PHILIPPINE CHARITY SWEEPSTAKES OFFICE

NOTES TO FINANCIAL STATEMENTS

(All amounts in Philippine Peso unless otherwise stated)

1. GENERAL INFORMATION

The Philippine Charity Sweepstakes Office (PCSO) was created under Philippine Legislature
Act No. 4130 on October 30, 1934 and later amended by Republic Act (RA) No. 1169 in 1954
and Batas Pambansa Blg. 42 on September 24, 1979. The PCSO is the principal government
agency for raising and providing funds for health programs, medical assistance and services,
and charities of national character.

In adherence to its main thrust of providing funds for health programs and other charities of
national character, the PCSO is engaged in various social welfare and development programs.
The main programs of the Agency are as follows: endowment fund/quality health care program;
individual medical assistance program; community outreach program; ambulance donation
program; national calamity and disaster program; and hospital renovation and improvement of
health care facilities.

To support and sustain the foregoing mandated tasks, the PCSO holds and conducts charity
sweepstakes, races, and lotteries and engages in health and welfare-related investments,
projects, and activities to provide for permanent and continuing sources of funds for its
programs. It also undertakes other activities to enhance and expand such fund-generating
operations as well as strengthen the Agency’s fund-management capabilities.

The main products of the PCSO are the Sweepstakes and the Lottery games. The
Sweepstakes game has steadily been evolving through the years to be able to conform with the
changing demand of times, to keep the game interesting to all Sweepstakes enthusiasts, to
attract more clients, and to maintain a variety of Sweepstakes products readily available in the
market. Various game types have been introduced and other game innovations are constantly
being conceptualized, particularly the traditional; and scratch and match variety.

A. Lotto Games

The PCSO offers five (5) 6-pick number games namely; Lotto 6/42, Mega Lotto 6/45, Super
Lotto 6/49, Grand Lotto 6/55 and the Ultra Lotto 6/58. All of these number games can be played
using the system play (systems 7 to 12), 5 Roll, and Lucky Pick.

The PCSO Board of Directors approved the implementation of the grant of one per cent (1%)
share on Jackpot Winnings to Lotto Agents who had sold the Jackpot winning Ticket, not to
exceed the amount of One Million Pesos (P1,000,000), to be taken from the Jackpot Prizes of
the winners as per Board Resolution No. 223, Series of 2017 dated September 28, 2017.

The national games operated by the Corporation covers the areas of Luzon, Visayas and
Mindanao. Each game has scheduled draw dates and being drawn at PCSO Main Office Draw
Court in Mandaluyong City. The new Lotto Minimum Jackpot Prize (net of 1% Agent’s Share)
was implemented effective October 15, 2017 as per Memorandum Order No. 2017-192. (See
table below)

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 Minimum Jackpot Minimum Jackpot
Type of Game Days Prize (before Prize (on October
October 15, 2017) 15, 2017)
Lotto 6/42 Tuesday/Thursday/Saturday P 6 million P 5.94 million
Mega Lotto 6/45 Monday/Wednesday/Friday P 9 million P 8.91 million
Super Lotto 6/49 Tuesday/Thursday/Sunday P16 million P15.84 million
Grand Lotto 6/55 Monday/Wednesday/Saturday P30 million P 29.7 million
Ultra Lotto 6/58 Tuesday/Friday/Sunday P50 million P 49.5 million

The following are digit games being operated by the Corporation. Draws are being conducted at
PCSO Main Office Draw Court in Mandaluyong City.

Minimum
Guaranteed
Type of Amount
Game Frequency of draws Coverage Days (per Php 10 play)
6 Digit Once (every 9PM) Luzon Tuesday/ Thursday/ Saturday P 150,000
4 Digit Once (every 9PM) Monday/ Wednesday/ Friday P 10,000
3 Digit Three times (3x) daily Monday to Sunday P 4,500
(Suertres) (11AM-4PM-9PM) Luzon, Visayas
2 Digit Three times (3x) daily and Mindanao Monday to Sunday P 4,000
(EZ2) (11AM-4PM-9PM)

B. Lotto Prize Fund and Revenue Allocation

The PCSO Board of Directors approved the restructuring of the Lotto Prize Fund as per Board
Resolution No. 295, Series of 2012 dated September 10, 2012 and the pari-mutuel prize system
on all digit games with capping on the First Prize as per Board Resolution No. 320, Series of
2012 dated October 04, 2012.

The new Lotto price increase per bet and new prize structure were implemented effective May
17, 2013 as per Lotto Circular 2013-02.

AMOUNT PER SHARE (BASED ON NUMBER OF WINNERS)

GAME 5 WINNING NUMBERS   4 WINNING NUMBERS
6/42 Up to P 25,000.00 Up to P 1,000.00
6/45 Up to P 50,000.00 Up to P 1,500.00
6/49 Up to P 70,000.00 Up to P 2,000.00
6/55 Up to P200,000.00 Up to P 3,000.00
6/58 Up to P280,000.00 Up to P 3,800.00

Revenue Allocation for Lotto Games are as follows:

For PGMC Old and New Agents and POSC Agents

Allocation starting July 23, 2018
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Particulars 6/49 6/45 6/42 6/55 6/58
Gross Receipts 100.00% 100.00% 100.00% 100.00% 100.00%
Printing Cost 2.00% 2.00% 2.00% 2.00% 2.00%
Net Receipts 98.00% 98.00% 98.00% 98.00% 98.00%

I. Prize Fund (55% of NR) 53.90% 53.90% 53.90% 53.90% 53.90%

Agent's Commission 7.50% 7.50% 7.50% 7.50% 7.50%
Direct Cost - ELA 3.69% 3.69% 3.69% 3.69% 3.69%
Tax 2.70% 2.70% 2.70% 2.70% 2.70%
Prize Margin/Reserved Fund 8.01% 8.01% 8.01% 8.01% 8.01%
Jackpot Prize Pool 20.00% 20.00% 20.00% 20.00% 20.00%
Lower Prizes 12.00% 12.00% 12.00% 12.00% 12.00%
2nd Prize with Capping 5% up to 5% up to 5% up to 5% up to 5% up to
P 70,000.00 P 50,000.00 P 25,000.00 P 200,000.00 P 280,000.00
3rd Prize with Capping 4% up to 4% up to 4% up to 4% up to 4% up to
P 2,000.00 P 1,500.00 P 1,000.00 P 3,000.00 P 3,800.00
4th Prize with Capping P 20.00 P 20.00 P 20.00 P 20.00 P 20.00

II. Charity Fund (30% of NR) 29.40% 29.40% 29.40% 29.40% 29.40%
Education 1.00% 1.00% 1.00% 1.00% 1.00%
Direct Cost - ELA 2.02% 2.02% 2.02% 2.02% 2.02%
Financial Assistance 26.38% 26.38% 26.38% 26.38% 26.38%

III. Operating Fund (15% of NR) 14.70% 14.70% 14.70% 14.70% 14.70%
Direct Cost - ELA 0.96% 0.96% 0.96% 0.96% 0.96%
Net Operating Fund 13.74% 13.74% 13.74% 13.74% 13.74%

Revenue Allocation for 6-digit (6D), 4-digit (4D), 3-digit (3D), and 2-digit (2D) lotto games:

Particulars EZ2 3D 4D 6D
Gross Receipts 100.00% 100.00% 100.00% 100.00%
Printing Cost 2.00% 2.00% 2.00% 2.00%
Net Receipts 98.00% 98.00% 98.00% 98.00%

I. Prize Fund (55% of NR) 53.90% 53.90% 53.90% 53.90%

Agent's Commission 5.00% 5.00% 5.00% 5.00%
Direct Cost - ELA 3.69% 3.69% 3.69% 3.69%
Tax 2.70% 2.70% 2.70% 2.70%
Prize Margin/Reserved Fund 6.51% 6.51% 6.51% 6.51%
Jackpot Prize Pool 30.00% 30.00% 30.00% 30.00%
Lower Prizes 6.00% 6.00% 6.00% 6.00%

First Prize 30% up to 30% up to 30% up to 30% up to

P 4,000.00 P 4,500.00 P 10,000.00 P 150,000.00

C. PCSO Lotto Express (KENO)

The PCSO Lotto Express (Keno) started its selling and draw operations on March 6, 2006 with
only six (6) outlets in the National Capital Region (NCR).
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The Keno game can be played from choosing your numbers or Lucky Pick from Spot 1 to Spot
10, Hi or Low. Twenty (20) Keno winning numbers, out of eighty (80) numbers, are electronically
drawn thru an application program called “Random Number Generator” which is being
simultaneously displayed in every outlet nationwide. The Keno draw is being held every 10
minutes’ interval, from 7:00 am to 12:00 mn, from Monday to Sunday. With the base price of
P10 only, jackpot prizes can be won ranging from a minimum of P25 (Spot 1) to as high as
P1,000,000 (Spot 10).

Revenue Allocation of PCSO Lotto Express (KENO) is as follows:

Revenue Allocation BR NO. 0331

from Jan 1- Aug 22 s. 2019
Retail Receipts (RR) 100.000% 100.000%
Less: Printing Cost - PCSO 2.000% 2.000%
Net Receipts 98.000% 98.000%

Net PCSO Share:

Prize Fund (55% of NR) 53.900% 53.900%
Keno Prizes 55.000% 38.000%
5% Prize Fund Tax 2.695% 2.695%
Direct Cost - ELA (16.80% of RR*55%) 9.240% 0.000%
Agent's Commission 5.000% 5.000%
Prize Margin/Reserved Fund (may vary based on actual lower prizes) -18.035% 8.205%
Sub - Total 53.900% 53.900%
Prize Fund Deficit - -

Charity Fund (30% of NR) 29.400% 29.400%

Direct Cost - ELA (16.80% of RR*30%) 5.040% 0.000%
Charity Fund Share 24.360% 29.400%
Sub - Total 29.400% 29.400%

Operating Fund (15% of NR) 14.700% 14.700%

Direct Cost - ELA (16.80% of RR*15%) 2.520% 13.000%
Operating Fund Share 12.180% 1.700%
Sub - Total 14.700% 14.700%
*KENO Revenue Allocation Board Resolution (BR) No. 0331, s. 2019 covered the period August 23, 2019 - present

D. Small Town Lottery

In pursuit of its mandate and directives of the President of the Philippines, the PCSO Board of
Directors conducted experimental test-run for the Small Town Lottery (STL) Operation, and
thereafter evaluated its feasibility. Through Board Resolution No. 2433, Series of 2009,
approved on December 18, 2009, the STL was declared as one of the regular products of the
PCSO. Further, Board Resolution No. 019, Series of 2016, approved the expansion of STL
operations in other provinces and cities.

The STL shall be implemented locally all over the country through Authorized Agent
Corporations (AACs), taking into consideration the manpower of the PCSO and other relevant
factors, as may be determined by the PCSO Board of Directors. It shall be the only legal and

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authorized numbers game nationwide, and the PCSO AACs are the only entities or persons
authorized to operate and conduct the STL in their areas of operation.

The STL shall be implemented with the following objectives:

a. To raise additional funds for PCSO’s health programs, medical assistance and services,
and charities of national character;
b. To provide funds to various local government units for their health programs and medical
assistance and services;
c. To provide an alternative to illegal number games/operations and to aid their eradication
(to stamp out jueteng and “masiao”); and
d. To provide additional opportunities for employment.

The STL area of Operation applied for by the AAC could be a province or a chartered city;
provided, however, that in the case of Metro Manila, the STL area of Operation shall be in
accordance with the following districts:

i. Southern District comprising of the Cities of Makati, Pateros, Taguig, Muntinlupa, Las
Piñas, Paranaque, and Pasay;
ii. Western District comprising the City of Manila only;
iii. Central District comprising Quezon City only;
iv. Northern District comprising the Cities of Caloocan, Malabon, Navotas and Valenzuela;
and
v. Eastern District comprising the Cities of Pasig, Mandaluyong, San Juan and Marikina.

As of December 31, 2019, there were 59 operational STL AACs nationwide:

National Capital Region 1

Northern and Central Luzon 19
Southern Tagalog and Bicol Region 8
Visayas Region 11
Mindanao Region 20
Total 0

The STL Games are as follows:

Number
Name Range Description Bet:Pay-Out
Swer2 1 – 31 A combination of two (2) numbers is drawn, one P1:P400
from each set within the number range.
Swer3 0–9 A combination of three (3) numbers is drawn, P1:P450
one from each set within the number range.
Pares 1 – 38 A combination of two (2) numbers is drawn, one P1:P800
from each set within the number range.
A player wins if his chosen combination matches that of the drawn combination in exact order. Other
variations or games with designs and features which may hereafter be requested by the AAC and authorized
by the PCSO Board of Directors.
The monthly share from STL sales is equivalent to 21.20% of the Gross Receipts for the STL
Charity Fund and 0.70% for the Operating Fund. On September 6, 2018, under Board
Resolution No. 0282, s. 2018, the PCSO’s monthly share for the STL Charity Fund increased to
21.20% on the third quarter of 2018 to extend allotment to Philippine National Police (PNP)
Health Services and National Bureau of Investigation (NBI).
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The revised STL Implementing Rules and Regulations (IRR) aims to improve the STL
operations and cover the nationwide expansion of STL operations.

Hereunder are the changes in Revenue Allocation based on Board Resolution No. 511, series
of 2014 and its revised version under Board Resolution No. D-0020, s. 2016. The PNP share
was further revised on November 24, 2016 because of the PNP-intensified activities. Also under
Board Resolution No. 0063, s. 2017, Congressional District and Provincial Government shares
were revised on April 24, 2017. This was further amended in compliance with RA No. 10963 or
the Tax Reform for Acceleration and Inclusion (TRAIN law) and for the purpose of enhancing
and strengthening cooperation in curbing the operation of illegal number games under Board
Resolution No. 0282, s. 2018. In 2019, STL Circular No. 2019-003 was issued to be
implemented upon the resumption of the STL operations which was suspended under the
directive of President Rodrigo Duterte, as shown in the table below:

  BR No. BR No. BR No. BR No. BR No. STLC No.

Particulars 511 D-0020 D-0063 D-0063 282 003
  s. 2014 s. 2016 s. 2016 s. 2017 s. 2018 s. 2019
I. Gross Sales 100.00% 100.00% 100.00% 100.00% 100.000% 100.000%
Printing Cost-PCSO 2.00% 2.00% 2.00% 2.00% 1.500%* 0.500%*
Printing Cost-AAC 0.500%* 1.500%*
2% EWT – Printing Cost - ASA 0.030%
5% VAT – Printing Cost - ASA 0.075%
Net Printing Cost to AAC 1.395%
Documentary Stamp Tax 0.00% 0.00% 0.00% 0.00% 20.000% 0.000%
II. Net Sales 98.00% 98.00% 98.00% 98.00% 78.000% 98.000%
III. PRIZE FUND (55% of Net Sales) 53.90% 53.90% 53.90% 53.90% 42.900% 53.900%
Agency Commission 10.00% 10.00% 10.00% 10.00% 10.000% 10.000%
Expanded withholding tax from
agency commission 1.000% 1.500%
VAT withholding from agency
commission 0.500%
Net Agency Fee 9.00% 9.00% 9.00% 9.00% 9.000% 8.000%
Commission of Sales Force 10.000%
Expanded withholding tax from
agency commission 1.000%
Net of Sales Force Commission 9.000%
BIR Tax (5% of PF) 2.70% 2.70% 2.70% 2.70% 2.145% 2.695%
Net Prize Fund 41.21% 41.21% 41.21% 41.21% 30.755% 31.205%

IV. CHARITY FUND (30% of Net Sales) 29.40% 29.40% 29.40% 29.40% 23.400% 29.400%
City/Municipality 7.00% 3.00% 3.00% 3.00% 0.500% 0.500%
Congressional District 1.00% 0.25% 0.25% 0.75% 0.000% 0.000%
Provincial Government 1.50% 0.75% 0.75% 1.00% 0.500% 0.200%
National Bureau of Investigation 0.00% 0.00% 0.00% 0.00% 0.200% 0.200%

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   BR No. BR No. BR No. BR No. BR No. STLC No.
Particulars 511 D-0020 D-0063 D-0063 282 003
  s. 2014 s. 2016 s. 2016 s. 2017 s. 2018 s. 2019
Philippine National Police 3.00% 2.50% 2.50% 2.50% 0.000% 0.000%
PNP Health Services 0.00% 0.00% 0.00% 0.00% 1.000% 0.500%
National Headquarters 0.50% 0.40% 0.40% 0.40% 0.000% 0.000%
Police Regional Office 0.50% 0.40% 0.40% 0.40% 0.000% 0.000%
Police Provincial Office 1.00% 0.60% 0.50% 0.50% 0.000% 0.000%
Local Police Station 1.00% 0.60% 0.70% 0.70% 0.000% 0.000%
CIDG-National 0.20% 0.20% 0.20% 0.20% 0.000% 0.000%
CIDG-Regional 0.20% 0.20% 0.20% 0.20% 0.000% 0.000%
CIDG-Provincial 0.10% 0.10% 0.10% 0.10% 0.000% 0.000%
Documentary Stamp Tax 10.00% 10.00% 10.00% 10.00% 0.000% 20.000%
Universal Health Care 3.760%
PCSO Charity Fund 6.90% 12.90% 12.90% 12.15% 21.200% 4.240%
V. OPERATING FUND (15% of Net
14.70% 14.70% 14.70% 14.70% 11.700% 14.700%
Sales)
Operating Fund Expenses (AAC) 10.00% 10.00% 10.00% 10.00% 11.000% 0.000%
Provision for STL Automation 5.000%
Operating Fund Expenses
4.70% 4.70% 4.70% 4.70% 0.700% 9.700%
(PCSO)
TOTAL 98.00% 98.00% 98.00% 98.00% 78.000% 98.000%
*Allocation of Printing Cost is subject to adjustment upon acquisition of STL system (automation)

E. National Instant Sweepstakes Program

The PCSO Board of Directors approved the introduction and operation of the Instant
Sweepstakes project to generate continuing additional revenues for the Agency.

The National Instant Sweepstakes Program is being conducted with the Instant Sweepstakes
Authorized Corporation/s (ISACs) under a non-exclusive all-in contracts involving production,
distribution, marketing, advertising and selling of the said Instant Sweepstakes tickets
nationwide on a considered sold basis.

Powerball Marketing and Logistics Corporation (PMLC) is the PCSO’s Instant Sweepstakes
Authorized Corporation (ISAC) through Board Resolution No. 0226 (2017).

The PMLC guarantees Instant Sweepstakes sales of five billion pesos (P5,000,000,000.00) in
five (5) years term. In the guaranteed sales of P5 billion, the PCSO is guaranteed a 13% share
in the net proceeds of the sale of the Instant Sweepstakes tickets. In the event that there is an
excess in the guaranteed sales, PCSO will receive its corresponding share in the excess sales.
At the reopening of the Instant Sweepstakes after the suspension of PCSO operations on July
26, 2019, the following changes are incorporated in the existing Guidelines of the Instant
Sweepstakes:

1. PCSO shall have full control and supervision of the warehouse housing the Instant
Sweepstakes tickets;
2. PCSO shall have possession of the access keys to the warehouse, and
17
3. PCSO shall be notified of the withdrawal and deliveries of the tickets to and from the
warehouse.

The foregoing changes were done to strengthen PCSO’s control over the distribution of the
game tickets.

F. PERYAHAN

The Peryahan game is on a one year experimental/test run period, approved by virtue of a Deed
of Authority (DOA) dated April 2, 2014 executed by PCSO and Globaltech Mobile Online
Corporation (Globaltech). It started its selling operation on June 28, 2014 until June 27, 2015. It
has three games namely: “Hulog Holen”, “Throw Coins” and “Gulong ng Swertes.”

The games shall be conducted nationwide through authorized agents/retailers, but it will be
implemented on a local government level, e.g. Autonomous Region, Region, Province, City,
Municipality and Barangay. The draw will be held daily in all draw centers every 11am, 4pm and
9pm.

As of December 31, 2015, there were 15 Peryahan draw centers and more than 185 active
agents nationwide.

The Board approved the request of Globaltech for an extension of the experimental/test run
period three times in order to give them ample time to evaluate the feasibility of regularizing the
said game. However, during the evaluation, it was established that on several times between
July to December 2015, Globaltech failed to remit Peryahan Sales.

PCSO Board Resolution No. 51, series of 2016, terminated Globaltech’s DOA effective
February 17, 2016. The game concluded its experimental/test run operation on February 24,
2016.

Order dated October 11, 2016 of the Regional Trial Court (RTC) of Pasig City, Branch 161 in
Civil Case No. 75148 (Globaltech Online Corporation vs PCSO), suspending the termination of
Globaltech’s DOA was deferred and instead referred to arbitration.

On October 29, 2019, the Peryahan Games resumed operation following the decision of the
Court of Appeals and the Arbitration Proceeding reached by PCSO and Globaltech.

Eleven (11) of the original fifteen (15) Peryahan draw centers were found to be compliant after
having passed the PCSO’s initial technical evaluation. Peryahan will be played at the following
areas with no STL operations: Cebu City, NCR-Quezon City or Central District, Province of
Rizal, Province of Pangasinan, Province of Oriental Mindoro, Province of Bohol, Province of
Palawan, Puerto Princesa City, Zamboanga City and Province of Zamboanga del Sur.

