Hyundai Capital Services, Inc. andSubsidiariesConsolidated Financial StatementsDecember 31, 2011 and 2010
Hyundai Capital Services, Inc. and SubsidiariesIndexDecember 31, 2011 and 2010Report of Independent Auditors ................
Report of Independent AuditorsTo the Shareholders and Board of Directors ofHyundai Capital Services, Inc.We have audited t...
This report is effective as of February 24, 2012, the audit report date. Certain subsequentevents or circumstances, which ...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, an...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, an...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, an...
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 Shareholders’ Equity        Y...
Hyundai Capital Services, Inc. and Subsidiaries        Consolidated Statements of Changes in Shareholders’ Equity        Y...
Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Cash FlowsYears Ended December 31, 2011 and 2010...
Hyundai Capital Services, Inc. and Subsidiaries         Notes to the Consolidated Financial Statements         December 31...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Hyundai Capital Services, Inc. and Subsidiaries           Notes to the Consolidated Financial Statements           Decembe...
Hyundai Capital Services, Inc. and Subsidiaries  Notes to the Consolidated Financial Statements  December 31, 2011 and 201...
Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, a...
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
Audit Report: Hyundai Capital 2011 (English)
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Audit Report: Hyundai Capital 2011 (English)

  1. 1. Hyundai Capital Services, Inc. andSubsidiariesConsolidated Financial StatementsDecember 31, 2011 and 2010
  2. 2. Hyundai Capital Services, Inc. and SubsidiariesIndexDecember 31, 2011 and 2010Report of Independent Auditors ......................................................................................................... 1-2Consolidated Financial StatementsConsolidated Statements of Financial Position...................................................................................... 3-5Consolidated Statements of Comprehensive Income............................................................................ 6-8Consolidated Statements of Changes in Shareholders’ Equity .......................................................... 9-10Consolidated Statements of Cash Flows ................................................................................................ 11Notes to the Consolidated Financial Statements .............................................................................. 12-73
  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, 2011 and 2010,and January 1, 2010, and the related statements of comprehensive income, changes inshareholders’ equity and cash flows for the years ended December 31, 2011 and 2010,expressed in Korean won. These financial statements are the responsibility of the Companysmanagement. Our responsibility is to express an opinion on these financial statements basedon 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, 2011 and 2010, and January 1, 2010, and their financial performance andcash flows for the years ended December 31, 2011 and 2010, in conformity with InternationalFinancial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”).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 24, 2012 1
  4. 4. This report is effective as of February 24, 2012, the audit report date. Certain subsequentevents or circumstances, which may occur between the audit report date and the time ofreading this report, could have a material impact on the accompanying consolidatedfinancial statements and notes thereto. Accordingly, the readers of the audit report shouldunderstand that there is a possibility that the above audit report may have to be revised toreflect the impact of such subsequent events or circumstances, if any. 2
  5. 5. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, and January 1, 2010(In millions of Korean won) December 31, December 31, January 1, 2011 2010 2010 Assets Cash and deposits Cash and cash equivalents (Note 25) 1,455,432 1,224,866 990,836 Deposits (Note 4) 10 25 1,938 1,455,442 1,224,891 992,774 Securities (Note 5) Available-for-sale securities 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055 70,220 69,060 55,922 Loans receivable (Notes 6 and 7) 11,129,247 10,434,141 8,862,145 Allowances for doubtful accounts (281,184) (215,703) (175,933) 10,848,063 10,218,438 8,686,212 Installment financial assets (Notes 6 and 7) Auto installment financing receivables 5,030,541 5,023,945 4,668,702 Allowances for doubtful accounts (36,748) (27,489) (31,368) Durable goods installment financing receivables 1,422 6,801 16,297 Allowances for doubtful accounts (141) (633) (292) Mortgage installment financing receivables 25,679 40,025 70,191 Allowances for doubtful accounts (1,204) (403) (463) Machinery installment financing receivables 1,682 14,653 44,229 Allowances for doubtful accounts (37) (117) (394) 5,021,194 5,056,782 4,766,902 Lease receivables (Notes 6 and 7) Finance lease receivables (Note 9) 2,278,383 1,777,477 1,253,352 Cancelled lease receivables 211 961 452 2,278,594 1,778,438 1,253,804 Leased assets (Note 10) Operating leased assets 1,119,309 1,282,845 1,406,453 Cancelled leased assets 3,769 3,192 3,036 1,123,078 1,286,037 1,409,489 3
