OPTIMIST TUTORIAL ACADEMY

NOTES TO FINANCIAL STATEMENTS

1. Status of Operation

Status of Operation

The business will earn income of Php 7,046,441.38, Php 7,051,313.38, Php 7,050,963.38, Php 7,050,753.38, and Php
7,050,963.38 for the year 1, 2, 3, 4 and 5 respectively.

2. Basis of Preparation

The projected financial statements of the business have been prepared in compliance with the Philippine Financial reporting Standards
(PFRS) issued by the Philippine Financial Reporting Standards Council (FRSC) and adopted by the SEC. All values represent projected
amounts.

3. Summary of Significant Accounting Policies

Significant Accounting Policies

Change in Accounting Policies
 Furniture and Fixtures are carried at cost less accumulated depreciation.
 Straight line method of depreciation is used in deprecating Furniture’s and fixtures and Property Plant and Equipment.
 Deprecation begins in the 1st year of operation.
Change in accounting treatment
 Transaction are recorded in Philippine Peso

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4. Significant Accounting Estimates and Assumption

Furniture and Fixture and Property Plant and Equipment

Furniture and Fixture and Property Plant and Equipment are stated at cost less any accumulated depreciation. The cost of the asset
comprises its purchase price and directly attributable costs of bringing the asset to working condition for its intended use. Expenditures for
major additions and renewals are capitalized. Expenditures for repair and maintenance are charges to expenses when incurred. Depreciation
is computed on straight-line method basis over the estimated useful lives of the assets. The depreciation periods for property, plant and
equipment, based on the above policies, are as
follow:
Property, Plant and Equipment Useful Life (years)
Computer 8
Projector 6
Printer 6
Refrigerator 8
Air Conditioner 8
Lease Improvement 10
Furniture and Fixture
Tables 6
Chairs 6
Whiteboard 6
Sofa 6
Computer Table 6
Cabinet 6
Puzzle Mat 6

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 An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to rise
from the continued use of the asset.

Revenue Recognition
Revenue is the “gross inflow of economic benefits during the period arising in the ordinary course of the business when those
inflows result in increase in equity, other than those relating to contributions of owners”. Simply stated, revenues are inflows recognized
to the extent that the economic benefits will flow to the business and the amount of the revenue can be measured reliably.

Expense Recognition
Expenses are the “gross outflow of economic benefits during the period arising the ordinary course of the business when those
outflows results in decrease in equity, other than those relating to contributions of the owners. Simply stated, expenses are outflow
recognized to the extent that the economic benefit will flow to the business and decreases the equity.

Income tax
Income tax is recognized in the consolidated statement of comprehensive income except to the extent that it relates to the items
recognized directly in equity, in which case it is recognized in equity.

5. Furniture’s and Fixtures

The projected movements of this account are present below:

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 Furniture's and Fixtures Lapsing Schedule
Computer Puzzle
Tables Chairs White Board Sofa Tables Cabinet Mat Total
Cost
Beginning Balance 11,700.00 14,000.00 2,400.00 20,000.00 2,400.00 10,200.00 2,925.00 63,625.00
Additions - - - - - - -
Ending Balance 11,700.00 14,000.00 2,400.00 20,000.00 2,400.00 10,200.00 2,925.00 63,625.00

Accumulated Depreciation - Year 1

Beginning Balance - - - - - -
Depreciation Expense 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17
Ending Balance 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17

Net Carrying Amount of PPE Year 1 9,750.00 11,666.67 2,000.00 16,666.67 2,000.00 8,500.00 2,437.50 53,020.83

Accumulated Depreciation - Year 2

Beginning Balance 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17
Depreciation Expense 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17
Ending Balance 3,900.00 4,666.67 800.00 6,666.67 800.00 3,400.00 975.00 21,208.33

Net Carrying Amount of PPE Year 2 7,800.00 9,333.33 1,600.00 13,333.33 1,600.00 6,800.00 1,950.00 42,416.67

Accumulated Depreciation - Year 3

Beginning Balance 3,900.00 4,666.67 800.00 6,666.67 800.00 3,400.00 975.00 21,208.33
Depreciation Expense 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17
Ending Balance 5,850.00 7,000.00 1,200.00 10,000.00 1,200.00 5,100.00 1,462.50 31,812.50

Net Carrying Amount of PPE Year 3 5,850.00 7,000.00 1,200.00 10,000.00 1,200.00 5,100.00 1,462.50 31,812.50

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 Accumulated Depreciation - Year 4
Beginning Balance 5,850.00 7,000.00 1,200.00 10,000.00 1,200.00 5,100.00 1,462.50 31,812.50
Depreciation Expense 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17
Ending Balance 7,800.00 9,333.33 1,600.00 13,333.33 1,600.00 6,800.00 1,950.00 42,416.67

Net Carrying Amount of PPE Year 4 3,900.00 4,666.67 800.00 6,666.67 800.00 3,400.00 975.00 21,208.33

Accumulated Depreciation - Year 5

Beginning Balance 7,800.00 9,333.33 1,600.00 13,333.33 1,600.00 6,800.00 1,950.00 42,416.67
Depreciation Expense 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17
Ending Balance 9,750.00 11,666.67 2,000.00 16,666.67 2,000.00 8,500.00 2,437.50 53,020.83

Net Carrying Amount of PPE Year 5 1,950.00 2,333.33 400.00 3,333.33 400.00 1,700.00 487.50 10,604.17

6. Property Plant and Equipment

The projected movements of this account are present in the next page.

