See Notes to Financial Statements.

Transcription

1 PLDT EMPLOYEES' CREDIT COOPERATIVE, INC. STATEMENTS OF ASSETS, LIABILITIES AND MEMBERS' EQUITY DECEMBER 31, 2009 AND 2008 (Amounts in Philippine Pesos) A S S E T S Notes CURRENT ASSETS Cash 4 P 36,472,249 P 136,974,818 Loans and other receivables - net 5 1,153,508, ,102,745 Prepaid expenses and other current assets 824, ,327 Total Current Assets 1,190,804,798 1,099,860,890 NON-CURRENT ASSETS Loans and other receivables - net 5 422,284, ,942,506 Available-for-sale financial assets 6 21,027,179 20,332,933 Property and equipment - net 7 4,909,144 6,109,376 Investment property - net 8 8,000,001 8,526,024 Deferred charges 9-1,589,763 Total Non-current Assets 456,220, ,500,602 TOTAL ASSETS P 1,647,025,600 P 1,501,361,492 LIABILITIES AND MEMBERS' EQUITY CURRENT LIABILITIES Interest-bearing loans 12 P 15,000,000 P - - Accounts payable and accrued expenses ,348, ,754,398 Deposit liabilities ,075, ,477,680 Unclaimed dividends 13 26,539,448 94,678,711 Deferred interest on loan 5 58,765,464 42,103,724 Cooperative education and training fund 14 41,488,609 38,635,149 Reserve for contingency fund - comprehensive benefit plan 15 17,656,165 10,068,530 Total Liabilities 1,052,874, ,718,192 MEMBERS' EQUITY Equity contribution 512,443, ,478,383 Revaluation reserve 6 502,388 ( 243,720 ) Reserves 18 General equity reserve fund 74,033,505 67,605,758 Social and community development fund 4,369,258 3,723,055 Cooperative education and training fund 2,802,547 2,079,824 81,205,310 73,408,637 Total Members' Equity 594,151, ,643,300 TOTAL LIABILITIES AND MEMBERS' EQUITY P 1,647,025,600 P 1,501,361,492 See Notes to Financial Statements.

2 PLDT EMPLOYEES' CREDIT COOPERATIVE, INC. STATEMENTS OF COMPREHENSIVE INCOME AND DISTRIBUTION OF NET SAVINGS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (Amounts in Philippine Pesos) Notes REVENUES Interest on loans 5 P 161,218,895 P 181,599,363 Service fees 38,889,165 46,272,089 Other income 13,112,287 12,621, ,220, ,492,500 EXPENSES Interest on savings deposit 11 29,333,670 23,076,728 Salaries and wages 15,940,100 15,186,518 Employee benefits 10 8,802,000 10,712,242 Officers' benefits 17 6,711,000 4,670,600 Impairment loss on loans 5 5,829,661 3,764,310 Allowances and per diem 16 5,396,000 5,396,000 Members' benefits 5,289,500 2,503,000 Convention 2,960,357 5,260,449 Depreciation and amortization 7, 8 2,367,328 4,682,809 Election 2,239,520 1,050,029 Operational maintenance 1,588,424 1,458,242 Professional fees 1,355,696 1,041,400 Light and water 1,162,506 1,130,212 Christmas 913, ,249 Postage, telephone and telegram 876, ,626 Computer supplies and maintenance 664, ,252 Stationery, supplies and printing 515, ,279 SSS contribution 508, ,648 Meeting and caucus 462, ,030 Computer application maintenance 379, ,105 Repairs and maintenance 359, ,650 Impairment loss on investment property 8 352,396 1,318,687 Legal fees 294, ,121 Representation 240, ,516 Insurance 57,612 50,193 Transportation and gasoline 50,824 97,669 Pag-ibig contribution 38,400 40,300 Dues and subscription 17,040 23,715 Loss on disposal of property and equipment 7-1,126,185 Registration - 13,891 Others 643, ,342 95,350,097 87,608,997 INTEREST AND FINANCING FEES 11, 12 32,880,642 37,964, ,230, ,573,114 NET SAVINGS - carried forward P 84,989,608 P 114,919,386

3 - 2 - Note NET SAVINGS - brought forward P 84,989,608 P 114,919,386 OTHER COMPREHENSIVE INCOME (LOSS) Fair value gain (loss) on available-for-sale financial assets 694,246 ( 1,032,302 ) TOTAL COMPREHENSIVE INCOME P 85,683,854 P 113,887,084 DISTRIBUTION OF NET SAVINGS 18 General equity reserve fund P 8,285,740 P 11,251,446 Social community and development fund 2,132,203 2,404,925 Cooperative education and training fund 5,965,733 8,101,041 Interest on share capital and patronage refund 68,605,932 93,161,974 P 84,989,608 P 114,919,386 See Notes to Financial Statements.

