Hyundai Capital Services, Inc. andSubsidiariesConsolidated Financial StatementsDecember 31, 2012 and 2011
Hyundai Capital Services, Inc. and SubsidiariesIndexDecember 31, 2012 and 2011Report of Independent Auditors ................
Report of Independent AuditorsTo the Shareholders and Board of Directors ofHyundai Capital Services, Inc.We have audited t...
Auditing standards and their application in practice vary among countries. The procedures andpractices used in the Republi...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011(In ...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011(In ...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011(In ...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 201...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 201...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 201...
Hyundai Capital Services, Inc. and Subsidiaries        Consolidated Statements of Changes in Equity        Years Ended Dec...
Hyundai Capital Services, Inc. and Subsidiaries        Consolidated Statements of Changes in Equity        Years Ended Dec...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Cash FlowsYears Ended December 31, 2012 and 2011...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20111. ...
Hyundai Capital Services, Inc. and Subsidiaries  Notes to the Consolidated Financial Statements  December 31, 2012 and 201...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  e...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  T...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.1...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  c...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.3...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  d...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 Fi...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  r...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 am...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  n...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  W...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  (...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  P...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.1...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.2...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  A...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  E...
Hyundai Capital Services, Inc. and Subsidiaries    Notes to the Consolidated Financial Statements    December 31, 2012 and...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011  S...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20115. ...
2012 hcs영문감사보고서
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2012 hcs영문감사보고서
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2012 hcs영문감사보고서

  1. 1. Hyundai Capital Services, Inc. andSubsidiariesConsolidated Financial StatementsDecember 31, 2012 and 2011
  2. 2. Hyundai Capital Services, Inc. and SubsidiariesIndexDecember 31, 2012 and 2011Report of Independent Auditors ......................................................................................................... 1-2Consolidated Financial StatementsConsolidated Statements of Financial Position...................................................................................... 3-5Consolidated Statements of Comprehensive Income............................................................................ 6-8Consolidated Statements of Changes in Equity ................................................................................. 9-10Consolidated Statements of Cash Flows ................................................................................................ 11Notes to the Consolidated Financial Statements .............................................................................. 12-69
  3. 3. Report of Independent AuditorsTo the Shareholders and Board of Directors ofHyundai Capital Services, Inc.We have audited the accompanying consolidated statements of financial position of HyundaiCapital Services, Inc.(the “Company”) and its subsidiaries as of December 31, 2012 and 2011,and the related statements of comprehensive income, changes in equity and cash flows forthe years then ended, expressed in Korean won. These financial statements are theresponsibility of the Companys management. Our responsibility is to express an opinion onthese financial statements based on our audits.We conducted our audits in accordance with auditing standards generally accepted in theRepublic of Korea. Those standards require that we plan and perform the audit to obtainreasonable assurance about whether the financial statements are free of materialmisstatement. An audit includes examining, on a test basis, evidence supporting the amountsand disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating theoverall financial statement presentation. We believe that our audits provide a reasonable basisfor our opinion.In our opinion, the consolidated financial statements, referred to above, present fairly, in allmaterial respects, the financial position of Hyundai Capital Services, Inc. and its subsidiariesas of December 31, 2012 and 2011, and their financial performance and cash flows for theyears then ended, in conformity with International Financial Reporting Standards as adoptedby the Republic of Korea (“Korean-IFRS”). 1
  4. 4. Auditing standards and their application in practice vary among countries. The procedures andpractices used in the Republic of Korea to audit such financial statements may differ fromthose generally accepted and applied in other countries. Accordingly, this report is for use bythose who are informed about Korean auditing standards and their application in practice.Seoul, KoreaFebruary 28, 2013 This report is effective as of February 28, 2013, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2
  5. 5. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011(In millions of Korean won) Notes 2012 2011AssetsCash and deposits Cash and cash equivalents 25 1,302,161 1,455,432 Deposits 3 12 10 1,302,173 1,455,442Securities 4 Available-for-sale securities 20,283 18,452 Investments in associates 98,796 51,768 119,079 70,220Loans receivable 2,5,6 10,870,951 9,495,818 Allowances for doubtful accounts (273,589) (231,983) 10,597,362 9,263,835Installment financial assets 2,5,6 Auto installment financing receivables 5,265,772 6,663,970 Allowances for doubtful accounts (72,447) (85,949) Durable goods installment financing receivables 1 1,422 Allowances for doubtful accounts - (141) Mortgage installment financing receivables 25,679 16,515 Allowances for doubtful accounts (277) (1,204) Machinery installment financing receivables - 1,682 Allowances for doubtful accounts - (37) 5,209,564 6,605,422Lease receivables 5,6 Finance lease receivables 9 2,804,929 2,278,383 Cancelled lease receivables 493 211 2,805,422 2,278,594Leased assets 10 Operating leased assets 1,123,049 1,119,309 Cancelled leased assets 4,230 3,769 1,127,279 1,123,078 3
