Fr. Anselmo G. Bustos, SVD

March 19, 1982 Fr. Anselmo G. Bustos, SVD Chairman and President Banco Cebuano - Cebu City Development Bank Juan Luna St., Cebu City Dear Fr. Bustos: This refers to your letter dated February 3, 1982 requesting advice, procedure and/or ruling relative to the legality of recognizing the current appraisal for purposes of reflecting in the books of the above corporation and true value of its assets consisting of land and building. llcd As a matter of policy, this Commission allows the appraised values or revalued amount of fixed assets of a corporation to be reflected in the accounting records. Thus, the appraisal values are incorporated in the balance sheet itself; the excess of the appraised values over cost is indicated as such under stockholders' equity; and operations are charged with the higher depreciation charges based on appraised values. But in order that appraisal values be considered generally acceptable for reporting purposes, the following requisites prescribed in the PICPA Bulletin (Philippine Institute of Certified of Public Accountants) should be observed: 1. The appraisal be made by experts or specialist not connected with the Company which owns the property. 2. The appraisal values, accumulated depreciation on appraised values, depreciation on appraisal, excess of appraised values over cost, and date of appraisal should be disclosed in the financial statements or notes. To allow comparison of financial position and results of operations which companies using historical cost, the historical cost and depreciation on historical cost should be disclosed. 3. Depreciation charges to operations should be based on appraised values. 4. The net excess of appraised values over cost should be shown under a separate caption such as "revaluation adjustment," "revaluation increment in property," or appraised values over cost" and not made available for dividends. However, the portion absorbed through accumulated charges of depreciation on appraisal increment may be declared as stock dividends. Please note, however, that this Commission has adopted the above requirements of PICPA with the exception of the second sentence of Item No. 4. The reason is that the SEC believes that the portion of revaluation increment, which has been charged to operations, is considered part of retained earnings and is therefore available for both stock and cash dividends, provided the following conditions exist: 1. That the company has sufficient income from operations from which the depreciation on the appraisal increase was charged; 2. That the company has no deficit at the time the depreciation on the appraisal increase was charged to the operations; and 3. That such depreciation on appraisal increase previously charged to operations has not been erased or impaired by subsequent losses, otherwise, only that portion not impaired by subsequent losses is available for dividends. Please note further that whenever depreciation on appraisal increase is charged to operations, the income or earnings from operations in that period is also diminished by the amount of such depreciation. This amount of depreciation therefore, is actual income shifted to and lodged in another account. Whether such amount is restituted to retained earnings or not is of no consequence. It is income which may be declared as dividends, whether cash or stock, in accordance with law. Please be advised further that because your corporation is a bank this Commission would require prior clearance from Central Bank on this matter. cdll Very truly yours, (SGD.) MANUEL G. ABELLO Chairman