I.

Background

It was on September 8, 1998, when Puregold Price Club, Inc. (PGOLD) was officially
incorporated. Puregold is known as a company that heavily participates in the business of
trading goods, such as consumer products like canned goods and non-perishable items, on a
wholesale and retail level. The first physical store of Puregold Company opened its doors to
the public in December of 1998, in the City of Mandaluyong. Puregold was also known to
have a specific loyalty program, namely: "Tindahan ni Aling Puring", and such program was
officially launched in the year of 2004. The company is owned by Lucio Co, and his wife Susan
Co. They both own the significant shares in the company, as compared to the other board
members. Other notable stockholders also must include Cosco Capital (Parent Company)
with the most amount of shares out of 2,884,232,615 outstanding capital stocks. These
stockholders may be better seen in (Appendices. Figure 1).

Puregold Price Club, Inc. conducts its business operations through several retail
mediums and store brands. Hypermarkets are one example of such mediums; Puregold
offers a variety of perishable and non-perishable items, and generally cater to two primary
types of customers: retail customers and resellers that take part of the company's loyalty
program. These transactions occur through “Puregold Price Club”. Another example of such
mediums used by Puregold are Supermarkets, through "Puregold Junior". These stores serve
as neighborhood stores which offer a greater proportion of food to non-food products with
regards to Puregold’s hypermarkets. Discounters, through "Puregold Extra", conduct
operations in small stores that offer a more restricted catalog of products and goods.
Puregold Price Club Inc. also claims proud ownership over Entenso Equities, Inc., an
established holding company for two other companies: Ayagold Retailers, Inc. and San Roque
Supermarkets. Furthermore, as recently as 2019, Puregold was conducting operations in a
total of 229 hypermarkets, 102 supermarkets, 28 extras, 19 minimarts, 18 S&R warehouse
clubs, and 38 S&R Quick Service Restaurants, for a total of 434 stores all over the country.


 Let it also be known that Puregold Price Club Inc. was officially registered with the
Philippine Securities and Exchange Commission (SEC) on September 8, 1998. The shares of
the entity were listed in the Philippine Stock Exchange (PSE), starting on October 5, 2011,
being formally moniquered with the stock symbol of PGOLD. This entity is also a subsidiary
of a parent company called Cosco Capitals, Inc. It serves as the main parent company of
Puregold Price Club, and is also currently listed in the PSE.

As mentioned above, Puregold Price Club is a parent company, and is known to be the
parent organization of a few different companies, namely: Entenso Equities, Inc., Kareila
Management Corporation, and Goldtempo Company just to name a few. Upon further
research, it can be seen how such companies became subsidiaries of the well known
Puregold Price Club Inc. With such positioning. Puregold Price Club Inc. was able to have
ownership of these companies. Furthermore, Puregold produces documents that address the
terms and conditions of the transactions. Such terms can be found in the financial statements
of Puregold Price Club 2020 Annual Report.

Highlighted above is Entenso Equities, which is a subsidiary of Puregold Price Club
Inc. Entenso Equities Inc. (and the others listed above) is therefore included in the
consolidated financial statements of their parent company, Puregold Price Club. Among
these subsidiaries, only two specific entities actually do not engage in the same operations
with that of Puregold Price Club. Entenso Equities Inc. operates with regards to the investing,
purchasing, exchanging, and acquiring of real or personal property. The second entity is that
of Purepadala, Inc., which takes part in activities regarding “money remittance or service as
defined in the Bank Sentral ng Pilipinas” (Circular No. 942, Series of 2017). But even with
this, business outcomes produced by these entities are required to be properly reported in
the consolidated financial statements with that of Puregold Price Club. With that, the annual
reports that will be used as basis for this critique will be including the information that can
be traced from these subsidiaries.



 II. Critique on Conceptual Framework/Standard Setting and IAS 1

IAS 1 is a prominent accounting standard that sets the bar as how an entity should
properly disseminate their general purpose financial statements. It is important to note that
this should be the basis of the accurate preparation of financial statements within entities.
The required set of financial statements required, according to IAS 1, are as follows:

1. a statement of financial position (balance sheet) at the end of the period
(Appendices. Figure 2)
2. a statement of profit or loss and other comprehensive income for the period
(presented as a single statement, or by presenting the profit or loss section in a
separate statement of profit or loss, immediately followed by a statement presenting
comprehensive income beginning with profit or loss) (Appendices. Figure 3)
3. a statement of changes in equity for the period (Appendices. Figure 4)
4. a statement of cash flows for the period notes, comprising (Appendices. Figure 5)
5. a summary of significant accounting policies
6. and other explanatory notes comparative information prescribed by the standard.

