EMMANUEL M. FLORECE, Certified Public Accountant Board of Accountancy, BIR and SEC - Accredited Practitioner Member, Philippine Institute of Certified Public Accountants INDEPENDENT AUDITOR'S REPORT ‘The Stockholders and the Board of Directors Universal Harvester Inc. Harvester Corporate Center 158 P. Tuazon Blvd. cor. 7th & 8th Ave., Brgy. Socorro, Cuba0, Quezon City. Report on the incial Statements Opinion I have audited the accompanying financial statements of Universal Harvester Inc. (the ‘Company), which comprise the statements of financial position as at December 31, 2020 and 2019, and the statements of comprehensive income, statements of changes in equity and statements of cash flows years then ended, and notes to the financial statements, including a summary of significant aceouncing policies. In my opinion, the financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2020 and 2019, and its financial performance and its cash flows for the yearsP then ended, in accordance with Philippine Financial Reporting Standards (PERS). Basis for Opinion | conducted my aucits in accordance with Philippine Standards on Auditing (PSA). My responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of my report. 1 am 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 the audit of the financial statements in the Philippines, and ! have fulfilled my other ethical responsibilities in accordance with these requirements and the Code of Ethics. 1 believe that the audit evidence I have obtained {s sufficient and appropriate to provide a basis for my opinion. Responsibilities of Management and Those Charged with Governance for the Finavicial Statements Management is resaonsible for the preparation and fair presentation of the financial statements in accordance with PERS, and for such internal control as management determines is necessary to enable the preparatior of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, management is responsible for assessing the Company's ability to continue as e going concem, disclosing, as applicable, matters related to yoing concern and using the going concem basis of accounting unless management either intends to liquidate the ‘Company or to cease operations, or has no realistic alternative but to do so, ‘Those charged with governance are responsible for overseeing the Company’s financial reporting process.Auditor's Responsibilities for the Audit of the Financial Statements My objectives are to obtair: 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, Reasanable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with PSA 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, these 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 PSA, I exercise professional judgment and maintain professional skepticism throughout the audit. 1 also: ‘Identify and assess the r:sks 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, intemional omissions, mistepresentations, 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 Company’s internal 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 Company’s ability to continue as a going concer. If conclude that a material uncertainty exists, 1am 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 my auditor's report. However, future events or conditions may cause the Company to cease to continue as a going ‘concern, + Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whetker she financial statements represent the underlying transactions and events in a ‘manner that achieves fair presentation. 1 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 the Supplementary Information Required under Revenue Regulations No. 15-2010 of the Bureau of Internal Revenue My audits were conducted fo= the purpose of forming an opinion on the basic financial statements taken asa whole. The supplementary information on taxes and licenses in Note 22 to the financial statements is presented for purposes of filing with the Bureau of Intemal Revenue and is not a required part of the basic financial statements,‘Such information is tae responsibility of the management of the Company. ‘The information has ‘been subjected to the auditing procedures applied in my audit ofthe basic financial statements and, in my opinion, is fairly stated in all material respects in relation to the basic financial statements taken asa whole. BOA AN 2952, val until March 2, 2021 (Renewal in progress as affected by the pandemic) BIR AN 08-002811-1-2017, valid number December 19, 2020 (Renewal in progress as affected by the pandemic) SEC AN 1451-A Group C), valid until June 7, 2021 PTR No. PC7364301; January 4, 2021, Pasay City May 10, 2021 Pasay City, Metro Manila Street, Vilamor Air Base, Pasay City, Metro Ma Tel No. (632) 8984-0044, Hand Phone: 0919-387-6853 E-mail: day forece(@yahoo.comUNIVERSAL HARVESTER, INC. ‘STATEMENTS OF FINANCIAL POSITION Decenber 31 Tote 7020 Wore AssErs Curren= Assets cash 4 268,450,266 882,084,679 Trade receivables 5 5,707,853,450 2,369, 109,543, Inventories 6 2/487,143,946 4,335,524, 355 Other current assets 3 64,027,428 | 41,444,997 Total Garrent ASwets 8,327, 475,088 6,028, 163,514 Nonourrent Asset a 4,987,118,674 5,407,298, 857 Property, plant and eguipment Right-of-use (ROU) assets uv 11,362,924" 19,850,460 Other noncurrent assets 8 63,928,703 36,669,286 ‘Total Noncurrent Assets 5,062, 440,301 5,463, 818,603 13,389,085, 389 #12,291, 992,177 LIABILITIES AND EQUITY Current Liabilities ‘Trade and other payab@es 1o 8626,248,691 P561,933,374 Loans payable and currert portion of long-term debt. L 5,988,440,752 4, 321, 062,452 Total Current Leabilities 6, 614,689,443 1, 902, 995,026 Noncurrent Liabilities Long-term debt - net cf current portion rr 1,476,968,000 2,967, 083,217 Lease liabilities ri 12,620,240" 20,553, 389 Advances from related parties 3 54,691,628 19,687, 693 Retirement Liability 18 3,631,136 1,815,568 Net deferred tax labitity 19 896,717,468 069,949,995, ‘Total Noncurren= =Lebilities 2,464, 568, 672 3,479, 209,000, Total Liabilities 9,059,258,115 0, 462,285,606 Equity Capital stock $50,000,000 550,000,000 Retained earnings: 12 ‘appropriated 1,135,000,000 1, 00a, 000, 000 Unappropriated 549,864,599 "248,050,227 Revaluation surplus 8 2,095,762/675 2,031, 646,264 ‘Total Equity 4,330,627, 2747 3,829, 696,491 P13, 389,885,389 ¥12,291, 982,177 ‘See asaanpanying Toten bo FINSTSLaT Featonant* UNIVERSAL HARVESTER, INC. ‘STATEMENTS OF COMPREHENSIVE INCOME Years Ended December 31 Tote 2020 ZOD REVEROE 14 7,307,332, 942 29, 255,263,272 080 OF GOODS YANUEACTIRED AND SOLD 1s @6_6,265,520,242 0,147,095, 220 68 GROSS PROFIT 2,041,804,700 1,107,378, 044 OPERATING EXPENSES 16 45 239,399,371 172,234,027 WJ DEPRECIATION AND AMORTIZATION 8 498,752,187 7 132, 543,008 commer mcone 3,639,097 - eOIS BOG. MNS .