Pacific Plaza Towers Condominium Corporation (A Nonstock, Not-for-profit Corporation) Financial Statements December 31, 2012 and 2011

Transcription

1 Pacific Plaza Towers Condominium Corporation (A Nonstock, Not-for-profit Corporation) Financial Statements December 31, 2012 and 2011 and Independent Auditors Report SyCip Gorres Velayo & Co. *SGVMC311686*

2 SyCip Gorres Velayo & Co Ayala Avenue 1226 Makati City Philippines Phone: (632) Fax: (632) BOA/PRC Reg. No. 0001, December 28, 2012, valid until December 31, 2015 SEC Accreditation No FR-3 (Group A), November 15, 2012, valid until November 16, 2015 INDEPENDENT AUDITORS REPORT The Board of Directors Pacific Plaza Towers Condominium Corporation Report on the Financial Statements We have audited the accompanying financial statements of Pacific Plaza Towers Condominium Corporation (a nonstock, not-for-profit corporation), which comprise the statements of financial position as at December 31, 2012 and 2011, and the statements of comprehensive income, statements of changes in members equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standard for Small and Medium-sized Entities, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member firm of Ernst & Young Global Limited

3 - 2 - Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Pacific Plaza Towers Condominium Corporation as at December 31, 2012 and 2011, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standard for Small and Medium-sized Entities. Report on the Supplementary Information Required Under Revenue Regulations and Our audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information required under Revenue Regulations and in Notes 18 and 19 to the financial statements, respectively, are presented for purposes of filing with the Bureau of Internal Revenue and are not required parts of the basic financial statements. Such information are the responsibility of the management of Pacific Plaza Towers Condominium Corporation. The information have been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information are fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Ana Lea C. Bergado Partner CPA Certificate No SEC Accreditation No AR-1 (Group A), March 3, 2011, valid until March 2, 2014 Tax Identification No BIR Accreditation No , April 11, 2012, valid until April 10, 2015 PTR No , January 2, 2013, Makati City April 8, 2013

4 PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF FINANCIAL POSITION ASSETS December (As restated, 2012 Note 11) Current Assets Cash P=17,758,887 P=33,912,130 Receivables (Note 4) 14,931,729 12,581,795 Supplies inventory 6,776,744 6,327,074 Prepayments (Note 5) 17,031,811 14,608,547 Total Current Assets 56,499,171 67,791,826 Noncurrent Assets Property and equipment (Note 6) 11,763,677 12,033,797 Investment property (Note 7) 8,733,750 Refundable deposits 588, ,177 Total Noncurrent Assets 21,085,604 12,621,974 TOTAL ASSETS P=77,584,775 P=80,051,520 LIABILITIES AND MEMBERS EQUITY Current Liabilities Accounts payable and accrued expenses (Note 8) P=22,088,980 P=21,303,160 Current portion of utility and renovation bond deposits (Note 9) 6,607,797 6,025,410 Unearned revenue (Note 10) 3,563,535 12,734,980 Advances from members 2,485,663 Accrued retirement liability - current (Note 15) 3,280,785 Total Current Liabilities 38,026,760 40,063,550 Noncurrent Liabilities Utility and renovation bond deposits - net of current portion (Note 9) 10,326,536 10,024,536 Accrued retirement liability (Note 15) 970,417 3,023,720 Total Noncurrent Liabilities 11,296,953 13,048,256 Total Liabilities 49,323,713 53,111,806 Members Equity (Note 11) 28,261,062 26,939,714 TOTAL LIABILITIES AND MEMBERS EQUITY P=77,584,775 P=80,051,520 See accompanying Notes to Financial Statements.

