long form - mlg & associates

39
TNM STYROPOR INDUSTRIES INC. STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS The management of TNM STYROPOR INDUSTRIES, INC. is responsible for all information and representations contained in the financial statements for the years ended December 31, 200B. The financial statements have been prepared in conformity with generally accepted accounting principles of PFRS and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate considerations to materiality. In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded; assets are safeguarded against unauthorized use of disposition and liabilities are recognized. The management likewise discloses to the company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial date; (ii) material weaknesses in the internal controls; and (iii) any fraud involves management or other employees who exercise significant roles in the internal controls. The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company. MLG & Associates, the independent auditors and appointed by the stockholders, have examined the financial statements of the company in accordance with generally accepted auditing standards in the Philippines and has expressed its opinion on the fairness or presentation upon completion of such examination, in its report to the Board of Directors and Stockholders. THADDEO GARCIA 1074 EDSA, CUBAO, QUEZON CITY TEL. NOS.: (02) 981-8902/ (02) 987-7665 1

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Page 1: Long Form - MLG & Associates

STATEMENT OF MANAGEMENT’S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The management of TNM STYROPOR INDUSTRIES, INC. is responsible for all information and representations contained in the financial statements for the years ended December 31, 200B. The financial statements have been prepared in conformity with generally accepted accounting principles of PFRS and reflect amounts that are based on the best estimates and informed judgment of management with an appropriate considerations to materiality.

In this regard, management maintains a system of accounting and reporting which provides for the necessary internal controls to ensure that transactions are properly authorized and recorded; assets are safeguarded against unauthorized use of disposition and liabilities are recognized. The management likewise discloses to the company’s audit committee and to its external auditor: (i) all significant deficiencies in the design or operation of internal controls that could adversely affect its ability to record, process, and report financial date; (ii) material weaknesses in the internal controls; and (iii) any fraud involves management or other employees who exercise significant roles in the internal controls.

The Board of Directors reviews the financial statements before such statements are approved and submitted to the stockholders of the company.

MLG & Associates, the independent auditors and appointed by the stockholders, have examined the financial statements of the company in accordance with generally accepted auditing standards in the Philippines and has expressed its opinion on the fairness or presentation upon completion of such examination, in its report to the Board of Directors and Stockholders.

THADDEO GARCIAPRESIDENT/CHAIRMAN OF THE BOARD OF DIRECTORS

MIKAEL SALVACIONTREASURER

EVELYN SALDIVARCHIEF ACCOUNTANT

1074 EDSA, CUBAO, QUEZON CITYTEL. NOS.: (02) 981-8902/ (02) 987-7665

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December 31, 200BTo MLG & Associates

We are providing this letter in connection with your audit(s) of the financial statements of TNM STYROPOR INDUSTRIES, INC as of December 31, 200B for the purpose of expressing an opinion as to whether the financial statements present fairly, in all material respects, the financial position, results of operations, and cash flows of TNM STYROPOR INDUSTRIES, INC in conformity with generally accepted accounting principles. We confirm that we are responsible for the fair presentation in the financial statements of financial position, results of operations, and cash flows in conformity with generally accepted accounting principles.

Certain representations in this letter are described as being limited to matters that are material. Items are considered material, regardless of size, if they involve an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would be changed or influenced by the omission or misstatement.

We confirm, to the best of our knowledge and belief, as of December 31, 200B, the following representations made to you during your audit(s).

1. The financial statements referred to above are fairly presented in conformity with generally accepted accounting principles.

2. We have made available to you all—a. Financial records and related data.b. Minutes of the meetings of stockholders, directors, and committees of directors, or summaries of actions of recent meetings for which minutes have not yet been prepared.

1074 EDSA, CUBAO, QUEZON CITYTEL. NOS.: (02) 981-8902/ (02) 987-7665

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3. There have been no communications from regulatory agencies concerning noncompliance with or deficiencies in financial reporting practices.

4. There are no material transactions that have not been properly recorded in the accounting records underlying the financial statements.

5. There has been no—a. Fraud involving management or employees who have significant roles in internal control.b. Fraud involving others that could have a material effect on the financial statements.

6. The company has no plans or intentions that may materially affect the carrying value or classification of assets and liabilities.

7. The following have been properly recorded or disclosed in the financial statements:a. Related-party transactions, including sales, purchases, loans, transfers, leasing arrangements, and guarantees, and amounts receivable from or payable to related parties.b. Guarantees, whether written or oral, under which the company is contingently liable.c. Significant estimates and material concentrations known to management that are required to be disclosed in accordance with the AICPA’s Statement of Position 94-6, ‘‘Disclosure of Significant Risks and Uncertainties.’’