  6. 6. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011(In millions of Korean won) Notes 2012 2011Property and equipment 11 320,738 265,433Other assets Intangible assets 12 64,163 65,117 Non-trade receivables 117,836 87,895 Allowances for doubtful accounts (3,890) (2,913) Accrued revenues 116,331 128,351 Allowances for doubtful accounts (14,850) (14,371) Advance payments 64,155 55,013 Prepaid expenses 15,869 26,434 Leasehold deposits 31,118 35,929 Derivative assets 18 34,915 475,431 425,647 856,886 Total assets 21,907,264 21,918,910LiabilitiesBorrowings Borrowings 13 2,213,252 2,250,000 Debentures 14 14,802,390 15,522,368 17,015,642 17,772,368Other liabilities Non-trade payables 340,437 270,169 Accrued expenses 159,743 135,083 Unearned revenue 51,832 61,095 Withholdings 38,342 24,140 Income tax payables 70,888 74,921 Defined benefit liability 15 12,988 20,362 Leasehold deposits received 812,975 787,857 Deferred income tax liabilities 16 59,899 47,884 Provisions 17 2,017 10,446 Derivative liabilities 18 302,750 58,096 1,851,871 1,490,053 Total liabilities 18,867,513 19,262,421 4
  7. 7. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2012 and 2011(In millions of Korean won) Notes 2012 2011Equity Common stock 1,19 496,537 496,537 Capital surplus Paid-in capital in excess of par value 369,339 369,339 Other capital surplus 38,200 38,200 407,539 407,539 Accumulated other comprehensive income and 24 expenses Gain(loss) on valuation of available-for-sale 1,002 (388) securities Accumulated comprehensive income (2,540) 47 (expense) of equity method investees Gain(loss) on valuation of derivatives 18 2,125 (50,156) Cumulative effect of overseas operation (872) (343) translation (285) (50,840) Retained earnings 19 2,135,851 1,803,144 Non-controlling interests 109 109 Total equity 3,039,751 2,656,489 Total liabilities and equity 21,907,264 21,918,910 The accompanying notes are an integral part of these consolidated financial statements. 5
  8. 8. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2012 and 2011(In millions of Korean won, except per share amounts) Notes 2012 2011Operating revenue Interest income 20 Interest on bank deposits 45,876 41,991 Other interest income 2,117 385 47,993 42,376 Gain on valuation and disposal of securities Gain on disposal of available-for-sale 3,497 4,169 securities 3,497 4,169 Income on loans 2,20,21 1,267,952 1,264,033 Income on installment financial 2,20,21 605,650 720,771 receivables Income on leases 20,21 916,030 871,571 Gain on disposal of loans 85,584 72,040 Gain on foreign transactions Gain on foreign exchanges translation 386,038 21,235 Gain on foreign currency transactions 77,506 46,301 463,544 67,536 Dividend income 4,888 5,990 Other operating income Gain on valuation of derivatives 2,574 134,197 Gain on derivatives transactions 4,163 3,887 Others 139,806 141,878 146,543 279,962 Total operating revenue 3,541,681 3,328,448 6
  9. 9. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2012 and 2011(In millions of Korean won, except per shareamounts) Notes 2012 2011Operating expenses Interest expenses 20 895,321 956,039 Lease expenses 21 516,989 505,187 Bad debts expense 6 376,848 354,220 Loss on foreign transactions Loss on foreign exchange translation 3,048 134,211 Loss on foreign currency transactions 4,812 3,887 7,860 138,098 General and administrative expenses 22 637,211 603,367 Other operating expenses Loss on valuation of derivatives 385,783 21,229 Loss on derivatives transactions 77,068 46,326 Others 55,993 43,251 518,844 110,806 Total operating expenses 2,953,073 2,667,717 Operating income 2 588,608 660,731Non-operating income 2 Gain on equity method valuation 4 7,025 3,968 Gain on disposal of property and 113 36 equipment Miscellaneous income 5,301 2,995 12,439 6,999Non-operating expenses 2 Loss on equity method valuation 4 8,610 - Loss on disposal of property and 5,226 - equipment Contribution 2,608 2,644 Miscellaneous loss 730 1,695 17,174 4,339 Income before income taxes 583,873 663,391Income tax expense 16 151,859 155,987 Net income 432,014 507,404Net income attributable to: Owners of the parent 432,014 507,404 Non-controlling interests - - 432,014 507,404 7
  10. 10. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2012 and 2011(In millions of Korean won, except per shareamounts) Notes 2012 2011Other comprehensive income, 24net of income taxes Gain(Loss) on valuation of available-for- 1,390 (900) sale financial securities Other comprehensive income of equity 4 (2,587) 23 method investees Gain (Loss) on valuation of derivatives 52,281 17,768 Effect of overseas operation (529) (360) translation 50,555 16,531Total comprehensive income 482,569 523,935 Total comprehensive income attributable to: Owners of the parent 482,569 523,935 Non-controlling interests - - 482,569 523,935Earnings per share attributable to the 23 ordinary equity holders of the company Basic earnings per share 4,350 5,109 Diluted earnings per share 4,350 5,109 The accompanying notes are an integral part of these consolidated financial statements. 8
  11. 11. Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Equity Years Ended December 31, 2012 and 2011 Accumulated Total(In millions of Korean won) other attributable to Non- comprehensive Capital Capital income and Retained owners of the controlling stock surplus expenses earnings parent interests Total equityBalances as of January 1, 2011 496,537 407,539 (67,371) 1,400,013 2,236,718 129 2,236,847Total comprehensive incomeNet income - - - 507,404 507,404 - 507,404Other comprehensive income Loss on valuation of available-for- - - (900) - (900) - (900) sale securities Other comprehensive income of - - 23 - 23 - 23 equity method investees Gain on valuation of derivatives - - 17,768 - 17,768 - 17,768 Effect of overseas operation - - (360) - (360) - (360) translationTotal comprehensive income - - 16,531 507,404 523,935 - 523,935Transactions with ownersYear-end Dividends - - - (104,273) (104,273) - (104,273)Liquidation of special purpose entity - - - - - (20) (20)Total transactions with owners - - - (104,273) (104,273) (20) (104,293)Balances as of December 31, 2011 496,537 407,539 (50,840) 1,803,144 2,656,380 109 2,656,489 9
  12. 12. Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Equity Years Ended December 31, 2012 and 2011 Accumulated Total(In millions of Korean won) other attributable to Non- comprehensive Capital Capital income and Retained owners of the controlling stock surplus expenses earnings parent interests Total equityBalances as of January 1, 2012 496,537 407,539 (50,840) 1,803,144 2,656,380 109 2,656,489Total comprehensive incomeNet income - - - 432,014 432,014 - 432,014Other comprehensive income Loss on valuation of available-for- - - 1,390 - 1,390 - 1,390 sale securities Other comprehensive income of - - (2,587) - (2,587) - (2,587) equity method investees Gain on valuation of derivatives - - 52,281 - 52,281 - 52,281 Effect of overseas operation - - (529) - (529) - (529) translationTotal comprehensive income 50,555 432,014 482,569 - 482,569Transactions with ownersInterim Dividends - - - (99,307) (99,307) - (99,307)Establishment of special - - - - - 0 0 purpose entityTotal transactions with owners - - - (99,307) (99,307) 0 (99,307)Balances as of December 31, 2012 496,537 407,539 (285) 2,135,851 3,039,642 109 3,039,751 The accompanying notes are an integral part of these consolidated financial statements. 10
