Hyundai Motor Company
Annual Report 2018

Plain-text annual report

HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 ATTACHMENT: INDEPENDENT AUDITORS’ AUDIT REPORT HYUNDAI MOTOR COMPANY Contents INDEPENDENT AUDITORS’ AUDIT REPORT ---------------------------------------------------- 1 CONSOLIDATED FINANCIAL STATEMENTS CONSOLIDATED STATEMENTS OF FINANCIAL POSITION ----------------------------------- 6 CONSOLIDATED STATEMENTS OF INCOME ------------------------------------------------------- 8 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME ---------------------------- 9 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY ------------------------------------ 10 CONSOLIDATED STATEMENTS OF CASH FLOWS ----------------------------------------------- 12 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS --------------------------------------- 14 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 March 6, 2019 To the Shareholders and the Board of Directors of Hyundai Motor Company: Our Opinion We have audited the accompanying consolidated financial statements of Hyundai Motor and its subsidiaries(“the Group”), which comprise the consolidated statements of financial position as of December 31, 2018 and December 31, 2017, 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. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2018 and December 31, 2017, respectively, and its financial performance and its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards (“K- IFRS”). Basis for Audit Opinion We conducted our audits in accordance with the Korean Standards on Auditing (“KSAs”). Our responsibilities under those standards are further described in the Our Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements, including those related to independence, that are relevant to our audit of the consolidated financial statements in the Republic of Korea as required by prevailing audit regulations. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our Key Audit Matters The key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our audit opinion thereon, and we do not provide a separate opinion on these matters. 1) Valuation of the warranty provision  Consolidated financial statement risk Please refer with regard to the accounting policies to Notes 2.(20). The Group provides customers with the free warranty services for guaranteed period and recognizes warranty provision which is expected to be incurred by management assumption. The Group aggregates sales volume by vehicle model and estimates warranty expenses which is expected to be incurred based on historical data of the actual warranty expenses. The Group applies discount rate to recognize warranty provision. In order to measure and recognize warranty provision, management applies assumption to expected warranty expenses by vehicle model and discount rate. Management uses historical data of the actual warranty expenses to estimate expected warranty expense. We decided to choose the valuation of warranty provision as one of Key Audit Matters since the impact on the consolidated financial statements would be significant if the error on aggregation of sales volume by vehicle and estimation of expected warranty expenses is occurred.  Our audit approach For the purpose of audit on valuation of the warranty provision, we obtained the understanding of the process to measure and recognize the warranty provision and perform design & implementation test on key control identified in the process. In addition, we used IT specialist to perform design & implementation testing over general IT system and automated control related to collecting data of warranty expenses incurred in domestic and abroad In order to confirm the appropriateness of assumption applied to expected warranty expenses by vehicle model, we compared the actual warranty expenses in the current year with expected warranty expenses which were estimated at the end of prior year and we verified discount rate used from external institute data. In addition, we performed sampling audit procedure on actual warranty expenses to verify accuracy of data for estimating expected warranty expenses, and we performed audit procedure to test completeness of vehicle sold to use estimation. 2) Valuation of Financial services receivables  Consolidated financial statement risk Please refer with regard to the accounting policies to Notes 2.(8). As described in Note 13, the financial service receivables consist of loan obligations, card receivable, financial lease receivables and others. As of December 31, 2018, the balance of financial receivable is ￦56,019,424 million, approximate 31% of the Group’s total asset. The Group recognized the loss allowance of financial service receivables in the amount of ￦1,368,759 million as of December 31, 2018 and the impairment loss is recognized in the amount of ￦720,160 million for the year ended December 31, 2018. The Group measures expected credit loss on financial services receivables in accordance with K-IFRS 1109 ‘Financial Instruments’ which have been applied from the year beginning on January 1, 2018. Judgement of the management is required to determine the certain level of significant decline on credit rating and assumptions applied to the expected credit loss model including credit rating and macroeconomic variables. In addition, the Group uses historical transaction data such as overdue, bankruptcy and collection in assumptions. Since the impact on the consolidated financial statements due to errors in the assumptions applied to the expected credit loss model is significant, we selected valuation of financial services receivables as a key audit matters.  Our audit approach For the purpose of audit on the appropriateness of valuation of financial services receivables, we obtained the understanding of the process to recognize the loss allowance on financial services receivables and confirmed process to accord with requirements in K-IFRS 1109 ‘Financial Instruments’. We performed design & implementation and operating effectiveness testing on key control identified in the process. We used IT specialist to perform design & implementation and operating effectiveness testing over general IT system related to the loss allowance on financial services receivables, and on automated control related to historical transaction data processing. Furthermore, we performed sampling audit procedures to evaluate the appropriateness of credit rating and classification of stage including significant increase in the credit risk. We performed recalculation to confirm the appropriateness of calculation method related to estimation on risk factors. Responsibilities of Management and the Directors for the Financial Statements Management is responsible for the preparation of the accompanying consolidated financial statements in accordance with K-IFRS, and for such internal control as they determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management of the Group is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. The directors’ responsibilities include overseeing the Group’s financial reporting process. Our Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with prevailing audit regulations in the Republic of Korea will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with prevailing audit regulations in the Republic of Korea, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:    Identify and assess the risks of material misstatement of the consolidated financial statements, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Obtain an understanding of internal control relevant to the audit 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 Group’s internal control. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.  Conclude on the appropriateness of the management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.   Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We are solely responsible for our audit opinion. We communicate with the directors of the Group regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors of the Group with a statement that we have complied with relevant ethical requirements, including those related to independence, and to communicate with them all matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter. The engagement partner on the audit resulting in this independent auditor’s report is, Hwang, Seunghee. March 6, 2019 Notice to Readers This report is effective as of March 6, 2019, 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, 2018 AND 2017 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, 2018 AND 2017 ASSETS NOTES December 31, 2018 December 31, 2017 (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 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 33 13,19 14 7,19 9,113,625 ￦ 7,936,319 9,755,725 3,595,993 3,291,847 10,714,858 97,271 25,864,589 867,192 1,770,682 73,008,101 112,394 2,223,358 136,777 755,088 30,545,608 189,334 4,921,383 17,143,239 1,846,330 28,637,075 20,425,766 711,299 107,647,651 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 Total assets ￦ 180,655,752 ￦ 178,199,454 (Continued) - 6 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL POSITION AS OF DECEMBER 31, 2018 AND 2017 LIABILITIES AND EQUITY NOTES December 31, 2018 December 31, 2017 (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 Non-current liabilities classified as held for sale 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 related to assets classified as held for sale Equity attributable to the owners of the Company Non-controlling interests Total equity ￦ 19 19 15,19 15,19 16 17,19 8 18,19 19 15,19 15,19 34 16 17,19 33 18,19 20 21 22 23 24 8,23 7,655,630 ￦ 5,425,460 12,249,850 14,104,927 150,802 3,291,868 44,288 719,396 5,796,193 49,438,414 20,319 36,956,114 9,985,250 433,247 3,508,036 297,506 3,320,346 2,800,510 57,321,328 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 60,281,391 106,759,742 103,442,100 1,488,993 4,201,214 (1,155,244) (3,052,198) 66,490,082 1,122 1,488,993 4,201,214 (1,640,096) (2,278,955) 67,332,328 - 67,973,969 69,103,484 5,922,041 73,896,010 5,653,870 74,757,354 Total liabilities and equity ￦ 180,655,752 ￦ 178,199,454 (Concluded) See accompanying notes to consolidated financial statements - 7 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 NOTES 2018 2017 Sales Cost of sales Gross profit 26,39 31 Selling and administrative expenses 27,31 Operating income Gain on investments in joint ventures and (In millions of Korean Won, except per share amounts) ￦ 96,376,079 96,812,609 ￦ 81,670,479 78,798,172 15,142,130 12,719,965 17,577,907 13,003,240 2,422,165 4,574,667 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 28 29 29 20 30,31 33 404,541 823,499 600,867 967,281 1,487,037 2,529,582 884,563 ￦ 1,645,019 ￦ 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 32 ￦ ￦ ￦ ￦ 1,508,084 136,935 5,632 ￦ 5,681 ￦ 5,632 ￦ 5,681 ￦ See accompanying notes to consolidated financial statements 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 - 8 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 Profit for the year Other comprehensive income : Items that will not be reclassified subsequently to profit or loss: Gain(loss) on financial assets measured at FVOCI, net Remeasurements of defined benefit plans Changes in retained earnings of equity-accounted investees, net Changes in share of earnings of equity-accounted investees, net Items that may be reclassified subsequently to profit or loss: Gain (loss) on financial assets measured at FVOCI, net Gain (loss) on available-for-sale (“AFS”) financial assets, net Gain (loss) 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) 2017 2018 (In millions of Korean Won) ￦ 1,645,019 ￦ 4,546,400 (99,125) (439,508) (67,347) (25,826) (631,806) (6,534) - (124,121) (237,547) 3,626 (364,576) (996,382) - 29,698 (4,451) - 25,247 - 191,861 26,868 (288,883) (1,069,341) (1,139,495) (1,114,248) Total comprehensive income ￦ 648,637 ￦ 3,432,152 Comprehensive income attributable to: Owners of the Company Non-controlling interests Total comprehensive income ￦ 553,869 94,768 648,637 ￦ 2,994,783 437,369 3,432,152 See accompanying notes to consolidated financial statements - 9 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 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) - 10 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 Capital stock Capital surplus Other capital items Accumulated other comprehensive income (loss) Equity related to assets classified as held for sale (In millions of Korean Won) Retained earnings Total equity attributable to the owners of the Company Non- controlling interest Total equity Balance at January 1, 2018 ￦ 1,488,993 ￦ 4,201,214 ￦ (1,640,096) ￦ (2,278,955) ￦ - ￦ 67,332,328 ￦ 69,103,484 ￦ 5,653,870 ￦ 74,757,354 - - - (340,268) - 188,665 (151,603) (71,337) (222,940) 1,488,993 4,201,214 (1,640,096) (2,619,223) - 67,520,993 68,951,881 5,582,533 74,534,414 Changes in accounting standards Balances after adjustments Comprehensive income: Profit for the period Loss on financial assets measured at FVOCI, net Loss 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 Purchases of treasury stocks Retirement of treasury stocks Issue of hybrid bond Others Total transactions with owners, recorded directly in equity Transfer to equity related to the disposal group as held for sale Balance at December 31, 2018 (Concluded) - - - 1,508,084 1,508,084 136,935 1,645,019 - (93,248) - (11,510) (104,758) (901) (105,659) - (69,896) - - (69,896) (54,225) (124,121) - (261,658) - (67,347) (329,005) (1,715) (330,720) - - (443,505) (443,505) 3,997 (439,508) - - - (7,051) 10,677 3,626 985,722 553,869 94,768 648,637 - (1,076,734) (1,076,734) (50,727) (1,127,461) - - 10 10 3,181 3,181 - - - - - - - - - (454,734) (939,586) - - - (454,734) - - (313) - (313) 299,240 (6,964) 299,240 (7,277) - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - (7,051) - (431,853) - - - (454,734) 939,586 - - - - - - - - - - - 484,852 - (2,016,633) (1,531,781) 244,740 (1,287,041) - - (1,122) 1,122 - - - - ￦ 1,488,993 ￦ 4,201,214 ￦ (1,155,244) ￦ (3,052,198) ￦ 1,122 ￦ 66,490,082 ￦ 67,973,969 ￦ 5,922,041 ￦ 73,896,010 See accompanying notes to consolidated financial statements - 11 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 NOTES 2018 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 Interest received Interest paid Dividend received Income tax paid Net cash provided by operating activities Cash flows from investing activities: Decrease from purchase of short-term financial instruments, net Proceeds from disposals 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 Acquisitions of subsidiaries, net of cash acquired 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 Acquisitions of investments in joint ventures and Associates Other cash receipts from investing activities, net Net cash used in investing activities (Continued) 35 ￦ 1,645,019 ￦ 14,036,476 (9,592,809) 6,088,686 696,134 (1,950,392) 206,323 (1,276,486) 3,764,265 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 (232,528) (253,493) 2,596,564 141,979 79,241 47 105,116 4,714 5,271 (125,123) (56,755) (16,691) (3,226,486) (1,632,711) - (61,772) 4,070 (2,415,064) 64,513 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) - 12 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 Cash flows from financing activities: Proceeds from short-term borrowings, net Proceeds from long-term debt and debentures Proceeds form capital increase of subsidiaries Repayment of long-term debt and debentures Purchases of treasury stocks Dividends paid Issue of hybrid bond Other cash receipts (payments) from financing activities, net Net cash used in financing activities NOTES 2017 2018 (In millions of Korean Won) ￦ 2,167,765 ￦ 18,561,982 10 (20,228,806) (454,734) (1,127,452) 299,240 (98,787) (880,782) 1,345,789 28,134,152 75,449 (26,264,109) - (1,138,661) - 28,571 2,181,191 Transfer to assets classified as held for sale (97,050) - Effect of exchange rate changes on cash and cash equivalents (79,273) (427,759) Net increase in cash and cash equivalents 292,096 931,440 Cash and cash equivalents, beginning of the period 8,821,529 7,890,089 Cash and cash equivalents, end of the period ￦ 9,113,625 ￦ 8,821,529 (Concluded) See accompanying notes to consolidated financial statements - 13 - HYUNDAI MOTOR COMPANY AND ITS SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017 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, 2018, the major shareholders of the Company are Hyundai MOBIS (45,782,023 shares, 21.43%) and Chung, Mong Koo (11,395,859 shares, 5.33%). (1) The Company’s consolidated subsidiaries as of December 31, 2018, are as follows: Nature of business Financing ˝ Location Korea ˝ Ownership percentage 59.68% 36.96% Manufacturing ˝ 43.36% Indirect ownership Name of subsidiaries Hyundai Capital Services, Inc. Hyundai Card Co., Ltd. (*1) Hyundai Rotem Company (Hyundai Rotem) (*2) 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 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 ˝ ˝ R&D Manufacturing Engineering Services Football club Sales Financing Manufacturing ˝ Holding company Manufacturing R&D Sales Manufacturing Sales Insurance Financing ˝ ˝ ˝ Manufacturing Private Limited (HMIE) R&D Hyundai Capital India Private Limited (HCI) Financing ˝ ˝ ˝ ˝ ˝ ˝ ˝ USA ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ Canada ˝ ˝ ˝ ˝ ˝ India ˝ ˝ 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% 100.00% 100.00% 70.00% 100.00% 100.00% 100.00% 100.00% HMA 100.00% Hyundai Rotem 100.00% HMA 100.00% ˝ Hyundai Capital Services 20.00% HCCA 100.00% HCLI 99.99%, HCCA Funding Inc. 0.01% HCLI 100.00% 100.00% HMI 100.00% 100.00% Hyundai Capital Services 100.00% - 14 - Name of subsidiaries 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. Genesis Motor Sales(Shanghai) 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, Nature of business Sales R&D Sales ˝ ˝ Real estate development Sales Manufacturing ˝ ˝ ˝ ˝ Sales Financing Services Location Japan Ownership percentage 100.00% ˝ 100.00% China 100.00% Indirect ownership ˝ ˝ ˝ ˝ ˝ ˝ 100.00% 100.00% BJMSS 100.00% 99.00% 100.00% CMEs 99.00% 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% Australia 100.00% 100.00% New Zealand 100.00% ˝ Hyundai Capital Services 100.00% Hyundai Rotem 100.00% s.r.o. (HMMC) Hyundai Motor Czech s.r.o (HMCZ) Hyundai Motor Europe GmbH (HME) Manufacturing Sales Marketing and Czech ˝ 100.00% 100.00% sales Germany 100.00% 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 Sales R&D Marketing Financing ˝ ˝ ˝ ˝ ˝ ˝ 100.00% 100.00% 100.00% 100.00% 85.00% HME 100.00% Hyundai Capital Services 100.00% Hyundai Capital Services 65.00% Independent States B.V (HMCIS B.V) Holding company Netherlands 100.00% HMMR 1.40% 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 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% Sales 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 Rotem Malaysia SDN BHD 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) Hyundai Motor Poland Sp. Zo. O (HMP) ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ Malaysia UK Italy Spain France Poland 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% Hyundai Rotem 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - 15 - Name of subsidiaries Hyundai Motor DE Mexico S DE RL DE CV (HMM) Hyundai de Mexico, SA DE C.V., Nature of business Location Ownership percentage Indirect ownership Sales Mexico 100.00% HT 0.01% (HYMEX) Manufacturing HYUNDAI KEFICO MEXICO S DE RL DE CV Hyundai Rio Vista, Inc. ˝ Real estate ˝ ˝ 99.99% HT 99.99% 100.00% Hyundai KEFICO 100.00% development USA 100.00% HT 100.00% Hyundai Motor Brasil Montadora de Automoveis LTDA (HMB) Manufacturing Brazil 100.00% Financing Manufacturing Holding company ˝ Investment ˝ ˝ ˝ Cayman Islands ˝ 100.00% Hyundai Capital Services 100.00% 100.00% Hyundai Rotem 100.00% 99.99% HMB 99.99% 59.60% 72.00% Korea 100.00% 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) China Mobility Fund, L.P. 