Responsible Investments for Solidarity and Empowerment (RISE) Financing Company, Inc.

Transcription

1 Responsible Investments for Solidarity and Empowerment (RISE) Financing Company, Inc. Financial Statements December 31, 2016 and 2015 and Independent Auditor s Report

2 SyCip Gorres Velayo & Co Ayala Avenue 1226 Makati City Philippines Tel: (632) Fax: (632) ey.com/ph BOA/PRC Reg. No. 0001, December 14, 2015, valid until December 31, 2018 SEC Accreditation No FR-4 (Group A), November 10, 2015, valid until November 9, 2018 INDEPENDENT AUDITOR S REPORT The Stockholders and the Board of Directors Responsible Investments for Solidarity and Empowerment (RISE) Financing Company, Inc. Report on the Audit of the Financial Statements Opinion We have audited the financial statements of Responsible Investments for Solidarity and Empowerment (RISE) Financing Company, Inc. (the Company), which comprise the statements of financial position as at December 31, 2016 and 2015, and the statements of comprehensive income, statements of changes in equity and statements of cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies. In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2016 and 2015, and its financial performance and its cash flows for the years then ended, in accordance with Philippine Financial Reporting Standards (PFRS). Basis for Opinion We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our responsibilities under those standards are further described in the Auditor s Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Company in accordance with the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are relevant to our audit of the financial statements in the Philippines, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the Code of Ethics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Responsibilities of Management and Those Charged with Governance for the Financial Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with PFRSs, 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. In preparing the financial statements, management is responsible for assessing the Company s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so. A member firm of Ernst & Young Global Limited *SGVFS020823*

3 - 2 - Those charged with governance are responsible for overseeing the Company s financial reporting process. Auditor s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with PSAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Company s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of management s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor s report. However, future events or conditions may cause the Company to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. A member firm of Ernst & Young Global Limited

4 - 3 - Report on the Supplementary Information Required Under Revenue Regulations 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 in Note 20 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such information is the responsibility of the management of Responsible Investments for Solidarity and Empowerment (RISE) Financing Company, Inc. The information has been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information is fairly stated, in all material respects, in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Ray Francis C. Balagtas Partner CPA Certificate No SEC Accreditation No A (Group A), October 1, 2015, valid until September 30, 2018 Tax Identification No BIR Accreditation No , March 4, 2015, valid until March 3, 2018 PTR No , January 3, 2017, Makati City March 24, 2017 A member firm of Ernst & Young Global Limited

5 RESPONSIBLE INVESTMENTS FOR SOLIDARITY AND EMPOWERMENT (RISE) FINANCING COMPANY, INC. STATEMENTS OF FINANCIAL POSITION ASSETS December Current Assets Cash on hand and in banks (Note 6) P=3,806,931 P=2,454,278 Loans and receivables (Notes 7 and 16) 14,561,352 15,043,590 Other current assets (Notes 8 and 16) 196,931 84,697 18,565,214 17,582,565 Noncurrent Assets Loans and receivables (Notes 7 and 16) 2,990,382 4,873,994 Property and equipment (Note 9) 1,256,915 1,586,168 Investment properties (Note 10) 15,954,608 16,351,400 20,201,905 22,811,562 P=38,767,119 P=40,394,127 LIABILITIES AND EQUITY Current Liabilities Accounts payable and other accrued expenses (Note 11) 1,834,464 3,739,473 Income tax payable 83,904 Loans payable (Note 16) 2,500,000 1,918,368 6,239,473 Noncurrent Liabilities Retirement liability (Note 13) 341,828 1,060,375 Deferred tax liability (Note 15) 352, , ,737 1,218,152 2,613,105 7,457,625 Equity Common stock (Note 12) 42,500,000 42,500,000 Treasury stock (Note 12) (2,901,307) (2,901,307) Deficit (3,516,633) (6,278,838) Remeasurement gains (losses) on retirement liability (Note 13) 71,954 (383,353) 36,154,014 32,936,502 P=38,767,119 P=40,394,127 See accompanying Notes to Financial Statements. *SGVFS020823*

