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DEVELOPING Untapped

JULIUS ADRIAN R. ALIPPresident and CEO

CARD Leasing and Finance Corporation

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s the eleventh member institution to become part of the CARD MRI group, we consider the establishment of the CARD Leasing and Finance Corporation (CLFC)

as one of the biggest accomplishments of the CARD-Business Development Service Foundation Inc. (CARD-BDSFI). CARD LFC served as the big step of the CARD MRI family towards realizing the untapped potentials of the economy through leasing and financing services. As a spin-off of CARD-BDSFI, CARD LFC initially focused on the latter’s mission to fight energy poverty. We committed to providing renewable energy products, particularly solar lighting to off-grid communities, communal biomass cook stoves for livelihood, and safe drinking water for far-flung communities. From our initial focus on the energy poverty agenda, we diversified our range into operating lease, financing, and printing services which served as our secondary business. By adopting

CARD-BDSFI’s printing, supplies sourcing, and pilot projects related to leasing and financing, CARD LFC was formally registered as a separate institution on January 2013 at the Security and Exchange Commission. As a separate institution, we strived to explore different approaches that will allow us to set our identity as a leasing and financing company.

STAYING AHEAD OF THE CURVEThe birth of CARD LFC enabled us to support the operations of CARD MRI through a variety of professionalized products and services at affordable costs. In 2013, our institution provided finance lease to the CARD MRI staff and selected clients who cannot be served by formal banks.Through this, we offered leasing of equipment and machineries to help our clients expand their businesses. We also provided operating lease and rental services of vehicles and office equipment, and gave affordable printing

POTENTIALS

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services to our clients. In 2014, we dug deeper and embraced into the principles of a for-profit but mission-oriented financial institution. This significant milestone was not an easy phase for CARD LFC because we faced and hardly overcame several challenges. Nonetheless, we took the huge step of testing risk calculated lending to mission-oriented enterprises and giving other complementary services. We explored and implemented several approaches that led to the continuous refinement of our products and services. Furthermore, CARD LFC developed ways to expand its clientele. Our institution offered its services to other small and medium enterprises, cooperatives, social enterprises, and microfinance institutions. With our refined products and services, we were able to provide assistance to more mission-oriented institutions like us while acquiring financial sustainability, enabling us to develop more projects and engagements that would create more developmental impacts and would support CARD MRI’s over arching mission and vision.

BUILDING OPPORTUNITIESIn a survey conducted by the Philippine Financing Association (PFA) among its members for the year 2015, CARD LFC landed in the top 20 list of finance and leasing companies in the country. We were also elected as a Board of Director for the longest running

national association of leasing and finance companies in the Philippines. This seat gave us the opportunity to learn from peers, especially from bigger member leasing and finance companies. At the same time, it gave us the voice to represent smaller and medium size leasing and finance during dialogue and discussions with government and relevant private entities. This accomplishment gave us more determination to strive harder for our clients. Even so, more than this recognition from PFA, our institution’s bigger achievement was to see our clients improve their lives together with their families and communities. As an off-shoot of CARD-BDSFI, our institution also pursued its mission against energy poverty. We continued to support and grow our outreach related to the rural electrification and climate change agenda of the country by providing far-flung areas and other urban communities with access to renewable energy products through financing of MSMEs and mission-oriented enterprises. With this, we were able to contribute to the fight against energy poverty while optimizing opportunities to support the livelihood and businesses of our MSME clients.In collaboration with CARD-BDSFI and other institutions of CARD MRI, CARD LFC ensured acceleration in the development of microentrepreneurs’ enterprises. We supported MSMEs that

could generate jobs and livelihood in the country and create developmental impact on depressed rural areas. Our institution also financed social enterprises that provided communities with access to safe drinking water, solar irrigation, and integration of producers in the value chain resulting to market access.

GEARING FOR THE FUTUREUnder our printing services – our secondary business, we will continue to provide basic materials needed by microfinance institutions like ledgers, passbooks, and marketing collaterals, and are now planning to print cost-effective labels and marketing collaterals applicable to micro-businesses. Furthermore, we will aim to strengthen our printing operations and connect it with the needs of the growing number of CARD MRI clients.In the years to come, CARD LFC will be bigger in extent, and will focus on financing equipment and production facilities that would be helpful to the microenterprises. As the demand for secure and reliable financial services continues to grow, CARD LFC will strive for product innovation and effective execution. We will remain committed to helping our clients boost their income and productivity through the provision of access to high quality but affordable leasing and financing services across different selected sectors in the society.

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The Board of

Directors

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Board of Directors

MS. JOCELYN D. DEQUITOChairperson

MR. JULIUS ADRIAN R. ALIPPresident

MR. JULIO JOSE F. BANZONMember

MR. ROLANDO DELA CRUZMember

MS. DEVERNA dT. BRIONESMember

ATTY. ANATALIA F. BUENAVENTURACorporate Secretary

MS. JOSEFINA Y. RANCESMember

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The Management

Committee

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Management Committee

MR. JULIUS ADRIAN R. ALIPPresident

MS. MA. RODESSA R. BURGOSDeputy Director for Operation

MS. KRISTINE E. REJANOFinance and Admin Officer

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Partners

PHILIPPINE FINANCE ASSOCIATION

LAND BANK OF THE PHILIPPINES

JUMP SOLUTIONS, INC.

FOREFRONT INNOVATIVE TECHNOLOGIES, INC.

MIROPHASE CORPORATION

GROUPTECH

ADEC INTERNATIONAL CORPORATION

CENTURY OFFICE EQUIPMENT TRADING

SFM SALES CORPORATION

TOYOTA SAN PABLO

HONDA CARS SAN PABLO

CHEVROLET

ROHACA TYPOGRAPH PRINTSHOP

LORELITS PRINTSHOP

FERVIL PRINTHAUS

CHIARO PRINTING PRESS

JOVELLANOS PRINTING PRESS

2HD COMPUTER VENTURES

FVP FRAMING AND GENERAL SERVICES

TRIPLEX ENTERPRISES INCORPORATED

SUNLIFE BOOKSTORES

TROJAN ENVELOPE MANUFACTURING

UBIX CORPORATION

DIGITAL PRESS

LENS AND THREADS

MICROTECH SYSTEMS SERVICES & EQUIPMENT CORPORATION

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Audited Financial

statements

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CARD LEASING AND FINANCE CORPORATIONSTATEMENTS OF FINANCIAL POSITION

December 312016 2015

ASSETS

Current AssetsCash (Notes 6 and 23) P=19,704,769 P=12,793,254Receivables (Note 7) 31,487,654 18,442,151Inventories (Notes 8 and 16) 500,780 1,385,748Input value added tax - net (Note 26) 6,807,505 7,974,340Other current assets (Note 9) 3,161,230 6,858,130

61,661,938 47,453,623

Noncurrent AssetsReceivables (Note 7) 45,816,823 30,827,205Equipment held for lease (Note 10) 159,510,786 137,667,027Property and equipment (Note 11) 643,756 825,990Investment properties (Notes 7 and 10) 9,520,960 –Retirement asset (Note 21) 2,482,379 723,992Deferred tax asset (Note 22) – 590,791Other noncurrent assets (Note 12) 52,000 885,416

218,026,704 171,520,421

TOTAL ASSETS P=279,688,642 P=218,974,044

LIABILITIES AND EQUITY

Current LiabilitiesTrade and other payables (Note 13) P=25,279,088 P=7,415,383Loans payable (Notes 14 and 23) 43,183,469 43,813,546Lease deposits (Note 10) 34,035,017 7,582,125

102,497,574 58,811,054

Noncurrent LiabilitiesLoans payable (Notes 14 and 23) 81,468,291 87,977,914Lease deposits (Note 10) 18,537,790 14,115,381Deferred tax liability (Note 22) 196,769 –

100,202,850 102,093,295202,700,424 160,904,349

EquityCapital stock (Note 15) 50,522,440 42,704,260Retained earnings 24,701,998 14,843,383Remeasurement gain on retirement plan (Note 21) 1,763,780 522,052

76,988,218 58,069,695

TOTAL LIABILITIES AND EQUITY P=279,688,642 P=218,974,044

See accompanying Notes to Financial Statements.

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CARD LEASING AND FINANCE CORPORATIONSTATEMENTS OF INCOME

Years Ended December 312016 2015

OPERATING INCOMERental and finance income (Note 17) P=112,235,416 P=67,803,235Interest income from receivables financed (Notes 7 and 18) 7,409,955 3,379,173

119,645,371 71,182,408

Sales from printing 34,829,246 51,244,094Cost of sales (Note 16) (29,538,090) (43,603,612)Gross income from printing 5,291,156 7,640,482Other income 142,812 117,452

5,433,968 7,757,934125,079,339 78,940,342

EXPENSESDepreciation and amortization (Notes 10, 11 and 12) 81,195,000 52,691,307Interest (Notes 14 and 23) 8,802,355 4,970,765Insurance 5,353,996 2,124,510Compensation and benefits (Notes 19 and 23) 2,455,504 3,141,963Program monitoring and evaluation 2,505,912 362,292Seminars and meetings 1,974,997 1,112,940Transportation and travel 740,995 482,318Provision for credit and impairment losses (Notes 7 and 9) 625,203 1,363,652Professional fees 346,044 581,861Supplies and materials 193,329 372,467Taxes and licenses 180,432 687,454Rental (Note 17) 120,000 120,000Staff training and development 103,606 84,586Utilities 100,120 123,357Miscellaneous (Note 20) 803,399 474,275

105,500,892 68,693,747

INCOME BEFORE INCOME TAX 19,578,447 10,246,595

PROVISION FOR INCOME TAX (Note 22) 6,219,833 2,715,756

NET INCOME P=13,358,614 P=7,530,839

See accompanying Notes to Financial Statements.

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CARD LEASING AND FINANCE CORPORATIONSTATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 312016 2015

NET INCOME P=13,358,614 P=7,530,839

OTHER COMPREHENSIVE INCOMEItem that may not be reclassified to the statements of income:

Remeasurement gain (loss) on retirement plan (Note 21) 1,773,897 (1,546,511)Income tax effect (532,169) 463,953

1,241,728 (1,082,558)

TOTAL COMPREHENSIVE INCOME P=14,600,342 P=6,448,281

See accompanying Notes to Financial Statements.

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CARD LEASING AND FINANCE CORPORATIONSTATEMENTS OF CHANGES IN EQUITY

CapitalStock

(Note 15)RetainedEarnings

RemeasurementGain on

Retirement Plan(Note 21) Total

Balance at January 1, 2016 P=42,704,260 P=14,843,383 P=522,052 P=58,069,695Collection of subscriptions receivable 4,318,180 – – 4,318,180Total comprehensive income for the year – 13,358,614 1,241,728 14,600,342Stock dividends declared and distributed (Note 15) 3,500,000 (3,500,000) – –Balance at December 31, 2016 P=50,522,440 P=24,701,997 P=1,763,780 P=76,988,217

Balance at January 1, 2015 P=33,174,200 P=10,112,544 P=1,604,610 P=44,891,354Collection of subscriptions receivable 9,530,060 – – 9,530,060Total comprehensive income for the year – 7,530,839 (1,082,558) 6,448,281Cash dividends declared and paid (Note 15) – (2,800,000) – (2,800,000)Balance at December 31, 2015 P=42,704,260 P=14,843,383 P=522,052 P=58,069,695

See accompanying Notes to Financial Statements.