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 Miraeasset Triumph Private Equity Security Investment Trust No.15 ZER01NE Accelerator Investment Fund No.1 Autopia Fifty-fifth ~ Sixty-fifth Asset Securitization Specialty Company (*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 HCA Exchange, 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, ˝ ˝ ˝ ˝ ˝ Financing ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ Insurance ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ USA ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ ˝ 100.00% 100.00% 100.00% 99.00% 0.50% Hyundai Capital Services 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% 100.00% Hyundai Card 0.50% 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) Even though the shareholding ratio of ownership is less than half, the Group has de facto control over the entity due to the relative size of the voting rights held and the degree of share dispersion of other voting rights holders. - 16 - (2) Summarized financial position and results of operations of the Company’s major consolidated subsidiaries as of and for the year ended December 31, 2018 are as follows: Name of subsidiaries Assets Liabilities Sales (In millions of Korean Won) Profit (loss) for the period Hyundai Capital Services, Inc. (*) Hyundai Card Co., Ltd. (*) Hyundai Rotem Company (*) Hyundai KEFICO Corporation (*) HCA(*) HMA HMMA HMMC HMI(*) HME(*) HAOSVT HMMR HACC(*) HMB HMCA ￦ 30,528,329 ￦ 26,371,459 ￦ 3,087,935 ￦ 12,754,672 2,894,156 1,161,039 32,982,390 5,223,678 1,878,332 1,637,592 1,395,005 1,798,150 1,057,673 852,727 678,219 641,020 524,866 2,035,229 2,411,924 1,963,196 9,737,579 15,292,851 6,861,578 6,560,181 6,791,938 9,627,777 2,893,867 2,954,780 2,700,501 2,151,032 1,837,191 15,945,780 4,002,150 1,772,026 37,413,803 6,480,063 4,511,215 3,744,766 3,516,547 1,825,365 1,441,908 1,415,554 1,187,865 1,063,211 671,059 311,281 149,822 (308,035) 52,890 162,842 (330,134) 11,682 359,575 408,097 4,975 11,361 120,979 39,059 92,994 (7,141) (*) 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, 2017 are as follows: Name of subsidiaries Assets Liabilities Sales (In millions of Korean Won) Profit (loss) for the period 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. (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 same reporting periods. - 17 - (4) Summarized cash flows of non-wholly owned subsidiaries and financial companies that have material non- controlling interests to the Group for the year ended December 31, 2018 are as follows: Description Hyundai Capital Services, Inc Hyundai Card Co., Ltd. HCA HCCA (In millions of Korean Won) Hyundai Rotem Company Cash flows from operating activities ￦ Cash flows from investing activities Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalent Transfer to assets classified as held for sale Net increase in cash and cash equivalents Beginning balance of Cash and equivalents Ending balance of cash and Cash equivalents ￦ (2,197,722) ￦ (284,813) ￦ 1,373,846 ￦ (67,908) ￦ (14,193) (51,442) (65,961) 819,600 (1,991) (38,098) 2,609,745 562,818 (3,480,444) (18,560) (19,499) - (97,050) - - 40,584 (1,934) 3,899 - - 263,531 212,044 (1,246,414) (90,393) (67,891) 609,510 654,412 1,408,652 129,586 435,786 873,041 ￦ 866,456 ￦ 162,238 ￦ 39,193 ￦ 367,895 Summarized cash flows of non-wholly owned subsidiaries and financial companies that had material non- controlling interests to the Group for the year ended December 31, 2017 are as follows: Description Hyundai Capital Services, Inc Hyundai Card Co., Ltd. HCA HCCA (In millions of Korean Won) Hyundai Rotem Company Cash flows from operating activities ￦ Cash flows from investing activities Cash flows from financing activities Effect of exchange rate changes on cash and cash equivalent Net increase in cash and cash equivalents Beginning balance of Cash and equivalents Ending balance of cash and Cash equivalents ￦ (2,208,619) ￦ (161,413) ￦ 26,488 ￦ (238,934) ￦ 219,226 (83,265) (63,608) (542,761) (2,701) 31,239 2,382,540 334,639 541,661 257,986 (391,780) - - (178,513) (3,108) (5,954) 90,656 109,618 (153,125) 10,397 (144,423) 518,854 544,794 1,561,777 119,189 580,209 609,510 ￦ 654,412 ￦ 1,408,652 ￦ 129,586 ￦ 435,786 - 18 - (5) Details of non-wholly owned subsidiaries of the Company that have material non-controlling interests as of December 31, 2018 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% 1,676,205 ￦ 63.04% 2,119,846 ￦ 56.64% 689,977 124,719 34,319 94,454 19,099 (177,600) 4,120 Details of non-wholly owned subsidiaries of the Company that had 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 (6) Financial support provided to consolidated structured entities As of December 31, 2018, 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- Seventh, Fifty-Ninth and Sixtyth Asset Securitization Specialty Company, Super Series First, Third, Fourth and Fifth Securitization Specialty Co., Ltd. - 19 - (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, 2018 is as follows: Description Purpose Nature of business Method of funding Total assets Asset securitization SPC Fund raising through asset- securitization Investment fund Investment in beneficiary certificate and others, Development trust, Unspecified monetary trust, Principal unsecured trust, Operation of trust investment Fund raising through project financing Structured finance (In millions of Korean Won) Fund collection Corporate bond and others ￦ 2,579,738 Sales of beneficiary certificates, Sales of trust investment product 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 Project financing and others 6,925,448 6,657,283 Nature of interests in an unconsolidated structured entity of the Group as of December 31, 2017 is as follows: Description Purpose Nature of business Method of funding Total assets Asset securitization SPC Fund raising Fund Corporate (In millions of Korean Won) through asset- securitization collection bond and others ￦ 1,318,767 Investment fund Investment in beneficiary certificate and others, Development trust, Unspecified monetary trust, Principal unsecured trust, Operation of trust investment Fund raising through project financing Structured finance 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 Project financing and others 3,619,909 8,285,718 - 20 - 2) Risks associated with interests in an unconsolidated structured entity of the Group as of December 31, 2018 are as follows: Description Book value in the structured entity (*) Asset securitization SPC Investment fund Structured finance ￦ 64,867 248,254 525,929 Financial support provided to the structured entity Purpose Method (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) ￦ Investment agreement Loan agreement (Credit line) 124,550 248,254 908,750 (*) Interest in structured entities is recognized as Financial assets at FVPL and others according to K-IFRS 1109. 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 ￦ 78,933 Investment fund Structured Finance 193,739 432,191 Financial support provided to the structured entity Purpose Method (In millions of Korean Won) Mezzanine debt and others Beneficiary certificates, Investment trust Loan obligation Credit facility, Loan agreement (Credit line) Investment agreement Loan agreement (Credit line) Maximum amount of exposure to loss of the structured entity ￦ 152,964 193,739 954,450 (*) Interest in structured entities is recognized as AFS financial assets and others according to K-IFRS 1039. (8) Significant restrictions of the subsidiaries As of December 31, 2018, 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. (9) Changes in consolidated subsidiaries Subsidiaries newly included in or excluded from consolidation for the year ended December 31, 2018 are as follows: Changes Included ˝ ˝ ˝ ˝ ˝ Excluded ˝ ˝ ˝ Name of subsidiaries HCA Exchange, LLC Hyundai Rotem Malaysia SDN BHD ZER01NE Accelerator Investment Fund No.1 Genesis Motor Sales(Shanghai) Co. Ltd. China Mobility Fund, L.P.. Autopia Sixty-Fifth Asset Securitization Specialty Company Privia the Fourth Securitization Specialty Co., Ltd. Privia the Fifth Securitization Specialty Co., Ltd. Autopia Fifty-Second Asset Securitization Specialty Company Autopia Fifty-Fourth Asset Securitization Specialty Company Description Acquisition ˝ ˝ ˝ ˝ ˝ Liquidation ˝ ˝ ˝ - 21 - 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (1) Basis of consolidated financial statements preparation The Group has prepared the consolidated financial statements in accordance with Korean International Financial Reporting Standards (“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, 2017, 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, 2018 are as follows: - K-IFRS 1109 (Enactment): ‘Financial Instruments’ The enactments to K-IFRS 1109 contain 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. This enactment supersedes K-IFRS 1039 - Financial Instruments: Recognition and Measurement. The Group elected not to restate comparative information for the prior period when applying this enactment for the first time. The main contents of this enactment and impacts on the Group’s consolidated financial statements are as follows: A. Classification and measurement of financial assets 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 flow characteristics of the financial asset: as measured at amortized cost, fair value through other comprehensive income (“FVOCI”) or fair value through profit or loss (“FVPL”). 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 Otherwise Measured at amortized cost (*1) FVOCI (*1) FVPL FVPL (*2) (*1) An entity may measure at FVPL 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 evaluated and reviewed financial assets held in relation to classification and measurement based on the information available at the date of initial application, and financial impacts on financial assets are as follows: The objective of financial assets held that are recognized as measured at amortized cost under K-IFRS 1039, such as held-to-maturity or loans and receivables is to collect contractual cash flows and the nature of their cash flows are solely payments of principal and interest on the principal amount outstanding. Therefore, loans and receivables are classified as financial assets measured at amortized cost under K-IFRS 1109, and there is no significant impact on the Group’s consolidated financial statements. - 22 - The Group holds debt instruments recognized as AFS financial assets under K-IFRS 1039 for contractual cash inflows and for sale. The Group classified those debt instruments as financial assets measured at FVOCI only when cash flows are solely payments of principal and interest on the principal amount outstanding; otherwise, as financial assets measured at FVPL. The fair value change of debt instruments measured at FVOCI is cumulatively recognized in other comprehensive income, until derecognised or reclassified. The fair value change of debt instruments measured at FVPL is recognized in profit or loss. The Group deems above impact is not material. K- IFRS 1109 permits an entity to make an irrevocable election to designate at 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 recycled to profit or loss. The Group designated AFS financial assets held for long-term investments as financial assets measured at FVOCI. Therefore, the opening retained earnings as of January 1, 2018 increased by \340,268 million due to retrospective adjustment of impairment in AFS financial asset. Financial assets at FVPL under K-IFRS 1039 are classified as financial assets measured at FVPL under K-IFRS 1109. Therefore, there is no significant impact on the Group’s consolidated financial statements. B. Classification and measurement of financial liabilities. For financial liabilities designated as at FVPL using the fair value option, K-IFRS 1109 requires the effects of changes in fair value attributable to the Group’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. Except for the above-mentioned changes, there is no significant impact on the Group’s classification and measurement of financial liabilities. 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 an 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 amortized cost or FVOCI. 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 Stage 1 Stage 2 Non-significant increase in credit risk since initial recognition Significant increase in credit risk since initial recognition Stage 3 Credit-impaired financial assets Allowance 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 within the expected life of a financial instrument. Under K-IFRS 1109, the Group 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 recognises allowance of trade notes, accounts receivable 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. - 23 - The Group assessed the impairment of the financial assets held at the date of initial application using reasonable and supportable information that is available without undue cost or effort to determine the credit risk at the date that a financial instrument was initially recognised and to compare that to the credit risk at the date of initial application. Due to application of this enactment, the Group recognised additional impairment at the date of initial application. The impact is described in the Note E. D. Hedge Accounting Although this enactment retains the mechanics of hedge accounting (fair value hedges, cash flow hedges, hedges of a net investment in a foreign operation) in K-IFRS 1039, the Group eliminated the complex and rule-based requirements for hedge accounting in K-IFRS 1039 and changed to principle-based approach focusing on risk management activities. This new approach broadened the types of hedging instrument and hedged items, and it provided relief for the Group by eliminating consequent assessment to evaluate hedge effectiveness (80 – 125%) test and quantitative assessment. The Group applies the hedge accounting requirements of this enactment prospectively from the date of initial application in accordance with transition. As of date of initial application, the Group evaluated that hedging relationship in accordance with K-IFRS 1039 is still eligible under K-IFRS 1109 and therefore noted the hedging relationship is continuous. The above-mentioned the hedge accounting requirements of this standard did not have any significant effect on the Group’s consolidated financial statements. E. The effects that are attributable to this enactment on equity as of the date of initial application are as follows: Description December 31, 2017 (Reported amounts) Initial application of K-IFRS 1109: Effect by Classification and Measurement (*1) Effect by impairment (*2) January 1, 2018 (The date of initial application) The Group's ownership interests Accumulated other comprehensive loss Retained earnings (In millions of Korean Won) Non-controlling interests ￦ (2,278,955) ￦ 67,332,328 ￦ 5,653,870 (340,268) - 340,268 (97,266) - (71,398) ￦ (2,619,223) ￦ 67,575,330 ￦ 5,582,472 (*1) Adjustment of retained earnings related to impairment recognition in the past as designating AFS equity instruments to measure at FVOCI in accordance with K-IFRS 1109. (*2) Adjustment of retained earnings by additional impairment recognition on financial assets such as financial services receivables. - 24 - F. Classification and measurement of financial assets and liabilities as of the date of initial date of application according to K-IFRS 1109 and K-IFRS 1039 are as follows. Description K-IFRS 1039 K-IFRS 1109 K-IFRS 1039 K-IFRS 1109 Categories Book Value Financial Assets Loans and receivable Loans and receivable Cash and cash equivalents Short-term and long-term financial instruments Trade notes and accounts receivable Other receivables Loans and receivable Loans and receivable Financial assets measured at amortized cost Financial assets measured at amortized cost Financial assets measured at amortized cost Financial assets measured at amortized cost Financial assets at FVPL Financial assets measured Other financial assets Loans and receivable AFS financial assets Derivative assets that are effective hedging instruments Loans and receivable Other assets Financial services receivables Trade notes and accounts payable Financial Liability Loans and receivable Financial liabilities carried at amortized cost Other payables Financial liabilities carried at amortized cost Borrowings and debentures Financial liabilities carried at amortized cost Other financial liabilities Other liabilities Financial liabilities at FVPL Derivative liabilities that are effective hedging instruments Financial liabilities carried at amortized cost at fair value through profit or loss Financial assets measured at amortized cost Financial assets measured at fair value through other comprehensive income Financial assets measured at fair value through profit or loss Derivative assets that are effective hedging instruments Financial assets measured at amortized cost Financial assets measured at amortized cost Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost Financial liabilities measured at FVPL Derivative liabilities that are effective hedging instruments Financial liabilities measured at amortized cost (In millions of Korean Won) ￦ 8,821,529 ￦ 8,821,529 7,891,106 7,891,106 3,961,976 3,961,976 3,195,513 3,195,513 12,964,437 12,964,437 87,589 87,589 2,247,022 2,308,955 61,933 38,197 359,942 38,197 358,927 51,168,018 50,999,145 6,483,875 6,483,875 5,059,246 5,059,246 72,000,530 72,000,530 555 555 463,167 463,167 3,837,148 3,837,148 - 25 - - 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 supersedes 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 main contents of this enactment and the Group’s accounting policies are as follows: A. Identify the performance obligations in the contract 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 The Group