Original
Original
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Opinion
We have audited the accompanying consolidated financial statements of LG Electronics Inc. and its
subsidiaries (collectively referred to as the "Group"), which comprise the consolidated statements of
financial position as at December 31, 2018 and 2017, and the consolidated statements of profit or loss,
consolidated statements of comprehensive income, consolidated statements of changes in equity and
consolidated statements of cash flows for the years then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated
financial performance and its consolidated cash flows for the years then ended in accordance with
International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).
The Group performed the purchase price allocation based on fair value estimation of the assets acquired
and liabilities assumed in accordance with Korean IFRS 1103 Business Combinations. The Group
engaged an independent external expert in valuation of the major property, plant and equipment and
intangible assets acquired.
We considered that the business combination was a key audit matter given the magnitude of the
consideration transferred and the level of management’s judgment involved in the valuation of the
purchase price allocation are significant.
Our audit procedures included testing for the effectiveness of internal controls related to the accounting
treatment of the business combination and the fair value estimation of assets acquired and liabilities
assumed. Our valuation specialists were also involved when performing audit procedures related to an
assessment of fair value estimation and the purchase price allocation.
We performed the following audit procedures on valuation models, key assumptions and judgements
related to fair value estimation and the purchase price allocation. Our audit procedures included:
- Obtaining an understanding of future cash flows arising from assets and business acquired, and
verifying that the future cash flows forecasts have been appropriately reflected to the fair value
of assets
- Evaluating appropriateness of key assumptions used in valuation models such as discount rates,
royalties and others by comparing them with external benchmarks within the same industry and
historical financial information of ZKW
- Evaluating competence and objectivity of the independent external expert engaged by the
Group
The Group focused on the decline of the market value of the LGD shares during the current period and
performed impairment testing in accordance with Korean IFRS 1036 Impairment of Assets.
We considered that the impairment of investments in associates was a key audit matter given the decline
of the market value of the LGD shares and the level of management’s judgments involved in the value-
in-use estimation of impairment testing are significant.
- Inquiring on and obtaining an understanding of the valuation model adopted by the Group
- Obtaining an understanding of future cash flows of LGD, and verifying that such future cash
flows forecasts are consistent with the corresponding information included in business plans
approved by the management
- Evaluating appropriateness of key assumptions used in the valuation model such as discount
rates, growth rates and others by comparing them with external benchmarks within the same
industry and historical financial information of LGD
- Performing sensitivity analysis of key assumptions in order to quantify the downside changes in
assumptions that could result in an impairment
In addition, we reviewed the workpapers on the audit procedures related to the goodwill impairment
testing performed by the independent auditor of LGD (hereinafter referred to as the "component auditor")
and the evaluation of competence and objectivity of independent external experts engaged by LGD’s
management in the goodwill impairment testing.
3
(c) Capitalization of internally generated development costs and their impairment
The Group recognized internally generated development costs which meet certain conditions defined in
Korean IFRS 1038 Intangible Assets and applied Korean IFRS 1036 Impairment of Assets to determine
whether they are impaired.
We considered that the capitalization of internally generated development costs and their impairment
was a key audit matter given that it is related to a significant level of judgments and estimations based
on management’s assumptions.
- Inspecting contracts with customers, purchase orders or quotations which represented future
economic benefits
- Evaluating the appropriateness of key assumptions and raw data applied to impairment analysis
and testing them by examining that they are consistent with the assumptions used in the
business plans of the Group, historical business performances, strategies of management,
discount rate and others
Other Matter
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.
4
Responsibilities of Management and Those Charged with Governance for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with Korean IFRS, and for such internal control as management determines
is necessary to enable the preparation of consolidated financial statements that are free from material
misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the
Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Group or to cease operations.
Those charged with governance are responsible for overseeing the Group’s financial reporting process.