8. There are no—a. Violations or possible violations of laws or regulations whose effects should be considered for disclosure in the financial statements or as a basis for recording a loss contingency.b. Unasserted claims or assessments that our lawyer has advised us are probable of assertion and must be disclosed in accordance with Financial Accounting Standards Board (FASB) Statement No. 5, ‘‘Accounting for Contingencies.’’c. Other liabilities or gain or loss contingencies that are required to be accrued or disclosed by FASB Statement No. 5.

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9. The company has satisfactory title to all owned assets, and there are no liens or encumbrances on such assets nor has any asset been pledged as collateral.

10. The company has complied with all aspects of contractual agreements that would have a material effect on the financial statements in the event of noncompliance.

To the best of our knowledge and belief, no events have occurred subsequent to the balance-sheet date and through the date of this letter that would require adjustment to or disclosure in the aforementioned financial statements.

THADDEO GARCIAPRESIDENT/CHAIRMAN OF THE BOARD OF DIRECTORS

MIKAEL SALVACIONTREASURER

EVELYN SALDIVARCHIEF ACCOUNTANT

1074 EDSA, CUBAO, QUEZON CITYTEL. NOS.: (02) 981-8902/ (02) 987-7665

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Schedule 200B 200ACurrent Assets

Cash 1 79,532.00

56,722.00

Trade and Other Receivables 2 259,837.00

155,746.00

Inventories 3 340,694.00

341,540.00

Prepaid Expenses 4 3,850.00

2,900.00

Investment in Marketable Securities 48,125.00

47,625.00

Other Current Assets 5 -

8,900.00

Total Current Assets 732,038.00

613,433.00

Noncurrent AssetsProperty, Plant & Equipment 6 1,333,841.17

1,142,462.00

Patents 6,750.00

8,250.00

Total Noncurrent Assets 1,340,591.17

1,150,712.00

TOTAL ASSETS 2,072,629.17

1,764,145.00

Current LiabilitiesTrade & Other Payables 7 396,063.06

196,333.00

Current Portion of Mortgage Payable 24,000.00

24,000.00

Income Tax Payable 177,086.93

23,159.00

Total current Liabilities 597,149.99

243,492.00

Noncurrent LiabilitiesNoncurrent Portion of Mortgage Payable 148,000.00

172,000.00

Stockholder's Equity 8 1,327,479.18

1,348,653.00

TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY 2,072,629.17

1,764,145.00

LIABILITIES AND STOCKHOLDER'S EQUITY

ASSETS

TNM STYROPOR INDUSTRIES, INC. Comparative Balance Sheet

For the year ended, December 31, 200A-200B

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Schedule 200B 200A

Net Sales 1 2,532,235.09

1,836,652.00

Cost of Sales 1,320,801.67

981,079.00

Gross Profit 1,211,433.42

855,573.00

Operating Expenses Selling 233,346.00

144,178.00

Administrative 437,796.48

190,396.00

Total Operating Expenses 671,142.48

334,574.00

Operating Income 540,290.94

520,999.00

Other Income 2 143,778.00

1,500.00

Total Income 684,068.94

522,499.00

Interest Expense 15,762.50

3,545.00

Net Income Before Tax 668,306.44

518,954.00

Income Tax 200,491.93

23,159.00

Net Income After Tax 467,814.51

495,795.00

TNM STYROPOR INDUSTRIES, INC. Comparative Income Statement

For the year ended, December 31, 200A-200B

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200B 200ARaw Materials, Beginning 125,620.00 118,130.00 Purchases-Raw Materials 650,029.00 549,759.00 Raw Materials Available for Used 775,649.00 667,889.00 Less: Raw Materials, Ending 130,911.40 125,620.00 Raw Materials Used 644,737.60 542,269.00

Direct Labor 348,598.00 277,501.00

Factory Overhead Indirect Labor 86,300.00 62,136.00 Indirect Materials 50,254.40 47,670.00 Power, light & water 13,970.00 9,779.00 Expired Insurance - Manufacturing 6,765.00 5,400.00 SSS Contribution- Factory 47,908.00 12,255.00

PhilHealth Contribution - Factory 5,062.50 - Pag-Ibig Contribution - Factory 5,000.00 - Miscellaneous Factory Expense 8,367.00 6,298.00 Gas, Oils & Fires 17,550.00 11,790.00 Depreciation - Delivery Equipment 38,906.67 5,260.00 Repairs & Maintenance - Delivery Equipment 4,925.00 1,875.00 Depreciation - Machinery & Equipment 11,527.50 9,665.00 Repairs & Maintenance - Machinery & Equipment 8,240.00 5,661.00

