ACYFAR PORTFOLIO

Reflection paper presented to the

Accountancy Department

In partial fulfillment
of the course requirement in
ACYFAR 4

Jimenez, Armie Christian E.

K33
 The objective of this critique is to assess the financial accounts of Store Specialist
Incorporated (SSI) for the fiscal year 2021. The is part of the list of businesses included in the
Philippine Stock Exchange. SSI is widely acknowledged as the foremost specialty store in the
Philippines, offering a wide array of internationally acclaimed goods. The Corporation's
widespread retailing network throughout the country systematically enhances several facets of
a higher quality of life. SSI is the leading company in the specialized retail market of the
Philippines, with a strong presence in International brands and commerce operations. Presently,
SSI's retail network consists of a total of 524 shops that are strategically positioned in around 80
significant malls nationwide.

Additionally, it is crucial to discuss that SSI has the largest assortment of global brands
and has the most comprehensive retail network compared to other specialized retailers in the
Philippines. The Rustan Group, founded in 1951, has a prominent retail heritage in the
Philippines. It has attained success by its innovative approach of establishing dedicated shops
that only sell a wide variety of foreign brands. SSI, a renowned retail corporation in the
Philippines, has built a substantial foothold in the country's retail industry. More precisely, a
total of 524 businesses run by SSI are hosted by over 80 of the largest malls in the Philippines.
The vast network of SSI-operated outlets enhances the company's considerable retail presence
across the country.
The financial statement of SSI for the year 2021 will be examined using the principles
discussed in Financial Accounting and Reporting (ACYFAR) 4. The subsequent parts of this
Reflection Paper will serve as the central themes, including the many subjects explored before.
(1) Leases - especially the recognition of the Right-of-Use Asset and Lease Liability for the
Lessee, (2) Leases - with a particular emphasis on the accounting treatment of Sales and
Leaseback transactions, (3) Shareholders' Equity, with a specific focus on the presentation of the
Statement of Changes in Equity and the distribution of Dividends. The topics covered in this text
are as follows: (4) Share-based Payments, (5) Employee Benefits, (6) Book Value Per Share and
Earnings Per Share, and (7) Correction of Errors.
 Before delving into the issue, it is important to mention that the synthesis presented
here is based on the rules provided by the International Financial Reporting Standards (IFRS)
Foundation and the International Accounting Standards Board (IASB). All assertions are
formulated using the existing laws. This paper examines the analysis of external factors and
their influence on the financial statements of SSI. Furthermore, it is crucial to mention that in
future discussions, Store Specialist Incorporated (SSI) and its affiliated companies shall be
denoted as the "Corporation" or "SSI."

Leases – Lessee (Right-of-Use Asset, Lease Liability)

International Financial Reporting Standard (IFRS) 16 specifies the standards for the
lessee's viewpoint on lease accounting. If a contract offers the right to use an asset for a
predetermined time, then it may be formed as a lease according to paragraph 9 of this
standard. Furthermore, the lessee is required to note a right-of-use asset and a lease obligation
in its financial records prior to the commencement of the lease, as stated in paragraph 22. First,
the cost of a right-of-use asset must be measured and recorded, as stated in Paragraph 23. The
steps to determine the initial value of the lease obligation are detailed in paragraph 26. To get
this number, we take the agreed-upon implicit rate and plug it into the formula for the present
value of the lease payments.

Accounting for assets acquired via leasing agreements is handled by SSI in accordance
with this standard. Lessees should refer to Appendix A for further information on how to
account for leases in their financial records, as restated in Note 26 - Lease Liabilities. Along with
that, the Corporation also said that they are aware that their leases include right-of-use assets
and that they are responsible for fulfilling such duties. It was acknowledged by management
that the assets classified as "property and equipment', 'franchise fees', and 'right-of-use assets'
showed signs of impairment.

As a result, an impairment test was conducted to evaluate their recoverable quantities.

The evaluation of the recoverable amount requires substantial discernment and entails the
calculation and assumptions about future sales and expenditures, along with external factors
such as discount rate and growth rate.
 Their annual report also mentioned Corporation's policy is to categorize the right-of-use
asset as a component of property and equipment. The Corporation acknowledges the ROU at
the start of the lease, which is the date when the underlying asset becomes accessible for use.
The original assessment of the right-of-use asset is based on its cost, which is then reduced by
any accrued depreciation and impairment losses.