As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment
and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks,
and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than one resulting
from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations,
or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the entity's internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
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Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the
underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Group to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the Group
audit. We remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned
scope and timing of the audit and significant audit findings, including any significant deficiencies in
internal control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences
of doing so would reasonably be expected to outweigh the public interest benefits of such
communication.
The engagement partner on the audit resulting in this independent auditor’s report is Ki-Soo Hong,
Certified Public Accountant.
Seoul, Korea
March 7, 2019
This report is effective as of March 7, 2019, 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.
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LG Electronics
Consolidated Statements of Financial Position
December 31, 2018 and 2017
(in millions of Korean won) Notes 2018 2017
Assets
Current assets
Cash and cash equivalents 5,6,38 4,270,388 3,350,597
Deposits held by financial institutions 5,6,38 80,516 80,515
Trade receivables 5,7,38 6,371,594 8,178,213
Loans and other receivables 5,7,38 506,437 467,427
Other financial assets 5,8,38 8,401 3,534
Inventories 9 6,021,356 5,908,437
Current income tax assets 151,778 134,159
Contract assets 10 763,776 -
Other current assets 11 1,073,396 1,050,651
Assets held for sale 40 115,212 21,436
19,362,854 19,194,969
Non-current assets
Deposits held by financial institutions 5,6,38 45,853 52,775
Loans and other receivables 5,7,38 452,366 470,216
Other financial assets 5,8,38 78,072 52,981
Property, plant and equipment 12 13,333,951 11,800,782
Intangible assets 13 3,001,155 1,854,620
Deferred income tax assets 18 1,410,793 1,365,367
Investments in associates and joint ventures 14 5,537,556 5,620,331
Investment properties 15 94,396 95,712
Net defined benefit assets 19 942 684
Contract assets 10 221,008 -
Other non-current assets 11 789,497 712,522
24,965,589 22,025,990
Total assets 44,328,443 41,220,959
Liabilities
Current liabilities
Trade payables 5,38 7,216,739 8,137,526
Borrowings 5,16,38 1,405,116 1,360,756
Other payables 5,17,38 3,670,453 3,522,839
Other financial liabilities 5,8,38 3,343 2,280
Current income tax liabilities 185,687 100,353
Provisions 20 672,544 649,555
Contract liabilities 10 1,119,806 -
Other current liabilities 21 2,861,341 3,763,161
17,135,029 17,536,470
Non-current liabilities
Borrowings 5,16,38 9,496,070 8,089,724
Other payables 5,17,38 17,995 6,490
Other financial liabilities 5,8,38 89,267 68,610
Deferred income tax liabilities 18 127,014 8,759
Net defined benefit liabilities 19 398,611 326,699
Provisions 20 343,811 298,121
Contract liabilities 10 23,787 -
Other non-current liabilities 21 389,952 212,402
10,886,507 9,010,805
Total liabilities 28,021,536 26,547,275
Equity
Paid-in capital: 22
Share capital 904,169 904,169
Share premium 3,088,179 3,088,179
Retained earnings 23 12,075,414 10,964,155
Accumulated other comprehensive loss 24 (1,604,730) (1,522,478)
Other components of equity 25 (209,764) (209,764)
Equity attributable to owners of the Parent Company 14,253,268 13,224,261
Non-controlling interests 2,053,639 1,449,423
Total equity 16,306,907 14,673,684
Total liabilities and equity 44,328,443 41,220,959
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LG Electronics
Consolidated Statements of Profit or Loss
Years Ended December 31, 2018 and 2017
(in millions of Korean won, except per share amounts) Notes 2018 2017
8
LG Electronics
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2018 and 2017
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LG Electronics
Consolidated Statements of Changes in Equity
Years Ended December 31, 2018 and 2017
Balance at January 1, 2018 3,992,348 10,964,155 (1,522,478) (209,764) 13,224,261 1,449,423 14,673,684
Changes in accounting policy 2 - 20,639 (17,098) - 3,541 - 3,541
Restated total equity 3,992,348 10,984,794 (1,539,576) (209,764) 13,227,802 1,449,423 14,677,225
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LG Electronics
Consolidated Statements of Cash Flows
Years Ended December 31, 2018 and 2017
(in millions of Korean won) Note 2018 2017
Effects of exchange rate changes on cash and cash equivalents (20,740) (88,774)
Net increase in cash and cash equivalents 919,791 335,460
Cash and cash equivalents at the beginning of the year 3,350,597 3,015,137
Cash and cash equivalents at the end of the year 4,270,388 3,350,597
11
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
1. General Information
LG Electronics Inc. (the “Company” or “Parent Company”) was spun off from LG Electronics
Investment Ltd. on April 1, 2002. The Parent Company’s shares were listed on the Korea
Exchange on April 22, 2002, and some of its preferred shares, in the form of global depositary
receipts (“GDRs”), are listed on the London Stock Exchange at the end of the reporting period.
