MODFIN PORTFOLIO

Reflection paper presented

To the Accountancy Department

In partial fulfillment

Of the course requirement

In MODFIN3

Ng, Alyna Jae, L.

K32
Trade and Other Payables

PHINMA Energy Corporation was able to present its Accounts payable

and other current liabilities properly as a separate line item on the face of its
financial position with its corresponding note number. The company was able
to provide a more detailed breakdown of its current liabilities in its notes to
the financial statements. Its current liabilities aside from the trade payables
include Payable due to related parties, deferred revenue-current portion,
accrued expenses, output VAT, accrued interest expenses, non-trade
payables, accrued directors’ and annual incentives, finance lease obligations-
current portion, retention payables, and other current liabilities. The
corporation’s current liabilities have provided a disclosure which states the
usual period of time that it takes for the corporation to settle the liability. The
settlement period should not be more than one year or more than its operating
cycle, for it to be considered as current. Accordingly, the corporation was able
to disclose that its liabilities are normally settled within thirty to sixty days.

The company’s trade payables consist of its liabilities to its suppliers of

electricity and fuel that were purchased by the company. These are considered
as the company’s inventory. Deferred revenue refers to the immediate or
advance payment that the company receives from a customer in consideration
of the amendments and modifications of the its revenue contract with the
customer. The company’s insurance, sick and vacation leave accruals, station
use, and accruals for incentive pay are included under the account “Accrued
Expenses”. Its nontrade payable include other liabilities that the company has
made various purchases to. Such various purchases that are not related to its
normal operations such as additions to property, plant and equipment, and
spare parts. Retention payables refer to the amounts that were retained from
the entity’s liabilities to its suppliers and contractors. Lastly, the other current

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liabilities pertains to the entity’s liabilities to its employees, statutory
payables, deposit payables, and a derivative liability.

The company also has included the current portion of its finance lease
obligation under the current liabilities section since finance lease obligations
usually have terms of twenty to twenty-five years. Moreover, the current
portion of the finance lease obligation consists of the amount that is payable
immediately within the next twelve months after the reporting period or within
the entity’s operating cycle, whichever is longer.

PHINMA Energy Corporation has liabilities that are measured using the
fair value. Such liabilities include Derivative Liabilities, Long-term debt, and
Deposit payables and other liabilities. These deposit payables are also known
as refundable deposits. The entity estimates the fair value of these deposits
payable using the present value of future cash flows using the prevailing
market rates at the end of the period.

As a corporation that has employees for its business to continue its

operations, the entity has also incurred employee-related liabilities. These
employee-related liabilities include the pension and other employee benefits
for its employees. These are the amounts owed to its employees aside from
their salaries or wages. These types of liabilities are otherwise known as
vested rights, which covers all of the company’s regular and full-time working
employees. These will provide employees motivation to do their tasks well,
and to stay at the corporation for a longer period of time. The company has
this liability under the account name “Pension and Other Employee Benefits”
as a separate line item. Since these liabilities will not be wholly realized within

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one year or within the corporation’s operating cycle, whichever is longer, there
are portions of the liability which are recognized under the non-current
portion, but there are also portions of the liability that are recognized under
the current portion. Some of these portions are also included under the
account names “Costs of sale of electricity” and “General and administrative
expenses”. Since the corporation has several different types of employees who
are in charge of different kinds of tasks, the pension and other employee
benefits are also classified under their respective kind of expenses which are
realized within the end of the reporting period.

The corporation also has another type of obligation or liability which has
a relation to their employees, which is the vacation and sick leave. The
company provides a note which summarizes the components of the vacation
and sick leave expense that were recognized in the face of the financial
position of the corporation. Since the company estimates its present value of
its obligations using the actuarial valuation. This kind of valuation requires the
involvement of making many various assumptions. Accordingly, these
assumptions will lead to either an actuarial gain or actuarial loss. In the case
of PHINMA Energy Corporation’s Vacation and Sick Leave obligation, it has
incurred an actuarial loss, aside from its interest costs. The corporation also
provides a more detailed breakdown of the changes in present value of its
obligation in the vacation and sick leave. They first provide the balance as of
the beginning of the year, then provides the current service costs, then the
interests costs, which is followed by the actuarial loss or gain, and the benefits
paid, which will lead to the ending balance of the corporation’s obligation.

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Provision and Contingent Liabilities

The company’s provisions listed in its financial statements are in

compliance with the definition of a liability under IAS 1. Accordingly, the
company’s provisions are recognized once they incur a present obligation
which can either be legal or constructive, that is a result of a past event, and
there is a probable outflow of resources in order to settle the obligation.