Additionally, the asset is updated to respond to any changes in the lease obligation. The
initial cost of the right-of-use asset comprises the recognized lease liability, initial direct costs,
lease payments made before the commencement date (excluding lease incentives received),
and an estimate of the lessee's expenses for dismantling, removing, or restoring the underlying
asset and its site as required by the lease agreement unless these expenses are received for
inventory production purposes.

Note 26 specifies that the organization has four Right-of-Use assets: store and
equipment, asset warehouse, office and parking, and land. These assets have respective values
of ₱1,260,418,041, ₱86,583,819, ₱20,648,607, and ₱180,801,614 as of 2021.

On the contrary, the lease obligation section effectively displays the present and
long-term elements of the financial commitment. This information is particularly beneficial for
prospective investors and consumers of the Corporation's financial statements as it informs
them about the reporting entity's responsibility to pay obligations within a typical operational
cycle or shorter, as well as obligations that extend beyond one year. Portions of the lease
obligations are shown as distinct line items, facilitating analysis for accountants.

According to the annual report, as of December 31, 2021, the total amount of lease
liabilities was ₱1.6 billion, which is lower than the ₱2.1 billion recorded at the end of 2020. This
decrease might be due to the amortization (including lease concessions) of ₱868.7 million
during the year. This decrease was partially offset by the recognition of additional lease
liabilities (net of remeasurements) of ₱156.4 million and interest expense of ₱173.2 million.

Leases – Lessee (Sales & Leaseback)

 The paper will also go into the topic of sales and leaseback agreements. Once again,
pertinent issues and theoretical ideas in this transaction will be addressed using IFRS 16. A
seller-lessee and a buyer-lessor are involved in a sale and leaseback agreement, as stated in
Paragraph 98. A specific asset is sold by the parties above under this agreement. At the same
time, the first party is likely to sign a lease with the second party to rent the asset. The high
maintenance expenses of some assets, such as property, plant, and equipment, often motivate
companies to undertake this specific activity. Consequently, the aforementioned company may
save money by selling the corporation and leasing the space.

In addition, the Corporation’s financial statements for the year 2021 and the note
disclosures that accompany them do not include any mention of leaseback transactions or sales
transactions. As was said previously, this agreement is the mechanism that oversees the
interaction between the buyer-lessor and the seller-lessee relationships. In situations when the
seller-lessee is in a difficult financial situation, needs money in a hurry, or is attempting to get a
tax credit, it is often employed. Based on the Consolidated Statements of Income, it can be seen
that the Corporation is not experiencing any financial difficulties. Since SSI has not carried out
any transactions that are associated with this topic, further data is required to study it in this
article.

But until SSI requires it, they shouldn't even think about using sales and leaseback
arrangements in future deals. Those in need of quick cash often turn to sales and leaseback. The
corporation would give the impression that it cannot afford to pay its own bills or make
investments if it used sales and leaseback.

Shareholders' Equity

Financial statements, notes to financial statements, and reconciliations of the number of

outstanding shares between the beginning and end of the reporting period, treasury shares,
shares intended for issue under options, issued, outstanding, subscribed, and par value of each
class of shares are required to be disclosed in order to comply with International Accounting
Standard (IAS) 1, paragraph 79. This applies to all classes of shares. Similarly, dividend
payments, treasury shares, and the total number of shares in the capital are all subject to the
same constraints. According to the three financial statements for the year 2021, SSI was able to
completely fulfill all of the conditions that were mentioned above.

As per the annual report, the Capital stock is valued at par value for all issued shares.
The incremental expenses immediately associated with the issue of additional shares are shown
as a reduction from the proceeds in the equity section, after accounting for taxes. Any proceeds
or fair value of consideration received that exceed the par value are reported as additional
paid-in capital (APIC). Their capital stock remained unchanged from 2020 to 2021, with a value
of ₱3,312,864,430.

Treasury shares, which are considered to be in the category of own equity securities, are
recognized at their cost and deducted from equity. When the Company's own equity
instruments are purchased, sold, issued, or canceled, the consolidated statement of
comprehensive income does not reflect any profit or loss associated with these transactions. In
the event that the consideration is going to be reissued and the carrying amount is changed, the
difference from the original amount is noted in the additional paid-in capital. From the year
2020 to the year 2021, their Treasury shares did not change, and their value stayed the same at
₱30,893,010. Note 28 of the annual report includes other aspects of shareholders' equity, such
as paid-in capital and retained earnings, among other things.

Through the successful incorporation of comprehensive notes into their holders' equity,
the company was able to attract a bigger pool of investors. It is desirable to have a larger
shareholder-equity ratio since it indicates that a bigger proportion of assets are supported by
the resources contributed by shareholders as opposed to funds that have been borrowed.

