BENGUET ELECTRIC COOPERATIVE, INC. Baguio City Philippines REPORT ON EXAMINATION OF FINANCIAL STATEMENTS December 31, 2019 Philippine Currency ATTY. FRANCISCO A. AQUINO, CPA Certified Public AccountantATTY. FRANCISCO A. AQUINO, CPA [2 Kos pea ie 4, Phen Tie? Certified Public Accountant Fanad edd fankalino(@yaboocom ” ‘antakino(@ yahoo.com Contact Nos: 0917-522-0801/0920-223-1430 Independent Auditor’s Report ‘The Board of Directors BENGUET ELECTRIC COOPERATIVE, INC. Baguio City, Philippines Opinion I have audited the financial statements of BENGUET ELECTRIC COOPERATIVE, INC., which comprise the statement of financial position as at December 31, 2019, and the statement of income, statement of changes in equity and statement of cash flows for the year then ended, and notes to the financial statements, including a summary of significant accounting policies. In my opinion the accompanying financial statements present fairly, in all material respect, the financial position of BENGUET ELECTRIC COOPERATIVE, INC. as of December 31, 2019, and its financial performance and its cash flows for the year then ended in accordance with Philippine Financial Reporting Standards (PFRS). Basis for Opinion I conducted my audit in accordance with Philippine Standards on Auditing (PSAs). My responsibilities under those standards are further described in Auditor's responsibilities for the Audit of the Financial Statements section of my report. I am independent of the Electric Cooperative (EC) in accordance with the Philippine Ethics Standards Board for Accountants (PESBA Code) together with the ethical requirements that are relevant to my audit of the financial statements in the Philippines, the Code of Ethics for Professional Accountants in the Philippines, and I have fulfilled my other ethical responsibilities in accordance with these requirements, I believe that the audit evidence I have obtained is sufficient and appropriate to provide basis of my opinion. Material Uncertainty Related to Going-Concern Having regard to the future period to which those charged with governance have paid particular attention in assessing going concer, I have planned and performed procedures specifically designed to identify any material matters which could indicate concer about the entity's ability to continue as a going concem. As stated in Note 2, no events or conditions, indicate that a ‘material uncertainty exists that may cast significant doubt on the EC’s ability to continue as a going concem. Use of going concem basis of accounting is appropriate and no material uncertainty has been identified.Responsibilities of Management and Those Charged with Governance for the Finan Statements Management is responsible for the preparation and fair presentation of the financial statements in accordance with Philippine Financial Reporting Standards (PFRS), and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statement, management is responsible for assessing the EC’s ability to continue as a going concer, disclosing, as applicable, matters related to going concem and using the going concern basis of accounting unless management either intends to liquidate the EC or to cease operations, or has no realistic alternative but to do so. ‘Those charged with governance are responsible for overseeing the EC’s financial reporting process. Auditor’s Responsibilities My objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes my opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered ‘material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with PSAs, I exercise professional judgment and maintain professional skepticism throughout the audit. also: Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for my opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for ‘one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. * Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the EC’s intemal control. + Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management, * Conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the EC’s ability to continue as a going concer, If I conclude that a material uncertainty exists, [ am required to draw attention in my auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify my opinion. My conclusions are based on the audit evidence obtained up to the date of auditor's report. However, future events or conditions may cause the EC to cease to continue as a going concer.= Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. = [communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that I identify during my audit. Report on Bureau of Internal Revenue Requirement My audits were conducted for the purpose of forming an opinion on the basic financial statements taken as a whole. The supplementary information in Note 29 to the financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is not a required part of the basic financial statements. Such supplementary information is the responsibility of management and has been subjected to the auditing procedures applied in my audits of the basic financial statements. In my opinion, the supplementary information is fairly stated in all material respects in relation to the basic financial statements taken as whole. ‘Atty. Francisco A. Agytfno, CPA CPA Certificate No. 5, PRC/BOA Accreditation No. 4717, valid until June 04, 2022 BIR Accreditation No. 03-005222-1-2018, valid until March 26, 2021 NEA Accreditation No. 2018-03-00046, valid until March 15, 2021 CDA CEA No. 957, valid until August 14, 2020 Roll of Attomeys No. 34530 PTR No. 0231077, January 13, 2020 TIN 903-457-426-000 Roxas, Isabela April 10, 2020 Roxas, Isabela, PhilippinesBENGUET ELECTRIC COOPERATIVE, INC. (ANon-stock and Non-profit Rural Electric Cooperative) ‘STATEMENT OF FINANCIAL POSITION December 31, 2019 (With Comparative Figures for 2018) 2019 2018 ‘ASSETS Noncurrent Assets Property, Plant and Equipment (Notes 4, 6, 6 and 8) 2.583.856,999 2,461,673576 ‘Other Non-Current Assets (Notes 4, 5,6 and 9) 474,930.149____10,25,391, Total Non-Current Assets 2,754,986,148__2,471,968,967 ‘Current Assets: Cash and Cash Equivalents (Notes 4.6 and 10) $564023.683 638,220,801 Consumer Accounts Receivable, Net (Notes 4, 5,6 and 11) 233,254705 188,231,819 Materials & Supplies inventories, At Cost (Notes 4, 5, 6 and 12) 471,478,306 112,958,483 Prepayments and Other Current Assets (Note 4 and 13) 210,646,650 162,879,348, Total Current Assets 4.179,403,484 —_ 1,112,290,450 TOTAL ASSETS 3,994,389,592 _3,584,259,417 EQUITY AND LIABILITIES Equity Memberships (Note 4 and 14) 4,083,424 4,085,058 Donated Capital (Note 4 and 15) 515,497,426 _ 520,645,113, Miscelianeous Contributed Capital (Note 4 and 16) 1.462,481/985 1,368,254,385 Revaluation Surplus (Note 18) 614,201,153 649,600,756 ‘Accumulated Margin/(Loss) (Note 17) (418,625,679) _ (409,554,397) Total Equity 72,174,747,708__2,130,010,916 Non-Current Liabilities Long-term Debt, net of current portion (Note 18) 498,776.20 258,287,124 Consumers’ Deposits (Note 20) 282.646.515 264,843.415, Retirement Libilty (Note 21) 105814388 170,564,905 Other Non-Current Lables (Note 22) 481,090,919 ___ 181,345,253 ‘Total Non-Current Liabilities 7,008, 128,060 675,020,696 Current Liabilities ‘Accounts Payable and Accrued Expenses (Note and 23) 728,908,864 575,240,579 Current Portion of Long-term Debt (Note 19) 22,514,960, 3,987,226 Total Current Liabilities 751,513,824 579,227,805 Total Liabilities 1.750,641,896 _1,454,248,501 TOTAL EQUITY AND LIABILITIES 3,994,389,592__3,584,259,417 (Se eccompanyng. tenance tenet)BENGUET ELECTRIC COOPERATIVE, INC. (A Non-Stock, Non-Profit Rural Electric Cooperative) STATEMENT OF OPERATIONS For the Year Ended December 31, 2019 (With Comparative Figures for 2018) 2019 2018 REVENUES Pass Through Revenues Generation Charges 1,819,105,6731,675,671,411 Transmission Charges 328,959,681 319,861,751 ‘System Loss Charges 198,264,315 183,356,028 ‘Subsidy Charges (net of Discounts) (7,987,700) (7.423.751) ‘Total Pass Through Charges 2,338,341,969 2, 171,465,439 Coop Revenues. Distribution 187,419,162 189,266,114 ‘Supply 191,204,353 124,621,991 Metering 90,006,190 85,771,440 “Total Coop Revenues 408,629,705 398,659,545 NET Energy Sales* (Note 4,5 and 24) 2,746,971,674___ 2,571,124,985 ‘Cost of Energy Sold, Net (Note 25) (2.313,360,281) __(2.170.218,985) Gross Income, 433,611,384 400,906,000 OPERATING EXPENSES (Note 26) Distribution (143,004,191) (126,462,912) ‘Supply (46,764,439) (63,244,420) Metering (68,684,467) (61,608,032) Administrative & General (153,977,870) _(153,662,375) Total Operating Expenses, (402,430,967) (384,977,739) Depreciation (Note 26) (163,721,385) _ (160,368,991) OTHER INCOME (CHARGES) (Note 27) Rental income 10,511,083 12,844,003, Interest income 16,968,236 2.213.814 ‘Other Income 42,805,304 190,630,307 Finance Cost (5,350,250) (7,490,896) Total Other income (Charges) 64,834,964 198,197,228 NET INCOME (LOSS) 57, 706,59: 53,756,498 (CThe Net Energy Sales does not incude