PART IV SCHEDULES AND OTHER REPORTS
Item 13. SEC Form 17-C and Quarterly Report
23. INCOME TAXES
2020 2019 2018
Cash and cash equivalents P 39,300,689 P 37,546,004 P 31,817,317 Domestic listed shares 200,610,035 283,751,057 275,433,328
Corporate bonds 138,953,332 128,563,323 118,586,342
Other securities and debt
instruments 22,887,356 84,173,329 117,604,442
UITF 59,556,414 10,692,764 69,824,910
Government bonds 241,846,837 136,093,180 68,897,219
Fixed income loans - 4,669,573 4,669,573
Others 64,320,982 23,706,082 23,009,282
P 767,475,645 P 709,195,312 P 709,842,413
The Fund’s financial assets are maintained in trust funds with credible trustee banks under control by the Fund through its Retirement Board.
The breakdown of the Fund’s net plan assets is presented to show the composition of the plan assets used by the actuary in determining the net retirement obligation based on the minimum guarantee under RA 7641 as of May 31, 2020, 2019 and 2018 (see Note 24.14).
2020 2019 2018
Tax on pretax profit at 10% P 45,353,613 P 27,436,928 P 16,024,205 Adjustments for income
subjected to higher tax rates 5,425,739 22,174,096 6,856,538 Tax effects of:
Non-taxable income ( 36,596,928) ( 22,346,462)( 8,600,972 ) Non-deductible expenses 6,935,251 - - P 21,117,675 P 27,264,562 P 14,279,771 The net deferred tax assets relate to the following:
Statements of Financial Position Statement of Profit or Loss 2020 2019 2018 2020 2019 2018
Deferred tax assets:
Accrued expense P 10,668,700 P 8,284,622 P 6,858,892 (P 2,384,078 ) (P 1,425,730 ) ( P 1,394,203 ) Unrealized fair value loss
financial assets at FVTPL 7,364,776 - - ( 7,364,776 ) - - Allowance for impairment on
tuition and other school
fees receivables 4,256,172 3,025,674 2,650,317 ( 1,230,499 ) 100,511 611,631 Unrealized foreign currency
losses (gains) 1,264,961 430,884 ( 3,170,310 ) ( 834,077 ) ( 3,601,192 ) 234,243 Allowance for impairment on
investments 47,616 47,616 - - ( 47,616 ) -
Unrealized fair value losses - net - 4,135,165 3,825,531 4,135,165 ( 309,634 ) ( 488,985 ) 23,602,225 15,923,961 10,164,430 ( 7,678,265 ) ( 5,283,661 ) ( 1,037,314) Deferred tax liabilities –
Prepaid expenses ( 2,888,768 ) ( 1,539,604 ) ( 1,510,322 ) 1,349,165 29,281 1,510,322
Deferred tax assets – net P 20,713,457 P 14,384,357 P 8,654,108
Deferred tax expense (income) – net ( P 6,329,100 ) (P 5,254,380 ) P 473,008
The University claimed itemized deductions for income tax purposes in all of the years presented.
The University’s related parties include its subsidiaries, the University’s key management and others as described in Note 2.18. A summary of the University’s transactions with its related parties is presented below (in thousands).
May 31, 2020 May 31, 2019 May 31, 2018
Outstanding Outstanding Outstanding
Amount of Receivable Amount of Receivable Amount of Receivable Notes Transaction (Payable) Transaction (Payable) Transaction (Payable)
Subsidiaries:
Noninterest-bearing
advances 24.2 P - P 235,565 P 35,000 P 235,565 P 90,000 P 200,565
Interest-bearing loans 24.11 50,000 ( 165,800 ) 10,000 ( 95,800) ( 110,800) ( 85,800 )
Lease liabilities 24.3 1,190,516 ( 1,211,867 ) - - - -
ROUA 24.3 1,107,670 1,042,001 - - - -
Interest on lease liabilities – 15.2, 20.2 ( 100,830) - - - - -
Rental expense 24.3, 24.9 - - ( 105,959) ( 82,846) ( 113,030) ( 68,589 )
Reimbursement of expenses – 24.6 34,234 100,005 16,960 65,771 22,369 48,812
Dividend income 24.1 347,496 39,998 60,844 - 62,511 29,999
Rental income 24.4, 24.5,
24.7, 24.8
24.10 80,722 41,613 69,429 6,565 68,927 24,710
Investment subscription
(payments) - net 12 255,000 ( 76,500) ( 500) - ( 487,500) ( 500 )
Stock dividends 24.16 19,999 - 163,295 - - -
Related parties under common management:
Reimbursement of expenses – 24.6 4,593 33,976 7,089 29,383 17,399 22,294
Lease liabilities 24.3 13,517 ( 14,069) - - - -
ROUA 24.3 13,517 10,721 - - - -
Interest on lease liabilities – 15.2, 20.2 ( 552) - - - - -
Rental expense 24.3 - - 3,136 ( 13,067) ( 3,136) ( 9,931 )
Rental income 24.8 - 2,921 - 2,921 2,813 2,921
Noninterest-bearing
advances 24.2 1,106 2,779 488 1,673 755 1,185
Interest-bearing loans 24.11 ( 19,697) - 20,151 ( 20,151) - -
Key management personnel
compensation 24.13 82,223 - 71,754 - 74,076 -
Retirement fund – 24.14
Retirement plan assets - 767,476 - 709,195 - 709,842
Details of the foregoing summary of transactions are discussed below and in the succeeding pages.