  13. 13. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Cash FlowsYears Ended December 31, 2012 and 2011(In millions of Korean won) 2012 2011 Cash flows from operating activities Cash generated from operations (Note 25) 1,364,223 630,961 Interest received 50,091 37,090 Interest paid (820,101) (864,563) Dividends received 4,888 5,990 Income taxes paid (149,022) (154,724) Net cash generated from(used in) operating 450,079 (345,246) activities Cash flows from investing activities Acquisition of investments in associates (51,935) - Decrease from business combination (161,643) - Establishment of special purpose entity 0 20 Liquidation of special purpose entity - (40) Decrease in deposits - 16 Dividends from equity method investments 733 707 Acquisition of land (38,305) (3,581) Acquisition of building (22,053) (8,549) Acquisition of structures (712) (379) Disposal of vehicles 152 37 Acquisition of vehicles (2,731) (328) Disposal of fixtures and furniture 835 626 Acquisition of fixtures and furniture (18,405) (37,712) Acquisition of other tangible assets (48) (801) Increase in construction in progress (4,743) (8,079) Disposal of intangible assets - 71 Acquisition of intangible assets (7,842) (8,152) Decrease in leasehold deposits 5,407 4,012 Increase in leasehold deposits (646) (7,609) Net cash used in investing activities (301,935) (69,741) Cash flows from financing activities Proceeds from borrowings 2,498,287 2,990,000 Repayments of borrowings (2,698,655) (3,390,650) Issuance of debentures 4,924,482 5,119,021 Repayments of debentures (4,925,688) (3,968,170) Payments of dividends (99,307) (104,273) Net cash generated from (used in) financing (300,881) 645,928 activities Exchange losses on cash and cash equivalents (5) (15) Decrease in other cash and cash equivalents (529) (360) Net increase(decrease) in cash and cash (153,271) 230,566 equivalents Cash and cash equivalents Beginning of period 1,455,432 1,224,866 End of period 1,302,161 1,455,432 The accompanying notes are an integral part of these consolidated financial statements. 11
  14. 14. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20111. General Information Hyundai Capital Services, Inc. (the “Company”) was established on December 22, 1993, to engage in installment financing, facilities lease and new technology financing. The Company changed its trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21, 1995, and changed its trade name once again to Hyundai Capital Services, Inc. on December 31, 1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is incorporated into the Hyundai Motor Company Group. As of December 31, 2012, the Company’s operations are headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor Company and GE International Holdings Corporation with 56.47% and 43.30% ownership, respectively.2. Summary of Significant Accounting Policies The consolidated financial statements have been prepared and presented which included the accounts of Hyundai Capital Services, Inc., as the parent company, according to Korean IFRS 1027, and Autopia Thirty-fifth SPC(trust) and other subsidiaries (collectively the “Group”), while HK Savings Bank and five other entities are accounted for using the equity method. Subsidiaries as of December 31, 2012 and 2011, are as follows. The Company has the substantial power over the subsidiaries established as special purpose entities for asset securitization even though its ownership interests over the subsidiaries do not exceed 50%. Ratio of Location ownership 2012 2011 Special Purpose Entities Korea 0.9% Autopia Thirty-fifth SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Fortieth SPC(trust) Autopia Fortieth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-seventh SPC(trust) Autopia Forty-seventh SPC(trust) Autopia Forty-ninth SPC(trust) - HB third SPC - 1 1 Stock Company Germany 100% Hyundai Capital Europe GmbH Hyundai Capital Europe GmbH Hyundai Capital India Private India 100% - Stock Company Limited 1 It holds 100% shares of Hyundai Capital Services Limited Liability Company The Group’s financial statements for the annual period beginning on January 1, 2011, have been prepared in accordance with Korean IFRS. These are the standards, subsequent amendments and related interpretations issued by the International Accounting Standards Board ("IASB") that have been adopted by the Republic of Korea. 12
  15. 15. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2012 and 2011 The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to exercise judgment in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 2.3. The Group has adopted the method of calculating operating income retroactively in accordance with amendment of Korean IFRS 1001, Presentation of financial statements, and the related consolidated statements of comprehensive income was rewritten with reflecting changed facts as Korean IFRS 1001 has been adopted. Effects on change of the Group’s accounting policies for the years ended December 31, 2012 and 2011, are as follows:(In millions of Koreanwon, except earningsper share) 2012 2011 1 1 Before Change After Before Change AfterOperating income 585,459 3,149 588,608 659,423 1,308 660,731Net income 432,014 - 432,014 507,404 - 507,404Earnings per share 4,350 4,350 5,109 5,109 1 The changed amounts previously classified as operating income(loss) before amendment of Korean IFRS 1001, and excluded from operating income(loss) after amendment of Korean IFRS 1001 are as follows: Type 2012 2011 Non-operating income Gain on disposal of property and 113 35 equipment Miscellaneous income 5,302 2,995 5,415 3,030 Non-operating income Loss on disposal of property and 5,226 - equipment Contribution 2,608 2,644 Miscellaneous loss 730 1,694 8,564 4,338 New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2012, and not early adopted by the Group are as follows: - Amendment of Korean IFRS 1001, Presentation of financial statements Korean-IFRS 1001, Presentation of financial statements, was amended to require the other comprehensive income items to be presented into two groups on the basis of whether they are potentially reclassificable to profit or loss subsequently. An entity shall apply those amendments for annual periods beginning on or after July 1, 2012. Earlier application is permitted. The Group 13