4 PLDT EMPLOYEES' CREDIT COOPERATIVE, INC. STATEMENTS OF CHANGES IN MEMBERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (Amounts in Philippine Pesos) R E S E R V E S Social and Cooperative Interest on Share EQUITY REVALUATION General Equity Community Education and Capital and Notes CONTRIBUTION RESERVES Reserve Fund Development Fund Training Fund Patronage Refund Combined TOTAL Balance at January 1, 2009 P 463,478,383 ( P 243,720 ) P 67,605,758 P 3,723,055 P 2,079,824 P - P 73,408,637 P 536,643,300 Additional members' contribution 68,681, ,681,333 Members' withdrawal ( 19,716,256 ) ( 19,716,256 ) Total comprehensive income for the year and allocation of net savings 6, ,108 8,285,740 2,132,203 5,965,733 68,605,932 84,989,608 85,735,716 Disbursements ( 1,857,993 ) ( 1,486,000 ) ( 2,260,143 ) - ( 5,604,136 ) ( 5,604,136 ) Transfer to liabilities ( 2,982,867 ) ( 68,605,932 ) ( 71,588,799 ) ( 71,588,799 ) Balance at December 31, 2009 P 512,443,460 P 502,388 P 74,033,505 P 4,369,258 P 2,802,547 P - P 81,205,310 P 594,151,158 Balance at January 1, 2008 P 430,320,585 P 788,582 P 67,824,569 P 2,893,687 P 419,895 P - P 71,138,151 P 502,247,318 Additional members' contribution 68,081, ,081,647 Members' withdrawal ( 34,923,849 ) ( 34,923,849 ) Total comprehensive income for the year and allocation of net savings 6, 18 - ( 1,032,302 ) 11,251,446 2,404,925 8,101,041 93,161, ,919, ,887,084 Disbursements ( 11,470,257 ) ( 1,575,557 ) ( 2,390,591 ) - ( 15,436,405 ) ( 15,436,405 ) Transfer to liabilities ( 4,050,521 ) ( 93,161,974 ) ( 97,212,495 ) ( 97,212,495 ) Balance at December 31, 2008 P 463,478,383 ( P 243,720 ) P 67,605,758 P 3,723,055 P 2,079,824 P - P 73,408,637 P 536,643,300 See Notes to Financial Statements.

5 PLDT EMPLOYEES' CREDIT COOPERATIVE, INC. STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 (Amounts in Philippine Pesos) Notes CASH FLOWS FROM OPERATING ACTIVITIES Net savings P 84,989,608 P 114,919,386 Adjustments for: Interest income ( 161,783,456 ) ( 181,599,363 ) Interest expense 62,013,040 60,925,917 Impairment losses on loans and investment property 5, 8 6,182,057 5,082,997 Depreciation and amortization 7, 8 2,367,329 4,682,809 Loss on disposal of property and equipment 7-1,126,185 Operating income (loss) before working capital changes ( 6,231,422 ) 5,137,931 Increase in loans and other receivable ( 254,576,901 ) ( 179,992,788 ) Decrease (increase) in prepaid expenses ( 41,211 ) 1,163,825 Decrease in deferred charges 1,589,763 1,589,763 Decrease accounts payable and accrued expenses ( 68,353,748 ) ( 29,918,308 ) Increase in deposit liabilities 182,598,288 23,713,421 Decrease in unclaimed dividends ( 68,605,931 ) ( 8,657,984 ) Decrease in deferred interest on loans 16,661,740 9,754,897 Decrease in cooperative education and training fund ( 129,407 ) ( 658,350 ) Increase (decrease) in reserve for contingency fund - comprehensive benefit plan 7,587,635 ( 14,295 ) Cash used in operations ( 189,501,194 ) ( 177,881,888 ) Interest received 161,783, ,508,741 Interest paid ( 62,013,040 ) ( 60,925,917 ) Net Cash Used in Operating Activities ( 89,730,778 ) ( 46,299,064 ) CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment 7 ( 993,469 ) ( 2,752,200 ) CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid ( 68,139,263 ) - Net contribution from members 48,965,077 33,157,798 Availment of interest-bearing loans 12 15,000,000 - Disbursement from reserves ( 5,604,136 ) ( 15,436,405 ) Net Cash From (Used in) Financing Activities ( 9,778,322 ) 17,721,393 NET DECREASE IN CASH ( 100,502,569 ) ( 31,329,871 ) CASH AT BEGINNING OF YEAR 136,974, ,304,689 CASH AT END OF YEAR P 36,472,249 P 136,974,818 See Notes to Financial Statements.

