imarketkorea inc. and its subsidiaries ... inc. and its subsidiaries consolidated financial...

IMARKETKOREA INC. AND ITS SUBSIDIARIES

Consolidated Financial Statements

As of and For the Years Ended

December 31, 2014 and 2013

ATTACHMENT: INDEPENDENT AUDITOR’S REPORT

(TABLE of Content)

Independent Auditor’s Report

Consolidated Financial Statements as of and for the years ended December 31, 2014 and 2013

Notes to Consolidated Financial Statements

Independent Auditor’s Report English Translation of Independent Auditor’s Report Originally Issued in Korean on March 12, 2015

To the Shareholders and the Board of Directors of

iMarketKorea Inc. and Subsidiaries:

Report on the Consolidated Financial Statements

We have audited the accompanying consolidated financial statements of iMarketKorea Inc. and its

subsidiaries, which comprise the consolidated statements of financial position as of December 31, 2014,

and the consolidated statement of comprehensive income, consolidated statement of changes in

shareholders’ equity and consolidated statement of cash flows, all expressed in Korean won, for the year

then ended and a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial

statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) and for

such internal control as management determines is necessary to enable the preparation of consolidated

financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an audit opinion on these consolidated financial statements based on our

audit. We conducted our audits in accordance with Korean Standards on Auditing (“KSAs”). Those

standards require that we comply with ethical requirements and plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in

the financial statements. The procedures selected depend on the auditor’s judgment, including the

assessment of the risks of material misstatement of the financial statements, whether due to fraud or error.

In making those risk assessments, the auditor considers internal control relevant to the entity’s

preparation and fair presentation of the financial statements in order to design audit procedures that are

appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of

the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies

used and the reasonableness of accounting estimates made by management, as well as evaluating the

overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for

our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial

position of the iMarketKorea Inc. and its subsidiaries as of December 31, 2014, and its financial

performance and its cash flows for the year ended in accordance with K-IFRS.

Others

The comparative consolidated financial statements of iMarketKorea Inc. and its subsidiaries as of

December 31, 2013, were audited by PricewaterhouseCoopers (PwC) whose report dated March 6, 2014,

including consolidated statements of financial position, comprehensive income, changes in equity and

cash flows. PricewaterhouseCoopers (PwC) conducted audit conformity with the former KSAs, known

as auditing standards generally accepted in Korea and expressed unqualified opinion on those above

financial statements.

March 12, 2015

Notice to Readers

This report is effective as of March 12, 2015, the auditors’ report date. Certain subsequent events or circumstances

may have occurred between the auditor’s report date and the time the auditor’s report is read. Such events or

circumstances could significantly affect the consolidated financial statements and may result in modifications to the

auditor’s report.

IMARKETKOREA INC. AND ITS SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

The accompanying financial statements including all footnote disclosures were prepared by and

are the responsibility of the Company.

Lee, Ki Hyung

Chief Executive Officer

IMARKETKOREA INC.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2014 AND 2013

Notes December 31, 2014 December 31, 2013

(In Korean won)

ASSETS

CURRENT ASSETS:

Cash and cash equivalents 5 and 31 ₩ 135,380,305,761 ₩ 50,332,013,887

Trade receivables 7, 29 and 31 652,321,786,770 636,856,880,588

Other receivables 2, 7, 29 and 31 2,821,339,490 2,068,480,081

Other financial assets 6, 8 and 31 22,434,645,997 2,418,819,214

Current tax assets 25,535,390 -

Inventories 9 48,154,276,428 35,541,668,722

Other current assets 2 and 10 5,099,062,481 14,724,670,967

Total current assets 866,236,952,317 741,942,533,459

NON-CURRENT ASSETS:

Long-term trade receivables 7 and 31 45,175,366 45,175,366

Long-term other receivables 7 and 31 5,304,527,923 3,314,243,209

Other long-term financial assets 6, 8 and 31 8,792,525,681 3,865,628,012

Property, plant and equipment 11 11,216,239,185 11,177,324,248

Intangible assets 12 and 33 192,295,064,737 30,559,297,280

Investments in associates 14 and 29 225,777,424 339,748,122

Investments in joint venture 15 and 29 5,099,855,704 -

Deferred income tax assets 1,270,088,647 488,962,844

Total non-current assets 224,249,254,667 49,790,379,081

Total assets ₩ 1,090,486,206,984 ₩ 791,732,912,540

LIABILITIES

CURRENT LIABILITIES:

Trade payables 16, 29 and 31 ₩ 581,453,198,744 ₩ 407,285,640,963

Other payables 16, 29 and 31 11,339,718,088 8,518,068,821

Other financial liabilities 17 and 31 266,043,691 246,521,849

Current income tax liabilities 8,241,338,989 6,310,037,360

Short-term borrowings 18, 30 and 31 8,487,638,579 15,396,593,673

Current convertible bonds 19 and 31 1,090,200,000 -

Other current liabilities 20 7,123,469,547 3,320,063,430

Total current liabilities 618,001,607,638 441,076,926,096

NON-CURRENT LIABILITIES:

Long-term borrowings 18, 30 and 31 9,008,748 -

Non-current convertible bonds 19 and 31 - 1,090,200,000

Redeemable preferred shares liabilities 19 and 31 1,873,101,162 1,843,648,586

Defined benefit obligations 21 3,910,508,536 2,898,943,491

Deferred income tax liabilities 27 33,421,897,884 2,150,701

Other non-current liabilities 20 163,665,480 -

Total non-current liabilities 39,378,181,810 5,834,942,778

Total liabilities 657,379,789,448 446,911,868,874

(Continued)


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF DECEMBER 31, 2014 AND 2013

Notes December 31, 2014 December 31, 2013

SHAREHOLDERS’ EQUITY (In Korean won) Equity attributable to owners of the parent

company

Capital Stock 22 ₩ 18,166,670,000 ₩ 18,166,670,000

Other contributed capital 2 and 22 125,339,585,275 134,635,754,025

Components of other capital 2 and 22 334,435,935 (173,239,533)

Retained earnings 22 226,188,417,441 194,136,394,731

Total equity attributable from the

parent company

370,029,108,651 346,765,579,223

Non-controlling interests 63,077,308,885 (1,944,535,557)

Total shareholders' equity 433,106,417,536 344,821,043,666

Total liabilities and shareholders'

equity ₩ 1,090,486,206,984 ₩ 791,732,912,540

(Concluded)

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

Notes 2014 2013

(In Korean won)

SALES 4 and 29 ₩ 2,733,773,271,320 ₩ 2,496,830,272,780

COST OF SALES 23 and 29 2,578,986,645,576 2,370,186,767,555

GROSS PROFIT 154,786,625,744 126,643,505,225

SELLING AND ADMINISTRATIVE

EXPENSES 23, 24, 29 and 30 97,943,142,780 77,157,357,405

OPERATING INCOME 56,843,482,964 49,486,147,820

NON-OPERATING INCOME AND

EXPENSES:

Other non-operating income 25 and 29 9,500,522,357 10,389,209,591

Other non-operating expenses 25 10,597,983,723 10,193,301,840

Finance income 26 2,564,814,495 1,651,855,874

Finance expenses 26 603,244,604 519,033,567

Loss on equity method investments 4, 14 and 15 (488,962,874) (164,600,072)

375,145,651 1,164,129,986

INCOME BEFORE INCOME TAX 57,218,628,615 50,650,277,806

INCOME TAX EXPENSE 27 13,078,506,238 12,093,719,627

NET INCOME 44,140,122,377 38,556,558,179

OTHER COMPREHENSIVE INCOME(LOSS):

Items that will not be reclassified

subsequently to profit or loss

Remeasurement of defined benefit

plan 21 739,461,715 (1,038,382,196)

Income tax relating to items that will

not be reclassified subsequently, net 21 (172,856,147) 251,288,491

Items that may be reclassified subsequently

to profit or loss

Gain on foreign operations

translation, net 22 137,161,714 (133,504,365)

Capital change in equity method 14, 15 and 22 370,347,880 (803,964)

1,074,115,162 (921,402,034)

TOTAL COMPREHENSIVE INCOME ₩ 45,214,237,539 ₩ 37,635,156,145

NET INCOME ATTRIBUTABLE TO:

Owners of the parent company 22 ₩ 40,452,095,267 ₩ 38,826,438,934

Non-controlling interests 3,688,027,110 (269,880,755)

TOTAL COMPREHENSIVE INCOME

Owners of the parent company 41,543,033,178 37,905,842,193

Non-controlling interests 3,671,204,361 (270,686,048)

(Continued)


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)


Notes 2014 2013

(In Korean won)

EARNINGS PER SHARE:

Basic and diluted earnings per common

share 28 ₩ 1,126 ₩ 1,081

Basic and diluted earnings per share from

discontinued operations 28 ₩ 1,126 ₩ 1,081

(Concluded)



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


Other contributed capital

Capital stock Capital surplus Treasury stock

Components of

other capital

Retained

earnings

Non-controlling

interests Total (In Korean won)

Balance at January 1,

2013 ₩ 18,166,670,000 ₩ 134,652,554,025 ₩ (16,800,000) ₩ (39,736,497) ₩165,080,384,502 ₩(1,800,309,599) ₩ 316,042,762,431

Net income - - - - 38,826,438,934 (269,880,755) 38,556,558,179

Remeasurement of

defined benefit plan - - - - (787,093,705) - (787,093,705) Loss on foreign

operation

translation, net - - - (132,699,072) - (805,293) (133,504,365) Capital change in equity

method - - - (803,964) - - (803,964)

Share-based payment reserve - - - - - 11,807,386 11,807,386

Year-end dividends - - - - (8,983,335,000) - (8,983,335,000)

Change in consolidated scope - - - - - 114,652,704 114,652,704

Balance at

December 31, 2013 ₩ 18,166,670,000 ₩ 134,652,554,025 ₩ (16,800,000) ₩ (173,239,533) ₩194,136,394,731 ₩ (1,944,535,557) ₩ 344,821,043,666

Balance at January 1,

2014 ₩ 18,166,670,000 ₩ 134,652,554,025 ₩ (16,800,000) ₩ (173,239,533) ₩194,136,394,731 ₩ (1,944,535,557) ₩ 344,821,043,666

Net income - - - - 40,452,095,267 3,688,027,110 44,140,122,377 Remeasurement of

defined benefit plan - - - - 583,262,443 (16,656,875) 566,605,568

Loss on foreign operation

translation, net - - - 137,327,588 - (165,874) 137,161,714

Capital change in equity method - - - 370,347,880 - - 370,347,880

Share-based payment

reserve - - - - - 9,815,054 9,815,054 Year-end dividends - - - - (8,983,335,000) - (8,983,335,000)

Acquisition of treasury stock - - (9,296,168,750) - - - (9,296,168,750)

Business combination - - - - - 61,340,825,027 61,340,825,027

Balance at December 31,2014 ₩ 18,166,670,000 ₩134,652,554,025 ₩ (9,312,968,750) ₩ 334,435,935 ₩226,188,417,441 ₩ 63,077,308,885 ₩ 433,106,417,536



CONSOLIDATED STATEMENTS OF CASH FLOWS


2014 2013

(In Korean won)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income ₩ 44,140,122,377 ₩ 38,556,558,179

Income tax expense 13,078,506,238 12,093,719,627 Interest income (2,564,814,495) (1,651,855,874) Interest expense 603,244,604 519,033,567 Depreciation 2,540,634,004 2,291,383,415 Amortization 12,079,119,870 4,032,519,098 Loss on disposal of property, plant and equipment 7,276,867 39,598,948 Severance benefits 3,804,027,214 2,548,697,336 Loss on disposal of trade receivables - 10,391,880 Bad debts expense 203,058,157 1,992,202,941 Other bad debts expense 530,379,427 633,325,127 Loss on foreign currency translation 319,137,862 129,709,669 Loss on valuation of forward exchange contracts 266,043,691 246,521,849 Provision expenses 40,000,000 31,081,892 Loss on impairment of intangible assets 1,089,913,907 - Compensation expenses associated with stock option 9,815,054 11,807,386 Loss on equity method investments 488,962,874 164,600,072 Gain on foreign currency translation (338,050,283) (366,756,852) Gain on valuation of forward exchange contracts (214,645,997) (198,819,214) Gain on disposal of property, plant and equipment (3,059,636) (649,000) Gain on exemption of debts (5,000,000) - Movement in operating assets and liabilities Increase in trade receivables (14,830,228,744) (37,937,757,426) Decrease (increase) in other financial assets (618,554,784) 403,862,332 Increase in inventories (12,585,053,911) (5,818,093,541) Decrease (increase) in other assets 3,821,758,296 (9,314,638,642) Increase in trade payables 174,060,045,228 61,485,202,767

Increase in other payables 1,897,867,264 608,468,374

Decrease in other financial liabilities (196,921,849) (25,987,083)

Increase (decrease) in other liabilities 3,878,364,154 (1,657,970,416)

Payment of defined benefit obligations (1,087,468,907) (523,627,671)

Decrease in employee’s plan assets (1,205,305,208) (2,783,453,017)

Cash generated from operations 229,209,173,274 65,519,075,723 Interest received 2,389,830,443 1,553,976,616 Interest paid (384,937,214) (452,490,813) Income tax paid (13,350,526,545) (12,837,025,787)

217,863,539,958 53,783,535,739

(Continued)


CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (CONTINUED)

2014 2013

(In Korean won)

CASH FLOWS FROM INVESTING ACTIVITIES: Decrease in other financial assets ₩ 713,072,796 ₩ - Decrease in long-term receivable asset 438,223,098 81,500,000

Disposition of property, plant and equipment 1,114,918,703 7,319,421 Increase in other financial assets (25,618,758,287) (5,145,275,417) Increase in long-term receivable assets (1,365,038,543) (1,007,542,844)

Acquisition of property, plant and equipment (1,914,351,482) (942,430,197)

Acquisition of intangible assets (959,245,322) (1,542,176,427) Acquisition of investments in subsidiaries (74,932,374,232) (7,689,551,505) Acquisition of investments in associates - (177,777,500)

Acquisition of investments in joint venture (5,104,500,000) -

(107,628,053,269) (16,415,934,469)

CASH FLOWS FROM FINANCING ACTIVITIES:

Proceeds from short-term borrowings 28,989,113,346 12,456,007,278

Proceeds from long-term borrowings 9,008,748 -

Dividends paid to shareholders (8,983,335,000) (8,983,335,000)

Repayment from short-term borrowings (35,898,068,440) (2,860,461,224)

Repayment from long-term borrowings - -

Acquisition of treasury stock (9,296,168,750) - (25,179,450,096) 612,211,054

INCREASE IN CASH AND

CASH EQUIVALENTS 85,056,036,593 37,979,812,324

CASH AND CASH EQUIVALENTS,

BEGINNING OF YEAR 50,332,013,887 12,352,201,563

EFFECT OF EXCHANGE RATE ON

CASH AND CASH EQUIVALENTS (7,744,719) -

CASH AND CASH EQUIVALENTS,

END OF YEAR ₩ 135,380,305,761 ₩ 50,332,013,887

(Concluded)



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF AND FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013

1. GENERAL:

The parent company, according to Korean International Financial Reporting Standards (“K-IFRS”) 1110,

Consolidated Financial Statements, of, iMarketKorea (the “Company”), was incorporated in December 8, 2000,

under the Commercial Code of the Republic of Korea to operate in the Internet-logistic, auction, advertisement,

Internet development consulting and other business area, which are related to e-business. The Company’s

headquarters is located at Samseong-dong, Gangnam-gu in Seoul, South Korea.

On July 30, 2010, the Company listed its shares on the Korea Exchange Securities market. The Company’s paid

capital is ₩18,167 million as of December 31, 2014, and shareholders’ respective percentage of those stock are

Interpark Corporation 37.02%, Samsung Electronics Co., Ltd. and its subsidiary 9.42% and other shareholders

53.56%.

2. SIGNIFICANT ACCOUNTING POLICIES:

(1) Basis of Preparation

The Company and its subsidiaries (the “Group”) have prepared the consolidated financial statements in accordance

with the “K-IFRS”.

The accompanying consolidated financial statements have been prepared on the historical cost basis except for

certain non-current assets and financial instruments that are measured at fair values, as explained in the accounting

policies below. Historical cost is based on the fair values of the consideration given.

The principal accounting policies are set out below.

1) Amendments to K-IFRSs and new interpretations that are mandatorily effective for the current year

In the current year, the Group has applied number amendments to K-IFRSs and new interpretations issued that are

mandatorily effective accounting periods beginning on or after January 1, 2014.

Amendments to K-IFRS 1032 – Financial Instruments: Presentation

The amendments to K-IFRS 1032 clarify the requirement for the offset presentation of financial assets and financial

liabilities: the right to offset must not be conditional upon the occurrence of future events and can be exercised

anytime during the contract periods. The right to offset is executable even in the case of default or insolvency. As

the Group does not have any financial assets and financial liabilities that qualify for offset based on the criteria set

out in the amendments and concluded that the application of the amendments has no significant impact on the

Group’s consolidated financial statements.

