MERALCO

Submitted by:
Nazarrea, Mikaela BSA-IIA
Castillo, Alyssa
Cortez, Miguel
Nool, Jovelito
Suangco, Phoebe Keith BSA-IIB
San Jose, John Arvie

Submitted to:
Sir Randy Labrague
A. Company Background
The Manila Electric Company, or Meralco, is the Philippines' largest distributor of electrical
power. The company holds the power distribution franchise for some 22 cities and 89 municipalities,
including the capital city of Manila, as well as for the cities of San Juan, Las Piñas, Quezon, Malabon,
Makati, Caloocan, Pasay, Mandaluyong, Paranaque, and Navotas. Meralco's 25-year franchise for
these markets, awarded in 2003, gives the company control of the energy distribution services for an
area of more than 9.3 thousand square kilometers and a population of more than 19.7 million--one-
fourth of the Philippines' total population. The company boasts a coverage rate of more than 97
percent, the highest in the country. Each year, Meralco sells more than 23 million megawatt-hours
(MWH), with residential and commercial sales each contributing roughly 35 percent, and industrial
sales adding 30 percent. Formerly a power producer, Meralco purchases its power requirements
primarily from government-owned National Power Corporation; since the beginning of the 2000s,
however, the company has begun to purchase electricity from a number of newly established
independent power producers, helping to lower its prices. Meralco also has started to diversify its
operations in response to the deregulation of the Philippines power industry by extending into power
generation, industrial construction and engineering, and other areas, including real estate
development, e-commerce, and consultancy services. Meralco is led by Chairman and CEO Manuel
M. Lopez, whose family, through direct and indirect holdings, retains control of some 25 percent of
the company. The Lopez family, one of the country's most prominent, also controls conglomerate
Benpres Holdings and other businesses.

 The largest private sector electric distribution utility company in the Philippines
covering 36 cities and 75 municipalities
 Franchise area of over 9,685 km2 which includes the country’s industrial,
commercial, and population centers
 Market capitalization of PhP428.3 billion (US$8.1 billion) at end-2018.
 Celebrates 116 years in service in 2019
 Determined to serve, today and for the future

