I.

Background

It was on September 8, 1998, when Puregold Price Club, Inc. (PGOLD) was officially
incorporated. Puregold is known as a company that heavily participates in the business of
trading goods, such as consumer products like canned goods and non-perishable items, on a
wholesale and retail level. The first physical store of Puregold Company opened its doors to
the public in December of 1998, in the City of Mandaluyong. Puregold was also known to
have a specific loyalty program, namely: "Tindahan ni Aling Puring", and such program was
officially launched in the year of 2004. The company is owned by Lucio Co, and his wife Susan
Co. They both own significant shares in the company, as compared to the other board
members. Other notable stockholders also must include Cosco Capital (Parent Company)
with the most amount of shares out of 1,410,867,188 outstanding capital stocks. These
stockholders may be better seen in (Appendices. Figure 1).

Puregold Price Club, Inc. conducts its business operations through several retail
mediums and store brands. Hypermarkets are one example of such mediums; Puregold
offers a variety of perishable and non-perishable items, and generally cater to two primary
types of customers: retail customers and resellers that take part of the company's loyalty
program. These transactions occur through “Puregold Price Club”. Another example of such
mediums used by Puregold are Supermarkets, through "Puregold Junior". These stores serve
as neighborhood stores which offer a greater proportion of food to non-food products with
regards to Puregold’s hypermarkets. Discounters, through "Puregold Extra", conduct
operations in small stores that offer a more restricted catalog of products and goods.
Puregold Price Club Inc. also claims proud ownership over Entenso Equities, Inc., an
established holding company for two other companies: Ayagold Retailers, Inc. and San Roque
Supermarkets. Furthermore, as recently as 2020, Puregold was conducting operations in a
total of 244 hypermarkets, 100 supermarkets, 28 extras, 31 minimarts, 20 S&R warehouse
clubs, 46 S&R Quick Service Restaurants, 2 Markados, and 30 San Roques, for a grand total
of 501 stores all over the country.
 Let it also be known that Puregold Price Club Inc. was officially registered with the
Philippine Securities and Exchange Commission (SEC) on September 8, 1998. The shares of
the entity were listed in the Philippine Stock Exchange (PSE), starting on October 5, 2011,
being formally moniquered with the stock symbol of PGOLD. This entity is also a subsidiary
of a parent company called Cosco Capitals, Inc. It serves as the main parent company of
Puregold Price Club, and is also currently listed in the PSE.

As mentioned above, Puregold Price Club is a parent company, and is known to be the
parent organization of a few different companies, namely: Entenso Equities, Inc., Kareila
Management Corporation, and Goldtempo Company just to name a few. Upon further
research, it can be seen how such companies became subsidiaries of the well known
Puregold Price Club Inc. With such positioning. Puregold Price Club Inc. was able to have
ownership of these companies. Furthermore, Puregold produces documents that address the
terms and conditions of the transactions. Such terms can be found in the financial statements
of Puregold Price Club 2020 Annual Report.

Highlighted above is Entenso Equities, which is a subsidiary of Puregold Price Club

Inc. Entenso Equities Inc. (and the others listed above) is therefore included in the
consolidated financial statements of their parent company, Puregold Price Club. Among
these subsidiaries, only two specific entities actually do not engage in the same operations
with that of Puregold Price Club. Entenso Equities Inc. operates with regards to the investing,
purchasing, exchanging, and acquiring of real or personal property. The second entity is that
of Purepadala, Inc., which takes part in activities regarding “money remittance or service as
defined in the Bank Sentral ng Pilipinas” (Circular No. 942, Series of 2017). But even with
this, business outcomes produced by these entities are required to be properly reported in
the consolidated financial statements with that of Puregold Price Club. With that, the annual
reports that will be used as a basis for this critique will include the information that can be
traced from these subsidiaries.
 II. Critique on Investment Property

The first topic on this critique paper will be about Puregold’s Investment Properties.
To begin, Investment Properties are properties held mainly for earning rentals and/or for
capital appreciation. Properties that company’s hold for undetermined use and properties
held for leasing through operating leases are also classified as Investment Properties
according to IAS 40 (paragraph 8). Such properties are classified as non-current assets, and
can be measured through either the fair value method or the cost model. In the case of
Puregold’s Financial Statements, there is no such line item of Investment Properties within
the Statement of Financial Position, as opposed to what is written in IAS 1 (paragraph 54),
but this is due to the fact that Puregold does not own such type of Property. They did,
however, include a line item for “Fair value adjustments of Investment Property resulting in
gain” and “Loss on fair value adjustment of investment property (after tax)” within their
Schedule of Reconciliation of Retained Earnings Available for Dividend Declaration
(Appendices. Figure 2), which summarizes Unappropriated Retained Earnings of the entity
for the year ended, however there were no values reported in this item. With these accounts
being missing from the Financial Statements of Puregold, one may be confused as to if this
entity is properly performing and completing their Financial Statements properly.

