Hyundai Card 2011 review report(eng)

HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011, 2010 AND JANUARY 1, 2010
AND FOR THE YEARS ENDED
DECEMBER 31, 2011 AND 2010
AND INDEPENDENT AUDITOR‟S REPORT

Deloitte Anjin LLC
9Fl., One IFC,
23, Yoido-dong,
Youngdeungpo-gu, Seoul
150-876, Korea
Tel: +82 (2) 6676 1000
Fax: +82 (2) 6674 2114
www.deloitteanjin.co.kr
Independent Auditor’s Report
English Translation of a Report Originally Issued in Korean

To the Shareholders and Board of Directors of
Hyundai Card Co., Ltd. and its subsidiaries:

We have audited the accompanying consolidated statements of Hyundai Card Co., Ltd. and its subsidiaries (the
“Company”). The financial statements consist of the consolidated statements of financial position as of December
31, 2011, December 31, 2010 and January 1, 2010, respectively, and the related consolidated statements of
comprehensive income, consolidated statements of changes in stockholders‟ equity and consolidated statements of
cash flows, all expressed in Korean won, the years ended December 31, 2011 and 2010, respectively. The
Company‟s management is responsible for the preparation and fair presentation of the consolidated financial
statements and our responsibility is to express an opinion on these consolidated 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 financial statements referred to above present fairly, in all material respects, the financial position
of the Company as of December 31, 2011, December 31, 2010 and January 1, 2010, respectively, and the results of
its operations and its cash flows for the years ended December 31, 2011 and 2010, respectively in conformity with
Korean International Financial Reporting Standards (“K-IFRS”).

In addition to the comparative consolidated financial statements as of December 31, 2010 included in the
accompanying consolidated financial statements, the Company‟s management prepared the consolidated statements
of financial position of the Company as of December 31, 2010 and the related consolidated statements of income,
consolidated statements of appropriations of retained earnings (or disposition of deficit), consolidated statements of
changes in stockholders‟ equity and consolidated statements of cash flows for the year then ended in accordance
with previous generally accepted accounting principles in the Republic of Korea (“previous K-GAAP”). We
conducted audits on these financial statements and an unqualified opinion was expressed on its‟ independent
auditor‟s report dated as of March 8, 2011.

February 27, 2012

Notice to Readers

This report is effective as of February 27, 2012, the auditor‟s 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 accompanying consolidated financial statements and may
result in modifications to the auditor‟s report.

Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited
by guarantee, and its network of member firms, each of which is a legally separate and independent
entity. Please see www.deloitte.com/kr/about for a detailed description of the legal structure of Deloitte
Touche Tohmatsu Limited and its member firms.

Member of Deloitte Touche Tohmatsu Limited

(the “Company”)

CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 2011, 2010 AND JANUARY 1, 2010
AND FOR THE YEARS ENDED
DECEMBER 31, 2011 AND 2010

The accompanying financial statements including all footnote disclosures were prepared by and
are the responsibility of the Company.

Chung, Tae Young
CEO


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF DECEMBER 31, 2011, DECEMBER 31, 2010, AND JANUARY 1, 2010

December 31, 2011 December 31, 2010 January 1, 2010
(Korean won in millions)
ASSETS

CASH AND BANK DEPOSITS (Notes 6, 32,
33 and 34):
Cash and cash equivalents ￦ 830,023 ￦ 797,048 ￦ 487,515
Bank deposits 33,031 23,131 54
Total cash and bank deposits 863,054 820,179 487,569

INVESTMENT FINANCIAL ASSETS (Notes
7, 33 and 34):

Financial assets held-for-trading - - 14,834
Financial assets available-for-sale (AFS) 1,767 1,776 82,577
Financial assets held-to-maturity - - 27
Total investment financial assets 1,767 1,776 97,438

CARD ASSETS (Notes 8, 9, 30, 33 and 34):
Card receivables, net of present value
discounts, deferred origination fees and
allowance for doubtful accounts 6,432,351 5,961,380 5,240,163
Cash advances, net of allowance for
doubtful accounts 978,118 1,115,700 740,816
Card loans, net of present value discounts,
deferred loan origination fees and
allowance for doubtful accounts 1,963,798 1,928,689 1,034,393
Total card assets 9,374,267 9,005,769 7,015,372

LOANS (Notes 8, 9, 33 and 34)
Other loans, net of allowance for doubtful
accounts 470 992 -

PROPERTY AND EQUIPMENT (Notes 10, 12,
15 and 30):
Land 83,995 80,414 67,819
Buildings, net of accumulated depreciation 42,187 34,494 32,054
Vehicles, net of accumulated depreciation 270 293 300
Fixtures and equipment, net of
accumulated depreciation 57,974 36,617 34,334
Capital lease assets 2,500 - -
Assets under construction 472 698 912
Total property and equipment 187,398 152,516 135,419

OTHER FINANCIAL ASSETS (Notes 9,
19, 30, 33 and 34):
Other accounts receivable, net of
allowance for doubtful accounts 44,940 15,054 8,481
Accrued revenue, net of allowance for
doubtful accounts 43,753 47,638 28,653
Guarantee deposits 52,759 48,129 34,498
Derivative assets 2,555 13,748 89,508
Total other financial assets 144,007 124,569 161,140


OTHER NON-FINANCIAL ASSETS (Notes 6,
9, 11, 26 and 30):
Advanced payments, net of allowance for
doubtful accounts 25,223 76,319 20,567
Prepaid expenses 48,549 53,974 55,415
Intangible assets 72,976 70,450 50,399
Deferred income tax assets 112,403 112,262 79,331
Others 21,820 27,308 16,683
Total other non-financial assets 280,971 340,313 222,395
Total Assets ￦ 10,851,934 ￦ 10,446,114 ￦ 8,119,333

(Continued)


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF DECEMBER 31, 2011 AND DECEMBER 31, 2010

