ACCCOB2 Portfolio

Reflection Paper Presented to the Accountancy Department

In Partial Fulfillment
of the Course Requirements
In ACCCOB2

Submitted by:
PARK, OWEN DAPHNE ALVARO
REYES, CHIEFFER MATTHEW F.
SANCHEZ, KING ARMAND KAHULUGAN

Submitted to: Heindritz Concepcion

Submitted on: Jun 11, 2024

Company Background

One of Southeast Asia's major players and a well-known integrated property developer
in the Philippines is SM Prime Holdings, Inc. (SMPH). Well-known for its wide variety of
shopping centers, apartment buildings, office buildings, hotels, and convention centers, SMPH
makes a substantial contribution to the Philippines' urbanization and economic development.

I. Investment in Equity Securities

Equity securities are crucial components of financial strategies employed by companies

like SM Prime Holdings, Inc. (SMPH). These securities are categorized into ordinary and
preference shares. Investing in equity securities involves purchasing shares from other
businesses, which can be classified as held-for-trading, available-for-sale (AFS), or
held-to-maturity (HTM). These investments adhere to guidelines such as IAS 32: Financial
Instruments Presentation, IAS 39: Recognition and Measurement of Financial Instruments,
IFRS 9: Financial Instruments, and IAS 36: Impairment of Assets. The categorization and
accounting for these investments depend on the level of ownership and control. For investments
where SMPH owns more than 50% of the voting stock, indicating control, IFRS 3: Business
Combinations or IFRS 11: Joint Arrangements are applicable. When SMPH owns between 20%
and 50% of the voting stock, indicating significant influence but not control, IAS 28: Investments
in Associates and Joint Ventures is applied. For investments with less than 20% ownership,
indicating no significant influence or control, IFRS 9: Financial Instruments is followed. This
structured approach to investment classification ensures compliance with international financial
reporting standards, facilitating accurate financial representation and strategic financial
management.

At initial recognition, equity securities are measured at fair value plus any directly
attributable transaction costs. For held-to-maturity and available-for-sale securities, subsequent
measurement is based on fair values with changes being recorded through profit or loss for the
former category, while it goes to other comprehensive income for the latter class. When an AFS
equity security suffers a significant or prolonged decline in fair value below cost, IAS 36:
Impairment of Assets treats it as impaired, whereupon the impairment loss shall be recognized
in profit or loss. Given market conditions, risk appetite, and return expectations, aligning
strategic equity investments with long-term goals is crucial for SMPH.

Based on its financial statements, the equity instruments at FVOCI (current) was PHP
747,840 and PHP 534,865 in 2023 and 2022 respectively, with a 39.83% increase of PHP
212,975 in a year; its noncurrent equity instruments found was PHP 19,570,212 and PHP
17,077,198 in 2023 and 2022 respectively, with a 14.60% increase of PHP 2,493,014 (Appendix
A). Its ‘Investment in Associates and Joint Ventures’ under the Noncurrent Assets portion was
PHP 32,431,195 and PHP 30,578,320 respectively, with a 6.06% increase of PHP 1,852,875.
The net fair value changes of equity instruments at FVOCI was PHP 16,938,503 in 2023
(Appendix B); the notes related to it showed that it consists of listed and unlisted shares of stock
less the noncurrent portion. There were PHP 20,312,735 listed shares of stock and PHP 5,317
unlisted (Appendix D). These listed shares are investments in publicly listed companies and
unlisted shares are stocks of private corporations. The dividend income is said to reach PHP
440 million.

Investments in Debt Securities

Investment in debt securities are either sold by a creditor to an investee, or purchased

and held by an investor. The creditor lends bonds in exchange for fixed payments of principal
and interest. They may be through bonds, treasury bills, commercial papers, etc. Compared to
Equity Securities, Debt Securities have four classifications: Financial Asset Held for Trading
(FVPL), Fair Value at Other Comprehensive Income (FVOCI), Fair Value at Amortized Cost
(FAAC), and Fair Value at Profit or Loss (FVPL). Information about them can be found in the
Statement of Financial Position, either current or noncurrent portion, Statement of
Comprehensive Income, Statement of Cash Flows, and Notes to Financial Statements. The
standard used is IFRS 9: Financial Instruments.
SM Prime Holdings, Inc. had a detailed analysis of the company's debt securities based
on the consolidated balance sheets (Appendix A) for the years 2023 and 2022. The total of
current liabilities related to debt was in significant decline from ₱94.82 billion last year to ₱72.58
billion this year as well as a decrease in the current portion of long-term debt, which declined
from ₱89.38 billion last year to ₱67.75 billion this year mainly resulting to it.The loans payable
also saw some decrease from ₱5.42 billion last year to ₱4.83 billion this year.In relation to other
debts components, derivative liabilities both in current and noncurrent experiences slight
variations but stayed relatively negligible.On non-current liabilities side, total debt-related
obligations marginally increased from ₱326.62 billion last year to ₱328.98 billion this year.This
increase is mostly due to an increase in liability for purchased lands that rose from ₱23.80
billion previous year’s figure to P25.30 billion. Long-Term Debt (Net Of Current Portion)
remained stable with only a small drop from P296.13 BN in 2022 to P294.62BN at the end of
2023. The current debt obligations were however reduced by SM Prime Holdings, Inc. as it
continued to retain its long-term stable debt profile which could mean that the management of
debt maturities and obligations has changed strategically.