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CARD LEASING AND FINANCE CORPORATIONSTATEMENTS OF CASH FLOWS

Years Ended December 312016 2015

CASH FLOWS FROM OPERATING ACTIVITIESIncome before income tax P=19,578,447 P=10,246,595Adjustments for:

Depreciation and amortization (Notes 10, 11 and 12) 81,195,000 52,691,307Interest expense (Note 14) 8,802,355 4,970,765Interest income (Notes 7 and 18) (7,536,307) (3,496,625)Amortization of unearned rental income (1,579,195) –Provision for credit and impairment losses (Notes 7 and 9) 625,203 1,363,652Retirement expense (Note 19) 310,701 48,154

Changes in operating assets and liabilities:Decrease (increase) in the amounts of:

Receivables (31,330,908) (19,325,146)Other current assets (1,075,436) (13,671,074)Inventories 884,968 1,515,910

Increase in the amounts ofLease deposits 30,898,624 21,697,506Trade and other payables 17,956,302 1,513,974

Net cash generated from operations 118,729,754 57,555,018Interest received 7,202,179 3,496,625Interest paid (7,081,048) (5,024,029)Contributions to the retirement fund (Note 21) (295,191) –Income taxes paid (Note 22) (25,270) (23,490)Net cash provided by operating activities 118,530,424 56,004,124

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of:

Equipment held for lease (Note 10) (108,234,894) (109,061,178)Property and equipment (Note 11) (304,463) (82,629)

Net cash used in investing activities (108,539,357) (109,143,807)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from:

Availment of loans payable (Note 14) 42,000,000 80,000,000Collections of subscriptions receivable (Note 15) 4,318,180 9,530,060

Payments for:Settlement of loans payable (Note 14) (49,187,732) (32,666,667)Documentary stamp taxes on loans (210,000) (400,000)Dividends – (2,800,000)

Net cash provided by (used in) financing activities (3,079,552) 53,663,393

NET INCREASE IN CASH 6,911,515 523,710

CASH AT BEGINNING OF YEAR 12,793,254 12,269,544

CASH AT END OF YEAR P=19,704,769 P=12,793,254

See accompanying Notes to Financial Statement

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CARD LEASING AND FINANCE CORPORATIONNOTES TO FINANCIAL STATEMENTS

1. Company Information

CARD Leasing and Finance Corporation (the Company) was registered with the PhilippineSecurities and Exchange Commission (SEC) and started commercial operations onJanuary 10, 2013. The main purpose of the Company is to extend credit facilities to consumer andto industrial, commercial or agricultural enterprises by direct lending or by discounting orfactoring commercial papers or account receivables, or by buying and selling contracts withoutquasi-banking activities. Included in its secondary purpose is to purchase, acquire, own, sell andconvey properties or to engage in general trading activities and perform business support serviceswhich would help its clients in their business needs, such as printing of corporate identificationcards and business forms.

The Company’s principal place of business is at M.L. Quezon St., City Subdivision, San PabloCity, Laguna.

2. Summary of Significant Accounting Policies

Basis of PreparationThe accompanying financial statements have been prepared under the historical cost basis and arepresented in Philippine peso, the Company’s functional and presentation currency. All values arerounded to the nearest peso unless otherwise indicated.

Statement of ComplianceThe accompanying financial statements have been prepared in compliance with PhilippineFinancial Reporting Standards (PFRS).

Changes in Accounting PoliciesThe accounting policies adopted are consistent with those of the previous financial year, exceptthat the Company has adopted the following new accounting pronouncements startingJanuary 1, 2016. Adoption of these pronouncements did not have any significant impact on theCompany’s financial position or performance.

∂ Amendments to PFRS 10, PFRS 12 and Philippine Accounting Standard (PAS) 28, InvestmentEntities: Applying the Consolidation Exception

∂ Amendments to PFRS 11, Accounting for Acquisitions of Interests in Joint Operations∂ PFRS 14, Regulatory Deferral Accounts∂ Amendments to PAS 1, Disclosure Initiative∂ Amendments to PAS 16 and PAS 38, Clarification of Acceptable Methods of Depreciation

and Amortization∂ Amendments to PAS 16 and PAS 41, Agriculture: Bearer Plants∂ Amendments to PAS 27, Equity Method in Separate Financial Statements∂ Annual Improvements to PFRSs 2012 - 2014 Cycle

∂ Amendment to PFRS 5, Changes in Methods of Disposal∂ Amendment to PFRS 7, Servicing Contracts∂ Amendment to PFRS 7, Applicability of the Amendments to PFRS 7 to Condensed Interim

Financial Statements∂ Amendment to PAS 19, Discount Rate: Regional Market Issue

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∂ Amendment to PAS 34, Disclosure of Information ‘Elsewhere in the Interim FinancialReport’

Significant Accounting Policies

Current versus Non-current ClassificationThe Company presents assets and liabilities in the statement of financial position based on currentor non-current classification. An asset is current when it is:

∂ expected to be realized or intended to be sold or consumed in normal operating cycle;∂ held primarily for the purpose of trading;∂ expected to be realized within twelve months after the reporting period; or∂ cash and cash equivalent unless restricted from being exchanged or used to settle a liability for

at least twelve months after the reporting period.

All other assets are classified as non-current.

A liability is current when:

∂ it is expected to be settled in normal operating cycle;∂ it is held primarily for the purpose of trading;∂ expected to be settled within twelve months after the reporting period; or∂ there is no unconditional right to defer the settlement of the liability for at least twelve months

after the reporting period.

The Company classifies all other liabilities as non-current.

Deferred tax assets and deferred tax liabilities are classified as non-current assets and liabilities.

Fair Value MeasurementThe Company initially measures its financial instruments and nonfinancial assets at fair value.The fair values of financial instruments measured at amortized cost and investment properties aredisclosed in Note 4. Fair value is the price that would be received to sell an asset or paid totransfer a liability in an orderly transaction between market participants at the measurement date.The fair value measurement is based on the presumption that the transaction to sell the asset ortransfer the liability takes place either:

∂ in the principal market for the asset or liability, or∂ in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Company. The fair valueof an asset or a liability is measured using the assumptions that market participants would usewhen pricing the asset or liability, assuming that market participants act in their economic bestinterest.

A fair value measurement of a nonfinancial asset takes into account a market participant's abilityto generate economic benefits by using the asset in its highest and best use or by selling it toanother market participant that would use the asset in its highest and best use.

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The Company uses valuation techniques that are appropriate in the circumstances and for whichsufficient data are available to measure fair value, maximizing the use of relevant observableinputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the financial statementsare categorized within the fair value hierarchy, described as follows, based on the lowest levelinput that is significant to the fair value measurement as a whole:

∂ Level 1 - Quoted (unadjusted) market prices in active markets for identical assets 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

value measurement is unobservable.

For assets and liabilities that are recognized in the financial statements on a recurring basis, theCompany determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair valuemeasurement as a whole) at the end of each reporting period (see Note 4).

For the purpose of fair value disclosures, the Company has determined classes of assets andliabilities on the basis of the nature, characteristics and risks of the asset or liability and the levelof the fair value hierarchy as explained above.

CashCash includes cash on hand and in banks. Cash in banks represent current and savings depositsthat earn interest at the respective bank deposit rates and are subject to insignificant risk ofchanges in value.

Financial Instruments - Initial Recognition and Subsequent MeasurementDate of recognitionThe Company recognizes financial instruments in the statement of financial position when itbecomes a party to the contractual terms of the financial instruments. Regular way of purchases orsales of financial assets that require delivery of assets within the time frame established byregulation or convention in the marketplace are recognized on the settlement date. Settlement dateaccounting refers to (a) the recognition of an asset on the day it is received by the Company, and(b) the derecognition of an asset and recognition of any gain or loss on disposal on the day it isdelivered by the Company.

Initial recognition and classification of financial instrumentsAll financial instruments are initially recognized at fair value. Except for financial assets at fairvalue through profit or loss (FVTPL), the initial measurement of financial assets includestransaction costs. The Company classifies its financial assets in the following categories: financialassets at FVTPL, held-to-maturity (HTM) investments, available-for-sale (AFS) investments andloans and receivables. Management determines the classification of its investments at initialrecognition and, where allowed and appropriate, re-evaluates such designation at every reportingdate. Financial liabilities are classified into financial liabilities at FVTPL and financial liabilitiesat amortized cost. Financial liabilities are classified as at FVTPL when the financial liability iseither held for trading or is designated as at FVTPL, those which are not designated at FVTPL areclassified as financial liabilities at amortized cost.

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As of December 31, 2016 and 2015, the Company has no financial assets and financial liabilitiesat FVTPL, HTM investments and AFS investments. The Company’s financial instruments includereceivables, trade and other payables, lease deposits and loans payable.

‘Day 1’ differenceWhere the transaction price in a non-active market is different with the fair value from otherobservable current market transactions in the same instrument or based on a valuation techniquewhose variables include only data from observable market, the Company recognizes the differencebetween the transaction price and fair value (a ‘Day 1’ difference) in the statement of incomeunless it qualifies for recognition as some other type of asset. In cases where data are notobservable, the difference between the transaction price and model value is only recognized in thestatement of income 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 amount.

Loans and receivablesThis accounting policy relates to the statement of financial position caption ‘Receivables’. Theseare financial assets with fixed or determinable payments and fixed maturities that are not quoted inan active market. They are not entered into with the intention of immediate or short-term resaleand are not classified as financial assets at FVTPL or designated as AFS investments. Loans andreceivables also include the aggregate rental on finance lease transactions. Unearned income onfinance lease transactions is shown as a deduction from ‘Loans and receivables’ (included in‘Unearned lease income’ account).

After initial measurement, loans and receivables are subsequently measured at amortized costusing the effective interest method, less allowance for credit losses. Amortized cost is calculatedby taking into account any discount or premium on acquisition and fees that are an integral part ofthe effective interest rate (EIR). The amortization is included under ‘Interest income on loans andreceivables’ in the statement of income. The losses arising from impairment of such loans andreceivables are recognized in ‘Provision for credit and impairment losses’ in the statements ofincome.

Trade and other payables and loans payableTrade and other payables and loans payable, which are not designated as at FVTPL, are classifiedas liabilities under ‘Trade and other payables and loans payable’ and other appropriate accounts inthe statement of financial position, where the substance of the contractual arrangement results inthe Company having an obligation either to deliver cash or another financial asset to the holder, orto satisfy the obligation other than by the exchange of a fixed amount of cash or another financialasset for a fixed number of own equity shares.

After initial measurement, trade and other payables and loans payable and similar financialliabilities not qualified as and not designated as at FVTPL are subsequently measured at amortizedcost using the effective interest method. Amortized cost is calculated by taking into account anydiscount or premium on the issue and fees that are an integral part of the EIR.