5 PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF COMPREHENSIVE INCOME Years Ended December (As restated, 2012 Notes 2 and 11) REVENUE Association dues, fees and other income P=140,779,909 P=140,893,799 Association dues and fees in arrears (Note 7) 7,968,750 14,295,300 Rentals (Note 14) 9,376,385 5,942,459 Interest and dividend income 1,156, ,388 Foreign exchange gain 12, ,281, ,974,406 EXPENSES Utilities 61,809,409 53,813,244 Outsourced services (Note 12) 42,533,274 42,047,807 Taxes and license fees 11,272,384 12,824,713 Insurance 9,973,672 9,694,402 Personnel (Notes 13 and 15) 7,600,896 6,580,993 Repairs and maintenance 7,588,451 4,088,635 Depreciation and amortization (Note 6) 5,710,371 5,232,901 Fuel and oil 4,701,240 5,017,068 Association and garbage dues 1,195,660 1,195,660 Office, cleaning and kitchen supplies 877, ,872 Pest control 812, ,483 Communication 580, ,239 Professional fees 391, ,014 Entertainment, amusement and recreation 208, ,446 Transportation and travel 139, ,604 Foreign exchange loss 123,447 Others 2,161,730 1,415, ,680, ,304,163 EXCESS OF REVENUE OVER EXPENSES BEFORE INCOME TAX 1,601,035 16,670,243 PROVISION FOR INCOME TAX (Note 16) 279, ,428 EXCESS OF REVENUE OVER EXPENSE 1,321,348 16,541,815 OTHER COMPREHENSIVE INCOME TOTAL COMPREHENSIVE INCOME P=1,321,348 P=16,541,815 See accompanying Notes to Financial Statements.

6 PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF CHANGES IN MEMBERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2012 AND 2011 Accumulated Excess Reserve (Deficiency) Funds of Revenue (Note 11) over Expenses Total BALANCES AT JANUARY 1, 2011, AS PREVIOUSLY REPORTED P=11,902,239 (P=1,504,340) P=10,397,899 Adjustment on change in accounting for joining fees (Note 11) (11,902,239) 11,902,239 BALANCES AT JANUARY 1, 2011, AS RESTATED 10,397,899 10,397,899 Contributions to reserve funds, as previously reported 14,295,300 14,295,300 Adjustment on change in accounting for joining fees (Note 11) (14,295,300) (14,295,300) Contribution to reserve funds, as restated Total comprehensive income for the year, as previously reported 2,246,515 2,246,515 Adjustment on change in accounting for joining fees (Note 11) 14,295,300 14,295,300 Total comprehensive income for the year, as restated 16,541,815 16,541,815 BALANCES AT DECEMBER 31, 2011, AS RESTATED P= P=26,939,714 P=26,939,714 BALANCE AT DECEMBER 31, 2011, AS PREVIOUSLY REPORTED P=26,197,539 P=742,175 P=26,939,714 Adjustment on change in accounting for joining fees (Note 11) (26,197,539) 26,197,539 BALANCES AT DECEMBER 31, 2011, AS RESTATED 26,939,714 26,939,714 Total comprehensive income for the year 1,321,348 1,321,348 BALANCES AT DECEMBER 31, 2012 P= P=28,261,062 P=28,261,062 See accompanying Notes to Financial Statements.

7 PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF CASH FLOWS Years Ended December (As restated, 2012 Note 11) CASH FLOWS FROM OPERATING ACTIVITIES Excess of revenue over expenses before income tax P=1,601,035 P=16,670,243 Adjustments for: Depreciation and amortization (Note 6) 5,710,371 5,232,901 Changes in accrued retirement liability (Note 15) 1,227, ,720 Interest and dividend income (1,156,363) (830,388) Unrealized foreign exchange loss (gain) 123,447 (12,460) Excess of revenue over expenses before changes in working capital 7,505,972 21,625,016 Decrease (increase) in: Receivables (11,445,964) 409,448 Supplies inventory (449,670) 571,440 Prepayments (2,340,671) (9,513,108) Increase (decrease) in: Accounts payable and accrued expenses 785,820 2,619,761 Utility and renovation bond deposits 884,387 (1,751,187) Unearned revenue (9,171,445) 5,524,323 Advances from members 2,485,663 Net cash (used) from operating activities (11,745,908) 19,123,413 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment (Note 6) (5,440,251) (4,172,261) Interest and dividends received 1,156, ,388 Cash used in investing activities (4,283,888) (3,341,873) EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS (123,447) 12,460 INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (16,153,243) 15,794,000 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 33,912,130 18,118,130 CASH AND CASH EQUIVALENTS AT END OF YEAR P=17,758,887 P=33,912,130 See accompanying Notes to Financial Statements.

