Hyundai Motor Company
Annual Report 2017

Plain-text annual report

HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 ATTACHMENT: INDEPENDENT AUDITORS’ REPORT HYUNDAI MOTOR COMPANY Contents INDEPENDENT AUDITORS’ REPORT ------------------------------------------------------------------------ 1 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ----------------------------------- 4 CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------------------ 6 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME --------------------------- 7 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ------------------------------------ 8 CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- 10 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ---------------------------------------- 12 Deloitte Anjin LLC 9F., One IFC, 10, Gukjegeumyung-ro, Youngdeungpo-gu, Seoul 07326, Korea Tel: +82 (2) 6676 1000 Fax: +82 (2) 6674 2114 www.deloitteanjin.co.kr INDEPENDENT AUDITORS’ REPORT English Translation of Independent Auditors’ Report Originally Issued in Korean on February 28, 2018 To the Shareholders and the Board of Directors of Hyundai Motor Company: We have audited the accompanying consolidated financial statements of Hyundai Motor Company (the “Company”) and its subsidiaries, which comprise the consolidated statements of financial position as of December 31, 2017 and December 31, 2016, respectively, and the consolidated statements of income, comprehensive income, statements of changes in equity and statements of cash flows, all expressed in Korean Won, for the years then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an audit opinion on these financial statements based on our audit. We conducted our audits in accordance with Korean Standards on Auditing (“KSAs”). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee (“DTTL”), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as “Deloitte Global”) does not provide services to clients. Please see www.deloitte.com/kr/about for a more detailed description of DTTL and its member firms. © 2018. For information, contact Deloitte Anjin LLC Opinion In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries as of December 31, 2017 and December 31, 2016, respectively, and its financial performance and its cash flows for the years then ended in accordance with K-IFRS. February 28, 2018 Notice to Readers This report is effective as of February 28, 2018, the auditors’ report date. Certain subsequent events or circumstances may have occurred between the auditors’ report date and the time the auditors’ report is read. Such events or circumstances could significantly affect the financial statements and may result in modifications to the auditors’ report. HYUNDAI MOTOR COMPANY (the “Company”) AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 The accompanying consolidated financial statements, including all footnote disclosures, were prepared by, and are the responsibility of, the Company. Lee, Won Hee Chief Executive Officer HYUNDAI MOTOR COMPANY Main Office Address: (Road Name Address) 12, Heolleung-ro, Seocho-gu, Seoul (Phone Number) 02-3464-1114 HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2017 AND 2016 ASSETS NOTES December 31, 2017 December 31, 2016 (In millions of Korean Won) Current assets: Cash and cash equivalents Short-term financial instruments Other financial assets Trade notes and accounts receivable Other receivables Inventories Current tax assets Financial services receivables Non-current assets classified as held for sale Other assets Total current assets Non-current assets: Long-term financial instruments Other financial assets Long-term trade notes and accounts receivable Other receivables Property, plant and equipment (“PP&E”) Investment property Intangible assets Investments in joint ventures and associates Deferred tax assets Financial services receivables Operating lease assets Other assets Total non-current assets ￦ 19 19 5,19 3,19 4,19 6 13,19 8 7,19 19 5,19 3,19 4,19 9 10 11 12 32 13,19 14 7,19 8,821,529 ￦ 7,745,829 12,886,769 3,838,043 3,007,869 10,279,904 91,263 25,536,188 29,068 1,739,452 73,975,914 145,277 2,512,409 123,933 1,227,602 29,827,142 199,498 4,809,336 17,252,338 1,123,902 25,631,830 20,727,950 642,323 104,223,540 7,890,089 7,361,735 12,723,993 4,437,552 3,181,030 10,523,812 46,924 24,865,594 29,068 1,389,803 72,449,600 99,484 2,560,550 138,105 1,301,059 29,405,716 211,671 4,586,172 18,070,121 1,116,774 26,918,009 21,317,260 661,407 106,386,328 Total assets ￦ 178,199,454 ￦ 178,835,928 (Continued) - 4 - - 4 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2017 AND 2016 (CONTINUED) LIABILITIES AND EQUITY NOTES December 31, 2017 December 31, 2016 (In millions of Korean Won) Current liabilities: Trade notes and accounts payable Other payables Short-term borrowings Current portion of long-term debt and debentures Income tax payable Provisions Other financial liabilities Other liabilities Total current liabilities Non-current liabilities: Long-term other payables Debentures Long-term debt Net defined benefit liabilities Provisions Other financial liabilities Deferred tax liabilities Other liabilities Total non-current liabilities Total liabilities Equity: Capital stock Capital surplus Other capital items Accumulated other comprehensive loss Retained earnings Equity attributable to the owners of the Company Non-controlling interests Total equity ￦ 19 19 15,19 15,19 16 17,19 18,19 19 15,19 15,19 33 16 17,19 32 18,19 20 21 22 23 24 6,483,875 ￦ 5,040,057 9,959,654 13,098,547 151,525 1,809,978 25,652 6,591,421 43,160,709 19,189 36,454,192 12,488,137 157,213 4,844,463 438,070 3,234,707 2,645,420 60,281,391 6,985,942 4,946,723 8,760,678 14,836,967 540,909 1,925,562 138,106 5,474,906 43,609,793 22,586 36,456,392 13,389,983 492,173 5,047,078 23,454 4,622,226 2,827,665 62,881,557 103,442,100 106,491,350 1,488,993 4,201,214 (1,640,096) (2,278,955) 67,332,328 1,488,993 4,202,597 (1,640,096) (1,223,244) 64,361,408 69,103,484 67,189,658 5,653,870 74,757,354 5,154,920 72,344,578 Total liabilities and equity ￦ 178,199,454 ￦ 178,835,928 (Concluded) See accompanying notes to consolidated financial statements - 5 - - 5 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 NOTES 2017 2016 25,38 ￦ (In millions of Korean Won, except per share amounts) 93,649,024 96,376,079 ￦ 30 Sales Cost of sales Gross profit Selling and administrative expenses 26,30 Operating income Gain on investments in joint ventures and 27 28 28 29 29,30 32 31 associates, net Finance income Finance expenses Other income Other expenses Income before income tax Income tax expense (benefit) Profit for the year Profit attributable to: Owners of the Company Non-controlling interests Earnings per share attributable to the owners of the Company: Basic earnings per share: Common stock 1st preferred stock Diluted earnings per share: Common stock 1st preferred stock 78,798,172 17,577,907 13,003,240 4,574,667 225,053 972,943 1,120,386 1,153,744 1,367,471 4,438,550 (107,850) ￦ 4,546,400 ￦ 4,032,824 513,576 14,993 ￦ 15,043 ￦ 14,993 ￦ 15,043 ￦ ￦ ￦ ￦ ￦ 75,959,720 17,689,304 12,495,804 5,193,500 1,729,447 1,111,238 678,037 1,177,887 1,226,963 7,307,072 1,587,419 5,719,653 5,406,435 313,218 20,118 20,156 20,118 20,156 See accompanying notes to consolidated financial statements - 6 - - 6 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 Profit for the year Other comprehensive income : Items that will not be reclassified subsequently to profit or loss: Remeasurements of defined benefit plans Changes in retained earnings of equity-accounted investees, net Items that may be reclassified subsequently to profit or loss: Gain (loss) on available-for-sale (“AFS”) financial assets, net Gain on valuation of cash flow hedge derivatives, net Changes in share of earnings of equity-accounted investees, net Gain (loss) on foreign operations translation, net Total other comprehensive income (loss) 2016 2017 (In millions of Korean Won) ￦ 4,546,400 ￦ 5,719,653 29,698 (4,451) 25,247 (2,601) 12,433 9,832 191,861 (152,755) 26,868 37,066 (288,883) (1,069,341) (1,139,495) (1,114,248) (114,037) 475,636 245,910 255,742 Total comprehensive income ￦ 3,432,152 ￦ 5,975,395 Comprehensive income attributable to: Owners of the Company Non-controlling interests Total comprehensive income ￦ 2,994,783 437,369 3,432,152 ￦ 5,614,509 360,886 5,975,395 See accompanying notes to consolidated financial statements - 7 - - 7 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 Capital stock Capital surplus Other capital items Accumulated other comprehensive income (loss) Retained earnings Total equity attributable to the owners of the Company Non- controlling interests Total equity (In millions of Korean Won) ￦ 1,488,993 ￦ 3,520,395 ￦ (1,588,697) ￦ (1,431,821) ￦ 60,035,088 ￦ 62,023,958 ￦ 4,857,443 ￦ 66,881,401 - - - - - - - - - - - - - - - - - - - - - - - - (684) 15,273 1,438 621,267 - - - - - - - - - - - - - (261,552) 44,908 - 210,153 - 682,202 (51,399) - 5,406,435 5,406,435 313,218 5,719,653 (150,181) 34,725 - - (150,181) (2,574) (152,755) 34,725 2,341 37,066 (108,205) 12,390 (95,815) (5,789) (101,604) - (12,893) (12,893) 10,292 (2,601) 432,238 - 432,238 43,398 475,636 208,577 5,405,932 5,614,509 360,886 5,975,395 - - - - - - - - - (1,079,544) (1,079,544) (5,002) (1,084,546) - - - - - - (68) (684) 26,721 26,037 15,273 (111,868) (96,595) 1,438 26,785 28,223 621,267 (261,552) 255,061 (68) - - - (45) 621,267 (261,552) 255,061 (113) (1,079,612) (448,809) (63,409) (512,218) Balance at January 1, 2016 Comprehensive income: Profit for the year Loss on AFS financial assets, net Gain on valuation of cash flow hedge derivatives, net Changes in valuation of equity-accounted investees, net Remeasurements of defined benefit plans Gain on foreign operations translation, net Total comprehensive income Transactions with owners, recorded directly in equity: Payment of cash dividends Increase in subsidiaries’ stock Purchases of subsidiaries’ stock Disposals of subsidiaries’ stock Reclassification to other financial liabilities Purchases of treasury stock Disposals of treasury stock Others Total transactions with owners, recorded directly in equity Balance at December 31, 2016 ￦ 1,488,993 ￦ 4,202,597 ￦ (1,640,096) ￦ (1,223,244) ￦ 64,361,408 ￦ 67,189,658 ￦ 5,154,920 ￦ 72,344,578 (Continued) - 8 - - 8 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (CONTINUED) Capital stock Capital surplus Other capital items Accumulated other comprehensive income (loss) Retained earnings Total equity attributable to the owners of the Company Non- controlling interests Total equity (In millions of Korean Won) ￦ 1,488,993 ￦ 4,202,597 ￦ (1,640,096) ￦ (1,223,244) ￦ 64,361,408 ￦ 67,189,658 ￦ 5,154,920 ￦ 72,344,578 - - - - - - - - - - - - - - - - - - - - - (1,383) - - - (1,383) - - - - - - - - - - - - - - 4,032,824 4,032,824 513,576 4,546,400 190,717 3,221 - - 190,717 1,144 191,861 3,221 23,647 26,868 (281,652) (4,435) (286,087) (7,247) (293,334) - 22,105 22,105 7,593 29,698 (967,997) - (967,997) (101,344) (1,069,341) (1,055,711) 4,050,494 2,994,783 437,369 3,432,152 - - - - - - (1,079,504) (1,079,504) (59,166) (1,138,670) - - - (70) (1,383) 76,832 - 43,976 - (70) (17) (44) 75,449 43,976 (17) (114) (1,079,574) (1,080,957) 61,581 (1,019,376) Balance at January 1, 2017 Comprehensive income: Profit for the year Gain on AFS financial assets, net Gain on valuation of cash flow hedge derivatives, net Changes in valuation of equity-accounted investees, net Remeasurements of defined benefit plans Loss on foreign operations translation, net Total comprehensive Income (loss) Transactions with owners, recorded directly in equity: Payment of cash dividends Increase in subsidiaries’ stock Purchases of subsidiaries’ stock Disposals of subsidiaries’ stock Others Total transactions with owners, recorded directly in equity Balance at December 31, 2017 ￦ 1,488,993 ￦ 4,201,214 ￦ (1,640,096) ￦ (2,278,955) ￦ 67,332,328 ￦ 69,103,484 ￦ 5,653,870 ￦ 74,757,354 (Concluded) See accompanying notes to consolidated financial statements - 9 - - 9 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 NOTES 2016 2017 (In millions of Korean Won) Cash flows from operating activities: Cash generated from operations: Profit for the year Adjustments Changes in operating assets and liabilities 34 ￦ Interest received Interest paid Dividend received Income tax paid Net cash provided by operating activities Cash flows from investing activities: Proceeds from purchases of short-term financial instruments, net Proceeds from disposal (purchase) of other financial assets (current), net Proceeds from disposals of other financial assets (non-current) Receipts from other receivables Disposals of long-term financial instruments Proceeds from disposals of property, plant and equipment Proceeds from disposals of intangible assets Proceeds from disposals of investments in joint ventures and associates Acquisitions of other financial assets (non-current) Increases in other receivables Purchases of long-term financial instruments Acquisitions of property, plant and equipment Acquisitions of intangible assets Cash outflows from business combinations, net Acquisitions of investments in joint ventures and associates Other cash receipts from investing activities, net Net cash used in investing activities (Continued) 4,546,400 ￦ 12,781,081 (11,384,252) 5,943,229 517,453 (1,746,629) 852,820 (1,644,452) 3,922,421 5,719,653 11,165,345 (13,565,128) 3,319,870 486,709 (1,670,859) 932,038 (2,070,794) 996,964 (253,493) (419,325) 64,513 (1,580,624) 85,667 210,881 26 118,138 2,231 - (177,382) (218,411) (20,627) (3,055,023) (1,463,103) (1,784) (80,144) 44,098 (4,744,413) 595,927 147,797 14 133,286 10,613 12,477 (244,563) (168,083) (11,146) (2,971,161) (1,406,352) (2,370) (431,517) 23,277 (6,311,750) - 10 - - 10 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (CONTINUED) Cash flows from financing activities: Proceeds from (repayment of) short-term borrowings, net Proceeds from long-term debt and debentures Paid-in capital increase of subsidiaries Purchases of subsidiaries’ stock Disposals of subsidiaries’ stock Repayment of long-term debt and debentures Purchases of treasury stock Dividends paid Other cash receipts (payments) from financing activities, net Net cash provided by financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents NOTES 2016 2017 (In millions of Korean Won) ￦ 1,345,789 ￦ 28,134,152 75,449 - - (26,264,109) - (1,138,661) 28,571 2,181,191 (427,759) 931,440 (1,369,186) 27,509,144 25,536 (96,595) 34,206 (19,015,198) (261,552) (1,084,546) (50,391) 5,691,418 181,994 558,626 Cash and cash equivalents, beginning of the year 7,890,089 7,331,463 Cash and cash equivalents, end of the year ￦ 8,821,529 ￦ 7,890,089 (Concluded) See accompanying notes to consolidated financial statements - 11 - - 11 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 1. GENERAL: Hyundai Motor Company (the “Company” or “Parent Company”) was incorporated in December 1967, under the laws of the Republic of Korea. The Company and its subsidiaries (the “Group”) manufactures and distributes motor vehicles and parts, operates vehicle financing and credit card processing, and manufactures trains. The shares of the Company have been listed on the Korea Exchange since 1974, and the Global Depositary Receipts issued by the Company have been listed on the London Stock Exchange and Luxembourg Stock Exchange. As of December 31, 2017, the major shareholders of the Company are Hyundai MOBIS (45,782,023 shares, 20.78%) and Chung, Mong Koo (11,395,859 shares, 5.17%). (1) The Company’s consolidated subsidiaries as of December 31, 2017 are as follows: Name of subsidiaries Hyundai Capital Services, Inc. Hyundai Card Co., Ltd. (*1) Hyundai Rotem Company (Hyundai Rotem) (*1) Hyundai KEFICO Corporation (Hyundai KEFICO) Green Air Co., Ltd. Hyundai Auto Electronics Company Ltd. Hyundai Partecs Co., Ltd. Hyundai NGV Tech Co., Ltd. Maintrans Company Jeonbuk Hyundai Motors FC Co., Ltd. Hyundai Motor America (HMA) Hyundai Capital America (HCA) Hyundai Motor Manufacturing Alabama, LLC (HMMA) Hyundai Translead, Inc. (HT) Stamped Metal American Research Technology, Inc. (SMARTI) Stamped Metal American Research Technology LLC Hyundai America Technical Center, Inc. (HATCI) Genesis Motor America LLC Hyundai Rotem USA Corporation Hyundai Rio Vista, Inc. Hyundai Auto Canada Corp. (HACC) Hyundai Auto Canada Captive Insurance Inc. (HACCI) Hyundai Capital Canada Inc. (HCCA) Hyundai Capital Lease Inc. (HCLI) HK Lease Funding LP HCCA Funding Inc. Hyundai Motor India Limited (HMI) Hyundai Motor India Engineering Nature of business Financing ˝ Location Korea ˝ Ownership percentage 59.68% 36.96% Manufacturing ˝ 43.36% Indirect ownership ˝ ˝ R&D Manufacturing Engineering Services Football club Sales Financing Manufacturing ˝ Holding company Manufacturing R&D Sales Manufacturing Real estate development Sales Insurance Financing ˝ ˝ ˝ Manufacturing ˝ ˝ ˝ ˝ ˝ ˝ ˝ USA ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ 100.00% 51.00% 60.00% 56.00% 53.66% 80.00% 100.00% 100.00% 80.00% 100.00% 100.00% Hyundai Rotem 51.00% Hyundai Rotem 80.00% HMA 80.00% HMA 100.00% 72.45% HMA 72.45% 100.00% SMARTI 100.00% 100.00% 100.00% 100.00% HMA 100.00% Hyundai Rotem 100.00% ˝ Canada 100.00% 100.00% HT 100.00% HMA 100.00% ˝ ˝ ˝ ˝ ˝ India 100.00% 70.00% 100.00% 100.00% 100.00% 100.00% ˝ Hyundai Capital Services 20.00% HCCA 100.00% HCLI 99.99%, HCCA Funding Inc. 0.01% HCLI 100.00% Private Limited (HMIE) R&D ˝ 100.00% HMI 100.00% - 12 - - 12 - Name of subsidiaries Hyundai Capital India Private Limited (HCI) Hyundai Motor Japan Co., Ltd. (HMJ) Hyundai Motor Japan R&D Center Inc. (HMJ R&D) Beijing Jingxian Motor Safeguard Service Co., Ltd. (BJMSS) Beijing Jingxianronghua Motor Sale Co., Ltd. Hyundai Millennium (Beijing) Real Estate Development Co., Ltd. Rotem equipments (Beijing) Co., Ltd. KEFICO Automotive Systems (Beijing) Co., Ltd. KEFICO Automotive Systems (Chongqing) Co., Ltd. KEFICO VIETNAM COMPANY LIMITED HYUNDAI THANH CONG VIETNAM AUTO MANUFACTURING CORPORATION (HTMV) (*1) Hyundai Thanh cong Commercial Vehicle Joint Stock Company (HTCV) (*1) Hyundai Motor Company Australia Pty Limited (HMCA) Hyundai Capital Australia Pty Limited HR Mechanical Services Limited Hyundai Motor Manufacturing Czech, s.r.o. (HMMC) Hyundai Motor Czech s.r.o (HMCZ) Hyundai Motor Europe GmbH (HME) Hyundai Motor Deutschland GmbH (HMD) Hyundai Motor Europe Technical Center GmbH (HMETC) Hyundai Motor Sport GmbH (HMSG) Hyundai Capital Europe GmbH Hyundai Capital Bank Europe GmbH Hyundai Motor Commonwealth of Independent States B.V (HMCIS B.V) Hyundai Motor Netherlands B.V. (HMNL) Hyundai Motor Manufacturing Rus LLC (HMMR) Hyundai Motor Commonwealth of Independent States (HMCIS) Hyundai Capital Services Limited Liability Company Hyundai Truck And Bus Rus LLC (HTBR) Hyundai Assan Otomotiv Sanayi Ve Nature of business Location Ownership percentage Indirect ownership Financing Sales R&D Sales ˝ Real estate development Sales Manufacturing ˝ ˝ ˝ ˝ Hyundai Capital Services 100.00% India Japan 100.00% 100.00% ˝ 100.00% China 100.00% ˝ ˝ ˝ ˝ ˝ 100.00% BJMSS 100.00% 99.00% CMEs 99.00% 100.00% Hyundai Rotem 100.00% 100.00% Hyundai KEFICO 100.00% 90.00% Hyundai KEFICO 90.00% Vietnam 100.00% Hyundai KEFICO 100.00% ˝ ˝ 50.00% 50.00% Sales Financing Services Australia ˝ New Zealand 100.00% 100.00% Hyundai Capital Services 100.00% 100.00% Hyundai Rotem 100.00% Manufacturing Sales Marketing and sales Czech ˝ 100.00% 100.00% Germany 100.00% Sales R&D Marketing Financing ˝ Holding company ˝ ˝ ˝ ˝ ˝ 100.00% 100.00% 100.00% HME 100.00% 100.00% Hyundai Capital Services 100.00% 85.00% Hyundai Capital Services 65.00% Netherlands 100.00% HMMR 1.40% Sales ˝ 100.00% Manufacturing Russia 70.00% Sales Financing Sales ˝ ˝ ˝ 100.00% HMCIS B.V 100.00% 100.00% Hyundai Capital Europe 100.00% 100.00% Ticaret A.S. (HAOSVT) Manufacturing Turkey 70.00% Hyundai EURotem Demiryolu Araclari Sanayi ve Ticaret A.S Hyundai Rotem Company – Hyundai EURotem Demiryolu Araclari SAN. VE TIC. A.S ORTAK GIRISIMI Hyundai Rotem Company – Hyundai EUrotem Mahmutbey Projesi ORTAK GIRISIMI Hyundai Motor UK Limited (HMUK) Hyundai Motor Company Italy S.r.l (HMCI) Hyundai Motor Espana. S.L.U. (HMES) Hyundai Motor France SAS (HMF) Sales ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ UK Italy Spain France - 13 - 50.50% Hyundai Rotem 50.50% 100.00% Hyundai Rotem 65.00%, Hyundai EURotem A.S. 35.00% Hyundai Rotem 85.00%, Hyundai EURotem A.S. 15.00% 100.00% 100.00% 100.00% 100.00% 100.00% - 13 - Name of subsidiaries Hyundai Motor Poland Sp. Zo. O (HMP) Hyundai Motor DE Mexico S DE RL DE CV (HMM) Hyundai de Mexico, SA DE C.V., Nature of business Sales Location Poland Ownership percentage 100.00% Indirect ownership ˝ Mexico 100.00% HT 0.01% (HYMEX) Manufacturing HYUNDAI KEFICO MEXICO S DE RL ˝ ˝ Financing Manufacturing Holding company ˝ ˝ ˝ 99.99% HT 99.99% 100.00% Hyundai KEFICO 100.00% Brazil 100.00% ˝ ˝ ˝ Cayman Islands 100.00% Hyundai Capital Services 100.00% 100.00% Hyundai Rotem 100.00% 99.99% HMB 99.99% 59.60% Investment Korea 100.00% Specialty Company (*1) Financing DE CV Hyundai Motor Brasil Montadora de Automoveis LTDA (HMB) Hyundai Capital Brasil Servicos De Assistencia Financeira Ltda Hyundai Rotem Brasil Industria E Comercio De Trens Ltda. HMB Holding Participacoes Financeiras Ltda. China Millennium Corporations (CMEs) KyoboAXA Private Tomorrow Securities Investment Trust No.12 Shinhan BNPP Private Corporate Security Investment Trust No.34 Shinhan BNPP Private Corporate Security Investment Trust No.36 (*2) Miraeasset Triumph Private Equity Security Investment Trust No.15 Autopia Fifty-Second Asset Securitization Autopia Fifty-Fourth ~ Sixty-Fourth Asset Securitization Specialty Company (*1) Privia the Fourth ~ Fifth Securitization Specialty Co., Ltd. (*1) Super Series First ~ Fifth Securitization Specialty Co., Ltd. (*1) Bluewalnut Co., Ltd. Hyundai CHA Funding, LLC Hyundai Lease Titling Trust Hyundai HK Funding, LLC Hyundai HK Funding Two, LLC Hyundai HK Funding Three, LLC Hyundai HK Funding Four, LLC Hyundai ABS Funding, LLC HK Real Properties, LLC Hyundai Auto Lease Offering, LLC Hyundai HK Lease, LLC Extended Term Amortizing Program, LLC Hyundai Asset Backed Lease, LLC Hyundai Protection Plan, Inc. Hyundai Protection Plan Florida, Inc. Hyundai Capital Insurance Services, LLC Hyundai Capital Insurance Company Power Protect Extended Services, Inc. Power Protect Extended Services Florida, ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ Insurance ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ USA ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ 100.00% 100.00% 100.00% 0.50% Hyundai Capital Services 0.50% 0.50% ˝ 0.50% Hyundai Card 0.50% 0.50% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% ˝ Hyundai Card 100.00% HCA 100.00% ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ Inc. ˝ ˝ 100.00% (*1) The Group is considered to have substantial control over the entities by virtue of an agreement with other investors or relationship with structured entities. (*2) Name of company has been changed due to change of fund management company for the year ended December 31, 2017. - 14 - - 14 - (2) Summarized financial position and results of operations of the Company’s major consolidated subsidiaries as of and for the year ended December 31, 2017 are as follows: Name of subsidiaries Assets Liabilities (In millions of Korean Won) Sales Profit (loss) for the year Hyundai Capital Services, Inc. (*) Hyundai Card Co., Ltd. (*) Hyundai Rotem Company (*) Hyundai KEFICO Corporation (*) HCA (*) HMA HMMA HMMC HMI (*) HAOSVT HME (*) HMMR HACC (*) HMB HMCA ￦ 27,608,147 ￦ 23,538,668 ￦ 3,243,544 ￦ 12,546,121 2,665,613 1,036,019 35,001,114 5,455,661 1,480,249 1,519,402 1,497,283 1,243,789 1,585,184 793,189 632,036 706,262 528,378 3,020,772 2,725,658 1,786,039 9,123,763 16,082,850 7,049,070 6,631,281 6,346,672 3,175,821 8,818,566 2,938,098 2,720,971 2,353,343 1,950,766 15,416,497 4,083,912 1,621,607 39,109,088 6,991,716 3,991,788 3,656,291 3,291,954 1,616,576 1,607,499 1,316,285 1,122,543 1,106,169 690,611 299,903 191,565 (46,259) 44,586 1,208,108 (868,115) 115,048 394,078 349,862 40,053 