allocates the transaction price to performance obligations identified in a contract based on relative standalone selling price. The Group uses an expected cost plus margin approach by estimating the expected costs for each transaction and adding an appropriate profit margin. C. Variable consideration 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 highly probable that a significant reversal in the cumulative amount of revenue recognized will not occur in the future periods. In accordance with transition in this enactment, the Group applies this enactment retrospectively with the cumulative effect of initially applying this standard as of January 1, 2018. The Group elects to apply this standard retrospectively only to contracts that are not completed at the date of initial application. The Group does not restate all contract modifications that occurred before the date of initial application in accordance with the following practical expedients. The effect of a \54,337 million reduction in the opening balance of retained earnings at the date of initial application is not significant on consolidated financial statements. The effects of the application of this enactment on the consolidated financial statements for the year ended December 31, 2018 are as follows: Description Previous Revenue Recognition Standard Adjustments K-IFRS 1115 December 31, 2018 ￦ Assets (*1,6) Liabilities (*2,6) Equity (*3) Revenue (*4) Cost of sales (*4,5) Selling and administrative expenses (*5) (In millions of Korean Won) 180,517,355 ￦ 106,563,459 73,953,896 97,954,821 81,737,163 138,397 ￦ 196,283 (57,886) (1,142,212) (66,684) 180,655,752 106,759,742 73,896,010 96,812,609 81,670,479 13,795,962 (1,075,997) 12,719,965 (*1) The effect of expenses recognition on costs to fulfil a contract that do not meet the asset recognition, and the effect of the amount paid to the supplier among cost of sales of additional services, and others. (*2) The effect of deferred revenue that is attributable to performance obligations of additional services, additional warranties which are not satisfied yet, and others. (*3) The cumulative effect of an adjustment to the opening balance of retained earnings in accordance with initially applying K- IFRS 1115, and others. (*4) The effect of deducting the consideration payable to a customer from revenue in relation to the card reward, and others. (*5) The effect of reclassification from selling and administrative expenses to cost of sales related to performance obligations of additional services, additional warranties, and others. (*6) The effect of reclassifying provision for construction loss which belonged to ‘due from customers for contract work’ (‘due to customers for contract work’) to other provisions as separate account is included. - 26 - The application of this enactment did not have any significant effect on the consolidated cash flow statement for the year ended December 31, 2018. - 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 above-mentioned change in amendment did not have any significant effect on the Group’s interim consolidated financial statements. - 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 above-mentioned change in enactment did not have any significant effect on the Group’s consolidated financial statements. - 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 FVPL 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. The above-mentioned changes in amendment did not have any significant effect on the Group’s consolidated financial statements. 2) New and revised standards that have been issued but are not yet effective as of December 31, 2018, and that have not been applied earlier by the Group are as follows: - K-IFRS 1116 (Enactment): ‘Leases’ This enactment provides a single lessee accounting model that operating lease 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 is effective for annual periods beginning on or after January 1, 2019. 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. 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 (i.e. below USD 5,000). As a practical expedient, The Group is not going 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. - 27 - As a result of the specific analysis of the effect on the financial statements, the Group expects the right-of-use assets and lease liabilities to be pledged as of December 31, 2018 to increase by ￦652,311million and lease liabilities by ￦663,769 million, respectively. For the year ended December 31, 2019, operating lease expenses are expected to decrease by ￦149,766 million and depreciation expense for right of use assets and interest expense for lease liabilities are expected to increase of ￦137,172 million and ￦27,891 million, respectively. However, the financial impact assessment may change depending on additional information available in the future and any new leases entered into after December 31, 2018. In lessor accounting, this standard is not significantly changed from K-IFRS 1017 - Leases. - K-IFRS 1109(Amendment): ‘Prepayment Features with Negative Compensation’ The amendments to K-IFRS 1109 clarify that for the purpose of assessing whether a prepayment feature meets the SPPI condition, the party exercising the option may pay or receive reasonable compensation for the prepayment irrespective of the reason for prepayment. In other words, prepayment features with negative compensation do not automatically fail SPPI. The amendment applies to annual periods beginning on or after January 1, 2019. - K-IFRS 1028 (Amendment): ‘Long-term Interests in Associates and Joint Ventures (Amendment)’ The amendment to K-IFRS 1028 clarifies that K-IFRS 1109, including its impairment requirements, applies to long-term interests. urthermore, in applying K-IFRS 1109 to long-term interests, an entity does not take into account adjustments to their carrying amount required by K-IFRS 1028 (i.e., adjustments to the carrying amount of long-term interests arising from the allocation of losses of the investee or assessment of impairment in accordance with K-IFRS 1028). The amendments apply retrospectively to annual reporting periods beginning on or after January 1, 2019. - Annual Improvements to K-IFRS Standards 2015–2017 Cycle The Annual Improvements include amendments to four Standards such as K-IFRS 1012 Income Taxes, K-IFRS 1023 Borrowing Costs, K-IFRS 1103 Business Combinations, and K-IFRS 1111 Joint Arrangements. a. K-IFRS 1012 : ‘Income Taxes’ The amendments clarify that an entity should recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized the transactions that generated the distributable profits. This is the case irrespective of whether different tax rates apply to distributed and undistributed profits. b. K-IFRS 1023 : ‘Borrowing Costs’ The amendments clarify that if any specific borrowing remains outstanding after the related asset is ready for its intended use or sale, that borrowing becomes part of the funds that an entity borrows generally when calculating the capitalisation rate on general borrowings. c. K-IFRS 1103 : ‘Business Combination’ The amendments to K-IFRS 1103 clarify that when an entity obtains control of a business that is a joint operation, the entity applies the requirements for a business combination achieved in stages, including remeasuring its previously held interest (PHI) in the joint operation at fair value. The PHI to be remeasured includes any unrecognized assets, liabilities and goodwill relating to the joint operation. d. K-IFRS 1111 : ‘Joint Arrangements’ The amendments to K-IFRS 1111 clarify that when a party that participates in, but does not have joint control of, a joint operation that is a business obtains joint control of such a joint operation, the entity does not remeasure its PHI in the joint operation. All the amendments are effective for annual periods beginning on or after January 1, 2019 and generally require prospective application. K-IFRS 1019(Amendment): Employee Benefits Plan Amendment, Curtailment or Settlement - The amendments clarify that the past service cost (or of the gain or loss on settlement) is calculated by measuring the defined benefit liability (asset) using updated assumptions and comparing benefits offered and plan assets before and after the plan amendment (or curtailment or settlement) but ignoring the effect of the asset ceiling (that may arise when the defined benefit plan is in a surplus position). K-IFRS 1019 is now clear that the change in the effect of the asset ceiling that may result from the plan amendment (or curtailment or settlement) is determined in a second step and is recognized in the normal manner in other comprehensive income. - 28 - The paragraphs that relate to measuring the current service cost and the net interest on the net defined benefit liability (asset) have also been amended. An entity will now be required to use the updated assumptions from this remeasurement to determine current service cost and net interest for the remainder of the reporting period after the change to the plan. In the case of the net interest, the amendments make it clear that for the period post plan amendment, the net interest is calculated by multiplying the net defined benefit liability (asset) as remeasured under paragraph 99 with the discount rate used in the remeasurement (also taking into account the effect of contributions and benefit payments on the net defined benefit liability (asset)). The amendments are applied prospectively. They apply only to plan amendments, curtailments or settlements that occur on or after the beginning of the annual period in which the amendments to K-IFRS 1019 are first applied. The amendments to K-IFRS 1019 is effective for annual periods beginning on or after January 1, 2019. - K-IFRS 1115(Amendment): Revenue from Contracts with Customers This amendment relates to prevent the revision of meaning 'contract' referred in K-IFRS 1115 paragraph 129.1 to 'individual contract' in relation to 'additional disclosure of contracts based on contract costs incurred to date', so that even if application of K-IFRS 1115 is adopted, the range of disclosure has not been reduced. In addition, K- IFRS 1115 does not distinguish the types of contracts that the service contracts that did not qualify for the application of K-IFRS 1011 in paragraph 45.1 can be qualified in K-IFRS 1115 paragraph 129.1 and it is to clarify that the range of the contracts subject to make disclosure in accordance with paragraph 129.1 can be expanded compared to the previous standard. This amendment is effective for annual periods beginning on or after January 1, 2019. - K-IFRS 2123(Amendment): Interpretation Uncertainty over Income Tax Treatments K-IFRS 2123 Interpretation sets out how to determine the accounting tax position when there is uncertainty over income tax treatments. The Interpretation requires an entity to: a. determine whether uncertain tax positions are assessed separately or as a group; and b. assess whether it is probable that a tax authority will accept an uncertain tax treatment used, or proposed to be used, by an entity in its income tax filings: - If yes, the entity should determine its accounting tax position consistently with the tax treatment used or planned to be used in its income tax filings. - If no, the entity should reflect the effect of uncertainty in determining its accounting tax position. The Interpretation is effective for annual periods beginning on or after January 1, 2019. Entities can apply the Interpretation with either full retrospective application or modified retrospective application without restatement of comparatives retrospectively or prospectively. The Group is currently evaluating the impacts of above mentioned enactments and amendments on the Group’s consolidated financial statements. The consolidated financial statements for the Company's annual general meeting of shareholders were approved by the Board of Directors on February 26, 2019. (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 Group 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. - 29 - When the Group 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 Group considers all relevant facts and circumstances in assessing whether or not the Group’s voting rights in an investee are sufficient to give it power, including:  the size of the Group’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders; rights arising from other contractual arrangements; and  potential voting rights held by the Group, other vote holders or other parties;   any additional facts and circumstances that indicate that the Group has, or does not have, the current ability to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings. Income and expenses of subsidiaries acquired or disposed of during the 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 Group. 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 Group. 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 Group 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. 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 1109 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. - 30 - (5) Revenue recognition The Group has applied K-IFRS 1115, 'Revenue from contracts with customers', effective from January 1, 2018. In accordance with K-IFRS 1115, all types of contracts recognize revenues by the 5-step revenue recognition model (1) identification of contract → (2) identification of performance obligations → (3) calculation of transaction price → (4) allocation of transaction price to performance obligations → (5) recognition of revenue when performance obligation is implemented 1) Identification of performance obligations The Group operates businesses such as the manufacture and sale of automobiles and auto parts. In the automobile sales contracts with customers, services other than automobile sales are separated from contracts to identify performance obligations. 2) Obligation to perform at a point in time The Group recognizes revenue from goods or services sales when the goods or services are transferred to the customers and fulfills the performance obligations. 3) Obligation to perform over the time The contracts that the entity provides under its contract with the customer relate to the service over time and are expected to be carried out over a period of time and recognize revenue over a period of time. In order to determine whether the control over goods or services is transferred over time, the Group determines whether the customer simultaneously obtains and consumes the benefits provided by the Group’s performance and whether the assets controlled by the customer, and whether the assets created by the Group have no substitute purpose, and whether the Group has the right to make executable claims for the portion that has been completed so far. 4) Allocation of the transaction price The Group allocates transaction prices based on the relative individual selling prices to the various performance obligations identified in a single contract, and uses an anticipated cost-benefit appraisal approach, such as anticipating the expected costs for each transaction and adding appropriate profits. 5) Variable consideration The Group estimates the amounts 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 highly probable that a significant reversal in the cumulative amount of revenue recognized will not occur in the future periods. 6) Significant financing component If the period between the transfer of the goods or services promised to the customer and the payment of the customer is within one year, a practical simple method that does not adjust the promised price for a significant financing component is used. 7) 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. - 31 - (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 as financial assets measured at fair value through profit or loss, financial assets measured at amortized cost or financial assets measured at fair value through other comprehensive income according to the terms and purpose of acquisition. The Group determines the classification of this financial asset at initial recognition. All recognized financial assets are measured subsequently at amortized cost or fair value, depending on the classification of the financial assets. 1) Classification of financial assets Debt instruments that meet the following conditions are measured subsequently at amortized cost:  The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows; and  The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Debt instruments that meet the following conditions are measured subsequently at fair value through other comprehensive income (FVOCI):  The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial assets; and  The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. - 32 - By default, all other financial assets are measured subsequently at fair value through profit or loss (FVPL). Despite the foregoing, the Group may make the following irrevocable election / designation at initial recognition of a financial asset:  The Group may irrevocably elect to present subsequent changes in fair value of an equity investment in other comprehensive income if certain criteria are met; and  The Group may irrevocably designate a debt investment that meets the criteria of amortized cost or FVOCI as measured at FVPL if doing so eliminates or significantly reduces an accounting mismatch 1-1) Amortization cost and effective interest rate method The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. The gross carrying amount of a financial asset is the amortized cost of a financial asset before adjusting for any loss allowance. Interest income is recognized using the effective interest method for debt instruments measured subsequently at amortized cost and at FVOCI. 1-2) Debt instruments classified as at FVOCI The corporate bonds are initially measured at fair value plus transaction costs. Subsequently, changes in the carrying amount of these corporate bonds as a result of foreign exchange gains and losses, impairment gains or losses, and interest income calculated using the effective interest method are recognized in profit or loss. The amounts that are recognized in profit or loss are the same as the amounts that would have been recognized in profit or loss if these corporate bonds had been measured at amortized cost. All other changes in the carrying amount of these corporate bonds are recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. When these corporate bonds are derecognized, the cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss. 1-3) Equity instruments designated as at FVOCI On initial recognition, the Group may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments as at FVOCI. Designation at FVOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other comprehensive income and accumulated in the investments revaluation reserve. The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity investments, instead, it is transferred to retained earnings. 