CASTILLA DEVELOPMENT COOPERATIVE

San Rafael, Castilla, Sorsogon

CDA Reg. No. 9520-05002755
CIN 0102050096/BIR TIN 005763837
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NOTES TO FINANCIAL STATEMENTS

As of December 31, 2020
(Amounts in Philippine Pesos)
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1. GENERAL INFORMATION

The CASTILLA DEVELOPMENT COOPERATIVE (referred hereinafter as "Cooperative") was registered

as a cooperative pursuant to RA 9520 for the purpose of engaging in rice milling, palay and rice trading,
short term loans, solar/mechanical drying, coco-coir processing, four-wheel drive tractor services and
hauling truck services in support to Agricultural Production and Agroforestry Seedlings Production.

The Cooperative’s new name was granted the CDA Registration no. 9520-05002755. Under the RA 9520,
the cooperative is exempt from payment of income and sales taxes, provided that a substantial portion of
its net income is returned to members in the form of interest and or patronage refunds.

The area of operation of this cooperative and its principal office is located at San Rafael, Castilla,
Sorsogon.

These financial statements of the cooperative for the year ended December 31, 2020 were authorized for
issue by the Board of Directors on April 5, 2021.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

To facilitate the understanding of the financial statements, the more significant accounting policies and
practices of the Cooperative are summarized as follows:

Basis of Preparation/Partial Adoption of New/Revised Philippine Accounting Standards

The financial statements have been prepared in conformity with Financial Reporting Standards applicable
to the Philippine cooperatives

PAS 1 - Presentation of Financial Statements.

PAS 8 - Accounting Policies, Change in Accounting Estimates and Errors
PAS 10 - Events after Balance Sheet Date
PAS 16 - Property, Plant and Equipment
PAS 19 - Employee Benefits
PAS 36 - Impairment of Assets
PAS 41 - Agriculture if producers and agriculture type of coop
PAS 2 - Inventories
PAS 7 - Cash flow Statements
PAS 18 - Revenue
PAS 38 - Intangible Assets
PAS 32, 39 - Financial Instruments for credit coops
PAS 40 - Investment Property

Castilla Development Cooperative Notes to FS December 31, 2020 1

PAS 1 - Presentation of Financial Statements
Provides framework of financial statements presentation. It requires more specific balance sheet line
items (tax liabilities, provisions, non-current interest bearing debt, among others; financial statements
must be comparative; and, has a number of new disclosure requirements. The standard also requires
presentation of comparative information.

PAS 8 - Accounting Policies, Changes in Accounting Estimates and Errors

The standard is applied in selecting and applying accounting policies, and accounting for changes in
accounting policies, changes in accounting estimates and correction of prior period errors.

PAS 10 - Events after Balance Sheet Date

The standard is applied in the accounting for, and disclosure of events after balance sheet date.

PAS 16 - Property, Plant and Equipment

PAS 16 (a) provides additional guidance and clarification on recognition and measurement of property,
plant and equipment; requires capitalization of the costs of asset dismantling, removal or restoration; and
requires measurement of an item of property and equipment acquired in exchange for a non-monetary
asset or a combination of monetary and nonmonetary assets at fair value, unless the exchange
transaction lacks commercial substance. The standard also provides guidelines for derecognition (e.g.,
disposal).

PAS 19/IAS 19 - Employee Benefits

Prescribes the accounting and disclosure for employee benefits, including short-term benefits (wages,
annual leave, sick leave, annual profit-sharing bonuses, and non-monetary benefits); pensions, post-
employment life insurance and medical benefits' other long-term employee benefits (long-service lease,
disability, deferred compensation, long-term profit sharing and bonuses, and equity compensation).

PAS 36 - Impairment of Assets

This standard applies in accounting for the impairment of assets other than those covered by separate
standards.

PAS 41 - Agriculture
Prescribes the accounting treatment, financial presentation and disclosures for agricultural activity.

PAS 2 - Inventories
Prescribes the accounting treatment for inventories

PAS 7 - Cash Flow Statements

Prescribes the provision of information about the historical changes in cash and cash equivalents of an
entity by means of a cash flow statement which classifies cash flows during the period from operating,
investing and financing activities.

PAS 18 – Revenue
Prescribes the accounting treatment for revenue arising from certain types of transaction and events.