  16. 16. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 expects the application of the above amended Korean IFRS requirement would not have a material impact on its consolidated financial statements. - Amendments to Korean IFRS 1019, Employee Benefits According to the amendments to Korean IFRS 1019, Employee Benefits, use of a ‘corridor’ approach is no longer permitted, and therefore all actuarial gains and losses incurred are immediately recognized in other comprehensive income. All past service costs incurred from changes in pension plan are immediately recognized, and expected returns on interest costs and plan assets that used to be separately calculated are now changed to calculating net interest expense(income) by applying discount rate used in measuring defined benefit obligation in net defined benefit liabilities(assets). This amendment will be effective for the Group as of January 1, 2013, and the Group is assessing the impact of application of the amended Korean IFRS1019 on its consolidated financial statements. - Enactment of Korean IFRS 1113, Fair value measurement Korean IFRS 1113, Fair value measurement, aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across Korean IFRS. Korean IFRS1113 does not extend the use of fair value accounting but provides guidance on how it should be applied where its use is already required or permitted by other standards within Korean IFRS. This amendment will be effective for the Group as of January 1, 2013, and the Group is assessing the impact of application of the amended Korean IFRS 1019 on its consolidated financial statements. - Enactment of Korean IFRS 1110, Consolidated Financial Statements Korean IFRS 1110, Consolidated Financial Statements, builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included in the consolidated financial statements of the Parent Company. 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. The standard provides additional guidance to assist in the determination of control where this is difficult to assess. This enactment will be effective for annual periods beginning on or after January 1, 2013, and the Group is reviewing the impact of this standard. - Enactment of Korean IFRS 1112, Disclosures of Interests in Other Entities Korean IFRS 1112, Disclosures of Interests in Other Entities, provides the disclosure requirements for all forms of interests in other entities, including a subsidiary, a joint arrangement, an associate, a consolidated structured entity and an unconsolidated structured entity. This enactment will be effective for annual periods beginning on or after January 1, 2013, and the Group is reviewing the impact of this standard. 14
  17. 17. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 The following is a summary of significant accounting policies followed by the Group in the preparation of its consolidated financial statements. These policies have been consistently applied to all the periods presented, unless otherwise stated. Certain accounts of the prior period financial statements were reclassified to conform with the December 31, 2012 financial statement presentation. These reclassifications have no impact on the previously reported operating revenue, operating income, net income and shareholders’ equity. Type 2012 2011 Consolidated statement of financial position Loans receivable 10,848,062 9,263,835 Installment financial assets 5,021,194 6,605,421 Consolidated statements of comprehensive income Income on loans 1,548,557 1,264,033 Income on installment financial 436,247 720,771 receivables 15
  18. 18. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.1 Consolidation a. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Company has the power to govern the financial and operating policies generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Company controls another entity. The Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the financial and operating policies by virtue of de- facto control. De-facto control may arise in circumstances where the size of the Group’s voting rights relative to the size and dispersion of holdings of other shareholders give the Group the power to govern the financial and operating policies and others. Subsidiaries are fully consolidated from the date on which control is transferred to the Company. They are de-consolidated from the date that control ceases. The Group uses the acquisition method to account for business combinations. The consideration transferred is measured as the fair values of the assets transferred, equity interests issued and liabilities incurred or assumed at the acquisition date. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-by- acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the non- controlling interest’s proportionate share of the acquiree’s net assets. The excess of the consideration transferred and the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognized directly in the statement of comprehensive income. Intercompany transactions, balances and unrealized gains on transactions between Group companies are eliminated. b. Special purpose entities The Group established several SPEs for the purpose of asset-backed securitization, but owns none of the shares directly or indirectly. The Group consolidates the SPEs when the risks, rewards and substance of the relationship indicated that the Group consolidates the SPEs. SPEs controlled by the Group are created with conditions that impose strict limits on the decision-making power over the operations. Therefore, the Group obtains all benefits from the SPEs’ operation and net assets, and that the Group may be exposed to risks incident to the activities of the SPEs or the Group retains the majority of the residual or ownership risks related to the SPEs’ assets. 16
  19. 19. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 c. Transactions with non-controlling interests The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. d. Associates and joint ventures Associates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates are accounted for using the equity method of accounting and are initially recognized at cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any accumulated impairment loss. The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income statement, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the associate. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been changed where necessary to ensure consistency with the policies adopted by the Group.2.2 Foreign currency translation a. Functional and presentation currency Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The consolidated financial statements are presented in Korean won, which is the Group’s functional currency. b. Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in other comprehensive income as qualifying cash flow hedges. 17