- 2 -

Amendments to K-IFRS 1110, 1112 and 1027 – Investment Entities

The amendments introduced an exception to the principle in K-IFRS 1110, which required the consolidation of all

subsidiaries. If a subsidiary meets definition of an investment entity, the reporting entity measures the subsidiary

at fair value through profit or loss (“FVTPL”) in instead of consolidation. Also, the consequential amendments

have been made to K-IFRS 1112, Disclosure of Interests in Other Entities, and K-IFRS 1027, Separate Financial

Statements, to introduce new disclosure requirements for investment entities. As the Group is not an investment

entity, the application of the amendments has no significant impact on the Group’s consolidated financial statements.

Amendments to K-IFRS 1036 – Impairment of Assets

The amendments introduced disclosure requirements of recoverable amount when the recoverable amount of an

asset or cash-generating unit (CGU) is measured at fair value less costs of disposal. The application of these

amendments has no impact on the disclosure in the Group’s consolidated financial statements.

Amendments to K-IFRS 1039 – Financial Instruments: Recognition and Measurement

The amendments permit the Group to use hedge accounting when, as a consequence of laws or regulations or the

introduction of laws or regulations, the parties to the hedging instrument agree that one or more clearing

counterparties replace their original counterparty to become the new counterparty to each of the parties and when

meeting the certain criteria. The adoption of the amendments has no significant impact on the Group’s consolidated

financial statements.

Enactment of K-IFRS 2121 – Levies

The enactment defines that the obligating event giving rise to the recognition of a liability to pay a levy is the

activity that triggers the payment of the levy in accordance with the related legislation. The enactment no

significant impact on the Group’s consolidated financial statements.

2) New and revised K-IFRSs in issue but not yet effective

The Group has not applied the following new and revised K-IFRSs that have been issued but are not yet effective.

Amendments to K-IFRS 1019 – Employee Benefits

The amendments permit the Group to recognize amount of contributions as a reduction in the service cost in which

the related service is rendered if the amount of the contributions are independent of the number of years of service.

The amendments are effective for the annual periods beginning on or after July 1, 2014.

Amendments to K-IFRS 1016 – Property, Plant and Equipment

The amendments to K-IFRS 1016 prohibit the Group from using a revenue-based depreciation method for items of

property, plant and equipment. The amendments are effective for the annual periods beginning on or after

January 1, 2016.

Amendments to K-IFRS 1038 – Intangible Assets

The amendments apply prospectively for annual periods beginning on or after January 1, 2016. The amendments

to K-IFRS 38 do not allow presumption that revenue is an appropriate basis for the amortization of an intangible

asset, for which the presumption can only be limited when the intangible asset is expressed as a measure of revenue

or when it can be demonstrated that revenue and consumption of the economic benefits of the intangible asset are

highly correlated.

Amendments to K-IFRS 1111 – Accounting for Acquisitions of Interests in Joint Operations

The amendments to K-IFRS 1111 provide guidance on how to account for the acquisition of a joint operation that

constitutes a business as defined in K-IFRS 1103, Business Combinations. A joint operator is also required to

disclose the relevant information required by K-IFRS 1103 and other standards for business combinations. The

amendments to K-IFRS 1111 are effective for the annual periods beginning on or after January 1, 2016.

- 3 -

Annual Improvements to K-IFRS 2010-2012 Cycle

The amendments to K-IFRS 1002, Inventories, (i) change the definitions of ‘vesting condition’ and ‘market

condition’ and (ii) add definition for ‘performance condition’ and ‘service condition,’ which were previously

included within the definition of ‘vesting condition.’ The amendments to K-IFRS 1103 clarify the classification

and measurement of the contingent consideration in business combination. The amendments to K-IFRS 1108

clarify that a reconciliation of the total of the reportable segments’ assets should only be provided if the segment

assets are regularly provided to the chief operating decision maker. The amendments are effective for the annual

periods beginning on or after July 1, 2014.

Annual Improvements to K-IFRS 2011-2013 Cycle

The amendments to K-IFRS 1103 clarifies that it exclude the accounting for the formation of a joint arrangement in

the financial statements of the joint arrangement itself from the scope of K-IFRS 1103 ‘Business Combination.’

The amendments to K-IFRS 1113 Fair values Measurements and K-IFRS 1040 Investment Properties exist and

these amendments are effective for the annual periods beginning on or after July 1, 2014.

3) Reclassification of account for prior financial statement

The Group reclassifies some of accounts on comparative consolidated financial position as of December 31, 2013,

and those changes are as follows:

Before the change After the change Net assets change (*)

(In thousands of Korean won)

Other receivables ₩ 7,394,035 ₩ 2,068,480 ₩ (5,325,555)

Other current assets 9,399,116 14,724,671 5,325,555

Other contributed capital 134,652,554 134,635,754 (16,800)

Components of other capital (190,040) (173,240) 16,800

(*) Accounts reclassification had no impact on net asset as of December 31, 2013, and comprehensive income for

the year ended December 31, 2013

(2) Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled

by the Company(and its subsidiaries). Control is achieved where the Company 1) has the power over the investee;

2) is exposed, or has rights, to variable returns from its involvement with the investee; and 3) has the ability to use

its power to affect its returns. The Company reassesses whether or not it controls an investee if facts and

circumstances indicate that there are changes to one or more of the three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when

the voting rights are sufficient to give it the practical ability to direct the activities of the investee unilaterally. The

Company considers all relevant facts and circumstances in assessing whether or not the Company's voting rights in

an investee are sufficient to give it power, including:

• the size of the Company's holding of voting rights relative to the size and dispersion of holdings of the other

vote holders;

• potential voting rights held by the Company, other vote holders or other parties;

• rights arising from other contractual arrangements; and

• any additional facts and circumstances that indicate that the Company has, or does not have, the current ability

to direct the relevant activities at the time that decisions need to be made, including voting patterns at previous

shareholders' meetings.

- 4 -

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated

statements of comprehensive income from the date the Company gains control until the date when the Company

ceases to control the subsidiary. Profit or loss and each component of other comprehensive income are attributed to

the owners of the Company and to the non-controlling interests. Total comprehensive income of subsidiaries is

attributed to the owners of the Company and to the non-controlling interests even if this results in the non-

controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies

into line with the Group’s accounting policies.

All intragroup transactions and related assets and liabilities, income and expenses are eliminated in full on

consolidation.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the

subsidiaries 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 Company.

When the Group loses control of a subsidiary, a gain or loss on disposal is calculated as the difference between (i)

the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the

previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any

non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the

related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the

amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if

the Company had directly disposed of the relevant assets (i.e., reclassified to profit or loss or transferred directly to

retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost

is recognized as the fair value on initial recognition for subsequent accounting under K-IFRS 1039 or, when

applicable, the cost on initial recognition of an investment in an associate or a joint venture.

(3) 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 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. Acquisition-related costs are generally

recognized in profit or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value

at the acquisition date, except that:

deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized

and measured in accordance with K-IFRS 1012, Income Taxes, and K-IFRS 1019, respectively;

liabilities or equity instruments related to share-based payment arrangements of the acquiree or share-based

payment arrangements of the Group entered into to replace share-based payment arrangements of the acquiree

are measured in accordance with K-IFRS 1102, Share-based Payment, at the acquisition date; and

assets (or disposal groups) that are classified as held for sale in accordance with K-IFRS 1105, Non-current

Assets Held for Sale and Discontinued Operations, are measured in accordance with that standard.

Goodwill is measured as the excess of the sum of: a) the consideration transferred, b) the amount of any

non-controlling interests in the acquiree and c) the fair value of the acquirer's previously held equity interest in the

acquiree (if any); 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

liabilities assumed exceeds the sum of: a) the consideration transferred, b) the amount of any non-controlling

interests in the acquiree and c) the fair value of the acquirer's previously held interest in the acquiree (if any); the

excess is recognized immediately in profit or loss as a bargain purchase gain.

- 5 -

Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the

entity's net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling

interests' proportionate share of the recognized amounts of the acquiree's identifiable net assets. The choice of

measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are

measured at fair value or, when applicable, on the basis specified in another K-IFRS.

When the consideration transferred by the Group in a business combination includes assets or liabilities resulting

from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair

value and included as part of the consideration transferred in a business combination. Changes in the fair value of

the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with

corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from

additional information obtained during the ‘measurement period’ (which cannot exceed one year from the

acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as

measurement period adjustments depends on how the contingent consideration is classified. Contingent

consideration that is classified as equity is not remeasured at subsequent reporting dates and its subsequent

settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is

remeasured at subsequent reporting dates in accordance with K-IFRS 1039 or K-IFRS 1037, Provisions, Contingent

Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in profit or

loss.

When a business combination is achieved in stages, the Group's previously held equity interest in the acquiree is

remeasured to fair value at the acquisition date and the resulting gain or loss, if any, is recognized in profit or loss.

Amounts arising from interests in the acquiree prior to the acquisition date 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 disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the

combination occurs, the Group reports provisional amounts for the items for which the accounting is incomplete.

Those provisional amounts are adjusted during the measurement period (see above), or additional assets or

liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the

acquisition date that, if known, would have affected the amounts recognized at that date.

(4) 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 results and assets and liabilities of associates or joint ventures are incorporated in these consolidated financial

statements using the equity method of accounting, except when the investment is classified as held for sale, in

which case it is accounted for in accordance with K-IFRS 1105. Under the equity method, an investment in an

associate or a joint venture is initially recognized in the consolidated statements 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 joint venture. When the Group's share of losses of an associate or a joint venture exceeds the Group's

interest in that associate or joint venture (which includes any long-term interests that, in substance, form part of the

Group's net investment in the associate or 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 joint venture.

- 6 -

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. 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.

Upon disposal of an associate or a joint venture that results in the Group losing significant influence over that

associate or joint venture, any retained investment is measured at fair value at that date and the fair value is

regarded as its fair value on initial recognition, as a financial asset, in accordance with K-IFRS 1039. The difference

between the previous carrying amount of the associate or joint venture attributable to the retained interest and its

fair value is included in the determination of the gain or loss on disposal of the associate or joint venture. In

addition, the Group accounts for all amounts previously recognized in other comprehensive income in relation to

that associate or joint venture on the same basis it 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 5 Non-current Assets Held for Sale and Discontinued Operations to a portion of investment in an associate or

a joint venture that meets the criteria to be classified as held for sale.

The requirements of K-IFRS 1039 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 by

comparing its recoverable amount (higher of value in use or fair value, less costs to sell) with its carrying amount,

and any impairment loss recognized 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.

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.

When a Group entity transacts with an associate or a joint venture of the Group, profits and losses resulting from

the transactions with the associate or joint venture are recognized in the Group's consolidated financial statements

only to the extent of interests in the associate or joint venture that are not related to the Group.

(5) Goodwill

Goodwill resulting from an acquisition of a business is carried at cost, as established at the date of acquisition of the

business, less accumulated impairment losses, if any.

For the purpose of impairment testing, goodwill is allocated to each of the Group’s CGUs (or groups of CGUs) that

is expected to benefit from the synergies of the combination.

A CGU to which goodwill has been allocated is tested for impairment annually or more frequently when there is

indication that the unit may be impaired. If the recoverable amount of the CGU is less than its carrying amount, the

impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then to the

other assets of the unit on a pro rata basis based on the carrying amount of each asset in the unit. Any impairment

loss of goodwill is recognized directly in profit or loss. An impairment loss recognized for goodwill is not reversed

in subsequent periods.

- 7 -

On disposal of the relevant CGU, the attributable amount of goodwill is included in the determination of the profit

or loss on disposal.

The Group’s policy for goodwill resulting from the acquisition of an associate is described in Note 2 (4).

(6) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered

principally through a sale transaction, rather than through continuing use. This condition is regarded as met only

when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its

present condition. Management must be committed to the sale, which should be expected to qualify for recognition

as a completed sale within one year from the date of classification.

When the Group is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities

of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the

Group will retain a non-controlling interest in its former subsidiary after the sale.

When the Group is committed to a sale plan involving disposal of an investment, or a portion of an investment, in

an associate or joint venture, the investment, or the portion of the investment, that will be disposed of is classified

as held for sale when the criteria described above are met, and the Group discontinues the use of the equity method

in relation to the portion that is classified a held for sale. Any retained portion of an investment in an associate or a

joint venture that has not been classified as held for sale continues to be accounted for using the equity method. The

Group discontinues the use of the equity method at the time of disposal when the disposal results in the Group

losing significant influence over the associate or joint venture.

After the disposal takes place, the Group accounts for any retained interest in the associate or joint venture in

accordance with K-IFRS 1039, unless the retained interest continues to be an associate or a joint venture, in which

case the Group uses the equity method.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous

carrying amount or fair value, less costs to sell.

(7) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated

customer returns, rebates and other similar allowances. The Group recognizes revenue when the amount of revenue

can be reliably measured; when it is probable that future economic benefits will flow to the entity; and when

specific criteria have been met for each of the Group’s activities, as described below.

1) Sale of goods

Revenue from the sale of goods is recognized when the Group has transferred to the buyer the significant risks and

rewards of ownership of the goods.

2) Rendering of services

Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract.

Depending on the nature of the transaction, the Group determines the stage of completion by reference to surveys of

work performed; services performed to date as a percentage of total services to be performed; or the proportion that

costs incurred to date bear to the estimated total costs of the transaction, as applicable.

3) Royalties

Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement

(provided it is probable that the economic benefits will flow to the Group and the amount of revenue can be

measured reliably).

- 8 -

4) Dividend and interest income

Dividend income from investments is recognized when the shareholders’ right to receive payment has been

established (provided it is probable that the economic benefits will flow to the Group and the amount of income can

be measured reliably).

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the

Group and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference

to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts

estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on

initial recognition

5) Rental income

The Group’s policy for recognition of revenue from operating leases is described in Note 2 (8).

(8) Lease

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and

rewards of ownership to the lessee. All other leases are classified as operating leases.

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 income is allocated to accounting periods so as to reflect a constant periodic

rate of return 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 on a straight-line basis over the lease term.

2) The Group as lessee

Assets held under finance leases are initially recognized as assets 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. The corresponding liability to the lessor

is included in the consolidated statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a

constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in

profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in

accordance with the Group’s general policy on borrowing costs (see Note 2 (12)). Contingent rentals are recognized

as expenses in the periods in which they are incurred.

Operating lease payments are recognized as an 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 rentals arising under operating leases are recognized as an expense in the period in which

they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a

liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis,

except where another systematic basis is more representative of the time pattern in which economic benefits from

the leased asset are consumed.

(9) Foreign currencies

The individual financial statements of each Group entity are presented in the currency of the primary economic

environment in which the entity operates (its functional currency). For the purpose of the consolidated financial

statements, the financial performance and financial position of each Group entity are expressed in Korean won,

which is the functional currency of the entity and the presentation currency for the consolidated financial statements.

- 9 -

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s

functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the

transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated

at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign

currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary

items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognized in profit or loss in the period in which they arise, except for:

• exchange differences on foreign currency borrowings relating to assets under construction for future productive

use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on

those foreign currency borrowings;

• exchange differences on transactions entered into in order to hedge certain foreign currency risks (see Note 2

(25) below for hedging accounting policies); and

• exchange differences on monetary items receivable from, or payable to, a foreign operation for which settlement

is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation),

which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on

disposal or partial disposal of the net investment.

For the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign

operations are expressed in Korean won using exchange rates prevailing at the end of the reporting period. Income

and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated

significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange

differences arising, if any, are recognized in other comprehensive income and accumulated in equity (attributed to

non-controlling interests as appropriate). On the disposal of a foreign operation (i.e., a disposal of the Group’s

entire interest in a foreign operation, a disposal involving loss of control over a subsidiary that includes a foreign

operation or partial disposal of an interest in a joint arrangement or an associate that includes a foreign operation

whose retained interest becomes a financial asset), all of the accumulated exchange differences in respect of that

operation attributable to the owners of the Company are reclassified to profit or loss. Any exchange differences that

have previously been attributed to non-controlling interests are derecognized, but they are not reclassified to profit

or loss.

In the case of a partial disposal (i.e., no loss of control) of a subsidiary that includes a foreign operation, the

proportionate share of accumulated exchange differences are reattributed to non-controlling interests in equity and

are not recognized in profit or loss. For all other partial disposals (i.e., partial disposals of associates or joint

arrangements that do not result in the Group losing significant influence or joint control), the proportionate share of

the accumulated exchange differences is reclassified to profit or loss.

Goodwill and fair value adjustments arising on the acquisition of a foreign operation are treated as assets and

liabilities of the foreign operation and translated at the closing rate. Exchange differences arising are recognized in

other comprehensive income.

(10) Borrowing costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are

assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the

cost of those assets, until such time as the assets are substantially ready for their 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.

