HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED
DECEMBER 31, 2...
Independent Auditors’ Report
English Translation of a Report Originally Issued in Korean
To the Shareholders and Board of ...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
(the “Consolidated Entity”)
CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR TH...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
AS OF DECEMBER 31, 2013 AND 2012...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)
AS OF DECEMBER 31, 2...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 3...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)
FOR THE YEARS ENDE...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2013 AN...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER...
HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF AND FOR THE YEARS ENDED DECEM...
- 2 -
1) Accounting standards and interpretations that were newly applied for the year ended December 31, 2013,
and change...
- 3 -
K-IFRS 1112, Disclosures of Interests in Other Entities (Issued)
K-IFRS 1112 improves disclosures of reporting entit...
- 4 -
Consolidated statement of comprehensive income
Year ended December 31, 2012
Before changes After changes
Operating i...
- 5 -
Meanwhile, the Consolidated Entity’s consolidated financial statements of 2013 were approved by the Board of
Directo...
- 6 -
2) Card assets
Card assets are amounts due from customers for services performed in the ordinary course of business....
- 7 -
② Financial assets at FVTPL
Financial assets at FVTPL include financial assets held for trading or financial assets ...
- 8 -
⑤ Loans and receivables
Trade receivables, loans, and other receivables that have fixed or determinable payments tha...
- 9 -
⑦ Derecognition of financial assets
The Consolidated Entity derecognizes a financial asset only when the contractual...
- 10 -
5) Lease
A lease is classified as a finance lease whenever the terms of the lease transfer substantially all the ri...
- 11 -
④ Disposal of intangible assets
If future economic benefits are not expected through the use or disposition of the ...
- 12 -
9) Financial liabilities and equity instruments
① Classification as debt or equity
Debt and equity instruments are ...
- 13 -
10) Derivative instruments
The Consolidated Entity enters into a variety of derivative contracts, including interes...
- 14 -
12) Commission revenue
① Fees that are a part of the financial instruments’ effective interest rate
Fees that are a...
- 15 -
14) Dividend revenue
Dividend income from investments is recognized when the shareholder’s right to receive the pay...
- 16 -
② Deferred tax
Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabi...
- 17 -
19) Fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in a...
- 18 -
(2) Key sources of estimation uncertainty
Critical accounting judgment and key sources of estimation uncertainty at...
- 19 -
4. SUBSIDIARY:
(1) Details of the Company’s subsidiaries as of December 31, 2013 and 2012, are as follows:
Place of...
- 20 -
5. CASH AND DEPOSITS:
(1) Details of cash and cash equivalents as of December 31, 2013 and 2012, are as follows (Un...
- 21 -
7. CARD ASSETS AND LOANS:
Card assets and loans by customer as of December 31, 2013 and 2012, are as follows (Unit:...
- 22 -
9. PROPERTY AND EQUIPMENT:
(1) Property and equipment as of December 31, 2013 and 2012, are as follows (Unit: Korea...
- 23 -
10. INTANGIBLE ASSETS:
(1) Intangible assets as of December 31, 2013 and 2012, are as follows (Unit: Korean won in ...
- 24 -
11. ASSETS PLEDGED AS COLLATERAL:
Land and buildings amounting to₩471 million are provided as collateral for leaseh...
- 25 -
14. FINANCE LEASE LIABILITIES:
(1) Lease contract
The Consolidated Entity has a three-year finance lease for electr...
- 26 -
3) Net defined benefit obligation
Changes in present value of net defined benefit obligation for the years ended De...
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Hcc 2013 audit_en

  1. 1. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012, AND INDEPENDENT AUDITORS’ REPORT
  2. 2. Independent Auditors’ Report English Translation of a Report Originally Issued in Korean To the Shareholders and Board of Directors of Hyundai Card Co., Ltd.: We have audited the accompanying consolidated financial statements of Hyundai Card Co., Ltd. (the “Company”) and its subsidiaries (the “Consolidated Entity”). The financial statements consist of the consolidated statements of financial position as of December 31, 2013 and 2012, and the related consolidated statements of comprehensive income, consolidated statements of changes in shareholders’ equity and consolidated statements of cash flows, all expressed in Korean won, for the years ended December 31, 2013 and 2012. The Company’s management is responsible for the preparation and fair presentation of the consolidated financial statements and our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the Republic of Korea. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the years ended December 31, 2013 and 2012, in conformity with Korean International Financial Reporting Standards (“K-IFRS”). Accounting principles and auditing standards and their application in practice vary among countries. The accompanying consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries other than the Republic of Korea. In addition, the procedures and practices utilized in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those knowledgeable about Korean accounting principles and auditing standards and their application in practice. March 12, 2014 Notice to Readers This report is effective as of March 12, 2014, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the accompanying consolidated financial statements and may result in modifications to the auditors’ report.
  3. 3. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES (the “Consolidated Entity”) CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 The accompanying consolidated financial statements, including all footnote disclosures, were prepared by and are the responsibility of the Consolidated Entity. Chung, Tae Young Chief Executive Officer
  4. 4. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2013 AND 2012 (Unit: Korean won) December 31, 2013 December 31, 2012 January 1, 2012 ASSETS: CASH AND BANK DEPOSITS (Notes 5, 31, 32 and 33): Cash and cash equivalents ₩ 965,455,273,460 ₩ 791,547,295,193 ₩ 830,022,903,023 Bank deposits 33,031,500,000 33,029,000,000 33,031,500,000 Total cash and bank deposits 998,486,773,460 824,576,295,193 863,054,403,023 INVESTMENT FINANCIAL ASSETS (Notes 6 and 33): Financial assets available-for-sale (AFS) 1,766,969,764 1,766,969,764 1,766,969,764 Total investment financial assets 1,766,969,764 1,766,969,764 1,766,969,764 CARD ASSETS (Notes 7, 8, 30, 32 and 33): Card receivables, net of present value discounts, deferred origination fees and allowance for doubtful accounts 6,313,106,238,640 6,530,709,506,111 6,432,351,415,041 Cash advances, net of allowance for doubtful accounts 818,108,800,994 906,232,767,098 978,117,626,263 Card loans, net of present value discounts, deferred loan origination fees and allowance for doubtful accounts 2,597,951,734,450 2,270,095,402,706 1,963,797,640,687 Total card assets 9,729,166,774,084 9,707,037,675,915 9,374,266,681,991 Loans Other loans, net of allowance for doubtful accounts - - 469,647,440 Total cash and bank deposits - - 469,647,440 PROPERTY AND EQUIPMENT (Notes 9, 11, 14 and 30): Land 122,011,816,788 122,011,816,788 83,994,796,609 Buildings, net of accumulated depreciation 72,882,206,486 60,330,598,734 42,186,583,765 Vehicles, net of accumulated depreciation 50,595,808 163,464,977 270,015,754 Fixtures and equipment, net of accumulated depreciation 53,694,222,895 56,690,437,564 57,974,548,577 Finance lease assets 277,834,126 1,389,170,627 2,500,507,128 Construction in progress 33,125,461,350 23,797,602,168 471,628,080 Total property and equipment 282,042,137,453 264,383,090,858 187,398,079,913 OTHER FINANCIAL ASSETS (Notes 5, 8, 19, 30, 32 and 33): Other accounts receivable, net of allowance for doubtful accounts 93,483,695,738 85,387,050,368 44,939,903,548 Accrued revenue, net of allowance for doubtful accounts 46,807,953,115 43,654,761,801 43,753,371,236 Guarantee deposits 34,819,962,715 52,348,673,218 52,758,804,118 Derivative assets 2,750,372,571 901,423,501 2,555,101,143 Total other financial assets 177,861,984,139 182,291,908,888 144,007,180,045 OTHER NON-FINANCIAL ASSETS (Notes 8, 10, 26 and 30): Advance payments, net of allowance for doubtful accounts 12,298,291,571 11,254,701,307 25,223,575,660 Prepaid expenses 46,967,290,940 48,279,724,993 48,548,656,736 Intangible assets 127,029,551,626 74,664,032,134 72,976,002,526 Deferred income tax assets 143,222,807,823 135,666,642,303 112,403,093,896 Others 2,035,111,023 2,342,574,040 21,819,424,816 Total other non-financial assets 331,553,052,983 272,207,674,777 280,970,753,634 Total Assets ₩ 11,520,877,691,883 ₩11,252,263,615,395 ₩10,851,933,715,810 (Continued)
  5. 5. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED) AS OF DECEMBER 31, 2013 AND 2012 (Unit: Korean won) December 31, 2013 December 31, 2012 January 1, 2012 LIABILITIES AND SHAREHOLDERS’ EQUITY: BORROWINGS: Borrowings (Notes 12, 32 and 33) ₩ 212,500,000,000 ₩ 487,500,000,000 ₩ 590,000,000,000 Bonds payable, net of discounts on bonds (Notes 13, 29, 32 and 33) 6,978,262,324,353 6,533,175,825,125 6,481,760,496,118 Total borrowings 7,190,762,324,353 7,020,675,825,125 7,071,760,496,118 RETIREMENT BENEFIT (Note 15) Retirement benefit obligation 3,367,411,536 10,695,054,186 17,774,550,158 Total retirement benefit 3,367,411,536 10,695,054,186 17,774,550,158 OTHER FINANCIAL LIABILITIES (Notes 14, 19, 30, 32 and 33): Accounts payable 1,063,742,843,494 1,186,714,518,145 1,066,705,610,154 Withholdings 126,896,545,334 123,824,521,370 64,312,342,703 Accrued expenses 191,925,249,569 139,353,829,793 140,922,092,976 Finance lease liabilities 298,002,314 1,452,239,137 2,548,330,830 Derivative liabilities 48,665,166,455 53,554,957,780 5,326,133,113 Guarantee deposits 8,076,226,724 12,776,716,986 11,684,414,000 Total other financial liabilities 1,439,604,033,890 1,517,676,783,211 1,291,498,923,776 OTHER NON-FINANCIAL LIABILITIES : Withholdings 7,850,826,740 6,968,385,070 5,649,822,585 Unearned revenue (Note 17) 393,154,182,657 397,830,493,299 347,865,031,849 Provisions (Notes 18 and 28) 86,321,526,532 75,687,285,760 80,233,007,232 Current tax liability 33,669,310,842 30,439,361,053 40,468,853,188 Total other non-financial liabilities 520,995,846,771 510,925,525,182 474,216,714,854 SHAREHOLDERS’ EQUITY : Attributable to owners of the Company Share capital (Note 20) 802,326,430,000 802,326,430,000 802,326,430,000 Capital surplus (Note 21) 57,704,443,955 57,704,443,955 57,704,443,955 Retained earnings (Notes 22 and 24) 1,511,954,114,940 1,348,744,482,014 1,154,445,886,596 Reserves (Notes 23 and 26) (5,856,733,562) (16,504,748,278) (17,813,549,647) Non-controlling interest 19,820,000 19,820,000 19,820,000 Total shareholders’ equity 2,366,148,075,333 2,192,290,427,691 1,996,683,030,904 Total Liabilities and Shareholders’ Equity ₩ 11,520,877,691,883 ₩ 11,252,263,615,395 ₩ 10,851,933,715,810 (Concluded) See accompanying notes to consolidated financial statements.
