MOLO RYZI COMPANY’s NOTES TO FINANCIAL STATEMENTS
1) CORPORATE INFORMATION
QUEEN’S DELIGHTS is a partnership business enterprise owned and managed
by FIVE (5) people who contributed money, property and industry to a common fund. As
partners, they will benefit from the profits as well as incur losses of the business. In
establishing the business, the partners will contribute ₱100,000.00 each as initial
contribution for the operation of the business.
The Company is domiciled in the Philippines and the business will launch its
first stall at the center of commerce in Diffun, Quirino. The location was chosen
considering the consumers’ easy access and convenience. The location will also give the
consumers perception of an affordable product.
2) BASIS OF PREPARATION AND STATEMENT OF COMPLIANCE BASIS OF
PREPARATION
BASIS OF PREPARATION
The financial statements have been prepared using the historical cost basis.
The financial statements are presented in Philippine Peso (₱), which is the
Company’s functional and presentation currency. All amounts are rounded to the nearest
peso unless otherwise indicated.
STATEMENT OF COMPLIANCE
The financial statements of the company have been prepared the Financial
Statements in accordance with Philippine Financial Reporting Standards (PFRS).
3) Changes in Accounting Policies and Disclosures
The accounting policies adopted are consistent throughout the years and the
Company has adopted the following new accounting pronouncements starting April 1,
2018. Unless otherwise indicated, the adoption did not have any significant impact on the
Company’s financial statements.
PFRS 15, REVENUE FROM CONTRACTS WITH CUSTOMERS
PFRS 15 supersedes PAS 11, Construction Contracts, PAS 18, Revenue and
related interpretations and it applies to all revenue arising from contracts with its
customers. PFRS 15 establishes a five-step model to account for revenue arising from
contracts with customers and requires that revenue be recognized at an amount that
reflects the consideration to which an entity expects to be entitled in exchange for
transferring goods or services to a customer. The five-step model is as follows:
1. Identify the contract(s) with a customer;
2. Identify the performance obligations in the contract;
3. Determine the transaction price;
4. Allocate the transaction price to the performance obligations in the contract; and
5. Recognize revenue when (or as) the entity satisfies a performance obligation.
PFRS 15 requires entities to exercise judgment, taking into consideration all
of
the relevant facts and circumstances when applying each step of the model to contracts
with their customers. The standard also specifies the accounting for the incremental
costs of obtaining a contract and the costs directly related to fulfilling a contract. In
addition, the standard requires extensive disclosures. The Company adopted PFRS 15
using the modified retrospective method of adoption with date of initial application.
Contracts with customers generally include sale of goods specifically rice
brownies. Contracts for sale of goods promise to deliver various goods that are
capable of being distinct on their own and within the context of the contract, thus, the
promises to deliver goods are viewed as distinct and separate performance obligations.
Under its previous policy, revenue from sale of goods is recognized when it is probable
that the economic benefits associated with the transaction will flow to the Company and
the amount of the revenue can be measured reliably. Under PFRS 15, the Company
concluded that revenue shall be recognized at a point in time with the satisfaction of the
related performance obligation. The performance obligation is satisfied generally upon
delivery of goods to customers where delivery is with reference to the agreed shipping
terms.
1) NOTES TO CASH
This account consists of
Beginning balance, Cash 12/31/2021
₱
722,456.50
Net cash inflow from Operating Activities
₱
969,924.10
Net cash inflow from Investing Activities
₱
25,200.00
Net cash inflow from Financing Activities
₱
200,000.00
Ending balance, Cash 12/31/2022
₱ ₱1,917,580.60
The Company’s cash in banks have high grade credit quality since these are
deposited with reputable banks. Since there has not been a significant increase in credit
risk
since initial recognition, the Company provides for credit losses on cash in banks.
2) NOTES TO ACCOUNTS RECEIVABLE
This account consists of
Beginning balance, Accounts Receivable
₱
128, 800.00
plus: Net Sales
₱
₱1,802,500.00
₱
0.00
₱
0.00
Collections
₱
1, 716, 300.00
Recoveries
₱
0.00
₱
215, 000.00
Recoveries
less: Write-off
Ending balance, Accounts Receivable
The Company applies the PFRS 9 simplified approach in measuring ECL
which uses a lifetime expected loss allowance for receivables. The ECL on receivables
are estimated using a provision matrix by reference to past default experience of the
debtor and an analysis of the debtor’s current financial position. The historical loss rates
are adjusted to reflect current and forward-looking information on macroeconomic factors
affecting the ability of the customers to settle the receivables. Generally, receivables are
written-off if past due. The Company does not hold collateral as security.