5,803 145,460 (2,414) 78,539 (6,871) (*) Based on the subsidiary’s consolidated financial statements. Summarized financial position and results of operations of the Company’s major consolidated subsidiaries as of and for the year ended December 31, 2016 are as follows: Name of subsidiaries Assets Liabilities (In millions of Korean Won) Sales Profit (loss) for the year Hyundai Capital Services, Inc. (*) Hyundai Card Co., Ltd. (*) Hyundai Rotem Company (*) Hyundai KEFICO Corporation (*) HCA (*) HMA HMMA HMMC HMI (*) HAOSVT HME (*) HMMR HACC (*) HMB HMCA ￦ 25,157,406 ￦ 21,371,809 ￦ 2,781,848 ￦ 11,903,178 3,005,993 815,468 40,108,057 6,277,835 1,803,552 1,534,684 1,300,333 1,230,706 1,428,705 900,607 652,995 725,411 498,955 2,754,223 2,984,783 2,011,606 8,632,667 17,322,391 8,217,390 6,786,623 5,981,155 3,319,664 8,419,927 2,041,115 2,721,444 1,635,641 1,895,400 14,596,987 4,473,160 1,408,766 43,204,606 8,742,487 4,513,528 3,260,750 2,851,771 1,561,301 1,445,054 1,312,789 1,170,157 1,128,327 675,267 300,702 189,966 23,144 143,692 89,208 (341,860) 294,350 389,376 330,280 18,165 6,218 81,480 26,878 (8,076) (46,232) (*) Based on the subsidiary’s consolidated financial statements. (3) The financial statements of all subsidiaries, which are used in the preparation of the consolidated financial statements, are prepared for the same reporting periods as the Company’s. - 15 - - 15 - (4) Summarized cash flows of non-wholly owned subsidiaries that have material non-controlling interests to the Group for the year ended December 31, 2017 are as follows: Description Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Hyundai Capital Services, Inc. Hyundai Card Co., Ltd. (In millions of Korean Won) (161,413) ￦ (63,608) 334,639 (83,265) 2,382,540 ￦ (2,208,619) ￦ Hyundai Rotem Company 219,226 31,239 (391,780) - - (3,108) ￦ 90,656 ￦ 109,618 ￦ (144,423) Summarized cash flows of non-wholly owned subsidiaries that had material non-controlling interests to the Group for the year ended December 31, 2016 are as follows: Description Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Hyundai Capital Services, Inc. Hyundai Card Co., Ltd. (In millions of Korean Won) (666,946) ￦ (72,361) 778,359 (517,926) ￦ (342,741) 516,661 ￦ Hyundai Rotem Company 611,077 55,617 (343,474) (3) - 3,710 ￦ (344,009) ￦ 39,052 ￦ 326,930 (5) Details of non-wholly owned subsidiaries of the Company that have material non-controlling interests as of December 31, 2017 are as follows: Description Ownership percentage of non-controlling interests Non-controlling interests Profit (loss) attributable to non-controlling interests Dividends paid to non-controlling interests Hyundai Capital Services, Inc. Hyundai Card Co., Ltd. (In millions of Korean Won) Hyundai Rotem Company ￦ 40.32% 1,641,343 ￦ 63.04% 1,809,592 ￦ 119,873 33,438 120,770 23,571 56.64% 870,219 (36,761) 2,110 Details of non-wholly owned subsidiaries of the Company that had material non-controlling interests as of December 31, 2016 are as follows: Description Ownership percentage of non-controlling interests Non-controlling interests Profit attributable to non-controlling interests Dividends paid to non-controlling interests Hyundai Capital Services, Inc. Hyundai Card Co., Ltd. (In millions of Korean Won) Hyundai Rotem Company ￦ 40.32% 1,530,795 ￦ 63.04% 1,698,277 ￦ 117,348 - 119,762 - 56.64% 909,309 21,782 4,955 - 16 - - 16 - (6) Financial support provided to consolidated structured entities As of December 31, 2017, Hyundai Card Co., Ltd. and Hyundai Capital Services, Inc., subsidiaries of the Company, have agreements that provide counterparties with rights to claim themselves in the event of default on the derivatives relating to asset-backed securities issued by consolidated structured entities, Autopia Fifty-Second, Fifty-Seventh, Fifty-Ninth and Sixtyth Asset Securitization Specialty Company, Super Series First, Third, Fourth and Fifth Securitization Specialty Co., Ltd.. (7) The nature and the risks associated with interests in unconsolidated structured entities 1) Nature of interests in an unconsolidated structured entity of the Group as of December 31, 2017 is as follows: Description Purpose Asset securitization SPC Fund raising through asset- securitization Investment fund Investment in Nature of business (In millions of Korean Won) Method of funding Total assets Fund collection Corporate bond and others ￦ 1,318,767 beneficiary certificate and others, Development trust, Unspecified monetary trust, Principal unsecured trust, Operation of trust investment Fund raising through project financing Fund management and operation and others, Trust management and operation, Payment of trust fee, Distribution of trust benefit Project financing for construction project and ship investment Sales of beneficiary certificates, Sales of trust investment product 3,619,909 Project financing and others 8,285,718 Structured Finance Nature of interests in an unconsolidated structured entity of the Group as of December 31, 2016 is as follows: Description Purpose Asset securitization SPC Fund raising through asset- securitization Investment fund Investment in Nature of business (In millions of Korean Won) Method of funding Total assets Fund collection Corporate bond and others ￦ 827,967 beneficiary certificate and others, Development trust, Unspecified monetary trust, Principal unsecured trust, Operation of trust investment Fund raising through project financing Fund management and operation and others, Trust management and operation, Payment of trust fee, Distribution of trust benefit Project financing for construction project and ship investment Sales of beneficiary certificates, Sales of trust investment product 8,564,510 Project financing and others 6,656,185 Structured Finance - 17 - - 17 - 2) Risks associated with interests in an unconsolidated structured entity of the Group as of December 31, 2017 are as follows: Description Book value in the structured entity (*) Asset securitization SPC Investment fund Structured Finance ￦ 78,932 193,739 432,193 Financial support provided to the structured entity Method Purpose (In millions of Korean Won) Maximum amount of exposure to loss of the structured entity Loan obligation Beneficiary certificates, Investment trust Loan obligation Loan agreement (Credit line) ￦ Invest agreement Loan agreement (Credit line) 152,964 193,739 954,450 (*) Interest in structured entities is recognized as AFS financial assets and others according to K-IFRS 1039. Risks associated with interests in an unconsolidated structured entity of the Group as of December 31, 2016 are as follows: Description Book value in the structured entity (*) Asset securitization SPC Investment fund Structured Finance ￦ 94,307 194,705 314,065 Financial support provided to the structured entity Method Purpose (In millions of Korean Won) Mezzanine debt and others Beneficiary certificates, Investment trust Loan obligation Credit facility, Loan agreement (Credit line) Invest agreement Loan agreement (Credit line) Maximum amount of exposure to loss of the structured entity ￦ 121,965 194,705 475,100 (*) Interest in structured entities is recognized as AFS financial assets and others according to K-IFRS 1039. (8) Significant restrictions of the subsidiaries 1) As of December 31, 2017, Hyundai Card Co., Ltd., subsidiary of the Company, has significant restrictions that require it to obtain consent from directors appointed by non- controlling shareholders in the event of acquiring a company, entry into new business, guarantee, investment in stocks or contracts beyond a certain amount. 2) As of December 31, 2017, Hyundai Rotem Company, subsidiary of the Company, is required to obtain consent from directors appointed by non-controlling shareholders in the event of significant change in the capital structure of the entity, excluding transactions according to the business plan or the regulation of the Board of Directors, such as issue, disposal, repurchase or retirement of stocks or options, increase or decrease of capital. - 18 - - 18 - (9) Changes in consolidated subsidiaries Subsidiaries newly included in or excluded from consolidation for the year ended December 31, 2017 are as follows: Changes Included ˝ ˝ ˝ ˝ ˝ ˝ ˝ Name of subsidiaries HR Mechanical Services Limited Super Series Fourth Securitization Specialty Co., Ltd. Super Series Fifth Securitization Specialty Co., Ltd. Autopia Sixty-Fourth Asset Securitization Specialty Company Hyundai HK Funding Four, LLC Hyundai Asset Backed Lease, LLC HMB Holding Participacoes Financeiras Ltda. Genesis Motor America LLC HYUNDAI THANH CONG VIETNAM AUTO MANUFACTURING ˝ CORPORATION (HTMV) ˝ Excluded ˝ ˝ ˝ ˝ ˝ Hyundai Thanh cong Commercial Vehicle Joint Stock Company (HTCV) Autopia Forty-Sixth Asset Securitization Specialty Company Autopia Forty-Ninth Asset Securitization Specialty Company Autopia Fiftieth Asset Securitization Specialty Company Autopia Fifty-First Asset Securitization Specialty Company Hyundai Rotem First Co., Ltd. Beijing Xinhuaxiaqiyuetong Motor Chain Co., Ltd. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (1) Basis of consolidated financial statements preparation Description Acquisition ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ Liquidation ˝ ˝ ˝ ˝ ˝ The Group has prepared the consolidated financial statements in accordance with K-IFRS. The significant accounting policies used for the preparation of the consolidated financial statements are summarized below. These accounting policies are consistent with those applied to the consolidated financial statements for the year ended December 31, 2016, except for the adoption effect of the new accounting standards and interpretations described below. 1) New and revised standards that have been applied from the year beginning on January 1, 2017 are as follows: - K-IFRS 1007 (Amendment): ‘Statement of Cash Flows’ The amendment requires to disclose changes in liabilities arising from financial activities. Additional disclosure required related to the first time application of these amendments in the current year are in note 34. Consistent with the transition provisions of the amendments, the Group has not disclosed comparative information for the prior period. - K-IFRS 1012 (Amendment): ‘Income Taxes’ The amendment clarifies that in evaluating the deferred tax assets arising from deductible temporary difference of debt instruments measured at fair value, the carrying amount of an asset does not limit the estimation of probable future taxable profits. - Annual Improvements to K-IFRS 2014-2016 Cycle The Group has applied the amendments to K-IFRS 1112 ‘Share-based Payment included in the Annual Improvements’ to K-IFRS 2014-2016 Cycle for the first time in the current year. The amendments state that an entity need not provide summarized financial information for interests in subsidiaries, associates or joint ventures that are classified (or included in a disposal group that is classified) as held for sale. The above changes in accounting policies did not have any material impact on the Group’s consolidated financial statements. - 19 - - 19 - 2) New and revised standards that have been issued but are not yet effective as of the authorization date for issue of financial statements, and that have not been applied earlier by the Group are as follows: - K-IFRS 1109 (Enactment): ‘Financial Instruments’ The enactment to K-IFRS 1109 contains the requirements for the classification and measurement of financial assets and financial liabilities based on a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets and based on the contractual terms that give rise on specified dates to cash flows, impairment methodology based on the expected credit losses, and broadened types of instruments that qualify as hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting and the change of the hedge effectiveness test. The amendments are effective for annual periods beginning on or after January 1, 2018. The Group has finalized analysis for assessing financial impact of adoption of K-IFRS 1109 based on the information available at the end of current period. The expected financial impact of the new standard on the consolidated financial statements are as follows: A. Classification and measurement of financial assets When the Group adopts new standard of K-IFRS 1109, the Group classifies financial assets as seen in the table below based on the entity’s business model for managing the financial assets and the contractual cash flows characteristics of the financial assets as measured at amortised cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVTPL”). If the host contract is determined in a hybrid contract, an entity may classify the entire hybrid contract as a financial asset rather than separating the embedded derivative from the host contract. Business model Financial assets for contractual cash inflows Financial assets for contractual cash inflows and for sale Financial assets for sale and others Contractual cash flows characteristic Principal and Interest Measured at amortised cost (*1) Otherwise FVOCI (*1) FVTPL FVTPL (*2) (*1) An entity may measure at FVTPL to eliminate or reduce accounting mismatch (irrevocable). (*2) An entity may measure at FVOCI for investments in equity instruments that are not held for trading (irrevocable). The Group has loans and receivables of ￦75,485,673 million, AFS financial assets of ￦2,308,955 million and financial assets at FVTPL of ￦12,964,437 million in the consolidated statements of financial position as of December 31, 2017. The objective of financial assets such as loans and receivables held is to collect contractual cash flows and they have the sole purpose of collecting principal and interest of outstanding amounts on a specified date. Therefore, loans and receivables are classified as Measured at amortised cost. The Group anticipates that this does not have any significant impact on the Group’s consolidated financial statements. K- IFRS 1109 permits an entity to make an irrevocable election to present in other comprehensive income for changes in the fair value of an investment in an equity instrument that is not held for trading. Gains and losses presented in other comprehensive income cannot be subsequently transferred to profit or loss (i.e. there is no recycling). The Group holds AFS financial assets as long-term investments and plans to measure at FVOCI in accordance with K-IFRS 1109. The Group anticipates that opening retained earnings as of January 1, 2018 increases ￦293,309 million due to retrospective adjustment of impairment in AFS financial asset in accordance with K- IFRS 1109. - 20 - - 20 - The Group has plans to change it’s measurement of financial assets from FVTPL in K-IFRS 1039 to FVTPL in K-IFRS 1109. Therefore, the Group anticipates that this does not have any significant impact on the Group’s consolidated financial statements. B. Classification and measurement of financial liabilities. For financial liabilities measured at FVTPL using the fair value option, K-IFRS 1109 requires the effects of changes in fair value attributable to an entity’s credit risk to be recognised in other comprehensive income. The amounts presented in other comprehensive income are not subsequently transferred to profit or loss unless this treatment of the credit risk component creates or enlarges a measurement mismatch. As of December 31, 2017, the Group has financial liabilities measured at amortised cost of ￦87,380,799 million and financial liabilities with changes in fair value recognised in profit or loss of ￦555 million. In accordance with analysis for assessing financial impact of adoption of K-IFRS 1109, the Group anticipates that it does not have any significant impact on the Group’s consolidated financial statements as the effects of changes in financial liabilities credit risk is not material. C. Impairment: Financial assets and contract assets Under K-IFRS 1039, the impairment is recognised only when there is an objective evidence of impairment based on incurred loss model, but under K-IFRS 1109, impairment is recognised based on expected credit loss model for debt instrument, lease receivables, contract assets, loan contracts and financial guarantee contracts that are measured at amortised cost or fair value through other comprehensive income. Under K-IFRS 1109, financial assets are classified into three stages depending on the extent of increase in the credit risk on financial instruments since initial recognition. The loss allowance is measured at an amount equal to twelve months expected credit losses or the lifetime expected credit losses and therefore credit losses will be recognised earlier than under the incurred loss model of K-IFRS 1039. Case Allowance Stage 1 Non-significant increase in credit risk since initial recognition Stage 2 Significant increase in credit risk since initial recognition Stage 3 Credit-impaired financial assets Twelve months expected credit losses : The portion of lifetime expected credit losses that represent the expected credit losses that result from default events on a financial instrument that are possible within the twelve months after the reporting date. Lifetime expected credit losses: The expected credit losses that result from all possible default events over the expected life of a financial instrument. Under K-IFRS 1109, an entity shall recognise the cumulative changes of lifetime expected credit losses since the initial recognition as a loss allowance for any purchased or originated credit-impaired financial assets. The Group has net of loans and receivables with an allowance of ￦1,227,745 million. The Group has plan to recognise allowance of trade notes, accounts receivable, financial services receivables and contract assets that have a significant financing component for lifetime expected credit losses from initial recognition until derecognition (the simplified approach) for low credit risk. The Group anticipates recognise ￦1,399,357 million credit losses in accordance with analysis for assessing financial impact of adoption of K-IFRS 1109. D. Hedge Accounting The new standard, K-IFRS 1109, retains the mechanics of hedge accounting in K-IFRS 1039. Under the new model, it is possible for an entity to reflect its risk management activities on the financial statements by focusing on principle-based hedge effectiveness assessment instead of simply complying with a rule-based approach under the K-IFRS 1039. The new model introduced greater flexibility to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify as hedging instruments and overhauling the quantitative hedge effectiveness (80 – 125%) test. - 21 - - 21 - In accordance with the transition requirements, entities with initial application may continue to retain the existing requirements under K-IFRS 1039 as their accounting policy. As of December 31, 2017, the Group applies hedge accounting and has a deferred net profit of ￦6,943 million in accumulated other comprehensive income in relation to cash flow hedging instruments. The Group analyzes financial impact assuming to apply hedge accounting in accordance with K-IFRS 1109. The Group anticipates that variability of profit or loss would be reduced as the Group qualifies risk management criterias for hedge accounting in accordance with K-IFRS 1109 - K-IFRS 1115 (Enactment): ‘Revenue from Contracts with Customers’ The core principle under K-IFRS 1115 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The standard introduces a 5-step approach to revenue recognition and measurement: 1) Identify the contract with a customer, 2) Identify the performance obligations in the contract, 3) Determine the transaction price, 4) Allocate the transaction price to the performance obligations in the contract, 5) Recognize revenue when (or as) the entity satisfies a performance obligation. This standard will supersede K-IFRS 1011 - Construction Contracts, K-IFRS 1018 - Revenue, K-IFRS 2113 - Customer Loyalty Programmes, K-IFRS 2115 - Agreements for the Construction of Real Estate, K-IFRS 2118 - Transfers of Assets from Customers, and K-IFRS 2031 - Revenue-Barter Transactions Involving Advertising Services. The Enactments are effective for annual periods beginning on or after January 1, 2018. Under this transition method, the Group will apply this standard retrospectively with the cumulative effect of initially applying this Standard recognised at January 1, 2018, only to contracts that are not completed contracts at the date of initial application. The Group has finalized analysis for assessing financial impact of adoption of K-IFRS 1115 based on the information available at the end of current period. The expected financial impact of the new standard on the consolidated financial statements are as follows: A. Identify the performance obligations in the contract The Group manufactures and distributes motor vehicles, trains and parts, and operates vehicle financing and credit card processing. In 2017, vehicle operating segment sales were ￦74,490,230 million which is approximately 77% of the Group’s total sales. Upon application of K-IFRS 1115, the Group identifies the performance obligation in the contract with customers which are (1) Vehicle sales, (2) Additional service, (3) Additional warranty and (4) Other services. Timing of the revenue recognition may change depending on when the performance obligation is satisfied, either at a point in time or over time. B. Allocation of the transaction price Upon application of K-IFRS 1115, the Group allocates the transaction price of multiple performance obligation identified in one contract based on relative standalone selling price. The Group plans to use an expected cost plus margin approach by estimating the expected costs for each transaction and adding an appropriate profit margin. C. Variable consideration Upon application of K-IFRS 1115, the Group estimates the amount of consideration depending on which method the entity expects to better predict the amount of consideration to which it will be entitled—the expected value or the most likely amount. Variable consideration is included in the transaction price only to the extent that it is probable or highly probable that a significant reversal in the cumulative amount of revenue recognized will not occur in the future periods. As of January 1, 2018, the effect of adjustments on retained earnings as a result of the retrospective application of K-IFRS 1115 for contracts that are not completed is not expected to be significant on consolidated financial statements. - 22 - - 22 - - K-IFRS 1040 (Amendment): ‘Investment Property’ The amendments clarify that a transfer to, or from, investment property necessitates an assessment of whether a property meets, or has ceased to meet, the definition of investment property, supported by observable evidence that a change in use has occurred. The amendments further clarify that situations other than the ones listed in K- IFRS 1040 may evidence a change in use, and that a change in use is possible for properties under construction (i.e. a change in use is not limited to completed properties). The amendments are effective for annual periods beginning on or after January 1, 2018. - K-IFRS 2122 (Enactment): ‘Foreign Currency Transactions and Advance Consideration’ The enactment addresses how to determine the ‘date of transaction’ for the purpose of determining the exchange rate to use on initial recognition of an asset, expense or income, when consideration for that item has been paid or received in advance in a foreign currency which resulted in the recognition of a non-monetary asset or non- monetary liability. The enactment specifies that the date of transaction is the date on which the entity initially recognizes the non-monetary asset on non-monetary liability arising from the payment or receipt of advance consideration. If there are multiple payments or receipts in advance, the enactment requires an entity to determine the date of transaction for each payment or receipt of advance consideration. The Enactment is effective for annual periods beginning on or after January 1, 2018. - Annual Improvements to K-IFRS 2014-2016 cycle The Annual Improvements