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Globe 2012 annual report
financial report
The Globe Group classifies its financial assets into the following categories: financial assets at
FVPL, held-to-maturity (HTM) investments, AFS investments, and loans and receivables. The
Globe Group classifies its financial liabilities into financial liabilities at FVPL and other financial
liabilities. The classification depends on the purpose for which the investments were acquired and
whether they are quoted in an active market. Management determines the classification of its
investments at initial recognition and, where allowed and appropriate, re-evaluates such
designation every reporting date.
The fair value for financial instruments traded in active markets at the end of reporting date is
based on their quoted market price or dealer price quotations (bid price for long positions and ask
price for short positions), without any deduction for transaction costs. When current bid and ask
prices are not available, the price of the most recent transaction provides evidence of the current
fair value as long as there has not been a significant change in economic circumstances since the
time of the transaction.
For all other financial instruments not listed in an active market, the fair value is determined by
using appropriate valuation techniques. Valuation techniques include net present value
techniques, comparison to similar instruments for which market observable prices exist, option
pricing models, and other relevant valuation models. Any difference noted between the fair value
and the transaction price is treated as expense or income, unless it qualifies for recognition as
some type of asset or liability.
Where the transaction price 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 Globe Group recognizes the
difference between the transaction price and fair value (a “Day 1” profit or loss) in profit or loss. In
cases where no observable data is used, the difference between the transaction price and model
value is only recognized in profit or loss when the inputs become observable or when the
instrument is derecognized. For each transaction, the Globe Group determines the appropriate
method of recognizing the “Day 1” profit or loss amount.
2.7.4.1.2 Financial assets or financial liabilities at FVPL
This category consists of financial assets or financial liabilities that are held for trading or
designated by management as FVPL on initial recognition. Financial assets or financial liabilities
are classified as held for sale if they are acquired for the purpose of selling or repurchasing in the
near term. Derivatives, including separated embedded derivatives, are also classified as held for
trading, unless they are designated as effective hedging instruments as defined by PAS 39.
Financial assets or financial liabilities at FVPL are recorded in the consolidated statements of
financial position at fair value, with changes in fair value being recorded in profit or loss. Interest
earned or incurred is recorded as “Interest income or expense”, respectively, while dividend
income is recorded when the right to receive payment has been established. Both are recorded in
profit or loss.
Financial assets or financial liabilities are classified in this category as designated by management
on initial recognition when any of the following criteria are met:
the designation eliminates or significantly reduces the inconsistent treatment that would
otherwise arise from measuring the assets or liabilities or recognizing gains or losses on a
different basis; or
the assets and liabilities are part of a group of financial assets, financial liabilities or both
which are managed and their performance are evaluated on a fair value basis in accordance
with a documented risk management or investment strategy; or
the financial instrument contains an embedded derivative, unless the embedded derivative
does not significantly modify the cash flows or it is clear, with little or no analysis, that it would
not be separately recorded.
The Globe Group evaluates its financial assets held for trading, other than derivatives, to
determine whether the intention to sell them in the near term is still appropriate. When in rare
circumstances the Globe Group is unable to trade these financial assets due to inactive markets
and management’s intention to sell them in the foreseeable future significantly changes, the Globe
Group may elect to reclassify these financial assets. The reclassification to loans and receivables,
AFS or HTM depends on the nature of the asset. This evaluation does not affect any financial
assets designated at FVPL using the fair value option at designation because these instruments
cannot be reclassified after initial recognition.
Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at
fair value if their economic characteristics and risks are not closely related to those of the host
contracts and the host contracts are not held for trading or designated at fair value though profit or
loss. These embedded derivatives are measured at fair value with changes in fair value
recognised in profit or loss. Reassessment only occurs if there is a change in the terms of the
contract that significantly modifies the cash flows that would otherwise be required.
2.7.4.1.3 HTM investments
HTM investments are quoted non-derivative financial assets with fixed or determinable payments
and fixed maturities for which the Globe Group’s management has the positive intention and ability
to hold to maturity. Where the Globe Group sells other than an insignificant amount of HTM
investments, the entire category would be tainted and reclassified as AFS investments. After initial
measurement, HTM investments are subsequently measured at amortized cost using the effective
interest rate method, less any impairment losses. 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 HTM investments are
derecognized or impaired, as well as through the amortization process. The amortization is
included in “Interest income” in the consolidated statements of comprehensive income. The
effects of restatement of foreign currency-denominated HTM investments are recognized in profit
or loss.
There are no outstanding HTM investments as of December 31, 2012, 2011 and 2010.
2.7.4.1.4 Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market. They are not entered into with the intention of immediate or
short-term resale and are not classified as financial assets held for trading, designated as AFS
investments or designated at FVPL.
This accounting policy relates to the consolidated statements of financial position caption
“Receivables”, which arise primarily from subscriber and traffic revenues and other types of
receivables, “Short-term investments”, which arise primarily from unquoted debt securities, and
other nontrade receivables included under “Prepayments and other current assets” and loans
receivables included under “Other noncurrent assets”.
Receivables are recognized initially at fair value. After initial measurement, receivables are
subsequently measured at amortized cost using the effective interest rate method, less any
allowance for impairment losses. 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.
Penalties, termination fees and surcharges on past due accounts of postpaid subscribers are
recognized as revenues upon collection. The losses arising from impairment of receivables are
recognized in the “Impairment losses and others” account in the consolidated statements of
comprehensive income. The level of allowance for impairment losses is evaluated by
management on the basis of factors that affect the collectability of accounts (see accounting policy
on 2.7.4.2 Impairment of Financial Assets).
Short-term investments, other nontrade receivables and loans receivable are recognized initially at
fair value, which normally pertains to the consideration paid. Similar to receivables, subsequent to
initial recognition, short-term investments, other nontrade receivables and loans receivables are
measured at amortized cost using the effective interest rate method, less any allowance for
impairment losses.
2.7.4.1.5 AFS investments
AFS investments are those investments which are designated as such or do not qualify to be
classified or designated as at FVPL, HTM investments or loans and receivables. They are
purchased and held indefinitely, and may be sold in response to liquidity requirements or changes
in market conditions. They include equity investments.
After initial measurement, AFS investments are subsequently measured at fair value. Interest
earned on holding AFS investments are reported as interest income using the effective interest
rate. The unrealized gains and losses arising from the fair value changes of AFS investments are
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