Pacific Plaza Towers Condominium Corporation (A Nonstock, Not-for-profit Corporation) Financial Statements December 31, 2011 and 2010 and Independent Auditors Report SyCip Gorres Velayo & Co. *SGVMC311686*
SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Philippines Phone: (632) 891 0307 Fax: (632) 819 0872 www.sgv.com.ph BOA/PRC Reg. No. 0001 SEC Accreditation No. 0012-FR-2 INDEPENDENT AUDITORS REPORT The Board of Directors Pacific Plaza Towers Condominium Corporation Report on the Financial Statements We have audited the accompanying financial statements of Pacific Plaza Towers Condominium Corporation (a nonstock, not-for-profit corporation), which comprise the statements of financial position as at December 31, 2011 and 2010, and the statements of comprehensive income, statements of changes in members equity and statements of cash flows for the years then ended, and a summary of significant accounting policies and other explanatory information. Management s Responsibility for the Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with Philippine Financial Reporting Standards for Small and Medium-sized Entities, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditors Responsibility Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with Philippine Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. A member firm of Ernst & Young Global Limited
- 2 - Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of Pacific Plaza Towers Condominium Corporation as at December 31, 2011 and 2010, and its financial performance and its cash flows for the years then ended in accordance with Philippine Financial Reporting Standards for Small and Medium-sized Entities. Report on the Supplementary Information Required Under Revenue Regulations 19-2011 and 15-2010 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 19-2011 and 15-2010 in Notes 20 and 21 to the financial statements, respectively, are presented for purposes of filing with the Bureau of Internal Revenue and are not required parts of the basic financial statements. Such information are the responsibility of the management of Pacific Plaza Towers Condominium Corporation. The information have been subjected to the auditing procedures applied in our audit of the basic financial statements. In our opinion, the information are fairly stated in all material respects in relation to the basic financial statements taken as a whole. SYCIP GORRES VELAYO & CO. Ana Lea C. Bergado Partner CPA Certificate No. 80470 SEC Accreditation No. 0660-AR-1 (Group A), March 3, 2011, valid until March 2, 2014 Tax Identification No. 012-082-670 BIR Accreditation No. 08-001998-63-2009, June 1, 2009, valid until May 31, 2012 PTR No. 3174581, January 2, 2012, Makati City March 20, 2012
PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF FINANCIAL POSITION ASSETS December 31 Current Assets Cash and cash equivalents (Notes 4 and 12) P=33,912,130 P=18,118,130 Receivables (Note 5) 12,581,795 12,628,963 Supplies inventory 6,327,074 6,898,514 Prepayments (Note 6) 14,608,547 5,223,867 Total Current Assets 67,429,546 42,869,474 Noncurrent Assets Property and equipment (Note 7) 12,033,797 13,094,437 Refundable deposits 588,177 588,177 Total Noncurrent Assets 12,621,974 13,682,614 TOTAL ASSETS P=80,051,520 P=56,552,088 LIABILITIES AND MEMBERS EQUITY Current Liabilities Accounts payable and accrued expenses (Notes 8 and 9) P=21,303,160 P=18,683,399 Current portion of utility and renovation bond deposits (Note 10) 6,025,410 5,012,111 Unearned revenue (Note 11) 12,734,980 7,210,657 Total Current Liabilities 40,063,550 30,906,167 Noncurrent Liabilities Utility and renovation bond deposits - net of current portion (Note 10) 10,024,536 12,789,022 Accrued retirement liability (Note 17) 3,023,720 2,459,000 Total Noncurrent Liabilities 13,048,256 15,248,022 Total Liabilities 53,111,806 46,154,189 Members Equity Reserve funds (Note 12) 26,197,539 11,902,239 Accumulated excess (deficiency) of revenue over expenses 742,175 (1,504,340) Total Members Equity 26,939,714 10,397,899 TOTAL LIABILITIES AND MEMBERS EQUITY P=80,051,520 P=56,552,088 See accompanying Notes to Financial Statements.
PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 REVENUE Association dues, fees and other assessments P=140,893,799 P=139,790,682 Rentals (Note 15) 5,942,459 5,591,834 Interest and dividend income 830,388 734,831 Foreign exchange gain 12,460 147,679,106 146,117,347 EXPENSES Utilities 53,813,244 55,151,735 Outsourced services (Note 13) 42,047,807 40,195,917 Taxes and license fees 12,824,713 14,735,197 Insurance 9,694,402 8,606,324 Personnel (Notes 14 and 17) 6,580,993 5,841,027 Depreciation and amortization (Note 7) 5,232,901 6,402,798 Fuel and oil 5,017,068 3,526,282 Repairs and maintenance 4,088,635 3,545,400 Association and garbage dues 1,195,660 1,086,964 Office, cleaning and kitchen supplies 855,872 818,392 Professional fees 840,014 523,361 Pest control 812,483 797,432 Communication 554,239 548,268 Entertainment, amusement and recreation 224,446 247,292 Transportation and travel 106,604 127,022 Foreign exchange loss 129,901 Others 1,415,082 1,310,313 145,304,163 143,593,625 EXCESS OF REVENUE OVER EXPENSES BEFORE INCOME TAX 2,374,943 2,523,722 PROVISION FOR INCOME TAX (Note 18) 128,428 EXCESS OF REVENUE OVER EXPENSES 2,246,515 2,523,722 OTHER COMPREHENSIVE INCOME TOTAL COMPREHENSIVE INCOME P=2,246,515 P=2,523,722 See accompanying Notes to Financial Statements.
PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF CHANGES IN MEMBERS EQUITY FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010 Accumulated Excess Reserve (Deficiency) Funds of Revenue (Note 12) over Expenses Total BALANCES AT DECEMBER 31, 2009 P=11,022,339 (P=4,028,062) P=6,994,277 Contributions to reserve funds 879,900 879,900 Total comprehensive income for the year 2,523,722 2,523,722 BALANCES AT DECEMBER 31, 2010 11,902,239 (1,504,340) 10,397,899 Contributions to reserve funds 14,295,300 14,295,300 Total comprehensive income for the year 2,246,515 2,246,515 BALANCES AT DECEMBER 31, 2011 P=26,197,539 P=742,175 P=26,939,714 See accompanying Notes to Financial Statements.
PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) STATEMENTS OF CASH FLOWS Years Ended December 31 CASH FLOWS FROM OPERATING ACTIVITIES Excess of revenue over expenses before income tax P=2,374,943 P=2,523,722 Adjustments for: Depreciation and amortization (Note 7) 5,232,901 6,402,798 Interest income (830,388) (734,831) Changes in accrued retirement liability (Note 17) 564,720 436,738 Unrealized foreign exchange loss (gain) (12,460) 129,901 Excess of revenue over expenses before changes in working capital 7,329,716 8,758,328 Decrease (increase) in: Receivables 47,168 1,359,016 Supplies inventory 571,440 1,319,807 Prepayments (9,513,108) 139,623 Increase (decrease) in: Accounts payable and accrued expenses 2,619,761 1,802,517 Utility and renovation bond deposits (1,751,187) 530,787 Unearned revenue 5,524,323 (2,755,625) Net cash from operating activities 4,828,113 11,154,453 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment (Note 7) (4,172,261) (4,770,356) Interest received 830,388 734,831 Cash used in investing activities (3,341,873) (4,035,525) CASH FLOWS FROM FINANCING ACTIVITIES Contributions to reserve fund (Note 12) 14,295,300 879,900 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 12,460 (129,901) INCREASE IN CASH AND CASH EQUIVALENTS 15,794,000 7,868,927 CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 18,118,130 10,249,203 CASH AND CASH EQUIVALENTS AT END OF YEAR (Note 4) P=33,912,130 P=18,118,130 See accompanying Notes to Financial Statements.