Total Manufacturing Overhead 304,776.07 177,789.00

Total Manufacturing Cost 1,298,111.67 997,559.00 Work in Process, Beginning 30,150.00 32,130.00 Total Cost of Goods in Process 1,328,261.67 1,029,689.00 Less: Work in Process, Ending 41,880.00 30,150.00 Cost of Goods Manufactured 1,286,381.67 999,539.00 Finished Goods, Beginning 185,770.00 167,310.00 Total Goods Available for Sale 1,472,151.67 1,166,849.00 Less: Finished Goods, Ending 151,350.00 185,770.00

COST OF GOODS SOLD 1,320,801.67 981,079.00

TNM STYROPOR INDUSTRIES, INC. Comparative Cost of Goods Manufactured and Sold

For the year ended, December 31, 200A-200B

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200B 200AFactory Overhead

Indirect Labor 86,300.00 62,136.00 Indirect Materials 50,254.40 47,670.00 Power, light & water 13,970.00 9,779.00 Expired Insurance - Manufacturing 6,765.00 5,400.00 SSS Contribution- Factory 47,908.00 12,255.00

PhilHealth Contribution - Factory 5,062.50 - Pag-Ibig Contribution - Factory 5,000.00 - Miscellaneous Factory Expense 8,367.00 6,298.00 Gas, Oils & Fires 17,550.00 11,790.00 Depreciation - Delivery Equipment 38,906.67 5,260.00 Repairs & Maintenance - Delivery Equipment 4,925.00 1,875.00 Depreciation - Machinery & Equipment 11,527.50 9,665.00 Repairs & Maintenance - Machinery & Equipment 8,240.00 5,661.00

Total Manufacturing Overhead 304,776.07 177,789.00

TNM STYROPOR INDUSTRIES, INC. Comparative Manufacturing Overhead

For the year ended, December 31, 200A-200B

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200B 200ASales Salaries 43,953.00 30,719.00 Salesman's Commission 42,618.00 12,985.00 Sales Taxes and Licenses 98,694.00 69,085.00 Advertising 11,753.00 8,150.00 Salesman's Travelling Expense and Allowance 13,750.00 9,268.00 SSS Contribution - Sales 3,754.00 1,086.00 Miscellaneous Selling Expense 2,523.00 2,188.00 Amortization - Patent 1,500.00 1,500.00 Telephone, Telegram, Cablegram & Post 6,193.00 4,071.00 Entertainment and Representation 8,608.00 5,126.00

TOTAL SELLING EXPENSE 233,346.00 144,178.00

TNM STYROPOR INDUSTRIES, INC. Comparative Schedule of Selling Expenses

For the year ended, December 31, 200A-200B

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200B 200AOffice Salaries 109,230.00 101,037.00 Transportation & Travelling Expense 17,935.00 9,130.00 Licenses & Taxes 6,735.00 2,013.00 Expired Insurance - Administration 5,535.00 6,900.00 Depreciation - Building 14,630.00 14,560.00 Repairs & Maintenance - Building 3,235.00 1,910.00 Office Supplies 19,056.00 12,633.00 Professional Fees 15,600.00 13,150.00 Automobile Expense 5,838.00 5,921.00 Dues, Periodicals & Subscriptions 2,927.00 2,832.00 SSS Contributions - Administrative 9,285.00 2,992.00 PhilHealth Contribution - Administrative 975.00 - Pag-Ibig Contribution - Administrative 400.00 - Miscellaneous Office Expenses 5,046.00 4,513.00 Bad Debts Expense 7,041.00 - Depreciation - Furniture & Equipment 4,700.83 4,105.00 Depreciation - Automobile 90,400.00 6,650.00 Fringe Benefit Tax Expense 14,117.65 - Donations 3,050.00 2,050.00 Research and Development 100,000.00 - Notes Receivable - Written-off 2,060.00 -

TOTAL ADMINISTRATIVE EXPENSE 437,796.48 190,396.00

TNM STYROPOR INDUSTRIES, INC. Comparative Schedule of Administrative Expenses

For the year ended, December 31, 200A-200B

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Schedule 200B 200ACash Flow from Operating Activities