the Renvestnent Fund for Sustainable CAPEX(RFSG) in the ‘amount of Php94,237,000(for year 2016). (This information is included upon Client's (BENECO) request) (See accompanying notes w financial satement)(cvvouaqesprououy 01 sp0u Cue 208) "TEUSEWSOI0 1V SSONVIVE go sco ery) esr vezi See revZorT TOLiPevLye Tees'90c28) —_ (ees' 90°29) TesoT}Ouoou ON ( 'se) (roa'60e'se) jweursnipyjuowog powles 8 000'2¢2'v6 WaULISEAUIEY 40} suo|aIUDD JEUONPPY 3) (o8s'z01's) :Anibg ut $9824) swuowssnipe poved 20 ‘Bs70096r9 Servereoes — cirevaors ‘ior te uaENgOaG Lv SIONVIVE (eso7Jeuioa0] jen (eaz'vst'se) wounsnipyvojog pewes 92u'ses'06 wouqsenujey 30} suognaiqued [eUORIPPY (szs'069'+) reudeo pereuod revenppy soz'2h djysieqweyt evowppy Lie 'seo'as yng w s28uey) squounsnipe poved soe ioe te WHGWSIIO LV SIONVIVE TWwilaes—-aNSUaENaW oaLynoa (8102 40) saunB).4 eapesedwoa YIM) 6102 ‘Le sequieseg popu 189, ou 404 ALINDA NI SFONVHO 4O LNAW3LVLS (enpesedoog 91:39913 JesMyY }4O1d-UON '490}S-UON vy) “ONT '3AUWead009 9f4L9373 LANONSBENGUET ELECTRIC COOPERATIVE, INC. (ANon-Stock, Non-Profit Rural Electric Cooperative) ‘STATEMENT OF CASH FLOWS For the Year Ended December 31, 2019 (With Comparative Figures for 2018) 2019 2018 ‘CASH FLOWS FROM OPERATING ACTIVITIES NET INCOME forthe year (67,706,583) 53,756,498 ‘Adjustments to reconcile net income to net cash Provided by Oporating Activities: Depreciation and Amortization 163,721385 160,368,991 Prior period adjustments, net '58,635.311 (12,382,028) Revaluation Surplus (95,309604) (35,154,269) ‘Changes in Assots & Liabilities (Increase)Decrease in ‘Accounts Receivable (95,022,806) (21,736,198) ‘Materials and Supplies Inventors (8519913) 26,067,923 Prepayments and Other Curent Assets (47,767,302) 13,724 620, Increase (Decrease) in ‘Accounts Payable and Accrued Expenses 159,758,285 65,049,688 Current Porton of LTD 48527734 (66,054,378) Consumers’ Deposits 17,803,100, 15.211.538 Retirement Liity (64950519 35,087,255 (Other Non-Current abilities (254334) 43,061,338 Net Gash Provided (Used) in Operating Activities 102,814,663 278,101,957 ‘CASH FLOWS FROM INVESTING ACTIVITIES ‘Additions to Plant, Property and Equipment (285,903,807) (267,018,424) Other Non-CurrentAssats 160, (19,603) Tot oa Provided (Used) inivetng Aen aes —aarseent ‘CASH FLOWS FROM FINANCING ACTIVITIES Increase (Decrease) in ‘Long-term Loans Payable (Net of current potion) 180509117 (43,202,141) Donated Capital (6,147,686) (4.890.875) Contribution in Aid of Construction 94,287,000 90,836,766 Membership 28,365, 17,205 Net Cash Provided (Used) in Financing Activities 22,868,955 NET INCREASE (DECREASE) IN CASH & CASH EQUIVALENTS, 74,197, 3,036,885 (Se accompanying mtn tenets)[BENECO Notes to FS December 31,2019, BENGUET ELECTRIC COOPERATIVE, INC. NOTES TO FINANCIAL STATEMENTS, December 31, 2019 1. ELE )OPERATIVE INFORMATION Benguet Electric Cooperative, Inc. (BENECO) is a non-stock, non-profit membership Electric Cooperative (EC) duly organized under the existing Philippine Laws and Regulations, particularly Republic Act 6038 as amended by Presidential Decree Nos.269 and 1645. It was incorporated and registered with the National Electrification Administration (NEA) on October 5, 1973. BENECO is ISO certified under the ISO ‘9001 : 2015 Standard with regi no, 50500979 QMIS valid from October 29, 2019 until October 28, 2022. On February 10, 1994, the Omnibus Rules and Regulations on the registration of Electric Cooperatives (ECs) under RA No, 6938 were approved. As a result, the EC shall have a three-year transition period from the ‘effectivity of the Omnibus Rules before it can qualify for permanent registration with the Cooperative Development Authority (CDA). On October 20, 1997, the transition was extended to another three years, which already expired on May 4, 2000. The EC did not register with the CDA. Republic Act No. 9136 otherwise known as the “electric power industry reform act” (EPIRA) of 2001 was signed into law on June 8, 2001. Upon the effectivity of this act, all outstanding financial obligations of Electric Cooperatives (ECs) to NEA and other government agencies incurred for the purpose of financing the rural electrification shall be assumed by the Power Sector Assets and Liabilities Management Corporation (PSALM). Within five (5) years from the condonation of the debts, any Electric Cooperative which shall transfer ownership or control of its assets, franchise or operations, shall repay PSALM the total debts including acerued interests thereon. Under Chapter 7, Section 7 of R.A. No. 9136, Electric Cooperatives are given the option to convert into either a stock cooperative under the CDA ot stock corporation under the Corporation Code, provided that Electric Cooperatives which opt to remain non-stock, non-profit shall continue to be registered with the NEA and shall be governed by Presidential Decree(PD) No. 269 pursuant to Section 7c (ii) of Rule 7 of the rules implementing the EPIRA. The Cooperative was granted a Certificate of Franchise to operate an electric light and power service for a period of 50 years from March 20, 1978, covering Baguio City and 13 municipalities namely: Atok, Bakun, Bokod, Buguias, logon, Kabayan, Kapangan, Kibungan, La Trinidad, Mankayan, Sablan, Tuba and Tublay all in the Province of Benguet. The Cooperative operates within the Philippines with 230 employces in 2019. Its office address is located in 4 South Drive, Baguio City, Philippines. 2. STA’ OPERATION As of December 2019, the EC has 201,340 billed consumers in its 269 barangays, 100% energized for the city of Baguio and 13 municipalities of Benguet. It has a total capacity of 148 MVA consisting of 5 substation, with 56.88% demand utilization, ‘Ay. Francisco A. Aquino, CPA Page 9 of 35 Cento, Roms, Hala en doa Bil, Polaco 1, Por, Tac Sinakaknalgsaboncom oni S22 001/90 23.1480BENECO Notes to FS ‘December 37,2019 ‘The electricity rates of Electric Cooperatives are governed by the “Rules for Setting Electric Cooperatives’ ‘Wheeling Rates (RSEC-WR) promulgated by the Energy Regulatory Commission (ERC) as mandated by RA 9136 or the EPIRA law. ‘The EC has incurred a net loss of P 67,706,593 in 2019 and earned a net income of P_ 53,756,498 in 2018. Its collection efficiency is 99.84% while its system loss is 8.53% as of December 2019. With its current financial condition, there are no significant uncertainties as to the Electric Cooperatives ability to continue as a going concern. 3. BASIS OF PREPARATION AND PRESENTATION OF FINANCIAL STATEMENTS, ‘The financial statements of the Electric Cooperative have been prepared with the general practices on Rural Electric Cooperatives (RECs) as prescribed by the National Electrification Administration (NEA) and in conformity with Philippine Financial Reporting Standard (PFRS). The financial accounting framework includes PERS and Philippine Accounting Standards (PAS). ‘The financial statements are presented in Philippine peso, which is the Cooperative’s functional and presentation currency. 4, SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Adoption of New and Amended PERS The accounting policies adopted are consistent with those of the previous financial year, except for the new and amended PERS and PAS, when applicable, as follows: Effective for annual periods beginning on or after January 1, 2019: PERS 9 (Amendments) Prepayment Features with Negative Compensation - this amendment confirm that when a financial liability measured at amortized cost is modified without this resulting in derecognition, a gain or loss should be recognized immediately in profit or loss. The gain or loss calculated as the difference between the original contractual cash flows and the modified cash flows discounted at the original effective interest rate. This means that the difference cannot be spread over the remaining life of the instrument which may be a change in practice from PAS 39. PAS 28 (Amendments) Long-Term Interests in Associates and Joint Ventures - will affect companies that finance such entities with preference shares or with loans or which repayment is not expected in the foreseeable future (referred to as long-term interests or LT1). This is common in the extractive and real estate sectors. The amendment, which addresses equity-accounted loss absorption by LTI, involves the dual application of PAS 28 and PFRS 9 Financial Instruments. ‘Ay. Francisco A. Aquino, CPA Page 10 of 35 (Cento, Rona ade Ber mda id, blo 1, Por, Tae fankakinddsaoacom ‘947-522-0501 /0908.2291430[BENECO Notes o FS December 31,2019, PAS 19 (Amendments) Plan Amendment, Curtailment or Settlement - clarify that on amendment, of a defined benefit plan, a company now uses updated actuarial assumptions to determine its current service cost and net interest for the period and the effect of the asset ceiling is disregarded when calculating the gain or Joss on any settlement of the plan and is dealt with separately in other comprehensive income (OCI). PERS 3 (Amendments) Business Combinations and PFRS 11 (Amendments) Joint Arrangements - clarify how an entity accounts for increasing its interest in a joint operation that meets the definition of a business. IF a party maintains (or obtains) joint control, the previously held interest is not remeasured. If a party obtains control, the transaction is a business combination achieved in stages and the acquiring party remeasures its previously held interest at fair value. PERS 12 (Amendments) Income Tax Consequences of Payments on Financial Instruments Classified As Equity - clarify that all income tax consequences of dividends are recognized consistently with the transactions that generated the distributable profits - i.e. in profit or loss, other comprehensive income or equity. PERS 23 (Amendments) Borrowing Cost Eligible For Capitalization - clarify that the general borrowing pools used to calculate eligible borrowing costs excludes only borrowings that specifically finance qualifying assets that are still under development or construction. Effective for annual periods beginning on or after January 1, 2020: PAS 1 and PAS 8 (Amendments) Definition Of Material - clarify the definition of ‘materiality’ and how it should be applied. The amendments also improve the explanations of the definition and ensure consistency across all PFRSs. PERS 3 (Amendments) Definition Of A Business - clarify the definition of a business by providing a new framework for determining whether transactions should be accounted for as acquisitions (or disposals) of Effective for annual periods beginning on or after January 1, 202 PERS 17 Insurance Contracts - provides the first comprehensive guidance to accounting for insurance contracts under PFRS. It aims to increase transparency and to reduce diversity in the accounting for insurance contracts. Under prevailing circumstances the adoption of the forgoing and new and revised PFRS are not expected to have any material effect on the financial statements. Additional disclosures will be included in the notes to financial statements, as applicable. ‘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. Property, Plant, and Equipment and Depreciation Property, Plant and Equipment is carried in the books at cost less accumulated depreciation and amortization. Land is stated at cos less any impairment in value. The cost of an asset consists of its purchase price and cost ‘Ay. Frnsco A. Aquino, CPA Page 11 of 35 Cento, Rona, lla en Ko Bp, Pobdcon Pr, Tc ‘tanakin(@saba com (717 2.0801/092023.1450BBENECO Nees to FS December 12019 Major repairs and maintenance, which extends the life of the asset, are charged to the appropriate Property, Plant and Equipment accounts. All other subsequent expenditures are recognized as expenses in the period in which those are charged. Proceeds from sales of salvaged materials are accredited to Non-Operating Revenue, Depreciation and amortization are computed on a straight-line method over the estimated useful lives of the assets. No depreciation is provided on land and land rights; when fixed assets are retired or otherwise disposed of, a credit to the appropriate fixed asset account is made to eliminate the asset from the books and the corresponding accumulated depreciation is debited. Construction Work in Progress Construction Work in Progress is stated at cost which represents the total cost of construction work awarded ‘through contracts and those being done by the EC’s own workforce. This includes the cost of construction, other direct and indirect cost attributable to construction in progress. Borrowing costs that are directly attributable to the construction of utility plant and others are capitalized during the construction period. Property under construction is not depreciated until such time that completed construction are put into operational use. Other Non-Current Assets Other non-current assets consist of long term investments, security deposits, and restricted funds. Financial Assets Financial assets include cash and other financial instruments. Financial assets are classified into the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to- ‘maturity investments and available-for-sale financial assets. Financial assets are assigned to the different categories by management on initial recognition, depending on the purpose for which the investments were acquired. ‘The designation of financial assets is re-evaluated at every reporting date at which date a choice of classification or accounting treatment is available, subject to compliance with specific provisions of applicable accounting standards. All financial assets are recognized on their trade date. All financial assets that are not classified at fair value through profit or loss are initially recognized at fair value, plus transaction costs. Aside from cash, the EC’s other financial assets are currently classified as loans and receivables. Cash Cash includes cash on hand and in banks which are stated at face value. Cash equivalents, if there are, may consist of short-term, highly liquid investments that are readily convertible to known amounts of cash and are subject to an insignificant risk of changes in value. Consumer Accounts Receivables Consumer Accounts Receivables are stated net of allowance for uncollectible accounts. ‘Aty. Francisco A. Aguino, CPA Page 12 of 35 Cente, Rona, Habel en fn il, Poblacion 1, Par Tae fahakind@yaboncur (0917 522.0301 /800-23.1430[BENECO Notes 10 FS Deombar 31,2019 Allowance for uncollectible accounts is maintained at a level considered adequate to provide for potential uncollectibilty of its receivables. The level of this allowance is generally based on the aging of consumer receivables. Allowance for uncollectible accounts on other receivables is based on management's evaluation ‘on past collection experience and other factors that may affect collectability. An estimate of the allowance for bad debis is made when collection of the full amount is no longer probable. Given the nature of the EC’s business, the consumer receivables are appropriate for collective impairment assessment rather than specific. The EC’s policy in providing allowance for uncollectible accounts is in accordance with NEA’s policy. Materials and Supplies Inventories The inventories on hand are stated at fair value and are determined using the Weighted Average Cost ‘method, the balances are checked by means of annual physical counts. Physical inventory is being conducted annually. Prepayments and Other Current Assets Prepayments represent expenses not yet incurred but already paid in cash. Prepayments are initially recorded as assets and measured at the amount of cash paid, Subsequently, these are charged to profit or loss as they are consumed in operations or expire through passage of time. Other current assets consist of other dues from RECs and input tax which are initially measured at transaction cost and subsequently measured at cost less impairment if there’s any. Equi Membership This represents the total face value of member's equity. Membership in the Electric Cooperative is limited to ‘any person, firm or association, corporation or body politic or subdivision thereof “bonafide” residing or situated at the area coverage of the EC. Donated Capital Donated capital represents contribution or grants received by the EC in form of cash, equipment, commodities or all forms of services. Donated capital from PSALM represents condoned debt of the EC to NEA, while subsidies from government are also accounted as donated capital and are measured at nominal amount received. Miscellaneous Contributed Capital ‘These represent reinvestment for sustainable capital represent from members’ contribution equivalent to 5% of the distribution rate per kWh which are to be used for expansion, rehabilitation or upgrading of electric power system as stated in the rate unbundling decision. Its recognition is based on the reinvestment guidelines by NEA and ERC. Also included are Contributions in aid of construction from private entities or ‘members. nn nnn ‘Au. Francisco A. Aquino, CPA Page 13 of 35 Centro Renay, abla ‘eo Ida Bp, Poblacion 1, Pr, Tale finlakinod@annc onr7szz.001/920-22.1430BENECO Notes 10 FS December 31,2019, Accumulated Margin (Loss) ‘Accumulated Margin (Loss) represent net accumulated earings (losses) of the EC less any adjustments arising from application of new accounting standards, policies or corrections of errors applied retrospectively. bilities include trade and other payables, interest bearing borrowings and other liabilities. are recognized when the EC becomes a party to the contractual agreements of the instruments. All interest related charges are recognized as an expense in the income statements under the caption Interest Expense. ‘Trade payables are accounts payables while other payables represent accruals which are expenses incurred bbut not yet paid. These are initially measured at transaction cost and are