  20. 20. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.3 Critical accounting estimates and assumptions Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below. a. Allowance for doubtful accounts The Group presents the allowance for doubtful accounts calculated based on the best estimates that are necessary to reflect the impairment incurred at each reporting date. Allowance for doubtful accounts is recognized as individual and collective units considering the financial circumstances of customers, net realizable value, credit quality, size of portfolio, concentrativeness, economic factors and others. According to the change in these factors, the allowance for doubtful accounts will be changed in a future period. b. Fair value of financial instruments Fair value of financial assets and liabilities is based on quoted market prices, exchange-broker prices of financial instruments traded in an active market. If there is no quoted price for a financial instrument, the Group establishes fair value by using valuation techniques and advanced self- valuation techniques. Valuation techniques include the Discounted Cash Flow method using variables observable in market, comparison method with similar instruments that have observable market transactions, and option pricing model. For more complicated financial instruments, the Group uses advanced self- valuation techniques. Parts of or all the variables used in this valuation technique may not be observable in market, or may be derived from quoted prices and market ratio, or may be measured based on specific assumption. At initial recognition if the difference between the fair value of valuation technique and transaction price occurs, then the transaction price as the best estimate of fair value is recognized as fair value. This fair value difference presents in profit immediately on any available observable market data according to individual factors and changes of environment. c. Estimated impairment of goodwill The Group tests annually whether goodwill has suffered any impairment in accordance with the accounting policy stated in Note 2.13. The recoverable amounts of cash-generating units have been determined based on value-in-use calculations. These calculations require the use of estimates. 18
  21. 21. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 d. Defined benefit liability The present value of the defined benefit liability depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of the defined benefit liability. The Group determines the appropriate discount rate at the end of each year. This is the interest rate that is used to determine the present value of estimated future cash outflows expected to be required to settle the defined benefit liability. In determining the appropriate discount rate, the Group considers the interest rates of high-quality corporate bonds that are denominated in the currency in which the pension benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability. Other key assumptions for defined benefit liability are based in part on current market conditions. Additional information is disclosed in Note 2.15.2.4 Revenue recognition The Group recognizes capital lent to customers as loans receivable. While installment financial capital paid by the Group to manufacturers or sellers (including agencies) on behalf of customers is recognized as installment financial assets. Financial lease receivables classified as financial leases are recognized as lease receivables. The expected future cash flows from loans receivable, installment financial assets and lease receivables (“Financial receivables”) described above are amortized under the effective interest method over the period of the financial receivables being used by customers.2.5 Statements of cash flows The Group prepares statements of cash flows using indirect method2.6 Cash and cash equivalents Cash and cash equivalents include cash in hand, deposits held at call with banks and other short- term highly liquid investments with original maturities of three months or less.2.7 Financial assets a. Classification The Group classifies its financial assets as financial assets at fair value through profit or loss, loans and receivables and available-for-sale financial assets. Management determines the classification of its financial assets at initial recognition. Financial assets at fair value through profit or loss 19
  22. 22. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. Derivatives are also categorized as held for trading unless they are designated as hedges. Meanwhile, the Group has no financial asset at fair value through profit or loss other than financial assets held for trading. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. b. Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade-date. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss are initially recognized at fair value, and transaction costs are expensed in the income statement. Available-for- sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and receivables are subsequently carried at amortized cost using the effective interest method. Changes in the fair value of financial assets at fair value through profit or loss are recognized in income statement as gain or loss. When securities classified as available-for-sale are sold or impaired, the accumulated fair value adjustments recognized in equity are transferred to the income statement as gain or loss on disposal of securities. Interest on available-for-sale securities calculated using the effective interest method is recognized in the income statement as part of interest income. Dividends on available-for sale equity instruments are recognized in the income statement as dividend income when the Group’s right to receive payments is established. c. Derecognition of financial assets A financial asset is derecognized only if the contractual rights on cash flow of the financial asset terminate or all the risks and rewards of ownership of the financial asset are substantially transferred. If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the Group shall derecognize the financial asset and recognize separately as assets or liabilities any rights and obligations created or retained in the transfer. If the Group retains substantially all the 20