¢ap 9 5,MA, DT wo rimnxce coses Loans and long-term debt an 499,642,273 497,417,999 Lease lebilities u 1,476,588 1,224, 019, INCOME BEFORE INCOME TAX ‘8 106,174,208 303,959,095 9.3 PROVISION FOR (BENGFIT FROM) TNCOME TAX 19 curren: 45,273,128 91,943,278 Deferred (710; 986) (755,549) 44,562,139 91,287,729 ) . ner rvcous \ 4 61,612,069_~ 212,771,366 23 OTHER COMPREHENSIVE =NCOME Not to be reclassified to profit or loss - Revaluation surplus, net of deferred tax 326,758,023 1, 150,751,024 TOUAL COMPREHENSIVE INCOME 2388,370,092 21, 363,522,3904 UNIVERSAL HARVESTER, INC. ‘STATEMENTS OF CHANGES IN EQUITY Xeare Ended Decenbor 31 ore 2020 Zors CAPITAL STOCK - #100 par value Authosized = 21,160,000 shares Subscribed - 7,740,000 shares in 2020 and 2019 Issued and outstanding - 5,500,000 shares Balance at beginning and end of year 550,000,000 _ 550,000,000 RETAIRED EARNINGS 12 Appropriated: Balance at beginning of vear 2,000,000,000 1, 000,000,000, Appropriation 135,000,000 = Balance at end of year 138,000,000 i, 000, 000, 000 Unappropriated: Balance at beginning ef rear 248,050,227 35,278, 861 Reclassification of reva:uation surplus 375,202,303 = appropriation (235,000,000) = 64,612,069 212,771,366 Net income Balance at end of year 549,864,599 240,050,207 684,064,599 1,245, 050,227 REVALUATION SURELUS a Balance at beginning of year Revazuation gain Reclassification to retained earnings Belance at end of yea: 2,031,646,264 980,995,240 326,758,023 1,150, 751,024 (262) 641,612) - 2, 095,762,675 2,031, 616,264 327,274 £3, 929, 696, 491 1330 30 62727403, 829, 696, 491 {ee Samapaying Notes be Financia] SestamenteUNIVERSAL HARVESTER, INC. ‘STATEMENTS OF CASH FLOWS Years Ended Decenber 31 ete. "2020 2018 (CASH FLOWS FROM OPERATING ACTIVITIES Incone before incone tex Adjustments for: Finance cost: 106,174,208 #303, 959,095 Loans and long-term debt n 499,642,273 497, 427,899 Lease liabilities uv 1/476,508 1,224,019 Depreciation and amortization: Property, plan= and equipment 8 187,947,358 126,290,094 ROU assets 7 10,804,799 6,252, 910 Retirement expense 18 1,825,569 1,815, 568 Opersting incone before changes in working capital Decrease (increase) in: 807,860,794 936,959,585 ‘rede receivables 5 (3,338,743,907) (74,824, 538) Inventories 6 1,848,380,409. (633, 929,017) Other current assets 2 (22,582,431) (21,984,012) Increase (decrease) in trade and other payables __10 (35,684,683) 608,282,138 let cash generated fron (used for) operations (740,769,818) #14, 504,156 Income taxes paid (45,273,125) (91,943,278) Net cash provided by (used in) operating activities (786,042,943) 722,560,878 (CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from sale of xand 8 699,030,000 - Decrease (increase) ir other noncurrent assets 9 (27,259,417) 9,111,133, Additions to property, plant and equipnent a = (1,073, 605,263) Net cash provided by used in) investing activities 673,770,583 _(1, 064, 494,130) (CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from (payments of) : Loans payable 32 1,667,378,300 288,478, 969 Long-term debt 11 090,115,217) 603,083,217 Lease liabilities a (21,727,000) (6,774, 000) Interest paid aa (499,642,273) (497,417,899) Increase (decrease) in advances from related parties a 34,744,135 (8,570,247) Wee cash provided by financing activities 100,637,945 378, 00,040 NET INCREASE (DECREASE) IN CASH (23,634,415) 36,066,768 (GASH AT BEGINNING OF YEAR 82,084,679 45,217,092 CASH AT END OF YEAR 250,450,264 52,084, 679 NONCASH FINANCIAL INFORMATION Impact of FFRS 16, Leases: a ROU assets 2,317,263 4,186,124 Lease Liabilities 2,317,263, 186,124UNIVERSAL HARVESTER, INC. NOTES TO FINANCIAL STATEMENTS Corporate Information Universal Harvester, Inc. (the Company] was incorporated and registered with the Philippine Securities and Exchange Commission (SEC) on April 22, 2003 primarily to engage in the business of manufacturing of goods such as fertilizers, chemical, and other similar products and to trade the same on wholesale or retail basis. The registered address of the Conpany is at Harvester Corporate Center 158 P. Tuazon Blvd., cor. 7th 8th Ave., Brgy. Socorro, Cubso, Quezon City. ‘The Company's financial statements as at and for the year ended December 31, 2020 and 20:9 were spproved and authorized for issue by the Board of Directors (B0D) on May 10, 2021. Status of Operations ‘The decline in year-on-year revenue was primarily due to the ongoing effects of the COVID-19 pandenic. Notwithstanding the challenges from the current global pandemic, the Company continues to generate positive results of operations in 2020. With the Company's strong financial condition and the ability to obtain short-term and long-term borrowings, maragement believes that the Company can continue as a going concern. Accordingly, the Conpany's financial statenents were prepared on a going concern basis. ‘Sumary of Significant Accounting Policies Basie of Preparation ‘The financial statements have been prepared in compliance with Philippine Financial Reporting Standards (FFRS) issued by the Philippine Financial Reporting Standards Council and adopted by the SEC, including SEC pronouncements. ‘This financial reporting framework includes PFRS, Philippine Accounting Standards (PAS), and