SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

NOTES TO FINANCIAL STATEMENTS MARCH 31, 2009

PFRS 3 Revised) : Business Combinations

3. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The University’s financial statements prepared in accordance with PFRS require management to make judgments and estimates that affect amounts reported in the financial statements and related notes. Judgments and estimates are continually evaluated and are based on historical experience and other factors, including

expectations of future events that are believed to be reasonable under circumstances.

Actual results may ultimately vary from these estimates.

3.1 Critical Management Judgments in Applying Accounting Policies

In the process of applying the University’s accounting policies, management has made the following judgments, apart from those involving estimation, which have the most significant effect on the amounts recognized in the financial statements:

(a) Held-to-maturity Investments

In classifying non-derivative financial assets with fixed or determinable payments and fixed maturity, such as bonds, as held-to-maturity (HTM) investments the University evaluates its intention and ability to hold such investments up to maturity.

If the University fails to keep these investments to maturity other than for

specific circumstances as allowed under the standards, it will be required to

reclassify the whole class to available-for-sale financial assets. In such a case,

the investments would therefore be measured at fair value, not amortized cost.

- 14 -

As of March 31, 2009 and 2008, there are no held-to-maturity investments disposed of before their maturity.

(b) Distinction Between Investment Properties and Owner-managed Properties

The University determines whether a property qualifies as investment property.

In making its judgment, the University considers whether the property generates cash flows largely independent of the other assets held by an entity. Owner- occupied properties generate cash flows that are attributable not only to the property but also to other assets used in the production or supply process.

Some properties comprise a portion that is held to earn rental or for capital appreciation and another portion that is held for use in the supply of services or for administrative purposes. If portion can be sold separately (or leased out separately under finance lease), the University accounts for such portion separately. If the portion cannot be sold separately, the property is accounted for as investment property only if an insignificant portion is held for use in the supply of services or for administrative purposes. Judgment is applied in determining whether ancillary services are so significant that a property does not qualify as investment property. The University considers each property

separately in making its judgment.

(c) Classification of Leases

The University has entered into various lease agreements as either a lessor or a lessee. Critical judgment was exercised by management to distinguish each lease agreement as either an operating or finance lease by looking at the transfer or retention of significant risk and rewards of ownership of the properties covered by the agreements. Currently, all of the University’s lease agreements are determined to be operating leases.

Rental expense charged to operations amounted to P56.2 million in 2009, P50.5 million in 2008 and P48.2 million in 2007 (see Note 13) while rental income earned in 2009, 2008 and 2007are presented as Rental Income in the income statements (see Note 8).

(d) Provisions and Contingencies

Judgment is exercised by management to distinguish between provisions and

contingencies. Policies on recognition and disclosure of provision and

disclosure of contingencies are discussed in Note 2.8 and relevant disclosures

are presented in Note 20.

- 15 -

3.2 Key Sources of Estimation Uncertainty

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the balance sheet date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:

(a) Allowance for Impairment of Receivables

The University maintains an allowance for impairment loss on receivables at a level considered adequate to cover probable uncollectible receivables. The level of this allowance is evaluated by management on the basis of factors that affect the collectibility of the accounts. These factors include, but are not limited to, history of the students’ payment behavior, age of receivables and other external factors affecting the education industry. The University constantly reviews the age and status of receivables, and identifies accounts that should be provided with allowance. Analyses of the net realizable value of receivables as of March 31, 2009 and 2008 are presented in Note 5.

Impairment losses recognized on receivables amounted to about P17.6 million in 2009, P17.5 million in 2008 and P12.7 million in 2007 (see Note 5).

(b) Valuation of Financial Assets Other than Loans and Other Receivables

The University carries certain financial assets at fair value, which requires the extensive use of accounting estimates and judgment. In cases where active market quotes are not available, fair value is determined by reference to the current market value of another instrument which is substantially the same or is calculated based on the expected cash flows of the underlying net base of the instrument. The amount of changes in fair value would differ if the University utilized different valuation methods and assumptions. Any change in fair value of these financial assets would affect profit and loss and equity.

Fair value gains and losses recognized on available-for-sale financial assets in 2009, 2008 and 2007 are presented as Accumulated Fair Value Gains (Losses) in the statements of changes in equity (see Note 6).

(c) Impairment of Available-for-sale Investments

The determination when an investment is other-than-temporarily impaired requires significant judgment. In making this judgment, the University evaluates, among other factors, the duration and extent to which the fair value of an investment is less than its cost, and the financial health of and near-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flows.

Analyses of the carrying value of the available-for-sale investments as of

March 31, 2009 and 2008 are presented in Note 6.

- 16 -

(d) Useful Lives of Investment Property and Property and Equipment

The University estimates the useful lives of investment property and property and equipment based on the period over which the assets are expected to be available for use. The estimated useful lives of these assets are reviewed periodically and are updated if expectations differ from previous estimates due to physical wear and tear, technical or commercial obsolescence and legal or other limits on the use of the assets. Analyses of the carrying amounts of investment property and property and equipment are presented in Notes 8 and 9, respectively. Actual results, however, may vary due to changes in factors mentioned above. Based on management assessment as of March 31, 2009 and 2008, no change in the estimated useful lives of the assets is necessary.

(e) Impairment of Non-financial Assets

PFRS requires that an impairment review be performed when certain impairment indicators are present. The University’s policy on estimating the impairment of non-financial assets is discussed in detail in Note 2.12. Though management believes that the assumptions used in the estimation of fair values reflected in the financial statements 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.

The University did not recognize any impairment loss on property and

equipment, investment property and investments in subsidiaries and an associate

in 2009, 2008 and 2007.