include amendments to K-IFRS 1101 - First-time Adoption and K-IFRS 1028 - Investment in Associates and Joint Ventures. The amendments to K-IFRS 1028 clarify that the option for a venture capital organization and other similar entities to measure investments in associates and joint ventures at FVTPL is available separately for each associate or joint venture, and that election should be made at initial recognition of the associate or joint venture. In respect of the option for an entity that is not an investment entity(IE) to retain the fair value measurement applied by its associates and joint ventures that are IEs when applying the equity method, the amendments make a similar clarification that this choice is available for each IE associate or IE joint venture. Both the amendments to K-IFRS 1101 and 1028 are effective for annual periods beginning on or after January 1, 2018. - K-IFRS 1116 (Enactment) : ‘Leases’ This enactment provides a single lessee accounting model that operating leasee recognises a right-of-use asset and a lease liability. This enactment will supersede K-IFRS 1017 - Leases, K-IFRS 2104 - Determining whether an Arrangement contains a Lease, K-IFRS 2015 - Operating Leases— Incentives, K-IFRS 2027 - Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The enactment are effective for annual periods beginning on or after January 1, 2019 with early adoption permitted. At inception of a contract, the entity assesses whether the contract is, or contains, a lease. The entity also assesses it at the date of initial application. However, the entity is not required to reassess whether a contract before at the date of initial application is, or contains if the entity adopts a practical expedient. For a contract that is, or contains, a lease, an entity accounts for each lease component within the contract as a lease separately from non-lease components of the contract. At the commencement date, a lessee recognises a right-of-use asset and a lease liability. A lessee may elect not to apply the requirements to short-term leases that, at the commencement date, has a maximum possible term of 12 months or less and leases for which the underlying asset is of low value (e.g below USD 5,000). As a practical expedient, a lessee may elect, by class of underlying asset, not to separate non-lease components from lease components, and instead account for each lease component and any associated non-lease components as a single lease component. In lessor accounting, this standard is not significantly changed from K-IFRS 1017 - Leases. As at 31 December 2017, the Group has operating lease contracts and the Group is currently assessing its potential impact on financial statement. However, the Group has practical difficulties to provide expected impact unless preliminary assessment is complete. The Group is currently evaluating the impacts of above mentioned enactments and amendments on the Group’s consolidated financial statements. - 23 - - 23 - The consolidated financial statements as of and for the year ended on December 31, 2017, to be submitted at the ordinary shareholders’ meeting were authorized for issuance at the board of directors’ meeting on February 20, 2018. (2) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except as otherwise stated in the accounting policies below. Historical cost is usually measured at the fair value of the consideration given to acquire the assets. (3) Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by the Company (or its subsidiaries). Control is achieved when the Company:  has power over the investee;   has the ability to use its power to affect its returns. is exposed, or has rights, to variable returns from its involvement with the investee; and The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:  the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;  potential voting rights held by the Company, other vote holders or other parties;   any additional facts and circumstances that indicate that the Company has, or does not have, the current rights arising from other contractual arrangements; and ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statements of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intragroup transactions, balances, income and expenses are eliminated in full on consolidation. Non-controlling interests are presented in the consolidated statement of financial position within equity, separately from the equity of the owners of the Company. The carrying amount of non-controlling interests consists of the amount of those non-controlling interests at the initial recognition and the changes in shares of the non-controlling interests in equity since the date of the acquisition. Total comprehensive income is attributed to the owners of the Company and to the non- controlling interests even if the non-controlling interest has a deficit balance. Changes in the Group's ownership interests in subsidiaries, without a loss of control, are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Group. - 24 - - 24 - When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), liabilities of the subsidiary and any non- controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Group had directly disposed of the relevant assets (i.e., reclassified to profit or loss or transferred directly to retained earnings as specified by applicable K-IFRS). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under K-IFRS 1039 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. (4) Business combination Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree and the equity interests issued by the Group in exchange for control of the acquiree. The consideration includes any asset or liability resulting from a contingent consideration arrangement and is measured at fair value. Acquisition-related costs are recognized in profit or loss as incurred. When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is remeasured at its fair value at the acquisition date (i.e., the date when the Group obtains control) and the resulting gain or loss, if any, is recognized in profit or loss. Prior to the acquisition date, the amount resulting from changes in the value of its equity interest in the acquiree that have previously been recognized in other comprehensive income are reclassified to profit or loss where such treatment would be appropriate if that interest were directly disposed of. (5) Revenue recognition 1) Sale of goods The Group recognizes revenue from sale of goods when all of the following conditions are satisfied:  the Group has transferred to the buyer the significant risks and rewards of ownership of the goods; the amount of revenue can be measured reliably it is probable that the economic benefits associated with the transaction will flow to the Group  The Group grants award credits, which the customers can redeem for awards such as free or discounted goods or services. The fair value of the award credits are estimated by considering the fair value of the goods granted, the expected rate and period of collection. The fair value of the consideration received or receivable from the customer is allocated to award credits and sales transaction. The consideration allocated to the award credits is deferred and recognized as revenue when the award credits are redeemed and the Group's obligations have been fulfilled. 2) Rendering of services The Group recognizes revenue from rendering of services based on the percentage of completion when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Group. 3) Royalties The Group recognizes revenue from royalties on an accrual basis in accordance with the substance of the relevant agreement. 4) Dividend and interest income Revenues arising from dividends are recognized when the right to receive payment is established. Interest income is recognized using the effective interest method as time passes. - 25 - - 25 - 5) Construction contracts Where the outcome of a construction contract can be estimated reliably, the contract revenue and contract costs associated with the construction contract are recognized as revenue and expenses, respectively, by reference to the stage of completion of the contract activity at the end of reporting period. The percentage of completion of a contract activity is reliably measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, by surveys of work performed or by completion of a physical proportion of the contract work. Variations in contract work, claim and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable. Where the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred that it is probable will be recoverable. Contract costs are recognized as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately. (6) Foreign currency translation The individual financial statements of each entity in the Group are measured and presented in the currency of the primary economic environment in which the entity operates (its functional currency). In preparing the financial statements of the individual entities, transactions occurring in currencies other than their functional currency (foreign currencies) are recorded using the exchange rate on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are translated using the exchange rate at the reporting period. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Non- monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. Exchange differences resulting from settlement of assets or liabilities and translation of monetary items denominated in foreign currencies are recognized in profit or loss in the period in which they arise except for some exceptions. For the purpose of presenting the consolidated financial statements, assets and liabilities in the Group’s foreign operations are translated into Won, using the exchange rates at the end of reporting period. Income and expense items are translated at the average exchange rate for the period, unless the exchange rate during the period has significantly fluctuated, in which case the exchange rates at the dates of the transactions are used. The exchange differences arising, if any, are recognized in equity as other comprehensive income. On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation is reclassified from equity to profit or loss when the gain or loss on disposal is recognized. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation and translated at the exchange rate at the end of reporting period. Foreign exchange gains or losses are classified in finance income (expenses) or other income (expenses) by the nature of the transaction or event. (7) Financial assets The Group classifies financial assets into the following specified categories: financial assets at fair value through profit or loss (“FVTPL”), held-to-maturity (“HTM”) financial assets, loans and receivables and available-for-sale (“AFS”) financial assets. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. 1) Financial assets at FVTPL Financial instruments classified as financial assets at FVTPL include contingent consideration that may be paid by an acquirer as part of business combination to which K-IFRS 1103 applies or financial assets classified as held for trading or designated as FVTPL upon initial recognition. A financial asset is classified as FVTPL, if it has been acquired principally for the purpose of selling or repurchasing in near term. All derivative assets, except for derivatives that are designated and effective hedging instruments, are classified as held for trading financial assets which are measured at FVTPL. Financial assets at FVTPL are measured at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. - 26 - - 26 - 2) HTM financial assets HTM financial assets are non-derivative financial instruments with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity. HTM financial assets are presented at amortized cost using the effective interest rate, less accumulated impairment loss, and interest income is recognized using the effective interest rate method. 3) Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and measured at amortized cost. Interest income is recognized using the effective interest rate method, except for short-term receivables for which the discount effect is not material. 4) AFS financial assets AFS financial assets are those non-derivative financial assets that are designated as AFS or are not classified as loans and receivables, HTM financial assets nor financial assets at FVTPL. AFS financial assets are measured at fair value. However, investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. A gain or loss on changes in fair value of AFS financial assets is recognized in other comprehensive income, except for impairment loss, interest calculated using the effective interest method and foreign exchange gains and losses on monetary assets. Accumulated other comprehensive income is reclassified to profit or loss from equity at the time of impairment recognition or elimination of related financial assets. Dividends on an AFS equity instrument are recognized in profit or loss when the Group’s right to receive payment is established. (8) Impairment of financial assets 1) Financial assets carried at amortized cost The Group assesses at the end of each reporting period whether there is any objective evidence that a financial asset or group of financial assets is impaired. If any such evidence exists, the Group determines the amount of any impairment loss. 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, excluding future credit losses that have not been incurred, discounted at the financial asset’s original effective interest rate computed at initial recognition. The carrying amount of the asset is reduced either directly or through use of an allowance account, and the amount of the loss is recognized in profit or loss. Certain financial assets, such as trade receivables and financial services receivables that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. The objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed and recognized in profit or loss. The reversal shall not result in a carrying amount of the financial asset that exceeds what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. 2) Financial assets carried at cost The amount of the impairment loss on financial assets that are carried at cost because their fair value cannot be reliably measured is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed. - 27 - - 27 - 3) AFS financial assets If there is objective evidence of impairment on AFS financial assets, the cumulative loss that has been recognized in other comprehensive income, less any impairment loss previously recognized in profit or loss is reclassified from equity to profit or loss. In the case of equity instruments, objective evidence of impairment is taken to exist if there is a significant or prolonged decline in the fair value of each investment below its cost. Impairment losses recognized in profit or loss for investments in equity instruments classified as AFS are not reversed through profit or loss. Meanwhile, if, in a subsequent period, the fair value of a debt instrument classified as AFS 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 through profit or loss. (9) Derecognition of financial assets The Group derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and, substantially, all the risks and rewards of ownership of the asset to another entity. If the Group neither retains substantially all the risks and rewards of ownership nor transfers and continues to control the transferred asset, the Group recognizes its retained interest in the asset and associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received. (10) Inventory Inventory is measured at the lower of cost or net realizable value. Inventory cost, including the fixed and variable manufacturing overhead cost, is calculated, using the moving average method, except for the cost for inventory in transit, which is determined by the identified cost method. (11) Investments in associates and joint ventures An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a joint arrangement, whereby the parties that have joint control of the arrangement have rights to the net assets of the joint arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control. The investment in an associate or a joint venture is initially recognized at cost and accounted for using the equity method. Under the equity method, an investment in an associate or a joint venture is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Group's share of the profit or loss and other comprehensive income of the associate or the joint venture. When the Group's share of losses of an associate or a joint venture exceeds the Group's interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the Group's net investment in the associate or the joint venture), the Group discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or the joint venture. Any excess of the cost of acquisition over the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate or a joint venture recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. The entire carrying amount of the investment, including goodwill is tested for impairment and presented at the amount less accumulated impairment losses. Any excess of the Group's share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss. - 28 - - 28 - Upon disposal of an associate or a joint venture that results in the Group losing significant influence over that associate or joint venture, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with K-IFRS 1039. The difference between the previous carrying amount of the associate or joint venture attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate or joint venture. In addition, the Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate or joint venture on the same basis we would be required if that associate or joint venture had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by that associate or joint venture would be reclassified to profit or loss on the disposal of the related assets or liabilities, the Group reclassifies the gain or loss from equity to profit or loss (as reclassification adjustment) when it loses significant influence over that associate or joint venture. When the Group reduces its ownership interest in an associate or a joint venture, but the Group continues to use the equity method, the Group reclassifies to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be reclassified to profit or loss on the disposal of the related assets or liabilities. In addition, the Group applies K-IFRS 1105 to a portion of investment in an associate or a joint venture that meets the criteria to be classified as held for sale. The Group continues to use the equity method when an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate. There is no remeasurement to fair value upon such changes in ownership interests. Unrealized gains from transactions between the Group and its associates or joint ventures are eliminated up to the shares in associate (joint venture) stocks. Unrealized losses are also eliminated, unless evidence of impairment in assets transferred is produced. If the accounting policy of associates or joint ventures differs from the Group, financial statements are adjusted accordingly before applying equity method of accounting. If the Group’s ownership interest in an associate or a joint venture is reduced, but the significant influence is continued, the Group reclassifies to profit or loss only a proportionate amount of the gain or loss previously recognized in other comprehensive income. (12) Property, plant and equipment Property, plant and equipment is to be recognized if, and only if it is probable that future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably. After the initial recognition, property, plant and equipment is stated at cost less accumulated depreciation and accumulated impairment losses. The cost includes any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located. In addition, in case the recognition criteria are met, the subsequent costs will be added to the carrying amount of the asset or recognized as a separate asset, and the carrying amount of what was replaced is derecognized. Depreciation is computed using the straight-line method based on the estimated useful lives of the assets. The representative useful lives are as follows: Buildings and structures Machinery and equipment Vehicles Dies, molds and tools Office equipment Other Representative useful lives (years) 12 – 50 6 – 15 6 – 15 4 – 6 3 – 15 2 – 30 The Group reviews the depreciation method, the estimated useful lives and residual values of property, plant and equipment at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate. - 29 - - 29 - (13) Investment property Investment property is property held to earn rentals or for capital appreciation or both. An investment property is measured initially at its cost and transaction costs are included in the initial measurement. After initial recognition, the book value of investment property is presented at the cost less accumulated depreciation and accumulated impairment losses. Subsequent costs are recognized as the carrying amount of the asset when, and only when it is probable that future economic benefits associated with the asset will flow to the Group, and the cost of the asset can be measured reliably, or recognized as a separate asset if appropriate. The carrying amount of what was replaced is derecognized. Land is not depreciated, and other investment properties are depreciated using the straight-line method over the period from 20 to 50 years. The Group reviews the depreciation method, the estimated useful lives and residual values at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate. (14) Intangible assets 1) Goodwill Goodwill arising from a business combination is recognized as an asset at the time of obtaining control (the acquisition date). Goodwill is measured as the excess of the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree and the acquisition-date fair value of the Group’s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed exceeds the aggregate of the consideration transferred, the amount of any non-controlling interest in the acquiree, and the acquisition-date fair value of the Group’s previously held equity interest in the acquiree, the excess is recognized immediately in profit or loss as a bargain purchase gain. Goodwill is not amortized, but tested for impairment at least annually. For purposes of impairment tests, goodwill is allocated to those cash-generating units (“CGU”) of the Group expected to have synergies from the business combination. CGU that goodwill has been allocated is tested for impairment every year or when an event occurs that indicates impairment. If the recoverable amount of a CGU is less than its carrying amount, the impairment will first decrease the goodwill allocated to that CGU and the remaining impairment will be allocated among other assets relative to its carrying value. Impairment recognized for goodwill may not be reversed. When disposing a subsidiary, related goodwill will be included in gain or loss from disposal. 