1-4) Financial assets at FVPL Financial assets that do not meet the criteria for being measured at amortized cost or FVOCI are measured at FVPL. Gains or losses arising from changes in the fair value of FVPL, dividends and interest income from the financial assets are recognized in profit or loss. 2) Foreign exchange gain / loss The carrying amount of a financial asset denominated in a foreign currency is determined by translating at the spot exchange rate at the end of the reporting period. - 33 - (8) Impairment of financial assets The Group recognizes a loss allowance for expected credit losses on investments in debt instruments that are measured at amortized cost or at FVOCI, lease receivables, trade receivables and contract assets, as well as on financial guarantee contracts. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition of the respective financial instrument. The Group always recognizes lifetime expected credit losses(ECL) for trade receivables, contract assets and lease receivables. The expected credit losses on these financial assets are estimated using a provision matrix based on the Group’s historical credit loss experience and valuation of indivisual assets, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date, including time value of money where appropriate. For all other financial instruments, the Group recognizes lifetime ECL when there has been a significant increase in credit risk since initial recognition. However, if the credit risk on the financial instrument has not increased significantly since initial recognition, the Group measures the loss allowance for that financial instrument at an amount equal to 12-month ECL. Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument. In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are possible within 12 months after the reporting date. 1) Significant increase in credit risk In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the Group compares the risk of a default occurring on the financial instrument at the reporting date with the risk of a default occurring on the financial instrument at the date of initial recognition. In particular, the following information is taken into account when assessing whether credit risk has increased significantly since initial recognition:  an actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating;  significant increases in credit risk of others; 2) Definition of default The Group believes that, in past experience, if the borrower violates the terms of the contract, it is considered to constitute a default event for internal credit risk management purposes. 3) Credit-impaired financial asset A financial asset is credit-impaired when one or more events that have a detrimental impact on the estimated future cash flows of that financial asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events: (a) significant financial difficulty of the issuer or the borrower; (b) a breach of contract, such as a default or past due event; 4) Measurement and recognition of expected credit losses The measurement of expected credit losses is a function of the probability of default, loss given default (i.e. the magnitude of the loss if there is a default) and the exposure at default. The assessment of the probability of default and loss given default is based on historical data adjusted by forward-looking information as described above. As for the exposure at default, for financial assets, this is represented by the assets’ gross carrying amount at the reporting date. For financial assets, the expected credit loss is estimated as the difference between all contractual cash flows that are due to the Group in accordance with the contract and all the cash flows that the Group expects to receive, discounted at the original effective interest rate. - 34 - If the Group has measured the loss allowance for a financial instrument at an amount equal to lifetime ECL in the previous reporting period, but determines at the current reporting date that the conditions for lifetime ECL are no longer met, the Group measures the loss allowance at an amount equal to 12-month ECL at the current reporting date, except for assets for which simplified approach was used. The Group recognizes an impairment gain or loss in profit or loss for all financial instruments with a corresponding adjustment to their carrying amount through a loss allowance account, except for investments in debt instruments that are measured at FVOCI, for which the loss allowance is recognized in other comprehensive income and accumulated in the investment revaluation reserve, and does not reduce the carrying amount of the financial asset in the statement of financial position. (9) Derecognition of financial assets The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an 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 collateralised borrowing for the proceeds received. On derecognition of a financial asset measured at amortized cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognized in profit or loss. In addition, on derecognition of an investment in a debt instrument classified as at FVOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. In contrast, on derecognition of an investment in equity instrument which the Group has elected on initial recognition to measure at FVOCI, the cumulative gain or loss previously accumulated in the investments revaluation reserve is not reclassified to profit or loss, but is transferred to retained earnings. (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. - 35 - 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. Investment in associate or joint venture is accounted for using the equity method from the date that the investee becomes the associate or 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. The requirements of K-IFRS 1028 are applied to determine whether it is necessary to recognize any impairment loss with respect to the Group’s investment in an associate or a joint venture. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with K-IFRS 1036 as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs of disposal) with its carrying amount. Any impairment loss recognized is not allocated to any asset, including goodwill that forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with K-IFRS 1036 to the extent that the recoverable amount of the investment subsequently increases. 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 1109. 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. - 36 - (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. (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. - 37 - 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. 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. - 38 - (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. 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. - 39 - 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. Contributions to defined contribution retirement benefit plans are recognized as expenses when employees provide services eligible for payment. (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 recognizes provisions for costs expected to be incurred in the future for the repair of regular parts within the warranty period based on historical experience and compensation for accidents caused by defects in the exported products or parts of the product when such amounts are probable of payment. Also, 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. In addition, the Company recognizes provisions expected to be paid in the future with regard to long-term employee benefits payable to employees who have been in long-term care for more than 10 years. 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. - 40 - 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. 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. - 41 - 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 the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments. 2) Financial guarantee liability A financial guarantee contract is a contract that the issuer must pay a certain amount of money to compensate for losses incurred by the holder due to the failure of a specific debtor to pay the due date on the original contract or modified terms of the debt instrument. Financial guarantee liabilities are measured initially at fair value and subsequently measured at the greater of the following, unless they are designated as at fair value through profit or loss or arising from the transfer of assets.   Loss provision calculated in accordance with K-IFRS 1109 (see 'Financial assets' above) The amount recognized less the accumulated profits recognized in accordance with K-IFRS 1115 3) Financial liabilities at FVPL Financial liabilities are classified as at FVPL when the financial liability is (i) contingent consideration of an acquirer in a business combination, (ii) held for trading or (iii) it is designated as at FVPL as of the date of initial recognition. However, for financial liabilities that are designated as at FVPL, the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The remaining amount of change in the fair value of liability is recognized in profit or loss. Changes in fair value attributable to a financial liability’s credit risk that are recognized in other comprehensive income are not subsequently reclassified to profit or loss; instead, they are transferred to retained earnings upon derecognition of the financial liability. Gains or losses on financial guarantee contracts issued by the Group that are designated by the Group as at FVPL are recognized in profit or loss. 4) Financial liabilities measured subsequently at amortized cost Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held- for-trading, or (iii) designated as at FVPL as of the date of initial recognition, are measured subsequently at amortized cost using the effective interest method. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. 5) Derecognition of financial liabilities The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss. - 42 - (24) Derivatives 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. (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. - 43 - (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. 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. - 44 - 3. TRADE NOTES AND ACCOUNTS RECEIVABLE: (1) Trade notes and accounts receivable as of December 31, 2018 and 2017 consist of the following: Description Trade notes and accounts receivable Loss allowance Present value discount accounts December 31, 2018 December 31, 2017 Current Non-current Current (In millions of Korean Won) Non-current ￦ 3,665,356 ￦ 143,496 ￦ 3,903,210 ￦ (69,363) - - (6,719) (65,167) - ￦ 3,595,993 ￦ 136,777 ￦ 3,838,043 ￦ 129,739 - (5,806) 123,933 (2) Aging analysis of trade notes and accounts receivable As of December 31, 2018 aging analysis of total trade notes and accounts receivable are as follows: Description Not overdue Overdue Within 90 days Overdue Within 180 days More than 90 days (In millions of Korean Won) Overdue More than 180 days Total amounts Amount of impaired receivables Total trade note and Accounts receivable ￦ 3,460,604 ￦ 219,070 ￦ 41,207 ￦ 87,971 ￦ 3,808,852 ￦ 69,363 As of December 31, 2017 aging analysis of total trade notes and accounts receivable are as follows: Description Not overdue Overdue Within 90 days Overdue Within 180 days More than 90 days (In millions of Korean Won) Overdue More than 181 days Total amounts Amount of impaired receivsables Total trade note and Accounts receivable ￦ 3,720,821 ￦ 201,964 ￦ 11,029 ￦ 99,135 ￦ 4,032,949 ￦ 65,167 (3) Transferred trade notes and accounts receivable that are not derecognized As of December 31, 2018 and 2017, 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 ￦2,169,253 million and ￦1,338,160 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 loss allowance for the year ended December 31, 2018 and 2017 are as follows: Description 2018 (In millions of Korean Won) 2017 Beginning of the year Impairment loss Write-off Effect of foreign exchange differences End of the year ￦ ￦ 65,167 ￦ 4,453 (205) (52) 69,363 ￦ 49,800 19,211 (4,336) 492 65,167 - 45 - 4. OTHER RECEIVABLES: (1) Other receivables as of December 31, 2018 and 2017 consist of the following: Description December 31, 2018 December 31, 2017 Current Non-current Current Non-current (In millions of Korean Won) Accounts receivable – others Due from customers for contract work Lease and rental deposits Deposits Others Loss allowance ￦ 2,161,565 ￦ 1,110,972 28,826 2,591 1,719 (13,826) ￦ 3,291,847 ￦ 392,400 ￦ 1,952,871 ￦ - 310,194 42,381 10,113 - 841,803 - 1,024,899 335,918 34,953 34,822 2,368 15,059 3,906 - (11,128) 755,088 ￦ 3,007,869 ￦ 1,227,602 (2) The changes in allowance for other receivables for the year ended December 31, 2018 and 2017 are as follows: Description 2018 (In millions of Korean Won) 2017 Beginning of the year Impairment loss Write-off Effect of foreign exchange differences End of the year ￦ ￦ 11,128 ￦ 3,567 (853) (16) 13,826 ￦ 10,701 1,470 (1,042) (1) 11,128 5. OTHER FINANCIAL ASSETS: (1) Other financial assets as of December 31, 2018 consist of the following: Description Financial assets measured at fair value through profit or loss (“FVPL”) Derivative assets that are effective hedging instruments Financial assets measured at fair value through other comprehensive income (“FVOCI”) Financial assets measured at amortized cost December 31, 2018 Current (In millions of Korean Won) Non-current ￦ ￦ 9,644,865 ￦ 4,855 9,683 96,322 9,755,725 ￦ 286,286 27,393 1,901,038 8,641 2,223,358 Other financial assets as of December 31, 2017 consist of the following: Description Financial assets at FVPL Derivative assets that are effective hedging instruments Available-for-sale (“AFS”) financial assets Loans December 31, 2017 Current Non-current (In millions of Korean Won) 12,770,096 ￦ 23,411 11,833 81,429 12,886,769 ￦ 194,341 14,786 2,297,122 6,160 2,512,409 ￦ ￦ - 46 - (2) Financial assets measured at FVOCI as of December 31, 2018 (AFS financial assets that are measured at fair value as of December 31, 2017) consist of the following: December 31, 2018 December 31, 2017 Description Acquisition cost Book value Book value Debt instruments Equity instruments (*) ￦ ￦ (In millions of Korean Won) ￦ ￦ 241,858 1,533,139 1,774,997 ￦ 236,031 1,674,690 1,910,721 ￦ 309,969 1,998,986 2,308,955 (*) The Group makes an irrevocable election to present in other comprehensive income subsequent changes in the fair value of an investment in an equity instrument that is not held for trading at the date of initial application. (3) Equity instruments classified into financial assets measured at FVOCI as of December 31, 2018 (AFS financial assets as of December 31, 2017) consist of the following: Name of the company Hyundai Steel Company (*1) Hyundai Glovis Co., Ltd. Hyundai Heavy Industries Co., Ltd. (*2) Hyundai Oilbank Co., Ltd. Korea Aerospace Industries, Ltd. (*3) Hyundai Heavy Industries Holdings Co., Ltd. (*2) Hyundai Green Food Co., Ltd. NICE Information Service Co., Ltd. Hyundai M Partners Co., Ltd. NICE Holdings Co., Ltd. KT Corporation Hyundai Asan Corporation Hyundai Merchant Marine Company Hyundai Electric & Energy Systems Co., Ltd. (*2) HDC Holdings Co., Ltd. (*4) Others December 31, 2018 December 31, 2017 Ownership percentage (%) 6.87 4.88 Acquisition cost Book value Book value (In millions of Korean Won) ￦ 903,897 ￦ 210,688 516,090 ￦ 236,191 821,266 249,008 2.36 4.35 - 2.13 2.36 2.25 9.29 1.30 0.09 1.88 0.03 - - 42,443 53,734 73,331 9,018 15,005 3,312 9,888 3,491 8,655 22,500 9,161 209,823 204,392 150,920 120,046 33,000 14,957 12,119 8,825 7,155 2,117 366 164,102 147,930 224,487 132,189 34,500 11,870 12,153 7,202 7,263 2,117 444 - - 168,016 22,997 17,348 144,110 ￦ 1,533,139 ￦ 1,674,690 ￦ 1,998,986 - - 158,689 (*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. (*2) 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. Name of the company has been changed from Hyundai Robotics Co., Ltd. to Hyundai Heavy Industries Holdings Co., Ltd. and the Group fully disposed the shares of Hyundai Electric & Energy Systems Co., Ltd. for the year ended December 31, 2018. (*3) The Group entered into a total return swap agreement to transfer total shares to a third party. (*4) Hyundai Development Company was spun off into HDC Holdings Co., Ltd. and Hyundai Development Company and the Group fully disposed the shares for the year ended December 31, 2018. - 47 - 6. INVENTORIES: Inventories as of December 31, 2018 and 2017 consist of the following: Description December 31, 2018 December 31, 2017 (In millions of Korean Won) ￦ Finished goods Merchandise Semifinished goods Work in progress Raw materials Supplies Materials in transit Others Total (*) ￦ 6,486,616 ￦ 52,717 515,084 400,850 1,363,298 306,670 665,246 924,377 10,714,858 ￦ 6,065,752 50,575 638,802 387,816 1,314,902 285,264 583,055 953,738 10,279,904 (*) As of December 31, 2018 and 2017, the Group recognized a valuation allowance in amount of ￦130,989 million and ￦88,945 million, respectively. 7. OTHER ASSETS: Other assets as of December 31, 2018 and 2017 consist of the following: Description Accrued income Advance payments Prepaid expenses Prepaid value-added tax and others December 31, 2018 December 31, 2017 Current Non-current Current Non-current (In millions of Korean Won) ￦ 318,306 ￦ 658,460 445,601 348,315 ￦ 1,770,682 ￦ 1,293 ￦ - 672,814 37,192 711,299 ￦ 1,739,452 ￦ 357,228 ￦ 535,677 472,732 373,815 2,714 - 609,958 29,651 642,323 8. NON-CURRENT ASSETS CLASSIFIED AS HELD FOR SALE: (1) Non-current assets classified as held for sale as of December 31, 2018 and 2017 consist of the following: Description December 31, 2018 December 31, 2017 Land Building Vehicles (*1) Subsidiary (*2) Total Non-current liabilities classified as held for sale ￦ ￦ ￦ (In millions of Korean Won) 3,454 ￦ 7,963 16,023 839,752 867,192 ￦ 719,396 ￦ - - 29,068 - 29,068 - (*1) The Group enters into a disposal contract for the vehicles and the process of disposal is under way. The Group recognised an impairment loss of ￦13,045 million, for the difference between the expected sale price and the book value. (*2) The Company and Hyundai Capital Services, Inc., the subsidiary of the Company, enter into a disposal contract for a portion of Hyundai Capital Bank Europe GmbH 's shares in August, 2018. The process of disposal is underway. Accordingly, the Group classified the assets and liabilities related to Hyundai Capital Bank Europe GmbH to the disposal group as held for sale. - 48 - (2) Main assets and liabilities classified as held for sale as of December 31, 2018 consist of the following: Description December 31, 2018 (In millions of Korean Won) ￦ The disposal group as held for sale Cash and cash equivalents Financial assets measured at FVOCI Loan obligations Lease receivables Property, plant and equipment Intangible assets Accounts receivable – others Accrued income Advanced payments Prepaid expenses Deposits Total assets ￦ Liabilities directly related to the disposal group as held for sale Borrowings Other payables Withholdings Accrued expenses Total liabilities ￦ 97,050 69 610,418 93,969 2,299 10,683 212 2,541 17,346 5,064 101 839,752 652,362 31,523 15,097 20,414 719,396 The Group measured at the lower between book value and fair value less costs to sell, and accumulated other comprehensive income (loss) transferred to equity related to assets classified as held for sale is ￦1,122 million, as of December 31, 2018. 