CROWNFORD GENERAL CORP.

NOTES TO FINANCIAL STATEMENTS

As of and for the year ended December 31, 2014 and 2013
(Amounts in Philippine Pesos)

1. CORPORATE INFORMATION

CROWNFORD GENERAL CORP. was incorporated with the Philippine Securities

and Exchange Commission on June 18, 2013 with SEC Registration No.
CS201311548. The Company’s primary purpose is to engage in, conduct and carry
in the business of buying, selling, distributing, marketing at wholesale and in so
far as maybe permitted by Law, all kinds of goods, wares and merchandise of
every kind and description, to enter into all kinds of for the export/import
purchase, acquisition, sale at wholesale and other disposition for its own accounts
as principal or in representative capacity as manufacturers, representative
merchandise broker, indentor, commission merchant, factors or agents upon
consignment of all kinds of goods, wares, merchandise or products whether
natural or artificial.

The registered principal office of the company is at 190 D. Tuazon St. Sta, Mesa
Heights, Quezon City, with Tax Identification No. 008-555-552.

The Company has 15 regular employees as of December 31, 2014.

The financial statements of the company for the years ended December 31, 2014
and 2013 were authorized for issue by the Company’s Board of Directors on
February 18, 2015.

2. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these financial
statements are set out below. These policies have been consistently applied to all
the years presented, unless otherwise stated.

2.1 Basis of Preparation

The Company’s financial statements have been prepared under the historical cost
basis and 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.

The accompanying financial statements have been prepared on a going concern

basis, which contemplate the realization of assets and settlement of liabilities in
the normal course of business.

Notes to Financial Statements Page 1

 2.2 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).

2.3 Accounting Policies Adopted

The following accounting standards that have been published and issued by the
International Accounting Standards Board (IASB) and adopted by the FRSC which
became effective for accounting periods beginning on or after January 1, 2009
were adopted by the Company:
Section 1 - Small and Medium – Sized Entities
Section 2 - Concepts and Pervasive Principles
Section 3 - Financial Statement Presentations
Section 4 - Statement of Financial Position
Section 5 Statement of Comprehensive Income and
Income Statement
Section 6 - Statement 0f Changes in Equity and
Statement of Income And Retained
Earnings

Section 7 - Statement of Cash Flows

Section 8 - Notes to Financial Statements
Section 10 - Accounting Policies, Estimates and Errors
Section 11 - Basic Financial Instruments
Section 13 - Inventories
Section 17 - Property and Equipment
Section 20 - Leases
Section 21 - Provisions and Contingencies
Section 22 - Liabilities and Equity
Section 23 - Revenue
Section 27 - Impairment of Assets
Section 28 - Employee Benefits
Section 29 - Income Tax
Section 32 - Events after the End of the Reporting
Period
Section 33 - Related Party Disclosures

The effects of these new standard, amendments and interpretations on the

Company’s accounting policies and on the amounts disclosed in the financial
statements are summarized as follows:
Section 1, “Small and Medium-Sized Entities”, IFRS for SME’s is intended for
Non Publicly Accountable Entities that publish general purpose financial
statements for external users

Section 2,” Concepts and Pervasive Principles” describes the objective of

financial statements of small and medium-sized entities (SMEs) and the

Notes to Financial Statements Page 2

 qualities that make the information in the financial statements of SMEs useful.
It also sets out the concepts and basic principles underlying the financial
statements of SMEs.

Section 3, “Financial Statement Presentation,” provides a framework within

which an entity assesses how to present fairly the effects of transactions and
other events. It requires that an entity shall make an explicit and unreserved
statement of compliance with IFRS for SMEs in the notes, complete sets of
financial statements must be presented at least annually and at least one year
comparative statements and note data, and items should be consistently
presented and classified from one period to the next.

Section 4, “Statement of Financial Position”, provides specific requirements

on the presentation, classification and related disclosures of entity’s assets,
liabilities and equity as of a specific date.