These can all be found, in exceptional detail, within the annual report of Puregold
Price Club. The structure of the notes are in order, as everything mentioned in IAS 1.49 - 1.51
can be properly traced, with respect to each financial statement. The reporting period is
neatly stated as December 31, with respect to the year of accounting. Moreover, Assets and
Liabilities have been properly arranged and distinguished according to Current and Non-
Current, as per the whole duration of IAS 1.61 - IAS 1.75. It is also important to note that the
entity does practice the going concern principle when making the statement of financial
position.

In the image shown, the necessary line items for the statement of financial position
that are mentioned in IAS 1.54 can all be properly traced. It goes without saying that the
statement of financial position is presented in a complete manner, and in genuine agreement
with IAS 1.
 Puregold Price Club went with the presenting of a single statement of profit or loss
accompanied with other comprehensive income at the bottom of it. According to IAS 1.81A,
this statement must include line items of: (1) profit or loss, (2) total other comprehensive
income, (3) comprehensive income for the period, and (4) an allocation of profit or loss and
comprehensive income for the period between non-controlling interests and owners of the
parent, all of which can be found in the Statement of Comprehensive Income. In this portion,
it is also very safe to assume that Puregold Price Club properly filled up the necessary
information for this statement.

IAS 1 states that the statement of changes in equity should include: “(1) total
comprehensive income for the period, (2) the effects of any retrospective application of
accounting policies or restatements made in accordance with IAS 8, and (3) reconciliations
between the carrying amounts at the beginning and the end of the period for each component
of equity, separately disclosing: a.) profit or loss b.)other comprehensive income, c.)
transactions with owners, showing separately contributions by, and distributions to owners
and changes in ownership interests in subsidiaries that do not result in a loss of control,”
according to IAS 1.106. It does seem, however, that Puregold does not clearly state (3) in
their statement of changes in equity. It is not clearly seen, and should therefore be considered
as soon as possible. On a more positive note, the accounts for the amount of dividends
recognised as distributions and the related amount per share can be found in the statement
of changes in equity of Puregold, and is in direct accordance with IAS 1.107.

The cash flow statement of Puregold Price Club is actually performed in the indirect
method, which is less than encouraged within IAS 7, but acceptable nonetheless. This is also
explained in note 3 of their summary of significant accounting policies. There are three types
of activities for the statement of cash flows, namely: operating, investing, and financing
activities; which are all mentioned in the cash flow statement in a detailed manner.

It is essential that entities follow the rules and regulations set forth according to the
standards found in the International Accounting Standards, and International Financial
Reporting Standards. Such rules have gone through extensive review from the International
Accounting Standards Board, with the prime objective of providing a common language or
understanding among different entities to achieve transparency, compatibility, and
efficiency among entities. In the case of Puregold Price Club, they show their compliance with
such standards clearly on notes 2 and 3 of their annual report on 2020. Puregold also shows
its compliance with the Philippine Financial Reporting Standards, which are also based on
the IFRS, issued officially by the Philippine Accounting Standards, and Philippine
Interpretations.

Note 2 elaborates on the entity's basis of preparation. In this section, one may find the
presentation of currency within Puregold Price Club, which is explained to be in peso. Below
this paragraph, parties may find a justification explaining that the company uses
assumptions and estimates reflecting the amounts of assets, liabilities, revenues, and
expenses. This is done to provide the interested parties with a clear understanding and
interpretation of the “good faith assessments of the Group’s current and future performance
for which management believes there is a reasonable basis.” (page 2) With this in mind, it
follows the conceptual framework that was discussed in earlier sections of the conceptual
framework, which states that faithful representation and relevance is required in order to
provide financial information. To quote the IFRS Conceptual Framework Section 2 Paragraph
19,

“The use of reasonable estimates is an essential part of the preparation of financial
information and does not undermine the usefulness of the information if the estimates are
clearly and accurately described and explained.”