PACIFIC PLAZA TOWERS CONDOMINIUM CORPORATION (A Nonstock, Not-for-profit Corporation) NOTES TO FINANCIAL STATEMENTS 1. Corporate Information and Authorization for Issue of the Financial Statements Corporate Information Pacific Plaza Towers Condominium Corporation (the Company) was incorporated in the Philippines on October 17, 2000 as a nonstock, not-for-profit corporation, pursuant to the provisions of Republic Act (RA) No. 4726, otherwise known as The Condominium Act, for the purpose of holding title to the common areas of the Pacific Plaza Towers Condominium Project and of managing the said project, and for such other purposes as necessary, incidental and convenient to accomplish the said purposes. Any and all monies and assets of the Company shall be devoted exclusively to the furtherance of the aforesaid purposes, and no part of its income is distributable as dividends to any of its members, directors or officers. The Company s registered address is Pacific Avenue, Fort Bonifacio Global City, Taguig, Metro Manila. The Company, being a nonstock, not-for-profit organization, no part of the net income of which inures to the benefit of any individual, falls under Section 30(f) of RA No. 8424 entitled An Act Amending the National Internal Revenue Code, As Amended and for Other Purposes. The income derived from activities conducted in pursuit of the objectives for which the Company was established is exempt from income tax. However, any income from any activity conducted for profit regardless of the disposition of such income, is subject to income tax. Authorization for Issue of the Financial Statements The financial statements were authorized for issue by the Board of Directors (BOD) on March 20, 2012. 2. Summary of Significant Accounting and Financial Reporting Policies Basis of Preparation The financial statements of the Company have been prepared under the historical cost basis and are presented in Philippine peso (Peso). All amounts were rounded to the nearest Peso except when otherwise indicated. Statement of Compliance The financial statements of the Company have been prepared in accordance with the Philippine Financial Reporting Standards for Small and Medium-sized Entities (PFRS for SMEs). Cash and Cash Equivalents Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash with original maturities of three months or less and are subject to an insignificant risk of changes in value. Financial Instruments As permitted by PFRS for SMEs, the Company opted to follow Philippine Accounting Standards 39, Financial Instruments: Recognition and Measurement, instead of following Section 11, Basic Financial Instruments and Section 12, Other Financial Instruments in the accounting policies for financial instruments.
- 2 - Financial assets and liabilities are recognized when the entity becomes a party to the contracts and measured at their transaction price including transactions costs. Financial assets and financial liabilities are recognized initially at fair value, which is the fair value of the consideration given (in case of asset) or received (in case of liability). The Company classifies its financial assets as loans and receivables while financial liabilities as other financial liabilities. The Company determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at each financial year-end. a. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments and are not quoted in an active market. After initial recognition, such assets are carried at amortized cost using the effective interest method, less any allowance for impairment losses Gains and losses are recognized in profit or loss when the loans and receivables are derecognized or impaired, as well as through the amortization process. Loans and receivables are included in current assets if maturity is within 12 months from the financial reporting date. Otherwise, it is classified as noncurrent assets. This category primarily includes the Company s cash in banks, receivables and refundable deposits as of December 31, 2011 and 2010 (see Notes 4 and 5). b. Other financial liabilities Other financial liabilities are financial liabilities not held for trading or not designated as at FVPL upon the inception of the liability. These liabilities are initially recognized at the fair value of the consideration received less directly attributable transaction costs. After initial recognition, these liabilities are subsequently measured at amortized cost using effective interest method. Amortized cost is calculated by taking into account any issue costs and any discount or premium on settlement. Gains and losses are recognized in profit and loss when the liability is derecognized or amortized. As of December 31, 2011 and 2010, the Company s accounts payable and accrued expenses, utility and renovation bond deposits and unearned revenue are classified under this category (see Notes 9, 10 and 11). Impairment of Financial Assets An assessment is made at each financial reporting date to determine whether there is objective evidence of a possible impairment. Financial assets are deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. Evidence of impairment may include indications that the borrower or a group of borrowers is experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will enter bankruptcy or other financial reorganization and where observable data indicates that there is measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.