  6. 6. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (Unit: Korean won) Year ended December 31, 2013 Year ended December 31, 2012 OPERATING REVENUE: Card income (Notes 30, 33 and 35) ₩ 2,453,282,496,374 ₩ 2,388,278,853,242 Interest income (Notes 33 and 34) 20,566,269,302 22,593,511,595 Gain on disposal of financial assets AFS (Note 33) - - Reversal of impairment loss on financial assets AFS 81,187,900 461,757,518 Dividend income 351,635,696 477,523,977 Reversal of provision for unused credit limits (Note 18) - 781,111,756 Other operating revenue (Notes 2 and 36) 53,197,571,481 113,042,414,018 Total operating revenue 2,527,479,160,753 2,525,635,172,106 OPERATING EXPENSES: Card expenses (Notes 30, 33 and 35) 1,028,249,651,605 1,043,710,631,004 Interest expenses (Notes 33 and 34) 312,928,664,959 343,398,755,949 General and administrative expenses (Notes 25 and 30) 636,477,645,013 606,068,487,106 Securitization expenses 325,819,518 367,539,337 Bad debt expense and loss on disposal of loans 247,746,973,428 202,956,968,418 Transfer to provision for unused credit limits (Note 18) 1,111,380,052 - Other operating expenses (Notes 2 and 36) 80,714,349,715 91,937,747,576 Total operating expenses 2,307,554,484,290 2,288,440,129,390 OPERATING INCOME 219,924,676,463 237,195,042,716 NON-OPERATING INCOME (Notes 2 and 30): Gain from sale of property and equipment 141,866,664 9,133,500 Reversal of impairment loss for intangible assets 11,000,000 - Rental revenue (Note 30) 2,797,729,690 2,157,675,587 Miscellaneous gain 201,932,331 200,026,435 Total non-operating income 3,152,528,685 2,366,835,522 NON-OPERATING EXPENSES (Note 2): Loss from sale of property and equipment 2,545,917,969 577,531,514 Impairment loss for intangible assets 37,049,470 512,947,720 Donations 1,720,970,527 1,920,539,994 Miscellaneous loss - 115,000,000 Total non-operating expenses 4,303,937,966 3,126,019,228 INCOME BEFORE INCOME TAX 218,773,267,182 236,435,859,010 INCOME TAX EXPENSE (Note 26) 55,563,634,256 42,137,263,592 INCOME FOR THE YEAR 163,209,632,926 194,298,595,418 (Continued)
  7. 7. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (Unit: Korean won) Year ended December 31, 2013 Year ended December 31, 2012 OTHER COMPREHENSIVE INCOME (LOSS) FOR THE YEAR Items not reclassified subsequently to profit or loss ₩ 3,989,251,358 ₩ (2,970,032,179) Remeasurements of net defined benefit liability 5,278,288,527 (3,918,248,257) Income tax effect (1,289,037,169) 948,216,078 Items reclassified subsequently to profit or loss 6,658,763,358 4,278,833,548 Cash flow hedging gains or losses 8,764,406,892 5,643,497,691 Income tax effect (2,105,643,534) (1,364,664,143) Total other comprehensive income (loss) 10,648,014,716 1,308,801,369 TOTAL COMPREHENSIVE INCOME FOR THE YEAR 173,857,647,642 195,607,396,787 Net income attributable to: Owners of the Company 163,209,632,926 194,298,595,418 Non-controlling interests - - Total comprehensive income attributable to: Owners of the Company 173,857,647,642 195,607,396,787 Non-controlling interests - - Earnings per share (in Korean won per share) (Note 27) Basic earnings per share ₩ 1,017 ₩ 1,211 Diluted earnings per share ₩ 1,017 ₩ 1,211 (Concluded) See accompanying notes to consolidated financial statements.
  8. 8. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 (Unit: Korean won) Share capital Capital surplus Reserves Attributable to owners of the Company Non- controlling interests Total Share premium Other capital Retained earnings Cash flow hedging reserves Remeasurem ents of the net defined benefit liability Balance at January 1, 2012 ₩802,326,430,000 ₩ 45,399,364,539 ₩12,305,079,416 ₩ 1,148,396,655,980 ₩(11,764,319,031) ₩ - ₩ 1,996,663,210,904 ₩ 19,820,000 ₩ 1,996,683,030,904 Changes in accounting policy - - - 6,049,230,616 - (6,049,230,616) - - Restated balance 802,326,430,000 45,399,364,539 12,305,079,416 1,154,445,886,596 (11,764,319,031) (6,049,230,616) 1,996,663,210,904 19,820,000 1,996,683,030,904 Comprehensive income (loss) Net income - - - 194,298,595,418 - - 194,298,595,418 - 194,298,595,418 Other comprehensi ve income (loss) - - - - 4,278,833,548 (2,970,032,179) 1,308,801,369 - 1,308,801,369 Balance at December 31, 2012 802,326,430,000 45,399,364,539 12,305,079,416 1,348,744,482,014 (7,485,485,483) (9,019,262,795) 2,192,270,607,691 19,820,000 2,192,290,427,691 Balance at January 1, 2013 802,326,430,000 45,399,364,539 12,305,079,416 1,348,744,482,014 (7,485,485,483) (9,019,262,795) 2,192,270,607,691 19,820,000 2,192,290,427,691 Comprehensive income (loss) Net income - - - 163,209,632,926 - - 163,209,632,926 - 163,209,632,926 Other comprehensi ve income (loss) - - - - 6,658,763,358 3,989,251,358 10,648,014,716 - 10,648,014,716 Balance at December 31, 2013 ₩802,326,430,000 ₩ 45,399,364,539 ₩12,305,079,416 ₩ 1,511,954,114,940 ₩ (826,722,125) ₩ (5,030,011,437) ₩ 2,366,128,255,333 ₩ 19,820,000 ₩ 2,366,148,075,333 See accompanying notes to consolidated financial statements.
