Audit Report: Hyundai Capital 2011 (English)

Hyundai Capital Services, Inc. and
Subsidiaries
Consolidated Financial Statements
December 31, 2011 and 2010

Hyundai Capital Services, Inc. and Subsidiaries
Index
December 31, 2011 and 2010

Report of Independent Auditors ......................................................................................................... 1-2

Consolidated Financial Statements

Consolidated Statements of Financial Position...................................................................................... 3-5

Consolidated Statements of Comprehensive Income............................................................................ 6-8

Consolidated Statements of Changes in Shareholders’ Equity .......................................................... 9-10

Consolidated Statements of Cash Flows ................................................................................................ 11

Notes to the Consolidated Financial Statements .............................................................................. 12-73

Report of Independent Auditors

To the Shareholders and Board of Directors of
Hyundai Capital Services, Inc.

We have audited the accompanying consolidated statements of financial position of Hyundai
Capital Services, Inc.(the “Company”) and its subsidiaries as of December 31, 2011 and 2010,
and January 1, 2010, and the related statements of comprehensive income, changes in
shareholders’ equity and cash flows for the years ended December 31, 2011 and 2010,
expressed in Korean won. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the
Republic of Korea. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the consolidated financial statements, referred to above, present fairly, in all
material respects, the financial position of Hyundai Capital Services, Inc. and its subsidiaries
as of December 31, 2011 and 2010, and January 1, 2010, and their financial performance and
cash flows for the years ended December 31, 2011 and 2010, in conformity with International
Financial Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”).

Auditing standards and their application in practice vary among countries. The procedures and
practices used in the Republic of Korea to audit such financial statements may differ from
those generally accepted and applied in other countries. Accordingly, this report is for use by
those who are informed about Korean auditing standards and their application in practice.

Seoul, Korea
February 24, 2012

1

This report is effective as of February 24, 2012, the audit report date. Certain subsequent
events or circumstances, which may occur between the audit report date and the time of
reading this report, could have a material impact on the accompanying consolidated
financial statements and notes thereto. Accordingly, the readers of the audit report should
understand that there is a possibility that the above audit report may have to be revised to
reflect the impact of such subsequent events or circumstances, if any.

2

Consolidated Statements of Financial Position
December 31, 2011 and 2010, and January 1, 2010

(In millions of Korean won)
December 31, December 31, January 1,
2011 2010 2010
Assets
Cash and deposits
Cash and cash equivalents (Note 25) 1,455,432 1,224,866 990,836
Deposits (Note 4) 10 25 1,938
1,455,442 1,224,891 992,774
Securities (Note 5)
Available-for-sale securities 18,452 20,577 15,867
Equity method investments 51,768 48,483 40,055
70,220 69,060 55,922

Loans receivable (Notes 6 and 7) 11,129,247 10,434,141 8,862,145
Allowances for doubtful accounts (281,184) (215,703) (175,933)
10,848,063 10,218,438 8,686,212

Installment financial assets (Notes 6 and 7)
Auto installment financing receivables 5,030,541 5,023,945 4,668,702
Durable goods installment financing receivables 1,422 6,801 16,297
Allowances for doubtful accounts (141) (633) (292)
Mortgage installment financing receivables 25,679 40,025 70,191
Allowances for doubtful accounts (1,204) (403) (463)
Machinery installment financing receivables 1,682 14,653 44,229
Allowances for doubtful accounts (37) (117) (394)
5,021,194 5,056,782 4,766,902

Lease receivables (Notes 6 and 7)
Finance lease receivables (Note 9) 2,278,383 1,777,477 1,253,352
Cancelled lease receivables 211 961 452
2,278,594 1,778,438 1,253,804

Leased assets (Note 10)
Operating leased assets 1,119,309 1,282,845 1,406,453
Cancelled leased assets 3,769 3,192 3,036
1,123,078 1,286,037 1,409,489

3


2011 2010 2010
Property and equipment (Note 11) 265,433 242,369 238,683

Other assets
Intangible assets (Note 12) 65,117 52,612 38,934
Non-trade receivables 87,895 76,569 83,961
Accrued revenues 128,351 115,278 102,730
Advance payments 55,013 64,106 44,225
Prepaid expenses 26,434 18,186 25,575
Leasehold deposits 35,929 31,954 30,474
Derivative assets (Note 18) 475,431 521,530 1,278,570
856,886 872,587 1,597,472
Total assets 21,918,910 20,748,602 ₩ 19,001,258

Liabilities and Shareholders’ Equity
Borrowings
Borrowings (Note 13) 2,250,000 2,646,945 2,452,978
Debentures (Note 14) 15,522,368 14,396,741 13,034,855
17,772,368 17,043,686 15,487,833
Other liabilities
Non-trade payables 345,089 362,539 281,652
Accrued expenses 135,083 110,225 108,746
Unearned revenue 61,095 69,338 68,899
Withholdings 24,140 21,939 20,446
Defined benefit liability (Note 15) 20,362 11,687 9,242
Leasehold deposits received 787,858 746,532 663,195
Deferred income tax liabilities (Note 16) 47,884 2,617 39,734
Provisions (Note 17) 10,446 46,624 26,416
Derivative liabilities (Note 18) 58,096 96,568 78,174
1,490,053 1,468,069 1,296,504
Total liabilities 19,262,421 18,511,755 16,784,337

4


2011 2010 2010
Shareholders' equity
Common stock (Notes 1 and 19) 496,537 496,537 496,537
Capital surplus
Paid-in capital in excess of par value 369,339 369,339 369,339
Other capital surplus 38,200 38,200 38,200
407,539 407,539 407,539
Accumulated other comprehensive income and
expenses (Note 24)
Gain(Loss) on valuation of available-for-sale
(388) 512 (1,835)
securities
Accumulated comprehensive income of equity
47 24 (69)
method investees
Loss on valuation of derivatives (50,156) (67,924) (3,566)
Cumulative effect of overseas operation
(343) 17 -
translation
(50,840) (67,371) (5,470)
Retained earnings (Note 19) 1,803,144 1,400,013 1,318,186
Non-controlling interests 109 129 129
Total shareholders' equity 2,656,489 2,236,847 2,216,921
Total liabilities and shareholders' equity 21,918,910 20,748,602 19,001,258

The accompanying notes are an integral part of these consolidated financial statements.