B. Statement of Financial Position

Statement of Comprehensive Income
Statement of Changes in Equity

Statement of Cash Flows

Basis of Preparation
Statement of Compliance
The financial statements have been prepared in accordance with the Philippine Financial Reporting
Standard for Small and Medium-sized Entities (PFRS for SMEs). The financial statements of the
Foundation were approved and authorized for issuance by its Board of Trustees (BOT) on March 20,
2019.
Basis of Measurement
The financial statements of the Foundation have been prepared using the historical cost basis of
accounting.
Functional and Presentation Currency
The financial statements are presented in Philippine peso, which is the Foundation’s functional and
reporting currency. All financial information presented in Philippine peso has been rounded-off to the
nearest peso, except when otherwise indicated.
Judgments
The Foundation follows the guidance in the Philippine Accounting Standard (PAS) 39, Financial
Instruments: Recognition and Measurement, on classifying non-derivative financial assets with fixed
or determinable payments and fixed maturity as HTM investments. This classification requires
significant judgment. In making such judgment, the Foundation evaluates its intention and ability to
holds such investments to maturity. If the Foundation failed to keep these investments to maturity
other than for the specific circumstances, for example, selling more than an insignificant amount close
to maturity, the entire portfolio shall be reclassified as available-for-sale (AFS) financial asset and
would therefore be measured at fair value and not at amortized cost. As at December 31, 2018 and
2017, the Foundation classified its investments in fixed notes amounting to P16,000,000 as HTM
investments
Estimates
The Foundation assesses each reporting date whether there is any objective evidence that the HTM
investments are impaired as a result of one or more loss events that has an impact on the estimated
future cash flows of the investments. Determining the future cash flows requires the foundation to
make estimates and assumptions that can materially affect the financial statements. As at December
31, 2018 and 2017, the Foundation’s HTM investments amounted to p16,000,000. No impairment
loss was recognized on the Foundation’s HTM investments for the year ended December 31, 2018
and 2017.
Summary of Significant Accounting Policies
The accounting policies set out below have been applied consistently to all periods presented in these
financial statements unless otherwise indicated.
Financial Instruments
The Foundation adopted the recognition and measurement provisions of PAS 39, Financial
Instruments: Recognition and Measurement and the disclosure requirements of Sections 11 and 12 of
the PFRS for SMEs to account for all its financial instruments.
Date of Recognition. The Foundation recognizes a financial asset or a financial liability in the
statement of assets, liabilities and fund balances when it becomes a party to the contractual provisions
of the instrument. In the case of a regular way purchase or sale of a financial assets, recognition is
done using trade date accounting.
Initial and Subsequent Recognition of Financial Instruments. Financial Instruments are recognized
initially at the fair value of the consideration given (in case of an asset) or received (in case of a
liability). The initial measurement of a financial instruments, except for those designated at fair value
through profit or loss (FVPL), includes transaction costs.
Impairment of financial Assets
A financial asset or a group of financial assets is considered to be impaired if, and only if, there is
objective evidence of impairment. Evidence of impairment for specific impairment purposes may
include indications that the borrower is experiencing financial difficulty. If there is objective evidence
of impairment, the amount of loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows (excluding future credit losses) discounted at the
financial asset’s original effective interest rate (i.e., the effective interest rate computed at initial
recognition). The impairment loss for the period shall be recognized in statement of revenues and
expenses.
Derecognition of Financial Instruments
A financial asset is derecognized when: the rights to receive cash flows from the asset expired; the
Foundation retains the right to receive cash flows from the asset but has assumed an obligation to pay
them in full without material delay to a third party under a ‘pass-through’ arrangement; or the
Foundation has transferred its rights to receive cash flows from the asset. A financial liability is
derecognized when the obligation under the liability is discharged or cancelled or has expired.
Respective carrying amounts is recognized in the statement of revenues and expenses.
Offsetting Financial Instruments
Financial assets and financial liabilities are offset and the net amount is reported in the statement of
assets, liabilities and fund balances if, and only if, there is a currently enforceable legal right to offset
the recognized amounts and there is an intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously.
Project Supplies and Material
Materials under “Other current assets” account are initially recognized at the cost incurred by the
donor and recognized as expense when utilized in projects and programs.
Prepaid Insurance
Under “Other current assets” account is carried at cost and is subsequently amortized over the terms
of the contract to which the payment applies.
Property and Equipment
Are stated at cost, excluding the costs of day-to-day servicing, less accumulated depreciation and any
impairment in value. The initial cost of property and equipment comprises its purchase price and any
directly attributable costs of bringing the asset. The useful life of each of the property and equipment
is estimated based on the period over which the asset is expected to be available for use. Depreciation
is computed on a straight-line method over the estimated useful lives. Depreciation starts when an
item of property and equipment is available for use.
Impairment of Non-Financial Asset
Assesses as at reporting date whether there is an indication that an asset may be impaired. If any such
indication exists, or when annual impairment testing for an asset is required, the Foundation makes an
estimate of the asset’s recoverable amount. Where the carrying amount of an asset exceeds it
recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
An assessment is made at each reporting date as to whether there is an indication that previously
recognized impairment losses may no longer exist or may have decreased. Such reversal is recognized
in the statement of revenues and expenses unless the asset is carried at revalued amount, in which case
the reversal is treated as revaluation increase. After such a reversal, the depreciation charge is adjusted
in future periods to allocate the asset’s revised carrying amount, less any residual value, on a
systematic basis over its remaining estimated useful life.
Revenue recognition
Recognized when it is probable and the amount of the revenue can be measured reliably. The
Foundation measures revenue at the fair value of the consideration received.
Cost and Expense Recognition
Program costs and general and administrative expenses are recognized in the statement of revenues
and expenses upon utilization of the service or when incurred.
Provisions and Contingencies
A provision is recognized if, as a result of a past event, the Foundation has a present legal or
constructive obligation that can be estimated reliably, and it is probable that a transfer of economic
benefits will be required to settle the obligation. Provisions are determined by discounting the
expected future cash flows at a rate that reflects current market assessments of the time value of
money and the risks specific to the liability. Contingent liabilities are not recognized in the financial
statements and are disclosed in the notes.
Events after the Reporting Date
Post year-end events up to the date of approval of the financial statements by the BOT that provide
additional information about the Foundation’s financial position at reporting date (adjusting events)
are reflected in the financial statements. Post yearend events that are not adjusting events are
disclosed in the notes to financial statements when material.

C. Notes
Current Assets
Note 11 – Cash and Cash Equivalents

Cash and cash equivalents as we all know, refers to the line item on the balance sheet that reports the
value of a company’s asset that are cash or can be converted into cash immediately. It includes bank
accounts or marketable securities, which are debt securities with maturities of less than 90 days. That
is why the MERALCO Group maintains an adequate amount of cash, cash equivalents and FVOCI
financial assets, which may be readily converted to cash if any unforeseen interruption of its cash
collections happens.
Non-Current Assets
Note 9 – Investment Properties
Related cases to the removal of an individual asset or liability from a disposal group which means that
the entity removes an individual asset or liability from a disposal group, the remaining assets and
liability from a disposal group will continue to be measured as a group only. If not, the remaining
noncurrent assets of the group that individually meet the criteria to be classified as held for sale. The
discounted operations are a component of an entity that either has been disposed of or is classified as
held for sale. Operation and cash flows can be clearly distinguished operationally and for financial
reporting purposes if the assets, liabilities, income and expenses that are directly attributable to the
components will be eliminated if the component is to be sold.
Current Liabilities
Note 21 – Trade Payables and Other Current Liabilities