On July 26, 2019, President Rodrigo Duterte, declared the suspension of all PCSO games due
to alleged “massive corruption”. Presidential Spokesperson Salvador Panelo said that the
decision was reached by President Duterte as a report of a “grand conspiracy among the major
players and enforcers of these government-sanctioned gaming activities and enterprises to
cheat the government of its rightful shares, depriving therefore the masses of our people of
receiving basic services needed by them."

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It was established after a thorough review of lotto games process that the integrity of the games
is intact and the suspension was lifted on July 30, 2019. The STL operation on the other hand
was put into rigorous specific condition before the suspension was lifted on August 22, 2019.
The Keno and National Instant Sweepstakes Program was the last to be back on operation on
September 28, 2019.

Personnel Complement

Shown below is the number of PCSO employees as of December 31, 2019:

Particulars Head Office Branch Offices Total

Permanent Employees 617 441 1,058
Co -Terminous 53 4 57
Confidential Agents 200 - 200
Consultants 64 - 64
Job Order 163 149 312
Total 1,097 594 1,691

The Board of Directors is composed of: Anselmo Simeon P. Pinili, the Chairman who assumed
office on January 17, 2018; Royina M. Garma, the General Manager and Vice-Chairman, who
was appointed and assumed office on July 15, 2019; the members of the Board are Marlon U.
Balite, Sandra M. Cam and Ramon Ike V. Señeres. Atty. Wesley A. Barayuga is the Board
Secretary.

The PCSO’s registered office, which is also its principal place of business, is located at Sun
Plaza Building,1507 Shaw Boulevard corner Princeton St., Mandaluyong City 1552. It has five
branch operations departments, namely: National Capital Region (NCR), Northern and Central
Luzon (NCL), Southern Tagalog and Bicol Region (STBR), Visayas, and Mindanao.

Below is the composition of the 68 Branch Offices as of December 31, 2019:

Northern and Apayao, Aurora, Bataan, Benguet, Bulacan, Cagayan, Ilocos Norte, Ilocos
Central Luzon Sur, Ifugao, Isabela, Kalinga, La Union, Mountain Province, Nueva Ecija,
Nueva Viscaya, Pampanga, Pangasinan, Tarlac and Zambales

Southern Tagalog Albay, Batangas, Camarines Norte, Camarines Sur, Catanduanes, Cavite,
and Bicol Region Laguna, Marinduque, Masbate, Occidental Mindoro, Oriental Mindoro,
Palawan, Quezon, Rizal, Romblon and Sorsogon

Visayas Aklan, Antique, Bohol, Capiz, Cebu, Guimaras, Iloilo, Leyte, Negros
Occidental, Negros Oriental, Northern Samar, Southern Leyte, Western
Samar, Biliran, and Eastern Samar

Mindanao Agusan del Norte, Agusan del Sur, Bukidnon, Davao del Norte, Davao del
Sur, Davao Oriental, Lanao Del Norte, Maguindanao, Misamis Occidental,
Misamis Oriental, North Cotabato, South Cotabato, Sultan Kudarat, Surigao
del Norte, Surigao del Sur, Zamboanga del Norte, Zamboanga del Sur, and
Zamboanga Sibugay.

The financial statements of the PCSO for the year ended December 31, 2019 were approved
and authorized for issue by the Board of Directors on July 7, 2020.

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. FINANCIAL REPORTING FRAMEWORK AND BASIS OF PREPARATION AND
PRESENTATION

2.1 Statement of Compliance with Philippine Financial Reporting Standards (PFRSs)

The financial statements of the PCSO have been prepared in accordance with PFRSs, which
includes all applicable PFRSs, Philippine Accounting Standards (PAS), and interpretations
issued by the Philippine Interpretations Committee (PIC) and Standing Interpretations
Committee (SIC) as approved by the Financial Reporting Standards Council (FRSC) and Board
of Accountancy (BOA) and adopted by the Securities and Exchange Commission (SEC).

2.2 Basis of Preparation

The financial statements of the PCSO have been prepared on the historical cost basis unless
otherwise indicated.

Historical cost is generally based on the fair value of the consideration given in exchange for
goods and services.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date, regardless of
whether that price is directly observable or estimated using another valuation technique. In
estimating the fair value of an asset or a liability, the PCSO takes into account the
characteristics of the asset or liability if market participants would take those characteristics into
account when pricing the asset or liability at the measurement date.

For financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3
based on the degree to which the inputs to the fair value measurements are observable and the
significance of the inputs to the fair value measurement in its entirety; which are described as
follows:

 Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the entity can access at the measurement date;
 Level 2 inputs are inputs, other than quoted prices included within Level 1, that are
observable for the asset or liability, either directly or indirectly; and
 Level 3 inputs are unobservable inputs for the asset or liability.

2.3 Functional and Presentation Currency

These financial statements are presented in Philippine Peso, the currency of the primary
economic environment in which the PCSO operates. All amounts are rounded to the nearest
peso, except when otherwise indicated.

3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3.1 New Amendments and Interpretations to Existing Standards

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The accounting policies adopted are consistent with those of the previous financial year, except
for the adoption of certain new PFRS and amendments to existing PFRS and PAS which
became effective for current period on or after January 1, 2019. Unless otherwise stated, the
adoption of the following new standards, interpretations and amendment does not have a
material effect on the financial statements:

Effective in CY 2019

STANDARDS

 PFRS 15, Revenue from Contracts with Customers

The new standard replaces PAS 11, Construction Contracts, PAS 18, Revenue and their related
interpretations. It establishes a single comprehensive framework for revenue recognition to
apply consistently across transactions, industries and capital markets, with a core principle
(based on five-step model to be applied to all contracts with customers), enhanced disclosures,
and new or improved guidance (e.g., the point at which revenue is recognized, accounting for
variable consideration, cost of fulfilling and obtaining a contract, etc.).

 Amendment to PFRS 15, Revenue from Contracts with Customers – Clarification to

PFRS 15

The amendments provide clarifications on the following topics: (a) identifying performance
obligations; (b) principal versus agent considerations; and (c) licensing. The amendments also
provide some transition relief for modified contracts and completed contracts. The Commission
on Audit (COA) issued Resolution No. 2019-006 dated March 27, 2019, prescribing the
mandatory application of PFRS 15 effective January 1, 2019.

 PFRS 16, Leases

This standard replaces the current guidance in PAS 17 and is a far-reaching change in
accounting by lessees in particular.

Under PAS 17, lessees were required to make a distinction between a finance lease (on
balance sheet) and an operating lease (off balance sheet). PFRS 16 now requires lessees to
recognize a lease liability reflecting future lease payments and a ‘right-of-use asset’ for virtually
all lease contracts.

The International Accounting Standards Board (IASB) has included an optional exemption for
certain short-term leases and leases of low-value assets; however, this exemption can only be
applied by lessees.

For lessors, the accounting stays almost the same. However, as the IASB has updated the
guidance on the definition of a lease (as well as the guidance on the combination and
separation of contracts), lessors will also be affected by the new standard. At the very least, the
new accounting model for lessees is expected to impact negotiations between lessors and
lessees.

Under PFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the
use of an identified asset for a period of time in exchange for consideration.
21
Effective annual periods beginning on or after January 1, 2019 with earlier application permitted
if PFRS 15, Revenue from Contracts with Customers, is also applied.

INTERPRETATIONS

 IFRIC 23, Uncertainty over income tax treatments

The interpretation provides guidance on how to reflect the effects of uncertainty in accounting
for income taxes under PAS 12, Income Taxes, in particular (i) whether uncertain tax treatments
should be considered separately, (ii) assumptions for taxation authorities’ examinations, (iii)
determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and
tax rates, and (iv) effect of changes in facts and circumstances.

AMENDMENTS

 Applying PFRS 9, Financial Instruments with PFRS 4, Insurance Contracts

(Amendments to PFRS 4)

Amendments to PFRS 4, Insurance Contracts provide two options for entities that issue
insurance contracts within the scope of PFRS 4: an option that permits entities to reclassify,
from profit or loss to other comprehensive income, some of the income or expenses arising from
designated financial assets; this is the so-called overlay approach; an optional temporary
exemption from applying PFRS 9 for entities whose predominant activity is issuing contracts
within the scope of PFRS 4; this is the so-called deferral approach.

The application of both approaches is optional and an entity is permitted to stop applying them
before the new insurance contracts standard is applied.

The amendments are not applicable to the Company.

 Amendment to PFRS 9, Financial Instruments, on prepayment features with negative

compensation

Amends the existing requirements in PFRS 9 regarding termination rights in order to allow
measurement at amortized cost (or, depending on the business model, at fair value through
other comprehensive income) even in the case of negative compensation payments.

 Long-term Interests in Associates and Joint Ventures (Amendments to PAS 28)

Clarifies that an entity applies PFRS 9, Financial Instruments to long-term interests in an

associate or joint venture that form part of the net investment in the associate or joint venture
but to which the equity method is not applied.

The amendment is not applicable to the Company.

 Annual Improvements to PFRS Standards 2015–2017 Cycle

Makes amendments to the following standards:

22
 PFRS 3 and PFRS 11 - The amendments to PFRS 3 clarify that when an entity obtains
control of a business that is a joint operation, it remeasures previously held interests in
that business. The amendments to PFRS 11 clarify that when an entity obtains joint
control of a business that is a joint operation, the entity does not remeasure previously
held interests in that business.

The amendments are not applicable to the Company

 PAS 12 - The amendments clarify that the requirements in the former paragraph 52B (to
recognise the income tax consequences of dividends where the transactions or events
that generated distributable profits are recognised) apply to all income tax consequences
of dividends by moving the paragraph away from paragraph 52A that only deals with
situations where there are different tax rates for distributed and undistributed profits.

 PAS 23 - The amendments clarify that if any specific borrowing remains outstanding
after the related asset is ready for its intended use or sale, that borrowing becomes part
of the funds that an entity borrows generally when calculating the capitalisation rate on
general borrowings.

 Plan Amendment, Curtailment or Settlement (Amendments to PAS 19)

The amendments in Plan Amendment, Curtailment or Settlement (Amendments to PAS 19) are:

If a plan amendment, curtailment or settlement occurs, it is now mandatory that the current
service cost and the net interest for the period after the remeasurement are determined using
the assumptions used for the remeasurement.

In addition, amendments have been included to clarify the effect of a plan amendment,
curtailment or settlement on the requirements regarding the asset ceiling.

Future Changes in Accounting Policies

The Company will adopt the following revised standards, interpretations and amendments when
these become effective. Except as otherwise indicated, the Company does not expect the
adoption of these new and amended standards and interpretations to have significant impact on
its financial statements.

Effective in CY 2023

 PFRS 17, Insurance contracts

PFRS 17 requires insurance liabilities to be measured at a current fulfillment value and provides
a more uniform measurement and presentation approach for all insurance contracts.

These requirements are designed to achieve the goal of a consistent, principle-based

accounting for insurance contracts. PFRS 17 supersedes PFRS 4, Insurance Contracts as of
January 1, 2023.

23
The standard is not applicable to the Company.

3.2 Financial Instruments

Financial assets or financial liabilities are recognized in the Corporation’s Statement of Financial
Position when, and only when, the entity becomes party to the contractual provision of the
instruments. In the case of a regular way purchase or sale of financial assets, recognition and
derecognition, as applicable, is done using settlement date accounting. For purposes of
presenting financial instruments as liabilities or equity and for offsetting financial assets and
financial liabilities, PAS 32, Financial Instruments: Presentation is applied to the classification of
financial instruments, from the perspective of the issuer, into financial assets, financial liabilities
and equity instruments; the classification of related interest, dividends, losses and gains; and
the circumstances in which financial assets and liabilities should be offset.

Financial instruments are recognized initially at fair value, which is the fair value of the
consideration given (in case of an asset) or received (in case of a liability). The initial
measurement of financial instruments, except for those designated at fair value through profit
and loss (FVPL), includes transaction cost.

“Day 1” Difference. Where the transaction in a non-active market is different from the fair value
of other observable current market transactions in the same instrument or based on a valuation
technique whose variables include only data from observable market, the PCSO recognizes the
difference between the transaction price and fair value (a “Day 1” difference) in profit or loss. In
cases where there is no observable data on inception, the PCSO deems the transaction price
as the best estimate of fair value and recognizes “Day 1” difference in profit or loss when the
inputs become observable or when the instrument is derecognized. For each transaction, the
PCSO determines the appropriate method of recognizing the “Day 1” difference.

Financial assets and liabilities at FVPL are either classified as held for trading or designated at
FVPL. A financial instrument is classified as held for trading if it meets either of the following
conditions:

 it is acquired or incurred principally for the purpose of selling or repurchasing it in

the near term;
• on initial recognition, it is part of a portfolio of identified financial instruments that
are managed together and for which there is evidence of a recent actual pattern of
short-term profit-taking; or
• it is a derivative (except for a derivative that is a financial guarantee contract or a
designated and effective hedging instrument).

This category includes equity instruments which the PCSO had not irrevocably elected to
classify at fair value through other comprehensive income (FVOCI) at initial recognition. This
category includes debt instruments whose cash flows are not “solely for payment of principal
and interest” assessed at initial recognition of the assets, or which are not held within a
business model whose objective is either to collect contractual cash flows, or to both collect
contractual cash flows and sell.

The PCSO may, at initial recognition, designate a financial asset or financial liability meeting the
criteria to be classified at amortized cost or at FVOCI, as a financial asset or financial liability at
FVPL, if doing so eliminates or significantly reduces accounting mismatch that would arise from
24
measuring these assets or liabilities.

After initial recognition, financial assets at FVPL and held for trading financial liabilities are
subsequently measured at fair value. Unrealized gains or losses arising from the fair valuation
of financial assets at FVPL and held for trading financial liabilities are recognized in profit or
loss.

For financial liabilities designated at FVPL under the fair value option, the amount of change in
fair value that is attributable to changes in the credit risk of that liability is recognized in other
comprehensive income (rather than in profit or loss), unless this creates an accounting
mismatch. Amounts presented in other comprehensive income are not subsequently
transferred to profit or loss.

As at December 31, 2019 and 2018, the PCSO does not have financial assets and liabilities
classified as FV.

3.3 Financial Assets

Classification and Measurement of Financial Assets

The PCSO classifies its financial assets at initial recognition under the following categories: (a)
financial assets at FVPL, (b) financial assets at amortized cost and (c) financial assets at
FVOCI. Financial liabilities, on the other hand, are classified as either financial liabilities at
FVPL or financial liabilities at amortized cost. The classification of a financial instrument largely
depends on the PCSO’s business model and its contractual cash flow characteristics.

Financial Assets at Amortized Cost

Financial assets shall be measured at amortized cost if both of the following conditions are met:

 the financial asset is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows; and
 the contractual terms of the financial asset give rise, on specified dates, to cash
flows that are solely payments of principal and interest on the principal amount
outstanding.

After initial recognition, financial assets at amortized cost are subsequently measured at
amortized cost using the effective interest method, less allowance for impairment, if any.
Amortized cost is calculated by taking into account any discount or premium on acquisition and
fees that are an integral part of the effective interest rate. Gains and losses are recognized in
profit or loss when the financial assets are derecognized and through amortization process.
Financial assets at amortized cost are included under current assets if realizability or
collectability is within 12 months after the reporting period. Otherwise, these are classified as
noncurrent assets.

As at December 31, 2019 and 2018, the PCSO’s cash and cash equivalents, receivables, short
term investments and long term investments (except externally managed funds recorded as
Financial Assets – Available for Sale Securities) are classified under this category.

Financial Assets at FVOCI

25
For debt instruments that meet the contractual cash flow characteristic and are not designated
at FVPL under the fair value option, the financial assets shall be measured at FVOCI if both of
the following conditions are met:

 the financial asset is held within a business model whose objective is to hold
financial assets in order to collect contractual cash flows and selling the financial
assets; and
 the contractual terms of the financial asset give rise, on specified dates, to cash
flows that are solely payments of principal and interest on the principal amount
outstanding.

For equity instruments, the PCSO may irrevocably designate the financial asset to be measured
at FVOCI in case the above conditions are not met.

Financial assets at FVOCI are initially measured at fair value plus transaction costs. After initial
recognition, interest income (calculated using the effective interest rate method), foreign
currency gains or losses and impairment losses of debt instruments measured at FVOCI are
recognized directly in profit or loss. When the financial asset is derecognized, the cumulative
gains or losses previously recognized in other comprehensive income are reclassified from
equity to profit or loss as a reclassification adjustment.

Dividends from equity instruments held at FVOCI are recognized in profit or loss when the right
to receive payment is established, unless the dividend clearly represents a recovery of part of
the cost of the investment. Foreign currency gains or losses and unrealized gains or losses
from equity instruments are recognized in other comprehensive income and presented in the
equity section of the Statements of Financial Position. These fair value changes are recognized
in equity and are not reclassified to profit or loss in subsequent periods.

As at December 31, 2019 and 2018, the PCSO’s externally managed funds (included in the long
term investment account) are classified as FVOCI.

Impairment of Financial Assets

Below is the Corporation’s accounting policy on the impairment of financial assets applicable
starting January 1, 2018.

The PCSO records an allowance for “expected credit loss” (ECL). ECL is based on the
difference between the contractual cash flows due in accordance with the contract and all the
cash flows that the PCSO expects to receive. The difference is then discounted at an
approximation to the asset’s original effective interest rate.

For trade receivables, the PCSO has applied the simplified approach and has calculated ECLs
based on the lifetime expected credit losses. The PCSO has established a provision matrix that
is based on its historical credit loss experience, adjusted for forward-looking factors specific to
the debtors and the economic environment.

For debt instruments measured at amortized cost and FVOCI, the ECL is based on the 12-
month ECL, which pertains to the portion of lifetime ECLs that result from default events on a
financial instrument that are possible within 12 months after the reporting date. However, when

26
there has been a significant increase in credit risk since initial recognition, the allowance will be
based on the lifetime ECL. When determining whether the credit risk of a financial asset has
increased significantly since initial recognition, the PCSO compares the risk of a default
occurring on the financial instrument as at the reporting date with the risk of a default occurring
on the financial instrument as at the date of initial recognition and consider reasonable and
supportable information, that is available without undue cost or effort, that is indicative of
significant increases in credit risk since initial recognition. This includes both quantitative and
qualitative information and analysis, based on the Corporation’s historical experience, informed
credit assessment including current conditions and forecast of future economic conditions.

The Corporation assumes that the credit risk on a financial asset has increased significantly if it
is more than two years past due.

The Corporation considers a financial asset to be in default when:

 The borrower is unlikely to pay its credit obligations to the Corporation in full,
without recourse by the Corporation to actions such as realizing security
(if any is held); or
 The financial asset is more than two years past due.

The maximum period considered when estimating ECLs is the maximum contractual period over
which the Corporation is exposed to credit risk.
At each reporting date, the Corporation assesses whether financial assets carried at amortized
cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when
one or more events that have a detrimental impact on the estimated future cash flows of the
financial asset have occurred.

Below is the Corporation’s accounting policy on the impairment of financial assets applicable for
the current period:

Age of Accounts Receivable Percentage (%)

11 years and over 100
7 to 10 years 75
4 to 6 years 50
2 to 3 years 25

Derecognition of Financial Assets

A financial asset (or where applicable, a part of a financial asset or part of a group of similar
financial assets) is derecognized when:

 the right to receive cash flows from the asset has expired;
 the PCSO retains the right to receive cash flows from the financial 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 PCSO has transferred its right to receive cash flows from the financial asset
and either (a) has transferred substantially all the risks and rewards of the asset, or
(b) has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.

27
When the PCSO has transferred its right to receive cash flows from a financial asset or has
entered into a pass-through arrangement, and has neither transferred nor retained substantially
all the risks and rewards of ownership of the financial asset nor transferred control of the
financial asset, the financial asset is recognized to the extent of the PCSO’s continuing
involvement in the financial asset. Continuing involvement that takes the form of a guarantee
over the transferred financial asset is measured at the lower of the original carrying amount of
the financial asset and the maximum amount of consideration that the PCSO could be required
to repay.

3.4 Financial Liabilities and Equity Instruments

Classification as Debt or Equity

Debt and equity instruments issued by the Corporation classified as either financial liabilities or
as equity in accordance with the substance of the contractual arrangements and the definitions
of a financial liability and an equity instrument.

Financial Liabilities

Initial recognition

Financial liabilities are categorized as financial liabilities at amortized cost when the substance
of the contractual arrangement results in the PCSO having an obligation either to deliver cash or
another financial asset to the holder, or to settle the obligation other than by the exchange of a
fixed amount of cash or another financial asset for a fixed number of its own equity instruments.

These financial liabilities are initially recognized at fair value less any directly attributable
transaction costs. After initial recognition, these financial liabilities are subsequently measured
at amortized cost using the effective interest method. Amortized cost is calculated by taking into
account any discount or premium on the issue and fees that are an integral part of the effective
interest rate. Gains and losses are recognized in profit or loss when the liabilities are
derecognized or through the amortization process.

As at December 31, 2019 and 2018, the PCSO’s accounts payable and inter-agency payables
(except statutory payables) are classified under this category.

Classification and Subsequent Measurement

Financial liabilities are classified as either financial liabilities at FVTPL or other financial
liabilities.

Financial liabilities at FVTPL when the financial liability is held for trading; designated upon
initial recognition; either held for trading or designated upon initial recognition.