(11) Government grants

Government grants are not recognized until there is reasonable assurance that the Group will comply with the

conditions attached to them and that the grants will be received.

- 10 -

The benefit of a government loan at a below-market rate of interest is treated as a government grant, measured as

the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.

Government grants related to assets are presented in the consolidated statement of financial position by deducting

the grant from the carrying amount of the asset. The related grant is recognized in profit or loss over the life of a

depreciable asset as a reduced depreciation expense.

Government grants related to income are recognized in profit or loss on a systematic basis over the periods in which

the Group recognizes, as expenses, the related costs for which the grants are intended to compensate. Government

grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving

immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in

which they become receivable.

(12) Retirement benefit costs and termination benefits

Contributions to defined contribution retirement benefit plans are recognized as an expense when employees have

rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the projected unit

credit method, with actuarial valuations being carried out at the end of each reporting period. Remeasurement,

comprising actuarial gains and losses, the effect of the changes to the asset ceiling (if applicable) and the return on

plan assets (excluding interest), is reflected immediately in the consolidated statement of financial position, with a

charge or credit recognized in other comprehensive income in the period in which it occurs. Remeasurement

recognized in other comprehensive income is reflected immediately in retained earnings and will not be reclassified

to profit or loss. Past service cost is recognized in profit or loss in the period of a plan amendment. Net interest is

calculated by applying the discount rate at the beginning of the period to the net defined benefit liability or asset.

Defined benefit costs are composed of service cost (including current service cost and past service cost, as well as

gains and losses on curtailments and settlements), net interest expense (income) and remeasurement.

The Group presents the service cost and net interest expense (income) components in profit or loss and the

remeasurement component in other comprehensive income. Curtailment gains and losses are accounted for as past

service costs.

The retirement benefit obligation recognized in the consolidated statement 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.

A liability for a termination benefit is recognized at the earlier of when the entity can no longer withdraw the offer

of the termination benefit and when the entity recognizes any related restructuring costs.

(13) Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the

consolidated statement of comprehensive income because of items of income or expense that are taxable or

deductible in other years and items that are never taxable or deductible. The Group’s liability for current tax is

calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period.

- 11 -

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 are

generally recognized for all deductible temporary differences to the extent it is probable that taxable profits will be

available against which those deductible temporary differences can be utilized. Such deferred tax assets and

liabilities are not 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 where the Group is able to control the reversal of the

temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future.

Deferred tax assets arising from deductible temporary differences associated with such investments and interests are

only recognized to the extent it is probable that there will be sufficient taxable profits against which the benefits of

the temporary differences can be utilized and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent

it is no longer probable that sufficient taxable 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 apply in the period in which the

liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively

enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax

consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to

recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset if, and only if, the Group has a legally enforceable right to set off

current tax assets against current tax liabilities, and the deferred tax assets and liabilities relate to income taxes

levied by the same taxation authority on either the same taxable entity or different taxable entities that intend either

to settle current tax liabilities and assets on a net basis, or 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.

For the purpose of measuring deferred tax liabilities and deferred tax assets for investment properties that are

measured using the fair value model, the carrying amounts of such properties are presumed to be recovered entirely

through sale, unless the presumption is rebutted. The presumption is rebutted when the investment property is

depreciable and is held within a business model whose objective is to consume substantially all of the economic

benefits embodied in the investment properties over time, rather than through sale.

3) Current tax and deferred tax for the year

Current tax and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in

other comprehensive income or directly in equity, in which case the current tax and deferred tax are also recognized

in other comprehensive income or directly in equity. Where current tax or deferred tax arises from the initial

accounting for a business combination, the tax effect is included in the accounting for the business combination.

(14) Property, plant and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation and accumulated

impairment losses. The cost of an item of property, plant and equipment is directly attributable to their purchase or

construction, which includes any costs directly attributable to bringing the asset to the location and condition

necessary for it to be capable of operating in the manner intended by management. It also includes the initial

estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of an asset or as a separate asset if it is probable that future

economic benefits associated with the assets will flow into the Group and the cost of an asset can be measured

reliably. Routine maintenance and repairs are expensed as incurred.

- 12 -

The Group does not depreciate land. Depreciation expense is computed using the straight-line method based on

the estimated useful lives of the assets as follows:

Accounts Estimated useful lives (years)

Buildings 40

Structures 20

Machinery 10 and 20

Vehicles 5

Other tangible assets 3, 5 and 8

If each part of an item of property, plant and equipment has a cost that is significant in relation to the total cost of

the item, it is depreciated separately.

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 an accounting estimate.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are

expected to arise from the continued use of the asset. Any gain or loss arising on derecognition of the property

(calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in

profit or loss in the period in which the property is derecognized.

(15) Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost, less accumulated

amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their

estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting

period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with

indefinite useful lives that are acquired separately are carried at cost, less accumulated impairment losses.

2) Internally generated intangible assets - research and development expenditure

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

Expenditure arising from development (or from the development phase of an internal project) is recognized as an

intangible asset if, and only if, the development project is designed to produce new or substantially improved

products and the Group can demonstrate the technical and economic feasibility and measure reliably the resources

attributable to the intangible asset during its development.

The amount initially recognized for internally generated intangible assets is the sum of the expenditure incurred

from the date when the intangible asset first meets the recognition criteria. Where no internally generated intangible

asset can be recognized, development expenditure is recognized in profit or loss in the period in which it is incurred.

Subsequent to initial recognition, internally generated intangible assets are reported at cost, less accumulated

amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

3) Intangible assets acquired in a business combination

Intangible assets that are acquired in a business combination are recognized separately from goodwill and are

initially recognized at their fair value at the acquisition date (which is regarded as their cost). Subsequent to initial

recognition, intangible assets acquired in a business combination are reported at cost, less accumulated amortization

and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

- 13 -

4) Derecognition of intangible assets

An intangible asset is derecognized on disposal or when no future economic benefits are expected from its use.

Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net

disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is

derecognized.

(16) Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and intangible assets to

determine whether there is any indication that those assets have suffered an impairment loss. If any such indication

exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if

any). When it is not possible to estimate the recoverable amount of an individual asset, the Group estimates the

recoverable amount of the CGU to which the asset belongs. Where a reasonable and consistent basis of allocation

can be identified, corporate assets are also allocated to individual CGUs, or otherwise, they are allocated to the

smallest group of CGUs for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment

at least annually and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value, less costs to sell, or value in use. If the recoverable amount of an

asset (or a CGU) is estimated to be less than its carrying amount, the carrying amount of the asset (or the CGU) is

reduced to its recoverable amount and the reduced amount is recognized in profit or loss.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a CGU) is increased to the

revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying

amount that would have been determined had no impairment loss been recognized for the asset (or the CGU) in

prior years. A reversal of an impairment loss is recognized immediately in profit or loss.

(17) Inventories

Inventories are stated at the lower of cost or net realizable value. Cost of inventories, except for those in transit, is

measured under the weighted-average method [on a first-in, first-out basis] and consists of the purchase price, cost

of conversion and other costs incurred in bringing the inventories to their present location and condition. Net

realizable value represents the estimated selling price for inventories, less all estimated costs of completion and

costs necessary to make the sale.

When inventories are sold, the carrying amount of those inventories is recognized as an expense (cost of sales) in

the period in which the related revenue is recognized. The amount of any write-down of inventories to net

realizable value and all losses of inventories is recognized as an expense in the period the write-down or loss occurs.

The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, is

recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal

occurs.

(18) Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event,

it is probable that the Group 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. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying

amount is the present value of those cash flows (where the effect of the time value of money is material). The

discount rate used is a pretax rate that reflects current market assessments of the time value of money and the risks

specific to the liability. Where discounting is used, the increase in the provision due to the passage is recognized in

profit or loss as borrowing cost.

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.

- 14 -

At the end of each reporting period, the remaining provision balance is reviewed and assessed to determine if the

current best estimate is being recognized. If the existence of an obligation to transfer economic benefit is no longer

probable, the related provision is reversed during the period.

(19) Financial Instruments

Financial assets and financial liabilities are recognized when a Group entity becomes a party to the contractual

provisions of the instruments. Financial assets and financial liabilities are initially measured at fair value.

Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities

are added to, or deducted from, the fair value of the financial assets or financial liabilities, as appropriate, on initial

recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at

FVTPL are recognized immediately in profit or loss.

All regular-way purchases or sales of financial assets are recognized and derecognized on a trade-date basis.

Regular-way purchases or sales are purchases or sales of financial assets that require delivery of assets within the

time frame established by regulation or convention in the marketplace.

Financial assets are classified into the following specified categories: ‘financial assets at FVTPL’, ‘held-to-maturity

investments’, ‘available-for-sale (“AFS”) financial assets’ and ‘loans and receivables’. The classification depends

on the nature and purpose of the financial assets and is determined at the time of initial recognition.

1) Effective interest 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 effective interest rate is the rate that exactly discounts estimated future

cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate,

transaction costs and other premiums or discounts) through the expected life of the debt instrument, or (where

appropriate) a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest basis for debt instruments other than those financial assets classified

as at FVTPL.

2) Financial assets at FVTPL

Financial assets are classified as at FVTPL when the financial asset is either held for trading or it is designated as at

FVTPL.

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near term;

• on initial recognition, it is part of a portfolio of identified financial instruments that the Group manages together

and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at FVTPL upon initial

recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would

otherwise arise;

• the financial asset forms part of a group of financial assets or financial liabilities, or both, which is managed,

and its performance is evaluated on a fair value basis, in accordance with the Group's documented risk

management or investment strategy, and information about the grouping is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 permits the entire

combined contract (asset or liability) to be designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized in

profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or interest earned on the

financial asset and is included in the ‘other gains and losses’ line item in the consolidated statement of

comprehensive income.

- 15 -

3) Held-to-maturity investments

Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the

positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity

investments are measured at amortized cost using the effective interest method, less any impairment, with revenue

recognized on an effective yield basis.

4) AFS financial assets

AFS financial assets are non-derivatives that are either designated as AFS or are not classified as (a) loans and

receivables, (b) held-to-maturity investments or (c) financial assets at FVTPL.

They are subsequently measured at fair value at the end of each reporting period. Changes in the carrying amount of

AFS monetary financial assets relating to changes in foreign currency rates (see below), interest income calculated

using the effective interest method and dividends on AFS equity investments are recognized in profit or loss. Other

changes in the carrying amount of AFS financial assets are recognized in other comprehensive income (as

investments revaluation reserve). When the investment is disposed of or is determined to be impaired, the

cumulative gain or loss previously accumulated in other comprehensive income is reclassified to profit or loss.

Dividends on AFS equity instruments are recognized in profit or loss when the Group’s right to receive the

dividends is established.

The fair value of AFS monetary financial assets denominated in a foreign currency is determined in that foreign

currency and translated at the spot rate prevailing at the end of the reporting period. The foreign exchange gains and

losses that are recognized in profit or loss are determined based on the amortized cost of the monetary asset. Other

foreign exchange gains and losses are recognized in other comprehensive income.

AFS equity investments that do not have a quoted market price in an active market and whose fair value cannot be

reliably measured and derivatives that are linked to, and must be settled by, delivery of such unquoted equity

investments are measured at cost, less any identified impairment losses, at the end of each reporting period.

5) Loans and receivables

Trade receivables, loans and other receivables that have fixed or determinable payments and are not quoted in an

active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortized cost using

the effective interest method, less any impairment. Interest income is recognized by applying the effective interest

rate, except for short-term receivables when the effect of discounting is immaterial.

6) Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each reporting

period. Financial assets are considered to be impaired when there is objective evidence that more events have

occurred after the initial recognition of the financial asset and the estimated future cash flows of the investment

have been affected.

For AFS equity investments, a significant or prolonged decline in the fair value of the security below its cost is

considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment includes:

• significant financial difficulty of the issuer or counterparty,

• default or delinquency in interest or principal payments,

• it becoming probable that the borrower will enter bankruptcy or financial reorganization or

• the disappearance of an active market for that financial asset because of financial difficulties.

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired

individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a

portfolio of receivables could include the Group’s past experience of collecting payments and an increase in the

number of delayed payments, as well as observable changes in national or local economic conditions that correlate

with default on receivables.

- 16 -

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference

between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the

financial asset’s original effective interest rate.

For financial assets that are carried at cost, the amount of the impairment loss recognized is the difference between

the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market

rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets, with

the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account.

When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent

recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying

amount of the allowance account are recognized in profit or loss.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in

other comprehensive income are reclassified to profit or loss in the period.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss

decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the

previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of

the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had

the impairment not been recognized.

In respect of AFS equity securities, impairment losses previously recognized in profit or loss are not reversed

through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other

comprehensive income. In respect of AFS debt securities, impairment losses are subsequently reversed through

profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after

the recognition of the impairment loss.

7) 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 recognize a collateralized borrowing

for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum

of the consideration received and receivable and the cumulated gain or loss that had been recognized in other

comprehensive income and accumulated in equity is recognized in profit or loss.

On derecognition of a financial assets other than in its entirety (e.g., when the Group retains an option to repurchase

part of a transferred asset or it retains a residual interest and such an retained interest indicates that the transferor

has neither transferred nor retained substantially all the risks and rewards of ownership and has retained control of

the transferred asset), the Group allocates the previous carrying amount of the financial asset between the part it

continues to recognize under continuing involvement and the part it no longer recognizes on the basis of the relative

fair value of those parts on the date of the transfer. The difference between the carrying amount allocated to the part

that is no longer recognized and the sum of the consideration received for the part that is no longer recognized and

any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in

profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated

between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative

fair value of those parts.

- 17 -

(20) Financial liabilities and equity instruments

1) Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance

of the contractual arrangement and the definitions of financial liability and an equity instrument.

2) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of

its liabilities. Equity instruments issued by the Group are recognized as the proceeds are 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.

3) Compound instruments

The component parts of compound instruments (convertible bonds) issued by the Group are classified separately as

financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions

of a financial liability and equity instrument. Conversion option that will be settled by the exchange of a fixed

amount of cash or another financial asset for a fixed number of the Company’s own equity instruments is an equity

instrument.

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest rate

for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis using the

effective interest method, until extinguished upon conversion or at the instrument’s maturity date.

The conversion option classified as equity is determined by deducting the amount of the liability component from

the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax

effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in

equity until the conversion option is exercised, in which case the balance recognized in equity will be transferred to

share premium. No gain or loss is recognized in profit or loss upon conversion or expiration of the conversion

option.

Transaction costs that relate to the issue of the convertible notes are allocated to liability and equity components in

proportion to the allocation of the gross proceeds. Transaction costs relating to equity component are recognized

directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the

liability component and are amortized over the lives of the convertible notes using the effective interest method.

4) Financial liabilities

Financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instruments.

Financial liabilities are initially measured at fair value. Transaction costs that are directly attributable to the issue of

financial liabilities are deducted from the fair value of the financial liabilities on initial recognition. Transaction

costs directly attributable to acquisition of financial liabilities at FVTPL are recognized immediately in profit or

loss.

Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.

5) Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is either held for trading or it is

designated as FVTPL.

A financial liability is classified as held for trading if:

• it has been acquired principally for the purpose of repurchasing in the near term;

• on initial recognition, it is part of a portfolio of identified financial instruments that the Group manages

together and has a recent actual pattern of short-term profit-taking; or

• it is a derivative that is not designated and effective as a hedging instrument.

- 18 -

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial

recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would

otherwise arise;

• the financial liability forms part of a group of financial assets or financial liabilities, or both, which is

managed, and its performance is evaluated on a fair value basis, in accordance with the Group's documented

risk management or investment strategy, and information about the grouping is provided internally on that

basis; or

• it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 permits the entire

combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement recognized

in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on the financial

liability and is included in the ‘other gains and losses’ line item in the consolidated statement of comprehensive

income.

6) Other financial liabilities

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with

interest expense recognized on an effective yield basis.

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. The effective interest rate is the rate that exactly discounts estimated

future cash payments, including all fees and points paid or received (that form an integral part of the effective

interest rate) and transaction costs and other premiums or discounts) through the expected life of the financial

liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

7) Financial guarantee contracts

A financial guarantee contract is a contract that requires the issuer to make specified payments to reimburse the

holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms

of a debt instruments.

Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL,

are subsequently measured at the higher of:

• the amount of the obligation under the contract, as determined in accordance with K-IFRS 1037, and

• the amount initially recognized, less cumulative amortization recognized in accordance with the K-IFRS 1018

Revenue

8) Derecognition of financial liabilities

The Group derecognize financial liabilities when the Group’s obligation are discharged, canceled or expired. The

difference between the carrying amount of the financial liability derecognized and the consideration paid and

payable is recognized in profit or loss.

(21) Derivative financial instruments

The Group enters into a variety of derivative financial instruments to manage its exposure to interest rate and

foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and cross-currency

swaps.

Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are

subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is

recognized in profit or loss immediately, unless the derivative is designated and effective as a hedging instrument,

in which case the timing of the recognition in profit or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is

recognized as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the

- 19 -

remaining maturity of the instrument is more than 12 months and it is not expected to be realized or settled within

12 months. Other derivatives are presented as current assets or current liabilities.

1) Embedded derivatives

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the

definition of a derivative, their risks and characteristics are closely related to those of the host contracts and the

contracts are not measured at FVTPL.

An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of

the hybrid instrument to which the embedded derivative relates is more than 12 months and it is not expected to be

realized or settled within 12 months. Other embedded derivatives are presented as current assets or current

liabilities.

2) Hedge accounting

The Group designates certain hedging instruments, which include derivatives, embedded derivatives and non-

derivatives in respect of foreign currency risk, as either fair value hedges, cash flow hedges or hedges of net

investments in foreign operations. Hedges of foreign exchange risk on firm commitments are accounted for as cash

flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument

and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge

transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Group documents whether the

hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

3) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify 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. The change in the fair value of the hedging instrument and the change in the hedged item

attributable to the hedged risk are recognized in the line of the consolidated statement of comprehensive income

relating to the hedged item.

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 no longer qualifies 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.

4) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges

is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized

immediately in profit or loss, and is included in the ‘other gains and losses’ line item.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to profit

or loss in the periods when the hedged item is recognized in profit or loss, in the same line of the consolidated

statement of comprehensive income as the recognized hedged item. However, when the forecast transaction that is

hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously

accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-

financial asset or non-financial liability.

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 no longer qualifies for hedge accounting. Any gain or loss

accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately

recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or loss

accumulated in equity is recognized immediately in profit or loss.

- 20 -

5) Hedges of net investments in foreign operations

Hedges of net investments in foreign operations are accounted for similarly to cash flow hedges. Any gain or loss

on the hedging instrument relating to the effective portion of the hedge is recognized in other comprehensive

income and accumulated in the foreign currency translation reserve. The gain or loss relating to the ineffective

portion is recognized immediately in profit or loss, and is included in ‘other gains and losses’.

Gains and losses on the hedging instrument relating to the effective portion of the hedge accumulated in the foreign

currency translation reserve are reclassified to profit or loss in the same way as exchange differences relating to the

foreign operation.

(22) 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 share-based payment

transactions that are within the scope of K-IFRS 1102; leasing transactions that are within the scope of K-IFRS

1017 Leases; and measurements that have some similarities to fair value, but are not fair value, such as net

realizable value in K-IFRS 1002 or value in use in K-IFRS 1036.

In addition, for financial reporting purposes, fair value measurements are categorized into Level 1, 2 or 3, based on

the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to

the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity

can access at the measurement date;

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or

liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

3. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY:

In the application of the Group accounting policies described in Note 2, management is required to make judgments,

estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from

other sources. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are

recognized in the period in which the estimate is revised if the revision affects only that period or in the period of

the revision and future periods if the revision affects both current and future periods.

The following are the key assumptions concerning the future, and other key sources of estimate uncertainty at the

end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of

assets and liabilities within the next financial year.

1) Allowance for doubtful account of loan and receivable

In order to estimate the allowance for doubtful account of loan and receivable, the Group considers the aging of

current receivables, bad debts history and economic and industry environmental factors.

- 21 -

2) Impairment of other non-financial assets

At the end of each reporting period, the Group reviews the carrying amounts of all of its non-financial assets to

determine whether there is any indication that those assets have suffered an impairment loss. The carrying amount

will not be recovered when there is an indication that an impairment test is performed. In order to calculate the

value using the asset or CGU arising from the expected future cash flows to estimate the present value of such

future cash flows expected to calculate, the appropriate discount rate must be selected.

3) Retirement benefit plan

The Group operates defined benefit pension plan, and the service cost of the plan is determined using actuarial

valuations. In order to apply actuarial valuations, it is necessary to assume a discount rate, an expected rate of return

on plan assets, wage increase rate and others. The retirement benefit plan contains significant uncertainties on the

estimation due to its long-term nature.

4) Deferred tax

Recognition of deferred tax assets and liabilities and the measurement will require management’s judgment. In

particular, the recognition of deferred tax assets, the scope and assumptions about future events will be affected by

management’s judgment.

4. SEGMENT INFORMATION:

Information reported to the chief operating decision maker for the purposes of resource allocation and assessment

of segment performance focuses on the types of goods or services delivered or provided. The chief operating

decision maker is responsible for resource allocation and assessment of segment performance.

The Group’s operation segments are composed of E-commerce of Maintenance, Repair and Operating supplies

(“MRO”) and other segments; main revenue types are follows.

Wholesale in medicines and others are qualified to individually identify on segment information reporting from the

current year. The prior segment information has been restated for comparative purpose for newly identified business

area, wholesale in medicines and others.

(1) Components of Group’s segment revenue and income for the years ended December 31, 2014 and 2013, are as

follows:

December 31, 2014 MRO and

E-Commerce

Wholesale in

medicine Other Total


Segment total revenue ₩ 2,486,819,448 ₩ 175,409,561 ₩ 87,960,140 ₩ 2,750,189,149

(-)Intersegment

revenue (4,923,284) - (11,492,594) (16,415,878)

Customers 2,481,896,164 175,409,561 76,467,546 2,733,773,271

Segment income 56,813,763 8,741,952 (7,848,123) 57,707,592

December 31, 2013 MRO and E-Commerce Other Total


Segment total revenue ₩ 2,462,935,852 ₩ 36,225,022 ₩ 2,499,160,874

(-) Intersegment revenue (1,413,531) (917,070) (2,330,601)

Customers 2,461,522,321 35,307,952 2,496,830,273

Segment income 51,087,018 (272,140) 50,814,878

Description

E-Commerce (Industrial MRO) Sharing the distribution network of industrial MRO and mutual trade of

components

Wholesale in medicine Wholesale in medicine and medical device, and also other service relating to

medicine and medical device

Other Manufacturing in security paper, providing total logistic service and others

- 22 -

Reportable segment’s accounting policy is consistent with Group’s accounting policy, which is mentioned on Note

2. Segment income derecognized the income from equity method and only expresses the income from business

activity of each segment. Segment income is a regularly reported measurement to chief operating decision maker,

who is operating decision-maker, for evaluating segment’s performance and allocating resource.

Adjusted income before tax from the total of the reportable segment’s income for the years ended December 31,

2014 and 2013, is as follows:

December 31, 2014 December 31, 2013


Total of segment income ₩ 57,707,592 ₩ 50,814,878

Loss of equity method (488,963) (164,600)

Income before tax ₩ 57,218,629 ₩ 50,650,278

(2) Segment assets and liabilities

Adjustments of each reportable segment assets into consolidated total assets as of December 31, 2014 and 2013, are

as follows:



E-Commerce (industrial MRO) ₩ 871,401,420 ₩ 779,431,979

Wholesale in medicines 116,485,203 -

Other 30,683,981 26,744,435

Total segment assets 1,018,570,604 806,176,414

Adjustment and removal 71,915,603 (14,443,501)

Consolidated total assets ₩ 1,090,486,207 ₩ 791,732,913

Adjustments of each reportable segment liabilities into consolidated total liabilities as of December 31, 2014 and

2013, are as follows:



E-Commerce (industrial MRO) ₩ 501,203,764 ₩ 427,356,489

Wholesale in medicines 102,987,499 -

Other 25,682,124 22,650,198

Total segment liabilities 629,873,387 450,006,687

Adjustment and removal 27,506,402 (3,094,818)

Consolidated total liabilities ₩ 657,379,789 ₩ 446,911,869

(3) Information about major customer

Operating revenues from major customers who are occupying more than 10% of total operating revenues for the

years ended December 31, 2014 and 2013, are ￦865,632 million and ￦1,067,767 million, respectively.

5. CASH AND CASH EQUIVALENTS:

The Group equally manages cash and cash equivalents in consolidated statements of financial position and cash

flows. Details of cash and cash equivalents as of December 31, 2014 and 2013, are as follows:



Cash ￦ 1,400,409 ￦ 278,037

Deposits 133,979,897 50,053,977

￦ 135,380,306 ￦ 50,332,014

- 23 -

6. FINANCIAL INSTRUMENTS RESTRICTED AND PLEDGED AS COLLATERAL:

Details of restricted financial instruments and those pledged as collateral as of December 31, 2014 and 2013, are as

follows:

Category Financial institution

December 31,

2014

December 31,

2013 Description


Short-term financial

instruments Time deposit Citibank ₩ 2,220,000 ₩ 2,220,000

Offer collateral for

Koreit, Inc.’s

borrowing

Short-term financial

instruments Demand deposit Woori Bank 40,000 -

Application for

attachment of

receivables

Long-term financial

instruments Demand deposit Woori Bank and others 11,000 11,000

Guarantee deposits for

checking account

Long-term financial

instruments Time deposit

Industrial Bank of

Korea and others - 257,000 Pledged as collateral

₩ 2,271,000 ₩ 2,488,000

7. TRADE AND OTHER RECEIVABLES:

(1) As of December 31, 2014 and 2013, trade and other receivables are as follows:


Accounts Current Non-current Current Non-current


Trade receivables ₩ 653,624,187 ₩ 2,387,820 ₩ 640,333,974 ₩ 66,098

Less: allowance for doubtful accounts (1,302,400) (2,342,645) (3,477,093) (20,923)

Book value ₩ 652,321,787 ₩ 45,175 ₩ 636,856,881 ₩ 45,175

Other receivables

Other accounts receivable ₩ 2,656,824 ₩ - ₩ 1,292,615 ₩ -

Less: allowance for doubtful accounts (531,186) - - -

Short-term loans 82,094 - 122,165 -

Less: allowance for doubtful accounts (50,000) - (50,000) -

Accrued income 184,274 - 133,862 -

Guarantee deposit 479,333 5,275,023 569,838 3,236,549

Debt-equity swap receivables - 175,875 - 175,875

Less: allowance for doubtful accounts - (146,370) - (98,181)

Book value ₩ 2,821,339 ₩ 5,304,528 ₩ 2,068,480 ₩ 3,314,243

(2) Credit risk and allowance

Above trade receivables, other accounts receivable, other receivables and long-term and short-term loans are

classified as loan and receivables and measured at amortized cost. The Group accounted for allowances by using

the individual analysis method for receivables that are one year or older. Receivables within one year represent an

impairment loss when they have been incurred by applying historical loss rates, adjusted based on collection

experience and analysis of the collectability of individual outstanding receivables.

1) Trade receivables and other financial assets overdue, but not impaired as of December 31, 2014 and 2013, are

as follows:

December 31, 2014

Less than 6 months 6 months–1 year More than 1 year Total


Trade receivables ₩ 1,759,403 ₩ 63,959 ₩ 347,603 ₩ 2,170,965

Other accounts receivable - 81,077 387,801 468,878

Total ₩ 1,759,403 ₩ 145,036 ₩ 735,404 ₩ 2,639,843

- 24 -

December 31, 2013



Trade receivables ₩ 2,301,669 ₩ 2,097,975 ₩ 66,097 ₩ 4,465,741

Other accounts receivable 52,387 340,002 - 392,389

Total ₩ 2,354,056 ₩ 2,437,977 ₩ 66,097 ₩ 4,858,130

2) Aging analysis of accounts receivables and other financial assets impaired as of December 31, 2014 and 2013,

are as follows:

December 31, 2014



Trade receivables ₩ 1,299,640 ₩ 2,760 ₩ 2,342,645 ₩ 3,645,045

Other accounts receivable - - 531,186 531,186

Short-term loans - 50,000 - 50,000

Debt-equity swap receivables - - 146,370 146,370

Less: allowance for doubtful

accounts (1,299,640) (52,760) (3,020,201) (4,372,601)

Total ₩ - ₩ - ₩ - ₩ -

December 31, 2013



Trade receivables ₩ 1,528,778 ₩ 1,948,316 ₩ 20,922 ₩ 3,498,016

Other accounts receivable - - - -

Short-term loans - 50,000 - 50,000

Debt-equity swap receivables - - 98,181 98,181

Less: allowance for doubtful

accounts (1,528,778) (1,998,316) (119,103) (3,646,197)

Total ₩ - ₩ - ₩ - ₩ -

3) The changes in allowance for doubtful accounts for the years ended December 31, 2014 and 2013, are as

follows:

2014

Trade

receivables

Other accounts

receivable

Short-term

loans

Debt-equity swap

receivables


Beginning balance ₩ 3,498,016 ₩ - ₩ 50,000 ₩ 98,181

Impairment loss 154,869 531,186 - 48,189

Impairment reversal - - - -

Write-off (7,840) - - -

Business

combination - - - -

Ending balance ₩ 3,645,045 ₩ 531,186 ₩ 50,000 ₩ 146,370

2013

Trade

receivables

Other accounts

receivable

Short-term

loans

Debt-equity swap

receivables


Beginning balance ₩ 1,038,096 ₩ 631,970 ₩ 50,000 ₩ -

Impairment loss 2,525,992 - - 98,181

Impairment reversal - (631,970) - -

Write-off (69,378) - - -

Business

combination ₩ 3,306 - - -

Ending balance ₩ 3,498,016 ₩ - ₩ 50,000 ₩ 98,181

- 25 -

8. OTHER FINANCIAL ASSETS:

(1) Other financial assets as of December 31, 2014 and 2013, are as follows:


Current Non-current Current Non-current


Short–term and long-term

financial instruments ₩ 22,220,000 ₩ 21,500 ₩ 2,220,000 ₩ 610,353

Forward exchange contracts(*) 214,646 - 198,819 -

AFS financial assets - 8,633,457 - 3,163,488

Held-to-maturity financial assets - 137,569 - 91,787

₩ 22,434,646 ₩ 8,792,526 ₩ 2,418,819 ₩ 3,865,628

(*) Forward exchange contracts are classified as financial assets at FVTPL. Changes in fair value are expressed as

other non-operating profit and loss in the consolidated statement of comprehensive income.

(2) As of December 31, 2014 and 2013, none of the other financial assets is either past due or impaired.

(3) AFS financial assets as of December 31, 2014 and 2013, are as follows:



Investments in SVIC 25 partnerships ₩ 8,500,000 ₩ 3,030,000

Investments in

Specialty Contractor Financial Cooperative 50,121 50,121

Investments in

Information & Communication Financial

Cooperative 15,166 15,197

Investments in

Electric Contractors’ Financial Cooperative 50,000 50,000

Info-communications construction

license deposits 18,170 18,170

₩ 8,633,457 ₩ 3,163,488

(*) Above AFS investment is measured at cost method, because AFS investments are not evaluated reliably at fair

value.

(4) Details of held-to-maturity investment from the Group’s subsidiaries as of December 31, 2014 and 2013, are

as follows:

Annual interest

rates (%) Date of maturity

Book value

December 31,

2014

December 31,

2013


Metro Bond 2.00% - 2.50%

2020.01.31 -

2021.02.28 ₩ 101,239 ₩ 55,457

Korea National Hosing

Bond 2.25% 2018.05.31 36,330 36,330

₩ 137,569 ₩ 91,787

- 26 -

9. INVENTORIES:

(1) Inventories as of December 31, 2014 and 2013, consist of the following:

December 31,

2014

December 31,

2013


Merchandise ₩ 46,306,935 ₩ 33,833,221

Finished goods 335,549 177,400

Raw materials 350,015 262,684

Work in progress 37,872 28,538

Materials in transit ₩ 1,123,905 ₩ 1,239,826

₩ 48,154,276 ₩ 35,541,669

10. OTHER CURRENT ASSETS:

Other current assets as of December 31, 2014 and 2013, are as follows:

December 31,

2014

December 31,

2013


Advance payments ₩ 3,235,706 ₩ 9,469,364

Less: allowance for doubtful accounts (638,670) (639,475)

Prepaid expenses 1,253,527 562,171

Prepaid value-added tax 1,248,499 5,332,611

₩ 5,099,062 ₩ 14,724,671

11. PROPERTY, PLANT AND EQUIPMENT:

(1) Property, plant and equipment as of December 31, 2014 and 2013, consist of the following:


Acquisition

cost Accumulated

depreciation Book value

Acquisition

cost Accumulated



Land ₩ 1,768,974 ₩ - ₩ 1,768,974 ₩ 1,768,974 ₩ - ₩ 1,768,974

Buildings 2,828,028 (575,035) 2,252,993 2,831,028 (507,859) 2,323,169

Structures 18,500 (225) 18,275 - - -

Machinery 952,834 (767,425) 185,409 772,150 (752,335) 19,815

Equipment and

furniture 11,342,644 (6,212,936) 5,129,708 12,252,114 (5,718,758) 6,533,356

Vehicles 1,009,984 (419,683) 590,301 702,297 (218,851) 483,446

Facility 652,378 (634,084) 18,294 652,378 (603,814) 48,564

Finance lease

assets 1,254,245 (1,960) 1,252,285 - - -

₩ 19,827,587 ₩ (8,611,348) ₩ 11,216,239 ₩ 18,978,941 ₩ (7,801,617) ₩ 11,177,324

- 27 -

(2) The changes in property, plant and equipment for the years ended December 31, 2014 and 2013, are as

follows:

2014

Beginning of

year Acquisition Disposal Depreciation

Business

combination Other(*) End of year


Land ₩ 1,768,974 ₩ - ₩ - ₩ - ₩ - ₩ - ₩ 1,768,974

Buildings 2,323,169 - - (67,401) - (2,775) 2,252,993

Structures - 15,500 - - - 2,775 18,275

Machinery 19,815 180,684 - (15,090) - - 185,409

Equipment and

furniture 6,533,356 1,396,088 (977,028) (2,244,636) 370,095 51,833 5,129,708

Vehicles 483,446 288,130 (1) (181,276) 2 - 590,301

Facility 48,564 - - (30,270) - - 18,294

Finance lease

assets - 33,950 - (1,961) - 1,220,296 1,252,285

₩ 11,177,324 ₩ 1,914,352 ₩ (977,029) ₩ (2,540,634) ₩ 370,097 ₩ 1,272,129 ₩ 11,216,239

(*) Other fluctuations consist of transfer of advances and others, and also include net effects of change in

exchange rate.