24.1 Dividend Income
For the years ended May 31, 2020, 2019 and 2018, the University recognized dividend income from cash dividend declarations made by FEU High, EACCI and FRC (see Note 12), which is presented as Dividend income under Finance Income in the statements of profit or loss (see Note 20.1). Dividend receivable amounting to P40.0 million and P30.0 million as of May 31, 2020 and 2018 (nil in 2019), respectively, is presented as part of Receivables from related parties under the Receivables account in statements of financial position (see Note 8).
The University grants unsecured and noninterest-bearing advances to certain related parties for working capital purposes which are currently due on demand.
Summarized below are the outstanding receivables, shown as part of Receivables from related parties under the Receivables account in the statements of financial position, arising from these transactions (see Note 8).
Beginning Advances Repayments Ending 2020
RCI P 235,564,735 P - P - P 235,564,735
FEU Public Policy
Foundation, Inc. 1,673,060 1,106,244 - 2,779,304
P 237,237,795 P 1,106,244 P - P 238,344,039
2019
RCI P 200,564,735 P 35,000,000 P - P 235,564,735 FEU Public Policy
Foundation, Inc. 1,185,000 488,060 - 1,673,060
P 201,749,735 P 35,488,060 P - P 237,237,795
2018
RCI P 160,564,735 P 90,000,000 (P 50,000,000 ) P 200,564,735 FEU Public Policy
Foundation, Inc. 430,000 755,000 - 1,185,000
P 160,994,735 P 90,755,000 (P 50,000,000 ) P 201,749,735
24.3 Lease of Land, Various Buildings and Facilities
The University had several lease agreements with FRC and NREF for its lease of land, various buildings and facilities. The lease agreements are long-term and renewable, and provides for yearly rental rates with yearly escalation rates.
Upon adoption of PFRS 16, the University, as a lessee, recognized ROUA and lease liabilities as at June 1, 2019, which is presented as ROUA and Lease Liabilities in the 2020 statement of financial position (see Note 15). Amortization of the ROUA arising from these transactions is presented as part of Depreciation and amortization under Operating Expenses of the 2020 statement of profit or loss. Total interest expense on lease liabilities is presented as part of Interest expense on lease liabilities under Finance Costs in the 2020 statement of profit or loss. The outstanding balances arising from these transactions as at May 31, 2020, are presented as part of ROUA under Property and Equipment, and Lease Liabilities (current portion under Trade and Other Payable) in the 2020 statement of financial position.
Right-of-use asset Lease Liabilities
Outstanding Amortization Outstanding Interest
Lessor Property Lease term balance expense balance expense FRC Manila campus premises –
land and buildings 20 years P 873,118,011 P 45,953,580 P 997,751,290 P 84,790,256 FRC Makati campus premises – land 30 years 111,548,118 5,531,815 147,901,022 12,723,819 FRC Building – gymnasium 10 years 48,665,389 10,068,701 57,026,785 2,765,250 FRC Facilities – athlete’s quarters 3 years 8,669,548 4,334,774 9,187,669 550,619 NREF Facilities – Diliman sports facilities 10 years 10,720,752 2,796,718 14,069,246 551,775
P 1,052,721,818 P 68,685,588 P1,225,936,012 P 101,381,719
2018, respectively, is presented as part of Rental under Operating Expenses (see Note 19).
Accrued rental amounting to P82.8 million and P68.6 million as at May 31, 2019 and 2018, respectively, is presented as part of Accrued expenses under the Trade and Other Payables account in the statements of financial position (see Note 16).
