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PUERTO’S FINEST, INC.

NOTES to FINANCIAL STATEMENTS
For the Years Ended December 31, 2017 and 2016

1. GENERAL INFORMATION

Puerto’s Finest, Inc. (the Company) is incorporated in the Philippines registered with the Securities and
Exchange Commission (SEC) with registration number Al99817290 dated November 8, 1998.

The primary purpose of the Company is to engage in planning, constructing, furnishing, equipping,
purchasing, maintaining, operating, and managing resorts, and to offer such other services to the public
in connection with the operation of the said resort including provision of music, disco dancing and
other forms of entertainment such as sports, to buy, sell (at Wholesale only) and generally deal in
goods, wares and merchandise of any and every description related to its resort business, and to do and
perform such other acts and things necessary or incidental to the accomplishment of the foregoing
corporate business and objects insofar as may be allowed by applicable laws and rules.

The registered address of the Company is located at #2 10th St, Zone 1 Purok 6, Brgy. North Signal
Village, Taguig City.

The financial statements of the Company for the year ended December 31, 2017 were authorized for
issue by the Board of Directors on March 9, 2018. The Board of Directors is still empowered to make
amendments even after the date of issue.

SUMMARY 0f SIGNIFICANT ACCOUNTING POLICIES

The financial statements prepared by the Company are in accordance with Philippine Financial
Reporting Standards for Small and Medium-Sized Entities (PFRS for SMEs) published by the
International Accounting Standards Board (IASB) and adopted by the Philippine Financial Reporting
Standards Council (FRSC). 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.

Basis of Preparation

The financial statements of the Company have been prepared under historical cost convention. The
financial statements are presented in Philippine Pesos, which is the Company’s functional currency.
All amounts are rounded to the nearest Philippine 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.

Accounting Policies Adopted

PFRS for SMEs published by the IASB and adopted by the FRSC Which became effective for
accounting periods beginning on or after July 1, 2009 were adopted by the Company.

For Philippine financial reporting purposes, PFRS for SMEs shall cover corporations that:

- Have total assets of between P3 million and P350 million or total liabilities between P3 million and
P250 million;
' Are not required to file financial statements under Securities Regulation Code (SRC) Rule 68
(unlisted and non-public entities);
' Are not in the process of filing financial statements for the purpose of issuing any class of
instruments in a public market;
' Are not holders of secondary licenses issued by a regulatory agency such as banks, investment
houses, finance companies, securities broker/dealers, mutual funds and pre—need companies; and
- Not public utilities.
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Amendments to Existing PFRS for SMEs Effective January 1, 2017

The following are the amendments to existing standards for annual periods beginning on or after
January 1,2017.