Section 5, “Statement of Comprehensive Income and Income Statement”,

provides specific requirements on the presentation, classification and related
disclosures of entity’s total comprehensive income, its financial performance
for the period in one or two financial statements.

Section 6, “Statement of Changes in Equity and Statement of Income and

Retained Earnings”, sets out requirements for presenting the changes in an
entity’s equity for a period, either in a statement of changes in equity or, if
specified conditions are met and an entity chooses, in a statement of income
and retained earnings the cost of inventories is no longer acceptable.

Section 7, “Statement of Cash Flows”, requires the provision of information

about the historical changes in cash and cash equivalents of an entity by
means of a cash flow statement which classifies cash flows during the period
from operating, investing and financing activities.

Section 8, “Notes to Financial Statements”, sets out the principles underlying

information that is to be presented in the notes to the financial statements
and how to present it. Notes contain information in addition to that presented
in the statement of financial position, statement of comprehensive income,
income statement (if presented), combined statement of income and retained
earnings (if presented), statement of changes in equity, and statement of cash
flows. Notes provide narrative descriptions or desegregations of items
presented in those statements and information about items that do not qualify
for recognition in those statements. In addition to the requirements of this
section, nearly every other section of this IFRS requires disclosures that are
normally presented in the notes.

Section 10, “Accounting Policies, Estimates and Errors,” eliminates the

concept of fundamental error and the allowed alternative to retrospective
application of voluntary changes in accounting policies and retrospective
restatement to correct prior period errors. The section defines material

Notes to Financial Statements Page 3

 omissions and misstatements and describes how to apply the concept of
materiality when applying accounting policies and correcting errors.

Section 11, “Basic Financial Instruments’, applies to basic financial

instruments and is relevant to all entities. An entity shall recognize a financial
asset or a financial liability only when the entity becomes a party to the
contractual provisions of the instrument. When a financial asset or financial
liability is recognized initially, an entity shall measure it at the transaction
price unless the arrangement constitutes, in effect, a financing transaction.

Section 13, “Inventories”, limits the alternatives for measurement of

inventories. Inventories are measured at the lower of cost and estimated
selling price less costs to complete and sell. Cost is determined using specific
identification for large items and FIFO or weighted average for others.
Inventory cost includes cost to purchase, costs of conversion and costs to
bring the asset to present location and condition. Impairment write down to
net realizable value.

Section 17, “Property and Equipment,” prescribes the accounting treatment

and related disclosures for property and equipment, investment property, and
non-current assets held for sale whose fair value cannot be measured reliably
without undue cost and effort. It provides guidance on initial and subsequent
recognition as well as measurement after recognition. It requires
depreciation for each significant part of an item of property, plant and
equipment. The standard also provides guidance on the determination of the
carrying amount of the assets, the residual value, and depreciation period and
derecognition principles to be observed.

Section 20, “Leases”, prescribes that lease payments under operating leases
shall be recognized as income/expense on a straight-line basis unless another
basis is more representative of the timing of the benefits obtained by the user
of the asset or the payments are structured to increase in line with expected
general inflation.

Section 21, “Provisions and Contingencies”, ensures that appropriate

recognition criteria and measurement basis are applied to provisions,
contingent liabilities and contingent assets and that sufficient information is
disclosed in the notes to financial statements to enable users to understand
their nature, timing and amount.

Section 22, “Liabilities and Equity”, establishes principles for classifying

financial instruments as either liabilities or equity and addresses accounting
for equity instruments issued to individuals or other parties acting in their
capacity as investors in equity instruments (ie in their capacity as owners).

Section 23, “Revenue”, provides additional guidelines as to the timely

recognition of revenue, which is measured at the fair value of the
consideration received or receivable.

Notes to Financial Statements Page 4

 Section 27, “Impairment of Assets”, prescribes the procedures that an entity
applies to ensure that its assets are carried at no more than their recoverable
amount if its carrying amount exceeds the amount to be recovered through
use or sale of the asset. If this is the case, the asset is described to be impaired
and the standard requires the entity to recognize an impairment loss. The
section also specifies when an entity should reverse an impairment loss
previously recognized.