  9. 9. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 Years ended December 31, 2013 2012 (Unit: Korean won) CASH FLOWS FROM OPERATING ACTIVITIES: Income for the year ₩ 163,209,632,926 ₩ 194,298,595,418 Income tax expense 55,563,634,256 42,137,263,592 Interest income (20,566,269,302) (22,593,511,595) Interest expense 312,928,664,959 343,398,755,949 Dividend received (351,635,696) (477,523,977) Bad debt expense and loss on disposal of receivables 247,746,973,428 202,956,968,418 Retirement benefits 10,006,031,553 9,320,707,981 Depreciation 28,135,382,607 26,992,252,034 Amortization 15,934,213,569 14,180,876,300 Loss on foreign currency translation - 38,093,094 Loss on valuation of trading derivatives 10,533,333,291 55,633,000,000 Increase (decrease) in provision for unused credit limit 1,111,380,052 (781,111,756) Increase (decrease) in provision for others 12,735,354,786 (3,764,609,716) Loss from sale of property and equipment 2,545,917,969 577,531,514 Other operating losses 1,574,904,553 924,569,785 Impairment loss of intangible assets 37,049,470 512,947,720 Sales promotional expenses 18,362,974,301 34,842,719,771 Reversal of impairment loss of financial assets AFS (81,187,900) (461,757,518) Gain on foreign currency translation (10,503,084,778) (55,663,248,513) Amortization of present value discounts of card assets (20,029,481,150) (40,906,150,359) Amortization of deferred origination fees of card assets (20,991,695,981) (18,129,500,265) Gain from sale of property and equipment (141,866,664) (9,133,500) Reversal of impairment loss for intangible assets (11,000,000) - Other operating gains (140,912,653) - Changes in working capital: Increase in card assets (247,839,888,482) (513,584,929,632) Decrease in other receivables - 500,000,000 Increase in other financial assets (8,872,081,850) (41,853,625,282) Increase (decrease) in other non-financial assets (562,067,000) 8,425,805,126 Decrease in guarantee deposit 17,528,710,503 21,000,758,986 Decrease in derivative assets - 1,865,000,000 Decrease in retirement benefit obligations (3,836,009,470) (5,633,619,727) Increase in plan asset (8,208,753,201) (13,726,405,314) Decrease in derivative liabilities (8,507,666,797) (1,972,000,000) Decrease in capital lease liabilities (1,154,236,823) (1,096,091,693) Decrease (increase) in other financial liabilities (108,318,688,454) 168,017,357,285 Decrease (increase) in other non-financial liabilities (4,676,310,642) 49,965,461,450 Cash generated from operating activities Interest received 20,852,490,398 24,109,712,867 Interest paid (287,912,166,505) (324,680,224,065) Dividend received 351,635,696 477,523,977 Income tax paid (63,284,530,687) (76,794,968,277) Net cash provided by operating activities 103,168,750,282 78,047,490,078 (Continued)
  10. 10. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 Years ended December 31, 2013 2012 (Unit: Korean won) CASH FLOWS FROM INVESTING ACTIVITIES: Disposal of investment financial assets ₩ 81,187,900 ₩ 461,757,518 Disposal of property and equipment 183,243,052 30,217,356 Disposal of intangible assets 2,280,308,566 1,250,000,000 Net decrease (increase) in bank deposit (2,500,000) 2,500,000 Acquisition of property and equipment (40,826,493,302) (99,177,344,840) Acquisition of intangible assets (67,168,908,441) (18,435,122,958) Net cash used in investing activities (105,453,162,225) (115,867,992,924) CASH FLOWS FROM FINANCING ACTIVITIES: Increase in borrowings 4,705,000,000,000 7,680,000,000,000 Proceeds from issue of bonds payable 2,328,772,226,400 3,342,529,395,016 Repayment of borrowings (4,980,000,000,000) (7,782,500,000,000) Repayment of bonds payable (1,877,579,836,190) (3,240,684,500,000) Net cash provided by (used in) financing activities 176,192,390,210 (655,104,984) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 173,907,978,267 (38,475,607,830) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 791,547,295,193 830,022,903,023 CASH AND CASH EQUIVALENTS, END OF YEAR ₩ 965,455,273,460 ₩ 791,547,295,193 (Concluded) See accompanying notes to consolidated financial statements.
  11. 11. HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2012 1. GENERAL: Hyundai Card Co., Ltd. (the “Company” or the “Parent”), which is a controlling company in accordance with Korean International Financial Reporting Standards (“K-IFRS”) 1110, Consolidated Financial Statements, is engaged in the credit card business under the Specialized Credit Financial Business Law of Korea. On June 15, 1995, the Parent acquired the credit card business of Korea Credit Circulation Co., Ltd. and on June 16, 1995, Korean government granted permission to the Parent to engage in the credit card business. As of December 31, 2013, the Parent has approximately 7.04 million card members, 2.07 million registered merchants, and 167 marketing centers, branches and posts. Its headquarters is located in Yoido, Seoul. As of December 31, 2013, the total common stock of the Parent is ₩802,326 million. The shareholders of the Parent and their respective ownerships as of December 31, 2013 and 2012, are as follows: Shareholder December 31, 2013 December 31, 2012 Number of shares % of ownership Number of shares % of ownership Hyundai Motor Co., Ltd. 59,301,937 36.96 50,572,187 31.52 Kia Motors Co., Ltd. 18,422,142 11.48 18,422,142 11.48 Hyundai Steel Co., Ltd. - 0.00 8,729,750 5.44 GE Capital Int’l Holdings 69,000,073 43.00 69,000,073 43.00 Hyundai Commercial Inc. 8,889,622 5.54 8,889,622 5.54 Others 4,851,512 3.02 4,851,512 3.02 Totals 160,465,286 100.00 160,465,286 100.00 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Company maintains its official accounting records in the Korean won and prepares consolidated financial statements in conformity with Korean statutory requirements and Korean International Financial Reporting Standards (“K-IFRS”), in Korean language (Hangul). Accordingly, these consolidated financial statements are intended for use by those who are informed about K-IFRS and Korean practices. Certain information included in the Korean language financial statements, but not required for a fair presentation of the Company’s financial position, operating results, changes in shareholders’ equity or cash flows, is not presented in the accompanying consolidated financial statements. (1) Basis of Preparation The Parent and its subsidiaries (the “Consolidated Entity”) have adopted K-IFRS for the annual period beginning on January 1, 2011. The Consolidated Entity’s significant accounting policies applied for the accompanying consolidated financial statements are the same as the policies applied for the preparation of the consolidated financial statements for the year ended December 31, 2012, except for the effects from the introduction of new and revised accounting standards or interpretations as described below. The consolidated financial statements have been prepared on the historical cost basis except for certain non- current assets and financial instruments that are measured at revalued amounts or fair values, as explained in the accounting policies below. Historical cost is generally based on the fair value of the consideration given in exchange for assets.
  12. 12. - 2 - 1) Accounting standards and interpretations that were newly applied for the year ended December 31, 2013, and changes in the Company’s accounting policies are as follows: K-IFRS 1001, Presentation of Financial Statements (Revised) The amendments to K-IFRS 1001 require an entity to present items in the other comprehensive income section to be grouped into those that will not be reclassified subsequently to profit or loss, and will be reclassified subsequently to profit or loss when specific conditions are met. These amendments have an effect only on presentation of consolidated financial statements and do not have an effect on the Consolidated Entity’s financial position or operating results. The comparative consolidated financial statements are restated retrospectively applying the amendments. K-IFRS 1019, Employee Benefits (Revised) The amendments to K-IFRS 1019 require the recognition of actuarial gains and losses in other comprehensive income and hence eliminate the ‘corridor approach’ and ‘immediate recognition in profit and loss approach’ permitted under the previous version. Expected return on plan assets is measured using the discount rate used in measuring defined benefit obligations instead of using an independent expected return and presented in net interest on the net defined benefit liability. Meanwhile, the Consolidated Entity shall recognize past service cost as an expense at the earlier date between when the plan amendment or curtailment occurs and when the entity recognizes related restructuring costs or termination benefits. The Consolidated Entity applied the effect of changes in accounting policy retrospectively and the comparative consolidated financial statements are restated retrospectively applying the amendments. K-IFRS 1107, Financial Instruments: Disclosures (Revised) The amendments to K-IFRS 1107 increase the disclosure requirements to include information about offsetting financial assets and financial liabilities. The revised accounting standards require disclosure of information on conditional rights of setoff that are enforceable and exercisable only in the events mentioned in agreements regardless of meeting some or all of the offsetting criteria in K-IFRS 1032. The Consolidated Entity discloses the information comparatively (see Note 33 (2)). K-IFRS 1110, Consolidated Financial Statements (Issued) The standard supersedes K-IFRS 1027, Consolidated and Separate Financial Statements, and SIC-2012, Consolidation – Special Purpose Entities. K-IFRS 1110 establishes a single source of guidance in the application of definition of control. The standard states that an investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. These enactments referred above do not have an effect on the Consolidated Entity’s consolidated financial statements and disclosures. K-IFRS 1111, Joint Arrangements (Issued) K-IFRS 1111 deals with how a joint arrangement of which two or more parties have joint control should be determined. Under K-IFRS 1111, joint arrangements are classified as joint operations or joint ventures, depending on the rights and obligations of the parties to the arrangements. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e., joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e., joint venturers) have rights to the net assets of the arrangement. Under joint operations, a joint operator recognizes and measures assets, liabilities, related revenues and expenses in relation to its interest in the arrangement. Under joint ventures, a joint venturer recognizes an investment and accounts for that investment using the equity method. These enactments referred above do not have an effect on the Consolidated Entity’s consolidated financial statements and disclosures.