Cash InflowCollection from Customers 1 2,488,027.09

1,771,869.00

Collection of Notes Receivable 2 5,000.00

-

Total 2,493,027.09

1,771,869.00

Cash Outflow Payment for Purchase of Raw Materials 3 589,318.00

469,821.60

Payment of Sales Salaries 43,953.0

0

30,719.00

Payment of Salesman Commission 42,618.0

0

12,985.00

Payment of Salesman's Travelling Expense & Allowances 13,750.0

0

9,268.00

Payment of Advertising

11,753.00

8,150.00

Payment of Sales Taxes & Licences 98,694.0

0

69,085.00

Payment of Miscellaneous Selling Expense 2,523.00

2,188.00

Payment of Entertainment & Representation 8,608.00

5,126.00

Payment of Telephone, Telegram, Cablegram & Post. 6,193.00

4,071.00

Payment of Office Salaries 109,230.00

101,037.00

Payment of Transportation & Travelling Expense 17,935.0

0

9,130.00

Payment of Licences & Taxes 6,735.00

2,013.00

Payment of Repairs & Maintenance - Building 3,235.00

1,910.00

Payment of Office Supplies 19,056.0

0

12,633.00

Payment of Professional Fees 15,600.0

0

13,150.00

Payment of Automobile Expense 5,838.00

5,921.00

Payment of Dues, Periodicals & Subscriptions 2,927.00

2,832.00

Payment of Miscellaneous Office Expenses 10,745.0

0

4,513.00

Payment of Donations 3,050.00

2,050.00

Payment of Research and Development 100,000.00

-

Payment of Indirect Labor 86,300.0

0

62,136.00

Payment of Indirect Materials 50,254.4

0

47,670.00

Payment of Power, light & water 13,970.0

0

9,779.00

Payment of Repairs & Maintenance - Machinery & Equipment 8,240.00

5,661.00

Payment of Repairs & Maintenance - Delivery Equipment 4,925.00

1,875.00

Payment of Gas, oils & Fires 17,550.0

0

11,790.00

Advances 66,448.5

1

-

Payment of Notes Receivable - Officers & Employees 8,000.00

-

Payment of SSS 4 70,793.0

0

15,854.00

Payment of Philhealth 12,075.0

0

Payment of Pagibig 10,800.0

0

Payment of Tax Withheld 16,857.3

8

-

Payment of Insurance 12,300.0

0

2,900.00

Payment of Income Tax 219,405.00

507,080.40

Payment of Output Tax 12,262.8

0

-

Payment of Miscellaneous Factory Expense 8,367.00

6,298.00

Payment of Direct Labor 348,598.00

277,501.00

Total 2,078,907.09

1,715,147.00

Net Cash Flow from Operating Activities 414,120.00

56,722.00

Collection from Notes Payable - Trade 12,550.00

Payment for Interest on Notes and Mortgage 15,810.0

0

Payment of Mortgage 24,000.0

0

Payment for fixed assets 314,050.00

Net Cash Flow from Investing Activities (341,310.00)

Cash Flow from Financing ActivitiesDividends paid 100,000.00

Issuance of Share Capital 50,000.0

0

Net Cash Flow from Financing Activities (50,000.00)

Beginning Cash Balance 56,722.00

Cash Balance 79,532.00

56,722.00

Cash Flow from Investing Activities

For the year ended, December 31, 200A-200BStatement of Comparative Cash flows

TNM STYROPOR INDUSTRIES, INC.

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Notes to Financial StatementsDecember 31, 200B

1. Corporate Information

TNM Styropor Industries Inc was incorporated under the laws of the Philippine on August 30, 1989. Its original authorized capital stock was five hundred thousand peso divided into five thousand shares common stocks with par value of Php 100.00. Its raw materials consisted mainly of high expandable polystyrene, styrocell, recycle resin and plastic sheet.

Sales were mostly to commercial and industrial companies in Manila and provinces, for all insulation and packaging requirements like inspection molding, vacuum forming, packaging for delicate or fragile items, piping insulation, insulation boards, fish boxes, hamburger packs, lunch packs and food trays.

The corporation increased its authorized capital stock from the original five hundred thousand pesos to one million on December 2004 to finance an expansion program. In addition, a mortgaged loan of two hundred thousand pesos was obtained from the allied bank on October 2004. The corporation’s offices and plants were located at 1074 EDSA, Cubao, Quezon city with telephone numbers 981-890 and 987-766 both connecting all departments.

2. Basis of Preparation

The financial statements have been prepared on a historical cost basis, except for derivative financial instruments, investments held for trading and available for sale financial assets which have been measured at fair value. The financial statements are presented in Philippine peso, which is the Company’s functional and presentation currency under Philippine Financial Reporting Standards (PFRS). All values are rounded to the nearest peso except when otherwise stated.

Statement of Compliance

The accompanying financial statements have been prepared in compliance with PFRS. PFRS include statements named PFRS and Philippine Accounting Standards (PAS), including interpretations, issued by Financial Reporting Standards Council.

3. Significant Accounting Policies

3.1 Cash and Cash Equivalents

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Cash includes cash on hands and in banks. The account is recorded at face value. Cash equivalents are short term, highly liquid investments that are readily convertible to known amount of cash with original maturities of three months or less and that are subject to an insignificant risk of changes in value.

3.2 Financial Assets and Liabilities

Date of Recognition - The Company recognizes a financial asset or a financial liability in the consolidated balance sheets when it becomes a party to the contractual provisions of the instrument. In the case of a regular way purchase or sale of financial assets, recognition and derecognition, as applicable, is done using settlement date accounting.