2013

Beginning of

year Acquisition Disposal Depreciation

Business

combination Other(*) End of year


Land ₩ 1,768,974 ₩ - ₩ - ₩ - ₩ - ₩ - ₩ 1,768,974

Buildings 2,354,262 14,100 - (45,193) - - 2,323,169

Machinery 93,978 7,300 - (81,463) - - 19,815

Equipment and

furniture 7,710,947 576,033 (31,741) (1,960,582) 239,130 (431) 6,533,356

Vehicles 269,529 344,997 (14,528) (122,430) 5,878 - 483,446

Facility 130,277 - - (81,716) 3 - 48,564

₩ 12,327,967 ₩ 942,430 ₩ (46,269) ₩ (2,291,384) ₩ 245,011 ₩ (431) ₩ 11,177,324

(*) Other fluctuations consist of transfer of advances and others, and also include net effects of change in

exchange rate.

12. INTANGIBLE ASSETS:

(1) Intangible assets as of December 31, 2014 and 2013, consist of the following:


Acquisition

cost Accumulated

depreciation

Accumulated

impairment loss Book value

Acquisition

cost Accumulated



Patent rights ₩ 135,231 ₩ (111,233) ₩ - ₩ 23,998 ₩ 124,556 ₩ (101,712) ₩ 22,844

Trademarks 16,295 (8,731) - 7,564 16,295 (5,938) 10,357

Development

costs 408,892 (271,103) - 137,789 393,082 (196,832) 196,250

Membership

rights 4,651,749 - (1,089,914) 3,561,835 4,651,749 - 4,651,749

Other intangible

assets 34,010,084 (14,542,266) - 19,467,818 27,980,793 (8,259,943) 19,720,850

Goodwill 17,212,716 - - 17,212,716 5,957,248 - 5,957,248

Customer

relationship 157,593,245 (5,709,900) - 151,883,345 - - -

₩ 214,028,212 ₩ (20,643,233) ₩ (1,089,914) ₩ 192,295,065 ₩ 39,123,723 ₩ (8,564,425) ₩ 30,559,298

- 28 -

(2) The changes in intangible assets for the years ended December 31, 2014 and 2013, are as follows:

2014

Beginning of

year Acquisition

Business

combination Amortization

Impairment

loss Other(*) End of year


Patent rights ₩ 22,844 ₩ 10,675 ₩ - ₩ (9,521) ₩ - ₩ - ₩ 23,998

Trademarks 10,357 - - (2,793) - - 7,564

Development

costs 196,250 15,810 - (74,271) - - 137,789

Membership

rights 4,651,749 - - - (1,089,914) - 3,561,835

Other intangible

assets 19,720,850 932,760 - (6,282,635) - 5,096,843 19,467,818

Goodwill 5,957,247 - 11,255,469 - - - 17,212,716

Customer

relationship - - 157,593,245 (5,709,900) - - 151,883,345

₩ 30,559,297 ₩ 959,245 ₩ 168,848,714 ₩ (12,079,120) ₩ (1,089,914) ₩ 5,096,843 ₩ 192,295,065

(*) Other fluctuations consist of transfer of advances and others, and also include net effects of change in exchange

rate.

2013

Beginning of

year Acquisition

Business

combination Amortization Other(*) End of year


Patent rights ₩ 5,605 ₩ 10,176 ₩ 11,303 ₩ (4,240) ₩ - ₩ 22,844

Trademarks 5,578 8,225 - (3,446) - 10,357

Development

costs 230,233 54,108 - (88,091) - 196,250

Membership

rights 4,182,274 469,475 - - - 4,651,749

Other intangible

assets 22,640,227 1,000,192 17,253 (3,936,742) (80) 19,720,850

Goodwill 4,080,624 - 1,876,623 - - 5,957,247

₩ 31,144,541 ₩ 1,542,176 ₩ 1,905,179 ₩ (4,032,519) ₩ (80) ₩ 30,559,297

(*) Other fluctuations consist of net effects of change in exchange rate.

(3) Details of significant individual intangible assets as of December 31, 2014 and 2013, are as follows:

Description


Book value Residual

depreciation

period

Book value Residual

depreciation

period

(In thousands of

Korean won)

(In thousands of

Korean won)

Customer

relationship

The value of customer relationship

related to business combination of

Allen Care Co., Ltd. ₩ 151,883,345 22 years ₩ - -

Goodwill

The amount of exceed acquisition


Allen Care Co., Ltd. 11,255,469 Indefinite - -

Goodwill

The amount of exceed acquisition


Koreit, Inc. 4,080,624 Indefinite 4,080,624 Indefinite

(4) Goodwill

Goodwill occurred through business combination, and its balance is allocated to each of the CGUs for impairment

test.

- 29 -

1) Carrying amount of Goodwill allocated to each of the CGUs :



MRO and E-commerce ₩ 1,709,880 ₩ 1,709,880

Other (manufacturing security

document) 4,080,624 4,080,624

Other (total distribution agency

service) 166,743 166,743

Wholesale in medicine 11,255,469 -

₩ 17,212,716 ₩ 5,957,247

2) Principal assumption used for the use of impairment test :

The recoverable amount of the CGU is an estimated cash flow; use value measurement that is based on five years of

financial budget; and applying a 13.0% (for the year ended December 31, 2013: 9.6%) and 12.0% discount rate for

industrial MRO, E-commerce and others and retail in medicine, respectively, to five years of financial budget. The

five years of financial budget has been confirmed by management.

Expected cash flow from each of CGUs for five years of financial budgeted period is based on expected gross

margin that is applied with an identical rate for five years of financial budgeted period. Also, 1 % of continued

growth rate is applied to the estimated cash flow that is expected to recover in excess of five years. Management

assures the recoverable amount, which is estimated with the above principal assumption, is less than total carrying

amount of goodwill from each of the CGUs.

13. INVESTMENTS IN SUBSIDIARIES:

(1) The Group’s investments in subsidiaries as of December 30, 2014 and 2013, consist of the following:

Ownership (%)

Nature of business Location

December

31, 2014

December

31, 2013

Reporting

month

Koreit, Inc. Security paper manufacturing Korea 53.7 53.7 December

Interpark International Co., Ltd. Wholesale and retail in e-business Korea 98.5 98.5 December

Interpark Logistics Co., Ltd. Distribution agent service Korea 100.0 100.0 December

iMarketAmerica, Inc. MRO business America 100.0 100.0 December

iMarketVietnam Co., Ltd. MRO business Vietnam 100.0 100.0 December

iMarketEurope, s.r.o. MRO business Slovakia 100.0 100.0 December

iMarketXian, Inc. MRO business China 51.0 - December

Allen Care Co., Ltd. Wholesale in medicine Korea 100.0 100.0 December

Global M&S Co. Ltd. (*) Wholesale and retail in e-business Japan 100.0 100.0 December

Interpark international(HK) Ltd. (*) Wholesale and retail in e-business Hong Kong 100.0 100.0 December

Interpark international(SINGAPORE)

Ltd. (*) Wholesale & retail in e-business Singapore 100.0 100.0 December

Interpark international (CHINA) Ltd. (*) Wholesale & retail in e-business China 100.0 100.0 December

(*) Interpark International Co., Ltd. has 100% share.

(2) The Group holds 50% of equity of Enerband China, Co., Ltd., and classified as investment in associates that

the Group has significant influence over financial and operating policy decisions of the investee company, but

does not control or joint control over those policies.

(3) For the current year, Allen Care Co., Ltd. is a subject to consolidation after acquiring 51% of equity by the

Group. There are no subsidiaries that have been excluded from consolidation for the year ended December 31,

2014.

- 30 -

(4) The financial status of the Group’s subsidiaries as of and for the year ended December 31, 2014, is as follows:

Assets Liabilities Sales

Net income

(loss)

Total

comprehensive

income (loss)


Koreit, Inc. ￦ 11,060,760 ￦ 14,775,159 ￦ 16,707,702 ￦ 748,761 ￦ 748,761

Interpark International Co., Ltd. 16,798,314 9,045,635 51,032,704 99,770 88,478

Interpark Logistics Co., Ltd. 2,824,907 1,861,330 20,219,734 60,566 60,566

iMarketAmerica, Inc. 3,635,263 1,386,307 13,137,803 108,698 198,732

iMarketVietnam Co., Ltd. 7,290,581 6,440,000 15,018,815 (142,504) (122,719)

iMarketEurope, s.r.o. 9,135 80,440 - (40,579) (52,874)

iMarketXian, Inc. 1,379,667 280,228 2,523,752 236,624 287,552

Allen Care Co., Ltd.(*) 268,368,548 136,401,835 175,409,561 6,815,349 6,781,355

Global M&S Co. Ltd. 2,111,387 1,952,347 5,744,797 86,915 86,915

Interpark

international(SINGAPORE) Ltd. 1,220,714 1,354,183 2,173,090 (207,197) (207,197)

Interpark

international(CHINA) Ltd. 613,814 439,971 344,180 (119,043) (119,043)

Interpark

international(HK) Ltd. 750,384 36,426 766,646 3,074 3,074

(*) Allen Care Co., Ltd. was acquired during the current year. The above table only includes management

performance after acquisition date and the balance applied the amortized cost of customer relationship that

was recognized in business combination.

(5) The financial position and non-controlling interest of the main subsidiaries as of December 31, 2014, are as

follows:

Koreit, Inc. Allen Care Co., Ltd.


Current assets ₩ 5,527,628 ₩ 114,671,514

Non-current assets 5,533,132 153,697,034

Total assets ₩ 11,060,760 ₩ 268,368,548

Current liabilities 12,618,062 102,938,929

Non-current liabilities 2,157,097 33,462,906

Total liabilities ₩ 14,775,159 ₩ 136,401,835

Controlling interests (1,992,825) 67,303,024

Non-controlling interests (1,721,573) 64,663,689

Total equity ₩ (3,714,398) ₩ 131,966,713

(6) The financial performance and non-controlling interest of the main subsidiaries for the year ended

December 31, 2014, are as follows:

Koreit, Inc. Allen Care Co., Ltd.(*)


Sales ￦ 16,707,702 ￦ 175,409,561

Operating income 1,084,390 9,881,731

Net income 748,761 6,815,349

Other comprehensive loss - (33,994)

Total comprehensive income 748,761 6,781,355

Net income of non-controlling interest 347,040 3,339,521

Other comprehensive income of

non-controlling interest 347,040 3,322,864

Dividend allocated to non-controlling

interest - -

(*) Allen Care Co., Ltd. was acquired during the current year. The above table only includes management

performance after acquisition date and the balance applied the amortized cost of customer relationship that

was recognized in business combination.

- 31 -

(7) Summary of cash flow for subsidiaries for the year ended December 31, 2014, is as follows:

Cash flow

from operating

activities

Cash flow from

investing

activities

Cash flow

from financing

activities

Net decrease in cash

and cash

equivalents

Cash and cash equivalents at

the beginning

of the year

Effects of changes in

foreign exchange

rates

Cash and cash

equivalents at

end of the year (In thousands of Korean won)

Koreit, Inc. ₩ 549,238 ₩ (244,828) ₩ (332,771) ₩ (28,361) ₩ 86,022 ₩ - ₩ 57,661

Interpark International Co., Ltd. (2,421,397) 555,876 1,641,789 (223,732) 234,363 132 10,763

Interpark Logistics Co., Ltd. 12,887 (69,527) - (56,640) 714,401 - 657,761

iMarketAmerica, Inc. (506,887) (1,792) - (508,679) 909,289 (33,855) 366,755

iMarketVietnam Co., Ltd. 416,780 (66,419) 376,763 727,124 288,803 12,486 1,028,413

iMarketEurope, s.r.o. 57,137 32,252 (1,063,102) (973,713) 1,031,427 (49,844) 7,870

iMarketXian, Inc. 100,822 (564) 685,937 786,195 140,371 21,070 947,636

Allen Care Co., Ltd.(*) 5,312,771 (127,590) - 5,185,181 167,626 - 5,352,807

Global M&S Co. Ltd. 77,639 (35,380) - 42,259 101,496 (11,764) 131,991

Interpark

international(SINGAPORE) Ltd. 117,073 (24,930) - 92,143 53,486 15 145,644

Interpark

international(CHINA) Ltd. (98,198) (12,866) (104,547) (215,611) 303,568 (2,674) 85,283

Interpark

international(HK) Ltd. 58,537 - - 58,537 40,063 4,221 102,821

14. INVESTMENTS IN ASSOCIATES:

(1) Details of associates of the Group as of December 31, 2014 and 2013, are as follows:


Nature of

business Location

Percentage of

ownership (%)

Acquisition

cost Book value

Percentage of

ownership (%)

Acquisition

cost Book value

Reporting

month

(In thousands of Korean won) (In thousands of Korean won)

Aerogel

Application

Group

Heat insulation

device

manufacturing

and sale Korea 35.00% ₩ 498,000 ₩ 225,777 35.00% ₩ 498,000 ₩ 260,733 December

Enerband

China, Co.,

Ltd.

Heat insulation

device

manufacturing

and sale China 50.00% 177,778 - 50.00% 177,778 79,015 December

₩ 675,778 ₩ 225,777 ₩ 675,778 ₩ 339,748

(2) Changes in investments in associates for the years ended December 31, 2014 and 2013, are as follows:

2014

Beginning

Loss on equity-

method

investments

Changes in

accumulated

comprehensive

income Ending balance


Aerogel

Application Group ₩ 260,733 ₩ (34,956) ₩ - ₩ 225,777

Enerband China, Co.,

Ltd. 79,015 (76,997) (2,018) -

₩ 339,748 ₩ (111,953) ₩ (2,018) ₩ 225,777

2013

Beginning Acquisition

Loss on equity-

method

investments

Changes in

accumulated

comprehensive

income

Ending

balance


Aerogel

Application Group ₩ 327,375 ₩ - ₩ (66,642) ₩ - ₩ 260,733


Ltd. - 177,777 (97,958) (804) 79,015

₩ 327,375 ₩ 177,777 ₩ (164,600) ₩ (804) ₩ 339,748

- 32 -

(3) Summary of financial information of the associates as of and for the years ended December 31, 2014 and 2013,

is as follows:

December 31, 2014

Assets Liabilities Sales Net loss

Total

comprehensive

loss

(In thousands of Korean won) Aerogel

Application Group ₩ 233,256 ₩ 87,752 ₩ 347,012 ₩ (149,136) ₩ (149,136)

Enerband China, Co., Ltd. 98,897 249,785 206,868 (298,610) (300,628)

December 31, 2013


Total

comprehensive

loss


Aerogel

Application Group ₩ 323,296 ₩ 77,980 ₩ 821,033 ₩ (190,296) ₩ (190,296)

Enerband China, Co., Ltd. 242,203 84,173 411,766 (195,917) (197,525)

(4) The reconciliation of the Group’s share of associates’ net assets to their book value as of December 31, 2014

and 2013, is as follows:

December 31, 2014

Aerogel Application Group Enerband China, Co., Ltd.


Net assets (A) ₩ 145,504 ₩ (150,888)

Ownership in associates (B) 35.00% 50.00%

Net asset share value (AxB)(*) 50,926 -

(+) Goodwill 174,823 -

(-) Other differences 28 -

Book value ₩ 225,777 ₩ -

(*) The Group unrecognized the net asset share value of Enerband China, Co., Ltd. by discontinuing equity

method with negative balance of net asset.

December 31, 2013

Aerogel Application Group Enerband China, Co., Ltd.


