3D UNIVERSAL ENGLISH INSTITUTE, INC.

xxx
NOTES TO FINANCIAL STATEMENTS
December 31, 2018 and 2017
xxx
1. Corporate Information

3D Universal English Institute, Inc. is incorporated in the Philippines registered with the Securities and
Exchange Commission (SEC) with registration Number CS20127811 dated June 15, 2012.

The primary purpose of the Company is to provide English language tutorial lesson to Japanese students.

The registered address of the Company is located at Hotel La Nivel, JY Square, Lahug, Cebu City.

The Company`s financial statements for the years ended December 31, 2018 and 2017 were authorized for
issue by the Company`s Board of Directors on April 10, 2019.

The board of directors is still empowered to make revisions on financial statements even after the date of
issue.
xxx
2. Basis of Preparation and Statement of Compliance

Basis of Measurement
The accompanying financial statements of the company have been prepared under the historical cost
basis. The financial statements are presented in Philippine Pesos, which is the company s functional
currency and presentational currency under Philippine Financial Reporting Standards for Small and
Medium-sized Entities (PFRS for SMEs).

Statement of Compliance
The accompanying financial statements have been prepared in accordance with Philippine Financial Reporting
Standards for Small and Medium- sized Entities (PFRS for SMEs).
xxx
3. Summary of Significant Accounting Policies

Financial Instruments

Initial recognition and measurement

A financial asset or financial liability is recognized when the Company becomes a party to the contractual
provisions of the contract. A financial asset or financial liability is initially measured at transaction price
(including transaction costs except in the initial measurement of financial asset and liabilities that are
measured at fair value through profit or loss) unless the arrangement constitutes, in effect, a financing
transaction.

Subsequent measurement
At financial statement date, the Company measures its financial instruments as follows:
Debt instruments are measured at amortized costs using the effective interest method.
Short-term debt instruments are measured at undiscounted amount.
Equity instruments that are publicly traded are measured at fair value with changes in fair value recognized in
profit or loss.
Equity instruments that are not traded are measured at cost less accumulated impairment.

Derecognition
The Company derecognizes a financial asset when the contractual right to the cash flows from the financial
asset has expired or when the Company has transferred to another party substantially all of the risks and
rewards of ownership of the financial asset.
A financial liability (or a part of a financial liability) is derecognized only when it is extinguished. The Company
recognizes in profit or loss any difference between the carrying amounts of the financial liability extinguished
or transferred to another party and the consideration paid, including any non-cash assets transferred or
liabilities assumed.

Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment
at the end of each reporting period. Financial assets are considered to be impaired when there is object
evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset,
the estimated future cash flows of the investment have been affected.

Objective evidence of impairment could include significant financial difficulty of the counterparty; delinquency
in interest or principal payments; or bankruptcy of the counterparty.

Objective evidence of impairment for a portfolio of receivables could include the Company`s past experience
of collecting payments, an increase in number of delayed payments in the portfolio past the average credit
period as well as observable changes in economic conditions that correlate with default on receivables.

The significant accounting policies and practices of the Company are set forth to facilitate the understanding of
the financial statements:

Cash
Cash is stated at face value and it consists of cash on hand and in bank. Cash in bank earns interest at
respective bank deposit rates.

Receivable
This represents advances to officers and employees. At the end of each reporting period, the carrying amounts
of receivables are reviewed to determine whether there is any objective evidence that the amounts are not
recoverable. If such evidence is identified, an impairment loss is recognized immediately in profit or loss.

Other Current Assets

This account includes creditable withholding tax compensation, prepaid rental and security deposit that is
refundable on the next reporting period. Other current assets are carried at face value.

Property and Equipment

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

The initial cost of property and equipment consists of its purchase price, including any directly attributable
costs in bringing the asset to its working condition and location for its intended use. Expenditures incurred
after the item 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 and equipment. When assets
are sold or retired, their costs and accumulated depreciation, amortization and impairment losses, if any, are
eliminated from the accounts and any gain or loss resulting from their disposal is included in the statement of
income of such period.