A financial liability is classified as held for trading if:

28
  It has been acquired principally for the purpose of repurchasing it in the near term;
or
 On initial recognition it is part of a portfolio of identified financial instruments that
the Corporation manages together and has a recent actual pattern of short-term
profit-taking; or
 It is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL
upon initial recognition if:

 Such designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise; or
 The financial liability forms part of financial assets or financial liabilities or both,
which is managed and its performance is evaluated on a fair value basis, in
accordance with the Corporation’s documented risk management or investment
strategy, and information about the Corporation is provided internally on that basis;
or
 It forms part of a contract containing one or more embedded derivatives that
sufficiently modify the cash flows of the liability and are not closely related, and
PFRS 9, Financial Instruments, permits the entire combined contract (asset or
liability) to be designated as a FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on
remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss
incorporates any interest paid on the financial liability and is included in the other gains and
losses line item in the Statement of Comprehensive Income. Fair value is determined in the
manner described in notes.

Other financial liabilities (including borrowings) are subsequently measured at amortized cost
using the effective interest method.

Derecognition of Financial Liabilities

A financial liability is derecognized when the obligation under the liability is discharged,
cancelled or has expired. When an existing financial liability is replaced by another from the
same lender on substantially different terms, or the terms of an existing liability are
substantially modified, such an exchange or modification is treated as a derecognition of the
original liability and the recognition of a new liability, and the difference in the respective
carrying amounts is recognized in the Statements of Comprehensive Income.

A modification is considered substantial if the present value of the cash flows under the new
terms, including net fees paid or received and discounted using the original effective interest
rate, is different by at least 10% from the discounted present value of remaining cash flows of
the original liability.

The fair value of the modified financial liability is determined based on its expected cash flows,
discounted using the interest rate at which the PCSO could raise debt with similar terms and
conditions in the market.  The difference between the carrying value of the original liability and
fair value of the new liability is recognized in the Statements of Comprehensive Income.
29
On the other hand, if the difference does not meet the 10% threshold, the original debt is not
extinguished but merely modified.  In such case, the carrying amount is adjusted by the costs or
fees paid or received in the restructuring.

Offsetting of Financial Assets and Liabilities

Financial assets and financial liabilities are offset and the net amount reported in the Statements
of Financial Position if, and only if, there is a currently enforceable legal right to offset the
recognized amounts and there is intention to settle on a net basis, or to realize the asset and
settle the liability simultaneously. This is not generally the case with master netting agreements,
and the related assets and liabilities are presented gross in the Statements of Financial
Position.

Classification of Financial Instrument between Liability and Equity

A financial instrument is classified as liability if it provides for a contractual obligation to:

 Deliver cash or another financial asset to another entity;

 Exchange financial assets or financial liabilities with another entity under conditions
that are potentially unfavorable to the PCSO; or
 Satisfy the obligation other than by the exchange of a fixed amount of cash or
another financial asset for a fixed number of own equity shares.

If the PCSO does not have an unconditional right to avoid delivering cash or another financial
asset to settle its contractual obligation, the obligation meets the definition of a financial liability.

Equity Instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity
after deducting all of its liabilities. The equity of the PCSO consists of the following:

a. Retained Earnings

Retained Earnings represent accumulated profit attributable to equity holders of the Corporation
after deducting dividends declared. The Corporation remits 50% of its annual earnings to the
national government as mandated under RA No. 7656 and its Revised Implementing Rules and
Regulations (IRR). Retained earnings may also include effect of changes in accounting policy
and prior period adjustments.

b. Charity Fund

Charity Fund represents the thirty per cent (30%) share of net receipts (Gross sales less 2%
printing cost) from which the Board of Directors, in consultation with the Ministry of Human
Settlements on identified priority programs, needs, and requirements in specific communities
and with approval of the Office of the President, shall make payments or grants for health
programs, including the expansion of existing ones, medical assistance and services and/or
charities of national character such as the Philippine National Red Cross, under such policies
and subject to such rules and regulations as the Board may from time establish and promulgate.
The Board may apply part of the contributions to the charity fund to approved investments of the

30
Office pursuant Section 1(B) hereof, but in no case shall such application to investments exceed
ten per cent (10%) of the net receipts from the sale of sweepstakes tickets in any given year

c. Prize Fund

Prize Fund represents the fifty-five per cent (55%) share of net receipts (Gross sales less 2%
printing cost) set aside for the payment of prizes, including those for the owners, jockeys of
running horses, and sellers of winning tickets.

Prizes not claimed by the public within one (1) year from date of draw shall be considered as
forfeited, and shall form part of the charity fund for disposition as stated.

d. Operating Fund

Operating Fund represents the fifteen per cent (15%) share of net receipts (Gross sales less 2%
printing cost) set aside as contributions to the operating expenses and capital expenditures of
the Office.

All balances of any funds shall revert to and form part of the charity fund and shall be subject to
dispositions as stated.

3.5 Inventories

Inventories include Drugs and Medicines for Distribution, Office Supplies Inventory, Accountable
Forms, Plates and Stickers Inventory, Medical, Dental and Laboratory Supplies, Play/Bet Slips
and Thermal Rolls Inventory and Other Supplies and Materials Inventory.

Inventories are initially measured at cost. Subsequently, inventories are stated at the lower of
cost and net realizable value. The costs of inventories are calculated using the weighted
average method.

When the net realizable value of the inventories is lower than the cost, the PCSO recognizes an
impairment loss for the decline in the value of the inventory. The amount of any reversal of any
write-down of inventories, arising from an increase in net realizable value, is recognized in profit
or loss in the period in which the reversal occurs.

When inventories are consumed, the carrying amount of those inventories is recognized as an
expense in the Statement of Comprehensive Income.

3.6 Prepayments and Other Current Assets

Prepayments and other current assets represent assets of the PCSO that are expected to be
realized or consumed within one year from the reporting dates. These are initially recorded at
the amount of cash paid and are charged to profit or loss as they are consumed in operations or
expire with the passage of time.

3.7 Investment Property

Investment properties are properties that are held to earn rentals or for capital appreciation or
both but not for sale in the ordinary course of business, use in the production or supply of goods

31
or services or for administrative purposes.  Investment properties are measured initially at cost,
including transaction costs.

Subsequent to initial recognition, investment property is measured at cost less any accumulated
depreciation. Depreciation is computed on a straight-line basis over an estimated life of 30
years.

Transfers to, or from, investment property is made only when there is a change in use. 
Transfers to or from investment property is recognized at the carrying amount of the asset
transferred. Accordingly, no gain or loss is recognized from these transfers.

3.8 Property and Equipment

Property and equipment are initially measured at cost. The cost of an item of property and
equipment comprises:

 its purchase price, including import duties and non-refundable purchase taxes,
after deducting trade discounts and rebates;
 any costs directly attributable to bringing the asset to the location and condition
necessary for it to be capable of operating in the manner intended by
management; and
 the initial estimate of the future costs of dismantling and removing the item and
restoring the site on which it is located, the obligation for which an entity incurs
either when the item is acquired or as a consequence of having used the item
during a particular period for purposes other than to produce inventories during
that period.

At the end of each reporting period, items of property and equipment are measured at cost less
any subsequent accumulated depreciation and impairment losses

Properties in the course of construction are carried at cost, less any recognized impairment
loss. Cost includes professional fees and for qualifying assets, borrowing costs capitalized in
accordance with the PCSO’s accounting policy. Depreciation of these assets, on the same
basis as other property assets, commences at the time the assets become ready for their
intended use.

3.9 Intangible Assets

Intangible Assets include computer software that are not integral part of the computer. These
are initially recorded at cost and are subsequently measured at cost less accumulated
amortization and any accumulated impairment loss. These are amortized over estimated useful
life of 1 year and 3 years using the straight–line method. If there is an indication that there has
been a significant change in amortization rate, useful life or residual value of an intangible asset,
the amortization is revised prospectively to reflect the new expectations.

3.10 Impairment of Non-financial Assets

At each reporting date, non-financial assets are reviewed to determine whether there is any
indication that those assets have suffered an impairment loss. If there is an indication of
possible impairment, the recoverable amount of any affected asset (or group of related assets)
32
is estimated and compared with its carrying amount. If estimated recoverable amount is lower,
the carrying amount is reduced to its estimated recoverable amount, and an impairment loss is
recognized immediately in profit and loss.

If an impairment loss subsequently reverses, the carrying amount of the asset is increased to
the revised estimate of its recoverable amount, but not in excess of the amount that would have
been determined had no impairment loss been recognized for the asset in prior years. A
reversal of an impairment loss is recognized immediately in profit or loss.

Derecognition of Non-financial assets

Items of non-financial assets are derecognized when these assets are disposed of or when no
future economic benefits are expected from these assets. Any difference between the carrying
value of the asset derecognized and net proceeds from derecognition is recognized in profit or
loss.

3.11 Related Parties

Related party relationship exists when one party has the ability to control, directly, or indirectly
through one or more intermediaries, the other party or exercises significant influence over the
other party in making financial and operating decisions. Such relationships also exist between
and/or among the reporting enterprises and its key management personnel, directors, or its
shareholders. In considering each possible related party relationship, attention is directed to the
substance of the relationship, and not merely the legal form.

3.12 Revenue Recognition

Revenue

Prior to adoption of PFRS 15, revenue is recognized to the extent that the revenue can be
reliably measured, it is probable that the economic benefits will flow to the Company, and the
revenue incurred or to be incurred can be measured reliably. The following specific recognition
criteria must also be met before revenue is recognized.

Upon adoption of PFRS 15, revenue is recognized to depict the transfer of promised goods or
services to customers in an amount that reflects the consideration to which the Company
expects to be entitled in exchange for those goods or services based on a five-step model:

 Identify the contract(s) with a customer 

 Identify the performance obligations in the contract 
 Determine the transaction price 
 Allocate the transaction price to the performance obligations in the contract 
 Recognise revenue when (or as) the entity satisfies a performance obligation

Depending on whether the PCSO is acting as a principal or as an agent, its main revenue arises
from the sale of the following:

a. Lotto / Keno tickets

33
As principal, the contract is established between the betting customer and the PCSO at the time
the customer places his bet. The bettor places his bet for a consideration of his choice which
ranges from P10 to P20 per numbers combination, with the expectation that the PCSO issues
the corresponding ticket for the bet. Revenue is recognized only when both the performance
obligations (an exchange of bet price and bet ticket) of the betting customer and the PCSO are
satisfied.

Revenue from the sale of tickets is recognized at the time of sale, except for advance sales.
These advance sales are recognized as revenue at the time lotteries were drawn.

Of the total revenue, fifty-five per cent (55%) is allocated to the Prize Fund for payment of
prizes, including those for the owners, jockeys of running horses, and sellers of winning tickets.
Another thirty per cent (30%) is allocated to the Charity Fund from which identified priority
programs, needs and requirements in specific communities take payments or grants for health
programs, including the expansion of existing ones, medical assistance and services, and/or
charities of national character. The remaining fifteen per cent (15%)’, meanwhile, is set aside to
the Operating Fund as contributions to the operating expenses and capital expenditures of
PCSO.

b. STL tickets

As principal, the contract is established between the AAC and the PCSO, with the latter
authorizing the AAC to operate its own localized lottery game/s, upon agreeing to the terms set
by the PCSO. The transaction price involves a guaranteed minimum monthly retail receipts
which the AAC commits to remit. Revenue is recognized when the AAC declares its reported
sales for the month.

c. Instant Sweepstakes (Scratch-it)

As principal, the contract is established between the ISAC and the PCSO, whereby the PCSO
remains to have full operational control and supervision of the Instant Sweepstakes. ISAC will
have the authority, granted by PCSO, to produce, distribute, market, advertise and sell Instant
Sweepstakes tickets. The transaction price is the guaranteed five billion pesos
(P5,000,000,000.00) in a 5-year term. Revenue is recognized based on the guaranteed sales
per year.

Interest Revenue

Interest revenue is accrued on a time proportion basis, by reference to the principal outstanding
and at the effective interest rate applicable, which is the rate that exactly discounts estimated
future cash receipts through the expected life of the financial asset to that asset’s net carrying
amount.

Under prevailing circumstances, the adoption of the PFRS 15 is not expected to have any
material effect on the financial statements of the Corporation.

3.13 Expense Recognition

Expenses are recognized in profit or loss when decrease in future economic benefit related to a
decrease in an asset or an increase in a liability has arisen that can be measured reliably.

34
Expenses are recognized in profit or loss: on the basis of a direct association between the costs
incurred and the earning of specific items of income; on the basis of systematic and rational
allocation procedures when economic benefits are expected to arise over several accounting
periods and the association with income can only be broadly or indirectly determined; or
immediately when an expenditure produces no future economic benefits or when, and to the
extent that, future economic benefits do not qualify, or cease to qualify, for recognition in the
Statements of Financial Position as an asset.

Expenses in the Statement of Comprehensive Income are presented using the function of
expense method. Costs of sales are expenses incurred that are associated with the goods sold.
Operating expenses are costs attributable to administrative, marketing, selling and other
business activities of the PCSO.

3.14 Leases

The following amendments to existing standards have been adopted by the PCSO effective
January 1, 2019:

PFRS 16, Leases

PFRS 16 sets out the principles for the recognition, measurement, presentation and disclosure
of leases and requires lessees to account for all leases under a single on-balance sheet model
similar to the accounting for finance leases under PAS 17, Leases. The standard includes two
recognition exemptions for lessees - leases of ’low-value’ assets (e.g., personal computers) and
short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement
date of a lease, a lessee will recognize a liability to make lease payments (i.e., the lease liability)
and an asset representing the right to use the underlying asset during the lease term (i.e., the
right-of-use asset). Lessees will be required to separately recognize the interest expense on the
lease liability and the depreciation expense on the right-of-use asset.

Lessees will be also required to remeasure the lease liability upon the occurrence of certain
events (e.g., a change in the lease term, a change in future lease payments resulting from a
change in an index or rate used to determine those payments). The lessee will generally
recognize the amount of the remeasurement of the lease liability as an adjustment to the right-
of-use asset.

Lessor accounting under PFRS 16 is substantially unchanged from today’s accounting under
PAS 17. Lessors will continue to classify all leases using the same classification principle as in
PAS 17 and distinguish between two types of leases: operating and finance leases.

PFRS 16 also requires lessees and lessors to make more extensive disclosures than under
PAS 17. A lessee can choose to apply the standard using either a full retrospective or a
modified retrospective approach. The standard’s transition provisions permit certain reliefs.

The PCSO assesses whether a contract is or contains a lease at inception of the contract. This
assessment involves the exercise of judgement about whether it depends on a specified asset,
whether the PCSO obtains substantially all the economic benefits from the use of that asset,
and whether the PCSO has the right to direct the use of the asset.

35
The PCSO recognizes a right-of-use (ROU) asset and a lease liability at the lease
commencement date, except for short-term leases of 12 months or less which are expensed in
the income statement on a straight-line basis over the lease term.

The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the incremental borrowing rate of 5.18%
based on the issued T-Bills of BSP with a similar term, as the implicit rate cannot be determined
in the lease contract.

The ROU asset is depreciated over the lease term.

ROU assets are included in the heading Property, Plant and Equipment – Leased Assets, and
the lease liability is included in the headings Current Financial Liabilities.

The PCSO adopted PFRS 16 using the modified retrospective approach effective for reporting
periods beginning on or after January 1, 2019 and to apply the new standard to contracts that
were previously identified as leases under PAS 17. Likewise, the PCSO will not apply the
standard to contracts that were not previously identified as lease under PAS 17.

The following are the amounts recognized in statement of comprehensive income:

    Amount
Depreciation expense of leased assets, building and other structures P100,457,764
Interest expense on finance lease liability 8,166,381
Total amount recognized in statement of comprehensive income P0

The roll forward analysis of finance lease liability follows:

    Amount
At January 1, as previously reported P -
Effect of adoption of PFRS 16 200,915,528
As at January 1, as restated   200,915,528
Interest expense 8,166,381
Payments (103,448,397)
As at December 31, 2019 P 105,633,512

The following is a reconciliation of the financial statement items from PAS 17 to PFRS 16 at
January 1, 2019:

Recognition and
Account Name PAS 17 Reclassification Measurement PFRS 16
Assets
Leased assets, building and
other structures - P200,915,528 P200,915,528
Total Current Assets - P200,915,528 P200,915,528

Liabilities
Finance lease payable - P200,915,528 P200,915,528
Total Current Liabilities - P200,915,528 P200,915,528

36
3.15 Employee Benefits

Under PAS 19-Employee Benefits, an entity is required to recognize a liability when an

employee has provided service in exchange for employee benefits to be paid in the future; and
an expense when the entity consumes the economic benefit arising from service provided by an
employee in exchange for employee benefits.

Short-term Benefits

The PCSO recognizes an expense for services rendered by employees during the accounting
period. A liability is recognized for the amount expected to be paid if the PCSO has a present
legal or constructive obligation to pay this amount as a result of past service provided by the
employee, and the obligation can be estimated reliably.

Terminal Leave Benefits

Terminal leave benefits are computed based on the actual leave credits earned by employees
as of reporting date. The amount reported as liability in the Statement of Financial Position is
based on the employee’s salary grade as of reporting dates.

The total terminal leave liability as of December 31, 2019 amounted to P193,901,378 recorded
in the account Leave Benefits Payable.

3.16 Income Taxes

Income tax expense represents the sum of the current tax and deferred tax expense.

Current Tax

The current tax expense is based on taxable profit for the year. Taxable profit differs from net
profit as reported in the Statements of Comprehensive Income because it excludes items of
income or expense that are taxable or deductible in other years and it further excludes items
that are never taxable or deductible. The PCSO’s current tax liability is calculated using 30%
regular corporate income tax (RCIT) rate of PCSO as a taxable entity. Republic Act (RA) No.
10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law excluded PCSO from the
list of exempted corporations in paying income tax.

Deferred Tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets
and liabilities in the financial statements and the corresponding tax bases used in the
computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable
temporary differences. Deferred tax assets are generally recognized for all deductible temporary
differences to the extent that it is probable that taxable profits will be available against which
those deductible temporary differences can be utilized. Such deferred tax assets and liabilities
are not recognized if the temporary difference arises from the initial recognition of assets and
liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

37
The carrying amount of deferred tax assets is reviewed at the end of each reporting period and
reduced to the extent that it is no longer probable that sufficient taxable profits will be available
to allow all or part of the asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the
period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that
have been enacted or substantively enacted by the end of the reporting period.

The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the PCSO expects, at the end of the reporting period, to
recover or settle the carrying amount of its assets and liabilities.

Current and Deferred Tax for the Year

Current and deferred tax are recognized in profit or loss, except when they relate to items that
are recognized in other comprehensive income or directly in equity, in which case, the current
and deferred tax are also recognized in other comprehensive income or directly in equity,
respectively.

3.17 Foreign Currency Transactions and Translation

The accounting records of the PCSO are maintained in Philippine pesos. Foreign currency
transactions during the year are translated into the functional currency at exchange rates which
approximate those prevailing on transaction dates.

Foreign currency gains and losses resulting from the settlement of such transactions and from
the translation at year-end exchange rates of monetary assets and liabilities denominated in
foreign currencies are recognized in profit or loss.

3.18 Judgment and Estimates

The preparation of the financial statements in accordance with PFRSs requires the PCSO to
make estimates and assumptions that affect the amounts reported in the financial statements
and accompanying notes. Future events may occur which will cause the assumption used in
arriving at the estimates to change. The effects of changes in estimates will be reflected in the
financial statements as they become reasonably determinable.

Judgments

In the process of applying the PCSO’s accounting policies, Management has made the following
judgments, apart from those involving estimations, which have the most significant effect on the
amounts recognized in the financial statements.

Classification of Financial Instruments

The PCSO classifies a financial instrument, or its component parts, on initial recognition, as a
financial asset, a financial liability or an equity instrument in accordance with the substance of
the contractual arrangement and the definition of a financial asset, a financial liability or an
equity instrument.

38
The substance of a financial instrument, rather than its legal form, governs its classification in
the Statements of Financial Position.

Estimates

The following are the key assumptions concerning the future and other key sources of
estimation uncertainty at the reporting date that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year.
Estimating Useful Lives of Property and Equipment

The PCSO estimates the useful lives of its property and equipment based on the period over
which these assets are expected to be available for use. The estimated useful lives of these
assets and residual values are reviewed, and adjusted if appropriate, only if there is a significant
change in the asset or how it is used.

The following estimated useful lives are used in depreciating the property and equipment:

PPE Account Estimated Life in Years

Land improvements 10
Building – those that are predominantly
Wood 10
Mixed 20
Concrete 30
Leasehold improvement
Land 10
Building
Wood 10
Mixed 20
Concrete 30
Office equipment 5
Furniture and fixtures 10
IT equipment and software 5
Library books 5
Machineries 10
Communication equipment 10
Medical, dental & laboratory equipment 10
Military and police equipment 10
Sports equipment 10
Motor vehicle 7
Other PPE 5

The carrying amounts of the PCSO’s property and equipment as at December 31, 2019 and
2018, totaled to P931,243,608 and P795,340,105, respectively. Depreciation cost charged to
operation amounts to P39,996,043 and P105,021,608 in 2019 and 2018, respectively.