2) Development costs The expenditure on research is recognized as an expense when it is incurred. The expenditure on development is recognized as an intangible asset, and amortization is computed using the straight-line method based on the estimated useful lives of the assets since the asset is available for use or sale. Research and development activities are conducted in phases of preceding research, development approval, product development and mass production. The Group generally recognizes intangible assets as development activities after the development approval phases which product specification, release schedule, and sales plan are established. Expenditure incurred at the previous phase is recognised as an expense considered as research activities when it is incurred. - 30 - - 30 - 3) Intangible assets acquired separately Intangible assets are measured initially at cost, and are subsequently measured at cost less accumulated amortization and accumulated impairment losses. Intangible assets are amortized by the straight-line method based on estimated useful lives from the date of availability. The Group reviews the estimated useful life and amortization method at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate. Intangible assets assessed as having indefinite useful life such as club membership are subjected to annual impairment test without amortization. The representative useful lives are as follows: Development costs Industrial property rights Software Other Representative useful lives (years) 3, 7 5 – 10 3 – 7 5 – 40 (15) Impairment of tangible and intangible assets The Group assesses at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the Group estimates the recoverable amount of the asset to determine the extent of the impairment loss. Recoverable amount is the higher of fair value, less costs to sell and value in use. If the cash inflow of individual asset occurs separately from other assets or group of assets, the recoverable amount is measured for that individual asset; otherwise, it is measured for each CGU to which the asset belongs. Except for goodwill, all non-financial assets that have incurred impairment are tested for reversal of impairment at the end of each reporting period. Intangible assets with indefinite useful lives or intangible assets not yet available for use are not amortized, but tested for impairment at least annually. (16) Non-current assets classified as held for sale The Group classifies a non-current asset (or disposal group) as held for sale, if its carrying amount will be recovered principally through a sale transaction rather than through continuing use. For this to be the case, the asset (or disposal group) must be available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets (or disposal groups) and its sale must be highly probable. The management must be committed to a plan to sell the asset (or disposal group), and the sale should be expected to qualify for recognition as a completed sale within one year from the date of classification. Non-current assets (or disposal group) classified as held for sale are measured at the lower of their carrying amount and fair value, less costs to sell. (17) Lease Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. 1) The Group as lessor Amounts due from lessees under finance leases are recognized as receivables at the amount of the Group’s net investment in the leases. Finance lease interest income is allocated to accounting periods so as to reflect an effective interest rate on the Group’s net investment outstanding in respect of the leases. Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized as expense on a straight-line basis over the lease term. - 31 - - 31 - 2) The Group as lessee Assets held under finance leases are initially recognized as assets and liabilities of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. Minimum lease payments are apportioned between the finance expenses and the reduction of the outstanding liability. The finance expenses are 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. Contingent rents are recognized as expenses in the periods in which they are incurred. Operating lease payments are recognized as expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rents for operating lease are recognized as expenses in the periods in which they are incurred. (18) Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are capitalized to the cost of those assets, until they are ready for their intended use or sale. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its intended use or sale. Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization. All other borrowing costs are recognized in profit or loss in the period in which they are incurred. (19) Retirement benefit plans Contributions to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions. The retirement benefit obligation recognized in the consolidated statements of financial position represents the present value of the defined benefit obligation, less the fair value of plan assets. Defined benefit obligations are calculated by an actuary using the Projected Unit Credit Method. The present value of the defined benefit obligations is measured by discounting estimated future cash outflows by the interest rate of high-quality corporate bonds, with similar maturity as the expected post-employment benefit payment date. In countries where there is no deep market in such bonds, the market yields at the end of the reporting period on government bonds are used. The remeasurements of the net defined benefit liabilities (assets) comprising actuarial gain or loss from changes in actuarial assumptions or differences between actuarial assumptions and actual results, the effect of the changes to the asset ceiling and return on plan assets, excluding amounts included in net interest on the net defined benefit liabilities (assets), are recognized in other comprehensive income of the consolidated statements of comprehensive income, which is immediately recognized as retained earnings. Those recognized in retained earnings will not be reclassified in profit or loss. Past service costs are recognized in profit and loss when the plan amendment occurs, and net interest is calculated by applying the discount rate determined at the beginning of the annual reporting period to the net defined benefit liabilities (assets). Defined benefit costs are composed of service cost (including current service cost, past service cost, as well as gains and losses on settlements), net interest expense (income), and remeasurements. The retirement benefit obligation recognized in the consolidated statements of financial position represents the actual deficit or surplus in the Group’s defined benefit plans. Any surplus resulting from this calculation is limited to the present value of any economic benefits available in the form of refunds from the plans or reductions in future contributions to the plans. - 32 - - 32 - (20) Provisions A provision is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. A provision is measured using the present value of the cash flows estimated to settle the present obligation. The increase in provision due to passage of time is recognized as interest expense. The Group generally provides a warranty to the ultimate consumer for each product sold and accrues warranty expense at the time of sale based on actual claims history. Also, the Group accrues probable expenses, which may occur due to product liability suit, voluntary recall campaign and other obligations at the end of the reporting period. In addition, the Group recognizes provisions for the probable losses of unused loan commitment, construction contracts, precontract sale or service contract due to legal or constructive obligations. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. (21) Taxation Income tax expense is composed of current and deferred tax. 1) Current tax The current tax is computed based on the taxable profit for the current year. The taxable profit differs from the income before income tax as reported in the consolidated statements of income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax expense is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. 2) Deferred tax Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets shall be generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities shall not be recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates and interests in joint ventures, except when the Group is able to control the timing of the reversal of the temporary difference, and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that taxable profit will be available against which the temporary difference can be utilized and they are expected to be reversed in the foreseeable future. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to be applied in the period in which the liability is settled or the asset is realized, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax assets and liabilities reflects the tax consequences that would follow from the manner in which the Group expects to recover or settle the carrying amount of its assets and liabilities at the end of the reporting period. - 33 - - 33 - Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when they relate to income tax levied by the same taxation authority. Also, they are offset when different taxable entities that intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered. 3) Current and deferred taxes for the year Current and deferred taxes are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, or items arising from initial accounting treatments of a business combination. The tax effect arising from a business combination is included in the accounting for the business combination. (22) Treasury stock When the Group repurchases its equity instruments (treasury stock), the incremental costs and net of tax effect are deducted from equity and recognized as other capital item deducted from the total equity in the consolidated statements of financial position. In addition, profits or losses from purchase, sale or retirement of treasury stocks are directly recognized in equity and not in current profit or loss. (23) Financial liabilities and equity instruments Debt instruments and equity instruments issued by the Group are recognized as financial liabilities or equity depending on the contract and the definitions of financial liability and equity instrument. 1) Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Group are recognized at issuance amount, net of direct issuance costs. 2) Financial guarantee liabilities A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument. Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of:  the amount of the obligation under the contract, as determined in accordance with K-IFRS 1037 Provisions, Contingent Liabilities and Contingent Assets; and  the amount initially recognized less, cumulative amortization recognized in accordance with the K-IFRS 1018 Revenue 3) Financial liabilities at FVTPL Financial instruments classified as financial liabilities at FVTPL include contingent consideration that may be paid by an acquirer as part of a business combination to which K-IFRS 1103 applies or financial liability classified as held for trading or designated as FVTPL upon initial recognition. FVTPL is stated at fair value, and the gains and losses arising on remeasurement and the interest expenses paid in financial liabilities are recognized in profit and loss. 4) Other financial liabilities Other financial liabilities are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. - 34 - - 34 - 5) Derecognition of financial liabilities The Group derecognizes financial liabilities only when the Group’s obligations are discharged, cancelled or they expire. (24) Derivative financial instruments Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately, unless the derivative is designated and effective as a hedging instrument, in such case, the timing of the recognition in profit or loss depends on the nature of the hedge relationship. The Group designates certain derivatives as hedging instruments to hedge the risk of changes in fair value of a recognized asset or liability or an unrecognized firm commitment (fair value hedges) and the risk of changes in cash flow of a highly probable forecast transaction and the risk of changes in foreign currency exchange rates of firm commitment (cash flow hedges). 1) Fair value hedges The Group recognizes the changes in the fair value of derivatives that are designated and qualified as fair value hedges are recognized in profit or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. Hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated or exercised, or when it is no longer qualified for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized to profit or loss from that date. 2) Cash flow hedges The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss. Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss. If the forecast transaction results in the recognition of a non-financial asset or liability, the related gain and loss recognized in other comprehensive income and accumulated in equity are transferred from equity to the initial cost of related non-financial asset or liability. Cash flow hedge accounting is discontinued when the Group revokes the hedging relationship, when the hedging instrument expires or is sold, terminated or exercised, or it no longer qualifies for the criteria of hedging. Any gain or loss accumulated in equity at that time remains in equity, and is recognized as profit or loss when the forecast transaction occurs. When the forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in profit or loss. (25) Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Group takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these consolidated financial statements is determined on such a basis, except for leasing transactions that are within the scope of K-IFRS 1017 Leases, and measurements that have some similarities to fair value, but are not fair value, such as net realisable value in K-IFRS 1002 Inventories or value in use in K-IFRS 1036 Impairment of Assets. In addition, for financial reporting purposes, fair value measurements are categorized into Levels 1, 2 or 3, based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described in Note 19. - 35 - - 35 - (26) Accounting Treatment related to the Emission Rights Cap and Trade Scheme The Group classifies the emission rights as intangible assets. Emission rights allowance the government allocated free of charge are measured at nil, and emission rights allowance purchased are measured at cost, which the Group paid to purchase the allowances. If emission rights the government-allocated free of charge are sufficient to settle the emission rights allowances allotted for vintage year, the emissions liabilities are measured at nil. However, for the emissions liabilities that exceed the allowances allocated free of charge, the shortfall is measured at best estimate at the end of the reporting period. (27) Significant accounting estimates and key sources of estimation uncertainties In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that cannot be identified from other sources. The estimation and assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may be different from those estimations. The estimates and underlying assumptions are continually evaluated. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. The main accounting estimates and assumptions related to the significant risks that may make significant changes to the carrying amounts of assets and liabilities after the reporting period are as follows: 1) Goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the CGU to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. 2) Warranty provision The Group recognizes provisions for the warranties of its products as described in Note 2.(20). The amounts are recognized based on the best estimate of amounts necessary to settle the present and future warranty obligation. 3) Defined benefit plans The Group operates defined retirement benefit plans. Defined benefit obligations are determined at the end of each reporting period using an actuarial valuation method that requires management assumptions on discount rates, rates of expected future salary increases and mortality rates. The characteristic of post-employment benefit plan that serves for the long term period causes significant uncertainties when the post-employment benefit obligation is estimated. 4) Taxation The Group recognizes current tax and deferred tax based on the best estimates of income tax effect to be charged in the future as the result of operating activities until the end of the reporting period. However, actual final income tax to be charged in the future may differ from the relevant assets and liabilities recognized at the end of the reporting period and the difference may affect income tax charged or credited, or deferred tax assets and liabilities in the period in which the final income tax determined. 5) Fair value of financial instruments The Group uses valuation techniques that include inputs that are not based on observable market data to estimate the fair value of certain type of financial instruments. The Group makes judgements on the choice of various valuation methods and assumptions based on the condition of the principal market at the end of the reporting period. - 36 - - 36 - 6) Measurement and useful lives of property, plant, equipment or intangible assets If the Group acquires property, plant, equipment or intangible assets from business combination, it is required to estimate the fair value of the assets at the acquisition date and determine the useful lives of such assets for depreciation and amortization. 3. TRADE NOTES AND ACCOUNTS RECEIVABLE: (1) Trade notes and accounts receivable as of December 31, 2017 and 2016 consist of the following: December 31, 2017 December 31, 2016 Description Current Non-current (In millions of Korean Won) Current Non-current Trade notes and accounts receivable Allowance for doubtful accounts Present value discount accounts ￦ 3,903,210 ￦ 129,739 ￦ 4,487,352 ￦ (65,167) - - (5,806) (49,800) - ￦ 3,838,043 ￦ 123,933 ￦ 4,437,552 ￦ 146,262 - (8,157) 138,105 (2) Aging analysis of trade notes and accounts receivable As of December 31, 2017 and 2016, total trade notes and accounts receivable that are past due, but not impaired, amount to ￦246,961 million and ￦335,516 million, respectively; of which ￦187,740 million and ￦298,775 million, respectively, are past due less than 90 days, but not impaired. As of December 31, 2017 and 2016, the impaired trade notes and accounts receivable amount to ￦65,167 million and ￦49,800 million, respectively. (3) Transferred trade notes and accounts receivable that are not derecognized As of December 31, 2017 and 2016, total trade notes and accounts receivable (including inter-company receivables within the Group) which the Group transferred to financial institutions but did not qualify for derecognition, amount to ￦1,338,160 million and ￦1,472,786 million, respectively. Cash and cash equivalents received as consideration for the transfer are recognized as short-term borrowings due to the fact that the risks and rewards were not transferred substantially. (4) The changes in allowance for doubtful accounts for the years ended December 31, 2017 and 2016 are as follows: Description 2017 (In millions of Korean Won) 2016 Beginning of the year Impairment loss (gain) Write-off Effect of foreign exchange differences End of the year ￦ ￦ 49,800 ￦ 19,211 (4,336) 492 65,167 ￦ 59,530 (5,197) (4,649) 116 49,800 - 37 - - 37 - 4. OTHER RECEIVABLES: Other receivables as of December 31, 2017 and 2016 consist of the following: Description Current Non-current (In millions of Korean Won) Current Non-current December 31, 2017 December 31, 2016 Accounts receivable – others Due from customers for contract work Lease and rental deposits Deposits Others Allowance for doubtful accounts - ￦ 1,952,871 ￦ 841,803 ￦ 1,939,269 ￦ 1,024,899 34,953 2,368 3,906 925,524 - 335,870 35,770 3,895 - - ￦ 3,007,869 ￦ 1,227,602 ￦ 3,181,030 ￦ 1,301,059 1,220,582 27,957 3,366 557 (10,701) 335,918 34,822 15,059 (11,128) 5. OTHER FINANCIAL ASSETS: (1) Other financial assets as of December 31, 2017 and 2016 consist of the following: Description Current Non-current (In millions of Korean Won) Current Non-current December 31, 2017 December 31, 2016 Financial assets at fair value through profit or loss (“FVTPL”) Derivative assets that are effective hedging instruments AFS financial assets Loans ￦ 12,770,096 ￦ 194,341 ￦ 12,454,530 ￦ 104,499 23,411 11,833 81,429 14,786 2,297,122 6,160 185,114 3,911 80,438 ￦ 12,886,769 ￦ 2,512,409 ￦ 12,723,993 ￦ 142,107 2,308,822 5,122 2,560,550 (2) AFS financial assets that are measured at fair value as of December 31, 2017 and 2016 consist of the following: December 31, 2017 December 31, 2016 Description Debt instruments Equity instruments Acquisition cost Book value (In millions of Korean Won) Book value ￦ 310,234 ￦ 309,969 ￦ 1,730,202 2,040,436 ￦ 2,308,955 ￦ 1,998,986 ￦ 266,800 2,045,933 2,312,733 - 38 - - 38 - (3) Equity instruments classified into AFS financial assets as of December 31, 2017 and 2016 consist of the following: Name of the company Hyundai Steel Company (*1) Hyundai Glovis Co., Ltd. Korea Aerospace Industries, Ltd. (*2) Hyundai Heavy Industries Co., Ltd. (*3) Hyundai Oilbank Co., Ltd. Hyundai Robotics Co., Ltd. (*3) Hyundai Green Food Co., Ltd. Hyundai Electric & Energy Systems Co., Ltd. (*3) Hyundai Development Company Hyundai M Partners Co., Ltd. NICE Information Service Co., Ltd. KT Corporation NICE Holdings Co., Ltd. Hyundai Asan Corporation Hyundai Merchant Marine Company Others Ownership percentage (%) 6.87 4.88 - 2.88 4.35 2.13 2.36 2.10 0.60 9.29 2.25 0.09 1.30 1.88 0.03 December 31, 2017 December 31, 2016 Acquisition cost Book value Book value (In millions of Korean Won) ￦ 1,110,704 ￦ 821,266 ￦ 210,688 73,331 249,008 224,487 42,443 53,734 9,018 15,005 164,102 147,930 132,189 34,500 798,843 282,880 316,979 318,645 143,957 - 35,539 2,779 9,025 9,888 3,312 8,655 3,491 22,500 9,161 146,468 - 20,228 11,470 9,466 7,059 8,653 2,117 669 89,428 ￦ 1,730,202 ￦ 1,998,986 ￦ 2,045,933 22,997 17,348 12,153 11,870 7,263 7,202 2,117 444 144,110 (*1) The Group entered into a total return swap agreement to transfer 5,745,741 shares out of total 14,919,336 shares to a third party and partial shares have been disposed of for the year ended December 31, 2016. (*2) The Group entered into a total return swap agreement to transfer total shares to a third party for the year ended December 31, 2016. (*3) Hyundai Heavy Industries Co., Ltd. was spun off into Hyundai Heavy Industries Co., Ltd., Hyundai Robotics Co., Ltd., Hyundai Construction Equipment Co., Ltd., and Hyundai Electric & Energy Systems Co., Ltd. for the year ended December 31, 2017. 6. INVENTORIES: Inventories as of December 31, 2017 and 2016 consist of the following: Description December 31, 2017 December 31, 2016 (In millions of Korean Won) Finished goods Merchandise Semifinished goods Work in progress Raw materials Supplies Materials in transit Others Total (*) ￦ ￦ 6,065,752 ￦ 50,575 638,802 387,816 1,314,902 285,264 583,055 953,738 10,279,904 ￦ 6,692,155 52,133 401,279 350,295 1,300,218 267,073 613,134 847,525 10,523,812 (*) As of December 31, 2017 and 2016, the Group recognized a valuation allowance in amount of ￦88,945 million and ￦135,789 million, respectively. - 39 - - 39 - 7. OTHER ASSETS: Other assets as of December 31, 2017 and 2016 consist of the following: Description Current Non-current (In millions of Korean Won) Current Non-current December 31, 2017 December 31, 2016 Accrued income Advanced payments Prepaid expenses Prepaid value-added tax and others ￦ 357,228 ￦ 535,677 472,732 373,815 2,714 ￦ 315,132 ￦ - 609,958 29,651 444,872 402,565 227,234 ￦ 1,739,452 ￦ 642,323 ￦ 1,389,803 ￦ 4,798 566 641,132 14,911 661,407 8. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE: Non-current assets classified as held for sale as of December 31, 2017 and 2016 consist of the following: Description Vehicles ￦ December 31, 2017 December 31, 2016 (In millions of Korean Won) 29,068 ￦ 29,068 The Group has committed to a plan to sell vehicles that were classified as held for sale as of December 31, 2017 and has initiated active programs to complete the plan. The assets will be disposed within 12 months. 