german-philippine chamber of commerce and industry, inc

German-Philippine Chamberof Commerce and Industry, Inc.(A Nonstock, Not-for-Profit Organization)

Financial StatementsDecember 31, 2019 and 2018

and

Independent Auditor’s Report

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INDEPENDENT AUDITOR’S REPORT

The Board of DirectorsGerman-Philippine Chamber of Commerce and Industry, Inc.

Report on the Audit of the Financial Statements

Opinion

We have audited the financial statements of German-Philippine Chamber of Commerce and Industry, Inc.(the Organization), which comprise the balance sheets as at December 31, 2019 and 2018, and thestatements of income, statements of changes in fund balance and statements of cash flows for the yearsthen ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the financialposition of the Organization as at December 31, 2019 and 2018, and its financial performance and its cashflows for the years then ended in accordance with Philippine Financial Reporting Standards for SmallEntities (the Framework).

Basis for Opinion

We conducted our audits in accordance with Philippine Standards on Auditing (PSAs). Ourresponsibilities under those standards are further described in the Auditor’s Responsibilities for the Auditof the Financial Statements section of our report. We are independent of the Organization in accordancewith the Code of Ethics for Professional Accountants in the Philippines (Code of Ethics) together with theethical requirements that are relevant to our audit of the financial statements in the Philippines, and wehave fulfilled our other ethical responsibilities in accordance with these requirements and the Code ofEthics. We believe that the audit evidence we have obtained is sufficient and appropriate to provide abasis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements inaccordance with the Framework, and for such internal control as management determines is necessary toenable the preparation of financial statements that are free from material misstatement, whether due tofraud or error.

In preparing the financial statements, management is responsible for assessing the Organization’s abilityto continue as a going concern, disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless management either intends to liquidate the Organization or tocease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Organization’s financial reportingprocess.

SyCip Gorres Velayo & Co.6760 Ayala Avenue1226 Makati CityPhilippines

Tel: (632) 891 0307Fax: (632) 819 0872ey.com/ph

BOA/PRC Reg. No. 0001, October 4, 2018, valid until August 24, 2021SEC Accreditation No. 0012-FR-5 (Group A), November 6, 2018, valid until November 5, 2021

A member firm of Ernst & Young Global Limited

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Auditor’s Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole arefree from material misstatement, whether due to fraud or error, and to issue an auditor’s report thatincludes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that anaudit 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 theaggregate, they could reasonably be expected to influence the economic decisions of users taken on thebasis of these financial statements.

As part of an audit in accordance with PSAs, we exercise professional judgment and maintainprofessional skepticism throughout the audit. We also:

· Identify and assess the risks of material misstatement of the financial statements, whether due to fraudor error, design and perform audit procedures responsive to those risks, and obtain audit evidence thatis sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involvecollusion, 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 proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Organization’s internal control.

· Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates 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 orconditions that may cast significant doubt on the Organization’s ability to continue as a goingconcern. If we conclude that a material uncertainty exists, we are required to draw attention in ourauditor’s report to the related disclosures in the financial statements or, if such disclosures areinadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up tothe date of our auditor’s report. However, future events or conditions may cause the Organization tocease to continue as a going concern.

· Evaluate the overall presentation, structure and content of the financial statements, including thedisclosures, and whether the financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

We communicate with those charged with governance regarding, among other matters, the planned scopeand timing of the audit and significant audit findings, including any significant deficiencies in internalcontrol that we identify during our audit.


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Report on the Supplementary Information Required Under Revenue Regulations 15-2010

Our audits were conducted for the purpose of forming an opinion on the basic financial statements takenas a whole. The supplementary information required under Revenue Regulations 15-2010 in Note 13 tothe financial statements is presented for purposes of filing with the Bureau of Internal Revenue and is nota required part of the basic financial statements. Such information is the responsibility of themanagement of the Organization. The information has been subjected to the auditing procedures appliedin our audit of the basic financial statements. In our opinion, the information is fairly stated, in allmaterial respects, in relation to the basic financial statements taken as a whole.

SYCIP GORRES VELAYO & CO.