  6. 6. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, and January 1, 2010(In millions of Korean won) December 31, December 31, January 1, 2011 2010 2010 Property and equipment (Note 11) 265,433 242,369 238,683 Other assets Intangible assets (Note 12) 65,117 52,612 38,934 Non-trade receivables 87,895 76,569 83,961 Allowances for doubtful accounts (2,913) (4,176) (3,207) Accrued revenues 128,351 115,278 102,730 Allowances for doubtful accounts (14,371) (3,472) (3,790) Advance payments 55,013 64,106 44,225 Prepaid expenses 26,434 18,186 25,575 Leasehold deposits 35,929 31,954 30,474 Derivative assets (Note 18) 475,431 521,530 1,278,570 856,886 872,587 1,597,472 Total assets 21,918,910 20,748,602 ₩ 19,001,258Liabilities and Shareholders’ EquityBorrowings Borrowings (Note 13) 2,250,000 2,646,945 2,452,978 Debentures (Note 14) 15,522,368 14,396,741 13,034,855 17,772,368 17,043,686 15,487,833Other liabilities Non-trade payables 345,089 362,539 281,652 Accrued expenses 135,083 110,225 108,746 Unearned revenue 61,095 69,338 68,899 Withholdings 24,140 21,939 20,446 Defined benefit liability (Note 15) 20,362 11,687 9,242 Leasehold deposits received 787,858 746,532 663,195 Deferred income tax liabilities (Note 16) 47,884 2,617 39,734 Provisions (Note 17) 10,446 46,624 26,416 Derivative liabilities (Note 18) 58,096 96,568 78,174 1,490,053 1,468,069 1,296,504 Total liabilities 19,262,421 18,511,755 16,784,337 4
  7. 7. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Financial PositionDecember 31, 2011 and 2010, and January 1, 2010(In millions of Korean won) December 31, December 31, January 1, 2011 2010 2010Shareholders equity Common stock (Notes 1 and 19) 496,537 496,537 496,537 Capital surplus Paid-in capital in excess of par value 369,339 369,339 369,339 Other capital surplus 38,200 38,200 38,200 407,539 407,539 407,539 Accumulated other comprehensive income and expenses (Note 24) Gain(Loss) on valuation of available-for-sale (388) 512 (1,835) securities Accumulated comprehensive income of equity 47 24 (69) method investees Loss on valuation of derivatives (50,156) (67,924) (3,566) Cumulative effect of overseas operation (343) 17 - translation (50,840) (67,371) (5,470) Retained earnings (Note 19) 1,803,144 1,400,013 1,318,186 Non-controlling interests 109 129 129 Total shareholders equity 2,656,489 2,236,847 2,216,921 Total liabilities and shareholders equity 21,918,910 20,748,602 19,001,258 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, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010Operating revenue Interest income (Note 20) Interest on bank deposits 41,991 25,755 Other interest income 385 1,208 42,376 26,963 Gain on valuation and disposal of securities Gain on disposal of available-for- 4,169 5,122 sale securities Reversal of impairment loss on - 1,078 available-for-sale securities 4,169 6,200 Income on loans (Notes 20 and 21) 1,548,557 1,387,421 Income on installment financial 436,247 492,202 receivables (Notes 20 and 21) Income on leases (Notes 20 and 21) 871,572 875,137 Gain on disposal of loans 72,040 14,857 Gain on foreign transactions Gain on foreign exchanges translation 21,235 188,938 Gain on foreign currency transactions 46,301 29,696 67,536 218,634 Dividend income 5,990 6,742 Other operating income Gain on valuation of derivatives 134,197 92,630 Gain on derivatives transactions 3,887 73,964 Others 144,908 79,485 282,992 246,079 Total operating revenue 3,331,479 3,274,235 6
  9. 9. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010Operating expenses Interest expenses (Note 20) 956,039 890,180 Lease expenses (Note 21) 505,187 557,288 Bad debts expense (Note 7) 354,220 145,478 Loss on foreign transactions Loss on foreign exchange translation 134,211 92,639 Loss on foreign currency transactions 3,887 65,401 138,098 158,040 General and administrative expenses 603,367 585,953 (Note 22) Other operating expenses Loss on valuation of derivatives 21,229 188,949 Loss on derivatives transactions 46,326 37,721 Others 47,590 80,880 115,145 307,550 Total operating expenses 2,672,056 2,644,489 Operating income 659,423 629,746Non-operating income Gain on equity method valuation 3,968 9,663 (Note 5) 3,968 9,663Non-operating expenses Loss on equity method valuation - 197 - 197 Income before income taxes 663,391 639,212Income tax expense (Note 16) 155,987 150,227 Net income 507,404 488,985Net income attributable to: Owners of the parent 507,404 488,985 Non-controlling interests - - 507,404 488,985 7