Initial recognition of Financial Instruments - Financial instruments are recognized initially at fair value, which is the fair value of the consideration given (in case of an asset) or received (in case of a liability). The fair value of the consideration given or received is determined by reference to the transaction price or other market prices. If such market prices are not reliably determinable, the fair value of the consideration is estimated as the sum of all future cash payments or receipts, discounted using the prevailing market rate of interest for similar instruments with similar maturities. The initial measurement of financial instruments, except for those designated at fair value through profit and loss (FVPL), includes transaction cost.

Subsequent to initial recognition, the Company classifies its financial assets and liabilities in the following categories: held-to-maturity (HTM) financial assets, available-for-sale (AFS) investments, FVPL financial assets, and loans and receivables. The classification depends on the purpose for which the investments are acquired and whether they are quoted in an active market. Management determines the classification of its financial assets at initial recognition and, where allowed and appropriate, re-evaluates such designation at every reporting date.

Determination of Fair Value - The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotation (bid price for long positions and ask price for short positions), without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction.

For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. Valuation

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techniques includes net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models.

Where the transaction price in a non-active market is different from the fair value of the other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Company recognizes the difference between the transaction price and fair value in the consolidated statements of income unless it qualifies for recognition as some other type of asset. In cases where use is made of data which is not observable, the difference between the transaction price and model value is only recognized in the consolidated statements of income when the inputs become observable or when the instrument is derecognized. For each transaction, the Company determines the appropriate method of recognizing the profit amount.

Financial Assets

Financial Assets at FVPL - Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition as at FVPL.

Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Gain or losses on investments held for trading are recognized in the consolidated statements of income.

Financial assets may be designated by management at initial recognition as at FVPL, when any of the following criteria is met:

a. the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the assets or recognizing gains or losses on a different basis; or

b. the assets are part of a group of financial assets, financial liabilities or both which are managed and their performance are evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

c. the financial instrument contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded.

Financial Liabilities

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Financial Liability at FVPL - Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are

not accounted for as accounting hedges, or when the Company elects to designate a financial liability under this category.

Other Financial Liabilities - This category pertains to financial liabilities that are not held for trading or not designated as at FVPL upon the inception of the liability. These include liabilities arising from operations or borrowings.

The financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest method of amortization (or accretion) for any related premium, discount and any directly attributable transaction costs.

Derecognition of Financial Assets and Liabilities

Financial Assets - A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognized when the rights to receive cash flows from the asset have expired; the Company retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without material delay to a third party under a ‘pass-through’ arrangement; or the Company has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.

When the Company has transferred its rights to receive cash flows from an asset and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognized to the extent of the Company’s continuing involvement in the asset.

Financial Liabilities. A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

Impairment of Financial Assets

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The Company assesses at balance sheet date whether a financial asset or group of financial assets is impaired.

Assets Carried at Amortized Cost - If there is objective evidence that an impairment loss on loans and receivables carried at amortized cost has been incurred, the amount of loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses) discounted at the financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial recognition). The carrying amount of the asset shall be reduced either directly or through use of an allowance account. The amount of loss shall be recognized in the consolidated statements of income.

The Company first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statements of income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date.

Assets Carried at Cost - If there is objective evidence of an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or of a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset.

Classification of Financial Instruments between Debt and Equity

A financial instrument is classified as debt if it provides for a contractual obligation to:

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a. deliver cash or another financial assets to another entity; or

b. exchange financial assets or financial liabilities with another entity under conditions that are potentially unfavourable to the Company; or satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

If the Company does not have an unconditional right to avoid delivering cash or another financial asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

Offsetting Financial Instruments

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheets if, and only if, there is a currently enforceable

legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, and the related assets and liabilities are presented gross in the balance sheets.

Inventories

Finished goods, goods in process and materials and supplies are valued at the lower of cost and net realizable value. Costs incurred in bringing each inventory to its present location and conditions are accounted for as follows:

Finished goods and goods in process

Materials and supplies cost includes direct materials and labor and a proportion of manufacturing overhead costs based on normal operating capacity but excluding borrowing costs; costs are determined using the moving-average method; at cost using the moving-average method

Net realizable value of finished goods and goods in process is the estimated selling price in the ordinary course of business, less the estimated costs of completion and the estimated costs necessary to make the sale.

Net realizable value of materials and supplies is the current replacement cost.

Property, Plant and Equipment

Property, plant and equipment, except land, are stated at cost less accumulated depreciation and amortization and any impairment in value.

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Land is stated at cost less any impairment in value.