Section 1 Small and Medium-sized Entities , adds clarifications with regards to publicly
accountable entities and the use of the PFRS for SMEs in the parent’s separate financial statements.
Section 2 Concepts and Pervasive Principles — adds clarifying guidance on the undue cost or effort
exemption that is used in several sections of the PFRS for SMEs.
Section 4 Statement of Financial Position — requires investment property measured at cost less
accumulated depreciation and impairment to be presented separately on the face of the statements of
financial position; and also, removed the requirement to disclose comparative information for the
reconciliation of the opening and closing number of shares outstanding.
Section 5 Statement of Comprehensive Income and Income Statement — clarifies that the single
amount presented for discontinued operations includes any impairment of the discontinued
operation measured in accordance with Section 27; and adds a requirement that entities shall group
items presented in other comprehensive income on the basis of whether they are potentially
reclassifiable to profit or loss.
Section 6 Statement of Changes in Equity and Statement of Income and Retained Earnings ,
clarifies the information to be presented in the statements of changes in equity.
Section 9 Consolidated and Separate Financial Statements , clarifies that subsidiaries acquired
with the intention of sale or disposal within one year shall be excluded from consolidation and the
addition of clarifying guidance on how to account for and disclose these subsidiaries; guidance on
the preparation of consolidated financial statements if group entities have different reporting dates;
cumulative exchange differences that arise from the translation of a foreign subsidiary are not
recognized in profit or loss on the disposal of the subsidiary; addition of an option to permit an
entity to account for investments in subsidiaries, associates and jointly controlled entities in its
separate financial statements using the equity method and clarification of the definition of ‘separate
financial statements’; and modification to the definition of ‘combined financial statements’ to refer
to entities under common control, instead of only those under common control by a single investor.
Section 10 Accounting Policies, Estimates and Errors — see Section 17.
Section 11 Basic Financial Instruments — adds an undue cost or effort exemption from the
measurement of investments in equity instruments at fair value; clarifies the interaction of the scope
of Section 11 with other sections of the PFRS for SMEs; clarifies the application of the criteria for
basic financial instruments to simple loan arrangements; clarifies when an arrangement would
constitute a financing transaction; and clarifies the guidance on fair value measurement in Section
11 of when the best evidence of fair value may be a price in a binding sale agreement.
Section 12 Other Financial Instruments , clarifies the interaction of the scope of Section 12 with
other sections of the PFRS for SMEs; and the requirements for hedge accounting, including the
addition of a sentence that clarifies the treatment of exchange differences relating to a net
investment in a foreign operation for consistency.
Section 14 Investments in Associates , see Section 2.
Section 15 Investments in Joint Ventures , see Section 2.
Section 16 Investment Property , see Section 4.
Section 17 Property, Plant and Equipment , includes alignment with changes made to PAS 16
Property, Plant and Equipment on classification of spare parts, stand-by and servicing equipment,
and exemption regarding the use of cost of the replacement; also, adds an option to use the
revaluation model for property, plant and equipment.
Section 18 Intangible Assets other than Goodwill , requires that if the useful life of goodwill or
another intangible asset cannot be established reliably, the useful life shall be determined based on
management’s best estimate but shall not exceed ten years.
Section 19 Business Combinations and Goodwill — replaced the undefined term ‘date of exchange’
with the defined term “date of acquisition’; adds clarifying guidance on the measurement
requirements for employee benefit arrangements, deferred tax and non-controlling interests when
allocating the cost of a business combination; and also adds an undue cost or effort exemption to the
requirement to recognize intangible assets separately in a business combination and the addition of
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a disclosure requirement for all entities to provide a qualitative description of the factors that make
up any goodwill recognized.
Section 20 Leases , include modification that leases with an interest rate variation clause that is
linked to market interest rates within the scope of Section 20 instead of Section 12; and clarification
that only some outsourcing arrangements, telecommunication contracts that provide rights to
capacity and take-or-pay contracts are, in substance, leases.
Section 21 Provisions and Contingencies , see Section 2.
Section 22 Liabilities and Equity - adds clarifying guidance on classifying financial instruments as
equity or a liability; exemption from the initial measurement requirements for equity instruments
issued as part of a business combination, including business combinations of entities or businesses
under common control; adds the conclusions of IFRIC l9 Extinguishing Financial Liabilities with
Equity Instruments to provide guidance on debt for equity swaps when the financial liability is
renegotiated and the debtor extinguishes the liability by issuing equity instruments; clarifies that
income tax relating to distributions to holders of equity instruments (owners) and to transaction
costs of an equity transaction should be accounted for in accordance with Section 297based on the
amendments to PAS 32 Financial Instruments: Presentation from Annual Improvements to PFRSs
200972011 Cycle; requires that the liability component of a compound financial instrument is
accounted for in the same way as a similar standalone financial liability; adds an undue cost or
effort exemption from the requirement to measure the liability to pay a non-cash distribution at the
fair value of the non-cash assets to be distributed and clarifying guidance on accounting for the
settlement of the dividend payable; and also includes exemption from the requirements for
distributions of non-cash assets ultimately controlled by the same parties before and after the
distribution.
Section 26 Share-based Payment - alignment of the scope and the definitions with PFRS 2 Share-
based Payment to clarify that share-based payment transactions involving equity instruments of
other group entities are in the scope of Section 26; clarifies that Section 26 applies to all share-
based payment transactions in which the identifiable consideration appears to be less than the fair
value of the equity instruments granted or the liability incurred and not only to share-based payment
transactions that are provided in accordance with programs established under law; clarifies the
accounting treatment for vesting conditions and modifications to grants of equity instruments; and
clarifies that the simplification provided for group plans is for the measurement of the share-based
payment expense only and does not provide relief from its recognition.
Section 27 Impairment of Assets , includes clarification that Section 27 does not apply to assets
arising from construction contracts.
Section 28 Employee Benefits , clarifies the application of the accounting requirements to other
long-term employee benefits; also, removes disclosure requirements on accounting policy for
termination benefits.
Section 29 Income Tax , include alignment of key principles with PAS 12 Income Tax as regards
recognition and measurement of deferred tax and provide ‘undue cost or effort’ exemption
regarding requirement to offset income tax assets and liabilities.
Section 30 Foreign Currency Translation 7 clarifies that financial instruments that derive their
value from the change in a specified foreign exchange rate are excluded from Section 30, but not
financial instruments denominated in a foreign currency.
Section 31 Hyperinflation — see Section 17.
Section 33 Related Party Disclosures — aligned the definition of ‘related party’ with PAS 24
Related Party Disclosures; including incorporation of the amendment to the definition in PAS 24
from Annual Improvements to PFRSs 2010—2012 Cycle, issued in December 2013, which include a
management entity providing key management personnel services in the definition of a related
party.
Section 34 Specialized Activities , removes the requirement to disclose comparative information for
the reconciliation of changes in the carrying amount of biological assets; and aligns the main
recognition and measurement requirements for exploration and evaluation assets with PFRS 6
Exploration for and Evaluation of Mineral Resources.
Section 35 Transition to PFRSfor SMEs , adds an option to permit Section 35 to be used more than
onceibased on the amendments to PFRS 1 First-time Adoption of Philippine Financial Reporting
Standards from Annual Improvements to PFRSs 200972011 Cycle; adds an exception to the
retrospective application of the PFRS for SMEs for government loans that exist at the date of
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transition to the PFRS for SMEsibased on Government Loans (Amendments to PFRS 1) issued in
March 2012; adds an option to permit first-time adopters to use an event-driven fair value
measurement as ‘deemed cost’ibased on the amendments to PFRS 1 from Improvements to
PFRSs; adds an option to permit an entity to use the previous generally accepted accounting
principles (GAAP) carrying amount of items of property, plant and equipment or intangible assets
used in operations subject to rate regulation—based on the amendments to PFRS 1 from
Improvements to PFRSs; adds guidance for entities emerging from severe hyperinflation that are
applying the PFRS for SMEs for the first time—based on Severe Hyperinflation and Removal of
Fixed Dates for First-time Adopters (Amendments to PFRS l) issued in December 2010; and
simplifies the wording used in the exemption from the restatement of financial information on first-
time adoption.
0 In addition to new definitions being added to the glossary as a result of the other amendments, the
following new definitions have been added:
(a) active market;
(b) close members of the family of a person;
(0) foreign operation;
(d) minimum lease payments; and
(e) transaction costs.

