Comparative Financial Statements and Notes to FS.pdf

GRACE CORPORATION

Financial Statements and Notes December 31, 2004 and 2003

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COVER SHEET

1

0 0 7 0 0 SEC Registration Number

G R A C E

C O R P O R A T I O N

Name) (Company’s Full Full Name)

1 2

N I N O Y

A Q U I N O

A V E N U E , P A R A N A Q U E

C I T Y , P H I L I P I N E S

(Business Address: No. Street City/Town/Prov City/Town/Province) ince)

John Carlos Wee

(632)990-4236

(Contact Person)

(Company Telephone Number)

1 2

3 1

Month

Day

A A F S (Form Type)

(Fiscal Year)

0 4

2 7

Month

Day

(Annual Meeting)

(Secondary License Type, If Applicable)

SEC Dept. Requiring this Doc.

Amended Articles Number/Section Total Amount of Borrowings

5 Total No. of Stockholders

Domestic

To be accomplished by SEC Personnel concerned

File Number

LCU

Document ID

Cashier

Foreign









GRACE CORPORATION STATEMENTS OF FINANCIAL POSITION

December 31 2003 2004 ASSETS Current Assets Cash and cash equivalents Financial Assets Short-Term Investments Trade and Other Receivables - net Merchandise Inventory Prepayments Total Current Assets Noncurrent Assets Property and equipment - net Intangible assets Total Noncurrent Assets

P,= 14,232,169.00 P,= 1,100,000.00 1,150,000.00 2,545,000.00 6,500,000.00 13,750,000.00 12,574,457.07 900,000.00 3,940,279.37 500,000.00 400,000.00 17,400,000.00 40,191,905.44

61,180,000.00 76,484,679.97 1,000,000.00 62,180,000.00 76,484,679.97 P,= P,= 79,580,000.00 116,676,585.41

LIABILITIES AND EQUITY Current Liabilities Trade and Other Payables Notes Payable Total Current Liabilities Equity Ordinary Share Capital Subscribed Ordinary Share Capital Subscription Receivable- Ordinary Share Capital Premium in Excess of Par Retained earnings Total Equity

See accompanying Notes to Financial Statements.

20,710,051.98 15,206,500.00 35,916,551.98

1,450,500.00 21,000,000.00 22,450,500.00

45,000,000.00 70,000,000.00 5,000,000.00 2,625,000.00 3,500,000.00 5,250,000.00 8,629,500.00 2,871,401.69 57,129,500.00 80,760,033.43 P,= P,= 79,580,000.00 116,676,585.41









GRACE CORPORATION STATEMENTS OF COMPREHENSIVE INCOME

Years Ended December 31 2003 2004 REVENUE

Net Sales

COSTS AND OPERATING EXPENSES Cost Of Sales Operating Expense Finance Cost

P,= P,= 53,439,000.00 110,710,751.07 53,439,000.00 110,710,751.07

56,997,534.38 44,531,214.77 2,604,880.27 104,133,629.42

34,785,500.00 9,688,500.00 445,500.00 44,919,500.00

97,209.86 1,632,504.00 1,729,713.86

110,000.00 110,000.00

INCOME BEFORE INCOME TAX

8,306,835.51

8,629,500.00

PROVISION FOR INCOME TAX

2,492,050.65

2,588,850.00

OTHER INCOME Interest income Others - net

NET INCOME See accompanying Notes to Financial Statements.

P,=5,814,784.86 P,= 6,040,650.00









GRACE CORPORATION STATEMENT OF CASH FLOWS

Years Ended December 31 2003 2004 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Depreciation Amortization Bad Debts Expense Gain on Sale of Securities Unrealized Gain/ Losses Interest Income Interest Expense Operating income before changes in working capital Changes in operating assets and liabilities: Decrease (increase) in: Marketable Securities Trade and Other Receivables Merchandise Inventory Prepaid Expense Increase (decrease) in: Trade and Other Payable Income Tax Payable Net cash generated from operations operations Accrued Expenses paid Income Tax paid Net cash provided by operating operating activities CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property and equipment Acquisition of Short- term Investments Recognition of Amortization Cost as Intangible Asset PCIB Time Deposit Proceeds from sale of securities Cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Due to Related Party Payment of Notes Payable Increase in Notes Payable Subscription Receivable Issuance of Shares Dividends paid

P,=11,999,752.83

P,=8,629,500.00

4,087,946.90

280,000.00

958,730.00 1,630,000.00 2,085,000.00 308,560.00 113,880.27 21,183,870.01

(110,000.00) 445,500.00 9,245,000.00

(13,132,094.00) 2,969,895.00 (1,939,307.61) 100,000.00

(140,000.00) (4,300,000.00) (200,000.00) (190,000.00)