  10. 10. Hyundai Capital Services, Inc. and SubsidiariesConsolidated Statements of Comprehensive IncomeYears Ended December 31, 2011 and 2010(In millions of Korean won, except per share amounts) 2011 2010 Other comprehensive income, net of income taxes (Note 24) Gain(Loss) on valuation of available- (900) 2,347 for-sale financial securities Other comprehensive income of 23 93 equity method investees(Note 5) Gain (Loss) on valuation of 17,768 (64,359) derivatives Effect of overseas operation (360) 18 translation 16,531 (61,901) Total comprehensive income 523,935 427,084 Total comprehensive income attributable to: Owners of the parent 523,935 427,084 Non-controlling interests - - 523,935 427,084 Earnings per share attributable to the ordinary equity holders of the company (Note 23) Basic earnings per 5,109 4,924 share Diluted earnings per 5,109 4,924 share 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 Shareholders’ Equity Years Ended December 31, 2011 and 2010 Accumulated Total(In millions of Korean won) other attributable Non- comprehensive Capital Capital income and Retained to owners of controlling stock surplus expenses earnings the parent interests Total equityBalances as of January 1, 2010 496,537 407,539 (5,470) 1,318,186 2,216,792 129 2,216,921Total comprehensive incomeNet income - - - 488,985 488,985 - 488,985Other comprehensive income Gain on valuation of available- - - 2,347 - 2,347 - 2,347 for-sale securities Other comprehensive income of - - 93 - 93 - 93 equity method investees Loss on valuation of derivatives - - (64,359) - (64,359) - (64,359) Effect of overseas operation - - 18 - 18 - 18 translationTotal comprehensive income - - (61,901) 488,985 427,084 - 427,084Transactions with ownersYear-end dividends - - - (203,580) (203,580) - (203,580)Transfer from dividends payable - - - 2 2 - 2Interim dividends - - - (203,580) (203,580) - (203,580)Total transactions with owners - - - (407,158) (407,158) - (407,158)Balances as of December 31,2010 496,537 407,539 (67,371) 1,400,013 2,236,718 129 2,236,847 9
  12. 12. Hyundai Capital Services, Inc. and Subsidiaries Consolidated Statements of Changes in Shareholders’ Equity Years Ended December 31, 2011 and 2010 Accumulated Total(In millions of Korean won) other attributable Non- comprehensive Capital Capital income and Retained to owners of controlling stock surplus expenses earnings the 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- - - (900) - (900) - (900) for-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 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, 2011 and 2010(In millions of Korean won) 2011 2010 Cash flows from operating activities Cash generated from operations (Note 25) 630,961 (498,303) Interest received 37,090 23,479 Interest paid (864,563) (829,726) Dividends received 5,990 6,742 Income taxes paid (154,724) (169,620) (345,246) (1,467,428) Cash flows from investing activities Decrease in deposits 16 1,913 Dividends from equity method investments 707 1,227 Acquisition of land (3,581) (3,065) Acquisition of building (8,549) (2,968) Acquisition of structures (379) (172) Disposal of vehicles 37 11 Acquisition of vehicles (328) (224) Disposal of fixtures and furniture 626 58 Acquisition of fixtures and furniture (37,712) (19,412) Acquisition of other tangible assets (801) (114) Increase in construction in progress (8,079) (13,812) Disposal of intangible assets 71 29 Acquisition of intangible assets (8,152) (4,860) Decrease in leasehold deposits 4,012 5,665 Increase in leasehold deposits (7,609) (6,481) Establish of special purpose entity 20 10 Liquidation of special purpose entity (40) (10) (69,741) (42,205) Cash flows from financing activities Proceeds from borrowings 2,990,000 3,895,650 Repayments of borrowings (3,390,650) (3,645,849) Issuance of debentures 5,119,021 5,802,014 Repayments of debentures (3,968,170) (3,900,992) Payments of dividends (104,273) (407,158) 645,928 1,743,665 Exchange losses on cash and cash equivalents (15) (19) Increase(decrease) in other cash and cash equivalents (360) 17 Net increase in cash and cash equivalents 230,566 234,030 Cash and cash equivalents Beginning of period 1,224,866 990,836 End of period 1,455,432 1,224,866 The accompanying notes are an integral part of these consolidated financial statements. 11