The management believes that the adoption of the said amendments to PFRS for SMEs will not have a
material effect on its financial statements.

The significant accounting policies and practices of the Company are set forth to facilitate the
understanding of the financial statements.

Financial Instruments

Date ofRecognition

The Company recognizes a financial asset or a financial liability in the statement of financial position
when the Company becomes a party to the contractual provisions of the instrument which includes
cash, a debt instrument, a commitment to receive a loan, and an investment in non-convertible
preference share and non-puttable ordinary or preference shares.

Initial Recognition ofFinancial Instruments

The Company initially measures the financial instruments at transaction price (including transaction
costs except in the initial measurement of financial assets and liabilities that are measured at fair value
through profit or loss) unless the arrangement constitutes, in effect, a financing transaction. A financing
transaction may take place in connection with the sale of goods or services, for example, if payment is
deferred beyond normal business terms or is financed at a rate of interest that is not a market rate. If the
arrangement constitutes a financing transaction, the Company shall measure the financial asset or
financial liability at the present value of the future payments discounted at a market rate of interest for
a similar debt instrument.

Subsequent Measurement ofFinancial Instruments

At the end of each reporting period, the Company shall measure financial instruments without any
deductions for transaction costs the entity may incur on sale or other disposal at amortized cost using
the effective interest method, except for commitments to receive a loan that meet the conditions of
basic financial instruments, will be measured at cost less impairment. Investments in non-convertible
and non-puttable preference shares and non-puttable ordinary shares that are publicly traded or whose
fair value can otherwise be measured reliably, will be measured at fair value with changes in fair value
recognized in profit or loss or at cost less impairment.
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Impairment ofFinancial Instruments

At the end of each reporting period, the Company shall assess whether there is objective evidence of
impairment of any financial assets that are measured at cost or amortized cost. If there is objective
evidence of impairment, the Company shall recognize an impairment loss in profit or loss immediately.
For an instrument measured at amortized cost, the impairment loss is the difference between the asset’s
carrying amount and the present value of estimated cash flows discounted at the asset’s original
effective interest rate. For an instrument measured at cost less impairment, the impairment loss is the
difference between the asset’s carrying amount and the best estimate (which will necessarily be an
approximation) of the amount (which might be zero) that the Company would receive for the asset if it
were to be sold at the reporting date.

Reversal ofImpairment ofFinancial Instruments

If, in a subsequent period, the amount of an impairment loss decreases and the decrease can be related
objectively to an event occurring after the impairment was recognized, the Company shall reverse the
previously recognized impairment loss either directly or by adjusting an allowance account. The
reversal shall not result in a carrying amount of the financial asset (net of any allowance account) that
exceeds what the carrying amount would have been had the impairment not previously been
recognized. The Company shall recognize the amount of the reversal in profit or loss immediately.

Derecognition ofFinancial Instruments

The Company shall derecognize a financial asset only when:

- the contractual rights to the cash flows from the financial asset expire or are settled, or
- the Company transfers to another party substantially all of the risks and rewards of ownership of the
financial assets, or
- the Company, 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 and is able to exercise that ability unilaterally and
without needing to impose additional restrictions on the transfer. In this case, the Company shall
derecognize the asset, and recognize separately any rights and obligations retained or created in the
transfer.