Philippine Interpretations from International Financial Reporting Interpretations Committ: (zFRIC) Measurement Bases The financial statenents are presented in Philippine Peso (Feso}, which is the Company’ s functional and presentation currency. All amounta are rounded to the nearest Peso, unless otherwise stated. The financial statenents have been prepared on a historical cost basis, except for land and building presented under “Property, plant and equipment” account which are stated at revalued amount. Historical cost is generally based on the fair value of the consideration given =n exchange for an asset and fair value of the consideration received in exchange for incurring a liebility Fair value is the price that would be received to sell an asset or paid to transfer a liability in en orderly transaction between market participants at the transaction date. ‘The fair value measurenent is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: * zn the principal market for the asset or Liability; or * zn the absence of a principal market, in the most advantayeous market for the asset or liability. ‘The principal or the nost advantageous market must: be accessible to the Company. The fair value of an asset or a Liability is measured using the a participants would ase when pricing the esset or lianility, Participants act in their best economic interest es | wee 14 001 EMRE BERET eeeeriperan asset-2- A fair value measuzenent of nonfinancial asset takes into account a market participant! 9 ability to generase economic benefits by using the asset in its highest and best use or by selling it te enother market participant that would use the asset in its highest and best use. ‘The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient date are available to measure fair value, maximizing the use of relevant cbservable inputs and minimizing the use of unobservable inputs. ALL assets and Liab-lities for which fair value Ls measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based fon the lowest level input that is significant to the fair value measurement as a whole: + Level 1 ~ Quoted (unadjusted) market prices in active markets for identical asse-s or liabilities + Level 2 ~ Valuation techniques for which the lowest Level input that is significant to the fair value measurement is directly or indirectly observable + Level 3 - Valuation techniques for which the lowest level input that is significant to the fair valae measurement is unobservable. For assots and labi1_ties that are recognized in the financial statements on a recurring basis, the Conpany determines whether transfers have occurred between levels in the rarchy by re-assessing categorization at the end of each reporting period. For the purpose of far value disclosures, the Company has determined classes of assets anc liabilities on the basis of the nature, characteristics and risks of the asset or Liability and the level of the fair value hierarchy as explained above Further information ebout the assumptions made in measuring fair value is included in Notes 8 and 22 Adoption of Anendmanss to PRS The accounting policies adopted are consistent with those of the previous financial year, except for the adopt-on of the following amendments to PFRS. Estective for annual periods beginning on or after January 1, 2020: * Amendments to Refezences to the Conceptual Framework in PERS - The amendments include anew chapter on measurement; guidance on reporting financial performance; improved definitions and guidance-in particular the definition of a liability; and clarifications in important areas, such as the roles of stewardship, prudence and measurements uncertainty in financial reporting. The amendnents should be applied retrospectively unless retrospective application would be impracticable or involve undue cost or effort. + Amendments to PAS 1, Presentation of Financial Statements and PAS 8, Accounting Policies, Changes in Accounting Estimates and Errors ~ Definition of Material ~ The amendments clarify the definition of “material” and how it should be applied by companies in making materiality judgments, The amendments ensure that the new definition ts consistent across all PFRS standards. Based on the new definition, en information is Yaaterial” if onitting, misstating or obscuring it could reasonably be expected to =nfluence the decisions that the primary users of general purpose Hinancial statements make on the basis of thase financial statements. Effective for annual periods beginning on or after June 1, 2020: + Amondnents to PERS 16, Leases - COVID-19 Related Rent Concessions ~The anendnents... provide practical expedient to lessees from applying the reqydrements on lease Fodifications under FERS 16 for eligible rent concessions Waa vig. divest consequence of COVID-19 pandemic. A lessee nay elect not to assede picthor eligible Fent concessions from a lessor is a lease modification. & lesektl lena makge, th election account for any change i lease payments resulting fron the'tovitets Febadhl rent concession the same way it would account for a change tHat! is not a lease gsaa modification, i.e., as a variable lease payment. The amenduents do not affect lessors. Earlier application of the anendments is permitted. The adoption of the foregoing amended PERS did not have any material effect on the financial statements. Additional dieclocures have been included in the notes to financial statenerts, as applicable Amendments to PFRS Tesued But Not Yet Effective Relevant amendnents to PERS, which are not yot effective as at December 31, 2020 and have not been applied in preparing the financial statements, are summarized below. Effective for annual periods beginning on or after Janvary 1, 2022: + Amenduents to PERS 3, Reference to Conceptual Framework - The amendnonts replace the reference of PFRS 3 from the 1989 Framework to the current 2018 Conceptual Framework. The azenduent included an exception that specifies that, for some types of Liabilities