  14. 14. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 1. 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, 2011, 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 Mutual Saving Bank and three other entities are accounted for using the equity method. Subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, 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 December 31, 2011 December 31, 2010 January 1, 2010Special Autopia Thirty-fifth SPC(trust) Autopia Thirty-third SPC(trust) Autopia Thirty- second SPC(trust)Purpose Korea 0.9% Autopia Thirty-sixth SPC(trust) Autopia Thirty-fourth SPC(trust) Autopia Thirty-third SPC(trust) 1Entities Autopia Thirty-seventh SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Thirty-fourth SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Fortieth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Forty-second SPC(trust) Autopia Thirty-eighth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Forty-third SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-eighth SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Fortieth SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Forty-fifth SPC(trust) Autopia Forty-first SPC(trust) Autopia Fortieth SPC(trust) Autopia Forty-sixth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-first SPC(trust) Autopia Forty-seventh SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-fourth SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-fifth SPC(trust) Stock 2 Germany 100% Hyundai Capital Europe GmbH Hyundai Capital Europe GmbHCompany 1 Autopia Thirty-third, Thirty-fourth, Thirty-eighth and Forty-first SPC(trust) have been liquidated during the 2011, and Autopia Forty sixth and Forty-seventh SPC(trust) have been established during 2011. ² It holds 100% shares of Hyundai Capital Services Limited Liability Company established during 2011. 12
  15. 15. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in conformity with the International Financial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”). The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements. 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. The consolidated financial statements of the Group were prepared in accordance with Korean- IFRS and are subject to Korean-IFRS1101, ‘First-time Adoption of Korean-IFRS’. The transition date, according to Korean-IFRS1101, from the previous accounting principles generally accepted in the Republic of Korea (“Previous K-GAAP”) to Korean-IFRS is January 1, 2010. Reconciliations and descriptions of the effect of the transition from Previous K-GAAP to Korean-IFRS on the Group’s equity, comprehensive income and cash flows are described in Note 3. 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 3. New standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2011, and not early adopted by the Group are as follows: - Amendments to Korean-IFRS1101, Hyperinflation and Removal of Fixed Dates for first-time adopters(announced in December, 2010) As an exception to retrospective application requirements, this amendment to Korean-IFRS1101 allows a prospective application of derecognition of financial assets for transactions occurring on or after the date of transition to Korean-IFRS, instead of fixed date (January 1, 2004). Accordingly, the Group is not required to restate and recognize those assets or liabilities that were derecognized as a result of a transaction that occurred before the dated of transition to Korean- IFRS. This amendment will be effective for the Group as of January 1, 2012. The Group expects that the application of this amendment would not have material impact on its consolidated financial statements. - Amendments to Korean-IFRS1012, Income Taxes According to the amendments to Korean-IFRS1012, Income Taxes, for the investment property that is measured using the fair value model, the measurement of deferred tax liability and deferred 13
  16. 16. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 tax asset should reflect the tax consequences of recovering the carrying amount of the investment property entirely through sale, unless evidences support otherwise. This amendment will be effective for the Group as of January 1, 2012. The Group expects that the application of this amendment would not have material impact on its consolidated financial statements. - Amendments to Korean-IFRS1019, Employee Benefits According to the amendments to Korean-IFRS1019, Employee Benefits, the corridor method is no longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are recognized immediately under other comprehensive income. The amendment requires to recognize immediately all past service costs. And the amendment replaces the interest cost on the defined benefit obligation, and the expected return on plan assets with a net interest cost based on the net defined benefit asset or liability and the discount rate measured at the beginning of the year. This amendment will be effective for the Group as of January 1, 2013. The Group is assessing the impact of application of the amended Korean-IFRS1019 on its consolidated financial statements. - Amendments to Korean-IFRS1107, Financial