Section 28, “Employee Benefits,” applies to all employee benefits offered by

an employer to employees and their dependents and beneficiaries. This
section applies to employee benefits under: (i) formal plans and agreements
between an enterprise and its employees, (ii) national, local, industry or
multi-employer plans; and informal practices giving rise to a constructive
obligation. This section also identifies the following categories of employee
benefits such as short-term employee benefits, post employment benefits,
other long-term employee benefits and termination benefits. 

Section 29, “Income tax,” covers accounting for income tax. It requires an
entity to recognize the current and future tax consequences of transactions
and other events that have been recognized in the financial statements.

Section 32, “Events After the End of the Reporting Period,” defines events
after the end of the reporting period and sets out principles for recognizing,
measuring and disclosing such events.

Section 33, “Related Party Disclosures,” provides additional guidance and

clarity in the scope, definitions and the disclosures for related parties. It
requires disclosure of the compensation of key management personnel.

The adoption of the above standards, amendments and interpretations, upon

which the Company has opted to adopt, did not have any significant effect on
the Company’s financial statements. These, however, require additional
disclosures on the Company’s financial statements.

Financial Assets
Financial assets include cash, trade & other receivables.
Cash
Cash are stated at face value. Cash includes cash in bank and petty cash fund.

Accounts Receivables
Trade receivables, which are based on normal credit terms and do not bear
interest, are recognized and carried at original invoice amounts. Where credit
is extended beyond normal credit terms, receivables are measured at
amortized cost using the effective interest rate (EIR) method. At the end of
each reporting period, the carrying amounts of trade and other receivables
are reviewed to determine whether there is objective evidence that the
amounts are not recoverable. If so, an impairment loss is recognized
immediately in profit or loss.

Notes to Financial Statements Page 5

 Inventories
Inventories are valued at the lower of cost or net realizable value (NVR). NVR
is the estimated selling price in the ordinary course of business, less the
estimated costs of completion, marketing and distribution.

Other Current Assets

Other current assets are carried at its transaction cost, and include
prepayments and Advances to fiber dealers which pertain to acquisition of
abaca fibers.

Input Taxes
Input taxes represent value added tax (VAT) paid to suppliers that can be
claimed as credits against the company’s Output Tax liabilities.

Property and Equipment

Property and equipment are stated at cost, excluding the costs of day-to-day
servicing, less accumulated depreciation and amortization and any
impairment in value.
The initial cost of property and equipment comprises its purchase price 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 and overhaul costs, are normally charged to operations in the
period 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 additional costs of property
and equipment. Interests on borrowed funds are normally charged to
operations. When assets are sold or retired, their costs and accumulated
depreciation, amortization and impairment losses, if any, are eliminated from
the accounts and any gain or loss resulting from their disposal is included in
the statement of operations of such period.
Depreciation and amortization are calculated on a straight-line basis over the
useful lives of the assets.
The assets' residual values, useful lives and depreciation and amortization
method are reviewed, and adjusted if appropriate, if there is an indication that
there has been indication of significant change since the last annual reporting
date.
An item of property and equipment is derecognized upon disposal or when no
future economic benefits are expected to arise from the continued use of the
asset. Any gain or loss arising on derecognition of the asset (calculated as the
difference between the net disposal proceeds and the carrying amount of the
item) is included in the statement of operations in the year the item is
derecognized.

Notes to Financial Statements Page 6

 Financial Liabilities

Financial liabilities include trade and other payables and non-interest bearing
borrowings.

Financial liabilities are recognized when the Company becomes a party to the
contractual provisions of the instrument.