17,306,649.27

31,500.00 4,446,500.00 (3,506,500.00)

26, 489,012.67

(20,000,000.00) (5,580,000.00)

940,000.00

-

2,080,000.00 (23,500,000.00)

(7,893,500.00)

7,000,000.00









CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR

160,000.00

CASH AND CASH EQUIVALENTS AT END OF YEAR

P,=1,100,000.00












GRACE CORPORATION STATEMENTS OF CHANGES IN EQUITY

Years Ended December 31 2003 2004 CAPITAL STOCK - P,=100 par value Authorized, issued and (no.) outstanding shares PREMIUM ON CAPITAL STOCK SUBSCRIBED CAPITAL STOCK SUBSCRIPTION RECEIVABLE

P,= 70,000,000.00 P,=45,000,000.00 3,500,000.00 5,250,000.00 5,000,000.00 (2,625,000.00)

RETAINED EARNINGS Balance at beginning of year Correction for prior period error Net income Cash dividends Balance at end of year


4,481,456.00 (738,818.49) 6,040,650.00 5,814,784.86 (7,500,000.00) 6,040,650.00 2,871,401.69 P,=80,760,033.43 P,=51,040,500.00









GRACE CORPORATION Notes to Financial Statements As at and for the years ended December 31, 2004 and 2003

Note 1- Corporate Information

Grace Corporation (Company) was incorporated with the Philippine Securities and Exchange Commission (SEC) on May 2, 2002. The Company was organized primarily to engage engage in, operate, conduct, carry on and maintain the business of importing, exporting, buying, selling, handling, and otherwise dealing in, all kinds of office, school and printing supplies of all kinds of office machinery and equipment as well as general commission business on the said products. The Company’s registered office address is at 12 Ninoy 12 Ninoy Aquino Avenue, Paranaque City, Philippines. The consolidated financial statements as at December 30, 2004 and 2003 were approved and authorized for issuance by the Board of Directors on March 31, 2005. Note 2- Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1

Basis of Preparation

Statement of Compliance The financial statements of the Company have have been prepared in accordance with the Philippine Financial Reporting Standards (PFRS).

The preparation of the financial statements in accordance with PFRS requires management to









Trade and other receivables are stated at the nominal value as reduced by appropriate allowances for estimated irrecoverable accounts. Trade receivables which are based on normal credit terms and do not bear interest, are recognized and carried at original invoice amount. The carrying amount of receivables approximates fair value due to the short period of maturity of these investments. investments. Where the credit period given extends beyond the normal credit terms, receivables are measured using the effective interest rate (EIR) method. An amortization table shall be shown as basis for accounts affected by the associated long-term receivables. At the end of each reporting period, the carrying amounts of the receivables are reviewed to determine whether there is any objective evidence that the amounts are not recoverable. A provision for impairment loss is made ma de when there is objective evidence that amounts a mounts due will not be collected in its total amount. Significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganization, and default or delinquency in payments are considered indicators that the trade receivable is impaired. The amount of the provision of impairment loss is the difference between the asset’s carrying amount and the present value of estimated future cash c ash flows, discounted at a t the original ori ginal effective interest intere st rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. The amount amount of impairment loss shall be recognized recognized in the Statement of Comprehensive Income. The carrying amount of the asset shall be reduced either directly or through the use of an allowance account. Trade and Other receivables from exchange transactions (i.e. Trade Receivables) are disclosed separately from trade and other receivables from non-exchange transactions (i.e. Receivable from Employees). Trade and Other Receivables in which which the entity gives gives approximately equal value are recognised under Trade and Other Receivables from exchange transactions. Trade and Other Receivables in which the entity gives substantially less than the fair value or which the entity receives without giving approximate equal value in the exchange shall be classified under Trade and Other Receivables from Non-Exchange transactions.

2.4 Inventories Inventories are stated at the lower of cost and net realizable value. The cost of goods available for sale includes the cost of purchase less the purchase discounts. Net realizable value is the estimated selling selli ng price in the ordinary course of business, less variable selling expenses and cost to complete.









2.5 Prepayments Prepayments or prepaid expenses are expenses paid in advance. The prepayments are accounted for using the asset method in which the prepayments are recorded as current assets (or can be classified under non-current assets) depending on the terms. Only the portion of the expense that has actually expired or used up is matched against the revenue generated during the accounting period. There is an exception to this rule, as Grace Corporation has a policy of expensing payments on advertisement immediately, when the period of advertisement is not stated. 2.6 Financial Instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity of another entity. The company recognizes a financial instrument in the balance sheets, when, and only when, it becomes a party to the contractual provisions of the instrument. 2.7 Property, Plant and Equipment Property, plant and equipment are carried at cost less a ccumulated depreciation depreciati on and amortization and any impairment in value.