subsequently measured at undiscounted amount of cash or other considerations expected to be paid. ‘Accrued expenses include payable for government obligations and contributions such as withholding tax payable for Bureau of Internal revenue (BIR), SSS premium payable for Social Security System (SSS) and HDMF loan payable and premium payable for Home Development Mutual fund (HDMF). These are ‘measured at their transaction cost. Borrowings Borrowings are measured at their nominal values and subsequently recognized at amortized costs less settlement payments, if any. Interest-bearing loans are raised for support of long-term funding of operations. They are initially recognized at proceeds received, net of direct issue costs. The amortized cost of a financial liability is the amount at which the financial liability is measured at initial recognition minus the principal repayments plus or minus the cumulative amortization using effective interest method and any difference between that initial amount and the maturity amount. nance charges, including premiums payable on settlement or redemption and direct issue costs, are charged to profit or loss on an accrual basis using the effective interest method. Finance costs, are added to the carrying amount of the instrument to the extent that they are not settled in the period in which they arise otherwise these are presented as part of accrued interest under trade and other payables. Consumers’ Deposits ‘The member consumers also provided capital and operating funds to facilitate the construction of service installations including deposits to secure payment of monthly bills which are refundable upon termination of the service contract. Meter deposits cover mainly the cost of meters. However, on June 9, 2004, the ERC authorized the promulgation of Magna Carta for residential electricity consumers which took effect on July 19, 2004 which stipulated that residential consumers shall be exempt from the payment of meter deposits en a tars arin ene ie ‘Ay. Francis A. Aquino, CPA Page 14 of 35 (Centro, Rosas, Iba? ‘Bn lan Rg, Poco , Pr, Tae Funland (o17 522-030 /0920 25.1450[BENECO Notes to FS December 31,2019) Revenue Recogni Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the EC and the amount of the revenue can be measured reliably. Revenue is measured at the fair value of the consideration received or receivable and represents amounts receivable for goods or services provided in the normal course of business. ‘+ Revenue from distribution of electricity is recognized upon supply of power to the consumers, net of portion allocated to capital contribution for reinvestment. ‘+ Service charges and penalties are recognized only upon collection or accrual where there is reasonable degree of certainty as to its collectability. ‘+ Interest Income is recognized as the interest accrues (taking into account the effective yield on the asset). '* Income from scrap sales is recognized when the significant and rewards of ownership of the goods have passed to the buyer. Cost and Expense Recognition Costs and 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 Purchased Power Cost/Cost of Energy Sold Purchased power represents the cost incurred by the EC for the purchase of power from generation companies, WESM, and the transmission costs associated with the purchase of power. Power cost is recognized on a month to month basis based on the kWh incurred. Administrative and General ‘This account represents the compensation of officers, executives and other employees of the utility properly chargeable to utility operations and not directly to any particular operating function. Consumer Accounts This account represents meter reading, collection and other expenses related to consumer Accounts. Operation and Maintenance ‘This account represents supervision, operations and maintenance of the distribution system including meter ‘expenses. Interest Expense This account represents the total interest charges arising from all the loans availed by the EC from NEA, REFC, banks and other financial institutions. eet acne an ene Ay Pancsco A. Aquino, CPA Page 15 of 35 (Centro, Ras, laa Ben Lo Bi, Poblacion 1, Por, Tac funlainodyaoecen 917 52.050/0920.2231450BENECO Notes 0 FS ‘December 31,2019 Leasing Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Company as Lessee under Finance Lease Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding, liability to the lessor is included in the statements of financial position as a finance lease obligation. Lease payments are apportioned between finance cost and reduction of the lease obligation so as to act ‘constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in profit or loss. Contingent rentals are recognized as expenses in the periods in which they are incurred. The Company as Lessee under Operating Lease Operating lease payments are recognized as an expense on a straight-line basis over the lease term. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred. In the event that lease incentives are received to enter into operating leases, such incentives are recognized as 4 liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight- line basis, except where another systematic basis is more representative of the time patter in which ‘economic benefits from the leased asset are consumed. Employee benefits Short-term benefits The EC 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 salaries ‘and wages, social security contributions, short-term compensated absences, profit sharing, bonuses and non- ‘monetary benefits. For employee leave entitlement, the expected cost of short-term employee benefits in the form of ‘compensated absences is recognized in the case of accumulating compensated absences, when the employees render service that increases their entitlement to future compensated absences; and in the case of non- accumulating compensated absences, when the absences occur. A liability for bonuses is recognized when the entity is contractually obliged or where there is constructive obligation based on past practice. Post-employment benefits ‘The Company has a non-contributory defined benefit retirement plan covering all of its regular employees. Retirement expense is determined using the projected unit credit actuarial valuation method taking into account the factors of discount rates, the expected rates of return on plan assets, expected rates of salary increases, employee turnover, mortality, and medical cost trend rates. aSaaSeeee—trw™= ——>> ESE Er ‘Ay. Franco A. Aquino, CPA Page 16 of 35, Cet, Ronn lc en unl, Poa 3, Pr Tae falalinc@paboacom (0517 522.0301 0920 23.1450liability recognized in the statements of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the reporting date minus the fair value of plan assets. The defined benefit obligation is measured using the simple computation. The present value of the defined benefit obligation is determined by discounting the estimated future payments by reference to market yields at the reporting date on high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension ity. Past-service costs are recognized immediately in the statement of comprehensive income. Actuarial gains and losses arising during the year are recognized in profit or loss. Income taxes In a recently issued clarification by NEA through its Legal Advisory No. 18 dated August 20, 2014 which reiterate the Legal Advisory No. 3, dated July 20, 2004, states that Electric Cooperatives (ECs) registered with NEA are permanently exempted from income tax pursuant to Section 39 of PD 269. Provision contained which is still effective provides, viz: "Sec. 39 Assistance to Cooperatives; Exemption from taxes, imposts, duties, fees, assistance from the National Power Corporation - Pursuant to the national policy declared in Section 2, the Congress hereby finds and declares the following assistance to Cooperatives is necessary and appropriate: 1) Provided that it operates in conformity with the purposes and provisions of this Decree, a cooperative: (1) shall be permanently exempted from paying income taxes, and (2) for a period ending December 31; of the thirtieth full calendar year after the date of a ‘cooperative's organization or conversion hereunder, ot until it shall become completely free of indebtedness incurred by borrowing, whichever event first occurs, shall be exempt from the payment (@) of all national government, local government and municipal taxes and fees, including franchise, filing, recordation, license or permit fees or administrative proceedings in which it may be party, and (6) of all duties or imposts on foreign goods acquired for its operations, the period of such ‘exemption for a new cooperative formed by consolidation, as provided for in Section 29, to begin from as of the date of the beginning of such period for the constituent consolidating cooperative which was most recently organized or converted under this Decree; provided the Board of