The initial cost of property, plant and equipment comprises of its purchase price, including import duties, taxes and any directly attributable costs in bringing the asset to its working condition and location for its intended use. Cost also includes any related asset retirement obligation and interest incurred during the construction period on funds borrowed to finance the construction of the projects. Expenditures incurred after the asset has been put into operation, such as repairs, maintenance and overhaul costs, are normally recognized as expense in the period the costs are incurred. In situations where it can be clearly demonstrated that the expenditures have improved the condition of the asset beyond the originally assessed standard of performance, the expenditures are capitalized as an additional cost of property, plant and equipment.

Construction in progress represents structures under construction and is stated at cost. This includes the costs of construction, property and equipment and other direct costs. Borrowing costs that are directly attributable to the construction of plant and equipment are capitalized during the construction period. Construction in progress is not depreciated until such time that the relevant assets are ready for use.

Depreciation and amortization are computed using the straight-line method over the following estimated useful lives of the assets:

The remaining useful lives, residual values and depreciation and amortization method are reviewed periodically to ensure that such periods and method of depreciation and amortization are consistent with the expected pattern of economic benefits from the items of property, plant and equipment.

Fully depreciated assets are retained in the accounts until they are no longer in use and no further depreciation and amortization is credited or charged to current operations. When each major inspection is performed, its cost is recognized in the carrying amount of the property, plant and equipment as a replacement if the recognition criteria are satisfied.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the consolidated statements of income in the year the asset is derecognized.

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Investment Properties

Investment properties represent land, land improvements, buildings and building improvements held to earn rentals and/or for capital appreciation. Buildings are measured at cost less accumulated depreciation and any impairment in value. The carrying amount includes the cost of replacing part of an existing investment property at the time the cost is incurred, if the recognition criteria are met, and excludes the costs of day-to-day servicing of an investment property. Land is stated at cost less any impairment in value.

Depreciation on buildings is computed using the straight-line method over 5 to 50 years.

An investment property is derecognized when it has been disposed of or when it is permanently withdrawn from use and no future economic benefit is expected from its disposal.

Transfers are made to investment properties when, and only when, there is a change in use, commencement of an operating lease to another party or ending of construction or development. Transfers are made from investment property when, and only when, there is a change in use, evidenced by commencement of the Company’s occupation or commencement of development with a view to sale.

Intangible Assets

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at 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 impact on the results of operations.

Retirement Cost and Other Retirement Benefits.

The determination of the Company’s obligation and cost of retirement benefits is dependent on the selection of certain assumptions used by actuaries in calculating such amounts. Those assumptions are described to the consolidated financial statements and include discount rate, expected return on plan assets and salary increase rate. In accordance with PFRS, actual results that differ from the assumptions are accumulated and

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amortized over future periods and therefore, generally affect the recognized expense and recorded obligation in such future periods.

Asset Retirement Obligation - Determining asset retirement obligation requires estimation of the cost of dismantling property and equipment and other costs of restoring the leased properties to their original condition.

Contingencies

The Company currently has various tax assessments and legal claims. The Company’s estimate of the probable costs for the assessments and claims and assessment of the resolution of these claims have been developed in consultation with in house as well as outside counsel handling the prosecution and defense of these cases and is based on an analysis of potential results. The Company currently does not believe that these tax assessments and legal claims will have a material adverse effect on the consolidated financial position and results of operations. It is possible, however, that future results of operations could be materially affected by changes in the estimates or in the effectiveness of strategies relating to these proceedings.

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Liquidity RatiosA. Working Capital

Current Assets 732,038.00 613,433.00 Less: Curent Liabilities 597,149.99 243,492.00

134,888.01 369,941.00

B. Current RatioCurrent Assets 732,038.00 613,433.00

Current Liabilities 597,149.99 243,492.00

C. Acid Test Ratio Quick Assets 387,494.00 260,093.00 Curent Liabilities 597,149.99 243,492.00

D. Working Capital to Total Assets Working Capital 134,888.01 369,941.00

Total Assets 2,072,629.17 1,764,145.00

Profitability RatiosA. Fixed Asset Turnover

Net Sales 2,532,235.09 1,836,652.00 Fixed Asset 1,333,841.17 1,142,462.00

B. Return on Sales Net Income 467,814.51 495,795.00

Net Sales 2,532,235.09 1,836,652.00

C. Return on Total Asset Net Income 467,814.51 495,795.00

Total Asset 2,072,629.17 1,764,145.00

D. Return on Stockholders' EquityNet Income 467,814.51 495,795.00

Stockholders' Equity 1,327,479.18 1,348,653.00

E. Gross Profit RatioGross Profit 1,211,433.42 855,573.00

Net Sales 2,532,235.09 1,836,652.00

F. Return on Current AssetsNet Income 467,814.51 495,795.00

Current Assets 732,038.00 613,433.00

Test of StabilityA. Proprietary (Equity) Ratio

Stockholders' Equity 1,327,479.18 1,348,653.00 Total Assets 2,072,629.17 1,764,145.00