The carrying amount of the transferred asset shall be allocated between the rights or obligations
retained and those transferred on the basis of their relative fair values at the transfer date. Newly
created rights and obligations shall be measured at their fair values at that date. Any difference between
the consideration received and the amounts recognized and derecognized in accordance with this
paragraph shall be recognized in profit or loss in the period of the transfer.

The Company shall derecognize a financial liability (or a part of a financial liability) only when it is
extinguished — i.e., when the obligation specified in the contract is discharged, cancelled or expired.

Offsetting ofFinancial Instruments

Financial assets and financial liabilities are offset and the net amount reported in the statements of
financial position if, and only if, there is a currently enforceable legal right 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.

Financial Assets

This category includes cash.

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Cash

Cash includes cash on hand and in banks. Petty cash fund is used as an operating fund and a working
fund for small expenses being disbursed on a daily basis such as office supplies, transportation and
miscellaneous expenses.

Inventories

Inventories include goods, wares and merchandise of any and every description related to its resort
business. Cost of inventories include all costs of purchase, costs of conversion and other costs incurred
in bringing the inventories to their present location and condition. The Company measures the cost of
inventories of items that are not ordinarily interchangeable and goods or services produced and
segregated for specific projects by using specific identification of their individual costs or by using the
first-in, first-out (FIFO) or weighted average cost formula. The Company uses the same cost formula
for all inventories having a similar nature and use to the Company. For inventories with a different
nature or use, different cost formulas may be justified.

The Company shall assess at the end of each reporting period whether any inventories are impaired, i.e.
the carrying amount is not fully recoverable (e.g. because of damage, obsolescence or declining selling
prices). If an item (or group of items) of inventory is impaired, the Company shall measure the
inventory at its selling price less costs to complete and sell, and to recognize an impairment loss.

When inventories are sold, the Company shall recognize the carrying amount of those inventories as an
expense in the period in which the related revenue is recognized.

Property and Equipment

Property and equipment are tangible assets that are held for use in the production or supply of goods or
services, for rental to others, or for administrative purposes, and are expected to be used during more
than one period. The Company shall recognize the cost of an item of property and equipment as an
asset if, and only if it is probable that future economic benefits associated with the item will flow to the
Company, and the cost of the item can be measured reliably. The Company shall measure an item of
property and equipment at initial recognition at its cost. The cost of an item of property and equipment
is the cash price equivalent at the recognition date. If payment is deferred beyond normal credit terms,
the cost is the present value of all future payments. The Company shall measure all items of property
and equipment after initial recognition at cost less any accumulated depreciation and any accumulated
impairment losses. The Company shall recognize the costs of day-to-day servicing of an item of
property and equipment in profit or loss in the period in which the costs are incurred.

If the major components of an item of property and equipment have significantly different patterns of
consumption of economic benefits, the Company shall allocate the initial cost of the asset to its major
components and depreciate each such component separately over its useful life. Other assets shall be
depreciated over their useful lives as a single asset. The Company shall allocate the depreciable amount
of an asset on a systematic basis over its useful life. Factors such as a change in how an asset is used,
significant unexpected wear and tear, technological advancement, and changes in market prices may
indicate that the residual value or useful life of an asset has changed since the most recent annual
reporting date. If such indicators are present, the Company shall review its previous estimates and, if
current expectations differ, amend the residual value, depreciation method or useful life. The Company
shall account for the change in residual value, depreciation method or useful life as a change in an
accounting estimate.

Depreciation of an asset begins when it is available for use, i.e. when it is in the location and condition
necessary for it to be capable of operating in the manner intended by management. Depreciation of an
asset ceases when the asset is derecognized. Depreciation does not cease when the asset becomes idle
or is retired from active use unless the asset is fully depreciated. However, under usage methods of
depreciation the depreciation Charge can be zero while there is no production. The Company shall
select a depreciation method that reflects the pattern in which it expects to consume the asset’s future
economic benefits. The possible depreciation methods include the straight-line method, the diminishing
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balance method and a method based on usage such as the units of production method. If there is an
indication that there has been a significant change since the last annual reporting date in the pattern by
which the Company expects to consume an asset’s future economic benefits, the Company shall review
its present depreciation method and, if current expectations differ, change the depreciation method to
reflect the new pattern. The Company shall account for the change as a change in an accounting
est1mate.

At each reporting date, the Company shall determine whether an item or group of items of property and
equipment is impaired and, if so, how to recognize and measure the impairment loss.

The Company shall derecognize an item of property and equipment on disposal, or when no future
economic benefits are expected from its use or disposal. The Company shall recognize the gain or loss
on the derecognition of an item of property and equipment in profit or loss when the item is
derecognized (unless required otherwise on a sale and leaseback). The Company shall not classify such
gains as revenue. The Company shall determine the gain or loss arising from the derecognition of an
item of property and equipment as the difference between the net disposal proceeds, if any, and the
carrying amount of the item.

