CONSULTING TEAM’S DELIVERABLES

From the business consultancy proposal presented by AEFOR Financials to Sunhill

Educational Inc., the management decided that the following services will be acquired by the
company.
A. Financial Statement Analysis with Financial Sustainability Strategies
The financial statement analysis will include the years 2018 and 2019 financial
statements namely, balance sheet and income statement of the client. The analysis to
be conducted includes the horizontal analysis for 2018 and 2019, vertical analysis of
2018 and 2019, and ratio analysis namely, current asset ratio, receivables turnover, total
asset turnover and net profit margin. Since Sunhill Education Inc., is a nonstock,
nonprofit educational institution, financial sustainability is the main aspect that they
would like to enhance and improve especially during this pandemic.
With the current setup of the client, the client asks for help in formulating the
strategies for their financial sustainability in the long run, especially during this
pandemic.
B. Tax Advise
Together with the financial statement analysis, the client would also like to know
if there are certain rules and regulations in the latest tax laws that they are qualified.
The tax advise will compose of the latest pronouncements applicable to the nature and
type of organization that Sunhill Education Inc. is. Included in the tax advise are the
requirements and procedures to be done by the client once they are deemed qualified.

Originally, the team proposed to also conduct bookkeeping and preparation of the
financial statements for the client. However, the client decided that because they have ongoing
hiring for applicants in the accountant’s position, they opt to avail the financial statement
analysis and tax advise services instead.

TIMETABLE
 Illustrated below is the timetable AEFOR Financials in conducting the two services
availed by Sunhill Education Inc.,
 July July July July July July July July July July Aug Aug Aug Aug Aug Aug Aug
  22 23 24 25 26 27 28 29 30 31 1 2 3 4 5 6 7
Pre-consultation
with the client                              
Gathering of
needed materials
and information                              
Financial
Statement
Analysis                              
Formulation of
financial
sustainability
strategy                              
Researching
available tax laws                            
Formulation of
tax advise                              
Preparation of
the business
consultancy
report                              
Revisions on the                              
business
consultancy
report
Handing over of
the final business
consultancy
report to the
client
IMPLEMENTATION
A. Methodology
Pre-consultation was done through video conferencing and personal visits to the
main office of Sunhill Education Inc. Personal visits were limited due to the community
quarantine which was supplemented by video conferencing sessions with the contact
person. After the pre-consultation, the team requested permission to have copies of their
financial statements, namely the balance sheet statement and the income statement
accounts for the years 2017, 2018 and 2019. The client approved of our requests and
provided copies for the team. Due to the confidentiality of the values stated in their
financial statements, they only allowed the team to present the results of the tools with
percentages. The team then segregated the work to be done among each other. After the
tools were executed and the results were derived, recommendations were then formulated.
After the recommendations were formulated, the business consultancy report was
prepared.

B. Financial Statement Findings

AEFOR conducted the vertical analysis, horizontal analysis and the ratio analysis to
determine the financial status and interpret the results to aid the management in decision
making.
1. Balance Sheet
The horizontal analysis uses the current year and a base year to arrive at variances
to determine the increase or decrease in the line items. This is then converted to
percentages to better aid the management in decision making regarding sudden spikes or
sudden decreases and determine the root cause of such phenomenon. Below is the result of
the horizontal analysis of the team.
 Sunhill Education Inc.,
Balance Sheet
Horizontal Analysis
2017-2018
Percentage 2018-2019
  Change Percentage Change
ASSETS    
Cash and Cash Equivalents 20.00% 15.46%
Receivables 2006.82% 12.73%
Total Current Assets 206.97% 13.69%

Property, Plant and Equipment 4028.19% -5.00%

Other Noncurrent Assets -100.00% 0.00%
Total Noncurrent Assets -64.98% -5.00%

Total Assets 92.90% 12.27%

Liabilities    
Trade and Other Payables 97.77% 11.33%
Total Current Liabilities 97.77% 11.33%