6 RESPONSIBLE INVESTMENTS FOR SOLIDARITY AND EMPOWERMENT (RISE) FINANCING COMPANY, INC. STATEMENTS OF COMPREHENSIVE INCOME Years Ended December INCOME Leasing (Notes 7 and 16) P=2,819,677 P=3,651,144 Interest Receivables financed (Note 7) 255, ,369 Cash in banks (Note 6) 5,415 6,528 3,080,162 3,898,041 INTEREST EXPENSE (Note 16) 81, ,417 NET INTEREST AND LEASING INCOME 2,999,084 3,677,624 Gain on sale of an investment property (Note 10) 2,213,353 Gain on foreclosure of investment properties (Note 10) 525,924 Service charges and fees 30,000 Others (Note 14) 604, ,765 TOTAL OPERATING INCOME 5,816,744 4,408,313 OPERATING EXPENSES Compensation and fringe benefits (Notes 13 and 16) 1,099,770 1,272,112 Honorarium (Note 16) 568, ,500 Provision for (reversal of) credit and impairment losses (Notes 7 and 17) (485,088) 2,644,409 Depreciation expense (Note 9) 327, ,761 Marketing and program expenses 301, ,915 Taxes and licenses (Note 20) 275, ,616 Management and professional fees 266, ,804 Transportation expense 264, ,561 Postage, telephone and cables 94, ,945 Insurance expense (Note 16) 91, ,202 Asset acquired expenses 750,295 Others (Notes 14) 154, ,047 TOTAL OPERATING EXPENSES 2,959,225 7,228,167 INCOME (LOSS) BEFORE INCOME TAX 2,857,519 (2,819,854) PROVISION FOR INCOME TAX (Note 15) 95, ,604 NET INCOME (LOSS) 2,762,205 (3,035,458) OTHER COMPREHENSIVE INCOME (LOSS) Items that do not recycle to profit or loss in subsequent periods: Remeasurement gains (losses) on retirement liability, net (Note 13) 455,307 (799,423) TOTAL COMPREHENSIVE INCOME (LOSS) P=3,217,512 (P=3,834,881) See accompanying Notes to Financial Statements.

7 RESPONSIBLE INVESTMENTS FOR SOLIDARITY AND EMPOWERMENT (RISE) FINANCING COMPANY, INC. STATEMENTS OF CHANGES IN EQUITY Common Stock (Note 12) Treasury Stock (Note 12) Deficit Remeasurement Gains (Losses) on Retirement Liability (Note 13) Balance at January 1, 2016 P=42,500,000 (P=2,901,307) (P=6,278,838) (P=383,353) P=32,936,502 Total comprehensive income for the year 2,762, ,307 3,217,512 Balance at December 31, 2016 P=42,500,000 (P=2,901,307) (P=3,516,633) P=71,954 P=36,154,014 Total Balance at January 1, 2015 P=42,500,000 (P=2,901,307) (P=3,243,380) P=416,070 P=36,771,383 Total comprehensive loss for the year (3,035,458) (799,423) (3,834,881) Balance at December 31, 2015 P=42,500,000 (P=2,901,307) (P=6,278,838) (P=383,353) P=32,936,502 See accompanying Notes to Financial Statements.