5

Consolidated Statements of Comprehensive Income
Years Ended December 31, 2011 and 2010

(In millions of Korean won, except per share amounts)
2011 2010

Operating revenue
Interest income (Note 20)
Interest on bank deposits 41,991 25,755
Other interest income 385 1,208
42,376 26,963
Gain on valuation and disposal of
securities
Gain on disposal of available-for-
4,169 5,122
sale securities
Reversal of impairment loss on
- 1,078
available-for-sale securities
4,169 6,200
Income on loans (Notes 20 and 21) 1,548,557 1,387,421
Income on installment financial
436,247 492,202
receivables (Notes 20 and 21)
Income on leases (Notes 20 and 21) 871,572 875,137
Gain on disposal of loans 72,040 14,857
Gain on foreign transactions
Gain on foreign exchanges translation 21,235 188,938
Gain on foreign currency transactions 46,301 29,696
67,536 218,634
Dividend income 5,990 6,742
Other operating income
Gain on valuation of derivatives 134,197 92,630
Gain on derivatives transactions 3,887 73,964
Others 144,908 79,485
282,992 246,079
Total operating revenue 3,331,479 3,274,235

6



2011 2010
Operating expenses
Interest expenses (Note 20) 956,039 890,180
Lease expenses (Note 21) 505,187 557,288
Bad debts expense (Note 7) 354,220 145,478
Loss on foreign transactions
Loss on foreign exchange translation 134,211 92,639
Loss on foreign currency transactions 3,887 65,401
138,098 158,040

General and administrative expenses
603,367 585,953
(Note 22)

Other operating expenses
Loss on valuation of derivatives 21,229 188,949
Loss on derivatives transactions 46,326 37,721
Others 47,590 80,880
115,145 307,550
Total operating expenses 2,672,056 2,644,489

Operating income 659,423 629,746

Non-operating income
Gain on equity method valuation
3,968 9,663
(Note 5)
3,968 9,663
Non-operating expenses
Loss on equity method valuation
- 197
- 197
Income before income taxes 663,391 639,212

Income tax expense (Note 16) 155,987 150,227

Net income 507,404 488,985

Net income attributable to:
Owners of the parent 507,404 488,985
Non-controlling interests - -
507,404 488,985

7



2011 2010
Other comprehensive income,
net of income taxes (Note 24)
Gain(Loss) on valuation of available-
(900) 2,347
for-sale financial securities
Other comprehensive income of
23 93
equity method investees(Note 5)
Gain (Loss) on valuation of
17,768 (64,359)
derivatives
Effect of overseas operation
(360) 18
translation
16,531 (61,901)

Total comprehensive income 523,935 427,084

Total comprehensive income
attributable to:
Owners of the parent 523,935 427,084
Non-controlling interests - -
523,935 427,084

Earnings per share attributable to the
ordinary equity holders of the
company (Note 23)
Basic earnings per
5,109 4,924
share
Diluted earnings per
5,109 4,924
share


8

Consolidated Statements of Changes in Shareholders’ Equity

Accumulated Total
(In millions of Korean won) other attributable Non-
comprehensive
Capital Capital income and Retained to owners of controlling
stock surplus expenses earnings the parent interests Total equity
Balances as of January 1, 2010 496,537 407,539 (5,470) 1,318,186 2,216,792 129 2,216,921
Net income - - - 488,985 488,985 - 488,985
Other comprehensive income
Gain on valuation of available-
- - 2,347 - 2,347 - 2,347
for-sale securities
- - 93 - 93 - 93
equity method investees
Loss on valuation of derivatives - - (64,359) - (64,359) - (64,359)
- - 18 - 18 - 18
translation
Total comprehensive income - - (61,901) 488,985 427,084 - 427,084
Transactions with owners
Year-end dividends - - - (203,580) (203,580) - (203,580)
Transfer from dividends payable - - - 2 2 - 2
Interim dividends - - - (203,580) (203,580) - (203,580)
Total transactions with owners - - - (407,158) (407,158) - (407,158)
Balances as of December 31,
2010 496,537 407,539 (67,371) 1,400,013 2,236,718 129 2,236,847

9

Consolidated Statements of Changes in Shareholders’ Equity

Accumulated Total
(In millions of Korean won) other attributable Non-
comprehensive
Capital Capital income and Retained to owners of controlling
stock surplus expenses earnings the parent interests Total equity
Balances as of January 1, 2011 496,537 407,539 (67,371) 1,400,013 2,236,718 129 2,236,847
Net income - - - 507,404 507,404 - 507,404
Other comprehensive income
Loss on valuation of available-
- - (900) - (900) - (900)
for-sale securities
- - 23 - 23 - 23
equity method investees
Gain on valuation of derivatives - - 17,768 - 17,768 - 17,768
- - (360) - (360) - (360)
translation
Total comprehensive income - - 16,531 507,404 523,935 - 523,935
Transactions with owners
Year-end Dividends - - - (104,273) (104,273) - (104,273)
Liquidation of special purpose entity - - - - - (20) (20)
Total transactions with owners - - - (104,273) (104,273) (20) (104,293)
Balances as of December 31,
2011 496,537 407,539 (50,840) 1,803,144 2,656,380 109 2,656,489


10

Consolidated Statements of Cash Flows

2011 2010
Cash flows from operating activities
Cash generated from operations (Note 25) 630,961 (498,303)
Interest received 37,090 23,479
Interest paid (864,563) (829,726)
Dividends received 5,990 6,742
Income taxes paid (154,724) (169,620)
(345,246) (1,467,428)

Cash flows from investing activities
Decrease in deposits 16 1,913
Dividends from equity method investments 707 1,227
Acquisition of land (3,581) (3,065)
Acquisition of building (8,549) (2,968)
Acquisition of structures (379) (172)
Disposal of vehicles 37 11
Acquisition of vehicles (328) (224)
Disposal of fixtures and furniture 626 58
Acquisition of fixtures and furniture (37,712) (19,412)
Acquisition of other tangible assets (801) (114)
Increase in construction in progress (8,079) (13,812)
Disposal of intangible assets 71 29
Acquisition of intangible assets (8,152) (4,860)
Decrease in leasehold deposits 4,012 5,665
Increase in leasehold deposits (7,609) (6,481)
Establish of special purpose entity 20 10
Liquidation of special purpose entity (40) (10)
(69,741) (42,205)

Cash flows from financing activities
Proceeds from borrowings 2,990,000 3,895,650
Repayments of borrowings (3,390,650) (3,645,849)
Issuance of debentures 5,119,021 5,802,014
Repayments of debentures (3,968,170) (3,900,992)
Payments of dividends (104,273) (407,158)
645,928 1,743,665

Exchange losses on cash and cash equivalents (15) (19)

Increase(decrease) in other cash and cash equivalents (360) 17

Net increase in cash and cash equivalents 230,566 234,030

Cash and cash equivalents
Beginning of period 1,224,866 990,836
End of period 1,455,432 1,224,866


11

Notes to the Consolidated Financial Statements

1. General Information

Hyundai Capital Services, Inc. (the “Company”) was established on December 22, 1993, to engage
in installment financing, facilities lease and new technology financing. The Company changed its
trade name from Hyundai Auto Finance Co., Ltd. to Hyundai Financial Services Co. on April 21,
1995, and changed its trade name once again to Hyundai Capital Services, Inc. on December 31,
1998. In accordance with the Monopoly Regulation and Fair Trade Act, the Company is
incorporated into the Hyundai Motor Company Group. As of December 31, 2011, the Company’s
operations are headquartered in Yeouido, Seoul. Its major shareholders are Hyundai Motor
Company and GE International Holdings Corporation with 56.47% and 43.30% ownership,
respectively.