LIABILITIES AND
SHAREHOLDERS‟ EQUITY (Korean won in millions)

BORROWINGS :
Borrowings (Notes 13, 33 and 34) ￦ 590,000 ￦ 1,581,766 ￦ 1,071,006
Bonds payable, net (Notes 14, 29, 33
and 34) 6,481,760 5,594,406 4,187,011
Total borrowings 7,071,760 7,176,172 5,258,017

RETIREMENT BENEFIT (Note 16)
Retirement benefit obligation 17,775 9,608 5,312
Total retirement benefit 17,775 9,608 5,312

OTHER FINANCIAL LIABILITIES
(Notes 15, 19, 28, 30, 33 and 34):
Accounts payable 1,066,706 795,721 629,617
Withholdings 64,312 68,811 54,228
Accrued expenses 140,922 123,112 111,517
Finance lease liabilities 2,548 - -
Derivatives liabilities 5,326 35,086 14,397
Guarantee deposit received 11,685 10,463 9,052
Total other financial liabilities 1,291,499 1,033,193 818,811

OTHER NON-FINANCIAL LIABILIT
IES :
Withholdings 5,650 4,761 2,835
Unearned revenue 347,865 287,441 246,201
Provisions (Notes 18 and 28) 80,233 81,426 56,948
Income tax payable(Notes 26) 40,469 86,864 65,554
Total other non-financial liabilities 474,217 460,492 371,538

SHAREHOLDERS‟ EQUITY :
Share capital (Note 20) 802,326 802,326 802,326
Capital surplus (Note 21) 57,704 57,704 57,704
Retained earnings (Notes 22 and 24) 1,148,397 909,749 768,082
Reserves (Notes 19, 23 and 31) (11,764) (3,150) 37,523
Non-controlling interest 20 20 20
Total shareholders‟ equity 1,996,683 1,766,649 1,665,655
Total Liabilities and Shareholders‟
Equity ￦ 10,851,934 ￦ 10,446,114 ￦ 8,119,333

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010

For the year ended For the year ended
December 31, 2011 December 31, 2010
(Korean won in millions,
except for per share amount)
OPERATING REVENUE:
Card income (Notes 30 and 36) ￦ 2,318,410 ￦ 2,114,807
Interest income (Note 35) 26,006 15,812
Gain on fair value change of financial assets at FVTPL (Note 37) - -
Gain on disposal of financial assets AFS (Note 37) 7,650 101,145
Reversal of impairment loss on financial assets AFS (Note 37) 806 2,616
Dividends income 591 724
Reversal of provision for unused credit limits - -
Other operating revenue (Notes 30, 38 and 39) 55,916 101,746
Total operating revenue 2,409,379 2,336,850

OPERATING EXPENSES:
Card expenses (Notes 30 and 36) 923,942 863,117
Interest expenses (Note 35) 357,374 318,512
General and administrative expenses (Notes 16, 17, 25 and 30) 538,384 484,132
Securitization expenses 337 901
Bad debt expense and loss on disposal of loans 200,062 184,710
Transfer to provision for unused credit limits (Note 18) 1,094 14,093
Loss on fair value change of financial assets at FVTPL (Note 37) - -
Impairment loss on financial assets AFS (Note 37) 8 -
Other operating expenses (Notes 30, 38 and 39) 64,560 100,543
Total operating expenses 2,085,761 1,966,009

OPERATING INCOME 323,618 370,841

(Continued)


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)


For the year ended For the year ended
December 31, 2011 December 31, 2010
(Korean won in millions,
except for per share amount)
INCOME BEFORE INCOME TAX ￦ 323,618 ￦ 370,841

INCOME TAX EXPENSE (Note 26) 84,970 92,779

INCOME FOR THE PERIOD 238,648 278,062

OTHER COMPREHENSIVE INCOME FOR THE PERIOD (Note
31)
Gain on fair value of financial assets AFS - (53,801)
Effective portion of changes in fair value of cash flow hedges (8,614) 13,128

TOTAL COMPREHENSIVE INCOME FOR THE PERIOD ￦ 230,034 ￦ 237,389

Net income attributable to:
Owners of the Company 238,648 278,062
Non-controlling interests - -

Total comprehensive income attributable to:
Owners of the Company 230,034 237,389
Non-controlling interests - -

Earnings per share (In won per share) (Note 27)
Basic earnings per share ￦ 1,487 ￦ 1,733
Diluted earnings per share ￦ 1,487 ￦ 1,733



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS‟ EQUITY


Capital surplus Reserves
Other Net change in fair Cash flow Attributable to Non-
Share Share capital Treasury Retained value of financial hedging owners of the controlling
capital premium surplus shares earnings assets AFS reserve Company interests Total

Balance at January 1, 2010 ￦ 802,326 ￦ 45,399 ￦ 12,305 - ￦ 768,082 ￦ 53,801 ￦ (16,278) ￦ 1,665,635 ￦ 20 ￦ 1,665,655
Dividends paid - - - - (104,302) - - (104,302) - (104,302)
Interim dividends - - - - (32,093) - - (32,093) - (32,093)
Comprehensive income - - - - - - - - - -
Net income - - - - 278,062 - - 278,062 - 278,062
Reissuance of treasury
stock - - - - - - - - - -
Other comprehensive
income - - - - - (53,801) 13,128 (40,673)(45,028) - (40,673)
Balance at December 31,
2010 802,326 45,399 12,305 - 909,749 - (3,150) 1,766,629 20 1,766,649
Balance at January 1, 2011 802,326 45,399 12,305 - 909,749 - (3,150) 1,766,629 20 1,766,649
Comprehensive income - - - - - - - - - -
Net income - - - - 238,648 - - 238,648 - 238,648
Other comprehensive
income - - - - - - (8,614) (8,614) - (8,614)
Balance at December 31.
31, 2011 ￦ 802,326 ￦ 45,399 ￦ 12,305 ￦ - ￦1,148,397 - ￦ (11,764) ￦ 1,996,663 ￦ 20 ￦ 1,996,683