This is just a summary of note 2, as it continues to dive deeper into the specific types
of estimates that is used by Puregold Price Club, like Estimating Realizability of Deferred Tax
Assets, Estimating Retirement Benefits Liability, Estimating Net Realizable Value, and etc.
Such estimates are not included in the scope of this critique paper, and will be further
discussed in future critiques.

 Note 3 is entitled “Summary of Significant Accounting Policies'', and in the beginning
parts of this note, the entity states its compliance with the updated accounting standards
starting January 1, 2019 on the most part; those otherwise not included in the report was
explicitly stated, and was said not to have affected the consolidated financial statements in a
substantial way. This list includes: PFRS 16 Leases, Previously held interest in a joint
operation, Borrowing costs eligible for capitalization, and etc. Additionally, the entity also
reported the new accounting policies that were not yet officially effective in the year 2019,
but has stated that such standards would be effective in the foreseeable future. Such
standards include: Definition of Material, and Definition of a Business. It is very important that
Puregold Price Club states such standards, as this may be crucial to those who will be
reviewing these annual reports in the future.

The note continues on for over 15 more pages, describing the standards that are
essential to the making of financial statements, and not all of these said notes were included
in the topic discussed within the modules tasked to us; and with this, I will be discussing
those which were tackled during class hours.

Consolidation is the practice of incorporating the financial reports of both parents
and subsidiaries into one consolidated financial report. Puregold Price Club goes into detail
with such information, and is compliant with the said regulations that can be found in the
conceptual framework (3.15 - 3.17). This is very crucial in the reporting of Puregold, since
they have a handful of subsidiaries, and clearly need to state the facts on consolidation in
order to provide transparency to parties. The entity also tackles the statement of cash flows,
which is in compliance with the conceptual framework (1.20). This framework states that
“Information about a reporting entity’s cash flows during a period also helps users to assess
the entity’s ability to generate future net cash inflows and to assess management’s
stewardship of the entity’s economic resources.”. Transcribing the section of this specific
topic, Puregold states that the consolidated statement of cash flows presents the cash flow
from actual operations with a few adjustments. This is important because entities are
required to state this information in order for parties to be certain, and not just assume, that
inflows can be noticed through the medium of consolidated statements of cash flow.
 A major section of note 3 is entitled “Financial Instruments”, where the intelligent
minds of Puregold placed their summary of standards regarding the financial instruments
that are applicable to operations within the entity. Both IAS 32 gives a great background on
the definition of what a financial instrument is, and Puregold accurately describes it in this
portion of the note. IAS 9 is also crucially applicable to the first section of this portion within
note 3, as it delves within the subsequent measurements of what a financial asset is. This
section is very much related to that of part V of this critique, and will be discussed in more
detail then. But the same can be said on the portion of financial liabilities, or the next portion
of this specific section. IAS 9 and 32 covers this portion very well, and it is very safe to assume
that Puregold proceeded with the task of listing this down with extreme practicality. Later
on in this section, Puregold also mentions the fair value measurements, and here is where
one may find the fair value hierarchy, which can be found in IFRS 13, which mentions that
the hierarchy gives the “most priority to (unadjusted) quoted prices in active markets for
identical assets or liabilities” and the least priority to “inputs for the asset or liability that are
not based on observable market data.”

Also lying within note 3 is a portion labelled “Equity” which mentions the definition
of capital stock, additional paid in capital, retained earnings and dividend distributions, and
treasury stocks. All of which are necessary as equity instruments of the entity. Following this
is “Other Comprehensive Income” which mentions the definition of just that in accordance
with the conceptual framework (6.86 b). This is important in justifying the means of
acquiring inflows through mediums outside the profit or loss statements, while giving
relevant and faithful representation of information. Following this is “Revenue Recognition”
where Puregold undeniably defines revenue recognition streams, in direct conformity to IAS
18 and IAS 1. The note then carries on into a list denoting such streams, but will not be
discussed into much detail within this critique. This list includes: merchandise sales,
concession fee income, membership, gift certificates, and others which are all defined in a
coherent manner. Same can also be described about the “Cost and Expense Recognition”
portion of the latter part in the note.

