I.

Introduction

As a leading digital platform in the Philippines, Globe Telecom Inc. continues to serve
the technological needs of its consumers and businesses across various products and services that
include mobile broadband, data connectivity, and the internet. Globe Telecom, Inc. is
predominantly involved in information technology (IT) and the telecommunications industry as
it provides wireless and fixed-line communication services under the networks of Globe Prepaid,
Globe Postpaid, and Touch Mobile (TM). The entity has been known through its upscale
strategies and technological advances both locally and internationally thus, has provided a total
of 86.8 million subscribers and is supported by over 8,200 employees and over a million
retailers, distributors, and business partners nationwide.

On its 2021 annual report, the company experienced yet another challenging year as it started off
with COVID-19 nearly disrupting every aspect of businesses and people’s lives. By the end of
the year, with greater public safety and improved health awareness, public mobility greatly
improved the employment rate and increased consumer and business spending.
Telecommunication became an essential service to the people as grew aggressively as businesses
pivoted to the digital space this year.

The shareholders of Globe Telecom Inc. appointed the accounting firm of Isla Lipana &
Co. (IL) as its independent auditor in pursuit of preserving its proper reporting processes and the
integrity of its financial statements. s. This paper aims to critically review and evaluate the
accuracy of the disclosures and presentation of reports in line with the topics discussed in
ACYFAR 2, particularly, Debt Investments, Inventories, Property, Plant and Equipment (PPE),
Borrowing Costs, Government Grants, Depreciation, Revaluation and Impairment, and Wasting
Assets and Depletion.

I. Debt Investments

Globe Telecom Incorporation initially recognizes debt investments and financial assets at
their fair value. Direct attributable costs or transaction costs are capitalized for assets measured
at amortized cost or fair value through other comprehensive income as well as they adopted the
effective interest method to measure its financial assets at amortized cost. Under PFRS 9
Financial Instruments provides guidance on the recognition, measurement, and derecognition of
financial assets and liabilities. Financial instruments, including investments in equity and debt
securities, loans and receivables, and derivatives, are subject to impairment if their carrying
value exceeds their recoverable amount, which is the present value of estimated future cash
flows.
Debt Investments are, essentially, an entity owning another company’s liabilities
commonly through the form of bonds. Other examples of debt investments include bank deposits
and treasury securities. In this investment, the investor is investing as a lender or a creditor of the
company. Both debt and equity investment deliver return on investments; however, they are not
that similar. Debt investments have fixed payments, usually with the interest included.
Overall,when one compares debt investments and equity investments, debt investments tend to
be less risky despite it offering a lower return on investment.

As mentioned above, debt instruments recognizes fair value changes among fair value
through profit or loss and fair value through other comprehensive income. In its Consolidated
Statements of Total Comprehensive Income, the company discloses its value of P 378, 610 for
fair value through other comprehensive income under the category Item that will not be
reclassified into profit or loss in subsequent periods. Among the required disclosures for PFRS 9
is the impairment of financial assets, Globe Telecom Inc.

II. Inventories

It's important to note that under PAS 2 Inventories, the lower of cost and net realizable
value (LCNRV) method should be applied to measure inventories. This means that the
inventories should be recorded at their cost or net realizable value, whichever is lower.

Globe Telecom Inc.'s use of the FIFO method in determining the value of its inventory
value is a commonly used inventory costing method. FIFO assumes that the first items purchased
are the first items sold or used, and as such, the cost of the oldest inventory is assigned to the cost
of goods sold or used first. The company's assessment of its costs on a quarterly basis and
revision when necessary is also in line with PAS 2, which requires entities to review their
inventories regularly and adjust the carrying value if necessary to reflect any changes in cost or
net realizable value. In addition, the company's determination of the NRV of novelty items as the
difference between the approximated selling price and the predicted costs necessary to close a
deal is also consistent with the requirements of PAS 2. Overall, the use of specific methods and
processes by Globe Telecom Inc. in the treatment of inventories, as well as their adherence to the
provisions of PAS 2, ensures that the company's inventories are properly accounted for and
presented in its financial statements.

For Globe Telecom Incorporation, the carrying amount of its inventories was ₱4,045,049
in 2021 which is disclosed in its Consolidated Statements of Financial Position. As such, Note 9
Inventories and Supplies-net show the breakdown of this account, which consists of multiple
accounts. The entity recognizes in 2021 accounts of: “Handsets, devices, and accessories”
amounting to P1,756,056, “Broadband Devices” amounting to P 562,109, “Modem and
accessories” amounting to P 438, 391, “SIM cards and SIM packs” amounting to P 136,070, and
“Call cards and others” amounting to P 50,388.

