OVERVIEW OF CONSTRUCTION AND REAL ESTATE INDUSTRY

Construction and Real Estate Industry

Construction and Real estate management are similar in such ways they are used in economy
development but on the other hand they are two different things. Construction is a process of
producing and creating physical structures (building, road, bridges infrastructures) which contains
different manufacturing activities including site preparation and structural framing and finishing
work. It is a highly specialized industry wherein a qualified and skilled workers’ to ensures that
the transformation of raw materials into solid structures and to ensure that the projects are executed
on time within the proposed budget. On the other hand, real estate refers to a financial interest in
land or property and includes buying and selling and leasing of properties such as homes,
commercial buildings and land. The real estate industry is ever-evolving and will always be
susceptible to changing economic conditions, demographic shifts, government policies and
technological advancement. Economic condition & market dynamic influences both industries.
They are also giving long-term staying power, which is what usually come with a good amount
risk and uncertainty. Finally, both industries are regulated through tax regulation, building code
and environmental laws – including zoning ordinance programs administered by government
entities to ensure compliance with safety standards. In addition, the two industries collaborate in
shaping our built environment.
Construction projects has two types, namely residential and commercial construction.
• Residential construction primarily concerned in building of homes, apartment or
condominium, and townhouses and other types of residential budling. The focus of this is
creating home or spaces intended for people to live a comfortable and safe for individuals
and families. Residential projects materials can be a little cheaper and this project can have
a shorter completions time.
• Commercial construction involves the budling of structures intended for businesses such
as offices, malls, retails spaces, warehouses, etc. The focus of this is to create a functional
and efficient spaces for business to operate and for their customers. Commercial project
materials require a stronger and more durable materials, and this project can have a longer
completion time than residential projects and are often by larger construction companies.

Real estate industry has four types, namely residential, commercial construction, industrial and
land.
• Residential real estate is the type that comprises a single-family homes, apartments,
condominiums, townhouses, and other types of living arrangements. Residential real estate
consists of housing for individuals, families, or groups of people.
• Commercial real estate refers to land and buildings that are used by businesses to carry
out their operations. Examples include shopping malls, individual stores, office buildings,
parking lots, medical centers, and hotels.
• Industrial real estate includes manufacturing buildings and property, including
warehousing that are used by industrial businesses for activities such as factories,
 mechanical productions, research and development, construction, transportation, logistics,
distribution, and storage of goods.
• Land is the baseline for all types of real property. Land typically refers to vacant or
undeveloped land that has the potential to be developed either residential, commercial or
industrial purposes. Developers acquire land and combine it with other properties (called
assembly) and rezone it so they can increase the density and increase the value of the
property.

How realty works

Real estate operates through various sectors: development, where developers purchase land,
construct or renovate properties, and sell or lease them for profit; sales and marketing, which
involve promoting and selling units for developers; brokerage, where agents facilitate property
transactions between buyers and sellers; lending, where institutions like banks finance real estate
deals; property management, which oversees renting, maintenance, and tenant services; and
professional services, such as legal and accounting support for transactions.
Risks
1. Regulatory compliances- Compliance with these standards is expensive and lengthy
process.
2. Natural calamity- They can inflict serious injury on the construction sites and construction
works done.
3. Labor shortages- the lack of skilled labor may delay performance and increase costs.
4. Variable pricing of construction materials- the increase on the cost of construction
materials may leads to delayed or cancelled of projects.
5. Changes in the economy- it may have a profound impact on demand for construction and
real estate project, and thus affect purchasing power.
Drawbacks
1. High initial investment- there is huge initial cost for land, permits and construction.
2. Environmental Impact- Construction can result in an environmental impact.
3. Complicated permitting- getting the required permits and approvals can be time
consuming.
4. High illiquidity- property asses can be somewhat nonliquid, which makes it hard to
exchange them to cash.
Benefits
1. Job creation- create job for various sectors.
2. Infrastructure development- can enhance the quality of life of residents, making cities and
towns more attractive to live and work in and well-developed infrastructure attract business
and investor, leading o job creation and economic growth.
3. Passive income- owning rental properties can provide a steady stream of income.
 HISTORY OF CONSTRUCTION AND REAL ESTATE INDUSTRY
Construction Evolution
Early humans used materials like sticks, branches, and animal skins for simple shelters, with the
oldest evidence being a 1.8million-year-old stone circle in Olduvai Gorge, Tanzania, though its
purpose is debated. Accepted early shelters, such as 400,000 B.C. huts in Terra Amata, France,
were for hunting. Advanced structures emerged in Mesopotamia (4000 B.C.), with palaces,
temples, and trade roads, followed by Egyptian pyramids, Roman roads, and works of early
architects like Imhotep.
The Industrial Revolution (17th-19th centuries) introduced cast iron, prefabrication, and steel via
the Bessemer process, enabling structures like the Eiffel Tower and the first skyscraper, Chicago’s
Home Insurance Building (1885). The 20th century further expanded these innovations, shaping
modern construction.
Real Estate Evolution
The history of the real estate industry reflects the evolution of land ownership and property
transactions across time. Early concepts of land ownership date back to ancient civilizations where
land was used for farming and shelter. In feudal systems, land was owned by rulers or lords who
granted usage rights to subjects in exchange for taxes or services.
The modern real estate market began to take shape in the 18th and 19th centuries with innovations
like surveying and appraising in England. The first real estate advertisement appeared in 1704 in
the U.S., and by 1855, the first real estate brokerage firm, now Baird & Warner, was established.
The 20th century saw transformative milestones, including the formation of the National
Association of Realtors in 1908 and the introduction of mortgages to make homeownership
accessible. Post-World War II economic growth and urbanization significantly boosted the
industry.
The digital revolution in the late 1990s further reshaped the market, enabling online property
listings and transforming how transactions are conducted. Today, the real estate industry continues
to evolve, reflecting advancements in technology and societal changes.
 AUDIT AND TAX CONSIDERATIONS FOR THE CONSTRUCTION AND REAL
ESTATE INDUSTRY IN THE PHILIPPINES
Audit Considerations
Unique Industry Challenges
• Highly cyclical and influenced by market trends.
• Project-based operations requiring advanced accounting methods.
• High dependency on future-oriented activities such as development forecasting, tenant
management, and market adaptability.

Preparation for Audit

1. Pre-Audit Discussions:
• Current and forecasted operations.
• Tenant and lender negotiations (e.g., lease modifications, debt restructuring).
• Impact of subsequent events (e.g., tenant vacancies, legal matters).
• Adoption status of new accounting standards (e.g., PFRS 15 and PFRS 16).
2. Review of Transactions and Internal Controls:
• Update internal controls for any process changes (e.g., remote work adaptations).
• Detailed transaction summaries, including lease amendments and loan closings.
3. Anticipation of Audit Requests:
• Remote meetings and virtual document uploads.
• General ledger access and procedural walkthroughs for key audit processes.

Best Practices for Efficient Audits

• Management Responsibilities:
- Ensure accurate financial reporting and strong internal controls.
- Prepare a complete package of financial schedules and supporting documents.
• Effective Collaboration:
- Assign a dedicated audit point person.
- Confirm accounts for cash, debt, and investments.
- Provide interim schedules for early testing.
• Valuation Methodologies:
- Prepare documentation for hard-to-value investments.
- Address property-specific adjustments, such as asset impairments or rental evaluations.

Tax Considerations
1. Real Property Taxes
Valuation and Assessment Reforms: The newly signed Real Property Valuation and Assessment
Reform Act, or RPVARA, seeks to standardize property values as LGUs are mandated to update
their SMVs every three years. This reform is expected to increase transparency and fair taxation
while creating one uniform valuation system across regions.
Property Tax Base: The property taxes are calculated based on the higher of BIR Zonal Values,
LGUs' SMVs, or recent comparable sales.
2. Income and Value-Added Taxes
Construction companies are charged income tax on their profit realization, and real estate
developers are required to include VAT on the sale of properties, except for those selling low-cost
houses qualified under the VAT-exempt threshold.
4. Withholding Taxes
Withholding tax applies to payments for contractors, professionals, and suppliers. Developers must
manage these deductions accurately to ensure compliance.
5. Sustainability Incentives
Tax incentives for sustainable construction mainly include green building certifications and
renewable energy sources integration.
6. Tax Holiday and Cut of Corporate Income Tax for Companies and Regions of Investment
Incentives cut the corporate income tax rate, even customs duty exemption and tax holiday for
companies and regions investing in infrastructure or real estate in the government prioritized
regions, including areas that fall under the "Build, Build, Build" program.
APPLICABLE STANDARDS, FRAMEWORKS AND LAWS IN CONSTRUCTION AND
REAL ESTATE INDUSTRY
Financial Reporting Standards:
IFRS 15: Revenue from Contracts with Customers
This standard governs revenue recognition for long-term construction projects. Companies must
recognize revenue when performance obligations (e.g., project milestones) are met.
IAS 40: Investment Property
This standard applies to properties held for rental income or future appreciation, requiring entities
to choose between fair value or cost model accounting.
IFRS 16: Leases
This standard focuses on lease arrangements, requiring lessees to recognize lease liabilities and
right-of-use assets.
IAS 16: (Property, Plant, and Equipment)
It provides the framework for accounting and reporting on tangible assets that are used in business
operations.
Sustainability Frameworks:
LEED Certification (Leadership in Energy and Environmental Design)
- LEED encourages environmentally responsible construction by certifying energy-efficient
buildings.
Global Reporting Initiative (GRI)
- GRI helps companies disclose their environmental and social impact.

Key Laws Governing the Industry

CONSTRUCTION LAWS:
National Building Code of the Philippines (PD 1096)
- Establishes safety and design standards for construction projects.
Occupational Safety and Health Standards (OSH)
- Protects workers’ rights and ensures safe working conditions.

REAL ESTATE LAWS:

Real Estate Service Act (RESA, RA 9646)
- Regulates real estate practitioners (brokers, appraisers) and ensures ethical standards.
Property Registration Decree (PD 1529)
- Provides rules for registering land titles to establish ownership and prevent disputes.

ENVIRONMENTAL AND LAND USE LAWS:

Environmental Impact Assessment (EIA) Law (PD 1586)
- Requires projects to evaluate and mitigate environmental impacts before approval.
Zoning Ordinances
- Regulate land use to separate residential, commercial, and industrial zones.
 AUDIT RISKS IN CONSTRUCTION AND REAL ESTATE INDUSTRY
Inherent Risks
1. Complexity of projects: Construction projects involve multiple contracts, subcontractors,
and regulatory compliance, increasing the risk of errors or omissions.
2. Valuation of properties: Real estate valuation is subjective, making it challenging to
determine accurate values.
3. Regulatory non-compliance: Non-compliance with laws, regulations, and standards (e.g.,
building codes).

Control Risks
1. Inadequate internal controls: Weaknesses in accounting, procurement, or project
management processes.
2. Insufficient documentation: Incomplete or inaccurate records, making audit trail difficult.
3. Lack of segregation of duties: Insufficient separation of responsibilities, increasing the risk
of fraud.