B. Fixed Asset to Partner's EquityFixed Assets 1,333,841.17 1,142,462.00

Stockholders' Equity 1,327,479.18 1,348,653.00

D. Debt to Equity RatioTotal Liabilities 745,149.99 415,492.00

Stockholders' Equity 1,327,479.18 1,348,653.00

E. Equity to Debt RatioStockholders' Equity 1,327,479.18 1,348,653.00

Total Liabilities 745,149.99 415,492.00

0.31

1.90

3.25

TNM Styropor IndustriesFinancial Ratio Analysis

For the Two Years, December 31, 200B & 200A

0.37

0.47

0.81

0.76

0.85

0.23

0.35

0.48

0.64

0.64

200A200A

1.23

0.65

0.07

1.00

0.56

1.78

2.52

1.07

0.21

1.61

0.27

0.28

0.18

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SCHEDULES

Balance Sheet Schedules

Schedule 1 200B 200APetty cash 1,064.00 1,000.00 Cash In Bank 78,468.00 55,722.00

TOTAL CASH 79,532.00 56,722.00

Schedule 2 200B 200AAccounts Receivable - Trade 195,642.00 130,859.00 Less: Allowance for Doubtful Accounts 9,782.00 8,753.00 Net Realizable Value 185,860.00 122,106.00 Accounts Receivable - Officers and Employees 40,549.50 2,000.00 Notes Receivable 25,000.00 30,000.00 Notes Receivable - Officers and Employees 8,000.00 - Accrued Interest on Notes Receivable 427.50 1,640.00

TOTAL TRADE & OTHER RECEIVABLES 259,837.00 155,746.00

Schedule 3 200B 200AFinished Goods 214,127.39 185,770.00 Less: Allowance for Inventory Writedown 62,777.39 - Net Realizable Value 151,350.00 185,770.00 Work in Process 41,880.00 30,150.00 Raw Materials 130,911.40 125,620.00 Indirect Materials Unused 16,552.60 -

TOTAL INVENTORIES 340,694.00 341,540.00

Schedule 4 200B 200APrepaid Insurance 2,900.00 2,900.00 Prepaid Interest 950.00 -

TOTAL PREPAID EXPENSES 3,850.00 2,900.00

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Schedule 5 200B 200ADeferred Charges - MCIT - 8,900.00 Creditable Income Tax - - Input Tax - -

TOTAL OTHER CURRENT ASSETS - 8,900.00

Schedule 6 200B 200ALand 277,100.00 207,100.00 Building 372,300.00 364,000.00 Less: Accumulated Depreciation 100,543.33 83,720.00 TOTAL 271,756.67 280,280.00

Machinery & Equipment 239,300.00 225,300.00 Less: Accumulated Depreciation 58,363.00 57,898.00 TOTAL 180,937.00 167,402.00

Delivery Equipment 548,500.00 320,900.00 Less: Accumulated Depreciation 263,926.67 225,020.00 TOTAL 284,573.33 95,880.00

Automobiles 452,000.00 452,000.00 Less: Accumulated Depreciation 158,050.00 87,650.00 TOTAL 293,950.00 364,350.00

Furniture and Equipment 47,700.00 45,750.00 Less: Accumulated Depreciation 22,175.83 18,300.00 TOTAL 25,524.17 27,450.00

TOTAL PROPERTY, PLANT AND EQUIPMENT 1,333,841.17 1,142,462.00

Schedule 7 200B 200AAccounts Payable 212,230.00 134,931.00 Notes Payable - Trade 60,750.00 48,200.00 Notes Payable - Bank 20,000.00 - Accrued Interest on Notes Payable 1,822.50 1,810.00 Accrued Interest on Mortgage Payable 430.00 490.00 SSS Premiums Payable 51,580.00 479.00 PhilHealth Premiums Payable 12,075.00 - Pag-ibig Premiums Payable 10,800.00 - Income Tax Withheld Payable 1,310.00 972.00 Commission Payable 3,753.00 2,303.00 Accrued Taxes and Licenses - - Fringe Benefit Taxes Payable 14,117.65 - Output Tax Payable 7,194.91 7,148.00

TOTAL TRADE & OTHER PAYABLES 396,063.06 196,333.00

Schedule 8 200B 200AShared Capital 650,000.00 500,000.00 Retained Earnings 612,479.18 - Allowance for Contingent Tax Liabilities 65,000.00 - TOTAL SHAREHOLDER'S EQUITY 1,327,479.18 500,000.00