Instruments: Disclosures According to the amendment, an entity should provide the required disclosures of nature, carrying amount, risk and rewards associated with all transferred financial instruments that are not derecognized from an entity’s financial statements. In addition, an entity is required to disclose additional information related to transferred and derecognized financial instruments for any continuing involvement in transferred assets. This amendment will be effective for the Group as of January 1, 2012. The Group is assessing the impact of application of the amended Korean- IFRS1107 on its consolidated financial statements. - Enactment of Korean-IFRS1113, Fair value measurement Korean-IFRS1113, 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-IFRS1101 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 expects that it would not have a material impact on the Group. 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, 2011 financial statement presentation. These reclassifications have no impact on the previously reported net income or shareholders’ equity. 14
  17. 17. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20102.1 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. c. Transactions with non-controlling interests 15
  18. 18. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Unrealised 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. 16
  19. 19. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20102.3 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 Discount 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.2.4 Revenue recognition The Group recognizes capital lent to customers as loans receivable, when installment payments or deferred payments on services and goods are made. While installment financial capital paid by the Group to manufacturers or sellers on behalf of customers is recognized as installment financial assets. Financial lease receivables classified as financial leases are recognized as lease receivables. 17
  20. 20. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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 method.2.6 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 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- 18
  21. 21. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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 derecognise the financial asset and recognise separately as assets or liabilities any rights and obligations created or retained in the transfer. If the Group retains substantially all the risks and rewards of ownership of the financial asset, the Group shall continue to recognise 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 19
  22. 22. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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 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. 20
  23. 23. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20102.10 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 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 21
  24. 24. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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 Work of art classified under other tangible assets are not amortized due to their indefinite useful life in nature. The assets’ 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 recognised within other 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 22
  25. 25. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Memberships classified under other intangible assets are not amortized over their indefinite useful life.2.13 Impairment of non-financial assets 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. (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 a defined benefit plan. 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, together with adjustments for unrecognized past-service costs. 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. 23
  26. 26. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are recognized in profits or losses in the period in which they arise.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. 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. 24
  27. 27. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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.2.18 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 25
  28. 28. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 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.2.20 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, 2011 financial statements of the Group was approved by the Board of Directors on January 31, 2012.3. Transition to Korean-IFRS The Groups transition date to Korean-IFRS is January 1, 2010, and adoption date is January 1, 2011. In preparing consolidated financial statements in accordance with Korean-IFRS 1101 ‘First-time Adoption of Korean International Financial Reporting Standards’, the Group has applied the mandatory exceptions and certain optional exemptions allowed by Korean-IFRS. a. Exemptions of Korean-IFRS 1101 elected by the Group The Group has elected to apply the following optional exemptions from full retrospective application. (1) Business combination 26