3.19 Provisions

Provisions are recognized when present obligations will probably lead to an outflow of economic
resources and they can be estimated reliably even if the timing or amount of the outflow may
still be uncertain. A present obligation arises from the presence of a legal or constructive
commitment that has resulted from past events.

39
Provisions are measured at the estimated expenditure required to settle the present obligation,
based on the most reliable evidence available at the Statement of Financial Position date,
including the risks and uncertainties associated with the present obligation. In those cases,
when the possible outflow of economic resources as a result of present obligations is
considered improbable or remote, or the amount to be provided for cannot be measured
reliably, no liability is recognized in the financial statements.

Probable inflows of economic benefits that do not yet meet the recognition criteria of an asset
are considered contingent assets, hence, are not recognized in the financial statements.

3.20 Events after Reporting Date

Subsequent events that provide additional information about conditions existing at period end
(adjusting events) are recognized in the financial statements. Subsequent events that provide
additional information about conditions existing after period end (non-adjusting events) are
disclosed in the notes to financial statements.

On March 17, 2020, the operation of the PCSO was suspended due to Presidential
Proclamation Nos. 922 and 929 (2020) declaring a state of public health emergency throughout
the Philippines due to Corona Virus Disease 2019 or COVID-19.

The closures are expected to reduce some of the expenses of the PCSO such as the equipment
rent expenses for the lotto terminals, utility and communication expenses and other
maintenance and operating expenses.

On April 15, 2020, the PCSO resumes the processing of requests for medical assistance in its
effort to reach out to people and assist the national government in its fight against the COVID-
19.

4. RISK MANAGEMENT OBJECTIVES AND POLICIES

4.1 Risk Management Framework

The Board of Directors has overall responsibility for the establishment and oversight of the
Corporation’s risk management framework. The Board has established the Corporation’s credit,
finance, operational risk and executive committees, which are responsible for developing and
monitoring Corporation’s risk management policies in their specific areas.

All board committees have executive and non-executive members and report regularly to the
Board of Directors on their activities.

PCSO’s risk management policies are established to identify and analyze the risks faced by the
Corporation, to set appropriate risk limits and control, and to monitor risks and adherence to
limits. Risk management policies and systems are reviewed regularly to reflect changes to
market conditions, products and services offered. PCSO, through its training and management
standards and procedures, aims to develop disciplined and constructive control environment, in
which all employees understand their roles and obligations.

The Corporation audit committee is responsible for monitoring compliance with PCSO’s risk
management policies and procedures and for reviewing the adequacy of the risk management
40
framework in relation to the risk faced by the Corporation and it is regularly discussed in the
Board meeting.

Generally, the maximum risk exposure of financial assets and financial liabilities is the carrying
amount of the financial assets and financial liabilities as shown in the Statements of Financial
Position, as summarized below:

Note 2019 2018

Financial Assets:
Cash and cash equivalents 5 14,839,776,776 9,814,627,510
Receivables 7 2,030,375,474 2,157,128,342
Financial assets-held to maturity 10 200,000,000 200,000,000
Financial assets at FVOCI 10 2,383,880,071 2,602,512,704
Other investments – current portion 6 1,837,414,461 1,606,912,432
Other investments – non-current portion 10 226,825,493 385,538,351
Total 0 0

Financial Liabilities:
Financial liabilities - current portion 16 9,770,565,093 8,217,714,734
Inter-agency payables * 17 16,873,199 20,259,687
Trust liabilities 21 5,463,058,792 4,056,921,242
Total   15,250,497,084 12,294,895,663
* excluding statutory payables amounting to P378,898,722 and P700,567,118 as of December 31, 2019 and 2018, respectively

4.2 Credit Risk

a. Credit Risk Exposure

Credit risk refers to the risk that the client will default on its contractual obligation resulting in
financial loss to the Corporation. PCSO has adopted a policy of dealing only with creditworthy
clients and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of
financial loss from defaults.

Also, PCSO manages its credit risk by depositing its cash with high credit quality banking
institutions.

b. Management of Credit Risk

The PCSO Board of Directors has approved guidelines/implementing rules and regulations to
manage the credit risk exposure. The PCSO has adopted the Revised Rules and Regulations
(RRR) Governing the Conduct and Operations of the Philippine On-Line Lottery and the
Revised Implementing Rules and Regulations (RIRR) Governing the Conduct and Operations of
the Small Town Lottery (STL). The implementing rules and regulations explicitly state the
provisions for the Imposition of Penalties and Procedures in case of agents’ default on the
remittance of sales.

It also requires imposition of security/cash bonds to Lotto/Keno agents and Authorized STL
Agents (ASA) in order to ensure remedial collection of unremitted sale

The PCSO will request authority from COA for the write-off of receivable balance (and any
related allowances for impairment losses) when it has determined that the receivables are finally
uncollectible after exhausting its efforts to collect and legal action.

41
4.3 Liquidity Risk

Liquidity risk is the risk that the Corporation might encounter difficulty in meeting obligation from
its financial liabilities.

a. Management of Liquidity Risk

The Corporation’s approach to managing liquidity 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 damage to the Corporation’s
reputation.

The Corporation seeks to manage its liquidity profile to be able to finance capital expenditures
as well as its current operations. To cover its financing requirements, the Corporation intends to
use internally generated funds and available short-term credit facilities.

As part of its liquidity risk management, the Corporation regularly evaluates its projected and
actual cash flows. It also continually assesses conditions in the financial markets for
opportunities to pursue fund raising activities, in case any requirements arise. Fund raising
activities may include bank loans and subsidies from the national government or government
owned and controlled corporations.

b. Exposure to Liquidity Risk

The liquidity risk is the adverse situation when the Corporation encounters difficulty in meeting
unconditionally the settlement of its obligations at maturity. Prudent liquidity management
requires that liquidity risks are identified, measured, monitored and controlled in a
comprehensive and timely manner. Liquidity management is a major component of the
corporate-wide risk management system. Liquidity planning takes into consideration various
possible changes in economic, market, political, regulatory and other external factors that may
affect the liquidity position of the Corporation.

4.4 Market Risks

Market risk is the risk that changes in the market prices, such as interest rate, equity prices,
foreign exchange rates and credit spreads (not relating to changes in the obligor’s issuer’s credit
standing) will affect the Corporation’s income or the value of its holdings of financial
instruments. The objective of market risk management is to manage and control market risk
exposures within acceptable parameters, while optimizing the return on risk.

Management of Market Risk

The management of interest rate risk against interest gap limits is supplemented by monitoring
the sensitivity of the Corporation’s financial assets and liabilities to various standard and non-
standard interest rate scenarios.

42
4.5 Operational Risks

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes
associated with the Corporation’s processes, personnel, technology and infrastructure, and from
external factors other than credit, market and liquidity risks such as those arising from legal and
regulatory requirements and generally accepted standards of corporate behavior. Operational
risks arise from all of the Corporation’s operations and are faced by all business entities.

The Corporation’s objective is to manage operational risk so as to balance the avoidance of

financial losses and damage to the Corporation’s reputation with overall cost effectiveness and
to avoid control procedures that restrict initiative and creativity.

The primary responsibility for the development and implementation of control to address
operational risk is assigned to senior management within each business unit. This responsibility
is supported by the development of overall standards for the management of operational risk in
the following areas:

 Requirements for appropriate segregation of duties, including the independent

authorization of transaction
 Requirements for the reconciliation and monitoring of transactions
 Compliance with regulatory and other legal requirements
 Documentation of controls and procedures
 Requirements for the periodic assessment of operational risk faced, and the
adequacy of controls and procedures to address the risk identified
 Requirements for the reporting of operational losses and proposed remedial action
 Development of contingency plans
 Training and professional development
 Ethical and business standards
 Risk mitigation, including insurance where this is effective

Compliance with corporate standards is supported by a program of periodic reviews undertaken

by the Executive Committee. The results of periodic reviews are discussed with the Board of
Directors.

5. CASH AND CASH EQUIVALENTS

This account consists of:

2019 2018
Cash in bank 14,829,310,035 9,809,056,062
Cash - collecting officers 9,121,823 4,402,637
Petty cash fund 1,344,918 1,168,811
Total 0 0

Cash – Collecting Officers represents amount of collections made by the Collecting Officers that
are deposited at the end of the day.
Petty Cash Fund is the working fund wherein small expenses are being disbursed.
43
Cash in Bank represents the bank accounts (savings and current accounts) with the Land Bank
of the Philippines (LBP) and other government depository banks maintained by the Home Office
and branches.

Cash Equivalent consists of time deposits with other government banks with a maturity period of
90 days and below.

Interest income from these accounts amounted to P21,645,761 and P19,162,176 for the period
2019 and 2018, respectively.

6. OTHER INVESTMENTS

This account consists of:

2019 2018
Investments in time deposits-local currency 1,729,100,623 1,495,518,028
Investments in time deposits-foreign currency cash in bank -
foreign currency, time deposits 108,313,838 111,394,404
Total 0 0

Short-term investments consist of high-yield savings account (LBP) and premium savings (DBP)
with maturity period of 91-182 days. The acquisition cost and maturity value of investments in
foreign currency amounted to $2,139,110.07 and $2,159,849.41, respectively, were translated
to peso based on Bangko Sentral ng Pilipinas month-end rate of USD1=50.635 on December
31, 2019.

Investment Date Maturity Date Acquisition Cost Interest Receivable Present Value Maturity Value
Investment in Time Deposits-Local Currency
November 19, 2019 May 19, 2020 495,257,728 1,340,498 496,598,226 501,066,551
November 19, 2019 May 19, 2020 314,970,166 852,519 315,822,686 318,664,416
November 19, 2019 May 19, 2020 11,464,004 31,029 11,495,033 11,598,464
November 19, 2019 May 19, 2020 11,464,004 31,029 11,495,033 11,598,464
July 11, 2019 January 08, 2020 570,634,436 7,678,203 578,312,639 578,667,701
October 28, 2019 January 27, 2020 325,310,285 1,850,654 327,160,938 327,941,683
0 0 0 0
Investment in Time Deposits-Foreign Currency
January 04, 2019 January 4, 2020 108,313,838 1,038,628 109,352,467 109,363,975
108,313,838 1,038,628 109,352,467 109,363,975

Interest income from these accounts are P49,253,160 and P46,493,326 for CYs 2019 and 2018,
respectively.

7. RECEIVABLES
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This account consists of:

2018
  2019  As Restated
Accounts receivable 1,259,395,132 1,381,641,169
Allowance for impairment (163,863,597) (163,863,597)
1,095,531,535 1,217,777,572
Due from officers and employees 109,744,451 77,154,047
Due from branch offices 16,932,476 16,742,476
Receivables - disallowance 3,750,073 3,877,567
Other receivables 804,423,724 841,576,680
Allowance for impairment-other receivables (6,785) -
Total 2,030,375,474 2,157,128,342

In conformity with PAS No. 8, the Receivables accounts are restated as follows:

Amount
Unrestated amount as of December 31, 2018 1,381,360,212
Adjustments-Accounts receivables-Peryahan 280,957
Restated amount as of December 31, 2018 - Accounts receivables 1,381,641,169
Unrestated amount as of December 31, 2018 77,127,679
Adjustment/Recording of Accounts receivable -Head Office 26,368
Restated amount as of December 31, 2018 - Due from officers and employees 0
Unrestated amount as of December 31, 2018 862,507,014
Adjustment/Recording of Interest income-Branches 809,850
Adjustment/Recording of Interest income-Head Office 8,416,579
Adjustment/Recording of Other service income-Head Office (34,125,000)
Adjustment/Recording of Other service income-Branches 399,500
Adjustment/Recording of PCSO shares-Peryahan 495,032
Adjustment/Recording of Miscellaneous income-Branches (40,003)
Adjustment/Recording of Miscellaneous income-Head Office 865,148
Adjustment/Recording of Other fines and penalties-Branches 516
Adjustment/Recording of Other fines and penalties-Head Office 2,248,044
Restated amount as of December 31, 2018 - Other receivables 841,576,680

Accounts Receivable account pertains to unremitted sales of Sweepstakes, Keno and Lotto
Agents, STL AAC, and Peryahan (Globaltech Mobile Online Corporation).

Due from Officers and Employees are personal accounts of officers and employees, such as but
not limited to car loan assistance program (CLAP) and tax deficiencies.

Due to/from Home Office/Branch Offices are reciprocal accounts which are still subject for
reconciliation caused by the adoption of centralized accounting system in CY 2013.

Receivables-Disallowance this account includes COA disallowances on the payment of various

benefits to the employees of PCSO Branch Offices.

45
Other Receivables represents accruals of interest income from various bank accounts for the
period ended December 31, 2018 and the garnished amount pertaining to the case filed by TMA
Group of Companies to PCSO under Civil Case No. 11-310 in the amount of P707,223,555.44.

8. INVENTORIES

This account consists of the following:

2018
  2019 As Restated
Drugs and medicines for distribution
Carrying amount January 1 6,198,249 5,220,972
Additional acquisition during the year 10,572,683 11,498,870
Expensed during the year (9,756,291) (10,930,353)
Other adjustment / accruals (2,532,098) 408,760
Carrying Amount December 31 4,482,543 6,198,249

Office supplies inventory

Carrying amount January 1 9,861,356 17,149,877
Additional acquisition during the year 9,637,659 7,530,379
Expensed during the year (8,286,616) (8,919,316)
Other adjustment / accruals (1,773,586) (5,899,584)
Carrying Amount December 31 9,438,813 9,861,356

Accountable forms, plates and stickers inventory

Carrying amount January 1 2,357 1,335
Additional acquisition during the year - 7,200
Expensed during the year - (20,885)
Other adjustment / accruals (2,357) 14,707
Carrying Amount December 31 - 2,357

Medical, dental and laboratory supplies

Carrying amount January 1 22,765 41,679
Additional acquisition during the year 375,943 67,272
Expensed during the year (410,769) (587,594)
Other adjustment / Accruals 29,200 501,408
Carrying Amount December 31 17,139 22,765

Play/bet slips and thermal rolls inventory

Carrying amount January 1 134,980,912 8,580,057
Additional acquisition during the year 250,604,167 308,996,717
Expensed during the year (382,480,671) (296,618,830)
Other adjustment / accruals 139,349,824 114,022,968
Carrying Amount December 31 142,454,232 134,980,912

Other supplies and materials inventory

Carrying amount January 1 5,870,542 5,751,355
Additional acquisition during the year 303,109 486,691
Expensed during the year (258,425) (436,629)
Other adjustment / accruals 105,120 69,125
Carrying Amount December 31 6,020,346 5,870,542
Semi-expendable machinery and equipment
46
 2018
  2019 As Restated
Carrying amount January 1 - -
Additional acquisition during the year 445,263 -
Expensed during the year (254,835) -
Other adjustment / accruals 109,253 -
Carrying Amount December 31 299,681 -
Total 162,712,754 156,936,181

In conformity with PAS No. 8, the Inventories accounts are restated as follows:

Amount
Unrestated amount as of December 31, 2018 15,477,903
Adjustment/Recording of Office supplies inventory-Branch 1,667
Adjustment/Recording of Office supplies inventory-Head Office (5,618,214)
Restated amount as of December 31, 2018 - Office supplies inventory 9,861,356
Unrestated amount as of December 31, 2018 5,565
Adjustment/Recording of Office supplies inventory-Head Office 17,200
Restated amount as of December 31, 2018 - Medical, dental and laboratory supplies inventory 22,765

Drugs and Medicines Inventory pertains to the cost of drugs and medicines purchased/received
for stock/use in office operations/projects. It also includes Medical, Dental and Laboratory
supplies.

The Office Supplies Inventory pertains to the cost of office supplies purchased/received for use
in office operations.

Play/Bet Slips and Thermal rolls Inventory consist of lotto supplies used in betting for various
lotto games.

9. OTHER CURRENT ASSETS

2018
2019 As Restated
ADVANCES
Advances for payroll - 4,044,773
Advances to officers and employees 12,295,749 13,446,594
Advances for operating expenses 4,994,188 -
Advances to special disbursing officer 12,413,417 16,199,002
Sub-Total 29,703,354 33,690,369

PREPAYMENTS
Prepaid insurance 4,108,428 3,940,286
Other prepayments 319,773,461 616,301,301
Sub-Total 323,881,889 620,241,587
Total 353,585,243 653,931,956

In conformity with PAS No. 8, the Other Current Assets accounts are restated as follows:

47
 Amount
Unrestated amount as of December 31, 2018 13,563,744
Adjustment/Recording of Advances to officers and employees-Head Office (HO) (117,150)
Restated amount as of December 31, 2018 – Advances to officers and employees-HO 13,446,594

Advances are used to recognize the amount of advances granted to accountable officers for
payment of salaries, wages, personnel benefits; special purpose/time-bound undertakings; and
for official travel.

Prepayments include Prepaid Insurance which are unused portion of insurance paid to the
GSIS-General Insurance Group for PCSO’s motor vehicles, facilities, properties, and insurances
of PCSO officials as bonds to cover any liability that the officials may incur. Other Prepayments
include overpayment of corporate income tax amounting to P313,877,405.

10. FINANCIAL ASSETS

This account consists of the following:

2019 2018
Financial Assets
Financial assets-held to maturity (Investments in bonds - local) 200,000,000 200,000,000
Financial assets-available for sale securities 2,383,880,071 2,602,512,704
Sub-Total  0 0
Other Investments
Investments in time deposits - local currency - 150,000,000
Investments in time deposits - foreign currency 226,825,493 235,538,351
Sub-Total  226,825,493 0
Total 2,810,705,564 3,188,051,055

The Financial Assets at Fair Value through Other Comprehensive Income are externally
managed funds which include the P2.5 billion allocated for the construction of PCSO Building
that was placed in PCSO Trust Fund Account pursuant to Board Resolution No. 158, series of
2014 with amendments under Board Resolution No. 352, series of 2016. These are managed
by the Land Bank Trust Banking Group based on the PCSO’s Investment Policy Statement.

Investments in Time Deposits-Foreign Currency consist of dollar placements with Land Bank of
the Philippines (LBP) amounting to $4,479,618.70 with a maturity period of two (2) years which
were translated based on the Bangko Sentral ng Pilipinas month-end rate of USD1=P50.635 on
December 31, 2019.

The Interest Receivable of the Investments in Time Deposits – Foreign Currency in the amount
of $131,958.73 was translated to peso at the rate of USD1 = P50.635. The acquisition cost and
maturity value of the investments in foreign currency amounted to $4,479,618.70 and
$4,633,220.34, respectively, and were translated to peso based on the Bangko Sentral ng
Pilipinas month-end rate of USD1=P50.635.

Investment Maturity Date Acquisition Cost Interest Receivable Present Value Maturity

48
Date Value
April 12, 2018 April 13, 2020 226,825,493 6,681,730 233,507,223 234,603,112

Interest income from the long term investments are as follows:

2019 2018
Investment in bonds 9,750,000 9,750,000
Financial assets at fair value through other comprehensive 120,007,363 81,510,995
Income
Investments in time deposits - local currency 2,343,750 4,687,500
Total 00 0

11. INVESTMENT PROPERTY

This account consists of the following:

2019 2018
Investment property, land 274,642,026 274,642,026
Investment property, building (net) 5,728,408 6,059,340
Total 0 0

The PCSO uses the following criteria to distinguish investment property from owner-occupied
property:

a. Land held for long-term capital appreciation rather than for short-term sale in the
ordinary course of operations; and

b. Land held for currently undetermined future use.

Investment Property account is composed of thirty-one (31) land properties and two (2)
buildings. The investment properties are land and building acquired through foreclosed
properties from defaulted sweepstakes agents.

LAND PROPERTIES 2019 2018

Brgy. Concepcion Uno, Marikina City 1,664,000 1,664,000
Brgy. Salvacion, La Loma, Quezon City 4,080,000 4,080,000
Tigbe, Norzagaray, Bulacan 864,000 864,000
Brgy. Pabanlag, Floridablanca, Pampanga 1,797,000 1,797,000
Brgy. Kataasan, Dinalupihan, Bataan 238,000 238,000
Brgy. Pagalanggang, Dinalupihan, Bataan 804,000 804,000
Brgy. Sto. Domingo, Capas, Tarlac 4,290,000 4,290,000
Brgy. Tibag, Tarlac City 3,669,000 3,669,000
Maliwalo, Tarlac City 21,000 21,000
Brgy. Maginoo, Gapan, Nueva Ecija 544,000 544,000
Brgy. Sangitan West, Cabanatuan, Nueva Ecija 244,000 244,000
Peñafrancia Hills Subd, Brgy. Cupang, Antipolo City 415,599 415,599
Brgy. San Isidro, Taytay, Rizal 105,733,000 105,733,000
Brgy. San Roque, Antipolo City 111,206,000 111,206,000
Brgy. Cupang, Antipolo City 268,000 268,000
49
 LAND PROPERTIES 2019 2018
Brgy. Macabud, Montalban, Rizal 67,000 67,000
Brgy. Galicia III, Mendez, Cavite 720,000 720,000
Brgy. 26 Caridad, Cavite City 749,000 749,000
Brgy. Cawayan, II, San Francisco, Quezon 865,000 865,000
Brgy. Sambat, San Pascual, Batangas 1,142,000 1,142,000
Lobo, Batangas 1,705,000 1,705,000
Brgy. Bagumbayan Sur, Naga City 636,000 636,000
Brgy. Almendras-Cogon, Sorsogon City 778,000 778,000
Brgy. Bical, Libmanan, Sorsogon City 2,203,000 2,203,000
Brgy. Basak, Lapu-lapu City, Cebu 1,425,000 1,425,000
Bunga, Abuyog, Leyte 844,000 844,000
Brgy, Sicayab, Dipolog City 14,739,000 14,739,000
Poblacion Lubao, Pampanga 25,000 25,000
Agdahon, Cuartero, Capiz 368,000 368,000
Right of Way – Flamingo Land Subd, Antipolo 4,500,000 4,500,000
Right of Way – Manuel Uy & Sons – Antipolo City 8,038,427 8,038,427
Total 0 0

The amount in the investment property, land account is a mere transfer from land account
amounting to P274,642,026 for year 2017. There are no additions and disposal made for the
years 2019 and 2018. The PCSO elects to measure the investment property, land on the date of
transition (January 1, 2017) to this Framework at its fair value and use that fair value as its
deemed cost at that date.