The Parent Company is domiciled in Korea at Yeoui-daero, Yeongdeungpo-gu, Seoul.
As at December 31, 2018, LG Corp. owns 33.7% of the Parent Company’s total shares, excluding
preferred shares, while financial institutions, foreign investors and others own the rest.
The Parent Company and its subsidiaries (the “Group”) operate following major business
segments: Home Appliance & Air Solution segment manufactures and sells refrigerators, washing
machines, vacuum cleaners and residential and commercial air conditioners; Home Entertainment
segment manufactures and sells TVs, monitors, and digital media products; Mobile
Communications segment manufactures and sells mobile communications equipment; Vehicle
Components segment designs and manufactures automobile parts; and LG Innotek Co., Ltd.
operates LED, optics solutions, substrate materials, and automotive components businesses. As
at December 31, 2018, the Parent Company has 139 subsidiaries (Note 1 (a)), 16 associates and
joint ventures (Note 14).
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) Consolidated subsidiaries as at December 31, 2018 and 2017, are as follows:
Korea Innowith Co., Ltd.1 40.8% 59.2% 40.8% 59.2% December Services De-facto control
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
15
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
16
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
17
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
18
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
19
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
20
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
21
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
1
Although the Group owns less than half of the voting rights of LG Innotek Co., Ltd. which is an intermediate parent company of its subsidiaries, the Group is deemed to
have control over LG Innotek Co., Ltd. due to the size and dispersion of holdings of the other shareholders and their voting patterns at previous shareholders’ meetings
(Note 3).
2
Although the Group owns less than a majority of the effective percentage of ownership of the entity, the Group has concluded that the Group controls the entity. This is
because the Group has a right to appoint or dismiss the majority of its Board of Directors by virtue of an agreement with the other investors.
3
Although the Group owns less than a majority of the effective percentage of ownership of the entity, the Group has concluded that the Group controls the entity. This is
because the Group has the substantial power to direct the relevant activities and is exposed to variable returns.
4
In the preparation of the consolidated financial statements, the financial statements for the 12-month period ended December 31, 2018 were used for those subsidiaries
with different fiscal year ends.