  23. 23. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 risks and rewards of ownership of the financial asset, the Group shall continue to recognize the financial asset. d. Impairment of financial assets (1) Assets carried at amortized cost The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset is impaired. Impairment losses are incurred only if there is objective evidence of impairment and that loss event has an impact on the estimated future cash flows of the financial asset. The amount of the loss is measured as 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. 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 reversal of the previously recognized impairment loss is recognized in the income statement. (2) Available-for-sale financial assets The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For equity securities classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the difference between carrying amount and current fair value is recognized in profit or loss. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available for sale are not be reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed.2.8 Deferral of loan origination fee and loan origination cost Loan origination fee, which is a processing fee in relation to the loan origination process such as upfront fee, is deferred and deducted from the loan account, adjusted over the life of the loan based on the effective interest rate method. Loan origination cost, which relates to activities performed by the lender such as soliciting potential borrowers, is deferred and added to the loan account, adjusted over the life of the loan based on the effective interest rate method when the future economic benefit in connection with the cost incurred can be identified on a per loan basis.2.9 Allowances for financial receivables a. Calculation of allowances for doubtful accounts The Group recognizes the impairment of receivables as an allowance for doubtful accounts. It is based on the impairment estimates made through impairment assessment of receivables carried at 21
  24. 24. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 amortized cost. Allowance for doubtful accounts consists of impairments related to individually material financial receivables and allowances of collective assessment for impairment incurred in homogeneous assets. Individually material receivables undertake the individual assessment of the difference between the assets’ carrying amount and the present value of estimated future cash flows. Unimpaired assets from individual assessments and individually immaterial assets undertake the collective assessment classified by asset groups that have analogous risk attributes. The Group uses statistical model in the collective assessment based on the expected probability of default, periodic collect amounts, loss-given default based on the past losses, loss emergency period, and management’s decision about the current economy and credit circumstances. The material factors used in statistical model for the collective assessment are evaluated to compare with actual data regularly. The amount of impairment loss is reflected in allowance for doubtful accounts as profit or loss. b. Write-off policy The Group writes off the doubtful receivables when the assets are deemed unrecoverable. This decision considers the information about significant changes of financial position such that a borrower or an obligor is in default, or the amount recoverable from security is not enough. Write-off decision of standard small loan is generally made based on the delinquent status of loan.2.10 Leases a. Classification The Group classifies leases based on the extent to which risks and rewards incidental to ownership of a leased asset lie with the lessor or the lessee. The lease arrangement classified as a financial lease is where: ①the lease transfers ownership of the asset to the lessee by the end of the lease term, ②the lessee has the option to purchase the asset at a price that is expected to be sufficiently lower than the fair value at the date the option becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will be exercised, ③the lease term is for the major part of the economic life of the asset even if the title is not transferred, ④at the inception of the lease the present value of the minimum lease payments amounts to at least substantially all of the fair value of the leased asset, or ⑤the leased assets are of such a specialized nature that only the lessee can use them without major modifications. Minimum lease payments include that part of the residual value that is guaranteed by the lessee, by a party related to the lessee or by a third party unrelated to the Group that is financially capable of discharging the obligations under the guarantee. b. Finance leases Where the Group has substantially all the risks and rewards of ownership, leases of property, plant and equipment are classified as finance lease. An amount equal to the net investment in the lease is presented as a receivable. Expenses that are incurred with regard to the lease contract made but 22
  25. 25. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 not executed at the date of the statement of financial position are accounted for as prepaid leased assets and are reclassified as finance lease receivables at the inception of the lease. Lease receivables include amounts such as commissions, legal fees and internal costs that are incremental and directly attributable to negotiating and arranging a lease. Each lease payment is allocated between principal and finance income. Financial income on an uncollected part of net investment shall be allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. If a lease agreement is cancelled in the middle of lease term, the Group reclassifies the amount of financial lease receivables into cancelled leased receivables, while the amount of financial lease receivables not yet due is reclassified as cancelled leased assets. c. Operating leases The property on operating leases is stated at acquisition cost, net of accumulated depreciation. Expenditures that are incurred for the lease contract made but not executed at the date of the statement of financial position are accounted for as prepaid leased assets and are reclassified as operating leased assets at the inception of the lease term. Rentals from operating lease other than any guaranteed residual value are reported as revenues on a straight-line basis over the lease term. Initial direct costs incurred during the period of preparing the lease contract are recognized as operating leased assets and are amortized over the lease term in proportion to the recognition of income on leased assets. If a lease agreement is cancelled in the middle of lease term, the balance of operating leased assets is substituted for cancelled leased assets. The cancelled leased assets are depreciated over its residual useful life, but are mostly disposed of in the month of cancellation.2.11 Property and equipment Property and equipment are stated at historical cost less accumulated depreciation and accumulated impairment losses. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Depreciation method and estimated useful lives used by the Group are as follows: Depreciation Method Useful life Buildings Straight-line 40 years Structures Straight-line 40 years Fixtures and furniture Straight-line 3-4 years Vehicles Straight-line 4 years Other tangible assets Straight-line 5 years 23