Share-based Payments

A company receives something of value, like products or services, from its workers and
then has to pay them. This is called a "share-based payment," and it's discussed in paragraph 2
of IFRS 2. After an entity confirms receipt of goods and services, it may pay for them in two
ways: either using equity-settled share-based payment on taking on a liability (cash-settled
share-based payment), as stated in paragraph 7. Important employees, directors, and executives
were compensated in this way. Motivating and empowering critical people or groups who
propel the company forward is the goal of this project. The goal is to motivate people to give
their all so the business can reach its goals.

This assessment report strongly recommends that the Corporation give some
consideration to this compensation plan. This is because the firm does not disclose share-based
payments in its quarterly report. Increased motivation among workers who own shares in the
company or get cash for their services is a driving force behind the growth and profitability of
the Corporation. In addition to that, the option of receiving income based on shares may inspire
employees to stay committed to the company for a significant amount of time. In addition to
retaining the excellent workforce that is already there, this will also bring in new employees
who have expertise that is appropriate to the position.

Employee Benefits

The application of IAS 19 will be made in the accounting for employee benefits.
According to paragraph 8 of this standard, employee benefits are the remunerations offered to
workers as a result of their work for the company. Wages, social security payments, paid sick
and vacation days, bonuses, non-monetary benefits, post-employment benefits, termination
benefits, and other forms of compensation were also included in paragraph 5.

The majority of the benefits listed in the standard's Paragraph 5, which offers a
comprehensive list of what a corporation may provide, are provided by SSI. Note 21, which
details retirement benefits and other employee benefits, shows this. The Corporation's financial
statements for 2021 provide comprehensive disclosures on retirement benefits since each
account's movement is described in its note. The retirement benefit expenses rose from
₱83,881,848 in 2020 to ₱122,852,022 in 2021. While the total value of other employee perks
rose from ₱139,967,495 in 2020 to ₱142,147,760 in 2021.
 In addition to this, it was indicated that the assets managed by the long-term employee
benefit fund are included in the plan's assets. To compute the net defined benefit liability or
asset, the fair value of plan assets is subtracted from the present value of the defined benefit
obligation. The unpaid contributions that are owed to the fund by the Corporation are not
included in this. Additionally, any non-transferable financial instruments that were given by the
Corporation and are retained through the funds are not included. The assets of the plan are
lowered by any obligations of the fund that are not related to employee benefits. These
liabilities include trade and other payables, as well as liabilities that are the outcome of financial
instruments.

Moreover, at the end of the year 2020, the retirement benefit obligation was ₱748.8
million, but by the end of the year 2021, it had increased to ₱706.7 million. The difference
between the present value of the Corporation's retirement plan liabilities and the fair value of
the Corporation's plan assets is represented by this calculation. While, at the end of the year
2020, lease obligations amounted to ₱2.1 billion, but by the end of the year 2021, they had
increased to ₱1.6 billion. A significant portion of the decrease can be attributed to the
amortization, which encompasses lease concessions, that occurred during the year and
amounted to ₱868.7 million. However, this decrease was counterbalanced by the recognition of
additional lease liabilities during the year, which amounted to ₱156.4 million (net of
remeasurements), and interest expense, which amounted to ₱173.2 million.

The commendable honesty of the organization about its perks demonstrates its genuine
concern for its workers, as seen by the extensive range of benefits it provides. This also
enhances the firm's reputation among both internal and external stakeholders, as it
demonstrates that the company prioritizes not just its financial performance but also the
well-being of its personnel.

Book Value Per Share / Earnings Per Share

According to the information presented in the ACYFAR4 lecture, the book value per
share is the amount that each share would cost if the corporation were to go through
liquidation. To determine the book value per share, just divide the total equity owned by
shareholders by the number of shares that are currently outstanding. Accordingly, this might be
interpreted as a measurement of the value of the shares of a certain firm. In the year 2023, for
instance, the Corporate Finance Institute said that the shares of a business are considered to be
undervalued if the book value per share of the firm is more than the fair value of the company's
shares. If this occurs, stock purchasers will be presented with a fantastic opportunity.

Also, keep in mind that the above formula is only valid for a single share class. Going
back to what we learned in class, if there are many kinds of shares, then each of those kinds of
shares needs its book value per share. The residual equity hypothesis must be considered by the
preparer to ascertain the appropriate allocation of shareholder equity among various share
classes.