Trade and Other Payables

Trade payables represent accounts payables and are recognised initially at the
transaction price and subsequently measured at amortised cost less
subsequent payments. Other payables include accruals such as utility
expenses. Accruals are liabilities to pay for goods or services that have been
received or supplied but have not been paid, invoiced or formally agreed with
the supplier, including amounts if any due to employees. It is necessary to
estimate the amount or timing of accruals, however, the uncertainty is
generally much less than for provisions

Other Current Liabilities

Represents statutory obligations such as SSS payable
Borrowings
Borrowings are recognized initially at the transaction price (that is, the
present value of cash payable to the bank, including transaction costs).
Borrowings are subsequently stated at amortized cost. Interest expense is
recognized on the basis of the effective interest method and is included in
finance costs. Borrowings are classified as current liabilities unless the
Company has an unconditional right to defer settlement of the liability for at
least 12 months after the reporting date.

Financial Instruments

Date of Recognition

The Company recognizes a financial asset or a financial liability in the balance

sheets when it becomes a party to the contractual provisions of the
instrument.

Initial Recognition of Financial Instruments

All financial assets are initially recognized at fair value.

Determination of Fair Value

For all financial instruments not listed in an active market, the fair value is
determined by using appropriate valuation techniques. Valuation techniques
include net present value techniques, comparison to similar instruments for

Notes to Financial Statements Page 7

 which market observable prices exist, options pricing models, and other
relevant valuation models.

Impairment of Financial Assets

The Company assesses at each balance sheet date whether there is 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 measurable decrease in the
estimated future cash flows, such as changes in arrears or economic
conditions that correlate with defaults.

Derecognition of Financial Assets and Financial Liabilities

Financial assets

A financial asset (or, where applicable a part of financial asset or part of a

group of similar financial assets) is derecognized when:
 the rights to receive cash flows from the asset have expired;
 the Company retains the right to receive cash flows from the asset, but
has assumed an 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
substantially all the risks and rewards of the asset, but has transferred
control of the asset.

Financial Liabilities

A financial liability is derecognized when the obligation under the liability is

discharged, 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 income.

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount reported
in the balance sheet if, and only if, there is a currently enforceable legal right

Notes to Financial Statements Page 8

 to offset the recognized amounts and there is an intention to settle on a net
basis, or to realize the asset and settle the liability simultaneously. This is not
generally the case with master netting agreements, and the related assets and
liabilities are presented gross in the balance sheet.

Impairment of Non-financial Assets

The Company assesses as at reporting date whether there is an indication that

an asset may be impaired. If any such indication exists, or when 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 calculated
as the higher of the asset’s or cash-generating unit’s fair value less costs to sell
and its value in use or its net selling price and is determined for an individual
asset, unless the asset does not generate cash inflows that are largely
independent of those assets or groups of assets. Where the carrying amount of
an asset exceeds it recoverable amount, the asset 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 assessment of the time value of
money and the risks specific to the asset. Impairment losses are recognized in
the statements of income in those expense categories consistent with the
function of the impaired asset.

An assessment is made at each reporting date as to whether there is an

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 and amortization, had no impairment loss
been recognized for the asset in prior years. Such reversal is recognized in the
statements of income unless the asset is carried at revalued amount, in which
case the reversal is treated as revaluation increase. After such a reversal, the
depreciation charge is adjusted in future periods to allocate the asset’s revised
carrying amount, less any residual value, on a systematic basis over its
remaining useful life.

Share Capital

Share capital represents ordinary shares which are classified as equity.

Equity instruments are measured at the fair value of the cash or other
resources received or receivable, net of the direct costs of issuing the equity
instruments. If payment is deferred and the time value of money is material,
the initial measurement is on a present value basis.

Any costs of acquiring Company’s own shares are shown as a deduction from
equity attributable to the Company’s equity holders until the shares are

Notes to Financial Statements Page 9

 cancelled or reissued. When such shares are subsequently sold or reissued,
any consideration received, net of directly attributable incremental
transaction costs and the related income tax effects, is included in equity
attributable to the Company’s equity holders.
Cumulative Earnings

Cumulative earnings include all current and prior period results as disclosed
in the statement of income.
Revenue and cost recognition

Revenue comprises the fair value of the consideration received or receivable

for the sale of goods in the ordinary course of the Company’s activities.
Revenue is shown net of sales/value-added tax, returns, rebates and
discounts.