 The importance of including a very extensive and detailed description on the
significant notes to financial statements is due to the fact that such details gives rise, and
allows all the information displayed within the annual report to be according to proper
accounting standards. It is highly necessary that entities state the specific notes that are used,
and failure to acknowledge such information will result in improper financial reporting, even
if the information mentioned within the report is accurate and true.

III. Critique on Cash and Equivalents

As per the 2020 financial statements of Puregold Price Club, the entity owned
P17,083,459,430 worth of Cash and Cash Equivalents by the end of 2019. This amount can
be found on the first row of the section “total current assets”. Something that should be taken
into consideration is that the amount stated is 15.7% of all total assets within the entity. It is
also important to note that the total amount of cash and cash equivalents increased in value
from the previous year (P6,396,000,000 in the year 2018). According to the annual report,
the upward trend of cash and cash equivalents can be attributed to the “cash that had been
generated from: (1) operations net of the settlement of trade and non-trade payables, (2)
payment for cash dividend, (3) partial settlement of loans, and (4) capital expenditures for
2019 new organic stores.”

Diving deeper into the art of the trade, one may find the specifics of the Cash and Cash
Equivalents of the entity. The Cash and Cash Equivalents account comprises three main main
subcategories, namely: (1) Cash on Hand, (2) Cash in Bank, and (3) Cash in funds. These three
are very neatly shown and presented in the financial statements of Puregold Price Club.

Shown in (Appendices. Figure 7) is the note corresponding to the Cash and Cash
Equivalents of Puregold Price Club. as mentioned previously, it is neatly shown, and
furthermore, complete in essence. Those interested may comprehend that the total Cash on
Hand amounting to P1,373 million, Cash in Banks amounting to P5,280 million, and Money
Market Placements (Cash in Funds) amount to P10,083 million, totalling P17.083 million. By
searching through the financial statements, parties may also find the specific details of the
cash in banks, and money market placements through note 29, otherwise known as
“Financial Risk and Capital Management Objectives and Policies”. In this note, receivables
and security deposits are also considered for the finding of both credit risks (the risk of loss
if credit customers fail to achieve their contractual obligations), and interest rate risk (the
risk that future cash flows will fluctuate due to the changes in market interest rates). Some
other information worth mentioning is the total interest earned from cash in banks and
money market placements totalled P214.9 million in 2019, based on respective bank deposit
annual rates.

IV. Critique on Receivables

When looking at the statement of financial position of Puregold Price Club, Inc. one
may see the account “receivable-net” right below the account of cash and cash equivalents.
This is, of course, in coherence with the accounting standards. In 2019, the total net
receivables of the entity totalled to around P2,676,000,000 for the year of 2019. Just to
reiterate what was mentioned in the comparative statements, Puregold Price Club’s net
receivables have decreased from the previous accounting period. One may think of this as a
negative outcome, but Puregold assures that this decrease can be heavily credited to the
various collections made during the year. Something also notable is the fact that the total
receivables make up 2.5% of the total current assets for the year. Receivables has its own
specific note in the annual report, that note being number 5, which will be tackled next.

Displayed before in (Appendices. Figure 8) is the notes to receivables during the
year. This note briefly discusses the various receivables that “Receivables-Net” comprises.
Here, one may see trade and nontrade receivables. Trade receivables are basically those
receivables that an entity recognizes, via its product or service, while non trade receivables
are those receivables which arise from reasons apart from the actual service or product of
an entity. These receivables are further classified under notes 23, as stated in the image. Note
23 mainly discusses Related Party Transactions, and justifies where these receivables arise
from the various mediums of Puregold Price Club, Inc. Other information worth noting is that
trade receivables are given with 30-day credit terms, and that non trade receivables include
“e-wallet balance, accrued vendor allowance income and rent due from store tenants.”

One may also see that within this note includes an account for “allowance for
impairment losses on trade receivables”, which is an allowance for doubtful debts account
that is discussed more on Note 29. In this particular note, one may see the basis used to
acquire such allowance.