Administrators. shall, after consultation with BIR, promulgate rules and regulations for the proper implementation of the tax provided in this Decree.” This advisory is based on the BIR letter from its Legal Service Division dated March 14, 2006 with reference No. DA-108-2006 clarifying Paragraph 4(A) of BIR Memorandum Circular (RMC) No. 72-2003 and oe a en en ern ‘Ay. Francisco A. Aquino, CPA Page 17 of 35 Cente, Rona, abela Ben Ido Bil, Poblacion 1, Pur Tate funkakini@saboncom (p17 522.301 /09a0 25-1430[BENECO Notes oF December 31,2019 categorically stating that the exemption of ECs from income tax is permanent in nature as expressly provided in Section 39 of PD 692. ECs registered with NEA are likewise permanently exempted from the Minimum Corporate Income Tax (MCIT). MCIT being an income tax and is supported by En Banc decision of the Court of Tax Appeals in C.T.A. EB No. 460 promulgated on March 11, 2010. Financial Instruments ‘Non-derivative financial instruments consist of cash, trade receivables, and investments in associate, and advances to associate, trade payables, and loans payable. Initial measurement ‘A financial asset or financial liability is initially measured as follows: ‘+ For services rendered to a customer on short-term credit, a receivable is recognized at the transaction price, which is normally the invoice price ‘on short-term credit, a payable is recognized at the transaction price, which is normally the invoice price. ‘Subsequent measurement ‘At the end of each reporting period, financial asset or financial liability is subsequently measured as follows, without any deduction for transaction costs that may incur on sale oF other disposal * For services rendered to a customer on short-term credit, a receivable is recognized at the ‘undiscounted amount of cash or other consideration expected to be received, net of any impairment or any uncollectible accounts * For goods purchased from a supplier on short-term credit, a payable is recognized at the undiscounted amount of cash or other consideration expected to be paid. Derecognition of Financial Assets and Financial Liabilities A financial asset (or, where applicable a part of financial asset or part of a group of similar financial assets) is derecognized when: (a) the rights to receive cash flows from the asset have expired; (b) the EC 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 (c) the EC has transferred its rights to receive cash flows from the asset and either the entity has transferred substantially all the risks and rewards of the asset, or has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. 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 lability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in the statement of income. > ‘uy. Francisco A Agno, CPA Page 18 of 35 Cent Roan ba on dis Pl oak 3, Pr, Taste funlakinodsahoacom om. 522 4901/0 23-1430BENECO Notes 0 FS December 31,2019 Impairment of financial instruments ‘At the end of each reporting period, a financial asset or financial liability is assessed whether there is an objective evidence of impairment. If there is an objective evidence of impairment, an impairment loss is recognized in profit or loss immediately. Objective evidence that a financial asset or group of assets is impaired includes observable data that come to the attention of the holder of the asset about the following loss events: 8) Significant financial difficulty of the issuer or obligor. b) A breach of contract, such as a default or delinquency in interest or principal payments. ©) The creditor, for economic or legal reasons relating to the debtor's financial difficulty, granting to the debtor a concession that the creditor would not otherwise consider. ) There has been a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, even though the decrease cannot ‘yet be identified with the individual financial assets in the group, such as adverse national or ical economic conditions or adverse changes in industry conditions. ©) Other factors may also be evidence of impairment, including significant changes with an adverse effect that have taken place in the technological, market, economic or legal environment in which the issuer operates. Provisions and contingencies Provisions Provisions are recognized when the EC has a present obligation, either legal or constructive, as a result of a Past event, itis probable that the EC will be required to settle the obligation through an outflow of resources ‘embodying economic benefits, and the amount of the obligation can be estimated reliably. ‘The amount of the provision recognized is the best estimate of the consideration required to settle the present obligation at the balance sheet date and where the effect of the time value of money is material, the amount recognized is the present value of the expenditures expected to be required to settle the obligation using a pre-tax rate that reflects the current market assessments of the time value of money, taking into account the risks and uncertainties surrounding the obligation. The increase in the provision due to passage of time is recognized as interest expense. Changes in estimates are reflected in profit or loss in the period they occur. Contingencies Contingent liabilities are not recognized in the EC’s 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 when an inflow of economic benefits is probable, Related party Disclosures 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 rc re ee te nn nam Ay. Francisco A. Aguino, CPA Page 19 of 35 Centro, Rens, bela? Ben Ido Bk, Pelco 1, Pur, Trac fanlatinadgsabenacor p17 522 301/80 23.1489BBENECO Note to FS Desomber 31,2019, that gives them significant influence over the Company and close members of the family of any such individual. The key management personnel of the Company and post-employment benefit plans for the benefit of Company's employees are also considered to be related parties. Events after reporting date The EC identifies subsequent events as events that occurred after the balance sheet date but before the date when the financial statements were authorized for issue. Any subsequent events that provide additional information about the EC’s financial position at the balance sheet date are reflected in the financial statements. Events that are not adjusting events are disclosed in the notes to the financial statements when material. 5. MANAGEMENT SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES In the application of the Electric Cooperative’s accounting policies, management is required to make Judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not easily ‘apparent from other source. The estimates and associated assumption are based on historical 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 recognized in the period in which the estimate is revised if the revision affects only that period ‘ in period of revision and future periods if the revision affects both current and future periods. The following represents a summary of the significant estimates and judgments and related impact and associated risks in the EC’s financial statements. Estimating useful lives of property, plant and equipment ‘The useful lives of property, plant and equipment are estimated based on the period over which the assets are expected to be available for use, The estimated useful lives of property, plant 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 EC's assets. In addition, the estimation of the useful lives of property, plant and equipment is based on EC's collective assessment of industry practice, internal technical evaluation and experience with similar assets. It is possible, however, that future results of operations could be materially affected by changes in 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 property, plant and equipment would increase the recognized operating expenses and decrease non-current assets. — ——_. ‘Ay. Francisco A. Aquino, CPA Page 20 of 35 Cte Ronny ce en ns Pg, obac 1,P Tae finlatinedsahacom ‘917 3-030/0920223 1450BENECO Notes to FS ‘December 31,2019 Asset impairment The EC is required to perform an impairment review when certain impairment indicators are present. Purchase accounting requires extensive use of accounting estimates and judgment to allocate the purchase price to the fair market values of the assets and liabilities. Determining the fair value of property, plant and equipment, investments and intangible assets, which require the determination of future cash flows expected to be generated from the continued use and ultimate disposition of such assets, requires the EC to make estimates and assumptions that can materially affect the financial statements. Future events could cause the EC to conclude that property, plant and equipment, investments and intangible assets associated with an acquired business is impaired. 