PAS 38 - Intangible Assets

Prescribes the accounting treatment for Intangible Assets not dealt with specifically in another Standard.

PAS 32, 39 - Financial Instruments

Prescribes the accounting treatment, presentation and disclosure requirements for Financial Instruments.
(for credit coops)

PAS 40 - Investment Property

Prescribes the accounting treatment and disclosure requirements for Investment Property

Management's Use of Judgments and Estimates

Castilla Development Cooperative Notes to FS December 31, 2020 2

The financial statements are prepared in conformity with the above-mentioned accounting principles
accepted in the Philippines which requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes. Those estimates and
assumptions used in the financial statements are based on management's evaluation of relevant facts
and circumstances as of date of the financial statements. Actual results could differ from such estimates.

Functional and Presentation Currency

Items included in the Cooperative's financial statements are measured using the currency of the primary
economic environment in which the entity operates (the "functional currency"). The financial statements
are presented in Philippine Peso, which is the Cooperative's functional and presentation currency.

Revenues Recognition
Revenue is recognized when it is probable that the economic benefits associated with the transaction will
flow to the Cooperative and the amount of revenue can be measured reliably. Revenues from
transactions of the Cooperative are recognized on a modified accrual basis.

If you are using the above do not use PAS 18, use only PAS 18 if you use full accrual.

Cash
Cash includes cash on hand and in banks.

Financial Assets

Receivables
Receivables, if any, are valued at face value, net of allowance for doubtful accounts and any anticipated
adjustments that will reduce the amount to its estimated realizable value. The allowance for doubtful
accounts is determined after a study of the estimated collectability of the receivable balances and
evaluation of such factors as aging of the accounts, collection expense of the Cooperative in relation to
the particular receivable, past and expected loss experiences and identified doubtful accounts.

Inventories
Inventories are assets which are held for sale in the ordinary course of business, in the process of
production for such sale or in the form of materials or supplies to be consumed in the production process
or in the rendering of services. Inventories are valued at the lower of cost and net realizable value.

Financial Liabilities
Financial liabilities include bank loans, trade and other payables, as well as Interest on Share Capital and
Patronage Refund Payable to the cooperative's members. These are recognized when the Cooperative
becomes a party to the contractual agreements of the instrument. All interest related charges are
recognized as an expense in the Statement of Operations under the caption Finance Costs.
Trade payables are recognized at their nominal value. Interest on Share Capital and Patronage Refund
payable are recognized as financial liabilities based on the Cooperative's By-Laws as well as Cooperative
laws and regulations.

Financial liabilities are derecognized from the balance sheet only when the obligations are extinguished
either through discharge, cancellation or expiration.

Costs and Expenses

Costs and expenses, not directly attributable to capitalizable assets or projects, are recognized and
charged to operations as incurred.

Accounting Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in
the Philippines requires the Cooperative to make estimates and assumptions that affect the reported
amounts on income, expenses, resources, liabilities and disclosure of contingent resources and liabilities.
Actual results could differ from those estimates.

Castilla Development Cooperative Notes to FS December 31, 2020 3

ACCOUNTS PECULIAR TO COOPERATIVES

The following accounts are peculiar to a Cooperative due to its nature as well as adherence to
Cooperative laws, issued policies, rules and regulations, as well as cooperative principles and practices:

ASSETS:

Cash in Cooperative Federation - refers to money deposited in federations which are unrestricted
and readily available when needed. These are treated as cash and other cash equivalents.

Due from Accountable Officers and Employees - refers to total collectibles from shortages and other
losses due from accountable officers and employees that are subject to immediate
settlement/sanction. These are recognized at cost, less allowance for impairment, if any.

Cooperative Development Cost - refers to expenses incurred prior to the actual operations of the
cooperative. These are recognized at cost, subject to amortization for a period not exceeding 3
years.

Other Funds and Deposits - refers to funds set aside for funding of reserves ( Statutory and Other
Reserves)established by the cooperative such as Retirement, Mutual Benefit and other Funds. This
is recorded at cost.

LIABILITIES:

Interest on Share Capital Payable - refers to liability of the cooperative to its members for interest on
share capital, which can be determined only at the end of every fiscal year.