As one may tell by looking at (Appendices. Figure 9), Puregold Price Club takes
advantage of the aging of receivables method when considering their allowance for doubtful
accounts, and this can also be seen in note 3, subcategory estimates. This section explains
that Puregold Price Club uses this particular method. By looking at the image, one can tell
that their allowance for this particular account is only applicable to those receivables that
aged for longer than 60 days. The total impairment estimates totalled to P7,462,327 which
is very good considering that this is not even 1% of all net receivables. Furthermore, note 29
states that trade receivables’ credit quality was ranked as standard grade, as these
receivables were coming from unsecured third-parties with good paying habits, while the
non trade receivables were ranked as high grade, since these accounts directly deducted
from involved parties immediately. Additionally, advances to contractors also made up a
portion of non trade receivables, and were also given a high credit quality rating, as these
were automatically paid through salaries. This outcome is very optimal for success of the
entity during the period, as it promotes efficiency in collections and the handling of
receivables.

V. Critique on Equity Investments

Interested parties would look to the Statement of Financial Position of Puregold Price
Club to look at the general measurements of total equity within the company. As the
statement would present it, total company equity at the year ended in 2019 totalled to
P61,899 million, which saw an increase from the prior P53,012 million tallied in 2018 by
around 16.8%. Among the notable accounts within the equity account that are relevant to
this paper are that of the capital stock, retained earnings, and additional paid in capital.
Capital stock P2,904 million, an increase from last year’s P2,800 million, the growth of which
being accredited to the fact that the shares were topped up to P45 in the first quarter of 2019.
Retained Earnings also saw an increase in amount, totalling to around P33,650 million from
the previous P29,179 million from 2018. Lastly, additional paid in capital increased from P
20,830 million from 2018, to P25,362 million in 2019, and this increase was said to be due
to the “excess of selling prices of new shares issued over par value of stocks -- net of direct
expenses” Taking a deeper look into the Statement of Financial Position, one may find that
note 26 is disclosed specifically for equity related accounts.

Seen in (Appendices. Figure 10) is an image of the total capital stock in control of
Puregold Price Club from note 26. As mentioned previously, the total balance at the end of
2019 was P2,904,214,086, which is greater than the previous two years. The increase from
2018 to 2019 was P104,300,000, or the total issuances of stock during the year. One may
also notice that the authorized shares have a par value of P1, meaning that each of the 3
billion authorized shares had a face value of at least P1.

Moving forward with note 26, the history of the approved shares, and the various
equity exchanges via parent companies are discussed in precise detail. An example of which
is that of the initial offer price of Puregold originally being P12.50 per share, which resulted
in the issuance of 500,000,000 common shares in the year of 2011. This is very important to
this specific note, as this was the initial public offering of the parent company’s shares. On
the more up-to-date side of the spectrum with regards to the parent company’s shares, On
January 16, 2019, the Parent Company partook in the activity to conduct a P4,693,500,000
top up placement of 104,300,000 million common shares. This is a method in which existing
shareholders can subscribe to new shares of the parent company, with a few restrictions
with pricing and quantity. These 104 million shares will be going for a price of P45.00 per
share. Information like the ones mentioned are very important in disclosing faithful
representations within the annual reports, as it gives clarity to the financial statements.

 The following segments within this note disclose the treasury stocks of Puregold Price
Club, where the total tally of such stocks was 34,532,680. Such an amount was a direct result
to the transaction between the subsidiaries, and the parent company (Puregold Price Club).
Treasury Stocks work as shares bought back by the parent company for future use. The
succeeding segments also mention information about the retained earnings of the entity.
Regular dividends of P0.20 per share, and special dividends of P0.20 were properly disclosed
in this section, as well as the dividend’s record and payment date. Total dividends
represented on the payment date of January 24, 2020 amounted to P1.2 Billion.

Among Equity Investments of the entity also includes financial assets, and note 7
within the annual report gives a great perspective of such financial assets at fair value
through profit or loss. As seen in (Appendices. Figure 11), the total costs of the financial
assets amounted to P15,355,998 in 2019, which means that such financial assets were
acquired for this exact amount. Balance at the beginning of the financial year is dependent
on the previous year’s balance at the end of year, which subsequently amounted to
P21,146,594. These balances are deeply affected by the unrealized valuation loss for the year
account, or the unrealized losses accumulated by such financial instruments during the year.
Within note 22, the disclosed note for this account, one may see the previous changes in this
account for the past 2 accounting years. Not much context was given as to where these losses
occurred, which might be confusing to interested parties.