The financial worth of inventories may decline due to damage, obsolescence, fluctuations
in price, or physical deterioration. This discloses in Note 9 with an amount of P 502,627 under
account name “Inventory obsolescence”. Whereas it has been included in the computations for
Note 27 Impairment and other losses. As such, Cost of inventories sold has been reported under
the notes to financial statements amounting to P 18,072,557.

Globe Telecom Inc. was transparent about its methods, procedures, and accounting
policies it adopted to measure the net realizable value and obsolescence of its asset account.
Moreover, the company complied with the specifications of PAS 2 Inventories, given that it
accounted for the carrying value in designations appropriated and the total carrying amount of
inventories to the entity, the value of inventories recognized as expense during the period, as
well as the amount of any write-down of inventories recognized as an expense in the period.
III. Property, Plant and Equipment

Property, plant and equipment (PPE) refers to tangible assets used in the production of
goods, for administrative purposes, or for rental purposes, excluding land and buildings. These
are considered non-current assets because they are used over an extended period of time,
typically beyond one accounting period.

Most PPE items are reported on the balance sheet at their carrying amount, which is the cost of
the asset less accumulated depreciation and impairment in value.

However, land is generally reported at cost less any impairment loss since it has an indefinite
useful life and is not subject to depreciation. The initial cost of PPE typically includes the cost or
purchase price of the asset, import duties, non-refundable government taxes, and any other costs
that are directly attributable to bringing the asset to its intended use. These costs are capitalized
and added to the cost of the asset when they are traceable to the asset's acquisition or
construction. In addition to the initial cost, any asset retirement obligation (ARO) related to the
asset and interest incurred during the construction period are also considered part of the cost of
the asset and are capitalized.

The management of Globe Telecom Inc. adopted the cost model based on the method that
downward adjustments or impairment losses are accounted for in the valuation of the accounts
exhibited in its financial statements. Presented on its Consolidated Statements of Financial
Position, under Noncurrent Assets, the line item “Property, plant and equipment-net” amounted
to ₱270,747,147 in 2021 and ₱190,292,393 in 2020, signifying a increase of ₱80,454,754. It
should be noted that no property, plant and equipment for the years ended December 31, 2021
and 2020 have been pledged as collateral or security. Accordingly, the company periodically
reviews the impairment of its nonfinancial assets, particularly property, plant and equipment, as
well as right-of-use assets. This is automatically recorded when impairment indicators are
prevalent such as store closures, pre-termination of lease agreements, and temporary shutdowns.
In light of this, the management disclosed the impairment losses obtained from property, plant
and equipment at ₱1,185,512,000 in 2020, significantly increasing from ₱399,212,000 in 2019.
This rise may be caused by the heightened restrictions due to the pandemic and the subsequent
stoppage of business activities.

Since property, plant and equipment may increase future economic benefits or their value
may decline over the years, depreciation and amortization are calculated by the JFC Group using
the straight-line basis. This is subject to the estimated useful lives of the assets, which are
reviewed regularly and updated if new estimates are anticipated as a result of physical wear and
tear, obsolescence, and limitations in the handling of the assets. The estimated useful lives of the
accounts vary from one purchase to another; still, these estimates are collectively assessed and
consistent with the production and operations of a company. Globe Telecom Inc. has estimated
the useful life of Telecommunications equipment: Tower for 20 years, Switch for 7-10 years,
Outside plant, cell site structures, and improvements to be 10-20 years, Distribution Drop Wires
and wire assets for 2-10 years, cellular equipment for 3-10 years. They also estimated the useful
lives of: Buildings for 20-25 years, Cable systems for 5-20 years, and Office equipment for 3-7
years, and Transportation equipment for 3-5 years.

Under PAS 16, changes in the residual value of an asset, depreciation and amortization
procedures, and useful lives are evaluated annually and adjusted if necessary. This is to ensure
that the carrying amount of an asset reflects its true economic value. For assets under
construction, depreciation is not applied until they are ready for use and available for their
intended purpose. This is because an asset cannot generate economic benefits until it is
completed and ready for use. Fully depreciated assets continue to be presented in the financial
statements until they are retired, sold, or disposed of. This is to provide stakeholders with a
complete and accurate picture of the entity's assets and their historical cost.

Under the Notes to Financial Statements, the entity had disclosed P 1,014.19 million of
impairment loss on telecommunications equipment due to the damaged done bt Super Typhoon
Odette. Note 11 Property, Plant and Equipment- net showed that the company has shown a roll-
forward analysis on its items under PPE account. On the same note, the itemization of the
account is displayed as the net book value of its components is calculated by subtracting the
accumulated depreciation and amortization and accumulated impairment losses from their
individual cost. Telecommunications Equipment hold the largest value with ₱149,091,209,
which can be attributed to the main operations of the company to improve its business.
Following this, the “Assets under construction” amounted to ₱63,252,782, and “Building, Land,
and Leasehold Improvements” totaled ₱46,855,941. These values are reasonable and anticipated
given the nature of the operations of the Globe Telecom Inc as a telecommunications service
provider.