The credit quality of the financial assets was determined as follows:
a. High grade - settlements are obtained from counterparties following the terms of the
contracts without much collection effort. Cash are considered high grade as the Company
transacts only with reputable banks.
b. Standard grade - some reminder and follow-ups are performed to obtain settlement
from the counterparties. Due from related parties and other receivables are considered
as standard grade as these are settled on time or are slightly delayed.
c. Sub-standard grade - constant reminder and follow-ups are performed to collect
accounts from counterparties. Receivable from sale of scrap are determined to be substandard based on the Company’s collection experience.
3) NOTES TO INVENTORY
This account consists of
Beginning balance, Raw materials
₱ 149, 000.00
plus: Net purchases
₱ 116, 200.00
less: Ending balance, Raw materials
₱ 223, 500.00
Direct material used
₱ 41, 700.00
Direct labor
₱ 346, 320.00
Factory Overhead
₱
22, 400.00
Beginning balance, WIP
₱
91, 700.00
Ending balance, WIP
₱
22, 459.00
Cost of Goods Manufactured (CGM)
₱ 484, 661.00
Beginning balance, Finished goods
₱ 425, 800.00
Cost of Goods Sold (CGS)
₱ 793, 461.00
Ending balance, Finished goods
₱ 425, 800.00
Since the business is manufacturing goods for the consumption of the public,
they are much likely to spend money in their inventory.
4) NOTES TO PREPAID SUPPLIES
This account consists of
₱
45, 000.00
plus: Purchases
₱
0.00
less: Prepaid supplies used
₱
15, 000.00
₱
30, 000.00
Beginning balance, Prepaid supplies
Ending balance, Prepaid supplies
Prepaid supplies are the supplies purchased and used by the company overtime
in their operation.
5) NOTES TO EQUIPMENT
This account consists of
COST
ANNUAL DEPRECIATION
EXPENSE
STALL
₱
24, 450.00
₱
4, 890.40
EQUIPMENTS
₱
13, 390.00
₱
2, 678.00
₱
7, 568.00
TOTAL
6) Notes to SALARIES PAYABLE
This account shows
POSITION
MONTHLY
SSS
SALARY
Employer
Employee
PAG-IBIG
Employer
Employee
PHIL HEALTH
Employer
Employee
COOK
9, 620.00
800
400
1,200
192.4
192.4
384.8
144.3
144.3
288.6
CASHIER
9, 620.00
800
400
1,200
192.4
192.4
384.8
144.3
144.3
288.6
SALESPERS
ON
TOTAL
9, 620.00
800
400
1,200
192.4
192.4
384.8
144.3
144.3
288.6
28, 860.00
2,400
1,200
3,600
577.2
577.2
1, 154.4
432.9
432.9
865.8
Compensation is given monthly. The employees are compensated based on their
position and they are deducted mandatory contributions required by law. They
considered as assets by the company thus, they are treasured and kept.
7) NOTES TO UTILITIES PAYABLE
This account consists of
Water
₱
Electricity
₱ 12, 000.00
Internet
₱
TOTAL
₱ 25, 200.00
9, 600.00
3, 600.00
The annual dues of the company are presented above. These are paid every month.
8) NOTES TO INCOME TAX
This account consists of
2024
Sales
₱
1,802,500.00
less: Cost of Goods Sold (COGS)
₱
793461.00
Gross Profit
₱
1,009,039.00
less: Operating Expenses (OpEx)
₱
435,481.00
Earnings Before Interest and Taxes
₱
573,558.00
₱
0.00
(EBIT)
less: Interest Expense
are
Earnings Before Tax (EBT)
₱
573,558.00
less: Income tax (30%)
₱
172, 067.40
EARNINGS AFTER TAX (EAT)
₱
401,490.60
9) NOTES TO SSS PREMIUMS PAYABLE
This account consists of
POSITION
EMPLOYER SHARE
EMPLOYEE SHARE
Cook
₱
800.00
₱
400.00
Cashier
₱
800.00
₱
400.00
Salesperson
₱
800.00
₱
400.00
TOTAL
₱
2, 400.00
₱
1, 200.00
These are mandatory contributions set by the government.
