CFA’s Financial Capability to Defray Project Costs Without Adversely Adversely Affecting Its Regular Operations By: Antonio S. Abel, C.P.A., C.P.A., M.B.A.
On June 12, 2012, you are engaged as Financial Consultant by the Executive Director of Communication Foundation for Asia, Inc. (CFA) to evaluate their one-and-a-half o ne-and-a-half year operating results and financial conditions. Your evaluation will be based on the latest CFA’s audited financial reports (see exhibits) directly extracted from S ecurities and Exchange Commission. Prior to your engagement, the Organization is considering to submit two project proposals, one for Stichting Porticus, Inc., (SPI) and another for Asia Church In Need (ACN), who provide grants for CFA. But the Management is tentative whether to submit documentary project proposals. You are being tasked to determine whether CFA has the financial capacity to initially fund the project without an adverse effect to its operational cash flows. CFA was established by a Dutch missionary in the Philippines raising funds to l aunch the Philippine Catholic Digest. Five years later, after its establishment in 1975, it produced many many socially relevant publications and radio and TV programs. CFA is a private non-stock, non-profit organization. CFA produced the first first developmental film released commercially. That same year CFA produces Panginorin, its first daily developmental radio drama series. Aired on DZRH, it reaches No.1 in audience ratings. It is also the first radio soap opera to become the subject of a comprehensive international research study, conducted by Dr. Paul Hartmann of Leicester University, UK.
CFA had diversified its service offerings with new facilities and programs for training, publications, radio and television. It produced Sugat Sa Ugat, a full-length full-length feature film on agrarian reform. reform. It is selected as an entry to the Berlin Film Festival. It conducted a Peace Festival for Christian and Muslim children, to be followed by workshops, video production and a nationwide exhibit of children’s art i n 2007-08. Currently, CFA is accepting projects projects from foreign Organizations situated situated in foreign countries. Funds for these projects are provided once they are approved. The grants will normally be received subsequent to an estimated cash outlay of 20% of the total project cost. The Executive Director is currently working with two projects one of which is the 50,000 euro-project proposal to Stichting Porticus (at that time the foreign exchange rates have an average of EU1.00 to Php67.00). The grant provider of this project is willing to finance the project provided however, that CFA will contribute 20% of the total total fund on top of the the EU50, 000. The other project is the ten thousand euro (EU10,000) project with ACN. Being tied up with other projects to finance their completion, plus the current variable and fixed operating costs related to publishing activities, the Executive Director is worried that there might be cash shortages prior to the remittance advise of the grant derive from this project. ACN however, does require any initial cash outlay from CFA and does not also require CFA to contribute any single cent of peso. The project may start anytime when grants are already received. received. On that date the effective interest rate in the financial market is 9%. As financial consultant, the Executive Director of CFA is asking your professional advise on these matters whether to pursue both projects, submit either one project proposal to ACN or Stichting Porticus.
Exhibit 1
FOR ASIA MULTIMEDIA CENTER, INC. (A Nonstock, Nonprofit Organization)
STATEMENTS OF ASSETS, LIABILITIES AND FUND BALANCES DECEMBER 31, 2010 AND MAY 31, 2010 December 31 General and Temporarily Restricted Funds
Permanently Restricted Fund
May 31
Total
ASSETS Current Assets Cash and cash equivalents (Note 5) Trade and other receivables - net (Note 6) Inventories - net (Note 7) Other current assets (Note 8) Total Current Assets
P=30,955,053 19,598,780 343,546 207,672 51,105,051
P= – – – – – – – – – –
P=30,955,053 19,598,780 343,546 207,672 51,105,051
P=25,384,079 12,639,282 1,065,136 233,488 39,321,985
3,537,224 20,596,674 9,099 24,142,997
4,306,134 20,596,674 9,099 24,911,907
Noncurrent Assets
Property and equipment - net (Note 9) Investments - net (Notes 10 and 12) Other noncurrent assets Total Noncurrent Assets
3,537,224 10,000,000 9,099 13,546,323
– – 10,596,674 – – 10,596,674
P=64,651,374 P=10,596,674 P=75,248,048
P=64,233,892
LIABILITIES AND FUND BALANCES
Trade and other payables (Note 11) Advances from related related parties (Notes 10 and 12) Total Current Liabilities
P=9,066,460 30,065,432 39,131,892
P= – – – – – –
P=9,066,460 30,065,432 39,131,892
8,482,491 466,310 8,948,801
– – – – – –
8,482,491 466,310 8,948,801
6,416,516 333,091 6,749,607
4,463,837 12,106,844 – 16,570,681
– – – – 10,596,674 10,596,674
4,463,837 12,106,844 10,596,674 27,167,355
1,565,305 12,117,687 10,596,674 24,279,666
P=1,726,988 31,477,631 33,204,619
Noncurrent Liabilities
Estimated retirement costs (Notes 12 and 18) Other noncurrent liabilities (Note 13) Total Noncurrent Liabilities Fund Balances
General funds Temporarily restricted funds (Note 14) Permanently restricted fund (Notes 10 and 12) Total Fund Balance
P=64,651,374 P=10,596,674 P=75,248,048 See accompanying Notes to Financial Statements.