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Derecognition of Financial Assets and Financial LiabilitiesFinancial assetA financial asset (or, where applicable, a part of a financial asset or part of a group of financialassets) is derecognized when:∂ the rights to receive cash flows from the asset have expired or transferred;∂ the Company 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

∂ the Company has transferred its rights to receive cash flows from the asset and either (a) hastransferred substantially all the risks and rewards of the asset, or (b) has neither transferred norretained the risks and rewards of the asset but has transferred the control of the asset.

Where the Company has transferred its rights to receive cash flows from an asset or has enteredinto a “pass-through” arrangement, and has neither transferred nor retained substantially all therisks and rewards of the asset nor transferred control of the asset, the asset is recognized to theextent of the Company’s continuing involvement in the asset. Continuing involvement that takesthe form of a guarantee over the transferred asset is measured at the lower of original carryingamount of the asset and the maximum amount of consideration that the Company could berequired to repay.

Financial liabilityA financial liability is derecognized when the obligation under the liability is discharged,cancelled or has expired. Where an existing financial liability is replaced by another from thesame lender on substantially different terms, or the terms of an existing liability are substantiallymodified, such an exchange or modification is treated as a derecognition of the original liabilityand the recognition of a new liability, and the difference in the respective carrying amounts isrecognized in the statement of income.

Impairment of Financial AssetsThe Company assesses at each reporting date whether there is objective evidence that a financialasset or group of financial assets is impaired. A financial asset or a group of financial assets isdeemed to be impaired if, and only if, there is objective evidence of impairment as a result of oneor more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’)and that loss event (or events) has an impact on the estimated future cash flows of the financialasset or the group of financial assets that can be reliably estimated. Evidence of impairment mayinclude indications that the borrower or a group of borrowers is experiencing significant financialdifficulty, default or delinquency in interest or principal payments, the probability that they willenter bankruptcy or other financial reorganization and where observable data indicate that there isa measurable decrease in the estimated future cash flows, such as changes in arrears or economicconditions that correlate with defaults.

Financial assets at amortized costThe Company first assesses whether objective evidence of impairment exists individually forreceivables that are individually significant, or collectively for receivables that are not individuallysignificant. If there is no objective evidence that an impairment exists for an individually assessedloans and receivables, whether significant or not, it includes the asset in a group of loans andreceivables with similar credit risk characteristics and collectively assesses such group forimpairment. Those characteristics are relevant to the estimation of future cash flows for groups ofsuch assets by being indicative of the debtors’ ability to pay all amounts due according to thecontractual terms of the assets being evaluated. Assets that are individually assessed for

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impairment and for which an impairment loss is, or continues to be, recognized are not included ina collective assessment for impairment.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss ismeasured as the difference between the asset’s carrying amount and the present value of theestimated future cash flows (excluding future credit losses that have not been incurred). Thecarrying amount of the asset is reduced through the use of an allowance account and the amount ofthe loss is charged to profit or loss in the statements of income.

Receivables, together with the associated allowance accounts, are written off when there is norealistic prospect of future recovery and all collateral has been realized. If, in a subsequent year,the amount of the estimated impairment loss decreases because of an event occurring after theimpairment was recognized, the previously recognized impairment loss is reduced by adjusting theallowance account. If a future write-off is later recovered, any amount formerly charged iscredited to ‘Other income’.

InventoriesCosts of inventories include all costs of purchase and other costs incurred in bringing theinventories to their present location and condition. The Company’s inventories are accounted forin a first-in, first-out basis.

Inventories are recognized as expenses when sold. The Company shall recognize the carryingamount of these inventories as expenses in the period in which the related revenue is recognized.

Value-Added Tax (VAT)Sales, related expenses, assets and liabilities are recognized net of the amount of VAT except:

∂ where the VAT incurred on the purchase of an asset or service is not recoverable from the taxauthority, in which case the VAT is recognized as part of the cost of acquisition of the asset orpart of the expense item as applicable; and

∂ receivables and payables that are stated with the amount of VAT included.

Equipment Held for Lease and Property and EquipmentEquipment held for lease and property and equipment are carried at cost less accumulateddepreciation, and any impairment in value. The initial cost of equipment held for lease andproperty and equipment is comprised of purchase price and any directly attributable costs ofpreparing the asset for its intended use. Expenditures incurred after the items of equipment heldfor lease or property and equipment have been put into operation, such as repairs and maintenance,are charged against the statement of income. In situations where it can be clearly demonstratedthat the expenditures have resulted in an increase in the future benefits expected to be obtainedfrom the use of an item of equipment held for lease or property and equipment beyond itsoriginally assessed standard of performance, the expenditures are capitalized as additional costs ofthe asset.

Depreciation is calculated using the straight-line method over the estimated useful life (EUL) ofthree (3) years for all items of equipment held for lease and property and equipment.

The depreciation method and the EUL of the equipment held for lease and property and equipmentare reviewed periodically to ensure that the period and method used are consistent with theexpected pattern of economic benefits from such assets.

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When equipment held for lease or property and equipment are retired or otherwise disposed of, thecost and the related accumulated depreciation and any impairment in value are removed from theaccounts, and any resulting gain or loss is credited to or charged against the statement of income.

Investment PropertiesInvestment properties are measured initially at cost, including transaction costs. An investmentproperty acquired through an exchange transaction is measured at fair value of the asset acquiredunless the fair value of such an asset cannot be measured in which case the investment propertyacquired is measured at the carrying amount of asset given up. Foreclosed properties areclassified under ‘Investment properties’ upon either: a) entry of judgment in case of judicialforeclosure; b) execution of sheriff’s certificate of sale in case of extra-judicial foreclosure; or c)notarization of the deed of dacion in case of payment in kind (dacion en pago). Subsequent toinitial recognition, depreciable investment properties are carried at cost less accumulateddepreciation and accumulated impairment losses, if any.

The difference between the fair value of the asset acquired and the carrying amount of the assetgiven up is recognized under ‘Other income’ in the statement of income.

Investment properties are derecognized when they have either been disposed of or when theinvestment property is permanently withdrawn from use and no future benefit is expected from itsdisposal. Any gains or losses on the retirement or disposal of an investment property arerecognized in the statement of income in the period of retirement or disposal.

Expenditures incurred after the investment properties have been put into operations, such asrepairs and maintenance costs, are charged against income in the year in which the costs areincurred.

Transfers are made to investment properties when, and only when, there is a change in use,evidenced by cessation of owner-occupation or of construction or development, or commencementof an operating lease to another party. Transfers are made from investment properties when, andonly when, there is a change in use, evidenced by commencement of owner-occupation orcommencement of development with a view to sale.

Intangible AssetsIntangible assets acquired separately are measured on initial recognition at cost. Following initialrecognition, intangible assets are carried at cost less any accumulated amortization and anyaccumulated impairment losses. Internally generated intangibles, excluding capitalizeddevelopment costs, are not capitalized and the related expenditure is reflected in profit or loss inthe period in which the expenditure is incurred.

The useful lives of intangible assets are assessed as either finite or indefinite.

Intangible assets with finite lives are amortized over the useful economic life and assessed forimpairment whenever there is an indication that the intangible asset may be impaired. Theamortization period and method for an intangible asset with a finite useful life are reviewed atleast at the end of each reporting period. Changes in the expected useful life or the expectedpattern of consumption of future economic benefits embodied in the asset are considered tomodify the amortization period or method, as appropriate, and are treated as changes in accountingestimates. The amortization expense on intangible assets with finite lives is recognized in thestatement of income in the expense category that is consistent with the function of the intangibleassets.

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Intangible assets consist of capitalized project-development costs which are amortized on astraight-line basis over three (3) years.

Impairment of Nonfinancial AssetsAt each reporting date, the Company assesses whether there is any indication of impairment ofinventories, input value added tax, equipment held for lease, property and equipment, intangibleassets and investment properties, or whether there is any indication that an impairment losspreviously recognized for an asset in prior years may no longer exist or may have decreased.When an indicator of impairment exists or when an annual impairment testing for an asset isrequired, the Company makes an estimate of the recoverable amount. An asset’s recoverableamount is calculated as the higher of the asset’s value in use or its fair value less costs to sell.

The fair value less costs to sell is the amount of obtainable from the sale of an asset in an arm’slength transaction less cost to sell while value in use is the present value of estimated future cashflows expected to arise from the continuing use of an asset and from its disposal at the end of itsuseful life. In assessing value in use, the estimated future cash flows are discounted to theirpresent value using a pre-tax discount rate that reflects current market assessments of the timevalue of money and the risks specific to the asset. For an asset that does not generate largelyindependent cash inflows, the recoverable amount is determined for the cash generating unit towhich the asset belongs. An impairment loss is charged against income in the year in which itarises.

A previously recognized impairment loss is reversed only if there has been a change in estimatesused to determine the recoverable amount of an asset, but not to an amount higher than thecarrying amount that would have been determined (net of any depreciation) had no impairmentloss been recognized for the asset in prior years. A reversal of an impairment loss is credited tocurrent operations.

EquityCapital stock is recognized as issued when the stock is paid for or subscribed under a bindingsubscription agreement and is measured at par value.

Subscribed common stock is recognized at subscribed amount net of subscription receivable. Thiswill be debited upon full payment of the subscription and issuance of the shares of stock.

Subscriptions receivable pertains to uncollected portion of subscribed stocks. The Companyaccounted for the subscription receivable as a contra equity account.

Dividends on Common SharesDividends on common shares are recognized as a liability and deducted from equity when theobligation to pay is established. Cash dividends on common shares are recognized when approvedby the Board of Directors (BOD) of the Company. In the case of stock dividends, approval of boththe BOD and shareholders are required before they are recognized.

Revenue RecognitionRevenue is recognized to the extent that it is probable that economic benefits will flow to theCompany and the revenue can be reliably measured, regardless of when the payment is beingmade. Revenue is measured at the fair value of the consideration received or receivable taking intoaccount contractually defined terms of payment and excluding taxes or duty. The Companyassesses its revenue arrangements against specific criteria in order to determine if it is acting as aprincipal or agent. The Company has concluded that it is acting as principal in all of its revenuearrangements.

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The following specific recognition criteria must also be met before revenue is recognized:

Sales from printingSales from printing are recognized when printing services are completed or rendered.

Rental and finance incomeLeasing income pertains to income from operating and finance leases. Income from operatinglease (rental income) is recognized on a straight-line basis over the lease term.

For finance lease, the excess of aggregate lease rentals plus the estimated residual value over thecost of the leased equipment constitutes the unearned lease income. Residual values representestimated proceeds from the disposal of equipment at the time the lease is terminated. Theunearned lease income is amortized over the term of the lease, commencing on the month the leaseis executed, based on a pattern reflecting a constant periodic rate of return on the lessor's netinvestment in the finance lease.

Interest incomeInterest income pertains to interest on receivables financed and cash in banks. Interests onreceivables financed are included in the face value of the receivables with a corresponding creditto the ‘Unearned income’ account. This is amortized to income over the term of the financingagreement using the effective interest method.