CONSOLIDATED STATEMENTS OF CASH FLOWS


For the year ended December 31,
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Income for the period ￦ 238,648 ￦ 278,062
Income tax expense 84,970 92,779
Interest income (26,006) (15,812)
Interest expense 357,374 318,512
Dividend received (591) (724)
Bad debt expense and loss on disposal of receivables 200,062 184,710
Retirement benefits 12,808 9,797
Depreciation 21,209 15,684
Amortization 11,355 8,067
Loss on foreign currency translation 16,397 10,897
Loss on valuation of trading derivatives 5,878 63,129
Increase in provision for unused credit limit 1,094 14,093
Loss from sale of property, plant and equipment 5 10
Impairment loss of financial assets AFS 8 -
Other operating losses 1,657 32
Gain on disposals of financial assets AFS (8,456) (103,761)
Gain on valuation of investment financial assets - -
Gain on foreign currency translation (161) (36,753)
Gain on valuation and trading of derivatives (24,008) (15,300)
Amortization of present value discounts of card asset (27,320) (5,087)
Amortization of deferred origination fees (22,513) 53,903
Gain from sale of property, plant and equipment (6) -
Changes in working capital:
Decrease in financial assets - 121,690
Increase in card assets (521,185) (2,114,875)
Decrease in loans 500 -
Increase in other financial assets (21,811) (19,810)
Decrease (Increase) in other non-financial assets 54,854 (55,839)
Decrease in derivative assets 8,190 81,481
Increase in provisions 1,764 10,386
Decrease in retirement benefit obligations (4,334) (25,676)
Decrease (Increase) in plan asset (307) 20,175
Decrease in derivative liabilities (19,862) (2,948)
Increase in capital lease liabilities 2,548 -
Increase in other financial liabilities 278,290 216,921
Increase in other non-financial liabilities 60,426 41,239
Cash generated from operating activities
Interest received 23,576 7,772
Interest paid (339,416) (316,001)
Dividend received 591 724
Income tax paid (128,884) (127,663)
Net cash provided by (used in) operating activities 237,344 (1,397,992)

(Continued)


CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


For the year ended December 31,
2011 2010

CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of investment financial assets ￦ 4,406 ￦ -
Disposal of property and equipment 111 -
Disposal of intangible assets - 1,450
Net increase in bank deposit (9,901) (23,077)
Net increase in guarantee deposit (3,902) (13,944)
Acquisition of property and equipment (51,875) (32,380)
Acquisition of intangible assets (18,207) (30,010)
Net cash used in investing activities (79,368) (97,961)

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings 5,734,000 499,927
Proceeds from issue of bonds payable 3,790,757 2,957,984
Repayment of borrowings (6,725,767) -
Repayment of bonds payable (2,923,991) (1,516,030)
Payment of dividend - (136,395)
Net cash provided by (used in) financing activities (125,001) 1,805,486

NET INCREASE IN CASH AND CASH EQUIVALENTS 32,975 309,533
CASH AND CASH EQUIVALENTS, BEGINNING OF
THE PERIOD 797,048 487,515
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD ￦ 830,023 ￦ 797,048



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. GENERAL:

Hyundai Card Co., LTD (the “Parent”) is engaged in the credit card business under the Specialized Credit
Financial Business Law of Korea. On June 15, 1995, the Parent acquired the credit card business of Korea
Credit Circulation Co., Ltd. and on June 16, 1995, the Korean government granted permission to the Parent to
engage in the credit card business.

As of December 31, 2011, the Parent has approximately 9.24 million card members, 1.95 million registered
merchants, and 179 marketing centers, branches and posts. Its head office is located in Yoido, Seoul.

As of December 31, 2011, the total common stock of the Parent is ￦802,326 million. The shareholders of the
Parent and their respective ownerships as of December 31, 2011, December 31, 2010 and January 1, 2010 are
as follows:

Number of Number of Number of
Shareholder shares % of ownership shares % of ownership shares % of ownership
Hyundai Motor
Co., Ltd. 50,572,187 31.52 50,572,187 31.52 50,572,187 31.52
Kia Motors Co.,
Ltd. 18,422,142 11.48 18,422,142 11.48 18,422,142 11.48
Hyundai Steel
Co., Ltd. 8,729,750 5.44 8,729,750 5.44 8,729,750 5.44
GE Capital Int'l
Holdings 69,000,073 43.00 69,000,073 43.00 69,000,073 43.00
Hyundai
Commercial
Inc. 8,889,622 5.54 8,889,622 5.54 8,889,622 5.54
Others 4,851,512 3.02 4,851,512 3.02 4,851,512 3.02
Totals 160,465,286 100.00 160,465,286 100.00 160,465,286 100.00

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

The Company maintains its official accounting records in the Republic of Korean won (“Won”) and prepares
consolidated financial statements in conformity with Korean statutory requirements and Korean International
Reporting Standards (“K-IFRS”), in the Korean language (Hangul). Accordingly, these consolidated financial
statements are intended for use by those who are informed about K-IFRS and Korean practices. The
accompanying consolidated financial statements have been condensed, restructured and translated into English
with certain expanded descriptions from the Korean language financial statements. Certain information
included in the Korean language financial statements, but not required for a fair presentation of the Company‟s
financial position, operating results, changes in shareholders‟ equity or cash flows, is not presented in the
accompanying consolidated financial statements.

(1) Basis of Preparation

The Company has adopted the Korean International Financial Reporting Standards (“K-IFRS”) for the annual
period beginning on January 1, 2011. In accordance with K-IFRS 1101 First-time adoption of International
Financial Reporting Standards, the transition date to K-IFRS is January 1, 2010. Transition adjustments from
previous GAAP-Korean GAAP (“K-GAAP”), to K-IFRSs are summarized in Note 4.