2. Summary of Significant Accounting Policies

The consolidated financial statements have been prepared and presented which included the
accounts of Hyundai Capital Services, Inc., as the parent company according to Korean IFRS
1027, and Autopia Thirty-fifth SPC(trust) and other subsidiaries(collectively the “Group”), while HK
Mutual Saving Bank and three other entities are accounted for using the equity method.

Subsidiaries as of December 31, 2011 and 2010, and January 1, 2010, are as follows. The
Company has the substantial power over the subsidiaries established as special purpose entities
for asset securitization even though its ownership interests over the subsidiaries do not exceed
50%.
Ratio of

Location ownership December 31, 2011 December 31, 2010 January 1, 2010

Special Autopia Thirty-fifth SPC(trust) Autopia Thirty-third SPC(trust) Autopia Thirty- second SPC(trust)

Purpose Korea 0.9% Autopia Thirty-sixth SPC(trust) Autopia Thirty-fourth SPC(trust) Autopia Thirty-third SPC(trust)
1
Entities Autopia Thirty-seventh SPC(trust) Autopia Thirty-fifth SPC(trust) Autopia Thirty-fourth SPC(trust)

Autopia Thirty-ninth SPC(trust) Autopia Thirty-sixth SPC(trust) Autopia Thirty-fifth SPC(trust)

Autopia Fortieth SPC(trust) Autopia Thirty-seventh SPC(trust) Autopia Thirty-sixth SPC(trust)

Autopia Forty-second SPC(trust) Autopia Thirty-eighth SPC(trust) Autopia Thirty-seventh SPC(trust)

Autopia Forty-third SPC(trust) Autopia Thirty-ninth SPC(trust) Autopia Thirty-eighth SPC(trust)

Autopia Forty-fourth SPC(trust) Autopia Fortieth SPC(trust) Autopia Thirty-ninth SPC(trust)

Autopia Forty-fifth SPC(trust) Autopia Forty-first SPC(trust) Autopia Fortieth SPC(trust)

Autopia Forty-sixth SPC(trust) Autopia Forty-second SPC(trust) Autopia Forty-first SPC(trust)

Autopia Forty-seventh SPC(trust) Autopia Forty-third SPC(trust) Autopia Forty-second SPC(trust)

Autopia Forty-fourth SPC(trust) Autopia Forty-third SPC(trust)

Autopia Forty-fifth SPC(trust)

Stock 2
Germany 100% Hyundai Capital Europe GmbH Hyundai Capital Europe GmbH
Company

1
Autopia Thirty-third, Thirty-fourth, Thirty-eighth and Forty-first SPC(trust) have been liquidated during the
2011, and Autopia Forty sixth and Forty-seventh SPC(trust) have been established during 2011.
² It holds 100% shares of Hyundai Capital Services Limited Liability Company established during 2011.

12


The Group maintains its accounting records in Korean won and prepares statutory financial
statements in the Korean language (Hangul) in conformity with the International Financial
Reporting Standards as adopted by the Republic of Korea (“Korean-IFRS”). The accompanying
consolidated financial statements have been condensed, restructured and translated into English
from the Korean language financial statements.

The Group’s financial statements for the annual period beginning on January 1, 2011, have been
prepared in accordance with Korean-IFRS. These are the standards, subsequent amendments
and related interpretations issued by the International Accounting Standards Board ("IASB") that
have been adopted by the Republic of Korea.

The consolidated financial statements of the Group were prepared in accordance with Korean-
IFRS and are subject to Korean-IFRS1101, ‘First-time Adoption of Korean-IFRS’.

The transition date, according to Korean-IFRS1101, from the previous accounting principles
generally accepted in the Republic of Korea (“Previous K-GAAP”) to Korean-IFRS is January 1,
2010. Reconciliations and descriptions of the effect of the transition from Previous K-GAAP to
Korean-IFRS on the Group’s equity, comprehensive income and cash flows are described in Note
3.

The preparation of financial statements requires the use of certain critical accounting estimates. It
also requires management to exercise judgment in the process of applying the Group’s accounting
policies. The areas involving a higher degree of judgment or complexity, or areas where
assumptions and estimates are significant to the consolidated financial statements are disclosed in
Note 3.

New standards, amendments and interpretations issued but not effective for the financial year
beginning January 1, 2011, and not early adopted by the Group are as follows:

- Amendments to Korean-IFRS1101, Hyperinflation and Removal of Fixed Dates for first-time
adopters(announced in December, 2010)

As an exception to retrospective application requirements, this amendment to Korean-IFRS1101
allows a prospective application of derecognition of financial assets for transactions occurring on
or after the date of transition to Korean-IFRS, instead of fixed date (January 1, 2004). Accordingly,
the Group is not required to restate and recognize those assets or liabilities that were
derecognized as a result of a transaction that occurred before the dated of transition to Korean-
IFRS. This amendment will be effective for the Group as of January 1, 2012. The Group expects
that the application of this amendment would not have material impact on its consolidated financial
statements.

- Amendments to Korean-IFRS1012, Income Taxes

According to the amendments to Korean-IFRS1012, Income Taxes, for the investment property
that is measured using the fair value model, the measurement of deferred tax liability and deferred

13


tax asset should reflect the tax consequences of recovering the carrying amount of the investment
property entirely through sale, unless evidences support otherwise. This amendment will be
effective for the Group as of January 1, 2012. The Group expects that the application of this
amendment would not have material impact on its consolidated financial statements.

- Amendments to Korean-IFRS1019, Employee Benefits

According to the amendments to Korean-IFRS1019, Employee Benefits, the corridor method is no
longer permitted. Therefore, actuarial gains and losses on the defined benefit obligation are
recognized immediately under other comprehensive income. The amendment requires to
recognize immediately all past service costs. And the amendment replaces the interest cost on the
defined benefit obligation, and the expected return on plan assets with a net interest cost based on
the net defined benefit asset or liability and the discount rate measured at the beginning of the
year. This amendment will be effective for the Group as of January 1, 2013. The Group is
assessing the impact of application of the amended Korean-IFRS1019 on its consolidated financial
statements.