Equity -577.51% -40.95%

Total Liabilities and Equity 92.90% 12.27%

As can be seen from the horizontal analysis, for the years 2017 and 2018, there is a
20% increase in their cash and a notable 2006.82% increase in their receivables. A sudden
increase of 92.90% in total assets happened in 2018 together with other notable increases
such as the liabilities with 97.77% increase. The client stated that this is due to their
 installment policies for their customers and a restatement of their financial statements in
2018, conforming to the accounting standards. 2017 and 2018 are therefore, not
comparable years.
For 2018 and 2019, it can be noted that the receivables of the client increased by
12.73%. A 5% decrease in Property, Plant and Equipment is due to the depreciation of the
equipment and machineries used. Trade and other payables also increased by 11.33% from
2018 to 2019 following an increase in procurement of materials to suppliers. Equity is still at
a negative value mainly due to a negative excess of expenses over revenues in the
operations of the client.
The vertical analysis is then conducted by AEFOR team to know the percentage of
each line item relative to the total assets of the company.
Sunhill Education Inc.,
Balance Sheet
Vertical Analysis

  2017 2018 2019

ASSETS      
Cash and Cash Equivalents 52.59% 32.72% 33.64%
Receivables 5.46% 59.67% 59.91%
Total Current Assets 58.05% 92.38% 93.56%

Property, Plant and Equipment 0.36% 7.62% 6.44%

Other Noncurrent Assets 41.59% 0.00% 0.00%
Total Noncurrent Assets 41.95% 7.62% 6.44%

Total Assets 100.00% 100.00% 100.00%

Liabilities      
Trade and Other Payables 99.28% 101.79% 100.94%
Total Current Liabilities 99.28% 101.79% 100.94%

Equity 0.72% -1.79% -0.94%

Total Liabilities and Equity 100.00% 100.00% 100.00%

In 2017, the total current liabilities has the highest relative value to the total assets in
the balance sheet of the company, having a 99.28%. It is followed by the current assets with
58.05% and the total noncurrent assets with 41.95%. The total equity has only a 0.72%,
indicating a weak source of capital for the company or discrepancies in the presentation of the
financial statements.
In 2018, still, the total current liabilities make up the highest relative value in the total
assets of the balance sheet and the total equity has the least relative value with -1.79%. The
total current assets has now a 92.38% relativity in total assets.
In 2019, the highest is still total current liabilities followed by the total current assets
with the equity being the least in relative with a -0.94%, indicating a weak capital source or a
discrepancy in recording.

2. Income Statement
Presented below is the result of the horizontal analysis for the income statement of the
client

Sunhill Education Inc.,

Income Statement
Horizontal Analysis

2017-2018 2018-2019
Percentage Percentage
  Change Change
Revenues    
Tuition Fees and
Miscellaneous 12.47% 9.23%
Less: Cost of Service 100.00% 12.12%
Operating Income -45.31% 6.18%
Less: Operating Expenses -45.52% 5.85%
Excess of Revenues Over
Expenses -58.59% -21.96%

Since there was a restatement done in 2018, 2017 and 2018 years are not
comparable. For 2018 to 2019, there is a 9.23% in tuition fees, indicating an increase in
enrollees since there are no tuition fee increases during these times. Cost of service had
 a 12.12% increase, but still having a 6.18% increase in operating income. Expenses also
increased by 5.85%. However, comparing 2018 to 2019, there is a -21.96% decrease in
the excess of revenues over expenses of the client.
Vertical analysis was also conducted by the team to the client. The following are
the results of the vertical analysis.
Sunhill Education Inc.,
Income Statement
Vertical Analysis

  2017 2018 2019

Revenues
Tuition Fees and 100.00 100.00 100.00
Miscellaneous % % %
Less: Cost of Service 0.00% 51.37% 52.73%
100.00
Operating Income % 48.63% 47.27%
101.60
Less: Operating Expenses % 49.21% 47.69%
Excess of Revenues Over
Expenses -1.60% -0.59% -0.42%

In 2017, operating expenses exceeded sales by 1.60% rendering a -1.60% excess of

revenues over expenses. In 2018, the operating expenses are now at 49.21% but it exceeded
the operating income, rendering a -0.59% of excess revenues over expenses. In 2019, the
expenses still exceeded the operating income by a small margin and still having a -0.42% excess
of revenues over expenses.
With the results of the analysis, the team conducted an analysis with the operating
expenses. The team found that the major contributors in the operating expenses are Other
Expenses, Rent, Light and Water, and Fringe Benefits. In 2017, they had their salaries and
allowances a line item of operating expenses. However, in 2018, they had restated this and
included the professional fees of the teachers as cost of service. Also, the client is renting space
and land for their offices and classrooms.
 3. Ratio analysis
To further understand the financial aspect of the client, the current ratio, receivables
turnover, total asset turnover, debt ratio and debt-equity ratio were computed.
Current Ratio
Year Ratio
2017 58.47%
2018 90.76%
2019 92.68%