6 PLDT EMPLOYEES CREDIT COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2009 AND 2008 (Amounts in Philippine Pesos) 1. COOPERATIVE MATTERS 1.1 Cooperative Information PLDT Employees Credit Cooperative, Inc. (the Cooperative or PECCI) was originally named Free Telephone Workers Cooperative Credit Union (FTWCCU). FTWCCU was authorized as a credit cooperative by the Cooperative Administration Office (CAO) under the Central Bank on December 5, It was renamed as PLDT Employees Credit Cooperative Association (PECCA). The 1977 general assembly again renamed PECCA as PLDT Employees Credit Cooperative, Inc. and was re-registered with the CAO under Certificate No on May 16, Subsequently, the Cooperative was re-registered with the current Cooperative Development Authority (CDA) under Confirmation No. MLA-C dated September 30, The Cooperative is presently engaged in encouraging thrift and savings mobilization among the members for capital formation, creating funds in order to grant loans for productive and providential purposes to its members and promoting the cooperative as a way of life for improving the social and economic well-being of its members. In accordance with Republic Act (R.A.) No. 6938, otherwise known as the Cooperative Code of the Philippines, which was amended by R.A. 9520, Philippine Cooperative Code of 2008, cooperatives are exempted from the payment of all national, city, provincial, municipal or barangay taxes of whatever name and nature, including exemption from custom duties, advance sales of compensating taxes on its importation of machinery, equipment and spare parts which are not available locally as certified by the Department of Trade and Industry. Cooperatives shall enjoy tax exemptions from government taxes or fees imposed under internal revenue laws provided they do not transact with non-members or the general public. Cooperatives, if transacting business with non-members or the general public, may be exempted from tax if their accumulated reserves and undivided net savings does not exceed P10,000,000, or up to 10 years from the date of registration if their accumulated reserves already exceeds P10,000,000.

7 The Cooperative limits its services to its members only. Accordingly, the Cooperative is exempt from taxes, including income tax, under the Code. The membership is institutional and limited to Philippine Long Distance Telephone Co. (PLDT) and its subsidiaries (collectively herein referred to as PLDT Companies ) employees, as well as resigned employees of PLDT Companies, if they opt to continue their membership, and their dependents consisting of the legitimate spouse under the age of 50 and legitimate children and relatives up to the 3rd degree of consanguinity under the age of 21. The Cooperative s registered office, which is also its principal place of business, is located at the 4th Floor, Universal-Re Building, Paseo de Roxas Avenue, Makati City. 1.2 Amendment of the Cooperative Code of the Philippines On February 17, 2009, the President of the Philippines signed into law R.A. No. 9520, otherwise known as the Philippine Cooperative Code of 2008 (the Code), to amend the Cooperative Code of the Philippines. On February 5, 2010, the Department of Finance issued the Joint Rules and Regulations implementing Articles 60, 61 and 144 of the R.A No in relation to R.A. No or the National Internal Revenue Code, as amended, (Joint Rules and Regulations). Likewise, on February 11, 2010, the Bureau of Internal Revenue issued Revenue Memorandum Circular No circularizing the full text of the Joint Rules and Regulations. Management currently assessed that the Code and the Joint Rules and Regulations has no significant impact on the financial statements. As of the date of approval of the financial statements, the Cooperative has already re-registered with CDA, as required under the Code, and currently addressing the requirements and procedures of the Joint Rules and Regulations. 1.3 Approval of the Financial Statements The financial statements of the Cooperative for the year ended December 31, 2009 (including the comparatives for the year ended December 31, 2008) were authorized for issue by the Board of Directors (BOD) on March 23, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies that have been used in the preparation of these financial statements are summarized below. These policies have been consistently applied to all the years presented, unless otherwise stated.

8 2.1 Basis of Preparation of Financial Statements (a) Statement of Compliance with Philippine Financial Reporting Standards (PFRS) The financial statements of the Cooperative have been prepared in accordance with PFRS, except for revenue recognition on interest income on loans, impairment testing on loans and receivables, and recognition of liabilities and expenses relating to retirement benefits and comprehensive benefit program. PFRS are adopted by the Financial Reporting Standards Council (FRSC) from the pronouncements issued by the International Accounting Standards Board. These financial statements have been prepared on the historical cost basis, except for the revaluation of certain financial assets. The measurement bases are more fully described in the accounting policies that follow. (b) Presentation of Financial Statements These financial statements are prepared in accordance with Philippine Accounting Standard (PAS) 1 (Revised 2007), Presentation of Financial Statements. The Cooperative presents all items of income and expenses in a single statement of comprehensive income. Two comparative periods are presented for the statement of financial position when the Cooperative applies an accounting policy restrospectively, makes a retrospective restatement of items in its financial statements, or reclassifies items in the financial statements. (c) Functional and Presentation Currency These financial statements are presented in Philippine pesos, the Cooperative s functional and presentation currency, and all values represent absolute amounts except when otherwise indicated. Items included in the financial statements of the Cooperative are measured using the currency of the primary economic environment in which the entity operates (the functional currency).