10) NOTES TO PAG-IBIG CONTRIBUTIONS PAYABLE
This account consists of
POSITION
EMPLOYER SHARE
EMPLOYEE SHARE
Cook
₱ 192.40
₱ 192.40
Cashier
₱ 192.40
₱ 192.40
Salesperson
₱ 192.40
₱ 192.40
TOTAL
₱ 577.20
₱ 577.20
These are mandatory contributions set by the government.
11) PHILHEALTH CONTRIBUTIONS PAYABLE
This account consists of
POSITION
EMPLOYER SHARE
EMPLOYEE SHARE
Cook
₱ 144.30
₱ 144.30
Cashier
₱ 144.30
₱ 144.30
Salesperson
₱ 144.30
₱ 144.30
TOTAL
₱ 432.90
₱ 432.90
These are mandatory contributions set by the government.
12) NOTES TO EQUITY
This account consists of
2024
Beginning balance, Equity
₱ 500, 000.00
plus: Investments
₱ 200, 000.00
less: Withdrawals
₱ 0.00
Drawings
₱ 0.00
plus: Net income
₱ 401, 490.60
Ending balance, Equity
₱
1, 101, 490.60
MOLO RYZI COMPANY’s FINANCIAL STATEMENT ANALYSIS
Analysis Tools
 LIQUIDITY RATIOS
Liquidity ratios are an important class of financial metrics used to determine a
debtor's ability to pay off current debt obligations without raising external capital. Liquidity
ratios measure a company's ability to pay debt obligations and its margin of safety through
the calculation of metrics including the current ratio, quick ratio, and operating cash flow
ratio.
a. CURRENT RATIO
The current ratio measures a company's ability to pay off its current liabilities
(payable within one year) with its current assets such as cash, accounts receivable and
inventories. The higher the ratio, the better the company's liquidity position:
Current ratio= Current assets/ Current liabilities
CURRENT RATIO=
₱
2,279,580.60
/
₱830,008.60
=2.75
b. QUICK RATIO or ACID-TEST RATIO
The quick ratio measures a company's ability to meet its short-term obligations
with its most liquid assets and therefore excludes inventories from its current assets. It
is also known as the "acid-test ratio":
Acid-test ratio= (Cash + Receivables + Marketable Securities)/ Current liabilities
QUICK RATIO=
₱ 2, 132, 580.6
/
₱830,008.60
=2.57
c. CASH RATIO
The cash ratio is a measurement of a company's liquidity, specifically the ratio of
a company's total cash and cash equivalents to its current liabilities. The metric
calculates a company's ability to repay its short-term debt with cash or nearcash resources, such as easily marketable securities.
Cash ratio= Cash and cash equivalents/ Current liabilities
₱ 1,917,580.60
CASH RATIO=
/
₱830,008.60
= 2.31
d. CURRENT ASSETS TURNOVER (CATO)
The asset turnover ratio measures the value of a company's sales
or revenues relative to the value of its assets. The asset turnover ratio can be used as
an indicator of the efficiency with which a company is using its assets to generate
revenue.
The higher the asset turnover ratio, the more efficient a company is at generating
revenue from its assets. Conversely, if a company has a low asset turnover ratio, it
indicates it is not efficiently using its assets to generate sales.
The asset turnover ratio uses the value of a company's assets in the denominator
of the formula. To determine the value of a company's assets, the average value of the
assets for the year needs to first be calculated.
Current Assets Turnover (CATO) = (COS + OPEX (excluding depreciation and
amortization)) / Average current assets
CATO=
₱793, 461.00 + 435, 481.00
/
1, 627, 418.55
= .70
Liquidity risk
Liquidity risk is the risk that the Company will not be able to meet its financial
obligations as they fall due. The Company’s objective to managing liquidity risk is to
ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities
when due, under both normal and stressed conditions, without incurring unacceptable
losses or risking adverse effect to the Company’s credit standing.