The initial cost of property, plant and equipment consists of its purchase price, including import duties, taxes and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditures incurred after the property, property, plant and equipment have been put into operation, such as repairs and maintenance, are normally charged to income in the period in which the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have resulted in an increase in the future economic benefits expected to be obtained from the use of an item of of property, plant and equipment equipment beyond its originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment. Depreciation and amortization are computed on the straight-line basis over the estimated useful lives (EUL) of the property, plant and equipment as follow: Years Land

0

Transportation equipment

10









2.8 Current and Deferred Income Tax Current tax Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authority. Deferred tax tax Deferred tax is recognized on differences between carrying amounts of assets and liabilities in the financial statements and their corresponding tax bases (known as temporary differences). Deferred tax liabilities are recognized for all temporary differen differences ces that are expected to increase taxable profit in the future. Deferred tax assets are recognized for all temporary differences that are expected to reduce the taxable profit in the future. Deferred tax assets are measured at the highest amount that, on the basis of current or estimated future taxable profit, is more likely than not to be recovered.

The net carrying amount of deferred tax assets is reviewed at each reporting date and is adjusted to reflect the current assessment of of future taxable profits. Any adjustment is recognized in the statement of comprehensive income. Deferred tax is calculated at tax rates that are expected to apply to the taxable profit (loss) of the periods in which it expects the deferred tax assets to be realized or the deferred tax liability to be settled, on the basis of tax rates that have been enacted or substantively enacted by the end reporting period. A valuation allowance is provided, provided, on the basis of past years and future expectations, when it is not probable that taxable profits will be available against which the future income tax deductions can be utilized. 2.9 Intangible Assets Intangible assets acquired separately are measured on initial recognition at cost. Following initial recognition, intangible assets are carried at cost less accumulated amortization and any accumulated impairment loss. loss. Internally-generated intangible assets, if any, excluding capitalized development costs, are not capitalized and expenditure is reflected in the consolidated statement of comprehensive income in which the expenditure is incurred.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for











As of December 31, 2004 and 2003, the Company has no intangible assets with indefinite useful lives. Organization Cost is eliminated from the financial statements as these costs are expensed when incurred. 2.10 Impairment of Nonfinancial Assets This accounting policy primarily relates relate s to the Company’s property, plant and equipment. e quipment. The carrying values of property, plant and equipment are reviewed for impairment when events or changes in circumstances indicate that t he carrying values may not be recoverable. If any such indication exists and where the carrying values exceed the estimated recoverable amounts, the assets or cash-generating units are written down to their recoverable amounts. The recoverable amount of property, plant and equipment is the greater of net selling price and value in use. In assessing value in use, use, the estimated future cash flows are discounted discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate generate largely independent cash inflows, the recoverable amount is determined for the cashgenerating unit to which which the asset belongs. belongs. Impairment losses are recognized in the statement of comprehensive income.

If an impairment loss subsequently reverses, the carrying amount of the asset (or group of related assets) is increased to the revised estimate of its recoverable amount (selling price less costs to complete), but not in excess of the amount that would have been determined had no impairment loss been recognized recognized for the asset (or group group of related assets) in prior years. years. A reversal of an impairment loss is recognized immediately in statement of comprehensive income. 2.11

Trade and Other Payables

Initial recognition recognition and measurement measurement









2.12

Provisions and Contingencies

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. obligation. Provisions are reviewed reviewed at each reporting date date and adjusted to reflect the current best estimate. Contingent liabilities are not recognized recognized in the financial statements. They are disclosed unless the possibility of an outflow of resource s embodying economic benefits is remote. Contingent assets are not recognized in the financial statements but disclosed when an inflow of economic benefits is probable. 2.13 Revenue Recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be be reliably measured. The Company assesses its revenue arrangements against specific criteria in order to determine that it is acting as a principal in all its revenue arrangements. The Company concluded concluded that it is acting as a principal in all of its revenue arrangements. The following specific recognition criteria must also be met before revenue is recognized: Sales revenue Sales revenue is recognized at the time of delivery of the products and the collectability is reasonably assured. Interest income income Interest income on notes receivable is recognized as it accrues. The time of accrual is in accordance with the terms of the note, thus interest is computed separately for each note.









events that are not adjusting events are disclosed in the notes to the financial statements when material. Note 3- Estimates and Assumptions EUL of intangible intangible asset asset The Company’s management determines the EUL and related amortization for the intangible asset. This estimate is based on the the expected future economic economic benefit of the assets of the Company. The amortization of intangible asset will increase when the EUL is less than the previously estimated useful life.