The useful life of each of the property and equipment is estimated based on the period over which the asset is
expected to be available for use. Such estimation is based on a collective assessment of industry practice and
experience with similar assets.
The assets` residual values, useful lives and depreciation and amortization method are reviewed, and adjusted
if appropriate, at each financial year-end.

An item of property and equipment is derecognized upon disposal or when no future economic benefits are
expected to arise from the continued use of the asset. 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 item) is
included in the statement of income in the year the item is derecognized.

Other Noncurrent Assets

Other noncurrent assets represent advances to affiliates, deposits and prepayments to leased property used in
operations as well as advances to be paid on long-term basis. Deposits to leased property represent the
Company`s refundable deposit upon expiration of the contract. Prepayment and advances made will be
charged to operations of subsequent years. Other noncurrent assets are measured at amortized cost less any
impairment loss.

Impairment of non-financial assets

The Company assesses the value of property and equipment which require the determination of future cash
flows expected to be generated from the continued use and ultimate disposition of such assets, and require
the Company to make estimates and assumptions that can materially affect the financial statements. Future
events could cause the Company to conclude that property and equipment and other long-lived assets are
impaired. Any resulting impairment loss could have a material adverse impact on the Company`s financial
condition and results of operations.

The preparation of the estimated future cash flows involves significant judgment and estimations. While the
Company believes that its assumptions are appropriate and reasonable, significant changes in these
assumptions may materially affect the Company`s assessment of recoverable values and may lead to future
additional impairment charges.

Accrued Expenses and Other Current Liabilities

Accrued expenses are liabilities to pay for services that have been received or supplied but have not been paid,
invoiced, or formally agreed with the supplier, including amounts due to employees. Accrued expense are non-
interest bearing and are stated at their nominal value.

Other current liabilities represent statutory liabilities and withholding tax payable on expanded. They are
measured initially at their nominal values and subsequently being decreased by settlement payments.
Obligations to the government are remitted on the following month after being withheld from various income
recipients.

Share Capital
Share capital is determined using the nominal value of shares that have been issued and fully paid. Any costs of
acquiring Company`s own shares are shown as a deduction from equity attributable to the Company`s equity
holders until the shares are cancelled or reissued.

When such shares are subsequently sold or reissued, any consideration received, net of directly attributable
incremental transaction costs and the related income tax effects, are included in equity attributable to the
Company`s equity holders.

Cumulative Earnings
Cumulative earnings account includes income in current and prior periods net of any dividend declaration and
effects of prior period adjustments.

Revenue Recognition
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Company
and the amount of revenue can be measured reliably. Revenue is measured by reference to the fair value of
consideration received or receivable excluding discounts, returns and sales taxes. Revenue is recognized as
follows:

Service revenue
Service revenue is recognized in the period the services are performed.

Expense recognition
Expenses represent decreases in economic benefits in the form of decreases in assets or incurrence of
liabilities that result in decrease in equity, other than those relating to distributions to equity participants.
Expenses are generally recognized when the services are received or when the expenses are incurred.

Cost of service
Cost of service includes salaries, and other expenses that are directly attributed to the provision of services to
customers.

Operating expenses
Operating expenses include general, administrative and distribution costs incurred by the Company such as
salaries, rent, fuel, and other costs that cannot be associated directly to the services rendered.

Employee Benefits
Short-term benefits
The Company recognizes a liability net of amounts already paid and an expense for services rendered by
employees during the accounting period. Short-term benefits given by the Company to its employees include
salaries and wages, social security contributions, short-term compensated absences, bonuses and other non-
monetary benefits.

Long-term benefits
To date, the Company has no existing retirement plans, In the absence of any retirement plan or agreement
providing for retirement benefits of employees, an employee upon reaching the age of sixty (60) years or
more, but not beyond sixty five (65) years which is hereby declared the compulsory retirement age, who has
served at least five (5) years, may retire and shall be entitled to retirement pay equivalent to at least one-half
(1/2) month salary every year of service, a fraction of at least six (6) months being considered as one whole
year.