Detection Risks
1. Difficulty in verifying project progress: Challenges in assessing project completion
percentages.
2. Complexity of accounting standards: Difficulty in applying accounting standards (e.g.,
PSA 11, Construction Contracts).
3. Limited audit evidence: Insufficient or unreliable audit evidence.

Mitigation Strategies
1. Conduct thorough risk assessments
2. Design and implement effective internal controls
3. Provide regular training and guidance
4. Engage experts (e.g., valuers, engineers)
5. Perform detailed audit procedures
6. Use technology (e.g., data analytics) to enhance audit efficiency

To manage audit risk effectively, auditors should:

1. Understand the construction and real estate industry.
2. Identify and assess specific risks.
3. Design tailored audit procedures.
4. Collaborate with experts.
5. Maintain professional skepticism
COMPLIANCES IN THE CONSTRUCTION AND REAL ESTATE INDUSTRY IN THE
PHILIPPINES
1. Building Permits
Requirement: Building permits are mandatory for construction, renovation, or demolition
projects.
Compliance Steps:
• Submit comprehensive plans and specifications to local building officials for approval.
• Pay required fees and secure clearances from relevant agencies.
• Adhere to building code regulations throughout the construction process to avoid fines or
project delays.

2. Environmental Regulations
Purpose: These regulations protect natural resources and promote sustainable development.
Compliance Steps:
• Conduct an Environmental Impact Assessment (EIA) to identify potential risks.
• Obtain an Environmental Compliance Certificate (ECC) from the Department of
Environment and Natural Resources (DENR).
• Implement eco-friendly practices during construction.

3. Licensing Requirements
Contractor Licensing: All entities engaging in construction must secure a license from the
Construction Industry Authority of the Philippines (CIAP) through the Philippine Contractors
Accreditation Board (PCAB).
Types of Licenses: Regular and Special Licenses are issued based on project types and
requirements, including a minimum capital requirement for foreign contractors.
 CASE STUDY
INTRODUCTION
Company Overview
Ayala Land, Inc. (ALI) is a notable real estate and property development business in the
Philippines, founded in 1988 as a subsidiary of Ayala Corporation, one of the country's oldest and
largest corporations. Ayala Land has built a diverse portfolio that includes residential projects,
commercial leasing, and hotels, fulfilling their mission to improve people's lives via sustainable
estates and connected communities. The corporation works in several regions of the Philippines
and has expanded its presence overseas.
Ayala Land's business approach focuses on mixed-use structures that combine residential,
commercial, and recreational spaces. This concept not only maximizes land utilization, but it also
encourages community involvement and sustainable living. As of 2023, Ayala Land has built
multiple major projects, including Bonifacio Global City (BGC), Nuvali, and the Ayala Center in
Makati, demonstrating its dedication to creative urban design.
Purpose of the Study
The purpose of the study is to evaluate the Ayala Land's land banking strategies and asset valuation
practices. The examiners aim to understand how these aspects contribute to the company's
financial performance and overall growth strategy. The study will delve into the financial ratios
that reflect the company's operational efficiency, assess audit assertions relevant to its financial
reporting, and provide recommendations for further improvement.
BACKGROUND
Land banking is a strategic practice wherein companies acquire land for future development or
investment purposes. This approach has been successfully applied by Ayala Land to acquire
valuable real estate sites around the Philippines. The company's land banking philosophy places a
strong emphasis on both purchasing land and making sure that these assets are held with an eye
toward long-term development.
Over the years, Ayala Land has reported substantial growth in both revenue and profitability. For
instance, the company's net income climbed 32% to ₱24.5 billion (about $450 million) in fiscal
year 2023 due to strong demand for residential real estate and improved post-pandemic consumer
activity. The success of its asset management procedures and land banking approach is
demonstrated by this growth trajectory.
Ayala Land's land banking operations further demonstrate its dedication to sustainability. In order
to guarantee that purchased lands are not only profitable but also favorably impact local
ecosystems and communities, the company incorporates environmental considerations into its
development plans.
ANALYSIS
Financial Performance
The financial performance of Ayala Land has been stable in the face of market fluctuations brought
on by the state of the economy and world events, like the COVID-19 outbreak. In 2023,
consolidated revenues reached ₱148.9 billion (approximately $2.7 billion), representing an 18%
increase from ₱126 billion in 2022. The revenue breakdown by segment illustrates strong
performance across various lines:
Property Development: Contributed ₱92.3 billion (62% of total revenues), up 14% from the
previous year. This segment includes residential projects such as condominiums and subdivisions.
Commercial Leasing: Generated ₱41.7 billion (28% of total revenues), up 25%. This includes
income from shopping malls, offices, and hotels.
Services: Increased significantly by 56% to ₱6.6 billion (4% of total revenues), reflecting growth
in property management and other supplementary services.
Financial Ratios and Analysis
To further evaluate Ayala Land's financial health, several key financial ratios have been analyzed:
Ratio Value Interpretation
Debt-to-Equity Ratio 81% Indicates a relatively high level of leverage; however, it
reflects aggressive growth strategies funded through debt.
Return on Equity 9.3% Demonstrates how effectively management is using equity
(ROE) financing to generate profits; a positive sign for investors.

Audit Assertions
Existence: Ensures that all recorded assets exist at the reporting date; this assertion is vital for
verifying the legitimacy of land holdings.
Valuation: Confirms that assets are valued appropriately based on current market conditions;
accurate asset valuation is essential for reflecting true financial health.
Rights and Obligations: Verifies that Ayala Land holds rights to its reported assets; this assertion
ensures that there are no undisclosed liabilities or claims against these assets.
Completeness: Ensures that all transactions have been recorded; this assertion helps prevent
omissions that could misrepresent financial performance.
Presentation and Disclosure: Confirms that financial statements are presented fairly according
to accounting standards; proper disclosure is crucial for transparency with stakeholders.
RECOMMENDATIONS
To improve accuracy and dependability, Ayala Land should implement sophisticated valuation
methods that make use of real-time market data analytics. Regular consultation with outside
valuation specialists can help confirm internal evaluations, enhancing the veracity of reported
numbers and boosting investor confidence. Investing in technology can also improve decision-
making and streamline operations. Ayala Land can improve customer satisfaction and operational
efficiency by utilizing digital platforms for project management and customer engagement. Based
on market and demographic trends, geographic information systems (GIS) can also pinpoint high-
potential locations for land purchases.
Lastly, the company should keep incorporating sustainability projects into its development and
land banking procedures. Ayala Land's corporate social responsibility (CSR) initiatives are
strengthened when eco-friendly and community-focused developments are given priority. This is
in line with global sustainability aims. Involving local communities in the planning process
guarantees developments meet social demands while promoting amity and enduring
collaborations. By putting these suggestions into practice, Ayala Land's market position will be
strengthened and its trajectory of sustainable growth will be supported.
CONCLUSION
Ayala Land's market dominance and financial performance in the Philippine real estate industry
are largely attributable to its asset valuation and land banking procedures. Their strong and diverse
portfolio of brands allowing them to capitalize on shifting market opportunities. The company is
well-positioned for future growth prospects in a changing market scenario marked by rising
urbanization and demand for sustainable living solutions thanks to its strategic approach to
purchasing excellent land assets.
Ayala Land can strengthen its competitive edge and guarantee long-term viability in its business
operations by consistently improving its asset assessment techniques, upholding a balanced
financial structure, and embracing cutting-edge technologies. Ayala Land is still well-positioned
to continue influencing the direction of Philippine real estate, as seen by its solid financial results
and dedication to community development. As aspiration can only turn into reality with a capable
and motivated organization. As such, they are continuing to invest in their most important asset,
their people.
OBSERVATION ON FINANCIAL STATEMENTS
Statement of Financial Position
The consolidated statement of financial position for Eton Properties Philippines, Inc. and its
subsidiaries as of December 31, 2020, and 2019 provides insight of the company's financial health.
Eton Properties Philippines, Inc. reported total current assets of approximately ₱8.83 billion in
2020, down from ₱9.23 billion in 2019. This decline was primarily due to a significant decreased
in cash and cash equivalents, which fell from ₱2.32 billion to ₱1.41 billion. However, noncurrent
assets increased marginally from ₱22.60 billion to ₱22.89 billion, with investment properties
remaining the largest component.
Meanwhile, the company's total current liabilities dropped from ₱7.74 billion in 2019 to ₱5.56
billion in 2020, indicating improved liquidity. The primary cause of this decrease was a decrease
in trade and other payables. Nonetheless, noncurrent liabilities increased from ₱6.25 billion to
₱7.62 billion, primarily due to higher loans payable and lease liabilities, indicating a growing
reliance on long-term financing.
Eton's total equity rose from ₱17.84 billion in 2019 to ₱18.64 billion in 2020, driven by an increase
in retained earnings from ₱3.88 billion to ₱4.68 billion. This growth shows that the company has
been profitable and is retaining more earnings for future investments or to strengthen its financial
position.
Overall, Eton Properties Philippines, Inc. demonstrates a stable financial position with increased
equity and improved liquidity. However, the reduction in cash reserves and the increase in
noncurrent liabilities demand attention, as they may affect the company's future financial
flexibility and short-term obligations.
Statement of Financial Performance
The consolidated statement of income for Eton Properties Philippines Inc. provides an overview
of the company’s financial performance over three-consecutive years, reflecting its revenue
generation, cost management, and profitability. During the period, the company experienced a
significant decline in revenue, dropping from about PHP 3.31 billion in 2019 to PHP 2.60 billion
in 2020, and then further down to PHP 1.97 billion in 2021. This decline was primarily due to a
decrease in real estate sales and rental income, highlighting the tough economic challenges caused
by the COVID-19 pandemic.
For expenses and costs, Eton Properties was able to positively decrease it from PHP 2.25 billion
in 2019 to PHP 1.64 billion in 2020, and experienced a slight increase at PHP 1.65 billion in 2021.
However, despite this positive changes, expenses related to rental income and general
administrative costs went up compared to the previous year, from PHP 674 million in 2020 to
approximately PHP 733 million in 2021 for rental income expenses, and from PHP 584 million in
2020 to PHP 741 million in 2021 in general administrative costs, reflecting possible inflationary
pressures or additional costs associated with business adjustments during the pandemic.