The Company recognizes revenue when: the amount of revenue can be

reliably measured; it is probable that future economic benefits will flow to the
entity; and specific criteria have been met for each of the Company’s, as
described below.

(a) Sales

Sales of goods are recognized when the Company sells a product to the
customer as control passes to the customer on the day the transaction takes
place.

Cost, distribution and administrative expenses are recognized in the

statement of income upon utilization of the service or in the date they are
incurred.

Employees’ Benefits

Short-term Benefits

The Company recognizes a liability net of amounts already paid and an

expense for services rendered by employees during the accounting period.
Short-term benefits given by the Company to its employees include
compensation, social security contributions, short-term compensated
absences, bonuses and other non-monetary benefits.
Long-term Benefits

The Company provides retirement benefits to entitled employees as

mandated by law.

Income Taxes

Notes to Financial Statements Page 10

 Current tax assets and liabilities 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 by the balance sheet date.

Deferred income tax is provided, using the balance sheet liability method, on
all temporary differences at the balance sheet date between the tax bases of
assets and liabilities and their carrying amounts for financial reporting
purposes.

Deferred income tax liabilities are recognized for all taxable temporary
differences. Deferred income tax assets are recognized for all deductible
temporary differences and carry forward benefits of unused net operating
loss carryover (NOLCO), to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences and carry
forward of NOLCO can be utilized.

The carrying amount of deferred tax assets is reviewed at each balance sheet
date and reduced to the extent that 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
balance date and are recognized to the extent that it has become probable that
future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax asset and liabilities are measured at the tax rates expected in the
year 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 balance sheet
date.

Value-Added Tax

Revenues, expenses and assets are recognized net of the amount of value-
added tax except:

Where the value-added tax incurred on a purchase of assets or services is not

recoverable from the taxation authority, in which case the value-added tax is
recognized as part of the costs of acquisition of the asset or as part of the
expense item as applicable; and

Receivables and payables that are stated with the amount of value-added tax
included.

The net amount of value-added tax recoverable from, or payable to, the
taxation authority is included as part of other current assets or payables in the
balance sheets.

Contingencies

Notes to Financial Statements Page 11

 Contingent liabilities are not recognized in the financial statements. They are
disclosed unless the possibility of an outflow of resources embodying
economic benefits is remote. A contingent asset is not recognized in the
financial statements but disclosed when an inflow of economic benefits is
probable.

Events after the End of the Reporting Period

Post-year-end events up to the date of the auditor’s report that provide

additional information about the Company’s position at the balance sheet 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.

Related Parties

Related party relationships exist when one party has the ability to control,
directly or indirectly through one or more intermediaries, the other party or
exercise significant influence over the other party in making financial and
operating decisions. This includes: (1) individual owning, directly or indirectly
through one or more intermediaries, control, or are controlled by, or under
common control with, the Company; (2) associates; and (3) individuals
owning, directly or indirectly, an interest in the voting power of the Company
that gives them significant influence over the Company and close members of
the family of any such individual.

3. Management’s Significant Accounting Judgment and Estimate

3.1 Judgments

The preparation of the Company’s financial statements in conformity with

PFRS for SMEs requires management to make estimates and assumptions that
affect the amounts reported in the Company’s financial statements and
accompanying notes. The estimates and assumptions used in the Company’s
financial statements are based upon management’s evaluation of relevant
facts and circumstances as of the date of the Company’s financial statements.
Actual results could differ from such estimates, 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.

3.2 Estimates

In the application of the Company’s accounting policies, management is

required to make judgements, estimates and assumptions about the carrying
amounts of assets and liabilities that are not readily apparent from other
sources. The estimates and associated assumptions are based on historical

Notes to Financial Statements Page 12

 experience and other factors that are considered to be relevant. Actual results
may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the
estimate is revised if the revision affects only that period, or in the period of
the revision and future periods if the revision affects both current and future
periods.