9 2.2 Adoption of New Interpretations, Revisions and Amendments to PFRS (a) Effective in 2009 that are Relevant to the Cooperative In 2009, the Cooperative adopted (resulting in changes in certain policies of the Cooperative s affected policies) the following new revisions and amendments to PFRS that are relevant to and effective for the Cooperative s financial statements for the annual period beginning on or after January 1, 2009: PAS 1 (Revised 2007) : Presentation of Financial Statements PFRS 7 (Amendment) : Financial Instrument Disclosures Various Standards : 2008 Annual Improvements to PFRS Discussed below are the effects on the financial statements of the new accounting interpretation and amended standards. a. PAS 1 (Revised 2007), which is effective from January 1, 2009, requires an entity to present all items of income and expense recognized in the period in a single statement of comprehensive income and distribution of net savings or in two statements: a separate statement of income and a statement of comprehensive income and distribution of net savings. Income and expense recognized in profit or loss is presented in the statement of income in the same way as the previous version of PAS 1. The statement of comprehensive income and distribution of net savings includes the profit or loss for the period and each component of income and expense recognized outside of profit or loss or the non-owner changes in equity, which are no longer allowed to be presented in the statements of changes in equity, classified by nature (e.g., gains or losses on available-for-sale assets or translation differences related to foreign operations). A statement showing an entity s financial position at the beginning of the previous period is also required when the entity retrospectively applies an accounting policy or makes a retrospective restatement, or when it reclassifies items in its financial statements. The Cooperative s adoption of PAS 1 (Revised 2007) did not result in any material adjustments in its financial statements as the change in accounting policy only affects presentation aspects. The Cooperative elected to present a single statement of comprehensive income and distribution of net savings. b. PFRS 7 (Amendment), Financial Statements Disclosures. The amendments require additional disclosures for financial instruments that are measured at fair value in the statement of financial position. These fair value measurements are categorized into a three-level fair value hierarchy, which reflects the extent to which they are based on observable market data. A separate quantitative maturity analysis must be presented for derivative financial liabilities that shows the remaining contractual maturities, where these are essential for an understanding of the timing of cash flows. The change in accounting policy only results in additional disclosures (see Note 21.2).

10 c Annual Improvements to PFRS. The FRSC has adopted the Improvements to International Financial Reporting Standards 2008 which became effective in the Philippines in annual periods beginning on or after January 1, Among those improvements, the following are the amendments relevant to the Cooperative: PAS 36 (Amendment), Impairment of Assets. Where fair value less cost to sell is calculated on the basis of discounted cash flows, disclosures equivalent to those for value-in-use calculation should be made. Appropriate disclosures were made in the Cooperative s 2009 financial statements. PAS 38 (Amendment), Intangible Assets. The amendment clarifies when to recognize a prepayment asset, including advertising or promotional expenditures. In the case of supply of goods, the entity recognizes such expenditure as an expense when it has a right to access the goods. Also, prepayment may only be recognized in the event that payment has been made in advance of obtaining right access to goods or receipt of services. The Cooperative determined that adoption of this amendment had no material effect on its 2009 financial statements. PAS 40 (Amendment), Investment Property. PAS 40 is amended to include property under construction or development for future use as investment property in its definition of investment property. This results in such property being within the scope of PAS 40; previously, it was within the scope of PAS 16. Also, if an entity s policy is to measure investment property at fair value, but during construction or development of an investment property the entity is unable to reliably measure its fair value, then the entity would be permitted to measure the investment property at cost until construction or development is complete. At such time, the entity would be able to measure the investment property at fair value. The adoption had no material effect on its 2009 financial statements as the Cooperative has no property under construction or development for future use as investment property. (b) Effective Subsequent to 2009 There are new PFRS, revisions, amendments, annual improvements and interpretations to existing standards that are effective for periods subsequent to Among those, management has initially determined the 2009 Annual Improvements to PFRS to be relevant to its financial statements, which the Cooperative will apply in accordance with their transitional provisions. The FRSC has adopted the Improvements to International Financial Reporting Standards Most of these amendments became effective in annual periods beginning on or after July 1, 2009 or January 1, Among those improvements, only the following amendments were identified to be relevant to the Cooperative s financial statements:

11 (i) PAS 1 (Amendment), Presentation of Financial Statements (effective from January 1, 2010). The amendment clarifies the current and non-current classification of a liability that can, at the option of the counterparty, be settled by the issue of the entity s equity instruments. The Cooperative will apply the amendment in its 2010 financial statements but expects to have no material impact in the Cooperative s financial statements. (ii) PAS 7 (Amendment), Statement of Cash Flows (effective from January 1, 2010). PAS 7 amendment states explicitly that only an expenditure that results in a recognized asset can be classified as a cash flow from investing activities. The amendment will not have a material impact on the financial statements since only recognized assets are classified by the Cooperative as cash flow from investing activities. (iii) PAS 17 (Amendment), Leases (effective from January 1, 2010). The amendment clarifies that when a lease includes both land and building elements, an entity assesses the classification of each element as finance or an operating lease separately in accordance with the general guidance on lease classification set out in PAS 17. Management has initially determined that this will not have material impact on the financial statements since the Cooperative does not enter into a lease agreement that includes both land and building. (iv) PAS 18 (Amendment), Revenue (effective from January 1, 2010). The amendment provides guidance on determining whether an entity is acting as a principal or as an agent. Management will apply this amendment prospectively in its 2010 financial statements. 2.3 Financial Assets Financial assets, which are recognized when the Cooperative becomes a party to the contractual terms of the financial instrument, include cash and other financial instruments. Financial assets are classified into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments and available-forsale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. The designation of financial assets is re-evaluated at every reporting date at which date a choice of classification or accounting treatment is available, subject to compliance with specific provisions of applicable accounting standards. Regular purchases and sales of financial assets are recognized on their trade date. All financial assets that are not classified as at fair value through profit or loss are initially recognized at fair value plus any directly attributable transaction costs. Financial assets carried at fair value through profit or loss are initially recognized at fair value and transaction costs are recognized in profit or loss.