Patronage Refund Payable - is the liability of the cooperative to its members and patrons for
patronage refund, which can be determined only at the end of every fiscal year.

Due to Union/Federation ( CETF) - is an amount set aside for the education and training fund of an
apex organization, which is 50% of the amount allocated, by the cooperative in accordance with the
provision of the cooperative's by-laws and the cooperative code. The apex organization may either
be a federation or union of which the cooperative is a member.

Revolving Capital Payable - is the deferred payment of interest on share capital and patronage
refund whose payment has been withheld, which should be agreed upon in the General Assembly.

Project Subsidy Fund Payable - Unused portion of the donation/grant for training, salaries & wages,
etc.

Mutual Benefit and Other Funds Payable - are funds for special purposes such as members' welfare
& benefits, i.e. loan protection, hospitalization, death, scholarship assistance, etc. including
KBGF/CGF, provision for accidents not taken from net surplus.

EQUITY

Donations/ Grants - are amounts received by the cooperative as awards, subsidies, grants, aids and
others. This shall not be available for distribution as interest on share capital and patronage refund,
and shall form part of the members' equity of the Statement of Financial Condition.

Statutory Funds - are Mandatory funds established/set up in accordance with Articles 86 and 87 of
the Cooperative Code. They are as follows:

Castilla Development Cooperative Notes to FS December 31, 2020 4

 Reserve Fund - amounts set aside annually for the stability of the cooperative and to meet net
losses in its operations. It is equivalent to at least 10% of the net surplus. A corresponding fund
should be set up either in the form of time deposit with local banks or government securities.
Only the amount in excess of the paid up share capital may be used for the expansion and
authorized investment of the cooperative as provided for in its by-laws.

Education and Training Fund - an amount retained by the cooperative out of the mandatory
allocation as stipulated in the cooperative's by-laws.

Community Development Fund - This is computed at 3% of cooperative's net surplus This is

used for projects or activities that will benefit the community where the cooperative operates.

Optional Fund - fund set aside from the net surplus (should not exceed 10%) for future use
such as land and building, community developments, etc.

EXPENSES

General Assembly Meeting - expenses incurred in the conduct of regular/special general assembly

Members' Benefit - all expenses incurred for the benefit of the members

Affiliation Fee - Amount incurred to cover membership or registration fees and annual dues to a
federation or union.

Social and Community Service - expenses incurred by the cooperative in its social community
involvement including solicitations and donations to charitable institutions

Provision for CGF (KBGF) - amount set up for the provisions of CGF ( KBGF)

Provision for Members' Future Benefits - amount set up for future benefit of members, such as
pension of members, etc. not taken from Net Surplus

OTHER ITEMS

Project Subsidy - refers to the amount deducted from Project subsidy fund to subsidize project
expenses. This shall appear in the statement of operation as a contra account to Subsidized Project
Expenses

Donation and Grant Subsidy - refers to an amount deducted from Donations and Grants account to
subsidize depreciation funded by donations and grants.

Optional Fund Subsidy - refers to an amount deducted from Optional Fund to subsidize depreciation
funded by Optional Fund and /or community development expense

Subsidized Project Expenses - refers to a portion of the Project Subsidy Fund expended for training,
salaries and wages and other activities subsidized by donations and grants.

INCOME TAXES

The Cooperative Code states that a Cooperative transacting business only with its members is
exempt from all government taxes, and therefore cannot apply the PAS for income taxes because of
its tax-exempt nature. However, should the cooperative exceed the limits as set forth in the
cooperative code, it will adopt the accounting standards for income taxes as stated in PAS 12.

Castilla Development Cooperative Notes to FS December 31, 2020 5

INCOME RECOGNITION

As a rule, cooperatives adopt the accrual basis of accounting. However, for credit and other
cooperatives, recognition of revenues is on a modified accrual basis; i.e., interest income, fines,
penalties and surcharges shall be recognized when earned and actually collected. This is so
because only interest income, fines, penalties and surcharges on loans receivable that has been
realized (i.e., earned and collected) shall be the basis of the income available for distribution to its
members through interest on share capital and patronage refund.

Also, due to the cash-based income distribution scheme of a cooperative as well as the inherent
limitations of small-scale countryside credit cooperatives, it cannot adopt the effective interest
method in recognizing interest income on loans receivable.