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 EC 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 generally accepted accounting principles in the Philippine. ‘The EC has adopted the fair value approach in determining the carrying value of its investment properties. While the EC has opted to rely on independent appraisers to determine the fair value of its investment properties, such fair value was determined based on recent prices of similar properties, with adjustments to reflect any changes in economic conditions since the date of the transactions that occurred at those prices. The amounts and timing of recorded changes in fair value for any period would differ if the EC made different judgments and estimates or utilized different basis for determining fair value. Revenue recognition The EC’s revenue is recognized upon distribution of power to consumers, net of portion allocated to capital contribution for reinvestment, universal charge and EVAT. ‘The Preparation of the EC’s financial statements in conformity with accounting principles generally accepted in the Philippines requires management to make estimates and assumptions that affect the amounts reported in the Cooperative financial statements and accompanying notes. The estimates and assumptions used in the financial statements are based upon management's evaluation of relevant facts and circumstances as of the date of the financial statements. Actual result could differ from such estimate. Allowance for doubtful accounts ‘A provision for impairment of receivables is established when there is objective evidence that the EC will not be able to collect all amounts due according to the original terms of the receivables. The allowance for impairment loss is the estimated amount of probable losses arising from non-collection based on past collection experience and management review of the current status of the long-outstanding trade receivables. ‘The EC's policy in providing allowance for doubtful accounts in accordance with NEA's policy: Current -90 days past due 1% of CAR 91 — 180 days past due 2% of CAR 181 ~240 days past due 3% of CAR ‘Auy-Prandsco A. Aquino, CPA Page 21 of 35 Centro, Reman ela / en dian Bid, Peco 1, Par, Tae Sanbalina@saacom oor Sez.301/o0-23.1480BENECO Notes to FS December 31,2019, 241 ~360 days past due 4% of CAR Over one year 5% of CAR An allowance for doubtful accounts recognized in 2019 and 2018 is P 4,451,746 and P 4,448,572 respectively. Retirement Benefits The cost of defined benefit plans and present value of the pension obligation are actuarially determined. ‘Actuarial valuation requires formulating various assumptions, which include discount rates, expected rates of return on plan assets, rates of compensation increases and mortality rates. ‘The EC has funded, non-contributory defined benefit plan covering all entitled employees. 6. FINANCIAL RISK MANAGEMENT, OBJECTIVES, POLICIES, AND PROCEDURES ‘The main risks arising from the EC’s activities are credit risk, liquidity risk, operational risk, and interest rate risk. The respective Board of Directors (BODs) review and approve policies for managing each of these risks and they are summarized below. Credit Risk Credit risk is the risk that counterparty will not meet its obligation under a financial asset or financial liability or customer contract, leading to a financial loss. The EC performs credit evaluation of new applicants as ‘member-consumer. In addition, receivable balances are monitored on an ongoing basis. On a monthly and annual basis, the EC's collection efficiency is evaluated and reported to NEA. Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in raising funds to meet commitments associated with financial assets and financial liabilities. Liquidity risk may result from either the inability to sell financial assets quickly at their fair val the counterparty failing on repayment of a contractual obligation; or inability to generate cash inflows as anticipated, ‘The EC monitors its cash flow position, debt maturity profile and overall liquidity position in assessing its exposure to liquidity risk. The EC is required by NEA to maintain a cash general fund (CGF) equivalent to ‘one month working capital requirement of the EC in the conduct of its operation. Overall, the EC’s funding arrangements are designed to keep an appropriate balance between equity and liabilities to give financing flexibility while continuously enhancing the operation. Operational risk Operational risk is the risk of loss due to the EC’s failure to comply with defined operational procedures, inability to respond to system failures, inability to respond to fraud both internally and externally and inability to adjust to extemal factors. oe ae en a arin ‘Au. Francisco A. Aquino, CPA Page 22 of 35 Cente Rana, abla Ben dia Bg, Poblacion 1, Par, Tac fealakind@sauaacom oor 5220301 /090023.1450‘Desonber 3, 2019 ‘The EC manages this risk by proper implementation and supervision of firmly placed operational procedures and internal controls together with raising awareness on these procedures and controls to all employees on various levels of operations, training employees and key personnel on a regular basis for any updates on these procedures and also for any contingencies which could be anticipated, and finally by having insurance or a business continuity plan to prepare for unforeseen losses due to extemal factors. Interest rate risk ‘The EC’s exposure to interest rate risk arises from its cash deposits in banks that are subjected to variable interest rates. However, the EC’s loans payable with fixed interest rate has no significant exposure. ‘Therefore, any change in the market interest rates has no effect on the statements of comprehensive income. Fair value interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market interest rates. ‘The interest rate risk arising from cash in banks are managed by means of effective investment planning and analysis, and maximizing investments opportunities in various local banks and financial institutions. ‘The EC's sensitivity to interest rates has not changed significantly from the prior year. In Management’s opinion, the sensitivity analysis is unrepresentative of the inherent interest rate risk as the year-end exposure does not reflect the exposure during the year. 7. CAPITAL MANAGEMENT OBJECTIVES, POLICIES, AND PROCEDURES ‘The capital contribution from members is limited to the membership fee of P Sper member, as provided in Section 5 Article I of the Electric Cooperative’s By-laws, and to such amount credited by way of excess of ‘amount paid for electric energy purchased over cost of service, if any, under Section 6 Article I thereof, additionally, all of these are under an operation on a non-profit basis, and mainly hopeful of a patronage ‘capital connected with furnishing electric service as provided in Section 2 of Article VII of the By-Laws. ‘Ay Fracico A. Agno, CPA Page 23 of 35, err, Ror, el ‘en loo ig Pac 1, Pr, Tae faalalnad@saboncorn 0917 822.091 7090 23-1480BENECO Notes o FS esenber 31,2019 8. PROPERTY, PLANT, AND EQUIPMENT This account is composed of the following: Cento, Ross, bela Ben dma Bc, Peluso 1, Pur, Tce fankalinodipaboncom oni S22 301 a0 23.1480 m8 219 Descinton of Assets ‘iain Historical Cost | ospesiiaj | Historical Cost_| Accum. Dep'n | NetBook Value Distribution Utility Plant & Equipment In Service Land, Land Rights and Improvements 185,783,388 185,783,388 185,783,388 Buildings 101,875,995, : 101,875,995 7,046,557. 94,623,438 ‘Structures and Improvements 34,385,072} _ 1,680,206 36,065,278 33,158,703 12,906,575 Station Equipment 161,631,577 : 161,631,577 133,300,659 28,328,918 Poles, Towers and Fixtures 620,182,810 | (17,117,866)} 603,064,944] 457,097,962 | 145,966,983 ‘Overhead Conductors and Devices ‘572,631,492 | (66,540,850)) 506,090,642 299,583,008 | 206,507,634 Distribution Line Transformers and Circuit Reclosers 561,002,152 | 35,611,982 596,614,134 | 253,801,822} 342,812,312 ‘Meters, Metering Equipments, and Metering Transformers 476,554,526 | 25,539,571} $02,194,097 350,837,928 | _ 151,356,169 Office Furniture and Equipment 96,831,482] 6,122,203 102,954,185 67,628,073 35,335,112 “Transportation Equipment 160,142,123 | 15,822,437 175,964,560 | 141,267,915 34,696,645. | Toos, Shap, Safety Gadgets, & Garage/Motorpool Equipment 88,735,142 | 15,632,238 104,367,380, 57,055,737 47311643 Laboratory Equipment 30,554,345, 197,036 30,751,381 12,759,743 17,931,638 Information System & Related Equipment 2915423 * 2915423 380,818 2,534,605, Communication Equipment 60,740,254 | _(224,693)] 60,515,561 28,218,565 32,296,997 ‘Miscellaneous Equipment and Other Assets 13,495,520] (123,834) 13,371,586 10,054,621 3,316,965, Total 3,167,561,302 | 16,598,829] 3,184,160,131 | 1,942,395,110| 1,341,765,021. Subsidy anded Projets Poles, Towers and Frtures 398.5 | 36,726,235 37,124,680 | 2,837. 34,716.43 Overhead Conductors and Devices 5472589 | 86,197,558 91,670,146 5,847,803 85,8243 Distribution Line Transformers and Circuit Reclosers 75514] 4910579 4,986,492. 