The consolidated financial position of Far Eastern University, Incorporated and subsidiaries (the Group) remains stable as at 30 November 2019. Total income improved by 13%, mainly as a result of education income due to increased enrollments for the first semester of this Academic Year (AY).
Other non-current assets
Trade and other payables
Interest-bearing loans
Derivative liability
Deferred revenue
Revaluation reserves
Retained Earnings
Non-controlling Interest (NCI)
Educational revenues-net
Sale of investment property
Other income - net
Utility costs are higher by P5.83 million in direct relation to the increase in consumption and use due to more students served during the period. Financing costs increased by P23.84 million, which is mainly attributable to interest on bank loans due to additional loans and interest rate hikes.
Test of Liquidity
Test of Solvency
Debt-to-asset ratio measures the amount of assets provided by the creditors relative to the total amount of assets of the Group. Equity-to-asset ratio measures the amount of assets provided by the owners relative to the total assets of the Group.
Test of Profitability
Product/Service Standard
Although it was founded in 1992, EACCI began operating under the name and style of FEU Institute of Technology (or “FIT” or “FEU Tech”) in 2014. It is housed in two buildings: the Technology Building of the FEU Manila Campus along Nicanor Reyes Street and The 17-story FEU Tech building on P Street.
Market Acceptability
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Items included in the consolidated financial statements of the Group are measured in the functional currency (see Note 2.15). Of the provisions of the RCC, the following would have an impact on the consolidated financial statements of the Group:. Any subsequent changes in the associate's share of equity are reflected in the carrying amount of the University's investment.
Financial assets are recognized when the Group becomes a party to the contractual terms of the financial instrument. For credit-impaired financial assets, the effective interest rate is applied to the net book value of the financial asset (after deduction of the loss allowance). Prepayments and other current assets of the Group include inventory items such as books and merchandise.
Financial liabilities, including trade and other payables [excluding tax-related liabilities, deposits payable and National Service Training Program (NSTP) trust fund], interest-bearing loans, derivative liabilities and repayable deposits (presented under Other non-current liabilities) are included when the Group is party to is added to the contractual terms of the instrument. The difference between the carrying amount of the derecognized financial liability and the consideration paid or payable is recognized in the income statement. The Group determines whether an agreement is or contains a lease based on the content of the agreement.
Other reserves refer to the amount attributable to the parent company arising from changes in NCI's ownership in the group. Any event after the end of the year that provides additional information about the consolidated financial position of the group at the end of the reporting period (corrective event) is reflected in the consolidated financial statements.
USE OF ACCOUNTING JUDGMENTS AND ESTIMATES
In addition, assets that are not directly attributable to the operating activities of an operating segment are not allocated to a segment. There have been no changes from prior periods in the valuation methods used to determine the reported segment profit or loss. Events after the end of the year that are not significant events are disclosed, if applicable, when they are material to the consolidated financial statements.
RISK MANAGEMENT OBJECTIVES AND POLICIES
The Group's exposure to price risk arises from its investments in equities, which are classified as part of financial assets in FVTPL and financial assets in FVOCI accounts in the consolidated statements of financial position. Also, none of the Group's financial assets are backed by collateral or other credit protection; excluding cash and cash equivalents as described above. The Group has no delinquent but unaffected financial assets at the end of each year.
The Group's management believes that all of its financial assets are unimpaired and of good credit quality, with the exception of those assets specifically provisioned for impairment at the end of the reporting period. A description of the Group's risk management objectives and policies for financial instruments can be found in Note 4. The preceding tables show the fair value hierarchy of the Group's classes of financial assets and financial liabilities measured at fair value in the consolidated balance sheet on a recurring basis. base from:.
The fair value of the Group's debt securities, which consist of government and corporate bonds, is estimated based on the quoted offer price on the active market at the end of the reporting period and is classified in Level 1. d) Derivative financial instruments. Accordingly, the Group no longer presented a comparison of their fair values with their book values and, accordingly, their level in the fair value hierarchy. Based on management's assessment, the best use of the above-mentioned non-financial assets of the Group is their current use.
PROPERTY AND EQUIPMENT
The Group's ongoing construction includes the costs incurred for the construction of FEUAI's school building in Alabang and the university's new building located at Lerma St., Sampaloc, Manila, both of which are substantially complete as of 30 November and 31 May 2019. As of As of November 30 and May 31, 2019, certain fully depreciated assets with acquisition cost of P723.8 million are still being used in the Group's operations.