 Estimated Useful Lives of Property and Equipment

The Company estimates the useful lives of property and equipment based
on the period over which the property and equipment are expected to be
available for use. The estimated useful lives of the property and
equipment are reviewed periodically and are updated if expectations
differ from previous estimates due to physical wear and tear, technical or
commercial obsolescence and legal or other limits on the use of the
property and equipment. In addition, the estimation of the useful lives of
property and equipment is based on the collective assessment of industry
practice, internal technical evaluation and experience with similar assets.
It is possible, however, that future financial performance could be
materially affected by changes in the estimates brought about by changes
in factors mentioned above. The amounts and timing of recorded
expenses for any period would be affected by changes in these factors and
circumstances.
A reduction in the estimated useful lives of the property and equipment
would increase the recorded expenses and decrease the noncurrent assets.
Depreciation is computed on a straight-line method over the estimated
useful lives of the assets as follows:

PROPERTY AND EQUIPMENT USEFUL LIVES

Furniture & Fixtures 10 years
Delivery Equipment 10 years
Office Equipment 10 years

The foregoing estimated useful lives and depreciation method are

reviewed from time to time to ensure that these are consistent with the
expected economic benefits of the property and equipment.
 Impairment of Non-financial Assets

The Company assesses the value of property and equipment which require
the determination of future cash flows expected to be generated from the
continued use and ultimate disposition of such assets, and require the
Company to make estimates and assumptions that can materially affect the
financial statements. Future events could cause the Company to conclude
that property, plant and equipment and other long-lived assets are

Notes to Financial Statements Page 13

 impaired. Any resulting impairment loss could have a material adverse
impact on the Company's financial condition and results of operations.
The preparation of the estimated future cash flows involves significant
judgment and estimations. While the Company believes that its
assumptions are appropriate and reasonable, significant changes in these
assumptions may materially affect the Company's assessment of
recoverable values and may lead to future additional impairment charges.
Land is based on acquisition cost and subject for review for asset valuation
based on fair market value or assessed value whichever is higher.
 Revenue recognition

The Company’s revenue recognition policies require the use of estimates

and assumptions that may affect the reported amounts of revenues and
receivables. Differences between the amounts initially recognized and
actual settlements are taken up in the accounts upon reconciliation.
However, there is no assurance that such use of estimates may not result
to material adjustments in future periods.

4. Financial risk management objectives and policies

The Company’s activities expose it to a variety of financial risks: credit risk and
liquidity risk The Company’s overall risk management program seeks to
minimize potential adverse effects on the financial performance of the Company.
The policies for managing specific risks are summarized below.
Governance Framework
The Company has established a risk management function with clear terms of
reference and with the responsibility for developing policies on market, credit,
liquidity and operational risk. It also supports the effective implementation of
policies.
The policies define the Company’s identification of risk and its interpretation, limit
structure to ensure the appropriate quality and diversification of assets to the
corporate goals and specify reporting requirements.

Capital Management Framework

The Company’s risk management function has developed and implemented certain
minimum stress and scenario tests for identifying the risks to which the Company
are exposed, quantifying their impact on the volatility of economic capital. The
results of these tests, particularly, the anticipated impact on the realistic balance
sheet and revenue account, are reported to the Company’s risk management
function. The risk management function then considers the aggregate impact of the
overall capital requirement revealed by the stress testing to assess how much
capital is needed to mitigate the risk of insolvency to a selected remote level.

Notes to Financial Statements Page 14

 Regulatory Framework
The operation of the Company is also subject to the regulatory requirements of
SEC. Such regulations not only prescribe approval and monitoring of activities but
also impose certain restrictive provisions.

Financial Risk

The Company is also exposed to financial risk through its financial assets and
financial liabilities. The most important components of these financial risks are:
credit risk, liquidity risk and market risk.