The value in the investment property is a transfer from building account with the amount of
P6,059,340 for 2018 and P5,728,408 for 2019. The carrying value is computed at cost less
accumulated depreciation and depreciated using the straight-line method. No
additions/acquisitions or disposal happened for the year 2019.

Schedule of Investment Property (Building)

No. 72 Bulusan Street, Brgy. Barangay Sangitan West,

Salvacion, La Loma, Quezon Cabanatuan City, Province
City of Nueva Ecija TOTAL
Cost 7,122,000 592,000 7,714,000
Salvage value (5%) (356,100) (29,600) (385,700)
Depreciable cost 6,765,900 562,400 7,328,300
Estimated useful life 27 7
Depreciation
2014 250,589 80,343
2015 250,589 80,343
2016 250,589 80,343
2017 250,589 80,343
2018 250,589 80,343
2019 250,589 80,343
Total Accumulated depreciation as of 12-31-2019 1,503,534 482,058 1,985,592
Net book value as of December 31, 2019 5,618,466 109,942 5,728,408
12. PROPERTY, PLANT AND EQUIPMENT

A reconciliation of the carrying amounts at the beginning and end of 2019 and 2018, of property
and equipment is shown below:

50
2019
Information and
Building & Office furniture, communication
Land and land leasehold equipment and technology Construction
  improvements improvements machineries equipment Motor vehicles in-progress Total
Costs
January 1, 2019 482,898,000 82,804,129 339,513,499 123,242,528 116,664,586 4,231,495 1,149,354,237
Additions 1,500,000 108,030,558 4,483,557 10,397,257 55,497,100 - 179,908,472
Disposals - - (13,687,798) (15,056,366) (1,833,800) - (30,577,964)
PPE reclassification - - 1,285,085 (468,271) - (547,785) 269,029
Adjustments - (1,189,062) (1,768,838) 350,797 - - (2,607,103)
December 31, 2019 484,398,000 189,645,625 329,825,505 118,465,945 170,327,886 3,683,710 1,296,346,671

Accumulated Depreciation:
January 1, 2019 - (42,504,614) (140,853,381) (79,689,066) (90,967,071) - (354,014,132)
Depreciation
expense - (5,527,429) (16,213,663) (10,453,710) (7,801,240) - (39,996,042)
Disposals - - 12,030,780 13,771,468 1,742,110 - 27,544,358
Adjustments - 201,319 375,077 786,557 (200) - 1,362,753
December 31, 2019 - (47,830,724) (144,661,187) (75,584,751) (97,026,401) - (365,103,063)
Carrying Amount -
12/31/19 484,398,000 141,814,901 185,164,318 42,881,194 73,301,485 3,683,710 931,243,608

2018
Office Information and
Building & furniture, communication
Land and land leasehold equipment and technology Construction
  improvements improvements machineries equipment Motor vehicles in-progress Total
Costs
January 1, 2018 482,898,000 65,751,601 324,241,088 118,893,402 107,716,586 - 1,099,500,677
Additions - 16,596,976 12,956,795 12,979,613 6,950,000 16,315,006 65,798,390
Disposals - - - (32,813) - - (32,813)
PPE Reclassification - (153,600) 174,600 1,185,626 - (12,083,511) (10,876,885)
Adjustments - 609,152 1,948,382 (9,783,300) 1,998,000 - (5,227,766)
December 31, 2018 482,898,000 82,804,129 339,320,865 123,242,528 116,664,586 4,231,495 1,149,161,603

Accumulated Depreciation:
January 1, 2018 - (32,552,113) (121,645,500) (17,269,840) (84,540,899) - (256,008,352)
Depreciation expense - (10,278,775) (19,734,310) (67,400,367) (7,608,156) - (105,021,608)
Adjustments - 396,358 630,722 4,989,121 1,181,984 - 7,198,185
December 31, 2018 - (42,434,530) (140,749,088) (79,681,086) (90,967,071) - (353,831,775)
Carrying Amount -
12/31/18 482,898,000 40,369,599 198,571,777 43,561,442 25,697,515 4,231,495 795,329,828

December 31, 2018

(Unrestated) 482,898,000 40,369,599 198,571,777 43,561,442 25,697,515 4,231,495 795,329,828
Restatements -  (70,084) 88,341 (7,980) -  -  10,278
December 31, 2018
(As Restated) 482,898,000 40,299,515 198,660,118 43,553,462 25,697,515 4,231,495 795,340,105

Included in the line items under Building & Leasehold Improvements account are right of use
assets, as follows:

 Leased assets, building and other structures Amount

Cost

51
At January 1, as previously reported -
Effect of adoption of PFRS 16 200,915,528
As at January 1, as restated 200,915,528
Accumulated depreciation and amortization
At January 1, as previously reported -
Depreciation 100,457,764
At December 31 100,457,764
Net Book Value 100,457,764

In conformity with PAS No. 8, the Property, Plant and Equipment accounts are restated as
follows:

Amount
Unrestated amount as of December 31, 2018 40,369,599
Adjustment/Recording of Depreciation expenses-lease assets improvements-Branch (67,959)
Adjustment/Recording of Depreciation expenses-other leasehold improvements-Branch (2,125)
Restated amount as of December 31, 2018 -Building & leasehold improvements 40,299,515
Unrestated amount as of December 31, 2018 198,571,777
Adjustment/Recording of Depreciation expenses- office equipment-Branch (46,211)
Adjustment/Recording of Depreciation expenses- furniture and fixtures-Branch (259)
Adjustment/Recording of Depreciation expenses- other property, plant and equipment-Branch (57,823)
Adjustment/Recording of Sale on disposal of unserviceable properties 192,634
Restated amount as of December 31, 2018 -Office furniture, equipment and machineries 198,660,118
Unrestated amount as of December 31, 2018 43,561,442
Adjustment/Recording of Depreciation expenses-information and communication technology equipment
-Branch (7,980)
Restated amount as of December 31, 2018 -Information and communication technology equipment 43,553,462

The land account for the year 2019 increased to P484,296,000 from its 2018 balance of
P482,796,000. The increase was due to the two lots donated by the Province of Northern
Samar with a total fair value of P1,500,000. The lands donated to PCSO had an attached
condition to construct a building within five years from the execution of the Deed of Donation.

Building and Leasehold Improvement significantly increased due to the construction of

perimeter fence with steel gate at Antipolo Property amounting to P3,651,898 and Lease Asset,
buildings worth P100,457,764.

The Office Furniture, Equipment and Machineries included, among others, the purchases of
supply and installation of thirteen (13) airconditioning units of P1,194,688, two (2) sets of office
partition of P642,000, supply & installation of Combi blinds of P248,631 and supply & installation
of generator sets amounting to P900,000.

Additions to Information and Communication Technology account consist of, among others, 85
units of biometrics machine of P4,034,000; 45 units of laptop amounting to P2,364,485; 11 units
of desktop worth P523,700 and two (2) units of Heavy Duty Camera Videocam Camcoder
amounting to P185,998.

Motor Vehicle additions consist of 38 units of vehicle with total amount of P55,497,100.

52
Fixed Assets recorded as Office Equipment and Other Property, Plant and Equipment were
identified and reclassified for proper identification to which account they belong. Uniform
classification of Account Code and Class description was made due to recording of same asset
description to different account codes for prior period purchases. A meeting was held last June
5, 2017 together with the Asset and Supply Management Department (ASMD), Accounting and
Budget Department (ABD), Branch Operations Sector (BOS) and Internal Audit Services (IAS)
to come up with detailed asset description that must be recorded in each account codes. The
account codes and their examples are consolidated and agreed to be implemented as follows:

 Office Equipment - airconditioning units (ACU), binding machine (BIN), typewriter

(TYP), checkwriter (CKW), duplicating machine (DUP), punching machine (PUN),
stamping machine (STP), shredder machine (SHR), bill counting machine (BCM)
and laminating machine (LAM).

 Furniture and Fixtures - blinds (BLI), cashier/teller booth (CTB), cabinet (CAB),
chairs (CHA), divider (DIV), partition/workstation (PNW), racking system (RAC),
table (TAB), vault (VLT) and table accessories (TBA).

 Information and Communication Technology Equipment - computer desktop in set

(DES), Ipod (IPD), computer parts and accessories (CPA), data center equipment
(DCE), printer (PRI), projector and accessories (PRO), scanner (SCA), network
devices (NTD), storage devices (STD), server (SVR) and software (SFW).

 Books - hardbound/electronic books (BKS).

 Other Machinery and Equipment - draw equipment and accessories (DEA).

 Communication Equipment - camera and accessories (CAM), handheld radio and

accessories (RAD), lapell (LPL), telephone apparatus (TEL), mobile phone (MOB),
voice recorder (VOI), sound system (SSM), television accessories (TVN), cassette
recorder (CAS), CD player (CPD), DVD player (DVD) and VHS player.

 Medical Equipment – dental equipment/apparatus/instrument (DEN), medical

equipment/apparatus/Instrument (MED) and laboratory equipment (LAB).

 Military and Police Security Equipment - firearms and accessories (FNA) and
CCTV system in set (CTV).

 Sports Equipment - sports equipment and accessories (SEA).

 Printing Equipment - printing equipment and accessories (PEA).

 Motor Vehicle - motor vehicle (VEH).

 Other Property, Plant and Equipment - container van (CVN), generator set (GEN),
fan (FAN), kitchen appliances (KAP), kitchen articles (KNA) and general services
tools and equipment (GST), such as signage, tent, GST tools, air ionizer, air
compressor, dehumidifier, forklift and other unidentified items.

53
  Construction in Progress includes uncompleted major repair and renovation of
PCSO Cebu Branch Office Building.

13. INTANGIBLE ASSETS

A reconciliation of the carrying amounts at the beginning and end of 2019 and 2018, of
computer software is shown below:

2019 2018
Costs
Beginning balance 195,451,603 174,782,505
Additions 82,093,876 13,104,820
Adjustments - 7,564,278
Total 0 0
Accumulated depreciation:
Beginning balance (158,963,951) (106,082,319)
Depreciation expense (19,357,578) (450,480)
Adjustments - (52,431,152)
Total (178,321,529) (158,963,951)
Carrying Amount 99,223,950 36,487,652

Intangible assets pertain to Computer Software with a carrying value of P36,487,652 for the
year 2018 and P99,223,950 for the year 2019. The amortization is computed using straight line
method with a useful life of three years. However, there are included software with 12-month
subscription and these are amortized over one year.

Additions for the year 2019 included one (1) Lot Digital Signature worth P14,996,100 and
License purchased from the Department of Budget and Management – Procurement Service
(DBM-PS) for Modernizing Workplace and Office Productivity amounting to P67,097,776. The
start of Microsoft volume licensing agreement was on December 28, 2019. However, no
disposal was made for 2019.

14. OTHER NON-CURRENT ASSETS

This account consists of the following:

2018
  2019 As Restated
Prepaid rent 26,436,672 26,473,793
Guaranty deposits 31,197,610 31,263,310
Other deposits 5,518,621,545 4,116,438,094
Total Deposits 0 04

Foreclosed property/assets-net 26,300 26,300

54
 2018
  2019 As Restated
Deferred assets/losses 780 780
Abandoned/surrendered properties-net 384,524 384,524
Other assets 46,829,848 39,770,990
Total Other Assets 0 0
TOTAL 5,623,497,279 4,214,357,791

In conformity with PAS No. 8, the Other Non-Current Assets account is restated as follows:

Amount
Unrestated amount as of December 31, 2018 4,116,458,793
Adjustment/Recording of Other deposits-Head Office (20,699)
Restated Amount as of December 31, 2018 - Other deposits 4,116,438,094

Prepayments include prepaid rent which pertains to the advance deposits for lease/rentals of
property, plant and equipment used in operations. These can be used as rental payments only
at the end of the term of the contract

Deposit includes guaranty deposits and other deposits. Guaranty deposits are paid to utility
companies, namely: Manila Electric Company and Philippine Long Distance Telephone
Company. It also includes guaranty deposits for lease/rentals of the buildings located in Shaw
Blvd., Mandaluyong City, that are currently being occupied by the PCSO. Other deposits
represent the cash bond of STL ASA, Lotto and Keno and the Prize Seed Fund
entrusted/deposited to PCSO bank account by Pacific Online System Company, Philippine
Gaming Management Corporation and Powerball Management Corporation for payment of
prizes for Scratch and Match. Also included is the escrow deposit of Mark Sensing Ltd. retained
by PCSO in compliance with the court order to withhold 24.5 per cent commission of CISCO on
PCSO’s lotto supplies purchases with Mark Sensing Ltd. (Reference: Civil Case No. Q-05-
54756).

Other Assets include foreclosed property/assets, deferred assets/losses,

abandoned/surrendered properties and other assets.

15. TAXES

Income Tax Expense

This account consists of provisions for income taxes for:

2019 2018
Income tax expense - current 1,832,499,316 627,822,438
Income tax expense - deferred (107,160,609) (5,583,636)

55
Total 1,725,338,707 622,238,802

The details of statutory reconciliation are provided below:

2019 2018
Income tax at statutory rate 1,865,564,660 640,028,332
Tax effect on income subject to final tax (49,140,468) (36,530,304)
Tax effect of lease liability-net of ROU asset (1,552,724) -
Tax effect on forex (5,141,940) -
Tax effect on retirement benefits (35,231,742) -
Tax effect on allowance for impairment of A/R (49,159,079) -
Tax effect of non-deductible expense - 18,740,774
Total 1,725,338,707 622,238,802

Analysis of income tax payable (prepaid income tax) follows:

2019 2018
Regular Corporate Income Tax: 6,218,548,867 2,133,427,775
Net income (loss) before tax
Permanent Differences:
Interest income subject to final tax (163,801,560) (121,767,680)
Tax Assessment - 62,469,246
Temporary Differences:
Provision for retirement benefits 40,710,318 35,751,918
Unrealized gain/loss on foreign exchange 12,873,427 (17,139,799)
Taxable income 6,108,331,052 2,092,741,460
Tax rate 30% 30%
Tax Due 1,832,499,316 627,822,438

15.1 Deferred Taxes

Deferred Tax Assets

Balance Deferred Tax

Allowance for Impairment of AR 163,863,597 49,159,080
Lease Liability-Net of ROU Asset 5,175,748 1,552,724
Leave Benefit Payable 193,901,378 58,170,413
Unrealized Loss on Forex 12,873,427 3,862,028
Deferred Tax Asset 0

Details of DTA and DTL follows:

  2019 2018
DTA:
DTA arising from Allowance for impairment of AR 49,159,080 -
DTA arising from Lease liability-Net of ROU Asset 1,552,724 -
DTA arising from Leave benefit payable 58,170,413 10,725,576
DTA arising from Unrealized loss on Forex 3,862,028 -
DTL:
DTL arising from Unrealized gain on Forex - 5,141,940
56
 112,744,245 5,583,636

16.
15. FINANCIAL LIABILITIES

Details of Payable accounts are as follows:

2018
  2019 As Restated
Accounts payable 9,651,701,187 8,206,253,371
Due to officers and employees 13,230,394 11,461,363
Finance lease payable 105,633,512 -
Total 0 0

Accounts Payable includes the following:

2018
  2019 As Restated
Miscellaneous accounts payable 6,921,993,118 5,909,148,963
Vouchers payable-charity fund 2,033,721,376 1,902,162,164
Vouchers payable-operating fund 551,855,938 124,342,114
Vouchers payable-prize fund 28,052,207 99,164,218
Rental and maintenance 116,078,548 171,435,912
Total Accounts Payable 0 0

In conformity with PAS No. 8, the Payable accounts are restated as follows:

Amount
Unrestated amount as of December 31, 2018 5,340,239,149
Adjustment/Recording of Miscellaneous accounts payable-operating fund (755,248)
Adjustment/Recording of Miscellaneous accounts payable-charity fund (50,759,987)
Adjustment/Recording of Miscellaneous accounts payable-prize fund 620,425,049
Restated amount as of December 31, 2018-Miscellaneous accounts payable 5,909,148,963

Unrestated amount as of December 31, 2018 2,047,761,732

Adjustment/Recording of Accounts payable-Branch (257,226,037)
Adjustment/Recording of Accounts payable-Head Office 111,626,469
Restated amount as of December 31, 2018-Vouchers payable-charity fund 1,902,162,164

Unrestated amount as of December 31, 2018 94,008,028

Adjustment/Recording of Personnel expenses-Branch 16,237
Adjustment/Recording of Personnel expenses-Head Office 520,370
Adjustment/Recording of Maintenance and other operating expenses-Branch 140,620
Adjustment/Recording of Maintenance and other operating expenses-Head Office 29,656,859
Restated amount as of December 31, 2018-Vouchers payable-operating fund 0

Unrestated amount as of December 31, 2018 99,109,724

Adjustment/Recording of Accounts payable-Head Office 54,494
57
 Amount
Restated amount as of December 31, 2018-Vouchers payable-prize fund 99,164,218

The Miscellaneous Accounts Payable refers to various obligations being accrued every year
end. Majority of its components were accrual of Prize Fund expenses, Performance Based
Bonus, Employer’s Provident Fund share, Collective Negotiation Agreement (CNA) bonus,
Advertising Expenses, and various Charity Fund expenses.

The Vouchers Payable-Charity Fund refers to various unpaid processed vouchers payable to
hospitals and other institutions/agencies as payment for financial assistance under the
Individual Medical Assistance Program, Mandatory Contributions and Other Health and Welfare
Programs of PCSO.

The Vouchers Payable-Operating Fund pertains to processed vouchers for various operating
expenses that remain unpaid at year-end. This account also includes the payables of the
Branch Offices.

The Vouchers Payable-Prize Fund refers to various unpaid processed vouchers for the payment
of Prize Fund expenses.

The Vouchers Payable-Rentals and Maintenance pertains to the amount payable to the service
providers of the lottery system, Philippine Gaming Management Corp., Pacific Online System
Corp., and Total Gaming Technology, Inc., as payment for the cost of equipment lease rental
and maintenance.

17. INTER-AGENCY PAYABLES

Inter-Agency payables include the following accounts:

2018
  2019 As Restated
Due to BIR 359,243,851 681,580,145
Due to other NGAs 17,267,291 19,813,951
Due to GSIS 15,759,152 15,855,751
Due to PhilHealth 1,920,161 2,032,225
Due to Pag-IBIG 1,975,558 1,098,997
Due to other GOCCs (394,092) 445,736
Total 395,771,921 0

In conformity with PAS No. 8, the Inter-agency Payable account is restated as follows:

Amount
Unrestated amount as of December 31, 2018 672,955,650
Adjustment/Recording of Due to BIR-tax on winnings-Lotto 7,223,830
Adjustment/Recording of Due to BIR-tax on winnings-Keno 1,400,665
Restated amount as of December 31, 2018-Due to BIR 0

58
18. PROVISIONS

This account consists of liabilities to the following:

2019 2018
Current provisions 6,734,449 4,836,933 This
Non-current provisions 187,166,929 171,536,519
Total 0 0
account consists of leave benefits of employees. Employees retiring the following year are
categorized as current provisions.

19. OTHER CURRENT LIABILITIES

This account is composed of the following:

2018
  2019 As Restated
Dividends payable 2,219,816,648 744,232,770
Trustee payable 202,160 -
Withholding tax payable 2,793,062 -
PCSO Provident fund contributions 14,675,493 14,133,563
Amount held in trust for "Scratch and Match"/NISP prizes 9,716,089 7,501,859
Withheld payment of employees payable to Sweepstakes Cooperative 6,427,587 5,337,636
Withheld amount payable to thermal roll supplier (228,192) (228,191)
Share of the PNP in STL 169,785,406 261,005,368
Share of Charity Fund in STL 605,692,858 768,239,601
Other payables 73,690,983 165,553,491
Total Other Payables 879,760,224 1,221,543,327
Total Other Current Liabilities 3,102,572,094 1,965,776,097

In conformity with PAS No. 8, the Other Current Liabilities account is restated as follows:

Amount
Unrestated amount as of December 31, 2018 755,594,486
Reclassification and reversal of over accrual of dividends payable for the year 2018 (11,361,716)
Restated amount as of December 31, 2018-Dividends payable 744,232,770

Share of Charity Fund in STL includes the following:

  2019 2018
Share of charity fund in STL of chartered cities 957,081 957,081
Share of charity fund in STL of municipalities 347,213,037 442,037,861
Share of charity fund in STL of provinces 105,604,242 165,670,872
Share of charity fund in STL of Congressional 151,918,498 159,573,787
Total Share of Charity Fund in STL 0 0

59
 The account Amount Held in Trust for “Scratch and Match”/NISP prizes pertains to the amount
entrusted to PCSO by the operators of the “Scratch and Match”/NISP project for the payment of
prizes.