  13. 13. - 3 - K-IFRS 1112, Disclosures of Interests in Other Entities (Issued) K-IFRS 1112 improves disclosures of reporting entities that have an interest in a subsidiary, a joint arrangement, an associate or unconsolidated structured entity. The standard requires an entity to disclose the nature of, and risks associated with, its interests in other entities and the effects of those interests on its financial position, financial performance and cash flows. The Consolidated Entity discloses the information on interests in subsidiaries (see Note 4). K-IFRS 1113, Fair Value Measurements (Issued) K-IFRS 1113 establishes a single source of guidance for fair value measurements and disclosures about fair value measurements. The standard defines fair value, establishes a framework for measuring fair value and requires disclosures about fair value measurements. The standard defines fair value as 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 (i.e., an exit price). When measuring fair value, an entity uses the assumptions that market participants would use when pricing the asset or liability. The standard explains that a fair value measurement requires an entity to determine the particular asset or liability being measured, the market in which an orderly transaction would take place for the asset and liability and the appropriate valuation techniques to use when measuring fair value. Also, the standard requires wider disclosures about fair value measurements. The Consolidated Entity discloses the additional information about fair value measurements (see Note 33 (4), (5)). The effects on the consolidated statement of financial position and the consolidated statement of comprehensive income by accounting standards and interpretations that were newly applied for the year ended December 31, 2013, and changes in the Consolidated Entity’s accounting policies are as follows: Consolidated statement of financial position As of December 31, 2012 Before changes After changes Attributable to owners of the Company Share capital and capital surplus ₩ 860,030,873,955 ₩ 860,030,873,955 Retained earnings 1,339,725,219,219 1,348,744,482,014 Reserve (7,485,485,483) (16,504,748,278) Non-controlling interests 19,820,000 19,820,000 ₩ 2,192,290,427,691 ₩ 2,192,290,427,691 As of January 1, 2012 Before changes After changes Attributable to owners of the Company Share capital and capital surplus ₩ 860,030,873,955 ₩ 860,030,873,955 Retained earnings 1,148,396,655,980 1,154,445,886,596 Reserve (11,764,319,031) (17,813,549,647) Non-controlling interests 19,820,000 19,820,000 ₩ 1,996,683,030,904 ₩ 1,996,683,030,904
  14. 14. - 4 - Consolidated statement of comprehensive income Year ended December 31, 2012 Before changes After changes Operating income ₩ 233,276,794,459 ₩ 237,195,042,716 Non-operating income 2,366,835,522 2,366,835,522 Non-operating expenses 3,126,019,228 3,126,019,228 Income before income tax expenses 232,517,610,753 236,435,859,010 Income tax expenses 41,189,047,514 42,137,263,592 Net income for the period 191,328,563,239 194,298,595,418 Other comprehensive income 4,278,833,548 1,308,801,369 Items not reclassified subsequently to profit or loss - (2,970,032,179) Remeasurements of the net defined benefit liability - (3,918,248,257) Income tax effect - 948,216,078 Items reclassified subsequently to profit or loss 4,278,833,548 4,278,833,548 Cash flow hedging gains or losses 5,643,497,691 5,643,497,691 Income tax effect (1,364,664,143) (1,364,664,143) Total comprehensive income for the period ₩ 195,607,396,787 ₩ 195,607,396,787 The list above does not include some other amendments such as the amendments to K-IFRS 1032 relating to ‘Tax effects of the distribution on the equity instruments holders’ that are newly adopted from the current year. But the enactments referred above do not have any significant effect on the Consolidated Entity’s consolidated financial statements and disclosures. 2) The Consolidated Entity has not applied or adopted earlier the following new and revised K-IFRSs that have been issued, but are not yet effective: K-IFRS 1032, Financial Instruments: Presentation (Revised) The amendments to K-IFRS 1032 clarify existing application issue relating to the offset of financial assets and financial liabilities requirements. The Consolidated Entity’s right of setoff must not be contingent upon any future events but enforceable anytime during the contract period in all of the circumstances — in the event of default, insolvency or bankruptcy of the entity or the counterparties, as well as in the ordinary course of business. The amendments to K-IFRS 1032 are effective for annual periods beginning on or after January 1, 2014. K-IFRS 1039, Financial Instruments: Recognition and Measurement (Revised) The amendment to K-IFRS 1039 allows the continuation of hedge accounting when a derivative is novated to a clearing counterparty or entity acting in a similar capacity and certain conditions are met. The amendment to K- IFRS 1039 is effective for annual periods beginning on or after January 1, 2014. K-IFRS 1110, 1112, and 1027, Investment Entities (Revised) The amendments introduce an exception to the principle under K-IFRS 1110 that all subsidiaries shall be consolidated and require a reporting entity that meets the definition of an investment entity not to consolidate its subsidiaries but instead to measure its subsidiaries at fair value through profit or loss (FVTPL) in its consolidated and separate financial statements. In addition, consequential amendments have been made to K- IFRS 1112 and K-IFRS 1027 to introduce new disclosure requirements for investment entities. The investment entities amendments are effective for annual periods beginning on or after January 1, 2014. The list above does not include some other amendments such as the amendments to K-IFRS 1036 relating to ‘Recoverable amount disclosures for non-financial assets’ that are effective January 1, 2014, with earlier application permitted. The Consolidated Entity does not anticipate that these amendments referred above will have a significant effect on the Consolidated Entity’s consolidated financial statements and disclosures.
  15. 15. - 5 - Meanwhile, the Consolidated Entity’s consolidated financial statements of 2013 were approved by the Board of Directors, and the approval date for publication is on February 27, 2014. (2) Significant Accounting Policies 1) Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Parent (and its subsidiaries). Control is achieved where the Company 1) has the power over the investee; 2) is exposed, or has rights, to variable returns from its involvement with the investee; and 3) has the ability to use its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including: • the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; • potential voting rights held by the Company, other vote holders or other parties; • rights arising from other contractual arrangements; and • any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Carrying amounts of the non-controlling interests in subsidiaries are adjusted by the changes in the proportion of the equity held by non-controlling interests after initial acquisition of non- controlling interests. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by the Company. All intragroup transactions, balances, income and expenses are eliminated in full on consolidation. Changes in the Company’s ownership interests in subsidiaries without loss of control are accounted for as equity transactions. The carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company. When the Parent loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Parent had directly disposed of the relevant assets (i.e., reclassified to profit or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting under K-IFRS 1039, Financial Instruments: Recognition and Measurement, or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.
  16. 16. - 6 - 2) Card assets Card assets are amounts due from customers for services performed in the ordinary course of business. Card assets are initially measured at a fair value, including direct transaction cost; thereafter, it is measured at amortized cost using the effective interest rate method except for the financial assets classified as at FVTPL. ① Card Receivables The Consolidated Entity records card receivables when its cardholders make purchases from domestic and foreign merchants, and when cardholders of MasterCard International, Visa International and Diners Club International make purchases from domestic merchants. Commission from merchants for advance payments, and commission from cardholders for installment payments and cash advances are recognized as revenue on an accrual basis. Card receivables with non-interest-bearing installment payment are initially recognized at fair value using a discounted cash flow. Since interest rate and other factors that are considered for calculating the discounted cash flow of interest-bearing installment payments are different than those for non-interest-bearing installment payment, the Consolidated Entity independently determines the discount rates for non-interest- bearing installment payments with objective and reasonable method. ② Cash Advances Cash advance service allows cardholders to withdraw cash up to certain limits depending on card members’ credit rating in accordance with the Specialized Credit Financial Business Law. Fees related to cash advances are charged on the payment date with a specific percentage of service charges and interest income is accrued on a daily basis until repayment of cash advance. ③ Card Loans The Consolidated Entity extends the card loans to its cardholders in accordance with the Specialized Credit Financial Business Law. Commission incomes are accrued on a daily basis based on a constant rate per cardholders’ credit rate until repayments of card loans. 3) Financial assets A financial asset is recognized when the Consolidated Entity becomes a party to the contract and at initial recognition. A financial asset, excluding a financial asset at FVTPL, is measured at its fair value plus or minus, transaction costs that are directly attributable to the acquisition of the financial asset. Otherwise, the transaction cost that is directly attributable to the acquisition of the financial asset at FVTPL is recognized in profit or loss immediately when it arises. A regular-way purchase and sale of financial assets is recognized and derecognized at trade date. It is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned. Financial assets are classified into the following specified categories: financial assets at FVTPL, held-to- maturity (“HTM”), AFS and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. ① Effective interest rate method The effective interest rate method is used for calculating the amortized cost of a debt instrument and allocating interest income over the relevant period. The effective interest rate is the discounted rate used to estimate the net carrying amount of future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) throughout the expected life of the debt instrument, or, where appropriate, a shorter period, Interest income for debt instruments except for those financial assets classified as at FVTPL is recognized using an effective interest rate method.
  17. 17. - 7 - ② Financial assets at FVTPL Financial assets at FVTPL include financial assets held for trading or financial assets designated as at FVTPL upon initial recognition. A financial asset that is acquired or incurred principally for the purpose of selling or repurchasing in the near term and all derivatives including embedded derivatives bifurcated from host contract (except for a derivative that is a designated and effective hedging instrument) are classified as held for trading. Financial assets at FVTPL are measured at fair value and the change in value is recognized in income (loss) for the period. A financial asset is classified as held for trading if: • it has been acquired principally for the purpose of selling in the near term; or • on initial recognition, it is part of a portfolio of identified financial instruments that the Company 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 asset other than a financial asset 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 asset forms part of a group 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 Consolidated Entity’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or • it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039, Financial Instruments: Recognition and Measurement, permits the entire combined contract (asset or liability) to be designated as at FVTPL. Financial assets at FVTPL are stated at fair value, and any gains or losses arising on remeasurement are recognized in income (loss) for the period. ③ HTM investments Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Consolidated Entity has the positive intent and ability to hold to maturity are classified as HTM investments. HTM investments are measured at amortized cost using the effective interest rate method less any impairment, with revenue recognized on an effective interest rate method basis. ④ AFS financial assets Non-derivative financial assets that are not classified as at HTM, held for trading, designated as at FVTPL, or loans and receivables are classified as at financial assets AFS. Financial assets AFS are subsequently measured at fair value. Gains and losses arising from changes in fair value are recognized and accumulated in other comprehensive income, with the exception of interest calculated using the effective interest rate method and foreign exchange gains and losses on monetary AFS financial assets, which are recognized in income (loss) for the period. Where the AFS financial assets are disposed of or are determined to be impaired, the cumulative gains or losses previously accumulated in the other comprehensive income are recognized income (loss) for the period. Dividends from AFS equity instruments are recognized in income (loss) for the period when the Consolidated Entity’s right to receive payment of the dividends is established. The AFS investments in equity instruments that do not have a quoted price in an active market for an identical instrument and their fair value are not reliably measurable and derivative assets that are linked to those investments and must be settled by delivery of such an equity instrument are measured at cost, net of identified impairment losses.