Djole S. GarciaPartnerCPA Certificate No. 0097907SEC Accreditation No. 1768-A (Group A), September 3, 2019, valid until September 2, 2022Tax Identification No. 201-960-347BIR Accreditation No. 08-001998-102-2018, October 18, 2018, valid until October 17, 2021PTR No. 8125240, January 7, 2020, Makati City

February 19, 2020


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GERMAN-PHILIPPINE CHAMBER OF COMMERCE AND INDUSTRY, INC.(A Nonstock, Not-for-Profit Organization)BALANCE SHEETS

December 312019 2018

ASSETS

Current AssetsCash P=32,481,742 P=37,176,789Receivables (Note 3) 1,458,105 2,011,213Creditable withholding tax (Note 4) 11,591 –Total Current Assets 33,951,438 39,188,002

Noncurrent AssetsProperty and equipment (Note 5) 5,902,703 7,963,824Intangible assets (Note 6) 7,218 9,924Security deposit (Note 12) 410,250 410,250Total Noncurrent Assets 6,320,171 8,383,998

TOTAL ASSETS P=40,271,609 P=47,572,000

LIABILITIES AND FUND BALANCE

Current LiabilitiesAccrued expenses and other current liabilities (Note 7) P=19,641,345 P=24,938,237

Fund Balance 20,630,264 22,633,763

TOTAL LIABILITIES AND FUND BALANCE P=40,271,609 P=47,572,000

See accompanying Notes to Financial Statements.

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GERMAN-PHILIPPINE CHAMBER OF COMMERCE AND INDUSTRY, INC.(A Nonstock, Not-for-Profit Organization)STATEMENTS OF INCOME

Years Ended December 312019 2018

REVENUEProjects and events (Note 12) P=31,775,587 P=36,482,940Subsidies (Note 12) 24,857,635 23,641,332Membership fees 4,563,015 5,069,450Interest income 10,351 11,613Others 817,322 707,218

62,023,910 65,912,553

COST AND EXPENSESCost of projects and events (Note 8) 18,918,474 22,434,505General and administrative expenses (Note 9) 39,439,128 33,871,547Foreign exchange losses - net 1,932,895 135,373

60,290,497 56,441,425

EXCESS OF REVENUE OVER EXPENSES BEFOREINCOME TAX 1,733,413 9,471,128

PROVISION FOR INCOME TAX (Note 10) 2,070 2,323

EXCESS OF REVENUE OVER EXPENSES P=1,731,343 P=9,468,805


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GERMAN-PHILIPPINE CHAMBER OF COMMERCE AND INDUSTRY, INC.(A Nonstock, Not-for-Profit Organization)STATEMENTS OF CHANGES IN FUND BALANCEFOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

Balance at December 31, 2017 P=13,164,958Excess of revenue over expenses 9,468,805

Balance at December 31, 2018, as previously reported 22,633,763Prior year adjustment (Note 12) (3,734,842)

Balance at January 1, 2019, as restated 18,898,921Excess of revenue over expenses 1,731,343

Balance at December 31, 2019 P=20,630,264


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GERMAN-PHILIPPINE CHAMBER OF COMMERCE AND INDUSTRY, INC.(A Nonstock, Not-for-Profit Organization)STATEMENTS OF CASH FLOWS

Years Ended December 312019 2018

CASH FLOWS FROM OPERATING ACTIVITIESExcess of revenue over expenses before income tax P=1,733,413 P=9,471,128Adjustments for:

Return of excess subsidy (Note 12) (3,734,842) –Depreciation and amortization (Notes 5, 6 and 9) 2,658,874 1,329,021Unrealized foreign exchange loss - net 1,912,649 752,147Interest income (10,351) (11,613)

Operating income before working capital changes 2,559,743 11,540,683Decrease (increase) in:

Receivables 537,281 844,902Other current assets (11,591) 106,500Security deposit (Note 12) – (147,750)

Increase (decrease) in accrued expenses and othercurrent liabilities (Note 11) (5,300,919) 6,163,859

Net cash generated from (used in) operations (2,215,486) 18,508,194Income taxes paid (2,070) (2,323)Interest received 10,351 11,613Net cash from (used in) operating activities (2,207,205) 18,517,484