20. TRUST LIABILITIES

This account consists of:

2019 2018
As Restated
Performance/bidders bonds 5,461,074,055 4,054,936,506
Guaranty deposits payable 1,984,737 1,984,736
Total Trust Liabilities 0 0

In conformity with PAS No. 8, the Trust Liabilities account is restated as follows:

Amount
Unrestated Amount as of December 31, 2018 4,044,936,506
Adjustments/Recordings of STL cash bond 10,000,000
Restated amount as of December 31, 2018-Performance/bidders bonds 0

The performance/bidders bonds consist of retention fees from suppliers and cash bond for STL,
Lotto and Keno agents. Abrupt change in the amount was due to increase in number of
approved STL Authorized Agent Corporations.

21. DEFERRED CREDITS/UNEARNED INCOME

This account represents advance sales of sweepstakes, keno and lotto tickets and advance
remittances of lotto agents.

22. EQUITY

This account consists of the following:

Cumulative
Retained
changes in fair
Operating fund Charity fund Prize fund earnings/ Total
Value of
(Deficit)
investments
BALANCE AT JANUARY 01, 2018 (27,788,717)  7,170,092,574 1,279,057,348 1,654,364,240 10,103,514,162 10,075,725,445
60
CHANGES IN EQUITY FOR 2018
Add/(Deduct):
Forfeitures of unclaimed prizes - - 494,638,022 (494,638,022) - -
Payment of dividends - (2,535,289,114) - - (2,535,289,114) (2,535,289,114)
Subsidy to Charity funds - (500,000,000) 500,000,000 - - -
Transfer to Charity funds - (3,170,609,934) 3,170,609,934 - - -
Provision for dividends - (712,295,026) - (43,299,460) (755,594,486) (755,594,486)
Payable
Comprehensive income (62,791,067) 3,887,604,441 (3,153,409,718) 278,320,998 1,012,515,721 949,724,654
Other adjustments - 11,361,716 - - 11,361,716 11,361,716
RESTATED BALANCE AT (90,579,784) 4,150,864,657 2,290,895,586 1,394,747,756 7,836,507,999 7,745,928,215
DECEMBER 31, 2018
CHANGES IN EQUITY FOR 2019
Add/(Deduct):
Forfeitures of unclaimed prizes - 741,564,982 (741,564,982) - -
Subsidy to Charity funds - (963,253,012) 963,253,012 - - -
Provision for dividends - (1,054,178,739) (1,038,743,172) (126,894,737) (2,219,816,648) (2,219,816,648)
payable
Comprehensive Income 95,547,933 2,116,941,040 2,116,050,009 260,219,111 4,493,210,160 4,588,758,093
BALANCE AT DECEMBER 31, 4,968,149 4,250,373,946 5,073,020,417 786,507,148 10,109,901,511 10,114,869,660
2019

The Other adjustment in the Changes in Equity for 2018 was the excess amount provided for in
the Provision for Dividends Payable. Payment made on May 15, 2019 for dividend amounted
only to 744,232,768.64.

23. INCOME

The PCSO’s income consists of:

2019
      Operating Charity Prize 2019
Service and Business Income
Service Income
Processing/application fee 4,451,250 - - 4,451,250
Other service income 51,330,508 - - 51,330,508
    Total Service Income 0 - - 0

Business Income
Income from gaming operations 9,679,937,897 12,122,988,607 22,225,479,115 44,028,405,619
Seminar/training fees 719,440 - - 719,440
Fines and penalties 14,201,108 - - 14,201,108
Interest income 126,253,994 71,580,303 5,165,737 203,000,034
Other business income - 1,054,737,850 - 1,054,737,850
    Total Business Income 0 00 0 0
Total Service and Business Income 9,876,894,197 13,249,306,760 22,230,644,852 45,356,845,809

Gains
Gain or loss on foreign exchange (FOREX) - (12,873,427) - (12,873,427)
Other losses - Provision for credit losses (6,785) - - (6,785)
Total Gains (6,785) (12,873,427) - (12,880,212)

Other Non-Operating Income

Sale of Assets
Sale of unserviceable property (3,200,196) - - (3,200,196)
    Total Sale of Assets (3,200,196) - - (3,200,196)

61
      Operating Charity Prize 2019

Miscellaneous Income
Miscellaneous income 702,410,924 - - 702,410,924
    Total Miscellaneous Income 702,410,924 - - 702,410,924
Total Non-Operating Income 699,210,728 - - 699,210,728
Total Income 10,576,098,140 13,236,433,334 22,230,644,851 46,043,176,325

2018
Operating Charity Prize 2018
      (As Restated) (As Restated) (As Restated) (As Restated)
Service and Business Income
Service Income
Processing/Application fee 11,465,182 - - 11,465,182
Other service income 109,740,239 - - 109,740,239
    Total Service Income 121,205,421 - - 121,205,421

Business Income
Income from gaming operations 11,406,201,160 18,280,433,142 33,050,015,396 62,736,649,698
Seminar/training fees 958,800 - - 958,800
Fines and penalties 6,571,728 - - 6,571,728
Interest income 97,681,848 56,849,041 7,073,108 161,603,997
Other business income - 2,403,662 - 2,403,662
    Total Business Income 0 0 0 0
Total Service and Business Income 11,632,618,957 18,339,685,845 33,057,088,504 63,029,393,306

Gains
Gain or loss on foreign Exchange (FOREX) - 17,139,799 - 17,139,799
Other Losses - Provision for Credit Losses
Total Gains - 17,139,799 - 17,139,799

Other Non-Operating Income

Sale of Assets
Sale of Unserviceable Property (29,594) - - (29,594)
    Total Sale of Assets (29,594) - - (29,594)
Miscellaneous Income
Miscellaneous Income 29,989,976 - - 29,989,976
    Total Miscellaneous Income 29,989,976 - - 29,989,976
Total Non-Operating Income 29,960,382 - - 29,960,382
Total Income 11,662,579,339 18,356,825,644 33,057,088,504 63,076,493,487

In conformity with PAS No. 8, the Income accounts are restated as follows:

Amount
Unrestated amount as of December 31, 2018 143,465,739
Adjustment/Recording of Other service income (33,725,500)
Restated amount as of December 31, 2018 - Other service income (Operating fund) 109,740,239

Unrestated amount as of December 31, 2018 4,323,168

Adjustment/Recording of Fines and penalties 2,248,560
Restated amount as of December 31, 2018 - Fines and penalties (Operating fund) 6,571,728

Unrestated amount as of December 31, 2018 88,368,682

Adjustment/Recording of Interest income 9,313,166
Restated amount as of December 31, 2018 - Interest income (Operating Fund) 0

Unrestated amount as of December 31, 2018 29,164,831

62
 Amount
Adjustment/Recording of Miscellaneous income 825,145
Restated amount as of December 31, 2018 - Miscellaneous income (Operating fund) 29,989,976

Unrestated amount as of December 31, 2018 56,841,133

Adjustment/Recording of Interest income 7,908
Restated amount as of December 31, 2018 - Interest income (Charity fund) 56,849,041

Unrestated amount as of December 31, 2018 7,070,803

Adjustment/Recording of Interest income 2,305
Restated amount as of December 31, 2018 - Interest income (Prize fund) 7,073,108

Unrestated amount as of December 31, 2018 11,405,706,127

Adjustment/Recording of Income from gaming operations-Peryahan 495,033
Restated amount as of December 31, 2018 - Income from gaming operations (Operating fund) 11,406,201,160

Income from Gaming Operations consists of the following:

2019
Operating Charity Prize Total
Retail Receipts 6,604,260,843 13,208,521,685 24,215,623,091 44,028,405,619
Less: Printing cost 132,085,217 264,170,434 484,312,462 880,568,113
Documentary stamp tax 410,681,322 821,362,644 1,505,831,514 2,737,875,480
542,766,539 1,085,533,078 1,990,143,976 3,618,443,593
Net Retail Receipts 6,061,494,304 12,122,988,607 22,225,479,115 40,409,962,026
Add: 2% Printing cost 880,568,112 - - 880,568,112
Additional 20% for payment
of DST 2,737,875,481 -  -  2,737,875,481
Gross Revenue 9,679,937,897 12,122,988,607 22,225,479,115 44,028,405,619

2018
Operating Charity Prize Total
(As Restated) (As Restated) (As Restated) (As Restated)
Retail Receipts 9,535,549,348 19,070,108,632 34,961,865,826 63,567,523,806
Less: Printing cost 190,701,086 381,402,173 699,237,317 1,271,340,576
Documentary stamp tax 170,237,501 340,475,001 624,204,169 1,134,916,671
360,938,587 721,877,174 1,323,441,486 2,406,257,247

Net Retail Receipts 9,174,610,761 18,348,231,458 33,638,424,340 61,161,266,559

Add: 2% Printing cost 1,248,358,096 - - 1,248,358,096
Additional 20% for payment
of DST 1,134,916,671 -  -  1,134,916,671
Total Income from Operations 11,557,885,528 18,348,231,458 33,638,424,340 63,544,541,326
Less: Share of ISAC from NISP 151,684,368 67,798,316 588,408,944 807,891,628
Gross Revenue 11,406,201,160 18,280,433,142 33,050,015,396 62,736,649,698
PCSO’s retail receipts:

  2019 2018
Sweepstakes 11,250,000 4,867,500
NISP 961,013,774 1,149,124,000
STL 19,875,355,747 26,112,538,884
Keno 1,753,286,419 4,397,969,030
Lotto 21,358,729,500 31,902,529,360
63
Peryahan 68,770,179  495,032
Total 0 0

In accordance with the provision of PCSO Charter, specifically Section 6 of RA No. 1169, as
amended by Batas Pambansa Bilang 42, the gross receipts generated from the sale of tickets
whether for sweepstakes, lotteries or similar activities, shall be deducted the printing cost of
such tickets, which in no case shall exceed two per cent (2%) of such gross receipts to arrive at
the net receipts. The net receipts shall be allocated as follows:

a. Fifty-five per cent (55%) shall be set aside as Prize Fund.

b. Thirty per cent (30%) shall be set aside as contributions to the Charity Fund.
c. Fifteen per cent (15%) shall be set aside as contributions to Operating Expenses
and Capital Expenditures of the Office.

24. EXPENSES

2019
      Operating Charity Prize 2019
Personnel Services
Salaries and wages 431,794,903 - - 431,794,903
Personnel economic relief allowance (PERA) 23,575,526 - - 23,575,526
Representation and transportation allowance (RATA) 18,972,059 - - 18,972,059
Clothing/Uniform allowance 6,612,000 - - 6,612,000
Subsistence allowance 505,500 - - 505,500
Laundry allowance 67,500 - - 67,500
Hazard pay 3,401,037 - - 3,401,037
Longevity pay 2,837,754 - - 2,837,754
Overtime and night pay 2,951,835 - - 2,951,835
Year -end bonus 75,375,751 - - 75,375,751
Cash gift 5,305,500 - - 5,305,500
Other bonuses and allowances 95,517,563 - - 95,517,563
Retirement and life insurance premiums 51,183,341 - - 51,183,341
Pag-IBIG contributions 1,227,997 - - 1,227,997
PhilHealth contributions 4,373,997 - - 4,373,997
Employees compensation insurance premiums 1,181,548 - - 1,181,548
Provident/Welfare fund contributions 86,981,863 - - 86,981,863
Terminal leave benefits 42,211,414 - - 42,211,414
Retirement gratuity - - - -
Other personnel benefits (572,920) - - (572,920)
Total Personal Services 853,504,168 - - 853,504,168

Operating Charity Prize 2019

Maintenance and Other Operating Expenses
Traveling expenses 14,456,173 - - 14,456,173
Training expenses 12,189,312 - - 12,189,312
Office supplies expenses 14,341,903 - - 14,341,903
Drugs and medicines expenses - 10,712,000 - 10,712,000
Medical, dental and laboratory supplies expenses - 733,347 - 733,347
Fuel, oil and lubricants expenses 5,727,527 - - 5,727,527
Military & police supplies expenses - - - -
Play/Bet slips and thermal rolls supplies expenses 382,480,671 - - 382,480,671
Electrical supplies and materials expenses 175,608 - - 175,608
Semi-expendable furniture, Fixtures and books expenses 4,426,678 - - 4,426,678
Semi-expendable machinery and equipment expenses 694,522 - 694,522
Accountable forms expenses 1,125 - 1,125
64
       Operating Charity Prize 2019
Other supplies and materials expenses 6,249,162 - - 6,249,162
Utility expenses 33,416,970 - - 33,416,970
Communication expenses 14,258,667 - - 14,258,667
Extraordinary and miscellaneous expenses 537,499 - - 537,499
Professional services 170,751,766 - - 170,751,766
General services 67,393,675 - - 67,393,675
Repairs and maintenance 6,575,205 - - 6,575,205
Taxes, duties and licenses 24,177,656 14,093,583 950,566 39,221,805
Fidelity bond premiums 1,074,931 - - 1,074,931
Insurance expenses 4,955,840 - - 4,955,840
Other maintenance and operating expenses
Rent expenses 299,496,131 505,336,347 926,449,971 1,731,282,449
Advertising expenses 132,340,146 - - 132,340,146
Donation expenses 17,639,843 - - 17,639,843
Documentary stamps expenses 2,737,875,481 1,443,152,459 - 4,181,027,940
Transportation and delivery expenses 4,025,540 - - 4,025,540
Printing and publication expenses 197,540,640 - - 197,540,640
Representation expenses 399,521 - - 399,521
Membership dues & contribution to organization 833,439 - - 833,439
Subscription expenses 262,812 - - 262,812
Directors and committee members' fees 4,934,400 - - 4,934,400
Lottery draws expenses 478,780,089 - - 478,780,089
Fees and commission - seller's share/commission
(sweepstakes) - - - -
Fees and commission - commission expenses - - 3,954,499,586 3,954,499,586
Other maintenance and operating expenses 1,980,608,657 56,699,813 - 2,037,308,470
Prize Expenses
Jackpot prizes - - 2,441,086,343 2,441,086,343
Low Tier prizes - - 13,608,479,347 13,608,479,347
Winning tickets - sweepstakes - - 2,805,375 2,805,375
5% Prize fund tax - - 936,906,925 936,906,925
Seller's share (Lotto) - - - -
Total Maintenance and Other Operating Expenses 6,618,621,589 2,030,727,549 21,871,178,113 30,520,527,251

Financial Expenses
Financial charges 14,347,047 1,036,462 74,800 15,458,309

Non-Cash Expenses
Depreciation expenses 140,784,738 - - 140,784,738
Amortization-intangible assets 19,357,578 - - 19,357,578
Total Non-Cash Expenses 160,142,316 - - 160,142,316
Financial Assistance/Subsidy/Contribution
Individuals - 6,196,895,790 - 6,196,895,790
National government agencies - 949,281,875 - 949,281,875
Local government units - 441,002,858 - 441,002,858
Non-government organizations/People's
organizations - 2,191,473 - 2,191,473
Other charity expenses - 685,623,418 - 685,623,418
Total Financial Assistance/Subsidy/Contribution - 8,274,995,414 - 8,274,995,414
TOTAL OPERATING EXPENSES 7,646,615,120 10,306,759,425 21,871,252,913 39,824,627,458

2018
Operating Charity Prize 2018
  (As Restated) (As Restated) (As Restated) (As Restated)
Personnel Services
Salaries and wages 465,865,101 - - 465,865,101

65
 Operating Charity Prize 2018
  (As Restated) (As Restated) (As Restated) (As Restated)
Personnel economic relief allowance (PERA) 27,335,642 - - 27,335,642
Representation and transportation allowance (RATA) 19,799,448 - - 19,799,448
Clothing/Uniform allowance 6,962,000 - - 6,962,000
Subsistence allowance 649,200 - - 649,200
Laundry allowance 86,850 - - 86,850
Hazard pay 3,926,501 - - 3,926,501
Longevity pay 2,830,115 - - 2,830,115
Overtime and night pay 4,497,808 - - 4,497,808
Year -end bonus 78,438,580 - - 78,438,580
Cash gift 5,736,250 - - 5,736,250
Other bonuses and allowances 98,652,641 - - 98,652,641
Retirement and life insurance premiums 56,280,121 - - 56,280,121
Pag-IBIG contributions 1,397,712 - - 1,397,712
PhilHealth contributions 5,148,807 - - 5,148,807
Employees compensation insurance premiums 1,461,592 - - 1,461,592
Provident/Welfare fund contributions 93,806,450 - - 93,806,450
Terminal leave benefits 38,015,855 - - 38,015,855
Retirement gratuity 2,618,743 - - 2,618,743
Other personnel benefits (1,120,231) - - (1,120,231)
Total Personal Services 912,389,185 - - 912,389,185
Maintenance and Other Operating Expenses
Traveling expenses 20,715,488 - - 20,715,488
Training expenses 20,958,634 - - 20,958,634
Office supplies expenses 22,044,077 - 22,044,077
Drugs and medicines expenses - 9,166,055 - 9,166,055
Medical, dental and laboratory supplies expenses (17,200) 606,653 - 589,453
Fuel, oil and lubricants expenses 6,011,749 - 6,011,749
Military & police supplies expenses 948 - 948
Play/Bet slips and thermal rolls supplies expenses 297,429,220 - - 297,429,220
Electrical supplies and materials expenses 94,287 - 94,287
Semi-expendable furniture, fixtures and books expenses 5,409,671 - 5,409,671
Other supplies and materials expenses 6,535,743 - - 6,535,743
Utility expenses 32,807,119 - - 32,807,119
Communication expenses 15,992,573 - - 15,992,573
Extraordinary and miscellaneous expenses 5,271,826 - - 5,271,826
Professional services 149,056,510 - - 149,056,510
General services 66,807,473 - 66,807,473
Repairs and maintenance 7,424,898 - - 7,424,898
Taxes, duties and licenses 118,401,164 12,250,126 1,414,622 132,065,912
Fidelity bond premiums 1,187,272 1,187,272
Insurance expenses 4,501,109 4,501,109
Other maintenance and operating expenses -
Rent expenses 610,628,668 1,021,808,798 1,873,316,131 3,505,753,597
Advertising expenses 149,956,068 - - 149,956,068
Donation expenses 23,878,488 - - 23,878,488
Documentary stamps expenses 1,134,916,671 8,306,939,740 - 9,441,856,411
Transportation and delivery expenses 4,450,546 - - 4,450,546
Printing and publication expenses 130,834,334 - - 130,834,334
Representation expenses 404,956 - - 404,956
Membership dues & contribution to organization 954,446 - - 954,446
Subscription expenses 325,648 - - 325,648
Directors and committee members' fees 7,697,920 - - 7,697,920
Lottery draws expenses 495,443,223 - - 495,443,223

66
 Operating Charity Prize 2018
  (As Restated) (As Restated) (As Restated) (As Restated)
Fees and commission - seller's share/commission
(sweepstakes) - - 1,216,875 1,216,875
Fees and commission - commission expenses - - 4,861,087,834 4,861,087,834
Other maintenance and operating expenses 2,859,695,057 - 736,812 2,860,431,869
Prize Expenses
Jackpot prizes - - 3,772,567,635 3,772,567,635
Low tier prizes - - 20,790,587,255 20,790,587,255
Winning tickets - sweepstakes - - 1,466,364 1,466,364
5% Prize fund tax - - 1,419,019,623 1,419,019,623
Seller's share (lotto) - - 21,452,956 21,452,956
Total Maintenance and Other Operating Expenses 6,199,818,586 9,350,771,372 32,742,866,107 48,293,456,065
Financial Expenses
Financial charges 5,800,901 40,180 243,908 6,084,989
Non-Cash Expenses
Depreciation expenses 70,384,915 - - 70,384,915
Amortization-intangible assets
Total Non-Cash Expenses 70,384,915 - - 70,384,915
Financial Assistance/Subsidy/Contribution
Individuals - 9,991,746,580 - 9,991,746,580
National government agencies - 885,425,422 - 885,425,422
Local government units - 1,286,871,404 - 1,286,871,404
Non-government organizations/People's
organizations - (77,876,040) - (77,876,040)
Other charity expenses - 73,256,444 - 73,256,444
Total Financial Assistance/Subsidy/Contribution - 12,159,423,810 - 12,159,423,810
TOTAL OPERATING EXPENSES 7,188,393,587 21,510,235,362 32,743,110,015 61,441,738,964

In conformity with PAS No. 8, the Expenses are restated as follows:

Amount
Unrestated amount as of December 31, 2018 463,753,170
Adjustment/Recording of Salaries and wages -regular-Head Office (407,882)
Payment of Salaries and wages - regular-Head Office 2,519,813
Restated amount as of December 31, 2018 - Salaries and wages (Operating fund) 465,865,101
Unrestated amount as of December 31, 2018 27,273,915
Adjustment/Recording of Personnel economic relief allowance-Head Office (22,273)
Payment of Personnel economic relief allowance-Head Office 84,000
Restated amount as of December 31, 2018 - PERA (Operating fund) 27,335,642
Unrestated amount as of December 31, 2018 19,806,948
Adjustment/Recording of Transportation allowance-Head Office (3,000)
Adjustment/Recording of Representation allowance-Head Office (3,000)
Payment of Transportation allowance-Branches (250)
Payment of Representation allowance-Branches (250)
Payment of Representation allowance-Head Office (500)
Payment of Transportation allowance-Head Office (500)
Restated amount as of December 31, 2018 - Representation and Transportation allowance (Operating fund) 19,799,448

