PART V EXHIBITS AND SCHEDULES
Item 13. Exhibits and Reports on SEC Form 17-C (a) Exhibit
4. RISK MANAGEMENT OBJECTIVES AND POLICIES
(d) Determining Fair Value of Investment Properties
Investment property is measured using the cost model. The fair value disclosed in Note 13 is determined by the University based on the appraisal report prepared by independent appraisers using the relevant valuation methodology as discussed in Note 6.4.
For investment properties with appraisal conducted prior to the end of the current reporting period, management determines whether there are significant circumstances during the intervening period that may require adjustments or changes in the
disclosure of fair value of those properties.
A significant change in these elements may affect the prices and the value of the assets. As of May 31, 2018, 2017 and 2016 the University determined that there were no significant circumstances that may affect the fair value determination of investment properties.
(e) Estimating Impairment of Non-financial Assets
The University’s policy on estimating the impairment of non-financial assets is discussed in detail in Note 2.14. Though management believes that the assumptions used in the estimation of recoverable amounts are appropriate and reasonable, significant changes in these assumptions may materially affect the assessment of recoverable values and any resulting impairment loss could have a material adverse effect on the results of operations. Based on management assessment, no impairment loss is required to be recognized on the University’s investment properties, property and equipment, and investments in subsidiaries and an associate as of May 31, 2018, 2017 and 2016.
(f) Determining Recoverable Amount of Deferred Tax Assets
The University reviews its deferred tax assets at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax assets to be utilized. Management assessed that the deferred tax assets recognized as at May 31, 2018, 2017 and 2016 are fully recoverable because those will be fully utilized in the coming years. The carrying value of deferred tax assets as of those dates is disclosed in Note 22.
4.1 Market Risk (a) Foreign Currency Risk
Most of the University’s transactions are carried out in Philippine pesos, its functional currency. Exposures to currency exchange risk arise from certain cash and cash equivalents, AFS financial assets and HTM investments that are primarily denominated in United States (US) dollars.
To mitigate the University’s exposure to foreign currency risk, the University entered in a cross-currency swap agreement and keeps the amount of its US dollar deposit at a minimum level.
Financial assets denominated in US dollar, translated into Philippine pesos at the closing rate, as of May 31 are presented below:
2018 2017 2016
Short-term exposure –
Financial assets P 25,940,365 P 132,250,323 P 251,701,477 Long-term exposure –
Financial assets P 567,854,333 P 444,175,297 P 305,342,055
The following table illustrates the sensitivity of the University’s profit or loss before tax with respect to changes in Philippine peso against US dollar exchange rates. The percentage changes in rates have been determined based on the average market volatility in exchange rates, using standard deviation, in the previous periods (for the periods ended May 31, 2018, 2017 and 2016) at a 68% confidence level.
May 31, 2018 May 31, 2017 May 31, 2016
(One Year) (One Year) (Two Months)
Reasonably Effect in Reasonably Effect in Reasonably Effect in
possible profit before Effect in possible profit before Effect in possible loss before Effect in change in rate tax equity change in rate tax equity change in rate tax equity PhP - USD 3.98% P 23,633,029 P 21,269,726 26.27% P 151,427,010 P136,284,309 1.91% ( P 10,639,531) (P 9,575,578 )
Exposures to US dollar exchange risk vary during the year depending on the volume of foreign currency denominated transactions. Nonetheless, the analysis above is considered to be representative of the University’s currency risk.
(b) Interest Rate Risk
The University’s exposure to interest rate risk arises from the interest-bearing financial instruments as of end of each reporting period, which are subject to variable interest rates.
All other financial assets and financial liabilities have fixed interest rates.
2017 2016
[As Restated – [As Restated – Notes 2018 see Note 2.1(d)] see Note 2.1(d)]
Cash and cash
equivalents 7 P 237,222,553 P 319,600,228 P 545,377,957 AFS financial assets 10.1 960,958,390 1,015,595,234 1,298,780,386 Short-term investments 11 52,993,469 565,247 1,009,685 Interest-bearing loans 16 ( 2,367,142,858) ( 1,880,000,000) ( 1,480,000,000)
( P 1,115,968,446) (P 544,239,291) P 365,168,028
The following table illustrates the sensitivity of profit or loss before tax for the periods with regard to the University’s interest-bearing financial instruments. These percentages have been determined based on the average market volatility rates, using standard deviation, in the periods ended May 31, 2018, 2017 and 2016, estimated at 68% level of confidence. The sensitivity analysis is based on the University’s financial instruments held at May 31, 2018, 2017 and 2016.