As mentioned above, the entity has evidently conformed to the requirements of PAS 16
and disclosed relevant information in its consolidated financial statements. It affirmed the basis
for measuring the carrying amounts of its items under property, plant and equipment. Along with
this, the depreciation method adopted, calculation of impairment losses, and the estimation of the
assets’ useful lives was accurately presented.

IV. Borrowing Costs

The JFC Group defined the terms and specifications of borrowing costs in agreement
with the stipulations provided in PAS 23 Borrowing Costs. It stated that borrowing costs are
included as a component of the cost when it is directly traceable to the production, acquisition,
and construction of the item that needs a year to prepare to be sold or for its intended use. This
will only start when the production activities or preparations are already in the process; however,
other costs not within the scope of requirements are expensed when incurred. Generally,
borrowing costs are other costs and interests linked to the borrowing and appropriating of funds.
The effective interest method is employed to compute the related interest expense.

Borrowing costs coincide with assets that commonly consume a significant amount of
time to prepare for their intended purpose or sale, which are qualifying assets. These may include
investment properties, inventories, facilities, manufacturing plants, and intangible assets, among
others. The Globe Group capitalized uses its borrowed funds for self-constructed properties and
equipment whereas the borrowing costs were included in the computation of Property, Plant, and
Equipment. Under Note 11 Property, Plant and Equipment-net, the entity has reported which
amounted to ₱1,640.44 million using a capitalization rate of 4.12% for the year ended December
31, 2021.

In agreement with the standard, entities ought to present both the amount of capitalized
borrowing costs and the capitalization rate applicable to determine the value of borrowing costs
qualified to be capitalized. Accordingly, the management was not able to disclose its borrowing
costs in full compliance with the conditions of PAS 23 Borrowing Costs.

V. Government Grants

As defined in PAS 20 Accounting for Government Grants and Disclosure of Government

Assistance, government grants are provided by the administration to support business activities
through the transfer of resources with conditions concerning the operations of the entity. The
attached conditions may vary for each company as grants may be given as a reward for past
compliance or in exchange for future obligations. Moreover, entities may either receive
condonation, financial assistance, or non-monetary donations that are not in the form of loans or
guarantees. Subsequently, grants are expected to be used as a fund for projects that would benefit
the community and consequently generate revenue to increase economic activity. These are
eventually reported on a systemic basis in profit or loss while the entity simultaneously
recognizes the expense related to the conditions over the periods. However, although grants do
not carry costs, repayment of the grant may be enforced when the entity fails to fulfill its
obligations in return for receiving the assistance.

Furthermore, the standard highlights government assistance, which is an initiative for

qualifying entities under specific criteria to be provided with economic benefits. Generally, aid
and grants are given to small businesses that lack funding. Herewith, the consolidated financial
statements of Globe Telecom Incorporation did not recognize any form of government grant or
government assistance as of December 31, 2021. On that account, no records are reflected in the
Globe Group’s financial statements, and the provisions of PAS 20 were not taken into account in
the accomplishment of its report.
VI. Depreciation

As mentioned in the discussion of the Globe Group’s Property, Plant and Equipment
above, the summary of accounting policies of the entity stated that the straight-line method is
employed to calculate the depreciation of the asset. Under PAS 16 (Philippine Accounting
Standards 16), Property, Plant and Equipment, the depreciable cost of assets is allocated
systematically over their useful lives. The useful life of an asset refers to the period over which it
is expected to be used by the entity.

This can vary for each asset and depends on factors such as its expected usage, wear and
tear, and technological obsolescence. In addition, entities should consider the potential impact of
any changes to the estimated useful lives of their assets. If the estimated useful life is reduced,
this may result in increased depreciation expenses and a decrease in the carrying value of the
assets. On the other hand, if the estimated useful life is extended, this may result in decreased
depreciation expenses and an increase in the carrying value of the assets. It is important to
properly consider the impact of these changes on the entity's financial statements and to disclose
any significant changes to stakeholders.

The company’s telecommunication equipments, plant, buildings, outside plants, cell cite
structures and improvement, cable systems, cellular equipment, office equipment, and
transportation equipment are depreciated, and their amortization is concurrently recorded. These
assets are subject to wear and tear, technical obsolescence, commercial obsolescence, and legal
limitations; hence, the methods of depreciation apply. With that being said, on its consolidated
financial statements, the entity reports the depreciation of its assets along with their amortization
using the one line item entitled “Depreciation and amortization.” With this, the company
disclosed depreciation expenses included in Note 25 Depreciation and Amortization totaling
₱41,932,112. This includes the depreciation and amortization of Investment Properties,
Intangible Assets, Right of Use Assets, and Property and equipment.