CASH FLOWS FROM INVESTING ACTIVITIESAcquisitions of property and equipment (Note 5) (595,047) (5,374,448)

EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,892,795) (752,147)

NET INCREASE (DECREASE) IN CASH (4,695,047) 12,390,889

CASH AT BEGINNING OF YEAR 37,176,789 24,785,900

CASH AT END OF YEAR P=32,481,742 P=37,176,789


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GERMAN-PHILIPPINE CHAMBER OF COMMERCE AND INDUSTRY, INC.(A Nonstock, Not-for-Profit Organization)NOTES TO FINANCIAL STATEMENTS

1. Organization Information and Authorization for Issue of the Financial Statements

The German-Philippine Chamber of Commerce and Industry, Inc. (the Organization), a nonstock, not-for-profit organization, was incorporated in the Philippines and registered with the Philippine Securitiesand Exchange Commission (SEC) and started its operations on February 29, 2008. The Organizationwas organized primarily to promote and facilitate bi-national interest, strong commercial and industrialrelationships between the Federal Republic of Germany and the Republic of the Philippines as a whole,and the interests of persons, firms or corporations engaged in such commerce and industry.

On March 31, 2011, the Board of Directors (BOD) of the Organization approved the addition of“German-Philippine Chamber of Commerce and Industry”, “German-Philippine Chamber”, “GPCCI”,and “Deutsche-Philippinische Industrie-und Handelskammer” as business names of the Organization.

The Organization’s principal office and business address is at 8/F Döhle Haus Manila, 30-38Sen. Gil Puyat Avenue, Barangay San Isidro, Makati City, Metro Manila.

The Organization, being a nonstock, not-for-profit organization, has no part of its excess revenue overexpenses inuring to the benefit of any individual, falling under Section 30 (F) of Republic Act No. 8424entitled “An Act Amending the National Internal Revenue Code, As Amended and for Other Purposes”.The income from activities conducted in pursuit of the objectives for which the Organization wasestablished is exempt from tax. However, any income from any activity conducted for profit regardlessof the disposition of such income is subject to income tax. On February 20, 2018, the Bureau of InternalRevenue (BIR) issued a tax ruling to the Organization confirming that the income received by theOrganization operating as a not-for-profit chamber of commerce is exempt from income tax. Anyincome derived from any of the Organization’s properties, real or personal, or any activity conductedfor profit regardless of the disposition thereof, is subject to income tax. The tax ruling is valid untilFebruary 19, 2021, which is three years from date of issuance.

The financial statements of the Organization were approved and authorized for issuance by the BODon February 19, 2020.

2. Summary of Significant Accounting Policies and Financial Reporting Practices

Basis of PreparationThe financial statements of the Organization have been prepared on a historical cost basis and arepresented in Philippine peso (Peso), which is the Organization’s functional and reporting currency. Allamounts were rounded off to the nearest Peso, except when otherwise indicated.

In March 2018, the SEC resolved to adopt Philippine Financial Reporting Standard (PFRS) for SmallEntities (the Framework) as part of its rules and regulations on financial reporting. This Frameworkwas developed in response to feedback of small entities that PFRS for Small and Medium-sized Entities(PFRS for SMEs) is too complex to apply. By reducing choices for accounting treatment, eliminatingtopics that are generally not relevant to small entities, simplifying methods for recognition andmeasurement, and reducing disclosure requirements, the Framework allows small entities to complywith the financial reporting requirements without undue cost or burden. The Framework is effective forannual periods beginning on or after January 1, 2019, with early application permitted.

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In 2018, the Organization opted to adopt PFRS for Small Entities earlier than its mandatory effectivedate of January 1, 2019, as allowed by the standard itself and the existing SEC rules and regulations.

Statement of ComplianceThe financial statements are prepared in compliance with the Framework.

Significant Accounting Policies

CashCash includes cash on hand and in banks and does not include restricted cash, which is classified in thebalance sheet either as a current asset or a noncurrent asset depending on when it is expected to bedisbursed. If the restricted cash will be disbursed within twelve months from the balance sheet date, itis classified as current; otherwise, it is classified as noncurrent.