Interests on cash in banks are recognized as it accrues, taking into account the effective yield onthe asset.

Cost and Expense RecognitionCost and expense are recognized in the statement of income when decrease in future economicbenefit related to a decrease in an asset or an increase in a liability has arisen that can be measuredreliably. Cost and expense are recognized in the statement of income:∂ on the basis of a direct association between the costs incurred and the earning of specific items

of income;∂ on the basis of systematic and rational allocation procedures when economic benefits are

expected to arise over several accounting periods and the association can only be broadly orindirectly determined; or

∂ immediately when expenditure produces no future economic benefits or when, and to theextent that, future economic benefits do not qualify or cease to qualify, for recognition in thestatement of financial position as an asset.

LeasesThe determination of whether an arrangement is, or contains a lease is based on the substance ofthe arrangement and requires an assessment of whether the fulfillment of the arrangement isdependent on the use of a specific asset or assets and the arrangement conveys a right to use theasset. A reassessment is made after inception of the lease only if one of the following applies:a. there is a change in contractual terms other than a renewal or extension of the arrangement;b. a renewal option is exercised or extension granted, unless that term of the renewal or

extension was initially included in the lease term;c. there is a change in the determination of whether fulfillment is dependent on a specified asset;

ord. there is a substantial change to the asset.

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Where a reassessment is made, lease accounting shall commence or cease from the date when thechange in circumstances gave rise to the reassessment for scenarios (a), (c) or (d) above, and at thedate of renewal or extension period for scenario (b).

Company as lessorFinance leases, where the Company transfers substantially all the risks and benefits incidental toownership of the leased item to the lessee, are included in the statement of financial position under‘Receivables’. A lease receivable is recognized at an amount equivalent to the net investment inthe lease, equivalent to the cost of the leased asset. All income resulting from the receivable isincluded under ‘Rental and finance income’ in the statement of income.

Leases where the Company does not transfer substantially all the risks and benefits of ownershipof the assets are classified as operating leases. Initial direct costs incurred in negotiating operatingleases are added to the carrying amount of the leased asset and recognized over the lease term onthe same basis as the rental income. Contingent rents are recognized as revenue in the period inwhich they are earned.

Company as lesseeLeases where the lessor retains substantially all the risks and benefits of ownership of the asset areclassified as operating leases. Operating lease payments are recognized as an expense under‘Rental’ in the statement of income on a straight-line basis over the lease term.

Retirement BenefitsThe Company operates a defined benefit retirement plan and hybrid retirement plan which requirecontributions to be made to separately administered funds.

The net defined benefit liability or asset is the aggregate of the present value of the defined benefitobligation at the end of the reporting period reduced by the fair value of plan assets (if any),adjusted for any effect of limiting a net defined benefit asset to the asset ceiling. The asset ceilingis the present value of any economic benefits available in the form of refunds from the plan orreductions in future contributions to the plan.`The cost of providing benefits under the defined benefit retirement plan is determined using theprojected unit credit method.

Retirement costs comprise the following:

∂ service cost;∂ net interest on the net defined benefit liability or asset; and∂ remeasurements of net defined benefit liability or asset.

Service costs which include current service costs, past service costs and gains or losses on non-routine settlements are recognized as expense in the statement of income. Past service costs arerecognized when the plan amendment or curtailment occurs. These amounts are calculatedperiodically by independent qualified actuaries.

Net interest on the net defined benefit liability or asset is the change during the period in the netdefined benefit liability or asset that arises from the passage of time which is determined byapplying the discount rate based on government bonds to the net defined benefit liability or asset.Net interest on the net defined benefit liability or asset is recognized as expense or income in thestatement of income.

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Remeasurements comprising of actuarial gains and losses, return on plan assets and any change inthe effect of the asset ceiling (excluding net interest on defined benefit liability) are recognizedimmediately in other comprehensive income in the period in which they arise. Remeasurementsare not reclassified to the statement of income in subsequent periods.

Plan assets are assets that are held by a long-term employee benefit fund or qualifying insurancepolicies. Plan assets are not available to the creditors of the Company, nor can they be paiddirectly to the Company. Fair value of plan assets is based on market price information. When nomarket price is available, the fair value of plan assets is estimated by discounting expected futurecash flows using a discount rate that reflects both the risk associated with the plan assets and thematurity or expected disposal date of those assets (or, if they have no maturity, the expected perioduntil the settlement of the related obligations). If the fair value of the plan assets is higher than thepresent value of the defined benefit obligation, the measurement of the resulting defined benefitasset is limited to the present value of economic benefits available in the form of refunds from theplan or reductions in future contributions to the plan.

Employee leave entitlementEmployee entitlements to annual leave are recognized as a liability when they are accrued to theemployees. The undiscounted liability for leave expected to be settled wholly before twelvemonths after the reporting date is recognized for services rendered by employees up to thereporting date.

Income TaxesCurrent taxCurrent tax assets and current tax liabilities for the current period and prior periods are measuredat the amount expected to be recovered from or paid to the taxation authorities. The tax rates andtax laws used to compute the amount are those that are enacted or substantively enacted at thereporting date.

Deferred taxDeferred tax is provided using the balance sheet liability method on all temporary differences atthe reporting date between tax bases of assets and liabilities and their carrying amounts forfinancial reporting purposes.

Deferred tax liabilities are recognized for all taxable temporary differences that are expected toincrease taxable profit in the future. Deferred tax assets are recognized for all deductibletemporary differences, carry forward benefits of unused tax credits from the excess of minimumcorporate income tax (MCIT) over the regular corporate income tax (RCIT) and unused netoperating loss carryover (NOLCO), to the extent that it is probable that sufficient future taxableincome will be available against which the deductible temporary differences and carry forward ofunused tax credits from excess MCIT over RCIT and unused NOLCO can be utilized. Deferredtax assets or liabilities, however, is not recognized when it arises from the initial recognition of anasset or liability in a transaction that is not a business combination and, at the time of transaction,and affects neither the accounting income nor taxable income. Where the Company expects someor all of the provision to be reimbursed, the reimbursement is recognized as a separate asset butonly when the reimbursement is virtually certain.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to theextent that it is no longer probable that sufficient future taxable income will be available to allowall or part of the deferred tax asset to be utilized. Unrecognized deferred tax assets are reassessedat each reporting date and are recognized to the extent that it has become probable that futuretaxable profit will allow the deferred tax assets to be recovered.

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Deferred tax assets and liabilities are measured at the tax rates that are applicable to the periodwhen the asset is realized or liability is settled, based on tax rates (and tax laws) that have beenenacted or substantively enacted at the reporting date.

Deferred tax assets and liabilities are offset if a legally enforceable right exists to set off currenttax asset against current tax liabilities and the deferred tax relate to the same taxable entity and thesame taxation authority.

Current tax and deferred tax relating to items recognized in equity are recognized in OCI.

Provisions and ContingenciesProvisions are recognized when the Company has an obligation (legal or constructive) where, as aresult of a past event, it is probable that an outflow of resources embodying economic benefits willbe required to settle the obligation and a reliable estimate can be made of the amount of theobligation.

If the effect of the time value of money is material, provisions are determined by discounting theexpected future cash flows at a pre-tax rate that reflects current market assessments of the timevalue of money and, where appropriate, the risks specific to the liability. Where discounting isused, the increase in the provision due to the passage of time is recognized as an interest expense.

Contingent liabilities are not recognized but are disclosed in the financial statements unless thepossibility of an outflow of resources embodying economic benefits is remote. Contingent assetsare not recognized but are disclosed in the financial statements when an inflow of economicbenefits is probable.

Events after the Reporting DatePost year-end events up to the date of the approval by the BOD that provide additionalinformation about the Company’s position at reporting date (adjusting events) are reflected in thefinancial statements. Post year-end events that are non-adjusting events are disclosed in notes tothe financial statements when material.

Future Changes in Accounting Policies

Standards issued but not yet effective are listed below. The listing consists of standards andinterpretations issued, which the Company reasonably expects to be applicable at a future date.Unless otherwise indicated, the Company does not expect the adoption of these new and amendedstandards to have a significant impact on the financial statements. The Company intends to adoptthese standards when they become effective.

Effective beginning on or after January 1, 2017∂ Amendments to PFRS 12, Clarification of the Scope of the Standard (Part of Annual

Improvements to PFRSs 2014 - 2016 Cycle)∂ Amendments to PAS 7, Statement of Cash Flows, Disclosure Initiative∂ Amendments to PAS 12, Income taxes, Recognition of Deferred Tax Assets for Unrealized

Losses

Effective beginning on or after January 1, 2018∂ Amendments to PFRS 2, Classification and Measurement of Share-based Payment

Transactions

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∂ Amendments to PFRS 4, Applying PFRS 9, Financial Instruments, with PFRS 4

∂ Amendments to PAS 28, Measuring an Associate or Joint Venture at Fair Value (Part ofAnnual Improvements to PFRSs 2014 - 2016 Cycle)

∂ Amendments to PAS 40, Investment Property, Transfers of Investment PropertyThe amendments clarify when an entity should transfer property, including property underconstruction or development into, or out of investment property. The amendments state that achange in use occurs when the property meets, or ceases to meet, the definition of investmentproperty and there is evidence of the change in use. A mere change in management’sintentions for the use of a property does not provide evidence of a change in use. Theamendments should be applied prospectively to changes in use that occur on or after thebeginning of the annual reporting period in which the entity first applies the amendments.Retrospective application is only permitted if this is possible without the use of hindsight. TheCompany is currently assessing the impact of adopting this standard.

∂ Philippine Interpretation IFRIC-22, Foreign Currency Transactions and AdvanceConsideration

∂ PFRS 9, Financial InstrumentsPFRS 9 reflects all phases of the financial instruments project and replaces PAS 39, FinancialInstruments: Recognition and Measurement, and all previous versions of PFRS 9. Thestandard introduces new requirements for classification and measurement, impairment, andhedge accounting. PFRS 9 is effective for annual periods beginning on or afterJanuary 1, 2018, with early application permitted. Retrospective application is required, butproviding comparative information is not compulsory.

The adoption of PFRS 9 will have an effect on the classification and measurement of theCompany’s financial assets and impairment methodology for financial assets, but will have noimpact on the classification and measurement of the Company’s financial liabilities. TheCompany is currently assessing the impact of adopting this standard.

∂ PFRS 15, Revenue from Contracts with CustomersPFRS 15 establishes a new five-step model that will apply to revenue arising from contractswith customers. Under PFRS 15, revenue is recognized at an amount that reflects theconsideration to which an entity expects to be entitled in exchange for transferring goods orservices to a customer. The principles in PFRS 15 provide a more structured approach tomeasuring and recognizing revenue.

The new revenue standard is applicable to all entities and will supersede all current revenuerecognition requirements under PFRSs. Either a full or modified retrospective application isrequired for annual periods beginning on or after January 1, 2018. The Company is currentlyassessing the impact of adopting this standard.