12 The categories of financial instruments relevant to the Cooperative are more fully described below. (a) Loans and Receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Cooperative provides money directly to a member with no intention of trading the receivables. They are included in current assets, except for maturities greater than 12 months after the reporting date which are classified as non-current assets. Loans and receivables are subsequently measured at amortized cost using the effective interest method, less any impairment losses. Any change in their value is recognized in profit or loss. However, the Cooperative pre-collected interest income from loans and recognizes as revenue an amount equivalent to one year interest regardless of when the interest income is earned. Impairment loss is provided when there is objective evidence that the Cooperative will not be able to collect all amounts due to it in accordance with the original terms of the receivables. The amount of the impairment loss is determined as the difference between the assets carrying amount and the present value of estimated cash flows. The Cooperative s financial assets categorized as loans and receivables are presented as Cash and Loans and Other Receivables in the statement of assets, liabilities and members equity. Cash includes cash on hand and cash in bank. (b) Available-for-sale Financial Assets This includes non-derivative financial assets that are either designated to this category or do not qualify for inclusion in any of the other categories of financial assets. They are included as non-current available-for-sale financial assets account in the statement of assets, liabilities and members equity unless management intends to dispose of the investment within 12 months from the reporting period date. All available-for-sale financial assets are measured at fair value, unless otherwise disclosed, with changes in value recognized in other comprehensive income and distribution of net savings, net of any effects arising from income taxes. When the asset is disposed of or is determined to be impaired the cumulative gain or loss recognized in other comprehensive income is reclassified from revaluation reserve to profit or loss and presented as a reclassification adjustment within other comprehensive income. Reversal of impairment loss is recognized in other comprehensive income, except for financial assets that are debt securities which are recognized in profit or loss only if reversal can be objectively related to an event occurring after the impairment loss was recognized.

13 All income and expenses, including impairment losses, relating to financial assets that are recognized in profit or loss are presented as part of Interest and Financing Fees in the statement of comprehensive income and distribution of net savings, except for impairment of loans and receivables which is presented as Impairment Loss on Loans. For investments that are actively traded in organized financial markets, fair value is determined by reference to stock exchange-quoted market bid prices at the close of business on each reporting date. For investments where there is no quoted market price, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net asset base of the investment. Non-compounding interest, dividend income and other cash flows resulting from holding financial assets are recognized in profit or loss when earned, regardless of how the related carrying amount of financial assets is measured. Derecognition of financial assets occurs when the rights to receive cash flows from the financial instruments expire or are transferred and substantially all of the risks and rewards of ownership have been transferred. 2.4 Property and Equipment Property and equipment is measured at cost less accumulated depreciation and amortization and any impairment in value. The cost of an asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for additions, major improvements and renewals are capitalized; expenditures for repairs and maintenance are charged to expense as incurred. When assets are sold, retired or otherwise disposed of, their cost and related accumulated depreciation, amortization and impairment losses are removed from the accounts and any resulting gain or loss is reflected in income for the period. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets as follows: Condominium unit and improvements Transportation equipment Computers, office furniture and fixtures years 5 years 3-5 years Amortization of improvements is recognized over the estimated useful life of the improvements of 10 years or the term of the lease, whichever is shorter. An asset s carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount (see Note 2.9).

14 The residual values and estimated useful lives of property and equipment are reviewed, and adjusted if appropriate, at each reporting date. An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the item) is included in profit or loss in the year the item is derecognized. 2.5 Investment Property Investment property is measured at acquisition cost. The cost of the asset comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Investment property is stated at cost less accumulated depreciation (except land which is stated at cost) and any impairment in value. Depreciation and amortization of building and its improvements is computed using the straight-line method over the estimated useful life of 50 years. Investment property is derecognized upon disposal or when permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gain or loss on the retirement or disposal of an investment property is recognized in the profit or loss in the year of retirement or disposal. 2.6 Financial Liabilities Financial liabilities, except for retirement benefit obligation, include accounts payable and accrued expenses, deposit liabilities, interest-bearing loans, cooperative education and training fund (CETF) and unclaimed dividends. Financial liabilities are recognized when the Cooperative becomes a party to the contractual agreements of the instrument. All interest-related charges are recognized as an expense in profit or loss under the caption Interest and Financing Fees. Accounts payable and other liabilities are recognized initially at their fair value and subsequently measured at amortized cost less settlement payments. Interest-bearing loans are recognized at proceeds received, net of direct issue costs. Finance charges and direct issue costs, are charged to profit or loss. Financial liabilities are derecognized from the statement of assets, liabilities and members equity only when the obligations are extinguished either through discharge, cancellation or expiration.