Property Plant and Equipment Lapsing Schedule

Air Leasehold
Computer Projector Printer Refrigerator Conditioner Improvements Total
Cost
Beginning Balance 50,000.00 25,000.00 7,499.00 13,000.00 149,996.00 150,000.00 395,495.00
Additions - - - - - - -
Ending Balance 50,000.00 25,000.00 7,499.00 13,000.00 149,996.00 150,000.00 395,495.00

Accumulated Depreciation - Year 1

Beginning Balance - - - - - - -
Depreciation Expense 6,250.00 4,166.67 1,249.83 1,625.00 18,749.50 15,000.00 47,041.00
Ending Balance 6,250.00 4,166.67 1,249.83 1,625.00 18,749.50 15,000.00 47,041.00

Net Carrying Amount of PPE Year 1 43,750.00 20,833.33 6,249.17 11,375.00 131,246.50 135,000.00 348,454.00
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Accumulated Depreciation - Year 2
Beginning Balance 6,250.00 4,166.67 1,249.83 1,625.00 18,749.50 15,000.00 47,041.00
Depreciation Expense 6,250.00 4,166.67 1,249.83 1,625.00 18,749.50 15,000.00 47,041.00
Ending Balance 12,500.00 8,333.33 2,499.67 3,250.00 37,499.00 30,000.00 94,082.00

Net Carrying Amount of PPE Year 2 37,500.00 16,666.67 4,999.33 9,750.00 112,497.00 120,000.00 301,413.00

Accumulated Depreciation - Year 3

Beginning Balance 12,500.00 8,333.33 2,499.67 3,250.00 37,499.00 30,000.00 94,082.00
Depreciation Expense 6,250.00 4,166.67 1,249.83 1,625.00 18,749.50 15,000.00 47,041.00
Ending Balance 18,750.00 12,500.00 3,749.50 4,875.00 56,248.50 45,000.00 141,123.00

Net Carrying Amount of PPE Year 3 31,250.00 12,500.00 3,749.50 8,125.00 93,747.50 105,000.00 254,372.00

Accumulated Depreciation - Year 4

Beginning Balance 18,750.00 12,500.00 3,749.50 4,875.00 56,248.50 45,000.00 141,123.00
Depreciation Expense 6,250.00 4,166.67 1,249.83 1,625.00 18,749.50 15,000.00 47,041.00
Ending Balance 25,000.00 16,666.67 4,999.33 6,500.00 74,998.00 60,000.00 188,164.00

Net Carrying Amount of PPE Year 4 25,000.00 8,333.33 2,499.67 6,500.00 74,998.00 90,000.00 207,331.00

Accumulated Depreciation - Year 5

Beginning Balance 25,000.00 16,666.67 4,999.33 6,500.00 74,998.00 60,000.00 188,164.00
Depreciation Expense 6,250.00 4,166.67 1,249.83 1,625.00 18,749.50 15,000.00 47,041.00
Ending Balance 31,250.00 20,833.33 6,249.17 8,125.00 93,747.50 75,000.00 235,205.00

Net Carrying Amount of PPE Year 5 18,750.00 4,166.67 1,249.83 4,875.00 56,248.50 75,000.00 160,290.00

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7. Cost and Expenses

These cost and expenses are classified in the statement of comprehensive income as follows:

Year 1 Year 2 Year 3 Year 4 Year 5

Operating Expenses
Business Registration 6,660.00 1,000.00 1,000.00 1,000.00 1,000.00
Salaries 965,700.00 965,700.00 965,700.00 965,700.00 965,700.00
Marketing 6,300.00 5,000.00 5,500.00 5,800.00 5,500.00
Utilities 48,000.00 48,000.00 48,000.00 48,000.00 48,000.00
Supplies 7,350.00 7,350.00 7,350.00 7,350.00 7,350.00
Rent 360,000.00 360,000.00 360,000.00 360,000.00 360,000.00
Insurance 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00
Depreciation 57,645.17 57,645.17 57,645.17 57,645.17 57,645.17
1,453,655.17 1,446,695.17 1,447,195.17 1,447,495.17 1,447,195.17

Pre-Operating Expenses

Business Registration
SEC Legal Researcher Fee 1,015.00
Business Registration 500.00
Name Reservation SEC 120.00
Certificate of Deposit from Bank 200.00
Community Tax Certificate 500.00
Barangay Clearance 500.00
Business Permit/Mayor's permit 1,000.00
Registration of Books of Account 400.00
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Registration with Bureau of Internal Revenue 500.00
DST - Form 2000 125.00
Printing of invoices and receipts 1,800.00
6,660.00