- 3 - Derecognition of Financial Instruments The Company derecognizes a financial asset when: The contractual rights to receive the cash flows from the financial asset expire or are settled; The entity transfers to another party substantially all of the risks and rewards of ownership of the financial asset; and The entity, despite having retained some significant risks and rewards of ownership, has transferred control of the asset to another party and the other party has the practical ability to sell the asset in its entirety to an unrelated third party. The Company derecognizes a financial liability when extinguished, discharged, cancelled or has expired. Supplies Inventory Supplies inventory is stated at cost less any allowance for inventory obsolescence. Cost is determined by specific identification method. Prepayments Prepayments are expenses paid in advance and recorded as asset before they are utilized. This account comprises prepaid real property tax, prepaid insurance and creditable withholding tax (CWT). Prepaid real property tax and prepaid insurance is apportioned over the period covered by the payment and charged to the appropriate accounts in profit or loss when incurred. CWTs represent the amounts withheld from income payments which can be deducted from income tax payable. Prepayments that are expected to be realized for no more than 12 months after the reporting period are classified as current assets; otherwise these are classified as other noncurrent assets. Property and Equipment Property and equipment are stated at cost less accumulated depreciation and amortization, and any impairment in value. The initial cost of an item of property and equipment consists of its purchase price, including taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property and equipment have been put into operations, such as repairs and maintenance, are normally charged to income in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefit expected to be obtained from the use of an item of property and equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property and equipment. Depreciation and amortization commences when the asset is ready for its intended use. Depreciation and amortization is computed on a straight-line basis over the estimated useful lives of the assets as follows: Number of Years Communication equipment 2-3 Furniture, fixtures and office equipment 3-5 Building improvements 3-10 Other facilities and equipment 3-10 The estimated useful lives and depreciation method are reviewed only if there are indicators that they have changed since the most recent financial reporting date.
- 4 - When assets are sold, retired or otherwise disposed of, both the cost and the related accumulated depreciation are removed from the accounts and any resulting gain or loss is recognized in profit or loss. Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation is recognized in profit or loss. Impairment of Property and Equipment The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate that the carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets or cash-generating units are written down to their recoverable amount. The recoverable amount of property and equipment is the greater of fair value less cost to sell and value-in-use. In assessing value-in-use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment loss, if any, is recognized in profit or loss. Accounts Payable and Accrued Expenses Accounts payable and accrued expenses are recognized in the period in which the related money, goods or services are received or when legally enforceable claim against the Company is established. Utility and Renovation Bond Deposits Utility deposits represent collections received from members as guarantee payments for water and electricity bills paid by the Company in advance to utility companies. These deposits are returned to unit owners upon the sale of their unit and the new unit owner is likewise assessed for such deposits. Renovation bond deposits are deposits to cover for unpaid building construction-related charges such as use of water and electricity in the common areas, violation of garbage hauling procedures, extended use of the service elevator and other charges. The unused portion of the renovation bond is refunded to unit owners or their respective contractors upon completion of the renovation with the necessary clearance from the Company. Members Equity Reserve funds represent joining fees of the unit owners of the condominium based on the covered areas of the respective units owned. Accumulated Excess (Deficiency) of Revenue Over Expenses Accumulated excess (deficiency) of revenue over expenses represents the cumulative balance of excess of revenue over expenses, prior period adjustments, effects of changes in accounting policy and other capital adjustments. Revenue Revenue is recognized to the extent that the economic benefit will flow to the Company and revenue can be measured reliably. The following specific recognition criteria must also be met before revenue is recognized: Association dues, fees and other assessments are recognized as income over the period to which they pertain. Accordingly, association dues received as of reporting date pertaining to the period commencing after such date are included in the Unearned revenue account in the statement of
- 5 - financial position. The amount of association dues billed to members is subject to increases imposed by the Company based on the review of actual and projected operational expenses in the year under review, plus any other assessment. The BOD presents an estimate of the operating expenses of the Company and assesses the same against each member in proportion to the members proprietary interest. Unpaid dues and fees are duly accrued in the accounts. Rentals arising from operating leases are accounted for on a straight-line basis over the lease term. Interest income is recognized as the interest accrues, taking into account the effective yield of an asset. Cost and Expenses Cost and expenses constitute costs of administering the business. These expenses are recognized in profit or loss when incurred. Retirement Benefits Cost The Company accrues for the retirement benefits cost and liability, net of the cash value of the insurance policy covering the retirement benefits, based on the number of years served as provided in the employment contract and the provisions of Republic Act No. 7641, The Retirement Pay Law. Retirement benefits cost is the net change in the accrued retirement liability that is charged to expense for each of the reporting period. The Company makes the following simplifications in the determination of the accrued retirement liability: a. ignore estimated future salary increase; b. ignore future service of employee; c. ignore possible in-service mortality of employee; and d. ignore present value calculation. Foreign Currency-denominated Transactions Foreign currency-denominated transactions are recorded in Peso by applying to the foreign currency amount the exchange rate between the Peso and foreign currency at the date of transaction. Outstanding foreign currency-denominated monetary assets and liabilities are restated to Peso using the closing exchange rates at the reporting date. Foreign exchange gains and losses arising from the settlement of monetary items at rates different from those at which these where initially recorded during the year are credited to or charged against operations. Operating Lease Leases where the lessor retains substantially all the risks and benefit of ownership of the asset are classified as operating leases. The revenue recognition policy on rental income is discussed in Revenue policy. Income Tax Provision for income tax for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the financial reporting date. Provisions Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefit will be required to settle the obligation and a reliable estimate of the obligation can be made.