  18. 18. - 8 - ⑤ Loans and receivables Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest rate method, less any impairment. Interest income is recognized by applying the effective interest rate, except for short-term receivables when the effects of discount would be immaterial. ⑥ Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected. For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment. For all financial assets classified as AFS, objective evidence of impairment could include: • significant financial difficulty of the issuer or counterparty; • default or delinquency in interest or principal payments; • it becoming probable that the borrower will enter into bankruptcy or financial reorganization; or • an active market for financial assets is not available due to financial difficulties. For certain categories of financial assets, such as card receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Consolidated Entity’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio exceeding the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate. For financial assets measured at amortized cost, the amount of the impairment is recognized as the difference between the carrying amount of the asset and current value of estimated future cash flows discounted by similar to the current market rate. The impairment is not reversed in subsequent periods. When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are recognized in income (loss) for the period. For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through income (loss) for the period to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of AFS equity instruments, impairment losses previously recognized in income (loss) for the period are not reversed. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of AFS debt instruments, in a subsequent period, the amount of the impairment loss increases and the increase can be related objectively to an event occurring after the impairment was recognized, and the previously recognized impairment loss is reversed through income (loss) for the period.
  19. 19. - 9 - ⑦ Derecognition of financial assets The Consolidated Entity derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Consolidated Entity neither transfers or retains substantially all the risks and rewards of ownership but continues to control the transferred asset, the Consolidated Entity recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Consolidated Entity retains substantially all the risks and rewards of ownership of a transferred financial asset, the Consolidated Entity continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. If the Consolidated Entity derecognizes the entire financial asset, the difference between total received amount plus the sum of cumulative income recognized in other comprehensive income and the book value of the asset is recognized in income (loss) for the period. If the Consolidated Entity does not derecognize the entire financial asset (for example, the Consolidated Entity holds either an option to repurchase a certain portion of the asset or remaining equity, which does not allow the Consolidated Entity to hold the most of the risks and benefits from the financial asset or the Consolidated Entity controls assets), the Consolidated Entity divides the book value of financial assets into a recognized part and a unrecognized part in accordance with relative fair value of each portion. The difference between total received amount for derecognized portion of the asset plus the sum of cumulative income recognized in other comprehensive income and the book value of the asset is recognized in income (loss) for the period. Cumulative income recognized in other comprehensive income is divided into a recognized part and a unrecognized part in accordance with relative fair value of each portion. 4) Property, plant and equipment Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated impairment losses. The cost of an item of property and equipment is directly attributable to their purchase or construction, which includes 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. It also includes the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. Subsequent costs are recognized in the carrying amount of an asset or as a separate asset if it is probable that future economic benefits associated with the assets will flow into the Consolidated Entity and the cost of an asset can be measurable. Routine maintenance and repairs are expensed as incurred. The Consolidated Entity does not depreciate land. Depreciation expense is computed using the straight-line method based on the estimated useful lives of the assets as follows: Estimated useful lives Building 40 years Fixtures and equipment 4 years Vehicles 4 years Each part of property and equipment with a cost that is significant in relation to the total cost is depreciated separately. The Consolidated Entity assesses the depreciation method, the estimated useful lives and residual values of property and equipment at the end of each reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in an accounting estimate. When future economic benefits are not expected through the use or disposition of property and equipment, the Consolidated Entity removes the book value of the assets from the consolidated statements of financial position. The difference between the amounts received from the disposal and the book values of assets is recognized as income (loss) of the period when the assets are removed.
  20. 20. - 10 - 5) Lease A lease is classified as a finance lease whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The Consolidated Entity recognizes the lesser of the current value of minimum lease payment and the fair value of lease assets as capital lease assets and capital lease liabilities. Lease payments are apportioned to each period between interest expense and the reduction of lease liabilities to produce a constant periodic rate of interest on the remaining balance of lease liability. Financial cost except for certain qualifying assets, in accordance with the Consolidated Entity’s accounting policies is recognized immediately as an expense in the period. Any adjustments to lease payment are recognized as cost when it occurred. 6) Intangible assets ① Intangible assets acquired separately Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful lives and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses. ② Internally generated intangible assets - research and development expenditure Expenditure on research activities is recognized as an expense in the period in which it is incurred. Expenditure arising from development (or from the development phase of an internal project) is recognized as an intangible asset if, only if, the development project is designed to produce new or substantially improved products, and the Consolidated Entity can demonstrate the technical and economic feasibility and measure reliably the resources attributable to the intangible asset during its development. The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Where no internally generated intangible asset can be recognized, development expenditure is recognized in income (loss) for the period when it is incurred. Subsequent to initial recognition, internally generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately. ③ Intangible assets acquired in a business combination Intangible assets that are acquired in a business combination are recognized separately from goodwill and are initially recognized at their fair value at the acquisition date (which is regarded as their deemed cost). Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.
  21. 21. - 11 - ④ Disposal of intangible assets If future economic benefits are not expected through the use or disposition of the intangible assets, the Consolidated Entity removes the book value of the assets from the consolidated financial statements. The difference between the amounts received from the disposal of intangible assets and the book values of the assets are recognized as income (loss) of the period when the assets are removed. 7) Impairment of tangible and intangible assets other than goodwill At the end of each reporting period, the Consolidated Entity reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Consolidated Entity estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, assets for which recoverable amounts are not individually estimated are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified. Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the assets may be impaired. Recoverable amounts are the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pretax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in income (loss) for the period. If impairment recognized in prior periods is reversed, the book value of the individual assets (or cash- generating unit) is the smaller of the carrying amount of the recoverable amount and the book value that the impairment would not have recognized in prior periods and the reversal of impairment loss is recognized immediately in income (loss) for the period at the time. 8) Provisions Provisions are recognized when the Consolidated Entity has a present obligation (legal or constructive) as a result of a past event, it is probable that the Consolidated Entity will be required to settle the obligation and the amount of the obligation is reliably estimated. The amounts recognized as a provision are the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (where the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. At the end of each reporting period, the remaining provision balance is reviewed and assessed to determine if the current best estimate is being recognized. If the existence of an obligation to transfer economic benefit is no longer probable, the related provision is reversed during the period.
  22. 22. - 12 - 9) Financial liabilities and equity instruments ① Classification as debt or equity Debt and equity instruments are classified as either financial liabilities or equity in accordance with the substance of the contractual arrangement and the definition of financial liabilities and equity instruments. ② 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. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Treasury shares transactions are deducted directly from equity. Profit or loss arising from purchases and sales, issuances, and incinerations of treasury shares are not recognized in income (loss) for the period. ③ Compound instruments The component parts of compound instruments issued by the Consolidated Entity are allocated into financial liabilities and equity in accordance with the definition of the financial asset and liability. Convertible option that can be settled by exchanging financial asset, such as fixed amount of cash for the fixed number of treasury shares, is equity instruments. At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate for a similar non-convertible instrument. This amount is recorded as a liability with an amortized cost basis using the effective interest rate method until extinguished upon conversion or at the instrument’s maturity date. The equity component is determined by deducting the amounts of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. ④ Financial liabilities A financial liability is recognized when the Consolidated Entity becomes a party to the contract and at initial recognition. A financial liability other than financial liability at FVTPL is measured at its fair value plus or minus transaction costs that are directly attributable to the issue of the financial liability. Otherwise, the transaction cost that is directly attributable to the issue of the financial liability at FVTPL is recognized in income (loss) for the period immediately when it arises. Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. ⑤ Other financial liabilities Other financial liabilities are subsequently measured at amortized cost using the effective interest rate method, with interest expense recognized on an effective interest rate method. The effective interest rate method is used for calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is discounted rate used to estimate the net carrying value of future cash payment, including commission and points to be paid or received, transaction cost and other premium or discounts throughout the expected life of financial liability, or, where appropriate, a shorter period. ⑥ Derecognition of financial liabilities The Consolidated Entity derecognizes financial liabilities when, and only when, the Consolidated Entity’s obligations are discharged, canceled or expired. On derecognition of a financial liability in its entirety, the difference between the carrying amount and the consideration received is recognized in income (loss) for the period.