  26. 26. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 Work of art classified under other tangible assets are not amortized due to their indefinite useful life in nature. The assets’ depreciation method, residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized within non-operating income (expenses) in the income statement.2.12 Intangible assets Intangible assets are stated at cost, which includes acquisition cost and directly related costs required to prepare the asset for its intended use. Intangible assets are stated net of accumulated amortization calculated based on using the following amortization method and estimated useful lives: Amortization Method Useful life Development costs Straight-line 5 years Rights of trademark Straight-line 5 years Other intangible assets Straight-line 5 years Memberships classified under other intangible assets are not amortized over their indefinite useful life.2.13 Impairment of non-financial assets Goodwill or assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non- financial assets that are subject to amortization suffered impairment are reviewed for possible reversal of the impairment at each reporting date.2.14 Financial Liabilities (a) Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss are financial instruments held for trading. Financial liabilities are classified as financial liabilities at fair value through profit or loss when incurred principally for the purpose of repurchasing it in the near term. Derivatives or embedded derivatives are also categorized as this category unless they are designated as hedges. 24
  27. 27. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 (b) Financial liabilities carried at amortized cost The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss and financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, as financial liabilities carried at amortized cost and as ‘trade payables’, ‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. In case when a transfer of a financial asset does not qualify for derecognition, the transferred asset is continuously recognized as asset and the consideration received is recognized as financial liabilities.2.15 Pension obligations The Group operates various post-employment schemes, including both defined benefit and defined contribution pension plans. A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plans on a mandatory, contractual or voluntary basis. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund or a reduction in the future payments is available. A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognized in the statement of financial position in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension obligation. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity in other comprehensive income in the period in which they arise. Past-service costs are recognized immediately in income.2.16 Provisions and contingent liabilities When there is a probability that an outflow of economic benefits will occur due to a present obligation resulting from a present legal or as a result of past events, and whose amount is reasonably estimable, a corresponding amount of provision is recognized in the financial statements. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognized even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small. 25
  28. 28. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 Provisions are the best estimate of the expenditure required to settle the present obligation that consider the risks and uncertainties inevitably surround many events and circumstances at the reporting date. Where the effect of the time value of money is material, the amount of a provision is the present value of the expenditures expected to be required to settle the obligation. A possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of uncertain future events, or a present obligation that arises from past events but is not certain to occur, or cannot be reliably estimated, a disclosure regarding the contingent liability is made in the notes to the financial statements.2.17 Derivative financial instruments The Group has applied hedging policies using derivatives to deal with the risk of changes in foreign currency exchange rates and interest rates arising from liabilities. The Group has contracted currency swap and interest swap derivative financial instruments to deal with the risk of changes in foreign currency exchange rates arising from foreign currency liabilities and the risk of changes in interest rates arising from floating-rate liabilities. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently re-measured at their fair value. The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group applies cash flow hedge, which are hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions to apply hedging accounting. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. 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 profits or losses. The cumulative gain or loss that was reported in equity is recognized when the hedged items affect profits and losses. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to profits or losses. 26
  29. 29. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.18 Current and deferred income tax The tax expense for the period comprises current and deferred tax. Tax is recognized in the income statement, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. In this case, the tax is also recognized in other comprehensive income or directly in equity. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Group operates and generates taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. It establishes provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is recognized, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax assets and liabilities are not recognized if they arise from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates and laws that have been enacted or substantially enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. Deferred income tax is provided on temporary differences arising on investments in subsidiaries, associates and joint ventures except for deferred income tax liability where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.2.19 Earnings per share Basic earnings per share is calculated by dividing the profit attributable to equity holders of the Group by the weighted average number of ordinary shares in issue during the period excluding ordinary shares purchased by the Group and held as treasury shares. Diluted earnings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. Only dilutive potential ordinary shares are dilutive, they are added to the number of ordinary shares outstanding in the calculation of diluted earnings per share. 27