9. PROPERTY, PLANT AND EQUIPMENT: (1) Property, plant and equipment (“PP&E”) as of December 31, 2017 and 2016 consist of the following: Description Acquisition cost December 31, 2017 Accumulated depreciation (*) Acquisition cost Book value (In millions of Korean Won) - ￦ 11,794,842 ￦ 11,787,909 ￦ December 31, 2016 Accumulated depreciation (*) Book value Land Buildings Structures Machinery and equipment Vehicles Dies, molds and tools Office equipment Others Construction in progress ￦ 11,794,842 ￦ - ￦ 11,787,909 5,777,272 662,326 6,273,286 186,969 2,201,525 437,751 43,653 2,035,025 ￦ 49,596,458 ￦ (19,769,316) ￦ 29,827,142 ￦ 48,273,395 ￦ (18,867,679) ￦ 29,405,716 8,468,976 1,232,479 14,518,954 324,984 8,264,752 1,548,768 91,548 2,035,025 8,872,257 1,270,122 14,541,693 338,166 9,016,755 1,603,205 82,512 2,076,906 5,979,344 655,732 6,092,817 190,756 2,516,521 473,001 47,223 2,076,906 (2,892,913) (614,390) (8,448,876) (147,410) (6,500,234) (1,130,204) (35,289) - (2,691,704) (570,153) (8,245,668) (138,015) (6,063,227) (1,111,017) (47,895) - (*) Accumulated impairment is included. - 40 - - 40 - (2) The changes in PP&E for the year ended December 31, 2017 are as follows: Description Land Buildings Structures Machinery and equipment Vehicles Dies, molds and tools Office equipment Others Construction in Beginning of the year Acquisitions Transfers within PP&E Depreciation Others (*) End of the year ￦ 11,787,909 ￦ 5,777,272 662,326 38,739 ￦ 11,687 5,892 Disposals (In millions of Korean Won) 62,485 ￦ (48,592) ￦ 593,014 65,626 (12,750) (3,296) - ￦ (45,699) ￦ 11,794,842 5,979,344 (120,432) 655,732 (8,858) (269,447) (65,958) 6,273,286 186,969 21,421 33,586 1,041,344 76,996 (165,065) (38,948) (922,957) (51,303) (155,212) (16,544) 6,092,817 190,756 2,201,525 437,751 43,653 12,372 53,343 5,390 1,120,233 168,248 12,880 (10,062) (1,268) (63) (745,951) (175,899) (12,224) (61,596) (9,174) (2,413) 2,516,521 473,001 47,223 progress 2,035,025 3,097,987 ￦ 29,405,716 ￦ 3,280,417 ￦ (3,140,826) 2,076,906 - - ￦ (280,924) ￦ (2,243,739) ￦ (334,328) ￦ 29,827,142 85,600 (880) (*) Others include the effect of foreign exchange differences, transfers from or to other accounts and acquisitions due to business combination. The changes in PP&E for the year ended December 31, 2016 are as follows: Beginning of the year Acquisitions Transfers within PP&E Depreciation Others (*) End of the year ￦ 11,774,629 ￦ 5,495,276 612,748 2,234 ￦ 11,992 7,705 Disposals (In millions of Korean Won) 57,472 ￦ (26,517) ￦ 526,342 102,629 (107,649) (3,514) - ￦ (278,475) (58,886) 6,150,584 174,243 18,609 42,537 1,019,539 75,165 (28,246) (53,441) 1,988,557 432,738 33,627 6,402 56,604 4,344 861,267 103,133 11,224 (3,094) (2,178) (229) (914,321) (45,633) (690,211) (157,398) (8,248) (19,909) ￦ 11,787,909 5,777,272 129,786 662,326 1,644 27,121 (5,902) 6,273,286 186,969 38,604 4,852 2,935 2,201,525 437,751 43,653 Description Land Buildings Structures Machinery and equipment Vehicles Dies, molds and tools Office equipment Others Construction in progress 2,036,525 2,700,889 ￦ 28,698,927 ￦ 2,851,316 ￦ (2,756,771) (14,883) 2,035,025 - - ￦ (239,751) ￦ (2,153,172) ￦ 248,396 ￦ 29,405,716 69,265 (*) Others include the effect of foreign exchange differences, transfers from or to other accounts and acquisitions due to business combination. 10. INVESTMENT PROPERTY: (1) Investment property as of December 31, 2017 and 2016 consist of the following: Description Land Buildings Structures Acquisition cost December 31, 2017 Accumulated depreciation Acquisition cost Book value (In millions of Korean Won) December 31, 2016 Accumulated depreciation Book value ￦ ￦ 58,669 ￦ 303,162 18,630 380,461 ￦ - ￦ 58,669 ￦ (174,477) (6,486) 128,685 12,144 (180,963) ￦ 199,498 ￦ 386,850 ￦ 58,669 ￦ 309,551 18,630 - ￦ (169,101) (6,078) 58,669 140,450 12,552 (175,179) ￦ 211,671 - 41 - - 41 - (2) The changes in investment property for the year ended December 31, 2017 are as follows: Description Beginning of the year Transfers Land Buildings Structures ￦ 58,669 ￦ 140,450 12,552 ￦ 211,671 ￦ Depreciation Disposals (In millions of Korean Won) - ￦ - ￦ - - - ￦ (10,813) ￦ (10,405) (408) - ￦ 392 - 392 ￦ Effect of foreign exchange differences End of the year (1,752) - - ￦ 58,669 128,685 12,144 (1,752) ￦ 199,498 The changes in investment property for the year ended December 31, 2016 are as follows: Description Beginning of the year Transfers Land Buildings Structures ￦ 59,631 ￦ 218,833 12,960 Depreciation Disposals (In millions of Korean Won) - ￦ - ￦ (962) ￦ (66,181) - - - (11,055) (408) ￦ 291,424 ￦ (66,181) ￦ (962) ￦ (11,463) ￦ Effect of foreign exchange differences End of the year (1,147) - - ￦ 58,669 140,450 12,552 (1,147) ￦ 211,671 (3) The fair value of investment property as of December 31, 2017 and 2016 consist of the following: Description December 31, 2017 December 31, 2016 (In millions of Korean Won) Land Buildings Structures ￦ ￦ 58,669 ￦ 316,534 15,496 390,699 ￦ 58,669 326,692 15,496 400,857 The fair value measurement of the investment property was performed by an independent third party. The Group deems the change in fair value from the fair value measurement performed at the initial recognition of the investment property is not material. The fair value of the investment property is classified as Level 3, based on the inputs used in the valuation techniques. The fair value has been determined based on the cost approach and the market approach. The cost approach measured fair value as current replacement cost considering supplementary installation, depreciation period, structure and design. (4) Income and expenses related to investment property for the years ended December 31, 2017 and 2016 are as follows: Description 2016 2017 (In millions of Korean Won) Rental income Operating and maintenance expenses ￦ 46,020 ￦ 16,410 49,596 15,521 - 42 - - 42 - 11. INTANGIBLE ASSETS: (1) Intangible assets as of December 31, 2017 and 2016 consist of the following: Description Goodwill Development costs Industrial property rights Software Others Construction in progress Acquisition cost December 31, 2017 Accumulated amortization (*) Acquisition cost Book value (In millions of Korean Won) December 31, 2016 Accumulated amortization (*) Book value ￦ 293,452 ￦ (2,023) ￦ 291,429 ￦ 292,373 ￦ (2,080) ￦ 290,293 8,125,215 (4,543,101) 3,582,114 7,356,890 (4,025,900) 3,330,990 246,884 1,025,083 498,257 (133,484) (678,150) (222,182) 113,400 346,933 276,075 225,286 984,113 499,410 (116,123) (625,832) (205,995) 109,163 358,281 293,415 239,151 204,030 ￦ 10,428,042 ￦ (5,618,706) ￦ 4,809,336 ￦ 9,603,706 ￦ (5,017,534) ￦ 4,586,172 (39,766) (41,604) 199,385 245,634 (*) Accumulated impairment is included. (2) The changes in intangible assets for the year ended December 31, 2017 are as follows: Description Beginning of the year Internal developments and separate acquisitions Transfers within intangible assets ￦ 290,293 ￦ - ￦ Disposals Amortization (In millions of Korean Won) - ￦ - ￦ Impairment gain (loss) (*1) Others (*2) End of the year - ￦ - ￦ 1,136 ￦ 291,429 3,330,990 1,307,849 41,584 - (1,096,567) (12,592) 10,850 3,582,114 109,163 358,281 293,415 1,938 36,944 9,659 18,613 24,341 10,399 - (51) (2,372) (17,240) (133,546) (27,489) - (517) 37 926 61,481 (7,574) 113,400 346,933 276,075 204,030 98,175 ￦ 4,586,172 ￦ 1,454,565 ￦ (94,937) 199,385 - ￦ (2,423) ￦ (1,274,842) ￦ (13,102) ￦ 58,966 ￦ 4,809,336 (7,853) (30) - - (*1) The development costs related to the discontinued sales and development projects that were recognized as impairment losses for the year end December 31, 2017. (*2) Others include the effect of foreign exchange differences, transfer from or to other accounts and acquisitions due to business combination and others. The changes in intangible assets for the year ended December 31, 2016 are as follows: Description Beginning of the year Internal developments and separate acquisitions Transfers within intangible assets ￦ 292,078 ￦ - ￦ Disposals Amortization (In millions of Korean Won) - ￦ - ￦ Impairment gain (loss) Others (*) End of the year - ￦ - ￦ (1,785) ￦ 290,293 3,015,782 1,224,743 99,265 (34) (1,022,841) 4,446 9,629 3,330,990 97,212 330,531 292,203 1,545 24,152 18,028 25,430 38,056 5,956 (43) (234) (13,003) (15,602) (129,929) (25,819) - (205) 15 621 95,910 16,035 109,163 358,281 293,415 270,282 105,695 (168,707) (49) - ￦ 4,298,088 ￦ 1,374,163 ￦ - ￦ (13,363) ￦ (1,194,191) ￦ (2,461) 204,030 (730) 1,795 ￦ 119,680 ￦ 4,586,172 (*) Others include the effect of foreign exchange differences and transfer from or to other accounts. - 43 - Goodwill Development costs Industrial property rights Software Others Construction in progress Goodwill Development costs Industrial property rights Software Others Construction in progress - 43 - (3) Development costs of intangible assets as of December 31, 2017 consist of the following: Description Book value (In millions of Korean Won) Residual useful lives (*) Automobile ˝ Powertrain ˝ Others ˝ Developing Amortizing Developing Amortizing Developing Amortizing ￦ ￦ 1,161,212 1,862,297 195,865 109,202 1,487 252,051 3,582,114 - 38 months - 32 months - 37 months (*) Since the residual amortization period differs for each project, the residual useful lives of the development cost is weighted averaged at the end of reporting period. (4) Research and development expenditures for the years ended December 31, 2017 and 2016 are as follows: Description Development costs (intangible assets) Research and development costs (*1) Total (*2) 2017 (In millions of Korean Won) 2016 ￦ ￦ 1,307,849 ￦ 1,179,922 2,487,771 ￦ 1,224,743 1,127,486 2,352,229 (*1) Manufacturing costs, administrative expenses and other expenses are included. (*2) Amortization of development costs are not included. (5) Impairment test of goodwill The allocation of goodwill amongst the Group’s CGU as of December 31, 2017 and 2016 is as follows: Description Vehicle Finance Others December 31, 2017 (In millions of Korean Won) December 31, 2016 ￦ ￦ 190,977 ￦ 482 99,970 291,429 ￦ 189,841 482 99,970 290,293 The recoverable amounts of the Group’s CGU are measured at their value-in-use calculated based on cash flow projections of financial budgets for the next five years approved by management.The pretax discount rate applied to the cash flow projections for the years ended December 31, 2017 and 2016, are 12.8% and 11.0% respectively. Cash flow projections beyond the next five-year period are extrapolated by using the estimated growth rate which does not exceed the long-term average growth rate of the region and industry to which the CGU belongs. No impairment loss has been recognized for the years ended December 31, 2017 and 2016. - 44 - - 44 - 12. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES: (1) Investments in joint ventures and associates as of December 31, 2017 consist of the following: Name of the company Nature of business Location Ownership percentage Beijing-Hyundai Motor Company (BHMC) (*1) Manufacturing Beijing Hyundai Qiche Financing China (%) 50.00 Book value (In millions of Korean Won) ￦ 1,456,579 Company (BHAF) (*1,3) Financing China 53.00 480,353 Hyundai WIA Automotive Engine (Shandong) Company (WAE) Hyundai Powertech (Shandong) Co., Ltd (PTS) Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. HMC Investment Securities Co., Ltd. Eukor Car Carriers Inc. (*2) Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd. Others (*4) Manufacturing Manufacturing Manufacturing Construction Manufacturing Manufacturing Manufacturing Financing Securities brokerage Transportation IT Service Hotelkeeping China China Korea Korea Korea Korea Korea Korea Korea Korea Korea Korea 22.00 30.00 33.88 20.95 25.35 37.58 47.27 50.00 27.49 12.00 28.96 41.90 167,805 120,256 8,882,325 2,959,910 794,150 547,295 399,724 373,797 254,766 160,255 119,162 106,531 429,430 17,252,338 ￦ (*1) Each of the joint arrangements in which the Group retains joint control is structured through a separate entity and there are no contractual terms stating that the parties retain rights to the assets and obligations for the liabilities relating to the joint arrangement or other relevant facts and circumstances. As a result, the Group considers that the parties that retain joint control in the arrangement have rights to the net assets and classifies the joint arrangements as joint ventures. Also, there are restrictions, which require consent from the director who is designated by the other investors, for certain transactions, such as payment of dividend. (*2) As the Group is considered to be able to exercise significant influence by representation on the board of directors of the investee and other reasons, although the total ownership percentage is less than 20%, the investment is accounted for using the equity method. (*3) The entity is categorized as a joint venture although the Group’s total ownership percentage is a majority share of 53%, because the Group does not have control over the entity by virtue of an agreement with the other investors. (*4) For the year ended December 31, 2017, the Group has stopped recognizing its share of losses of the Sichuan Hyundai Motor Company (CHMC) and unrecognized share of losses of a joint venture, both for the reporting period and cumulatively are ￦20,437 million. - 45 - - 45 - Investments in joint ventures and associates as of December 31, 2016 consist of the following: Name of the company Nature of business Location Ownership percentage Beijing-Hyundai Motor Company (BHMC) (*1) Manufacturing Beijing Hyundai Qiche Financing China (%) 50.00 Book value (In millions of Korean Won) ￦ 2,225,824 Company (BHAF) (*1,3) Financing China 53.00 445,735 Hyundai WIA Automotive Engine (Shandong) Company (WAE) Hyundai Powertech (Shandong) Co., Ltd (PTS) Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. HMC Investment Securities Co., Ltd. Eukor Car Carriers Inc. (*2) Haevichi Hotels & Resorts Co., Ltd. Hyundai Autoever Corp. Others Manufacturing Manufacturing Manufacturing Construction Manufacturing Manufacturing Manufacturing Financing Securities brokerage Transportation Hotelkeeping IT Service China China Korea Korea Korea Korea Korea Korea Korea Korea Korea Korea 22.00 30.00 33.88 20.95 25.35 37.58 47.27 50.00 27.49 12.00 41.90 28.96 186,929 111,997 8,811,840 3,267,243 821,861 502,891 371,499 256,078 245,501 174,100 108,082 107,382 433,159 18,070,121 ￦ (*1) Each of the joint arrangements in which the Group retains joint control is structured through a separate entity and there are no contractual terms stating that the parties retain rights to the assets and obligations for the liabilities relating to the joint arrangement or other relevant facts and circumstances. As a result, the Group considers that the parties that retain joint control in the arrangement have rights to the net assets and classifies the joint arrangements as joint ventures. Also, there are restrictions, which require consent from the director who is designated by the other investors, for certain transactions, such as payment of dividend. (*2) As the Group is considered to be able to exercise significant influence by representation on the board of directors of the investee and other reasons, although the total ownership percentage is less than 20%, the investment is accounted for using the equity method. (*3) The entity is categorized as a joint venture although the Group’s total ownership percentage is a majority share of 53%, because the Group does not have control over the entity by virtue of an agreement with the other investors. - 46 - - 46 - (2) The changes in investments in joint ventures and associates for the year ended December 31, 2017 are as follows: Name of the company Beginning of the year Acquisitions (disposals) Share of profits (losses) for the year (In millions of Korean Won) Dividends Others (*1) End of the year ￦ 2,225,824 ￦ BHMC BHAF WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. (*2) Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. HMC Investment Securities Co., Ltd. Eukor Car Carriers Inc. Hyundai Autoever Corp Haevichi Hotels & Resorts 445,735 186,929 111,997 8,811,840 3,267,243 821,861 502,891 371,499 256,078 245,501 174,100 107,382 - ￦ (74,456) ￦ (592,318) ￦ (102,471) ￦ 1,456,579 480,353 - 167,805 4,721 120,256 18,023 8,882,325 - (3,440) (5,268) (18,930) (151,050) (26,062) (10,154) (6,840) (87,288) 64,120 (8,423) 16,006 308,823 - - - - - - - - 15,479 (14,781) 52,349 31,512 136,510 13,906 7,470 15,576 (11,664) (7,583) - - (15,000) (3,226) - (4,126) (311,148) (5,347) (7,945) (3,287) (3,791) (1,415) (21,315) 330 2,959,910 794,150 547,295 399,724 373,797 254,766 160,255 119,162 Co., Ltd. Others 108,082 433,159 106,531 429,430 ￦ 18,070,121 ￦ 80,144 ￦ 527,589 ￦ (822,965) ￦ (602,551) ￦ 17,252,338 - (10,360) (1,784) (34,718) 233 (16,051) - 57,400 (*1) Others consist of changes in impairment loss, accumulated other comprehensive income/(loss) and others. (*2) As recoverable amount of the Hyundai Engineering & Construction Co., Ltd. is less than its carrying amount, ￦302,536 million of impairment loss is recognized. The recoverable amount are measured at their value-in-use and the discount rate applied to the calculation is 8%. The changes in investments in joint ventures and associates for the year ended December 31, 2016 are as follows: Name of the company BHMC BHAF WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. HMC Investment Securities Co., Ltd. Eukor Car Carriers Inc. Haevichi Hotels & Resorts Co., Ltd. Hyundai Autoever Corp. Others Acquisitions (disposals) Beginning of the year Share of profits (losses) for the year (In millions of Korean Won) ￦ 2,189,321 ￦ 242,434 ￦ 559,793 ￦ (666,208) ￦ (99,516) ￦ 2,225,824 445,735 186,929 111,997 8,811,840 - - - (151,050) 220,475 184,255 93,998 8,047,548 (13,269) (5,480) (2,885) 11,275 188,014 - - - 50,515 8,154 20,884 904,067 End of the year Others (*) Dividends 3,180,493 814,413 433,088 326,439 242,507 238,001 191,468 - - - - - - - 79,434 16,655 68,441 47,852 32,245 10,990 (14,425) (11,664) (7,583) - - (8,950) (3,630) (14,520) 18,980 (1,624) 1,362 (2,792) (9,724) 140 11,577 3,267,243 821,861 502,891 371,499 256,078 245,501 174,100 110,312 91,701 545,924 108,082 107,382 433,159 ￦ 16,909,943 ￦ 420,061 ￦ 1,728,427 ￦ (881,272) ￦ (107,038) ￦ 18,070,121 - (4,126) (13,541) (2,289) 18,769 (72,658) - - (10,387) 59 1,038 (16,179) (*) Others consist of changes in accumulated other comprehensive income (loss), changes in ownership percentage and others. - 47 - - 47 - (3) Summarized financial information of the Group’s major joint ventures and associates as of and for the year ended December 31, 2017 is as follows: Name of the company BHMC BHAF (*) WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. (*) HMC Investment Securities Co., Ltd. (*) Eukor Car Carriers Inc. Hyundai Autoever Corp Haevichi Hotels & Resorts Co., Ltd. Current assets Non-current assets Current liabilities (In millions of Korean Won) Non-current liabilities ￦ 6,748,910 ￦ 4,132,036 ￦ 7,495,325 ￦ 4,961,986 753,485 853,846 21,642,079 13,227,409 3,859,385 1,054,803 1,419,940 7,748,768 7,025,157 493,721 681,216 19,128 - 760,642 216,947 30,652,359 5,199,636 3,334,297 1,648,206 1,026,734 - - 2,542,164 122,740 433,933 4,055,661 318,440 577,765 15,323,019 7,291,215 1,727,926 925,897 1,052,358 6,902,931 6,179,803 458,070 380,035 193,290 355,758 - 432,938 92,174 10,110,242 2,741,133 2,325,658 285,796 522,381 - - 1,244,540 8,164 84,626 Name of the company Sales Profit (loss) for the year from Other continuing comprehensive operations income (loss) (In millions of Korean Won) Total comprehensive income (loss) BHMC BHAF (*) WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. (*) HMC Investment Securities Co., Ltd. (*) Eukor Car Carriers Inc. Hyundai Autoever Corp Haevichi Hotels & Resorts Co., Ltd. ￦ 12,149,126 ￦ (159,438) ￦ 298,296 1,058,952 1,361,845 53,535,680 16,854,433 7,487,392 3,065,579 4,006,243 429,370 521,346 1,799,182 1,473,376 121,452 120,980 (38,293) 53,353 968,018 374,321 (63,004) 172,575 69,837 272,413 50,204 57,618 55,179 2,407 - ￦ - (45,997) - (245,241) (8,417) (26,269) - (1,938) 7,364 (9,324) (170,493) 1,188 584 (159,438) 120,980 (84,290) 53,353 722,777 365,904 (89,273) 172,575 67,899 279,776 40,880 (112,875) 56,367 2,991 (*) The companies operate financial business and their total assets (liabilities) are included in current assets (liabilities) as the companies do not distinguish current and non-current portion in their separate financial statements. - 48 - - 48 - Summarized financial information of the Group’s major joint ventures and associates as of and for the year ended December 31, 2016 is as follows: Name of the company BHMC BHAF (*) WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. (*) HMC Investment Securities Co., Ltd. (*) Eukor Car Carriers Inc. Haevichi Hotels & Resorts Co., Ltd. Hyundai Autoever Corp. Current Assets Non-current assets Current liabilities (In millions of Korean Won) Non-current liabilities ￦ 6,571,169 ￦ 4,084,409 ￦ 5,780,436 ￦ 5,362,202 799,333 739,315 20,912,221 14,949,282 3,743,344 1,250,565 1,341,859 6,017,380 5,887,084 393,017 28,337 687,569 - 901,220 229,686 29,977,039 4,934,177 3,278,735 1,539,496 1,049,604 - - 3,056,960 433,187 108,493 4,521,193 279,757 474,965 16,246,900 8,746,584 1,698,890 1,008,026 1,132,962 5,400,892 5,070,875 486,687 148,142 418,494 295,508 - 571,118 120,713 8,062,936 2,994,568 2,064,600 442,156 450,616 - - 1,514,638 141,229 3,927 Name of the company Sales Profit (loss) for the year from Other continuing comprehensive operations income (loss) (In millions of Korean Won) Total comprehensive income (loss) BHMC BHAF (*) WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. (*) HMC Investment Securities Co., Ltd. (*) Eukor Car Carriers Inc. Haevichi Hotels & Resorts Co., Ltd. Hyundai Autoever Corp. ￦ 20,128,709 ￦ 1,171,934 ￦ 481,778 1,452,939 2,159,373 52,712,906 18,744,454 7,589,447 3,600,725 4,339,633 386,377 563,354 1,679,763 106,243 1,335,966 95,309 27,719 69,615 2,754,640 650,376 130,727 180,276 131,465 71,334 39,787 (114,524) 2,305 64,707 - ￦ - - - 63,186 1,171,934 95,309 27,719 69,615 2,817,826 109,075 (6,106) 3,631 (5,472) (9,673) 69,612 90,912 129 3,500 759,451 124,621 183,907 125,993 61,661 109,399 (23,612) 2,434 68,207 (*) The companies operate financial business and their total assets (liabilities) are included in current assets (liabilities) as the companies do not distinguish current and non-current portion in their separate financial statements. - 49 - - 49 - (4) Summarized additional financial information of the Group’s major joint ventures as of and for the year ended December 31, 2017 is as follows: Name of the company Cash and cash equivalents Current financial liabilities Non-current financial liabilities (In millions of Korean Won) Depreciation and amortization Interest income Interest expenses Income tax expense (benefit) BHMC BHAF (*) ￦ 329,263 ￦ 1,080,090 ￦ 782,333 3,429,969 - ￦ 373,222 ￦ 26,106 ￦123,581 ￦ (14,897) 40,680 - 470,763 180,523 4,219 (*) Operating finance business of which total assets (liabilities) are included in current financial liabilities as BHAF does not distinguish current and non-current portion in separate financial statements. Summarized additional financial information of the Group’s major joint ventures as of and for the year ended December 31, 2016 is as follows: Name of the company Cash and cash equivalents Current financial liabilities Non-current financial liabilities (In millions of Korean Won) Depreciation and amortization Interest income Interest expenses Income tax expense BHMC BHAF (*) ￦ 132,608 ￦ 875,763 3,847,839 - ￦ 242,564 ￦ 352,770 ￦ 11,234 ￦112,057 ￦ 388,926 34,265 463,498 156,979 3,164 - (*) Operating finance business of which total assets (liabilities) are included in current financial liabilities as BHAF does not distinguish current and non-current portion in separate financial statements. (5) The aggregate amounts of the Group’s share of the joint ventures’ and associates’, that are not individually material, loss and comprehensive loss for the years ended December 31, 2017 and 2016 are as follows: Description Loss for the year Other comprehensive loss Total comprehensive loss December 31, 2017 (In millions of Korean Won) December 31, 2016 ￦ ￦ (34,718) ￦ (16,051) (50,769) ￦ (72,658) (16,179) (88,837) - 50 - - 50 - (6) Reconciliation of the Group’s share of net assets of the Group’s major joint ventures and associates to their carrying amounts as of December 31, 2017 is as follows: Name of the company BHMC BHAF WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. (*) Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. HMC Investment Securities Co., Ltd. Eukor Car Carriers Inc. Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd. (*) Group’s share of net assets Unrealized profit (loss) and others (In millions of Korean Won) Goodwill Carrying amounts ￦ 1,514,932 ￦ 480,353 167,805 120,256 8,749,248 - ￦ (58,353) ￦ 1,456,579 480,353 - 167,805 - 120,256 - 8,882,325 197,089 - - - (64,012) 2,125,080 797,455 548,330 401,195 373,797 214,714 159,993 119,162 102,955 834,821 - - - - 40,052 - - 3,576 9 (3,305) (1,035) (1,471) - - 262 - - 2,959,910 794,150 547,295 399,724 373,797 254,766 160,255 119,162 106,531 (*) The difference between the carrying amount and the fair value of the investee’s identifiable assets and liabilities as of the acquisition date is included in the amount of net assets. Reconciliation of the Group’s share of net assets of the Group’s major joint ventures and associates to their carrying amounts as of December 31, 2016 is as follows: Name of the company BHMC BHAF WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. (*) Hyundai WIA Corporation Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. Hyundai Commercial Inc. HMC Investment Securities Co., Ltd. Eukor Car Carriers Inc. Haevichi Hotels & Resorts Co., Ltd. (*) Hyundai Autoever Corp. Group’s share of net assets Unrealized profit (loss) and others (In millions of Korean Won) Goodwill Carrying amounts ￦ 2,289,817 ￦ 445,735 186,929 111,997 8,667,785 - ￦ (63,993) ￦ 2,225,824 445,735 - 186,929 - 111,997 - 8,811,840 197,089 - - - (53,034) 2,129,886 825,700 504,501 373,593 256,078 205,449 173,838 104,506 107,382 1,137,357 - - - - 40,052 - 3,576 - - (3,839) (1,610) (2,094) - - 262 - - 3,267,243 821,861 502,891 371,499 256,078 245,501 174,100 108,082 107,382 (*) The difference between the carrying amount and the fair value of the investee’s identifiable assets and liabilities as of the acquisition date is included in the amount of net assets. (7) The market price of listed equity securities as of December 31, 2017 is as follows: Name of the company Price per share Total number of Market value shares (In millions of Korean Won, except price per share) Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. Hyundai WIA Corporation HMC Investment Securities Co., Ltd. ￦ 33,500 36,300 65,000 10,900 137,318,251 ￦ 23,327,400 6,893,596 8,065,595 4,600,161 846,785 448,084 87,915 - 51 - - 51 - 13. FINANCIAL SERVICES RECEIVABLES: (1) Financial services receivables as of December 31, 2017 and 2016 consist of the following: Description Loan obligations Card receivables Financial lease receivables Others Allowance for doubtful accounts Loan origination fee Present value discount accounts December 31, 2017 (In millions of Korean Won) December 31, 2016 ￦ 36,848,028 ￦ 12,979,942 2,437,466 36,668 52,302,104 (1,133,967) 13,182 (13,301) ￦ 51,168,018 ￦ 38,156,062 12,223,581 2,422,222 29,061 52,830,926 (1,078,002) 40,628 (9,949) 51,783,603 (2) Aging analysis of financial services receivables As of December 31, 2017 and 2016, total financial services receivables that are past due, but not impaired, amount to ￦1,513,093 million and ￦1,421,906 million, respectively; among them, financial services receivables past due less than 90 days are ￦1,512,976 million and ￦1,421,802 million, respectively. As of December 31, 2017 and 2016, the impaired financial services receivables amount to ￦523,274 million and ￦538,961 million, respectively. (3) Transferred financial services receivables that are not derecognized As of December 31, 2017 and 2016, the Group issued asset-backed securities, which have recourse to the underlying assets, based on loans, card receivables and others. As of December 31, 2017, the carrying amounts (including intercompany receivables within the Group) and fair values of the transferred financial assets that are not derecognized are ￦20,449,746 million and ￦20,452,768 million, respectively. The carrying amounts and fair values of the associated liabilities are ￦13,129,165 million and ￦12,970,433 million, respectively, and the net position is ￦7,482,335 million. As of December 31, 2016, the carrying amounts (including intercompany receivables within the Group) and fair values of the transferred financial assets that are not derecognized are ￦20,674,676 million and ￦20,609,441 million, respectively, the carrying amounts and fair values of the associated liabilities are ￦15,060,372 million and ￦14,946,084 million, respectively, and the net position is ￦5,663,357 million. (4) The changes in allowance for doubtful accounts of financial services receivables for the years ended December 31, 2017 and 2016 are as follows: Description December 31, 2017 December 31, 2016 (In millions of Korean Won) Beginning of the year Impairment loss Write-off Disposals and others Effect of foreign exchange differences End of the year ￦ ￦ 1,078,002 ￦ 753,514 (443,008) (222,842) (31,699) 1,133,967 ￦ 938,300 705,035 (465,067) (108,659) 8,393 1,078,002 - 52 - - 52 - (5) Gross investments in financial leases and their present value of minimum lease receipts as of December 31, 2017 and 2016 are as follows: December 31, 2017 December 31, 2016 Description Not later than one year Later than one year and not later than five years Later than five years Gross investments in financial leases Present value of minimum lease payment receivable (In millions of Korean Won) ￦ 1,173,541 ￦ 1,050,165 ￦ 1,140,416 ￦ 1,029,983 Present value of minimum lease payment receivable Gross investments in financial leases 1,489,664 281 1,390,070 80 ￦ 2,663,486 ￦ 2,435,422 ￦ 2,632,501 ￦ 2,420,133 1,492,004 81 1,384,980 277 (6) Unearned interest income of financial leases as of December 31, 2017 and 2016 is as follows: Description Gross investments in financial lease Net lease investments: Present value of minimum lease payment receivable Present value of unguaranteed residual value December 31, 2017 December 31, 2016 (In millions of Korean Won) ￦ 2,663,486 ￦ 2,632,501 2,435,422 2,044 2,437,466 2,420,133 2,089 2,422,222 210,279 Unearned interest income ￦ 226,020 ￦ 14. OPERATING LEASE ASSETS: (1) Operating lease assets as of December 31, 2017 and 2016 consist of the following: Description December 31, 2017 December 31, 2016 Acquisition cost Accumulated depreciation Accumulated impairment loss (In millions of Korean Won) ￦ ￦ 24,345,256 ￦ (3,517,368) (99,938) 20,727,950 ￦ 24,829,330 (3,360,559) (151,511) 21,317,260 (2) Future minimum lease payment receivable related to operating lease assets as of December 31, 2017 and 2016 are as follows: Description December 31, 2017 December 31, 2016 Not later than one year Later than one year and not later than five years Later than five years (In millions of Korean Won) ￦ 3,765,437 ￦ 3,839,810 3,869,709 7 ￦ 7,635,153 ￦ 4,246,435 7 8,086,252 - 53 - - 53 - 15. BORROWINGS AND DEBENTURES: (1) Short-term borrowings as of December 31, 2017 and 2016 consist of the following: Description Lender Overdrafts General loans Loans on trade receivables collateral Banker’s Usance Short-term debentures Commercial paper Asset-backed securities Citi Bank and others Woori Bank and others KEB Hana Bank and others KEB Hana Bank and others Shinhan Bank and others RBC and others Annual interest rate December 31, 2017 (%) 0.10~1.30 0.40~7.46 December 31, 2017 December 31, 2016 (In millions of Korean Won) ￦ 317,189 ￦ 3,727,189 223,992 2,949,149 LIBOR + 0.15~0.45 LIBOR + 0.25~0.40 1.63 1.44~2.21 1.92 1,338,160 376,547 69,993 3,570,389 560,187 1,472,786 429,493 159,890 3,007,411 517,957 ￦ 9,959,654 ￦ 8,760,678 (2) Long-term debt as of December 31, 2017 and 2016 consists of the following: Description Lender General loans Facility loan Mizuho Bank and others Korea Development Bank and others Commercial paper KTB Investment & Securities Asset-backed securities Others JP Morgan and others NH Investment & Securities and others and others Less: present value discounts Less: current maturities Annual interest rate December 31, 2017 (%) 0.40~15.40 December 31, 2017 December 31, 2016 (In millions of Korean Won) ￦ 6,368,138 ￦ 6,253,057 0.32~8.70 255,281 296,821 1.62~2.24 1.96~2.32 2,070,000 6,782,232 790,000 8,595,052 567,125 16,042,776 107,752 3,446,887 567,125 16,502,055 112,050 3,000,022 ￦ 12,488,137 ￦ 13,389,983 (3) Debentures as of December 31, 2017 and 2016 consist of the following: Description Latest maturity date Annual interest rate December 31, 2017 (%) Guaranteed public debentures Non-guaranteed public debentures Non-guaranteed private debentures Asset-backed securities Less: discount on debentures Less: current maturities September 19, 2027 August 29, 2027 May 15, 2024 1.44~6.53 1.45~3.25 1.05~3.12 - 54 - December 31, 2017 December 31, 2016 ￦ (In millions of Korean Won) - ￦ 604,250 22,685,513 10,027,427 15,074,314 48,391,504 98,167 11,836,945 ￦ 36,454,192 ￦ 36,456,392 22,956,764 10,107,160 13,140,350 46,204,274 98,422 9,651,660 - 54 - 16. PROVISIONS: (1) Provisions as of December 31, 2017 and 2016 consist of the following: Description Warranty Other long-term employee benefits Others December 31, 2017 (In millions of Korean Won) December 31, 2016 ￦ ￦ 5,226,297 ￦ 636,380 791,764 6,654,441 ￦ 5,612,978 641,193 718,469 6,972,640 (2) The changes in provisions for the year ended December 31, 2017 are as follows: Description Warranty Beginning of the year Charged Utilized Amortization of present value discounts Changes in expected reimbursements by third parties Effect of foreign exchange differences End of the year ￦ ￦ Description Warranty Beginning of the year Charged Utilized Amortization of present value discounts Changes in expected reimbursements by third parties Effect of foreign exchange differences End of the year ￦ ￦ Other long-term employee benefits (In millions of Korean Won) 641,193 ￦ 53,107 (57,930) - 5,612,978 ￦ 1,392,351 (1,743,049) 92,718 (11,971) (116,730) 5,226,297 ￦ - 10 636,380 ￦ Other long-term employee benefits (In millions of Korean Won) 643,274 ￦ 77,753 (79,824) - 5,639,595 ￦ 1,194,945 (1,360,774) 96,113 3,087 40,012 5,612,978 ￦ - (10) 641,193 ￦ Others 718,469 718,840 (619,102) 9,843 - (36,286) 791,764 Others 459,031 452,471 (222,819) 2,026 - 27,760 718,469 The changes in provisions for the year ended December 31, 2016 are as follows: 17. OTHER FINANCIAL LIABILITIES: Other financial liabilities as of December 31, 2017 and 2016 consist of the following: December 31, 2017 December 31, 2016 Description Current Non-current (In millions of Korean Won) - ￦ Current 18,068 ￦ 555 ￦ Non-current Financial liabilities at FVTPL Derivative liabilities that are effective hedging instruments ￦ ￦ 21 23,433 23,454 25,097 25,652 ￦ 438,070 ￦ 138,106 ￦ 120,038 438,070 - 55 - - 55 - 18. OTHER LIABILITIES: Other liabilities as of December 31, 2017 and 2016 consist of the following: Description Current Non-current (In millions of Korean Won) Current Non-current December 31, 2017 December 31, 2016 Advances received Withholdings Accrued expenses Unearned income Due to customers for contract work Others ￦ 746,977 ￦ 86,359 ￦ 604,420 ￦ 123,424 337,667 1,240,641 301,247 2,752,047 - - 1,114,407 299,916 1,075,434 319,801 - - 1,252,167 258,081 1,182,380 ￦ 6,591,421 ￦ 2,645,420 ￦ 5,474,906 ￦ 2,827,665 964,884 3,830,729 315,035 438,977 294,819 19. FINANCIAL INSTRUMENTS: (1) Financial assets by categories as of December 31, 2017 are as follows: Financial assets at FVTPL Loans and receivables Derivative assets that are effective hedging instruments (In millions of Korean Won) AFS financial assets Book value Fair value - ￦ 8,821,529 ￦ - ￦ - ￦ 8,821,529 ￦ 8,821,529 Description Cash and cash equivalents Short-term and long- ￦ term financial instruments Trade notes and accounts receivable Other receivables Other financial assets Other assets Financial services receivables - 7,891,106 - - 12,964,437 - 3,961,976 3,195,513 87,589 359,942 - 51,168,018 - - - 2,308,955 - - - 7,891,106 7,891,106 - - 38,197 - 3,961,976 3,195,513 15,399,178 359,942 3,961,976 3,195,513 15,399,178 359,942 - 51,287,698 51,168,018 38,197 ￦ 90,797,262 ￦ 90,916,942 ￦ 12,964,437 ￦ 75,485,673 ￦ 2,308,955 ￦ Financial assets by categories as of December 31, 2016 are as follows: Financial assets at FVTPL Loans and receivables Derivative assets that are effective hedging instruments (In millions of Korean Won) AFS financial assets Book value Fair value - ￦ 7,890,089 ￦ - ￦ - ￦ 7,890,089 ￦ 7,890,089 - 7,461,219 - - 12,559,029 - 4,575,657 3,257,612 85,560 319,930 - - - 2,312,733 - - 7,461,219 7,461,219 - - 327,221 - 4,575,657 3,257,612 15,284,543 319,930 4,575,657 3,257,612 15,284,543 319,930 Description Cash and cash equivalents Short-term and long- ￦ term financial instruments Trade notes and accounts receivable Other receivables Other financial assets Other assets Financial services receivables 52,203,515 - ￦ 12,559,029 ￦ 75,373,670 ￦ 2,312,733 ￦ 327,221 ￦ 90,572,653 ￦ 90,992,565 51,783,603 51,783,603 - - - 56 - - 56 - (2) Financial liabilities by categories as of December 31, 2017 are as follows: Description Financial liabilities at FVTPL Financial liabilities carried at amortized cost Derivative liabilities that are effective hedging instruments (In millions of Korean Won) Book value Fair value Trade notes and accounts payable Other payables Borrowings and debentures ￦ Other financial liabilities Other liabilities ￦ - ￦ - - 555 - 555 ￦ 6,483,875 ￦ 5,059,246 72,000,530 - 3,837,148 87,380,799 ￦ - ￦ 6,483,875 ￦ 6,483,875 5,059,246 - 5,059,246 463,167 - 71,987,443 - 72,000,530 463,722 463,722 3,837,148 3,837,148 463,167 ￦ 87,844,521 ￦ 87,831,434 Financial liabilities by categories as of December 31, 2016 are as follows: Description Financial liabilities at FVTPL Financial liabilities carried at amortized cost Derivative liabilities that are effective hedging instruments (In millions of Korean Won) Book value Fair value Trade notes and accounts payable Other payables Borrowings and debentures Other financial liabilities Other liabilities ￦ - ￦ - 6,985,942 ￦ 4,969,309 - ￦ 6,985,942 ￦ 6,985,942 4,969,309 - 4,969,309 - 18,089 - 73,444,020 - 2,752,118 88,151,389 ￦ 143,471 - - 73,444,020 73,573,334 161,560 161,560 2,752,118 2,752,118 143,471 ￦ 88,312,949 ￦ 88,442,263 ￦ 18,089 ￦ (3) Fair value estimation The Group categorizes the assets and liabilities measured at fair value into the following three-level fair value hierarchy in accordance with the inputs used for fair value measurement:  Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.  Level 2: Fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e., as prices) or indirectly (i.e., derived from prices).  Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). - 57 - - 57 - Fair value measurements of financial instruments by fair value hierarchy levels as of December 31, 2017 are as follows: Description Level 1 December 31, 2017 Level 2 Level 3 (In millions of Korean Won) Total Financial assets: Financial assets at FVTPL Derivative assets that are effective hedging instruments AFS financial assets Financial liabilities: Financial liabilities at FVTPL Derivative liabilities that are effective hedging instruments ￦ 111,654 ￦ 12,852,783 ￦ - ￦ 12,964,437 - 1,708,825 38,197 264,611 - 335,519 ￦ 1,820,479 ￦ 13,155,591 ￦ 335,519 ￦ 38,197 2,308,955 15,311,589 ￦ - ￦ 555 ￦ - ￦ 555 ￦ - - ￦ 463,167 463,722 ￦ - - ￦ 463,167 463,722 Fair value measurements of financial instruments by fair value hierarchy levels as of December 31, 2016 are as follows: Description Level 1 December 31, 2016 Level 2 Level 3 (In millions of Korean Won) Total Financial assets: Financial assets at FVTPL Derivative assets that are effective hedging instruments AFS financial assets Financial liabilities: Financial liabilities at FVTPL Derivative liabilities that are effective hedging instruments ￦ 82,512 ￦ 12,476,517 ￦ - ￦ 12,559,029 - 1,810,323 327,221 244,250 - 258,160 ￦ 1,892,835 ￦ 13,047,988 ￦ 258,160 ￦ 327,221 2,312,733 15,198,983 ￦ - ￦ 18,089 ￦ - ￦ 18,089 ￦ - - ￦ 143,471 161,560 ￦ - - ￦ 143,471 161,560 The changes in financial instruments classified as Level 3 for the year ended December 31, 2017 are as follows: Description Beginning of the year Purchases Disposals Valuation Transfers (*) End of the year AFS financial assets (In millions of Korean Won) ￦ 258,160 ￦ 77,177 ￦ (3,999) ￦ 4,681 ￦ (500) ￦ 335,519 (*) For the year ended December 31, 2017, due to MediaZen Inc. now being listed on the Korea New Exchange, the fair value hierarchy level has transferred from Level 3 to Level 1. The changes in financial instruments classified as Level 3 for the year ended December 31, 2016 are as follows: Description Beginning of the year Purchases Disposals Valuation Transfers AFS financial assets (In millions of Korean Won) ￦ 232,557 ￦ 22,795 ￦ (3,783) ￦ 6,591 ￦ End of the year - ￦ 258,160 - 58 - - 58 - (4) Interest income, dividend income and interest expenses by categories of financial instruments for the years ended December 31, 2017 and 2016 consist of the following: Description Non-financial services: Loans and receivables Financial assets (liabilities) at FVTPL AFS financial assets Financial liabilities carried at amortized cost Financial services: Interest income 2017 Dividend income Interest expenses Interest income (In millions of Korean Won) 2016 Dividend income Interest expenses ￦ 272,106 ￦ - ￦ - ￦ 204,109 ￦ - ￦ - 168,614 - - 17,408 29,734 - 173,485 - - 35,135 8,572 - - - 221,010 - ￦ 440,720 ￦ 29,734 ￦ 238,418 ￦ 377,594 ￦ - 209,312 35,135 ￦ 217,884 ￦ 3,434,974 ￦ 25,436 1,136 - ￦ 1,499 3,098 - ￦ 2,977,629 ￦ - - 25,371 1,202 - ￦ 1,298 4,783 - - - Loans and receivables Financial assets at FVTPL AFS financial assets Financial liabilities carried at amortized cost - - 1,432,527 - ￦ 3,461,546 ￦ 4,597 ￦ 1,432,527 ￦ 3,004,202 ￦ - 1,382,775 6,081 ￦ 1,382,775 (5) Financial assets and liabilities subject to offsetting, and financial instruments subject to an enforceable master netting arrangement or similar agreement as of December 31, 2017 consist of the following: Gross amounts of recognized financial assets and liabilities set off in the consolidated statement of financial position Net amounts of financial assets and liabilities presented in the consolidated statement of financial position Related amounts not set off in the consolidated statement of financial position - financial instruments (In millions of Korean Won) Related amounts not set off in the statement of financial position - collateral received (pledged) Gross amounts of recognized financial assets and liabilities Net amounts Description Financial assets: Trade notes and accounts receivable Other receivables Financial assets at FVTPL Derivative assets that are effective hedging instruments (*) ￦ 4,100,242 ￦ 138,266 ￦ 3,961,976 ￦ 3,387,809 192,296 196,662 3,195,513 196,662 - - ￦ - - 38,197 - 38,197 ￦ 7,722,910 ￦ 330,562 ￦ 7,392,348 ￦ 10,389 10,389 ￦ Financial liabilities: Trade notes and accounts payable ￦ Other payables Financial liabilities at FVTPL Derivative liabilities that are effective hedging instruments (*) 6,683,461 ￦ 199,586 ￦ 6,483,875 ￦ 5,190,222 130,976 555 5,059,246 555 - - ￦ - - 463,167 - 463,167 ￦ 12,337,405 ￦ 330,562 ￦ 12,006,843 ￦ 10,389 10,389 ￦ - ￦ 3,961,976 3,195,513 - 196,662 - - 27,808 - ￦ 7,381,959 - ￦ 6,483,875 5,059,246 - 555 - 452,778 - - ￦ 11,996,454 (*) These are derivative assets and liabilities that the Group may have the right to offset in the event of default, insolvency or bankruptcy of the counterparty although these do not meet the criteria of offsetting under K-IFRS 1032. - 59 - - 59 - Financial assets and liabilities, subject to offsetting, and financial instruments subject to an enforceable master netting arrangement or similar agreement as of December 31, 2016 consist of the following: Description Gross amounts of recognized financial assets and liabilities Gross amounts of recognized financial assets and liabilities set off in the consolidated statement of financial position Net amounts of financial assets and liabilities presented in the consolidated statement of financial position Related amounts not set off in the consolidated statement of financial position - financial instruments (In millions of Korean Won) Related amounts not set off in the statement of financial position - collateral received (pledged) Net amounts Financial assets: Trade notes and accounts receivable ￦ Other receivables Financial assets at FVTPL (*) Derivative assets that are effective hedging instruments (*) Financial liabilities: Trade notes and accounts payable ￦ Other payables Financial liabilities at FVTPL (*) Derivative liabilities that are effective hedging instruments (*) 4,729,796 ￦ 154,139 ￦ 4,575,657 ￦ 283,381 3,540,993 107,749 3,257,612 107,749 - - ￦ - 683 327,221 - 327,221 ￦ 8,705,759 ￦ 437,520 ￦ 8,268,239 ￦ 92,656 93,339 ￦ 7,280,018 ￦ 294,076 ￦ 6,985,942 ￦ 5,112,753 143,444 18,089 4,969,309 18,089 - 143,471 - 143,471 ￦ 12,554,331 ￦ 437,520 ￦ 12,116,811 ￦ - ￦ - 683 92,656 93,339 ￦ - ￦ 4,575,657 3,257,612 - 107,066 - - 234,565 - ￦ 8,174,900 - ￦ 6,985,942 4,969,309 - 17,406 - - 50,815 - ￦ 12,023,472 (*) These are derivative assets and liabilities that the Group may have the right to offset in the event of default, insolvency or bankruptcy of the counterparty although these do not meet the criteria of offsetting under K-IFRS 1032. (6) The commission income (financial services revenue) arising from financial assets or liabilities other than financial assets or liabilities at FVTPL for the years ended December 31, 2017 and 2016 are, ￦1,815,536 million and ￦1,773,305 million, respectively. In addition, the fee expenses (cost of sales from financial services) occurring from financial assets or liabilities other than financial assets or liabilities at FVTPL for the years ended December 31, 2017 and 2016, are ￦989,424 million and ￦923,515 million, respectively. (7) The Group recognizes transfers between levels of the fair value hierarchy at the date of the event or change in circumstances that caused the transfer. There are no significant transfers between Level 1 and Level 2 for the year ended December 31, 2017. (8) Descriptions of the valuation techniques and the inputs used in the fair value measurements categorized within Level 2 and Level 3 of the fair value hierarchy are as follows: - Currency forwards, options and swaps Fair value of currency forwards, options and swaps is measured based on forward exchange rate quoted in the current market at the end of the reporting period, which has the same remaining period of derivatives to be measured. If the forward exchange rate, which has the same remaining period of currency forwards, options and swaps, is not quoted in the current market, fair value is measured using estimates of similar period of forward exchange rate by applying interpolation method with quoted forward exchange rates. As the inputs used to measure the fair value of currency forwards, options and swaps are supported by observable market data, such as forward exchange rates, the Group classified the estimates of fair value measurements of the currency forwards, options and swaps as Level 2 of the fair value hierarchy. - 60 - - 60 - - Debt instruments including corporate bonds Fair value of debt instruments including corporate bonds is measured applying discounted cash flow method. The rate used to discount cash flows is determined based on swap rate and credit spreads of debt instruments, which have the similar credit rating and period quoted in the current market with those of debt instruments including corporate bonds that should be measured. The Group classifies fair value measurements of debt instruments including corporate bonds as Level 2 of the fair value hierarchy since the rate, which has significant effects on fair value of debt instruments including corporate bonds, is based on observable market data. - Unlisted equity securities Fair value of unlisted equity securities is measured using discounted cash flow projection and others, and certain assumptions not based on observable market prices or rate, such as sales growth rate, pretax operating income ratio and discount rate based on business plan and circumstance of industry are used to estimate the future cash flow. The discount rate used to discount the future cash flows, is calculated by applying the Capital Asset Pricing Model, using the data of similar listed companies. The Group determines that the effect of estimation and assumptions referred above affecting fair value of unlisted equity securities is significant and classifies fair value measurements of unlisted securities as Level 3 of the fair value hierarchy. (9) The quantitative information about significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy and the description of relationships of significant unobservable inputs to the fair value are as follows: Description Fair value at December 31, 2017 (In millions of Korean Won) Valuation techniques Unobservable inputs Range Description of relationship Unlisted equity Securities ￦ 289,948 Discounted cash flow and others Sales growth rate Pre-tax operating income margin 2.9% ~ 3.0% 4.4% Discount rate 11.23% If the sales growth rate and the pretax operating income ratio rise or the discount rate declines, the fair value increases. The Group does not expect the changes in unobservable inputs for alternative assumptions that can be applied reasonably to have significant impact on the fair value measurements. 