  23. 23. - 13 - 10) Derivative instruments The Consolidated Entity enters into a variety of derivative contracts, including interest rate swaps and currency swaps, to manage its exposure to interest rate and foreign exchange rate risk. Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are subsequently remeasured to their fair value at the end of each reporting period. Gain or loss from the change in fair value is recognized in income (loss) for the period immediately unless the derivative is designated and effective as a hedging instrument; in such case, the timing of the recognition in profit or loss depends on the nature of the hedge relationship. A derivative with a positive fair value is recognized as a financial asset, and a derivative with a negative fair value is recognized as a financial liability. ① Embedded derivatives When economic characteristics and risks of an embedded derivative are not closely related to the host contract and a separate instrument with the same terms as the embedded derivative would meet the definition of a derivative and the changes in fair value of hybrid contract are not recognized in income (loss) for the period, the Consolidated Entity accounts for the embedded derivative separately from the host contract. ② Hedge accounting The Consolidated Entity designates certain derivative instruments as cash flow hedges. At the inception of the hedge relationship, the Consolidated Entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Consolidated Entity documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged item. ③ Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in income (loss) for the period, and is included in the other operating revenue or expenses line item. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to income (loss) for the period when the hedged item is recognized in income (loss) for the period. Hedge accounting is discontinued when the Consolidated Entity revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or it no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and is recognized when the forecasted transaction is ultimately recognized in profit or loss. When a forecasted transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss. 11) Share capital Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Stock issuance costs are incremental costs directly attributable to the issue of equity instruments and are deducted on the initial recognition of the equity instruments. Where the Parent or its subsidiary purchases any shares of the Parent or its subsidiary, the consideration paid is deducted from shareholders’ equity as treasury shares until they are canceled. Where such shares are subsequently sold or reissued, any consideration received is included in shareholders’ equity.
  24. 24. - 14 - 12) Commission revenue ① Fees that are a part of the financial instruments’ effective interest rate Fees that are a part of the effective interest rate of a financial instrument are treated as an adjustment to the effective interest rate. Such fees include compensation for activities such as evaluating the borrower’s financial condition; evaluating and recording guarantees, collateral and other security arrangements; negotiating the terms of the instrument; preparing and processing documents and closing the transaction as well as origination fees received on issuing financial liabilities measured at amortized cost. These fees are deferred and recognized as an adjustment to the effective interest rate. However, in case the financial instrument is classified as a financial asset at FVTPL, the relevant fee is recognized as revenue when the instrument is initially recognized. ② Commission from significant act performed The recognition of revenue is postponed until the significant act is executed. ③ Unearned revenue from point programs (customer loyalty program) The Consolidated Entity operates customer loyalty program to provide customers with incentives to buy their goods or services. If a customer buys goods or services, the Consolidated Entity grants the customer awards credits (often described as ‘points’). The customer can redeem the award credits for awards such as free or discounted goods or services. The awards credits are accounted separately as identifiable component of the sales transaction(s) in which they are granted (the ‘initial sales’). The fair value of the consideration received or receivable in respect of the initial sale shall be allocated between the award credits and the other components of the sale. If the Consolidated Entity supplies the awards itself, it shall recognize the consideration allocated to award credits as revenue when award credits are redeemed and it fulfills its obligation to supply awards. The amount of revenue recognized shall be based on the number of award credits that have been redeemed in exchange for awards, related to the total number expected to be redeemed. If the third party supplies the awards, the Consolidated Entity shall assess whether it is collecting the consideration allocated to the award credits on its own account (as the principal in the transaction ) or on behalf of the third party (as agent for the third party). The amount of revenue recognized shall be net amount retained on its own account. 13) Interest income and expense Using the effective interest rate method, the Consolidated Entity recognizes interest income and expense in the consolidated statements of comprehensive income. Effective interest rate method calculates the amortized cost of financial assets or liabilities and allocates interest income or expense over the relevant period. The effective interest rate discounts the expected future cash in and out through the expected life of financial instruments or, if appropriate, through shorter period, to net carrying amount of financial assets or liabilities. When calculating the effective interest rate, the Consolidated Entity estimates future cash flows considering all contractual financial instruments except the loss on future credit risk. Also, effective interest rate calculation includes redemption costs, points (part of the effective interest rate) that are paid or earned between contracting parties, transaction costs and other premiums or discounts. It is assumed that the cash flows and the expected existing period of aggregation of homogeneous financial instruments are reliably estimable. However, in the exception that cash flow of financial instruments (or aggregation of homogeneous financial instruments) or the estimated maturity is not reliably estimable, the effective interest rate is calculated using the contractual terms of cash flows for the entire contract period. If financial instruments or aggregation of homogeneous financial instruments are impaired, the subsequent interest income is recognized based on the discount rate used in discounting future cash flows for the purpose of the measurement of impairments.
  25. 25. - 15 - 14) Dividend revenue Dividend income from investments is recognized when the shareholder’s right to receive the payment of dividends has been established. 15) Foreign currency translation The individual financial statements of the consolidated entities are presented in the currency of the primary economic environment in which the Company operates (its functional currency). For the purpose of the consolidated financial statements, the results of operations and financial position of each entity are expressed in Korean won, which is the functional currency of the Parent and the presentation currency for the consolidated financial statements. In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the date of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non- monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognized in income (loss) for the period in which they arise, except for exchange differences on transactions entered into in order to hedge certain foreign currency risks. See Note 2 (10) above for hedging accounting policies. 16) Retirement benefit costs Contributions to defined contribution plans are recognized as an expense when employees have rendered service entitling them to the contributions. For defined benefit plans, the cost of providing benefits is determined using the projected unit credit method, with actuarial valuations being carried out at the end of each reporting period. The present value of defined benefit obligations is determined by the discount rate that reflects the current rate of return on a high-quality corporate bond (or, in countries where there is no deep market in such bonds, government bonds) of equivalent term and currency to the plan liabilities. Actuarial gains and losses are changes in the present value of the defined benefit obligation resulting from experience adjustments (the effects of differences between the previous actuarial assumptions and what has actually occurred) and the effects of changes in actuarial assumptions. Past service cost is recognized immediately to the extent that the benefits are already vested and, otherwise, is amortized on a straight-line basis over the average period until the benefits become vested. The retirement benefit obligation recognized in the consolidated statements of financial position represents the present value of the defined benefit obligation, as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available economic benefits of refunds and reductions in future contributions to the plan. A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer of the termination benefit or when the entity recognizes any related restructuring costs. 17) Taxation Income tax consists of current tax and deferred tax. ① Current tax The tax currently payable is based on taxable income for the period. Taxable income differs from income (loss) before tax expenses as reported in the consolidated statement of comprehensive income because of items of income or expense that are taxable or deductible in other periods. The Consolidated Entity’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.
  26. 26. - 16 - ② Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable income. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred income tax assets are generally recognized for all deductible temporary differences to the extent that it is probable that taxable income will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the taxable or deductible temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable income (taxable deficit) nor the accounting income. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint ventures, except where the Consolidated Entity is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable income against which the benefits of the temporary differences can be utilized and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent it is no longer probable that sufficient taxable income will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities 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 Consolidated Entity expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. The Consolidated Entity shall offset deferred tax assets and deferred tax liabilities if, and only if the Consolidated Entity has a legally enforceable right to set off current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities that intend either to settle current tax liabilities and assets on a net basis or realize the assets and settle the liabilities simultaneously in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. For the purpose of measuring deferred tax liabilities and deferred tax assets for investment properties that are measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is depreciable and is held within a business model whose objective is to consume substantially all of the economic benefits embodied in the investment properties over time, rather than through sale. ③ Current tax and deferred tax for the year Current tax 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 tax and deferred tax are also recognized in other comprehensive income or directly in equity. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination. 18) Earnings per share Basic earnings per share is calculated by dividing net profit from the period available to common shareholders by the weighted-average number of common shares outstanding during the year. Diluted earnings per share are calculated using the weighted-average number of common shares outstanding, adjusted to include the potentially dilutive effect of common equivalent shares outstanding.
  27. 27. - 17 - 19) Fair value 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 Consolidated Entity 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. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for share-based payment transactions that are within the scope of K-IFRS 1102 Share-Based Payment; leasing transactions that are within the scope of K-IFRS 1017, Leases; and measurements that have some similarities to fair value, but are not fair value, such as net realizable value in K- IFRS 1002 Inventories or value in use in K-IFRS 1036 Impairment of Assets. In addition, for financial reporting purposes, fair value measurements are categorized into Levels 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. 3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY: In the application of the Consolidated Entity’s accounting policies, which are described in Note 2, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. (1) Critical judgments in applying accounting policies The following are the critical judgments, apart from those involving estimations (see Note 3(2)), that the directors have made in the process of applying the Consolidated Entity’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements. 1) Judgments in applying consolidation The Parent has a 0.9% ownership interest in Privia Second Securitization Specialty Co., Ltd., and Privia Third Securitization Specialty Co., Ltd. The directors of the Parent made an assessment as at the date of initial application of K-IFRS 1110 (January 1, 2013) as to whether the Parent has control over Privia Second Securitization Specialty Co., Ltd., and Privia Third Securitization Specialty Co., Ltd., in accordance with the new definition of control and the related guidance set out in K-IFRS 1110. It is concluded that the Parent has control over subsidiaries as it involves in the objectives and design of the subsidiaries and is exposed to their parts of risks and rewards. Also, all the decision-making processes of the subsidiaries are operated on autopilot by provisions and articles of association and the Parent is considered to have an ability to use power because the Parent has control over the changes of provisions and articles of association. Therefore, the directors concluded that it has control over the subsidiaries. Details of this control assessment are set out in Note 4.