  29. 29. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 The Group has not retrospectively applied Korean-IFRS 1103 ‘Business combination’ to the business combinations that took place prior to the transition date. (2) Deemed cost of property and equipment The Group has elected to use the carrying amount of property and equipment under Previous K- GAAP as deemed cost at the date of transition to Korean-IFRS. b. Explanation on the reconciliation of Previous K-GAAP and Korean-IFRS Major reconciliations of the transition between Previous K-GAAP and Korean-IFRS are as follows: (1) Impairment of financial assets (allowance for financial assets) Under Previous K-GAAP, allowances for financial receivables (loans receivable, installment financial assets and lease receivables) are calculated based on the long-term average expected loss. In case the allowance calculated based on the expected loss is smaller than the allowance calculated in accordance to the guidelines provided in the Act on the Specialized Credit Financial Business, the Group recognizes an allowance in accordance to the guidelines provided in the Act on the Specialized Credit Financial Business. Under Korean-IFRS, impairment losses are recognized where there is evidence that impairment occurred. Allowance for financial receivables is measured individually for assets that are individually significant and on a collective basis for portfolios with similar risk characteristics. (2) Provision for unused loan commitment Under Previous K-GAAP, provision for unused loan commitment is not recognised. Under Korean- IFRS, the expected losses of unused loan commitment are recognized as provision for unused credit lines. (3) Accrued revenue for overdue receivables Under Previous K-GAAP, accrued revenue for receivables which are overdue is not recognized. Under Korean-IFRS, accrued revenue for past due and impaired receivables and the interests on impaired receivable are recognized using expected cash flow after impairments. (4) Measurement of financial assets carried at amortized cost Under Previous K-GAAP, non-marketable loan and receivables are measured at nominal value if the difference between nominal value and discounted value is not substantial. Under Korean-IFRS, loan and receivables are initially measured at fair value and subsequently carried at amortized cost using the effective interest method. (5) Recognition of unused compensated absences 27
  30. 30. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 2010 According to Previous K-GAAP, unused compensated absences given to employees are recognized as liabilities at the end of the reporting period only when the right to be paid has been established. Under Korean-IFRS, the Group recognizes liabilities when an employee has provided service in exchange for compensated absences. (6) Depreciation method for property and equipment Under Previous K-GAAP, depreciation method for certain property and equipment was the declining-balance method. Under Korean-IFRS, the Group uses the straight-line method to reflect properly the matching of the future economic benefits. (7) Retirement benefit obligations Under Previous K-GAAP, the Group recognizes the amount which would be payable assuming all eligible employees and directors were to terminate their employment as of the statement of financial position date as accrued severance benefits. Under Korean-IFRS, the Group recognizes the estimated amount using the projected unit credit method which is on an actuarial basis as the defined benefit obligation. (8) Reclassification of memberships as intangible assets Under Previous K-GAAP, memberships are classified as investments. Under Korean-IFRS, the Group reclassifies memberships held for operating purposes as an intangible asset with an infinite useful life. (9) Consolidation Under Previous K-GAAP, Autopia Thirty-fifth SPC, trust and other subsidiaries were previously excluded from consolidation in accordance with Article 1.3, Clause 1 of Enforcement Decree of the Act on External Audit of Stock Companies. Under Korean-IFRS, they are consolidated (Note 2). (10) Income tax effects The Group recognized changes in deferred tax representing the impact of deferred taxes on the adjustments for the transition to Korean-IFRS. 28