Net assets (A) ₩ 245,316 ₩ 158,030

Ownership in associates (B) 35.00% 50.00%

Net asset share value (AxB) 85,912 79,015

(+) Goodwill 174,823 -

(-) Other differences (2) -

Book value ₩ 260,733 ₩ 79,015

(5) Accumulative unrecognized loss on equity method of associates, which comes from discontinuing equity

method, for the years ended December 31, 2014 and 2013, is as follows:

2014 2013


Unrecognized loss on equity-method of

Enerband China, Co., Ltd. ₩ 75,444 ₩ -

- 33 -

15. INVESTMENT IN JOINT VENTURE:

(1) Details of investment in joint venture as of December 31, 2014, are as follows:

Nature of business Location

Percentage of

ownership (%) Acquisition cost Book value

Reporting

month


Imarketfocus

Technology Co., Ltd. MRO business China 50.00% ₩ 5,104,500 ₩ 5,099,856 December

(2) The changes in investment in joint venture for the year ended December 31, 2014, are as follows:

Beginning balance

Loss on equity-

method

investments

Changes in

accumulate

comprehensive

income Ending balance


Imarketfocus

Technology Co., Ltd. ₩ 5,104,500 ₩ (377,011) ₩ 372,367 ₩ 5,099,856

(3) Summary of financial information of the joint venture as of and for the year ended December 31, 2014, is as

follows:

December 31, 2014


Total

comprehensive

loss


Imarketfocus

Technology Co., Ltd ₩ 11,454,560 ₩ 1,258,492 ₩ 547,490 ₩ (754,021) ₩ (12,932)

(4) Adjustment from joint venture’s net assets to carrying amount of joint venture’s equity as of December 31,

2014, is as follows:

Imarketfocus Technology Co., Ltd


Net assets (A) ₩ 10,196,068

Ownership in associates (B) 50.00%

Net asset share value (AxB) 5,098,034

(+)Goodwill -

(+)Other differences 1,822

Book value ₩ 5,099,856

16. TRADE PAYABLES AND OTHER PAYABLES:

Trade payables and other payables as of December 31, 2014 and 2013, are as follows:



Trade payables ₩ 581,453,199 ₩ 407,285,641

Other accounts payable 6,096,999 4,353,178

Accrued expenses 4,467,333 3,321,437

Guarantee deposits received 775,387 843,454

₩ 592,792,918 ₩ 415,803,710

- 34 -

17. OTHER FINANCIAL LIABILITIES:

Other financial liabilities as of December 31, 2014 and 2013, are as follows:



Forward exchange contracts(*) ₩ 266,044 ₩ 246,522

(*) Forward exchange contracts are classified as financial liability at FVTPL. Changes in fair value are presented

as other non-operating profit (loss) in the consolidated statements of comprehensive income.

18. BORROWINGS:

(1) Details of borrowings as of December 31, 2014 and 2013, are as follows:




Short-term

borrowings ₩ 8,487,639 ₩ - ₩ 15,396,594 ₩ -

Long-term

borrowings - 9,009 - -

Total ₩ 8,487,639 ₩ 9,009 ₩ 15,396,594 ₩ -

(2) Details of short-term borrowings as of December 31, 2014 and 2013, are as follows:

Creditor

Annual

interest rate (%) December 31, 2014 December 31, 2013


Korean won

Short-term

borrowings

Chi-young Song 4.20% ₩ - ₩ 106,480

Industrial bank of Korea 5.16% - 6.52% 500,000 500,000

Citibank Korea 4.20% - 2,078,222

Citibank Korea 4.16% - 1,000,000

SiwonSRI - 35,600 35,600

Citibank Korea 3.55% 2,220,000 2,220,000

Kookmin Bank 4.20% 4,717,507 -

Short-term

borrowings

in foreign

currency Woori Bank 4.11% - 4.37% 1,014,532 1,440,586

Import usance Citi Bank and others 0.93% - 1.23% - 8,015,706

Total ₩ 8,487,639 ₩ 15,396,594

(3) Details of long-term borrowings as of December 31, 2014 and 2013, are as follows:

Description Creditor

Annual

interest rate (%) December 31, 2014 December 31, 2013


Long-term

borrowings in

foreign currency Shinhan Bank 0.80% ₩ 9,009 ₩ -

- 35 -

19. CONVERTIBLE BONDS:

(1) Convertible bonds

Koreit Company, the Group’s subsidiary, issued convertible bonds on August 30, 2012, and details of convertible

bonds are as follows:

Contents

Par value ₩ 1,090,200,000

Issued amount ₩ 1,090,200,000

Issued date August 30, 2012

Maturity date December 31, 2015

Coupon rate 5.0 %

Guaranteed interest on redemption 5.0 %

Exercise price per share ₩ 60,000

Exercisable period From issued date to the day

before redeemable date (December 30, 2015)

The fair value of the liability component of the convertible bonds, included in non-current borrowings, is calculated

using the market interest rate for an equivalent non-convertible bond.

(2) Redeemable preferred shares

Koreit Company, the Group’s subsidiary, issued 27,073 shares of redeemable convertible preferred shares at

₩70,000 per share on August 30, 2012. Preferred shareholders can convert preferred shares to common shares

three years after the issuance date, until the tenth anniversary. Required 1% dividends are paid annually and

recorded as interest expenses.

20. OTHER LIABILITIES:

Other liabilities as of December 31, 2014 and 2013, are as follows:




Advances from

customers ₩ 6,210,931 ₩ - ₩ 2,493,653 ₩ -

Withholdings 880,337 - 826,410 -

Provision 32,202 - - -

Deferred revenue - 142,107 - -

Others - 21,558 - -

Total ₩ 7,123,470 ₩ 163,665 ₩ 3,320,063 ₩ -

21. RETIREMENT BENEFIT OBLIGATION:

(1) Defined contribution retirement benefit plans

Some subsidiaries of the Group operate defined contribution retirement benefit plans for all qualifying employees.

The total expense, recognized as loss of ₩527,675 thousand (2013: ₩118,004 thousand), represents contributions

to these plans by the Group at rates specified in the rules of the plans.

- 36 -

(2) Defined benefit plans

1) Net defined benefit liability recognized in the consolidated statements of financial position as of December 31,

2014 and 2013, is as follows:



Present value of funded defined

benefit liability ₩ 16,542,660 ₩ 13,974,231

Present value of unfunded defined

benefit liability 283,995 178,459

Subtotal 16,826,655 14,152,690

Fair value of plan assets (12,916,147) (11,253,747)

Total ₩ 3,910,508 ₩ 2,898,943

2) Changes in the carrying amount of defined benefit obligations for the years ended December 31, 2014 and


2014 2013


Beginning balance ₩ 14,152,690 ₩ 10,859,188

Current service cost 3,676,493 2,464,511

Interest expense 613,553 423,657

Remeasurements factor:

Actuarial gains and losses arising

from changes in demographic

assumptions

(570,298) 479,686


from changes in financial

assumptions

87,410 (678,613)


from experience adjustments

(444,693) 1,127,889


from others

(24,071) -

Transferred in/from associates (1,087,469) (523,628)

Acquisition of subsidiaries 24,944 -

Benefits paid 398,096 -

Ending balance ₩ 16,826,655 ₩ 14,152,690

3) The movements in the fair value of plan assets for the years ended December 31, 2014 and 2013, are as

follows:

2014 2013


Beginning balance ₩ 11,253,747 ₩ 8,240,243

Expected return on plan assets 486,019 339,471

Remeasurement loss (212,190) (109,421)

Employer contribution 2,145,807 3,294,151

Benefits paid (940,502) (510,697)

Transferred in/from associates 24,944 -

Acquisition of subsidiaries 158,322 -

Ending balance ₩ 12,916,147 ₩ 11,253,747

Expenses of ₩46,800 thousand have been charged to ‘cost of sales’ and ₩3,757,227 thousand to ‘selling and

administrative expenses’ for the year ended December 31, 2014 (for the year ended December 31, 2013: ₩21,774

thousand and ₩2,526,923 thousand, respectively).

The Group’s plan assets are composed of cash and cash equivalent, and actual return on plan assets for the years

ended December 31, 2014 and 2013, is ₩273,829 thousand and ₩230,050 thousand, respectively

- 37 -

4) The amounts recognized as remeasurements of net defined benefit liability in other comprehensive income

(expense) for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Remeasurements before income tax

expense (benefit) ₩ 739,463 ₩ (1,038,382)

Income tax expense (benefit) (172,857) 251,288

Remeasurements after income tax

expense (benefit) ₩ 566,606 ₩ (787,094)

5) The principal assumptions used for the purposes of the actuarial valuations are as follows:


Discount rate(s) 2.80% - 3.75% 4.50%

Expected rate(s) of salary increase 4.38% - 6.00% 7.00%

6) When all other assumptions are maintained and in case where significant actuarial assumptions are within the

range of reasonable, possible changes, the impact of the defined benefit obligation is as follows:

2014 2013

Increase Decrease Increase Decrease


Changes of 100

basis points of

discount rate ₩ (1,245,744) ₩ 1,447,563 ₩ (1,397,741) ₩ 1,671,542

Changes of 1 % of

expected salary

increase rate 1,446,198 (1,267,310) 1,681,466 (1,429,448)

The sensitivity analysis presented above may not be representative of the actual change in the defined benefit

obligation as it is unlikely that the change in assumptions would occur in isolation of one another, as some of the

assumptions may be correlated. Also, in the sensitivity analysis above, the present value of the defined benefit

obligation was measured using the projected unit credit method.

22. EQUITY:

(1) As of December 31, 2014 and 2013, details of equity are as follows:



Number of authorized shares (*) 80,000,000 shares 80,000,000 shares

Par value per share in Koean won (*) ₩ 500 ₩ 500

Number of outstanding shares 35,943,340 shares 35,943,340 shares

Capital stock (**) ₩ 18,166,670 ₩ 18,166,670

(*) In accordance with the resolution of the shareholders dated March 26, 2010, the Company carried out the

stock split on April 28, 2010, and amended the number of authorized stocks. Consequently, the par value per

share of the Company’s stock has become ₩500 from ₩5,000, and the number of authorized stock has

become 80 million from 8 million.

(**) Difference of ₩195,000 thousand occurred between face value of stocks and capital of stocks paid due to past

retirement of shares.

(2) Other contributed capital as of December 31, 2014 and 2013, consist of the following:



Paid-in capital in excess of par value ₩ 134,652,554 ₩ 134,652,554

Treasury stock(*) (9,312,969) (16,800)

Total ₩ 125,339,585 ₩ 134,635,754

- 38 -

(*) The Company acquired 61,000 shares, with par value of ₩ 5,000 per share, as treasury stock in December

2004, with an acquisition cost of ₩1,024,800 thousand, in accordance with the resolution of the board of

directors to prepare for the exercise of stock options. As of December 31, 2012, the Company had 10,000

treasury shares, with the acquisition cost of ₩16,800 thousand and par value of ₩500 per share, remaining

after the issuance of 60,000 shares to employees in December 2005, upon exercise of their stock options.

The Company acquired 339,826 shares of treasury stocks (par value: ₩500) according to determination by the

board of directors.

(3) The details of components of other capital as of December 31, 2014 and 2013, are as follows:



Capital changes by equity method ₩ 369,544 ₩ (804)

Foreign operation translation income (35,108) (172,436)

Total ₩ 334,436 ₩ (173,240)

(4) The changes in components of other capital for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Beginning of the period ₩ (173,240) ₩ (39,736)

Changes occurred by change of other

comprehensive incomes of affiliated companies

and joint ventures 370,348 (804)

Exchange differences from conversion of foreign

operation’s net asset 137,328 (132,700)

End of the period ₩ 334,436 ₩ (173,240)

(5) Retained earnings as of December 31, 2014 and 2013, are as follows:



Statutory reserve

Legal reserve(*) ₩ 7,575,335 ₩ 6,656,001

Voluntary reserve

Appropriated retained earnings for

business expansion 178,499,835 149,601,530

Unappropriated retained earnings 40,113,247 37,878,864

Total ₩ 226,188,417 ₩ 194,136,395

(*) The Commercial Code of the Republic of Korea requires the Company to appropriate, as a legal reserve, an

amount equal to a minimum of 10% of cash dividends paid, until such reserve equals 50% of its issued capital

stock. 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, with the ratification of the Company’s majority shareholders.

(6) The changes in retained earnings for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Beginning of year ₩ 194,136,395 ₩ 165,080,385

Profit attributable from the parent

company 40,452,095 38,826,439

Dividends (8,983,335) (8,983,335)

Remeasurements of defined benefit

liability 583,262 (787,094)

End of year ₩ 226,188,417 ₩ 194,136,395

(7) Details of payment of dividends as of December 31, 2014 and 2013, are as follows:

- 39 -


Dividend per share ₩ 250 ₩ 250

Number of outstanding shares 35,933,340 shares 35,933,340 shares

Total ₩ 8,983,335,000 ₩ 8,983,335,000

23. CLASSIFICATION OF EXPENSES BY NATURE:

The classification of expenses by nature for the years ended December 31, 2014 and 2013, are as follows:

2014 2013

Cost of goods

sold

Selling and

administrative

expenses Total

Cost of goods

sold

Selling and

administrative

expenses Total


Changes in

inventories ₩ 2,557,252,913 ₩ - ₩ 2,557,252,913 ₩ 2,369,163,201 ₩ - ₩ 2,369,163,201

Salaries 4,485,610 46,299,362 50,784,972 606,002 38,209,378 38,815,380

Depreciation 132,642 2,407,992 2,540,634 131,393 2,159,990 2,291,383

Amortization 2,177,773 9,901,347 12,079,120 - 4,032,519 4,032,519

Commission 2,426,222 12,055,959 14,482,181 - 8,719,678 8,719,678

Rents 180,323 6,528,373 6,708,696 - 4,853,036 4,853,036

Information

technology

expenses - 7,072,052 7,072,052 - 6,409,994 6,409,994

Others 12,331,163 13,678,058 26,009,221 286,172 12,772,762 13,058,934

Total ₩ 2,578,986,646 ₩ 97,943,143 ₩ 2,676,929,789 ₩ 2,370,186,768 ₩ 77,157,357 ₩ 2,447,344,125

24. SELLING AND ADMINISTRATIVE EXPENSES:

Selling and administrative expenses for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Employee benefits ₩ 35,927,178 ₩ 30,482,828

Severance benefits 4,394,852 2,640,029

Employee benefits 5,977,332 5,086,521

Travel 2,406,568 2,722,192

Entertainment expenses 996,752 876,694

Communications 828,156 803,208

Utilities 95,949 54,117

Electricity cost 16,166 8,069

Taxes and dues 446,138 291,931

Depreciation 2,407,992 2,159,990

Amortization 9,901,347 4,032,519

Rents 6,528,373 4,853,036

Cost of repairs 44,133 35,071

Insurance premiums 1,139,946 691,870

Cost of car maintenance 328,041 286,057

Ordinary research and development 63,912 152,403

Transportation expense 2,913,440 1,421,807

Training expenses 488,573 868,902

Publication expenses 35,284 47,253

Packaging 163,099 94,457

Office supplies 244 -

Consumable supplies 848,098 596,279

Commission 12,055,959 8,719,678

Advertising 644,326 249,243

Bad debts expense 203,058 1,992,203

Promotion 226,189 128,459

Service contract expenses 139,608 86,241

- 40 -

2014 2013


Stock compensation expenses 9,815 11,807

Electronic data processing service

fee 7,072,052 6,409,994

Event cost 213,322 230,270

Others 1,427,241 1,124,229

Total ₩ 97,943,143 ₩ 77,157,357

25. OTHER INCOME AND EXPENSES:

(1) Other income for the years ended December 31, 2014 and 2013, consists of the following:

2014 2013


Gain on foreign currency

transactions ₩ 4,343,778 ₩ 3,476,882

Gain on foreign currency translation 338,050 366,757

Gains on foreign exchange forward

transaction 214,646 198,819

Gains on valuation of foreign

exchange forward contracts 3,463,823 5,628,007

Gain from disposal of property, plant

and equipment 3,060 649

Reversal of allowance for other bad

debts 807 -

Gain on exemption of debts 5,000 -

Miscellaneous revenues 1,131,358 718,096

Total ₩ 9,500,522 ₩ 10,389,210

(2) Other expenses for the years ended December 31, 2014 and 2013, consist of the following:

2014 2013


Loss on disposal of trade receivables ₩ - ₩ 10,392

Loss on foreign currency transactions 3,932,447 3,853,408

Loss on foreign currency translation 319,138 129,710

Losses on valuation of foreign exchange

forward contracts 266,044 246,522

Losses on disposal of property, plant and

equipment 4,028,852 4,929,605

Loss on disposal of property, plant and

equipment 7,277 39,599

Other bad debts expense 531,186 633,325

Impairment loss on intangible assets 1,089,914 -

Donations and contributions 6,216 -

Contribution to provision 40,000 31,082

Miscellaneous loss 376,910 319,659

Total ₩ 10,597,984 ₩ 10,193,302

- 41 -

26. FINANCE INCOME AND EXPENSES:

(1) Finance income for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Interest income on short-term bank

deposits ₩ 2,471,747 ₩ 1,590,953

Interest income on loans and

accounts receivable 93,067 60,903

Total ₩ 2,564,814 ₩ 1,651,856

(2) Finance expenses for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Interest expenses on borrowings and

bank overdrafts ₩ 603,245 ₩ 519,034

(3) Details of finance income and expenses by category of financial instruments for the years ended December 31,