As a party with no stake in the financial statements of Puregold, I do believe that

Puregold is justified in terms of not including Investment Properties in their current financial
statements. When looking at an active grocery business like Puregold, it is hard to find
reasons as to why the company would want to not utilize all their properties in their favor.
As such, if a piece of property would happen to fall under Investment Properties, Puregold
might find it more profitable to turn such property into a warehouse or branch to further
increase development of the business, rather than to rent it out to third parties, or keep it for
appreciation. Furthermore, some may inquire about their properties held for undetermined
use, as this also qualifies as Investment Properties, and this may raise a valid argument. But,
it is also important to note that these properties are different from temporary idle properties
and abandoned properties, and should not be accounted for under the same accounting
standards, as IAS 16 governs these properties. Given these, it might be possible as to why
Puregold chooses not to account for such items. But even with this being the case, I believe
that it is important to at least consider including the possible accounting principles of
Investment Properties within Note 3 (Summary of Significant Accounting Policies), as there
may come a time where in they might need to lease out an extra piece of property out of their
numerous buildings or lands to a third party (under an operating lease), or use a parcel of
land for capital appreciation. With times being ever-changing, it is not a bad move to be
conservative in accounting for Investment Properties.

III. Critique on NCAHS (Non-Current Assets Held for Sale) and Discontinued
Operation

Staying on the topic of properties, the next topic of this critique will be about Non-
Current Assets Held for sale, or NCAHS for short. NCAHS, like the name so explicitly states,
can be defined as non-current assets that are held by the company for sale. Most often than
not, NCAHS are properties that will see a probable sale in the current year, and thus should
be classified as a current asset according to IFRS 5 (paragraph 3), having met all the criteria
for being an NCAHS. Such criteria include the asset to be immediately ready for sale in its
present condition, and that the sale must be highly probable, and criteria can be found in the
same accounting standard (paragraph 7 and 8). Just like in the case of Investment Properties,
Puregold does not present any NCAHS in their financial statements. They do not recognize,
or acknowledge any type of property that is available for sale, and does not include it in their
Statement of Financial Position, nor their Notes. Additionally, transactions related to such
accounts are not evident within their Statement of Cash Flows or Statement of
Comprehensive Income. Similar to my beliefs on why Puregold does not include Investment
Properties, I believe that Puregold would not find it financially smart to actively engage in
NCAHS, as a Grocery Business like Puregold would need as much Property, Plant and
Equipment as they may come across. One may also inquire about abandoned properties such
as warehouses and grocery stores that are temporarily idle (both types of properties are not
the same as each other). IFRS 5 (paragraph 13 and 14) addresses both of these concerns,
respectively, by saying that such properties under these categories are governed by IAS 16,
and are not accounted for as NCAHS. As this may possibly be the case, it is still a good practice
to include such accounting principles in the corresponding notes, just in case a situation
arises wherein Puregold would find it profitable to sell one of their transportations or
warehouses.

Discontinued Operations, on the other hand, is also governed by IFRS 5, and is closely
knitted to the conversation of NCAHS. Simply put, a Discontinued Operation is a segment of
an entity (which is a cash generating unit held for use) that has been either disposed of, or
held for sale. It must also follow at least one out of three (3) requirements in order to qualify
as such: (1) represents a separate major line of business or geographical area of operations,
(2) is part of a single co-ordinated plan to dispose of a separate major line of business or
geographical area of operations or, (3) is a subsidiary acquired exclusively with a view to resale
(paragraph 32). When dealing with this topic, Discontinued Operations can only be called as
such when this “Component of an Entity” is finally sold. Looking at the Financial Statements
of Puregold, there is no sign of any Discontinued Operations for the current or previous year
of Puregold. Normally, an entity would include a single line item for the post-tax Income from
Discontinued Operations within their Statement of Profit or Loss, after discontinuing an
operating segment of course; but as Puregold does not recognize such a transaction, this is
unnecessary. It is not all too surprising that the entity does not include information regarding
the processes in dealing with Discontinued Operations, but this may be the right play by
Puregold, as there exists no such Component of the Entity within the current operations of
Puregold.