Credit risk

The table below shows the maximum exposure to credit risk for the components
of the 2014 and 2013 balance sheet. The maximum exposure is shown gross,
without taking into account collateral and other credit enhancement.

The Company’s credit risk is primarily attributable to its trade and other
receivables. The Company has adopted stringent procedure in extending credit
terms to customers and in monitoring its credit risk.
Receivable balances are being monitored on a periodic basis to ensure timely
execution of necessary intervention efforts.

As of balance sheet date, there were no significant concentrations of credit risk.

Liquidity Risk

The Company’s objective is to maintain a balance between continuity of funding

and flexibility through the use of generated funds. Liquidity risk is the risk that
the Company will be unable to meet its payment obligations when they fall due.
The Company manages this risk through periodical monitoring of cash flows in
consideration of future payment due dates and daily collection amounts. The
Company also ensures that there are sufficient, available and approved working
capital lines that it can draw from anytime.
The Company maintains an adequate amount of cash and cash equivalents in the
event of unforeseen interruption of its cash collections. The Company also
maintains accounts with several relationship banks to avoid significant
concentration of cash with one institution.

5. Cash and Cash Equivalents

This account consists of cash in banks and funds on hand such as undeposited
collections and cash funds. Petty cash fund and operating fund are the working
capital funds wherein small amount of expenses are being disbursed. Cash in
banks consist of savings and current account deposits in reputable banks which
earn interest at the prevailing bank deposit rates.

2014 2013
Cash in Bank/on Hand 592,631 494,211

Notes to Financial Statements Page 15

6. Trade and Other Receivables

Trade and other receivables are stated at original invoice amount. Trade
receivables represent non-interest bearing receivables from various customers.

2014 2013
Accounts Receivables 1,729,468 557,350

7. Inventories

2014 2013
Merchandise Inventory 595,854 350,117

8. Property and Equipment-net

The company carries property and equipment are carried at cost less
accumulated depreciation.

Property & Equipment consist of:

2014 2013
Furniture & Fixtures 50,000 50,000
Delivery Vehicle 350,000 350,000
Office Equipment 100,000 100,000
Res for Depreciation (37,500) (12,500)
Net Book Value 462,500 487,500

The Carrying value of the property and equipment approximate their fair
values.

9. Trade and Other Payables

Trade payables are liabilities to pay for goods and services that have been received,
measured initially at their nominal values and subsequently recognized at amortized
costs less settlement payments. These are non-interest bearing payable.

2014 2013
Vat Payable 32,019 22,005
Income Tax Payable 224,726 152,101
SSS/PHIC/HDMF 8,265 6,612
Withholding Taxes 18,117 12,675
Accounts Payable 119,581 134,581
TOTAL 402,708 327,975

Notes to Financial Statements Page 16

10.INCOME TAX PAYABLE

    2014 2013
Income tax computed at Normal tax rate 30% 607,089 347,659
Income tax computed at MCIT rate 2% of
Gross Profit 76,952 51,013
Whichever is higher – RCIT/MCIT 607,089 347,659
Less: Deferred MCIT tax 2012
Creditable Tax Withheld 2307
Payments - 1st, 2nd, and 3rd qtr. 382,363 195,558
Total 382,363 195,558
Income tax Still Due 224,726 152,101

The company is subject to Regular Corporate Income Tax (RCIT) as presented.

Any deferred income tax assets are recognized for all deductible temporary
differences, carry forward of unused tax credits from excess minimum corporate
income tax (MCIT) and unused tax losses, to the extent that it is probable that
taxable profit will be available against which the deductible temporary
differences and carry forward of unused tax credits and unused tax losses can be
utilized.