8 RESPONSIBLE INVESTMENTS FOR SOLIDARITY AND EMPOWERMENT (RISE) FINANCING COMPANY, INC. STATEMENTS OF CASH FLOWS Years Ended December CASH FLOWS FROM OPERATING ACTIVITIES Income (loss) before income tax P=2,857,519 (P=2,819,854) Adjustments for: Gain on sale of an investment property (Note 10) (2,213,353) Provision for (reversal of) credit and impairment losses (Notes 7 and 17) (485,088) 2,644,409 Depreciation expense (Note 9) 327, ,761 Retirement expense (Note 13) 196,986 82,636 Loss on retirement of property and equipment (Note 14) 1,465 Gain on foreclosure of investment properties (Note 10) (525,924) Changes in operating assets and liabilities: Decrease (increase) in: Loans and receivables 4,915, ,906 Other current assets 19,585 7,527 Increase (decrease) in accounts payable and other accrued expenses (2,509,316) 1,731,600 Net cash generated from operations 3,111,191 1,932,061 Income taxes paid (1,083) (19,127) Net cash provided by operating activities 3,110,108 1,912,934 CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of investment property (Notes 10 and 18) 800,400 Acquisition of investment property (Note 10) (57,855) Net cash provided by investing activities 742,545 CASH FLOWS FROM FINANCING ACTIVITY Settlement of loans payable (Notes 16) (2,500,000) (2,500,000) NET INCREASE (DECREASE) IN CASH ON HAND AND IN BANKS 1,352,653 (587,066) CASH ON HAND AND IN BANKS AT BEGINNING OF YEAR 2,454,278 3,041,344 CASH ON HAND AND IN BANKS AT END OF YEAR (Note 6) P=3,806,931 P=2,454,278 OTHER OPERATIONAL CASH FLOWS Interest received P=3,287,555 P=3,569,600 Interest paid 107, ,083 See accompanying Notes to Financial Statements.

9 RESPONSIBLE INVESTMENTS FOR SOLIDARITY AND EMPOWERMENT (RISE) FINANCING COMPANY, INC. NOTES TO FINANCIAL STATEMENTS 1. Corporate Information Responsible Investments for Solidarity and Empowerment (RISE) Financing Company, Inc. (the Company), was registered with the Philippine Securities and Exchange Commission (SEC) on April 8, 2000 and started operations in October The Company was incorporated to perform: 1. Quasi-banking and money market operations upon prior approval of the Bangko Sentral ng Pilipinas (BSP); 2. Trust operations upon prior approval of the BSP; 3. Issuance of bonds and other capital instruments; 4. Rediscounting of its papers with government financial institutions; 5. Participate in special loan or credit programs; 6. Provide foreign currency loans and leases to enterprises that earn foreign currency by exports or other means, subject to existing laws and rules and regulations promulgated by the BSP; and 7. Engage in all operations and activities of financing companies as provided in the Financing Company Act, Republic Act (RA) No The Company is owned by Center for Agriculture and Rural Development, Inc. (CARD Inc.) or the Parent Company, National Secretariat for Social Action, Ad Jesum Development Foundation, Inc. and individual stockholders, sharing 61.92%, 22.32%, 14.43% and 1.32%, respectively, of its outstanding capital stock. The Parent Company is also the ultimate parent company. The Company s registered and principal place of business is at Unit 909 Malate Crown Plaza Condominium, Adriatico St. corner San Andres St., Malate, Manila. 2. Summary of Significant Accounting Policies Basis of Preparation The accompanying financial statements have been prepared on a historical cost basis. The financial statements are presented in Philippine peso, which is the Company s functional and presentation currency. All values are rounded to the nearest peso, except when otherwise indicated. Statement of Compliance The financial statements of the Company have been prepared in accordance with Philippine Financial Reporting Standards (PFRS). *SGVFS020823*

10 - 2 - Changes in Accounting Policies and Disclosures The accounting policies adopted are consistent with those of the previous year except for the following amendments and improvements to PFRS which are effective beginning on or after January 1, Except as otherwise indicated, the changes in the accounting policies did not have any significant impact on the financial position or performance of the Company. PFRS 10, PFRS 12 and Philippine Accounting Standard (PAS) 28, Investment Entities: Applying the Consolidation Exception (Amendments) PFRS 11, Accounting for Acquisitions of Interests in Joint Operations (Amendments) PFRS 14, Regulatory Deferral Accounts PAS 1, Disclosure Initiative (Amendments) PAS 16 and PAS 38, Clarification of Acceptable Methods of Depreciation and Amortization (Amendments) PAS 16 and PAS 41, Agriculture: Bearer Plants (Amendments) Annual Improvements to PFRSs ( cycle) PFRS 5, Changes in Methods of Disposal (Amendments) PFRS 7, Servicing Contracts (Amendments) PFRS 7, Applicability of the Amendments to PFRS to Condensed Interim Financial Statements (Amendments) PAS 19, Regional market issue regarding discount rate (Amendments) PAS 34, Disclosure of information elsewhere in the interim financial report (Amendments) Summary of Significant Accounting Policies Current versus Non-current Classification The Company presents assets and liabilities in statement of financial position based on current/non-current classification. An asset is current when it is: Expected to be realized or intended to be sold or consumed in the normal operating cycle; Held primarily for the purpose of trading; Expected to be realized within twelve months after the reporting date; or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting date. All other assets are classified as non-current. A liability is current when: It is expected to be settled in the normal operating cycle; It is held primarily for the purpose of trading; It is due to be settled within twelve months after the reporting date; or There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting date. The Company classifies all other liabilities as non-current.