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Financial information of major subsidiaries as at December 31, 2018 and 2017, and for the
years ended December 31, 2018 and 2017, is as follows (before elimination of intercompany
transactions):
2018
Profit (loss)
(in millions of Korean won) Assets Liabilities Equity Sales for the year
LG Innotek Co., Ltd. 5,062,817 3,140,216 1,922,601 7,607,398 128,118
LG Electronics U.S.A., Inc.(LGEUS) 3,581,129 3,495,389 85,740 9,629,786 (216,883)
LG Electronics European Shared Service Center
1,853,240 1,822,647 30,593 223,260 1,164
B.V.(LGESC)
LG Electronics do Brasil Ltda.(LGEBR) 1,003,964 468,001 535,963 1,926,146 128,573
LG Electronics Tianjin Appliances Co., Ltd.(LGETA) 590,825 351,650 239,175 1,119,479 21,076
Inspur LG Digital Mobile Communications Co.,
562,263 286,881 275,382 2,084,738 210,518
Ltd.(LGEYT)
Hiplaza Co., Ltd. 607,368 434,258 173,110 2,688,932 8,190
Taizhou LG Electronics Refrigeration Co., Ltd.(LGETR) 531,273 377,870 153,403 1,059,886 23,746
LG Electronics Nanjing New Technology
479,292 279,917 199,375 1,286,070 40,296
co.,LTD(LGENT)
NanJing LG-Panda Appliances Co., Ltd.(LGEPN) 376,823 233,464 143,359 656,136 18,276
LG Innotek Yantai Co.,Ltd.(LGITYT) 347,476 159,298 188,178 664,438 12,184
ZKW Group GmbH2 565,125 298,436 266,689 1,677 (10,461)
ZKW Lichtsysteme GmbH2 600,317 258,424 341,893 374,423 16,806
1 It was merged to LG Electronics U.S.A., Inc. during the third quarter of 2018.
2 The amounts of sales and profit for the year presented are those incurred after the business combination.
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
2017
Profit (loss)
(in millions of Korean won) Assets Liabilities Equity Sales for the year
LG Innotek Co., Ltd. 5,391,209 3,598,255 1,792,954 7,149,756 180,414
LG Electronics U.S.A., Inc.(LGEUS) 2,720,187 2,570,696 149,491 9,048,529 (88,342)
LG Electronics European Shared Service Center
1,470,147 1,440,606 29,541 175,313 327
B.V.(LGESC)
LG Electronics do Brasil Ltda.(LGEBR) 1,100,403 630,893 469,510 2,408,221 214,676
Zenith Electronics Corporation(Zenith) 1,054,901 19,192 1,035,709 38,816 (23,049)
LG Electronics Mlawa Sp. z.O.O.(LGEMA) 892,918 501,255 391,663 2,514,411 7,399
LG Electronics Reynosa S.A. DE C.V.(LGERS) 848,503 341,584 506,919 2,656,817 107,763
LG Electronics Vietnam Haiphong Co., Ltd.(LGEVH) 823,062 597,951 225,111 2,646,928 99,978
LG Electronics India Pvt. Ltd.(LGEIL) 805,095 378,389 426,706 2,643,659 232,941
LG Electronics RUS, LLC(LGERA) 761,958 239,485 522,473 1,487,647 114,250
LG Electronics Mobilecomm U.S.A., Inc.(LGEMU) 741,258 585,399 155,859 5,178,306 9,588
LG Electronics (China) Co., Ltd.(LGECH) 589,130 713,659 (124,529) 556,391 (50,761)
LG Electronics Tianjin Appliances Co., Ltd.(LGETA) 587,622 355,434 232,188 1,059,033 19,040
Inspur LG Digital Mobile Communications Co.,
552,785 442,525 110,260 2,621,882 42,990
Ltd.(LGEYT)
Hiplaza Co., Ltd. 541,414 373,645 167,769 2,088,093 9,424
LG Electronics Thailand Co., Ltd.(LGETH) 459,853 226,723 233,130 1,098,433 12,537
Taizhou LG Electronics Refrigeration Co., Ltd.(LGETR) 459,006 328,216 130,790 991,017 8,419
LG Electronics Nanjing New Technology
427,972 243,335 184,637 1,309,835 34,636
co.,LTD(LGENT)
NanJing LG-Panda Appliances Co., Ltd.(LGEPN) 417,220 277,426 139,794 802,766 23,839
LG Innotek Yantai Co.,Ltd.(LGITYT) 418,261 240,555 177,706 631,225 16,239
(in millions of Korean won) December 31, 2018 December 31, 2017
Percentage of ownership in non-controlling 59.2% 59.2%
interests
Accumulated non-controlling interests 1,259,456 1,155,402
ii) Profit and dividends attributable to non-controlling interests for the years ended December
31, 2018 and 2017, are as follows:
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(in millions of Korean won) December 31, 2018 December 31, 2017
Current assets 2,233,328 2,734,484
Non-current assets 3,522,739 3,143,005
Total assets 5,756,067 5,877,489
Current liabilities 1,584,398 2,497,247
Non-current liabilities 2,053,434 1,429,459
Total liabilities 3,637,832 3,926,706
Equity attributable to owners of LG Innotek
2,118,233 1,950,781
Co., Ltd.