 SOLVENCY RATIOS
The solvency ratio is a key metric used to measure an enterprise's ability to meet
its debt obligations and is used often by prospective business lenders. The solvency
ratio indicates whether a company's cash flow is sufficient to meet its short-and long-term
liabilities.
a. DEBT RATIO
The debt
ratio
is
a
financial
ratio that
measures
the
extent
of
a
company’s leverage. The debt ratio is defined as the ratio of total debt to total assets,
expressed as a decimal or percentage. It can be interpreted as the proportion of a
company’s assets that are financed by debt.
A ratio greater than 1 shows that a considerable portion of debt is funded by assets.
In other words, the company has more liabilities than assets. A high ratio also indicates
that a company may be putting itself at a risk of default on its loans if interest rates were
to rise suddenly. A ratio below 1 translates to the fact that a greater portion of a company's
assets is funded by equity.
The debt ratio is also referred to as the debt-to-assets ratio.
Debt Ratio= Total debt/ Total assets
DEBT RATIO=
₱ 1,243,876.00
₱ 2,345,366.60
= 0.46
b. FIXED ASSET TO LONG-TERM LIABILITIES RATIO
The Fixed-assets- to long-term-liabilities ratio is a way of measuring the solvency
of a company. A company's long-term debts are often secured with fixed assets, which is
why creditors are interested in this ratio. This ratio is calculated by dividing the value of
fixed assets by the amount of long-term debt.
Fixed-assets- to long-term-liabilities ratio= Fixes assets/ long term debt
c. FIXED ASSET TO TOTAL ASSETS
Fixed assets to total asset ratio is a financial analysis technique that shows in
percentage terms the portion of your company's total assets that is tied up with fixed
assets. It shows the extent to which the company funds are frozen in the form of fixed
assets, such as property, plant and equipment. It represents the portion of total assets
that cannot be used as working capital.
FIXED ASSET TO TOTAL ASSET RATIO= Fixed asset/ Total asset
d. FIXED ASSET TURN-OVER
The fixed asset turnover ratio (FAT) is, in general, used by analysts to measure
operating performance. This efficiency ratio compares net sales (income statement) to
fixed assets (balance sheet) and measures a company's ability to generate net sales from
its fixed-asset investments, namely property, plant, and equipment (PP&E).
FIXED ASSET TURN-OVER (FAT) = Net Sales/ Average Fixed Assets
 WORKING CAPITAL ACTIVITY TURNOVERS:
a. ACCOUNTS RECEIVABLE TURN-OVER (ARTO)
The accounts receivable turnover ratio is an accounting measure used to quantify
a company's effectiveness in collecting its receivables or money owed by clients. The
ratio shows how well a company uses and manages the credit it extends to customers
and how quickly that short-term debt is collected or is paid. The receivables turnover ratio
is also called the accounts receivable turnover ratio.
ARTO= Net Credit Sales/ Average Receivables
₱ 1, 802, 500.00
ARTO=
/
171, 900.00
= 10.46
AVERAGE AGE OF ACCOUNTS RECEIVABLE
The average collection period is the amount of time it takes for a business to
receive payments owed by its clients in terms of accounts receivable (AR). Companies
calculate the average collection period to make sure they have enough cash on hand
to meet their financial obligations.
The average collection period is calculated by dividing the average balance of
accounts receivable by total net credit sales for the period and multiplying the quotient by
the number of days in the period.
Average age of A/R= 336 days or 48 weeks / ARTO
AVERAGE AGE OF AR=
336 days/ 48 weeks
/
10.46
32.12 / 33 days
b. INVENTORY TURN-OVER (ITO)
In accounting, the Inventory turnover is a measure of the number of times inventory
is sold or used in a time such as a year. It is calculated to see if a business has an
excessive inventory in comparison to its sales level.
ITO= Cost of Goods Sold/ Average Merchandise Inventory
ITO=
₱
793, 461.00
/
58, 000.00
= 13.68
AVERAGE AGE OF INVENTORY= 336 days or 48 weeks/ ITO
The average age of MOLO RYZY’s inventory is calculated by dividing the average
cost of inventory by the COGS and then multiplying the product by 336 days.