8 PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information and Authorization for Issue of the Financial Statements Corporate Information Pacific Plaza Towers Condominium Corporation (the Company) was incorporated in the Philippines on October 17, 2000 as a nonstock, not-for-profit corporation, pursuant to the provisions of Republic Act (RA) No. 4726, otherwise known as The Condominium Act, for the purpose of holding title to the common areas of the Pacific Plaza Towers Condominium Project and of managing the said project, and for such other purposes as necessary, incidental and convenient to accomplish the said purposes. Any and all monies and assets of the Company shall be devoted exclusively to the furtherance of the aforesaid purposes, and no part of its income is distributable as dividends to any of its members, directors or officers. The Company s registered address is Pacific Avenue, Fort Bonifacio Global City, Taguig, Metro Manila. The Company, being a nonstock, not-for-profit organization, no part of the net income of which inures to the benefit of any individual, falls under Section 30(f) of RA No entitled An Act Amending the National Internal Revenue Code, As Amended and for Other Purposes. The income derived from activities conducted in pursuit of the objectives for which the Company was established is exempt from income tax. However, any income from any activity conducted for profit regardless of the disposition of such income, is subject to income tax. Authorization for Issue of the Financial Statements The financial statements were authorized for issue by the Board of Directors (BOD) on April 8, Summary of Significant Accounting and Financial Reporting Policies Basis of Preparation The financial statements of the Company have been prepared under the historical cost basis and are presented in Philippine peso. All amounts were rounded to the nearest peso, except when otherwise indicated. Statement of Compliance The financial statements of the Company have been prepared in accordance with the Philippine Financial Reporting Standard for Small and Medium-sized Entities (PFRS for SMEs). Cash Cash includes cash on hand and in banks. Financial Instruments As permitted by PFRS for SMEs, the Company opted to follow Philippine Accounting Standards 39, Financial Instruments: Recognition and Measurement, instead of following Section 11, Basic Financial Instruments and Section 12, Other Financial Instruments in the accounting policies for financial instruments. Financial assets and liabilities are recognized when the entity becomes a party to the contracts and measured at their transaction price including transactions costs. Financial assets and financial

9 - 2 - liabilities are recognized initially at fair value, which is the fair value of the consideration given (in case of asset) or received (in case of liability). The Company classifies its financial assets as loans and receivables while financial liabilities as other financial liabilities. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at each financial year-end. a. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments and are not quoted in an active market. After initial recognition, such assets are carried at amortized cost using the effective interest method, less any allowance for impairment losses. Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process. Loans and receivables are included in current assets if maturity is within 12 months from the financial reporting date. Otherwise, it is classified as noncurrent assets. This category primarily includes the Company s cash in banks, receivables and refundable deposits as of December 31, 2012 and b. Other financial liabilities Other financial liabilities are financial liabilities not held for trading or not designated as at FVPL upon the inception of the liability. These liabilities are initially recognized at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, these liabilities are subsequently measured at amortized cost using effective interest method. Amortized cost is calculated by taking into account any issue costs and any discount or premium on settlement. Gains and losses are recognized in profit and loss when the liability is derecognized or amortized. As of December 31, 2012 and 2011, the Company s accounts payable and accrued expenses and utility and renovation bond deposits are classified under this category. Impairment of Financial Assets An assessment is made at each financial reporting date to determine whether there is objective evidence of a possible impairment. Financial assets are deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicates that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Derecognition of Financial Instruments The Company derecognizes a financial asset when: The contractual rights to receive the cash flows from the financial asset expire or are settled;