  28. 28. - 18 - (2) Key sources of estimation uncertainty Critical accounting judgment and key sources of estimation uncertainty at the end of reporting period having significant risk factors that can incur the material changes in the book value of assets and liabilities of the Consolidated Entity for the following fiscal year are as follows: 1) Allowance for Doubtful Accounts The Consolidated Entity determines and recognizes allowances for losses through impairment testing on credit card assets and other assets, such as other accounts receivable, advance payments and accrued income. The Consolidated Entity also recognizes provisions for losses on unused commitments. The accuracy of provisions for credit losses is determined by the risk assessment methodology and assumptions used for estimating expected cash flows of the borrower for allowances on individual loans and collectively assessing allowances for groups of loans and provisions for unused commitments. 2) Unearned revenue from point programs The Consolidated Entity provides its customers with incentives to buy goods or services by providing awards (customer loyalty programs) and allocates the fair value of the consideration received or receivable between the award credits granted (points) and the other components of the revenue transaction. The Consolidated Entity supplies the awards such as discounted payments or free gifts. The consideration allocated to the award credits is measured by reference to their fair value, i.e., the amount for which the award credits could be sold separately. The fair value of the consideration allocated to the award credits is estimated by taking into account expected redemption rates, etc., and recognized as deferred revenue until the Consolidated Entity fulfills its obligations to deliver awards to customers. The amount of revenue recognized is to be based on the number of award credits that have been redeemed in exchange for awards, relative to the total number expected to be redeemed. 3) Postemployment Benefits: Defined Benefit Plans The Consolidated Entity operates a defined benefit pension plan (“Plan”). The amount recognized as a defined benefit liability is the present value of the defined benefit obligation, less the fair value of plan assets at the end of the reporting period. The present value of defined benefit obligation is calculated annually by using actuarial assumptions, such as future increases in salaries, expected returns on plan assets, discount rate and others. The Plan has the uncertainty due to the nature of long-term plan. The defined benefit obligation as of December 31, 2013 and 2012, is ₩3,367 million and ₩10,695 million, respectively (see Note 15). 4) Fair Value Measurement of Financial Instruments As disclosed in Note 34, the fair value of financial instruments classified as certain level is measured using valuation techniques where significant inputs are not based on observable market data. The Consolidated Entity believes that valuation methods and assumptions used for measuring the fair value of financial instruments are reasonable and that the fair value recognized in the consolidated statements of financial position is appropriate.
  29. 29. - 19 - 4. SUBSIDIARY: (1) Details of the Company’s subsidiaries as of December 31, 2013 and 2012, are as follows: Place of incorporation and operation Voting share (%) Companies Major operation December 31, 2013 December 31, 2012 End of reporting period PRIVIA 2nd SPC Asset securitization Korea 0.9 0.9 December PRIVIA 3rd SPC Asset securitization Korea 0.9 0.9 January The subsidiaries were established for the Consolidated Entity’s business activity. The Parent has a power over the subsidiaries due to the fact that the Parent involves in the objectives and design of the subsidiaries and is exposed to risks and rewards. Also, all the decision-making processes of the subsidiaries are operated on autopilot by provisions and articles of association. The Parent is considered to have an ability to use power because the Parent has control over the changes of provisions and articles of association. Therefore, the Parent includes the special-purpose entities under consolidation. Meanwhile, in case that default occurs by the subsidiaries related to derivative contracts hedging risks arising from debentures issued for asset securitization, counterparties of the derivative contracts can claim for reimbursement from the Parent. (2) Summary of financial information of subsidiaries as of December 31, 2013 and 2012, are as follows (Unit: won in millions) December 31, 2013 Total assets Total liabilities Sales Net income Comprehensive income PRIVIA 2nd SPC ₩ 298,795 ₩ 299,033 ₩ 22,628 ₩ - ₩ - PRIVIA 3rd SPC 450,569 450,009 21,963 - - December 31, 2012 Total assets Total liabilities Sales Net income Comprehensive income PRIVIA 2nd SPC ₩ 448,139 ₩ 453,646 ₩ 50,584 ₩ - ₩ - PRIVIA 3rd SPC 450,569 449,321 33,483 - -
  30. 30. - 20 - 5. CASH AND DEPOSITS: (1) Details of cash and cash equivalents as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): December 31, 2013 December 31, 2012 Annual interest rate (%) Amount Annual interest rate (%) Amount Cash on hand - ₩ - - ₩ - Current deposits - 151 - 90 Pass-book deposits - 176,104 - 89,957 Other cash equivalents 2.48–2.60 100,000 2.70–2.90 170,000 Time deposits 2.59 14,200 2.00 11,500 Other deposits 2.50–2.75 675,000 2.80–3.00 520,000 ₩ 965,455 ₩ 791,547 (2) Restricted deposits and others as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): Type Entity December 31, 2013 December 31, 2012 Restriction Deposits KB and others ₩ 19 ₩ 16 Guarantee deposits for overdraft Shinhan Bank and others 33,000 33,000 Secured deposits Mirae Asset Securities 13 13 Social enterprise fund Other financial assets Korea Asset Management Corporation 9,246 9,246 Escrow account ₩ 42,278 ₩ 42,275 6. INVESTMENT FINANCIAL ASSETS: Investment financial assets as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): December 31, 2013 December 31, 2012 Financial assets AFS Unlisted shares investment ₩ 1,767 ₩ 1,767
  31. 31. - 21 - 7. CARD ASSETS AND LOANS: Card assets and loans by customer as of December 31, 2013 and 2012, are as follows (Unit: won in millions): December 31, 2013 December 31, 2012 Households Corporates Total Households Corporates Total CARD ASSETS : Card receivables (*) ₩ 5,858,311 ₩ 524,901 ₩6,383,212 ₩ 6,116,731 ₩ 479,630 ₩6,596,361 Cash advances 849,422 - 849,422 940,019 - 940,019 Card loans (*) 2,701,390 - 2,701,390 2,351,470 - 2,351,470 Subtotal 9,409,123 524,901 9,934,024 9,408,220 479,630 9,887,850 Allowance for doubtful accounts (196,555) (8,302) (204,857) (176,050) (4,762) (180,812) Book value ₩ 9,212,568 ₩ 516,599 ₩ 9,729,167 ₩ 9,232,170 ₩ 474,868 ₩9,707,038 Composition rate 94.69% 5.31% 100.00% 95.11% 4.89% 100.00% (*) Adjusted for deferred origination fees and present value discounts. 8. ALLOWANCE FOR DOUBTFUL ACCOUNTS: Changes in the allowance for doubtful accounts for the years ended December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): Year ended December 31, 2013 Card receivables Cash advances Card loans Loans Other assets Total Balance at January 1, 2013 ₩ 65,652 ₩ 33,786 ₩ 81,374 ₩ - ₩ 2,267 ₩ 183,079 Bad debt expenses (1,765) (520) (604) - - (2,889) Bad debt recovered 712 970 301 - - 1,983 Disposition and repurchase (35,114) (22,200) (34,275) - - (91,589) Provision for allowance for doubtful accounts 40,620 19,278 56,642 - 744 117,284 Balance at December 31, 2013 ₩ 70,105 ₩ 31,314 ₩ 103,438 ₩ - ₩ 3,011 ₩ 207,868 Year ended December 31, 2012 Card receivables Cash advances Card loans Loans Other assets Total Balance at January 1, 2012 ₩ 68,773 ₩ 37,910 ₩ 67,071 ₩ 30 ₩ 2,306 ₩ 176,090 Bad debt expenses (1,599) (408) (307) - - (2,314) Bad debt recovered 780 1,093 330 - - 2,203 Disposition and repurchase (25,829) (16,792) (18,324) - - (60,945) Provision for allowance for doubtful accounts 23,527 11,983 32,604 (30) (39) 68,045 Balance at December 31, 2012 ₩ 65,652 ₩ 33,786 ₩ 81,374 ₩ - ₩ 2,267 ₩ 183,079
  32. 32. - 22 - 9. PROPERTY AND EQUIPMENT: (1) Property and equipment as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): December 31, 2013 December 31, 2012 Acquisition cost Accumulated depreciation Book value Acquisition cost Accumulated depreciation Book value Land ₩ 122,012 ₩ - ₩ 122,012 ₩ 122,012 ₩ - ₩ 122,012 Buildings 79,196 (6,314) 72,882 64,818 (4,487) 60,331 Vehicles 89 (38) 51 503 (340) 163 Fixtures and equipment 150,981 (97,287) 53,694 146,839 (90,149) 56,690 Finance lease assets 3,334 (3,056) 278 3,334 (1,945) 1,389 Construction in progress 33,125 - 33,125 23,798 - 23,798 Total ₩ 388,737 ₩ (106,695) ₩ 282,042 ₩ 361,304 ₩ (96,921) ₩ 264,383 (2) The changes in book value of property and equipment for the years ended December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): Year ended December 31, 2013 Beginning balance Acquisition Reclassification(*) Disposal Depreciation Ending balance Land ₩ 122,012 ₩ - ₩ - ₩ - ₩ - ₩ 122,012 Buildings 60,331 7,315 7,062 - (1,826) 72,882 Vehicles 163 13 - (62) (63) 51 Fixtures and equipment 56,690 22,805 1,594 (2,260) (25,135) 53,694 Finance lease assets 1,389 - - - (1,111) 278 Construction in progress 23,798 18,203 (8,876) - - 33,125 Total ₩ 264,383 ₩ 48,336 ₩ (220) ₩ (2,322) ₩ (28,135) ₩ 282,042 (*) ₩344 million of construction in progress is reclassified to advance payments and ₩124 million of fixtures and equipment is reclassified from construction in progress to intangible assets (see Note 10). Year ended December 31, 2012 Beginning balance Acquisition Reclassification(*) Disposal Depreciation Ending balance Land ₩ 83,995 ₩ 34,166 ₩ 3,851 ₩ - ₩ - ₩ 122,012 Buildings 42,187 23,162 (3,505) - (1,513) 60,331 Vehicles 270 76 - (40) (143) 163 Fixtures and equipment 57,974 23,374 125 (558) (24,225) 56,690 Finance lease assets 2,500 - - - (1,111) 1,389 Construction in progress 472 18,399 4,927 - - 23,798 Total ₩ 187,398 ₩ 99,177 ₩ 5,398 ₩ (598) ₩ (26,992) ₩ 264,383 (*)₩5,398 million of construction in progress is reclassified from advance payments.