20. CAPITAL STOCK: The Company’s number of shares authorized is 600,000,000 shares. Common stock and preferred stock as of December 31, 2017 and 2016 consist of the following: (1) Common stock Description Issued Par value Capital stock December 31, 2017 December 31, 2016 (In millions of Korean Won, except par value) ￦ 220,276,479 shares 5,000 ￦ 1,157,982 220,276,479 shares 5,000 1,157,982 The Company completed stock retirement of 10,000,000 common shares and 1,320,000 common shares as of March 5, 2001, and May 4, 2004, respectively. Due to these stock retirements, the total face value of outstanding stock differs from the capital stock amount. - 61 - - 61 - (2) Preferred stock Description Par value Issued Korean Won (In millions of Korean Won) Dividend rate 1st preferred stock ￦ 5,000 2nd preferred stock 3rd preferred stock ˝ ˝ 25,109,982 shares ￦ 37,613,865 shares 2,478,299 shares 65,202,146 shares ￦ 125,550 Dividend rate of common stock + 1% 193,069 The lowest stimulated dividend rate : 2% 12,392 The lowest stimulated dividend rate : 1% 331,011 As of March 5, 2001, the Company retired 1,000,000 second preferred shares. Due to the stock retirement, the total face value of outstanding stock differs from the capital stock amount. The preferred shares are non- cumulative, participating and non-voting. 21. CAPITAL SURPLUS: Capital surplus as of December 31, 2017 and 2016 consists of the following: Description December 31, 2017 December 31, 2016 Stock paid-in capital in excess of par value ￦ Others ￦ (In millions of Korean Won) 3,321,334 ￦ 879,880 4,201,214 ￦ 3,321,334 881,263 4,202,597 22. OTHER CAPITAL ITEMS: Other capital items consist of treasury stocks purchased for the stabilization of stock price. Number of treasury stocks as of December 31, 2017 and 2016 are as follows: Description Common stock 1st preferred stock 2nd preferred stock 3rd preferred stock December 31, 2017 December 31, 2016 (Number of shares) 13,222,514 2,202,059 1,376,138 24,782 13,222,514 2,202,059 1,376,138 24,782 23. ACCUMULATED OTHER COMPREHENSIVE LOSS: Accumulated other comprehensive loss as of December 31, 2017 and 2016 consists of the following: Description Gain on valuation of AFS financial assets Loss on valuation of AFS financial assets Gain on valuation of cash flow hedge derivatives Loss on valuation of cash flow hedge derivatives Gain on share of the other comprehensive income of equity-accounted investees Loss on share of the other comprehensive income of equity-accounted investees Loss on foreign operations translation, net December 31, 2017 December 31, 2016 (In millions of Korean Won) ￦ 486,596 ￦ (1,915) 9,062 (2,119) 535,812 (241,848) 37,966 (34,244) 165,563 172,722 (814,987) (2,121,155) (540,494) (1,153,158) ￦ (2,278,955) ￦ (1,223,244) - 62 - - 62 - 24. RETAINED EARNINGS AND DIVIDENDS: (1) Retained earnings as of December 31, 2017 and 2016 consist of the following: Description Legal reserve (*) Discretionary reserve Unappropriated December 31, 2017 December 31, 2016 (In millions of Korean Won) ￦ 744,836 ￦ 718,336 43,874,647 19,768,425 ￦ 67,332,328 ￦ 64,361,408 46,848,647 19,738,845 (*) The Commercial Code of the Republic of Korea requires the Company to appropriate as a legal reserve, a minimum of 10% of annual cash dividends declared, until such reserve equals 50% of its capital stock issued. The reserve is not available for the payment of cash dividends, but may be transferred to capital stock or used to reduce accumulated deficit, if any. Appraisal gains, amounting to ￦1,852,871 million, derived from asset revaluation by the Asset Revaluation Law of Korea are included in retained earnings. It may be only transferred to capital stock or used to reduce accumulated deficit, if any. (2) The computation of the interim dividends for the year ended December 31, 2017 is as follows: Description Par value per share Number of shares issued Treasury stocks Shares, net of treasury stocks Dividends per share Dividend rate Dividends declared ￦ ￦ Common stock 1st Preferred stock 2nd Preferred stock 3rd Preferred stock (In millions of Korean Won, except per share amounts) 5,000 ￦ 5,000 ￦ 5,000 ￦ 220,276,479 (13,222,514) 207,053,965 25,109,982 (2,202,059) 22,907,923 37,613,865 (1,376,138) 36,237,727 1,000 ￦ 20% 207,054 1,000 ￦ 20% 22,908 1,000 ￦ 20% 36,238 5,000 2,478,299 (24,782) 2,453,517 1,000 20% 2,453 The computation of the interim dividends for the year ended December 31, 2016 is as follows: Description Par value per share Number of shares issued Treasury stocks Shares, net of treasury stocks Dividends per share Dividend rate Dividends declared ￦ ￦ Common stock 1st Preferred stock 2nd Preferred stock 3rd Preferred stock (In millions of Korean Won, except per share amounts) 5,000 ￦ 5,000 ￦ 5,000 ￦ 220,276,479 (13,222,314) 207,054,165 25,109,982 (2,202,059) 22,907,923 37,613,865 (1,376,138) 36,237,727 1,000 ￦ 20% 207,054 1,000 ￦ 20% 22,908 1,000 ￦ 20% 36,238 5,000 2,478,299 (24,782) 2,453,517 1,000 20% 2,453 (3) The computation of the proposed dividends for the year ended December 31, 2017 is as follows: Description Par value per share Number of shares issued Treasury stocks Shares, net of treasury stocks Dividends per share Dividend rate Dividends declared ￦ ￦ Common stock 1st Preferred stock 2nd Preferred stock 3rd Preferred stock (In millions of Korean Won, except per share amounts) 5,000 ￦ 5,000 ￦ 5,000 ￦ 220,276,479 (13,222,514) 207,053,965 25,109,982 (2,202,059) 22,907,923 37,613,865 (1,376,138) 36,237,727 3,000 ￦ 60% 621,162 3,050 ￦ 61% 69,869 3,100 ￦ 62% 112,337 5,000 2,478,299 (24,782) 2,453,517 3,050 61% 7,483 - 63 - - 63 - The computation of the dividends for the year ended December 31, 2016 is as follows: Description Par value per share Number of shares issued Treasury stocks Shares, net of treasury stocks Dividends per share Dividend rate Dividends declared ￦ ￦ Common stock 1st Preferred stock 2nd Preferred stock 3rd Preferred stock (In millions of Korean Won, except per share amounts) 5,000 ￦ 5,000 ￦ 5,000 ￦ 220,276,479 (13,222,514) 207,053,965 25,109,982 (2,202,059) 22,907,923 37,613,865 (1,376,138) 36,237,727 3,000 ￦ 60% 621,162 3,050 ￦ 61% 69,869 3,100 ￦ 62% 112,337 5,000 2,478,299 (24,782) 2,453,517 3,050 61% 7,483 25. SALES: Sales for the years ended December 31, 2017 and 2016 consist of the following: Description Sales of goods Rendering of services Royalties Financial services revenue Revenue related to construction contracts  Others 2016 2017 (In millions of Korean Won) ￦ ￦ 80,378,325 ￦ 1,445,580 138,636 11,290,926 2,608,678 513,934 96,376,079 ￦ 78,607,348 1,422,296 215,616 10,062,030 2,934,765 406,969 93,649,024 26. SELLING AND ADMINISTRATIVE EXPENSES: Selling and administrative expenses for the years ended December 31, 2017 and 2016 consist of the following: Description 2017 2016 (In millions of Korean Won) Selling expenses: Export expenses Overseas market expenses Advertisements and sales promotion Sales commissions Expenses for warranties Transportation expenses Administrative expenses: Payroll Post-employment benefits Welfare expenses Service charges Research Others ￦ ￦ 736,167 ￦ 301,445 2,460,378 667,945 1,553,626 270,333 5,989,894 2,529,852 171,406 422,126 1,275,158 1,039,260 1,575,544 7,013,346 13,003,240 ￦ 726,124 422,993 2,233,095 625,620 1,419,579 245,741 5,673,152 2,558,476 174,834 414,757 1,231,608 1,019,188 1,423,789 6,822,652 12,495,804 - 64 - - 64 - 27. GAIN (LOSS) ON INVESTMENTS IN JOINT VENTURES AND ASSOCIATES: Gain (loss) on investments in joint ventures and associates for the years ended December 31, 2017 and 2016 consist of the following: Description 2017 2016 (In millions of Korean Won) Gain on share of earnings of equity-accounted investees, net ￦ Gain on disposals of investments in associates, net Impairment loss on investments in associates 527,589 ￦ - (302,536) ￦ 225,053 ￦ 1,728,427 1,020 - 1,729,447 28. FINANCE INCOME AND EXPENSES: (1) Finance income for the years ended December 31, 2017 and 2016 consists of the following: Description Interest income Gain on foreign exchange transactions Gain on foreign currency translation Dividend income Gain on valuation of derivatives Gain on disposal of AFS financial assets and others 2017 (In millions of Korean Won) 2016 440,720 ￦ 159,131 195,647 29,734 82,871 64,840 972,943 ￦ 377,594 186,418 154,143 35,135 77,905 280,043 1,111,238 ￦ ￦ (2) Finance expenses for the years ended December 31, 2017 and 2016 consist of the following: Description Interest expenses Loss on foreign exchange transactions Loss on foreign currency translation Loss on valuation of derivatives Impairment loss on AFS financial assets Loss on valuation of financial assets at FVTPL and others 2017 (In millions of Korean Won) 2016 ￦ ￦ 333,034 ￦ 180,322 145,619 249 373,440 87,722 1,120,386 ￦ 272,133 172,918 134,088 60,420 7,629 30,849 678,037 - 65 - - 65 - 29. OTHER INCOME AND EXPENSES: (1) Other income for the years ended December 31, 2017 and 2016 consists of the following: Description Gain on foreign exchange transactions Gain on foreign currency translation Gain on disposals of PP&E Commission income Rental income Others 2016 2017 (In millions of Korean Won) ￦ ￦ 405,026 ￦ 183,766 23,789 129,456 83,100 328,607 1,153,744 ￦ 391,533 219,642 37,269 125,275 80,495 323,673 1,177,887 (2) Other expenses for the years ended December 31, 2017 and 2016 consist of the following: Description Loss on foreign exchange transactions Loss on foreign currency translation Loss on disposals of PP&E Impairment loss on non-current assets classified as held for sale Donations Others ￦ ￦ 2017 2016 (In millions of Korean Won) ￦ 437,602 282,699 186,575 - 68,843 391,752 1,367,471 ￦ 407,891 141,602 143,734 18,575 75,802 439,359 1,226,963 30. EXPENSES BY NATURE: Expenses by nature for the years ended December 31, 2017 and 2016 consist of the following: Description 2017 (In millions of Korean Won) 2016 Changes in inventories Raw materials and merchandise used Employee benefits Depreciation Amortization Others ￦ 351,359 ￦ 53,039,414 8,920,952 2,254,552 1,274,842 27,327,764 Total (*) ￦ 93,168,883 ￦ (1,092,520) 52,101,673 8,877,589 2,164,635 1,194,191 26,436,919 89,682,487 (*) Sum of cost of sales, selling and administrative expenses and other expenses in the consolidated statements of income. - 66 - - 66 - 31. EARNINGS PER COMMON STOCK AND PREFERRED STOCK: Basic earnings per common stock and preferred stock are computed by dividing profit available to common stock and preferred stock by the weighted-average number of common stock and preferred stock outstanding during the year. The Group does not compute diluted earnings per common stock for the years ended December 31, 2017 and 2016, since there are no dilutive items during the years. Basic earnings per common stock and preferred stock for the years ended December 31, 2017 and 2016 are computed as follows: December 31, 2017 Weighted- average number of shares outstanding (*1) Profit available to share December 31, 2016 Basic earnings per share Profit available to share Weighted- average number of shares outstanding (*1) Basic earnings per share Description Common stock 1st Preferred stock (*2) 2nd Preferred stock 3rd Preferred stock ￦ 3,104,373 344,605 546,938 36,908 (In millions of Korean Won, except per share amounts) 207,053,965 ￦ 14,993 ￦ 4,163,029 461,733 15,043 22,907,923 732,220 15,093 36,237,727 49,453 15,043 2,453,517 206,935,279 ￦ 20,118 20,156 22,907,923 20,206 36,237,727 20,156 2,453,517 (*1) Weighted-average number of shares outstanding includes the effects of treasury stock transactions. (*2) 1st preferred stock meets the definition of ‘ordinary shares’ as defined in K-IFRS 1033 Earnings per Share. 32. INCOME TAX EXPENSE: (1) Income tax expense (benefit) for the years ended December 31, 2017 and 2016 consist of the following: Description Income tax currently payable Adjustments recognized in the current year in relation to the prior years Changes in deferred taxes due to: Temporary differences Tax credits and deficits Items directly charged to equity Income tax payable directly charged to equity Effect of foreign exchange differences Income tax expense (benefit) 2017 2016 (In millions of Korean Won) ￦ 1,250,042 ￦ 1,710,846 (44,320) (96,908) (2,071,031) 676,384 (96,821) - 177,896 (107,850) ￦ ￦ 889,259 (876,908) 40,929 (14,337) (65,462) 1,587,419 (2) The reconciliation from income before income tax to income tax expense (benefit) pursuant to Corporate Income Tax Law of Korea for the years ended December 31, 2017 and 2016 is as follows: Description Income before income tax Income tax expense calculated at current applicable tax rates of 22.5% in 2017 and 25.9% in 2016 Adjustments: Non-taxable income Disallowed expenses Tax credits Impact of changes in tax rates Others Income tax expense (benefit) Effective tax rate (*) 2017 2016 (In millions of Korean Won) ￦ 4,438,550 ￦ 7,307,072 999,530 1,896,019 (50,863) 77,793 (349,453) (804,048) 19,191 (1,107,380) ￦ (107,850) ￦ - (45,614) 104,221 (472,915) - 105,708 (308,600) 1,587,419 21.7% (*) The Group does not determine effective tax rate for the year ended December 31, 2017 as tax benefit is recognised. - 67 - - 67 - (3) The changes in deferred tax assets (liabilities) for the year ended December 31, 2017 are as follows: Description Provisions AFS financial assets Subsidiaries, associates and joint ventures Reserve for research and manpower development Derivatives PP&E Accrued income Gain (loss) on foreign currency translation Others Accumulated deficit and tax credit carryforward Beginning of the year Changes (In millions of Korean Won) End of the year ￦ 2,006,171 ￦ (186,583) (1,494,267) (80,858) (12,146) (6,757,297) 98,456 574 120,666 (6,305,284) 2,799,832 ￦ (3,505,452) ￦ (129,994) ￦ (1,212) (13,565) 50,270 (19,972) 2,254,086 (27,745) (633) (40,204) 2,071,031 (676,384) 1,394,647 ￦ 1,876,177 (187,795) (1,507,832) (30,588) (32,118) (4,503,211) 70,711 (59) 80,462 (4,234,253) 2,123,448 (2,110,805) The changes in deferred tax assets (liabilities) for the year ended December 31, 2016 are as follows: Description Beginning of the year End of the year ￦ Provisions AFS financial assets Subsidiaries, associates and joint ventures Reserve for research and manpower development Derivatives PP&E Accrued income Gain (loss) on foreign currency translation Others Accumulated deficit and tax credit carryforward 1,939,888 ￦ (359,803) (1,306,562) (158,628) 12,447 (5,795,677) 59,550 (428) 193,188 (5,416,025) 1,922,924 Changes (In millions of Korean Won) 66,283 ￦ 173,220 (187,705) 77,770 (24,593) (961,620) 38,906 1,002 (72,522) (889,259) 876,908 (12,351) ￦ 2,006,171 (186,583) (1,494,267) (80,858) (12,146) (6,757,297) 98,456 574 120,666 (6,305,284) 2,799,832 (3,505,452) ￦ (3,493,101) ￦ (4) The components of items charged to equity for the years ended December 31, 2017 and 2016 are as follows: Description Income tax payable directly charged to equity: Gain on disposals of treasury stock, net Deferred tax charged or credited to: Loss (gain) on valuation of AFS financial assets, net Gain on valuation of cash flow hedge derivatives, net Remeasurements of defined benefit plans Changes in retained earnings of equity-accounted investees Changes in share of the other comprehensive income of equity-accounted investees 2017 2016 (In millions of Korean Won) ￦ - ￦ (14,337) (89,737) (8,681) (9,992) 11,589 - ￦ (96,821) ￦ 47,822 (11,804) 407 (113) 4,617 40,929 (5) The temporary differences not recognized as deferred tax liabilities related to subsidiaries, associates and joint ventures are ￦8,144,899 million and ￦8,324,109 million as of December 31, 2017 and 2016, respectively. - 68 - - 68 - 33. RETIREMENT BENEFIT PLAN: (1) Expenses recognized in relation to defined contribution plans for the years ended December 31, 2017 and 2016 are as follows: Description Paid-in cash Recognized liability 2016 2017 (In millions of Korean Won) ￦ ￦ 8,288 ￦ 1,257 9,545 ￦ 7,605 873 8,478 (2) The significant actuarial assumptions used by the Group as of December 31, 2017 and 2016 are as follows: Description Discount rate Rate of expected future salary increase December 31, 2017 4.41% 4.62% December 31, 2016 3.42% 4.21% Employee turnover and mortality assumptions used for actuarial valuation are based on the economic conditions and statistical data of each country where entities within the Group are located. (3) The amounts recognized in the consolidated statements of financial position related to defined benefit plans as of December 31, 2017 and 2016 consist of the following: Description December 31, 2017 December 31, 2016 Present value of defined benefit obligations ￦ Fair value of plan assets ￦ Net defined benefit liabilities Net defined benefit assets (In millions of Korean Won) 5,321,580 ￦ (5,179,426) 142,154 ￦ 157,213 (15,059) 4,937,999 (4,449,721) 488,278 492,173 (3,895) (4) Changes in net defined benefit assets and liabilities for the year ended December 31, 2017 are as follows: Description Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities Beginning of the year Current service cost Interest expenses (income) Past service cost Remeasurements: Return on plan assets Actuarial gains and losses arising from changes in demographic assumptions Actuarial gains and losses arising from changes in financial assumptions Actuarial gains and losses arising from experience adjustments and others Contributions Benefits paid Transfers in (out) Effect of foreign exchange differences and others End of the year ￦ 4,937,999 ￦ (4,449,721) ￦ (In millions of Korean Won) 546,342 142,930 (48) 5,627,223 - (130,600) - (4,580,321) 488,278 546,342 12,330 (48) 1,046,902 - (6,042) (6,042) 1,108 (86,192) 51,436 (33,648) - (250,000) (149) - - - (6,042) (814,443) 194,926 451 ￦ (21,846) 5,321,580 ￦ 26,003 (5,179,426) ￦ - 69 - 1,108 (86,192) 51,436 (39,690) (814,443) (55,074) 302 4,157 142,154 - 69 - Changes in net defined benefit assets and liabilities for the year ended December 31, 2016 are as follows: Description Present value of defined benefit obligations Fair value of plan assets Net defined benefit liabilities Beginning of the year Current service cost Interest expenses (income) Remeasurements: ￦ Return on plan assets Actuarial gains and losses arising from changes in demographic assumptions Actuarial gains and losses arising from changes in financial assumptions Actuarial gains and losses arising from experience adjustments and others Contributions Benefits paid Transfers in (out) Effect of foreign exchange differences and others End of the year (In millions of Korean Won) 4,464,399 ￦ 543,176 123,981 5,131,556 (3,859,966) ￦ - (113,943) (3,973,909) 604,433 543,176 10,038 1,157,647 - 19,254 19,254 (16,177) 38,115 (37,219) (15,281) - (197,888) 2,246 - - - 19,254 (646,097) 158,359 (844) (16,177) 38,115 (37,219) 3,973 (646,097) (39,529) 1,402 10,882 488,278 ￦ 17,366 4,937,999 ￦ (6,484) (4,449,721) ￦ (5) The sensitivity analysis below has been determined based on reasonably possible changes of the significant assumptions as of December 31, 2017 and 2016, while holding all other assumptions constant. Effect on the net defined benefit liabilities December 31, 2017 December 31, 2016 Description Increase by 1% Decrease by 1% Increase by 1% Decrease by 1% (In millions of Korean Won) (In millions of Korean Won) Discount rate Rate of expected future salary increase ￦ (488,202) ￦ 539,260 574,125 ￦ (470,246) (638,427) ￦ 730,367 763,768 (623,622) (6) The fair value of the plan assets as of December 31, 2017 and 2016 consists of the following: Description December 31, 2017 December 31, 2016 (In millions of Korean Won) Insurance instruments Debt instruments Others ￦ ￦ 4,873,665 ￦ 120,277 185,484 5,179,426 ￦ 4,192,438 111,003 146,280 4,449,721 - 70 - - 70 - 34. CASH FLOWS: (1) Cash generated from operations for the years ended December 31, 2017 and 2016 are as follows: Description Profit for the year Adjustments: Post-employment benefits Depreciation Amortization of intangible assets Provision for warranties Income tax expense (benefit) Loss (gain) on foreign currency translation, net Loss on disposals of PP&E, net Interest income, net Gain on disposals of AFS financial assets, net Gain on share of earnings of equity-accounted investees, net Gain on disposals of investments in associates, net Cost of sales from financial services, net Impairment loss on investments in associates Impairment loss on AFS financial assets Others Changes in operating assets and liabilities: Decrease in trade notes and accounts receivable Decrease in other receivables Increase in other financial assets Increase in inventories Decrease (increase) in other assets Increase (decrease) in trade notes and accounts payable Increase in other payables Increase in other liabilities Decrease in other financial liabilities Changes in net defined benefit liabilities Payment of severance benefits Decrease in provisions Changes in financial services receivables Increase in operating lease assets Others 2017 2016 (In millions of Korean Won) ￦ 4,546,400 ￦ 5,719,653 559,881 2,254,552 1,274,842 1,392,351 (107,850) 48,905 162,786 (107,686) (35,650) (527,589) - 6,305,394 302,536 373,440 885,169 12,781,081 425,448 142,656 (494,059) (726,406) (439,430) 40,271 109,302 1,350,891 (25,156) (804,521) (55,074) (2,420,081) (2,567,406) (5,717,246) (203,441) (11,384,252) 554,087 2,164,635 1,194,191 1,194,945 1,587,419 (98,095) 106,465 (105,461) (254,372) (1,728,427) (1,020) 5,816,431 - 7,629 726,918 11,165,345 199,488 438,498 (616,763) (1,324,465) 109,288 (380,363) 680,435 82,012 (5,365) (635,898) (39,529) (1,663,417) (3,877,597) (6,509,766) (21,686) (13,565,128) 3,319,870 Cash generated from operations ￦ 5,943,229 ￦ (2) Major non-cash transactions not stated on the consolidated statements of cash flows from investing and financing activities for the years ended December 31, 2017 and 2016 are as follows: Description 2016 2017 (In millions of Korean Won) Reclassification of the current portion of long-term debt and debentures Reclassification of construction-in-progress to PP&E Reclassification of construction-in-progress to intangible assets ￦ 14,335,321 ￦ 3,140,826 94,937 14,836,967 2,756,771 168,707 - 71 - - 71 - (3) Changes in liabilities arising from financial activities for the year ended December 31, 2017 are as follows: Changes from non-cash transactions Beginning of the year Cash flows from financing activities Reclassified as current Effect of exchange rate changes Present value discounts Others(*2) End of the year (In millions of Korean Won) ￦ 23,597,645 ￦ (13,698,936) ￦ 14,335,321 ￦ (1,177,345) ￦ 48,714 ￦ (47,198) ￦ 23,058,201 13,389,983 36,456,392 4,220,938 12,693,831 (4,058,782) (10,276,539) (1,075,734) (2,449,311) 1,869 29,819 9,863 - 12,488,137 36,454,192 Description Short-term borrowings (*1) Long-term debts Debentures (*1) The current portion of long-term debts and debentures are included. (*2) Others include acquisitions due to business combination and others. 