24.4 Lease of Certain Building Floor to FRC
The University leases to FRC the mezzanine floor of one of the University’s buildings. The lease agreement is renewed for annually for one-year period. Rental income from FRC amounted to P1.0 million, P1.5 million and P1.6 million for the periods ended May 31, 2020, 2019 and 2018, respectively, and is shown as part of Other Operating Income in the
statements of profit or loss. There are no outstanding receivables as of the end of each period related to this lease agreement.
24.5 Lease of Campus Premises to FECSI
In July 2012, a contract was signed between the University and FRC, where the University became the new owner and lessor of two school buildings to FECSI. However, FRC still retains the ownership of the land where the buildings are located. In previous years, FRC owned and leased the campus’ buildings and land solely to FECSI. Subsequently, a new lease agreement was signed by the University, FRC and FECSI for a period of ten years from August 1, 2012 to July 31, 2022. The lease period is renewable subject to conditions mutually agreed upon by the parties. The annual rent is set at P1.3 million or 10% of FECSI’s annual gross revenue net of some adjustments, whichever is higher. The rental fee is equally allocated between the University and FRC.
Total rental income earned from this transaction amounted to P5.2 million, P1.7 million, and P3.1 million for the years ended May 31, 2020, 2019 and 2018, respectively, and is presented as part of Other Operating Income in the statements of profit or loss (see Note 13). Related outstanding receivable arising from this transaction amounted to P2.0 million and P0.7 million for the year ended May 31, 2020 and 2018 (nil in 2019), respectively, which is presented as part of Receivables from related parties under the Receivables account in the statements of financial position (see Note 8). No impairment loss is recognized by the University on this receivable.
During the year ended May 31, 2020, 2019 and 2018, the University billed its subsidiaries and other related entities for the reimbursement of amounts it initially advanced to third party suppliers and service providers for certain expenses, and other various allocated expenses, at cost. These expenses pertain to those incurred in the normal course of operations of University and its related entities, which include utilities, license and
subscriptions, legal fees, various supplies, janitorial and security services, use of facilities, and salaries and benefits of seconded employees, among others. The outstanding receivable as of May 31 is presented as part of Receivables from related parties under the Receivables account in the statements of financial position (see Note 8).
2020 2019 2018
FEUAI P 25,892,648 P 23,710,895 P 22,151,401
RCI 24,689,599 13,031,826 4,194,172
EACCI 20,275,836 7,188,798 3,635,796
NREF 18,004,707 18,875,375 15,002,747
FEU High 16,546,809 12,639,000 12,263,932
FECSI 12,569,519 9,110,667 6,471,145
FEU Public Policy Center
Foundation, Inc. 9,613,117 5,615,114 2,399,102
EAEFI 4,892,015 4,892,015 4,892,015
FEUHWRFP 1,466,088 - -
Edustria 26,134 - -
FRC 4,720 90,449 96,036
P 133,981,192 P 95,154,139 P 71,106,346
24.7 Sub-lease of Buildings to FEU High
Starting June 2016, the University sub-leased its Nursing Building (being leased out from FRC) to FEU High for a period of one year until May 31, 2017. In June 2017, the
University and FEU High entered into a new lease agreement for a period of one year until May 31, 2018, covering both the Nursing and the Accounts, Business and Finance Buildings.
Total rental income from this transaction amounted to P43.9 million, P41.8 million and P39.8 million for the years ended May 31, 2020, 2019 and 2018, respectively, and is
presented as part of Other Operating Income in the statements of profit or loss for the year ended May 31, 2020, 2019 and 2018, respectively. Outstanding receivable arising from this transaction amounting to P23.2 million, P6.6 million and P22.0 million as of May 31, 2020, 2019 and 2018, respectively, is presented as part of Receivables from related parties under the Receivables account in the statements of financial position (see Note 8).
24.8 Lease of Certain Buildings to EAEF and EACCI
The University leases out certain buildings to EAEF for a period of one to five years until March 31, 2015. However, upon expiration of the term of the contract, the University and EAEF had mutually agreed not to renew such lease agreement. Instead, as of May 31, 2016, only certain floors of the buildings were leased out to EAEF. Related receivables arising from this transaction as of May 31, 2020, 2019 and 2018 amounting to P2.9 million, is presented as part of Receivables from related parties under the Receivables account in the statements of financial position (see Note 8).
Starting July 2016, upon take-over of EACCI of the EAEF’s operations, the lease of the buildings was transferred to the custody of EACCI. A new lease contract for a period of ten years until June 30, 2026 was entered into by the University and EACCI. Monthly rental of P2.1 million (exclusive of VAT) from July 2016 to February 2017 and P2.0 million (inclusive of VAT) for March 2017 onwards, was billed to EACCI.