Note 4- Cash and Cash Equivalents

This account consists of:

Cash in banks Petty Cash Total Cash

2004

2003

14,320,690.00

1,000,000.00

1,404.00

10,000

14,232,094.00

1,010,000.00

Cash in banks earns interest at the respective bank deposit rates although, during the course of the audit, there has been no statement of such earned interest. It is in accordance with the auditor’s professional judgment to recognize amounts when it meets the threshold of materiality. Cash equivalents, which represent money market placements









Accrued Interest Receivable Total Accrued Interest Receivable TOTAL RECEIVABLES & OTHER RECEIVABLES

2004 99,162.74

12,574,457.50

2003 0

13,750,000

Trade receivables are noninterest -bearing and are normally settled on a thirty (30) to sixty (60) day terms. Trade receivables amount to P 12,574,745 as of December 30, 2004 and P 13,750,000 as of December 30, 2003. Receivables are further classified according to the exchange transactions (trade or non-trade). The classifications are shown above with their respective amounts.

Note 6- Inventories

Inventories at December 31 consist of:

2004

At net realizable value Finished goods

3,940,279.37

2003 900,000.00

Inventories are recognized at the lower of cost or net-realizable value (estimated selling price less estimated costs to sell or costs to complete). The inventory account on December 31, 2004 shows an audited balance of P 4,080,120.54 which is already adjusted down to its net realizable value. A writedown of P 318,383.21 is recorded appropriately. The net realizable









This account consists of shares in: 2004

200 3

680,00 PLDT

0

PLDT - Stock Exchange San Miguel Philex Mining Omico Balance at end of year

136,000 800,000 910,000 19,000 2,545,000

1,150,000

* The increase in the beginning balance is not brought by purchases but rather because of change in market/fair values

Note 9- Property, Plant and Equipment











Depreciation

2,283,403.36

210,500.00

600,000.00

170,416.67

Disposals At December 31 Net Book Value

16,500,000.00 16,500,000.00

50,066,596.64 50,066,596.64 2,984,500.00

5,400,000.00

1,533,583.33

Note 10- Intangible asset

Intangible asset pertains organization cost, which is not in accordance with PAS 38, Intangible Assets. Details of this account as of December 31, 31, 2004 and 2003 follow:

76,484,679.









SSS Medicare Premium Payable

144,720.00

62,000.00

Withholding Taxes Payable

129,600.00

52,500.00

HDMF Premiums Payable

63,200.00

29,500.00

Accrued Interest Payable

68,380.27

VAT payable Utilities Payable Property Tax Payable

400,000.00 148500 70000

Cash Dividends Payable

7,500,000.00

Salaries Payable

3,002,301.29

Bonus Payable Representation

2,644,129.77









67,375,000

45,000,000

Grace Corporation’s authorized share was registered with SEC on April 30, 2002 totalling to One hundred million pesos (P100, 000,000.00), Philippine currency and divided into One million (1,000,000) shares with a par value of One hundred pesos (P100.00). There is only one class of share capital, which is Ordinary share capital and no issuance of transfer of shares of the corporation which would reduce the stock ownership of the Filipino citizen to less than the percentage of outstanding share capital required by law to be owned by Filipino citizens, shall be allowed or permitted to be recorded in the books of the corporation. Fifty thousand shares were subscribed, half still unpaid and Two hundred and fifty thousand shares were subscribed and issued during 2004. A total of Seven Hundred Hundred Thousand (700,000) shares were issued and no shares are held in treasury as of December 31, 2004.









110,710,751.07

Sales for the year ended December 31, 2004 amount to P112,623,178.57, while sales discounts and sales returns and allowances amount to 870,952.50 and P1,041,475.00, respectively. Net Sales to be reflected on the Statement of Comprehensive Income for the year ended December 31, 2004 amount to an audited balance of P110,710,751.07. Amount is inclusive of unrecorded sales for the month of December, 2004 (see Sales Invoices).

Note 14- Cost of Goods sold

This account consists of: 2004

Cost of inventory sold

56,997,534.38

2003 34,785,500.00









Depreciation Expense (Note ) Amortization of Organization Cost Bad Debts Expense

4,034,403.36 4,034,403.36

-

-

-

144,750.68

280,000

Representation Expense

120,000

132,000

Advertising Expense

850,520

318,000

Insurance Expense

550,000

200,000

Miscellaneous Expense

397,938

70,000

Income Tax Expense

4,159,249.45 4,159,249.45

9,688,500.00

Miscellaneous expenses pertain to bank charges, security and janitorial services, information technology support and maintenance, repairs and maintenance and insurance, and transportation expenses.

Comparative Financial Statements and Notes to FS.pdf

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