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CFA’s Financial Capability to Defray Project Costs Without Adversely

Affecting Its Regular Operations


By: Antonio S. Abel, C.P.A., M.B.A.

On June 12, 2012, you are engaged as Financial Consultant by the Executive Director of
Communication Foundation for Asia, Inc. (CFA) to evaluate their one-and-a-half year operating results
and financial conditions. Your evaluation will be based on the latest CFA’s audited financial reports
(see exhibits) directly extracted from Securities and Exchange Commission.

Prior to your engagement, the Organization is considering to submit two project proposals, one for
Stichting Porticus, Inc., (SPI) and another for Asia Church In Need (ACN), who provide grants for CFA.
But the Management is tentative whether to submit documentary project proposals. You are being
tasked to determine whether CFA has the financial capacity to initially fund the project without an
adverse effect to its operational cash flows.

CFA was established by a Dutch missionary in the Philippines raising funds to launch the Philippine
Catholic Digest. Five years later, after its establishment in 1975, it produced many socially relevant
publications and radio and TV programs. CFA is a private non-stock, non-profit organization. CFA
produced the first developmental film released commercially. That same year CFA produces
Panginorin, its first daily developmental radio drama series. Aired on DZRH, it reaches No.1 in audience
ratings. It is also the first radio soap opera to become the subject of a comprehensive international
research study, conducted by Dr. Paul Hartmann of Leicester University, UK.

CFA had diversified its service offerings with new facilities and programs for training, publications,
radio and television. It produced Sugat Sa Ugat, a full-length feature film on agrarian reform. It is
selected as an entry to the Berlin Film Festival. It conducted a Peace Festival for Christian and Muslim
children, to be followed by workshops, video production and a nationwide exhibit of children’s art in
2007-08.

Currently, CFA is accepting projects from foreign Organizations situated in foreign countries. Funds
for these projects are provided once they are approved. The grants will normally be received
subsequent to an estimated cash outlay of 20% of the total project cost.

The Executive Director is currently working with two projects one of which is the 50,000 euro-project
proposal to Stichting Porticus (at that time the foreign exchange rates have an average of EU1.00 to
Php67.00). The grant provider of this project is willing to finance the project provided however, that
CFA will contribute 20% of the total fund on top of the EU50, 000. The other project is the ten
thousand euro (EU10,000) project with ACN.

Being tied up with other projects to finance their completion, plus the current variable and fixed
operating costs related to publishing activities, the Executive Director is worried that there might be
cash shortages prior to the remittance advise of the grant derive from this project.

ACN however, does require any initial cash outlay from CFA and does not also require CFA to
contribute any single cent of peso. The project may start anytime when grants are already received.
On that date the effective interest rate in the financial market is 9%.

As financial consultant, the Executive Director of CFA is asking your professional advise on these
matters whether to pursue both projects, submit either one project proposal to ACN or Stichting
Porticus.

1
Exhibit 1

FOR ASIA MULTIMEDIA CENTER, INC.


(A Nonstock, Nonprofit Organization)
STATEMENTS OF ASSETS, LIABILITIES AND FUND BALANCES
DECEMBER 31, 2010 AND MAY 31, 2010

December 31 May 31
General
and
Temporarily Permanently
Restricted Restricted
Funds Fund Total

ASSETS

Current Assets
Cash and cash equivalents (Note 5) P=30,955,053 P=– P=30,955,053 P=25,384,079
Trade and other receivables - net (Note 6) 19,598,780 – 19,598,780 12,639,282
Inventories - net (Note 7) 343,546 – 343,546 1,065,136
Other current assets (Note 8) 207,672 – 207,672 233,488
Total Current Assets 51,105,051 – 51,105,051 39,321,985

Noncurrent Assets
Property and equipment - net (Note 9) 3,537,224 – 3,537,224 4,306,134
Investments - net (Notes 10 and 12) 10,000,000 10,596,674 20,596,674 20,596,674
Other noncurrent assets 9,099 – 9,099 9,099
Total Noncurrent Assets 13,546,323 10,596,674 24,142,997 24,911,907
P=64,651,374 P=10,596,674 P=75,248,048 P=64,233,892

LIABILITIES AND FUND BALANCES

Trade and other payables (Note 11) P=9,066,460 P=– P=9,066,460 P=1,726,988
Advances from related parties (Notes 10 and 12) 30,065,432 – 30,065,432 31,477,631
Total Current Liabilities 39,131,892 – 39,131,892 33,204,619

Noncurrent Liabilities
Estimated retirement costs (Notes 12 and 18) 8,482,491 – 8,482,491 6,416,516
Other noncurrent liabilities (Note 13) 466,310 – 466,310 333,091
Total Noncurrent Liabilities 8,948,801 – 8,948,801 6,749,607

Fund Balances
General funds 4,463,837 – 4,463,837 1,565,305
Temporarily restricted funds (Note 14) 12,106,844 – 12,106,844 12,117,687
Permanently restricted fund (Notes 10 and 12) – 10,596,674 10,596,674 10,596,674
Total Fund Balance 16,570,681 10,596,674 27,167,355 24,279,666
P=64,651,374 P=10,596,674 P=75,248,048 P=64,233,892

See accompanying Notes to Financial Statements.


Exhibit 2

FOR ASIA MULTIMEDIA CENTER, INC.