- Amendments to Korean-IFRS1107, Financial Instruments: Disclosures

According to the amendment, an entity should provide the required disclosures of nature, carrying
amount, risk and rewards associated with all transferred financial instruments that are not
derecognized from an entity’s financial statements. In addition, an entity is required to disclose
additional information related to transferred and derecognized financial instruments for any
continuing involvement in transferred assets. This amendment will be effective for the Group as of
January 1, 2012. The Group is assessing the impact of application of the amended Korean-
IFRS1107 on its consolidated financial statements.

- Enactment of Korean-IFRS1113, Fair value measurement

Korean-IFRS1113, Fair value measurement, aims to improve consistency and reduce complexity
by providing a precise definition of fair value and a single source of fair value measurement and
disclosure requirements for use across Korean-IFRS. Korean-IFRS1101 does not extend the use
of fair value accounting but provides guidance on how it should be applied where its use is already
required or permitted by other standards within Korean-IFRS. This amendment will be effective for
the Group as of January 1, 2013, and the Group expects that it would not have a material impact
on the Group.

The following is a summary of significant accounting policies followed by the Group in the
preparation of its consolidated financial statements. These policies have been consistently applied
to all the periods presented, unless otherwise stated.

Certain accounts of the prior period financial statements were reclassified to conform with the
December 31, 2011 financial statement presentation. These reclassifications have no impact on
the previously reported net income or shareholders’ equity.

14


2.1 Consolidation

a. Subsidiaries

Subsidiaries are all entities (including special purpose entities) over which the Company has the
power to govern the financial and operating policies generally accompanying a shareholding of
more than one-half of the voting rights. The existence and effect of potential voting rights that are
currently exercisable or convertible are considered when assessing whether the Company controls
another entity. The Group also assesses existence of control where it does not have more than 50%
of the voting power but is able to govern the financial and operating policies by virtue of de-facto
control. De-facto control may arise in circumstances where the size of the Group’s voting rights
relative to the size and dispersion of holdings of other shareholders give the Group the power to
govern the financial and operating policies and others.

Subsidiaries are fully consolidated from the date on which control is transferred to the Company.
They are de-consolidated from the date that control ceases.

The Group uses the acquisition method to account for business combinations. The consideration
transferred is measured as the fair values of the assets transferred, equity interests issued and
liabilities incurred or assumed at the acquisition date. Acquisition-related costs are expensed as
incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business
combination are measured initially at their fair values at the acquisition date. On an acquisition-by-
acquisition basis, the Group recognizes any non-controlling interest in the acquiree at the non-
controlling interest’s proportionate share of the acquiree’s net assets.

The excess of the consideration transferred and the amount of any non-controlling interest in the
acquiree and the acquisition-date fair value of any previous equity interest in the acquiree over the
fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If this
is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain
purchase, the difference is recognized directly in the statement of comprehensive income.

Intercompany transactions, balances and unrealized gains on transactions between Group
companies are eliminated.

b. Special purpose entities

The Group established several SPEs for the purpose of asset-backed securitization, but owns none
of the shares directly or indirectly. The Group consolidates the SPEs when the risks, rewards and
substance of the relationship indicated that the Group consolidates the SPEs. SPEs controlled by
the Group are created with conditions that impose strict limits on the decision-making power over
the operations therefore the Group obtains all benefits from the SPEs’ operation and net assets,
and that the Group may be exposed to risks incident to the activities of the SPEs or the Group
retains the majority of the residual or ownership risks related to the SPEs’ assets.

c. Transactions with non-controlling interests

15


The Group treats transactions with non-controlling interests as transactions with equity owners of
the Group. For purchases from non-controlling interests, the difference between any consideration
paid and the relevant share acquired of the carrying value of net assets of the subsidiary is
recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in
equity.

d. Associates and joint ventures

Associates are all entities over which the Group has significant influence but not control, generally
accompanying a shareholding of between 20% and 50% of the voting rights. Investments in
associates are accounted for using the equity method of accounting and are initially recognized at
cost. The Group’s investment in associates includes goodwill identified on acquisition, net of any
accumulated impairment loss.

The Group’s share of its associates’ post-acquisition profits or losses is recognized in the income
statement, and its share of post-acquisition movements in other comprehensive income is
recognized in other comprehensive income. The cumulative post-acquisition movements are
adjusted against the carrying amount of the investment. When the Group’s share of losses in an
associate equals or exceeds its interest in the associate, including any other unsecured
receivables, the Group does not recognize further losses, unless it has incurred obligations or made
payments on behalf of the associate.

Unrealised gains on transactions between the Group and its associates are eliminated to the extent
of the Group’s interest in the associates. Unrealised losses are also eliminated unless the
transaction provides evidence of an impairment of the asset transferred. Accounting policies of
associates have been changed where necessary to ensure consistency with the policies adopted by
the Group.

2.2 Foreign currency translation

a. Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the
currency of the primary economic environment in which the entity operates (the “functional
currency”). The consolidated financial statements are presented in Korean won, which is the
Group’s functional currency.

b. Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation where items are remeasured. Foreign
exchange gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities denominated in foreign
currencies are recognized in the income statement, except when deferred in other comprehensive
income as qualifying cash flow hedges.

16


2.3 Critical accounting estimates and assumptions

Estimates and judgments are continually evaluated and are based on historical experience and
other factors, including expectations of future events that are believed to be reasonable under the
circumstances. The resulting accounting estimates will, by definition, seldom equal the related
actual results. The estimates and assumptions that have a significant risk of causing a material
adjustment to the carrying amounts of assets and liabilities within the next financial year are
addressed below.

a. Allowance for doubtful accounts

The Group presents the allowance for doubtful accounts calculated based on the best estimates
that are necessary to reflect the impairment incurred at each reporting date. Allowance for doubtful
accounts is recognized as individual and collective units considering the financial circumstances of
customers, net realizable value, credit quality, size of portfolio, concentrativeness, economic factors
and others. According to the change in these factors, the allowance for doubtful accounts will be
changed in a future period.

b. Fair value of financial instruments

Fair value of financial assets and liabilities is based on quoted market prices, exchange-broker
prices of financial instruments traded in an active market. If there is no quoted price for a financial
instrument, the Group establishes fair value by using valuation techniques and advanced self-
valuation techniques.

Valuation techniques include the Discount Cash Flow method using variables observable in market,
comparison method with similar instruments that have observable market transactions, and option
pricing model. For more complicated financial instruments, the Group uses advanced self-valuation
techniques. Parts of or all the variables used in this valuation technique may not be observable in
market, or may be derived from quoted prices and market ratio, or may be measured based on
specific assumption.