264 4,778,798 ‘Meters, Metering Equipments, and Metering Transformers 6,643 14,151 14 1556: 16,238) Total 5,953,190 | 127,845,923 | 133,799,113 8465291 | 125,333,822 Appraisal increase in Assets. 1,527,503,990 : 1,527,603,990| 913,312,837 | 614,291,153 Construction Work a Progress? 33443503 | 168010400] 5on4s603 | 24656 003 Grand Total PPE 5,085,574,086 | 342,455,151 | 5248,009,237] 2,764,173,238| 2,583,855,999 ‘Aty. Francisco A. Aquino, CPA Page 24 of 35,[BENECO Notes to FS Desember 31,2019 2087 208 Description of Asets a Historical ost | —_ oma Pee | Accum. Depn | NetBook Vale Distraton Vili lant & Equipment a Srvce Lan, Land Rights and inproverents zrsousz73 | (93230885) 105703388 185705 388 Buldings 101,875 95 =| 1o1s7s995[ 6237868] 95638031, Sroctures and improveents saa00.150 | @iso7m|__343asorz | 25675,95| 8708278, ‘Station Equipment 15795803 [ 3.773554] te1sa1s77| 11948504] 0.146073 Poles, Towers and Fires 103015,88 | 17,167,528 _620,2,810| —42L,176836 | — 195005875 Overhead Conductors and Devices 556432742] 16,198,750] 572631482 | 265,660001| 30571481 ‘Dstribaton Une Tanformers and Great Redes sio.29212|soa7as40 | 56002152 | —223,200208| 397,711.94 Meters, Metering Eaupents and Metering Treforess ase an4sez] 15765934] 476654526] 322490,35 | 154204391 ‘Ofie Furniture and Equipment 1.116955 [5.714528 | 9631482 6ne7226| 28359056 Transportation Equipment 161530596 | (1388473)| 160500,123[ t3z00%003| 28,144,101 Tok, Shop Stet Gates Garage/NotorponiEqupment | 65.868896| 2.966.207] 68,735,62| 60867716] 77867477 {Laboratory Eaupment 15045062] _11508285| 30554345] 12089032] 18485313, Information System & Related Equipment 5 zsisazs| —_2815423[__2350«7| 2680376 ‘Communication Equipment Seuuieae | 1zeszn| 60740254] 26811,787| 33928467 Miscellaneous Euipment and Other Assets 11353156] 20364] 13495500] t12u1.209[ 2.28421 Total 329,236,260 36305042 | 3167 561,302 | 1695,604871| 147191631, Subsidy Funded Projets Poles, Towers and Fistures wees] eas | 501s] 380 (Overhead Conductors and Devices Samzses| —_sarzsts|—135797| 5236782 DesributonLne Transformers and Gre Recosers 516 75514 135) 74,68) Meters, Metering Equoments, and Netring Tasos 6.643 668 28) 6304 Total = 5953190 598390[ _s205 | 5700706 ‘Appraisal increase Asets 152703 390 = | 1.527603 90 | 673.03.234 | 64,600,756 (Completed Construction Not Cased 1949076| (19490776 : ‘ 2 Construction Workin Progress? 03,281,070 251174536 | S455 608 =| 4A55.605 Grand Tota PE 4758,612,096 | 776,961,990 | 5035574086 | 2573500510 | 2461573576 9. OTHER NON-CURRENT ASSETS ‘This account is composed of the following: Particulars 2019 2018 Investment in REFC* 167,597,000 7,597,000 ‘Security Deposits - Transco (3,452,549 2,698,391 Restricted Fund 80,600 Total 171,130,149 10,295,391 “Board of Directors Resolution No. 2019-79 approving the BENECO's additional equity investment with the Rural Electrification Financing Corporation (REFC) in the amount of P 160,000,000. ——___ ‘Ay. Branctco A. Aquino, PA Page 25 of 35 Cer, Roma, abla Ben Ido Bil, Pblaco 1, Par, Tac faalakinodyao.com 517-52.030 /20.223-1450BBENECO Notes to FS ‘Desembr 31,2019 10. CASH AND CASH EQUIVALENTS. ‘This account is composed of the following: Particulars 2019 2018 ‘Cash In Bank 563,074,624 637,385,861 Cash On Hand 169,069 90,940 Revolving & Change Fund 678,000 639,000 Petty Cash Fund 102, 105,000 Total 3,693 638, 801 Cash General Fund consists of deposits made in banks which ear interest (net of final withholding tax) at the prevailing bank deposit rates. Cash on hand represents undeposited collections at the end of the year. Revolving fund and Petty Cash Fund are being used for disbursements that are not covered by check payment, These are maintained in an imprest fund system. Change Fund is used for Cashier and Tellers. 11, CONSUMER ACCOUNTS RECEIVABLE, NET This account is composed of the following: Particulars. 2019 2018 CAR Energy 144,494,935, 123,044,638 CAR - Reinvestment 14,070,293, 11,415,219 CAR - PSALM 21,049,854 20,634,379 CAR -FITALL 13,356,832 11,076,807 CAR -VAT 44,734,537 36,509,348 Allowance for Uncollectible Accounts (4,451,746) (4,448,572) Total 233,254,705 198,231,819 ‘These accounts represent the outstanding balance of billed electric services to consumers less Allowance for Uncollectible Accounts. 12. MATERIALS AND SUPPLIES INVENTORIES (AT COST) This account represents the value of inventory of EC distribution materials acquired primarily for use in the Utility service, office supplies, and spare parts of vehicles and cost of special equipment, details of which are as follows: Particulars 2019 2018 Electric 97,485,655 75,022,965 worn ne ners eaten np an ea ‘Ay. Franciseo A. Aquino, CPA Page 26 of 35 (Cet, Rona, abla Ben Kdeslan Bid, Pobicion 1, Par, Tarlac Staalial@saboncom wir s22.0301/0900 23.1450BENECO Notes o FS December, 2019 Special Equipment 43,623,906 11,455,192 Office Supplies 20,827,248 19,180,269 Others 9,541,587 7,300,057 Total 171,478,396 412,958,483 VAT excluded 13. OTHER CURRENT ASSETS ‘This account is composed of the following: Particulars 2019 2018 Prepayments 42,715,884 22,647,417 Deferred Debits 45,443,481 40,415,498 Preliminary Surveys 1,053,794 542,250 ONKASKA Expenses 2,774,314 2,735,425 Kabayan Mini-Hydro Expenses 14,690,463, 14,070,584 ‘Accounts Receivables ~ Others 103,968,714 82,468,174 Total 210,646,650 162,879,348 Deferred Debits include Input Tax, VAT and other taxes. Accounts Receivable-Others represents Pole Rental, SSS medical reimbursements of employees and various other receivables. 14. MEMBERSHIP ‘This represents the total face value of member's equity. Membership the electric cooperative is limited to ‘any person, firm or association, corporation or body politic or subdivision thereof, “bonafide” residing or situated at the area coverage of the electric cooperative. As at December 31, 2019 and 2018, the amount of membership fee is P 1,093,424 and P 1,065,059 respectively. 15. DONATED CAPITAL ‘This account is composed of the following: Particulars PSALM NEA - Others ‘Subsidy from NEA ‘Team Phils. Energy Corp 2019 134,891,823 124,000,264 163,113,742 38,195,646 36,039,857 13,856,094 2018 134,691,823 124,000,264 168,261,429 38,195,646 36,039,857 13,856,094 ‘Au. Francisco A. Aquino, CPA (Centr, Roman, acs / Ben! ‘tanakinayaacum 217-522-0901 /09202.1450 Page 27 of 35BBENECO Notes to FS December 1, 2019, Provincial Government 5,000,000 15,000,000 APEC Party 400,000 400,000 Total 515,497,426 520,645,113, Pursuant to Section 60 of EPIRA, PSALM shall assume all Rural Electrification Loans upon compliance by the concemed EC with Section 5 of Executive Order No. 119, and thereupon, such EC shall cease to be debtor of NEA or of other creditor government agencies. With the implementation of the condonation of loan under the Electric Power Industry Reform Act (EPIRA) of 2001, “the Cooperative’s outstanding loan as of June 30, 2001 was assumed by the Power Sector Asset Liabilities Management Corporation (PSALM). Only loans intended for the Rural Electrification Program were assumed by PSALM. Subsidy from NEA constitutes completed projects for Sitio Electrification Projects. NEA — Others is composed of other subsidy releases. 16. MISCELLANEOUS CONTRIBUTED CAPITAL This account is composed of the following: Particular 2019 2018 Miscellaneous Contributed Capital 1,432,214,630 1,337,977,630 ‘Consumers Capital Contribution 30,276,755. 30,276,755 Total 1,462,491 ,385_ 1,368,254,385_ Pursuant to P.D. 269, electric cooperatives are mandated to allocate 5% of their revenues derived from the sale of electricity, a reinvestment fund to ensure that electric cooperatives would have the necessary funds to finance the rehabilitation and extension of their distribution lines, maintenance and upgrading of their substations, replacement of transformers and meters. Under the Rules for Setting Electric Cooperatives’ Wheeling Rates (RSEC-WR), the reinvestment contribution from members is now called Reinvestment Fund for Sustainable Capital Expenditures (RFSC). 17. ACCUMULATED MARGIN (LOSS) This account is composed of the following: Particulars 2019 2018 ‘Accumulated Margin/{ Loss) beginning (409,554,397) (450,428,969) Prior period adjustment (Net) 58,635,311 12,882,026) Corrected balance beginning (350,919,086) (463,310,895) Net Income(Loss) for the year (67,706,593) 53,756,498 Total (418,625,679) (409,554,397) cr a nan a ‘uy Francisco A. Aquino, CPA Page 28 of 35 Cento, Roms, ala / Ben Idan Bl, Placo 1, Por, Trae funkalinodtsaboncam p17 522.301 /0820-223.1430,[BENECO Noter'o FS December 31,2019, 18. REVALUATION SURPLUS ‘The balance of this account resulted from the appraisal of properties of the Coop in various locations in the Province of Benguet and Baguio City performed by Cuervo Appraisers, Inc. The Appraisal Report presents the reproduction costs (new)/replacement costs (new) and sound values of the appraised properties consisting of land, buildings, other land improvements, condominium units, leasehold improvements, machinery and equipment, computer equipment, and furniture and office equipment. As at December 31, 2019 and 2018, the carrying balance of revaluation surplus amounted to P_ 614,291,153 and P 649,600,756, respectively. 