(A Nonstock, Nonprofit Organization)

STATEMENTS OF REVENUE AND EXPENSES


FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2010
AND THE YEAR ENDED MAY 31, 2010
December 31 May 31
(Seven Months) (One Year)
Temporarily Permanently Temporarily Permanently
General Funds Restricted Funds Restricted Fund Total General Funds Restricted Funds Restricted Fund Total

REVENUE, GAINS AND OTHER SUPPORT

Publication and printing - net (Note 15) P=23,827,706 P=– P=– P=23,827,706 =P27,604,355 =P– =P– =P27,604,355
Grants – 4,843,000 – 4,843,000 – 8,016,382 – 8,016,382
Occupancy sharing 1,666,989 – – 1,666,989 2,290,089 – – 2,290,089
Facilities and equipment sharing 587,600 – – 587,600 2,497,846 – – 2,497,846
Workshops, trainings and seminars 1,203,050 – – 1,203,050 3,236,774 – – 3,236,774
Interest income (Notes 5 and 10) 739,577 – – 739,577 1,596,543 – – 1,596,543
Funds released from restrictions (Note 16) 3,403,005 (3,403,005) – – 9,179,533 (9,179,533) – –
31,427,927 1,439,995 – 32,867,922 46,405,140 (1,163,151) – 45,241,989

EXPENSES (Notes 6, 9, 17 and 18)

Program services:

Publication and distribution (13,571,385) – – (13,571,385) (19,445,302) – – (19,445,302)


Multimedia trainings, seminars and other projects (5,155,762) – – (5,155,762) (13,981,233) – – (13,981,233)
(18,727,147) – – (18,727,147) (33,426,535) – – (33,426,535)
Support services (Note 17) -
Management and general (7,344,844) – – (7,344,844) (11,783,460) – – (11,783,460)

(7,344,844) – – (7,344,844) (11,783,460) – – (11,783,460)

OTHER INCOME (CHARGES)

Reversal of unrealized accrued grant (Note 6) – (1,450,838) – (1,450,838) – – – –


Unrealized foreign exchange loss (730,593) – – (730,593) (2,386,303) – – (2,386,303)
Miscellaneous income 87,515 – – 87,515 366,576 – – 366,576
(643,078) (1,450,838) – (2,093,916) (2,019,727) – – (2,019,727)
EXCESS (DEFICIENCY) OF REVENUE, GAINS

AND OTHER SUPPORT OVER EXPENSES 4,712,858 (10,843) – 4,702,015 (824,582) (1,163,151) – (1,987,733)
OTHER COMPREHENSIVE LOSS

Actuarial loss (Note 18) (1,814,326) – – (1,814,326) – – – –

EXCESS (DEFICIENCY) OF REVENUE, GAINS AND OTHER


SUPPORT OVER EXPENSES AND OTHER
COMPREHENSIVE LOSS P=2,898,532 (P=10,843) P=– P=2,887,689 (=P824,582) (=P1,163,151) – (=P1,987,733)

See accompanying Notes to Financial Statements.

*SGVMC214659*
Exhibit 3

FOR ASIA MULTIMEDIA CENTER, INC.


(A Nonstock, Nonprofit Organization)
STATEMENTS OF CHANGES IN FUND BALANCES
FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2010
AND THE YEAR ENDED MAY 31, 2010

General Temporarily Permanently


Funds Restricted Restricted
Balance at May 31, 2010 P=1,565,305 Funds Fund Total
Excess of revenue, gains and other P=12,117,687 P=10,596,674 P=24,279,666
support over expenses and
other
comprehensive loss 2,898,532 (10,843) – 2,887,689
Balance at December 31, 2010 P=4,463,837 P=12,106,844 P=10,596,674 P=27,167,355

Balance at May 31, 2009 P=2,389,887 P=13,280,838 P=10,596,674 P=26,267,399


Excess of expenses over revenue,
gains and other support (824,582) (1,163,151) – (1,987,733)
Balance at May 31, 2010 P=1,565,305 P=12,117,687 P=10,596,674 P=24,279,666

See accompanying Notes to Financial Statements.


Exhibit 4

COMMUNICATION FOUNDATION
FOR ASIA MULTIMEDIA CENTER, INC.
(A Nonstock, Nonprofit Organization)
STATEMENTS OF CASH FLOWS
FOR THE SEVEN MONTHS ENDED DECEMBER 31, 2010
AND THE YEAR ENDED MAY 31, 2010

December 31 May 31 (One


(Seven Months) Year)
CASH FLOWS FROM OPERATING ACTIVITIES
Excess (deficiency) of revenue, gains and other support
over expenses P=4,702,015 (=P1,987,733)
Adjustments for:
Unrealized forex loss 730,593 2,386,303
Depreciation (Notes 9 and 17) 1,234,734 2,090,205
Interest income (Notes 5 and 10) (739,577) (1,596,543)
Provision for doubtful accounts (Notes 6 and 17) 606,998 648,859
Gain on sale of equipment (29,999) (95,819)
Reversal of unrealized accrued grant (Note 6) 1,450,838 –
Operating income before working capital changes 7,955,602 1,445,272
Decrease (increase) in:
Trade and other receivables (9,651,945) (2,210,819)
Inventories 721,590 (191,459)
Other current assets 25,816 72,517
Increase in:
Trade and other payables 7,339,472 279,098
Estimated retirement costs 251,649 254,712
Net cash generated from (used in) operations 6,642,184 (350,679)
Interest received 643,595 2,685,025
Net cash provided by operating activities 7,285,779 2,334,346

CASH FLOWS FROM INVESTING ACTIVITIES


Acquisition to property and equipment (Note 9) (465,825) (829,146)
Proceeds from disposal of property and equipment 30,000 95,821
Net cash used in investing activities (435,825) (733,325)

CASH FLOWS FROM FINANCING ACTIVITIES


Increase (decrease) in:
Advances from related parties (1,412,199) (1,554,157)
Other noncurrent liabilities 133,219 47,588
Net cash provided by (used in) financing activities (1,278,980) (1,506,569)