Effective beginning on or after January 1, 2019∂ PFRS 16, Leases

Under the new standard, lessees will no longer classify their leases as either operating orfinance leases in accordance with PAS 17, Leases. Rather, lessees will apply the single-assetmodel. Under this model, lessees will recognize the assets and related liabilities for mostleases on their balance sheets, and subsequently, will depreciate the lease assets and recognize

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interest on the lease liabilities in their profit or loss. Leases with a term of 12 months or lessor for which the underlying asset is of low value are exempted from these requirements.

The accounting by lessors is substantially unchanged as the new standard carries forward theprinciples of lessor accounting under PAS 17. Lessors, however, will be required to disclosemore information in their financial statements, particularly on the risk exposure to residualvalue.

Entities may early adopt PFRS 16 but only if they have also adopted PFRS 15. Whenadopting PFRS 16, an entity is permitted to use either a full retrospective or a modifiedretrospective approach, with options to use certain transition reliefs.

The Company is currently assessing the impact of adopting PFRS 16.

Deferred effectivity∂ PFRS 10 and PAS 28, Sale or Contribution of Assets between an Investor and its Associate or

Joint Venture (Amendment)

3. Significant Accounting Judgments and Estimates

The preparation of the financial statements in accordance with PFRS requires the Company tomake judgments and estimates. These estimates affect the reported amounts of assets andliabilities and contingent assets and liabilities, if any, at the reporting date, as well as the reportedincome and expenses for the period. Although the estimates are based on management’s bestknowledge and judgment of current facts at the reporting date, the actual outcome may differ fromthese estimates, which may possibly be significant.

Judgments and estimates are continually evaluated and are based on historical experience andother factors, including expectations of future events that are believed to be reasonable under thecircumstances.

JudgmentsIn the process of applying the Company’s accounting policies, management has made thefollowing judgments which have significant effect on the amounts recognized in the financialstatements:

a. Operating leaseCompany as a lessorThe Company has entered into leases of transportation equipment, computer equipment andfurniture and fixtures under ‘Equipment held for lease’. The Company has determined that ithas retained all the significant risks and rewards of ownership of these properties as thepresent value of the minimum lease payments does not cover substantially the fair value of theleased assets (see Note 10).

b. Finance leaseThe Company has entered into finance lease as a lessor. The Company has determined that ithas transferred all the significant risks and rewards of ownership of these properties which areleased out under finance leases (see Note 17).

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Estimatesa. Impairment of receivables

The Company reviews its receivables at end of reporting date to assess whether an allowancefor credit losses should be recorded in the balance sheet and any changes for credit lossesshould be recorded in the balance sheet and any changes thereto in the statement of income.In particular, judgment by management is required in the estimation of the amount and timingof future cash flows when determining the level of allowance required. Such estimates arebased on assumptions about a number of factors. Actual results may differ resulting in futurechanges to allowance. The carrying values of receivables are disclosed in Note 7.

b. EUL of equipment held for leaseThe Company reviews annually the EUL of equipment held for lease based on the period overwhich these are expected to be available for use. It is possible that future results of operationscould be materially affected by changes in these estimates. A reduction in the EUL of theseassets would increase recorded depreciation and decrease the carrying values.

The accounting policy for the EUL of equipment held for lease is disclosed in Note 2.

c. Recognition of deferred income taxesDeferred tax assets are recognized for all temporary differences to the extent that it is probablethat the taxable profit will be available against which the temporary differences can beutilized. Significant judgment is required to determine the amount of deferred tax assets thatcan be recognized, based upon the likely timing and level of future taxable profits. Therecognized and unrecognized deferred tax assets are disclosed in Note 22.

d. Present value of retirement liabilityThe cost of defined benefit plan is determined using actuarial valuations. The actuarialvaluation involves making assumptions about discount rates, future salary increases andmortality rates. Due to complexity of the valuation, the underlying assumptions and long-termnature of these plans, such estimates are subject to significant uncertainty. All assumptionsare reviewed at each reporting date.

In determining the appropriate discount rate, management considers the market yields onPhilippine government bonds with terms consistent with the expected benefit payout as atreporting date and the extrapolated maturities corresponding to expected duration of thedefined benefit obligation. For the salary projection rate, management considers the inflationrate and expected average future salary increase rate of the employee, while the mortality ratewas based on the 2001 Commissioners Standard Ordinary table. While the Company believesthat the assumptions are reasonable and appropriate, significant differences between actualexperience and assumptions may materially affect the cost of employee benefits relatedobligations.

The net defined benefit asset is disclosed in Note 21.

4. Fair Value Measurement

The Company uses a hierarchy for determining and disclosing the fair value of its assets andliabilities (see accounting policy on Fair Value Measurement).

The fair values of cash, current portion of finance and lease receivables, advances, accruedexpenses and other payables approximate their carrying values due to their short-term maturities.

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The fair values of the Company’s investment properties have been determined based on valuationsmade by independent appraiser based on the recent sales of similar properties in the same area asthe investment properties and taking into account the economic conditions prevailing at the timethe valuations were made and comparability of similar properties sold with the property beingvalued.

The following table summarizes the carrying amounts and the fair values by level of the fair valuehierarchy of the Company’s assets and liabilities as at December 31:

2016

CarryingValue

Fair valuemeasurement

using significantunobservable

inputs (Level 3)Assets for which fair values are disclosed:Financial assets

ReceivablesReceivables financed P=68,293,017 P=86,561,398Lease receivables 8,149,768 9,123,054

76,442,785 95,684,452Nonfinancial assets

Investment properties 9,572,960 11,053,883P=86,015,745 P=106,738,335

Liabilities for which fair values are disclosed:Financial liabilities

Loans payable P=124,651,760 P=124,049,813Lease deposits 52,572,807 50,374,515

P=177,224,567 P=174,424,328

2015

CarryingValue

Fair valuemeasurement

using significantunobservable

inputs (Level 3)Assets for which fair values are disclosed:Financial assets

ReceivablesReceivables financed P=37,275,710 P=44,847,771Lease receivables 9,443,902 10,571,740

P=46,719,612 P=55,419,511Liabilities for which fair values are disclosed:Financial liabilities

Loans payable P=131,791,460 P=128,602,927Lease deposits 21,697,506 20,691,876

P=153,488,966 P=149,294,803

Fair values of receivables financed and lease receivables are estimated using the discounted cashflow methodology using the Company’s lending rates for similar types of receivables.

Fair values of loans payable and lease deposits are estimated using the discounted cash flowmethodology using the Company’s incremental borrowing rates for borrowings with maturitiesconsistent with those remaining for the liability being valued.

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There have been no changes in determining the fair value of financial instruments in 2016 and2015. There were no transfers of financial instruments between Levels 1, 2 and 3 in 2016 and2015.

5. Financial Risk Management Objectives and Policies

The Company has exposure to the following risks from its use of financial instruments:

∂ Credit risk∂ Liquidity risk∂ Market risk

In line with the Center for Agricultural and Rural Development Mutually Reinforcing Institutions’(CARD MRI) mission of “providing continued access to integrated microfinance and socialdevelopment services to an expanding membership base by organizing and empowering womenand their families”, risk management framework of the Company involves identifying andassessing risks, designing strategies and implementing policies to mitigate risks, and conductingevaluation for adjustments needed to minimize risks.

The BOD is responsible for monitoring the Company’s implementation of risk managementpolicies and procedures and for reviewing the adequacy of risk management framework in relationto the risks faced by the Company. Risk Management of the Company is strengthened inconjunction with the Internal Audit (IA) functions of CARD MRI Group. IA undertakes bothregular audit examination and ad hoc reviews of risk management controls and procedures, theresults of which are reported to the BOD.

Credit RiskThe Company manages credit risk by assessing the creditworthiness of its counterparties. TheCompany continuously monitors the financial health and status of its counterparties to ascertainthat receivables from these counterparties will be substantially collected on due date or in thefuture.

Exposure to credit risk is managed through regular analysis of the ability of the borrowers andpotential borrowers to meet interest and capital repayment obligations and by changing theselending limits when appropriate.

Maximum exposure to credit risk after collateral held or other credit enhancementsExcept for receivables financed, the maximum exposure of the Company’s financial instruments isequivalent to the carrying values as reflected in the statements of financial position and relatednotes. The table below shows the analysis of the maximum exposure to credit risk, net ofallowance for credit losses, of receivables financed as at December 31, 2016 and 2015:

2016

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effectof Collateral or

CreditEnhancement

Receivables financed P=68,293,017 P=9,928,415 P=64,852,348 P=2,873,484

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2015

CarryingAmount

Fair Value ofCollateral

MaximumExposure toCredit Risk

Financial Effectof Collateral or

CreditEnhancement

Receivables financed P=37,275,710 P=13,748.415 P=30,784,198 P=8,577,945

As at December 31, 2016 and 2015, credit enhancement for receivables financed consists of realestate mortgage.

The Company has no financial instruments with right to offset in accordance with PAS 32,Financial Instruments: Presentation, as at December 31, 2016 and 2015. There are also nofinancial instruments that are subject to an enforceable master netting arrangements of similaragreements which require disclosure in the financial statements in accordance with amendments ofPFRS 7.

Concentration of credit riskConcentrations arise when a number of counterparties are engaged in similar business activities, oractivities in the same geographic region, or have similar economic features that would cause theirability to meet contractual obligations to be similarly affected by changes in economic, political orother conditions. As of December 31, 2016 and 2015, the Company’s cash in banks andreceivables are concentrated to financial intermediaries and corporate and individual borrowers,respectively.

Credit quality per class of financial assetsThe credit quality of financial assets is monitored and managed based on the credit standing andhistory.

High grade - These are bank deposits, receivables or advances which have a high probability ofcollection. The counterparty has the apparent ability to satisfy its obligation and the securities onthe receivables are readily enforceable.

Standard grade - These are bank deposits, receivables or advances where collections are probabledue to the reputation and the financial ability of the counterparty to pay but with experience ofdefault.

The tables below show the credit quality per class of receivables (gross of allowance for creditlosses) as at December 31, 2016 and 2015:

December 31, 2016Neither past due nor impaired

High Grade Standard gradePast due

but not impairedPast due and

impaired TotalCash in bank P=19,694,769 P=– P=– P=– P=19,694,769Receivables Receivables financed – 68,102,610 44,131 2,873,484 71,020,225 Finance lease receivables – 8,506,711 51,216 60,379 8,618,306 Other receivables – 861,692 – – 861,692

P=19,694,769 P=77,471,013 P=95,347 P=2,933,863 P=100,194,992

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December 31, 2015Neither past due nor impaired

High Grade Standard gradePast due

but not impairedPast due and

impaired TotalCash in bank P=12,783,254 P=– P=– P=– P=12,783,254Receivables Receivables financed – 31,609,216 7,278,279 474,648 39,362,143 Finance lease receivables – 7,512,351 2,071,545 488,669 10,072,565 Other receivables – 2,549,744 – – 2,549,744

P=12,783,254 P=41,671,311 P=9,349,824 P=963,317 P=64,767,706

As at December 31, 2016 and 2015, Company’s receivables that are past due for more than120 days are considered impaired.