and contingent liabilities, an entity applying PFRS 3 should refer to PAS 37, Provisions, Contingent Ilabilities and Contingent Assets, ot TFRIC 21, Levies, instead of the Conceptual Framework. The requirement would ensure that the Mabiiities recognized in a business combination would remain the same as those recognized applying the current requirenonte in PERS 3, The anendment alse added an explicit statement that contingent assets acquired in a business combination should not be recognized by an acquirer. The amendments should be applied prospectively. + Amendments to PAS 16, Property, Plant and Equipment ~ Proceeds Before tntended Use = The amendnents prohibit deducting from the cost of property, plant and equipment. any proceeds from selling items produced while bringing that asset to the location and condition necessary for its intended use. Instead, the proceeds and related costs from such items shall be recognized in profit or loss. The amendnent's mist be applied retrospectively to items of property, plant and equipment made available for use on o: after the beginning of the earliest period presented when an entity first applies the amendment. © Anenduents to PAS 37, Onerous Contracts - Cost of Fulfilling a Contract ~ The amendments clarify that for the purpose of assessing whether a contract is onerous, the cost of fulf:11ing a contract comprises both the Incremental costs of fulfilling that contract ard an allocation of costs directly related to contract activities, ‘The amendments apply to contracts existing at the date when the amenduents are fist applied. At the date of initial application, the cumilative effect of applying the amendments is recognized as an opening balance adjustment to retained earnings oF other components of equity. Accordingly, the conparatives are not restated. Earlier application is permitted, + Annual Improvements to PERS 2018 to 2020 cycle: © Amendnents to PRS 9, Financial Instruments - Fees in the ‘10 per cent’ Test for Derecognition of Financial Liabilities ~ The amendment clarifies which fees an entity includes when it applies the '10 per cent’ test in assessing whether to derecognize a financial liability (i.e. whether the terms of a new or modified financial liability is substantially different from the terns of the original financial liability). These fees include only those paid or received betwoen the borrower and the lender, including fees pald or received by either the borrower or the lender on the other's behalf. The anenduents apply ro financial Liabilities that are modified or exchanged on or after the beginning of the annual reporting period in which the entity first applies the amendments. Earlier application is permitted. © Amendments to PFRS 16, Leases - Lease Incentives - The amendment xenovos from the Tilustrative Example 13 the illustration of the reimbursement of leasehold improvements ty the lessor. The objective of the anendnent. potential ccnfusion regarding the treatment of lease incent i the requirements for lease incentives are illustrated.Effective for annual periods beginning on or after January 1, 2023 - + Amendments to PAS 1, Classification of Liabilities as Current or Non-current ~ The amendments clarity’ the requirements for an entity to have the right to defer settlement of she iiability for at least 12 months after the reporting period. The amendents als9 specify and clarify the following: (i) an entity’s right to defer settlement mus= exist at the end of the reporting period, (ii) the classification is unaffected by managanent’s intentions or expectations about whether the entity Will exercise its right to defer settiament, (iii) how lending conditions affect Classification, anc (iv) requirements for classifying liabilities where an entity ill or may se=-le by issuing ite own equity instruments. The attenduents must be applied retrospectively. Earlier application is permitted. Under prevailing cixcunstances, the adoption of the foregoing anendnents to PFRS is not expected to have any material effect on the financial statements of the Company. Additional disclosures will be included in the notes to financial statements, a3 applicable. and Lisbilits Einancial As Date of Recognitios. ‘The Company recognizes a financial asset or a financial liability in the statements of financial position when it becomes a party to the contractual provisiens of a Financial instrument, In the case of a regular way purchase or sale of financial assets. recognition and derecognition, as applicable, is done using settlement date accoansing. Initial Recogniticn and Measurement. Financial instruments ere recognized initially fair value, which is the fair value of tho consideration given (in case of an asset) o= received (in case cf a liability]. The initial measurement of financial instruments, except for those cesignated et fair value through profit and loss (FVPL), includes nsaction cost. ‘vay 1” Difference. wnore the transaction price in a non-active market is different fron the fair value of other observable curzent market transactions in the sane instrument or based on a valuation technique whose variables include only data trom observable market, the Conpany recognizes the difference between the transaction price and fair value (| “ay 1” difference) in profit or love. In cases where there is no observable data or inception, the Company deems the transaction price as the best estimate of fair va-ue and recognizes “Day 1” difference in profit or loss when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the “Day 1” difference. Classification. The Company classifies its financial assets at initial recognition under the following categories: (a) financial assets at FVPL, (b) financial assets at amortized cost, and (c) financial assets at fair value through other comprehensive incone (F¥oct). The classification of a financial asset largely depends on the Company's business model and its contractual cash flow characteristics, Financial