Even with higher costs, Eton Properties saw a notable increase in "other income," which rose from
PHP 455 million in 2020 to PHP 578 million in 2021. This increase mainly came from non-core
business gains, such as finance charges, interest income, and foreign exchange, which helped offset
some of the revenue losses.
In terms of net income for 2021, it experienced a significant decline, dropping from PHP 802
million in 2020 to PHP 550 million. This decrease was driven by lower sales and rising operating
expenses, highlighting the challenges the company faced in maintaining profitability in a shifting
economic environment. Despite this, Eton Properties saw an improvement in other comprehensive
income, largely attributed to gains from remeasuring defined benefit obligations, which
contributed substantially to its total comprehensive income. Overall, Eton Properties should likely
focus on cost management and revenue recovery to sustain growth and profitability in the coming
years.
Statement of Cash Flows
The Statements of Cash Flows for Eton Properties Philippines, Inc. from 2018 to 2020 demonstrate
the company's resilience in managing cash and utilizing financing to support its operations and
development, despite challenging economic conditions. In 2020, the company reported operating
revenue of P1.3 billion, which is a decrease compared to last year's P2.7 billion. Despite the
economic recession caused by the COVID-19 pandemic, the company remains consistent in
achieving attributable outcomes.
The decrease in operating activities was primarily due to a drop in income of P1.1 billion, along
with interest income of P19.8 million, and a decline of P2.2 million in real estate inventories.
Additionally, there was an increase of P19 million in customer deposits. Consequently, while cash
generated from operations fell short compared to the previous year due to slower demand, the
company maintained its financial flexibility.
In terms of investment, Eton Properties net outflow decreased from P1.5 billion in 2019 to P755
million. This decline was primarily due to land acquisitions amounting to P745 million, which was
lower than the previous year’s P1.4 billion. Furthermore, spending on property and equipment fell
to P11.3 million, while investment in software decreased to P2.6 million. Amid global uncertainty,
the company experienced negative cash flow from investing activities. This reflects the company’s
prudent and cautious investment approach, enabling it to continually adapt to disruptions.
Eton Properties also reported financing activities for 2020 that resulted in a net cash outflow of
P1.3 billion. This outflow was primarily driven by an increase in loans payable, which rose to P1.9
billion, together with cash settlements to landowners totaling P1.7 million. Moreover, the company
secured P1.8 billion in loan proceeds to help offset these significant financing outflows. By the
end of the year, Eton Properties experienced a decline in its cash position of P1.4 billion compared
to the previous year, down from P2.3 billion. This decrease in liquidity, as well as lower cash
inflows from operations and higher loan repayments, is to optimize and position the company
strategically for future opportunities. To achieve sustainable growth and long-term stability, amidst
an uncertain global environment.

Statement of Changes in Equity

The Eton Properties Philippines, inc. Consolidated Statements of Stockholders' Equity reveal that
the company use calendar year in reporting their financial statement. Its statement indicates
important changes in structure during 2017 up to 2029. The central changes are the accumulated
remeasurements on retirement benefits that you can see the computation in other comprehensive
income. Having 38 thousand in 2017, negative 61 thousand in 2018 and almost 4 thousand at the
end of 2019.
Capital stock, additional paid-in capital and treasury shares remain unchanged for over the past 3
years having 5million, 8million and negative 7 thousand respectively. Which revealed in Note 25
in Notes to Financial Statement that Capital stock is measured at par value for all shares subscribed
and/or issued. When the shares are subscribed or sold at a premium, the difference between the
proceeds and the par value is credited to “Additional paid-in capital” account. Treasury shares are
carried at cost and are presented as deduction from equity. No gain or loss is recognized in
consolidated statement of income on the purchase, sale, reissuance or cancellation of treasury
shares. Any difference between the carrying amount and the consideration on the reissuance of
treasury shares is recognized as additional paid-in capital.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Corporate Information and Authorization for Issuance of the Consolidated Financial
Statements

Corporate Information
Eton Properties Philippines, Inc. (“Eton” or “the Parent Company”) was incorporated and
registered with the Philippine Securities and Exchange Commission (SEC) on April 2, 1971 under
the name “Balabac Oil Exploration & Drilling Co., Inc.” to engage in oil exploration and mineral
development projects in the Philippines. On May 12, 1988, the Philippine SEC approved the
Parent Company’s registration and licensing as a listed company.

On August 19, 1996, the Parent Company’s Articles of Incorporation (the Articles) was amended
to: (a) change the Parent Company’s primary purpose from oil exploration and mineral
development to that of engaging in the business of a holding company; and (b) include real estate
development and oil exploration as among its secondary purposes.

On February 21, 2007, the Parent Company’s Board of Directors (BOD) adopted the following
amendments: (a) change the corporate name to Eton Properties Philippines, Inc.; (b) change the
primary purpose to hold, develop, manage, administer, sell, convey, encumber, purchase,
acquire, rent or otherwise deal in and dispose of, for itself or for others, residential, including, but
not limited to, all kinds of housing projects, commercial, industrial, urban or other kinds of real
property, improved or unimproved; to acquire, purchase, hold, manage, develop and sell
subdivision lots; to erect, construct, alter, manage, operate, lease buildings and tenements; and
to engage or act as real estate broker; (c) increase the number of directors from 11 to 15; and,
(d) change of financial year-end from April 30 to December 31.

The above amendments were adopted by the Parent Company’s shareholders on April 19, 2007
and approved by the Philippine SEC on June 8, 2007.

On October 6, 2009, the Parent Company’s BOD approved the acquisition of an approximately
12-hectare property, with an appraised value of P=3,953.2 million, owned by Paramount Land
equities, Inc. (Paramount), where the Eton Centris projects are situated in exchange for the
issuance of 1,600 million shares to Paramount at P=2.50 per share. On October 22, 2009, the
Parent Company and Paramount executed a Deed of Conveyance pertaining to the asset-for-
share swap (see Note 25). As approved by the Philippine SEC in July 2011, the property was
recognized by the Parent Company at the value of P=4,000 million (see Notes 7 and 25).

Prior to restructuring in 2012, Paramount and Saturn Holdings, Inc. (Saturn) had ownership
interest of 55.07% and 42.39%, respectively, in Eton.

On September 17, 2012, LT Group, Inc. (LTG)’s BOD approved the assumption by LTG of certain
liabilities of Paramount from Step Dragon Co. Ltd. and Billinge Investments Ltd., British Virgin
Island (BVI)-based companies, and Saturn from Penick Group Ltd., also a BVI-based company,
amounting to P=1,350.8 million and P=521.3 million, respectively. LTG is a publicly listed
company incorporated and domiciled in the Philippines.

On September 25 and September 26, 2012, LTG subscribed to 1,350,819,487 common shares
of Paramount and 490,000,000 common shares of Saturn, respectively, with a par value of P=1.00
per share, which were issued to LTG from the increase in Paramount’s and Saturn’s authorized
capital stock. LTG paid for the subscription in full by way of conversion into equity of LTG’s
advances to Paramount and Saturn amounting to P1,350.8 million and P=490.0 million,
respectively. On the same dates, Paramount and Saturn filed their application for increase in
authorized capital with the Philippine SEC in order to accommodate LTG’s investment.

Upon the Philippine SEC’s approval on October 10, 2012, Paramount and Saturn became
subsidiaries of LTG with 98.18% and 98.99% ownership interests, respectively, thus, giving LTG
a 98.00% effective ownership in Eton.

On October 30, 2012, LTG entered into deeds of sale of shares with the controlling shareholders
of Paramount and Saturn for the remaining issued and outstanding shares of the said companies.
Thus, Paramount and Saturn became wholly owned subsidiaries of LTG.

On October 22, 2012, the Parent Company’s BOD approved to voluntarily delist the Parent
Company from the Philippine Stock Exchange (PSE) in light of the Parent Company’s inability to
comply with the minimum public ownership requirement of PSE within the allowed grace period.
On December 8, 2012, Paramount made a tender offer to buy back shares of the Parent Company
traded in the PSE resulting in the increase in its ownership interest from 55.07% to 56.86%, thus,
increasing LTG’s effective ownership interest in Eton to 99.30%. The delisting of the Parent
Company became effective on January 2, 2013.

On November 14, 2014, Paramount and Saturn authorized the conversion of its advances to the
Parent Company amounting to P=3,150.0 million and P=2,350.0 million, respectively, into equity
by way of subscription to 2,067,669,172 shares of stock at an issue price of P=2.66 per share.
On January 14, 2015, the Parent Company filed the application for conversion with the SEC which
was subsequently approved on January 23, 2015.

On March 2, 2015, the Parent Company’s BOD approved the increase of its authorized capital
stock from P=5.0 billion divided into 5.0 billion common shares with a par value of P=1.00 per
share to P=8.0 billion divided into 8.0 billion common shares with a par value of P=1.00 per share.
On September 28, 2015, Eton filed an application with the Philippine SEC to increase its
authorized capital stock which was subsequently approved by the Philippine SEC on September
30, 2015. Out of the increase of 3.0 billion common shares, 419 million common shares and 331
million common shares have been subscribed by Paramount and Saturn, respectively, at a
subscription price of P=2.72 per share.

As of December 31, 2020 and 2019, Eton is 55.97% owned by Paramount. Eton’s ultimate parent
company is Tangent Holdings Corporation, a company incorporated and domiciled in the
Philippines.

The Parent Company’s registered business address is 8/F Allied Bank Center, 6754 Ayala
Avenue, Makati City, Metro Manila, Philippines.

Subsidiaries
Below are the Parent Company’s ownership interests in its subsidiaries
BCI was incorporated and registered with the Philippine SEC on November 5, 2007.
On February 18, 2008, the BOD of BCI approved the increase of its capital stock from 20,000
shares to 100,000,000 shares at P=1.00 par value per share and the subscription of the Parent
Company for 24,995,000 shares, which, in addition to 5,000 common shares originally
subscribed, would equal to 25% of the authorized capital stock.

On October 15, 2014, the BOD of BCI approved the increase of its authorized capital stock from
P=20,000 divided into 20,000 common shares with a par value of P=1.00 per share to
P=800,000,000 divided into 800,000,000 common shares with a par value of P=1.00 per share.
On December 23, 2014, BCI filed an application with the Philippine SEC to increase its authorized
capital stock which was subsequently approved by the Philippine SEC on January 7, 2015. Out
of the increase in authorized capital stock, 199.995 million common shares have been subscribed
by the Parent Company with deposit for future stock subscription as payment for the subscribed
common shares.

ECI was incorporated and registered with the Philippine SEC on October 8, 2008. On October
15, 2014, the BOD of ECI approved the increase of its authorized capital stock from
P=100,000,000 divided into 100,000,000 common shares with a par value of P=1.00 per share to
P=1,000,000,000 divided into 1,000,000,000 common shares with a par value of P=1.00 per
share. On December 23, 2014, ECI filed an application with the Philippine SEC to increase its
authorized capital stock which was subsequently approved by the Philippine SEC on January 6,
2015. Out of the increase in authorized capital stock, 225.0 million common shares have been
subscribed by the Parent Company with deposit for future stock subscription as payment for the
subscribed common shares.

On October 15, 2010, FHI was incorporated and registered with the Philippine SEC as a wholly
owned subsidiary of the Parent Company with a total subscribed capital stock of P=1.3 million.

EPMC was incorporated and registered with the Philippine SEC on September 29, 2011 to
manage, operate, lease, in whole or in part, real estate of all kinds, including buildings, house,
apartments and other structures.

On June 14, 2017, the BOD of EPMC approved the increase in its authorized capital stock from
P=1,000,000 divided into 1,000,000 common shares with a par value of P=1.00 per share to
P=20,000,000 divided into 20,000,000 common shares with a par value of P=1.00 per share. The
increase in authorized capital stock was approved by the Philippine SEC on September 19, 2017.
Out of the increase in authorized capital stock, 4.75 million common shares have been subscribed
by the Parent Company.