Unrestated amount as of December 31, 2018 6,946,000

Payment of Clothing/Uniform allowance-Head Office 16,000
Restated Amount as of December 31, 2018 - Clothing/Uniform allowance (Operating fund) 6,962,000
Unrestated amount as of December 31, 2018 4,302,200
Payment of Overtime and night pay-Head Office 195,608
Restated amount as of December 31, 2018 - Overtime and night pay (Operating fund) 4,497,808
67
 Amount

Unrestated amount as of December 31, 2018 78,001,468

Payment of 13th Month pay-Head Office 80,241
Payment of Mid-year bonus-Head Office 356,871
Restated amount as of December 31, 2018 – Year-end bonus (Operating fund) 78,438,580

Unrestated amount as of December 31, 2018 5,716,250

Payment of Cash gift-Head Office 20,000
Restated amount as of December 31, 2018 - Cash gift (Operating fund) 5,736,250

Unrestated amount as of December 31, 2018 98,440,644

Payment of Rice allowance-Head Office 211,997
Restated amount as of December 31, 2017 - Other bonuses and allowances (Operating fund) 98,652,641

Unrestated amount as of December 31, 2018 55,903,113

Adjustment/Recording of Retirement and life insurance premiums-Branches (3,472)
Payment of Retirement and life insurance premiums-Head Office 380,480
Restated amount as of December 31, 2018 - Retirement and life insurance premiums (Operating fund) 56,280,121

Unrestated amount as of December 31, 2018 1,398,842

Adjustment/Recording of Pag-IBIG contributions-Branches (1,564)
Payment of Pag-IBIG contributions-Head Office 434
Restated amount as of December 31, 2018 - Pag-IBIG contributions (Operating fund) 1,397,712
Unrestated amount as of December 31, 2018 5,125,366
Payment of PhilHealth contributions-Head Office 100
Payment of PhilHealth contributions-Branches 33,450
Adjustment/Recording of PhilHealth contributions-Branches (10,109)
Restated amount as of December 31, 2018 - PhilHealth Contributions (Operating Fund) 5,148,807
Unrestated amount as of December 31, 2018 1,458,760
Payment of Employees compensation insurance premium-Head Office 4,400
Adjustment/Recording of Employees compensation insurance premium-Branches (1,568)
Restated amount as of December 31, 2018 - Employees compensation insurance premium (Operating fund) 1,461,592

Unrestated amount as of December 31, 2018 93,359,759

Payment of Provident/Welfare fund contributions-Head Office 446,691
Restated amount as of December 31, 2018 - Provident/Welfare Fund Contributions (Operating Fund) 93,806,450

Unrestated amount as of December 31, 2018 37,824,706

Adjustment/Recording of Terminal leave benefits-Branches (4,541)
Adjustment/Recording of Terminal leave benefits-Head Office 123,913
Payment of Terminal leave benefits-Head Office 71,777
Restated amount as of December 31, 2018 - Terminal leave benefits (Operating fund) 38,015,855

Unrestated amount as of December 31, 2018 134,731

Adjustment/Recording of Special legal counsel allowance-Head Office 5,000
Payment of Other personnel benefits-Carplan-Head Office (1,259,962)
Restated amount as of December 31, 2018 - Other personnel benefits (Operating fund) (1,120,231)

Unrestated amount as of December 31, 2018 20,278,442

Adjustment/Recording of Travelling expenses - local - Branch 83,415
Adjustment/Recording of Travelling expenses - local - Head Office 161,020
Payment of Travelling expenses - local - Branch (13,224)
Payment of Travelling expenses - local - Head Office 205,835
Restated amount as of December 31, 2018 - Traveling expenses (Operating fund) 20,715,488
Unrestated amount as of December 31, 2018 20,936,187
Adjustment/Recording of Training expenses - Head Office (92,053)
Adjustment/Recording of Training expenses - Branch (0)
Payment of Training expenses - Local - Head Office 114,500
68
 Amount
Restated amount as of December 31, 2018 - Training expenses (Operating fund) 20,958,634

Unrestated amount as of December 31, 2018 16,364,984

Adjustment/Recording of Reclassification of Office supplies expenses - Branch 28,419
Adjustment/Recording of Reclassification of Office supplies expenses - Head Office 5,648,188
Payment of Office supplies expenses - Head Office 2,486
Restated amount as of December 31, 2018 - Office supplies expenses (Operating fund) 22,044,077

Unrestated amount as of December 31, 2018 5,896,842

Adjustment/Recording of Fuel, Oil and Lubricants Expenses - Branch (0)
Payment of Fuel, Oil and Lubricants Expenses - Branch 71,076
Payment of Fuel, Oil and Lubricants Expenses - Head Office 43,831
Restated amount as of December 31, 2018 - Fuel, Oil and Lubricants Expenses (Operating Fund) 6,011,749

Unrestated amount as of December 31, 2018 5,475,247

Adjustment/Recording of Semi-expendable expenses - Branch (65,576)
Restated amount as of December 31, 2018 - Semi-expendable furniture, fixtures and books expenses
(Operating fund) 5,409,671

Unrestated amount as of December 31, 2018 4,999,818

Adjustment/Recording of Other supplies and materials expenses - Head Office 758,366
Adjustment/Recording of Other supplies and materials expenses - Branch 15,298
Payment of Other supplies and materials expenses - Branch (161,405)
Payment of Other supplies and materials expenses - Home Office 923,666
Restated amount as of December 31, 2018 - Other supplies and materials expenses (Operating fund) 6,535,743
Unrestated amount as of December 31, 2018 31,054,755
Adjustment/Recording of Electricity expenses - Branch 20,296
Payment of Water expenses - Branch 2,656
Adjustment/Recording of Water expenses - Branch (3,100)
Payment of Electricity expenses - Head Office 1,610,004
Payment of Water expenses - Head Office 122,508
Restated amount as of December 31, 2017 - Utility expenses (Operating fund) 32,807,119
Unrestated amount as of December 31, 2018 93,587
Payment of Electrical supplies and materials expense - Head Office 700
Restated amount as of December 31, 2018 - Electrical supplies and materials expenses (Operating fund) 94,287
Unrestated amount as of December 31, 2018 14,976,713
Adjustment/Recording of Postage and courier services expenses - Branch (4,926)
Adjustment/Recording of Postage and courier services expenses - Head Office (122,100)
Payment of Postage and courier services expenses - Head Office 130,696
Payment of Telephone expenses - landline - Head Office 303,510
Adjustment/Recording of Telephone expenses - landline - Branch 9,971
Adjustment/Recording of Telephone expenses - mobile - Branch (24,332)
Payment of Telephone expenses - mobile - Head Office 40,987
Payment of Internet expenses - Head Office 682,054
Restated amount as of December 31, 2018 - Communication expenses (Operating fund) 15,992,573

Unrestated amount as of December 31, 2018 256,727

Adjustment/Recording of Confidential expenses - Head Office 5,000,000
Payment of Extraordinary and miscellaneous expenses - Head Office 15,099
Restated amount as of December 31, 2018 - Extraordinary and miscellaneous expenses (Operating fund) 5,271,826

Unrestated amount as of December 31, 2018 944,068

Adjustment/Recording of Membership dues & contribution to organization - Branch (1,000)
Adjustment/Recording of Membership dues & contribution to organization - Head Office 11,378
Restated amount as of December 31, 2018 - Membership dues & contribution to organization (Operating
fund) 954,446

69
 Amount
Unrestated amount as of December 31, 2018 146,519,525
Adjustment/Recording of Auditing services expenses - Branch (926)
Payment of Auditing services expenses - Head Office 9,190
Adjustment/Recording of legal services expenses - Branch (180)
Adjustment/Recording of consultancy services expenses - Head Office (40,500)
Payment of Other professional services - Head Office 2,250,310
Payment of Consultancy services expenses - Head Office 319,091
Restated amount as of December 31, 2018 - Professional services (Operating fund) 149,056,510

Unrestated amount as of December 31, 2018 58,112,005

Adjustment/Recording of Janitorial services - Head Office (436,513)
Payment of Janitorial services - Head Office 825,095
Payment of Security services - Head Office 8,306,886
Restated amount as of December 31, 2018 - General services (Operating fund) 66,807,473

Unrestated amount as of December 31, 2018 7,379,964

Adjustment/Recording of Repairs & maintenance-motor vehicles - Branch (18,400)
Adjustment/Recording of Repairs & maintenance-motor vehicles - Head Office (976,755)
Adjustment/Recording of Repairs & maintenance-other machinery and equipment - Head Office (16,618)
Adjustment/Recording of Repairs and maintenance-office equipment - Head Office (5,600)
Adjustment/Recording of Repairs and maintenance-leasehold improvements, buildings - Head Office 330,572
Adjustment/Recording of Repairs and maintenance-leasehold improvements, buildings - Branch 55,411
Payment of Repairs & maintenance expenses - leasehold improvements, buildings - Head Office 77,753
Payment of Repairs & maintenance-other machinery and equipment - Head Office 10,786
Payment of Repairs & maintenance-motor vehicles - Head Office 587,785
Restated amount as of December 31, 2018 - Repairs and maintenance Expenses (Operating fund) 7,424,898

Unrestated amount as of December 31, 2018 118,266,392

Adjustment/Recording of Taxes, duties and fees - Branch 284
Adjustment/Recording of Taxes, duties and fees - Head Office 134,338
Payment of Taxes, duties and fees - Head Office 150
Restated amount as of December 31, 2018 - Taxes, duties and licenses (Operating fund) 118,401,164
Unrestated amount as of December 31, 2018 12,153,637
Adjustment/Recording of Taxes, duties and fees - Head Office 96,489
Restated amount as of December 31, 2018 - Taxes, duties and licenses (Charity fund) 12,250,126

Unrestated amount as of December 31, 2018 1,414,161

Adjustment/Recording of Taxes, duties and fees - Head Office 461
Restated amount as of December 31, 2018 – Taxes, duties and licenses (Prize fund) 1,414,622

Unrestated amount as of December 31, 2018 609,890,784

Adjustment/Recording of Rent expenses - building - Branches 90,552
Payment of Rent expenses - copier - Head Office 647,332
Restated amount as of December 31, 2018 - Rent (Operating fund) 610,628,668
Unrestated amount as of December 31, 2018 147,914,867
Payments of Advertising expenses - Head Office 3,256,201
Adjustments/Recording of Advertising expenses - Head Office (1,215,000)
Restated amount as of December 31, 2018 - Advertising expenses (Operating fund) 149,956,068

Unrestated amount as of December 31, 2018 24,100,994

Adjustment/Recording of Donation expenses - Head Office (242,506)
Payment of Donation expenses - Head Office 20,000
Restated amount as of December 31, 2018 - Donation expenses (Operating fund) 23,878,488

Unrestated amount as of December 31, 2018 4,456,223

Payment of Transportation & delivery expenses - Branch (1,805)
Adjustment/Recording of Transportation & delivery expenses - Branch (3,872)
Restated amount as of December 31, 2018 - Transportation and delivery expenses (Operating fund) 4,450,546

70
 Amount

Unrestated amount as of December 31, 2018 7,365,120

Payment of COLA and amelioration-Board of Directors - Head Office 332,800
Restated amount as of December 31, 2018 - Directors and committee members' fees (Operating fund) 7,697,920

Unrestated amount as of December 31, 2018 383,146

Adjustment/Recording of Representation expenses - Head Office 21,810
Restated amount as of December 31, 2018 - Representation expenses (Operating fund) 404,956
Unrestated amount as of December 31, 2018 303,546
Payment of Subscription expenses - Head Office 22,102
Restated amount as of December 31, 2017 - Subscription expenses (Operating fund) 325,648

Unrestated amount as of December 31, 2018 495,337,823

Adjustment/Recording of Holding of Lottery draws - STL - Branch 21,675
Payment of Holding of Lottery draws - STL - Head Office 83,725
Restated amount as of December 31, 2018 - Lottery draws expenses (Operating Fund) 495,443,223

Unrestated amount as of December 31, 2018 2,857,461,453

Adjustment/Recording of Job order – Head Office (202,835)
Payment of Job order - Head Office 420,229
Payment of Lotto draw allowance - Head Office 833,919
Payment of Miscellaneous expenses - Operating fund - Branch 25,000
Adjustment/Recording of Miscellaneous expenses - Operating fund - Branch (102,065)
Adjustment/Recording of Miscellaneous expenses - Operating fund - Head Office 1,005,488
Payment of Miscellaneous expenses - Operating fund - Head Office 253,868
Restated amount as of December 31, 2018 - Other maintenance and operating expenses (Operating fund) 2,859,695,057

Unrestated amount as of December 31, 2018 1,419,032,123

Adjustment/Recording of 5% Prize fund tax - sweepstakes - Head Office (12,500)
Restated amount as of December 31, 2018 - 5% Prize fund tax (Prize fund) 1,419,019,623

Unrestated amount as of December 31, 2017 3,819,831,848

Adjustment/Recording of Prizes-Lotto-Jackpot-Head Office (47,264,213)
Restated amount as of December 31, 2018 - Jackpot prizes (Prize fund) 3,772,567,635

Unrestated amount as of December 31, 2017 20,781,925,789

Adjustment/Recording of Prizes-Keno-Lower Prize Above 10,000 -Branches 17,000
Adjustment/Recording of Prizes-Keno-Lower Prize Above 10,000 -Head Office 1,451,706
Adjustment/Recording of Prizes-Lotto-Lower Prize Above 10,000 -Branches (40,582)
Adjustment/Recording of Prizes-Lotto-Lower Prize Above 10,000 -Head Office 7,185,342
Payment of Prizes-Keno-Lower Prize Above 10,000 -Head Office 48,000
Restated amount as of December 31, 2017 - Low tier prizes (Prize fund) 20,790,587,255

Unrestated amount as of December 31, 2018 1,436,364

Adjustment/Recording of Prizes-Sweepstakes-Lower Prize Above 10,000-Head Office 30,000
Restated amount as of December 31, 2018 – Winning tickets - sweepstakes (Prize fund) 1,466,364

Unrestated amount as of December 31, 2018 5,715,592

Adjustment/Recording of Other financial charges - Head Office 67,100
Adjustment/Recording of Bank charges - Head Office 9,261
Adjustment/Recording of Bank charges - Branch 8,948
Restated amount as of December 31, 2018 - Financial charges (Operating fund) 5,800,901

Unrestated amount as of December 31, 2018 70,202,559

Adjustment/Recording of Depreciation expenses - furniture and fixtures - Branch 259
Adjustment/Recording of Depreciation expenses - machinery & equipment - office equipment - Branch 46,210
Adjustment/Recording of Depreciation expenses - other leasehold improvements - Branch 2,125
Adjustment/Recording of Depreciation expenses - lease assets improvements - Branch 67,959

71
 Amount
Adjustment/Recording of Depreciation expenses - machinery & equipment - other property, plant &
equipment - Branch 57,823
Adjustment/Recording of Depreciation expenses - machinery & equipment - information & communication
equipment - Branch 7,980
Restated amount as of December 31, 2018 - Depreciation expenses (Operating fund) 70,384,915

Unrestated amount as of December 31, 2018 606,653

Adjustment/Recording of Reclassification of Medical, dental & laboratory supplies expenses - Head Office (17,200)
Restated amount as of December 31, 2018 - Medical, dental & laboratory supplies expenses 589,453

Unrestated amount as of December 31, 2017 8,999,843,302

Adjustment/Recording of EMAP-Branch (297,708)
Adjustment/Recording of EMAP-Head Office 1,704,107
Adjustment/Recording of IMAP-Branch (18,994,726)
Adjustment/Recording of IMAP-Head Office 962,333,525
Adjustment/Recording of Endowment fund-Head Office (3,963,197)
Adjustment/Recording of IMAP Help Desk-Head Office (91,375)
Payment of EMAP-Branch 58,677
Payment of EMAP-Head Office 2,456,299
Payment of IMAP-Branch (315,892)
Payment of IMAP-Head Office 32,626,417
Payment of IMAP Help Desk-Head Office 16,387,151
Restated amount as of December 31, 2018 - Individuals (Charity fund) 9,991,746,580

Unrestated amount as of December 31, 2018 1,050,751,644

Adjustment/Recording of Congressional share-Head Office (22,261,407)
Adjustment/Recording of National Bureau of Investigation-Head Office (29,866)
Adjustment/Recording of Philippine National Police-Head Office (74,354,023)
Adjustment/Recording of National Commission of Indigenous Peoples-Head Office (44,000,000)
Adjustment/Recording of National Voluntary Blood Services Program-Head Office (25,000,000)
Payment of Quezon Institute (RA No. 4703)-Head Office 319,074
Restated amount as of December 31, 2018 - National government agencies (Charity fund) 885,425,422

Unrestated amount as of December 31, 2018 1,428,031,121

Adjustment/Recording of Share of LGU on Charity fund-Head Office (140,819,365)
Payment of Share of LGU on Charity fund-Head Office (340,352)
Restated amount as of December 31, 2018 - Local government units (Charity fund) 1,286,871,404

Unrestated amount as of December 31, 2018 771,137

Adjustment/Recording of CMW Scholarship Foundation-Head Office (78,647,177)
Restated amount as of December 31, 2018 - Non-government organizations/People's organizations (Charity
fund) (77,876,040)

Unrestated amount as of December 31, 2018 198,977,833

Adjustment/Recording of Other Health and Welfare Related Programs-Head Office 315,803
Adjustment/Recording of National Shelter Program-Head Office (83,876,582)
Adjustment/Recording of Purchase of Medical dental/hospital equipment and supplies-Head Office (29,564,950)
Adjustment/Recording of Regular Beneficiary - Head Office (22,129,500)
Adjustment/Recording of Charity fund - Peryahan/STL 9,719,045
Payment of Aids for Victims of National Calamities-Head Office (185,205)
Restated amount as of December 31, 2018 - Other charity expenses (Charity Fund) 73,256,444

25. LEASE AGREEMENTS

PCSO as a lessee
72
Variable lease payments based on sales

The PCSO entered into equipment lease agreement with Philippine Gaming Management
Corporation (PGMC), Pacific Online and Systems Corporation and Total Gaming Technologies,
Inc., as lessee covering the on-line lottery equipment and accessories for PCSO’s on-line lottery
operation nationwide. PCSO paid the following rates of the gross amount of tickets purchased
through the respective terminals of the service providers as lease fee.

Right-of-use Assets

PCSO entered into lease agreement with the following companies for PCSO’s Main Office and
the PCSO has determined that all significant risks and rewards of ownership of this property
remain with the lessor.

The PCSO shall pay the lessor the total amount of rental and with an escalation rate of 5% per
annum.

Conservatory Building Sun Plaza Building Parking Slot

4,318 sq.m. at initial rate 3,803.5 sq.m. at initial rate 56 slots at
Amount of Rent
of P1,029.00/sq.m. of P1,029.00/sq.m. P4,708.5045
Remaining Lease term 2 years 2 years 2 years
Total 109,303,261 96,279,517 6,486,436
Discount rate 5.18% 5.18% 5.18%
Net Present Value 103,554,505 91,215,738 6,145,285
Balance at January 1, 2019 103,554,505 91,215,738 6,145,285
Depreciation charge for the year 51,777,252 45,607,869 3,072,642
Balance at December 31, 2019 51,777,253 45,607,869 3,072,643

The amounts of principal and interest that comprised of each rental payments are shown in the
amortization table below:

Period Opening Balance Interest Expense Principal Payment

1-Jan-19 P 200,915,528 P - P -
30-Jan-19 193,162,113 867,285 7,753,415
28-Feb-19 185,375,230 833,816 7,786,883
30-Mar-19 177,554,733 800,203 7,820,497
30-Apr-19 169,700,478 766,445 7,854,255
30-May-19 161,812,319 732,540 7,888,159
30-Jun-19 153,890,109 698,490 7,922,210
30-Jul-19 145,933,702 664,292 7,956,407
30-Aug-19 137,942,949 629,947 7,990,753
30-Sep-19 129,917,703 595,454 8,025,246
30-Oct-19 121,857,815 560,812 8,059,888
30-Nov-19 113,763,134 526,019 8,094,681
30-Dec-19 105,633,512 491,078 8,129,622
Total P0 P0

73
26. SUPPLEMENTARY INFORMATION REQUIRED BY THE BUREAU OF INTERNAL
REVENUE UNDER REVENUE REGULATION NOS. 15-2010 AND 19-2011

The following information are presented for purposes of filing with the BIR and are not a
required part of the basic financial statements:

Revenue Regulation No. 15-2010

Withholding Taxes for 2019

Withholding taxes paid and accrued during the year is as follows:

Amount
Withholding tax on compensation 52,358,641
Withholding tax at source (expanded) 517,894,598
Total 0

Other Taxes and Licenses for 2019

Details of the PCSO’s documentary stamp tax paid or accrued are as follows:

Tax Type Amount

Final tax 1,695,900,615
Final VAT withheld 222,940,838
Documentary stamp tax 9,123,882,853
Fringe benefit tax -
Corporate income tax 2,146,376,721
Total 0

27. RELATED PARTY TRANSACTIONS

The Corporation’s related parties include the Corporation’s key management personnel as
described below.