Non-controlling interests 2 2
Total equity 2,118,235 1,950,783
i) Significant restrictions on ability to use the assets and settle the liabilities of the Group
Cash and other short-term financial instruments held by subsidiaries in Egypt, Algeria, Russia
and Kazakhstan are subject to exchange control regulations of each relevant country.
Accordingly, there are transfer limits on their cash and short-term financial instruments from
these countries.
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
ii) The nature and extent to which the protective rights of non-controlling interest can restrict
the use of the assets and settlement of the liabilities of the Group are as follows:
Changes in the Parent Company’s interest in the subsidiaries without loss of control for the
years ended December 31, 2018 and 2017, are as follows:
(f) Subsidiaries newly included in the scope of preparation of consolidated financial statements
for the year ended December 31, 2018, are:
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(g) Subsidiaries excluded from the scope of preparation of consolidated financial statements for
the year ended December 31, 2018, are:
During the year ended December 31, 2018, no gain or loss was incurred from the loss of
control.
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The principal accounting policies applied in the preparation of these consolidated financial
statements are stated below. These policies have been consistently applied to all the years
presented, unless otherwise stated.
Basis of Preparation
The Group maintains its accounting records in Korean won and prepares statutory financial
statements in the Korean language (Hangul) in accordance with 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.
Certain information attached to the Korean language financial statements, but not required for a
fair presentation of the Group's financial position, financial performance or cash flows, is not
presented in the accompanying consolidated financial statements.
The consolidated financial statements of the Group 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 preparation of financial statements requires the use of critical accounting estimates.
Management also needs to exercise judgment in 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.
(a) New and amended standards and interpretations effective for the financial year beginning
January 1, 2018.
The Group has applied Korean IFRS 1109 Financial Instruments on January 1, 2018, the date of
initial application. In accordance with the transitional provisions in Korean IFRS 1109, comparative
figures have not been restated, and recognized the cumulative impact of initially applying the
changes in a classification of financial instruments as an adjustment to equity as at January 1, 2018.
Further details on the impact of the application of the standard are as follows:
On the date of initial application of Korean IFRS 1109, January 1, 2018, the Group’s management
has assessed which business models apply to the financial assets held by the Group and has
classified its financial instruments into the appropriate Korean IFRS 1109 categories. The main
effects resulting from this reclassification are as follows:
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
At the date of initial application, investments amounting to \16,078 million that do not meet the
definition of equity instruments in Korean IFRS 1032, are reclassified from available-for-sale
financial assets to financial assets at fair value through profit or loss. For the year ended December
31, 2018, changes in fair value of these investments amounting to \2,044 million were recognized
as loss along with related deferred income tax assets of \557 million.
Reclassification from loans and receivables to financial assets at fair value through other
comprehensive income
At the date of initial application, \799,760 million of trade receivables are reclassified from loans
and receivables to financial assets at fair value through other comprehensive income. At the date
of initial application, the Group’s business model is to hold these trade receivables for collection
and sale of contractual cash flows, and the cash flows represent solely payments of principal and
interest on the principal amount. The fair value of those trade receivables at the date of initial
application is not significantly different from the book amount under the previous standard, and
there is no impact on other comprehensive income.
The Group elected to present changes in the fair value of all its equity investments previously
classified as available-for-sale financial assets, not held for trading, in other comprehensive income.