ReceivablesReceivables are recognized and stated at face value less allowance for any uncollectible amount.Provisions for doubtful accounts are made based on a review of all outstanding amounts and when thereis objective evidence that the Organization will not be able to collect the amounts due according to theoriginal terms of the receivable. Doubtful accounts are written off when identified.

Financial InstrumentsA financial instrument is any contract that gives rise to both a financial asset of one entity and a financialliability or equity instrument of another entity. A financial instrument is recognized when the entitybecomes a party to its contractual provisions. The Organization classifies its financial instruments intothe following categories: (a) basic financial instruments and (b) complex financial instruments.

The Organization's basic financial instruments consist of cash, receivables, and accrued expenses andother current liabilities. The Organization does not have complex financial instruments.

Basic financial instrumentsInitial measurementOn initial recognition, a debt financial instrument is measured at transaction price (including transactioncosts), unless the arrangement is in effect a financing transaction. In this case, it is measured at presentvalue of the future payment discounted using a market rate of interest for a similar debt instrument.

Subsequent measurementThe Organization's debt financial instruments are subsequently measured at amortized cost using theeffective interest method.

Impairment of financial instruments measured at amortized costAt each reporting date, the Organization assesses whether there is objective evidence of impairment onany financial assets that are measured at amortized cost. Where there is any objective evidence ofimpairment, an impairment loss is recognized immediately in profit or loss.

The impairment loss is the difference between the asset’s carrying amount and the present value ofestimated cash flows discounted at the asset’s original effective interest rate.

Derecognition of financial assetsAn entity only derecognizes a financial asset when the contractual rights to the cash flows from theassets have expired or are settled, or the entity has transferred to another party substantially all the risksand rewards of ownership relating to the financial asset.

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Derecognition of financial liabilities Financial liabilities are derecognized only when these are extinguished that is, when the obligation isdischarged, cancelled, or has expired.

Property and EquipmentProperty and equipment is stated at cost less accumulated depreciation, amortization and anyimpairment in value.

The initial cost of property and equipment consists of its purchase price and any directly attributablecost of bringing the asset to its working condition and location for its intended use. Expendituresincurred after the items of property and equipment have been put into operation, such as repairs andmaintenance, are normally charged to expense in the period in which the costs are incurred. In situationswhere it can be clearly demonstrated that these expenditures have resulted in an increase in the futureeconomic benefits expected to be obtained from the use of an item of property and equipment beyondits originally assessed standard of performance, the expenditures are capitalized as an additional costof the property and equipment. When items of property and equipment are sold, retired or otherwisedisposed of, their cost and accumulated depreciation, amortization and any impairment in value areeliminated from the accounts and any gain or loss resulting from their disposal is recognized in thestatement of income.

Depreciation and amortization are computed on a straight-line basis over the estimated useful life ofthe asset or the term of the lease, whichever is shorter. Office equipment and motor vehicles aredepreciated over an estimated useful life of three years. Leasehold improvements are amortized overthe useful life of the assets, which ranges from three to five years, or the term of the lease contract,whichever is shorter.

Depreciation or amortization begins when the asset is available for use, i.e., when it is in the locationand condition necessary for it to be capable of operating in the manner intended by the management. Itceases at the earlier of the date that it is classified as noncurrent asset held-for-sale and the date theasset is derecognized.

The estimated useful life and depreciation and amortization method are reviewed periodically to ensurethat these are consistent with the expected pattern of economic benefits from items of property andequipment.

The carrying value of property and equipment is reviewed for impairment when events or changes incircumstances indicate that the carrying value may not be recoverable. If any such indication existsand where the carrying value exceeds the estimated recoverable amount, the asset is written down toits recoverable amount. Any impairment in value is recognized in the statement of income.

Intangible AssetsIntangible assets consist of software cost, which is not an integral part of the related hardware, andtrademark. These are measured initially at cost and are amortized on a straight-line basis over theirestimated useful lives from 3 to 10 years. The estimated useful life and amortization method arereviewed at each balance sheet date, with the effect of any changes in estimate being accounted for ona prospective basis.

Gain or loss arising from derecognition of intangible assets is recognized in the statement of incomewhen the asset is derecognized.