liabilities, on the other hand, are classified as either financial liabilities at EVPL or financial Liabilities at amortized cost. As at December 31, 2020 and 2018, the Company does not have financial assets and Liabilities measured at FVPL and financial assets measured at FVOCI. Financia! Assets at Avortized Cost. Financial asets chall be measured at amortized cost if both of the following conditions are net: + the financial assets are held within a business model whose objective is to hold financial assets in order to collect contractual cash floway and + the contractual tems of the financial assets give rise on specified dates tocash, Flows that are solely payrents of principal and interest of” thé principal wount outstanding peae After initial recognition, financial assets at anortized cost are subsequently measured zt amortized cost using the effective interest method, less allowance for impairment, if any. Amortized cost is calculated by taking into account any discount or premium on acquisition end fees that aze an integral part of the effective interest rate. Gains ‘and losses are recognized in profit or lose when the financial assets are derecognized and through amortization process. Financial assets at amortized cost are included under current assets if realizability or collectability is within 12 months after the reporting period. Otherwise, these are classified as noncurrent assets. As at December 31, 2920 and 2019, the Company’s cash, trade receivables, advances to related parties, bank compensating balance and rental and other refundable deposits (neluded under “Other current and noncurrent assets” accounts} are classified under this category. Financial Liabilities st anortized cost. Financial liabilities are categorized as Financial Liabilities at amortized cost when the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another Hinancial asset to the holder, or to settle the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed nunber of its own equity dastrunents. ‘These financial Liabilities are initially recognized at fair value less any directly rtributable transaction costs, After initial recognition, these financial liabilities subsequently teasured at amortized cost using the effective interest method. Anortized cost 1s calculated by taking into account any discount or premium on the issue and fees that are an integral part of the effective interest rate. Gains and losses are Eecognized in profit or loge when the liabilities are derecognized or through the anortization process. As at December 31, 2020 and 2019, the Company's trade and other payables (excluding tutory payables), loans payable, long-term debt, lease Liabi7itiee and advances fron related parties are classified under this category. Reclassification of Financial Assets ‘The Company reclassifies its financial assets when, and only when, it changes its business model for managing those financial assets. The reclassification is applied prospectively from the first day of the firet reporting period following the change in the business model (reclassification date) . For a financial asset reclassified out of the financial assets at amortized cost category te financial assets at FVPL, any gain or loss arising from the difference between the previous amortized cost of the financial asset and fair value is recognized in profit or lose. For a financial asset reclassified out of the financial assets at amortized cost category to financial assets at FVOCr, any gain or loss arising froma difference between the previous amortized cost of the financial asset and fair value is recognized in other conprehensive income. Impairment of Financial Assets ‘The Company records an allowance for expected credit loss based on the difference between the contractual cash “lows due in accordance with the contract and all the cash flows that the Company expects to receive. The difference is then discounted at an approximation to the asset’s original effective interest rate. For trade receivables, the Company has appliod the simplified approach and has calculated expected credit loss based on the lifetime oxpected credit lose. The Company has established a provision matrix that is based on its historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environnent and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate,ae For other financial assets at amortized cost, which mainly comprise of cash, advances to related parties, and rontal and other refundable deposits, the Company applies the general approach ir measuring the oxpected credit losses. The expected credit loss is based on the 12-monta expected credit loss, which pertains to the portion of lifetime expected credit Icsses that result from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since initial recognition, the a-lowance will be based on the lifetime expected credit loss. When determining whether tae credit rick of a financial asset has increased significantly since initial recogn-tion, the Company compares the risk of a default occurring on the Einanciel instrumert as at the reporting date with the risk of a default occurring on the financial instrument as at the date of initial recognition and consider reasonable and supportable information, that is available without undue cost or effort, that is indicative of sigrificant increases in credit risk since initial recognition. There is a rebuttable presumption that default does not occur later than when a financial asset is 90 days pest due, unless an entity has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. © and Liebilitic Derecognition of Financial As: Financial Assets. A financial asset (or, where applicable a part of a financial asset = part of a group of similar financial assets) is derecognized when: + the right to receive cash flows from the asset has expired; + the Company retains the right to receive cash flows from the asset, but has assumed an obligation te pay them in full without material delay to a third