At initial recognition if the difference between the fair value of valuation technique and transaction
price occurs, then the transaction price as the best estimate of fair value is recognized as fair value.
This fair value difference presents in profit immediately on any available observable market data
according to individual factors and changes of environment.

2.4 Revenue recognition

The Group recognizes capital lent to customers as loans receivable, when installment payments or
deferred payments on services and goods are made. While installment financial capital paid by the
Group to manufacturers or sellers on behalf of customers is recognized as installment financial
assets. Financial lease receivables classified as financial leases are recognized as lease
receivables.

17


The expected future cash flows from loans receivable, installment financial assets and lease
receivables (“Financial receivables”) described above are amortized under the effective interest
method over the period of the financial receivables being used by customers.

2.5 Statements of cash flows

The Group prepares statements of cash flows using indirect method.

2.6 Cash and cash equivalents

Cash and cash equivalents include cash in hand, deposits held at call with banks and other short-
term highly liquid investments with original maturities of three months or less.

2.7 Financial assets

a. Classification

The Group classifies its financial assets as financial assets at fair value through profit or loss, loans
and receivables and available-for-sale financial assets. Management determines the classification
of its financial assets at initial recognition.

Financial assets at fair value through profit or loss

Financial assets at fair value through profit or loss are financial assets held for trading. A financial
asset is classified in this category if acquired principally for the purpose of selling in the short term.
Derivatives are also categorized as held for trading unless they are designated as hedges.
Meanwhile, the Group has no financial asset at fair value through profit or loss other than financial
assets held for trading.

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market.

Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated in this category or
not classified in any of the other categories.

b. Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date. Investments are
initially recognized at fair value plus transaction costs for all financial assets not carried at fair value
through profit or loss. Financial assets carried at fair value through profit or loss are initially
recognized at fair value, and transaction costs are expensed in the income statement. Available-for-

18


sale financial assets and financial assets at fair value through profit or loss are subsequently carried
at fair value. Loans and receivables are subsequently carried at amortized cost using the effective
interest method.
Changes in the fair value of financial assets at fair value through profit or loss are recognized in
income statement as gain or loss.

When securities classified as available-for-sale are sold or impaired, the accumulated fair value
adjustments recognized in equity are transferred to the income statement as gain or loss on
disposal of securities. Interest on available-for-sale securities calculated using the effective interest
method is recognized in the income statement as part of interest income. Dividends on available-for
sale equity instruments are recognized in the income statement as dividend income when the
Group’s right to receive payments is established.

c. Derecognition of financial assets

A financial asset is derecognized only if the contractual rights on cash flow of the financial asset
terminate or all the risks and rewards of ownership of the financial asset are substantially
transferred.

If the Group transfers substantially all the risks and rewards of ownership of the financial asset, the
Group shall derecognise the financial asset and recognise separately as assets or liabilities any
rights and obligations created or retained in the transfer. If the Group retains substantially all the
risks and rewards of ownership of the financial asset, the Group shall continue to recognise the
financial asset.

d. Impairment of financial assets

(1) Assets carried at amortized cost

The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset is impaired. Impairment losses are incurred only if there is objective evidence of
impairment and that loss event has an impact on the estimated future cash flows of the financial
asset. The amount of the loss is measured as the difference between the asset’s carrying amount
and the present value of estimated future cash flows discounted at the financial asset’s original
effective interest rate.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be
related objectively to an event occurring after the impairment was recognized, the reversal of the
previously recognized impairment loss is recognized in the income statement.

(2) Available-for-sale financial assets

The Group assesses at the end of each reporting period whether there is objective evidence that a
financial asset or a group of financial assets is impaired. For equity securities classified as
available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is

19


also evidence that the assets are impaired. If any such evidence exists for available-for-sale
financial assets, the difference between carrying amount and current fair value is recognized in
profit or loss. Impairment losses recognized in profit or loss for an investment in an equity
instrument classified as available for sale are not be reversed through profit or loss. If, in a
subsequent period, the fair value of a debt instrument classified as available-for-sale increases and
the increase can be objectively related to an event occurring after the impairment loss was
recognized in profit or loss, the impairment loss is reversed.

2.8 Deferral of loan origination fee and loan origination cost

Loan origination fee, which is a processing fee in relation to the loan origination process such as
upfront fee, is deferred and deducted from the loan account, adjusted over the life of the loan based
on the effective interest rate method. Loan origination cost, which relates to activities performed by
the lender such as soliciting potential borrowers, is deferred and added to the loan account,
adjusted over the life of the loan based on the effective interest rate method when the future
economic benefit in connection with the cost incurred can be identified on a per loan basis.

2.9 Allowances for financial receivables

a. Calculation of allowances for doubtful accounts

The Group recognizes the impairment of receivables as an allowance for doubtful accounts. It is
based on the impairment estimates made through impairment assessment of receivables carried at
amortized cost. Allowance for doubtful accounts consists of impairments related to individually
material financial receivables and allowances of collective assessment for impairment incurred in
homogeneous assets.

Individually material receivables undertake the individual assessment of the difference between the
assets’ carrying amount and the present value of estimated future cash flows. Unimpaired assets
from individual assessments and individually immaterial assets undertake the collective assessment
classified by asset groups that have analogous risk attributes. The Group uses statistical model in
the collective assessment based on the expected probability of default, periodic collect amounts,
loss-given default based on the past losses, loss emergency period, and management’s decision
about the current economy and credit circumstances. The material factors used in statistical model
for the collective assessment are evaluated to compare with actual data regularly.

The amount of impairment loss is reflected in allowance for doubtful accounts as profit or loss.

b. Write-off policy

The Group writes off the doubtful receivables when the assets are deemed unrecoverable. This
decision considers the information about significant changes of financial position such that a
borrower or an obligor is in default, or the amount recoverable from security is not enough. Write-off
decision of standard small loan is generally made based on the delinquent status of loan.

20


2.10 Leases

a. Classification

The Group classifies leases based on the extent to which risks and rewards incidental to ownership
of a leased asset lie with the lessor or the lessee.

The lease arrangement classified as a financial lease is where: ①the lease transfers ownership of
the asset to the lessee by the end of the lease term, ②the lessee has the option to purchase the
asset at a price that is expected to be sufficiently lower than the fair value at the date the option
becomes exercisable for it to be reasonably certain, at the inception of the lease, that the option will
be exercised, ③the lease term is for the major part of the economic life of the asset even if the title
is not transferred, ④at the inception of the lease the present value of the minimum lease payments
amounts to at least substantially all of the fair value of the leased asset, or ⑤the leased assets are
of such a specialized nature that only the lessee can use them without major modifications.

