ABS-CBN HOLDINGS

CORPORATION

Financial Statement Analysis

CHIN NIEVE S. FIGURA

BSA-III
Disclaimer

This analysis is limited only to Liabilities and Equity section of the company. It does not include
asset section and it does not reflect the whole performance of the company.

Introduction

The Company

ABS-CBN Holdings Corporation was incorporated in the Philippines on March 30, 1999,
for the primary purpose of investing, purchasing and holding real and personal properties,
including, but not limited to, shares of stock, bonds, debentures, and notes, evidences of
indebtedness or other securities or obligations.

ABS-CBN Corporation is the Philippines' leading media and entertainment organization.

It is primarily involved in content creation and production for television, online, and over-the-top
platforms, cable, satellite, cinema, live events, and radio for domestic and international markets.

The Company does not conduct any business other than in connection with the issuance
of Philippine Deposit Receipts (PDRs), the performance of obligations under the PDRs and the
acquisition and holding of shares of ABS-CBN Corporation in respect of PDRs issued.
Dividends received from ABS-CBN, exercise fees and interest incomes are distributed to PDR
holders less operating expenses incurred and to be incurred. In the event that the dividends
received, exercise fees and interest income are no longer enough to cover the expenses; the
Company is reimbursed by the PDR holders.

ABS-CBN also operates various platforms including domestic television, radio networks,
worldwide OTT, and online platforms. It also has interests in cable, satellite, and broadband
systems in the Philippines, as well as in music and music publishing, consumer products and
licensing, multimedia services, magazine and book publishing, production and post production
services, telecommunication services, money remittance, cargo forwarding, TV shopping
services, food and restaurant services, theme park development and management, property
management, and cinema management.

Summary of analysis

 The financial statement of ABS-CBN is well-organized and presented fairly.

 The institution will continue to operate in the near foreseeable future exception stipulated
by the law.
Background of the Analyzes

 Trade and Other Payables

Trade:
PDR holders
Related parties (see Note 10) 478,122 155,355
Unearned revenue 8,351,598
Due to a related party (see Note 10) 3,427,193
Accruals for:
Maintenance fees 680,884 575,378
Legal and professional fees 192,700 144,1 56
Others (see Note 1 0) 311,407 122,157
Statutory payables 3,494 253
Others 74,383 12,915

Trade payables include dividends payable to PDR holders that were not yet claimed as of
financial reporting date. These are noninterest-bearing and are payable on demand.

Unearned revenue represents any cash dividend or other cash distributions distributed in respect
of ABS-CBN shares withheld by the Company to be applied against operating expenses for the
current and preceding years.

Due to a related party consist mainly of noninterest-bearing advances for working capital
requirements and administrative expenses from ABS-CBN, an entity under common ultimate
ownership with the Company.

 Financial Liabilities

A financial liability is derecognized when the obligation under the liability is discharged or
cancelled or expires.

When an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified,
such an exchange or modification is treated as a derecognition of the original liability and the
recognition of a new liability, and the difference in the respective carrying amounts is
recognized in the statement of comprehensive income.

Other Financial Liabilities. Other financial liabilities are classified in this category if these are
not held for trading or not designated as at FVPL upon the inception of the liability. These
include liabilities arising from operations or borrowings.

Loans and borrowings are initially recognized at fair value of the consideration received, less
directly attributable transaction costs. After initial recognition, loans and borrowings are
subsequently measured at amortized cost using the effective interest rate method. Amortized
cost is calculated by taking into account any related issue costs, discount or premium. Gains and
losses are recognized in the statement of comprehensive income when the liabilities are
derecognized, as well as through the amortization process.

The Company's trade and other payables are classified under this category as at December 3 1,
2017. Fair value information on trade and other payables are disclosed in Note 12.

 Recognition of Deferred Tax Assets

The carrying amount of the Company's deferred tax assets is reviewed at each reporting date and
reduced to the extent that it is no longer probable that sufficient future taxable profit will be
available to allow all or part of the deferred tax assets to be utilized. However, there is no
assurance that sufficient future taxable profit will be generated against which all or part of
deferred tax assets can be applied.

Unrecognized deferred tax assets on NOLCO amounted to P4,491 ,933 and as at

December 3 1, 2018 and 2017, respectively (see Note 9).

 Fair Value of Financial Instruments

The Company's principal financial instruments consist of cash and cash equivalents, receivables,
deposits and trade and other payables (excluding statutory payables).

The following methods and assumptions were used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:

Other Financial Liabilities

Trade Payables and Other Payables. Due to the short-term nature of transactions, the fair values
approximate the carrying amounts as at reporting date.