Other Non-Current Assets

Other non-current assets include refundable rental deposits and deferred tax assets.

Refundable Rental Deposit/Security Deposits

A refundable/security deposit is any money a lessor takes from its lessee other than the advance
payment of rent. This serves to protect the lessor if the lessee breaks or violates the terms of the lease
or rental agreement. It may be used to cover damage to the property, cleaning, key replacement, or
back rent. These are stated at cost.

Financial Liabilities

This category includes advances from shareholders.

Current Liabilities

This includes SSS, PHIC and HDMF premiums, and loans, withholding taxes, income taxes, output tax
and other payables.

SSS PHIC and HDMF Contributions Payable

These represent employer’s and employees’ share on social security and other contributions which are
mandated by law. These are interest—bearing if not paid on time and is stated at cost.

SSS and HDMF Loans Payable

These represent payments withheld by the Company from employees’ salaries for their respective
membership loans from SSS and HDMF. These are interest—bearing if not paid on time and is stated at
cost.

Withholding Taxes Payable

These represent taxes withheld by the Company from employees’ salaries, payments to suppliers and
provider of services subject to expanded creditable withholding taxes which are remitted 10 days
following the end of the month. These are interest-bearing if not paid on time and is stated at cost.
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Income Taxes Payable

These represent amounts of income tax currently due to government. These are interest-bearing if not
paid on time and is stated at cost.

Output Taxes Payable (VAT Payable)

These represent value-added taxes due on the sale or lease of taxable goods or properties or services
which are to be remitted 20 days following the end of the month and 25 days following the end of a
quarter. These are interest-bearing if not paid on time and is stated at cost.

Other Non-Current Liabilities

Other non-current liabilities include advances from shareholders.

Impairment of Non-Financial Assets

Assets that are subject to depreciation or amortization are assessed at each reporting date to determine
whether there is any indication that the assets are impaired. Where there is any indication that an asset
may be impaired, the carrying value of the asset (or cash-generating unit to which the asset has been
allocated) is tested for impairment. An impairment loss is recognized for the amount by which the
asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an
asset’s (or CGU’s) fair value less costs to sell and value in use. For the purposes of assessing
impairment, assets are grouped at the lowest levels for which there are separately identifiable cash
flows (CGUs). Non-financial assets other than goodwill that suffered impairment are reviewed for
possible reversal of the impairment at each reporting date.

Provisions and Contingencies

The Company shall recognize a provision only when the Company has an obligation at the reporting
date as a result of a past event; it is probable (i.e. more likely than not) that the Company will be
required to transfer economic benefits in settlement; and the amount of the obligation can be estimated
reliably. The Company shall measure a provision at the best estimate of the amount required to settle
the obligation at the reporting date. The best estimate is the amount an Company would rationally pay
to settle the obligation at the end of the reporting period or to transfer it to a third party at that time.
When the effect of the time value of money is material, the amount of a provision shall be the present
value of the amount expected to be required to settle the obligation. The discount rate (or rates) shall be
a pre-tax rate (or rates) that reflect(s) current market assessments of the time value of money. The risks
specific to the liability should be reflected either in the discount rate or in the estimation of the amounts
required to settle the obligation, but not both. The Company shall exclude gains from the expected
disposal of assets from the measurement of a provision.

When some or all of the amount required to settle a provision may be reimbursed by another party
(e.g., through an insurance claim), the Company shall recognize the reimbursement as a separate asset
only when it is virtually certain that the Company will receive the reimbursement on settlement of the
obligation. The amount recognized for the reimbursement shall not exceed the amount of the provision.
The reimbursement receivable shall be presented in the statement of financial position as an asset and
shall not be offset against the provision. In the statement of comprehensive income, the Company may
offset any reimbursement from another party against the expense relating to the provision.

Share Capital

Ordinary shares 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.
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Comprehensive Income

Comprehensive income is the change in equity during a period resulting from transactions and other
events, other than those changes resulting from transactions with owners in their capacity as owners.

Revenue and Expense Recognition

Revenue is recognized to the extent that is probable that the economic benefits will flow to the
Company and the amount of revenue can be reliably measured. However, when an uncertainty arises
about the collectability of an amount already included in the revenue, the uncollectible amount, or the
amount in respect of which recovery has ceased to be probable, is recognized as an expense, rather than
as an adjustment of the amount of revenue originally recognized.