Minimum lease payments include that part of the residual value that is guaranteed by the lessee,
by a party related to the lessee or by a third party unrelated to the Group that is financially capable
of discharging the obligations under the guarantee.

b. Finance leases

Where the Group has substantially all the risks and rewards of ownership, leases of property, plant
and equipment are classified as finance lease. An amount equal to the net investment in the lease
is presented as a receivable. Expenses that are incurred with regard to the lease contract made but
not executed at the date of the statement of financial position are accounted for as prepaid leased
assets and are reclassified as finance lease receivables at the inception of the lease. Lease
receivables include amounts such as commissions, legal fees and internal costs that are
incremental and directly attributable to negotiating and arranging a lease. Each lease payment is
allocated between principal and finance income. Financial income on an uncollected part of net
investment shall be allocated to each period during the lease term so as to produce a constant
periodic rate of interest on the remaining balance of the liability.

If a lease agreement is cancelled in the middle of lease term, the Group reclassifies the amount of
financial lease receivables into cancelled leased receivables, while the amount of financial lease
receivables not yet due is reclassified as cancelled leased assets.

c. Operating leases

The property on operating leases is stated at acquisition cost, net of accumulated depreciation.
Expenditures that are incurred for the lease contract made but not executed at the date of the
statement of financial position are accounted for as prepaid leased assets and are reclassified as
operating leased assets at the inception of the lease term. Rentals from operating lease other than
any guaranteed residual value are reported as revenues on a straight-line basis over the lease
term. Initial direct costs incurred during the period of preparing the lease contract are recognized as

21


operating leased assets and are amortized over the lease term in proportion to the recognition of
income on leased assets.
If a lease agreement is cancelled in the middle of lease term, the balance of operating leased
assets is substituted for cancelled leased assets. The cancelled leased assets are depreciated over
its residual useful life, but are mostly disposed of in the month of cancellation.

2.11 Property and equipment

Property and equipment are stated at historical cost less accumulated depreciation and
accumulated impairment losses. Historical cost includes expenditure that is directly attributable to
the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or
recognized as a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Group and the cost of the item can be measured
reliably.

Depreciation method and estimated useful lives used by the Group are as follows:

Depreciation Method Useful life
Buildings Straight-line 40 years
Structures Straight-line 40 years
Fixtures and furniture Straight-line 3-4 years
Vehicles Straight-line 4 years
Other tangible assets Straight-line 5 years

Work of art classified under other tangible assets are not amortized due to their indefinite useful life
in nature.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of
each reporting period. An asset’s carrying amount is written down immediately to its recoverable
amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and
losses on disposals are determined by comparing the proceeds with the carrying amount and are
recognised within other operating income (expenses) in the income statement.

2.12 Intangible assets

Intangible assets are stated at cost, which includes acquisition cost and directly related costs
required to prepare the asset for its intended use. Intangible assets are stated net of accumulated
amortization calculated based on using the following amortization method and estimated useful
lives:

Amortization Method Useful life
Development costs Straight-line 5 years
Rights of trademark Straight-line 5 years
Other intangible assets Straight-line 5 years

22


Memberships classified under other intangible assets are not amortized over their indefinite useful
life.

2.13 Impairment of non-financial assets

Assets that have an indefinite useful life are not subject to amortization and are tested annually for
impairment. Assets that are subject to amortization are reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be recoverable. An
impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its
recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell
and value in use. For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows (cash-generating units). Non-financial
assets that are subject to amortization suffered impairment are reviewed for possible reversal of the
impairment at each reporting date.

2.14 Financial Liabilities

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss are financial instruments held for trading.
Financial liabilities are classified as financial liabilities at fair value through profit or loss when
incurred principally for the purpose of repurchasing it in the near term. Derivatives or embedded
derivatives are also categorized as this category unless they are designated as hedges.

(b) Financial liabilities carried at amortized cost

The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value
through profit or loss and financial liabilities that arise when a transfer of a financial asset does not
qualify for derecognition, as financial liabilities carried at amortized cost and as ‘trade payables’,
‘borrowings’, and ‘other financial liabilities’ in the statement of financial position. In case when a
transfer of a financial asset does not qualify for derecognition, the transferred asset is continuously
recognized as asset and the consideration received is recognized as financial liabilities.

2.15 Pension obligations

The Group operates a defined benefit plan. The liability recognized in the statement of financial
position in respect of defined benefit pension plans is the present value of the defined benefit
obligation at the end of the reporting period less the fair value of plan assets, together with
adjustments for unrecognized past-service costs. The defined benefit obligation is calculated
annually by independent actuaries using the projected unit credit method. The present value of the
defined benefit obligation is determined by discounting the estimated future cash outflows using
interest rates of high-quality corporate bonds that are denominated in the currency in which the
benefits will be paid, and that have terms to maturity approximating to the terms of the related
pension obligation.

23


Actuarial gains and losses arising from experience adjustments and changes in actuarial
assumptions are recognized in profits or losses in the period in which they arise.

2.16 Provisions and contingent liabilities

When there is a probability that an outflow of economic benefits will occur due to a present
obligation resulting from a present legal or as a result of past events, and whose amount is
reasonably estimable, a corresponding amount of provision is recognized in the financial
statements. Where there are a number of similar obligations, the likelihood that an outflow will be
required in settlement is determined by considering the class of obligations as a whole. A provision
is recognized even if the likelihood of an outflow with respect to any one item included in the same
class of obligations may be small.

Provisions are the best estimate of the expenditure required to settle the present obligation that
consider the risks and uncertainties inevitably surround many events and circumstances at the
reporting date. Where the effect of the time value of money is material, the amount of a provision is
the present value of the expenditures expected to be required to settle the obligation.

A possible obligation that arises from past events and whose existence will be confirmed only by
the occurrence or non-occurrence of uncertain future events, or a present obligation that arises
from past events but is not certain to occur, or cannot be reliably estimated, a disclosure regarding
the contingent liability is made in the notes to the financial statements.

2.17 Derivative financial instruments

The Group has applied hedging policies using derivatives to deal with the risk of changes in foreign
currency exchange rates and interest rates arising from liabilities. The Group has contracted
currency swap and interest swap derivative financial instruments to deal with the risk of changes in
foreign currency exchange rates arising from foreign currency liabilities and the risk of changes in
interest rates arising from floating-rate liabilities.

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and
are subsequently re-measured at their fair value. The method of recognizing the resulting gain or
loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature
of the item being hedged. The Group applies cash flow hedge, which are hedges of a particular risk
associated with a recognized asset or liability or a highly probable forecast transaction.