The current ratio is computed by dividing the current assets to the current liabilities.
This allows the analyst to know if the client has sufficient current assets to settle currently
maturing liabilities. As seen in the results, there is an increasing trend in the current ratio of the
client, from 58.47% in year 2017 to 92.68% in year 2019.

Receivable Turnover
Year Times
2017 115
2018 6
2019 6

Receivable turnover allows the analyst to know the frequency that receivables are
collected in a cycle. The larger the turnover, the more efficient is the collection policy of the
company. Receivable turnover is computed as sales divided the average accounts receivable.
For 2017, there is a high turnover of 115 times, indicating good collection. However, in 2018
and 2019, a turnover of 6 times is seen, indicating a slow and maybe inefficient collection
scheme.

Total Assets Turnover

Year Times
2017 6
2018 4
2019 4
 Total asset turnover is used to determine the frequency that the total assets are used to
generate revenues for the company. It is computed as total sales divided total assets. It can be
seen that a low frequency of total assets turnover is at hand and need improvement.

Debt Ratio
Year Ratio
2017 99.28%
2018 101.79%
2019 100.94%

Debt ratio is used to determine the percentage of total assets financed by debt. The
ratios indicate that almost all of the total assets of the company are financed by debt. This is a
deviation from the nature of the business as a nonstock nonprofit organization since they thrive
mostly on donations, endowments and other gifts from different sponsors as members of the
organization. However, analyzing the liabilities, only current liabilities are present in the
company, indicating that these are payables to suppliers of the company from purchases of
materials to be used.

C. Tax Advise Findings

Upon verification, the consultants found out that the client is a non-stock, non-profit
educational institution who is accredited by Commission of Higher Education (CHEd), therefore,
the client shall be exempted from Income Tax pursuant to Section 30(I) of the National Internal
Revenue Code (NIRC) of 1997. Further, the client will be also exempt from Value Added Tax
under Section 109(H) of the NIRC. However, the educational institution must stay as non stock
and non profit educational institution and their actual income is directly and exclusively used
for educational purposes only.
RECOMMENDATIONS
A. Financial sustainability
The following are the recommended measures for the client:
On the financial information presented:
1. Conduct a special audit on their financial statements to assess if the financial
statements comply with accounting standards. The team has found
discrepancies in the measurement and recognition of line items in the
financial statements. However, conducting an audit is outside the scope of
the services to be performed.
2. Statement of Changes in Equity must be studied, analyzed and made sure to
conform with the accounting standards set in preparing a statement of
changes in equity. The team found that the current financial statements
misrepresent the true nature of the organization as a nonstock nonprofit
organization since records of donations, endowments and gifts from
members of the organization were not recorded.
3. Operating expenses should be controlled and lessened. Since the line item
“Other Expenses” were not enumerated in the notes to financial statements,
the team couldn’t give a clear advise how to control and minimize this
expense.
4. Since the client is renting land and space, efforts should be given in looking
for member-donors with vacant spaces or land that they can lease for a
much lower amount. This is to cut the rent expense which takes up most of
the operating expenses.
5. Consumption of electricity and water should be monitored. Protocols in
conservation of energy should be formulated and be monitored for
compliance by all staff in order to lessen the expenses in utilities. Also, the
client may apply for discounts in public utilities provider since they are a
 nonstock nonprofit educational institution. Public utility providers offer
discounts to these types of organization.
6. Increasing revenues would counter the high percentage of operating
expenses and increase excess revenues over expenses. Conducting a market
analysis and creating a marketing plan for the client is recommended to
increase enrollees.
7. Accounts receivable turnover should be increased. Collection policies must
be formulated such as monthly deadline of installment fees, regular
monitoring of balances or even giving discounts to early enrollees or those
with full payments. This will encourage the customers to pay fees ahead of
time, thereby increasing accounts receivable turnover.
8. Liquidity must be monitored and assured at all times. Current liabilities make
the most of the liabilities of the client. A special fund must be set aside in
order to meet currently maturing obligation. Excess cash may be invested in
mutual funds or other available investments in order for interest income be
benefited by the client.
9. The accountant to be hired must be competent and knowledgeable in the
accounting standards and the requirements needed by regulating bodies in
order to present financial information and prepare the financial statements
of the company properly. Misrepresentation of financial information may
pose as a high risk for audit visits and tax assessment penalties.
On Continued Business Operations
1. Sunhill Montessori Casa offers Home-Based Learning such as Online Learning system
via Google Classroom, KPluz, English Computerized Learning Program-ECLP Online
Verson 2, Faithbook and Video Conferencing. The school could continue their
operations despite the pandemic through continuous advertising in social media. As
the pandemic started, a lot of people have more time browsing social media
accounts. Advertising helps attract the attention of parents to enroll their child in
 Sunhill. Having and accommodating more students would help Sunhill to continue its
operations despite the pandemic.
2. The school should also offer discounts as their learning process is through virtual
learning. Their offered discounts should be posted on their official account and
website.
3. The school could provide assistance or webinar for the parents on how to assist the
student and teach them how to conduct homeschooling and create an engaging
positive learning environment for the children.
4. Conform with the minimum health standards of IATF in conducting business
operations. Constant disinfection of the facilities should be implemented and work
from home conditions should be encouraged by the employer.
5. Different modes of instructions should be available to the customers of the client.
Survey questionnaires may be done to categorize the learners as those capable of
online learning, modular distribution, home tutorial service or home schooling
arrangement with parents.