Income Taxes
Income Taxes expense includes current tax expense and deferred tax expense. The current tax expense is
based on taxable profit for the year. Deferred tax is recognized on the differences between the carrying
amounts of assets and liabilities in the financial statements and their corresponding tax bases.

Deferred tax liabilities are recognized for all temporary differences that are expected to increase taxable profit
in the future. Deferred tax assets are recognized for all temporary differences that are expected to reduce
taxable profit in the future, and any net operating loss carry over (NOLCO) or excess of minimum corporate tax
(MCIT) over the regular corporate income tax (RCIT). The net carrying amount of deferred tax asset is reviewed
at each reporting date and any adjustments are recognized in profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the taxable profit on the basis of rates
that have been enacted or substantively enacted by the end of the reporting period.

Leases
Leases where the less or retains substantially all the risks and benefits of ownership of the asset are classified
as operating leases. Operating lease payments are recognized as an expense in the statements of income on a
straight-line basis over the lease term.

A lease is classified as a finance lease if it transfers substantially all the risk and rewards incidental to
ownership. A lease is classified as an operating lease if it does not transfer substantially all the risks and
rewards incidental to ownership.

Related Parties
Related party relationship exists when one party has the ability to control or joint control, directly, or indirectly
through one or more intermediaries, the other party or exercises significant influence over the other party in
making financial and operating decisions. Such relationships also exist between and/or among entities which
are under common control with the reporting enterprise, or between, and/or among the reporting enterprise
and its key management personnel, directors, or its shareholders. In considering each possible related party
relationship, attention is directed to the substance of the relationship, and not merely the legal form.
The key management personnel of the Company and post-employment benefit plans for the benefit of
Company`s employees are also considered to be related parties.

Value- Added Tax

Revenues, expenses and assets are recognized net of the amount of value-added tax except:
- Where the value-added tax incurred on a purchase of assets or services is not recoverable from the
taxation authority, in which case the value-added tax is recognized as part of the costs of acquisition
of the asset or as part of the expense item as applicable; and
- Receivables and payables that are stated with the amount of value-added tax include.
The net amount of value-added tax recoverable from, or payable to, the taxation authority is included as part
of other current assets or other current liabilities in the statements of financial position.

Foreign Currency Transactions

The accounting records of the Company are maintained in Philippine peso. Foreign currency transactions
during the year are translated into Philippine pesos at exchange rates which approximate those prevailing on
transaction dates. Foreign currency monetary assets and liabilities at the reporting date are translated into
Philippine pesos at exchange rates, which approximate those prevailing on that date. Exchange gains and
losses are recognized in income for the period.

Events after the End of the Reporting Period

Post-year-end events up to the date of the auditor`s report that provide additional information about the
Company`s position at the balance sheet date (adjusting events) are reflected in the financial statements. Post-
year-end events that are not adjusting events are disclosed in the notes to financial statements when material.

xxx
4. Summary of Accounting Judgments and Estimates

The preparation of the accompanying financial statements in conformity with Financial Reporting Framework
(in reference to the Philippine Financial Reporting Standards for SMEs) requires management to make
estimates and assumptions that affect the amounts reported in the financial statements and accompanying
notes. In preparing these financial statements, the Company made its best judgments and estimates of certain
amounts, giving due consideration to materiality. Future events may occur which will cause the assumption
used in arriving at the estimates to change. The effects of changes in estimates will be reflected in the financial
statements as they become reasonably determinable.

Judgments
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. In the
process of applying the Company`s policies, management has made judgments, apart from those involving
estimations which have the most significant effect in the amounts recognized in the financial statements.

Leases
The evaluation of whether an arrangement contains a lease is based on its substance. An arrangement is, or
contains a lease when the fulfillment of the arrangement depends on a specific asset or assets and the
arrangement conveys a right to use the asset.