10 - 3 - The entity transfers to another party substantially all of the risks and rewards of ownership of the financial asset; and The entity, despite having retained some significant risks and rewards of ownership, has transferred control of the asset to another party and the other party has the practical ability to sell the asset in its entirety to an unrelated third party. The Company derecognizes a financial liability when extinguished, discharged, cancelled or has expired. Supplies Inventory Supplies inventory is stated at cost less any allowance for inventory obsolescence. Cost is determined by specific identification method. Prepayments Prepayments are expenses paid in advance and recorded as asset before they are utilized. This account comprises prepaid real property tax, prepaid insurance and creditable withholding tax (CWT). Prepaid real property tax and prepaid insurance is apportioned over the period covered by the payment and charged to the appropriate accounts in profit or loss when incurred. CWTs represent the amounts withheld from income payments which can be deducted from income tax payable. Prepayments that are expected to be realized for no more than 12 months after the reporting period are classified as current assets; otherwise these are classified as other noncurrent assets. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization, and any impairment in value. The initial cost of an item of property and equipment consists of its purchase price, including taxes and 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 have been put into operations, such as repairs and maintenance, are normally charged to income in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefit expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment. Depreciation and amortization commences when the asset is ready for its intended use. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets as follows: Number of Years Building improvements 3 10 Furniture, fixtures and office equipment 3 5 Communication equipment 2 3 Other facilities and equipment 3 10 The estimated useful lives and depreciation method are reviewed only if there are indicators that they have changed since the most recent financial reporting date. When assets are sold, retired or otherwise disposed of, both the cost and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in profit or loss.

11 - 4 - Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation is recognized in profit or loss. Impairment of Property and Equipment The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of property and equipment is the greater of fair value less cost to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment loss, if any, is recognized in profit or loss. Investment Property Investment property consists of parking slots that is primarily held for asset appreciation. Investment property is measured initially at cost, including transaction costs. The cost of a purchased investment property comprises its purchase price and any directly attributable costs such as legal and brokerage fee, property transfer taxes and other transaction costs. If an item of investment property is acquired in exchange for a non-monetary asset or assets, or a combination of monetary and non-monetary assets, the Company measure the cost of the acquired asset at fair value unless (a) the exchange transaction lacks commercial substance or (b) the fair value of neither the asset received nor the asset given up is reliably measurable. In that case, the asset s cost is measured at the carrying amount of the asset given up. Investment property is carried at fair value at each reporting date with changes in fair value recognized in profit or loss. The fair value is derived from current selling prices of the investment property. The Company transfers a property to, or from, investment property only when the property first meets or ceases to meet, the definition of investment property. Utility and Renovation Bond Deposits Utility deposits represent collections received from members as guarantee payments for water and electricity bills paid by the Company in advance to utility companies. These deposits are returned to unit owners upon the sale of their unit and the new unit owner is likewise assessed for such deposits. Renovation bond deposits are deposits to cover for unpaid building construction-related charges such as use of water and electricity in the common areas, violation of garbage hauling procedures, extended use of the service elevator and other charges. The unused portion of the renovation bond is refunded to unit owners or their respective contractors upon completion of the renovation with the necessary clearance from the Company. The amount of utility and renovation bond deposits classified as part of the current assets in the statement of financial position if these are expected to be paid within 12 months after the reporting date; otherwise these are classified as Utility and renovation bond deposits net of current portion. Members Equity Members equity consists of reserve funds and accumulated excess (deficiency) of revenue over expenses. Reserve funds represent contribution and subsequent capital call from respective unit