- 6 - Contingencies Contingent liabilities are not recognized in the financial statements. They are disclosed in the notes to financial statements unless the possibility of an outflow of resources embodying economic benefit is remote. Contingent assets are not recognized in the financial statements but disclosed in the notes to financial statements when an inflow of economic benefit is probable. Events after the Financial Reporting Date Post year-end events that provide additional information about the Company s position at the financial reporting date (adjusting events) are reflected in the financial statements. Post year-end events that are not adjusting events are disclosed in the notes to financial statements when material. 3. Significant Accounting Judgments and Estimates The preparation of the financial statements in accordance with PFRS for SMEs requires the Company to exercise judgments and make estimates that affect the amounts reported in the financial statements and accompanying notes. The judgments and estimates used in the financial statements are based upon evaluation of relevant facts and circumstances as of reporting date. Future events may occur which can cause the assumptions used in arriving at those judgments and estimates to change. The effects of any changes will be reflected in the financial statements of the Company as they become reasonably determinable. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The following presents a summary of these significant judgments and estimates: Judgments In the process of applying the Company s accounting policies, the following judgments were made, apart from those involving estimations, which has the most significant effect on the amounts recognized in the financial statements: Determination of impairment of receivables The Company reviews its receivables to assess impairment annually. In determining whether an impairment loss should be recorded in profit or loss, the Company makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from the receivables taking into consideration the length of relationship and credit status of the unit owners and historical experience. Based on management s assessment, receivables are not impaired; hence, no provision for doubtful accounts was recognized in the Company s financial statements in 2011 and 2010. Receivables amounted to P=12,581,795 and P=12,628,963 as of December 31, 2011 and 2010, respectively (see Note 5). Classification of reserve funds The Company has no obligation to return the reserve funds to the respective unit owners either in cash or in another form of asset, and therefore classified and presented under Members equity (see Note 12). Operating lease - Company as lessor The Company has entered into various agreements for the lease of storage space in its common areas. The Company has determined that it retains all the significant risks and rewards of ownership of the property and therefore, classified the lease as operating lease.
- 7 - Rental income amounted to P=5,942,459 in 2011 and P=5,591,834 in 2010 (see Note 15). Estimates The key estimates concerning the future and other key sources of estimation uncertainty at the financial reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of the assets and the liabilities within the next financial year are discussed below. Estimation of the useful lives of property and equipment The useful lives of property and equipment are based on the periods over which the assets are expected to be available for use. The estimated useful lives are reviewed only if there are indicators that they have changed and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the asset. There was no change in the estimated useful lives of property and equipment. The carrying value of property and equipment amounted to P=12,033,797 and P=13,094,437 as of December 31, 2011 and 2010, respectively (see Note 7). Estimation of current portion of utility and renovation bond deposits The Company determines at each reporting period the estimated utility and renovation deposits to be refunded to the unit owners within a year based on historical trends of sale of condominium units. The remaining balance of utility and renovation bond deposits is presented as noncurrent liability since it is more likely than not that the refund of these deposits will not be demanded by the unit owners as the sale of condominium units is not expected in the succeeding year (see Note 10). Estimation of retirement benefits cost and liability The Company estimates for the retirement benefits cost and liability as provided in the employment contracts of the employees equivalent to two months salary for every year of service, net of the cash value of the insurance policy. Retirement benefit cost amounted to P=1,189,365 in 2011 and P=686,753 in 2010. Accrued retirement liability amounted to P=3,023,720 and P=2,459,000 as of December 31, 2011 and 2010 (see Note 17). 4. Cash and Cash Equivalents Cash on hand and in banks (Note 12) P=33,912,130 P=7,937,832 Short-term investments 10,180,298 P=33,912,130 P=18,118,130 Cash in banks earn interest at the respective bank deposit rates. Short-term investments are made for varying periods depending on the immediate cash requirements of the Company, and earn interest at 3.50% to 4.12% in 2011 and 3.25 % to 3.75% in 2010. Interest income earned amounted to P=828,388 in 2011 and P=705,521 in 2010.