9. PROPERTY, PLANT AND EQUIPMENT: (1) Property, plant and equipment (“PP&E”) as of December 31, 2018 and 2017 consist of the following: Description Land Buildings Structures Machinery and equipment Vehicles Dies, molds and tools Office equipment Others Construction in progress Acquisition cost December 31, 2018 Accumulated depreciation (*) Book value Acquisition cost December 31, 2017 Accumulated depreciation (*) Book value (In millions of Korean Won) - ￦ 11,802,601 ￦ 11,794,842 ￦ ￦ 11,802,601 ￦ - ￦ 11,794,842 5,979,344 655,732 6,092,817 190,756 2,516,521 473,001 47,223 2,076,906 ￦ 52,115,269 ￦ (21,569,661) ￦ 30,545,608 ￦ 49,596,458 ￦ (19,769,316) ￦ 29,827,142 (3,151,813) (662,606) (9,088,703) (169,354) (7,227,150) (1,218,195) (51,840) - (2,892,913) (614,390) (8,448,876) (147,410) (6,500,234) (1,130,204) (35,289) - 8,872,257 1,270,122 14,541,693 338,166 9,016,755 1,603,205 82,512 2,076,906 9,289,171 1,389,627 15,558,786 363,338 9,820,613 1,655,978 97,266 2,137,889 6,137,358 727,021 6,470,083 193,984 2,593,463 437,783 45,426 2,137,889 (*) Accumulated impairment is included. - 49 - (2) The changes in PP&E for the year ended December 31, 2018 are as follows: Beginning of the year Acquisitions Transfers within PP&E Disposals Depreciation Transfer to the non- current assets classified as held for sale Others (*) End of the year ￦ 11,794,842 ￦ 536 ￦ 5,979,344 655,732 10,957 6,513 43,888 ￦ 466,495 125,295 (In millions of Korean Won) (35,186) ￦ - ￦ (27,764) (4,360) (277,115) (62,303) 6,092,817 190,756 12,221 35,005 1,393,296 79,676 (60,561) (48,019) (924,923) (52,324) 2,516,521 473,001 47,223 512 59,875 4,639 1,020,614 82,898 11,914 (65,972) (1,422) (141) (837,721) (175,959) (16,750) (3,454) ￦ (7,963) - 1,975 ￦ 11,802,601 6,137,358 727,021 (6,596) 6,144 - - - (2,299) - (42,767) (11,110) 6,470,083 193,984 (40,491) 1,689 (1,459) 2,593,463 437,783 45,426 Description Land Buildings Structures Machinery and equipment Vehicles Dies, molds and tools Office equipment Others Construction in progress 2,076,906 3,201,634 (3,224,076) (6,015) - ￦ 29,827,142 ￦ 3,331,892 ￦ - ￦ (249,440) ￦ (2,347,095) ￦ - (13,716) ￦ 89,440 2,137,889 (3,175) ￦ 30,545,608 (*) Others include the effect of foreign exchange difference, transfers from or to other accounts and others. 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 within PP&E Disposals Depreciation Others (*) Transfers End of the year ￦ 11,787,909 ￦ 5,777,272 662,326 38,739 ￦ 11,687 5,892 (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, acquisitions due to business combination and others. 10. INVESTMENT PROPERTY: (1) Investment property as of December 31, 2018 and 2017 consist of the following: Description Land Buildings Structures Acquisition cost December 31, 2018 Accumulated depreciation Book value Acquisition cost December 31, 2017 Accumulated depreciation Book value (In millions of Korean Won) ￦ ￦ 58,669 ￦ 303,191 18,630 380,490 ￦ - ￦ (184,262) (6,894) (191,156) ￦ 58,669 ￦ 118,929 11,736 189,334 ￦ 58,669 ￦ 303,162 18,630 380,461 ￦ - ￦ (174,477) (6,486) (180,963) ￦ 58,669 128,685 12,144 199,498 - 50 - (2) The changes in investment property for the year ended December 31, 2018 are as follows: Description Beginning of the year Transfers Disposals Depreciation Effect of foreign exchange differences End of the year Land Buildings Structures (In millions of Korean Won) ￦ 58,669 ￦ 128,685 12,144 ￦ 199,498 ￦ - ￦ 657 - 657 ￦ - ￦ - - - ￦ - ￦ (10,384) (408) (10,792) ￦ - ￦ (29) - 58,669 118,929 11,736 (29) ￦ 189,334 The changes in investment property for the year ended December 31, 2017 are as follows: Description Beginning of the year Transfers Disposals Depreciation Effect of foreign exchange differences End of the year Land Buildings Structures (In millions of Korean Won) ￦ 58,669 ￦ 140,450 12,552 ￦ 211,671 ￦ - ￦ 392 - 392 ￦ - ￦ - - - ￦ - ￦ (10,405) (408) (10,813) ￦ - ￦ (1,752) - 58,669 128,685 12,144 (1,752) ￦ 199,498 (3) The fair value of investment property as of December 31, 2018 and 2017 consist of the following: Description December 31, 2018 December 31, 2017 (In millions of Korean Won) Land Buildings Structures ￦ ￦ 58,669 ￦ 316,215 15,496 390,380 ￦ 58,669 316,534 15,496 390,699 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, 2018 and 2017 are as follows: Description 2017 2018 (In millions of Korean Won) Rental income Operating and maintenance expenses ￦ 47,907 ￦ 17,091 46,020 16,410 - 51 - 11. INTANGIBLE ASSETS: (1) Intangible assets as of December 31, 2018 and 2017 consist of the following: Description Acquisition cost December 31, 2018 Accumulated amortization (*) Book value Acquisition cost December 31, 2017 Accumulated amortization (*) Book value Goodwill Development costs Industrial property rights Software Others Construction in progress ￦ 293,382 ￦ (33,975) ￦ 259,407 ￦ 293,452 ￦ (2,023) ￦ 291,429 (In millions of Korean Won) 8,256,046 (4,471,703) 3,784,343 8,125,215 (4,543,101) 3,582,114 283,056 1,105,754 483,323 (154,193) (786,766) (237,692) 128,863 318,988 245,631 246,884 1,025,083 498,257 (133,484) (678,150) (222,182) 212,933 (28,782) 184,151 239,151 (39,766) ￦ 10,634,494 ￦ (5,713,111) ￦ 4,921,383 ￦ 10,428,042 ￦ (5,618,706) ￦ 113,400 346,933 276,075 199,385 4,809,336 (*) Accumulated impairment is included. (2) The changes in intangible assets for the year ended December 31, 2018 are as follows: Description Beginning of the year Internal developments Seperate acquisitions (In millions of Korean Won) Transfers within intangible assets Disposals ￦ Goodwill Development Costs Industrial property rights Software Others Construction in progress ￦ 291,429 ￦ 3,582,114 113,400 346,933 276,075 199,385 4,809,336 ￦ - ￦ 1,455,817 57 - - 7,423 1,463,297 ￦ - ￦ 19,234 2,268 25,912 3,679 108,712 159,805 ￦ - ￦ 73,977 33,115 31,015 2,798 (140,905) - (4,688) (12) (818) (2,146) - - ￦ (7,664) Description Amortization Impairment loss (gain)(*1) Transfer to the disposal group as held for sale Others (*2) End of the year ￦ Goodwill Development Costs Industrial property rights Software Others Construction in progress - ￦ (1,225,225) (20,846) (134,905) (22,606) - ￦ (1,403,582) ￦ (143,720) ￦ (In millions of Korean Won) (32,125) ￦ (109,977) - (1,687) 69 - - ￦ - - - (8,696) (1,987) (10,683) ￦ 103 ￦ 259,407 3,784,343 (6,909) 128,863 881 318,988 52,538 245,631 (3,542) 11,523 184,151 54,594 ￦ 4,921,383 (*1) The development costs related to the discontinued sales and development projects that were recognized as impairment losses for the year end December 31, 2018. (*2) Others include the effect of foreign exchange differences, transfer from or to other accounts and others. - 52 - The changes in intangible assets for the year ended December 31, 2017 are as follows: Description Beginning of the year Internal Developments Seperate acquisitions (In millions of Korean Won) Transfers within intangible assets Disposals ￦ Goodwill Development Costs Industrial property rights Software Others Construction in progress ￦ 290,293 ￦ 3,330,990 109,163 358,281 293,415 204,030 4,586,172 ￦ - ￦ 1,282,296 74 1,281 - 12,757 1,296,408 ￦ - ￦ 25,553 1,864 35,663 9,659 85,418 158,157 ￦ - ￦ 41,584 18,613 24,341 10,399 (94,937) - - - (51) (2,372) - - ￦ (2,423) Description Amortization Impairment loss (gain) (*1) Others (*2) (In millions of Korean Won) End of the year ￦ Goodwill Development Costs Industrial property rights Software Others Construction in progress - ￦ (1,096,567) (17,240) (133,546) (27,489) - ￦ (1,274,842) ￦ - ￦ (12,592) - (517) 37 (30) (13,102) ￦ 1,136 ￦ 291,429 3,582,114 10,850 113,400 926 346,933 61,481 276,075 (7,574) (7,853) 199,385 58,966 ￦ 4,809,336 (*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. (3) Development costs of intangible assets as of December 31, 2018 consist of the following: Description Book value (In millions of Korean Won) Residual useful lives (*) Automobile ˝ Powertrain ˝ Others ˝ Developing Amortizing Developing Amortizing Developing Amortizing ￦ ￦ 1,314,742 1,851,453 195,715 188,215 3,190 231,028 3,784,343 - 38 months - 33 months - 40 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. - 53 - Development costs of intangible assets as of December 31, 2017 are as follows: 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, 2018 and 2017 are as follows: Description Development costs (intangible assets) Research and development costs (*1) Total (*2) 2018 (In millions of Korean Won) 2017 ￦ ￦ 1,475,051 ￦ 1,267,327 2,742,378 ￦ 1,307,849 1,179,922 2,487,771 (*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, 2018 and 2017 is as follows: Description Vehicle Finance Others December 31, 2018 (In millions of Korean Won) December 31, 2017 ￦ ￦ 158,955 ￦ 482 99,970 259,407 ￦ 190,977 482 99,970 291,429 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, 2018 and 2017, are 13.8% and 12.8% 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. The impairment loss has been recognized in amount of ￦32,125 million for the year ended December 31, 2018 and no amounts for the year ended December 31, 2017. - 54 - 12. INVESTMENTS IN JOINT VENTURES AND ASSOCIATES: (1) Investments in joint ventures and associates as of December 31, 2018 and 2017 consist of the following: Name of the company Beijing-Hyundai Motor Company (BHMC) (*1) Beijing Hyundai Qiche Financing Company (BHAF) (*1,3) 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.(*6) Hyundai Dymos Inc.(*6) HYUNDAI MOTOR SECURITIES Co., Ltd. (*4) Hyundai Commercial Inc. Eukor Car Carriers Inc. (*2) Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd Others (*5) December 31, 2018 December 31, 2017 Nature of business Location Ownership percentage (%) Book value Book value (In millions of Korean Won) Manufacturing China 50.00% ￦ 1,484,794 ￦ 1,456,579 Financing China 53.00% 530,161 480,353 Manufacturing China 22.00% 151,248 167,805 Manufacturing China Manufacturing Korea Construction Korea Manufacturing Korea Manufacturing Korea Manufacturing Korea Securities Korea brokerage Financing Korea Transportation Korea Korea IT service Korea Hotelkeeping 30.00% 33.88% 20.95% 25.35% 37.58% 47.27% 27.49% 37.50% 12.00% 28.96% 41.90% ￦ 100,754 9,001,505 120,256 8,882,325 2,801,084 674,651 561,688 430,571 2,959,910 794,150 547,295 399,724 265,711 218,983 159,699 129,173 104,009 529,208 254,766 373,797 160,255 119,162 106,531 429,430 17,143,239 ￦ 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) Name of the company has been changed from HMC Securities Co., Ltd. to HYUNDAI MOTOR SECURITIES Co., Ltd. as of July 1, 2018. (*5) For the year ended December 31, 2017, the Group has stopped recognising its share of losses of the Sichuan Hyundai Motor Company (CHMC) and unrecognised share of losses of a joint venture, for the year ended December 31, 2018 and 2017, cumulatively are ￦ 94,175 million and ￦20,437 million, respectively. (*6) As of January 1, 2019, Hyundai DYMOS Inc. merged with Hyundai Powertech Co., Ltd. to become Hyundai TranSys Co., Ltd. - 55 - (2) The changes in investments in joint ventures and associates for the year ended December 31, 2018 are as follows: Name of the company BHMC BHAF WAE PTS Kia Motors Corporation Hyundai Engineering & Beginning of the period Acquisitions (disposals) Share of profits (losses) for the period Dividends Others (*1) End of the period (In millions of Korean Won) ￦ 1,456,579 ￦ 480,353 167,805 120,256 8,882,325 - ￦ - - - - 37,495 ￦ 50,461 (15,994) (19,270) 365,561 - ￦ (6,211) - - (109,855) (9,280) ￦ 1,484,794 530,161 151,248 100,754 9,001,505 5,558 (563) (232) (136,526) Construction Co., Ltd.(*2) 2,959,910 Hyundai WIA Corporation(*3) Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. HYUNDAI MOTOR SECURITIES Co., Ltd. Hyundai Commercial Inc. Eukor Car Carriers Inc. Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd. Others 794,150 547,295 399,724 254,766 373,797 160,255 119,162 106,531 429,430 ￦ 17,252,338 ￦ - - - - - - - 58,357 (11,664) (205,519) 2,801,084 (16,133) 15,021 25,951 13,422 35,302 3,010 15,634 (4,136) - - (99,230) (628) 4,896 (3,226) (10,000) (8,976) (4,126) 749 (180,116) 5,410 (1,497) 674,651 561,688 430,571 265,711 218,983 159,699 129,173 - 61,772 61,772 ￦ (2,435) 33,140 599,522 ￦ - (12,009) (170,203) ￦ (87) 16,875 104,009 529,208 (600,190) ￦ 17,143,239 (*1) Others consist of changes in accumulated other comprehensive income and others. (*2) The recoverable amount was less than the carrying amount and the impairment loss amounting to ₩ 103,459 million was recognized. The recoverable amount is determined based on the value of use, and the discount rate applied to measure the value of use is 8% per annum. (*3) The recoverable amount was less than the carrying amount and the impairment loss amounting to ₩ 90,031 million was recognized. The recoverable amount is determined based on the value of use, and the discount rate applied to measure the value of use is 7.95% per annum. - 56 -  The changes in investments in joint ventures and associates for the year ended December 31, 2017 are as follows: Beginning of the period Acquisitions (disposals) Share of profits (losses) for the period Dividends Others (*1) End of the period (In millions of Korean Won) ￦ 2,225,824 ￦ Name of the company 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. HYUNDAI MOTOR SECURITIES Co., Ltd. Eukor Car Carriers Inc. Haevichi Hotels & Resorts Co., Ltd. Hyundai Autoever Corp. Others 445,735 186,929 111,997 8,811,840 3,267,243 821,861 502,891 371,499 256,078 245,501 174,100 107,382 108,082 433,159 ￦ 18,070,121 ￦ - ￦ - 4,721 18,023 - - - - - - - - - - 57,400 80,144 ￦ (74,456) ￦ 64,120 (8,423) 16,006 308,823 (592,318) ￦ (3,440) (5,268) (18,930) (151,050) (102,471) ￦ 1,456,579 480,353 (26,062) 167,805 (10,154) 120,256 (6,840) 8,882,325 (87,288) 15,479 (14,781) 52,349 31,512 136,510 (11,664) (7,583) - - (15,000) (311,148) (5,347) (7,945) (3,287) (3,791) 2,959,910 794,150 547,295 399,724 373,797 13,906 7,470 (3,226) - (1,415) (21,315) 254,766 160,255 15,576 (1,784) (34,718) 527,589 ￦ (4,126) - (10,360) (822,965) ￦ 119,162 330 106,531 233 429,430 (16,051) (602,551) ￦ 17,252,338 (*1) Others consist of changes in accumulated other comprehensive income and others. (*2) The recoverable amount was less than the carrying amount and the impairment loss amounting to ￦302,536 million was recognized. The recoverable amount is determined based on the value of use, and the discount rate applied to measure the value of use is 8% per annum. - 57 - (3) Summarized financial information of the Group’s major joint ventures and associates as of and for the year ended December 31, 2018 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 MOTOR SECURITIES Co., Ltd. (*) Hyundai Commercial Inc. (*) 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 5,203,650 ￦ 5,143,183 731,486 621,193 19,711,791 4,024,905 ￦ - 689,637 358,711 32,074,814 5,787,864 ￦ 4,142,880 347,052 368,791 14,834,739 13,336,768 3,890,796 1,238,501 1,484,098 6,686,423 8,544,662 341,809 689,504 28,328 4,717,841 3,216,651 1,666,490 1,095,745 - - 2,574,091 139,568 425,126 6,860,875 1,862,772 905,338 1,058,852 5,799,504 7,362,296 462,933 367,985 213,245 376,529 - 386,581 275,267 9,708,402 2,901,878 2,207,744 500,382 616,655 - - 1,124,327 9,498 64,093 Name of the company Sales Profit (loss) for Other the period from comprehensive continuing 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 MOTOR SECURITIES Co., Ltd. (*) Hyundai Commercial Inc. (*) Eukor Car Carriers Inc. Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd. ￦ 11,043,756 ￦ 238,694 1,346,039 1,108,875 54,169,813 16,730,894 7,880,481 2,953,249 4,266,845 618,986 466,766 1,736,826 1,424,859 117,067 12,315 ￦ 95,210 (72,700) (64,233) 1,155,943 - ￦ - (48,319) - (452,911) 535,303 (55,561) 30,704 52,914 50,572 68,648 19,412 55,228 1,711 (207,137) (31,669) (1,627) (7,436) 3,137 8,497 49,850 (4,956) (357) 12,315 95,210 (121,019) (64,233) 703,032 328,166 (87,230) 29,077 45,478 53,709 77,145 69,262 50,272 1,354 (*) 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. - 58 - 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. (*) HYUNDAI MOTOR 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 4,132,036 ￦ 6,748,910 ￦ 4,961,986 753,485 853,846 21,642,079 - 760,642 216,947 30,652,359 7,495,325 ￦ 4,055,661 318,440 577,765 15,323,019 355,758 - 432,938 92,174 10,110,242 13,227,409 3,859,385 1,054,803 1,419,940 7,748,768 7,025,157 493,721 681,216 19,128 5,199,636 3,334,297 1,648,206 1,026,734 - - 2,542,164 122,740 433,933 7,291,215 1,727,926 925,897 1,052,358 6,902,931 6,179,803 458,070 380,035 193,290 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 Other the period from comprehensive continuing 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. (*) HYUNDAI MOTOR SECURITIES Co., Ltd. (*) Eukor Car Carriers Inc. Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd. ￦ 12,149,126 ￦ 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 (159,438) ￦ 120,980 (38,293) 53,353 968,018 - ￦ - (45,997) - (245,241) 374,321 (63,004) 172,575 69,837 272,413 50,204 57,618 55,179 2,407 (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. - 59 - (4) Summarized additional financial information of the Group’s major joint ventures as of and for the year ended December 31, 2018 is as follows: Name of the company Cash and cash equivalents Current financial liabilities Non-current financial liabilities Depreciation and amortization Interest income Interest expenses Income tax expense (benefit) BHMC BHAF (*) ￦ 534,602 ￦ 1,009,469 ￦ 56,966 ￦ 423,303 ￦ 18,851 ￦ 108,913 ￦ 834,118 3,674,564 - 4,948 427,317 190,968 (2,025) 30,963 (In millions of Korean Won) (*) 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, 2017 is as follows: Name of the company Cash and cash equivalents Current financial liabilities Non-current financial liabilities Depreciation and amortization Interest income Interest expenses Income tax expense (benefit) (In millions of Korean Won) BHMC BHAF (*) ￦ 329,263 ￦ 1,080,090 ￦ 782,333 3,429,969 - ￦ - 373,222 ￦ 26,106 ￦ 123,581 ￦ (14,897) 40,680 180,523 470,763 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. (5) The aggregate amounts of the Group’s share of the joint ventures and associates, that are not individually material, profit (loss) and comprehensive income (loss) for the year ended December 31, 2018 and 2017 are as follows: Description Nine months ended December 31, 2018 (In millions of Korean Won) 2017 Profit (loss) for the period Other comprehensive income (loss) Total comprehensive income (loss) ￦ ￦ 33,140 ￦ (1,892) 31,248 ￦ (34,718) (16,051) (50,769) - 60 - (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, 2018 is as follows: Name of the company BHMC BHAF WAE PTS Kia Motors Corporation Hyundai Engineering & Construction Co., Ltd. (*) Hyundai WIA Corporation Group’s share of net assets Carrying amounts Goodwill Unrealized profit (loss) and others (In millions of Korean Won) - ￦ - - - 197,089 (46,248) ￦ 1,484,794 530,161 151,248 100,754 9,001,505 - - - (69,963) ￦ 1,531,042 ￦ 530,161 151,248 100,754 8,874,379 2,069,714 731,362 8 2,801,084 Hyundai Powertech Co., Ltd. Hyundai Dymos Inc. HYUNDAI MOTOR SECURITIES Co., Ltd. Hyundai Commercial Inc. Eukor Car Carriers Inc. Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd. (*) 767,679 562,551 432,944 225,659 218,983 159,437 129,173 100,433 - - - (93,028) (863) (2,373) 40,052 - - - 3,576 - - 262 - - 674,651 561,688 430,571 265,711 218,983 159,699 129,173 104,009 (*) 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, 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. HYUNDAI MOTOR SECURITIES Co., Ltd. Eukor Car Carriers Inc. Hyundai Autoever Corp. Haevichi Hotels & Resorts Co., Ltd. (*) Goodwill Unrealized profit (loss) and others (In millions of Korean Won) - ￦ - - - ￦ 1,514,932 ￦ Group’s share of net assets 480,353 167,805 120,256 8,749,248 2,125,080 797,455 548,330 401,195 373,797 197,089 834,821 - - - - Carrying amounts (58,353) ￦ 1,456,579 480,353 167,805 120,256 8,882,325 - - - (64,012) 9 (3,305) (1,035) (1,471) - - 262 - - 2,959,910 794,150 547,295 399,724 373,797 254,766 160,255 119,162 106,531 214,714 159,993 119,162 102,955 40,052 - - 3,576 (*) 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. - 61 - (7) The market price of listed equity securities as of December 31, 2018 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 HYUNDAI MOTOR SECURITIES Co., Ltd. ￦ 33,700 54,600 36,250 8,630 137,318,251 ￦ 23,327,400 6,893,596 8,065,595 4,627,625 1,273,676 249,893 69,606 13. FINANCIAL SERVICES RECEIVABLES: (1) Financial services receivables as of December 31, 2018 and 2017 consist of the following: Description Loan obligations Card receivables Financial lease receivables Others Loss allowance Loan origination fee Present value discount accounts December 31, 2017 December 31, 2018 (In millions of Korean Won) 40,075,564 ￦ 13,311,195 2,588,890 43,775 56,019,424 (1,368,759) (133,394) (15,607) 54,501,664 ￦ 36,848,028 12,979,942 2,437,466 36,668 52,302,104 (1,133,967) 13,182 (13,301) 51,168,018 ￦ ￦ (2) Transferred financial services receivables that are not derecognized As of December 31, 2018 and 2017, the Group issued asset-backed securities, which have recourse to the underlying assets, based on loans, card receivables and others. As of December 31, 2018, the carrying amounts (including intercompany receivables within the Group) and fair values of the transferred financial assets that are not derecognized are ￦17,252,202 million and ￦17,146,156 million, respectively. The carrying amounts and fair values of the associated liabilities are ￦11,064,518 million and ￦10,871,371 million, respectively, and the net position is ￦6,274,785 million. 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. - 62 - (3) The changes in allowance for doubtful accounts of financial services receivables for the year ended December 31, 2018 are as follows Description Beginning of the period Changes in accounting standards (IFRS 9) Balances after adjustments Transfer to 12-Months expected credit losses Transfer to lifetime expected credit losses Transfer to credit-impaired financial assets Impairment loss Collect(Writeoff) Transfer to the disposal group as held for sale Disposals and others Effect of foreign exchange Differences End of the period Description Beginning of the period Changes in accounting standards (IFRS 9) Balances after adjustments Transfer to 12-Months expected credit losses Transfer to lifetime expected credit losses Transfer to credit-impaired financial assets Impairment loss Collect(Writeoff) Disposals and others End of the period Description Beginning of the period Changes in accounting standards (IFRS 9) Balances after adjustments Transfer to 12-Months expected credit losses Transfer to lifetime expected credit losses Transfer to credit-impaired financial assets Impairment loss Collect(Writeoff) Transfer to the disposal group as held for sale Disposals and others Effect of foreign exchange differences End of the period 12-Months expected credit losses Loan obligations Lifetime expected credit losses Impaired Not Impaired (In millions of Korean Won) ￦ ￦ ￦ 335,232 45,247 (23,692) (4,544) 21,247 19,231 (3,143) (35,867) 5,465 ￦ 359,176 ￦ 267,893 (43,458) 26,100 (7,526) 329,125 (303,200) - (49,095) 6,142 225,981 ￦ Total loan obligations - - - ￦ 765,008 84,519 849,527 246,402 (1,789) (2,408) 12,070 255,393 (79,605) - (117,688) 118 605,765 (363,574) (3,143) (202,650) 11,725 312,493 ￦ 897,650 12-Months expected credit losses Card receivables Lifetime expected credit losses Not Impaired Impaired (In millions of Korean Won) Total card receivables ￦ ￦ ￦ 138,377 46,624 (13,622) (436) 34,650 (8,440) (52,597) ￦ 144,556 ￦ 156,080 (46,467) 13,776 (803) 44,855 (3,933) (21,018) 142,490 ￦ ￦ 297,155 81,069 378,224 83,767 - - - (157) (154) 1,239 116,300 36,795 (14,392) (2,019) (7,226) (80,841) 112,245 ￦ 399,291 12-Months expected credit losses Others Lifetime expected credit losses Not Impaired Impaired Total others Total Allowances ￦ ￦ (In millions of Korean Won) ￦ ￦ 22,188 7,571 (2,059) (227) (9,716) (60) (757) (37) - ￦ 16,903 ￦ 8,625 (3,349) 2,332 (819) 2,294 (319) - - - 8,764 ￦ 44,276 (4,222) (273) 1,046 5,517 (182) - (11) - 46,151 ￦ - - - 71,804 ￦ 1,133,967 168,873 3,285 75,089 1,302,840 - - - (1,905) (561) (757) (48) - 720,160 (378,527) (3,900) (283,539) 11,725 71,818 ￦ 1,368,759 The changes in allowance for doubtful accounts of financial services receivables for the year ended December 31, 2017 are as follows: Description Beginning of the period Impairment loss Write-off Disposals and others Effect of foreign exchange End of the period December 31, 2017 (In millions of Korean Won) ￦ 1,078,002 753,514 (443,008) (222,842) (31,699) 1,133,967 ￦ - 63 - (4) Gross investments in financial leases and their present value of minimum lease payments receivable as of December 31, 2018 and December 31, 2017 are as follows: December 31, 2018 December 31, 2017 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) ￦ 1,182,648 ￦ 1,055,082 ￦ 1,173,541 ￦ 1,050,165 Present value of minimum lease payment receivable Gross investments in financial leases 1,648,493 3,045 1,384,980 277 ￦ 2,834,186 ￦ 2,586,272 ￦ 2,663,486 ￦ 2,435,422 1,489,664 281 1,528,204 2,986 (5) Unearned interest income of financial leases as of December 31, 2018 and 2017 is as follows: Description December 31, 2018 December 31, 2017 (In millions of Korean Won) ￦ 2,834,186 ￦ 2,663,486 Gross investments in financial lease Net lease investments: Present value of minimum lease payments Receivable Present value of unguaranteed residual value Unearned interest income ￦ 245,296 ￦ 2,586,272 2,618 2,588,890 2,435,422 2,044 2,437,466 226,020 14. OPERATING LEASE ASSETS: (1) Operating lease assets as of December 31, 2018 and 2017 consist of the following: Description December 31, 2018 December 31, 2017 Acquisition cost Accumulated depreciation Accumulated impairment loss (In millions of Korean Won) ￦ ￦ 24,686,189 ￦ (4,126,513) (133,910) 20,425,766 ￦ 24,345,256 (3,517,368) (99,938) 20,727,950 (2) Future minimum lease payments receivable related to operating lease assets as of December 31, 2018 and 2017 are as follows: Description December 31, 2018 December 31, 2017 Not later than one year Later than one year and not later than five years Later than five years (In millions of Korean Won) ￦ 3,801,164 ￦ 3,765,437 3,574,970 8 ￦ 7,376,142 ￦ 3,869,709 7 7,635,153 - 64 - 15. BORROWINGS AND DEBENTURES: (1) Short-term borrowings as of December 31, 2018 and 2017 consist of the following: Annual interest rate December 31, 2018 (%) 0.10~3.22 0.78~5.30 LIBOR + 0.16~0.30 December 31, 2018 December 31, 2017 (In millions of Korean Won) ￦ 271,814 ￦ 4,687,667 317,189 3,727,189 Description Lender Citi Bank and others Woori Bank and others Overdrafts General loans Loans on trade receivables collateral Banker’s Usance Short-term debentures Commercial paper Asset-backed securities KEB Hana Bank and others KEB Hana Bank and others LIBOR + 0.25~0.40 Shinhan Bank and others RBC and others 2.02~3.05 2.09~2.16 2,169,253 210,398 - 4,332,409 578,309 ￦ 12,249,850 ￦ 1,338,160 376,547 69,993 3,570,389 560,187 9,959,654 (2) Long-term debt as of December 31, 2018 and 2017 consists of the following: Description Lender General loans Facility loan SC Bank and others NH 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, 2018 (%) 0.41~15.40 December 31, 2018 December 31, 2017 (In millions of Korean Won) ￦ 5,814,705 ￦ 6,368,138 0.70~8.73 215,052 255,281 1.62~2.55 2.90~3.39 2,620,000 4,337,962 2,070,000 6,782,232 435,607 13,423,326 (112,977) (3,325,099) 567,125 16,042,776 (107,752) (3,446,887) 9,985,250 ￦ 12,488,137 ￦ (*) Although the Group transferred a portion of its shares with voting rights to a third party through the total revenue swap agreement, the Group recognizes the financial asset as collateral due to the fact that the risks and rewards were not transferred substantially. (3) Debentures as of December 31, 2018 and 2017 consist of the following: Description Latest maturity date Non-guaranteed public debentures Non-guaranteed private debentures Asset-backed securities October 26, 2028 September 27, 2026 January 15, 2025 Less: discount on debentures Less: current maturities Annual interest rate December 31, 2018 (%) 1.44~4.72 1.75~4.13 1.29~3.31 December 31, 2018 December 31, 2017 (In millions of Korean Won) ￦ 25,853,095 ￦ 22,956,764 10,107,160 13,140,350 46,204,274 (98,422) (9,651,660) ￦ 36,956,114 ￦ 36,454,192 10,901,475 11,070,462 47,825,032 (89,090) (10,779,828) - 65 - 16. PROVISIONS: (1) Provisions as of December 31, 2018 and 2017 consist of the following: Description Warranty Other long-term employee benefits Others December 31, 2018 (In millions of Korean Won) December 31, 2017 ￦ ￦ 5,177,128 ￦ 703,526 919,250 6,799,904 ￦ 5,226,297 636,380 791,764 6,654,441 (2) The changes in provisions for the year ended December 31, 2018 are as follows: Description Warranty Beginning of the period Changes in accounting standards (*) Charged Utilized Effect of foreign exchange differences End of the year ￦ ￦ Description Warranty Beginning of the period Charged Utilized Effect of foreign exchange differences End of the year ￦ ￦ Other long-term employee benefits (In millions of Korean Won) 636,380 ￦ 5,226,297 ￦ - 1,703,173 (1,765,815) 13,473 5,177,128 ￦ - 129,038 (61,827) (65) 703,526 ￦ Other long-term employee benefits (In millions of Korean Won) 641,193 ￦ 53,107 (57,930) 10 636,380 ￦ 5,612,978 ￦ 1,473,098 (1,743,049) (116,730) 5,226,297 ￦ Others 791,764 128,266 535,054 (539,716) 3,882 919,250 Others 718,469 728,683 (619,102) (36,286) 791,764 The changes in provisions for the year ended December 31, 2017 are as follows: (*) Due to adoption of K-IFRS 1115, the effect of reclassifying provision for construction loss which belonged to ‘due from customers for contract work’ (‘due to customers for contract work’) to other provisions as separate account is included. 17. OTHER FINANCIAL LIABILITIES: (1) Other financial liabilities as of December 31, 2018 consist of the following: December 31, 2018 Description Financial liabilities measured at FVPL Derivative liabilities that are effective hedging instruments Current Non-current (In millions of Korean Won) 151 ￦ 9,060 ￦ 288,446 44,137 44,288 ￦ 297,506 ￦ (2) Other financial liabilities as of December 31, 2017 consist of the following: December 31, 2017 Description Financial liabilities at FVPL Derivative liabilities that are effective hedging instruments Current Non-current (In millions of Korean Won) 555 ￦ - ￦ ￦ 25,097 438,070 25,652 ￦ 438,070 - 66 - 18. OTHER LIABILITIES: Other liabilities as of December 31, 2018 and 2017 consist of the following: Description Advances received Withholdings Accrued expenses Unearned income Due to customers for contract work Others December 31, 2018 December 31, 2017 Current Non-current Current Non-current (In millions of Korean Won) ￦ 796,552 ￦ 86,359 301,247 - 1,075,434 - 1,182,380 ￦ 5,796,193 ￦ 2,800,510 ￦ 6,591,421 ￦ 2,645,420 125,269 ￦ 233,297 - 1,280,571 - 1,161,373 746,977 ￦ 964,884 3,830,729 315,035 438,977 294,819 1,005,768 2,669,315 393,405 546,256 384,897 19. FINANCIAL INSTRUMENTS: (1) Financial assets by categories as of December 31, 2018 are as follows: Financial assets measured at FVPL Financial assets measured at amortized cost Description Financial assets measured at FVOCI Derivative assets that are effective hedging instruments (In millions of Korean Won) Book value Fair value 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 - ￦ 9,113,625 ￦ - ￦ - ￦ 9,113,625 ￦ 9,113,625 - 8,048,713 - - 8,048,713 8,048,713 - - 9,931,151 - 3,732,770 2,925,850 104,963 319,599 - - 1,910,721 - - - 32,248 - 3,732,770 2,925,850 11,979,083 319,599 3,732,770 2,925,850 11,979,083 319,599 - 54,501,664 - ￦ 9,931,151 ￦ 78,747,184 ￦ 1,910,721 ￦ Financial assets by categories as of December 31, 2017 are as follows: - 54,800,473 32,248 ￦ 90,621,304 ￦ 90,920,113 54,501,664 Description Financial assets at FVPL Loans and receivables Derivative assets that are effective hedging instruments (In millions of Korean Won) AFS financial assets Book value Fair value Cash and cash equivalents Short-term and long- ￦ - ￦ 8,821,529 ￦ - ￦ - ￦ 8,821,529 ￦ 8,821,529 term financial instruments Trade notes and accounts receivable Other receivables Other financial assets Other assets Financial services receivables - 7,891,106 - - 7,891,106 7,891,106 - - 12,964,437 - 3,961,976 3,195,513 87,589 359,942 - - 2,308,955 - - - 38,197 - 3,961,976 3,195,513 15,399,178 359,942 3,961,976 3,195,513 15,399,178 359,942 - 51,168,018 - ￦ 12,964,437 ￦ 75,485,673 ￦ 2,308,955 ￦ - 51,287,698 38,197 ￦ 90,797,262 ￦ 90,916,942 51,168,018 - 67 - (2) Financial liabilities by categories as of December 31, 2018 are as follows: Description Financial liabilities measured at FVPL Financial liabilities measured 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 ￦ ￦ - ￦ - 7,655,630 ￦ 5,445,779 - ￦ 7,655,630 ￦ 7,655,630 5,445,779 - 5,445,779 - 73,296,141 9,211 - 9,211 ￦ - 2,723,827 89,121,377 ￦ - 332,583 73,296,748 341,794 2,723,827 332,583 ￦ 89,463,171 ￦ 89,463,778 73,296,141 341,794 2,723,827 - Financial liabilities by categories as of December 31, 2017 are as follows: Description Financial liabilities at FVPL Financial liabilities carried at amortized cost Derivative liabilities that are effective hedging instruments (In millions of Korean Won) Book value Fair value ￦ - ￦ - 6,483,875 ￦ 5,059,246 - ￦ 6,483,875 ￦ 6,483,875 5,059,246 - 5,059,246 - 555 - 555 ￦ 72,000,530 - 3,837,148 87,380,799 ￦ - 463,167 71,987,443 463,722 3,837,148 463,167 ￦ 87,844,521 ￦ 87,831,434 72,000,530 463,722 3,837,148 - Trade notes and accounts payable Other payables Borrowings and debentures Other financial liabilities Other liabilities ￦ (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). - 68 - Fair value measurements of financial instruments by fair value hierarchy levels as of December 31, 2018 are as follows: Description Level 1 December 31, 2018 Level 2 Level 3 (In millions of Korean Won) Total Financial assets: Financial assets measured at FVPL Derivative assets that are effective hedging instruments Financial assets measured at FVOCI Financial liabilities: Financial liabilities measured at FVPL Derivative liabilities that are effective hedging instruments ￦ 90,292 ￦ 9,612,287 ￦ 228,572 ￦ 9,931,151 - 32,248 - 32,248 1,306,912 1,910,721 ￦ 1,397,204 ￦ 9,871,358 ￦ 605,558 ￦ 11,874,120 376,986 226,823 ￦ - ￦ 9,211 ￦ - ￦ 9,211 ￦ - - ￦ 332,583 341,794 ￦ - - ￦ 332,583 341,794 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 FVPL Derivative assets that are effective hedging instruments AFS financial assets Financial liabilities: Financial liabilities at FVPL Derivative liabilities that are effective hedging instruments ￦ 111,654 ￦ 12,704,257 ￦ 148,526 ￦ 12,964,437 - 1,708,825 38,197 264,611 - 335,519 ￦ 1,820,479 ￦ 13,007,065 ￦ 484,045 ￦ 38,197 2,308,955 15,311,589 ￦ - ￦ 555 ￦ - ￦ 555 ￦ - - ￦ 463,167 463,722 ￦ - - ￦ 463,167 463,722 The changes in financial instruments classified as Level 3 for the year ended December 31, 2018 are as follows: Beginning of the period (*) Description Financial assets measured Purchases Disposals Valuation Transfers (In millions of Korean Won) Transfer to disposal group as held for sale End of the period at FVPL ￦ 210,162 ￦ 11,884 ￦ (13,009) ￦ 19,535 ￦ - ￦ - ￦ 228,572 Financial assets measured at FVOCI 273,883 77,044 (8,880) 35,008 - (69) 376,986 (*) The beginning amount consists of AFS financial assets and financial assets at FVPL due to the change in accounting standards. - 69 - The changes in financial instruments classified as Level 3 for the year ended December 31, 2017 are as follows: Description Beginning of the period Purchases Disposals Valuation Transfers (In millions of Korean Won) End of the period AFS financial assets Financial assets at FVPL ￦ 258,160 ￦ 77,177 ￦ (3,999) ￦ 71,838 - - 4,681 ￦ 76,688 (500) ￦ 335,519 148,526 - (4) Interest income, dividend income and interest expenses by categories of financial instruments for the year ended December 31, 2018 are as follows: Description Non-financial services: Financial assets measured at amortized cost Financial assets (liabilities) measured at FVPL Financial assets measured at FVOCI Financial liabilities measured at amortized cost Financial services: Financial assets measured at amortized cost Financial assets measured at FVPL Financial assets measured at FVOCI Financial liabilities measured at amortized cost Interest income 2018 Dividend income (In millions of Korean Won) Interest expenses ￦ 339,182 ￦ - ￦ - 175,921 - - - 29,065 18,497 - ￦ 515,103 ￦ 29,065 ￦ - 236,817 255,314 ￦ 3,614,502 ￦ 32,886 2,310 - ￦ 3,649,698 ￦ - ￦ 7,949 - - - - - 1,587,053 7,949 ￦ 1,587,053 Interest income, dividend income and interest expenses by categories of financial instruments for the year ended December 31, 2017 are as follows: Description Non-financial services: Loans and receivables Financial assets (liabilities) at FVPL AFS financial assets Financial liabilities carried at amortized cost Financial services: Loans and receivables Financial assets at FVPL AFS financial assets Financial liabilities carried at amortized cost Interest Income 2017 Dividend income (In millions of Korean Won) Interest expenses ￦ 272,106 ￦ 168,614 - - ￦ - 29,734 - 17,408 - - - ￦ 440,720 ￦ 29,734 ￦ 221,010 238,418 ￦ 3,434,974 ￦ 25,436 1,136 - ￦ 1,499 3,098 - - - - ￦ 3,461,546 ￦ - 1,432,527 4,597 ￦ 1,432,527 - 70 - (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, 2018 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 ￦ 3,892,885 ￦ 3,118,981 160,115 ￦ 3,732,770 ￦ 193,131 2,925,850 204,576 - - 204,576 32,248 ￦ 7,248,690 ￦ 353,246 ￦ 6,895,444 ￦ ￦ 7,862,431 ￦ 5,592,224 206,801 ￦ 7,655,630 ￦ 146,445 5,445,779 9,211 - - 9,211 332,583 ￦ 13,796,449 ￦ 353,246 ￦ 13,443,203 ￦ - ￦ - - 22,431 22,431 ￦ - ￦ - - 22,431 22,431 ￦ - ￦ 3,732,770 2,925,850 - - 204,576 - 9,817 - ￦ 6,873,013 - ￦ 7,655,630 5,445,779 - - 9,211 - 310,152 - ￦ 13,420,772 Description Financial assets: Trade notes and accounts receivable Other receivables Financial assets measured at FVPL Derivative assets that are Financial liabilities: Trade notes and accounts payable Other payables Financial liabilities measured at FVPL Derivative liabilities that are effective hedging instruments (*) 32,248 effective hedging instruments (*) 332,583 (*) 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. 