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 According to IAS 37, the company must be able to recognize an
environmental liability when it has an existing obligating event such as the
retirement of a long-lived asset. Furthermore, this liability must be available
for estimation in a reasonable method. The company is under a lease
agreement which will dismantle certain machineries and equipment and
restore the leased site at the end of the term of the contract. Hence, this lease
agreement has led the company to obtain an asset retirement obligation. The
fair value of this obligation are recognized by the company by computing its
present value. This recognition is in compliance with IAS 37, since it states
that the measurement of such liabilities must be at the best estimate of its
future costs. The costs of this obligation are then capitalized as part of the
related property, plant and equipment account. Since the company has
capitalized the cost of this obligation to the related account, the cost will
subsequently be depreciated on a straight-line basis using the useful life of
the asset or the useful life of the lease term, whichever is shorter. Afterwards,
the company will be carrying the liability at its amortised cost using the
effective interest method in order to compute for the related interest expense
which will then be recognized under the statement of income.

Long-term Notes Payable

The entity did not enter into a transaction that involves bonds payables,
but it did enter into a transaction which involves loans. The company was able
to present the two types of loan agreements that the entity has entered into.
These are the PHINMA Renewable term loan facility and the PHINMA Energy
long-term loans. Under the note for the company’s long-term loans, it was
able to provide a detailed breakdown regarding the loans’ embedded
derivatives such as the premium on its long-term loans, and the debt issue
costs. The current portion of the long-term loan was also deducted from the

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total amount of the liability, after adding the premium and deducting the
unamortized debt issue costs, which then arrives at the ending balance of the
long-term loans which was presented on the face of the entity’s financial
position. The company was able to provide as a disclosure the date when the
entity entered into the loan agreement, and the corresponding terms of the
agreement.

The movements of the long-term loans’ derivatives and debt issue costs
were provided with a table in the notes to its financial statements. As a
company enters into a loan agreement, the company would measure the
amount of the loan by computing its present value with the effective interest
during that date. By computing its present value, if the market rate is greater
than the nominal rate then it will lead to a discount. On the other hand, if the
nominal rate is greater than the effective rate, then it will lead to a premium
on the loan payable. Accordingly, the loans that PHINMA Energy Corporation
has entered into has premiums which are to be subsequently amortized to
arrive at the loans’ carrying amount to be able to compute the interest
expense for the year that is related to the loan.

Another part of the loan that was incurred when they have entered into
the agreement are the debt issue costs. Debt issue costs are the costs incurred
in relation the issuance of debt. In the case of bonds, it is referred to as Bond
issue costs. These debt issue costs are to be accounted for separately and is
subject to amortization. Accordingly, the entity was able to properly amortize
its debt issue costs as shown in its notes to financial statements. It first
provided the balance of the debt issue costs as of the beginning of the year,
followed by the additional debt issue costs that were incurred during the year,
and the amortization for the year, which is presented in another note together

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with the depreciation, and ended with the ending balance of the debt issue
cost as of the end of the reporting period. However, the ending balance of the
amortized debt issue costs is not the amount to be deducted from the total
amount of the loan, but the ending balance of the debt issue costs as of the
end of the previous reporting period.

The second to the last part of the note under the Long-term loans, aside
from the terms and conditions and covenants of the loan agreements, is a
more detailed breakdown of each of the loans that the company has. It
presented which banks the parent company has entered a loan agreement to
and their respective terms and covenants and amounts. Afterwards, the
prepayments provisions were also presented with their corresponding
description, restrictions and requirements, for the maintenance of the required
financial ratios of the corporation. The restrictions include the payment and
distribution of dividends to the corporations’ shareholders.

Lastly, it was disclosed in the notes that the corporation is in compliance

in the terms and requirements of its loan covenants. Furthermore, the
respective interest expense related to the loans were also disclosed.

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Other Long-term Liabilities

The company’s other long-term liabilities consists of deferred revenue-

noncurrent portion, deposit payables, finance lease obligation-noncurrent
portion, and accrued expenses. The entity was able to disclose what its
liabilities have been obtained from. The company has refundable deposits
which are from its RES customers. These deposit payables are under the non-
current liabilities since it is refundable at the end of the contract which is more
than the twelve months maximum of the requirement for a liability to be
considered current. In addition, these deposit payables pertains to security
deposits. On the other hand, the entity’s accrued expenses under the non-
current section refers to the accrual of its asset retirement obligation and other
various provisions, which the entity did not provide any disclosure thereof.

Presentation of General Purpose Financial Statements

PHINMA Energy Corporation was able to present its consolidated

financial statements aside from their own parent financial statements since it
did not meet the conditions in IFRS 10. Under paragraph four of IFRS 10, it
stated four conditions which presents the exceptions wherein the parent
company does not need to present consolidated financial statements.

The entity was able to present a complete set of financial statements.

According to IAS 1, a complete set of financial statements comprises of a
statement of financial position as of the end of the period, a statement of

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profit or loss and other comprehensive income for the period, a statement of
changes in equity for the period, a statement of cash flows for the period,
notes which includes the significant accounting policies and other explanatory
information, and their comparative information in respect of the previous
period. Accordingly, the entity was able to properly include the four
statements including the notes to its financial statements as required by the
IAS 1. Moreover, the entity was also able to present the corresponding
comparative statements as of 2017 and 2016. Since the corporation did not
apply any change in its accounting policy, it is not required for the corporation
to provide a statement of financial position as of the beginning of the previous
period to provide a more comparative information.

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