IV. Critique on Agriculture

Moving on to Agriculture, and Agricultural Produce, it is safe to say that Puregold does
not take advantage of this line of business. The IFRS that governs this topic is IAS 41
(Agriculture), which handles three (3) main points: biological assets, (2) agricultural
produce at the point of harvest; and (3) government grants that concern agricultural
activities. As Puregold takes on operations concerning groceries, it can be assumed that
Agriculture does not play a significant role in its business. When discussing Puregold’s
suppliers, however, it is very clear that Agricultural Activities play a major role. Take Bounty
Fresh Inc. for example, produces various types of meat to Puregold, and should account for
their farm-grown animals as Biological Assets in accordance with IAS 40. It is also worth
noting that if one of Puregold’s subsidiaries were to be involved in Agricultural activities,
Puregold would need to include the necessary to include a line item entitled “Biological
Assets” in the company’s Consolidated Financial Statements; with the corresponding gains
and losses from changes in fair value reported in the Profit and Loss Statements.

V. Critique on Intangible Assets

The last topic in this critique paper regarding assets is that of Intangible Assets, and
this plays a major part in the Financial Statements of Puregold. To put it very simply,
Intangible Assets are basically parallel to that of regular non-current assets, with the only
difference being that they subsequently acquire amortization instead of depreciation, and
that Intangible Assets are objects that lack physical substance. According to the Statement of
Financial Position of Puregold, Intangible Assets (found as a single-line item) had a value of
around P19,716 million, which was a slight decrease from the preceding year. The
corresponding information of Intangible Assets can be found in Note 12 (Goodwill and Other
Intangibles).

When looking at (Appendices. Figure 3), one may have a deeper understanding on
the different Intangible Assets Puregold has. The first line item is Goodwill, followed by
Trademark, Customer relationships, Computer software and licenses - net, and Leasehold
rights - net. Each of these line items contained in this note actually goes into more depth, and
thus will make for more content in this critique.

In the first segment, one can see the total Goodwill of the entity in (Appendices.
Figure 4). It is also written that “goodwill represents the excess of the purchase price over the
fair value of net identifiable assets of acquired subsidiaries which represent the separate CGUs
expected to benefit from that business combination.” The next paragraph proceeds to mention
that Intangible Assets with indefinite useful lives are tested annually to check for possible
impairments within them. It also says that the Recoverable amount is determined following
the Value in Use, or the discounted cash flow projections that generally cover a period of five
years and are based on the financial plans approved by the Group’s management.

In the second segment, one can see the total cost of Computer Software and Licenses
in (Appendices. Figure 5), and the total cost of Leasehold Rights in (Appendices. Figure
6). This portion briefly explains the initial cost of this asset, as well as capitalizable expenses
that are considered as “Additions”, and the accumulated amortization of the Asset. The
carrying amount is derived by subtracting the ending balance with the accumulated
amortization (similar to PPE with depreciation), although it would be more faithfully
represented if the entity included the total lifespan of the Computer Software and Licenses
to help check the accuracy of computation, even though the lifespan can be derived. The same
can be said about the content found in the disclosures to the entity’s leasehold rights, with
respect to the process of getting to the final carrying value. But for this Intangible Asset,
Puregold was able to mention that this had a definite life of 20 years, which makes the
leasehold right total amortization more credible.

VI. Critique on Current Liabilities (with ST, LT and Term Benefits)

Divulging into the current liabilities of Puregold Price Club, one may quickly find such
information in the Statement of Financial Position. As stated in IFRS 1 (Presentation of
Financial Statements), it is required to prepare a line item statement for “trade and other
payables”, and the following paragraph mentions that additional information would be
needed when such disclosure is relevant to operations. This can be seen in the 2020 Financial
Statements of Puregold, as this very account can be found in the first line of Current
Liabilities. Moving down through the Statement of Financial Position, one may find other
relevant accounts concerning current liabilities, and this is performed in good faith, as all
these accounts are relevant and crucial to the operations of Puregold. Such accounts include:
Income Tax Payable, Short-Term Loan Payable, and Lease Liabilities due within one year.
Some notable information that can be seen is that the value of trade and other payables
amounted to around P14.342 billion for the year, which saw an increase of P1.2 billion from
the previous year. There is currently no balance for the account of Short-Term Loans, as the
balance of P502 million of the previous year was fully settled in 2020. The last piece of
information that is important in this study is that located in “other current liabilities”, which
showed an ending balance of P510 million, and it was said that these results were partially
due to the sale of gift certificates, which is an example of liabilities as well.