Meanwhile, SM Prime’s financial statements indicate growth in equity attributable to

equity holders of the parent company. Breakdown of this equity shows a stable capital stock and
appropriated retained earnings. There is a slight increase in additional paid-in capital and a
decrease in cumulative translation adjustment. Notably, there was greater retention of earnings
by the company for year 2023 over 2022 as shown by an increase in unappropriated retained
earnings. Also, changes in fair value of equity instruments/cash flow hedges also played a role
in the overall equity picture. While treasury stock remained constant, the total equity attributable
to equity holders shows positive growth from 2022 to 2023. This strong financial position for SM
Prime Holdings Inc. is evidenced by growth in equity with effective management of debt
obligations too

II. Inventories

Inventories are a company's assets that are used for production, sales, or everyday
operations . They consist of the following: raw materials, work-in-progress, and final goods.
Whether a business engages in manufacturing, merchandising, or trading will determine the
kind of inventories it has.

On the balance sheet or Statement of Financial Position, inventories are listed under
current assets. They can also be found in the Statement of Comprehensive Income, namely in
the section pertaining to changes in inventories and the cost of goods sold. With a few
exceptions, including financial assets like stocks, bonds, and agricultural biological assets, all
inventories must adhere to IAS 2: Inventories. The appropriate standard for biological assets
like living plants and animals use the standard IAS 41: Agriculture. Furthermore, IAS 2 makes it
very evident that the weighted average or First in, First out (FIFO) method must be applied for
determining the cost of inventories. However, the cost of stocks that are divided into those
intended for specific uses and those that are not generally interchangeable must be ascertained
using the specific identification approach.

SMPH’s Inventories was PHP 77,886,781 for the year 2023 and PHP 70,500,025 in
2022, with a 10.48% increase of PHP 7,386,756 (Appendix A). Considering the line of work of
the company, its inventories are real estate properties held for sale, including residential units,
commercial spaces, and other development projects. As seen in the notes of the financial
statements, the movement of the company’s real estate inventories revealed the following:
development cost incurred, cost of real estate sold, transfers, reclassification from investment
properties, and translation adjustments. The firm’s inventories consist of [1] Land and
Development of PHP 52,758,337 and [2] Condominium, Residential Units, and Subdivision Lots
for Sale of PHP 25,128,444 in 2023, totaling to PHP 77,886,781 (Appendix C). ‘Land and
Development’ refers to the SMPH’s on-going residential units and condominium projects. Its
estimated cost to complete them amounted to PHP 103,578 million in 2023. Its contract
fulfillment assets under L&D refers to unamortized portions of land costing PHP 1,777 million.
‘Condominium and Residential Units for Sale’ refers to completed projects. The increase in its
inventories may be due to [1] expansion of development projects, [2] increase in demand, or [3]
delayed sales.

Appendix
Appendix A. Consolidated Statement of Financial Position.
Appendix B. Consolidated Statements of Equity.
Appendix C. Consolidated Statement of Changes in Equity.
Appendix D.
References

IAS Plus. IAS 1 - Presentation of Financial Statements. (2012).

https://www.iasplus.com/en/standards/ias/ias1

IAS Plus. IAS 7 - Statement of Cash Flows. (2012).

https://www.iasplus.com/en/standards/ias/ias7

IAS Plus. IAS 28 - Investments in Associates (2003). (2012).

https://www.iasplus.com/en/standards/ias/ias28

IAS Plus. IAS 32 - Financial Instruments: Presentation. (2012.

https://www.iasplus.com/en/standards/ias/ias32

IAS Plus. IAS 36 - Impairment of Assets. (2012. https://www.iasplus.com/en/standards/ias/ias36

IAS Plus. IFRS 11 - Joint Arrangements. (2012). https://www.iasplus.com/en/standards/ifrs/ifrs11

IAS Plus. IAS 39 - Financial Instruments: Recognition and Measurement. (2012).

https://www.iasplus.com/en/standards/ias/ias39

IFRS. (2017). IFRS 9 Financial Instruments. Ifrs.org.

https://www.ifrs.org/issued-standards/list-of-standards/ifrs-9-financial-instruments/

Tuovila, A. (2020). Cash And Cash Equivalents (CCE) Definition. Investopedia.

https://www.investopedia.com/terms/c/cashandcashequivalents.asp