12 - 5 - owners of the condominium based on the covered areas of the respective units owned while accumulated excess (deficiency) of revenue over expenses represents the cumulative balance of excess of revenue over expenses, prior period adjustments, effect of changes in accounting policy and other capital adjustments. Prior to 2012, reserve funds also include joining fees of the unit owners. In 2012, the Company s BOD reassessed the nature of joining fees and determined that these funds should form part of the association dues, fees and other income, thus, presented in profit or loss instead of direct recognition in members equity. The change was effected retroactively (see Note 11). Revenue Revenue is recognized to the extent that the economic benefit will flow to the Company and revenue can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: Association dues, fees and other income are recognized as income over the period to which they pertain. Accordingly, association dues received as of reporting date pertaining to the period commencing after such date are included in the Unearned revenue account in the statement of financial position. The amount of association dues billed to members is subject to increases imposed by the Company based on the review of actual and projected operational expenses in the year under review, plus any other assessment. Association dues, fees and other income pertaining to prior periods not previously recognized because collection is not certain, but collected subsequently, is recognized as income in the year it is collected and shown as a separate line item in the statement of comprehensive income as association dues and fees in arrears. The BOD presents an estimate of the operating expenses of the Company and assesses the same against each member in proportion to the members proprietary interest. Unpaid dues and fees are duly accrued in the accounts. Rentals arising from operating leases are accounted for on a straight-line basis over the lease term. Interest income is recognized as the interest accrues, taking into account the effective yield of an asset. Cost and Expenses Cost and expenses constitute costs of administering the business. These expenses are recognized in profit or loss when incurred. Retirement Benefits Cost The Company accrues for the retirement benefits cost and liability, net of the cash value of the insurance policy covering the retirement benefits, based on the number of years served as provided in the employment contract and the provisions of Republic Act (RA) No. 7641, The Retirement Pay Law. Retirement benefits cost is the net change in the accrued retirement liability that is charged to expense for each of the reporting period. The Company makes the following simplifications in the determination of the accrued retirement liability: a. ignore estimated future salary increase; b. ignore future service of employee;

13 - 6 - c. ignore possible in-service mortality of employee; and d. ignore present value calculation. Foreign Currency-denominated Transactions Foreign currency-denominated transactions are recorded in Peso by applying to the foreign currency amount the exchange rate between the Peso and foreign currency at the date of transaction. Outstanding foreign currency-denominated monetary assets and liabilities are restated to Peso using the closing exchange rates at the reporting date. Foreign exchange gains and losses arising from the settlement of monetary items at rates different from those at which these where initially recorded during the year are credited to or charged against operations. Operating Lease Leases where the lessor retains substantially all the risks and benefit of ownership of the asset are classified as operating leases. The revenue recognition policy on rental income is discussed in Revenue policy. Income Tax Provision for income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the financial reporting date. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation and a reliable estimate of the obligation can be made. Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes to financial statements unless the possibility of an outflow of resources embodying economic benefit is remote. Contingent assets are not recognized in the financial statements but disclosed in the notes to financial statements when an inflow of economic benefit is probable. Events after the Financial Reporting Date Post year-end events that provide additional information about the Company s position at the financial reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material. 3. Significant Accounting Judgments and Estimates The preparation of the financial statements in accordance with PFRS for SMEs requires the Company to exercise judgments and make estimates that affect the amounts reported in the financial statements and accompanying notes. The judgments and estimates used in the financial statements are based upon evaluation of relevant facts and circumstances as of reporting date. Future events may occur which can cause the assumptions used in arriving at those judgments and estimates to change. The effects of any changes will be reflected in the financial statements of the Company as they become reasonably determinable.

14 - 7 - Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The following presents a summary of these significant judgments and estimates: Judgments In the process of applying the Company s accounting policies, the following judgments were made, apart from those involving estimations, which has the most significant effect on the amounts recognized in the financial statements: Determination of impairment of receivables The Company reviews its receivables to assess impairment annually. In determining whether an impairment loss should be recorded in profit or loss, the Company makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from the receivables taking into consideration the length of relationship and credit status of the unit owners and historical experience. Based on management s assessment, receivables are not impaired; hence, no provision for doubtful accounts was recognized in the Company s financial statements in 2012 and Receivables amounted to P=14,931,729 and P=12,581,795 as of December 31, 2012 and 2011, respectively (see Note 4). Operating lease - Company as lessor The Company has entered into various agreements for the lease of storage space in its common areas. The Company has determined that it retains all the significant risks and rewards of ownership of the property and therefore, classified the lease as operating lease. Rental income amounted to P=9,376,385 in 2012 and P=5,942,459 in 2011 (see Note 14). Accounting for joining fees Prior to 2012, the Company classified and presented under Members equity the joining fees received from unit owners because the Company has no obligation to return the joining fees to the respective unit owners either in cash or in another form of asset. In 2012, the Company s BOD reassessed the nature of joining fees and determined that these fees should form part of the association dues, fees and other income,thus, presented in profit or loss instead of direct recognition in members equity (see Note 11). Estimates The key estimates 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 the assets and the liabilities within the next financial year are discussed below. Estimation of the useful lives of property and equipment The useful lives of property and equipment are based on the periods over which the assets are expected to be available for use. The estimated useful lives are reviewed only if there are indicators that they have changed and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. There was no change in the estimated useful lives of property and equipment. The carrying value of property and equipment amounted to P=11,763,677 and P=12,033,797 as of December 31, 2012 and 2011, respectively (see Note 6).