The Company has entered into a contract of lease as a lessee for space. The Company, as lessee, has
determined that the lessor retains all significant risks and rewards of ownership of the properties which are on
operating lease agreements.

Estimates
The estimates and associated assumptions are based on historical experience and other factors that are
considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that period
or in the period of the revision and future periods if the revision affects both current and future periods.
The following are the relevant estimates performed by management on its December 31, 2018 and 2017
financial statements:

Estimated allowance for impairment of receivables

The Company maintains allowance for impairment losses at a level considered adequate to provide for
potential uncollectible receivables. This amount is evaluated based on such factors that affect the collectability
of the accounts. These factors include, the age of the receivables, the length of the Company`s relationship
with the customer`s payment behavior and known market factors. The amount and timing of recorded
expenses for any period would differ if the Company made different judgments or utilized different estimates.
An increase in allowance for impairment losses would increase the recorded operating expenses and decrease
current assets.

Estimating useful lives of property and equipment

The Company estimates the useful lives of its property and equipment based on the period over which these
assets are expected to be available for use. The estimated useful lives of these assets and residual values are
reviewed, and adjusted if appropriate, only if there is a significant change in the asset or how it is used.

The following estimated useful lives are used in depreciating the property and equipment:

Property classification Estimated life

Leasehold improvement 5 years
Books 5 years
Furniture and fixtures 5 years
Kitchen, and Other Equipment 5 years
Office equipment 5 years
Room furniture, and fixtures 5 years
School equipment 5 years

The preparation of the estimated future cash flows involves significant judgment and estimations. While the
Company believes that its assumptions are appropriate and reasonable, significant changes in these
assumptions may materially affect the Company`s assessment of recoverable values and may lead to future
additional impairment charges.

Revenue recognition
The Company`s revenue recognition policies require the use of estimates and assumptions that may affect the
reported amounts of revenues and receivables. Differences between the amounts initially recognized and
actual settlements are taken up in the accounts upon reconciliation. However, there is no assurance that such
use of estimates may not result to material adjustment in future periods.

xxx
5. Cash

The account balance as of December 31, 2018 and 2017 amounted to P1, 726,592 and P1,257,912,
respectively.
xxx
6. Receivable

Receivable consist of advances to officers and employees. As of December 31, 2018 and 2017, receivable
amounted to P324,000 and P5,740, respectively. This receivable does not bear interest.

Xxx
7. Other Current Assets
This account as at December 31 consists of:

Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx

8. Property and Equipment

A reconciliation of the carrying amounts at the beginning and end of 2018 and 2017 and the gross carrying
amounts and the accumulated depreciation of the property and equipment are shown below:

xxx
xxx
xxx
xxx
xxx

xxx
xxx
xxx
xxx

xxx
xxx
xxx

On the matter of impairment of assets, management believes that there appears no indication that
impairment loss should be provide for both years, considering that the Company`s property and equipment
component are all in good operational condition as ensured by the comprehensive and rigid repair and
maintenance program in place.

Depreciation charged for the period ended December 31, 2018 and 2017 amounted to P1,691,052 and P1,448,
837, respectively.

Xxx
9. Other Noncurrent Assets

This account as at December 31 consists of:

Xxx
Xxx
Xxx
Xxx
Xxx
Xxx

Other noncurrent asset represents security deposit which is refundable only by the lessor after the company
had been cleared of whatever charges or liabilities in relation thereof. Advance rental represents rentals
applicable at the end of lease term. Advances to affiliates are non-interest bearing receivables and have no
definite call period.

Xxx
10. Accrued Expense and Other Current Liabilities
As of December 31 this account consists of:

Xxx
Xxx
Xxx
Xxx
Xxx

Other current liabilities represent statutory liabilities and are measured initially at their nominal values and
subsequently recognized at amortized cost less settlement payments. Obligations to the government are
remitted on the following month after being withheld from various income recipients.