11 - 3 - Cash on Hand and in Banks Cash on hand and in banks include cash on hand, savings and current deposit accounts which are immediately available for use in current operations. Cash in banks earn interest at prevailing interest rate. Fair Value Measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Company. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between Levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. External and internal appraisers are involved for valuation of significant nonfinancial assets, such as investment properties. Selection criteria include market knowledge, reputation, independence and whether professional standards are maintained. For the purpose of fair value disclosures, the Company has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy (see Note 4).

12 - 4 - Financial Instruments - Initial Recognition and Subsequent Measurement Date of recognition Purchases or sales of financial instruments that require delivery of assets within the time frame established by regulation or convention in the marketplace are recognized on settlement date. Initial recognition of financial instruments All financial instruments are initially measured at fair value. Except for financial assets and financial liabilities at fair value through profit or loss (FVPL), initial measurement of financial instruments includes transaction costs. The Company classifies its financial assets in the following categories: financial assets at FVPL, held-to-maturity (HTM) investments, availablefor-sale (AFS) investments and loans and receivables while financial liabilities are classified as financial liabilities at FVPL and financial liabilities carried at amortized cost. The classification depends on the purpose for which the financial instruments are acquired and their characteristics. Management determines the classification of its investments at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date. As of December 31, 2016 and 2015, the Company has no financial assets and financial liabilities at FVPL, HTM investments and AFS investments. Day 1 difference Where the transaction price in a non-active market is different from the fair value from other observable current market transactions in the same instruments or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value (a Day 1 difference) in the statement of comprehensive income unless it qualifies for recognition as some other type of asset. In cases where nonmarket observable data is used, the difference between the transaction price and model value is only recognized. For each transaction, the Company determines the appropriate method of recognition of the Day 1 difference amount. Loans and receivables This accounting policy relates to the statement of financial position caption Loans and Receivables, Cash in Banks, Advances, and Security Deposits. These are non-derivative financial assets with fixed or determinable payments and fixed maturities that are not quoted in an active market, other than: those that the Company intends to sell immediately or in the near term and those that the Company, upon initial recognition, designates as FVPL; those that the Company, upon initial recognition, designates as AFS; and those for which the Company may not cover substantially all of its initial investment, other than because of credit deterioration. After initial measurement, these are subsequently measured at amortized cost using the effective interest method, less allowance for credit losses. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate (EIR). The amortization is included in Interest income in the statement of comprehensive income. The losses arising from impairment are recognized under Provision for (reversal of) credit and impairment losses in the statement of comprehensive income. Loans and receivables also include the aggregate rental on finance lease transactions. Unearned income on finance lease transactions is shown as a deduction from Finance lease receivables under Loans and receivables in the statement of financial position.