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 FVPL Derivative assets that are ￦ 4,100,242 ￦ 3,387,809 196,662 138,266 ￦ 3,961,976 ￦ 192,296 - 3,195,513 196,662 effective hedging instruments (*) 38,197 - 38,197 ￦ 7,722,910 ￦ 330,562 ￦ 7,392,348 ￦ Financial liabilities: Trade notes and accounts payable Other payables Financial liabilities at FVPL Derivative liabilities that are ￦ 6,683,461 ￦ 5,190,222 555 199,586 ￦ 6,483,875 ￦ 130,976 - 5,059,246 555 effective hedging instruments (*) 463,167 - 463,167 ￦ 12,337,405 ￦ 330,562 ￦ 12,006,843 ￦ - ￦ - - 10,389 10,389 ￦ - ￦ - - 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. - 71 - (6) The commission income (financial services revenue) arising from financial assets or liabilities other than financial assets or liabilities measured at FVPL (financial assets or liabilities at FVPL as of December 31, 2017) for the year ended December 31, 2018 and 2017 are ￦893,473 million and ￦1,815,536 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 measured at FVPL (financial assets or liabilities at FVPL as of December 31, 2017) for the year ended December 31, 2018 and 2017 are ￦365,790 million and ￦989,424 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 were no significant transfers between Level 1 and Level 2 for the year ended December 31, 2018. (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 swap Fair value of currency forwards, options and swap 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 swap, 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 fair value of currency forwards, options and swap are supported by observable market data, such as forward exchange rates, the Group classifies the estimates of fair value measurements of the currency forwards, options and swap as Level 2 of the fair value hierarchy. - Interest rate swap The discount rate and forward interest rate used to measure the fair value of interest rate swaps are determined based on an applicable yield curve derived from interest quoted in the current market at the end of the reporting period. The fair value of interest rate swaps was measured as a discount on the estimated future cash flows of interest rate swap based on forward interest rates derived from the above method at an appropriate discount rate. As the inputs used to measure fair value of interest rate swap are supported by observable market data, such as yield curves, the Group classifies the estimates of fair value measurements of the interest rate swap as Level 2 of the fair value hierarchy. - 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. - 72 - - 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, pre-tax 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 (CAPM), 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. - Total return swap (Derivatives) The fair value of total revenue swaps (derivatives) is measured based on the stock price volatility up to the fair value, exercise price, maturity and maturity of the underlying asset, using the binomial option pricing model. The discount rate used in the binomial option pricing model is based on the risk-free interest rate, which corresponds to the remaining maturity, and the stock price volatility up to maturity uses the historical volatility of the financial sector over the past two years. The fair value of the underlying assets is measured using the cash flow discount model that is estimated based on assumptions and assumptions which are not observable in the market such as sales growth rate, pre-tax profit margin, discount rate. The discount rate used to discount future cash flows was calculated by applying the capital asset pricing model (CAPM) using data from similar listed companies. The Group classifies the fair value measurement of total revenue swap (derivatives) as Level 3 in the fair value hierarchy based on the significant effect of the above assumptions and estimates on the fair value of the total revenue swap classified. (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, Total return swap 561,708 Discounted cash flow and others Sales growth rate 0.6% ~ 5.0% Pre-tax operating income margin 3.2% ~ 12.0% Discount rate 5.92% ~ 9.27% 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. - 73 - 20. CAPITAL STOCK: The Company’s number of shares authorized is 600,000,000 shares. Common stock and preferred stock as of December 31, 2018 and 2017 consist of the following: (1) Common stock Description Issued Par value Capital stock December 31, 2018 December 31, 2017 (In millions of Korean Won, except par value) ￦ 213,668,187 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, 1,320,000 common shares and 6,608,292 common shares as of March 5, 2001, May 4, 2004 and July 27, 2018 respectively. Due to these stock retirements, the total face value of outstanding stock differs from the capital stock amount. (2) Preferred stock Description Par value Issued Korean Won (In millions of Korean Won) Dividend rate 1st preferred stock ￦ 2nd preferred stock 3rd preferred stock 5,000 ˝ ˝ 24,356,685 shares ￦ 36,485,451 shares 2,428,735 shares 63,270,871 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 and as of July 27, 2018, the Company retired 753,297 first preferred shares, 1,128,414 second preferred shares and 49,564 third preferred shares. Due to the stock retirement, the total face value of outstanding stock differs from the capital stock amount. The preferred stocks are non-cumulative, participating and non-voting. 21. CAPITAL SURPLUS: Capital surplus as of December 31, 2018 and 2017 consists of the following: Description December 31, 2018 December 31, 2017 Stock paid-in capital in excess of par value Others (In millions of Korean Won) ￦ ￦ 3,321,334 ￦ 879,880 4,201,214 ￦ 3,321,334 879,880 4,201,214 22. OTHER CAPITAL ITEMS: Other capital items consist of treasury stocks purchased for the stabilization of stock price. Numbers of treasury stocks as of December 31, 2018 and 2017 are as follows: Description Common stock 1st preferred stock 2nd preferred stock 3rd preferred stock December 31, 2018 December 31, 2017 (Number of shares) 9,387,581 1,759,942 696,445 9,050 13,222,514 2,202,059 1,376,138 24,782 - 74 - 23. ACCUMULATED OTHER COMPREHENSIVE LOSS: (1) Accumulated other comprehensive loss as of December 31, 2018 consists of the following: Description December 31, 2018 (In millions of Korean Won) Gain on valuation of financial assets measured at FVOCI (*) ￦ Loss on valuation of financial assets measured at FVOCI (*) 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 Transfer to equity related to the disposal group as held for sale Total ￦ 406,191 (309,690) 3,153 (66,106) 22,632 (979,050) (2,128,206) (3,051,076) (1,122) (3,052,198) (*) It is cumulative gain or loss excluding the amount reclassified to retained earnings at the time of disposal. In accordance with initial application of K- IFRS 1109, it reflects ￦340,268 million won, the effect of adjustment in opening balance as of January 1, 2018 including the reclassification of the impairment recognised in the past. (2) Accumulated other comprehensive loss as of December 31, 2017 consists of the following: Description December 31,2017 (In millions of Korean Won) 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 ￦ ￦ 486,596 (1,915) 9,062 (2,119) 165,563 (814,987) (2,121,155) (2,278,955) 24. RETAINED EARNINGS: Retained earnings as of December 31, 2018 and 2017 consist of the following: Description Legal reserve (*) Discretionary reserve Unappropriated December 31, 2018 (In millions of Korean Won) December 31, 2017 ￦ ￦ 744,836 ￦ 48,328,847 17,416,399 66,490,082 ￦ 744,836 46,848,647 19,738,845 67,332,328 (*) 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. - 75 - (2) The computation of the interim dividends for the year ended December 31, 2018 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 (15,359,818) 204,916,661 25,109,982 (2,445,984) 22,663,998 37,613,865 (1,740,855) 35,873,010 1,000 ￦ 20% 204,917 1,000 ￦ 20% 22,664 1,000 ￦ 20% 35,873 5,000 2,478,299 (48,817) 2,429,482 1,000 20% 2,429 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 (3) The computation of the proposed dividends for the year ended December 31, 2018 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 ￦ 213,668,187 (9,387,581) 204,280,606 24,356,685 (1,759,942) 22,596,743 36,485,451 (696,445) 35,789,006 3,000 ￦ 60% 613,016 3,050 ￦ 61% 68,929 3,100 ￦ 62% 110,973 5,000 2,428,735 (9,050) 2,419,685 3,050 61% 7,383 The computation of the 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 - 76 - 25. HYBRID BOND: (1) Hyundai Card Co., Ltd., a subsidiary of the Company, issued hybrid bond and the Group classified it as equity (non-controlling interests). As of December 31, 2018, hybrid bond is as follows: Description Issue date Maturity date The 731st Hybrid Tier 1 (Private) Issue cost July 5, 2018 July 5, 2048 Annual interest rate (%) 4.70 December 31, 2018 (In millions of Korean Won) ￦ 300,000 (760) 299,240 ￦ (2) As of December 31, 2018, the condition of hybrid bond that Hyundai Card Co., Ltd., a subsidiary of the Company issued, is as follows: Maturity Thirty years (Maturity extension is possible according to the issuer's decision Description upon maturity) Issue date ~ July 5, 2023 : An annual fixed interest rate 4.7% Increase 2% after five years in accordance with Step-up clause at a time only Three months, optional postponement of payment Repayment before maturity by issuer is available after five years from issue date Interest rate Interest payment condition Others 26. SALES: (1) Sales for the years ended December 31, 2018 and 2017 consist of the following: Description Sales of goods Rendering of services Royalties Financial services revenue Revenue related to construction contracts Others 2018 2017 (In millions of Korean Won) ￦ ￦ 81,502,831 ￦ 2,223,538 104,813 10,236,363 2,360,807 384,257 96,812,609 ￦ 80,378,325 1,445,580 138,636 11,290,926 2,608,678 513,934 96,376,079 (2) As of December 31, 2018, the aggregate transaction price allocated to the unrealized (or partially unrealized) performance obligation is expected to be recognized as revenue in the future periods. Description Deferred revenue and others Not later than one year Later than one year ￦ 695,607 ￦ 1,043,224 - 77 - 27. SELLING AND ADMINISTRATIVE EXPENSES: Selling and administrative expenses for the years ended December 31, 2018 and 2017 consist of the following: Description 2018 2017 (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 ￦ 88,246 ￦ 403,541 2,308,527 726,265 1,998,143 116,791 5,641,513 2,633,437 171,504 403,564 1,351,919 1,125,603 1,392,425 7,078,452 12,719,965 ￦ 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 28. GAIN (LOSS) ON INVESTMENTS IN JOINT VENTURES AND ASSOCIATES: Gain (loss) on investments in joint ventures and associates for the years ended December 31, 2018 and 2017 consist of the following: Description Gain on share of earnings of equity-accounted investees, net Gain on disposals of investments in associates, net Impairment loss on investments in associates 2018 2017 (In millions of Korean Won) ￦ ￦ 599,522 ￦ (1,491) (193,490) 404,541 ￦ 527,589 - (302,536) 225,053 29. FINANCE INCOME AND EXPENSES: (1) Finance income for the years ended December 31, 2018 and 2017 consists of the following: Description Interest income Gain on foreign exchange transactions Gain on foreign currency translation Dividend income Gain on derivatives Others 2018 2017 (In millions of Korean Won) ￦ ￦ 515,103 ￦ 86,033 105,060 29,065 69,227 19,011 823,499 ￦ 440,720 159,131 195,647 29,734 97,459 50,252 972,943 - 78 - (2) Finance expenses for the years ended December 31, 2018 and 2017 consist of the following: Description Interest expenses Loss on foreign exchange transactions Loss on foreign currency translation Loss on derivatives Impairment loss on AFS financial assets Others 2018 2017 (In millions of Korean Won) 307,070 ￦ 51,310 229,497 12,781 - 209 600,867 ￦ 333,034 180,322 145,619 29,742 373,440 58,229 1,120,386 ￦ ￦ 30. OTHER INCOME AND EXPENSES: (1) Other income for the years ended December 31, 2018 and 2017 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 2018 2017 (In millions of Korean Won) 329,399 ￦ 159,899 19,518 119,920 77,974 260,571 967,281 ￦ 405,026 183,766 23,789 129,456 83,100 328,607 1,153,744 ￦ ￦ (2) Other expenses for the years ended December 31, 2018 and 2017 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 ￦ ￦ 2018 2017 (In millions of Korean Won) ￦ 433,694 203,994 163,594 13,045 85,482 587,228 1,487,037 437,602 282,699 186,575 - 68,843 391,752 1,367,471 ￦ 31. EXPENSES BY NATURE: Expenses by nature for the years ended December 31, 2018 and 2017 consist of the following: Description Changes in inventories Raw materials and merchandise used Employee benefits Depreciation Amortization Others ￦ Total (*) ￦ 2018 (In millions of Korean Won) 2017 (310,180) ￦ 56,845,459 8,893,878 2,357,887 1,403,582 26,686,855 95,877,481 ￦ 351,359 53,039,414 8,920,952 2,254,552 1,274,842 27,327,764 93,168,883 (*) Sum of cost of sales, selling and administrative expenses and other expenses in the consolidated statements of income. - 79 - 32. 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, 2018 and 2017, since there are no dilutive items during the years. Basic earnings per common stock and preferred stock for the years ended December 31, 2018 and 2017 are computed as follows: December 31, 2018 Weighted- average number of shares outstanding (*1) Profit available to share December 31, 2017 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 ￦ 1,158,437 129,272 206,532 13,843 (In millions of Korean Won, except per share amounts) 205,697,075 ￦ 22,753,974 36,008,052 2,438,169 5,632 ￦ 3,104,373 344,605 5,681 546,938 5,736 36,908 5,677 207,053,965 ￦ 14,993 15,043 22,907,923 15,093 36,237,727 15,043 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’. 33. INCOME TAX EXPENSE: (1) Income tax expense (benefit) for the years ended December 31, 2018 and 2017 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 recognized directly in equity Effect of foreign exchange differences Income tax expense (benefit) 2018 2017 (In millions of Korean Won) ￦ 802,201 ￦ 1,250,042 475,666 (44,320) (506,925) (129,864) 225,581 17,904 884,563 ￦ (2,071,031) 676,384 (96,821) 177,896 (107,850) ￦ (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, 2018 and 2017 is as follows: Description Income before income tax Income tax expense calculated at current applicable tax rates of 28% in 2018 and 22.5% in 2017 Adjustments: Non-taxable income Disallowed expenses Tax credits Impact of changes in tax rates Others Income tax expense (benefit) Effective tax rate (*) 2018 2017 (In millions of Korean Won) ￦ 2,529,582 ￦ 4,438,550 707,993 999,530 (204,614) 150,243 (83,025) - 313,966 176,570 884,563 ￦ 35.0% (50,863) 77,793 (349,453) (804,048) 19,191 (1,107,380) (107,850) - ￦ (*) The Group does not determine effective tax rate for the year ended December 31, 2017 as tax benefit is recognized. - 80 - (3) The changes in deferred tax assets (liabilities) for the year ended December 31, 2018 are as follows: Description Beginning of the year End of the year ￦ Provisions Financial assets measured at FVPL Financial assets measured at FVOCI 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 ￦ 1,876,177 ￦ Changes (In millions of Korean Won) 18,555 ￦ 3,287 (160,472) 187,795 (12,332) 30,588 20,509 (313,221) 17,607 55 714,554 506,925 129,864 636,789 ￦ - - (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) ￦ 1,894,732 3,287 (160,472) - (1,520,164) - (11,609) (4,816,432) 88,318 (4) 795,016 (3,727,328) 2,253,312 (1,474,016) The changes in deferred tax assets (liabilities) for the year ended December 31, 2017 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 ￦ Changes (In millions of Korean Won) (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 ￦ 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) ￦ 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) (4) The components of items recognised directly in equity for the years ended December 31, 2018 and 2017 are as follows: Description 2018 2017 Gain on valuation of AFS financial assets, net Loss on financial assets measured at FVOCI, net Loss (gain) on valuation of cash flow hedge derivatives, net Remeasurements of defined benefit plans Changes in retained earnings of equity-accounted investees (In millions of Korean Won) - ￦ ￦ 43,432 39,557 155,777 (13,185) 225,581 ￦ ￦ (89,737) - (8,681) (9,992) 11,589 (96,821) (5) The temporary differences not recognized as deferred tax liabilities related to subsidiaries, associates and joint ventures are ￦8,328,950 million and ￦8,144,899 million as of December 31, 2018 and 2017, respectively. - 81 - 34. RETIREMENT BENEFIT PLAN: (1) Expenses recognized in relation to defined contribution plans for the years ended December 31, 2018 and 2017 are as follows: Description Paid-in cash Recognized liability 2017 2018 (In millions of Korean Won) ￦ ￦ 8,322 ￦ 1,969 10,291 ￦ 8,288 1,257 9,545 (2) The significant actuarial assumptions used by the Group as of December 31, 2018 and 2017 are as follows: Description December 31, 2018 December 31, 2017 Discount rate Rate of expected future salary increase 3.39% 4.29% 4.41% 4.62% 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, 2018 and 2017 consist of the following: Description December 31, 2018 December 31, 2017 Present value of defined benefit obligations ￦ Fair value of plan assets ￦ Net defined benefit liabilities Net defined benefit assets (In millions of Korean Won) 5,931,464 ￦ (5,508,329) 423,135 ￦ 433,247 (10,112) 5,321,580 (5,179,426) 142,154 157,213 (15,059) (4) Changes in net defined benefit assets and liabilities for the year ended December 31, 2018 are as follows: Description Present value of defined benefit obligations Fair value of plan assets Total ￦ 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 (In millions of Korean Won) 5,321,580 ￦ 554,868 164,547 2,447 6,043,442 (5,179,426) ￦ - (159,013) - (5,338,439) - 119,254 95,599 200,651 179,780 476,030 - (610,301) 5,099 - - - 119,254 (698,631) 418,485 (1,421) 142,154 554,868 5,534 2,447 705,003 119,254 95,599 200,651 179,780 595,284 (698,631) (191,816) 3,678 9,617 423,135 ￦ 17,194 5,931,464 ￦ (7,577) (5,508,329) ￦ - 82 - 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 Total ￦ 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 (In millions of Korean Won) 4,937,999 ￦ 546,342 142,930 (48) 5,627,223 (4,449,721) ￦ - (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 1,108 (86,192) 51,436 (39,690) (814,443) (55,074) 302 4,157 142,154 ￦ (21,846) 5,321,580 ￦ 26,003 (5,179,426) ￦ (5) The sensitivity analysis below has been determined based on reasonably possible changes of the significant assumptions as of December 31, 2018 and 2017, while holding all the other assumptions are constant. Effect on the net defined benefit liabilities December 31, 2018 December 31, 2017 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 ￦ (516,424) ￦ 571,913 604,045 ￦ (500,355) (488,202) ￦ 539,260 574,125 (470,246) (6) The fair value of the plan assets as of December 31, 2018 and 2017 consists of the following: Description December 31, 2018 December 31, 2017 Insurance instruments Debt instruments Others ￦ ￦ (In millions of Korean Won) ￦ 5,203,146 123,766 181,417 5,508,329 ￦ 4,873,665 120,277 185,484 5,179,426 (7) The Group expects to pay ￦587,216 million in contributions to the retirement benefit plan in 2019. In addition, the weighted average maturity of the defined benefit liabilities as of December 31, 2018 is 9.98 years. - 83 - 35. CASH FLOWS: (1) Cash generated from operations for the years ended December 31, 2018 and 2017 are as follows: Description 2018 (In millions of Korean Won) 2017 ￦ 1,645,019 ￦ 4,546,400 Profit for the year Adjustments: Post-employment benefits Depreciation Amortization of intangible assets Provision for warranties Income tax expense (benefit) Loss on foreign currency translation, net Loss on disposals of PP&E, net Interest income, net Gain on share of earnings of equity-accounted investees, 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 (increase) in other receivables Decrease (increase) in other financial assets Increase in inventories Increase in other assets Increase in trade notes and accounts payable Increase in other payables Increase (decrease) 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 564,830 2,357,887 1,403,582 1,805,607 884,563 168,532 144,076 (208,033) (599,522) 6,623,857 193,490 - 697,607 14,036,476 144,965 (49,614) 582,163 (686,275) (232,079) 1,250,595 371,821 (318,944) (5,774) (685,658) (191,816) (2,367,358) (4,552,802) (2,920,535) 68,502 (9,592,809) Cash generated from operations ￦ 6,088,686 ￦ 559,881 2,254,552 1,274,842 1,392,351 (107,850) 48,905 162,786 (107,686) (527,589) 6,305,394 302,536 373,440 849,519 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) 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, 2018 and 2017 are as follows: Description 2018 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 13,198,648 ￦ 3,224,076 140,905 14,335,321 3,140,826 94,937 - 84 - (3) Changes in liabilities arising from financial activities for the year ended December 31, 2018 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) ￦ 23,058,201 ￦ (10,137,072) ￦ 13,198,648 ￦ 408,544 ￦ 82,553 ￦ (256,097) ￦ 26,354,777 12,488,137 36,454,192 439,697 10,198,316 (2,669,011) (10,529,637) 237,897 794,741 (5,242) 38,502 (506,228) - 9,985,250 36,956,114 Description Short-term borrowings (*1) Long-term debts Debentures (*1) The current portion of long-term debts and debentures are included. (*2) Others include liabilities classified as held for sale and others. 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. 36. 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 period. Debt to equity ratios as of December 31, 2018 and 2017 are as follows: Description December 31, 2018 December 31, 2017 Total liabilities Total equity Debt-to-equity ratio (2) Financial risk management ￦ (In millions of Korean Won) 106,759,742 ￦ 73,896,010 144.5% 103,442,100 74,757,354 138.4% The Group is exposed to various financial risks such as market risk (foreign exchange risk, interest rate risk and equity instrument 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. - 85 - 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. 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, 2018 would be as follows: Foreign Currency Increase by 5% Decrease by 5% Foreign Exchange Rate Sensitivity USD EUR JPY ￦ (In millions of Korean Won) 9,281 ￦ (13,525) (3,867) (9,281) 13,525 3,867 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. To manage the interest rate risk, the Group maintains an appropriate balance between borrowings with fixed and variable interest rates for short-term borrowings and has a policy to borrow funds with fixed interest rates to avoid the future cash flow fluctuation risk for long-term debt if possible. 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, 2018 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 measured at FVPL Short-term and long-term financial Instruments Borrowings and debentures Financial liabilities measured at FVPL 15,472 ￦ 1,715 5,043 (139,911) (2,481) (15,472) (1,455) (5,043) 139,911 2,481 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, 2018 and 2017, the amounts of interest rate risk measured at VaR are ￦134,366 million and ￦194,899 million, respectively. c) Equity instruments price risk The Group is exposed to market price fluctuation risk arising from equity instruments. As of December 31, 2018, the amounts of financial assets measured at FVPL and financial assets measured at FVOCI are ￦90,292 million and ￦1,674,690 million, respectively. - 86 - 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 38, 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. Due to the inherent nature of the industry, the Group requires continuous R&D investment and is sensitive to economic fluctuations. The Group minimizes its credit risk in cash equivalents by investing in risk-free assets. 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, 2018 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 ￦ 15,804,917 ￦ 27,914,039 946,190 21,011 ￦ 46,450,499 21,039 - ￦ 2,748,091 635 15,825,928 77,112,629 967,864 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 instruments The Group enters into derivative instrument contracts such as forwards, currency options, currency swaps and interest swaps to hedge its exposure to changes in foreign exchange rate. As of December 31, 2018 and 2017, the Group deferred a net loss of ￦62,953 million and a net profit of ￦6,943 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 104 months as of December 31, 2018. For the year ended December 31, 2018 and 2017, the Group recognises a net profit of ￦206,019 million and a net loss of ￦490,945 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. - 87 - 37. RELATED-PARTY TRANSACTIONS: The transactions and balances of receivables and payables within the Group are wholly eliminated in the preparation of consolidated financial statements of the Group. (1) For the year ended December 31, 2018, 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 Others Purchases (In millions of Korean Won) Others Sales/proceeds Purchases/expenses 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 ￦ 855,899 ￦ 150,932 - 9,309 36,758 16,954 11,882 ￦ - 650 2,547 3,091 882 5,779,338 ￦ 1,170,562 1,595,879 1,089,584 784,401 400,752 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 7,301 - 18,518 1,232,262 394,601 1,064,764 119,781 461,444 3,032 265,199 503,428 2,454 948,967 - 332 1,991 648,081 953 - 79 46,526 - 2,622 54,601 6,307 162,448 234,990 413,903 718,445 179,658 342,964 - 563,662 36,535 12,886 1,368,294 3,740,640 114 7,017,992 63,730 11,510 12,925 5,076 647 33 - - 17,171 505,812 2,932 - - - 14,654 3,870 1,772,692 5 1,357,505 For the year ended December 31, 2017, significant transactions arising from operations between the Group and related parties or affiliates by the Act are as follows: Description Sales Others Purchases (In millions of Korean Won) Others Sales/proceeds Purchases/expenses 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 Brasil Fabricacao De 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 ￦ 851,971 ￦ 152,716 - 25,209 33,173 16,595 11,641 ￦ 218 520 2,933 3,092 1,601 4,712,207 ￦ 1,175,462 1,576,856 1,085,635 773,394 357,531 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 - 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 - 88 - (2) As of December 31, 2018, significant balances related to the transactions between the Group and related parties or affiliates by the Act are as follows: Description 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 ￦ 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 157,633 ￦ 13,694 2 1,061 7,568 1,671 - 4,152 358,664 26,594 104,433 9,253 - 170,547 - 34,382 203,992 404 223,834 11,050 ￦ 1,161,047 ￦ - 210 3 93 3,317 33 143 313,353 11,698 103 131 77,713 62,236 13,021 17,306 108,678 558 25,370 97,661 128,210 148,002 64,274 42,412 39,281 61,323 36,681 7 - 20,711 1,212 - 8,716 189,044 517,426 9 928,550 279,775 33 - 15 - - - 4,770 178,582 - - 282 19,478 30 6,619 71,059 739,730 2 333,227 (*1) The Group has recognised the loss allowance for the related parties' receivables in the amount of ￦24,993 million as of December 31, 2018 and the impairment loss is recognised in the amount of ￦2,974 million for the year ended December 31, 2018. (*2) As of December 31, 2018, outstanding payment of ￦18,013 million of corporate purchase card agreement provided by Hyundai Card Co., Ltd. are included. For the year ended December 31, 2018, amount used and repayment of agreement are ￦283,929 million and ￦278,863 million, respectively. - 89 - 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 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 ￦ 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 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 14,747 183 365 105,854 87,455 - 19,252 113,488 557 983,238 620,182 ￦ 42,710 118,894 170,877 53,628 27,100 42,202 72,715 22,013 176,080 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 recognised the loss allowance for the related parties' receivables in the amount of ￦21,915 million as of December 31, 2017 and the impairment loss is recognised 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. (3) Significant fund transactions and equity contribution transactions for the year ended December 31, 2018, between the Group and related parties are as follows: Description Lending Collection Loans Borrowings Borrowing Repayment Joint ventures and associates (In thousands of U.S. Dollars, Chinese Yuan) - ￥ 80,000 - Equity contribution (In millions of Korean won) - ￦ 61,772 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 Loans Borrowings Borrowing Repayment Equity contribution (In millions of Korean won) Joint ventures and associates - - - - ￦ 80,144 For the year ended December 31, 2018 and 2017, the Group received dividends of ￦168,811million and ￦835,338 million from related parties and affiliates by the Act, respectively and paid dividends of ￦272,961 million and ￦278,995 million to related parties, respectively. During 2018, the Group traded in other financial assets and others of ￦2,477,360 million with HYUNDAI MOTOR SECURITIES Co., Ltd., an associate of the Group. The Group has other financial assets of ￦1,413,700 million in the consolidated statement of financial position as of December 31, 2018. - 90 - (4) Compensation of registered and unregistered directors, who are considered to be the key management personnel for the year ended December 31, 2018 and 2017 are as follows: Description 2018 2017 (In millions of Korean Won) Short-term employee salaries Post-employment benefits Other long-term benefits ￦ ￦ 218,620 ￦ 34,087 606 253,313 ￦ 172,557 37,810 285 210,652 38. COMMITMENTS AND CONTINGENCIES: (1) As of December 31, 2018, the debt guarantees provided by the Group, excluding the ones provided to the Company’s subsidiaries are as follows: Description Domestic Overseas (*) To associates To others ￦ ￦ (In millions of Korean Won) 1,428 ￦ 8,418 9,846 ￦ 139,115 821,017 960,132 (*) 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, 2018. (2) As of December 31, 2018, 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, 2018, 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. Also, the Group is being investigated by the domestic and foreign authorities regarding the recall of Theta2 engines, and the consequences and effects are unpredictable as of December 31, 2018. (3) As of December 31, 2018, a substantial portion of the Group’s PP&E is pledged as collateral for various loans and leasehold deposits up to ￦836,646 million. In addition, the Group pledged certain bank deposits, checks and promissory notes, 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, 2018, 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 24,500 million, and ￦6,163,500 million. (5) As of December 31, 2018, 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 credit rating of Hyundai Capital Services, Inc. and Hyundai Card Co., Ltd. falls below a certain level, this may result in early repayment of the borrowings or termination of the contracts. - 91 - (6) As of December 31, 2018, Hyundai Capital Services, Inc. and Hyundai Card Co., Ltd, the subsidiaries of the Company are able to exercise the priority purchasing rights for the leased office building when the lessor wants to sell the building or after 4 years and 5 months from the lease contract commencement date. (7) As of December 31, 2018, the Company entered into a total return swap contract for stocks of Hyundai Capital Services, Inc., the subsidiary of the Company, held by other investors of a third parties. (8) As of December 31, 2018, the Company has a shareholder agreements with investors of a third parties regarding shares of Hyundai Card Co., Ltd and Hyundai Commercial Inc. This includes the Call options that allow the Company to buy shares from the investors and the Put options that allow the investors to dispose of the shares to the Company. (9) Financial instruments with limited use as of December 2018 and 2017, are as follows: Description 2018 2017 Short-term and long-term financial instruments Cash and cash equivalents Other financial assets ￦ ￦ (In millions of Korean Won) ￦ 936,606 329,296 7,770 1,273,672 ￦ 737,600 288,031 7,201 1,032,832 39. SEGMENT INFORMATION: (1) The Group has a vehicle segment, a finance segment and other segments. The vehicle segment is engaged in 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 year ended December 31, 2018 and 2017 are as follows: For the year ended December 31, 2018 Total sales Inter-company sales(*) Net sales Operating income Vehicle Others (In millions of Korean Won) ￦ 114,448,752 ￦ 15,284,427 ￦ 7,954,215 ￦ (40,874,785) ￦ 96,812,609 Finance Total (39,183,338) 75,265,414 1,062,241 (326,223) 14,958,204 746,612 (1,365,224) 6,588,991 105,295 40,874,785 - 508,017 - 96,812,609 2,422,165 Consolidation adjustments (*) Inter-company sales include intersegment sales in the Group. For the year ended December 31, 2017 Total sales Inter-company sales(*) Net sales Operating income Vehicle Others (In millions of Korean Won) ￦ 111,479,729 ￦ 15,744,881 ￦ 7,741,527 ￦ (38,590,058) ￦ 96,376,079 Finance Total (36,989,499) 74,490,230 2,585,413 (330,291) 15,414,590 718,137 (1,270,268) 6,471,259 338,792 38,590,058 - 932,325 - 96,376,079 4,574,667 Consolidation adjustments (*) Inter-company sales include intersegment sales in the Group. - 92 - (3) Assets and liabilities by operating segments as of December 31, 2018 and 2017 are as follows: As of December 31, 2018 Total assets Total liabilities Borrowings and debentures Total assets Total liabilities Borrowings and debentures Vehicle Finance Others (In millions of Korean Won) ￦ 100,302,183 ￦ 85,725,929 ￦ 7,930,963 ￦ (13,303,323) ￦ 180,655,752 106,759,742 73,296,141 (8,489,672) (1,462,506) 5,041,081 2,547,523 73,323,028 65,215,856 36,885,305 6,995,268 Total Consolidation adjustments As of December 31, 2017 Vehicle Finance Others (In millions of Korean Won) ￦ 99,724,673 ￦ 84,016,995 ￦ 7,604,015 ￦ (13,146,229) ￦ 178,199,454 103,442,100 72,000,530 (8,430,611) (2,619,343) 72,348,770 64,694,680 34,910,194 7,412,234 4,613,747 2,512,959 Total Consolidation adjustments (4) Sales by region where the Group’s entities are located in for the year ended December 31, 2018 and 2017 are as follows: For the year ended December 31, 2018 Total sales Inter-company sales Net sales Korea Europe (In millions of Korean Won) ￦ 53,587,031 ￦ 37,500,229 ￦ 9,787,259 ￦ 33,959,206 ￦ 2,853,669 ￦ (40,874,785) ￦ 96,812,609 Others Total Asia (16,835,175) 36,751,856 (6,791,173) 30,709,056 (461,954) 9,325,305 (16,786,135) 17,173,071 (348) 2,853,321 40,874,785 - - 96,812,609 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 Others Total Asia (15,144,026) 38,082,750 (6,764,174) (451,473) 30,804,468 8,193,449 (16,230,385) 16,250,468 - 3,044,944 38,590,058 - - 96,376,079 Consolidation adjustments Consolidation adjustments North America North America (5) Non-current assets by region where the Group’s entities are located in as of December 31, 2018 and 2017 are as follows: Description December 31, 2018 December 31, 2017 Korea North America Asia Europe Others ￦ Consolidation adjustments Total (*) ￦ (In millions of Korean Won) 30,267,888 ￦ 2,175,054 1,106,064 1,891,626 410,601 35,851,233 (194,908) 35,656,325 ￦ 29,443,964 2,040,394 1,047,364 2,076,017 390,816 34,998,555 (162,579) 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 year ended December 31, 2018 and 2017. - 93 - 40. CONSTRUCTION CONTRACTS: (1) Cost, income and loss and claimed construction from construction in progress as of December 31, 2018 and December 31, 2017 are as follows: Description December 31, 2018 (In millions of Korean Won) December 31, 2017 ￦ Accumulated accrual cost Accumulated income Accumulated construction in process Progress billing Due from customers for contract work Due to customers for contract work Reserve (*) 9,305,321 ￦ 591,321 9,896,642 9,331,926 1,110,972 546,256 71,729 9,998,070 784,071 10,782,141 10,196,219 1,024,899 438,977 47,574 (*) 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, an other operating segment of the Group, as of December 31, 2018 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 loss ￦ December 31, 2018 (In millions of Korean Won) (45,768) 315,119 (168,963) (191,924) (158,741) 192,533 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, 2018 and the estimates of contract revenue as of December 31, 2018. 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, 2018. - 94 - 

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