Compensation of Key Management Personnel of the Corporation

The compensation of key management personnel included in the Administrative Expenses in

the Statements of Comprehensive Income amounted to P5,552,080.01 and P10,553,231.70 for
the years 2019 and 2018, respectively, as short-term employee benefits.

Short-term employee benefits include annual salaries, allowances, honoraria, and other non-
monetary benefits.

28. PENDING LEGAL CASES

Presently, there are 38 pending cases at the PCSO Legal Department related to lotto,
sweepstakes and other gaming operations. These are categorized into civil, criminal and other
cases against erring sweepstakes and lotto agents.
74
 No. of Total Amount
    Cases (Principal/Interest/MRR)
I. Criminal Cases    
  A. Sweepstakes Defaulted Accounts    
  Provincial Distributors 2 5,799,486.06
  Sales Representatives 3 5,603,767.75
  Authorized Agents 3 4,140,000.00
  Sales Manager 1 15,319.20
  Sub-total 0 0
  B. Lotto Defaulted Accounts    
  National Capital Region (NCR) Department 11 12,936,052.77
  Northern and Central Luzon (NCL) Department 2 5,349,524.91
  Visayas and Mindanao Department 7 10,080,357.57
  Sub-total 0 0
  Total 29 43,924,508.26
II. Civil Cases    
  A. Sweepstakes Defaulted Accounts    
  Provincial Distributors 5 7,901,224.49
  Sales Supervisors 1 548,895.66
  Sub-total 6 0
  B. Lotto Defaulted Accounts    
  National Capital Region (NCR) 3 6,398,424.98
  Sub-total 3 6,398,424.98
  Total 9 14,848,545.13
 Grand Total 38 58,773,053.39

Other Cases  
  A. TMA Group of Companies Pty. Ltd.  
  B. Philippine Gaming and Management Corporation  
  C. DFNN Inc.  
  D. Globaltech Mobile Online Corporation    

Status Report of PCSO Cases

Case Title Nature Cause of Action Status

TMA

75
Case Title Nature Cause of Action Status
TMA Group of Specific Performance PCSO suspended and later Decision dated 05
Companies Pty. Ltd., et and Mandatory on, terminated the December 2017.
al vs. PCSO, Chairman Prohibitory Injunction Contractual Joint Venture
Margarita P. Juico, et al. with Prayer for TRO Agreement with TMA for the Order of Execution dated
(Civil Case No. 11-310, and/or Preliminary supply of paper in PCSO’s 18 January 2018 and 13
RTC-Makati City, Branch Injunction gaming operations. February 2018.
66)
Garnishment of
P707,223,555.41.

PCSO filed a Notice of

Appeal as of December
2017.
TMA Group of Indirect contempt The alleged purchase of Awaiting Order resetting the
Companies Pty. Ltd. vs. paper supply by PCSO to hearing on Plaintiff’s initial
PCSO, Dirs. Joaquin, POSC and PGMC during the presentation of evidence.
Mamba, Nantes & existence of a writ of
Tolentino (Special Civil preliminary injunction dated
Case No. 11-569, RTC- 16 May 2011
Makati City, Branch 66)
PCSO, et al. vs. TMA Petition for Review on Assails the issuance of the Filed Petition for Review on
Group of Companies Certiorari with Urgent writ of preliminary injunction Certiorari with Urgent
Pty., Ltd. et al. (G.R. No. Motion for Issuance of a dated 16 May 2011 Motion for Issuance of TRO
212143) TRO and/or writ of and WPI. A TRO dated 20
preliminary injunction October 2014 was issued
against TMA to stop it from
unloading paper and at
prices fixed by the 6
November 2013 Order the
in Civil Case No. 11-310.
Parties filed a Joint Motion
for Suspension of
Proceedings on 18 June
2015. SC’s 20 January
2016 Resolution noted
Respondents’ Manifestation
to immediately inform the
Court once the parties have
arrived at mutually
acceptable Compromise
Agreement.

PCSO et al vs. TMA Petition for Review on Assails the Decision and Filed on 22 August 2016
Group of Companies Pty. Certiorari Resolution of the Court of
Ltd. (G.R. No. 225457) Appeals dismissing PCSO’s
petition for certiorari and
affirming the orders of the
RTC-Makati City, Branch
133 in Civil Case No. 11-310
granting TMA’s Motion for
the Issuance of Writ of
Execution against PCSO for
the amount of
P82,354,037.32 representing
76
Case Title Nature Cause of Action Status
the deliveries of lotto paper
supply pursuant to the 6
November 2013 Order.

PCSO et. al vs. RTC et Certiorari Assailing the Orders dated Filed on 05 December
al. (CA G.R. No. SP No. 18 May 2016 and 20 2016. Filed Reply to
143220) September 2016 of RTC- Comment on 10 April 2017
Makati City, Branch 66
directing PCSO to order
paper from TMA.

PCSO vs. Hon. Judge Petition for Certiorari TRO and Injunction Consolidated with the two
Joselito Villarosa (G.R. application on the Order of other SC petitions ((G.R.
No. 236888) Execution dated 18 January No. 212143 and G.R. No.
2018 of RTC-Makati 66 225457)

Decision dated 28 August

2019:
WHEREFORE, the Court
rules as follows:

(1) In G.R. No. 212143, the

Petition for Review on
Certiorari is GRANTED.
The Court of Appeals'
Decision dated March 27,
2014 in CA-G.R. SP No.
132655, is REVERSED and
SET ASIDE. The Orders
dated May 13, 2011,
September 4, 2013 and
November 6, 2013 of the
Regional Trial
Court of Makati City,
Branch 59, in Civil Case
No. 11-310 are DECLARED
VOID AND OF NO FORCE
AND EFFECT;

(2) In G.R. No. 225457, the

Petition for Review on
Certiorari is GRANTED.
The Court of Appeals'
Decision dated February 4,
2016 and Resolution dated
June 27, 2016 are
REVERSED and SET
ASIDE. The Orders dated
June 11, 2014 and August
12, 2014 of the Regional
Trial Court of Makati City,
Branch 133 in Civil Case
No. 11-310 are DECLARED
VOID AND OF NO FORCE
77
Case Title Nature Cause of Action Status
AND EFFECT; and

(3) In G.R. No. 236888, the

Petition for Certiorari is
GRANTED. The Order
dated January 18, 2018 of
the Regional Trial Court of
Makati City, Branch 66 in
Civil Case No. 11-310 is
ANNULLED and SET
ASIDE.

(4) TMA Group of

Companies Pty Ltd. (now
known as TMA Australia
Pty Ltd.), and TMA Group
Philippines, Inc., are
ORDERED to RETURN the
amount of P707,223,555.44
representing the amount
garnished under the Order
dated January 18, 2018 of
the Regional Trial Court of
Makati City, Branch 66 in
Civil Case No. 11-310.

SO ORDERED.

TMA filed Motion for

Reconsideration dated 20
November 2019

PCSO filed in March 2020 a

Manifestation and Urgent
Motion to Resolve.

Verified Complaint Admin before the OCA Assailing the propriety of Judge Villarosa was
against Judge Villarosa issuing order of execution as required to submit
Supplemental Complaint it run counters to rules of Comment on the Verified
COA. Supplemental was Complaint
filed with respect to
garnishment of
P707,223.555.41.

PCSO v. Judge Joselito Petition for Certiorari Assailing the 21 March 2018 Filed on 01 June 2018.
Villarosa, TMA Group of and Mandamus Order of RTC-Makati Pending with the CA.
Companies, Pty. Ltd. and granting the Motion for Resolution dated 10 July
TMA, CA-G.R.SP. No. Execution of the Decision 2018 requiring:
156017 (Petition for dated 05 December 2017
Certiorari and with prayer to direct Judge 1. Respondent to
Mandamus) before the Villarosa to transmit the Comment and
Court of Appeals records of the case to the petitioners to file a
Court of Appeals as a result Reply, if necessary.
of the filing of a Notice of 2. As to the prayer for

78
Case Title Nature Cause of Action Status
Appeal by PCSO. TRO/WPI, await
Comment and/or
Reply.
3. Directed to inform the
court of other cases
filed involving these
parties and issues.

TMA Australia Pty Ltd. & Indirect Contempt Comment/Opposition filed

TMA Group Philippines, on 8 August 2019
Inc, v. Philippine Charity TMA filed Request for
Sweepstakes Office Admission of Documents
R-MKT-19-02461-SC PCSO filed a Manifestation
before the Court of the 28
August 2019 Supreme
Court Decision

Verified Complaint Admin before the OCA Assailing the propriety of Pending before the OCA
against Judge Winlove issuing the 13 May 2011
Dumayas Order and 16 May 2011 Writ
of Preliminary Injunction and
the 6 November 2013 Order
TMA Group of Appeal Assailing the Decision dated PCSO has submitted its
Companies Pty. Ltd. 5 December 2017 in Civil Appellant’s Brief dated 1
(Now Known as TMA Case No. 11-310 August 2019.
Australia Pty. Ltd.) and TMA submitted
TMA Group Philippines, Consolidated Appellees’
Inc., Plaintiffs-Appellees Brief
vs. Philippine Charity
Sweepstakes Office,
Margarita P. Juico, Ma.
Aleta Tolentino, Mabel V.
Mamba, Francisco G.
Joaquin III, Betty B.
Nantes, and Jose
Ferdinand M. Rojas II
CA-G.R. CV No. 112683

PGMC
Consolidated cases: Indirect contempt with PCSO allegedly violated the PCSO filed Manifestation
Philippine Gaming application for TRO Order dated 22 December and Motion on the dismissal
Management Corporation and/or Preliminary 2005 and Writ of Execution of the case in light of the
vs. PCSO, et al. (Civil Injunction dated 02 February 2006 of Arbitral Decision dated 20
Case No. 12530 and Civil RTC-Makati City, Branch 143 February 2018.
Case No. 12-011, RTC- confirming the Arbitral
Makati City, Branch 143) Decision granting exclusivity Confirmed Arbitral Award
to PGMC to operate online dated May 25, 2018
lotto terminals in Luzon
PGMC filed a Motion for
Reconsideration and a
Motion for Inhibition. PCSO
filed its Comment.

PCSO filed a Motion for

79
Case Title Nature Cause of Action Status
Execution of the confirmed
Arbitral Award.

Order of Inhibition was

issued by RTC-Br. 143.

-Re-raffled to Branch 135

-Petition to Vacate Award
filed by PGMC. In an Order
dated 02 April 2018, the
court required PCSO to file
Comment/Opposition on
the Petition to Vacate
Arbitral Award of PGMC
filed before RTC-Branch
148 (Judge Soriano)

Order dated 18 September

2019 denying PCSO Motion
for Reconsideration on
Joint Order dated 22 March
2019.

Motion to Withdraw Petition

was filed by PGMC on 25
September 2019

Motion to Withdraw Petition

for Indirect Contempt filed
25 September 2019

PCSO vs. PGMC (CA- Petition for certiorari PCSO assails the RTC’s The CA dismissed the
G.R. NO. 128259, Court with TRO and/or writ of denial of PCSO’s Motion to petition upon motion of
of Appeals) preliminary injunction Dismiss and Supplemental PCSO pursuant to the
Motion to Dismiss and its agreement of PCSO and
Motion for Reconsideration PGMC under the 2015
of the said denial in the Supplemental and Status
indirect contempt cases for Quo Agreement.
lack of jurisdiction and non- Considering that PGMC
compliance with the opposed the dismissal of
condition precedent prior to the indirect contempt
arbitration, among others. cases, contrary to the said
Agreement, PCSO filed a
Motion for Reconsideration,
which was denied by CA.

PCSO vs. PGMC Petition for Review on Assails the CA’s dismissal of After deliberating on the
(G.R. No. 228801) Certiorari PCSO’s petition Petition for Review on
Certiorari assailing the
Resolutions dated 01
March 2016 and 2
November 2016 of the CA
(CA-GR SP 128259), the
Court, without necessarily
80
Case Title Nature Cause of Action Status
giving due course, resolved
to require respondent to
Comment within 10 days
from notice.

PCSO filed Manifestation

and Motion on the dismissal
of the case in light of the
Arbitral Decision dated 20
February 2018.

DFNN INC.
PCSO vs. DFNN Inc. Petition for Review on Assails the Decision dated Filed on 13 October 2017.
(DFNNI) (G.R. No. Certiorari before the 17 November 2016 of the
234193) Supreme Court Court of Appeals dismissing PCSO is awaiting the SC’s
PCSO’s petition. The CA decision
likewise denied PCSO’ MR.

PCSO prays for the reversal

of the said Order granting
DFNN’s petition for
correction on the ground of
lack of jurisdiction by RTC-
Makati City, Branch 66 since
there is no evident
miscalculation of figures to
justify correction.
PCSO vs. DFNN (G.R. PCSO’s Petition for Assails the Decision dated PCSO Petition filed on 11
No. 232801) Review on Certiorari 20 February 2017 and August 2017.
before the Supreme Resolution dated 10 July
Court 2017 of the Court of Appeals PCSO is now awaiting the
granting DFNN’s Petition SC’s decision.
assailing the Order dated 11
April 2016 of the RTC-
Mandaluyong City, Branch
212 denying the motion to
consolidate PCSO’s petition
with DFNN Inc.’s petition
before RTC-Makati City,
Branch 66 and affirming its
jurisdiction over PCSO’s
petition for confirmation of
Arbitral Award dated 21 May
2015.

The Mandaluyong RTC was

directed to consolidate the
Petition for Confirmation with
the Petition for Correction
before the Makati RTC.

COA Claim DFNN Money Claim In light of the Order of Filed by DFNN on 23
Execution of the corrected January 2017.
Arbitral Award
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Case Title Nature Cause of Action Status
PCSO already filed the
Answer on 1 March 2017.

PCSO is awaiting the

COA’s Decision.

PCSO v. DFNN (CA- Petition for Certiorari Order of Execution granted CA dismissed PCSO’s
G.R. Sp No. 150401) by the RTC of the corrected Petition. On 31 May 2019
Arbitral Award PCSO filed an MR. On
18 July 2019 Resolution
directed DFNN to file
Comment
Motex to File
Comment/Opposition dated
26 July 2019
CA denied the MR on 27
September 2019

Petition for Review on Filed 15 November 2019

Certiorari
SC

GLOBALTECH
Globaltech Mobile Online Amended Complaint for Assails PCSO’s termination Order of Execution
Corporation vs. PCSO Preliminary Injunction on 17 February 2016 of its PCSO filed a Motion for
(Civil Case No. 75149- and Referral to Deed of Authority to Operate Reconsideration
PSG, RTC-Pasig City, Arbitration the Peryahan Games
Branch 161)

Remeliza Gabuyo vs. Criminal Complaint for Estafa was filed for PCSO’s Motion for
Jose Aguiling, et al. estafa Globaletch’s act of Reconsideration of
(Directors and officers of misappropriating Peryahan dismissal of the criminal
Globaltech Mobile Online sales due to PCSO in the complaint (25 January
Corp.) amount of P708,037,074.06. 2017) was denied by the
Office of the City
Prosecutor.

Petition for Review is

pending before the DOJ.

Global Mobile Injunction and damages TRO and Injunction to stop Fourth TRO hearing dated
Corporation vs. PNP, with prayer for TRO and the PNP to arrest Globaltech 23 March 2018
Dagupan Pangasinan WPI employees operating
Peryahan games. PCSO TRO application of
Civil Case No. 2018- was impleaded. Globaltech.
0001-D
Dismissed by Court PCSO filed Answer and
Comment to TRO.
Resolution dated 10 May
2019 – Motion for Denied TRO - 23 March
Reconsideration of 2018
Globaltech was granted.

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 Case Title Nature Cause of Action Status
Hearing on 20 September
2018

MR on Denied TRO is
Denied - Order dated 17
September 2018.

Globaltech v. PO3 Case filed by Globaltech PCSO Motion for

Reynold Luspo, et al. (for against members of the Intervention
Damages) docketed as police and PCSO’s STL
Civil Case No. 2018-757 agent who conducted The RTC admitted PCSO’s
before the Regional Trial operations against the intervention. In addition,
Court, Branch 39 of Peryahan ng Bayan within PCSO filed a
Cagayan de Oro Cagayan de Oro Comment/Opposition
against Globaltech’s Motion
to Archive the case pending
negotiations with the police
officers and the defendants.
PCSO’s position is that the
negotiation, if this is illegal
and the case should be
dismissed for lack of cause
of action.
Globaltech v. Saturn Case filed by Globaltech PCSO’s motion for
Gaming N’ Amusement against members of the intervention with attached
Corp., Atty. Dante Gierran police and PCSO’s STL Answer-in-Intervention is
and Atty, Antonio agent who conducted pending resolution. The
Pagatpat, NBI (for operations against the RTC required Globaltech to
Damages) as Civil Case Peryahan ng Bayan within file Comment. The NBI has
Man-8009 before the Mandaue City, Cebu. also filed its Answer.
Regional Trial Court,
Branch 88 of Mandaue
City

29. DIVIDENDS PAYABLE

Section 3 of RA No. 7656 dated November 9, 1993 and its Revised Implementing Rules and
Regulations (IRR) require Government Owned and/or Controlled Corporations (GOCC) to
declare and remit at least fifty per cent (50%) of their annual earnings as dividends to the
National Government.

The Commission on Audit (COA) issued audit observations pertaining to PCSO’s non-payment
of dividends for CYs 2012, 2013 and 2014 in the total amount of P4,034,319,731. However,
due to the provision in R.A No. 1169, otherwise known as the “PCSO Charter”, PCSO is
mandated that all balances of any funds shall regularly revert to and form part of the Charity
Fund, thus, there is nothing left to be declared and remitted as dividend. This matter has been
referred to the Department of Finance (DOF).

On March 16, 2016, the DOF clarified PCSO’s exemption from RA No. 7656, in its reply to the
COA’s inquiry regarding the applicability of The Dividends Law to PCSO.

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The DOF confirms that PCSO is not exempt from RA No. 7656, however, DOF recognizes that
PCSO’s Charter, RA No. 1169, mandates that all balances of any funds will be reverted to and
form part of the Charity Fund.

Likewise, DOF, through its then Asst. Secretary and Officer-in-Charge of the Corporate Affairs
Group and the Privatization and Office of Special Concerns shared that “DOF, PCSO and
Governance Commission for Government-Owned and/or Controlled Corporations (GCG) on 25
August 2015, it was agreed that PCSO will have to revert all accumulated surplus to the Charity
Fund in compliance with its Charter; then, DOF shall further reassess PCSO’s outstanding
dividend due, if any.”

DOF also recognized that PCSO does not have any outstanding dividends due covering prior
years until 2014, since unutilized Operating Fund was transferred to the Charity Fund.

On December 20, 2016, the Office of the Government Corporate Counsel (OGCC) rendered an
opinion on the applicability of the Dividends Law to PCSO. The OGCC is of the opinion that
since PCSO’s earnings has already been allocated, the remittance of 50% of its income to the
National Treasury is a violation of PCSO’s mandate. OGCC mentioned that “while PCSO
cannot remit dividends to the National Government, it is the public at large that in a way reaps
the benefits through the vital public service that they render, funding individual and institutional
assistance, as well as special programs”. It was further recommended that any deviation from
PCSO’s Charter should have corresponding amendment to the mandate of the law creating it.

In the DOF’s letter dated May 18, 2017, it was specified that PCSO has an outstanding dividend
due to National Government in the amount of P4,034.32 million for Fiscal Years (FYs) 2012 to
2014 and P1,202.50 million for FY 2016 or a total of P5,236.82 million.

On January 17, 2018, the COA Legal Services Sector, rendered an Opinion on the nature and
extent of the obligation of the PCSO relative to the declaration and remittance of dividends to
the National Government under RA No. 7656 and its IRR.

The COA Legal Affairs Office is of the position that “Section 3 of R.A. 7656 provides that all
GOCCs shall declare and remit at least 50% of their annual earnings as cash stock or property
dividends to the National Government while Section 6(D) of R.A. No. 1169 provides that all
balances of any funds in the PCSO shall revert to and form part of the Charity Fund.” It further
stated that “the provisions should be interpreted in a way that they can be harmonized in
accordance with the rules on statutory construction. Thus, the interpretation that any balance
from the Operating Fund will be reverted back to Charity Fund only after the declaration and
remittance of the required dividends under R.A. No. 7656, is more in accord with the purposes
and intents of the two laws.”

The COA Legal Affairs Office concluded that pending the approval of the President exempting
the PCSO from the unpaid dividends, the provision of RA No. 7656 on the remittance of
dividends should be applied in conjunction with PCSO’s Charter.

In May 2018, PCSO remitted Pesos: Two Billion Five Hundred Thirty Five Million Two Hundred
Eighty Nine Thousand One Hundred Fourteen and 49/100 (P2,535,289,114.49) to the Bureau of
the Treasury, representing the Dividend due for CY 2017.

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As of December 31, 2019, the PCSO is still negotiating with the DOF if indeed the PCSO would
be required to remit P8.422 billion for CYs 1994 to 2016. PCSO is in close contact with the
Corporate Affairs Group of the DOF, on the proposed settlement of arrears in Dividends.

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