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Accrued Expenses and Other Current LiabilitiesAccrued expenses and other current liabilities are recognized when incurred and measured on initialrecognition at the expected amount to be paid.

Unearned RevenueUnearned revenue consists of unearned projects and events fees and unearned membership fees andthese are recognized for cash received not yet earned and is presented as liability.

Accrued Retirement LiabilityThe Organization has established a formal retirement plan for its employees. The Organization’saccrued retirement liability is measured using the accrual approach based on the approved retirementplan. Accrual approach is applied by calculating the expected liability as at reporting date using thecurrent salary of the entitled employees and the employees’ years of service, without consideration offuture changes in salary rates and service periods.

Fund BalanceFund balance represents the accumulated balance of excess (deficiency) of revenue over cost andexpenses.

RevenueRevenue is recognized to the extent that it is probable that the economic benefits associated with thetransaction will flow to the Organization and the amount can be reliably measured. The followingspecific recognition criteria must also be met before revenue is recognized:

Projects and eventsIncome generated from special events and activities are recognized upon holding of the events andconduct of the activities.

SubsidiesSubsidies are recognized on the date received and are measured at the fair value of the asset receivedor receivable. When there is an unconditional promise to give, subsidies received are recognized in theperiod the promise is received. When specified future performance conditions are imposed, subsidiesare recognized when the performance conditions are met; otherwise, the subsidies received arerecognized as liabilities.

Membership feesMembership fees are recognized as revenue in the year the membership is renewed. Membership feesfrom new members are recognized as income upon approval by the BOD of membership application.

InterestInterest is recognized as the interest accrues.

Cost and ExpensesCost and expenses are recognized when a decrease in future economic benefits related to a decrease inan asset or an increase in a liability has arisen that can be measured reliably. Cost of projects and eventsare recognized when the related services are rendered and upon holding of the projects and events andconduct of the activities. General and administrative expenses, which include costs of administeringthe Organization, are expensed as incurred.

Income TaxThe Organization uses taxes payable method to account for income taxes. Under this method, theOrganization recognizes current tax liability for tax payable on taxable profit for the current and past

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periods. If the amount paid for the current and past periods exceeds the amount payable for thoseperiods, the entity shall recognize the excess as a current tax asset.

The Organization measures its current tax liabilities (assets) using the tax rates and laws that have beenenacted or substantively enacted by the reporting date.

Provisions and ContingenciesProvisions are recognized when the Organization has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodying economic benefits will berequired to settle the obligation, and a reliable estimate can be made of the obligation.

Contingent liabilities are not recognized in the financial statements. They are disclosed unless thepossibility of an outflow of resources embodying economic benefits is remote. Contingent assets arenot recognized in the financial statements but disclosed when an inflow of economic benefits isprobable.

Foreign Currency-denominated Transactions and TranslationsTransactions denominated in foreign currencies are recorded in Peso based on the applicable exchangerates prevailing at the transaction dates. Outstanding monetary assets and liabilities denominated inforeign currencies are restated using the applicable closing exchange rates at the balance sheet date.Exchange gains or losses arising from foreign currency transactions and balances are recognized in thestatement of income.

Events After the Balance Sheet DateEvents after the balance sheet date that provide additional information about the Organization’s positionat the balance sheet date (adjusting events) are reflected in the financial statements. Events after thebalance sheet date that are not adjusting events, if any, are disclosed in the notes to the financialstatements when material.

3. Receivables

2019 2018Projects and events P=1,384,815 P=1,824,356Advances to employees 63,120 69,907Advances to suppliers 10,170 64,950Membership fees – 52,000

P=1,458,105 P=2,011,213

4. Creditable withholding tax

2019 2018Creditable withholding tax (CWT) P=11,591 P=73,476Less allowance for probable losses on CWT – 73,476

P=11,591 P=–

CWT pertains to the tax withheld made by the members on their payments to the Organization.