Currently, enactments and amendments of the K-IFRSs are in progress, and the financial information presented
in the consolidated financial statements may change accordingly in the future. The Company has not applied
the following new and revised K-IFRSs that have been issued but are not yet effective:

K-IFRS 1107 Financial Instruments: Disclosures – Transfers of Financial Assets

The amendments to K-IFRS 1107 increase the disclosure requirements for transactions involving transfers of
financial assets. These amendments are intended to provide greater transparency around risk exposures when a
financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The
amendments also require disclosures where transfers of financial assets are not evenly distributed throughout
the period. K-IFRS 1107 is effective for annual periods beginning on or after July 1, 2011.

Amendments to K-FIRS 1012 Deferred Tax – Recovery of Underlying Assets

The amendments to K-IFRS 1012 provide an exception to the general principles in K-IFRS 1012 that the
measurement of deferred tax assets and deferred tax liabilities should reflect the tax consequences that would
follow from the manner in which the entity expect to recover the carrying amount of an asset. Investment
property measured using the revaluation model under K-IFRS 1040 Investment Property or a non-depreciable
asset measured using the revaluation model in K-IFRS 1016 Property, Plant, and Equipment, are presumed to
be recovered through sale for the purposes of measuring deferred taxes, unless the presumption is rebutted in
certain circumstances. The amendments to K-IFRS 1012 are effective for annual periods beginning on or after
January 1, 2012.

K-IFRS 1019 (as revised in 2011) Employee Benefits

The amendments to K-IFRS 1019 change the accounting for defined benefit plans and termination benefits.
The most significant change relates to the accounting for changes in defined benefit obligations and plan assets.
The amendments require the recognition of changes in defined benefit obligations and in fair value of plan
assets when they occur, and hence eliminate the „corridor approach‟ permitted under the previous version of K-
IFRS 1019 and accelerate the recognition of past service cots. The amendments to K-IFRS 1019 are effective
for annual periods beginning on or after January 1, 2013 and require retrospective application with certain
exceptions.

K-IFRS 1113 Fair Value Measurement

K-IFRS 1113 establishes a single source of guidance for fair value measurements and disclosures about fair
value measurements. The standard defines fair value, establishes a framework for measuring fair value, and
requires disclosures about fair value measurements. K-IFRS 1113 is effective for annual periods beginning on
or after January 1, 2013, with earlier application permitted.

The Company does not anticipate that these amendments referred above will have a significant effect on the
Company‟s consolidated financial statements and disclosures.

Major accounting policies used for the preparation of the consolidated financial statements are stated below.
Unless stated otherwise, these accounting policies have been applied consistently to the consolidated financial
statements for the current period and accompanying comparative period.

The consolidated financial statements have been prepared on the historical cost basis except for certain
properties and financial instruments that are measured at revalued amounts or fair values, as explained in the
accounting policies below. Historical cost is generally based on the fair value of the consideration given in
exchange for assets.

The accompanying consolidated financial statements were approved by the board of directors on January 31,
2012

(2) Significant Accounting Policies

1) Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities
(including special purpose entities) controlled by the Company (and its subsidiaries). Control is achieved where
the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits

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from its activities.

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated
statement of comprehensive income from the effective date of acquisition and up to the effective date of
disposal, as appropriate. 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 those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

Changes in the Company‟s ownership interests in subsidiaries that do not result in the Company losing control
over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company‟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 Company loses control of a subsidiary, the profit or loss on disposal is calculated as the difference
between (i) the aggregate of the fair value of the consideration received and the fair value of any retained
interest and (ii) the previous carrying amount of the assets (including goodwill), 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 Financial Instruments: Recognition and Measurement or, when applicable, the cost on
initial recognition of an investment in an associate or a jointly controlled entity.

2) Card assets

Card assets are amounts due from customers for services performed in the ordinary course of business. Card
assets are initially measured at a fair value including direct transaction cost; thereafter it is measured at
amortized cost using the effective interest rate method except for the financial assets classified as at fair value
through profit or loss (FVTPL).

① Card Receivables

The Company records card receivables when its cardholders make purchases from domestic and foreign card
merchants, and when card members of MasterCard International, Visa International and Diners Club
International make purchases from domestic card merchants. Advanced merchant commission payments; and
commission from cardholders for installment payments and cash advances are recognized as revenue on an
accrual basis.

② Card Loans

The Company extends the card loans to its cardholders in accordance with the Specialized Credit Financial
Business Law. A constant commission rate is recognized as revenue on an accrual basis.

③ Cash advances

Cash advances are provided to card members up to certain amounts depending on card members‟ credit rating
in accordance with the Specialized Credit Financial Business Law. Cash advances are collected from card
members on the payment date with specific percent service charges, and recognized as revenue on an accrual
basis.

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3) Financial assets

All financial assets are recognized and derecognized on trade date where the purchase or sale of a financial
asset is under a contract whose terms require delivery of the financial asset within the timeframe established by
the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial
assets classified as at fair value through profit or loss, which are initially measured at fair value.

Financial assets are classified into the following specified categories: financial assets at „fair value through
profit or loss‟ (FVTPL), „held-to-maturity‟, „available-for-sale‟ 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 rate method

The effective interest rate 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 rate method for debt instruments other than those financial assets
classified as at FVTPL.

② Financial assets at fair value through profit or loss (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 it in the near term; or
• on initial recognition it is part of a portfolio of identified financial instruments that the Company 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; or
• 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 Company'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 Financial
Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be
designated as at FVTPL.

Financial assets at FVTPL are stated at fair value, and any gains or losses arising on remeasurement are
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 revenue or expenses‟ line item in the
consolidated statement of comprehensive income. And transaction cost from acquisition of them is recognized
in loss immediately when it arises.

③ Held-to-maturity investments

Non-derivatives financial assets with fixed or determinable payments and fixed maturity dates that the
Company 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 rate method less any
impairment, with revenue recognized on an effective interest rate method basis.