15 - 8 - Estimation of fair value of investment properties Investment property is measured at fair value based on its current selling price. Based on management s assessment, there was no change in fair value of the investment property in 2012 as the prices of parking slots did not significantly change from the period it was transferred to the Company up to December 31, The fair value of investment property amounted to P=8,733,750 as of December 31, 2012 (see Note 7). Estimation of current portion of utility and renovation bond deposits The Company determines at each reporting period the estimated utility and renovation deposits to be refunded to the unit owners within a year based on historical trends of sale of condominium units. The remaining balance of utility and renovation bond deposits is presented as noncurrent liability since it is more likely than not that the refund of these deposits will not be demanded by the unit owners as the sale of condominium units is not expected in the succeeding year. Current portion of utility and renovation bond deposits amounted to P=6,607,797 and P=6,025,410 in 2012 and 2011, respectively. Utiliy and renovation bond deposits - net of current portion amounted to P=10,326,536 and P=10,024,536 as of December 31, 2012 and 2011, respectively (see Note 9). Estimation of retirement benefits cost and liability The Company estimates for the retirement benefits cost and liability as provided in the employment contracts of the employees and the provision of RA Retirement benefit cost amounted to P=919,857 and P=1,189,365 in 2012 and 2011, respectively. Accrued retirement liability amounted to P=4,251,202 and P=3,023,720 as of December 31, 2012 and 2011, respectively. (see Note 15). 4. Receivables Receivables from members: Light and water P=9,855,418 P=8,299,589 Association dues 804,456 1,107,044 Storage 1,645, ,379 Other assessments 1,740,329 1,285,722 14,045,927 11,478,734 Receivables from third parties: Service contractor 853,183 82,186 Insurance claims 649,137 Others 32, ,738 P=14,931,729 P=12,581,795 Insurance claims receivable represent amounts confirmed by the Company s insurer as compensation for loss due to water leakage in In 2012, the Company billed Bases Conversion Development Authority (BCDA) for association dues pertaining to parking spaces amounting to P=2,193,105. As of December 31, 2012, the receivables were not yet recognized because discussions are still ongoing and collection of the amount billed is not yet virtually certain.

16 Prepayments Prepaid real property tax P=11,022,442 P=11,022,442 Prepaid insurance 3,275,321 2,720,760 Advances to supplier 1,975,205 Creditable withholding tax 272, ,430 Other prepayments 485, ,915 P=17,031,811 P=14,608,547 In 2012 and 2011, the Company opted to pay in advance the real property taxes for 2013 and 2012, respectively. Other prepayments represent advance payments for association dues and other charges. 6. Property and Equipment December 31, 2012: Furniture, Fixtures Other Building and Office Communication Facilities and Improvements Equipment Equipment Equipment Total Cost Beginning balance P=8,408,599 P=5,889,467 P=1,180,032 P=34,648,758 P=50,126,856 Additions 2,870, , ,120 1,768,650 5,440,251 Disposals (2,089,589) (2,089,589) Ending balance 9,189,657 6,586,301 1,284,152 36,417,408 53,477,518 Accumulated Depreciation and Amortization Beginning balance P=6,410,493 P=4,581,387 P=1,112,752 P=25,988,427 P=38,093,059 Depreciation and amortization 1,748, ,084 52,405 3,094,270 5,710,371 Disposals (2,089,589) (2,089,589) Ending balance 6,069,516 5,396,471 1,165,157 29,082,697 41,713,841 Net Book Value P=3,120,141 P= 1,189,830 P=118,995 P=7,334,711 P=11,763,677 December 31, 2011: Furniture, Fixtures Other Building and Office Communication Facilities and Improvements Equipment Equipment Equipment Total Cost Beginning balance P=8,223,537 P=5,261,147 P=1,083,604 P=31,386,307 P=45,954,595 Additions 185, ,320 96,428 3,262,451 4,172,261 Ending balance 8,408,599 5,889,467 1,180,032 34,648,758 50,126,856 Accumulated Depreciation and Amortization Beginning balance P=5,020,864 P=3,882,674 P=1,053,999 P=22,902,621 P=32,860,158 Depreciation and amortization 1,389, ,713 58,753 3,085,806 5,232,901 Ending balance 6,410,493 4,581,387 1,112,752 25,988,427 38,093,059 Net Book Value P=1,998,106 P=1,308,080 P=67,280 P=8,660,331 P=12,033,797