  30. 30. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20112.20 Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments.2.21 Dividend Distribution Dividend distribution to the Company’s shareholders is recognized as a liability in the financial statements in the period in which the dividends are approved by the Company’s shareholders.2.22 Approval of Issuance of the Financial Statements The issuance of the December 31, 2012 financial statements of the Group was approved by the Board of Directors on February 28, 2013.3. Restricted Financial Instruments Restricted financial instruments are as follows: Amount Type Entities 2012 2011 Restriction Hana Bank Maintaining deposits for checking Deposits 12 10 and 2 others accounts4. Securities Securities are as follows: (in millions of Korean won) Type 2012 2011 Available-for-sale securities Marketable equity securities 6,856 5,687 Equity securities Unlisted equity securities 11,165 10,526 18,021 16,213 Debt securities Government and public bonds 2,262 2,239 Sub-total 20,283 18,452 Equity method investments 98,796 51,768 119,079 70,220 28
  31. 31. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 Available-for-sale securities Available-for-sale securities are as follows: (1) Equity securities (in millions of Korean won) Book value Number of Ownership Acquisition shares (%) cost 2012 2011 Marketable equity securities NICE Information 682,965 2.25 3,312 3,729 3,190 Service NICE Holdings 49,162 1.42 3,491 3,127 2,497 Unlisted equity securities Hyundai Finance 1 1,700,000 9.29 9,888 11,065 10,426 Corp. Korean Egloan, Inc. 4,000 3.12 100 100 100 16,791 18,021 16,213 1 The fair value for Hyundai Finance Corp. was valued as the average of valuation prices provided by two external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the discounted cash flow model. The five-year financial statements, projected based on past performance, were used in measuring the fair value assuming that the operational structure will remain as is for the next five years. Operating income and expenses were estimated based on the past performance, business plan and expected market conditions. (2) Debt securities (in millions of Korean won) Book value Interest Acquisition Issuer rate (%) cost 2012 2011 Government and Metropolitan Rapid 2.50 2,170 2,262 2,239 public bonds Transit and others 29
  32. 32. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 Equity method investments Equity method investments are as follows: (in millions of Korean won) 2012 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Savings Bank 1 4,990,438 19.99 45,719 38,922 51,170 1HI Network, Inc. 13,332 19.99 76 861 861 1Korea Credit Bureau 140,000 7.00 3,800 2,948 3,985Hyundai Capital Germany GmbH 600,200 30.01 1,065 1,183 1,183Hyundai Capital UK Ltd 1,000,000 29.99 10,850 6,197 6,197Beijing Hyundai Auto Finance Co., Ltd - 46.00 41,085 35,400 35,400 102,595 85,511 98,796 (in millions of Korean won) 2011 Number of Ownership Acquisition Net asset Book value shares (%) cost valueHK Savings Bank 1 4,990,438 19.99 45,719 33,487 45,735 1HI Network, Inc. 13,332 19.99 76 1,003 1,003 1Korea Credit Bureau 140,000 7.00 3,800 2,928 3,965Hyundai Capital Germany GmbH 600,200 30.01 1,065 1,065 1,065 50,660 38,483 51,768 1 The Group’s shareholdings in HK Savings Bank, HI Network, Inc. and Korea Credit Bureau are less than 20%. However, the Group is able to significantly influence such involvement in the financial and operating processes, and thus the equity method is applied. 30
  33. 33. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2012 and 2011 Valuations of equity method investments are as follows: (in millions of Korean won) 2012 Changes in accumulated Beginning Gain (loss) Ending Acquisition other Dividends Balance on valuation comprehensive Balance incomeHK Savings Bank 45,735 - 5,809 (374) - 51,170HI Network, Inc. 1,003 - 591 - (733) 861Korea Credit Bureau 3,965 - 276 (256) - 3,985Hyundai Capital Germany GmbH 1,065 - 348 (230) - 1,183Hyundai Capital UK Ltd - 10,850 (4,317) (336) - 6,197Beijing Hyundai Auto Finance - 41,085 (4,294) (1,391) - 35,400 Co., Ltd 51,768 51,935 (1,587) (2,587) (733) 98,796 (in millions of Korean won) 2011 Changes in accumulated Beginning Gain (loss) Ending Acquisition other Dividends Balance on valuation comprehensive Balance incomeHK Savings Bank 42,849 - 2,863 23 - 45,735HI Network, Inc. 1,055 - 654 - (706) 1,003Korea Credit Bureau 3,514 - 451 - - 3,965Hyundai Capital Germany GmbH 1,065 - - - - 1,065 48,483 - 3,968 23 (706) 51,768 The differences between the acquired amounts of equity method investments and their corresponding net asset value are as follows: (in millions of Korean won) 2012 2011 HK Savings Bank 12,248 12,248 Korea Credit Bureau 1,037 1,037 13,285 13,285 31
  34. 34. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 2011 Summary of financial information of investees follows: (in millions of Korean won) 2012 Operating Net Assets Liabilities revenue income(loss)HK Savings Bank 1 2,655,804 2,461,195 394,503 29,047HI Network, Inc. 7,629 3,322 19,023 3,077Korea Credit Bureau 55,944 13,834 47,660 5,019Hyundai Capital Germany GmbH 4,524 581 1,354 626Hyundai Capital UK Ltd 596,343 575,678 12,452 (14,393)Beijing Hyundai Auto Finance Co., Ltd 80,502 3,546 1,541 (9,239) 1 HK Savings Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities above are as of December 31, 2012, and the results of its operations are for the year ended December 31, 2012. (in millions of Korean won) 2011 Operating Net Assets Liabilities revenue income (loss)HK Savings Bank 1 2,593,289 2,425,855 372,233 14,313HI Network, Inc. 8,560 3,544 21,835 3,314Korea Credit Bureau 51,484 9,650 40,535 6,380Hyundai Capital 3,889 341 1,171 503 Germany GmbH 1 HK Savings Bank is a corporation with fiscal year ending on June 30. But its assets and liabilities above are as of December 31, 2011, and the results of its operations are for the year ended December 31, 2011. 32
  35. 35. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2012 and 20115. Financial Receivables Financial receivables are as follows: (in millions of Korean won) 2012 Deferred loan origination fees Allowance for Present value Principal and costs doubtful Book value discounts (Initial direct costs accounts for lease assets)Loan receivables Loans 11,037,604 (165,195) (1,458) (273,589) 10,597,362Installment financial assets Auto 5,259,314 6,458 - (72,447) 5,193,325 Durable goods 1 - - - 1 Mortgage 16,485 30 - (277) 16,238 5,275,800 6,488 - (72,724) 5,209,564Lease receivables Finance lease 2,838,134 (782) - (32,423) 2,804,929 receivables Cancelled lease 6,951 - - (6,458) 493 receivables 2,845,085 (782) - (38,881) 2,805,422 19,158,489 (159,489) (1,458) (385,194) 18,612,348 (in millions of Korean won) 2011 Deferred loan origination fees Allowance for Present value Principal and costs doubtful Book value discounts (Initial direct costs accounts for lease assets)Loan receivables Loans 9,650,665 (153,006) (1,841) (231,983) 9,263,835Installment financial assets Auto 6,698,503 (34,533) - (85,949) 6,578,021 Durable goods 1,419 3 - (141) 1,281 Mortgage 25,620 60 - (1,204) 24,476 Machinery 1,674 - 6 (37) 1,643 6,727,216 (34,470) 6 (87,331) 6,605,421Lease receivables Finance lease 2,300,204 (703) - (21,118) 2,278,383 receivables Cancelled lease 4,656 - - (4,445) 211 receivables 2,304,860 (703) - (25,563) 2,278,594 18,682,741 (188,179) (1,835) (344,877) 18,147,850 33

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