party under a “pass-through” arrangement; or + the Company has transferred its right to receive cash floxs fron the asset and either: (a) has transferrec substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. when the Company has transferred its right to receive cash flows from a financial asset or has entered into a passthrough arrengenent, and has neither transferred nor retained Substantially all tho risks and rewards of ownership of the financial asset nor transferred contro: cf tho financial asset, the financial asset is recognized to the excent of the Company's continuing involvement in the financial asset. Continuing involvenent that takes the form of 2 guarantee over the transferred financial asset is measured at the lover of the original carrying amount of the financial asset and the maximum amount of consideration that the Company could be required to repay. Financial Liabilities. A financial Liability is derecognized when the obligation under the liability is discharged, cancelled or has expired. 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 exchenge oF modification is treated as a derecognition of the original Liability and the recognition of a now liability, and the difference in the respective carrying amounts is recognized in tho statements cf comprehensive income. Offsetting of Financia: Assets and Liabilities Financial assets and ‘nancial liabilities are offset and the net amount is reported in the statements of financial position if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there ia an intention to settle on a ne- >asis, or to realize the asset and settle the liability sisultaneously. This is not generally the case with master netting agreements, and the related assets anc liabilities are presented gross in the statenents of financial position. COLLECTION sa x RSANATELClassification of Financial Instrument between Liability and Equity A financial instrument is classified as lability if it provides for a contractual obligation to: + deliver cash or another financial asset to another entity + exchenge financial assets or financial liabilities with another entity under conditions that are potentially unfavoreble to the Company; or + satiety the obligation other than by the exchange of a Fixed amount of cash or another Financial asset for a fixed number of own equity shares. If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of @ financial liability. nventoris Inventories are carried at the lower of cost and net realizable value (NRV). Cost is determined using the weighted average method. Yor finiched goods, cost includes directly attributable labor costs and allocation of fixed and variable manufacturing overhead costs that aze incurred in converting materials to finished goods. ‘The NRV of inventories is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated cost necessary to make the sale. In determining the NRY, the Company considers any adjustment necessary for obsolescence. When the NRV of the inventories is lower than its cost, the inventories are written down to its NRV and the difference between the cost and NRV of the inventories is charged to profit or loss, in the period the write-down occurs. Wren inventories are sold, the carrying anount of these inventories is recognized as cest of goods sold in profit or loss in the period in which the related revenue is recognized. Other Current As This account mainly consists of input value-added tax (VAT|, advances to contractors and suppliers, officers and employees, and prepayments. Input VAT. Revenue, expenses and assets are recognized net of the amount of VAT except: + where VAT incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case VAT is recognized as part of the cost of acquisition of the asset or as part of the expense item, as applicable; or + receivables and payables that are stated with the amount of VAT included. ‘The net amount of VAT =ecoverable from the taxation authority is included as part of “Osher current assets” account in the statenente of financial position. Advances to Contractors and Suppliers, Advances to contractors and suppliers pertain to funds advanced by the Company to its contractors and suppliers in relation to purchase of inventories and services, These are considered as nonfinancial assets as these will be applied against supplier's invoices upon receipt of goods and services. Advances to contractors and suppliers wherein the corresponding goods and services are expected to be delivered boyond one year after reporting date ere classified as noncurrent assets Advances to Officers ard Employees. Advances to officers and employees are stated at face amount, unsecured. noninterest-bearing and are subject to Liquidation. Prepayments. Prepayments consist of prepaid taxes and rent. Prepa: anount withheld by the Company’s custoners in relation to ite incol be utilized as payment for income taxes provided that these arecertificates of tax withheld at source subject to the rules on Philippine income taxation. Prepaid rent are rent not yet incurred but paid in advance and recorded as asset before these are utilized. Prepaid rent are apportioned over the period covered by the payment and charged to profit or loss when incurred. Prepayments that are expacted to be realized for no more than 12 months aftor the reporting period are classified as current assets, Otherwise, these are classified as noncurrent assets. Property Plant, and Equipnent Property, plant and equipment, except construction in progress, are stated in revalued amount. ‘The initial cost of property, plant and equipment consists of its purchase price, including import cuties, nonrefundable taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Such cost includes the cost of replacing part of such property, plant and oquipnent when that cost 9 incurred if the recognition cr-terle are met. Expenditures incurred after the property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to profit or loss in the period