17 The Company holds the title to the common areas of the Pacific Towers Condominium transferred by the contractor/developer. Property and equipment with an aggregate cost of P=28,511,974 and P=24,323,401 were fully depreciated as of December 31, 2012 and 2011, respectively. These fully depreciated assets are still being used in the Company s operations. 7. Investment Property In 2012, Metro Pacific Corporation (MPC), the developer of the condominium, assigned and transferred 38 parking slots with fair value of P=8,733,750 to the Company in full settlement of MPC s association dues which includes association dues in arrears amounting to P=7,968,750. Parking slots were recorded under Investment property account in the 2012 statement of financial position. The fair value of the assets is based on the latest selling price at the time of transfer. There was no change in the fair value of the investment property as of December 31, 2012 as the prices of parking slots did not significantly change from the period it was transferred to the Company. 8. Accounts Payable and Accrued Expenses Accounts payable P=3,477,811 P=5,208,461 Accrued utilities 11,196,805 11,091,639 Accrued service contracts 6,307,178 3,252,777 Payable to members and contractors 637, ,660 Withholding taxes payable 92, ,524 Others 377, ,099 P=22,088,980 P=21,303, Utility and Renovation Bond Deposits Current portion: Renovation bond deposits P=3,259,111 P=3,159,111 Utility deposits 3,348,686 2,866,299 6,607,797 6,025,410 Noncurrent portion - utility deposits 10,326,536 10,024,536 P=16,934,333 P=16,049,946 The current portion of the deposits is the amount expected to be refunded within the next twelve months.

18 Unearned Revenue Storage P=3,364,145 P=2,670,283 Association dues 9,764,756 Others 199, ,941 P=3,563,535 P=12,734, Member s Equity Prior to 2012, reserve funds include joining fees of the unit owners. In 2012, the Company s BOD reassessed the nature of joining fees and determined that these funds should form part of the association dues, fees and other income, thus, presented in profit or loss instead of direct recognition in members equity. As a result, prior year financial statements were restated to conform with the current year presentation for comparative purposes. The change increased the 2011 total comprehensive income by P=14,295,300. There was no change in total members equity as of December 31, 2011 and Outsourced Services Manpower P=14,005,497 P=15,457,735 Security 10,914,656 10,271,571 Maintenance 9,592,294 8,550,087 Housekeeping 8,020,827 7,768,414 P=42,533,274 P=42,047, Personnel Costs Salaries P=6,039,785 P=5,078,101 Employee benefits 641, ,527 Retirement benefits cost (Note 15) 919,857 1,189,365 P=7,600,896 P=6,580,993 Employee benefits in 2012 and 2011 include unused leave credits convertible to cash amounting to P=138,181 and P=92,247, respectively. 14. Rentals The Company earns rentals from the lease of storage space in its common areas. Storage area leased out covers 3,359 square meters in 2012 and In 2012, the Company also earned rental on parking spaces. Total rentals amounted to P=9,376,385 and P=5,942,459 in 2012 and 2011, respectively.