P=64,233,892
Exhibit 2 FOR ASIA MULTIMEDIA CENTER, INC. (A Nonstock, Nonprofit Organization)
STATEMENTS OF REVENUE AND EXPENSES FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2010 AND THE YEAR ENDED MAY 31, 2010
General Funds
December 31 (Seven Months) Temporarily Permanently Restricted Funds Restricted Fund
May 31 (One Year) Total
Temporarily Restricted Funds
General Funds
Permanently Restricted Fund
Total
REVENUE, GAINS AND OTHER SUPPORT
Publication and printing - net (Note 15) Grants Occupancy sharing Facilities and equipment sharing Workshops, trainings and seminars Interest income (Notes 5 and 10) Funds released from restrictions (Note 16)
P=23,827,706 – – 1,666,989 587,600 1,203,050 739,577 3,403,005 31,427,927
P= – 4,843,000 – – – – (3,403,005) 1,439,995
P= – – – – – – – – – – – – –
(13,571,385) (5,155,762) (18,727,147)
– – –
– – – –
(7,344,844)
–
(7,344,844)
–
– –
P=23,827,706 4,843,000 1,666,989 587,600 1,203,050 739,577 – 32,867,922
=P27,604,355 – 2,290,089 2,497,846 3,236,774 1,596,543 9,179,533 46,405,140
=P – 8,016,382
=P – – – – – –
– – – – (9,179,533) (1,163,151)
=P27,604,355 8,016,382 2,290,089 2,497,846 3,236,774 1,596,543
–
– –
45,241,989
EXPENSES (Notes 6, 9, 17 and 18)
Program services: Publication and distribution Multimedia trainings, trainings, seminars and other projects Support services (Note 17) Management and general
– –
(13,571,385) (5,155,762) (18,727,147)
(19,445,302) (13,981,233) (33,426,535)
–
–
(19,445,302) (13,981,233) (33,426,535)
– –
(7,344,844)
(11,783,460)
–
–
(11,783,460)
– –
(7,344,844)
(11,783,460)
–
–
(11,783,460)
– –
(1,450,838) (730,593) 87,515 (2,093,916)
(2,386,303) 366,576 (2,019,727)
–
(2,386,303) 366,576 (2,019,727)
– –
4,702,015
(824,582)
– –
(1,814,326)
–
P= – –
P=2,887,689
(=P824,582)
– –
– –
OTHER INCOME (CHARGES)
Reversal of unrealized accrued grant (Note 6) Unrealized foreign exchange loss Miscellaneous income
– – (730,593) 87,515 (643,078)
(1,450,838) – – (1,450,838)
– – – – – –
–
– – –
– – – –
–
EXCESS (DEFICIENCY) OF REVENUE, GAINS AND OTHER SUPPORT OVER EXPENSES
4,712,858
(10,843)
(1,163,151)
–
(1,987,733)
–
–
–
(=P1,163,151)
–
OTHER COMPREHENSIVE LOSS
Actuarial loss loss (Note 18)
EXCESS (DEFICIENCY) OF REVENUE, GAINS AND OTHER SUPPORT OVER EXPENSES AND OTHER COMPREHENSIVE LOSS
(1,814,326)
P=2,898,532
–
(P=10,843)
(=P1,987,733)
See accompanying Notes to Financial Statements.