VI. Critique on Investment in Associates

Before tackling the investment in associates, it is first important to distinguish
between an investment in associates and investment in joint ventures. Fortunately, the notes
regarding the significant accounting policies tackles such distinctions, providing that
associates are entities that group’s have significant influence (power to participate in the
decision making process of the entity, but does not control or joint control over such
implementations) over; generally accompanying a 20% - 49% shareholding of the entity’s
shares. Joint ventures, on the other hand, are those entities that a group has specific rights
to the assets and obligations to the liabilities; usually represented by having a 50%
shareholding within the entity. Entities require the equity method in performing proper
accounting. As the topic discussed only refers to investment in associates, investing in joint
ventures will not be fully addressed in this critique.

Both classifications of investments are compounded into one title, and is found with
the statement financial of financial position, under the non-current assets portion. This is
properly placed, as investment in associates is more likely than not always a non-current
asset. Total investments amounted to P623 million as of December 31, 2019, and P603
million and 2018; seeing these numbers, the increase of P20 million between operating years
can be deduced. Information regarding such accounts is discussed further in note 9.

Attached below in (Appendices. Figure 12) is an image of the Puregold Price Club’s
associate: San Roque Supermarkets, an entity that owns supermarkets from around the
Metro Manila area. Through the acquisition of Entenso, Puregold was able to obtain 49.34%
of the outstanding shares of San Roque Supermarkets. As stated per a previous section of
note 9, the carrying value of the investment in associate of Puregold was exactly
P433,542,656 for the start of 2019, and parties may notice that P171,527,408 is Puregold’s
total share of the net assets of San Roque Supermarkets. The difference of which is the new
carrying amount (P447,585,544) and Puregold’s total share of net assets (P171,527,408)
omitting a total of P276,058,136, which is actually the goodwill collected from San Roque
Supermarket. The collected percentage of net income from San Roque Supermarkets
received by Puregold was P14,042,888.

VII. Critique on Fund & Other Investments

Within the Annual Reports of Puregold Price Club, there are no signs of any clear
reports on sinking funds within the company. This is most likely due to the fact that these
values may be immaterial to the entity. If such is the case, Puregold would most likely not
need to state any value under this category, and could still comply with the proper
accounting standards. Another reason why sinking funds are not found within the reports of
Puregold Price Club could be due to the fact that there are no current plans, within corporate
management, to require a sinking fund, and thus not needing to list it down. Regardless, this
is not violating any standards, therefore making it a legal accounting practice.

The same can be said when it comes to Cash Surrender Value of Puregold Price Club:
non-existent within the bounds of the annual report. The closest accounts related to such
investments are that of insurance claims, which was not tackled within the scopes of this
accounting class. Cash surrender value can be defined as a cash value of an insurance
contract, basically an amount of money given to a policyholder, by the issuing life carrier. In
other words, a fund that is given for insurance; in an entity perspective, cash surrender
values are mostly performed for insuring personnel that represent key management roles
within the company. There are two reasons for this account not being presented in the
annual reports of Puregold Price Club, first being that the values of such funds are immaterial
to the entity. In this sense, it is permitted for the company not to include such disclosures to
the users of general purpose financial statements, accordinging to proper accounting
standards. The second reason being that no cash surrender value actually exists within the
entity. If such is the case, Puregold would have no reason as to recording it, and thus did not
include it.


Appendices:

Figure 1. Stockholders

Figure 2. Statement of Financial Position

 Figure 3. Statement of Comprehensive
Income

Figure 4. Statement of Changes in Equity

Figure 5.1. Statement of Cash Flows

Figure 6. Percentage of Ownership

Figure 5.2. Statement of Cash Flows

Figure 7. Note 4 (Cash and Cash Equivalent)

Figure 8. Note 5 (Receivables)

Figure 9. Note 29 (Aging of Receivables)


Figure 10. Note 26 (Equity)

Figure 11. Note 7 (Financial Assets - Fair Value Through Profit or Loss)

Figure 12. Note 9 (Associate ‘San Roque Supermarkets’)