The following specific criteria must also be met before revenues are recognized:

- Revenue from sale of goods. Revenue from sale of goods are recognized when all of the following
conditions have been satisfied;
-the company has transferred to the buyer the significant risks and rewards of ownership of the
goods;
-the company retains neither continuing managerial involvement to the degree usually associated
with ownership nor effective control over the goods sold;
-the amount of revenue can be measured reliably;
-it is probable that the economic benefits associated with the transactions will flow to the company;
and
-the costs incurred or to be incurred in respect of the transactions can be measured reliably.
- Revenue from rendering of services. Revenue from sale of services are recognized when all of the
following conditions have been satisfied;
-the amount of revenue can be measured reliably;
-it is probable that the economic benefits associated with the transactions will flow to the company.
-the costs incurred for the transaction and the costs to complete the transaction can be measured
reliably.
- Interest income on bank deposits is recognized net of applicable final tax when earned. Other interest
income is recognized using effective interest method.
- Other income is recognized when earned.
0 Cost, administrative and other expenses are recognized in the statement of income upon utilization of
the service or in the date they are incurred. Finance costs are reported on an accrual basis.

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—terrn benefits given by the Company to its
employees include salaries and wages, social security contributions, short-term compensated absences,
bonuses and other non-monetary benefits.

Long-term Benefits

The Company has provided for non-contributory retirement benefits to its qualified regular employees
in compliance with RA No. 7641.

As at reporting date, the Company has not recognized any long-term benefits since the management
believes that it has no material effect on its financial statements.

Income Taxes

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

Deferred income tax liabilities, if any, 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), if any, 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, if any, is reviewed at each reporting period 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, if any, 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, if any, 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 within the reporting period.

Leases

Leases, where a significant portion of risks and rewards of ownership are retained by the lessor, are
classified as operating leases. Payments made under operating leases are charged to operations on a
straight-line basis over the period of the lease.
Future minimum lease payments are the payments over the lease term that the lessee is or required to
make, excluding contingent rent, costs for services and taxes to be paid by and reimbursed to the lessor,
together with any amounts guaranteed by the lessee or by a party related to the lessee.

For operating lease, the standard requires disclosure on the total future minimum lease payments under
non-cancellable operating leases for each of the following periods:

0 later than one year;

- later than one year but not later than five years; and
0 later than five years.

Foreign Currency Transactions

The functional and presentation currency of the Company is the Philippine Peso. Transactions in
foreign currencies are recorded in Philippine Peso based on the exchange rates prevailing at the
transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated to
their Philippine Peso equivalents using the rates of exchange prevailing at the reporting period. Foreign
exchange gains or losses are credited to or charged against current operations.

Related Party Transactions and Relationships

Related party relationships exist 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. Such relationships also exist between and or/among entities which
are under common control with the reporting enterprise, or between, and/or among the reporting
enterprise and its key management personnel, directors, or its shareholders. In considering each
possible related party relationship, attention is directed to the substance of the relationship, and not
merely the legal form.

Transactions between related parties are accounted for at arms’ length prices or on terms similar to
those offered to non-related entities in an economically comparable market except for advances to/from
related companies which are non-interest bearing in nature.
 -11- of -21-

Events after Balance Sheet Date

The Company shall adjust the amounts recognized in its financial statements, including related
disclosures, to reflect adjusting events after the end of the reporting period. The Company shall
disclose non-adjusting events after the end of the reporting period describing the nature of the event,
and an estimate of its financial effect, or a statement that such an estimate cannot be made.

Comparatives

Where necessary, certain accounts in prior years have been reclassified and comparative figures have
been adjusted to conform with current year’s financial statements presentation.

MANAGEMENT’S SIGNIFICANT ACCOUNTING JUDGMENTS and ESTIMATES

The Company’s financial statements which are prepared in accordance with PFRS for SMEs require
management to make judgments and estimates that affect amounts reported in the financial statements
and related notes. Judgments and estimates are continually evaluated and are based on historical
experience and other factors, including expectations of future events that are believed to be reasonable
under the circumstances. Actual results may ultimately differ from these estimates.

Judgments

In the process of applying the Company’s accounting policies, management has made the following
judgments, apart from those involving estimation, which have the most significant effect on the
amounts recognized in the financial statements.

Income Taxes

Significant judgment is required in determining the provision for income taxes. There are many
transactions and calculations for which the ultimate tax determination is uncertain. The Company
recognizes liabilities for anticipated tax audit issues based on estimates of whether additional taxes will
be due.

Where the final tax outcome of these matters is different from the amounts that were initially recorded,
such differences will impact the current and deferred income tax assets and liabilities in the period in
which such determination is made.

Provisions

Provisions for liabilities are recognized when the Company has a present obligation as a result of a past
event and it is probable that an outflow of resources embodying economic benefits will be required to
settle the obligation and a reliable estimate of the amount can be made. Provisions are reviewed at each
reporting date and adjusted to reflect the current best estimate. Where the effect of time value of money
is material, the amount of provision is the present value of the expenditure expected to be required to
settle the obligation.

Contingencies

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. Contingent assets are
not recognized in the financial statements but are disclosed in the notes to financial statements when an
inflow of economic benefits is probable.