On December 4, 2019, the Board of Directors of EPPI approved the additional

investment/purchase of 15.0 million shares of EPMC, with par value of P=1.00 per share,
amounting to P=15.0 million. All subsidiaries, except for EPMC, are engaged in real estate
development.
All subsidiaries’ registered business address is 8/F Allied Bank Center, 6754 Ayala Avenue, Makati
City, Metro Manila.

Authorization for Issuance of the Consolidated Financial Statements

The consolidated financial statements of Eton Properties Philippines, Inc. and its subsidiaries
(the “Group”) as at December 31, 2020 and 2019 and for each of the three years in the period
ended December 31, 2020 were authorized for issuance by the BOD on February 17, 2021.

2. Summary of Significant Accounting and Financial Reporting Policies

Basis of Preparation and Statement of Compliance

The consolidated financial statements have been prepared under the historical cost basis and are
presented in Philippine peso (Peso), which is the Parent Company’s functional and presentation
currency. All values are rounded to the nearest Peso, except when otherwise indicated. The
accompanying consolidated financial statements have been prepared under the going concern
assumption.

The Group believes that its businesses would remain relevant despite challenges posed by
the COVID-19 pandemic. Despite the adverse impact of the COVID-19 pandemic on short-term
business results, long-term prospects remain attractive. The consolidated financial statements of
the Parent Company and its subsidiaries (collectively referred to as the Group) have been
prepared in accordance with Philippine Financial Reporting Standards (PFRSs) as issued by the
Financial Reporting Standards Council (FRSC), which include the availment of the reliefs granted
by the SEC under Memorandum Circulars (MC) Nos. 14-2018 and 3-2019, to defer the
implementation of the following accounting pronouncements until December 31, 2020. These
accounting pronouncements address the issues of PFRS 15, Revenue from Contracts with
Customers affecting the real estate industry. PFRSs include statements named PFRSs, Philippine
Accounting Standards (PAS) and Philippine Interpretations of International Financial Reporting
Interpretations Committee (IFRIC) issued by FRSC.

Deferral of the following provisions of Philippine Interpretations Committee (PIC) Q&A 2018-12,
PFRS 15 Implementation Issues Affecting the Real Estate Industry
a. Assessing if the transaction price includes a significant financing component (as amended by
PIC Q&A 2020-04);
b. Treatment of land in the determination of the percentage-of-completion (POC);
c. Treatment of uninstalled materials in the determination of the POC (as amended by PIC Q&A
2020-02); and
d. Accounting for Common Usage Service Area (CUSA) charges.
Items b and c were already implemented by the Group prior to the issuance of the PIC Q&A 2018-
12 and the Group continued its accounting treatment despite the deferral mentioned.

Deferral of the adoption of PIC Q&A 2018-14: Accounting for Cancellation of Real Estate Sales
(as amended by PIC Q&A 2020-05)

The details and the impact of the adoption of the above financial reporting reliefs are discussed
in the Future Changes in Accounting Policy section.

Basis of Consolidation
The consolidated financial statements comprise the financial statements of the Group as at
December 31, 2020 and 2019 and for each of the three years in the period ended December 31,
2020. The financial statements of the subsidiaries are prepared for the same financial reporting
year as the Parent Company, using consistent accounting policies.

A subsidiary is an entity over which the Parent Company has control. Control is achieved when
the Group is exposed, or has rights, to variable returns from its involvement with the investee and
has the ability to affect that return through its power over the investee. Specifically, the Group
controls an investee if and only if the Group has:
• power over the investee (i.e. existing rights that give it the current ability to direct the
relevant activities of the investee);
• exposure, or rights, to variable returns from its involvement with the investee; and,
• the ability to use its power over the investee to affect its returns.

When the Group has less than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an
investee, including:
• the contractual arrangement with the other vote holders of the investee;
• rights arising from other contractual arrangements; and,
• the Group’s voting rights and potential voting rights.

The Group re-assesses whether or not it controls an investee if facts and circumstances indicate
that there are changes to one or more of the three elements of control. Consolidation of a
subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group
loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired
or disposed of during the year are included or excluded in the consolidated financial statements
from the date the Group gains control or until the date the Group ceases to control the subsidiary.

Consolidated financial statements are prepared using uniform accounting policies for like
transactions and other events in similar circumstances. Adjustments, where necessary, are made
to ensure consistency with the policies adopted by the Group. The financial statements of the
subsidiaries were prepared for the same reporting years as the Parent Company which were
presented as at and the years ended December 31, 2020 and 2019.

Inter-company transactions, balances and unrealized gains on transactions between group

companies are eliminated. Unrealized losses are also eliminated but are considered as an
impairment indicator of the assets transferred.

Changes in Accounting Policies

The accounting policies adopted are consistent with those of the previous financial year. Unless
otherwise indicated, adoption of these new standards did not have an impact on the consolidated
financial statements of the Group.

• Adoption of PIC Q&A 2020-03, Q&A No. 2018-12-D: STEP 3- On the accounting of the
difference when the percentage of completion is ahead of the buyer’s payment

PIC Q&A 2020-03 was issued by the PIC on September 30, 2020. The latter aims to provide an
additional option to the preparers of financial statements to present as receivables, the difference
between the POC and the buyer’s payment, with the POC being ahead. This PIC Q&A is
consistent with the PIC guidance issued to the real estate industry in September 2019.
The adoption of this PIC Q&A did not impact the consolidated financial statements since it has
previously adopted the additional guidance issued by the PIC in September 2019

• Amendments to PAS 1, Presentation of Financial Statements, and PAS 8, Accounting Policies,

Changes in Accounting Estimates and Errors, Definition of Material The amendments provide a
new definition of material that states “information is material if omitting, misstating or obscuring it
could reasonably be expected to influence decisions that the primary users of general purpose
financial statements make on the basis of those financial statements, which provide financial
information about a specific reporting entity.”

The amendments clarify that materiality will depend on the nature or magnitude of information,
either individually or in combination with other information, in the context of the financial
statements. A misstatement of information is material if it could reasonably be expected to
influence decisions made by the primary users

. • Conceptual Framework for Financial Reporting issued on March 29, 2018

The Conceptual Framework is not a standard, and none of the concepts contained therein
override the concepts or requirements in any standard. The purpose of the Conceptual
Framework is to assist the standard-setters in developing standards, to help preparers develop
consistent accounting policies where there is no applicable standard in place and to assist all
parties to understand and interpret the standards.

The revised Conceptual Framework includes new concepts, provides updated definitions and
recognition criteria for assets and liabilities and clarifies some important concepts.

• Amendments to PFRS 16, COVID-19-related Rent Concessions The amendments provide relief
to lessees from applying the PFRS 16 requirement on lease modifications to rent concessions
arising as a direct consequence of the COVID-19 pandemic.

A lessee may elect not to assess whether a rent concession from a lessor is a lease modification
if it meets all of the following criteria:

• The rent concession is a direct consequence of COVID-19;

• The change in lease payments results in a revised lease consideration that is substantially the
same as, or less than, the lease consideration immediately preceding the change;
• Any reduction in lease payments affects only payments originally due on or before June 30,
2021; and
• There is no substantive change to other terms and conditions of the lease.

A lessee that applies this practical expedient will account for any change in lease payments
resulting from the COVID-19 related rent concession in the same way it would account for a
change that is not a lease modification, i.e., as a variable lease payment.

The amendments are effective for annual reporting periods beginning on or after June 1, 2020.
Early adoption is permitted.

Group as Lessee. No concessions as lessees were granted to the Group.

Group as Lessor. Throughout the government-imposed community quarantine, the Group waived
rentals amounting to P=107.2 million which reduced rental income. Such rental waivers and
deferrals are not accounted as a lease modification under PFRS 16 since COVID-19 is a force
majeure under the general law

• Amendments to PFRS 3, Business Combinations, Definition of a Business

• Amendments to PFRS 7, Financial Instruments: Disclosures and PFRS 9, Financial Instruments,
Interest Rate Benchmark Reform.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:

• in the principal market for the asset or liability, or

• in the absence of a principal market, in the most advantageous market for the asset or liability.

The principal or the most advantageous market must be accessible to the Group.

The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest.

A fair value measurement of a nonfinancial asset takes into account a market participant’s ability
to generate economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.

The Group uses valuation techniques that are appropriate in the circumstances and for which
sufficient data are available to measure fair value, maximizing the use of relevant observable
inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:

• Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities •
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable
• Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable

For assets and liabilities that are recognized in the consolidated financial statements on a
recurring basis, the Group determines whether transfers have occurred between levels in the
hierarchy by re-assessing categorization (based on the lowest level of input that is significant to
the fair value measurement as a whole) at the end of each reporting period.

For the purpose of fair value disclosures, the Group has determined classes of assets and
liabilities on the basis of the nature, characteristics and risks of the assets or liability and the level
of the fair value hierarchy.
Current versus Non-Current Classification
The Group presents assets and liabilities in the consolidated statement of financial position based
on current/non-current classification. An asset is current when it is:

• expected to be realized or intended to be sold or consumed in normal operating cycle;

• held primarily for the purpose of trading;
• expected to be realized within 12 months after the reporting period; or,
• cash or cash equivalent unless restricted from being exchanged or used to settle a liability for
at least 12 months after the reporting period.

All other assets are classified as non-current.

A liability is current when:

• it is expected to be settled in normal operating cycle;
• it is held primarily for the purpose of trading;
• it is due to be settled within 12 months after the reporting period; or,
• there is no unconditional right to defer the settlement of the liability for at least 12 months after
the reporting period.

The Group classifies all other liabilities as non-current.

Deferred income tax assets and liabilities are classified as non-current assets and liabilities.

Cash and Cash Equivalents

Cash includes cash on hand and in banks. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash with insignificant risk of change
in value and are acquired three months or less before their maturity.

Financial Instruments
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial
liability or equity instrument of another entity.

Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortized cost,
fair value through other comprehensive income (OCI), and fair value through profit or loss.

The classification of financial assets at initial recognition depends on the financial asset’s
contractual cash flow characteristics and the Group’s business model for managing them. The
Group initially measures a financial asset at its fair value plus, in the case of a financial asset not
at fair value through profit or loss, transaction costs. Trade receivables are measured at the
transaction price determined under PFRS 15.
In order for a financial asset to be classified and measured at amortized cost or fair value through
OCI, it needs to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’
on the principal amount outstanding. This assessment is referred to as the SPPI test and is
performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial
assets in order to generate cash flows. The business model determines whether cash flows will
result from collecting contractual cash flows, selling the financial assets, or both.

Purchases or sales of financial assets that require delivery of assets within a time frame
established by regulation or convention in the market place (regular way trades) are recognized
on the trade date, i.e., the date that the Group commits to purchase or sell the asset.

As of December 31, 2020 and 2019, the Group’s financial assets pertain to financial assets at
amortized cost (debt instrument).