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5. Property and Equipment

As of December 31, 2019:

Office Equipment

MotorVehicles

LeaseholdImprovements Total

CostBeginning of year P=8,701,525 P=4,940,900 P=1,131,672 P=14,774,097Additions 595,047 – – 595,047Retirement – (1,355,000) – (1,355,000)End of year 9,296,572 3,585,900 1,131,672 14,014,144Accumulated DepreciationBeginning of year 5,256,206 1,440,900 113,167 6,810,273Depreciation (Note 9) 1,522,943 680,556 452,669 2,656,168Retirement – (1,355,000) – (1,355,000)End of year 6,779,149 766,456 565,836 8,111,441Net Book Values P=2,517,423 P=2,819,444 P=565,836 P=5,902,703


OfficeEquipment

MotorVehicles

LeaseholdImprovements Total

CostBeginning of year P=9,567,569 P=1,440,900 P=659,960 P=11,668,429Additions 742,776 3,500,000 1,131,672 5,374,448Retirement (1,608,820) – (659,960) (2,268,780)End of year 8,701,525 4,940,900 1,131,672 14,774,097Accumulated DepreciationBeginning of year 5,967,571 1,264,097 659,960 7,891,628Depreciation (Note 9) 897,455 176,803 113,167 1,187,425Retirement (1,608,820) – (659,960) (2,268,780)End of year 5,256,206 1,440,900 113,167 6,810,273Net Book Values P=3,445,319 P=3,500,000 P=1,018,505 P=7,963,824

In 2019, the Organization retired one of its motor vehicles.

In 2018, the Organization retired some of its office equipment no longer used in operations and its oldleasehold improvements following the renovation of its office.

6. Intangible Assets


Software Cost Trademark Total

CostBeginning and end of the year P=148,719 P=27,067 P=175,786Accumulated AmortizationBeginning of year 148,719 17,143 165,862Amortization (Note 9) – 2,706 2,706End of year 148,719 19,849 168,568Net Book Values P=– P=7,218 P=7,218

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SoftwareCost Trademark Total

CostBeginning of year P=648,719 P=27,067 P=675,786Write off (500,000) – (500,000)End of year 148,719 27,067 175,786Accumulated AmortizationBeginning of year 509,829 14,437 524,266Amortization (Note 9) 138,890 2,706 141,596Write off (500,000) – (500,000)End of year 148,719 17,143 165,862Net Book Values P=– P=9,924 P=9,924

In 2018, the Organization decided to write off its Customized Accounting System (CAS) as this CASwas no longer used by the Organization. The Organization replaced its CAS with a subscription-basedaccounting system which is more useful to its operations.

7. Accrued Expenses and Other Current Liabilities

2019 2018Accrued expenses P=9,464,087 P=13,576,249Payable for excess subsidies (Note 12) 3,181,245 3,314,509Unearned projects and events fees (Note 12) 2,405,905 4,613,308Payable to a project coordinator 2,064,466 2,064,466Payable to the government 699,043 –Accrued retirement liability 523,439 586,913Payable to suppliers (Note 11) 397,074 79,252Unearned membership fees 8,000 23,805Others 898,086 679,735

P=19,641,345 P=24,938,237

Accrued expenses represent accruals for employee bonuses, professional fees, utilities and otheroperating expenses.

Payable for excess subsidies represents subsidies that will be refunded to the Association of GermanChambers of Commerce and Industry (Deutscher Industrie- und Handelskammertag, DIHK) andGerman Federal Ministry for Economic Affairs and Energy (Bundesministerium für Wirtschaft undEnergie, BMWi) [see Note 12].

Unearned projects and events fees represent fees collected in advance for services that will beperformed in the following year. This includes funds received from SEQUA for the K-12 PLUS Projectamounted to P=1,178,919 and P=2,455,991 as of December 31, 2019 and 2018, respectively(see Note 12).

Payable to the government represents income tax payable on compensation, expanded withholding tax,and output VAT payable.

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The Organization recognized the amount of retirement benefits for its qualified employees followingthe requirements of the benefit Retirement Plan, using accrual approach. This retirement plan is non-contributory and of the defined benefit type which provides a retirement benefit equal to one-monthsalary for every year of service multiplied by retirement rate plus conversion into cash of allowableaccumulated vacation and sick leave credits.

Unearned membership fee represents membership fee for 2020 collected in advance in 2019.