The Group documents at the inception of the transaction the relationship between hedging
instruments and hedged items, as well as its risk management objectives and strategy for
undertaking various hedging transactions to apply hedging accounting. The Group also documents
its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that
are used in hedging transactions are highly effective in offsetting changes in fair values or cash
flows of hedged items.

24


The effective portion of changes in the fair value of derivatives that are designated and qualify as
cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the
ineffective portion is recognized immediately in profits or losses. The cumulative gain or loss that
was reported in equity is recognized when the hedged items affect profits and losses.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for
hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and
is recognized when the forecast transaction is ultimately recognized in the income statement. When
a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported
in equity is immediately transferred to profits or losses.

2.18 Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the income
statement, except to the extent that it relates to items recognized in other comprehensive income or
directly in equity. In this case, the tax is also recognized in other comprehensive income or directly
in equity.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively
enacted at the statement of financial position date in the countries where the Group operates and
generates taxable income. Management periodically evaluates positions taken in tax returns with
respect to situations in which applicable tax regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arising
between the tax bases of assets and liabilities and their carrying amounts in the consolidated
financial statements. However, deferred tax assets and liabilities are not recognized if they arise
from initial recognition of an asset or liability in a transaction other than a business combination that
at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income
tax is determined using tax rates and laws that have been enacted or substantially enacted by the
statement of financial position date and are expected to apply when the related deferred income tax
asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable
profit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries,
associates and joint ventures except for deferred income tax liability where the timing of the
reversal of the temporary difference is controlled by the Group and it is probable that the temporary
difference will not reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to
offset current tax assets against current tax liabilities and when the deferred income taxes assets
and liabilities relate to income taxes levied by the same taxation authority on either the same

25


taxable entity or different taxable entities where there is an intention to settle the balances on a net
basis.

2.19 Earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the
Group by the weighted average number of ordinary shares in issue during the period excluding
ordinary shares purchased by the Group and held as treasury shares.

Diluted earnings per share is calculated by adjusting the weighted average number of ordinary
shares outstanding to assume conversion of all dilutive potential ordinary shares. Only dilutive
potential ordinary shares are dilutive, they are added to the number of ordinary shares outstanding
in the calculation of diluted earnings per share.

2.20 Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the
chief operating decision-maker. The chief operating decision-maker is responsible for allocating
resources and assessing performance of the operating segments.

2.21 Dividend Distribution

Dividend distribution to the Company’s shareholders is recognized as a liability in the financial
statements in the period in which the dividends are approved by the Company’s shareholders.

2.22 Approval of Issuance of the Financial Statements

The issuance of the December 31, 2011 financial statements of the Group was approved by the
Board of Directors on January 31, 2012.

3. Transition to Korean-IFRS

The Group's transition date to Korean-IFRS is January 1, 2010, and adoption date is January 1,
2011.

In preparing consolidated financial statements in accordance with Korean-IFRS 1101 ‘First-time
Adoption of Korean International Financial Reporting Standards’, the Group has applied the
mandatory exceptions and certain optional exemptions allowed by Korean-IFRS.

a. Exemptions of Korean-IFRS 1101 elected by the Group

The Group has elected to apply the following optional exemptions from full retrospective
application.

(1) Business combination

26


The Group has not retrospectively applied Korean-IFRS 1103 ‘Business combination’ to the
business combinations that took place prior to the transition date.

(2) Deemed cost of property and equipment
The Group has elected to use the carrying amount of property and equipment under Previous K-
GAAP as deemed cost at the date of transition to Korean-IFRS.

b. Explanation on the reconciliation of Previous K-GAAP and Korean-IFRS

Major reconciliations of the transition between Previous K-GAAP and Korean-IFRS are as follows:

(1) Impairment of financial assets (allowance for financial assets)

Under Previous K-GAAP, allowances for financial receivables (loans receivable, installment
financial assets and lease receivables) are calculated based on the long-term average expected
loss. In case the allowance calculated based on the expected loss is smaller than the allowance
calculated in accordance to the guidelines provided in the Act on the Specialized Credit Financial
Business, the Group recognizes an allowance in accordance to the guidelines provided in the Act
on the Specialized Credit Financial Business. Under Korean-IFRS, impairment losses are
recognized where there is evidence that impairment occurred. Allowance for financial receivables
is measured individually for assets that are individually significant and on a collective basis for
portfolios with similar risk characteristics.

(2) Provision for unused loan commitment

Under Previous K-GAAP, provision for unused loan commitment is not recognised. Under Korean-
IFRS, the expected losses of unused loan commitment are recognized as provision for unused
credit lines.

(3) Accrued revenue for overdue receivables

Under Previous K-GAAP, accrued revenue for receivables which are overdue is not recognized.
Under Korean-IFRS, accrued revenue for past due and impaired receivables and the interests on
impaired receivable are recognized using expected cash flow after impairments.

(4) Measurement of financial assets carried at amortized cost

Under Previous K-GAAP, non-marketable loan and receivables are measured at nominal value if
the difference between nominal value and discounted value is not substantial. Under Korean-IFRS,
loan and receivables are initially measured at fair value and subsequently carried at amortized cost
using the effective interest method.

(5) Recognition of unused compensated absences

27


According to Previous K-GAAP, unused compensated absences given to employees are
recognized as liabilities at the end of the reporting period only when the right to be paid has been
established. Under Korean-IFRS, the Group recognizes liabilities when an employee has provided
service in exchange for compensated absences.

(6) Depreciation method for property and equipment

Under Previous K-GAAP, depreciation method for certain property and equipment was the
declining-balance method. Under Korean-IFRS, the Group uses the straight-line method to reflect
properly the matching of the future economic benefits.

(7) Retirement benefit obligations

Under Previous K-GAAP, the Group recognizes the amount which would be payable assuming all
eligible employees and directors were to terminate their employment as of the statement of
financial position date as accrued severance benefits. Under Korean-IFRS, the Group recognizes
the estimated amount using the projected unit credit method which is on an actuarial basis as the
defined benefit obligation.

(8) Reclassification of memberships as intangible assets

Under Previous K-GAAP, memberships are classified as investments. Under Korean-IFRS, the
Group reclassifies memberships held for operating purposes as an intangible asset with an infinite
useful life.

(9) Consolidation

Under Previous K-GAAP, Autopia Thirty-fifth SPC, trust and other subsidiaries were previously
excluded from consolidation in accordance with Article 1.3, Clause 1 of Enforcement Decree of the
Act on External Audit of Stock Companies. Under Korean-IFRS, they are consolidated (Note 2).

(10) Income tax effects

The Group recognized changes in deferred tax representing the impact of deferred taxes on the
adjustments for the transition to Korean-IFRS.