11.SHARE CAPITAL

2014 2013
Authorized Capital 30,000 shares 30,000 shares
Subscribed Capital Stock 30,000 shares 30,000 shares
Subscription Receivables 22,500 shares 22,500 shares
Subscribed and Paid Up 7,500 shares 7,500 shares
Par Value Per Share 100.00 100.00
Paid Up Capital 750,000.00 750,000.00

12.SALES

Sales of goods are recognized when the Company sells a product to the
customer as control passes to the customer on the day the transaction takes
place.

2014 2013
Sales 10,672,867 7,335,116

13.OPERATING EXPENSES

2014 2013
Salaries and Wages 1,239,808 991,846
SSS/PHIC/HDMF 99,185 79,348

Notes to Financial Statements Page 17

Taxes and Licenses 95,282 92,507
Representation 36,775 35,000
Utilities 144,907 97,696
Gas and Oil 97,114 55,775
Delivery 85,895 27,117
Depreciation Vehicle 17,500 8,750
Depreciation Furniture 2,500 1,250
Depreciation-Office Equipment 5,000 2,500
Total 1,823,967 1,391,790

14.TAXES AND LICENSES

This account consists of:

2014 2013
Business License 95,282 92,507
TOTAL 95,282 92,507

15.INCOME TAX EXPENSE

Republic Act (R.A.) No. 9337

On May 24, 2005, Republic Act No. 9337 was enacted into law amending various
provisions in the existing 1997 National Internal Revenue Code. Among the
reforms introduced by the said R.A., which became effective on November 2, 2005,
are as follows:

 Increase in the corporate income tax rate from 32% to 35% with a reduction
thereof to 30% beginning January 1, 2009;
 Increase in Value-Added Tax (VAT) rate from 10% to 12% effective February
1, 2006 as authorized by the Philippine President pursuant to the
recommendation of the Secretary of Finance;
 Revised invoicing and reporting requirements for VAT; and
 Expanded scope of transactions subject to VAT.

On October 10, 2007, the BIR issued Revenue Regulations No. 12-2007, which
amended the timing of the calculation and payment of MCIT from an annual basis to
quarterly basis, i.e. excess MCIT from a previous quarter during the current taxable
year may be applied against subsequent quarterly or current annual income tax
due, whether MCIT or Regular Corporate Income Tax (RCIT). However, excess
MCIT from the previous taxable year/s is not creditable against MCIT due for a
subsequent quarter and are only creditable against quarterly and annual RCIT.

R.A. No. 9337 was enacted into law amending various provisions in the existing 1997
National Internal Revenue Code. Among the reforms introduced by the said R.A.
effective November 1, 2005 are as follows:
 Increased corporate income tax rate from 32% to 35% with a reduction thereof to
30% beginning January 1, 2009;

Notes to Financial Statements Page 18

 Increased nondeductible interest expense rate from 38% to 42% with a reduction
thereof to 33% beginning January 1, 2009;
 Granted authority to the Philippine President to increase the 10% VAT rate to
12%, effective February 1, 2006, subject to compliance with certain economic
conditions. On January 31, 2006, the Bureau of Internal Revenue issued Revenue
Memorandum Circular No. 7-2006 increasing the VAT rate from 10% to 12%
effective February 1, 2006;
 Revised invoicing and reporting requirements for VAT;
 Expanded scope of transaction subject to VAT; and
 Provided thresholds and limitation on the amounts of VAT credits that can be
claimed. On November 21, 2006, R.A. No. 9361 was issued repealing the threshold
on the amount of VAT credits that can be claimed.

16. FINANCIAL INSTRUMENTS

The company’s financial assets and liabilities are recognized initially at cost
which is the fair value of the consideration given (in the case of assets) or
received (in the case of liability).

Fair values are determined by reference to market-based evidence, which is the

amount for which the financial assets could be exchanged between a
knowledgeable willing buyer and a knowledgeable willing seller in an arm’s
length transaction as at the valuation date
Generally, the maximum credit risk exposure of financial assets is the carrying
amount of the financial assets as shown on the face of the balance sheet (or in the
detailed analysis provided in the notes to the financial statements).

Notes to Financial Statements Page 19