In addition, the financial statements and note disclosures that accompany the
Corporation's 2021 financial statements do not include any mention of the book value per
share. On the contrary, this should not be the case since investors would want to examine the
market capitalization of a firm about its book value to identify businesses that may be
overvalued or undervalued. By comparing the BVPS figure to the market value per share of the
company, investors can decide whether or not the price of a stock is reasonable. Those equities
that are considered to be undervalued are those in which the book value per share (BVPS) is
higher than the market value per share (the current stock price).

Correction of Errors / Prior Period Errors

There are several mistakes that accountants make while they are putting up financial
accounts. According to Russo (2022), mistakes in accounting are not the same thing as
deliberate fraudulent activity. Whereas the former are instances of carelessness, the latter are
examples of purposeful activity driven by self-interest, often in the service of the corporation's
bottom line. Both examples are examples of negligent behavior. According to MBA Knowledge
Base (2010), the following are some of the most common reasons why accounting errors occur.
Due to a lack of attention to detail, accountants often commit errors. When it comes to issues
with financial data, errors may occur throughout the process of recording, calculating, or
entering the data.
 In the process of inputting data, it is possible for a variety of errors to occur, including
typos, numerical transpositions, incorrect readings of numbers, and other similar errors.
Inadequate comprehension of accounting principles and standards may result in the
management of accounts in an inappropriate manner, which in turn leads to errors in
accounting. There is also the possibility that software and computer faults are contributing
factors in this, especially in this current digital era when businesses keep their financial data.

Making use of the guidelines that are supplied by IAS 8 makes it possible to simply rectify any
inaccurate information that may be included in the financial statements of a firm. Financial
statements are considered to violate the International Financial Reporting Standards (IFRS) if
they include either substantial errors or small errors that have been created on purpose to
change the impression of an entity's financial situation, as stated in paragraph 41 of the
standard.

When all of this is taken into account, it is of the utmost importance that any errors that
have been made in the preparation of the financial statements be corrected as soon as the
persons who are responsible for doing so become aware of them. By the provisions of
paragraph 42, a retroactive application is established for errors that were previously committed
during earlier periods. The amounts that are discovered to be wrong are recalculated to do this.
Additionally, the assets, liabilities, and equity of the earliest period are required to be restated
under paragraph 42B if the error was made before the earliest reporting period that was
provided.

After doing extensive study on many websites, publications, and studies, it has been
determined that there are no indications or previous experiences of SSI making faults and
blunders in the process of creating financial statements. In contrast to other businesses, they
are performing their accounting in an appropriate manner, which is a great achievement. When
firms commit mistakes, it becomes more difficult for them to assess their cash flow and make
choices based on accurate information. Furthermore, claims of financial position that are false
affect the connection that a business has with its customers, investors, and suppliers. Because
of this, businesses have a responsibility to pay attention to resolving accounting errors.
 When it comes to the preparation of financial statements, it is of the highest significance
that every single error and oversight be avoided. It is widely acknowledged that financial
statements are among the most important kinds of communication in the business sector.
 References
Hayes, A. (2022, June 20). Book Value per share (BVPS): Definition, formula, how to calculate,

and example. Investopedia.

https://www.investopedia.com/terms/b/bvps.asp#:~:text=Book%20value%20per%20shar

e%20(BVPS)%20takes%20the%20ratio%20of%20a,on%20a%20per%2Dshare%20basis.

IAS 19 — Employee Benefits (2011). (n.d.). https://www.iasplus.com/en/standards/ias/ias19

IFRS - IAS 1 Presentation of Financial Statements. (n.d.).

https://www.ifrs.org/issued-standards/list-of-standards/ias-1-presentation-of-financial-stat

ements/

IFRS - IAS 19 employee benefits. (n.d.).

https://www.ifrs.org/issued-standards/list-of-standards/ias-19-employee-benefits/

IFRS - IFRS 16 leases. (n.d.).

https://www.ifrs.org/issued-standards/list-of-standards/ifrs-16-leases/

IFRS 2 — Share-based payment. (n.d.). https://www.iasplus.com/en/standards/ifrs/ifrs2

IFRS 16 — Leases. (n.d.). https://www.iasplus.com/en/standards/ifrs/ifrs-16

Kenton, W. (2023, August 29). Financial instruments explained: types and asset classes.

Investopedia.

https://www.investopedia.com/terms/f/financialinstrument.asp#:~:text=A%20financial%2

0instrument%20is%20a,cash%20instruments%20and%20derivative%20instruments.

Russo, K. (2023, August 21). 4 Common accounting errors and how to prevent them. Oracle

NetSuite.

https://www.netsuite.com/portal/resource/articles/accounting/accounting-errors.shtml
Appendices