Found on the side of the line item of trade and other payables are three (3) notes
related to such items, namely Note 14 (Trade and Other Payables), Note 23 (Related Party
Transactions), and Note 29 (Financial Risk and Capital Management Objectives and Policies).
The first note that corresponds to trade and other payables is that in note 14, and it breaks
down the components of the account including trade, non-trade, dividends, and withholding
tax payables which are further broken down in notes 23 and 29. It is also disclosed in this
note that average credit terms of goods purchased is 30 days, and that non-trade payables
are mostly rooted from expenditures related to operations and purchased goods. Note 23
disseminates transactions that the subsidiaries had during the last 2 years of operations, and
located here are the trade and non trade payables that took place within such subsidiaries.
Note 29 is closely related to the financial risks of the entity, and the financial liabilities can
be found under liquidity risks, or the capability of maintaining balance between continuity of
funding and flexibility in operations. Under this portion, trade and other payables seem to be
under good control, as it is predicted that the company will be able to settle the full P14
billion within the following year of operations.

In the line item of “Other Current Liabilities”, one piece of information that may be
related to the recent topics in this accounting class is that of unearned revenue in the form
of unused gift certificates given by Puregold. In Note 16 (Other Current Liabilities),
Unredeemed Gift Certificates made a significant part of this segment, recognized at the end
of the year at approximately P210,388,129. In Puregold’s accounting policies, the definition
of gift certificates was given under the portion of “Revenue Recognition”. The gift certificates
that are not yet redeemed should be accounted for as accrued revenues, which is otherwise
stated and recognized as a liability. In the following paragraph in the note, Puregold
identifies gift certificates as contract liabilities, and is governed by IFRS 15 (Revenue from
Contracts with Customers).
 There are no provisions within the scope of Puregold’s Financial Statements. It is
stated in IFRS 1 that this is a required line item in the Statement of Financial Statement,
however, as Puregold does not recognize any type of such liability, they have opted not to
include it. Puregold does, however, have provisions for their income tax liability, thus
increasing their income tax payable for the year. This was not covered in the scope of the
accounting class, and thus will not be prolonged. The entity, despite having no provisions,
disclosed the necessary information needed in order to account for such accounts governed
by IAS 37 (Provisions, Contingent Liabilities, and Contingent Assets). In Note 3 (Summary of
Significant Accounting Policies), the last portion entitled “Provisions and Contingencies”
defines what provisions and contingencies are, and how they should be disclosed within the
financial statements. Further research within the financial statements deduce that the
company does not have any reason to believe that trends or any known demands,
commitments, events or uncertainties will result in or that are reasonably likely to result in the
Group’s liquidity increasing or decreasing in any material way in their “Material Events and
Uncertainties” portion of their Operational and Financial Information. This, being the case,
is a justification for not including any type of provisions.

VII. Critique on Bonds and Notes

When discussing the accounting practices within Puregold Price Club, long-term
Bonds Payables do not play a significant part. Bonds Payable can be described as a formal
method of acquiring a certain present value, accompanied with a promise to pay, to the
investor, the face value on the maturity date, with the corresponding interest payments that
come with the agreement. Its definition is very similar to Note Payables, but the comparisons
stop when one discusses the duration of both liabilities. The former is always long-term,
while the latter can be either of the two. As I mentioned earlier, Puregold does not
incorporate Bonds Payable in their 2020 financial statements. Furthermore, the company
does not give any reason as to why they do not, but then, this is not a requirement in the
standards. To put an end to this tangent, the only relation the company has to bonds is that
in which Puregold invested in Bonds amounting to P2.4 billion, which they correctly placed
in their current assets, as they sold such bonds in the following January.

With regards to Notes Payable on the other hand, Puregold did recognize such
financial liabilities. As mentioned in the preceding paragraph, Notes Payable is a promise in
which, in exchange for a financial compensation now, this company will pay a certain face
value on the maturity date, together with the corresponding interest payments that both
parties agree to. In order to properly account for both of these payables mentioned above, it
is crucial that the financial statements contain the necessary information and provisions
regarding such long term financial instruments. In Puregold’s Financial Statements, one may
locate such information in Note 3 (Summary of Significant Accounting Policies). Since the
company reports Note Payables, one may find it essential to take closer look at the
guidelines.

Located in this note is a segment entitled “Financial Liabilities”, and it is here that
holds the framework which governs Note Payables, as these fall under financial liabilities as
well. This portion gives a definition of what a financial liability is, as well as how it should be
initially (Fair Value less Transaction Costs) and subsequently (Amortized) recognized with
extra details. It also distinctly mentions the scope which separates financial liabilities from
being current and noncurrent. All these are in good agreement with that found in IFRS 9
(Financial Instruments), and are therefore in line with good accounting principles.