 Equity

2018 2017
Number of Number of
Shares Amount Shares Amount
Authorized – P100 par value 1,000 PIOO,OOO I ,OOO PIOO,OOO
Subscribed, net of subscriptions
receivable ofP30,OOO 400 PIO,OOO 400 PI O,OOO

The Company was incorporated in the Philippines on March 30, 1999 as "Worldtech Holdings
Corporation". On September 16, 1999, the Philippine Securities and Exchange Commission
approved the change in the Company's corporate name to "ABS-CBN Holdings Corporation".

Authorized Issue/
Corporate Name Date of Approval Capital Stock Offer
 Price
Worldtech Holdings March 30, 1999 1,000 PI .00
Corporation
ABS-CBN Holdings September 16, 1999
Corporation

As at December 3 1, 2018 and 2017, the total number of shareholders is eight (8).

As at December 3 1, 2018 and 2017, the total number of PDR holders, which includes Philippine
Central Depository Nominee Corporation, is 128 and 124, respectively.

 Earnings per Share

The following table presents information necessary to calculate earnings per share:

2018 2017 2016

Net income P_
Divide by weighted average shares
outstanding 400 400 400
Basic/diluted earnings per share P_

The Company has no dilutive potential common shares outstanding; therefore, basic EPS is the
same as diluted EPS.

 Basic/Diluted Earnings per Share

Basic/diluted earnings per share amounts are calculated by dividing the net income for the
year attributable to shareholders by the weighted average number of common shares
outstanding during the year.

Capital stock is measured at par value for all shares issued. Incremental costs incurred
directly attributable to the issuance of new shares are shown in equity as a deduction from
proceeds, net of tax. Proceeds and/or fair value of considerations received in excess of par
value, if any, are recognized as additional paid-in capital.

Deficit represents the accumulated losses as of reporting date.

Statement of the Problem(s)

This analysis is an attempt at identifying all the liabilities and equities of this company.

Specifically, this analysis seeks answers to the following questions:

1. What are the liabilities of the company and its nature, recognition and measurement for both
initial and subsequent?
2. What type of share is being issued by the company?
3. What are the transactions that changes retained earnings?
4. How do the retained earnings move within a year?
5. How do earnings per share and diluted earnings per share help the company?

Objectives in Analyzing the Case

This case analysis aims to accomplish the following objectives:

 To identify all liabilities and equity section of this company

 To analyze each nature, recognition and measurement
 To determine the transactions that changes retained earnings

Analysis of the Problem

After analyzing the financial statements of ABS-CBN Holdings Corporation (the

Company), which comprise the statements of financial position as at December 31, 2018 and
2017, and the statements of income, statements of comprehensive income, statements of changes
in equity and statements of cash flows for each of the three years in the period ended December
31, 2018, and notes to the financial statements, including a summary of significant accounting
policies.

The accompanying financial statements present fairly, in all material respects, the
financial position of the Company as at December 31, 2018 and 2017, and its financial
performance and its cash flows for each of the three years in the period ended December 31,
2018 in accordance with Philippine Financial Reporting Standards (PFRSs).

The independent auditor conducted audits in accordance with Philippine Standards on

Auditing (PSAs). Their responsibilities under those standards are further described in the
Auditor's Responsibilities for the Audit of the Financial Statements section of their report. They
are independent of the Company in accordance with the Code of Ethics for Professional
Accountants in the Philippines (Code of Ethics) together with the ethical requirements that are
relevant to their audit of the financial statements in the Philippines, and the auditors have
fulfilled their other ethical responsibilities in accordance with these requirements and the Code
of Ethics. I believe that the audit evidence they have obtained is sufficient and appropriate to
provide a basis for their opinion.

STATEMENTS OF FINANCIAL POSITION

December 31
2018 2017
Current Assets
Cash and cash equivalents (Notes 5, Il and 12)
Receivables (Notes Il and 12)
Deposits (Notes 1 1 and 12) 1,085 1,085
Prepaid tax (Note 2) 10,000
P14,802
TOTAL ASSETS P18 863 784 132

LIABLITŒS AND EQUITY

Current Liabilities
Trade and other payables (Notes 6, 10, 11 and 12)
Equity
Capital (Note 7)
Additional paid-in capital
Deficit 10,000 10,000
Net E i 23 099 35 23,099 356

TOTAL LIABILITIES AND EQUITY P18 863 784 802 132

See accompanying Notes to Financial Statements.

STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31

Exercise fees (Note 4) 485,150 107,820 501,610

Interest income (Note 5) 17,596 40,651 98,056
4,123,648
OPERATING EXPENSES (Notes 4 and 8) 4,123,648

INCOME BEFORE INCOME TAX

PROVISION FOR INCOME TAX (Note 9)

NET INCOME/ TOTAL COMPREHENSIVE INCOME

See accompanying Notes to Financial Statement

STATEMENTS OF CHANGES IN EQUITY
Years Ended December 31
2018 2017
PIO,ooo PIO,OOO

CAPITAL STOCK (Note 7)

ADDITIONAL PAID-IN CAPITAL
DEFICIT

Alternatives

Since, ABS-CBN’s financial statements presented fairly, the company must maintain it. It
must have true and fair view in auditing which means that the financial statements are free from
material misstatements and faithfully represent the financial performance and position of the
entity. True suggests that the financial statements are factually correct and have been prepared
according to applicable reporting framework such as the IFRS and they do not contain any
material misstatements that may mislead the users. Misstatements may result from material
errors or omissions of transactions & balances in the financial statements. Fair implies that the
financial statements present the information faithfully without any element of bias and they
reflect the economic substance of transactions rather than just their legal form.

Preparation of true and fair financial statements has been expressly recognized as one of
the responsibilities of the directors of companies in the corporate law of several countries.
Auditors must therefore consider whether directors have fulfilled their responsibility for the
preparation of true and fair financial statements when providing an audit opinion. Company law
of certain jurisdictions require the auditors to expressly state in their audit report whether in their
opinion the financial statements present a true and fair view of the financial performance and
position of the entity.

Moreover, capital risk management can be used again. As discussed in Note l, the
Company has not conducted any business other than in connection with the issuance of PDRs,
the performance of obligations under the PDRs and the acquisition and holding of shares of
ABS-CBN in respect of PDRs issued. Capital includes capital stock, additional paid-in capital
and deficit. The Company adopts a prudent approach on capital management to ensure that it
maintains its net assets.

Dividends received from ABS-CBN, exercise fees and the related interests are
distributed to PDR holders less operating expenses incurred. Any excess over the interest
distribution to PDR holders and actual operating expenses is deferred and amortized when
applied to the actual operating expenses of the succeeding years. On the other hand, if the
balance of the unearned revenue, exercise fees and the interest income earned during the year is
not enough to cover the actual operating expenses for the year, the expenses are reimbursed from
the PDR holders.
 The Company manages its capital structure and makes adjustments to it, in light of
changes in economic conditions. To maintain or adjust the capital structure, the Company may
adjust the dividend payment to shareholders. No changes were made in the objectives, policies
or processes during the years ended December 31, 2018 and 2017. The Company is not subject
to any externally imposed capital requirement.

As at December 3 1, 2018 and 2017, the Company considers its total paid-in capital of
as capital.

Evaluation of the Alternatives

As most of the companies experienced capital risk, it is crucial to give focus on this.
Capital risk is the possibility that an entity will lose money from an investment of capital. It can
manifest as market risk where the prices of assets move unfavorably, or when a business invests
in a project that turns out to be a dud. Capital risk management is the best alternative action for
this. Capital risk management is an assessment of a firm’s ability to withstand the impact of
credit, market and other risks it is exposed to.

On the other hand, code of ethics is more important, it sets out an organization’s ethical
guidelines and best practices to follow for honesty, integrity, and professionalism. In addition, it
clearly lays out the rules for behavior and provides the groundwork for a preemptive warning.

Recommendation

Overall, I recommend strict abiding of code of ethics because it provides a framework

and a standard for ethical decision making within the organization. Also, the independent
auditors of the Company are doing their jobs in accordance with the Code of Ethics for
Professional Accountants in the Philippines (Code of Ethics) together with the ethical
requirements that are relevant to their audit of the financial statements in the Philippines

The Code recognizes that the objectives of the profession are to work to the highest
standards of professionalism, to attain the highest levels of performance and generally to meet
the public interest requirement set out above. These objectives require four basic needs to be
met:

 Credibility
In the whole of society there is a need for credibility in information and
information systems.

 Professionalism
There is a need for individuals who can be clearly identified by clients, employers
and other interested parties as professional persons in the accountancy field.

 Quality of Services
There is a need for assurance that all services obtained from a professional
accountant are carried out to the highest standards of performance.
  Confidence
Users of the services of professional accountants should be able to feel confident
that there exists a framework of professional ethics which governs the provision
of those services.

References

https://www.lifehack.org/296492/7-simple-steps-improve-your-financial-management-skills

https://www.prc.gov.ph/uploaded/documents/Board%20of%20Accountancy-CE.pdf

https://accounting-simplified.com/audit/concepts/true-and-fair-view

https://www.capitalrm.co.uk/