19 Retirement Benefit Cost The Company estimates for the retirement benefits cost and liability as provided in the employment contracts and provision of RA The following tables summarize the components of the retirement benefit cost recognized in the statements of comprehensive income and the amounts of accrued retirement liability recognized in the statements of financial position: a. Retirement benefit cost charged to expenses consist of: Current service cost P=1,162,160 P=843,257 Loss (return) on benefit fund (242,303) 346,108 P=919,857 P=1,189,365 b. The movements in the accrued retirement liability follow: Beginning of year P=4,868,257 P=4,025,000 Current service cost 1,162, ,257 6,030,417 4,868,257 Current portion (3,280,785) End of year P=2,749,632 P=4,868,257 c. Changes in the present value of accrued retirement liability follow: Beginning of year P=3,023,720 P=2,459,000 Current service cost 1,162, ,257 Cancellation of plan assets/ insurance policy 557,640 Loss (return) on benefit fund (242,303) 346,108 Contributions/ insurance premiums paid (250,015) (624,645) 4,251,202 3,023,720 Current portion (3,280,785) End of year P=970,417 P=3,023,720 d. Changes in the fair value of plan assets follow: Beginning of year P=1,844,537 P=1,566,000 Cancellation of plan assets (insurance policy) (557,640) Contributions (insurance premiums paid) 250, ,645 Return (loss) on benefit fund 242,303 (346,108) End of year P=1,779,215 P=1,844,537 As of December 31, 2012, accrued retirement liability due to a retired employee amounting to P=3,280,785 was reclassified to current liabilities.

20 Income Tax The income derived from the activities conducted in pursuit of the objectives for which the Company was established is exempt from income tax. However, any income from any activity conducted for profit regardless of the disposition of such income, is subject to income tax. Provision for income tax is computed using the regular corporate income tax rate of 30% on incidental income such as storage and parking rentals in 2012 and 2011 (see Note 14). 17. Financial Instruments The Company s financial instruments as of December 31 follow: Financial Assets Loans and receivables: Cash and cash equivalents* P=17,688,887 P=33,842,130 Receivables 14,931,729 12,581,795 Refundable deposits 588, ,177 P=33,208,793 P=47,012,102 Financial Liabilities Other financial liabilities: Accounts payable and accrued expenses** P=21,684,770 P=21,038,506 Utility and renovation deposits 16,934,333 16,049,946 P=38,619,103 P=37,088,452 * Excluding cash on hand amounting to P=70,000 as of December 31, 2012 and ** Excluding payables to government agencies amounting to P=404,210 and P=264,654 as of December 31, 2012 and 2011, respectively. Due to the short-term nature of the transactions, the carrying amounts of loans and receivables and other financial liabilities approximate their fair values at reporting date. 18. Supplementary Information Required Under Revenue Regulations The Company reported the following schedules and information on taxable income and deductions to be taken during taxable year 2012: Sale of Services The Company s taxable sale of services for 2012 amounted to P=9,376,385. Cost of Services Cost of services directly related to the taxable sale of services follow: Direct Charges - Materials, Supplies, and Facilities P=6,860,733 Direct Charges - Outside Services 470,657 Direct Charges Others 1,112,704 P=8,444,094

21 Supplementary Information Required Under Revenue Regulations In compliance with the requirements set forth by RR , hereunder are the information on taxes and license fees paid or accrued during the taxable year 2012: Output VAT The Company is a VAT-registered company with output VAT declaration of P=1,125,166 for the taxable year 2012 representing taxable service income amounting to P=9,376,385. Input VAT Input VAT as declared in the Company s VAT return for year ended December 31, 2012 follows: Balance at January 1, 2012 P= Current year s purchases for: Purchases of goods other than capital goods 472,485 Services lodged under cost of services 271,148 Application of output VAT against input VAT (743,633) Balance at December 31, 2012 P= Taxes and License Fees Real property tax P=11,026,634 Documentary stamp taxes 133,875 Business permits and licenses 111,875 P=11,272,384 Withholding Taxes Withholding tax on compensation and other benefit P=1,489,813 Expanded withholding tax 826,813 P=2,316,626 Documentary Stamp Taxes The Company paid documentary stamp tax amouting to P=133,875 for the transfer of title of parking slots.