Understanding Accounting Principles

Inventories are carried at NRV whenever the utility of it becomes lower than cost due to damage, physical deterioration, obsolescence, changes in price levels or other causes (i.e., pre-termination of contracts). The estimate of the NRV is reviewed regularly. Estimates of NRV are based on the most reliable evidence available at the time the estimates are made on the amount the inventories are expected to be realized.  These estimates take into consideration fluctuations of price or cost directly relating to events occurring after reporting date to the extent that such events confirm conditions existing at reporting date.  The allowance account is reviewed periodically to reflect the accurate valuation in the financial records.  

The entity maintains an allowance for impairment losses on receivables at a level considered adequate to provide for uncollectible receivables. The level of this allowance is evaluated by the entity on the basis of factors that affect the collectability of the accounts. These factors include, but are not limited to, the length of the entity’s relationship with debtors and, their payment behavior and known market factors . The entity reviews the age and status of the receivable, and identifies accounts that are to be provided with allowance on a regular basis. The amount and timing of recorded expenses for any period would differ if the entity made different judgment or utilized different estimates. An increase in the allowance for impairment losses on receivables would increase the recorded operating expenses and decrease current assets.  

The entity’s functional currency is the currency of the primary economic environment in which the entity operates . The factors considered in determining the functional currency of the entity, and whether its functional currency is the same as that of the reporting entity include the following:   Activities of the entity are carried out as an extension of the reporting entity, rather than being carried out with a significant degree of autonomy;     Transactions with the reporting entity are a high or a low proportion of the foreign operation’s activities;   Cash flows from the activities of the foreign operation directly affect the cash flows of the reporting entity and are readily available for remittance to it; and   Cash flows from the activities of the foreign operation are sufficient to service existing and normally expected debt obligations without funds being made available by the reporting entity.  

On March 26, 2021, the President signed into law the “Corporate Recovery and Tax Incentives for Enterprises Act” or “CREATE”, which seeks to reduce the corporate income tax rates and to rationalize the current fiscal incentives by making it time-bound, targeted, and performance-based.    The following are certain provisions of the law that had an impact on the Company’s financial statements.   Reduced RCIT rate effective July 1, 2020 of 25%   Reduced MCIT rate of 1% effective July 1, 2020 until June 30, 2023  As mentioned above, the reduction in income tax under CREATE took effect on July 1, 2020. However, Philippine Interpretations Committee issued Questions and Answers No. 2020-07, in which it stated that the CREATE Law is considered to be not substantively enacted as of December 31, 2020; accordingly, the current and deferred taxes for financial reporting purposes as of December 31, 2020 are measured using the regular income tax rate in effect as of Decem...

In accordance with the Revenue Regulations No. 25-2020 Section 4 issued on September 30, 2020, the business or enterprise which incurred net operating loss for taxable years 2020 and 2021 shall be allowed to carry over the same as a deduction from its gross income for the next five (5) consecutive taxable years immediately following the year of such loss.  

Creditable withholding taxes (CWT) represent taxes withheld by the entity’s customers in accordance with the tax regulations, which remained unutilized as of the end of the reporting period and can be utilized by the entity as a deduction from future tax obligations.  

I nventories are stated at the lower of cost and estimated selling price less costs to complete and sell. Cost is determined using the first in, first out (FIFO) method, and includes the purchase price, import duties, handling and other costs directly attributable to the acquisition of the inventories, and other costs incurred in bringing them to their existing location and condition.     An allowance is provided to reduce the carrying amount of inventories due to obsolescence and possible losses based on specific identification method. When inventories are sold, the related allowance is reversed in the same period.     When inventories are sold, the carrying amount of those inventories shall be recognized as an expense in the period in which the related revenue is recognized. 

A lease is classified as an operating lease if it does not transfer substantially all the risks and rewards incidental to ownership to the lessee. The entity, as a lessee, recognizes lease payments under operating leases (excluding costs for services such as insurance and maintenance) as an expense on a straight-line basis over the term of the lease.  

The entity identifies events after the reporting period as events that occurred after the reporting date but before the date the financial statements were authorized for issue. Any event after the reporting period that provides additional information about the entity’s financial position at the reporting date is reflected in the financial statements. Non-adjusting events after the reporting period are disclosed in the notes to the financial statements when material.  

Income tax expense for the period comprises current and deferred tax. Income tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case the tax is also recognized in other comprehensive income or directly in equity, respectively.     The current income tax expense is calculated on the basis of the tax laws enacted at the reporting date. Management periodically evaluates positions in income tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.     Deferred income tax is recognized on temporary difference arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of ...

Transactions in foreign currencies are translated to the functional currency at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to the functional currency at the exchange rate at that date. Resulting exchange differences arising on the settlement of or on translating such monetary assets and liabilities are recognized in profit or loss.  

Entity as Lessee   The entity assesses whether a contract is or contains a lease, at inception of the contract. The entity recognizes a right-of-use asset and a corresponding lease liability with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with a lease term of 12 months or less) and leases of low-value assets (such as tablets and personal computers, small items of office furniture and telephones). For these leases, the entity recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.     The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using the rate implicit in the lease. If this rate cannot be readily determined , the lessee use...