15 2.7 Provisions Provisions are recognized when present obligations will probably lead to an outflow of economic resources and they can be estimated reliably even if the timing or amount of the outflow may still be uncertain. A present obligation arises from the presence of a legal or constructive commitment that has resulted from past events. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Any reimbursement expected to be received in the course of settlement of the present obligation is recognized, if virtually certain as a separate asset, not exceeding the amount of the related provision. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. In addition, where time value of money is material, long-term provisions are discounted to their present values using a pretax rate that reflects market assessments and the risks specific to the obligation. Provisions are reviewed at each reporting period date and adjusted to reflect the current best estimate. In those cases where the possible outflow of economic resource as a result of present obligations is considered improbable or remote, or the amount to be provided for cannot be measured reliably, no liability is recognized in the financial statements. Probable inflows of economic benefits that do not yet meet the recognition criteria of an asset are considered contingent assets, hence, are not recognized in the financial statements. 2.8 Revenue and Expense Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Cooperative and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized: a) Interest income on loans The Cooperative recognizes the revenue for the first twelve months of the amortization on the year of grant and the unearned portion is fully recognized the following year regardless of the date of grant or the term of the loan. b) Service fees Revenue for charges on the processing of loans is recognized as an outright income upon release of loan. Service fees range from 1%-3% prior to July 2009 and a fixed rate equivalent to 2% starting July The amount of service fees is computed based on the gross amount of loan granted. c) Investment income Revenue is recognized through fair value gain and dividend income which is recognized when the investors right to receive the payment is established.

16 d) Interest income from bank deposits Revenue is recognized as the interest accrues. Revenue is measured by reference to the fair value of consideration received or receivable by the Cooperative for services provided. Cost and expenses are recognized in profit or loss at the date they are incurred or upon utilization of the service. 2.9 Impairment of Non-financial Assets The Cooperative s property and equipment and investment property are subject to impairment testing. Individual assets or cash-generating units are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. For purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). As a result, some assets are tested individually for impairment and some are tested at cash-generating unit level. An impairment loss is recognized for the amount by which the asset or cash-generating unit s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of fair value, reflecting market conditions less costs to sell, and value in use, based on an internal evaluation of discounted cash flow. Impairment loss is charged pro-rata to the other assets in the cash-generating unit. All assets are subsequently reassessed for indications that an impairment loss previously recognized may no longer exist and the carrying amount of the asset is adjusted to the recoverable amount resulting in the reversal of the impairment loss Employee Benefits (a) Retirement Benefit Obligations The Cooperative does not have a formal benefit plan for its employees. However, the Cooperative allocates a certain percentage of its net savings to be set aside for the retirement of its employees. b) Compensated Absences Compensated absences are recognized for the number of paid leave days (including holiday entitlement) remaining at the reporting date.

17 2.11 Members Equity Equity contribution is the accumulation of the regular contribution of the members. Revaluation reserve is the unrealized gains or losses resulting from the revaluation of the Cooperative s available-for-sale financial assets. Reserves include all current and prior period results as disclosed in profit or loss. 3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES The Cooperative s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. 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 circumstances. Actual results may ultimately differ from these estimates. 3.1 Critical Management Judgments in Applying Accounting Policies In the process of applying the Cooperative s accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements: (a) Impairment of Available-for-sale Financial Assets The determination when an investment is other-than-temporarily impaired requires significant judgment. In making this judgment, the Cooperative evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows. Based on the recent evaluation of information and circumstances affecting the Cooperative s available-for-sale financial assets, management concluded that the assets are not impaired as of December 31, 2009 and Future changes in those information and circumstance might significantly affect the carrying amount of the assets. (b) Distinction Between Investment Properties and Owner-managed Properties The Cooperative determines whether a property qualifies as investment property. In making its judgment, the Cooperative considers whether the property generates cash flows largely independent of the other assets held by an entity. Owner-occupied properties generate cash flows that are attributable not only to the property but also to other assets used in the production or supply process.

18 Some properties comprise a portion that is held to earn rental or for capital appreciation and another portion that is held for use in the production and supply of goods and services or for administrative purposes. If these portions can be sold separately (or leased out separately under finance lease), the Cooperative accounts for the portions separately. If the portion cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the production or supply of goods or services or for administrative purposes. Judgment is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The Cooperative considers each property separately in making its judgment. (c) Provisions and Contingencies Judgment is exercised by management to distinguish between provisions and contingencies. Policies on recognition and disclosure of provision are discussed in Note 2.7. Contingencies are disclosed in Note Key Sources of Estimation Uncertainty The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. (a) Useful Lives of Property and Equipment The Cooperative estimates the useful lives of property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives over property and equipment are reviewed periodically 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 assets. The carrying amounts of property and equipment are analyzed in Note 7. Actual results, however may vary due to changes in estimates brought about by changes in factors mentioned above. There is no change in the estimated useful lives of property and equipment during the year. (b) Allowance for Impairment of Loans and Other Receivables Allowance is made for specific and groups of accounts, where objective evidence of impairment exists. The Cooperative evaluates these accounts based on available facts and circumstances, including, but not limited to, the length of the Cooperative s relationship with the members, the members current credit status, average age of accounts, collection experience and historical loss experience.