13 - 5 - Other financial liabilities These are issued financial instruments or their components which are not designated at FVPL and where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. The components of issued financial instruments that contain both liability and equity elements are accounted for separately, with the equity component being assigned the residual amount after deducting from the instrument as a whole, the amount separately determined as the fair value of the liability component on the date of issue. After initial measurement, other financial liabilities not qualified and not designated at FVPL are subsequently measured at amortized cost using the effective interest method. Amortized cost is calculated by taking into account any discount or premium on the issue and fees that are an integral part of the EIR. This accounting policy relates to the statement of financial position caption Loans payable and financial liabilities presented under Accounts payable and other accrued other expenses. Derecognition of Financial Assets and Financial Liabilities Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of financial assets) is derecognized when: the rights to receive cash flows from the asset have expired; or the Company retains the right to receive cash flows from the asset, but has assumed as obligation to pay them in full without material delay to a third party under a pass-through arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained the risk and rewards of the asset but has transferred the control over the asset. When the Company has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control over the asset, the asset is recognized to the extent of the Company s continuing involvement in the asset. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of original carrying amount of the asset and the maximum amount of consideration that the Company could be required to repay. Financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expired. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of comprehensive income. Offsetting Financial Instruments Financial assets and financial liabilities are offset and the net amount is reported in the statement of financial position if there is a currently enforceable legal right to set off the recognized amounts and there is intention to settle on a net basis, or to realize the asset and settle the liability

14 - 6 - simultaneously. The Company assesses that it has a currently enforceable right of offset if the right is not contingent on a future event, and is legally enforceable in the normal course of business, event of default, and event of insolvency or bankruptcy of the Company and all of the counterparties. Impairment of Financial Assets The Company assesses at each reporting date whether there is any objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is 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 indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults. Loans and receivables For loans and receivables carried at amortized cost, the Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If there is objective evidence that a credit loss has been incurred, the amount of loss is measured as the difference between the asset s carrying amount and the present value of the estimated future cash flows (excluding future credit losses that have not yet been incurred). The present value of the estimated future cash flows is discounted at the financial asset s original EIR. If a loan has a variable interest rate, the discount rate for measuring any credit loss is the current EIR, adjusted for the original credit risk premium. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. The carrying amount of the asset is reduced through the use of an allowance account and the amount of loss is recognized in the statement of comprehensive income. Interest income continues to be accrued based on the original EIR of the asset. Loans and receivables, together with the associated allowance account, are written off when there is no realistic prospect of future recovery and all collateral has been realized. If the Company determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. These characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors ability to pay all amounts due according to the contractual terms of assets being evaluated. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognized are not included in a collective assessment of impairment. Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist

15 - 7 - currently. Estimates of changes in future cash flows reflect, and are directionally consistent with changes in related observable data from period to period. The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Company to reduce any differences between loss estimates and actual loss experience. If subsequently, the amount of the estimated credit loss decreases because of an event occurring after the impairment was recognized, the previously recognized credit loss is reduced by adjusting the allowance account. If a future write-off is later recovered, any amounts formerly charged are credited to the Provision for (reversal of) credit and impairment losses account in the statement of comprehensive income. Restructured loans Where possible, the Company seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews restructured loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan s original EIR. The difference between the recorded value of the original loan and the present value of the restructured cash flows, discounted at the original EIR, is recognized in Provision for (reversal of) credit and impairment losses in the statement of comprehensive income. Property and Equipment Property and equipment which includes condominium unit, furniture, fixtures and equipment and transportation equipment is stated at cost less accumulated depreciation, and allowance for impairment losses, if any. The initial cost of property and equipment consists of its purchase price, including import duties and non-refundable purchase taxes after deducting trade discounts and rebates, and any costs that are directly attributable to the location and condition necessary for it to be capable of operating in the manner intended by management. Expenditures incurred after the property and equipment have been put into operation, such as repairs and maintenance are normally charged against operations 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 benefits 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 commences when the asset is available for its intended use and is computed using the straight-line method over the estimated useful lives of the property, plant and equipment as follows: Years Condominium unit 25 Furniture, fixtures and equipment 3 to 5 Transportation equipment 5 The useful life and the depreciation and amortization method are reviewed periodically to ensure that the period and the method of depreciation and amortization are consistent with the expected pattern of economic benefits from items of property and equipment.