Subsequent measurement
The Group measures financial assets at amortized cost if both of the following conditions are met:
• The financial asset is held within a business model with the objective to hold financial assets in
order to collect contractual cash flows; and
• The contractual terms of the financial asset give rise on specified dates to cash flows that are
solely payments of principal and interest on the principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest (EIR)
method and are subject to impairment. Gains and losses are recognized in profit or loss when the
asset is derecognized, modified or impaired.

The Group’s financial assets at amortized cost includes cash in banks and cash equivalents, trade
and other receivables and refundable deposits.

Derecognition A financial asset (or, where applicable, a part of a financial asset or part of a group
of similar financial assets) is primarily derecognized (i.e., removed from the Group’s statement of
financial position) when:
• the rights to receive cash flows from the asset have expired;
• the Group 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;
• the Group 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 or
asset.

When the Group has transferred its rights to receive cash flows from an asset or has entered into
a pass through arrangement, it evaluates if, and to what extent, it has retained the risks and
rewards of ownership. When it has neither transferred nor retained substantially all of the risks
and rewards of the asset, nor transferred control of the asset, the Group continues to recognize
the transferred asset to the extent of its continuing involvement. In that case, the Group also
recognized an associated liability. The transferred asset and the associated liability are measured
on a basis that reflects the rights and obligations that the Group has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured
at the lower of the original carrying amount of the asset and the maximum amount of consideration
that the Group could be required to repay.
Modification of financial assets
The Group derecognizes a financial asset when the terms and conditions have been renegotiated
to the extent that, substantially, it becomes a new asset, with the difference between its carrying
amount and the fair value of the new asset recognized as a derecognition gain or loss in profit or
loss, to the extent that an impairment loss has not already been recorded.

The Group considers both qualitative and quantitative factors in assessing whether a modification
of financial asset is substantial or not. When assessing whether a modification is substantial, the
Group considers the following factors, among others:
• Change in currency
• Introduction of an equity feature
• Change in counterparty
• If the modification results in the asset no longer considered “solely payment for principal and
interest”

Financial liabilities
Initial recognition and measurement
Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through
profit or loss, loans and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.

All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings
and payables, net of directly attributable transaction costs.

The Group’s financial liabilities pertain to loans and borrowings.

Subsequent measurement
After initial recognition, interest-bearing loans and borrowings are subsequently measured at
amortized cost using the EIR method. Gains and losses are recognized in profit or loss when the
liabilities are derecognized as well as through the EIR amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees or costs that are an integral part of the EIR. The EIR amortization is included as finance
charges in the consolidated statement of income.

This category generally applies to interest-bearing loans and borrowings.

Derecognition A financial liability (or a part of a financial liability) is derecognized when the
obligation under the liability is discharged, cancelled or has expired. Where an existing financial
liability is replaced by another from the same lender on substantially different terms, or the terms
of an existing liability or a part of it are substantially modified, such an exchange or modification
is treated as a derecognition of the original financial liability and the recognition of a new financial
liability, and the difference in the respective carrying amounts is recognized in the statement of
income

Real Estate Inventories

Real estate inventories consist of subdivision land, residential houses and lots and condominium
units for sale and development. These are properties acquired or being constructed for sale in
the ordinary course of business rather than to be held for rental or capital appreciation. These are
held as inventory and are measured at the lower of cost and net realizable value (NRV).
Cost includes:
• Acquisition cost of subdivision land;
• Amounts paid to contractors for construction and development of subdivision land, residential
houses and lots and condominium units;
• Planning and design costs, cost of site preparation, professional fees for legal services, property
transfer taxes, construction overheads and other related costs; and
• Borrowing costs capitalized prior to start of pre-selling activities for the real estate project.

NRV is the estimated selling price in the ordinary course of the business, based on market prices
at the reporting date, less costs to complete and the estimated costs of sale. The carrying amount
of inventories is reduced through the use of allowance account and the amount of loss is charged
to profit or loss.

The cost of inventory recognized in profit or loss on disposal is determined with reference to the
specific costs incurred on the property sold and an allocation of any non-specific costs. The total
costs are allocated pro-rata based on the relative size of the property sold

Investment Properties
Investment properties consist of properties that are held to earn rentals or for capital appreciation
or both, and are not occupied by the Group. Investment properties, except for land, are carried at
cost less accumulated depreciation and any impairment in value. Land is carried at acquisition
cost less any impairment in value. The cost of an investment property, except for land, includes
its construction costs and any directly attributable costs of bringing the asset to its working
condition and location for its intended use, including borrowing costs. Additions, betterments and
major replacements are capitalized while minor repairs and maintenance are charged to expense
as incurred. Construction in progress is stated at cost less any impairment in value. This includes
cost of construction and other direct costs. Construction in progress is not depreciated until such
time that the relevant asset is completed or put into operational use. Construction in progress are
carried at cost and transferred to the related investment property account when the construction
and related activities to prepare the property for its intended use are complete, and the property
is ready for occupation. Depreciation of investment properties commences once these are
available for use and is computed on a straight-line basis over the estimated useful lives of the
investment properties as follows:

Property and Equipment

Property and equipment are carried at cost less accumulated depreciation and amortization and
any impairment in value. The cost of property and equipment comprised construction cost,
including borrowing costs, or purchase price plus any directly attributable costs of bringing the
asset to its working condition and location for its intended use.
Construction in progress is stated at cost less any impairment in value. This includes cost of
construction and other direct costs. Construction in progress is not depreciated until such time
that the relevant assets are completed and put into operational use. Construction in progress are
carried at cost and transferred to the related investment property account when the construction
and related activities to prepare the property for its intended use are complete, and the property
is ready for occupation.

Major repairs are capitalized as part of property and equipment only when it is probable that future
economic benefits associated with the item will flow to the Group and the cost of the items can be
measured reliably. All other repairs and maintenance are charged against current operations as
incurred

Depreciation and amortization of property and equipment commences once the property and
equipment is available for use and is computed on a straight-line basis over their estimated useful
lives as follows:

Depreciation and amortization ceases at the earlier of the date that the item is classified as held
for sale or included in a disposal group that is classified as held for sale in accordance with PFRS
5, Non-current Assets Held for Sale and Discontinued Operations, and the date the asset is
derecognized.

The assets’ estimated useful lives, and depreciation and amortization method are reviewed
periodically to ensure that these are consistent with the expected pattern of economic benefits
from the items of property and equipment.

When a property and equipment is retired or otherwise disposed of, the cost and the related
accumulated depreciation and amortization and any impairment in value are removed from
consolidated statement of financial position and any resulting gain or loss is recognized in
consolidated statement of income.

Capital Stock and Additional Paid-In Capital

Capital stock is measured at par value for all shares subscribed and/or issued. Subscribed capital
stock is the portion of the authorized capital stock that has been subscribed but not yet fully paid
and therefore still unissued. The subscribed capital stock is reported net of the subscription
receivable.

When the shares are subscribed or sold at a premium, the difference between the proceeds and
the par value is credited to “Additional paid-in capital” account. When shares are issued for a
consideration other than cash, the proceeds are measured by the fair value of the consideration
received. In case the shares are issued to extinguish or settle the liability of the Group, the shares
shall be measured either at the fair value of the liability settled or fair value of the shares issued
or, whichever is more reliably determinable. Direct costs incurred related to equity issuance, such
as underwriting, accounting and legal fees and taxes are chargeable to “Additional paid-in capital”
account. If additional paid-in capital is not sufficient, the excess is charged against the retained
earnings.

Retained Earnings
Retained earnings represent the cumulative balance of periodic net income or loss, dividend
distributions, prior period adjustments, effect of changes in accounting policy and other capital
adjustments. When the retained earnings account has a debit balance, it is called “deficit”. A deficit
is not an asset but a deduction from equity. Appropriated retained earnings represent that portion
which has been restricted, and therefore, not available for dividend declaration. Unappropriated
retained earnings represent that portion which can be declared as dividends to stockholders.

Expense Recognition
Expenses are recognized when there is a decrease in future economic benefits related to a
decrease in an asset or an increase of a liability has arisen that can be measured reliably.

Selling and general and administrative expenses Selling expenses are costs incurred to sell real
estate inventories of the Group, which includes commissions, advertising and promotions, among
others. General and administrative expenses constitute costs of administering the business.
Selling and general and administrative expenses are expensed as incurred.

Income Taxes
Current income tax
Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax
laws used to compute the amount are those that are enacted or substantively enacted at the
financial reporting date.

Deferred income tax

Deferred income tax is determined at the financial reporting date using the balance sheet liability
method on all temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, with certain
exceptions. Deferred income tax assets are recognized for all deductible temporary differences,
carryforward benefits of unused tax credits from excess of minimum corporate income tax (MCIT)
over the regular corporate income tax (RCIT) [excess MCIT] and unused net operating loss
carryover (NOLCO), to the extent that it is probable that taxable income will be available against
which the deductible temporary differences, excess MCIT and unused NOLCO can be utilized
before their expiration.

The carrying amount of deferred income tax assets is reviewed at each financial reporting date
and reduced to the extent that it is no longer probable that sufficient future taxable income will be
available to allow all or part of the deferred tax assets to be utilized. Unrecognized deferred
income tax assets are reassessed at each financial reporting date and are recognized to the
extent that it has become probable that future taxable income will allow all or part of the deferred
tax assets to be recovered.
Deferred income tax assets and liabilities are measured at the tax rate that is expected to apply
to the period when the asset is realized or the liability is settled, based on tax rates and tax laws
that have been enacted or substantively enacted at the financial reporting date. Movements in
the deferred tax assets and liabilities arising from changes in tax rates are charged or credited to
the income for the period.

Deferred income tax assets and liabilities are offset, if a legally enforceable right exists to set off
current income tax assets against current income tax liabilities, and the deferred income taxes
relate to the same taxable entity and the same taxation authority.

Deferred income tax relating to items recognized directly in equity is recognized in equity and not
in the consolidated statement of income. Deferred tax items are recognized in correlation to the
underlying transaction either in other comprehensive income or directly in equity.
Other Comprehensive Income
Other comprehensive income comprises items of income and expense that are not recognized in
the consolidated statement of income for the year in accordance with PFRSs.

Basic/Diluted Earnings Per Share

Basic earnings per share is computed by dividing net income for the year attributable to equity
holders of the Parent Company by the weighted average number of common shares outstanding
during the year, after giving retroactive effect to any stock dividends or stock splits, if any, declared
during the year.

Diluted earnings per share is computed in the same manner, with the net income for the year
attributable to equity holders of the Parent Company and the weighted average number of
common shares outstanding during the year, adjusted for the effect of all dilutive potential
common shares.

Foreign Currency-Denominated Transactions and Translations

Transactions denominated in foreign currencies are recorded using the exchange rate at the date
of the transaction. Outstanding monetary assets and monetary liabilities denominated in foreign
currencies are restated using the exchange rate at the financial reporting date. Non-monetary
items that are measured at fair value in a foreign currency shall be translated using the exchange
rates at the date when the fair value was determined.