B. Tax Advise
Upon verification, the consultants found out that the client is a non-stock, non-profit
educational institution who is accredited by Commission of Higher Education (CHEd), therefore,
the client shall be exempted from Income Tax pursuant to Section 30(I) of the National Internal
Revenue Code (NIRC) of 1997. Further, the client will be also exempt from Value Added Tax
under Section 109(H) of the NIRC. However, the educational institution must stay as non stock
and non profit educational institution and their actual income is directly and exclusively used
for educational purposes only.

Due to the Rules and Regulations of the Bureau of Internal Revenue, the consultants
advise that the client submit and apply for such Tax Exemption. The client shall prepare the
following documents for such application (pursuant to RMO 20-2013 and as amended RMO 44-
2016):
a. Original copy of the application letter for issuance of Tax Exemption Ruling;
b. Certified true copy of the Articles of Incorporation and By-laws issued by Security
and Exchange Commission (SEC);
c. Certified true copy of the Certificate of Registration with the BIR;
d. Original copy of the certification issued by the Revenue District Officer of the BIR
that the corporation is not subject to any pending investigation, on-going audit,
pending tax assessment and likes;
e. Certified true copy of the Certificate of Good Standing issued by SEC;
f. Original copy of the Certification under Oath of the Treasurer as to the amount of
the income, compensation, salaries, or any emoluments paid to its trustees, officers,
and other executive officers;
g. Certified true copy of the financial statements of the corporation for the last three
(3) years;
h. Certified true copy of permit/accreditation to operate as an educational institution
issued by CHEd; if the government permit/accreditation to operate as an education
institution was issued more than five (5) years prior to the application for tax
exemption/revalidation, an original copy of a current Certificate of Operation/Good
Standing, or other equivalent document, issued by the appropriate government
agency (i.e., CHED, DepEd, or TESDA) shall be submitted as proof that the non-stock
and non-profit educational institution is currently operating as such;
i. Original copy of the Certificate of Utilization of Annual Revenues and Assets by the
treasurer or his equivalent of the non-stock and non-profit educational institution;
and
j. Original copy of a statement under Oath by an executive officer of the corporation
or association as to its modus operandi which shall include:
i. A full description of the past, present, and proposed activities of the
corporation or association;
 ii. A narrative description of anticipated receipts and contemplated
expenditures; and
iii. A detailed description of all revenues which it seeks to be exempted
from income tax. All other revenues which are not included in the
statement/ application shall be subject to income tax.

The client must take note that the Bureau of Internal Revenue may ask for other
requirements that they deem needed.