The entity is said to have issued Note Payables during the year to various banks. The
said face value of these Note Payables is P12 billion, and has both 7 and 10 years as terms
for the said notes. Furthermore, the average interest rate, or the nominal interest rate is
4.13%. In the Statement of FInancial Positions, one may see that said value of the account
long-term loans at the end of the accounting period is not P12 billion, but P11,875,122,322,
and the reason as to why this is can be found in Note 15 (Loans Payable).

In Note 15, the financial statements specifically show the balance of long-term loans
for both 2020 and 2019. In 2020, one may see that the current value of this account is the
 net amount of “Fixed-Rate Notes of Parent Company” and “Unamortized Debt Issue Cost” in
(Appendices. Figure 7). Deeper in the note contains a description of the value of the Fixed-
Rate Notes of Parent Company being the sum of a note that consists of one (1) P7 billion Note
for 7 years and one (1) P5 billion Note for 10 years, having interest rates ranging from 4%
to 4.513%. It was also mentioned that the parent company raised this amount for its “Store
Network Expansion”. It is also important to note that the note was issued on September 30,
2020. Seen in (Appendices. Figure 8) is the said “Movement in Debt Issue Costs”. The total
debt issue cost is subtracted from the amortization (which decreases the deduction, thus
adding to the total liability ) to get the adjusted balance of the year. It would have improved
the note if the financial statements explained the method on how they got the total
amortization. Nonetheless, the note proceeds to discuss previous long term payables in the
past, including one in the previous year by one Kareila, a subsidiary which was recognized
at P400 million in 2019 since its initial recognition. The reason it does not exist in the 2020
account is because it was paid in the current year.

VIII. Critique on Leases - Lessor

The last critique for this paper would be that towards Puregold’s transactions and
activities related to leases. Specifically in this accounting class, the point of view of lessors
was tackled mostly, and will therefore be the scope of this segment in this paper. When one
takes a look at the financial statements of Puregold, it's difficult to locate information
regarding the entity as a lessor, as most evidence points to Puregold being the lessee.
Knowing the business operations of Puregold, this is not a surprise, as they need as much
property as possible, and acquiring leases is a great way to accumulate property over a
stretch of time.

According to IFRS 16 (Leases), a lessor must classify each of its leases as either an
operating lease or a finance lease. Puregold, however, does not in part this information to us
directly, but after taking a look at the Note 2 (Basis of Preparation), one may deduce that
Puregold mostly leases out property under operating leases. They explicitly point out that
“The Group has entered into various lease agreements as a lessor to sublease portions of its
stores to various lessees.” With this, they proceed to mention that they, Puregold, retain all
significant risks and rewards of such assets, thus falling under the definition of operating
lease. On the top of this section are the corresponding notes (19 & 20) of Puregold as a lessor.
It also gives the necessary information for accounting as lessors properly in Note 3
(Summary of Significant Accounting Policies). It is also stated here that lease payments
received are recognized as income on a straight-line basis over the lease term, and makes
part of other income.

In Note 19 (Leases), the latter portion discloses information about Puregold as a

lessor, along with the rental collections. This note mentions that Puregold’s normal lease
terms are from 1 - 10 years, and are fixed monthly or based on store sales percentages. It can
also be noted in this portion that rent income for the year from lessor activities amounted to
P277.0 million, a decrease from 2019’s P463.9 million. The financial statements left out,
however, the computation of these numbers. It would be beneficial to stakeholders to know
specifically where these modes of income are coming from. Puregold also did not mention
the different stores that were leased out to the different parties. Leaving these key
information can be crucial to the relevance of these calculations. Lastly, Note 20 (Other
Revenue) just points out how the rent income from lessor activities makes its way to the
income statement through the account of “Other Revenue”.
Appendices:

Figure 1. Stockholders

Figure 2. Schedule of Reconciliation of Retained Earnings Available for Dividend Declaration

 Figure 3. Note 12 (Goodwill and Other Intangibles)

Figure 4. Note 12 (Goodwill and Other Intangibles) [Goodwill]

Figure 5. Note 12 (Goodwill and Other Intangibles) [Computer Software and Licenses]
Figure 6. Note 12 (Goodwill and Other Intangibles) [Leasehold Rights]

Figure 7. Note 15 [Loans Payable] (Long-term Loans)

Figure 8. Note 15 (Loans Payable) [Movement in Debt Issue Costs]