8. Cost of Projects and Events

2019 2018Projects and events costs P=13,271,507 P=20,560,630Outside services 3,993,518 231,760Food and beverages 580,662 804,534Rental (Note 12) 350,893 280,910Printing and reproduction 98,560 16,244Souvenirs and prizes 40,000 119,990Transportation and travel 11,197 37,359Others 572,137 383,078

P=18,918,474 P=22,434,505

9. General and Administrative Expenses

2019 2018Personnel cost P=27,969,670 P=22,674,059Depreciation and amortization (Notes 5 and 6) 2,658,874 1,329,021Transportation and travel 1,966,655 1,692,566Service fees 1,597,963 3,156,305Rental (Note 12) 1,440,734 1,314,430Communication 1,020,640 1,398,029Dues and subscription 893,491 866,993Office supplies 410,106 357,995Meetings and seminars 362,785 317,955Insurance 336,255 30,005Representation 233,824 320,071Utilities 207,901 128,467Printing and reproduction 149,763 77,440Advertisement and promotions 66,020 87,350Repairs and maintenance 19,434 41,913Taxes and licenses 16,222 3,300Others 88,791 75,648

P=39,439,128 P=33,871,547

10. Income Tax

In July 2019, the Organization became a Vatable entity. Provision for income tax represents final taxeson interest income amounting to P=2,070 in 2019 and P=2,323 in 2018.

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11. Notes to Statements of Cash Flows

As of December 31, 2018, the remaining liability of the Organization in relation to the exchangeagreement amounted to P=31,580 included as part of “Payable to suppliers” (see Note 7).

12. Significant Contracts

K-12 PLUS ProjectIn 2013, the Organization entered into an agreement with SEQUA gGmbH (SEQUA), a non-profitdevelopment organization in Germany, wherein the Organization will provide assistance to theimplementation of K-12 PLUS Project on technical vocational education training in the Philippinesstarting from October 1, 2013 up to September 30, 2016. Specifically, the Organization will analyzethe demand for the technical vocational education training, assist in designing training programs andcreate a training platform together with various German and Philippine companies. This project isfunded by the German Federal Ministry for Economic Cooperation and Development(Bundesministerium für wirtschaftliche Zusammenarbeit und Entwicklung, BMZ), which appointedSEQUA as the overall project coordinator. All expenditures incurred by the Organization in relationto the implementation of the said project will be reimbursed up to a maximum amount of EUR747,300over three years.

In 2016, the K-12 PLUS Project was extended for another three years from October 1, 2016 up toSeptember 30, 2019. All expenditures incurred by the Organization in relation to the extension of thesaid project will be reimbursed up to a maximum amount of EUR608,430 over the said three years.

In 2019, the K-12 PLUS Project was extended for 10 months from October 1, 2019 up to July 31, 2020.All expenditures incurred by the Organization in relation to the extension of the said project will bereimbursed up to a maximum amount of EUR162,250 over the said ten months.

As of December 31, 2019 and 2018, the Organization received funds amounting to EUR152,108(P=8,710,794) and EUR202,810 (P=12,626,378), respectively, to support the K-12 PLUS Project. Thefunds received are assistance for 2013, 2014, 2015, 2016, 2017, 2018 and 2019 amounting to P=776,043,P=7,893,437, P=18,380,929, P=16,043,813, P=6,925,654, P=13,166,709 and P=9,987,866, respectively. As ofDecember 31, 2019 and 2018, the funds received include assistance for 2020 and 2019 amounting toP=1,178,919 and P=2,455,991, respectively, included as part of “Unearned projects and events fees” underthe “Accrued expenses and other current liabilities” account in the balance sheets (see Note 7).

Grant from DIHKStarting in 2012, the Organization applied for public subsidies that it will use to fulfill foreign trade-related tasks in terms of the public interest of the German government and to become a representativefor the promotion of German foreign trade. The Organization submitted its budget, on which, DIHKand BMWi approved the Organization’s application for subsidies and allocated a total of EUR484,646(P=24,857,635) and EUR381,876 (P=23,641,333) in 2019 and 2018, respectively.