AVERAGE AGE OF INVENTORY=
336 days/ 48 weeks
/
13.68
= 24.56 or 25 days
c. TRADE PAYABLES TURN-OVER (APTO)
The accounts payable turnover ratio is a short-term liquidity measure used to
quantify the rate at which a company pays off its suppliers. Accounts payable turnover
shows how many times a company pays off its accounts payable during a period.
Accounts payable are short-term debt that a company owes to its suppliers and
creditors. The accounts payable turnover ratio shows how efficient a company is at
paying its suppliers and short-term debts.
Accounts payables turn-over (APTO) = Net credit purchases/ Average Trade
Payables
₱ 660, 000
ACCOUNTS PAYABLES TURN-OVER=
/
₱ 76, 100.00
= 8.67
Average Age of A/P= 336 days or 48 weeks/ APTO
AVERAGE AGE OF PAYABLES=
336 days/ 48 weeks
/ 8.67
= 38.75 or 39 days
d. WORKING CAPITAL TO TOTAL ASSETS
The working capital to total assets ratio compares the net liquid assets to the
total assets of the firm. Working Capital is the difference between current assets
and current liabilities, so the Working Capital to Total Assets ratio determines the
short-term company's solvency.
Working Capital to Total Assets= Working capital/ Total assets
WC: TA=
₱ 1, 449, 572.00
/ ₱ 2,345,366.60
= .62
e. WORKING CAPITAL TURNOVER (WCTO)
The working capital turnover ratio is also referred to as net sales to working
capital. It indicates a company's effectiveness in using its working capital.
The working capital turnover ratio is calculated as follows: net annual sales
divided by the average amount of working capital during the same year.
Working Capital Turnover (WCTO) = Net Sales/ Average Working Capital
WCTO=
₱ 1,802,500.00
/ ₱ 950,709.00
= 1.90
OPERATING CYCLE
The operating cycle is the average period of time required for a business to make
an initial outlay of cash to produce goods, sell the goods, and receive cash from
customers in exchange for the goods. It refers to the number of days a company takes
in converting its inventories to cash. It equals the time taken in selling inventories
(days inventories outstanding) plus the time taken in recovering cash from trade
receivables (days sales outstanding).
Operating Cycle= Average age of A/R + Average age of Inventory
OPERATING CYCLE=
32.12 DAYS
+ 24.56
= 56.68 or 57 days
CASH FLOW CYCLE
The cash conversion cycle (CCC) is a metric that expresses the time (measured
in days) it takes for a company to convert its investments in inventory and other
resources into cash flows from sales. Also called the Net Operating Cycle or simply
Cash Cycle, CCC attempts to measure how long each net input peso is tied up in the
production and sales process before it gets converted into cash received.
This metric takes into account how much time the company needs to sell its
inventory, how much time it takes to collect receivables, and how much time it has to
pay its bills without incurring penalties.
CCC is one of several quantitative measures that help evaluate the efficiency of a
company's operations and management. A trend of decreasing or steady CCC
values over multiple periods is a good sign while rising ones should lead to more
investigation and analysis based on other factors. One should bear in mind that CCC
applies
only to select sectors dependent on inventory management and
related operations.
CASH CONVERSION CYCLE (CCC) = Operating cycle- Average age of A/P
CCC=
56.68
less:
38.75
= 17.93 days
 TEST OF PROFITABILITY RATIOS
a. RETURN ON SALES
Return on sales (ROS) is a ratio used to evaluate a company's operational
efficiency. This measure provides insight into how much profit is being produced per
dollar of sales. An increasing ROS indicates that a company is growing more
efficiently, while a decreasing ROS could signal impending financial troubles. ROS is
very closely related to a firm's operating profit margin.
ROS= Operating Profit/ Net sales
₱ 573,558.00
ROS=
/
1,802,500.00
= .32
b. RETURN ON ASSETS
Return on assets (ROA) is a financial ratio that shows the percentage of profit a
company earns in relation to its overall resources. It is commonly defined as net
income divided by total assets. Net income is derived from the income statement of
the company and is the profit after taxes.
ROA= Net income/ Average assets
₱ ₱401,490.60
ROA=
/
₱ 1,684,388.55
= . 24