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④ Available-for-sale financial assets (ABS)

Non-derivatives financial assets that are not classified as at held-to-maturity, held-for-trading, designated as at
fair value through profit or loss, or loans and receivables are classified as at financial assets AFS. Financial
assets AFS are initially recognized at fair value plus directly related transaction costs. They are subsequently
measured at fair value. Unquoted equity investments whose fair value cannot be measured reliably are carried
at cost. Gains and losses arising from changes in fair value are recognized and accumulated in other
comprehensive income, with the exception of impairment losses, interest calculated using the effective interest
method, and foreign exchange gains and losses on monetary assets, which are recognized in profit or loss.
Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously
accumulated in the other comprehensive income is reclassified to profit or loss. Dividends on AFS equity
instruments are recognized in profit or loss when the Company‟s right to receive the dividends is established.

The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency
and translated at the spot rate 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.

⑤ Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that 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 rate method, less any impairment. Interest income is recognized by applying the
effective interest rate, except for short-term receivables when the recognition of interest would be 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, as a
result of one or more events that occurred after the initial recognition of the financial asset, the estimated future
cash flows of the investment have been affected.

For listed and unlisted equity investments classified as AFS, 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 financial assets classified as AFS, objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or
• default or delinquency in interest or principal payments; or
• it becoming probable that the borrower will enter bankruptcy or financial re-organization.
• an active market for financial assets closes due to financial difficulties

For certain categories of financial asset, such as card 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 Company‟s past experience of collecting payments, an increase
in the number of delayed payments in the portfolio exceeding the average credit period, as well as observable
changes in national or local economic conditions that correlate with default on receivables.

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 measured at cost, the amount of the impairment is recognized as the difference between the
carrying amount of the asset and current value of estimated future cash flows discounted by similar to the
current market rate. The impairment is not 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 card receivables, where the carrying amount is reduced through the use of an allowance

- 6 -

account. When a card 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.

With the exception of AFS equity instruments, 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.

⑦ Derecognition of financial assets

The Company 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 Company neither transfers nor retains substantially all the risks and rewards of
ownership and continues to control the transferred asset, the Company recognizes its retained interest in the
asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the
risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the
financial asset and also recognizes a collateralized borrowing for the proceeds received.
If the Company derecognizes the entire financial asset, the difference between total received amount plus the
sum of cumulative income recognized in other comprehensive income and the book value of the asset is
recognized in profit or loss.

If the Company does not derecognize the entire financial asset, (for example, the Company holds either an
option to repurchase a certain portion of the asset or remaining shares, which does not allow the Company to
hold the most of the risks and benefits from the financial asset and the Company controls assets) the Company
divides the book value of financial assets into a recognized part and a unrecognized part in accordance with
relative fair value of each portion. The difference between total received amount for derecognized portion of
the asset plus the sum of cumulative income recognized in other comprehensive income and the book value of
the asset is recognized in profit or loss. Cumulative income recognized in other comprehensive income is
divided into a recognized part and a unrecognized part in accordance with relative fair value of each portion.

4) 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 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 Company and the cost of an asset can be
measured reliably. Routine maintenance and repairs are expensed as incurred.

The Company does not depreciate land. Depreciation expense is computed using the straight-line method based
on the estimated useful lives of the assets as follows:

Estimated useful lives
Building 40 years
Fixtures and equipment 4 years
Vehicles 4 years

- 7 -

Each part of property and equipment with a cost that is significant in relation to the total cost are depreciated
separately.

The Company 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.

When future economic benefits aren‟t expected through the use or disposition of property, plant and equipment,
the Company removes the book value of the assets from consolidated statements of financial position. Income
incurred from disposal of property, plant and equipment is the net amount of the trading and the book value and
is recognized when the asset is removed.

5) Lease

A lease is classified as a finance lease 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.

The Company recognizes the lesser of the current value of minimum lease payment and the fair value of lease
assets as capital lease assets and capital lease liabilities.

Lease expenses are allocated to two parts, interest expense and lease payment, to maintain a constant periodic
rate on each period‟s debt balance. Financial cost except such certain qualifying assets, in accordance with the
Company‟s accounting policies, is recognized immediately as an expense in the period. Any adjustments to
lease payment are recognized as cost during the period it occurred.

6) 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.

An internally-generated intangible asset arising from development (or from the development phase of an
internal project) is recognized if, and only if, all of the following have been demonstrated:

• the technical feasibility of completing the intangible asset so that it will be available for use or sale;
• the intention to complete the intangible asset and use or sell it;
• the ability to use or sell the intangible asset;
• how the intangible asset will generate probable future economic benefits;
• the availability of adequate technical, financial and other resources to complete the development and to use
or sell the intangible asset; and
• the ability to measure reliably the expenditure 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 listed above. 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

- 8 -

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.

④ Disposal of intangible assets

If future economic benefits are not expected through the use or disposition of the intangible assets, the
Company removes the book value of the assets from the consolidated financial statements. Income incurred
from the disposal of intangible assets is the net amount of the trading and book value, and is recognized when
the asset is removed.

7) Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Company 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). Where it is not possible to estimate the recoverable amount of an individual asset, the
Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units 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 and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount,
the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An
impairment loss is recognized immediately in profit or loss.

If impairment recognized in prior periods is reversed, the book value of the individual assets (or cash-
generating unit) is the smaller of the carrying amount of the recoverable amount and the book value that the
impairment would not have recognized in prior periods and the reversal of impairment loss is recognized
immediately in profit or loss at the time.
8) Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a
past event, it is probable that the Company 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).

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.

- 9 -

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.

9) Financial liabilities and equity instruments

① Classification as debt or equity

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

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 Company are recognized at the proceeds received, net of
direct issue costs.

Treasury shares transactions are deducted directly from equity. Income arising from purchases and sales,
issuances, and incinerations of treasury shares are not recognized in profits or losses.