As of December 31, 2019 and 2018, the subsidies amounting to P=3,181,245 and P=3,314,509,respectively, represent excess subsidies which will be returned to DIHK in the following year. Theseare included under the “Accrued expenses and other current liabilities” account in the balance sheet(see Note 7).

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In 2019, the Organization recorded a prior year adjustment on the additional return of excess subsidyto BMWi for the year 2018 amounting to P=3,734,842. Impact of adjustment follows:

Fund Balance as at January 1, 2019, as previously reported P=22,633,763Prior year adjustment on return of excess subsidy (3,734,842)Fund Balance as at January 1, 2019, as restated P=18,898,921

Lease Agreement with Döhle Shipmanagement Philippines Corporation (DSPC)In 2015, the Organization entered into a lease agreement with DSPC for office space rental for a termof three years from April 1, 2015 until March 31, 2018. In 2015, the Organization paid P=168,000refundable security deposit as part of the lease agreement. In 2017, an additional P=94,500 refundablesecurity deposit was paid by the Organization in accordance with the lease agreement.On March 7, 2018, the lease agreement was renewed for another three years from April 1, 2018 untilMarch 31, 2021. The Organization paid P=10,500 refundable security deposit as part of the renewal ofthe lease agreement. On July 6, 2018 the lease agreement was amended to include a new storage spacewith the lease period until March 31, 2021.

In 2016, the Organization entered into another lease agreement with DSPC to lease another office spacewith a lease term of one year and 6 months from October 1, 2016 to March 31, 2018.On March 7, 2018, the lease agreement was renewed for another one year and 6 months fromApril 1, 2018 until September 30, 2019. The lease agreement was renewed for another ten months fromOctober 1, 2019 to July 31, 2020. The Organization paid P=137,250 refundable security deposit as partof the renewal of the lease agreement. Both lease agreements are renewable at the option of bothparties.

Rent expense recognized in profit or loss related to this lease agreements amounted to P=1,791,627 andP=1,595,340 in 2019 and 2018, respectively (see Notes 8 and 9).

13. Supplementary Information Required Under Revenue Regulations No. 15-2010

Revenue Regulations (RR) No. 15-2010 are promulgated to amend certain provisions ofRR No. 21-2002 prescribing the manner of compliance with any documentary and/or proceduralrequirements in connection with the preparation and submission of financial statements accompanyingtax returns. In addition to the disclosures mandated under PFRS for Small Entities, RR No. 15-2010requires disclosures regarding information on taxes and license fees paid or accrued during the taxableyear.

The Organization reported and paid/accrued the following types of taxes for the year endedDecember 31, 2019:

a. Value Added Tax (VAT)Effective July 2019, the Organization became a vatable entity. Net sales/receipts and output VATdeclared in the Organization’s VAT returns filed from July to December 2019 are as follows:

NetSales/Receipt

Output VAT

Vatable sale/receipts P=2,890,486 P=345,994Sales to government 7,200 864Zero rated sales/receipts 2,289,626 –Exempt sales/receipts 14,031,948 –

P=19,212,260 P=346,858

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Details of the input VAT are as follows:

Beginning balance P=–Current year’s domestic purchasesDomestic purchase of services 109,159Domestic purchases of goods other than capital goods 479,460

588,619Deduction from input taxInput tax allocable to exempt sales 395,950Total allowable input VAT 192,669Input VAT applied to Output VAT 192,669Balance at the end of the year: P=–

b. Taxes and licensesThis includes all other taxes, both local and national, with details as follows:

Mayor’s permit P=2,375Annual business registration fee 500Community tax certificate 1,030Barangay permit and clearance 12,317

P=16,222

c. Withholding taxesThe categories of the Organization’s withholding taxes paid/accrued in 2019 follow:

Compensation and benefits P=3,642,630Expanded withholding taxes 293,427

P=3,936,057

d. Custom duties and documentary stamp taxThe Organization was not subjected to importation cost and custom duties, and documentary stamptax in 2019.

e. Tax assessments and court casesThere were no deficiency tax assessments issued by the BIR to the Organization during the calendaryear ended December 31, 2019. There were no pending tax cases nor litigation and/or prosecutionin courts or bodies outside the BIR in 2019.

german-philippine chamber of commerce and industry, inc

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