In its consolidated statements of cash flows, the adjustment for depreciation and
amortization amounted to ₱41,932,112 in 2021 and ₱35,412,038 in 2020, which demonstrates an
increase of ₱1,073,341,000 for the year ended December 31, 2021. Additionally, the
accumulated depreciation and amortization for all items related to PPE disclosed in Note 11
Property, Plant and Equipment-net totaled ₱314,539,687 for December 31, 2021. This includes
depreciation and amortization of ₱32,321,056 and loss on retirements and disposals of ₱577,119.

VII. Revaluation and Impairment

Conforming to PAS 36 Impairment of Assets, objective evidence must be present to

signify whether a financial asset is impaired. These include declines in market value, increases in
interest rates, modifications in the market or economic conditions, and other indicators related to
a debtor, such as experiencing difficulties in settling payments and having a high probability of
entering a state of bankruptcy. Essentially, these indicators are listed in the standard; still, the
professional judgment of the management on the significance of these factors is critical. With
that being said, the Globe Telecom Inc. reviews and evaluates whether its financial assets or
receivables are impaired after each reporting period. Moreover, for goodwill, the company
adopts a procedure where impairment is annually tested at the end of every year, and additional
evaluations are conducted when circumstances direct that the asset is impaired.

Furthermore, if there are indications that previous impairment losses have declined or
become nonexistent, the recoverable amount is estimated. This is the higher value between fair
value less costs to sell and value-in-use. To add, the standard states that when the carrying
amount of the asset exceeds its recoverable amount, no impairment loss is recognized, and the
appropriate reversals are reported in profit or loss. The management assesses non-financial assets
for impairment at every reporting date. However, for investment properties, property, plant and
equipment, and right-of-use assets, reviews and evaluations are conducted only when measurable
and evident signs of impairment are displayed, such as the termination of lease agreements and
the closure of non-performing stores driven by the adverse impacts of the COVID-19 pandemic.

The Notes to Financial Statements, especially Note 27 Impairment and Other losses,
reported a total amount of P 5,566,939 which includes impairment losses for trade receivables
for P 3,544,995, property and equipment for P 1,155,691, contract assets for 346,967, and other
 assets for P 32,461.. On the other hand, the reversal of provision for impairment on inventories
amounted to ₱502,627 and ₱15,802 for other probable losses-net.

VIII. Wasting Assets and Depletion

PFRS 6 (Philippine Financial Reporting Standards 6) provides guidance on the

accounting treatment for exploration and evaluation of mineral resources. Wasting assets, such as
mineral resources, are assets that have a finite life and are expected to be depleted over time.
Under PFRS 6, exploration and evaluation costs are capitalized as intangible assets if certain
criteria are met, such as the presence of a mineral resource, the intention to explore and evaluate
the resource, and the technical and commercial feasibility of extracting the resource. These costs
are then subject to impairment testing to ensure that they are not carried at a value higher than
their recoverable amount. Once the mineral resource is proven and the decision is made to
proceed with extraction, the capitalized exploration and evaluation costs are reclassified as part
of the cost of the mineral property. The cost of the mineral property is then depleted over the life
of the property using either the straight-line or output method, depending on the nature of the
asset and the method that best reflects the pattern of depletion.
Therefore, given that Globe Telecom Inc. does not engage in activities that involve the
extraction of natural resources, any disclosures on wasting assets and the related accounts were
not reflected in the consolidated financial statements of the company as of December 31, 2021.

IX. Conclusion

Through analyzing the consolidated financial statements of Globe Telecom Inc., the
company was able to clearly disclose its finances and affirm its condition as an entity while
integrating the established accounting standards and policies into its processes. It has shown its
policies and conditions in regards to compliance of standards relating to Investment Property,
Non-current held for sale, Agriculture, Current Liabilities, Long-term liabilities, and Lease
Receivables. The company continues to recognize useful information and evaluated its assets and
liabilities properly considering that the policies and required disclosures from the given standards
are met.
 Globe Telecom Inc, has appropriately measured the corresponding balances and accounts
in their financial statements. Furthermore, from this critique paper, it can be said that numerous
accounts have been dramatically increased which is possibly die to the COVID-19 situation.
Through its accurate and timely financial statements, the entity has shown great benefits to its
stakeholders as it through employee benefits, great customer service, and it takes importance to
its corporate governance which holds importance for the company’s reputation nationwide and
internationally.

X. Reference

Jollibee Foods Corporation. (n.d.). JFC annual report 2020.

https://bucketeer-9d45a0bc-28bd-439b-9619-e2bfda478d44.s3.amazonaws.com/public

%2Fuploads%2FJFC-Annual-Report-2020_Final_2.pdf

XI. Appendices