③ Compound instruments

The component parts of compound instruments issued by the Company are classified separately as financial
liabilities and equity in accordance with the definition of the financial asset and liability. Convertible option
which can be settled by exchanging financial asset such as fixed amount of cash for the fixed number of
treasury shares is equity instruments.

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 rate method until extinguished upon conversion or at the instrument‟s maturity date.
The equity component 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.

④ Financial liabilities

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

⑤ Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at amortized cost using the effective interest rate method,
with interest expense recognized on an effective interest rate method.

The effective interest rate 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 through the expected life of the financial liability, or (where appropriate) a
shorter period, to the net carrying amount on initial recognition.

⑥ Derecognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company‟s obligations are
discharged, cancelled or they expire.

10) Derivative instruments

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate
and foreign exchange rate risk, including interest rate swaps and cross currency swaps.

- 10 -

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 such 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.

① Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives
when their risks and characteristics are not closely related to those of the host contracts and the host contracts
are not measured at FVTPL.

② Hedge accounting

The Company designates certain derivative instruments as cash flow hedges.

At the inception of the hedge relationship, the Company 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 Company
documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged
item.

③ 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 operating revenue or expenses‟ 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.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or 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.

11) Share capital

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction,
net of tax, from the proceeds.

Where the Parent or its subsidiary purchases the Parent‟s share capital, the consideration paid is deducted from
shareholders‟ equity as treasury shares until they are cancelled. Where such shares are subsequently sold or
reissued, any consideration received is included in shareholders‟ equity.

12) Commission revenue

① Fees that are a part of the financial instruments‟ effective interest rate

Fees that are a part of the effective interest rate of a financial instrument are treated as an adjustment to the
effective interest rate. Such fees include compensation for activities such as evaluating the borrower's financial
condition, evaluating and recording guarantees, collateral, and other security arrangements, negotiating the
terms of the instrument, preparing and processing documents and closing the transaction as well as origination

- 11 -

fees received on issuing financial liabilities measured at amortized cost. These fees are deferred and recognized
as an adjustment to the effective interest rate. However, in case the financial instrument is classified as a
financial asset at fair value through profit or loss, the relevant fee is recognized as revenue when the instrument
is initially recognized.

② Commission from rendering of services

Commission revenue from rendering of services is recognized as the services are provided. When it is not
probable that specific loan agreement is contracted and agreed commission is not applied to K-IFRS 1039,
relating those services will be recognized on a straight-line basis as the work performs.

③ Commission from significant act performed

The recognition of revenue is postponed until the significant act is executed.

13) Interest income and expense

Using the effective interest rate method, the Company recognizes interest income and expense in consolidated
statements of comprehensive income. Effective interest rate method calculates the amortized cost of financial
assets or liabilities and allocates interest income or expense over the relevant period. The effective interest rate
discounts the expected future cash in and out through the expected life of financial instruments or, if
appropriate, through shorter period, to net carrying amount of financial assets or liabilities. When calculating
the effective interest rate, the Company estimates future cash flows considering all contractual financial
instruments except the loss on future credit risk. Also, effective interest rate calculation include redemption
costs, points (part of the effective interest rate) that are paid or earned between contracting parties, transaction
costs, and other premiums and discounts.

14) Net trading profit or loss

Net trading profit or loss is comprised of held for trading assets (liabilities) related to gain and loss, and
includes changes of realized (unrealized) fair value, interest, dividend, gain or loss on foreign currency
translation.

15) Dividend revenue

Dividend income from investments is recognized when the shareholder‟s right to receive payment has been
established (provided that it is probable that the economic benefits will flow to the Company and the amount of
income can be measured reliably).

16) Foreign currencies

The individual financial statements of the Company 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 results and financial position of each entity are expressed in Korean Won, which is the
functional currency of the Company and the presentation currency for the consolidated financial statements.

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 transactions entered into in order to hedge certain foreign currency risks. See Note 2 (10) above
for hedging accounting policies.

- 12 -

17) Retirement benefit costs

Contributions to defined retirement contribution plans are recognized as an expense when employees have
rendered service entitling them to the contributions.

For defined 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. The present
value of the Company‟s defined benefit obligation and the fair value of plan assets as at the end of each
reporting period are amortized over the expected average remaining working lives of the participating
employees. Past service cost is recognized immediately to the extent that the benefits are already vested, and
otherwise is amortized on a straight-line basis over the average period until the benefits become vested.

The retirement benefit obligation recognized in the consolidated statements of financial position represents the
present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and
unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this
calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available
refunds and reductions in future contributions to the plan.

18) Taxation

Income tax consists of current tax and deferred tax.

① Current tax

The tax currently payable is based on taxable profit for the period. 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 periods. The Company‟s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the end of the reporting period

② Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred income tax
assets are generally recognized for all deductible temporary differences to the extent that it is probable that
taxable profits will be available against which those deductible temporary differences can be utilized. Such
deferred income 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 income tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where the Company 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 income tax assets arising from deductible temporary differences associated with
such investments and interests are only recognized to the extent that it is probable that there will be sufficient
taxable profits against which to utilize the benefits of the temporary differences and they are expected to
reverse in the foreseeable future.

The carrying amount of deferred income tax assets is reviewed at the end of each reporting period and reduced
to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of
the asset to be recovered.

Deferred income 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 Company expects, at the end of
the reporting period, to recover or settle the carrying amount of its assets and liabilities.

- 13 -

③ Current and deferred tax for the year

Current 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 and deferred tax are also
recognized in other comprehensive income or directly in equity respectively. 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.

19) Earnings per share

Basic earnings per share is calculated by dividing net profit from the period available to common shareholders
by the weighted-average number of common shares outstanding during the year. Diluted earnings per share is
calculated using the weighted-average number of common shares outstanding adjusted to include the
potentially dilutive effect of common equivalent shares outstanding. The weighted-average number of shares in
current year includes convertible bond and stock option.

- 14 -

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company‟s accounting policies, which are 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. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. 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.