The following tables show the total aggregate amount of receivables from members that arecontractually past due but not considered as impaired per delinquency bucket as atDecember 31, 2016 and 2015:

December 31, 2016Less than

30 Days 31 to 90 Days 91 to 120 Days TotalReceivables financed P=28,737 P=15,394 P=– P=44,131Finance lease receivables 20,690 26,439 4,087 51,216

P=49,427 P=41,833 P=4,087 P=95,347

December 31, 2015Less than

30 Days 31 to 90 Days 91 to 120 Days TotalReceivables financed P=3,548,651 P=1,352,894 P=2,376,734 P=7,278,279Finance lease receivables 1,062,459 881,382 127,704 2,071,545

P=4,611,110 P=2,234,276 P=2,504,438 P=9,349,824

Liquidity RiskLiquidity risk is generally defined as the current and prospective risk to earnings or capital arisingfrom the Company’s inability to meet its obligations when they come due without incurringunacceptable losses or costs.

Liquidity risk is managed by the Company through holding sufficient liquid assets and appropriateassessment to ensure short-term funding requirements are met and by ensuring the high collectionperformance at all times. In addition, the Company maintains sufficient liquid assets to takeadvantage of favorable investment opportunities when it arises. Further, the Company has anoutstanding undrawn credit line with CARD MRI Multi-Employer Retirement Plan (MERP) and agovernment bank amounting to P=44.00 million and P=88.00 million, respectively.

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The tables below summarize the maturity profile of the financial instruments of the Companybased on contractual undiscounted cash flows:

2016

On demandDue within

1 month 1 to 3 months 3 to12 monthsBeyond

1 year TotalFinancial AssetsCash in banks P=19,694,769 P=– P=– P=– P=– P=19,694,769Receivables:

Receivables financed* – 6,277,405 7,675,583 23,659,928 54,578,573 92,191,489Lease receivables* – 560,871 977,649 3,512,545 5,332,974 10,384,039Other receivables:

Accounts receivables – 342,028 15,800 54,293 222,386 634,507Receivable from

related parties(Note 23) – 227,185 – – – 227,185

Total Financial Assets 19,694,769 7,407,489 8,669,032 27,226,766 60,133,933 123,131,989Financial LiabilitiesTrade and other payable:

Trade payable – 4,073,213 9,024,390 4,776,535 – 17,874,138Payable to related parties 532,236 450,866 1,010,754 – – 1,993,856Accrued interest payable

(Note 23)– 21,333 164,969 – – 186,302

Lease deposits – 1,955,918 2,759,213 30,190,262 19,922,594 54,827,987Loans payable – 2,697,333 13,071,259 32,865,325 87,440,601 136,074,518Total Financial Liabilities 532,236 9,198,663 26,030,585 67,832,122 107,363,195 210,956,801Net P=19,162,533 (P=1,791,174) (P=17,361,553) (P=40,605,356) (P=47,229,262) (P=87,824,812)*includes undiscounted future interest

2015

On demandDue within

1 month 1 to 3 months 3 to12 monthsBeyond

1 year TotalFinancial AssetsCash in banks P=12,783,254 P=– P=– P=– P=– P=12,783,254Receivables:

Receivables financed* – 1,793,269 3,221,751 11,424,915 37,380,197 53,820,132Lease receivables* – 883,177 1,187,850 3,785,098 5,720,952 11,577,077Other receivables:

Receivables fromrelated parties – 2,053,990 – – – 2,053,990

Accounts receivables – 495,754 – – – 495,754Total Financial Assets 12,783,254 5,226,190 4,409,601 15,210,013 43,101,149 80,730,207Financial LiabilitiesTrade and other payable:

Trade payable – 6,054,935 – – – 6,054,935Accrued expense – 582,309 – – – 582,309Payable to related parties – 262,152 – – – 262,152Accrued interest payable – 278,899 – – – 278,899Lease deposits – – – 7,582,125 14,115,381 21,697,506

Loans payable – 2,758,667 10,723,356 36,141,861 92,556,014 142,179,898Total Financial Liabilities – 9,936,962 10,723,356 43,723,986 106,671,395 171,055,699Net P=12,783,254 (P=4,710,772) (P=6,313,755) (P=28,513,973) (P=63,570,246) (P=90,325,492)*includes undiscounted future interest

6. Cash

This account consists of:

2016 2015Petty cash P=10,000 P=10,000Cash in banks 19,694,769 12,783,254

P=19,704,769 P=12,793,254

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Cash in banks consist of savings deposit account earning annual interest ranging from 0.25% to1.50% in 2016 and 2015.

7. Receivables

This account consists of:

2016 2015Receivables financed P=90,659,076 P=54,374,177Unearned finance income (19,638,850) (15,012,034)

71,020,226 39,362,143Finance lease receivables 10,468,712 12,130,188Unearned lease income (1,850,406) (2,057,623)

8,618,306 10,072,565Other receivables

Accrued receivables 334,128 –Accounts receivables 300,379 495,754Receivable from related parties 227,185 2,053,990

861,692 2,549,74480,500,224 51,984,452

Allowance for credit losses (3,195,747) (2,715,096)P=77,304,477 P=49,269,356

Receivables financed consist of loans to employees of the Company’s related parties (see Note 23)and outside the CARD MRI Group. Lease receivables pertain to finance lease of transportationvehicles, computer equipment and gadgets. As at December 31, 2016 and 2015, there are noreceivables pertaining to operating leases.

Accrued receivables are interest and lease income due next month from receivables financed andlease receivable.

In 2016, a loan amounting to P=2.10 million was settled through foreclosure of the related landcollateral. The collateral is recognized under ‘Investment property’ at a cost of P=2.93 million,which included transaction costs. The settlement did not result in a gain or loss.

An analysis of receivables as at December 31, 2016 and 2015 are presented as follows:

2016Receivables

financedLease

receivablesOther

receivables TotalReceivables P=90,659,076 P=10,468,712 P=861,692 P=101,989,480Less: Unearned income 19,638,850 1,850,406 – 21,489,256

71,020,226 8,618,306 861,692 80,500,224Less: Allowance for credit

losses 2,727,209 468,538 – 3,195,747P=68,293,017 P=8,149,768 P=861,692 P=77,304,477

Current portion P=26,758,528 P=3,867,434 P=861,692 P=31,487,654Noncurrent portion P=41,534,489 P=4,282,334 P=– P=45,816,823

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2015Receivables

financed Lease receivablesOther

receivables TotalReceivables P=54,374,177 P=12,130,188 P=2,549,744 P=69,054,109Less: Unearned income 15,012,034 2,057,623 – 17,069,657

39,362,143 10,072,565 2,549,744 51,984,452Less: Allowance for credit

losses 2,086,433 628,663 – 2,715,096P=37,275,710 P=9,443,902 P=2,549,744 P=49,269,356

Current portion P=11,034,584 P=4,857,823 P=2,549,744 P=18,442,151Noncurrent portion P=26,241,126 P=4,586,079 P=– P=30,827,205

The reconciliation of gross investment in lease receivables and the present value of minimumlease payments receivable as at December 31, 2016 and 2015 are presented as follows:

2016Not

later than1 year

Later than 1 year

up to 5 years TotalGross investment P=5,233,818 P=5,234,894 P=10,468,712Less: Unearned income 1,112,176 738,230 1,850,406Net investment 4,121,642 4,496,664 8,618,306Less: Allowance for credit losses 321,346 147,192 468,538Net investment P=3,800,296 P=4,349,472 P=8,149,768

2015Not

later than1 year

Later than 1 year

up to 5 years TotalGross investment P=6,382,228 P=5,747,960 P=12,130,188Less: Unearned income 1,137,115 920,508 2,057,623Net investment 5,245,113 4,827,452 10,072,565Less: Allowance for credit losses 387,290 241,373 628,663Net investment P=4,857,823 P=4,586,079 P=9,443,902

Movements in the allowance for credit losses follow:

2016Receivables

financedLease

receivables TotalBalance at beginning of year P=2,086,433 P=628,663 P=2,715,096Provision (reversal) during the year 640,776 (15,573) 625,203Accounts written off – (144,552) (144,552)Balance at end of year P=2,727,209 P=468,538 P=3,195,747Current portion P=1,681,787 P=254,208 P=1,935,995Noncurrent portion P=1,045,422 P=214,330 P=1,259,752

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2015Receivables

financedLease

receivables TotalBalance at beginning of year P=776,666 P=644,397 P=1,421,063Provision (reversal) during the year 1,309,767 (15,734) 1,294,033Balance at end of year P=2,086,433 P=628,663 P=2,715,096Current portion P=768,806 P=387,290 P=1,156,096Noncurrent portion P=1,317,627 P=241,373 P=1,559,000

Section 9 (f) of Republic Act (RA) No. 8556, also known as The Financing Company Act of 1998,requires that 100% allowance for credit losses should be set up for the following:

a. Clean loans and advances past due for a period of more than six (6) months;b. Past due loans secured by collateral such as inventories, receivables, equipment and other

chattels that have declined in value by more than 50.00%, without the borrower offeringadditional collateral for the loans;

c. Past due loans secured by real estate mortgage title to which is subject to an adverse claimrendering settlement through foreclosure doubtful;

d. When borrower and his co-maker or guarantor are insolvent, or where their whereabouts areunknown, or their earnings power is permanently impaired;

e. Accrued interest receivable that remain uncollected after six months from the maturity date ofsuch loans to which it accrues; and

f. Accounts receivable past due for 361 days or more.

The Company is in compliance with the provisioning requirements of RA No. 8556.

8. Inventories

This account consists of forms, slips and ledgers used as supplies that are available for sale. As ofDecember 31, 2016 and 2015, inventories amounted to P=0.50 million and P=1.39 million,respectively.

Total cost of inventories recognized under ‘Cost of sales’ in the statements of income amounted toP=29.54 million and P=43.60 million in 2016 and 2015, respectively. (see Note 16).

9. Other Current Assets

This account consists of:

2016 2015Creditable withholding tax P=2,738,085 P=1,709,403Prepaid expenses 423,145 5,218,346

3,161,230 6,927,749Less: Allowance for impairment losses – 69,619

P=3,161,230 P=6,858,130

Prepaid expenses pertain to prepaid insurance and advances to employee for staff training anddevelopment subject to liquidation. In 2015, the Company recognized provision for impairmentlosses on creditable withholding tax amounting to P=0.07 million.