When a gain or loss on a non-monetary item is recognized in other comprehensive income, any
foreign exchange component of that gain or loss shall be recognized in the consolidated
statement of comprehensive income. Conversely, when a gain or loss on a non-monetary item is
recognized in the consolidated statement of income, any exchange component of that gain or loss
shall be recognized in the consolidated statement of income.

Leases
The Group as Lessee
The determination of whether an arrangement is, or contains a lease is based on the substance
of the arrangement and requires an assessment of whether the fulfillment of the arrangement is
dependent on the use of a specific asset or assets and the arrangement conveys a right to use
the asset. A reassessment is made after inception of the lease only if one of the following applies:

a. there is a change in contractual terms, other than a renewal or extension of the arrangement;
b. a renewal option is exercised or extension granted, unless that term of the renewal or extension
was initially included in the lease term;
c. there is a change in the determination of whether fulfillment is dependent on a specified asset;
or
d. there is a substantial change to the asset. Where a reassessment is made, lease accounting
shall commence or cease from the date when the change in circumstances gave rise to the
reassessment for scenarios (a), (c) or (d) above, and at the date of renewal or extension period
for scenario (b)

Right-of-use assets. The Group recognizes right-of-use assets at the commencement date of the
lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured
at cost, less any accumulated amortization and impairment losses, and adjusted for any
remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease
liabilities recognized, initial direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received and estimate of costs to be incurred by
the lessee in dismantling and removing the underlying asset, restoring the site on which it is
located or restoring the underlying asset to the condition required by the terms and conditions of
the lease, unless those costs are incurred to produce inventories. Unless the Group is reasonably
certain to obtain ownership of the leased asset at the end of the lease term, the recognized right-
of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life
and the lease term as follow:

Right-of-use assets are subject to impairment. Refer to the accounting policies in the Impairment
of Non-financial Assets section.

The Group as Lessor

Leases where the Group does not transfer substantially all the risks and benefits of the ownership
of the asset are classified as operating leases. Fixed lease payments for non-cancellable lease
are recognized in the consolidated statement of income on a straight-line basis over the lease
term. Any difference between the calculated rental income and amount actually received or to be
received is recognized as deferred rent in the consolidated statement of financial position. Initial
direct costs incurred in negotiating operating leases are added to the carrying amount of the
leased asset and recognized over

the lease term on the same basis as the rental income. Variable rent is recognized as income
based on the terms of the lease contract.

When an operating lease is terminated before the lease period has expired, any payment required
to be made to the lessor by way of penalty is recognized under “Other income” account in the
consolidated statement of income.

Lease Modification. Lease modification is defined as a change in the scope of a lease, or the
consideration for a lease, that was not part of the original terms and conditions of the lease (e.g.,
addition or termination of the right to use one or more underlying assets, or the extension or
shortening of the contractual lease term.
In case of a lease modification, the lessor shall account for any such modification by recognizing
a new lease from the effective date of the modification, considering any prepaid or accrued lease
payments relating to the original lease as part of the lease payments for the new lease. In case
of change in lease payments for an operating lease that does not meet the definition of a lease
modification, the lessor shall account for any such change as a negative variable lease payment
and recognize lower lease income.

Effective prior to January 1, 2019

The Group as lessee
Leases where the lessor retains substantially all the risks and benefits of ownership of the asset
are classified as operating leases. Fixed lease payments for non-cancellable lease are recognized
as an expense in the consolidated statement of income on a straight-line basis over the lease
term while the variable rent is recognized as an expense based on terms of the lease contract.

Provisions and Contingencies

Provisions are recognized when the Group has a present obligation (legal or constructive) as a
result of a past event, it is probable that an outflow of resources embodying economic benefits
will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. If the effect of the time value of money is material, provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision due to the passage of time is recognized
as interest expense. When the Group expects a provision or loss to be reimbursed, the
reimbursement is recognized as a separate asset only when the reimbursement is virtually certain
and its amount is estimable. The expense relating to any provision is presented in the
consolidated statement of income, net of any reimbursement.

Contingent liabilities are not recognized in the consolidated financial statements. They are
disclosed unless the possibility of an outflow of resources embodying economic benefits is
remote. Contingent assets are not recognized in the consolidated financial statements but
disclosed when an inflow of economic benefits is probable. Contingent assets are assessed
continually to ensure that developments are appropriately reflected in the consolidated financial
statements. If it has become virtually certain that an inflow of economic benefits will arise, the
asset and the related income are recognized in the consolidated financial statements.

3. Significant Judgments, Accounting Estimates and Assumptions

The preparation of the consolidated financial statements requires the Group to exercise
judgments, make accounting estimates and use assumptions that affect the reported amounts of
assets, liabilities, income and expenses and disclosure of contingent assets and contingent
liabilities. Future events may occur which will cause the assumptions used in arriving at the
accounting estimates to change. The effects of any change in accounting estimates are reflected
in the consolidated financial statements as they become reasonably determinable.

Accounting estimates and judgments 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.

Judgments
In the process of applying the Group’s accounting policies, management has made the following
judgments, apart from those involving estimations, which have the most significant effect on
amounts recognized in the consolidated financial statements. Future events may occur which will
cause the assumptions used in arriving at the accounting estimates to change. The effect of any
change in accounting estimates is reflected in the consolidated financial statements as they
become reasonably determinable.

Revenue recognition
Revenue recognition under PFRS 15 involves the application of significant judgment and
estimation in the: (a) identification of the contract for sale of real estate property that would meet
the requirements of PFRS 15; (b) assessment of the probability that the entity will collect the
consideration from the buyer; (c) determination of the transaction price; (d) application of the
output/input method as the measure of progress in determining real estate revenue; (e)
determination of the actual costs incurred as cost of sales; and (f) recognition of cost to obtain a
contract.
a) Existence of a contract
The Group’s primary document for a contract with a customer is a signed contract to sell. In
addition, part of the assessment process of the Group before revenue recognition is to assess
the probability that the Group will collect the consideration to which it will be entitled in
exchange for the real estate property that will be transferred to the customer. In evaluating
whether collectability of an amount of consideration is probable, an entity considers the
significance of the customer’s initial payments in relation to the total contract price.
Collectability is also assessed by considering factors such as past history customer, age and
pricing of the property. Management regularly evaluates the historical cancellations and back-
outs if it would still support its current threshold of customers’ equity before commencing
revenue recognition.

b) Revenue recognition method and measure of progress

The Group concluded that revenue for real estate sales is to be recognized over time because
(a) the Group’s performance does not create an asset with an alternative use and; (b) the
Group has an enforceable right for performance completed to date. The promised property is
specifically identified in the contract and the contractual restriction on the Group’s ability to
direct the promised property for another use is substantive. This is because the property
promised to the customer is not interchangeable with other properties without breaching the
contract and without incurring significant costs that otherwise would not have been incurred
in relation to that contract. In addition, under the current legal framework, the customer is
contractually obliged to make payments to the developer up to the performance completed
to date.

The Group has determined that the output method used in measuring the progress of the
performance obligation faithfully depicts the Group’s performance in transferring control of
real estate development to the customer.

c) Identifying performance obligation

The Group has various contracts to sell covering residential lots and condominium units. The
Group concluded that there is one performance obligation in each of these contracts because:
(i) for residential lots, the developer integrates the plots it sells with the associated
infrastructure to be able to transfer the serviced land promised in the contract; (ii) for the
contract covering house or condominium units, the developer has the obligation to deliver the
house or condominium unit duly constructed on a specific lot and fully integrated into the
serviced land in accordance with the approved plan. Included also in this performance
obligation is the Group’s service to transfer the title of the real estate unit to the customer.

Provision for expected credit losses of cash and cash equivalents, trade and other
receivables and refundable deposits
The Group uses a provision matrix to calculate ECLs for trade and other receivables, except
for contract receivables. The provision rates are based on days past due for groupings of
various customer segments that have similar loss patterns (i.e., by geography, product type,
customer type and rating, property collaterals and coverage by letters of credit and other
forms of credit insurance). The provision matrix is initially based on the Group's historical
observed default rates.

The Group uses vintage analysis approach to calculate ECLs for contract receivables. The
vintage analysis accounts for expected credit losses by calculating the cumulative loss rates
of a given loan pool. It derives the probability of default from the historical data of a
homogenous portfolio that share the same origination period. The information on the number
of defaults during fixed time intervals of the accounts is utilized to create the PD model. It
allows the evaluation of the loan activity from its origination period until the end of the contract
period. The Group uses low credit risks simplification for cash and cash equivalents and
refundable deposits.

The assessment of the correlation between historical observed default rates, forecast
economic conditions (i.e., gross domestic product and inflation rate) and ECLs are significant
estimates. The amount of ECLs is sensitive to changes in circumstances and of forecast
economic conditions. The Group’s historical credit loss experience and forecast of economic
conditions may also not be representative of the customer’s actual default in the future. The
information about the ECLs on the Group’s trade and other receivables and refundable
deposits is disclosed in Note 28.

Accounting Estimates and Assumptions

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

Revenue and cost recognition

The Group derives its real estate revenue from sale of lots, house and lot and condominium
units. Revenue from the sale of these real estate projects under pre-completion stage are
recognized over time during the construction period (or percentage of completion) since
based on the terms and conditions of its contract with the buyers, the Group’s performance
does not create an asset with an alternative use and the Group has an enforceable right to
payment for performance completed to date.

In measuring the progress of its performance obligation over time, the Group uses the output
method.

Real estate sales and cost of real estate sales amounted to P =641.7 million and P =239.5
million in 2020, P=1,424.6 million and P =663.8 million in 2019 and P =1,704.0 million and
P=1,196.1 million in 2018, respectively.