2014 and 2013, are as follows:

2014 2013


Finance income:

Cash and cash equivalent ₩ 2,375,143 ₩ 1,546,342

Loans and receivables 189,671 105,514

Total ₩ 2,564,814 ₩ 1,651,856

Finance expenses:

Financial liability at amortized cost ₩ 603,245 ₩ 519,034

Total ₩ 603,245 ₩ 519,034

27. INCOME TAX:

(1) Income tax expenses for the years ended December 31, 2014 and 2013, are as follows:

2014 2013


Ⅰ. Income tax ₩ 15,235,395 ₩ 11,792,127

Current income tax 15,235,395 11,806,327

Adjustments in respect of prior-year taxes - (14,200)

Ⅱ. Deferred income taxes (2,156,889) 301,593

Increase (decrease) in deferred income tax assets (*) (1,984,032) 50,305

Items directly charged to equity (172,857) 251,288

Ⅲ. Income tax expense 13,078,506 12,093,720

(*) End of deferred income tax assets( liabilities) (32,151,809) 486,812

Beginning of deferred income tax assets 486,812 537,117

Changes due to business combination (34,622,653) -

Increase (decrease) in deferred income tax (1,984,032) 50,305

- 42 -

(2) Reconciling items between income before income tax and taxable income for the years ended December 31,


2014 2013


Income before income tax ₩ 57,218,629 ₩ 50,650,278

Current applicable tax rate 23.40% 23.30%

Income tax expenses calculated at current applicable

tax rates 13,384,908 11,795,367

Adjustments:

Tax effect of non-deductible expense 57,696 184,868

Other (change in tax rate, etc.) (364,098) 113,485

Subtotal (306,402) 298,353

Income tax ₩ 13,078,506 ₩ 12,093,720

Effective tax rate 22.90% 23.90%

(3) The income tax directly charged to equity for the years ended December 31, 2014 and 2013, is as follows:

2014 2013

Before tax Tax credit After tax Before tax Tax credit After tax

Remeasurements of net

defined benefit obligations ₩ 739,463 ₩ (172,857) ₩ 566,606 ₩(1,038,382) ₩ 251,288 ₩ (787,094)

(4) Details of deferred income tax assets (liabilities) and increase (decrease) of temporary difference as of

December 31, 2014 and 2013, are as follows:

December 31, 2014

Deferred income tax assets (liabilities)

Description

January 1,

2014

Consolidated

statement of

comprehensive

income

Other

comprehensive

income

Acquisitions

from business

combination

December

31, 2014


Ⅰ. Temporary differences to be deducted: Defined benefit

obligation ₩ 2,864,528 ₩ 599,690 ₩ (222,278) ₩ 38,307 ₩ 3,280,247

Accrued expenses

(annual debt) 307,048 176,339 - 9,554 492,941

Deposit received 1,288 3,085 - - 4,373

Intangible asset 5,297 (2,551) - - 2,746

Tangible asset 37,324 (27,238) - - 10,086

Uncollectible

accounts 9,501 (357) - - 9,144

Financial guarantee

liabilities 12,003 (451) - - 11,552

Subscription

deposit - 253,851 - - 253,851

Investments in

associates - 41,406 - - 41,406

Receivables - 123,718 - - 123,718

Provisions - 124 - - 124

Gain (loss) on

foreign currency translation 3,570 (3,570) - - -

Subtotal 3,240,559 1,164,046 (222,278) 47,861 4,230,188

Ⅱ. Temporary differences to be added: Accrued revenues ₩ (30,340) ₩ (10,278) ₩ - ₩ - ₩ (40,618)

Severance insurance (2,723,407) (249,040) 49,421 - (2,923,026)

Prepaid expenses - (4,017) - - (4,017)

Customer relation - 1,256,178 - (34,670,514) (33,414,336)

Subtotal (2,753,747) 992,843 49,421 (34,670,514) (36,381,997)

Total (Ⅰ+Ⅱ) ₩ 486,812 ₩ 2,156,889 ₩ (172,857) ₩ (34,622,653) ₩ (32,151,809)

- 43 -

December 31, 2013

Deferred income tax assets (liabilities)

January 1, 2014

Consolidated

statement of

comprehensive

income

Other

comprehensive

income December 31, 2014


Ⅰ. Temporary differences to be deducted:

Defined benefit

obligation ₩ 2,068,946 ₩ 570,773 ₩ 224,809 ₩ 2,864,528

Accrued

expenses (annual

debt) 255,605 51,443 - 307,048

Deposit received 1,634 (346) - 1,288

Intangible asset 7,740 (2,443) - 5,297

Tangible asset 66,803 (29,479) - 37,324

Uncollectible accounts 9,501 - - 9,501

Financial guarantee

liabilities - 12,003 - 12,003

Provisions 131,209 (131,209) - -

Withholdings 7,954 (7,954) - -

Gain on foreign

currency translation - 3,570 - 3,570

Subtotal 2,549,392 466,358 224,809 3,240,559

Ⅱ. Temporary differences to be added:

Accrued revenues ₩ (18,137) ₩ (12,203) ₩ - ₩ (30,340)

Severance insurance (1,994,138) (755,748) 26,479 (2,723,407)

Subtotal (2,012,275) (767,951) 26,479 (2,753,747)

Total(Ⅰ+Ⅱ) ₩ 537,117 ₩ (301,593) ₩ 251,288 ₩ 486,812

(5) Temporary differences not recognized as deferred tax assets (liabilities) for the years ended December 31,


2014 2013


Temporary differences to be added

Investment in subsidiaries ₩ (499,980) ₩ (499,980)

28. EARNINGS PER SHARE:

(1) Basic net income per share and diluted ordinary income per share for the years ended December 31, 2014 and


2014 2013

(In Korean won)

Basic net income per share ₩ 1,126 ₩ 1,081

Diluted ordinary income per share (*) 1,126 1,081

(*) As the Company has no dilutive securities outstanding, diluted earnings per share for the years ended

December 31, 2014 and 2013, are identical to basic earnings per share.

(2) Basic net income per share for the years ended December 31, 2014 and 2013, is calculated as follows

2014 2013

(In Korean won)

Net income attributable to owners of the Company ₩ 40,452,095,267 ₩ 38,826,438,934

Weighted-average number of common

shares outstanding during the year 35,909,616 shares 35,933,340 shares

Basic net income per share ￦ 1,126 ￦ 1,081

- 44 -

29. RELATED-PARTY TRANSACTIONS:

(1) The Group’s related parties as of December 31, 2014, are as follows:

Related parties

Parent company Interpark Co., Ltd.

Subsidiaries of parent

company

Interpark INT Corporation, Interpark Paedea Co, Ltd., Digitalidea Co, Ltd.,

Interpark Global (US), Livetone Co, Ltd., Interpark Tour Co, Ltd., Interpark

Theater Co., Ltd., Rui Sound Co., Ltd., Interpark Duty-Free Co., Ltd., Circle

Contents Company Co., Ltd., Digiart Production Co., Ltd., Beijing HM,

Interpark INT SHANGHAI CO., LTD

Associates of parent company WCOMPANYKOREA Co., Ltd., Union Global CG association of investment,

BrainMedic Co., Ltd., Jingift Co., Ltd., Interpark Bizmarket Co., Ltd.,

Agriculture and Forestry association of investment, Les Miserables Korea Co.,

Ltd. and Surf Inc. (Former: Asia Cove Co., Ltd.)

Other associates Aerogel Application Group Inc. and Enerband China Co., Ltd.

Joint venture iMarketFocus Inc.

(2) Transactions with related parties

1) Significant transactions with related parties for the years ended December 31, 2014 and 2013, are as follows:

2014

Name of a company

Sales Purchases

Sales

Rental

revenues

Other

sales

Purchase of

inventory

Purchase of

property,

plant and

equipment

Commission

expenses

Other

operating

expenses


Parent

company Interpark Co., Ltd. ₩ 12,797 ₩ 261,879 ₩ - ₩ 122,038 ₩ - ₩ 82,987 ₩ 131,455

Subsidiaries

of parent

company

Interpark INT

Corporation 21,058,557 94,070 13,027 187,900 481,749 106,394 270,065

Interpark HM Co., Ltd. 18,024 - - 7,849 - - -

Interpark Paedea Co.,

Ltd.(*) 735 - - - - - -

Digitalidea Co., Ltd. 416 - - - - - -

Interpark Global(US) 224,622 - - - - - -

Interpark Theater Co.,

Ltd. 19,015 - - - - - -

Interpark Home Story

Co, Ltd. (*) 17,535 - - - - - -

Associates of

parent

company

Interpark Bizmarket

Co., Ltd. 15,755 - - 37,991,918 - 1,349,445 2,584

Yelopay Corporation 64,320 36,517 - - - - -

Surf Inc. (Former: Asia

Cove Co., Ltd.) 405 - - - - - -

Joint venture iMarketFocus Inc. 822,746 - - - - - -

(*) Excluded from related parties and it is transaction until the expiration date of related parties.

- 45 -

2013

Name of a company

Sales Purchases

Sales

Rental

revenues

Other

sales

Purchase of

inventory

Purchase of

property,

plant and

equipment

Commission

expenses

Other

operating

expenses


Parent

company

Interpark Co., Ltd ₩ 12,250 ₩ - ₩ - ₩ - ₩ - ₩ 90,874 ₩ -

Subsidiaries of

parent

company

Interpark INT

Corporation 22,103,953 - - 17,123 10,000 76,821 705,592

Interpark Paedea Co.,

Ltd. 6,753 - - - - - -

Digitalidea Co., Ltd. 490 - - - 133,000 - -

Interpark Global(US) 12,850 - - - - - -

Digiart Production Co.,

Ltd. 213 - - - - - -

Interpark HM Co., Ltd. 186,808 - - 7,637 - - -

Interpark Home Story

Co, Ltd 13,756 - - - - - -

Interpark Theater Co.,

Ltd. 8,696 - - - - - -

Associates of

parent

company

Interpark Bizmarket

Co., Ltd. 31,169 - - 38,572,102 - 1,815,198 133,002

Yelopay Corporation 109,230 64,380 - - - - -


Cove Co., Ltd.) 958 - - - - - -

Other

associates

Aerogel Application

Group Inc. 112,212 - - 468,584 - - -

Enerband China Co.,

Ltd. - - - 65,166 - - -

(3) Significant account balances arising from transaction with related parities as of December 31, 2014 and 2013,

are as follows:

December 31, 2013

Name of a company

Receivables Payables

Trade receivables Other receivables Trade payables Other payables


Parent company Interpark Co., Ltd. ₩ 358 ₩ 208,202 ₩ - ₩ 372,607

Subsidiaries of

parent company

Interpark INT Corporation 1,744,616 55,081 22,590 158,311

Interpark Paedea Co., Ltd. 12 - - -

Digitalidea Co., Ltd. 458 - - -

Interpark Global(US) 35,798 - - -

Interpark Theater Co., Ltd. 1,582 - - -

Associates of

parent company

Interpark Bizmarket Co.,

Ltd. 1,619 - 9,408,476 100,089


Cove Co., Ltd.) 83 - - -

Associates Aerogel Application Group

Inc.

18,260 - - -

Joint venture iMarketFocus Inc. 822,746 - - -

- 46 -

December 31, 2013

Name of a

company

Receivables Payables

Trade receivables Other receivables

Trade

payables Other payables


Parent company Interpark Co., Ltd. ₩ 1,648 ₩ - ₩ - ₩ -

Subsidiaries of

parent company

Interpark INT

Corporation 2,332,071 42,229 17,123 70,922

Interpark Paedea

Co., Ltd. 666 - - -

Digitalidea Co., Ltd. 539 - - -

Interpark

Global(US) 1,018 - - -

Interpark HM Co.,

Ltd. 5,404 - 765 -

Interpark Theater

Co., Ltd. 1,521 - - -

Associates of parent

company

Interpark Bizmarket

Co., Ltd. 3,867 - 5,207,842 100,857

Yelopay

Corporation 535 - - -

Surf Inc. (Former:

Asia Cove Co.,

Ltd.) 17 - - -

Associates Aerogel Application

Group Inc. 58,260 - - -

As of December 31, 2014 and 2013, the Group does not have any provision for impairment of related accounts

receivable.

(4) Equity transactions with related parties for the years ended December 31, 2014 and 2013, are as follows:

Transaction party

Transactional

information 2014 2013


Equity acquisition


Ltd. Cash ₩ - ₩ 177,778

Equity acquisition iMarketFocus Inc. Cash 5,104,500 -

(5) The Group has not provided guarantees and collateral with respect to financing to its subsidiaries for the year

ended December 31, 2014

(6) There have been no guarantees and collateral by provided related parties as of December 31, 2014.

(7) Compensation for key management personnel for the years ended December 31, 2014 and 2013, is as follows:

2014 2013


Short-term salaries ₩ 4,037,824 ₩ 3,936,157

Severance benefits 940,627 1,125,239

Total ₩ 4,978,451 ₩ 5,061,396

- 47 -

30. COMMITMENTS AND CONTINGENCIES:

(1) Litigation in progress

There is no litigation in progress as of December 31, 2014.

(2) Details of commitments that the Group entered into with financial institutions as of December 31, 2014, are as

follows:

Currency Credit lines Exercise amount Bank


Borrowings

KRW ₩ 34,520,000 ₩ 7,440,011 Shinhan Bank

and others

JPY 218,000 110,258 Woori Bank

USD 2,000 -

Citibank

America

VND 186,166 175,267 Shinhan Bank

Import usance KRW 30,000,000 7,261,690 Citibank Korea

USD 58,425 134

Woori Bank and

others

Trade financing KRW 470,000 - Woori Bank

Secured loan of credit sales (purchase)

KRW 198,200,000 106,287,068

Woori Bank and

others

Foreign exchange forward transaction

contract USD 39,008 24,836

Shinhan Bank

and others

Losses on foreign exchange forward

transaction USD 22,200 1,513

Woori Bank and

others

Secured loan of credit sales (sale) KRW 2,020,500 - Industrial Bank

Foreign exchange forward transaction

contract USD 50 42 Shinhan Bank

Total

KRW 265,210,500 120,988,769

USD 121,683 26,525

JPY 218,000 110,258

VND 186,166 175,267

(3) The Group has entered into agreements with Samsung SDS Co., Ltd. for computer system operating assistance,

under which the Group paid operating service fees amounting to ₩7,072 million and ₩6,410 million for the

years ended December 31, 2014 and 2013, respectively.

- 48 -

31. FINANCIAL INSTRUMENTS:

(1) Capital risk management

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern

in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital

structure. Consistent with others in the industry, the Group monitors capital on the basis of the debt ratio and net

borrowings ratio.

For internal management, the Group, which is not subject to capital regulation by force, examines cost of capital

and risk related to each equity item.