3. MANAGEMENT’S SIGNIFICANT ACCOUNTING JUDGEMENT AND ESTIMATES

3.1 Judgments

The preparation of the Cooperative’s financial statements in conformity with Financial Reporting
Framework (in reference to the Generally Accepted Accounting Principles of the Philippines) requires
management to make estimates and assumptions that affect the amounts reported in the Cooperative’s
financial statements and accompanying notes. The estimates and assumptions used in the Cooperative’s
financial statements are based upon management’s evaluation of relevant facts and circumstances as of
the date of the Cooperative’s financial statements. Actual results could differ from such estimates,
judgments and estimates are continually evaluated and are based on historical experience and other
factors, including expectations of future events that are believed to be reasonable under the
circumstances.

3.2 Estimates

In the application of the Cooperative’s accounting policies, management is required to make judgments,
estimates and assumptions about the carrying amounts of assets and liabilities that are not readily
apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these
estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting
estimates are recognized in the period in which the estimate is revised if the revision affects only that
period or in the period of the revision and future periods if the revision affects both current and future
periods.

4. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

The Cooperative is exposed to credit, liquidity, and other risks that arise in the normal course of its
business. Its risk and control framework includes a focus on minimizing negative effects on the
Company's financial performance due to unpredictability of financial markets that drives the risks.

Credit Risk
Generally, the maximum credit risk exposure of financial assets is the carrying amount of the financial
assets as shown on the face of the statement of financial condition.

The Cooperative continuously monitors defaults of customers and other counterparties, and incorporate
this information into its credit risk controls. The Cooperative’s policy is to deal only with creditworthy
counterparties.

The Cooperative’s management considers that all the above financial assets that are not impaired or past
due for each balance sheet dates are of good credit quality.

Castilla Development Cooperative Notes to FS December 31, 2020 6

With respect to trade and other receivables, the Cooperative is not exposed to any significant credit risk
exposure to any single counterparty or any group of counterparties having similar characteristics. Based
on historical information about customer default rates management consider the credit quality of trade
receivables that are not past due or impaired to be good.

The credit risk for cash and cash equivalents, money market funds, debentures and derivative financial
instruments is considered negligible, since the counterparties are reputable banks with high quality
external credit ratings.

Liquidity risks
Liquidity or funding risk is the risk that an entity will incur difficulty in raising funds to meet commitments
associated with financial instruments. Liquidity risk may result from either the inability to sell financial
assets quickly at their fair values; or counterparty failing on repayment of contractual obligation; or
inability to generate cash flows as anticipated.

In order to minimize liquidity risk, the Cooperative maintains sufficient cash and has the availability of
funding through an adequate amount of committed credit facilities.

Other Price Risk Sensitivity

The Cooperative’s market price risk arises from its investments carried at fair value (financial assets
classified as financial assets at fair value through profit or loss and available-for-sale financial assets). It
manages its risk arising from changes in market price by monitoring the changes in the market price of
the investments.

5. ALLOCATION AND DISTRIBUTION OF NET SURPLUS

The Cooperative's constitution and by-laws explicitly provides that its net surplus at the end of the
calendar year shall be distributed in the following manner:

a. General Reserve Fund - ten percent (10%) shall be set aside for the reserve fund. The reserve
use by-laws, check fund shall be used for the stability of the cooperative and to meet net losses in
its operations against coop code if exceeding limits.
b. Education and Training Fund - ten percent (10%) for the education and training fund. Half of the
amount transferred to the education and training fund annually under this subscription may be
spent by the cooperative for education and training and other purposes; while the other half shall
be credited to the Cooperative education and training fund of the apex organization of which the
cooperative is a member.
c. Community Development Fund – three percent (3%) shall be set aside for this account.
d. Optional Fund - This is computed at 7% of the cooperative's net surplus.
e. Interest on Share Capital and Patronage Refunds - After deduction of the statutory accounts, any
remaining net surplus shall be distributed to the cooperative's members in the form of interest not
to exceed the normal rate of return on investments and patronage refunds. Interest on Fixed
Deposits shall be allocated in proportion to the individual members' average share monthly, while
patronage refund is divided according to their individual patronage; i.e., volume of loans availed.

Castilla Development Cooperative Notes to FS December 31, 2020 7