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Income Statement Schedules

Schedule 1 200B 200ASales 2,593,123.09 1,856,183.00 Sales Return and Allowances (40,313.00) (7,230.00) Sales Discount (20,575.00) (12,301.00)

Net Sales 2,532,235.09 1,836,652.00

Schedule 4 200B 200AInterest Earned 5,228.50 1,300.00 Dividend Income 1,150.00 200.00 Profit or Loss on Sale of Fixed Assets 7,187.50 - Miscellaneous Income 127,806.00 - Profit from Sales of Securities 2,406.00 -

TOTAL OTHER INCOME 143,778.00 1,500.00

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Cash Flow Schedules

Schedule 1 200B 200A Sales 2,593,123.09 1,856,183.00 Output Tax - Gross Sales 2,593,123.09 1,856,183.00 Add: Beginning Accounts Receivable 130,859.00 53,775.00 Less: Ending Accounts Receivables 195,642.00 130,859.00 Sales Returns and Allowances 40,313.00 7,230.00 Total 2,488,027.09 1,771,869.00

Schedule 2 200B 200A Beginning, Notes Receivable 30,000.00 - Less Ending, Notes Receivable 25,000.00 - Total 5,000.00 -

Schedule 3 200B 200A Inventoriable 650,029.00 549,759.00 Input Tax - Gross Purchases 650,029.00 549,759.00 Add: Beginning Accounts Payable 134,931.00 134,931.00 Less: Ending Accounts Payable 195,642.00 214,868.40 Total Cash Paid for Purchases 589,318.00 469,821.60

Schedule 4 200B 200A SSS Premium Expense 121,894.00 - Beg. 479.00 - End 51,580.00 - Total 70,793.00 -

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SHARE CUMULATIVENOTES CAPITAL EARNINGS RESERVES TOTAL EQUITY

Balance at December 31, 200A 500,000.00P 352,858.00P 852,858.00P 20% Stock Dividends 100,000.00 (100,000.00) - 10% Cash Dividends (65,000.00) (65,000.00) Newly Issued 500 shares for cash 50,000.00 50,000.00 Prior Period Adjustments 21,806.67 21,806.67 Appropriation for contingent - deficiency income tax liability (65,000.00) 65,000.00 - Net Income for the Year 467,814.51 467,814.51 Balance at December 31, 200B 650,000.00P 612,479.18P 65,000.00P 1,327,479.18P

Balance at December 31, 2000 500,000.00P 352,858.00P 852,858.00P Net Income for the Year 495,795.00 495,795.00 Balance at December 31, 200A 500,000.00P 848,653.00P 1,348,653.00P See accompanying Notes to Financial Statements

TNM STYROPOR INDUSTRIES, INC.Statement of Changes in Equity

For the year ended December 31, 200B & 200A

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STATEMENT OF MANAGEMENT’S RESPONSIBILITY

FOR ANNUAL INCOME TAX RETURN

The management of TNM STYROPOR INDUSTRIES, INC. (the “Company”) is responsible for all information and representations contained in the Annual Income Tax Return for the year ended December 31, 200B. Management is likewise responsible for all information and representations contained in the financial statements accompanying the (Annual Income Tax Return or Annual Information Return) covering the same reporting period. Furthermore, the Management is responsible for all information and representations contained in all the other tax returns filed for the reporting period, including, but not limited, to the value added tax and/or percentage tax returns, withholding tax returns, documentary stamp tax returns, and any and all other tax returns.

In this regard, the Management affirms that the attached audited financial statements for the year ended, December 31, 200B and the accompanying Annual Income Tax Return are in accordance with the books and records of TNM STYROPOR INDUSTRIES, INC. complete and correct in all material respects. Management likewise affirms that:

(a)the Annual Income Tax Return has been prepared in accordance with the provisions of the National Internal Revenue Code, as amended, and pertinent tax regulations and other issuances of the Department of Finance and the Bureau of Internal Revenue;

(b)any disparity of figures in the submitted reports arising from the preparation of financial statements pursuant to financial accounting standards and the preparation of the income tax return pursuant to tax accounting rules has been reported as reconciling items and maintained in the company’s books and records in accordance with the requirements of Revenue Regulations No. 8-2007 and other relevant issuances;

(c) the management of TNM STYROPOR INDUSTRIES, INC. has filed all applicable tax returns, reports and statements required to be filed under Philippine tax laws for the reporting period, and all taxes and other impositions shown thereon to be due and payable have been paid for the reporting period, except those contested in good faith.

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Signed under oath by:

THADDEO GARCIA

PRESIDENT/CHAIRMAN OF THE BOARD OF DIRECTORS

MIKAEL SALVACION

TREASURER

EVELYN SALDIVAR

CHIEF ACCOUNTANT

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