1) Allowance for Doubtful Accounts

The Company determines and recognizes allowances for losses through impairment testing on credit card assets
and other assets, such as other account receivable, advance payments and accrued income.. The Company also
recognizes provisions for unused commitments. The accuracy of provisions of credit losses is determined by
the risk assessment methodology and assumptions used for estimating expected cash flows of the borrower for
allowances on individual loans and collectively assessing allowances for groups of loans and provisions for
unused commitments.

2) Unearned revenue from point programs

The Company provides its customers with incentives to buy goods or services by providing awards (called
“customer loyalty programs”) and allocates the fair value of the consideration received or receivable between
the award credits granted (“points”) and the other components of the revenue transaction. The Company
supplies the awards such as discounted payments or free gifts. The consideration allocated to the award credits
is measured by reference to their fair value, i.e. the amount for which the award credits could be sold separately.
The fair value of the consideration allocated to the award credits is estimated by taking into account expected
redemption rates, etc. and recognized as deferred revenue until the Company fulfills its obligations to deliver
awards to customers. The amount of revenue recognized is to be based on the number of award credits that
have been redeemed in exchange for awards, relative to the total number expected to be redeemed.

3) Post-Employment Benefits: Defined Benefit Plans

The Company operates a defined benefit pension plan (“plan”). The amount recognized as a defined benefit
liability is the present value of the defined benefit obligation less the fair value of plan assets at the end of the
reporting period. The present value of defined benefit obligation is calculated annually by using actuarial
assumptions such as future increases in salaries, expected returns on plan assets, discount rate and others. The
plan has the uncertainty due to the nature of long-term plan. The defined benefit obligation as of December 31,
2011, December 31, 2010 and January 1, 2010 are ￦17,775 million, ￦9,608 million and ￦5,312 million,
respectively.

4) Fair Value Measurement of Financial Instruments

As disclosed in Note 34, the fair value of financial instruments classified as certain level are measured using
valuation techniques where significant inputs are not based on observable market data. The Note 34 provides
details of the key assumptions used for the measurement of the fair value and sensitivity analysis of the key
assumptions. The Company believes that valuation methods and assumptions used for measuring the fair value
of financial instruments are reasonable and that the fair value recognized in the statements of financial position
is appropriate.

- 15 -

4. TRANSITION TO K-IFRSs

Transition adjustments from previous GAAP-Korean GAAP (“K-GAAP”), to K-IFRSs that affected the
Company‟s financial position, financial performance and cash flows are as follows.

(1) Explanation of transition to K-IFRSs

Significant differences between the accounting policies chosen by the Company under K-IFRS and under K-
GAAP are as follows:

1) Changes of the scope of consolidation

As of transition date, the change of the scope of consolidation as a result of adoption of K-IFRS is as follows:

Changes Details Company Name
Included Under K-GAAP, in accordance with the Articles of WORK&JOY SPC
External audit of Stock Companies, 30% ownership PRIVIA 1st SPC
and being the largest shareholder constitute control in
determining the consolidating scope. Under K-IFRS,
exceeding 50% of the voting power, having decision
making capability and holding benefits and risks
constitute control in determining the consolidation
scope.

(*) The Company‟s subsidiaries as of December 31, 2011 and 2010 are PRIVIA 1st SPC and PRIVIA 2nd SPC,
and WORK&JOY SPC and PRIVIA 1st SPC, respectively. (See Note 5)

2) Impairment of financial assets (allowance for doubtful accounts)

Under K-GAAP, the Company provided an allowance for doubtful accounts for card assets. The amount of
allowance was the higher of allowance calculated based on the expected loss or calculated in accordance to the
guidelines provided in the Regulation on Supervision of Credit-Specialized Financial Business. According to
K-IFRS, card assets are assessed for impairment individually and also assessed on a collective basis by
grouping assets with similar characteristics. Assets that are individually assessed for impairment and for which
an impairment loss exist or continues to be recognized are not included in a collective assessment of
impairment

3) Provision for unused credit limits

Under K-GAAP, the Company estimated the unused commitment based on the asset quality classifications
offered to card accounts and applied a credit conversion ratio as dictated by the Supervision of Banking
Business Regulation, and more than minimum required reserve rate in Regulation of Specialized Credit
Financial Business for the provision for unused credit limits. However under K-IFRS, the Company recognizes
loss provision for expected future use of unused portions in accordance with K-IFRS 1037 Provision,
Contingent Liabilities and Asset.

4) Expansion of the scope for accrued income adjustment

Under K-GAAP, the Company recognized accrued income only for card assets not past due. However, under
K-IFRS, the Company recognizes accrued income of all card assets, as long as they are not impaired; along
with an allowance for accrued income.

- 16 -

5) Financial instruments carried at amortized cost

Financial instruments including loan and receivable were accounted for at the nominal amount under K-GAAP.
According to K-IFRS, it is measured at fair value at initial recognition and subsequent at amortized cost.

6) Deferred annual membership income

Annual membership income was recognized when it was acquired at one time under K-GAAP. However
according to K-IFRS, It is deferred and recognized during the membership period.

7) Unearned revenue from points program

Under K-GAAP, the Company recognized a provision for granted points amounting to the expected expense in
the future. However, according to K-IFRS, the Company defers the revenue amounting to the fair value of the
points when the points related to the revenue are granted, and then recognizes the revenue when the points are
used. However, the Company reserves a provision for the granted points unrelated to the revenue, for the
expected expense in the future.

8) Review of useful lives of intangible assets

Under K-GAAP, intangible assets were amortized during 4~5 years of its estimated useful life. However, under
K-IFRS, the Company reviews the useful life of intangible assets at the end of each reporting period and
reflects appropriately changes accordingly.

9) Retirement benefit obligation (Accrued severance liability)

According to K-GAAP, at the end of a reporting period a retirement benefit obligation is calculated and
recognized, based on an assumption that all employees who have worked over a year were to retire as of the
reporting period end. However, according to K-IFRS, retirement benefit obligation is estimated by actuarial
assessment using the projected unit credit method.