- 8-5. Receivables Receivables from members: Light and water P=8,299,589 P=8,061,906 Association dues 1,107,044 2,664,942 Storage 786,379 763,924 Other assessments 1,285,722 821,063 11,478,734 12,311,835 Receivables from third parties: Insurance claims 649,137 Service contractor 82,186 77,637 Others 371,738 239,491 P=12,581,795 P=12,628,963 Insurance claims receivable represent amounts confirmed by the Company s insurer as compensation for loss due to water leakage in 2011. In 2011, the Company presented in separate line items the receivables pertaining to storage and other assessments previously included under Light and water in 2010, to conform with the 2011 presentation. 6. Prepayments Prepaid real property tax P=11,022,442 P=3,124,777 Prepaid insurance 2,720,760 1,704,906 Creditable withholding tax 389,430 394,184 Other prepayments 475,915 P=14,608,547 P=5,223,867 In 2011, the Company opted to pay in advance the real property taxes for 2012. prepayments represent advance payments for association dues and other charges. Other 7. Property and Equipment December 31, 2011: Furniture, Fixtures Other Building and Office Communication Facilities and Improvements Equipment Equipment Equipment Total Cost Beginning balances P=8,223,537 P=5,261,147 P=1,083,604 P=31,386,307 P=45,954,595 Additions 185,062 628,320 96,428 3,262,451 4,172,261 Ending balances 8,408,599 5,889,467 1,180,032 34,648,758 50,126,856 (Forward)
- 9 - Furniture, Fixtures Other Building and Office Communication Facilities and Improvements Equipment Equipment Equipment Total Accumulated Depreciation and Amortization Beginning balances P=5,020,864 P=3,882,674 P=1,053,999 P=22,902,621 P=32,860,158 Depreciation and amortization 1,389,629 698,713 58,753 3,085,806 5,232,901 Ending balances 6,410,493 4,581,387 1,112,752 25,988,427 38,093,059 Net Book Values P=1,998,106 P=1,308,080 P=67,280 P=8,660,331 P=12,033,797 December 31, 2010: Furniture, Fixtures Other Building and Office Communication Facilities and Improvements Equipment Equipment Equipment Total Cost Beginning balances P=6,626,171 P=4,570,570 P=1,083,604 P=28,903,894 P=41,184,239 Additions 1,597,366 690,577 2,482,413 4,770,356 Ending balances 8,223,537 5,261,147 1,083,604 31,386,307 45,954,595 Accumulated Depreciation and Amortization Beginning balances 3,516,789 3,074,962 1,017,144 18,848,465 26,457,360 Depreciation and amortization 1,504,075 807,712 36,855 4,054,156 6,402,798 Ending balances 5,020,864 3,882,674 1,053,999 22,902,621 32,860,158 Net Book Values P=3,202,673 P=1,378,473 P=29,605 P=8,483,686 P=13,094,437 The Company holds the title to the common areas of the Pacific Towers Condominium transferred by the contractor/developer. Property and equipment with an aggregate cost of P=24,323,401 and P=18,118,948 were fully depreciated as of December 31, 2011 and 2010, respectively. These fully depreciated assets are still being used in the Company s operations. 8. Meralco Refund As a customer of Meralco, the Company was granted refund for some of its previous payments of Meralco billings under Phase IV of Meralco s refund scheme. A portion of the refund will be reimbursed to the contractors and members of the Company through deduction from its subsequent billings until December 31, 2010 based on the timing of the receipt of post-dated checks. Total liabilites (see Note 9) arising from the Meralco transaction, net of its related deferred interest expense, as of December 31 follow: Contractors - net of deferred interest expense of P=7,306 in 2010 (nil in 2011) P=427,572 P=494,599 Members - net of deferred interest expense of P=6,315 in 2010 (nil in 2011) 210,088 210,088 P=637,660 P=704,687 Both payables were discounted using an effective interest rate of 5.64%.