Determining Functional Currency

Based on economic substance of underlying circumstances relevant to the Company. the functional
currency has been determined to be the Philippine Peso. The Philippine Peso is the currency of the
 -12- of -21-

primary economic environment in which the Company operates and it is the currency that mainly
influences the prices of the products and services and the cost of providing such products and services.

Estimates

Financial Assets and Liabilities

The Company carries some of its financial assets and liabilities at fair value, which requires extensive
use of accounting estimates and judgment. While significant components of fair value measurement
were determined using verifiable objective evidence, i.e., interest rates, volatility rates, the amount of
changes in fair value would differ if the Company utilized different valuation methodology. Any
changes in fair value of these financial assets and liabilities would affect directly the statements of
income and equity, as appropriate.

Estimated Lives ofProperty and Equipment

The Company estimates the useful lives of its property and equipment based on the period over which
these assets are expected to be available for use. The estimated useful lives of these assets are reviewed
at least annually and are updated if expectations differ from previous estimates due to physical wear
and tear and technical or commercial obsolescence on the use of these assets. It is possible that future
results of operations could be materially affected by changes in estimates brought about by changes in
factors mentioned above.

A reduction in the estimated useful lives of property and equipment would increase the recorded
expenses and decrease the non-current assets.

Depreciation is computed on a straight-line method over the estimated useful lives of the assets as
follows:

Machinery and equipment 2-5 years

Transportation equipment 2-5 years
Diving equipment 2-3 years
Furniture and fixtures 3 years
Leasehold rights and improvements 3 years
Resort equipment 3 years
Office equipment 3 years

Impairment ofNon-Financial Assets

The Company performs an impairment review when certain impairment indicators are present.
Purchase accounting requires extensive use of accounting estimates and judgments to allocate the
purchase price to the fair market values of the assets purchased and liabilities assumed.

Determining the fair value of property and equipment, which require the determination of fiiture cash
flows expected to be generated from the continued use and ultimate disposition of such assets, requires
the Company to make estimates and assumptions that can materially affect the financial statements.
Any resulting impairment loss could have a material adverse impact on the financial condition and
results of operations.

The preparation of the estimated future cash flows involves significant judgment and estimations.
While the management believes that its assumptions are appropriate and reasonable, significant
changes in the assumptions may materially affect the assessment of recoverable values and may lead to
future additional impairment charges under PFRS for SMEs.

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
 -13- of -21-

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.

FINANCIAL INSTRUMENTS

Financial instruments of the Company consists of the following

' 2017 ' 2016
Financial liabilities measured at amortized cost
Advances from shareholders (Note 9) P 28,976,941 P 29,410,461

Cash reflected does not include cash on hand amounting to P30,000 in 2017 and P20,000 in 2016.

CASH
7
2017 ' 2016
Petty cash fund P 30,000 P 20,000

Petty cash fund is used as a working fund for small expenses being disbursed on a daily basis.

INVENTORIES

r r
2017 2016
Inventories P 3919,692 P 3,396,104

PROPERTY and EQUIPMENT, NET

8 rmh' :1 :m‘r 8111111111 s'u‘rmzzm'mn I:\:‘=:i':

:1 9111- 87111131591: 8111: 1:19:15 L-'"W!‘ 1m; 1:111: mm
snsmrmm-x
. 'm'ififlflfl‘ 919,861,254 9— 919,861,254 94,801,349 9160,876 94,962,225 9 14,899,029 915,059,905
”mi‘m‘i‘fif 51“ 7,455,875 — 7,455,875 1,833,723 60,393 1,894,116 5,561,759 5,622,152
1: wmmw
9.57m :11; 2,049,091 — 2,049,091 503,961 16,598 520,558 1,528,533 1,545,130
MMHHE :21. 1,927,986 — 1,927,986 474,176 15,617 489,793 1,438,193 1,453,810
nmmmnw
mm- 1,805,515 — 1,805,515 444,055 14,625 458,680 1,346,835 1,361,460
magnum".
rim-i=1}: 1,752,464 . 1,752,464 431,007 14,195 445,202 1,307,262 1,321,457
amtmrm 1,162,288 — 1,162,288 285,857 9,415 295,272 867,016 876,431
7
936,014,473 9— 936,014,473 98.774.128 9291,717 99,065,846 926,948,627 927,240,345

The property and equipment’s carrying value is equivalent to its fair market value. Depreciation is
computed on a straight line basis over the useful life of the property. Total depreciation for the period
amounted to P29l,7l7.

OTHER NON-CURRENT ASSETS

Other non-current assets include refundable rental deposit amounting to P116,000 as of December 31,
2016 and 2015.
 -14- of -21-

RELATED PARTY TRANSACTIONS

The significant transactions of the Company with its related parties are described below.