19 The Cooperative has recognized P9.6 million allowance as of December 31, 2009 pertaining to the past due loans of resigned makers with co-makers. In 2008, the allowance for impairment has a balance of P3.8 million (see Note 5). (c) Valuation of Financial Assets Other than Loans and Other Receivables The Cooperative carries its available-for-sale financial assets at fair value, which require the extensive use of accounting estimates and judgment. In cases when active market quotes are not available, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net base of the instrument. The amount of changes in fair value would differ if the Cooperative utilized different valuation methods and assumptions. Any change in fair value of these financial assets and liabilities would affect profit and loss and other comprehensive income. There are no impairment losses provided for the Cooperative s available-for-sale financial assets in 2009 and Fair value gain of P0.75 million in 2009 and fair value loss of P1.03 million in 2008 on available-for-sale financial assets were reported in the statement of comprehensive income and distribution of net savings (see Note 6). (d) Impairment of Non-financial Assets The Cooperative s policy on estimating the impairment of non-financial assets is discussed in Note 2.9. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations. The Cooperative recorded impairment loss on investment property amounting to P0.35 million and P1.32 million on its investment property in 2009 and 2008, respectively (see Note 8). There are no impairment losses provided on the Cooperative s property and equipment. (e) Retirement and Other Benefits The Cooperative sets aside a certain percentage of its net savings for the retirement benefits of its employees. Should the Cooperative comply with PFRS, the determination of the Cooperative s obligation and cost of pension and other retirement benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. The retirement benefit obligation amounted to P32.2 million and P34.3 million as of December 31, 2009 and 2008, respectively (see Note 10.2).

20 4. CASH Cash include the following components as of December 31: Cash in banks P 34,390,432 P 134,987,490 Petty cash and revolving fund 1,850,000 1,850,000 Cash on hand 231, ,328 P 36,472,249 P 136,974,818 Cash accounts with the banks generally earn interest at rates based on daily bank deposit rates. 5. LOANS AND OTHER RECEIVABLES The balance of this account is composed of the following: Loans: Core loans P1,259,572,341 P 1,053,734,118 Pangkabuhayan loans 140,058, ,731,043 Mini-loans 55,943,877 65,901,235 Inflationary loans 29,474,803 35,156,888 Car equity loan 7,269,817 9,952,545 Housing equity loan 265, ,805 1,492,584,778 1,285,741,634 Allowance for impairment ( 9,593,971 ) ( 3,764,310) 1,482,990,807 1,281,977,324 Other receivables: PLDT companies 56,884,920 16,312,947 Receivable from co-makers 18,364,914 15,078,855 Others 17,551,849 13,676,125 92,801,683 45,067,927 P1,575,792,490 P1,327,045,251

21 Loans and other receivables are further classified into the following: Current P1,153,508,012 P 962,102,745 Non-current - net 422,284, ,942,506 P 1,575,792,490 P 1,327,045,251 Interest income charged to the borrowers are deducted upon release of loans and recognized as income an amount equivalent to one year interest regardless of when the interest income is earned. Total amount of unearned interest income amounted to P58.77 million and P42.10 million as of December 31, 2009 and 2008, respectively, and is shown as Deferred Interest on Loans in the statements of assets, liabilities and members equity. Loans and other receivables with carrying value of P23,174,713 are used as collaterals for the interest-bearing loans (see Note 12). Changes in the allowance for impairment losses on loans are summarized below: Balance at beginning of year P 3,764,310 P - Provisions for impairment 5,829,661 3,764,310 Balance at end of year P 9,593,971 P 3,764,310 In October 2005, the Cooperative, PLDT Employees Multi-Purpose Cooperative (Telescoop), another cooperative for PLDT companies employees, and PLDT companies entered into an agreement that all amounts due from members that are deferred in the combined amount of P50 thousand and above and with an outstanding account of P300 thousand and above should be consolidated on voluntary basis. The accounts consolidated should then be spread over a maximum of four years depending on the members capacity to pay. It was also agreed that those included in the list will no longer be given new loans; however, those who opted for consolidation shall be allowed a maximum of P20 thousand loan from both cooperatives for one year. As of December 31, 2009 and 2008, the consolidated loans amounted to P15.00 million and P27.71 million respectively, and are presented as part of Loans and Other Receivables. Consolidated loan is granted to members whose deferred balance is equal to or exceeding P50 thousand and has outstanding balance equal to or more than P300 thousand from the Cooperative and Telescoop.