INVESTMENT PROPERTIES
The total rental income earned by the Group from its investment properties amounted to P22.2 million and P21.3 million for the six months ended November 30, 2019 and 2018, respectively. The direct operating expenses, which include depreciation, insurance and property taxes, which the group has incurred regarding investment properties, is presented as part of Depreciation and amortization, Property insurance and Taxes and licenses under Costs and operating costs in consolidated income statements. Based on the latest appraisal report from an independent appraiser, the total fair value of investment properties was P205.1 million. per 30 November and 31 May 2019.
Information regarding fair value measurement and disclosure of investment properties is presented in note 6.4.
INTEREST-BEARING LOANS
Related interest amounting to P15.1 million and P37.2 million was recognized for the periods ended November 30 and May 31, 2019. Interest incurred on this loan amounts to P1.9 million and P7.6 million for the periods ended November 30 and 31 May 2019, respectively. Related interest amounting to P0.4 million and P2.8 million was recognized for the period ended November 30 and May 31, 2019, respectively. g).
Related interest of P1.8 million and P11.2 million was recognized for the periods ended November 30 and May 31, respectively. H). Related interest of P1.5 million and P9.8 million was recognized for the periods ended November 30 and May 31, 2019, respectively. i). Related interest of P2.2 million and P4.4 million was recognized for the period of November 30 and May 31, 2019, respectively. l) In April 2018, the university obtained an interest-bearing loan of P100.0 million from a local commercial bank for additional working capital.
Related interest amounting to P2.7 million and P5.9 million was incurred for the period ended November 30 and May 31, 2019, respectively. m) In March 2019, the University obtained a P100.0 million short-term interest-bearing loan from a local commercial bank for additional working capital. Related interest amounting to P2.9 million and P1.7 million was incurred for the period ended November 30 and May 31, 2019, respectively. local commercial bank for additional working capital. Related interest amounting to P2.0 million and P1.2 million was incurred for the period ended November 30 and May 31, 2019, respectively.
EARNINGS PER SHARE
COMMITMENTS AND CONTINGENCIES
As of May 31, 2019, the university and EACCI both have an ongoing lawsuit against the local government of the City of Manila, where they are challenging the levying of local business tax on tuition fees collected. The University and EACCI protest is based on the following premises: (i) the lack of a specific provision in the Local Government Code and in the Local Tax Code of Manila authorizing the City of Manila to impose a 1% business tax on to levy tuition fees; (ii) prescription; and (iii) violation of due process. The disputed local business tax relates to tax years 2009 to 2013 and 2013 to 2017 for the university and EACCI, respectively.
In 2019, the University and EACCI protested the payment of the above-mentioned shortfall in local business taxes amounting to P189.9 million and P35.4 million. The payment was made under protest and should not be interpreted as a waiver of the University's rights to pursue legal remedies in connection with the aforementioned case and to request a refund of the payment. Later, the university and EACCI took advantage of the tax amnesty granted by the City of Manila and settled the corresponding compromise amount.
Accordingly, the University and EACCI are released and discharged from all deficiency tax assessments through the 2019 tax year. Also, as of the same date, the University is a defendant in several civil cases pending before the National Labor Relations Commission . Court of Appeal and Supreme Court. Also, there are other unforeseen situations that arise in the normal course of business that are not recognized in the consolidated financial statements of the Group.
CAPITAL MANAGEMENT OBJECTIVES, POLICIES AND PROCEDURES The Group aims to provide returns on equity to shareholders while managing operational
As of November 30, 2019, no final decision has been made by the courts in the above cases; therefore no provision for contingencies is recognised. There are provisions included in the consolidated balance sheet that arise in the normal course of business of certain subsidiaries. Management believes that any losses arising from these provisions, commitments and contingent liabilities will not materially affect the consolidated financial statements.
Capital ratio profiles are determined in light of changes in the Group's external environment and the risks underlying the Group's business, operations and industry. The university monitors capital based on the debt-to-equity ratio, which is calculated as total debt divided by total equity. The Group's capital management objective is to maintain a lower liability compared to adjusted equity or a debt-to-equity ratio of no more than .
This is consistent with the University's banking covenants related to its borrowing, which require the University to maintain a debt-to-equity structure ratio of no more and a debt service coverage ratio of at least 1.2x. The university has complied with its covenant obligations, including maintaining the required debt ratio in all the years presented. There have been no significant changes in the group's approach to capital management during the year.
SEASONAL FLUCTUATIONS