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10. Equipment Held for Lease

The composition of and movements in this account follow:

2016

TransportationEquipment

ComputerEquipment

Furnitureand

Fixtures Land TotalCostBalance at beginning of year P=133,538,127 P=73,961,855 P=1,574,518 P=6,480,903 P=215,555,403Additions 55,322,167 52,340,732 464,286 107,709 108,234,894Disposals – (15,079) – – (15,079)Transfers – – – (6,588,612) (6,588,612)Balance at end of year 188,860,294 126,287,508 2,038,804 – 317,186,606Accumulated DepreciationBalance at beginning of year 49,191,452 27,671,816 1,025,108 – 77,888,376Depreciation 50,221,759 29,068,349 512,415 – 79,802,523Disposals – (15,079) – – (15,079)Balance at end of year 99,413,211 56,725,086 1,537,523 – 157,675,820Net Book Value P=89,447,083 P=69,562,422 P=501,281 P=– P=159,510,786

2015

TransportationEquipment

ComputerEquipment

Furnitureand

Fixtures Land TotalCostBalance at beginning of year P=66,953,219 P=38,031,486 P=1,509,520 P=– P=106,494,225Additions 66,584,908 35,930,369 64,998 6,480,903 109,061,178Balance at end of year 133,538,127 73,961,855 1,574,518 6,480,903 215,555,403Accumulated DepreciationBalance at beginning of year 17,455,871 8,940,669 505,685 – 26,902,225Depreciation 31,735,581 18,731,147 519,423 – 50,986,151Balance at end of year 49,191,452 27,671,816 1,025,108 – 77,888,376Net Book Value P=84,346,675 P=46,290,039 P=549,410 P=6,480,903 P=137,667,027

In 2016, a parcel of land acquired in 2015 amounting to P=6.48 million was reclassified to‘investment properties’ as management has yet to determine its future use.

As of December 31, 2016 and 2015, refundable lease deposits on equipment held for leaseamounted to P=52.57 million and P=21.53 million, respectively.

11. Property and Equipment

The composition of and movements in this account follow:

2016Transportation

EquipmentPrinting

EquipmentComputer

EquipmentFurniture

and Fixtures TotalCostBalance at beginning of year P=925,893 P=955,086 P=203,502 P=93,906 P=2,178,387Additions – – 304,463 – 304,463Disposals – – (37,350) – (37,350)Balance at end of year 925,893 955,086 470,615 93,906 2,445,500

(Forward)

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2016Transportation

EquipmentPrinting

EquipmentComputer

EquipmentFurniture

and Fixtures TotalAccumulated DepreciationBalance at beginning of year P=334,350 P=869,309 P=71,127 P=77,611 P=1,352,397Depreciation 308,631 83,698 80,755 13,613 486,697Disposals – – (37,350) – (37,350)Balance at end of year 642,981 953,007 114,532 91,224 1,801,744Net Book Value P=282,912 P=2,079 P=356,083 P=2,682 P=643,756

2015Transportation

EquipmentPrinting

EquipmentComputer

EquipmentFurniture

and Fixtures TotalCostBalance at beginning of year P=925,893 P=955,086 P=131,180 P=83,599 P=2,095,758Additions – – 72,322 10,307 82,629Balance at end of year 925,893 955,086 203,502 93,906 2,178,387Accumulated DepreciationBalance at beginning of year 25,719 665,524 42,496 48,919 782,658Depreciation 308,631 203,785 28,631 28,692 569,739Balance at end of year 334,350 869,309 71,127 77,611 1,352,397Net Book Value P=591,543 P=85,777 P=132,375 P=16,295 P=825,990

12. Other Noncurrent Assets

As of December 31, 2016, this account consists of a motor vehicle acquired through foreclosure in2016 amounting to P=0.05 million. Depreciation recognized in the statement of income amountedto P=0.02 million in 2016.

In 2016, the capitalized project-development cost was fully amortized. The movement in thisaccount follows:

2016 2015CostBalance at beginning of year P=2,500,000 P=2,500,000Accumulated AmortizationBalance at beginning of year 1,614,584 479,167Amortization 885,416 1,135,417Balance at end of year 2,500,000 1,614,584Net Book Value P=– P=885,416

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13. Trade and Other Payables

Trade and other payables consist of:

2016 2015Trade payables P=17,874,138 P=6,020,071Unearned rent income 2,653,208 –Payable to related party (Note 23) 1,993,856 297,016Unearned sales revenue 1,718,906 –Accrued expenses 684,004 582,309Accrued interest payable 186,302 278,899Withholding tax payable 168,674 237,088

P=25,279,088 P=7,415,383

Trade payables are due to suppliers for inventory and other purchases.

Unearned sales revenue are advance payments from related parties for the purchase of officesupplies. Accrued expenses pertain mainly to accumulated vacation leave and unpaid professionalfees.

14. Loans Payable

Loans payable pertain to borrowings availed from CARD Mutual Benefit Association, CARDMERP and a government bank which bear annual interest rates ranging from 4.36% to 5.47% in2016 and 2015 and have tenor of two (2) to five (5) years (see Note 23).

An analysis of loans payable as at December 31, 2016 and 2015 is presented as follows:

2016 2015Face ValueBalance at beginning of year P=132,333,333 P=85,000,000Availments 42,000,000 80,000,000Principal payments (49,187,732) (32,666,667)Balance at end of year 125,145,601 132,333,333Net DiscountBalance at beginning of year 541,873 373,113Availments 210,000 400,000Amortization (258,032) (231,240)Balance at end of year 493,841 541,873Carrying Value P=124,651,760 P=131,791,460

Interest expense on loans payable amounted to P=8.80 million and P=4.97 million in 2016 and 2015,respectively.

As of December 31, 2016 and 2015, the Company has an available unused credit line with CARDMERP and a government bank amounting P=44.00 million and P=34.33 million and P=88.00 millionand nil, respectively.

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15. Equity

As at December 31, 2016 and 2015, the Company’s capital stock consists of:

2016 2015Shares Amount Shares Amount

Common stock - P=100 par value,1,000,000 authorized shares

Issued and outstanding at beginning of year 700,000 P=70,000,000 700,000 P=70,000,000Stock dividends 35,000 3,500,000 – –Common stock at end of year 735,000 73,500,000 700,000 70,000,000Subscriptions receivable – (22,977,560) – (27,295,740)

735,000 P=50,522,440 700,000 P=42,704,260

DividendsOn May 31, 2016, the BOD and shareholders representing at least two-thirds (2/3) of theoutstanding capital stock declared and approved stock dividends of P=3.50 million for itsstockholders on record as of December 31, 2015. On March 31, 2015, the BOD declared and paidcash dividends amounting to P=2.80 million.

Subscription ReceivableThe Company’s shareholders partially settled subscriptions of P=4.32 million and P=9.53 million in2016 and 2015, respectively.

Capital ManagementThe Company manages its capital structure and appropriately effect adjustment according to thechanges in economic conditions and the risk level it recognizes at every point of time in the courseof its business operations. In order to maintain or adjust for good capital structure, the Companycarefully measures the amount of dividend payment to shareholders, call payment due from thecapital subscribers or issue capital securities as necessary.

Under Section 6 of RA No. 8556, financing companies shall be organized in the form of stockcorporations at least forty percent (40.00%) of which is owned by the citizens of the Philippinesand shall have a paid-up capital of not less than P=10.00 million in case the financing company islocated in Metro Manila and other first class cities, P=5.00 million in other classes of cities andP=2.50 million in municipalities. As at December 31, 2016 and 2015, the Company is incompliance with the requirements of Section 6 of RA No. 8556.

16. Cost of sales

The movements in this account follows:

2016 2015Inventories at beginning of year P=1,385,748 P=2,901,658Purchases 28,653,122 42,087,702Inventories available for sale 30,038,870 44,989,360Inventories at end of year (500,780) (1,385,748)

P=29,538,090 P=43,603,612

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17. Leases

This account consists of:

2016 2015Operating income P=110,949,082 P=65,324,236Finance income 1,286,334 2,478,999

P=112,235,416 P=67,803,235

Finance leases - Company as a lessorThe Company entered into finance lease agreements with the employees of related parties whichbear annual interest rates ranging from 10.50% to 18.00% in 2016 and 2015, and have maturity ofsix (6) months to seven (7) years (see Note 7).

Operating leases - Company as a lessorThe Company entered into non-cancellable operating leases of its equipment held for lease with itsrelated and third parties for terms of up to eighteen (18) months.

Future minimum rentals receivable under non-cancellable operating leases follow:

2016 2015Within one year P=100,419,828 P=72,000,000After one year but not more than five years 14,371,016 14,115,381

P=114,790,844 P=86,115,381

Operating leases - Company as a lesseeThe Company leases its office premises from a related party for a period of three (3) years. Thelease is renewable upon mutual agreement between the Company and lessor. Rental expenserecognized under ‘Rental’ in the statements of income amounted to P=0.12 million in 2016 and2015.

18. Interest Income

This account consists of:

2016 2015Receivable financed P=7,409,955 P=3,379,173Cash in banks 126,352 117,452

P=7,536,307 P=3,496,625

The effective interest rates in financing the receivables range from 8.00% to 14.00% in 2016 and2015.

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19. Compensation and Benefits

This account consists of:

2016 2015Salaries and wages P=1,342,951 P=1,755,346Short-term employee benefits 801,852 1,338,463Retirement benefits (Note 21) 310,701 48,154

P=2,455,504 P=3,141,963

20. Miscellaneous

This account consists of:

2016 2015Information technology P=398,740 P=73,408Communication and postage 128,188 128,371Supervision and examination 47,474 29,710Bank service charge 33,127 30,060Christmas party 27,658 8,631Advertising 19,306 14,920Donations 5,000 5,000Processing fees 4,821 114,137Others 139,085 70,038

P=803,399 P=474,275

Others pertain to small value expenses that are non-recurring. In 2016, this included giveawaysand cash gifts amounting to P=0.08 million.

21. Retirement Benefits

The Company, Rizal Bank, Inc., CARD Bank, Inc., CARD MRI Development Institute, Inc.,CARD Mutual Benefit Association, Inc., CARD SME Bank, Inc., CARD MRI InsuranceAgency, Inc., CARD Business Development Service Foundation, Inc., BotiCARD, Inc., CARDEmployees Multi-Purpose Cooperative, Responsible for Investments and Solidarity EmpowermentFinancing Company, Inc., CARD MRI Information Technology, Inc., CARD, Inc., Mga Likha niInay, Inc., and other related parties maintain a funded and formal noncontributory defined benefitretirement plan – a multi-employer retirement plan (MERP or the Plan) – with CARD MERPcovering all of their regular employees and CARD Group Employees’ Retirement Plan (HybridPlan) applicable to employees hired on or after July 1, 2016. The Plan is valued using theprojected unit cost method and is financed solely by the Company and its related parties.

The Plan and Hybrid Plan are compliant with the requirements of RA No. 7641 (Retirement Law).The Plan provides lump sum benefits equivalent to up to 120% of final salary for every year ofcredited service, a fraction of at least six (6) months being considered as one whole year, uponretirement, death, total and permanent disability, or voluntary separation after completion of atleast one year of service with the participating companies.

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Hybrid Plan provides a retirement benefit equal to 100% of the member’s employer accumulatedvalue (the Company’s contributions of 8% plan salary to Fund A plus credited earnings) and 100%of the member’s employee accumulated value (member’s own contributions up to 10% of plansalary to Fund B plus credited earnings), if any. Provided that in no case shall 100% of theemployer accumulated value in Fund A be less than 100% of plan salary for every year of creditedservice.

The Company has no employees which are part of Hybrid Plan as at December 31, 2016 and 2015.

The latest actuarial valuation report covers reporting period as at December 31, 2016.