Estimation of allowance for expected credit losses of debt instruments at amortized cost The
level of allowance for loans and receivables is evaluated by management based on past
 collection history and other factors which include, but are not limited to the length of the
Group’s relationship with the customer, the customer’s payment behavior, known market
factors that affect the collectability of the accounts. As of December 31, 2020 and 2019, the
Group recognized allowance for impairment on its contracts receivables; lease receivables
and refundable deposits amounting to P =0.6 million, P=57.6 million, P =5.6 million and
P=50.5 million, P=7.6 million, P=5.4 million, respectively (see Notes 6 S and 28)

a. Contracts receivables consist of revenues recognized to date based on the percentage-of-

completion less collections received from the respective buyers. Interest from contracts
receivables amounted to P=4.5 million, P=7.6 million and P=14.3 million in 2020, 2019 and 2018,
respectively (see Note 18).
b. Receivables from buyers include receivables relating to registration of titles, turnover fees and
advances paid for on behalf of buyers whereas receivables from tenants represent charges to
tenants for utilities normally collectible within a year.
c. Other receivables include accrued interest receivable pertaining to interest earned from cash
and cash equivalents and contracts receivables. Included also in other receivables are the
advances to officers and employees which pertain to unliquidated cash advances that are due
within one year. Unliquidated cash advances to officers and employees are recoverable through
salary deduction.
a. Deferred rent asset is used to record rental income on a straight-line basis over the lease
term.
b. Advances to contractors are recouped every settlement of progress billings based on
percentage of accomplishment of each contract package. The activities related to these
advances will be completed within the Group’s normal operating cycle.
c. Prepayments consist of prepaid insurance, taxes and licenses and other prepaid expenses.
Prepaid taxes and licenses consist of unamortized portion of taxes and licenses such as
business permit and real estate taxes.
 a. In 2019, the Parent Company reclassified from investment properties to real estate
inventory the costs of condominium units and parking slots for sale totaling to P=2.0 million
(see Note 7).
b. Rental income and direct operating expenses arising from the investment properties amounted
to P=1,757.7 million and P=466.6 million in 2020, P=1,707.8 million and P=446.9 million in 2019,
and P=1,494.7 million and P=373.6 million in 2018, respectively. Depreciation of investment
properties amounting to P=287.9 million, P=284.4 million and P=220.1 million were recognized
as part of cost of rental income in 2020, 2019 and 2018, respectively.
c. Borrowing costs capitalized as cost of investment properties for the year ended December 31,
2020, 2019 and 2018 amounted to P=160.4 million, P=153.0 million and P=134.8 million,
respectively (see Notes 14, 15 and 18)
d. The estimated fair value of land, condominium units, and buildings for lease are as follows:
In 2020 and 2019, the Group purchased property and equipment amounting to P=11.3 million and
P=20.5 million, respectively. As of December 31, 2020 and 2019, unpaid portion amounted to nil
and P=1.1 million, respectively.
In 2020, 2019 and 2018, the Group recognized as part of “Cost of rental income” the depreciation
and amortization of equipment and leasehold improvements used in leasing activities amounting
to P=14.7 million, P=16.4 million and P=12.5 million, respectively
Customers’ Deposits
Customers’ deposits represent payments received from buyers of condominium and residential
units and are measured equal to the amounts received from customers. These will eventually be
applied against the corresponding contracts receivables following the revenue recognition policy
of the Group. As of December 31, 2020 and 2019, customers’ deposits amounted to P=997.7
million and P=978.6 million, respectively.

a. In 2018, Parent Company entered into an unsecured term loan agreement with Bank of the
Philippine Islands (BPI) amounting to P=5,000.0 million to finance the construction of the Parent
Company’s projects. On July 31, 2018, P=500.0 million was initially drawn and an additional
P=1,000.0 million on September 26, 2018. The term loan with BPI has a nominal rate of 6.8% and
7.9% for the first and second drawdown, respectively. However, on March 30, 2020, the Parent
Company has paid in full the principal amount of the first two drawdowns. In the same year, the
Parent Company have availed of the loan in three drawdowns totaling P=1,800.0 million with a
nominal rate of 5% for each of the drawdown. Principal repayments will commence a year from
the date of initial borrowing and due quarterly, while interest payments are due quarterly.
b. In 2016, the Parent Company entered into a loan agreement with Philippine National Bank
(PNB) amounting to P=4,500.0 million secured by a certain parcel of land located in Sta. Rosa,
Laguna and an office building in Ortigas Avenue, Quezon City. In the same year, the Parent
Company have availed of the loan in two drawdowns totaling P=2,000.0 million. In 2017, the
Parent Company had a third drawdown of the loan with the amount of P=2,490.0 million, bringing
the total cash received through PNB loan to P=4,490.0 million. The term loans with PNB bears
nominal interest rate of 5.0% and will mature on May 31, 2023. Principal repayments will
commence two years from the date of initial drawdown and due quarterly while interest payments
are due quarterly starting August 31, 2016 (see Note 17).
c. The Parent Company entered into an unsecured term loan agreement with Asia United Bank
(AUB), in 2016, amounting to P=1,500.0 million to finance the construction of the Parent
Company’s projects. The term loans with AUB bear nominal interest rate of 5.0% and will mature
on September 28, 2023. Principal repayments commenced two years from the date of availment
and due quarterly while interest payments are due quarterly starting December 28, 2016.
d. On January 28, 2013, the Parent Company entered into an unsecured term loan agreement
with BDO amounting to P=2,000.0 million to finance the construction of the Parent Company’s
projects. Principal repayments will start one year from the date of availment and are due quarterly
while interest payments are due quarterly starting April 28, 2013. The term loan bears a nominal
interest rate of 5.53%. On October 28, 2013, the Parent Company and BDO agreed to the new
interest rate of 4.75%. The Parent Company settled the outstanding loans upon their maturity in
January 2018.
e. The Parent Company is required to maintain certain financial ratios, such as current ratio, debt
service cost coverage and debt equity ratio, and comply with non-financial covenants for each
bank loan. As at December 31, 2020 and 2019, the Parent Company is in compliance with the
financial and non-financial loan covenants.
a. On various dates in 2014, ECI and BCI executed P=1,061.2 million promissory notes, subject
to interest rate of PDSTF 3 years + 0.50%, to various landowners in relation to their purchased
parcels of land located in Sta. Rosa, Laguna with total purchase price of P=1.4 billion. The
promissory notes are due on the third year of its execution date. In June 2017, the payment of
the various promissory notes was extended for another three years. In 2020, various landowners
requested for extension, and the payment of the various promissory notes was extended for
another three years.
b. In 2017, the Parent Company reclassified the outstanding notes payable to Asia Brewery,
Incorporated (ABI) amounting to P=444.0 million from “Due to related parties” to “Payable to
landowners”. In December 2020, the principal amount of the note payable was fully paid by the
Parent Company.
c. In December 2015, the Parent Company executed contracts to sell, subject to interest rate of
6%, to PNB, a related party, amounting to P=754.0 million in relation to its purchase of parcels of
land located in San Juan City, Pasig City and Pasay City with a total purchase price of P=984.0
million. The promissory note is payable quarterly for five years from execution of the note. In
December 2020, the principal amount of the note payable was fully paid by the Parent Company.
d. Interest expense related to payables to landowners amounted to P=50.3 million, P=62.7 million
and P=65.9 million, net of capitalized portion of P=10.1 million in 2020 and P=13.5 million in 2019
and 2018 (see Notes 9 and 18).
Related Party Transactions
Parties are considered to be related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial and operating decisions. This includes
(a) individuals owning, directly or indirectly through one or more intermediaries, control or are
controlled by, or under common control with the Group; (b) associates; and (c) individuals owning,
directly or indirectly, an interest in the voting power of the Group that gives them significant
influence over the Group and close members of the family of any such individual. In considering
each related party relationship, attention is directed to the substance of the relationship, and not
merely the legal form.
The table below shows the details of the Group’s transactions with related parties.

As of December 31, 2020 and 2019, the outstanding related party balances are unsecured and
settlement occurs in cash, unless otherwise indicated. The Group has not recorded any
impairment of receivables relating to amounts owed by related parties. This assessment is
undertaken each financial year through examining the financial position of the related parties and
the market in which these related parties operate.
Capitalization rates for general borrowing in 2020, 2019 and 2018 were 5.33%, 5.85% and 3.95%,
respectively, and capitalization rates for specific borrowing in 2020, 2019 and 2018 were 3.95%,
5.11% and 3.95%, respectively (see Notes 9, 14 and 15). Others include penalties and surcharges
which are individually not material as to amounts.

Observations on Notes on Financial Statements

Corporate information
Eton Properties Philippines, Inc. and its subsidiaries are engaged in real estate development. This
includes residential and commercial properties. The company was incorporated in the Philippines,
and its principal office is in Makati City.
Basis of preparation and statement compliance
The financial statements have been prepared in compliance with the Philippine Financial
Reporting Standards (PFRS) and rules and regulations of the Philippine Securities and Exchange
Commission, applying the historical cost basis. All values are rounded to the nearest Peso, except
when otherwise indicated.
The accompanying financial statements have been prepared under the going concern basis, the
group believes that its businesses would remain relevant despite challenges pose by the COVID-
19 pandemic.
Significant Accounting Policies
Revenue recognition: The Group recognizes revenue from real estate sales, rental income, and
other operated departments. Revenue from real estate sales is recognized when the performance
obligation is satisfied by transferring control of the asset to the buyer. Rental income is recognized
on a straight-line basis over the lease term.
Expense recognition: expenses are recognized when there is a decrease in the future economic
benefits related to a decrease in an asset or an increase of a liability has arisen that can be measured
reliably.
Property and Equipment: These are measured at cost, less accumulated depreciation.
Financial asset: Financial assets are classified, at initial recognition, as subsequently measured at
amortized cost, fair value through other comprehensive income (OCI), and fair value through profit
or loss
Financial Liabilities: are classified, at initial recognition, as financial liabilities at fair value
through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging
instruments in an effective hedge, as appropriate.
Financial Instruments: Financial assets and liabilities are initially recognized at fair value.
Impairment losses are calculated using expected credit loss (ECL) methodology.
Cash and Cash Equivalents: Cash holdings include short-term investments.
Receivables: Trade and other receivables include accounts from real estate sales.
Inventories: Real estate inventories are properties held for sale and development costs.
investment
Properties: Major investments in properties for leasing include commercial spaces.
Equity: Capital stock and retained earnings make up a significant portion of equity.
Income taxes: The Group calculates current income tax based on the taxable income for the period,
with deferred tax assets and liabilities recognized for future tax consequences.
Earnings per share: amounts are based on weighted average number of common shares
outstanding after giving retroactive effect on any stock dividends or stock splits.
Foreign currency translation: These is recorded using the exchange rate at the date of
transaction.
Leases: An arrangement is a lease if it depends on a specific asset and conveys the right to use it.
Provision and contingency: ongoing legal proceedings will not materially impact its financial
position or operations.
Significant Judgments and Estimates
The preparation of financial statements requires management to make judgments and estimates,
such as assessing the impairment of assets and the percentage of completion for real estate sales.
The pandemic has added uncertainty, particularly in estimating fair values and expected credit
losses.
Other Disclosure/s
Cash and cash equivalents
Trade and other receivables
Real estate inventories
Other Current Assets
Investment Properties
Property and Equipment
Other Noncurrent Assets
Trade and Other Payables
Customers’ Deposits
Loans Payable
Payables to Landowners
Other Noncurrent Liabilities
Related Party Transactions
Interest Income and Finance Charges
Etc.