May 31, 2017 May 31, 2016
May 31, 2018 (One Year) (Two Months)
(One Year) [As Restated – see Note 2.1(d)] [As Restated – see Note 2.1(d)]
Reasonably Effect on Reasonably Effect on Reasonably Effect on possible profit before possible profit before possible loss before
change in rate tax change in rate tax change in rate tax Cash and cash equivalents +/-0.19% P 450,723 +/-0.12% P 383,520 +/-0.01% (P 54,538) AFS financial assets +/-1.42% 13,645,609 +/-0.45% 4,570,179 +/-0.03% ( 389,634) Short-term investments +/-1.42% 752,507 +/-0.45% 2,544 +/-0.03% ( 303) Interest-bearing loans +/-0.56% ( 13,256,000) +/-0.58% ( 10,904,000) +/-0.27% 3,996,000
P 1,592,839 (P 5,947,757) P 3,551,525
(c) Other Price Risk
The University’s exposure to price risk arises from its investments in equity securities, which are classified as part of the AFS Financial Assets account in the statements of financial position. These consist of publicly listed equity securities which are carried at fair value.
Management monitors its equity securities in its investment portfolio based on market indices. Material investments within the portfolio are managed on an individual basis.
For equity securities listed in the Philippines, an average volatility of 10.57%, 12.71% and 5.61% have been observed for the periods ended May 31, 2018, 2017 and 2016, respectively.
If quoted price for these securities increased or decreased by that percentage, other comprehensive income (loss) would have changed by P79.3 million, P103.0 million and P41.7 million for the periods ended May 31, 2018, 2017 and 2016, respectively.
No sensitivity analysis was provided for government and corporate bonds, and investments in UITF classified as AFS financial assets as management deemed that the risk at the end of the period is not representative of a risk inherent in financial instruments.
The investments are considered medium to long-term strategic investments. In accordance with the University’s policies, no specific hedging activities are undertaken in relation to these investments, except as discussed in Notes 9 and 10 in connection with its investment in certain foreign currency denominated corporate debt instruments which are subject to a cross-currency swap agreement. The investments are continuously monitored to ensure that returns of these equity instruments are timely utilized or reinvested in the University’s favor.
4.2 Credit Risk
Credit risk represents the loss that the University would incur if the counterparty fails to perform its contractual obligations. The credit risk for cash and cash equivalents, short-term investments (presented as part of Other Current Assets) and AFS financial assets is
considered negligible, since the counterparties are reputable financial institutions with high quality external credit ratings. Included in the cash and cash equivalents are cash in banks and short-term placements. These are insured by the Philippine Deposit Insurance Corporation up to a maximum coverage of P0.5 million for every depositor per banking institution.
The University’s exposure to credit risk on its receivables relates primarily to the inability of the debtors to pay and students to fully settle the unpaid balance of tuition fees and other charges which are owed to the University based on installment payment schemes. The University has established controls and procedures to minimize risks of non-collection.
Students are not allowed to enroll in the following semester unless the unpaid balance in the previous semester has been paid. The University also withholds the academic records and clearance of the students with unpaid balances, thus ensuring that collectability is reasonably assured. The University’s exposure to credit risk on its other receivables from debtors and related parties is managed through close account monitoring and setting limits.
The University has no significant exposure to any individual customer or counterparty nor it has any other concentration of credit risk arising from counterparties in similar business activities, geographic region or economic parties. Also, none of the University’s financial assets are secured by collateral or other credit enhancements, except for cash and cash equivalents as described in the preceeding page.
With respect to credit risk arising from the financial assets below, the University’s maximum exposure is equal to the carrying amount of these instruments. Other than the exposure to credit risk on the University’s receivables from students, the risk is minimal as these financial assets and investments are with reputable corporations, financial institutions and/or with related parties.