The maximum economic benefit of plan assets available is a combination of expected refundsfrom the plan and reduction in future contributions. The fair value of plan assets by each class asat the end of the reporting period are as follow:

2016 2015Cash and cash equivalents P=2,539,829 P=2,314,344Debt securities – government securities 2,842,480 2,598,592Other assets 604,692 772,016

P=6,114,176 P=5,684,952

All plan assets do not have quoted prices in active market except government debtsecurities. Cash and cash equivalents are placed with reputable financial institutions and relatedparties and are deemed to be standard grade. Other assets are unrated.

The plan assets have diverse investments and do not have any concentration risk other than thosegovernment debt securities which are considered low risk.

The overall investment policy and strategy of the Company’s defined benefit plans is guided bythe objective of achieving an investment return which, together with contributions, ensures thatthere will be sufficient assets to pay pension benefits as they fall due while also mitigating thevarious risk of the plans.

The cost of defined retirement plan as well as the present value of the defined benefit obligation isdetermined using actuarial valuations. The actuarial valuation involves making variousassumptions. The principal assumptions used in determining pension for the defined benefit plansare shown below:

2016 2015Discount rate

January 1 5.30% 5.04%December 31 5.86% 5.30%

Future salary increases 7.00% 10.00%

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The sensitivity analysis below has been determined based on reasonably possible changes of eachsignificant assumption on the defined benefit obligation (DBO) as of the end of the reportingperiod, assuming if all other assumptions were held constant:

2016 2015+1.0% -1.0% +1.0% -1.0%

Discount rate (P=306,308) P=373,117 (P=907,472) P=1,143,492Salary rate 341,743 288,601 1,027,134 (845,367)

The Company plans to contribute P=0.48 million to the defined benefit retirement in 2017.

As at December 31, 2016, the average duration of the defined benefit obligation is 15.9 years.

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ARD

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.

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22. Income Taxes

Income taxes include corporate income tax and final tax paid at the rate of 20.00% on grossinterest income from deposit substitutes. These income taxes, as well as the deferred tax benefitsand provisions, are presented as ‘Provision for income tax’ in the statements of income.

Current tax regulations provide that RCIT rate shall be 30.00%. Interest expense allowed as adeductible expense is reduced by 33.00% of interest income subjected to final tax.

In addition, effective September 1, 2002, Revenue Regulations (RR) No. 10-2002 provides for theceiling on the amount of entertainment, amusement and recreation (EAR) expense that can beclaimed as a deduction against taxable income. Under the regulation, EAR allowed as adeductible expense is limited to the actual EAR paid or incurred but not to exceed 1.00% of netrevenue for companies engaged in the sale of services.

An MCIT of 2.00% on modified gross income is computed and compared with RCIT. Any excessof MCIT over RCIT is deferred and can be used as a tax credit against future income tax liabilityfor the next three years. Imposition of MCIT will commence on the Company’s fourth taxableyear immediately following the year in which the Company commenced its business operations.

In addition, NOLCO is allowed as a deduction from taxable income in the next three years fromthe period of incurrence.

The provision for income tax consists of:

2016 2015Current:

Regular P=5,939,172 P=3,506,795Final 25,270 23,490

5,964,442 3,530,285Deferred 255,391 (814,529)

P=6,219,833 P=2,715,756

The Company’s deferred tax liabilities (assets) consist of:

2016 2015Retirement asset P=755,907 P=223,738Allowance for credit losses (559,138) (814,529)

P=196,769 (P=590,791)

The deferred tax arising from remeasurement gain (loss) amounting to P=0.53 million andP=0.46 million in 2016 and 2015, respectively, were directly deducted against OCI.

The Company utilized creditable withholding taxes amounting to P=5.94 million and P=3.51 millionin 2016 and 2015, respectively, against its tax liability.

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The Company did not set up deferred tax assets on the following temporary differences as itbelieves that it is highly probable that these temporary differences will not be realized in the nearforeseeable future:

2016 2015Allowance for credit and impairment losses P=1,331,954 P=–Accumulated leave credits 171,555 387,205Unamortized past service cost 270,922 288,786

P=1,774,431 P=675,991

Reconciliation between the statutory income tax and the effective income tax follows:

2016 2015Statutory income tax P=5,873,534 P=3,073,978Tax effects of:

Nondeductible expenses 503,160 17,628Nontaxable income (473,759) –Change in unrecognized deferred tax assets 329,532 (364,104)Interest income subject to final tax (12,635) (11,746)

Provision for income tax P=6,219,832 P=2,715,756

23. Related Party Transactions

Parties are considered to be related if one party has the ability, directly or indirectly, to control theother party or exercise significant influence over the other party in making financial and operatingdecisions. The Company’s related parties include:

∂ key management personnel, close family members of key management personnel and entitieswhich are controlled, significantly influenced by or for which significant voting power is heldby key management personnel or their close family members,

∂ post-employment benefit plans for the benefit of the Company’s employees, and∂ affiliates within the CARD MRI Group.

The Company has several business relationships with related parties. Transactions with suchparties are made in the ordinary course of business and on substantially same terms, includinginterest and collateral, as those prevailing at the time for comparable transactions with otherparties. These transactions also did not involve more than the normal risk of collectability orpresent other unfavorable conditions.

Transactions with retirement planUnder PFRS, certain post-employment benefit plans are considered as related parties. MERP is astand-alone entity assigned in facilitating the contributions to retirement starting 2005. TheCompany has a business relationship with MERP, from which it obtains financing for its workingcapital requirements.

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A summary of transactions with MERP follows:

2016 2015Loans payable P=105,333,33 P=115,666,667Interest expense 6,217,718 4,296,010Contributions to the retirement plan 295,191 –

Remunerations of directors and other key management personnelKey management personnel are those persons having authority and responsibility for planning,directing and controlling the activities of the Company, directly or indirectly. The Companyconsiders the members of the BOD and senior management to constitute key managementpersonnel for purposes of PAS 24, Related Party Disclosures.

The compensation of key management personnel included under ‘Compensation and benefits’ inthe statement of income amounted to P=0.42 million and P=0.66 million in 2016 and 2015,respectively.

Other related party transactionsTransactions between the Company and its key management personnel meet the definition ofrelated party transactions. Transactions between the Company and its affiliates within theCARD MRI also qualify as related party transactions.

Related party transactions of the Company follow:

2016Category Amount / Volume Outstanding Balance Nature, Terms and ConditionsShareholderAccounts receivable P=– This pertains to the unpaid rent and

billings on inventories sold (non-interest bearing, unimpaired, due anddemandable).

Billings P=113,940,219Collections (114,711,550)

Accounts payable 1,107,450 This pertains to unpaid share of expensesincurred.Billings 6,977,756

Payments (5,633,701)Other related partiesCash in banks 12,711,658 This pertains to due and demandable

savings deposit accounts with annualinterest rates ranging from 0.25% to1.50%

Deposits 18,905,812Withdrawals (10,939,494)

Receivables financed 11,579,545 This pertains to loans to another CARDMRI entity with annual interest ratesranging from 4.75% to 6.00%.

Issuances 23,949,780Repayments (12,370,235)

Accounts receivable 227,185 This pertains to the unpaid rent andbillings on inventories sold (non-interest bearing, unimpaired, due anddemandable).

Billings 129,896,765Collections (130,952,239)

Accounts payable 886,407 This pertains to unpaid share of expensesincurred.Billings 2,562,474

Payments (1,615,658)Loans payable 115,333,333 This pertains to loan agreements bearing

interest of 4.00% to 5.00% per annumwith maturity of three years.

Availments 30,000,000Payments (46,458,127)

Accrued interest payable 186,302 This pertains to interest on loans payable.Interest expense 6,988,450Payments (7,081,047)

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2015Category Amount / Volume Outstanding Balance Nature, Terms and ConditionsShareholderAccounts receivables P=771,331 This pertains to the unpaid rent and

billings on inventories sold (non-interest bearing, unimpaired, due anddemandable).

Billings P=79,516,798Collections (81,244,017)

Accounts payable 236,606 This pertains to unpaid share ofexpenses incurred.Billings 269,291

Payments (65,323)Other related partiesCash in banks 3,207,321 This pertains to due and demandable

savings deposit accounts with annualinterest rates ranging from 0.25% to1.50%

Deposits 119,776,871Withdrawals (124,574,951)

Accounts receivable 1,282,659 This pertains to the unpaid rent andbillings on inventories sold (non-interest bearing, unimpaired, due anddemandable).

Billings 71,286,206Collections (70,992,954)

Accounts payable 60,409 This pertains to unpaid share ofexpenses incurred.Billings 214,601

Payments (601,494)Loans payable 131,791,460 This pertains to loan agreements bearing

interest of 4.50% to 5.00% perannum with maturity of three years.

Availments 79,600,000Payments (32,666,667)

Accrued interest payable 278,899 This pertains to interest on loanspayable.Interest expense 4,970,765

Payments (5,024,029)

24. Notes to Statements of Cash Flows

Noncash activities of the Company consist of the following:

2016 2015Noncash investing activities:

Decrease in property and equipment due toreclassification to investment property P=6,588,612 P=–

Decrease in other current assets due to applicationof creditable tax into income tax payable 5,939,172 3,506,795

Decrease in receivables due to reclassification toinvestment property 2,932,348 –

Noncash financing activitiesDeclaration of stock dividends 3,500,000 –

25. Approval of the Release of the Financial Statements

The accompanying financial statements of the Company were reviewed and approved for releaseby the Company’s BOD on March 18, 2017.

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26. Supplementary Information Required under Revenue Regulations No. 15-2010

On November 25, 2010, the Bureau of Internal Revenue (BIR) issued RR No. 15-2010 to amendcertain provisions of RR No. 21-2002 which provides that starting 2010, the notes to the financialstatements shall include information on taxes, duties and licenses paid or accrued during the year.

The components of ‘Taxes and licenses’ recognized in the statements of income follow:

Business permits and licenses P=116,074Documentary stamp taxes (DST) 51,733SEC registration 12,625

P=180,432

The following withholding taxes in 2016 are categorized into:

TotalRemittances

Balance as atDecember 31,

2016Expanded withholding taxes P=1,199,870 P=127,814Withholding tax on compensation and benefits 139,701 40,860

P=1,339,571 P=168,674

VATThe National Internal Revenue Code of 1997 also provides for the imposition of VAT on sales ofgoods and services. Accordingly, the Company’s sales are subject to output VAT while itsimportations and purchases from other VAT-registered individuals or corporations are subject toinput VAT. VAT rate is 12.00% effective February 1, 2006.

Details of the Company’s input tax claimed are as follows:

Balance at beginning of year P=7,974,340Current year’s purchases of:

Goods other than capital goods 13,681,253Services 3,499,363

Total input VAT available 25,154,956Claims against output VAT 18,347,451Balance of input VAT at end of year P=6,807,505

Details of the Company’s net output tax are as follows:

Balance at beginning of year P=–Output VAT during the year 18,347,451Application of input VAT (18,347,451)Balance of output VAT at end of year P=–

As at December 31, 2016, there are no outstanding tax assessments and tax cases underinvestigations, litigations nor prosecution in courts or bodies outside the BIR.