the
amount expected to be required to settle the obligation using a pre-tax rate that reflects current
market assessments of the time value of money and the risks specific to the obligation.
Changes in the provision due to passage of time are recognized in profit or loss.

5.9 Retirement Benefits

The company’s retirement benefit obligation is measured using the accrual approach based on
the minimum retirement benefits required under Republic Act (RA) No. 7641, otherwise known
as The Philippine Retirement Pay Law. Accrual approach is applied by calculating expected
liability as at reporting date using the current salary of entitled employees and the employees’
years of service, without consideration of future changes in salary rates and service periods.

5.10 Capital

Capital includes the initial investment of the owner, additional investments made, the
accumulations of incomes and losses, if any and withdrawals by the owner for his/her personal
use. This account is measured at the amount of cash received.

5.11 Revenue Recognition

Revenue is measured as the fair value of the consideration received or receivable, excluding
discounts, returns and taxes. The company recognizes revenue to extent that it is probable that
future economic benefits will flow to entity and that the amount of revenue can be reliably
measured. The following specific recognition criteria must also be met before revenue is
recognized:

(a) Sales of goods

Sales of goods are recognized as revenue when the Company has delivered the products
to the customer and there is no unfulfilled obligation that could affect the customer’s
acceptance of the products.

(b) Rendering of services

Service Income is recognized upon rendering to the customer.

(c) Interest Income

Interest Income is recognized using the effective interest method. Interest income is
included in “other income” account in the statement of comprehensive income.

(d) Rental Income

Rental receipts to a third party is recognized as income in the profit or loss in the period in
which they are earned. Rental income is included in “other income” account in the
statement of comprehensive income.

5.12 Cost and expense recognition

Expenses are decreases in economic benefits in the form of decreases in assets or incurrence
of liabilities that result in decreases in equity, other than those relating to distributions to equity
participants. Cost, general and administrative expenses are recognized in the statements of
income upon consumption of the goods and or utilization of the service or at the date they are
incurred.

(a) Direct costs

Direct costs are recognized in profit or loss in the period the services are provided. Costs
of services include depreciation, utilities, real property tax and other expenses directly
attributed to the services provided.
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Notes to Financial Statements

(b) General and administrative expenses

General and administrative expenses include directors fee, professional fee, taxes and
other costs that cannot be associated directly to the services rendered.

(c) Employee Compensation and Other Benefits

Employee benefits are all forms of consideration given by the entity in exchange for service
rendered by employees, including directors and management. The entity shall recognize
the cost of all employee benefits to which its employees have become entitled as a result
of service rendered to the entity during the reporting period: a) as a liability, after deducting
amounts that have been paid directly to the employees; and b) as an expenses. Employee
benefits are recognized when the employee earns those benefits, not when those benefits
are paid in cash.

(d) Short-term benefits

Short-term employee benefits are employee benefits (other than termination benefits) that
are wholly due within twelve months after the end of the period in which the employees
render the related service.

When an employee has rendered service to the entity during the reporting period, the
entity shall measure the amounts recognized at the undiscounted amount of short-term
employee benefits expected to be paid in exchange for that service

(e) Post-employment benefits

The entity should account for the post-employment benefit plan using the accrual
approach in accordance with the minimum retirement benefits required under Republic
Act (RA) No. 7641, otherwise known as The Philippine Retirement Pay Law, or entity
policy if superior than that provided by RA 7641.

Accrual approach is applied by calculating the expected liability as of reporting date using
the current salary of the entitled employees and the employees’ years of service, without
consideration of future changes in salary rates and service periods.

The entity shall recognize the liability for such post-employment benefit plan at the net
total of the following amounts: a) the accrued amount of the retirement benefits at the
reporting date; less b) the fair value of plan assets (if any) at the reporting date out of
which the obligations are to be settled directly.

(f) Other long-term employee benefits

Other long-term employee benefits are employee benefits (other than post-employment
benefits and termination benefits) that are not wholly due within twelve months after the
end of the period in which the employees render the related service.

The entity shall recognize a liability for other long-term employee benefits measured at the
net total of the following amounts: a) the present value of the benefit obligation at the
reporting date; less b) the fair value of plan assets (if any) at the reporting date out of
which the obligations are to be settled directly.

(g) Termination benefits

Termination benefits are employee benefits payable as a result of either an entity’s

decision to terminate an employee’s employment before the normal retirement date, or an
employee’s decision to accept voluntary redundancy in exchange for those benefits.
Because termination benefits do not provide an entity with future economic benefits, an
entity shall recognize them as an expense in profit or loss immediately. This will normally
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Notes to Financial Statements

be on payment of the benefits unless formal plans are developed in advance.

(h) Finance Cost

Finance costs comprise interest expense on borrowings and other bank charges. These
are recognized in profit or loss in the period they are incurred using the effective interest
method.

The effective interest method is a method of calculating the amortized cost of the
borrowings and of allocating the interest expense over the relevant period. The effective
interest rate is the rate that exactly discounts estimated future cash payments through the
expected life of the borrowings or, when appropriate, a shorter period, to the carrying
amount of the borrowings. The effective interest rate is determined on the basis of the
carrying amount of the borrowings at initial recognition. Under the effective interest
method: (a) the amortized cost of the borrowings is the present value of future cash
payments discounted at the effective interest rate, and (b) the interest expense in a period
equals the carrying amount of the borrowings at the beginning of a period multiplied by
the effective interest rate for the period.

(i) Income Tax

The entity shall recognize a current tax liability for tax payable on taxable profit for the
current and past periods. If the amount paid for the current and past periods exceeds the
amount payable for those periods, the entity shall recognize the excess as a current tax
asset.

The entity shall measure its current tax liabilities (assets) using the tax rates and laws that
have been enacted or substantively enacted by the reporting date. The entity shall regard
tax rates as substantively enacted when future events required by the enactment process
historically have not affected the outcome and are unlikely to do so.

5.13 Events after the reporting date

Post year-end events that provide additional information about the Company’s position at the
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 financial statements
when material.

5.14 Related party disclosures

Disclosures about related parties are necessary in the entity’s financial statements to draw
attention to the possibility that the entity’s financial position and profit or loss may have been
affected by the existence of related parties and by transactions and outstanding balances with
related parties. There are no specific measurement requirements for related party transactions.

In considering each possible related party relationship, the entity shall assess the substance of
the relationship and not merely the legal form.