when the cose are incurred, In eituations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of property and equipment beyond ite originally assessed standard of perforance, the expenditures are capitalized ag an additional cost of property, plant and equipment. Under the revaluation model, land and building are initially recorded at cost and subsequently measured at fair value. Valuations are performed with eufficient regularity to ensure thet the fair value of a revalued asset does not differ materially from its carrying amount. Additions subsequent to the last appraisal date are stated at acquisition cost. A revaluation increase is recorded initially in other comprehensive income and accumulated to the revaluation surplus in equity. However, the increase is recognized in profit or loss to the extent that it reverses a revaluation decrease of the sane asset previously recognized in profit or loss. A revaluation decrease is recognized in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognized in revaluation surplus in equity in which case the decrease is recognized in other comprehensive income. ‘Transfers from revaluation surplus, related to building, to retained earnings are made for the difference between depreciation based on the revalued carrying amount of the beilding and its original cost. Upon disposal, any revaluation surplus relating to the particular asset being sold is transferred to retained earnings Bach part of the property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. Depreciation is computed on the straight-line basis over the estinated useful lives of the depreciable assets. The depreciation periods for property, plant and equipment, based on the above policies, are as follows: Nunber of Years Equipment, machines, furniture and Fixtures 3-20 Building and improvements 25 - 40 ‘The estimated useful lives and depreciation method are reviewed periodically to ensure ‘that the pericds and method of depreciation is coneistent with thy economic benefits from items of property and equipment.Sigs an item of property and equipment is derecognized upon disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) =s included in profit or loss in the year the asset is derecognized. Fully-depraciated aesete are retained in the account until they are no longer in use and no further change for depreciation is made in respect to those assets Construction in progress, which includes cost of construction and other direct costa, is stated at cost and is not depreciated until such tine as the relevant assets are completed and put intc operational use. Assets under construction are reclassified to a specific category of property, plant and equipment whan the construction and other zolated activities necessary to prepare the assets for their intended use are completed nd the assets are available for use. Impairment of Nonfinancial Assets The Company assesses at each reporting date whether there is an indication that nonfinancial assets may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Company makes an estimate of the asset's recoverable amount. The recoverable amount is the higher of an asset's or cash-generating unit’s (CGU) fair value less costs to sell and its value-in-use and 1s determined for an ind-vidual asset, unless the asset does not generate cash inflows that. faze largely indepeadent of those from other assets or group of assets, Fair value less costs to seli is the amount obtainable from the sale of an asset or CGU in an arn’s length transaction between knowledgeable, willing parties, less the costs of disposal. rn assessing value-in-use, the estimated future cash flows are discounted to their present value us:ng a pre-tax ciscount rate that reflects current market assesonente of the time value of money and the risks specific to the asset. Where the carrying amount of an asset exceeds its =ecoverable amount, the asset is considered impaired and is written down to its recoverable amount. Any impairment loss is recognized in profit or loss in the expense category consistent with the function of the impaired asset. ‘An assessment is made at each reporting date as to whether there is any indication thet previously recognizec impairment loss may no longer exist or may have decreased. If Such ind:cation ex=sts, the recoverable amount is estimated, A previously recognized impairment loss is reversed only if there has been a change in the estimates used to Gotermine the asset's recoverable amount since the last impairment lose was recognized If that is the case, ne carrying anount of the asset is Increased to its recoverable amount. That increased amount cannot exceed the carrying auount that would have been determined, net of depreciation and amortization, had no impairment loss been recognized for the asset in pricr years. capital stock Capital stock represents the par value of the shares issued and outstanding. Retained Earnings Retained earnings include accumulated results of operations attributable to the Company's stockholde=s and reduced by dividends. Dividends are recognized as Liabilities and deducted trom equity when declared. Dividends for the year that are approved after the reporting date are dealt with as an event after the reporting date. appropriated retained earnings represents that portion which has been restricted and are not available for dividend declaration. Unappropriated retained earnings represents that portion which can be declared as dividend to the stockiolders of the Company. Qther Comprehensive Income Other comprehensive income comprises itens of incone and ex; recognized in profit or loss in accordance with PFRS. Other cor the Company pertains to revaluation surplus on property, plant-10- Revenue Recognition Revenue from Contracts with Customers Revenue from contracts with customers is recognized when the performance obligation in the contract has been satisfied, either at a point in time or over time. Revenue ic recognized over time if one of the