35. RISK MANAGEMENT: (1) Capital risk management The Group manages its capital to maintain an optimal capital structure for maximizing profit of its shareholder and reducing the cost of capital. Debt-to-equity ratio calculated as total liabilities divided by total equity is used as an index to manage the Group’s capital. The overall capital risk management policy is consistent with that of the prior year. Debt-to-equity ratios as of December 31, 2017 and 2016 are as follows: Description December 31, 2017 December 31, 2016 Total liabilities Total equity Debt-to-equity ratio (2) Financial risk management ￦ (In millions of Korean Won) 103,442,100 ￦ 74,757,354 138.4% 106,491,350 72,344,578 147.2% The Group is exposed to various financial risks, such as market risk (foreign exchange risk, interest rate risk and equity price risk), credit risk and liquidity risk related to its financial instruments. The purpose of risk management of the Group is to identify potential risks related to financial performance and reduce, eliminate and evade those risks to an acceptable level of risks to the Group. Overall, the Group’s financial risk management policy is consistent with the prior period policy. 1) Market risk The Group is mainly exposed to financial risks arising from changes in foreign exchange rates and interest rates. Accordingly, the Group uses financial derivative contracts to hedge and to manage its interest rate risk and foreign currency risk. a) Foreign exchange risk management The Group is exposed to various foreign exchange risks by making transactions in foreign currencies. The Group is mainly exposed to foreign exchange risk in USD, EUR and JPY. The Group manages foreign exchange risk by matching the inflow and the outflow of foreign currencies according to each currency and maturity, and by adjusting the foreign currency settlement date based on its exchange rate forecast. The Group uses foreign exchange derivatives; such as currency forward, currency swap and currency option; as hedging instruments. However, speculative foreign exchange trade on derivative financial instruments is prohibited. - 72 - - 72 - The Group’s sensitivity to a 5% change in exchange rate of the functional currency against each foreign currency on income before income tax as of December 31, 2017 would be as follows: Foreign Currency Increase by 5% Decrease by 5% Foreign Exchange Rate Sensitivity USD EUR JPY (In millions of Korean Won) ￦ 9,346 ￦ (23,839) (7,460) (9,346) 23,839 7,460 The sensitivity analysis includes the Group’s monetary assets, liabilities and derivative assets, liabilities but excludes items of income statements, such as changes of sales and cost of sales due to exchange rate fluctuation. b) Interest rate risk management The Group has borrowings with fixed or variable interest rates. Also, the Group is exposed to interest rate risk arising from financial instruments with variable interest rates. The Group manages its interest rate risk through regular assessments of the change in market conditions and the adjustments in nature of its interest rates. The Group’s sensitivity to a 1% change in interest rates on income before income tax as of December 31, 2017 would be as follows: Accounts Interest Rate Sensitivity Increase by 1% Decrease by 1% (In millions of Korean Won) Cash and cash equivalents Financial assets at FVTPL Short-term and long-term financial instruments Borrowings and debentures ￦ 16,657 ￦ 352 4,706 (142,437) (16,657) (27) (4,706) 142,437 The Company’s subsidiaries, Hyundai Card Co., Ltd. and Hyundai Capital Services, Inc., that are operating financial business, are managing interest rate risk by utilizing value at risk (VaR). VaR is defined as a threshold value, which is a statistical estimate of the maximum potential loss based on normal distribution. As of December 31, 2017 and 2016, the amounts of interest rate risk measured at VaR are ￦194,899 million and ￦180,341 million, respectively. c) Equity price risk The Group is exposed to market price fluctuation risk arising from equity instruments. As of December 31, 2017, the amounts of held for trading equity instruments and AFS equity instruments measured at fair value are ￦111,654 million and ￦1,998,986 million, respectively. 2) Credit risk The Group is exposed to credit risk when a counterparty defaults on its contractual obligation resulting in a financial loss for the Group. The Group operates a policy to transact with counterparties who only meet a certain level of credit rating, which was evaluated based on the counterparty’s financial conditions, default history, and other factors. The credit risk in the liquid funds and derivative financial instruments is limited as the Group transacts only with financial institutions with high credit-ratings assigned by international credit-rating agencies. Except for the guarantee of indebtedness discussed in Note 37, the book value of financial assets in the consolidated financial statements represents the maximum amounts of exposure to credit risk. 3) Liquidity risk The Group manages liquidity risk based on maturity profile of its funding. The Group analyses and reviews actual cash outflow and its budget to match the maturity of its financial liabilities to that of its financial assets. - 73 - - 73 - Due to the inherent nature of the industry, the Group requires continuous R&D investment and is sensitive to economic fluctuations. Thus the Group possesses the appropriate amount of cash held and cash equivalents. In addition, the Group has agreements in place with financial institutions with respect to trade financing and overdraft to mitigate any significant unexpected market deterioration. The Group, also, continues to strengthen its credit rates to secure a stable financing capability. The Group’s maturity analysis of its non-derivative liabilities according to their remaining contract period before expiration as of December 31, 2017 is as follows: Description Not later than one year Remaining contract period Later than one year and not later than five years Later than five years (In millions of Korean Won) Total Non interest-bearing liabilities Interest-bearing liabilities Financial guarantee ￦ 15,361,081 ￦ 24,460,968 1,077,741 20,116 ￦ 48,641,036 7,936 - ￦ 2,405,613 19,664 15,381,197 75,507,617 1,105,341 The maturity analysis is based on the non-discounted cash flows and the earliest maturity date at which payments, i.e., both principal and interest, should be made. (3) Derivative instrument The Group enters into derivative instrument contracts, such as currency forwards, currency options, currency swaps and interest rate swaps to hedge its exposure to changes in foreign exchange rate. As of December 31, 2017 and 2016, the Group deferred a net profit of ￦6,943 million and a ￦3,722 million, respectively, in accumulated other comprehensive loss, on its effective cash flow hedging instruments. The longest period in which the forecasted transactions are expected to occur is within 50 months as of December 31, 2017. For the years ended December 31, 2017 and 2016, the Group recognizes a net loss of ￦490,945 million and a net profit of ￦214,125 million in profit or loss (before tax), respectively, which resulted from the ineffective portion of its cash flow hedging instruments and changes in the valuation of its other non-hedging derivative instruments. - 74 - - 74 - 36. RELATED-PARTY TRANSACTIONS: The transactions and balances of receivables and payables within the Group are wholly eliminated in the preparation of the consolidated financial statements of the Group. (1) For the year ended December 31, 2017, significant transactions arising from operations between the Group and related parties or affiliates by the Monopoly Regulation and Fair Trade Act of the Republic of Korea (“the Act”) are as follows: Description Sales/proceeds Purchases/expenses Sales Others Purchases Others Entity with significant influence over the Company and its subsidiaries Hyundai MOBIS Co., Ltd. Mobis Alabama, LLC Mobis Automotive Czech s.r.o. Mobis India, Ltd. Mobis Parts America, LLC Mobis Parts Europe N.V. Mobis Brasil Fabricacao De Joint ventures and associates Auto Pecas Ltda Mobis Module CIS, LLC Others Kia Motors Corporation Kia Motors Manufacturing Georgia, Inc. Kia Motors Russia LLC Kia Motors Slovakia s.r.o. BHMC HMGC Hyundai WIA Corporation Others Other related parties Affiliates by the Act (In millions of Korean Won) ￦ 851,971 ￦ 11,641 ￦ 4,712,207 ￦ 152,716 - 25,209 33,173 16,595 4,554 - 14,173 1,019,330 564,105 1,127,755 111,606 680,745 3,343 278,107 394,212 2,518 816,290 218 520 2,933 3,092 1,601 1,175,462 1,576,856 1,085,635 773,394 357,531 - 332 8,760 649,567 1,677 149 2,015 69,248 - 7,904 69,433 6,693 138,163 254,642 407,778 748,265 132,123 1,839,684 622 624,525 317 2,631 1,229,744 2,799,431 961 6,170,011 53,726 5,211 13,200 125 571 4 - 48 5,898 349,113 11,479 - - - 6,198 2,769 2,132,879 - 1,822,825 For the year ended December 31, 2016, significant transactions arising from operations between the Group and related parties or affiliates by the Act are as follows: Description Entity with significant influence over the Company and its subsidiaries Hyundai MOBIS Co., Ltd. Mobis Alabama, LLC Mobis Automotive Czech s.r.o. Mobis India, Ltd. Mobis Parts America, LLC Mobis Parts Europe N.V. Mobis Brasil Fabricacao De Joint ventures and associates Auto Pecas Ltda Mobis Module CIS, LLC Others Kia Motors Corporation Kia Motors Manufacturing Georgia, Inc. Kia Motors Russia LLC Kia Motors Slovakia s.r.o. BHMC HMGC Hyundai WIA Corporation Others Other related parties Affiliates by the Act Sales/proceeds Purchases/expenses Sales Others Purchases Others (In millions of Korean Won) ￦ 924,980 ￦ 54,191 3 47,765 35,198 13,448 4,160 314 34,058 978,230 738,506 883,858 111,846 1,454,281 12,300 203,546 452,843 2,055 790,839 - 75 - 9,051 ￦ 4,541,726 ￦ 4,125 448 2,039 3,587 8,743 1,371,530 1,604,304 1,029,460 751,418 310,899 - 302 2,136 634,883 2,010 27 9,323 81,286 41 67,005 41,769 3,131 118,829 247,829 225,395 720,424 144,926 2,671,999 645 803,184 233 1,027 974,723 2,607,397 37 5,546,570 25,424 10,092 210 2,104 1,037 31 - - 3,140 276,581 3,596 - 34 - 3,371 4,715 2,090,566 - 1,703,170 - 75 - (2) As of December 31, 2017, significant balances related to the transactions between the Group and related parties or affiliates by the Act are as follows: Description Entity with significant influence over the Company and its subsidiaries Joint ventures and associates Hyundai MOBIS Co., Ltd. Mobis Alabama, LLC Mobis Automotive Czech s.r.o. Mobis India, Ltd. Mobis Parts America, LLC Mobis Parts Europe N.V. Mobis Module CIS, LLC Others Kia Motors Corporation Kia Motors Manufacturing Georgia, Inc. Kia Motors Russia LLC Kia Motors Slovakia s.r.o. Kia Motors America, Inc. BHMC HMGC Hyundai WIA Corporation Others Other related parties Affiliates by the Act Receivables (*1,2) Payables Trade notes and accounts receivable Other receivables and others (In millions of Korean Won) Trade notes and accounts payable Other payables and others ￦ 150,640 ￦ 9,514 - 939 2,134 1,886 - 8,576 235,557 24,547 84,934 5,085 - 286,916 - 69,426 182,346 236 204,869 12,322 ￦ 765 259 10 40 85 42 1,054 326,585 620,182 ￦ 42,710 118,894 170,877 53,628 27,100 42,202 72,715 22,013 14,747 183 365 105,854 87,455 - 19,252 113,488 557 983,238 176,080 1 27,702 64 - 44 148,572 405,009 184 689,203 209,749 - - 11 1,483 - - 5,667 127,920 10,047 - 50 18,400 582 3,977 96,067 634,076 - 324,512 (*1) The Group has recognized the allowance for doubtful accounts for the related parties' receivables in the amount of ￦21,915 million as of December 31, 2017 and the bad debt or doubt expenses is recognized in the amount of ￦21,872 million for the year ended December 31, 2017. (*2) As of December 31, 2017, outstanding payment of ￦12,947 million of corporate purchase card agreement provided by Hyundai Card Co., Ltd. are included. For the year ended December 31, 2017, amount used and repayment of agreement are ￦251,676 million and ￦261,624 million respectively. - 76 - - 76 -  As of December 31, 2016, significant balances related to the transactions between the Group and related parties or affiliates by the Act are as follows: Description Entity with significant influence over the Company and its subsidiaries Joint ventures and associates Hyundai MOBIS Co., Ltd. Mobis Alabama, LLC Mobis Automotive Czech s.r.o. Mobis India, Ltd. Mobis Parts America, LLC Mobis Parts Europe N.V. Mobis Module CIS, LLC Others Kia Motors Corporation Kia Motors Manufacturing Georgia, Inc. Kia Motors Russia LLC Kia Motors Slovakia s.r.o. Kia Motors America, Inc. BHMC HMGC Hyundai WIA Corporation Others Other related parties Affiliates by the Act Receivables Payables Trade notes and accounts receivable Other receivables and others (In millions of Korean Won) Trade notes and accounts payable Other payables and others ￦ 182,335 ￦ 44 40 325 5,250 10,576 - 19,378 247,612 52,670 103,534 7,554 - 280,352 - 40,008 157,606 456 197,930 20,482 ￦ 8,254 691 16,733 168 1,812 74 181 319,371 844,228 ￦ 91,761 135,290 127,908 64,287 40,473 26,611 63,496 44,337 9,936 1 1,264 115,296 43,284 48 55,003 88,864 474 869,441 150,402 - 49,762 79 - - 151,169 389,176 9 914,777 176,459 - - 5 2,369 - - 3,786 115,044 7,395 - 169 20,758 11,329 1,164 84,713 670,383 - 383,664 (3) Significant fund transactions and equity contribution transactions for the year ended December 31, 2017, between the Group and related parties are as follows: Description Lending Collection Borrowing Repayment Acquisition Loans Borrowings Equity contribution (In millions of Korean Won) Joint ventures and associates - - - - - ￦ 80,144 Significant fund transactions and equity contribution transactions for the year ended December 31, 2016, between the Group and related parties are as follows: Description Lending Collection Borrowing Repayment Acquisition Loans Borrowings (In thousands of U.S. Dollars, Chinese Yuan) Equity contribution (In millions of Korean Won) Entities with significant influence over the Company and its subsidiaries Joint ventures and associates - $ ￥ 350,000 140,000 - - - - - $ - 19,181 ￦ - 431,517 For the years ended December 31, 2017 and 2016, the Group received dividends of ￦835,338million and ￦897,954 million from related parties and affiliates by the Act, respectively and paid dividends of ￦278,995 million and ￦248,840 million to related parties, respectively. During 2017, the Group traded in other financial assets and others of ￦2,379,920 million with HMC Investment Securities Co., Ltd., an associate of the Group. The Group has other financial assets of ￦1,534,980 million in the consolidated statements of financial position as of December 31, 2017. - 77 - - 77 - (4) Compensation of registered and unregistered directors, who are considered to be the key management personnel for the years ended December 31, 2017 and 2016 are as follows: Description 2017 2016 (In millions of Korean Won) Short-term employee salaries Post-employment benefits Other long-term benefits ￦ ￦ 172,557 ￦ 37,810 285 210,652 ￦ 190,413 37,820 490 228,723 37. COMMITMENTS AND CONTINGENCIES: (1) As of December 31, 2017 the debt guarantees provided by the Group, excluding the ones provided to the Company’s subsidiaries are as follows: Description To associates To others Domestic Overseas (*) (In millions of Korean Won) ￦ ￦ 1,327 ￦ 9,934 11,261 ￦ 8,992 1,107,788 1,116,780 (*) The guarantee amounts in foreign currencies are translated into Korean Won using the Base Rate announced by Seoul Money Brokerage Services, Ltd. as of December 31, 2017. (2) As of December 31, 2017, the Group is involved in domestic and foreign lawsuits as a defendant. In addition, the Group is involved in lawsuits for product liabilities and others. The Group obtains insurance for potential losses, which may result from product liabilities and other lawsuits. Meanwhile, as of December 31, 2017, the Group is currently involved in lawsuits for ordinary wage, which involves disputes over whether certain elements of remuneration are included in the earnings used for the purposes of calculating overtime, allowances for unused annual paid leave and retirement benefits, and unable to estimate the outcome or the potential consolidated financial impact. (3) As of December 31, 2017, a substantial portion of the Group’s PP&E is pledged as collateral for various loans and leasehold deposits up to ￦840,374 million. In addition, the Group pledged certain bank deposits, checks, promissory notes and others, including 213,466 shares of Kia Motors Corporation, as collateral to financial institutions and others. Certain receivables held by the Company’s foreign subsidiaries, such as financial services receivables are pledged as collateral for their borrowings. (4) As of December 31, 2017, the Group has overdrafts, general loans, and trade-financing agreements with numerous financial institutions, including Kookmin Bank, with a combined limit of up to USD 22,700 million, and ￦6,452,800 million of Korean Won. (5) As of December 31, 2017, Hyundai Capital Services, Inc.and Hyundai Card Co., Ltd. have entered into agreements for certain borrowings including trigger clauses for the purpose of credit enhancement. If the Company’s credit rating falls below a certain level, this may result in early repayment of the borrowings or termination of the contracts. - 78 - - 78 - 38. SEGMENT INFORMATION: (1) The Group has a vehicle segment, a finance segment and other segments. The vehicle segment is engaged in the manufacturing and sale of motor vehicles. The finance segment operates vehicle financing, credit card processing and other financing activities. Other segments include the R&D, train manufacturing and other activities, which cannot be classified in the vehicle segment or in the finance segment. (2) Sales and operating income by operating segments for the years ended December 31, 2017 and 2016 are as follows: For the year ended December 31, 2017 Vehicle Finance Others (In millions of Korean Won) ￦ 111,479,729 ￦ 15,744,881 ￦ 7,741,527 ￦ (38,590,058) ￦ 96,376,079 - 96,376,079 (36,989,499) 74,490,230 38,590,058 - (1,270,268) 6,471,259 (330,291) 15,414,590 Total Consolidation adjustments Total sales Inter-company sales(*) Net sales Operating income 2,585,413 718,137 338,792 932,325 4,574,667 (*) Inter-company sales include intersegment sales in the Group. For the year ended December 31, 2016 Vehicle Finance Others (In millions of Korean Won) ￦ 109,939,363 ￦ 14,338,675 ￦ 8,100,575 ￦ (38,729,589) ￦ 93,649,024 - 93,649,024 (37,255,793) 72,683,570 38,729,589 - (1,186,953) 6,913,622 (286,843) 14,051,832 Total Consolidation adjustments Total sales Inter-company sales(*) Net sales Operating income 3,481,150 703,212 574,808 434,330 5,193,500 (*) Inter-company sales include intersegment sales in the Group. (3) Assets and liabilities by operating segments as of December 31, 2017 and 2016 are as follows: As of December 31, 2017 Vehicle Finance Others (In millions of Korean Won) Consolidation adjustments Total Total assets Total liabilities Borrowings and debentures ￦ 99,724,673 ￦ 84,016,995 ￦ 7,604,015 ￦ (13,146,229) ￦ 178,199,454 103,442,100 4,613,747 34,910,194 72,000,530 2,512,959 7,412,234 (8,430,611) (2,619,343) 72,348,770 64,694,680 As of December 31, 2016 Total assets Total liabilities Borrowings and debentures Vehicle Finance Others (In millions of Korean Won) ￦ 100,011,029 ￦ 84,586,904 ￦ 7,882,397 ￦ (13,644,402) ￦ 178,835,928 106,491,350 73,444,020 (9,484,633) (2,664,394) 4,877,520 2,856,737 36,631,454 7,244,070 74,467,009 66,007,607 Total Consolidation adjustments - 79 - - 79 - (4) Sales by region where the Group’s entities are located in for the years ended December 31, 2017 and 2016 are as follows: For the year ended December 31, 2017 Total sales Inter-company sales Net sales Korea Europe (In millions of Korean Won) ￦ 53,226,776 ￦ 37,568,642 ￦ 8,644,922 ￦ 32,480,853 ￦ 3,044,944 ￦ (38,590,058) ￦ 96,376,079 - 96,376,079 (6,764,174) 30,804,468 8,193,449 (15,144,026) 38,082,750 - 3,044,944 38,590,058 16,250,468 (16,230,385) (451,473) Others Total Asia - For the year ended December 31, 2017 Total sales Inter-company sales Net sales Korea Europe (In millions of Korean Won) ￦ 53,122,501 ￦ 39,147,944 ￦ 8,017,997 ￦ 29,966,102 ￦ 2,124,069 ￦ (38,729,589) ￦ 93,649,024 - 93,649,024 (7,920,660) 31,227,284 7,616,754 (15,040,163) 38,082,338 (1,572) 2,122,497 38,729,589 14,600,151 (15,365,951) (401,243) Others Total Asia - (5) Non-current assets by region where the Group’s entities are located in as of December 31, 2017 and 2016 are Consolidation adjustments Consolidation adjustments North America North America as follows: Description Korea North America Asia Europe Others Consolidation adjustments December 31, 2017 (In millions of Korean Won) December 31, 2016 ￦ 29,443,964 ￦ 2,040,394 1,047,364 2,076,017 390,816 34,998,555 (162,579) 28,390,134 2,415,983 1,046,491 2,011,233 489,727 34,353,568 (150,009) 34,203,559 Total (*) ￦ 34,835,976 ￦ (*) Sum of PP&E, intangible assets and investment property. (6) There is no single external customer who represents 10% or more of the Group’s revenue for the years ended December 31, 2017 and 2016. - 80 - - 80 - 39. CONSTRUCTION CONTRACTS: (1) Cost, income and loss and claimed construction from construction in progress as of December 31, 2017 and 2016 are as follows: Description December 31, 2017 (In millions of Korean Won) December 31, 2016 Accumulated accrual cost Accumulated income Accumulated construction in process Progress billing Due from customers Due to customers Reserve (*) ￦ 9,998,070 ￦ 784,071 10,782,141 (10,196,219) 1,024,899 (438,977) 47,574 10,871,107 984,358 11,855,465 (10,954,684) 1,220,582 (319,801) 62,090 (*) Reserve is recognized as long-term trade notes and accounts receivable in the consolidated financial statements (2) Effects on profit or loss of current and future periods, due from customers related to changes in accounting estimates of total contract revenue and total contract costs of ongoing contracts of Hyundai Rotem, a subsidiary of the Company, as of December 31, 2017 are as follows: Description Changes in accounting estimates of total contract revenue Changes in accounting estimates of total contract costs Effects on profit or loss of current period Effects on profit or loss of future periods Changes in due from customers Provision for construction losses December 31, 2017 (In millions of Korean Won) ￦ 25,244 (22,045) 50,223 (2,934) (18,596) 97,973 Effects on profit or loss of current and future periods were calculated by total contract costs estimated based on the situation occurred since the commencement of the contract to December 31, 2017, and the estimates of contract revenue as of December 31, 2017. Total contract revenue and costs are subject to change in future periods. (3) There is no contract more than 5% of the Group’s revenue in the prior period that is recognized in the current period by the stage of completion method for basis of the percentage of total costs incurred to date bear to the estimated total contract costs instruments for the year ended December 31, 2017. - 81 - - 81 -   40. BUSINESS COMBINATIONS: (1) The Company acquired 50% of the shares in HTMV from THANH CONG and obtained control over HTMV on March 29, 2017. Considerations for acquisition and the fair value of the assets acquired at the acquisition date are as follows: Description Amounts (In millions of Korean Won) Considerations transferred Non-controlling interests Assets and liabilities acquired: Current assets Non-current assets Current liabilities Non-current liabilities Fair value of identifiable net assets Goodwill ￦ ￦ 32,609 32,609 34,647 41,393 959 9,863 65,218 - The Group recognized sales of ￦258,863 million and net income of ￦5,419 million arising from the acquisition for the year ended December 31, 2017. (2) The Company acquired 50% of the shares in HTCV from THANH CONG and obtained control over HTCV on October 2, 2017. Considerations for acquisition and the fair value of the assets acquired at the acquisition date are as follows: Description Amounts (In millions of Korean Won) Considerations transferred Non-controlling interests Assets and liabilities acquired: Current assets Non-current assets Current liabilities Non-current liabilities Fair value of identifiable net assets Goodwill ￦ ￦ 11,367 11,367 22,734 - - - 22,734 - The Group recognized no sales and net loss of ￦57 million arising from the acquisition for the year ended December 31, 2017. - 82 - - 82 - 

Continue reading text version or see original annual report in PDF format above