28


c. Effects on the consolidated assets, liabilities and equity, total comprehensive income and net
income

(1) Reconciliation of assets, liabilities and equity as of January 1, 2010

(in millions of Korean won)
Shareholders’
Assets Liabilities
equity
Previous K-GAAP 15,854,426 13,698,696 2,155,730
Conversion effects to Korean-IFRS
Allowance for doubtful accounts 220,443 - 220,443
Provision for unused loan commitments - 26,416 (26,416)
Accrued revenues 21,259 - 21,259
Measurement of amortized cost (6,395) - (6,395)
Recognition of unused compensated
- 2,267 (2,267)
absences
Depreciation 11,748 - 11,748
Retirement benefit obligations - 91 (91)
Others (3,945) 3,335 (7,280)
Scope of consolidation 2,903,721 2,998,859 (95,138)
Deferred income taxes - 54,672 (54,672)
Total effect of transition 3,146,831 3,085,640 61,191
Korean-IFRS 19,001,257 16,784,336 2,216,921

(2) Reconciliation of assets, liabilities and equity as of December 31, 2010 and total
comprehensive income and net income for the year ended December 31, 2010

Total
Shareholders’
Assets Liabilities comprehensive Net income
equity
income
Previous K-GAAP 17,931,200 15,727,686 2,203,514 454,942 511,545
Conversion effects to Korean-IFRS
Allowance for doubtful accounts 208,187 - 208,187 (12,256) (12,256)
Provision for unused loan commitments - 46,624 (46,624) (20,208) (20,208)
Accrued revenues 22,771 - 22,771 1,512 1,512
Measurement of amortized cost 2,168 150 2,018 8,413 8,413
Recognition of unused compensated absences - 2,524 (2,524) (257) (257)
Depreciation 1,113 - 1,113 (10,635) (10,635)
Retirement benefit obligations - 3,823 (3,823) (3,732) (3,732)
Others (131) 476 (607) 6,673 6,673
Scope of consolidation 2,585,543 2,655,916 (70,373) 24,765 30,063
Deferred income taxes (2,249) 74,556 (76,805) (22,133) (22,133)

Total effect of transition 2,817,402 2,784,069 33,333 (27,858) (22,560)

Korean-IFRS 20,748,602 18,511,755 2,236,847 427,084 488,985

29


d. Adjustments of cash flows in 2010

According to Korean-IFRS, cash flows of the related income (expenses) and assets (liabilities) are
adjusted to separately disclose the cash flows from interest received, interest paid and cash
payments of income taxes that were not presented separately under Previous K-GAAP. And the
effects of the change in exchange rate on cash and cash equivalents held or due in a foreign
currency are presented separately from cash flows from operating, investing and financing
activities. There are no other significant differences between cash flows under Korean-IFRS and
Previous K-GAAP.

e. Adjustments of operating income and expenses

The Group reclassified certain non-operating income and expenses under Previous K-GAAP to
other operating income and expenses according to Korean-IFRS.

Adjustments are as follows:


Type 2011 2010
Other operating income 29,300 26,749
Other operating expenses 20,267 20,199

4. Restricted Financial Instruments

Restricted financial instruments are as follows:

Amount
December December January 1,
Type Entities Restriction
31, 2011 31, 2010 2010
Hana Bank Maintaining deposits for
and Nonghyup 10 25 25 checking account
Deposits
SC Bank - - 1,913 Guarantee for interest
expense of debentures
10 25 1,938

30


5. Securities

Securities are as follows:

Type
2011 2010 2010
Available-for-sale securities
Marketable equity
securities 5,687 7,318 3,951
Equity securities
Unlisted equity
securities
10,526 9,887 8,802
16,213 17,205 12,753
Government and
Debt securities
public bonds
2,239 3,372 3,114
Sub-total 18,452 20,577 15,867
Equity method investments 51,768 48,483 40,055
70,220 69,060 55,922

Available-for-sale securities
Available-for-sale securities are as follows:

(1) Equity securities

Book value
December December January
Number of Ownership Acquisition
shares (%) cost 31, 2011 31, 2010 1, 2010
Marketable equity securities
Korea Information
Service
1 - - - - - 3,951
NICE Information
Service
1 136,593 2.25 3,312 3,190 4,221 -
1
NICE Holdings 49,162 1.42 3,491 2,497 3,097 -
Unlisted equity securities
Hyundai Finance
Corp.
2 1,700,000 9.29 9,888 10,426 9,887 8,726
HI Network, Inc.
(Common stock)
- - - - - 59
HI Network, Inc.
(Preferred stock)
- - - - - 17
Korean Egloan, Inc. 4,000 3.12 100 100 - -
16,791 16,213 17,205 12,753

1
Korea Information Service was divided into NICE Information Service and NICE Holdings. In this
transaction, the Group recognized gain on disposal of available-for-sale securities amounting to 1,550
million.
²The fair value for Hyundai Finance Corp. was valued as the average of valuation prices provided by two
external appraisers, KIS Pricing Inc. and Korea Asset Pricing, using the discounted cash flow model. The
five-year financial statements, projected based on past performance, were used in measuring the fair value

31


assuming that the operational structure will remain as is for the next five years. Operating income and
expenses were estimated based on the past performance, business plan and expected market conditions.

(2) Debt securities

Book value
December December January
Interest Acquisition
Issuer rate (%) cost 31, 2011 31, 2010 1, 2010
Government and Metropolitan Rapid
public bonds Transit and others
2.50 2,118 2,239 3,372 3,114

Equity method investments
Equity method investments are as follows:

December 31, 2011
Number of Ownership Acquisition Net asset
Book value
shares (%) cost value
HK Mutual Saving
Bank
1 4,990,438 20.00 45,719 33,487 45,735
1
HI Network, Inc. 13,332 19.99 76 1,003 1,003
1
Korea Credit Bureau 140,000 7.00 3,800 2,928 3,965
Hyundai Capital
2 600,200 30.01 1,065 1,065 1,065
Germany GmbH
50,660 38,483 51,768

December 31, 2010
Book value
HK Mutual Saving
Bank
1 4,990,438 20.00 45,719 30,601 42,849
1
HI Network, Inc. 13,332 19.99 76 1,055 1,055
1
Hyundai Capital
2 600,200 30.01 1,065 908 1,065
Germany GmbH
50,660 35,041 48,483

January 1, 2010
Book value
HK Mutual Saving
Bank
1 4,990,438 20.00 45,719 23,551 35,799
1
Hyundai Capital
Germany GmbH
2 600,200 30.01 1,065 1,065 1,065

50,584 26,770 40,055

32

Audit Report: Hyundai Capital 2011 (English)

Audit Report: Hyundai Capital 2011 (English)

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