The maximum exposure to credit risk at the end of the reporting period is as follows:
2017 2016
[As Restated – [As Restated – Notes 2018 see Note 2.1(d)] see Note 2.1(d)]
Cash and cash
equivalents 7 P 237,222,553 P 319,600,228 P 545,377,957 Receivables – net 8 563,345,014 500,100,371 353,321,956 AFS financial assets
(debt securities) 10 960,958,390 1,015,595,234 1,298,780,386 HTM investments 10 297,284,616 336,566,334 -
Short-term investments 11 52,993,469 565,247 1,009,685
Refundable deposits 4,880,271 5,377,630 5,377,630
P 2,116,684,313 P 2,177,805,044 P 2,203,867,614
The following tables show the credit quality of the University’s financial assets as of May 31, 2018, 2017 and 2016 having past due components:
Neither
past due nor Past due
Notes impaired and impaired Total 2018
Cash and cash
equivalents 7 P 237,222,553 P - P 237,222,553 Receivables 8 536,841,848 26,503,166 563,345,014 AFS financial assets
(debt securities) 10 960,958,390 - 960,958,390 HTM investments 10 297,284,616 - 297,284,616 Short-term investments 11 52,993,469 - 52,993,469
Refundable deposits 4,880,271 - 4,880,271
P 2,090,181,147 P 26,503,166 P 2,116,684,313
Neither past due nor Past due
Notes impaired and impaired Total 2017 [As Restated – see Note 2.1(d)]
Cash and cash
equivalents 7 P 319,600,228 P - P 319,600,228 Receivables 8 467,480,892 32,619,479 500,100,371 AFS financial assets
(debt securities) 10 1,015,595,234 - 1,015,595,234 HTM investments 10 336,566,334 - 336,566,334 Short-term investments 11 565,247 - 565,247
Refundable deposits 5,377,630 - 5,377,630
P 2,145,185,565 P 32,619,479 P 2,177,805,044
2016 [As Restated – see Note 2.1(d)]
Cash and cash
equivalents 7 P 545,377,957 P - P 545,377,957 Receivables 8 313,039,780 40,282,176 353,321,956 AFS financial assets
(debt securities) 10 1,298,780,386 - 1,298,780,386 Short-term investments 11 1,009,685 - 1,009,685
Refundable deposits 5,377,630 - 5,377,630
P 2,163,585,438 P 40,282,176 P 2,203,867,614
The University has no past due but unimpaired financial assets at end of each year.
The University classifies tuition and other school fees receivables from students based on the number of semesters the receivables have been outstanding. Receivables from students that are outstanding for more than one semester are analyzed to determine whether they are impaired. Those that are not outstanding for more than one semester or are classified as current receivable are determined to be fully collectible based on historical experience.
The University’s management considers that all of its financial assets are not impaired, except those specifically provided with allowance for impairment at the end of the reporting period, and of good credit quality. Cash and cash equivalents, AFS financial assets, HTM investments and other short-term investments (presented as part of Other Current Assets) are coursed through reputable financial institutions duly approved by the BOT.
4.3 Liquidity Risk
The University manages liquidity risk by maintaining a balance between continuity of funding and flexibility. Treasury controls and procedures are in place to ensure that sufficient cash is maintained to cover daily operational and working capital requirements.
Management closely monitors the University’s future and contingent obligations and ensures that future cash collections are sufficient to meet them in accordance with internal policies.
The University invests in cash placements when excess cash is obtained from operations.
As at May 31, 2018, 2017 and 2016, the University’s financial liabilities have contractual maturities (or are expected to be settled within these periods) which are presented below.
Current Non-current Within 6 to 12 1 to 5 6 Months Months Years 2018
Trade and other payables P 831,251,344 P - P -
Interest-bearing loans 875,016,594 212,542,259 1,434,692,826 Advances from related party 85,800,000 - -
Derivative liability 38,255,313 - -
Subscription payable - 500,000 -
P 1,830,323,251 P 213,042,259 P 1,434,692,826
2017 [As Restated – see Note 2.1(d)]
Trade and other payables P 782,116,411 P - P -
Interest-bearing loans 114,142,043 210,120,027 1,792,541,499
Derivative liability 33,365,459 - -
Subscription payable - 488,000,000 -
P 929,623,913 P 698,120,027 P 1,792,541,499
2016 [As Restated – see Note 2.1(d)]
Trade and other payables P 588,994,341 P - P -
Interest-bearing loans 19,553,973 12,473,015 1,556,549,902
Derivative liability 20,520,000 - -
Subscription payable - 94,250,000 -
P 629,068,314 P 106,723,015 P 1,556,549,902
The contractual maturities presented above reflect the gross cash flows, which may differ from the carrying values of the liabilities at the end of the reporting period.
5. CATEGORIES AND OFFSETTING OF FINANCIAL ASSETS AND