  33. 33. - 23 - 10. INTANGIBLE ASSETS: (1) Intangible assets as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): December 31, 2013 Acquisition cost Accumulated amortization Accumulated impairment Book value Development cost ₩ 71,713 ₩ (36,279) ₩ - ₩ 35,434 Industrial property rights 195 (159) - 36 Others 16,830 (12,325) - 4,505 Construction in progress 65,899 - - 65,899 Membership 21,695 - (539) 21,156 Total ₩ 176,332 ₩ (48,763) ₩ (539) ₩ 127,030 December 31, 2012 Acquisition cost Accumulated amortization Accumulated impairment Book value Development cost ₩ 59,191 ₩ (24,444) ₩ - ₩ 34,747 Industrial property rights 195 (119) - 76 Others 16,868 (9,039) - 7,829 Construction in progress 11,041 - - 11,041 Membership 21,484 - (513) 20,971 Total ₩ 108,779 ₩ (33,602) ₩ (513) ₩ 74,664 (2) The changes in intangible assets for the years ended December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): (*) ₩124 million of construction in progress is reclassified to fixtures and equipment (see Note 9). (*) ₩803 million of construction in progress is reclassified to advance payments. Year ended December 31, 2013 Beginning balance Acquisition Reclassification (*) Disposal Amortization Impairment Ending balance Development cost ₩ 34,747 ₩ 13,588 ₩ 4,936 ₩ (5,285) ₩ (12,552) ₩ - ₩ 35,434 Industrial property rights 76 - - - (40) - 36 Others 7,829 31 - (13) (3,342) - 4,505 Construction in progress 11,041 59,918 (5,060) - - - 65,899 Membership 20,971 244 - (33) - (26) 21,156 Total ₩ 74,664 ₩ 73,781 ₩ (124) ₩ (5,331) ₩ (15,934) ₩ (26) 127,030 Year ended December 31, 2012 Beginning balance Acquisition Reclassification (*) Disposal Amortization Impairment Ending balance Development cost ₩ 36,656 ₩ 7,543 ₩ 1,149 ₩ - ₩ (10,601) ₩ - ₩ 34,747 Industrial property rights 116 - - - (40) - 76 Others 11,369 - - - (3,540) - 7,829 Construction in progress 2,101 10,892 (1,952) - - - 11,041 Membership 22,734 - - (1,250) - (513) 20,971 Total ₩ 72,976 ₩ 18,435 ₩ (803) ₩ (1,250) ₩ (14,181) ₩ (513) 74,664
  34. 34. - 24 - 11. ASSETS PLEDGED AS COLLATERAL: Land and buildings amounting to₩471 million are provided as collateral for leasehold deposit received as of December 31, 2013. 12. BORROWINGS: Borrowings as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): Annual interest rates (%) MaturityBorrowed from December 31, 2013 December 31, 2012 Commercial papers - - - ₩ - ₩ 350,000 Borrowings Hana bank and seven others 3.56–5.55 2014.02.21– 2016.04.01 212,500 137,500 ₩ 212,500 ₩ 487,500 13. BONDS PAYABLE: (1) Bonds payable issued by the Consolidated Entity and outstanding as of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): Annual interest rates (%) Maturity December 31, 2013 December 31, 2012 Par value Issue price Par value Issue price Short-term debentures - - ₩ - ₩ - ₩ 170,000 ₩ 170,000 Current portion of long-term debentures 2.91–6.75, 1M USD LIBOR+0.724 2014.01.08– 2014.12.22 1,701,413 1,701,413 1,707,580 1,707,580 Long-term debentures 2.77–5.68, 1M USD LIBOR+1.50 2015.01.19– 2020.10.29 5,284,120 5,284,120 4,665,067 4,665,067 Discounts on bonds (7,271) (9,471) Bonds payable, net ₩6,978,262 ₩6,533,176 The outstanding bonds payable are non-guaranteed corporate bonds, with their principals to be redeemed by installment or at maturity. Bond issuance costs are recorded as discounts on bonds payable and amortized using the effective interest rate method. (2) The redemption schedule for the bonds payable is as follows (Unit: Korean won in millions): Period Amount to be redeemed as of December 31, 2013 2014.01.01–2014.12.31 ₩ 1,701,413 2015.01.01–2015.12.31 1,905,120 2016.01.01–2016.12.31 1,400,000 2017.01.01–2017.12.31 1,068,000 2018.01.01 911,000 ₩ 6,985,533 Period Amount to be redeemed as of December 31, 2012 2013.01.01–2013.12.31 ₩ 1,877,580 2014.01.01–2014.12.31 1,705,627 2015.01.01–2015.12.31 1,821,440 2016.01.01–2016.12.31 720,000 2017.01.01 418,000 ₩ 6,542,647
  35. 35. - 25 - 14. FINANCE LEASE LIABILITIES: (1) Lease contract The Consolidated Entity has a three-year finance lease for electronic equipment. The Consolidated Entity has a bargain purchase option at expiration date of lease contract. The lessor has the legal ownership of the finance lease, whose book value amounts to ₩278 million and ₩1,389 million as of December 31, 2013 and 2012, respectively, and which are set as collateral for finance lease obligation. (2) Finance lease liabilities of December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): December 31, 2013 December 31, 2012 Minimum lease payments Present value of minimum lease payments Minimum lease payments Present value of minimum lease payments Less than 1 year ₩ 301 ₩ 298 ₩ 1,202 ₩ 1,154 1-5 years - - 301 298 Present value discounts (3) (51) Present value ₩ 298 ₩ 1,452 15. RETIREMENT BENEFIT PLAN: (1) Defined Contribution Plan The expense recognized in the consolidation statements of comprehensive income related to postemployment benefit plan under the defined contribution plan for the years ended December 31, 2013 and 2012 are as follows (Unit: Korean won in millions): December 31, 2013 December 31, 2012 Defined contribution plan ₩ 26 ₩ 10 (2) Defined benefit plan 1) General The Consolidated Entity operates a defined benefit plan that is linked to final payment. Plan assets mainly consist of deposits and are exposed to risk of fall in interest rate. 2) Details of defined benefit plan are as follows (Unit: Korean won in millions): As of December 31, 2013 and 2012, the amounts recognized in the consolidated statements of financial position related to retirement benefit obligation are as follows (Unit: Korean won in millions): December 31, 2013 December 31, 2012 Present value of defined benefit obligation ₩ 46,403 ₩ 44,474 Fair value of plan assets (43,006) (33,745) Transferred to National Pension Fund (30) (34) Retirement benefit obligation ₩ 3,367 ₩ 10,695
  36. 36. - 26 - 3) Net defined benefit obligation Changes in present value of net defined benefit obligation for the years ended December 31, 2013 and 2012, are as follows (Unit: Korean won in millions): Year ended December 31, 2013 Present value of the defined benefit obligation Plan assets National Pension Fund Net defined benefit obligation Beginning balance ₩ 44,474 ₩ (33,745) ₩ (34) ₩ 10,695 Contributions from the employer - (11,100) - (11,100) Current service cost 9,548 - - 9,548 Interest expense (income) 1,519 (1,087) - 432 Return on plan assets, excluding amounts included in interest income above - 38 - 38 Actuarial gains and losses arising from changes in demographic assumptions 185 - - 185 Actuarial gains and losses arising from changes in financial assumptions (1,186) - - (1,186) Actuarial gains and losses arising from changes in experience adjustments (4,316) - - (4,316) Transfer of employees between the Company and its related companies (169) (190) - (359) Benefits paid (3,652) 3,078 4 (570) Ending balance ₩ 46,403 ₩ (43,006) ₩ (30) ₩ 3,367

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