11. Related Party Transactions

The Company obtained long-term non-interest bearing advances to its affiliates and these advances are non-
interest bearing and have no definite call period.

Movement of related party transactions as at December 31 follows:

Xxx
Xxx
Xxx
Xxx
Xxx

12. Equity

Share capital

Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx

As of December 31, 2018 and 2017, all six (6) of the shareholders of the Company own 100 or more shares.

Appropriation of Cumulative Earnings

In a special meeting held on March 11, 2019, The Board of Directors approved for an additional appropriation
to its cumulative earnings amounted to P12,500,000 for the Company`s future renovations for classrooms and
residential units for boarding students.

Xxx
Xxx

13. Revenue

As of December 31, 2018 and 2017 the account balance amounted to P82,610,667 and P67, 389, 456. These
revenues represent tuition fees received from students who enrolled in the institution.
14. Cost of Service

Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx

15. Leases

The Company is a lessee under non-cancellable operating leases covering certain commercial. The leases have
terms of one, three and five years. The future minimum rentals payable under these non- cancellable
operating leases as of December 31 are as follows:

Xxx
Xxx
Xxx
Xxx
Xxx

Total rental from these operating leases amounted to P11,845,855 and P11,462,273 in 2018 and 2017,
respectively.

16. Income Taxes

The Company`s net income is subject to the 10% special tax rate for Propriety Educational Institutions
pursuant to Section 27(B) of the Tax Code.

Income tax expense for December 31, 2018 and 2017 is P1,390,200 and P1,264,729, respectively.

17. Financial Instruments

Set out below is a comparison by category of carrying amounts and fair values of all of the Company`s financial
instruments as of December 31, 2018 and 2017:

Xxx

Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Financial Liabilities
Xxx
Xxx

Carrying values of financial assets and liabilities approximate their fair values due to the short-term nature of
transactions.
18. Supplementary Information Under RR 15-2010 and RR 19-2011

(a) Supplementary information required by Revenue Regulation No. 15-2010

On December 28, 2010, Revenue Regulation (RR) No. 15-2010 became effective and amended certain
provision of RR No. 21-2002 prescribing the manner of compliance with any documentary and/or procedural
requirements in connection with the preparation and submission of financial statements and income tax
returns. Section 2 of RR. No. 21-2002 was further amended to include in the Notes to Financial Statements
information on taxes, duties and license fee paid or accrued during the year in addition to what is mandated by
Philippine Financial Reporting Standards.

Below is additional information required by RR. No. 15-2010. This information is presented for purpose of filing
with the Bureau of Internal Revenue (BIR) and is not a required part of the basic financial statements.

i. Output VAT
The Company is engaged in a service that is VAT exempt. Under the Section 109 (H) of the National
Internal Revenue Code, as amended, provides that educational institutions accredited by TESDA is
exempt from value added tax.

The Company has exempt sales of P82,610,667 for the year.

ii. Taxes and licenses

Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx
Xxx

iii. Withholding taxes

Xxx
Xxx
Xxx

(b) Supplementary information required by Revenue Regulation No. 19-2011

On December 9, 2011, the BIR has issued RR No. 19-2011 prescribing the new income tax forms to be used
effective calendar year 2011. In the case of corporations using BIR form 1702, the taxpayer is now required to
include as part of its Notes to the Audited Financial Statements, which will be attached to the income tax
return, schedules and information on taxable income and deductions taken.

The Company`s schedules for the year ended December 31, 2018 are as follows:

Revenue
The detail of the Company`s revenue which is subjective to the special tax rate of 10% is the same as shown in
Note 13 to the financial statements.

Cost of service
The Company`s cost of service in 2018 and 2017 which are subject to the special income tax rate of 10% are
the same as shown in Note 14.
Itemized deductions
The details of the Company`s itemized deductions which are subject to special corporate income tax rate of
10% is the same as shown in the face of statements of income.