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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 the 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) Accounting for Funds Based on Purpose
The University sets aside an amount of funds collected from students that are intended for students’ other specific educational purposes including the NSTP.
Management determines whether the University has control over its use and whether such funds were disbursed based on the purpose for which the funds were collected. If management determines that the purpose of such fund has been served or are served as part of the regular operations of the University and no continuing obligation is required, any unutilized fund at the end of each year will be recognized as part of educational revenues. However, should the restrictions attached to the funds extend beyond one period, the balance of funds is retained as trust funds, recorded as part of Trade and Other Payables account in the statement of financial position, until such time the conditions and restrictions are fully satisfied. Based on management’s evaluation, collected fees for the NSTP is the only fund that has attached conditions and restrictions which need to be satisfied before revenues may be recognized.
As of March 31, 2013, the outstanding trust fund amounted to P11.7 million presented as NSTP Trust Funds under Trade and Other Payables in the 2013 statement of financial position. In 2012 and 2011, there is no outstanding trust funds as management assessed that the entire amount of trust funds have been utilized for their intended purposes (see Note 12).
(b) Classification of Time Deposits
The University classifies time deposits depending on its intention in holding such financial assets. If the University intends to hold such financial assets to earn interest income regardless of original maturity, it classifies such financial assets as AFS Financial Assets. However, when the University’s intention is to hold such financial assets for operational purposes; it classifies such financial assets as cash equivalents.
The carrying amount of Cash and Cash Equivalents and AFS Financial Assets are presented in Notes 6 and 8, respectively.
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(c) Impairment of AFS Financial Assets
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.
Based on the recent evaluation of information and circumstances affecting the University’s AFS Financial Assets, management concluded that the assets are not impaired as of March 31, 2013, 2012 and 2011. Future changes in those
information and circumstance might significantly affect the carrying amount of the assets.
(d) Amortization of Leasehold Improvements
The University’s leasehold improvements are amortized over 20 years, which is the estimated useful life of the asset (see Notes 2.6 and 11) regardless of the term of the lease contracts which is usually shorter than the expected useful life of the improvements because it is highly probable that the lease contract will be renewed before the end of such contract. A decision by management not to renew its lease agreement will result in a significant change in profit or loss in the period such decision is made.
(e) 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-managed properties generate cash flows that are attributable not only to the property but also to other assets used in the process of supplying educational services.
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 a 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.
(f) Distinction between Operating and Finance Lease
The University has entered into various lease agreements as either a lessor or a lessee. 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. Failure to make the right judgment will result in either overstatement or understatement of assets and liabilities. Currently, all of the University’s lease agreements are determined to be operating leases.
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(g) Recognition of Provisions and Contingencies
Judgment is exercised by management to distinguish between provisions and contingencies. Accounting policies on recognition and disclosure of provisions and contingencies are discussed in Note 2.10 and relevant disclosures are presented in Note 23.
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 end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year:
(a) Impairment of Trade and Other 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 collectability 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.
The carrying value of trade and other receivables and the analysis of allowance for impairment on such financial assets are shown in Note 7.
(b) Valuation of Financial Assets Other than Loans and 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.
The carrying values of the University’s AFS Financial Assets and the amounts of fair value changes recognized during the years on those assets are disclosed in Note 8. On the other hand, fair value gains or losses recognized on FVTPL investments in 2013, 2012 and 2011 are presented as Fair value gains or losses on financial assets at FVTPL under Finance Income or Finance Costs in the 2013, 2012 and 2011 statements of comprehensive income.
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(c) Estimating Useful Lives of Investment Properties and Property and Equipment
The University estimates the useful lives of investment properties 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. The carrying amounts of investment properties and property and equipment are presented in Notes 10 and11, respectively.
Based on management’s assessment as at March 31, 2013, 2012 and 2011, there is no change in the estimated useful lives of the assets during those years. Actual results, however, may vary due to changes in factors mentioned above.
(d) Principal Assumptions for Estimation of Fair Value
Investment property is measured using the cost model. The fair value disclosed in the financial statements is determined by the University using the discounted cash flows valuation technique since information on current or recent prices of assumptions underlying the discounted cash flow approach of investment property was not readily available. The University uses assumptions that are mainly based on market conditions existing at the end of each reporting period.
The principal assumptions underlying management’s estimation of fair value are those related to: the receipt of contractual rentals, expected future market rentals, and appropriate discount rates. These valuations are regularly compared to actual to market yield data, and actual transactions by the University and those reported by the market.
The expected future market rentals are determined on the basis of the remaining useful life of the properties being leased out of 20 years.
(e) 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. In 2013, the management assessed that the full amount of investment in a joint venture is already impaired (see Note 9). On the other hand, based on management assessment, the
University did not recognize any impairment loss on investment properties, property and equipment, and investments in subsidiaries and an associate in 2013, 2012 and 2011.
(f) Determining Realizable 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 asset to be utilized. Management assessed that the deferred tax assets recognized as at March 31, 2013, 2012 and 2011 will be fully utilized in the coming years.
The carrying value of deferred tax assets as of those dates is disclosed in Note 19.
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