16 - 8 - An item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. 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 asset) is recognized in Other income in the statement of comprehensive income in the period the asset is derecognized. Investment Properties Investment properties, such as land, are measured initially at cost, including transaction costs. An investment property acquired through an exchange transaction is measured at fair value of the asset acquired unless the fair value of such an asset cannot be measured in which case the investment property acquired is measured at the carrying amount of asset given up. Foreclosed properties are classified under Investment properties upon either: entry of judgment in case of judicial foreclosure; execution of sheriff s certificate of sale in case of extra-judicial foreclosure; or notarization of the deed of dacion en payment in kind (dacion en pago). Expenditures incurred after the investment properties have been put into operations, such as repairs and maintenance costs, are charged against current operations in the year in which the costs are incurred. Subsequent to initial recognition, investment properties are stated at cost less any impairment in value. Investment properties are derecognized when they have either been disposed of or when the investment property is permanently withdrawn from use and no future benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in the statement of comprehensive income under Gain on sale of an investment property in the period of retirement or disposal. Transfers are made to investment properties when, and only when, there is a change in use evidenced by ending of owner occupation and commencement of an operating lease to another party. Transfers are made from investment properties when, and only when, there is a change in use evidenced by commencement of owner occupation or commencement of development with a view to sale. For transfers from investment property to owner-occupied property, the deemed cost of property for subsequent accounting is its depreciated cost at the date of change in use. If the property occupied by the Company as an owner-occupied property becomes an investment property, the Company accounts for such property in accordance with the policy stated under Property and equipment up to the date of change in use. Impairment of Nonfinancial Assets At each reporting date, the Company assesses whether there is an indication that its nonfinancial assets (e.g., property and equipment and investment properties) may be impaired. If any such indication exists or when an annual impairment testing for an asset is required, the Company makes an estimate of the asset s recoverable amount. An asset s recoverable amount is the higher of an asset s fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets, in which case the recoverable amount is assessed as part of the cash generating unit to which it belongs. Where the carrying amount of an asset (or cash

17 - 9 - generating unit) exceeds its recoverable amount, the asset (or cash generating unit) is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset (or cash generating unit). In determining fair value less costs to sell, an appropriate valuation model is used. An impairment loss is charged against operations in the period in which it arises. At each reporting date, an assessment is made as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognized. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized as a credit in the statement of comprehensive income. After such a reversal, the depreciation expense is adjusted in future years to allocate the asset s revised carrying amount, less any residual value, on a systematic basis over its remaining life. Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured, regardless of when the payment is being made. Revenue is measured at the fair value of the consideration received or receivable, taking into account contractually defined terms of payment and excluding taxes or duty. The Company assesses its revenue arrangements against specific criteria in order to determine if it is acting as principal or agent. The Company has concluded that it is acting as principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Leasing income The excess of aggregate lease rentals plus the estimated residual value over the cost of the leased equipment constitutes the unearned lease income. Residual values represent estimated proceeds from the disposal of equipment at the time the lease is terminated. The unearned lease income is amortized over the term of the lease, commencing on the month the lease is executed, using the effective interest method. Finance income Finance charges are included in the face value of the loans receivables financed and with a corresponding credit to the Unearned income account. This is amortized to income over the term of the financing agreement using the effective interest method. Unearned lease and interest income ceases to be amortized when finance receivables become past due for more than three months. Interest income on cash in banks Interest income on cash in banks are recognized as interest accrues, taking into account the effective yield on the asset. Gain on foreclosure of investment properties Gain on foreclosure of properties is recognized upon foreclosure of the properties.