  31. 31. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 c. Effects on the consolidated assets, liabilities and equity, total comprehensive income and net income (1) Reconciliation of assets, liabilities and equity as of January 1, 2010 (in millions of Korean won) Shareholders’ Assets Liabilities equity Previous K-GAAP 15,854,426 13,698,696 2,155,730 Conversion effects to Korean-IFRS Allowance for doubtful accounts 220,443 - 220,443 Provision for unused loan commitments - 26,416 (26,416) Accrued revenues 21,259 - 21,259 Measurement of amortized cost (6,395) - (6,395) Recognition of unused compensated - 2,267 (2,267) absences Depreciation 11,748 - 11,748 Retirement benefit obligations - 91 (91) Others (3,945) 3,335 (7,280) Scope of consolidation 2,903,721 2,998,859 (95,138) Deferred income taxes - 54,672 (54,672) Total effect of transition 3,146,831 3,085,640 61,191 Korean-IFRS 19,001,257 16,784,336 2,216,921 (2) Reconciliation of assets, liabilities and equity as of December 31, 2010 and total comprehensive income and net income for the year ended December 31, 2010(in millions of Korean won) Total Shareholders’ Assets Liabilities comprehensive Net income equity incomePrevious K-GAAP 17,931,200 15,727,686 2,203,514 454,942 511,545Conversion effects to Korean-IFRS Allowance for doubtful accounts 208,187 - 208,187 (12,256) (12,256) Provision for unused loan commitments - 46,624 (46,624) (20,208) (20,208) Accrued revenues 22,771 - 22,771 1,512 1,512 Measurement of amortized cost 2,168 150 2,018 8,413 8,413 Recognition of unused compensated absences - 2,524 (2,524) (257) (257) Depreciation 1,113 - 1,113 (10,635) (10,635) Retirement benefit obligations - 3,823 (3,823) (3,732) (3,732) Others (131) 476 (607) 6,673 6,673 Scope of consolidation 2,585,543 2,655,916 (70,373) 24,765 30,063 Deferred income taxes (2,249) 74,556 (76,805) (22,133) (22,133) Total effect of transition 2,817,402 2,784,069 33,333 (27,858) (22,560)Korean-IFRS 20,748,602 18,511,755 2,236,847 427,084 488,985 29
  32. 32. Hyundai Capital Services, Inc. and Subsidiaries Notes to the Consolidated Financial Statements December 31, 2011 and 2010, and January 1, 2010 d. Adjustments of cash flows in 2010 According to Korean-IFRS, cash flows of the related income (expenses) and assets (liabilities) are adjusted to separately disclose the cash flows from interest received, interest paid and cash payments of income taxes that were not presented separately under Previous K-GAAP. And the effects of the change in exchange rate on cash and cash equivalents held or due in a foreign currency are presented separately from cash flows from operating, investing and financing activities. There are no other significant differences between cash flows under Korean-IFRS and Previous K-GAAP. e. Adjustments of operating income and expenses The Group reclassified certain non-operating income and expenses under Previous K-GAAP to other operating income and expenses according to Korean-IFRS. Adjustments are as follows: (in millions of Korean won) Type 2011 2010 Other operating income 29,300 26,749 Other operating expenses 20,267 20,199 4. Restricted Financial Instruments Restricted financial instruments are as follows: Amount December December January 1, Type Entities Restriction 31, 2011 31, 2010 2010 Hana Bank Maintaining deposits for and Nonghyup 10 25 25 checking accountDeposits SC Bank - - 1,913 Guarantee for interest expense of debentures 10 25 1,938 30
  33. 33. Hyundai Capital Services, Inc. and SubsidiariesNotes to the Consolidated Financial StatementsDecember 31, 2011 and 2010, and January 1, 20105. Securities Securities are as follows: (in millions of Korean won) December 31, December 31, January 1, Type 2011 2010 2010 Available-for-sale securities Marketable equity securities 5,687 7,318 3,951 Equity securities Unlisted equity securities 10,526 9,887 8,802 16,213 17,205 12,753 Government and Debt securities public bonds 2,239 3,372 3,114 Sub-total 18,452 20,577 15,867 Equity method investments 51,768 48,483 40,055 70,220 69,060 55,922 Available-for-sale securities Available-for-sale securities are as follows: (1) Equity securities (in millions of Korean won) Book value December December January Number of Ownership Acquisition shares (%) cost 31, 2011 31, 2010 1, 2010 Marketable equity securities Korea Information Service 1 - - - - - 3,951 NICE Information Service 1 136,593 2.25 3,312 3,190 4,221 - 1 NICE Holdings 49,162 1.42 3,491 2,497 3,097 - Unlisted equity securities Hyundai Finance Corp. 2 1,700,000 9.29 9,888 10,426 9,887 8,726 HI Network, Inc. (Common stock) - - - - - 59 HI Network, Inc. (Preferred stock) - - - - - 17 Korean Egloan, Inc. 4,000 3.12 100 100 - - 16,791 16,213 17,205 12,753 1 Korea Information Service was divided into NICE Information Service and NICE Holdings. In this transaction, the Group recognized gain on disposal of available-for-sale securities amounting to 1,550 million. ²The 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 31

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