19. LONG TERM DEBT This account is composed of the following: Particulars 2019 2018 NEA — Construction Loans* 78417175 78,417,175 DBP Loans 203,408,526 183,837,174 REFC Loans 159,075,597 - Other Loans 20,389,902 - Current portion 22,514,960) __ (3,987,226) Total 438,776,240 258,267,124 “The EC has ceased recording its loan amortization as it was being contested to NEA. 20. CONSUMERS’ DEPOSITS ‘The member consumers also provided capital and operating funds to facilitate the construction of service installations including deposits to secure payment of monthly bills which are refundable upon termination of the service contract. Meter deposits cover mainly the cost of meters. However, on June 9, 2004, the ERC authorized the promulgation of Magna Carta for residential electricity consumers which took effect on July 19, 2004 which stipulated that residential consumers shall be exempt from the payment of meter deposits. ‘The breakdown of this account is as follows: Particulars 2019 2018 ‘Advances for Construction 181,267,088 165,882,600 Meters & Accessories 75,030,981 75,030,981 Energy 23,929,834 Total 264,843,415 a ‘Ay. Francisco A. Aquino, CPA Page 29 of 35 Cento, Rona, abla Ben dno Bi, Poblacion 1, Par, Tate oor S22 0301/00 23.1480[BENECO Notes to FS December 31,2019 21. RETIREMENT LIABILITY December 31, 2019 and 2018, this account has amounted to P 105,614,386 and P 170,564,905, respectively. 22. OTHER NON-CURRENT LIABILITIES ‘This account is composed of the following: Particulars 2019 2018 Net Settlement - WESM 104,713,128 109,789,288 Camp 7 Lot Payment 6,107,290 2,164,138 3MW Man-Asok Fund 37,956,400 37,956,400 EVAT billed to Consumers ___32,314,101 31,435,427 Total 181,090,919 181,345,253 23. ACCOUNTS PAYABLE AND ACCRUED EXPENSES This account is composed of the following: Particulars 2019 2018 ‘Accounts Payable — Power 340,088,978, 338,572,515 ‘Accounts Payable - Suppliers 44,453,405 27,788,334 ‘Accounts Payable — VAT 29,755,980 31,001,650 ‘Accounts Payable - PSALM 45,007,439 47,445,166 ‘Accounts Payable - FITALL 20,833,464 18,761,083, ‘Accounts Payable — Katas ng VAT 41,839 41,839 ‘Accounts Payable — NEA Subsidy 63,024,461 61,623,516 ‘Accounts Payable — Others 104,265,370 25,181,876 Withholding Taxes 10,891,582 6,006,733 SSS, PhilHealth, and HOMF 1.177.018 4,012,143 Other Short Term Debt 26,739,969 - ‘Accrued Retirement Liability 42,749,351 7,805,724 Total 728,998,864 575,240,579 ‘Ay. Francisco A. Aquino, CPA Page 30 of 35 (Centro, Roma, abla / en Kmiao Bip, Poacion 1, Par, Taae feaakina@sabuncom O17 522.0301/09202-1430[BENECO Notes o FS Desomber 31,2019, 24. REVENUE FROM SALE OF ELECTRIC ENERGY This account is composed of the following: Particulars 2019 2018 REVENUES, Pass Through Revenues Generation Charges 1,819,105,673_1,675,671,411 Transmission Charges 328,959,681 319,864,751 ‘System Loss Charges 198,264,315 183,356,028 ‘Subsidy Charges (net of Discounts) (7,987,700) ___(7,423,751 Total Pass Through Charges 2,990,341,969__2,171,465,439 Coop Revenues Distribution 187,419,162 189,268,114 ‘Supply 191,204,353 124,621,991 Metering 90,006,180 85,771,440 Total Coop Revenues 398,659,545 NET Energy Sales 2,746,971,674__2,574,124,985 25. PURCHASED POWER COST. Purchased Power Cost amounted to P 2,313,360,281 and P 2,170,218,985 for the year 2019 and 2018 respectively. Purchased Power Cost is net of VAT. 26. EXPENSES ‘This account is composed of the following: Particulars 2019 2018 ‘A. Distribution Expense -Operation ‘a. Supervision & Engineering 4,591,294 4,904,974 ». Station Expenses 5,726,283 7,106,999 c. Overhead Line Expenses 2574s) 28eess 4d. St. Lighting & Signal System 221,458 274,699 €. Miscellaneous Distribution Expenses 2,985,105 2,765,879 { Mini-hydro expenses 3,400,203 251,572 Sub-Total ~ 16,948,178 _ 15,568,655 Ay. Frnctco A. Aquos, CPA Page 31 of 35, ao, monn, abel Dn dns Hl Peace 3, Par, Tusa funlakinodsahoacom on17 22.030 /o000-203.1430[RENECO Notes to FS December 31,2019, Distribution Expense -Maintenance a. Supervision & Engineering 4,714,957 4,435,979 b, Maintenance of Structures 98,933,618 33,441,552 c. Maintenance of Station Equipment 4,170,046 2,778,471 d. Maintenance of Overhead Lines 38,172,682 30,149,333 ‘e, Maintenance of Transformers 33,720,230 30,205,963 £ Maint. of Street Lighting & Signal System 2,818,784 6,046,693, 9. Maintenance of Miscellaneous Plant 3,528,696 3,836,266 Sub-Total 726,056,013 110,894,256 TOTAL ~ 143,004,191 126,462,912 B. Supply Expense a. Supervision 5,492,145 7,449,885 . Collection Expenses 9,942,162 12,028,760 . Uncollectible Accounts 3,173 809,149 4. Info. & Inst. Advertising Expense 4,112,398 793,112 @. Misc. Consumer Services Expense 23,946,523 30,527,242 {. MECS & BAPA Expenses 4,041,653 660,299 4. Abatan Technical Schoo! ‘328,025 975,974 h. Scholarship Program. 1,958,360 - TOTAL ~ 46,764,439 53,244,420 C. Metering Expense ‘a, Meter Expenses 4,826,220 2,728,259 b. Consumer Installation Expenses 9,169,988 4,617,713 c. Maintenance of Meters 8,163,327 7,631,757 d. Meter Reading Expenses 36,724,932 158,684,467 D. Administrative & General Expense a. Admin. & General Salaries 28,026,086 26,523,152 b. Office Supplies Expenses 5,034,287 5,593,822 c. Employees Insurance 124,700 78,082 d. Outside Services Employed 18,178,688 18,317,102 @. Property Insurance 3,216,213 3,314,250 f. Injuries & Damages 530,280 3,431,395 4g. Employee Pension & Benefits 38,830,896 44,226,560 h. Franchise &Reg. Requirements 2,000,000 1,668,111 i. Tax in Bank 452,816 : |, Bank Charges 249,151 12,097 a ‘uy. Francis A. Aquino, CPA Page 32 of 35, Cento, Ross, bla ‘en Hao Bk, Poacion 1, Par, Taslae fianalino(@abaacom (4722-0901 (0920221450BENECO Notes to FS December 12019 k. Uittios 8,623,996 8,746,416 |. Rental Expenses. 4,371,251 1,288,077 'm, Maintenance of office & General Plant 9,405,465 6,752,327 1. Taxes on Property 888,738 188,231 ©, Documentary Stamp Taxes 4017283 1,160,504 P. Officers Allowances & Benefits 11,487,030 9,808,028 4. Travel 6,969,450 7,101,452 Training 5,957,088 6,544,658 '. Association & Membership Dues 293,484 306,744 Miscellaneous General Expenses 8,141,968 8.410.474 u.GRT 39,079 190,913 TOTAL ~ 183,977,870 163,662,375 E. Depreciation Expense Distribution Plant 80,207,355 82,407,853 General Piant 43,685,736 42,401,175 ‘Software Program 145,771 86,307 ‘SFP 4,372,919 164,053 ‘Amortization of Appraisal Increase: Distribution Plant 35,309,604 35,309,604 TOTAL _ 163,721,385 160,368,991 27. OTHER INCOME (CHARGES) This account is composed of the following: Particulars. 2019 2018 Rental income 10.511,083 12,844,003 Interest income" 16868236 2.213.814 Other Income: Penaties 72.981 - Others: 38,359,404 38,531,745 Gain (Loss) on Disposal, Net : 181,934,509 Income From Gov't Grants 4372919 "164,053 Finance Cost** 5,350,259) (7,490,806) Total 64,834,364 198,197,228 Net of withholding tax ‘*Interest Expense for Long & Short Term Debts — Ay. Fanci A. Aquino, CPA Page 33 of 35 Cento, Rona, abla Ben dma Bk, Poblacion 1, Pur, Tae fankalinodpanencom oor Sz 01m 23.1480December 31, 201 28. RETIREMENT BENEFITS: ‘The EC has funded, non-contributory retirement plan covering all of its qualified employees. ‘The benefits are based on years of credited service plus the accumulated sick leave and vacation leaves, if any. 29, JENTARY. FORMATION REQUIRED BY REVENUE REGULATION NO, 15.2¢ Revenue Regulations No. 15-2010 became effective on December 28, 2010 and amended certain provisions of RR No. 21-2002 prescribing the manner of compliance with’ any documentary and/or procedural requirements in connection with the preparation and submission of financial statements and income tax returns. In Section 2 of RR No. 21-2002, it was further amended to include in the notes to financial statements information on taxes, duties and license paid/accrued during the year in addition to what is mandated by Philippine Financial Reporting Standards. Below is the additional information req by RR No. 15-2010: |. OUTPUT VAT Particulars ‘Amount VAT Output 65,364,425 INPUT VAT Particulars ‘Amount VAT Input 55,992,529) Purchases 466,604,410 ‘Beginning balance - Input taxon Capital goods 9,798,315 Other goods 46,194,214 Services : Input Tax Credit/Refund 1,969,459 oe a nacre i te nee neces meen eens itm ‘Ary. Francisco A. Aquino, CPA Page 34 of 35 Cento, Rona, ala Ben Ida Bid, Poblacion 1, Pat, Tate ‘arkansas vpr7sz2 0304 /oma 23.1450[BENECO Notes 0 FS December 31,2019, ML, WITHHOLDING TAX Particulars ‘Amount Compensation 20,553,438 Expanded 46,593,980 30. OTHER MATTERS Certain reclassifications of accounts were made to conform with the 2019 financial report presentation. (END OF NOTES) Ay. Francisco A. Aquino, CPA. Cen, Roxas, taba Page 35 of 35 en Tmo Bil, Pubcon 1, Par, Tate finkabindabconn