10) Tax effect

The tax effects which related to the aforementioned K-IFRS transition adjustments have also reflected.

11) Other accounts reclassified

• Reclassification of membership & deposit account
Memberships which were accounted for as other non-current assets in accordance with previous GAAP, are
classified as intangible assets with indefinite useful live in under K-IFRS.

• Classification of financial assets and financial liabilities
Accounts classified as other assets and other liabilities under previous GAAP, are classified as either financial
or non-financial assets and liabilities under K-IFRS.

- 17 -

(2) Effects in equity due to transition to K-IFRS

1) Effects in equity as of January 1, 2010, K-IFRS transition date, is as follows (Unit: Won in millions):

January 1, 2010
K-GAAP Conversion Effect K-IFRS

ASSETS
CASH AND BANK DEPOSITS :
Cash and cash equivalents (Note 1) ￦ 479,500 ￦ 8,015 ￦ 487,515
Bank deposits (Note 1) 51 3 54
Total cash and bank deposits 479,551 8,018 487,569

INVESTMENT FINANCIAL ASSETS :
Financial assets held-for-trading 14,834 - 14,834
Financial assets available-for-sale (Note 1) 82,877 (300) 82,577
Financial assets held for trading 27 - 27
Total investment financial assets 97,738 (300) 97,438

CARD ASSETS :
Card receivables, net of present value
discounts and allowance for doubtful
accounts (Notes 1, 2 and 3) 4,061,086 1,179,077 5,240,163
Cash advances, net of allowance for
doubtful accounts (Notes 1 and 2) 535,785 205,031 740,816
Card loans, net of deferred loan
origination fees and allowance for
doubtful accounts (Notes 1, 2 and 3) 814,509 219,884 1,034,393
Assets in trust, net of allowance for
doubtful accounts (Notes 1) 837,372 (837,372) -
Total card assets 6,248,752 766,620 7,015,372

PROPERTY AND EQUIPMENT :
Land 67,819 - 67,819
Buildings, net of accumulated
depreciation 32,054 - 32,054
Fixtures and equipment, net of
accumulated depreciation 34,334 - 34,334
Vehicles, net of accumulated
depreciation 300 - 300
Assets under construction 912 - 912
Total property and equipment 135,419 - 135,419

OTHER ASSETS:
Other accounts receivable, net of
allowance for doubtful accounts
(Notes 1 and 2) 9,809 (1,328) 8,481
Accrued revenue, net of allowance for
doubtful accounts (Note 2 and 4) 41,621 (12,968) 28,653
Advanced payments, net of allowance
for doubtful accounts (Note 1) 27,189 (6,622) 20,567
Prepaid expenses (Note 1) 50,226 5,189 55,415
Guarantee deposits (Note 3) 36,017 (1,519) 34,498
Intangible assets 27,466 22,933 50,399
Deferred income tax assets (Note 5) 42,750 36,581 79,331
Derivative assets (Note 1) 88,391 1,117 89,508
Memberships 22,933 (22,933) -
Others 16,683 - 16,683
Total other assets 363,085 20,450 383,535
Total Assets ￦ 7,324,545 ￦ 794,788 ￦ 8,119,333

- 18 -

January 1, 2010
K-GAAP Conversion Effect K-IFRS

(Continued)
LIABILITIES AND SHAREHOLDERS‟
EQUITY
BORROWINGS :
Borrowings (Note 1) ￦ 671,006 ￦ 400,000 ￦ 1,071,006
Bonds payable, net (Note 1) 3,853,140 333,871 4,187,011
Total borrowings 4,524,146 733,871 5,258,017

OTHER LIABILITIES:
Accounts payable (Note 6) 628,103 1,514 629,617
Withholdings (Note 1) 67,331 (10,268) 57,063
Accrued expenses (Note 1) 175,115 1,955 177,070
Unearned revenue (Note 6) 4,665 241,537 246,202
Retirement benefit obligation (Note 7) 5,164 148 5,312
Provisions (Note 8) 387,819 (330,871) 56,948
Derivatives liabilities (Note 1) 6,363 8,034 14,397
Other liabilities (Note 3) 9,287 (235) 9,052
Total Liabilities 5,807,993 645,685 6,453,678

SHAREHOLDERS‟ EQUITY:
Share capital 802,326 - 802,326
Capital surplus 57,704 - 57,704
Retained earnings (Note 9) 609,636 158,446 768,082
Reserves (Note 1) 46,886 (9,363) 37,523
Non-controlling interest (Note 1) - 20 20
Total shareholders‟ equity 1,516,552 149,103 1,665,655
Total Liabilities and Shareholders‟
Equity ￦ 7,324,545 ￦ 794,788 ￦ 8,119,333

1) Effect from the changes in the scope of consolidation as a result of the adoption of K-IFRS
2) Effect of the allowance of doubtful accounts on an incurred loss model
3) Fair value effect due to the effective interest rate method
4) Effect from change in scope for accrued income adjustment
5) Temporary differences, arising from changes in capital of subsidiaries and resulting in changes of deferred tax
assets (liabilities), and offsetting of deferred tax assets and liabilities
6) Effect from change in points program accounting treatment
7) Actuarial valuations of defined benefit liabilities and valuation of long-term employee benefits
8) Changes in estimation of provision for unused credit limits
9) Adjustment of retained earnings as follows;

January 1, 2010
Adjustment in allowance for doubtful accounts ￦ 47,543
Adjustment in provision for unused credit limits 151,259
Adjustment in accrued income 532
Fair value effect due to effective interest rate (6,249)
Deferred annual membership income (37,571)
Unearned revenue from the points program (31,479)
Adjustment of retirement benefit liabilities (148)
Tax reconciliation 33,840
Consolidation effect 719
Total ￦ 158,446

Hyundai Card 2011 review report(eng)

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