*SGVMC214659*
EXCESS (DEFICIENCY) OF REVENUE, GAINS AND OTHER SUPPORT OVER EXPENSES
4,712,858
(10,843)
– –
4,702,015
– –
(1,814,326)
–
P= – –
P=2,887,689
(=P824,582)
(824,582)
(1,163,151)
–
(1,987,733)
–
–
–
(=P1,163,151)
–
OTHER COMPREHENSIVE LOSS
Actuarial loss loss (Note 18)
EXCESS (DEFICIENCY) OF REVENUE, GAINS AND OTHER SUPPORT OVER EXPENSES AND OTHER COMPREHENSIVE LOSS
(1,814,326)
P=2,898,532
–
(P=10,843)
(=P1,987,733)
See accompanying Notes to Financial Statements.
*SGVMC214659*
Exhibit 3 FOR ASIA MULTIMEDIA CENTER, INC. (A Nonstock, Nonprofit Organization)
STATEMENTS OF CHANGES IN FUND BALANCES B ALANCES FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2010 AND THE YEAR ENDED MAY 31, 2010
General Temporarily Permanently Funds Restricted Restricted Balance at May 31, 2010 Funds Fund Total P=1,565,305 Excess of revenue, gains and other P=12,117,687 P=10,596,674 P=24,279,666 support over expenses and other – comprehensive loss 2,898,532 (10,843) 2,887,689 Balance at December 31, 2010 P=4,463,837 P=12,106,844 P=10,596,674 P=27,167,355 Balance at May 31, 2009
P=2,389,887 P=13,280,838 P=10,596,674 P=26,267,399
Exhibit 3 FOR ASIA MULTIMEDIA CENTER, INC. (A Nonstock, Nonprofit Organization)
STATEMENTS OF CHANGES IN FUND BALANCES B ALANCES FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2010 AND THE YEAR ENDED MAY 31, 2010
General Temporarily Permanently Funds Restricted Restricted Balance at May 31, 2010 Funds Fund Total P=1,565,305 Excess of revenue, gains and other P=12,117,687 P=10,596,674 P=24,279,666 support over expenses and other – comprehensive loss 2,898,532 (10,843) 2,887,689 Balance at December 31, 2010 P=4,463,837 P=12,106,844 P=10,596,674 P=27,167,355 Balance at May 31, 2009 Excess of expenses over revenue, gains and other support Balance at May 31, 2010
P=2,389,887 P=13,280,838 P=10,596,674 P=26,267,399
– (824,582) (1,163,151) (1,987,733) P=1,565,305 P=12,117,687 P=10,596,674 P=24,279,666
See accompanying Notes to Financial Statements.
Exhibit 4 COMMUNICATION FOUNDATION FOR ASIA MULTIMEDIA CENTER, INC. (A Nonstock, Nonprofit Organization)
STATEMENTS OF CASH FLOWS FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2010 AND THE YEAR ENDED MAY 31, 2010 December 31 May 31 (One (Seven Months) Year) CASH FLOWS FROM OPERATING ACTIVITIES Excess (deficiency) of revenue, gains and other support over expenses Adjustments Adjustments for: Unrealized forex loss Depreciation (Notes 9 and 17) Interest income (Notes 5 and 10) Provision for doubtful accounts (Notes 6 and 17) Gain on sale of equipment Reversal of unrealized accrued grant (Note 6) Operating income before working capital changes Decrease (increase) in: Trade and other receivables Inventories Other current assets Increase in: Trade and other payables Estimated retirement costs Net cash generated from (used in) operations Interest received Net cash provided by operating activities
P=4,702,015
(=P1,987,733)
730,593 1,234,734 (739,577) 606,998 (29,999) 1,450,838 7,955,602
2,386,303 2,090,205 (1,596,543) 648,859 (95,819)
(9,651,945) 721,590 25,816
(2,210,819) (191,459) 72,517
7,339,472 251,649 6,642,184 643,595 7,285,779
279,098 254,712 (350,679) 2,685,025 2,334,346
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition to property property and equipment equipment (Note (Note 9) Proceeds from disposal of property and equipment Net cash used in investing activities
(465,825) 30,000 (435,825)
(829,146) 95,821 (733,325)
CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in: Advances Advances from related related parties Other noncurrent liabilities Net cash provided by (used in) financing activities
(1,412,199) 133,219 (1,278,980)
– 1,445,272
(1,554,157) 47,588 (1,506,569)