- 10-9. Accounts Payable and Accrued Expenses Accounts payable P=5,208,461 P=2,175,026 Accrued utilities 11,091,639 10,079,037 Accrued service contracts 3,252,777 4,414,081 Payable to members and contractors (Note 8) 637,660 704,687 Withholding taxes payable 232,524 503,949 Value-added tax (VAT) payable 17,490 10,526 Others 862,609 796,093 P=21,303,160 P=18,683,399 10. Utility and Renovation Bond Deposits Current portion: Renovation bond deposits P=3,159,111 P=3,459,111 Utility deposits 2,866,299 1,553,000 6,025,410 5,012,111 Noncurrent portion - utility deposits 10,024,536 12,789,022 P=16,049,946 P=17,801,133 The current portion of the deposits is the amount expected to be refunded within the next twelve months. 11. Unearned Revenue Association dues P=9,764,756 P=4,877,658 Storage 2,670,283 2,066,696 Others 299,941 266,303 P=12,734,980 P=7,210,657 12. Reserve Funds Reserve funds consist of joining fees of unit owners of the condominium based on the covered areas of the respective units owned. In 2010, the reserve funds were segregated as joining fees and special reserve funds representing joining fees paid by the second and succeeding unit owners of the condominium units. In July 2011, the Company received past joining fees from the developer amounting to P=13,844,400.
- 11-13. Outsourced Services Manpower P=15,457,735 P=14,781,293 Security 10,271,571 9,810,304 Maintenance 8,550,087 8,257,830 Housekeeping 7,768,414 7,346,490 P=42,047,807 P=40,195,917 14. Personnel Costs ` Salaries P=5,078,101 P=3,818,977 Employee benefits 313,527 1,335,297 Retirement benefits cost (Note 17) 1,189,365 686,753 P=6,580,993 P=5,841,027 Employee benefits in 2011 and 2010 include unused leave credits convertible to cash amounting to P=92,247 and P=755,722, respectively. 15. Rentals The Company earns rentals from the lease of storage space in its common areas. Storage area leased out covers 3,359 square meters in 2011 and 2010. In April 2011, the BOD approved the increase in the annual rate from P=1,860 per sq. m. to P=2,040 per sq. m. Rentals amounted to P=5,942,459 in 2011 and P=5,591,834 in 2010. 16. Related Party Transactions Related party relationships exist when the entity has the ability to control, directly or indirectly, through one or more intermediaries, or exercise significant influence over the entity in making financial and operating decisions. Such relationships also exist between and/or among entities which are under common control with the reporting entity and its key management personnel, directors or members. In considering each possible related party relationship, attention is directed to the substance of the relationships, and not merely to the legal form. In 2010, the Company availed of the service of an insurance broker to assist the Company in its property insurance requirements, where a member of the Company s BOD/management is a partowner of the said insurance broker. As the normal insurance brokering practice goes, premium billings by the insurance providers to the Company is coursed through the insurance broker and premium payments by the Company to the insurance providers is coursed through the insurance broker. The Company does not pay a separate fee to the insurance broker for said services. The insurance providers pay the insurance broker a fee based on standard industry rates. The said member of the Company s BOD/management did not participate in the deliberation and votation for the approval of the transaction.