Advances from shareholders

'2017
Relationship Transactions for Outstanding Terms Conditions
the y ear balance
No specific Unsecured;
Shareholder P (433,520) P 28,976,941 terms on no impairment
rep ay merit;
non-interest
bearing
I'2016
No specific Unsecured;
Shareholder P (470,565) P 29,410,461 terms on no imp airment
rep ay ment;
non-interest
bearing
Compensation of key management personnel

There was no compensation paid or payable to key management for employee services during the year.

10. COST 0f SALES and SERVICES

r
2017 2016
Cost ofsales
Inventory, beginning 3,396,104 3,474,275
Less: Inventory, ending 3,319,692 3,396,104
Cost ofsales 76,412 78,171

Cost of services
Direct charges - Salaries and wages 1,237,585 1,207,399

Total cost ofsales and services 1,313,997 1,285,570

 -15- of -21-

11. GENERAL and ADMINISTRATIVE EXPENSES

" 2017 ' 2016

Depreciation (Note 7) P 291,717 P 291,717
Fuel and oil 121,423 124,218
Communication, light, and water 69,323 70,918
SSS, Philhealth, HDMF and other contributions 68,772 70,355
Rental 48,000 48,000
Taxes and licenses (Note 14) 14,202 14,530
P 613,437 P 619,738

12. INCOME TAXES

Provision for Income Taxes (Income Tax Benefit)

The components of the provisions for (benefit from) from income tax are as follows

2017 2016
Currently payable P 30,341 P 34,033
Deferred - -
P 30,341 P 34,033

The reconciliation of the provision for (benefit from) income tax computed at the statutory tax rate to
the provision for (benefit from) income tax shown in the statements of operations are as follows

2017 2016
Income before income tax P 101,137 P 113,442

Additions (reductions) to reconcile with taxable income

Interest income subject to final tax - —

Taxable income 101,137 113,442

Income tax at statutory rate P 30,341 P 34,033

*Statutory tax rate is 30%.

13. LEASES

The Company leases out office spaces under short—term lease. The lease is subject to rent reviews
yearly. There are no purchase options in the lease. Total lease payments for the years ended December
31, 2017 and 2016 amounted to P48,000.

The future minimum payments for each of the following periods are as follows.

Not later than one year P 48,000

Later than one year but within five years -
 -16- of -21-

14. ADDITIONAL DISCLOSURES in COMPLIANCE with BIR RR NO. 15-2010

In compliance with the requirements set forth by BIR Revenue Regulation No. 15-2010 dated
December 14, 2010, in addition to the disclosures mandated under PFRS for SMEs and such other
standards and/or conventions as may heretofore be adopted, hereunder are the information on taxes,
duties, and license fees paid or accrued during the taxable year.

Taxes and licenses

Business permit P 13,702

BIR registration fee 500
P 14,202

Output and input taxes

Sales Output tax/
(Purchases) (Input tax)
Beginning balance P P -
Vatable sales 2,028,571 243,429
Zero-rated sales - -
Domestic purchases ofgoods/services (1,869,452) (224,334)
Output tax payments for the year P 19,095

Withholding taxes

Taxes on compensation and other benefits P 88,169

Creditable withholding taxes 2,400
Final withholding taxes -
Total withholding taxes paid for the year P 90 569

Tax assessments and cases

The Company has not received any notices and does not have any outstanding cases which are under
preliminary investigation and/0r prosecution in court or bodies outside the BIR as at December 31,
2017.

15. ADDITIONAL DISCLOSURES in COMPLIANCE with BIR RR NO. 19-2011

In compliance with the requirements set forth by BIR Revenue Regulation No. 19-2011 dated
December 9, 2011, in addition to the disclosures mandated under PFRS for SMEs and such other
standards and/0r conventions as may heretofore be adopted, hereunder are the information on sales,
cost of sales, non-operating and other taxable income, and itemized deductions (if optional standard
deduction was not availed) during the taxable year.

Revenues

Sale of services P 2,028,571

 -17- of -21-

Cost of sales and services

Taxable
Exempt Special rate Regular rate
Inventory, beginning P - P - P 3,396,104
Purchases - - -
Available for sale - - 3,396,104
Inventory, ending - - 3,319,692
Cost ofinventories sold - - 76,412
Cost ofservices - - 1,237,585
P - P - P 1,313,997

Itemized deductions
Taxable
Exempt Special rate Regular rate
Communication, light and water P — P — P 69,323
Depreciation — — 291,717
Gas and oil - - 121,423
Rental - - 48,000
SSS, PHIC and HDMF contributions - - 68,772
Taxes and licenses - - 14,202
P - P - P 613,437

Information on Company’s taxes and licenses are disclosed in Note 14.

16. RETAINED EARNINGS

On December 29, 2017, the Board of Directors had unanimously approved a board resolution
appropriating significant portion of retained earnings amounting to Pl,000,000 for office expansion or
allotment for dividends.

—000-