following criteria is met: (a) the customer simultaneously receives and consumes the benefits as the Company perform its obligations; (b) the Company’ » performance creates or enhances an asset that the customer controls as the asset 1s created or enhanced; or (ec) the Company’ s performance does not create an asset with an alternative use to the Conpany and the Company has an enforceable right to payment for performance completed to date. Otherwise, revenue is recognized =a point in time ‘The Company also assesses its revenue arrangements to determine if it is acting as a sincipal or as an agent. ‘The Company has assessed that it acts as a principal in all of its revenue sources. The Company recognized revenue from contracts with customers when it has met the following specific performance obligations: Sale of Goods. Performance obligation is satisfied upon the delivery of goods, which corresponds to the point of time whon the significant risks and rewards of ownership of the goods have passed to the buyer. Revenue is measured at the fair value of the consideration received, excluding discounts, returns, rebates and output VAT Other Sources of Revenue ‘The following specific criteria must be met before revenue is recognized: Interest Income. Income is recognized as the interest accrues using the effective interest method. Other Income. Other income is recognized vhen there is an incidental economic benefit that will flow to the Company through an increase in asset or reduction in liability and that can be measured reliably. cost and Expense Recognition Costs and expenses are recognized in profit or loss when a decrease in future economic benefit related to a decrease in an asset or an increase in liability has arisen that can be measured reliably. Cost of Goods Manufactured and Sold, Cost of goods manufactured and sold includes 212 expenses associated with the specific eale of goods. These include all materials and supplies used, direct labor and other production related expenses, Such costs are recognized when the related sale is recognized Operating Expenses. This account includes selling and distribution and general and administration expenses. These are expensed a incurred, Finance Costs. Finance costs is recognized in profit or loss using the effective inserest method. Leases The Company assesses whether the contract is, or contains, @ lease. To assess whether a contract conveys the right to control the use of an identified asset for @ period of tine, the Company assesses whether, throughout the period of use, it has both of the Fo:lowing: i. the right to obtain substantially ali of the economic benefits from the use of the identified asset; and : ii. che right to direct the use of the identified asset. Neeser | | If che Company has the right to control the use of an identified asgdt forisniyfa boffiibn —*) f@ tern Of the contract, the contract contains a lease for thai pgrtion of the term, | | | 3-u- The Company 23 a Lessee. Leases are recognized as ROU assets, with corresponding lease Liabilities, at the dave at which the leased assets are avallable for use by the Company. ROU Assets. At commencement date, the Company measures ROU assets at cost. The cost comprises: 4. the amount of the initial measurement of lease liabilities; made at or before the commencement date iess any lease incentives ii. any lease paymer received; Adi, any initial dizect costes and iv. an estimation of costs to be incurred by the Company in dismantling and removing the underlying asset, when applicable. Atter the commencement date, the ROU assets are carried at cost less any accumulated amortization and any accumulated impairnent losses, and adjusted for any reneasurenent of the related lease liabilities. The ROU assets are amortized over the shorter of the lease terms or the useful lives of the underlying assets. Lease Liabilities, At commencement date, the Company measures lease liabilities at the present value of futcre lease payments using the interest rate implicit in the lease, if that rate can be readily determined. Otherwise, the Company uses ite incremental borrowing rate Lease payments included in the measurement of lease liabilities comprise the following: 4, fixed payments, including in-substance fixed payments; Ai, variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date; amounts expected to be payable by the lesses under vesidual value guaranteos; and iv. the exercise price under a purchase option that the Company is reasonably certain to exercise; lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option; and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early, lease Liabilities are subsequently measured at amortized cost. Interest on the lease Liabilities and any variable lease payments not included in the measurement of lease Liabilities are recognized in profit or loss unless these are capitalized as costs of another aeset, Variable lease payments not included in the measurement of the lease Liabilities are recogn=zed in profit or loss when the event or condition that triggers ‘those paynents occurs. TE there is a change in the lease term or if there is a change in the assessment of an option to purchase the underlying asset, the lease liabilities are remeasured using a revieed discount rate considering the revised lease payments on the basis of the revised lease term or reflecting the change in anounts payable under the purchase option. Employee Benefits Short-term Benefits. The Company recognizes a liability net of amounts already paid and an expense for sorvicos rendered by omployses during the accounting period, A Liability is also recognized for the amount expected to be paid under short-term cash bonus or profit sharing plans if the Company has a present legal or constructive Gregson Ea) se the obligation can be estimated reliably. Ba iee yeaa basis and ave Medd Short-term employee benefit liabilities are measured on an undiscoun expensed as the related service is provided.