18 Gain on sale of investment properties Income from sale of properties is recognized upon completion of the earning process and the collectability of the sales price is reasonably assured. Service charges and fees Service charges and fees are recognized when earned or accrued when there is a reasonable degree to its collectability. Other income Other income pertains to collection in excess of the processing fees (registration, notarization, transportation, etc.) charged to the borrower. Expense Recognition Expenses are recognized when decrease in future economic benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably. Expenses are recognized when incurred. Interest expense Interest expense for all interest-bearing financial liabilities are recognized under Interest expense in the statement of comprehensive income using the EIR of the financial liabilities to which they relate. Leases The determination of whether an arrangement is, or contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. A reassessment is made after inception of the lease only if one of the following applies: a. there is a change in contractual terms, other than a renewal or extension of the arrangement; b. a renewal option is exercised or extension granted, unless that term of the renewal or extension was initially included in the lease term; c. there is a change in the determination of whether fulfillment is dependent on a specified asset; or d. there is a substantial change to the asset. Where a reassessment is made, lease accounting shall commence or cease from the date when the change in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period for scenario (b). Company as lessee Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are recognized as an expense in the statement of comprehensive income on a straight-line basis over the lease term. Company as lessor When assets are leased out under a finance lease, the present value of the lease payments is recognized as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned lease income. Lease payments are applied against the principal and unearned lease income. The lease payments applied against unearned lease income are included in Leasing income using the effective interest method.

19 When assets are leased out under an operating lease, the asset is included in the statement of financial position based on the nature of the asset. Lease income on operating lease is recognized over the term of the lease on a straight-line basis. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. Retirement Benefits The Company has a non-contributory defined benefit plan. The net defined benefit liability or asset is the aggregate of the present value of the defined benefit obligation at the end of the reporting period reduced by the fair value of plan assets (if any), adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceiling is the present value of any economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan. The cost of providing benefits under the defined benefit plans is actuarially determined using the projected unit credit method. Defined benefit costs comprise the following: Service cost Net interest on the net defined benefit liability or asset Remeasurements of net defined benefit liability or asset Service costs which include current service costs, past service costs and gains or losses on nonroutine settlements are recognized as expense in profit or loss. Past service costs are recognized when plan amendment or curtailment occurs. These amounts are calculated periodically by independent qualified actuaries. Net interest on the net defined benefit liability or asset is the change during the period in the net defined benefit liability or asset that arises from the passage of time which is determined by applying the discount rate based on government bonds to the net defined benefit liability or asset. Net interest on the net defined benefit liability or asset is recognized as expense or income in profit or loss. Remeasurements comprising actuarial gains and losses, return on plan assets and any change in the effect of the asset ceiling (excluding net interest on defined benefit liability) are recognized immediately in other comprehensive income (OCI) in the period in which they arise. Remeasurements are not reclassified to profit or loss in subsequent periods. Plan assets are assets that are held by a long-term employee benefit fund. Plan assets are not available to the creditors of the Company, nor can they be paid directly to the Company. Fair value of plan assets is based on market price information. When no market price is available, the fair value of plan assets is estimated by discounting expected future cash flows using a discount rate that reflects both the risk associated with the plan assets and the maturity or expected disposal date of those assets (or, if they have no maturity, the expected period until the settlement of the related obligations). If the fair value of the plan assets is higher than the present value of the defined benefit obligation, the measurement of the resulting defined benefit asset is limited to the present value of economic benefits available in the form of refunds from the plan or reductions in future contributions to the plan.

20 Income Taxes Provision for income taxes for the year comprise current and deferred tax. Income tax is determined in accordance with tax laws and is recognized in the statement of comprehensive income. Current taxes Current tax assets and current tax liabilities are measured at the amount expected to be recovered from or paid to the taxing authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted as at reporting date. Deferred taxes Deferred tax is provided using the statement of financial position liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences. Deferred tax assets are recognized for all deductible temporary differences, carryforward of unused tax credits and any unused tax losses. Deferred income tax, however, is not recognized on temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting income nor taxable income or loss. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Unrecognized deferred tax assets are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and deferred tax liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognized directly in equity is also recognized in equity and in the statement of comprehensive income. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority. Equity Capital stock is measured at par value for all shares issued and outstanding. When the Company issues more than one class of stock, a separate account is maintained for each class of stock and the number of shares issued. Incremental costs incurred directly attributable to the issuance of new shares are shown in equity as deduction from proceeds, net of tax. The subscribed capital stock is reported in equity less the related subscription receivable not collectible currently. Deficit represents accumulated losses of the Company. Treasury Shares Treasury shares are recorded at cost and are presented as a deduction from equity. Any consideration paid or received in connection with treasury shares are recognized directly in equity.