Trade Payables and Other current liabilities is used in trading or manufacturing entity, trade and non-
trade payables that are currently due are normally aggregated and presented as one-line item. Trade
Payables are the obligations arising from purchases of inventory that are to be sold in the ordinary
course of business. The payable is recognized when ownership over the goods is transferred to the
buyer. Trade payables are current liabilities when they are expected to settled within the normal
operating cycle or one year, whichever is longer. On the other hand, non-trade or other payables are
classified as current only when they are expected to be settled within one year. Payables expected to
be settled within one year and beyond one year are disclosed in the notes.
Non-Current Liabilities
Note 25 – Long-term Employee Benefits
Long term employees benefit or Post-employment benefits are employee benefits that are payable
after the completion of employment. Post-employment benefit plans are either Defined contribution
plan or Defined benefit plan. In defined contribution plan the employee's retirement benefit is
dependent on the employer's contributions to the plan and on the plan's investment performance. On
the other hand, Defined benefit plan is to provide the agreed benefits. Therefore, the employer bears
the risk that the promised benefits will cost more than expected if actuarial or investment experience
is worse than expected. The related obligation may need to be increased. The benefits are due to be
settled beyond 12 months after the end of the period in which the employees have rendered the related
service.
Shareholder’s Equity
Note 15 – Equity

Statement of changes in equity shows the effects of change in accounting policy or correction of prior
period errors, the total comprehensive income for the period, and for each component of equity, a
reconciliation between the carrying amount at the beginning and at the end of the period showing
separately changes resulting from profit or loss, other comprehensive income, and transactions with
owners. On the financial statements of Meralco, specifically in the statement of changes in equity,
Meralco responsibly arranged the preparation and fair presentation of the consolidated financial
statements including the schedules attached therein, as at and for the year ended December 31, 2018,
in accordance with the prescribed financial reporting framework indicated therein, and for such
internal control as management determines is necessary to enable the preparation of consolidated
financial statements that are free from material misstatement, whether due to fraud or error. The
consolidated financial statements are prepared using uniform accounting policies for like transactions
and other events with similar circumstances. All intra-group balances, income and expenses,
unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in
full. Non-controlling interests represent the portion of profit or loss and net assets in MIESCOR and
subsidiaries, CEDC and subsidiary, Comstech and subsidiary, AMPSI, Fieldtech and Bayad Center
not held by Meralco and are presented separately in the consolidated statement of income,
consolidated statement of comprehensive income and within equity in the consolidated statement of
financial position, separately from equity attributable to equity holders of the parent. Meralco’s total
comprehensive income within a subsidiary is attributed to the non-controlling interest even if such
result in a deficit.
Revenue
Note 22 – Related Party Transactions

Revenue is recognized to the extent that it is probable that the economic benefit associated with the
transaction will flow to the MERALCO Group and the revenue can be reliably measured. Revenue
from Contracts with customers PFRS 15 can be related to Pole Attachment Contract with PLDT, Inc.
(“PLDT”) because of recognizing the steps of revenue recognition hence, MERALCO has a pole
attachment contract with PLDT similar to third party pole attachment contracts of MERALCO with
other telecommunication companies. Under the pole attachment contract, PLDT shall use the
contracted cable position exclusively for its telecommunication cable network facilities. Under the
consolidated notes of Meralco in Revenue, Sale of other services Note 22 stated that Sale of
Electricity under Various Service Contracts. MERALCO sells electricity to related party shareholder
groups within the franchise area such as PLDT, Metro Pacific and JG Summit and their respective
subsidiaries, and affiliates for their facilities within MERALCO’s franchise area. The rates charged to
related parties are the same ERC-mandated rates applicable to all customers within the franchise area.
hence, it is cover PAS 24 (Related Party Disclosure) where one party has the ability to affect the
financial and operating decisions of the other party through control, significant influence or joint
control. Meralco has a control to sell electricity to its related party shareholders that makes their
business grew up.
Expense
Note 24 – Salaries, Wages, and Employee Benefits
According to the definition of expenses in accounting, it is the reduction in value of an asset as it is
used to generate revenue. If the underlying asset is to be used over a long period of time, the expense
takes the form of depreciation, and is charged ratably over the useful life of the asset. If the expense is
for an immediately consumed item, such as a salary, then it is usually charged to expense as incurred,
so Meralco has a Salaries, Wages and Employee Benefits expense account where salaries expense is
included in this note, it shows the relations of function of expense method under comprehensive
income, the computation of Salaries, Wages and Employee Benefits as a residual category of
expenses.