22 Pangkabuhayan loans pertain to loans whose purpose is to assist members on setting up their own small-scale businesses with loanable amount of P240 thousand payable up to three and a half years. On the other hand, Mini-loans pertain to small loan amounts of up to P24 thousand payable within two years or less. In 2008, the Cooperative introduced inflationary loans which offer an interest rate at 11% (diminishing balance) inclusive of service charges with maximum net amount of P15 thousand. Special calamity loan is a one-time loan and was granted to the members in October 2009 only to aid the victims of typhoon Ondoy that affected several members of the Cooperative. The Special Calamity Loan bears an interest of 10% (diminishing balance) and service charge of 2%, payable in 24 months, no deduction for deferred accounts/arrears, and one time only and not renewable. Receivables from PLDT companies pertain to the members contributions and the savings deposits made by the members that are deducted from their salaries. PLDT companies serve as withholding agents for these amounts which will then be remitted to the Cooperative. Loans to directors, officers, and related interests amounted to P5.8 million and P8 million as of December 31, 2009 and 2008, respectively, which represent 0.37% and 0.60% of the total loan portfolio as of December 31, 2009 and 2008, respectively. The said loans are all current and fully secured with collaterals. All of the Cooperative s loans and other receivables have been reviewed for indicators of impairment. Certain loans and other receivables were found to be impaired and provisions have been recorded accordingly. The carrying amounts of these financial assets are reasonable approximation of their fair values. 6. AVAILABLE-FOR-SALE FINANCIAL ASSETS The amounts in the statement of assets, liabilities and members equity comprise of the following categories of available-for-sale financial assets: Metro South Cooperative Bank (MSCB) P 13,481,189 P 13,543,659 Cash surrender value of life insurance policies 6,730,485 5,984,377 Philippine Resortel and Education Service Coop 500, ,000 Metro Manila Savings Cooperative 275, ,938 Others 39,959 39,959 P 21,027,179 P 20,332,933

23 The reconciliation of the carrying amounts of available-for-sale financial assets is as follows: Balance at beginning of year P 20,332,933 P 21,365,235 Fair value gain (loss) net 694,246 ( 1,032,302) Balance at end of year P 21,027,179 P 20,332,933 Available-for-sale financial assets, except for cash surrender value of life insurance policies, are measured at cost as these are not traded in an active market. The carrying amounts of these financial assets are reasonable approximation of their fair values. 7. PROPERTY AND EQUIPMENT The gross carrying amounts and accumulated depreciation and amortization at the beginning and end of 2009 and 2008 are shown below. Computers, Condominium and Office Unit and Furniture and Transportation Improvements Fixtures Equipment Total December 31, 2009 Cost P 7,969,236 P 7,128,067 P 1,451,800 P 16,549,103 Accumulated depreciation and amortization ( 5,101,409 ) ( 5,644,263 ) ( 894,287 ) ( 11,639,959 ) Net carrying amount P 2,867,827 P 1,483,804 P 557,513 P 4,909,144 December 31, 2008 Cost P 7,969,236 P 6,134,598 P 1,451,800 P 15,555,634 Accumulated depreciation and amortization ( 4,672,781 ) ( 4,169,550 ) ( 603,927 ) ( 9,446,258 ) Net carrying amount P 3,296,455 P 1,965,048 P 847,873 P 6,109,376 January 1, 2008 Cost P 8,526,485 P 28,716,401 P 2,121,800 P 39,364,686 Accumulated depreciation and amortization ( 6,408,610 ) ( 23,078,604 ) ( 884,930 ) ( 30,372,144 ) Net carrying amount P 2,117,875 P 5,637,797 P 1,236,870 P 8,992,542

24 The reconciliation of the carrying amounts at the beginning and end of 2009 and 2008 of property and equipment is shown below. Balance at January 1, 2009, net of accumulated Computers, Condominium and Office Unit and Furniture and Transportation Improvements Fixtures Equipment Total depreciation and amortization P 3,296,455 P 1,965,048 P 847,873 P 6,109,376 Additions - 993, ,469 Depreciation and amortization charges for the year ( 428,628 ) ( 1,474,713 ) ( 290,360 ) ( 2,193,701 ) Balance at December 31, 2009, net of accumulated depreciation and amortization P 2,867,827 P 1,483,804 P 557,513 P 4,909,144 Balance at January 1, 2008, net of accumulated depreciation and amortization P 2,117,875 P 5,637,797 P 1,236,870 P 8,992,542 Additions 2,300, ,200-2,752,200 Disposals ( 708,920 ) ( 417,265 ) - ( 1,126,185 ) Depreciation and amortization charges for the year ( 412,500 ) ( 3,707,684 ) ( 388,997 ) ( 4,509,181 ) Balance at December 31, 2008, net of accumulated depreciation and amortization P 3,296,455 P 1,965,048 P 847,873 P 6,109,376 In 2008, the Cooperative disposed computers, office furniture and fixtures and leasehold improvements with total costs of P23.0 million and P2.8 million, respectively, accumulated depreciation and amortization of P22.6 million and P0.21 million, respectively, and recognized losses of P0.4 million and P0.7 million, respectively. No disposals were made in INVESTMENT PROPERTY The Cooperative s investment property pertains to a land and building co-owned with PLDT Employees Multi-Purpose Cooperative (Telescoop), a related party, for capital appreciation.