INDEPENDENT AUDITOR’S OPINION

The Stockholders and the Board of Directors
Eton Properties Philippines, Inc.
8/F Allied Bank Center, 6754 Ayala Avenue
Makati City, Metro Manila, Philippines

Opinion
We have audited the consolidated financial statements of Eton Properties Philippines, Inc. and
its subsidiaries (the Group), which comprise the consolidated statements of financial position as
at December 31, 2021 and 2020, and the consolidated statements of income, consolidated
statements of comprehensive income, consolidated statements of changes in equity and
consolidated statements of cash flows for each of the three years in the period ended December
31, 2021, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements of the Group as at
December 31, 2021 and 2020, and for each of the three years in the period ended December
31, 2021 are prepared in all material respects, in accordance with Philippine Financial Reporting
Standards (PFRSs), as modified by the application of the financial reporting reliefs issued and
approved by the Securities and Exchange Commission (SEC), as described in Note 2 to the
consolidated financial statements.
Basis for Opinion
We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for
the Audit of the Consolidated Financial Statements section of our report. We are independent of
the Group in accordance with the Code of Ethics for Professional Accountants in the Philippines
(Code of Ethics) together with the ethical requirements that are relevant to our audit of the
consolidated financial statements in the Philippines, and we have fulfilled our other ethical
responsibilities in accordance with these requirements and the Code of Ethics. We believe that
the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.
Emphasis of Matter
We draw attention to Note 2 to the consolidated financial statements which indicates that the
consolidated financial statements have been prepared in accordance with PFRSs, as modified
by the application of the financial reporting reliefs issued and approved by the SEC in response
to the COVID-19 pandemic. The impact of the application of the financial reporting reliefs on the
2021 consolidated financial statements are discussed in detail in Note 2. Our opinion is not
modified in respect of this matter.

Other Information
Management is responsible for the other information. The other information comprises the SEC
Form 17-A for the year ended December 31, 2021 but does not include the consolidated
financial statements and our auditor’s report thereon, which we obtained prior to the date of this
auditor’s report, and the SEC Form 20-IS (Definitive Information Statement) and Annual Report
for the year ended December 31, 2021, which are expected to be made available to us after that
date.
Our opinion on the consolidated financial statements does not cover the other information and
we do not express any form of assurance conclusion thereon.
In connection with our audits of the consolidated financial statements, our responsibility is to
read the other information identified above when it becomes available and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial
statements or our knowledge obtained in the audit, or otherwise appears to be materially
misstated.
Responsibilities of Management and Those Charged with Governance for the
Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated
financial statements in accordance with PFRSs, as modified by the application of the financial
reporting reliefs and issued and approved by the SEC, as described in Note 2 to the
consolidated financial statements, and for such internal control as management determines is
necessary to enable the preparation of consolidated financial statements that are free from
material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing
the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to
going concern and using the going concern basis of accounting unless management either
intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Group’s financial reporting
process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole are free from material misstatement, whether due to fraud or error, and
to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of
assurance, but is not a guarantee that an audit conducted in accordance with PSAs will always
detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to
influence the economic decisions of users taken on the basis of these consolidated financial
statements.
As part of an audit in accordance with PSAs, we exercise professional judgment and maintain
professional skepticism throughout the audit. We also:

• Identify and assess the risks of material misstatement of the consolidated

financial statements, whether due to fraud or error, design and perform audit
procedures responsive to those risks, and obtain audit evidence that is sufficient
and appropriate to provide a basis for our opinion. The risk of not detecting a
material misstatement resulting from fraud is higher than for one resulting from
error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design
audit procedures that are appropriate in the circumstances, but not for the
purpose of expressing an opinion on the effectiveness of the Group’s internal
control.
• Evaluate the appropriateness of accounting policies used and the
reasonableness of accounting estimates and related disclosures made by
management.
• Conclude on the appropriateness of management’s use of the going concern
basis of accounting and, based on the audit evidence obtained, whether a
 material uncertainty exists related to events or conditions that may cast
significant doubt on the Group’s ability to continue as a going concern. If we
conclude that a material uncertainty exists, we are required to draw attention in
our auditor’s report to the related disclosures in the consolidated financial
statements or, if such disclosures are inadequate, to modify our opinion. Our
conclusions are based on the audit evidence obtained up to the date of our
auditor’s report. However, future events or conditions may cause the Group to
cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated
financial statements, including the disclosures, and whether the financial
statements represent the underlying transactions and events in accordance with
PFRSs, as modified by the application of financial reporting reliefs issued and
approved by the SEC, as described in Note 2 to the consolidated financial
statements.
• Obtain sufficient appropriate audit evidence regarding the financial information of
the entities or business activities within the Group to express an opinion on the
consolidated financial statements. We are responsible for the direction,
supervision and performance of the audit. We remain solely responsible for our
audit opinion.
We communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any significant
deficiencies in internal control that we identify during our audit.
SYCIP GORRES VELAYO & CO

Observations on Audit Report

Statement of Financial Position
Current assets dropped to ₱8.83 billion from ₱9.23 billion, mainly due to lower cash reserves,
impacting short-term financial flexibility. However, liquidity improved as current liabilities fell to
₱5.56 billion from ₱7.74 billion, reflecting effective liability management. Noncurrent liabilities
increased to ₱7.62 billion from ₱6.25 billion, driven by higher loans, which may heighten financial
risks. Despite this, total equity grew to ₱18.64 billion from ₱17.84 billion, supported by retained
earnings, indicating profitability. Noncurrent assets remained stable at ₱22.89 billion, ensuring a
strong asset base for future growth. Overall, the company maintained resilience while balancing
liquidity, leverage, and asset stability.
Consolidated Statement of Income
Eton Properties Philippines experienced a decline in revenue, dropping from ₱3.31 billion in 2019
to ₱2.60 billion in 2020, and further to ₱1.97 billion in 2021, mainly due to reduced real estate
sales and rental income amid the COVID-19 pandemic. The company managed cost reductions,
with expenses decreasing from ₱2.25 billion in 2019 to ₱1.64 billion in 2020, though they slightly
rose to ₱1.65 billion in 2021 due to increased rental and administrative costs. Other income grew
from ₱455 million in 2020 to ₱578 million in 2021, driven by non-core gains, partially offsetting
the decline in core revenue. Net income dropped from ₱802 million in 2020 to ₱550 million in
2021, highlighting the need to address rising costs and revive revenue generation. Gains from
remeasuring defined benefit obligations contributed positively to other comprehensive income,
improving the company's equity position.
Statement in Changes in Equity
Eton Properties maintained a consistent capital structure over the past three years, with no changes
in capital stock, additional paid-in capital, or treasury shares, reflecting stability. Remeasurements
of retirement benefits showed fluctuations (₱38,000 in 2017, negative ₱61,000 in 2018, and ₱4,000
in 2019), driven by actuarial or market changes impacting employee obligations. Treasury shares,
valued at negative ₱7,000, are carried at cost and deducted from equity without affecting net
income, adhering to standard practices. The company follows a calendar-year reporting period for
compliance and comparability, while capital stock is valued at par, with premiums credited to
additional paid-in capital, ensuring transparency in equity reporting.
Statements of Cash Flows
In 2020, Eton Properties Philippines experienced a significant decline in operating revenue,
dropping from ₱2.7 billion in 2019 to ₱1.3 billion, reflecting the economic impact of the COVID-
19 pandemic. The company adopted a prudent investment strategy, reducing cash outflow from
investing activities from ₱1.5 billion to ₱755 million by cutting back on land acquisitions and
equipment spending. Financing activities saw a net cash outflow of ₱1.3 billion, with increased
loans payable and loan proceeds, as the company leveraged long-term debt to maintain liquidity.
As a result, its cash position decreased by ₱1.4 billion, from ₱2.3 billion to ₱1.4 billion, driven by
lower cash inflows and loan repayments. However, the increase in customer deposits by ₱19
million indicates sustained market confidence, providing a solid foundation for potential recovery
in the real estate sector.
Notes to Consolidated Financial Statements
The Notes to Consolidated Financial Statements for Eton Properties Philippines, Inc. and its
subsidiaries provide comprehensive disclosures on accounting policies, investments, and related
party transactions, offering a transparent view of the company's financial practices. These detailed
notes help stakeholders understand key financial components such as revenue recognition, asset
valuation, and the company’s approach to managing risks and investments. The transparency in
reporting related party transactions and contingencies ensures that potential conflicts of interest or
financial obligations are clearly communicated, fostering trust and providing deeper insight into
the company’s financial health and operations.
REFERENCES:
PwC Philippines, "Modernizing Property Valuation", https://www.pwc.com/ph/en/tax/tax-
publications/taxwise-or-otherwise/2024/modernizing-property-valuation.html
Suntrust Properties, "Real Estate Tax Updates for 2024", https://suntrust.com.ph/blog/real-estate-
tax-updates-2024-what-property-owners-need-know
Richest Philippines, "Opportunities in Construction and Real Estate",
https://richestph.com/blog/2024/10/21/real-estate-and-construction-opportunities-in-the-
booming-philippine-market/
Ayala Land Inc. (2023). Annual Report 2023. Retrieved
from:https://ir.ayalaland.com.ph/financials/annual-reports/
Ayala Land Inc. About Us. Retrieved from https://www.ayalaland.com.ph/
Nick Jose (2024). Top 10 Real Estate Developers in the Philippines. Retrieved from
https://www.securitybank.com/blog/top-10-real-estate-developers-in-the-philippines/
https://cdmg.com/building-faqs/commercial-versus-residential-construction
https://corporatefinanceinstitute.com/resources/commercial-real-estate/real-estate/
https://safetyculture.com/topics/residential-construction/#:~:text=6%20min%20read-
,What%20is%20Residential%20Construction%3F,many%20phases%20and%20stakehold
ers%20involved
https://constructible.trimble.com/construction-industry/a-very-brief-history-of-the-construction-
industry
https://www.investopedia.com/articles/07/history-real-estate.asp

https://avenuerealtygroup.com/article/a-brief-history-of-real-estate/

https://bfpminc.com/the-ever-shifting-landscape-a-historical-journey-through-real-estate/

https://viewpoint.pwc.com/dt/gx/en/pwc/industry/industry_INT/industry_INT/real_estate__1_IN
T/Applying-IFRS-for-the-real-est-joined.html#pwc-topic.dita_4c943649-6dfe-4f6c-b25b-
86d23964a763
https://www.usgbc.org/leed
https://www.verdani.com/single-post/gri-2021-standards-new-requirements-and-implications-
for-commercial-real-estate
https://ownpropertyabroad.com/philippines/zoning-laws-in-the-philippines/
https://richestph.com/blog/2024/06/11/guide-to-zoning-laws-for-ph-developers/
https://www.linkedin.com/pulse/laypersons-guide-real-estate-zoning-environmental-rules-
austria-lzmqc
 GROUP MEMBERS AND CONTRIBUTIONS
Overview- Ferrer, Rose Dianne E.
Farnacio, Rochelle A.
History/Background- Pua, Nouella Mae G.
Farnacio, Rochelle A.
Audit & Tax Consideration- Bautista, Cherrielyn P.
Escario, Elaiza P.
FS Standards, Framework and Laws- Bermisa, Ann-Jelyne S.
Cuaresma, Mary Kathrine M.
Audit Risks- Domingo, John Fred Lester R.
Yuson, Mitch Yvan M.
State Compliances- Dasalla, John Denver C.
Case Study- Agbayani, Allysza Venice C.
Cairel, Karl Vincent C.
Statement of Financial Position- Nunez, Kimberly P.
Statement of Financial Performance- Corpuz, Arabella Grace G.
Statement of Changes in equity De Asis, Paul M.
Statement of Cash Flow- Abuan, Alyana Francheska N.
Notes to Financial Statement- Miguel, Eulyzza T.
Gallena, Christine Joy L.
Audit report- De Leon, Michaela Justine D.