As of December 31, 2014 and 2013, the debt-to-equity ratio is as follows:



Total liability (A) ₩ 657,379,789 ₩ 446,911,869

Total equity (B) 433,106,418 344,821,044

Debt-to-equity ratio (A/B) 151.78% 129.60%

(2) Categorizations of financial assets and liabilities as of December 31, 2014 and 2013, are as follows:

1) December 31, 2014

Assets

Assets at

FVTPL

AFS

financial assets

Held-to-

maturity

financial assets

Loans and

receivables Total


Current:

Cash and cash

equivalents ₩ - ₩ - ₩ - ₩ 135,380,306 ₩ 135,380,306

Trade

receivabl

es - - - 652,321,787 652,321,787

Other

receivables - - - 2,821,339 2,821,339

Other financial

assets 214,646 - - 22,220,000 22,434,646

Subtotal 214,646 - - 812,743,432 812,958,078

Non-current:

Trade receivables - - - 45,175 45,175

Other receivables - - - 5,304,528 5,304,528

Other financial

assets - 8,633,457 137,569 21,500 8,792,526

Subtotal - 8,633,457 137,569 5,371,203 14,142,229

Total ₩ 214,646 ₩ 8,633,457 ₩ 137,569 ₩ 818,114,635 ₩ 827,100,307

- 49 -

Liabilities Liabilities at FVTPL

Other financial

liabilities at

amortized cost Total


Current:

Trade payables ₩ - ₩ 581,453,199 ₩ 581,453,199

Other payables - 11,339,718 11,339,718

Other financial liabilities 266,044 - 266,044

Borrowings - 8,487,639 8,487,639

Subtotal 266,044 601,280,556 601,546,600

Non-current:

Borrowings - 9,009 9,009

Convertible bond - 1,090,200 1,090,200

Redeemable preferred stock - 1,873,101 1,873,101

Subtotal - 2,972,310 2,972,310

Total ₩ 266,044 ₩ 604,252,866 ₩ 604,518,910

2) December 31, 2013

Assets Assets at FVTPL

AFS

financial

assets

Held-to-maturity

financial assets

Loans and

receivables Total


Current:

Cash and cash

equivalents ₩ - ₩ - ₩ - ₩ 50,332,014 ₩ 50,332,014

Trade receivables - - - 636,856,881 636,856,881


Other financial

assets 198,819 - - 2,220,000 2,418,819

Subtotal 198,819 - - 691,477,375 691,676,194

Non-current:

Trade receivables - - - 45,175 45,175


Other financial

assets - 3,163,488 91,787 610,353 3,865,628

Subtotal - 3,163,488 91,787 3,969,771 7,225,046

Total ₩ 198,819 ₩ 3,163,488 ₩ 91,787 ₩ 695,447,146 ₩ 698,901,240

Liabilities

Liabilities at

FVTPL

Other financial

liabilities at

amortized cost Total


Current:

Trade payables ₩ - ₩ 407,285,641 ₩ 407,285,641

Other payables - 8,518,069 8,518,069

Other financial liabilities 246,522 - 246,522

Borrowings - 15,396,594 15,396,594

Subtotal 246,522 431,200,304 431,446,826

Non-current:

Convertible bond - 1,090,200 1,090,200

Redeemable preferred stock - 1,843,649 1,843,649

Subtotal - 2,933,849 2,933,849

Total ₩ 246,522 ₩ 434,134,153 ₩ 434,380,675

- 50 -

(3) Financial risk management:

The Group is exposed to various financial risks, such as market, credit and liquidity, related to 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 a degree acceptable to the Group. The Group monitors and manages the

financial risks relating to the operations of the Group through internal risk reports, which analyze exposures by

degree and magnitude of risks

1) Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to

meet its contractual obligations.

Exposure of credit risk occurs mainly from loan activities, and partly from debt securities or derivatives. Also,

credit risk exists in financial guarantees or unexecuted loan contracts.

① Management of credit risk

For the purpose of credit risk management, the Group has adopted a policy of only dealing with creditworthy

counterparties and obtaining sufficient collateral. The Group only transacts with entities that are rated the

equivalent of investment grade and above. This information is supplied by independent rating agencies where

available, and if not available, the Group uses other publicly available financial information and its own trading

records to rate its major customers.

The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate

value of transactions concluded is spread among approved counterparties.

The carrying amount of financial assets is the amount after deducting impairment losses, and an indication of the

maximum exposure to credit risk of the Group did not consider the value of the collateral obtained.

② Impairment and Allowance

According to policy of consolidated entity, financial assets that exceed the amount of materiality should be

reviewed periodically. Allowance of bad debts should be decided according to individual loan reviews, and it is

applied of all material loans and receivables. This evaluation includes guarantees (including reconfirmation of

possibilities executed) and expected receivable amount.

Allowance of bad debts evaluated by the Group is accounted for (i) group of equivalent assets that are below

materiality individually and (ii) unrecognized loss occurred and evaluated by historical experiences or statistical

method.

2) Market risk management

The Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates

and interest rates. Market risk is composed of interest rate risk and foreign exchange risk.

① Interest risk

The Group is exposed to interest rate risk as it borrows funds with variable interest rates. Consolidated entity

evaluates interest risk according to 1% change of interest rate, and it reflects evaluation of board of directors in

terms of the risk of interest rate changes that may occur under rational basis.

(1) The Group’s borrowings with variable interest rates as of December 31, 2014 and 2013, are as follows:



Borrowings ₩ 3,734,532 ₩ 2,440,586

- 51 -

(2) As of December 31, 2014 and 2013, if interest rate of borrowings with variable interest fluctuated by 1%,

while all other variables held constant, the effects on income and equity would be as follows:

2014 2013

1% increase 1% decrease 1% increase 1% decrease


Income/equity ₩ 37,345 ₩ (37,345) ₩ 24,406 ₩ (24,406)

② Foreign currency risk management

The Group undertakes transactions denominated in foreign currencies; consequently, exposures to exchange rate

fluctuations arise. The carrying amounts of the Group’s foreign currency-denominated monetary assets and

monetary liabilities at the end of the reporting period are as follows.


Monetary assets Monetary liabilities


USD ₩ 35,680,234 ₩ 34,466,798 ₩ 3,192,373 ₩ 12,917,155

EUR 702,699 353,166 86,935 413,352

JPY 1,166,573 14,285 1,468,295 4,136,999

VND - - 9,009 -

CNY 461 - - -

SGD - 72,716 - -

MYR - 3,130 - -

AS of December 31,2014 and 2013, if foreign currency translation expecting changes of foreign currency by 10%,

the effects on income and equity would be as follows:


10% increase 10% decrease 10% increase 10% decrease


USD ₩ 3,248,786 ₩ (3,248,786) ₩ 2,154,964 ₩ (2,154,964)

EUR 61,576 (61,576) (6,019) 6,019

JPY (30,172) 30,172 (412,271) 412,271

VND (901) 901 - -

CNY 46 (46) - -

SGD - - 7,272 (7,272)

MYR - - 313 (313)

Exposure of risk by change of currency exchange rate is managed under the limit determined by policies of

currency forward contracts.

Consolidated statement of forward contract with Woori bank and other four banks for the year ended December 31,


Long position Short position

Exchange

rate

Number of

contracts

Currency Amount Currency Amount

(In thousands of foreign currency and in thousands of Korean won)

KRW 62,188,769 USD 56,480

1,074.60 -

1,120.50 49

KRW 1,368,659 EUR 1,000

1,342.51 -

1,388.09 7

KRW 842,363 JPY 897 912.66 - 946.94 6

USD 7,952 KRW 8,789,568

1,092.60 -

1,121.10 4

EUR 695 KRW 934,415

1,328.78 -

1,383.08 4

JPY 2,204 KRW 2,070,080 920.08 - 955.18 9

- 52 -

The Group recognized ₩215 million and ₩266 million for gain on valuation of foreign exchange forward contract

and loss on valuation of foreign exchange forward contract, respectively. Also, realized gain on foreign exchange

forward transaction and loss on foreign exchange forward transaction are ₩3,464 million and ₩4,028 million,

respectively (see Note 25).

3) Liquidity risk management

Ultimate responsibility for liquidity risk management rests with the board of directors, which has established an

appropriate liquidity risk management framework for the management of the Group’s short-, medium- and long-

term funding and liquidity management requirements. The Group manages liquidity risk by maintaining adequate

reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecast and actual cash

flows and by matching the maturity profiles of financial assets and liabilities.

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities

with agreed repayment periods. The tables have been drawn up based on the undiscounted cash flows of financial

liabilities based on the earliest date on which the Group can be required to pay. The tables include both interest and

principal cash flows. To the extent that interest flows are floating rate, the undiscounted amount is derived from

interest rate curves at the end of the reporting period.

December 31,2014 Less than 3

months

Between 3

months and 1 year

Between 1 year

and 5 year

More than

5 years Total


Trade payables ₩ 532,950,478 ₩ 48,502,720 ₩ - ₩ - ₩ 581,453,198

Other payables 9,477,121 1,862,597 - - 11,339,718

Short-term

borrowings 122,208 8,540,061 - - 8,662,269

Long-term

borrowings - - 9,061 - 9,061

Current-

convertible

bonds - 1,144,710 - - 1,144,710

Redeemable

preferred stock - 18,731 74,924 1,929,294 2,022,949

Other financial

liabilities 266,044 - - - 266,044

Total ₩ 542,815,851 ₩ 60,068,819 ₩ 83,985 ₩ 1,929,294 ₩ 604,897,949

December 31,2013

Less than 3

months

Between 3

months and 1 year

Between 1 year

and 5 year

More than

5 years Total

Trade payables ₩ 342,064,035 ₩ 65,221,606 ₩ - ₩ - ₩ 407,285,641

Other payables 7,682,356 835,713 - - 8,518,069

Short-term

borrowings 8,017,010 7,531,694 - - 15,548,704

Convertible bonds - - 1,274,825 - 1,274,825

Redeemable

preferred stock - - 2,297,144 - 2,297,144

Other financial

liabilities 246,522 - - - 246,522

Total ₩ 358,009,923 ₩ 73,589,013 ₩ 3,571,969 ₩ - ₩ 435,170,905

- 53 -

(4) Fair value of Financial Asset

The managements consider that the carrying amounts of financial assets and financial liabilities recognized in the

consolidated financial statements approximate their fair values.

1) Consolidated statement of financial assets/liabilities evaluated by book value, as it could not be evaluated

under fair value method, is as follows:

Description December 31, 2014 December 31, 2013


AFS financial assets(*) Investments in SVIC 25

partnerships ₩ 8,500,000 ₩ 3,030,000

Investments in

Specialty Contractor

Financial Cooperative 50,121 50,121

Investments in

Information &

Communication Financial

Cooperative 15,166 15,197

Investments in

Electric Contractors’

Financial Cooperative 50,000 50,000

Deposit of information and

Communication

Corporation license 18,170 18,170

Total ₩ 8,633,457 ₩ 3,163,488

(*) Financial assets AFS is composed of money invested to credit unions, and these are evaluated by book value

as financial information is not available or the scope of fair value evaluation is not sustainable for evaluating

possibilities of estimates.

2) The valuation techniques and inputs used for fair value measurements

The Group determined the fair value of financial assets and liabilities as follows:

- The standard terms and conditions and the presence of an active market determine the fair value of

financial assets and liabilities using the market price.

- The fair value of derivatives is determined using market price. However, for derivatives that are not

options (estimated through the observable market interest date as of the reporting date) when market prices

cannot be used, the fair value is estimated using the yield curve to discount cash flows and the fair value of

options is estimated using the options pricing model.

- The fair value of other financial assets and liabilities, except for derivatives, has been determined according

to generally accepted pricing models based on discounted cash flow analysis.

3) The Group classified financial instruments measured at fair value according the inputs used in their fair

measurement, by a fair value hierarchy, as described below:

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).

The following financial instruments that are measured at fair value subsequent to initial recognition are grouped

into Levels 1, 2 or 3, based on the degree to which the fair value is observable:

- 54 -

December 31, 2014

Level 1 Level 2 Level 3 Total


Assets at FVTPL ₩ - ₩ - ₩ - ₩ -

Foreign exchange

forward - 214,646 - 214,646

Financial assets - 214,646 - 214,646

Liabilities at FVTPL - - - -

Foreign exchange

forward - 266,044 - 266,044

Financial liabilities - 266,044 - 266,044

December 31, 2013

Level 1 Level 2 Level 3 Total


Assets at FVTPL ₩ - ₩ - ₩ - ₩ -

Foreign exchange

forward - 198,819 - 198,819

Financial assets - 198,819 - 198,819

Liabilities at FVTPL - -

Foreign exchange

forward - 246,522 - 246,522

Financial liabilities - 246,522 - 246,522

There is no transfer between Level 1 and Level 2 in 2014 and 2013.

4) Stated below is an explanation of input variables and method of evaluation for fair values of financial assets

that are classified in Level 2.

- Currency Futures

Fair value of currency futures are evaluated by currency exchange rates reported at the end of financial year, which

matches maturity timeline of future contract. If those rates are not reported, fair values are evaluated under

estimation of currency exchange rate by the method of linear interpolation. Discount rate is determined by yield

curve derived by reported interest rates, which are reported at the end of financial year.

As stated above, input variables used for evaluation of currency futures are derived by yield curve or currency

future rates observed in the market at the end of the financial year; the Company classified this fair value of future

contract in Level 2.

There have been no changes in valuation techniques, during the year ended December 31, 2014, used to measure

the fair value of financial instruments classified as Level 2 in the fair value hierarchy.

5) The parent company determines the changes in unobservable inputs that do not cause significant fluctuations

in fair value measurements to reflect reasonably possible alternative assumptions.

(5) Reclassification of financial instrument

No financial assets are reclassified due to changes in nature or purpose of the financial assets.

(6) Transfer of financial assets

There is no transferred financial assets.

- 55 -

(7) Offset between financial assets and liabilities

Consolidated statement of financial assets that are under available offset contract for the year ended December 31,


Gross assets Gross liabilities offset

Net amounts presented in

the consolidated statement

of financial position


Trade receivables ₩ 11,217,430 ₩ (5,000,759) ₩ 6,216,671

Consolidated statement of financial liabilities that are under available offset contract for the year ended December

31, 2014, is as follows:

Gross assets Gross liabilities offset

Net amounts presented in

the consolidated statement

of financial position


Trade payables ₩ 61,821,415 ₩ (5,000,759) ₩ 56,820,655

32. TRANSACTIONS NOT INVOLVING CASH FLOWS:

Investing and financing activities of non-cash transactions for the years ended December 31, 2014 and 2013, are as

follows:

Description 2014 2013


Transfer from advance payments to tangible and

intangible assets ₩ 5,147,190 ₩ -

Transfer from non-current convertible bonds to

current convertible bonds 1,090,200 -

Transfer from non-current guarantee deposits to

current guarantee deposits 372,607 -

33. BUSINESS COMBINATIONS:

(1) Assets and liabilities acquired at the acquisition date due to business combinations that occurred during the

years ended December 31, 2014 and 2013, are as follows:

2014

Description

Principal operating

activities Date of acquisition Acquired shares (%)

Acquisition

price (cash)


Allen Care

Co., Ltd.

Wholesales in

medicine 2014.3.12 51% ₩ 75,100,000

2013

Description

Principal operating

activities Date of acquisition Acquired shares (%)

Acquisition

price (cash)


Inter Park

International Co.,

Ltd.

Retail

e-commerce 2013.06.25 98.5% ₩ 9,400,000

Inter park Logistics

Co., Ltd.

Comprehensive

Logistics Agency

Services 2013.06.25 100% ₩ 1,050,000

- 56 -

(2) The consideration paid for business combinations and the fair value of assets acquired and liabilities assumed

at the acquisition date are as follows:

2014

Allen Care Co., Ltd.


Fair value of the identifiable assets ₩ 2,720,242

Current asset 840,076

Cash and cash equivalents 167,626

Trade and other receivables 625,155

Other current assets 47,295

Non-current assets 1,880,166

Property and equipment 370,097

Other non-current assets 1,510,069

Fair value of the identifiable liabilities 457,616

Current liabilities 217,842

Trade and other payables 52,084

Other current liabilities 165,758

Non-current liabilities 239,774

Defined benefit liability 239,774

Total fair value of identifiable net asset ₩ 2,262,626

2013

Inter Park International Co., Ltd. Inter park Logistics Co., Ltd.

Fair value of the identifiable assets ₩ 16,293,453 ₩ 2,183,724

Current asset 15,672,555 2,098,163

Cash and cash equivalents 2,102,083 658,366

Trade and other receivables 6,783,355 1,418,051

Inventory 6,787,117 21,746

Non-current assets 620,898 85,561

Property and equipment 159,450 85,561

Other non-current assets 461,448 -

Fair value of the identifiable

liabilities 8,488,680 1,300,468

Current liabilities 8,488,680 1,300,468

Trade and other payables 5,497,822 1,295,576

Short-term borrowings 2,990,858 -

Other liabilities - 4,892

Total fair value of identifiable net

asset ₩ 7,804,773 ₩ 883,256

- 57 -

(3) The goodwill arising from the acquisition that occurred during the years ended December 31, 2014 and 2013,

is as follows:

2014



Cash ₩ 75,100,000

Plus: Non-controlling interests 61,340,825

Less: Fair value of identifiable net assets acquired (2,262,626)

Less: Customer relationship (157,593,246)

Plus: Deferred tax liabilities 34,670,514

Goodwill ₩ 11,255,467

2013



Cash ₩ 9,400,000 ₩ 1,050,000

Plus: Non-controlling interests 114,653 -

Less: Fair value of identifiable net

assets acquired (7,804,773) (883,256)

Goodwill ₩ 1,709,880 ₩ 166,744

(4) Net cash outflows due to the business combination during the years ended December 31, 2014 and 2013, are as

follows:

2014



Consideration paid in cash ₩ 75,100,000

Less: cash and cash equivalent acquired (167,626)

Total deduction ₩ 74,932,374

2013



Consideration paid in cash ₩ 9,400,000 ₩ 1,050,000

Less: cash and cash equivalent

acquired (2,102,083) (658,366)

Total deduction ₩ 7,297,917 ₩ 391,634

34. APPROVAL OF CONSOLIDATED FINANCIAL STATEMENTS:

The Group’s consolidated financial statement as of and for the year ended December 31, 2014, have been approved

by the board of directors on February 5, 2015, and final approval of the consolidated financial statements is

expected to be on March 20, 2015, during the shareholders’ meeting.

imarketkorea inc. and its subsidiaries ... inc. and its subsidiaries consolidated financial...

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