Purchases of Fixed Assets

Property Plant and Equipment 245,495.00
Furniture’s and Fixtures 63,625.00
Supplies 16,350.00
325,470.00

Leasehold Improvements 150,000.00

150,000.00

Pre-Operating Expenses 482,130.00

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Marketing

Year 1 Year 2 Year 3 Year 4 Year 5

Advertising through tarpaulin 500.00 500.00 500.00
Leaflets and fliers 800.00 800.00
Community Outreach 5,000.00 5,000.00 5,000.00 5,000.00 5,000.00
6,300.00 5,000.00 5,500.00 5,800.00 5,500.00

Utilities

Year 1 Year 2 Year 3 Year 4 Year 5

Light 42,000.00 42,000.00 42,000.00 42,000.00 42,000.00
Water 6,000.00 6,000.00 6,000.00 6,000.00 6,000.00
48,000.00 48,000.00 48,000.00 48,000.00 48,000.00

Supplies

Year 1 Year 2 Year 3 Year 4 Year 5

Beginning Supplies - 9,000.00 9,000.00 9,000.00 9,000.00
Purchase 16,350.00 7,350.00 7,350.00 7,350.00 7,350.00
Consumed
200 Tutees 7,350.00 7,350.00 7,350.00 7,350.00 7,350.00

7,350.00 7,350.00 7,350.00 7,350.00 7,350.00

Ending Supplies 9,000.00 9,000.00 9,000.00 9,000.00 9,000.00

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Supplies to be purchased except for the Php 9,000.00 books are based on 200 students, Php 36.75 per student, for any shortage of
consumption. The supply to be consumed varies on the number of students enrolled.

Rent

Rent expense is based on the monthly rate of Php 30,000.00 for 12 months.
Year 1 Year 2 Year 3 Year 4 Year 5
Incurred 360,000.00 360,000.00 360,000.00 360,000.00 360,000.00

Insurance
Insurances are to be paid Php 2,000.00 every year.
Year 1 Year 2 Year 3 Year 4 Year 5
Incurred 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00

Depreciation

Note Year 1 Year 2 Year 3 Year 4 Year 5

Furniture’s & Fixtures 5 10,604.17 10,604.17 10,604.17 10,604.17 10,604.17
Property Plant & Equipment 6 47,041.00 47,041.00 47,041.00 47,041.00 47,041.00
57,645.17 57,645.17 57,645.17 57,645.17 57,645.17

Income Tax
Income tax to be paid annually is 30% of the net income before tax.

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 8. Sales

Sales classified in the comprehensive income are shown below.

Projected Revenue for 5 Years

Year 1 Year 2 Year 3 Year 4 Year 5
Tuition fee at year end for one-on-one tutorial
Number of students 100 100 100 100 100
Tuition fee per annum for student 72,000.00 72,000.00 72,000.00 72,000.00 72,000.00
7,200,000.00 7,200,000.00 7,200,000.00 7,200,000.00 7,200,000.00

Tuition fee at year end for group tutorial

Number of students 100 100 100 100 100
Tuition fee per annum for student 43,200.00 43,200.00 43,200.00 43,200.00 43,200.00
4,320,000.00 4,320,000.00 4,320,000.00 4,320,000.00 4,320,000.00
11,520,000.00 11,520,000.00 11,520,000.00 11,520,000.00 11,520,000.00
Details on the projections are shown in the projected revenue in the marketing aspect.

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 OPTIMIST TUTORIAL ACADEMY
REFERENCE TO FINANCIAL RATIOS

A. Return on Investment

Computation above shows that there is a return of Php 1.01, Php 0.56, Php 0.40, Php 0.32 and Php 0.27 for the years 1, 2, 3, 4 and

5 respectively in every one (1) peso investment.

B. Return on Sales

The computation shows that the business will earn a profit of Php. 0.61, Php. 0.61, Php. 0.61, Php. 0.61 and Php.

0.61 in the years 1, 2, 3, 4 and 5 respectively in every one (1) peso tuition fee.

C. Contribution Margin Analysis on One-on-One and Group Tutorial

Based on the computation there is a uniform contribution margin of Php. 7,196,325.00 for one-on-one tutorial and Php 4,316,325.00 for

group tutorial for the years 1, 2, 3, 4 and 5 respectively. The value is the total amount available for the recovery of the fixed cost and for

recognition of profit.

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D. Break-Even Analysis on One-on-One and Group Tutorial

The computation shows that the business will require a minimum total of 25 tutees or 13 tutees in one-on-one tutorial and 13 tutees in

group tutorial with variable cost per unit of Php 36.75 and total fixed cost of Php 1,453,655.17, Php 1,446,695.17, Php 1,447,195.17, Php

1,447,495.17 and Php 1,447,195.17 in years 1, 2, 3, 4 and 5 respectively for the business not to incur a loss.

E. Payback Period

The computation above shows that our initial investment of Php 1,200,000.00, which includes the pre-operating expenses of Php

482,130.00 plus our working fund of Php 717,870.00, will return to the investor after 0.18 year using the projected net cash inflow of the

business.

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