- 12-17. Retirement Benefit Cost The Company estimates for the retirement benefits cost and liability as provided in the employment contract equivalent to two months salary for every year of service and the provisions of The Retirement Pay Law, net of the cash value of the insurance policy obtained to cover the cost of the retirement benefits. The following tables summarize the components of the retirement benefit cost recognized in the statements of comprehensive income and the amounts of accrued retirement liability recognized in the statements of financial position: a. Retirement benefit cost charged to expenses consist of: Current service cost P=843,257 P=925,000 Return on benefit fund 346,108 (238,247) P=1,189,365 P=686,753 b. The movements in the accrued retirement liability follow: Beginning of year P=4,025,000 P=3,100,000 Retirement benefit cost 843,257 925,000 End of year P=4,868,257 P=4,025,000 c. Changes in the present value of accrued retirement liability follow: Beginning of year P=2,459,000 P=2,022,262 Current service cost 843,257 925,000 Return on benefit fund 346,108 (238,247) Contributions (insurance premiums paid) (624,645) (250,015) End of year P=3,023,720 P=2,459,000 d. Changes in the fair value of plan assets follow: Beginning of year P=1,566,000 P=1,077,738 Contributions (insurance premiums paid) 624,645 250,015 Return on benefit fund (346,108) 238,247 End of year P=1,844,537 P=1,566,000 18. Income Tax The income derived from the activities conducted in pursuit of the objectives for which the Company was established is exempt from income tax. However, any income from any activity conducted for profit regardless of the disposition of such income, is subject to income tax.
- 13 - Provision for income tax is computed using the regular corporate income tax rate of 30% on incidental income such as storage rentals in 2011 and 2010 (see Note 15). 19. Financial Instruments The Company s financial instruments as of December 31 follow: Financial Assets Loans and receivables: Cash and cash equivalents* P=33,842,130 P=18,048,130 Receivables 12,581,795 12,628,963 Refundable deposits 588,177 588,177 P=47,012,102 P=31,265,270 Financial Liabilities Other financial liabilities: Accounts payable and accrued expenses** P=21,038,506 P=18,128,554 Utility and renovation deposits 16,049,946 17,801,133 Unearned revenue 12,734,980 7,210,657 P=49,823,432 P=43,140,344 * Excluding cash on hand amounting to P=70,000 as of December 31, 2011 and 2010. ** Excluding payables to government agencies amounting to P=264,654 and P=554,845 as of December 31, 2011 and 2010, respectively. Due to the short-term nature of the transactions, the carrying amounts of loans and receivables and other financial liabilities approximate their fair values at reporting date. 20. Supplementary Information Required Under Revenue Regulations 19-2011 The Company reported the following schedules and information on taxable income and deductions to be taken during taxable year 2011: Sale of Services The Company s sale of services for the taxable year 2011 follows: Exempt revenue P=140,906,259 Taxable storage rentals 5,942,459 P=146,848,718 The Company s exempt revenue comprises of association dues and other assessments from members. Cost of Services Cost of services directly related to the taxable sale of services follow: Direct Charges - Materials, Supplies, and Facilities P=5,076,355 Direct Charges - Outside Services 44,668 Direct Charges - Others 393,344 P=5,514,367
- 14 - Itemized Deductions Under Exempt Transactions Communication, light and water P=49,323,955 Other outside services 42,003,139 Taxes and licenses 12,824,713 Insurance 9,301,058 Salaries and allowances 6,580,993 Depreciation 5,232,901 Fuel and oil 5,017,068 Repairs and maintenance - materials/supplies 4,088,635 Association dues 1,195,660 Office supplies 855,872 Professional fees 840,014 Pest control 779,656 Representation and entertainment 224,446 Transportation and travel 106,604 Miscellaneous 1,415,082 P=139,789,796 21. Supplementary Information Required Under Revenue Regulations 15-2010 In compliance with the requirements set forth by RR 15-2010, hereunder are the information on taxes and license fees paid or accrued during the taxable year 2011: Output VAT a. The Company is a VAT-registered company with output VAT declaration of P=793,980 for the taxable year 2011 representing storage rentals amounting to P=6,616,500. b. The Company has exempt revenue amounting to P=140,906,259 pursuant to the provisions of RA 4726, otherwise known as The Condominium Act. Taxes and License Fees Withholding Taxes Real property tax P=12,509,552 Business permits and licenses 315,161 P=12,824,713 Withholding tax on compensation and other benefit P=1,232,820 Expanded withholding tax 648,393 P=1,881,213