Debt securities were reclassified from available for sale to fair value through other comprehensive
income, as the Group’s business model is achieved both by collecting contractual cash flows and
selling of these assets. As a result, assets with a fair value of \34,920 million are reclassified from
available-for-sale financial assets to financial assets at fair value through other comprehensive
income. At the date of initial application, related accumulated other comprehensive loss of \16,906
million out of \17,098 million is not reclassified to profit or loss even though these assets are
disposed of. Due to this change, other non-operating expenses was \670 million lower (tax impact
of \333 million) for the year ended December 31, 2018 than if recognized under previous standard.
Government bonds amounting to \121 million are reclassified from held-to-maturity financial
assets to financial assets at amortized cost. The Group holds the assets to collect contractual cash
flows and these cash flows consist solely of payments of principal and interest on the principal
amount outstanding.
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
On the date of initial application, January 1, 2018, the financial assets of the Group with any
reclassifications noted, are as follows:
The Group recognizes impairment losses based on the expected credit loss model for the following
financial assets:
The Group applies the simplified approach from initial recognition to measure the loss allowance
at an amount equal to lifetime expected credit losses for trade receivables, contract assets and
lease receivables.
Hedge Accounting
The Group’s cross-currency swap contracts and interest rate swap contracts at the date of initial
application, qualified as cash flow hedges under Korean IFRS 1109. The Group’s risk management
strategies and hedge documentation are aligned with the requirements of Korean IFRS 1109 and
are thus treated as continuing hedging relationships.
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The Group has elected to apply Korean IFRS 1115 Revenue from Contracts with Customers on
January 1, 2018, the date of initial application. In accordance with the transition provisions in
Korean IFRS 1115, comparative figures have not been restated. The Group recognized the
cumulative effect of initially applying the revenue standard as an adjustment to retained earnings
as at January 1, 2018. Further details on the impact of the application of the standard on January
1, 2018, are as follows:
Consolidated statement of financial position at the date of initial application (January 1, 2018):
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Under the previous standard, when the customer has a right to return the product within a given
period, the Group previously recognized a provision for returns which was measured on a net basis
at the gross profit on the sale. Under Korean IFRS 1115, if the customer returns a product, a gross
contract liability (refund liability) for the expected refunds to customers is recognized. At the same
time, a right to recover the product from the customer where the customer exercises his right of
return is recognized as contract asset. Due to this change in policy, the Group reclassified \36,510
million from sales return provisions to contract liabilities of \114,073 million and contract assets of
\77,563 million at the date of initial application.
Under the previous standard, the Group estimated an amount of promotional incentive and
reversed sales and trade receivables. Instead, with implementation of Korean IFRS 1115, the
Group will reverse sales and recognize a refund liability. Due to this change in policy, the Group
reclassified the amounts of \501,419 million, which was previously deducted from trade
receivables, to contract liabilities at the date of initial application.
The Group’s Vehicle Components segment supplies the automobile parts to car makers through
development and mass production process under the contracts with such customers. If the costs
incurred in fulfilling those contracts are directly related to the contracts, generate or enhance
resources of the entity that will be used in satisfying performance obligations in the future, are
expected to be recovered, and are not within the scope of another standard, it is recognized as an
asset. Recognized assets are amortized on a systematic basis consistent with the way in which
the related goods or services are provided. Due to this change in policy, the Group reclassified
from retained earnings to contract assets of \3,541 million at the date of initial application.
At the date of initial application, the Group has also changed the presentation of accounts in the
consolidated statements of financial position to reflect the terminology of Korean IFRS 1115. Based
on the detailed analysis, trade receivables of \356,554 million and other receivables of \920
million were reclassified to contract assets. Other liabilities of \354,796 million were reclassified
to contract liabilities.
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LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Financial statement line items affected by the adoption of the new standard in the current year are
as follows:
Current assets
Trade receivables 6,371,594 (17,350) 6,354,244
Other receivables 506,437 11,988 518,425
Contract assets 763,776 (763,776) -
Other assets 1,073,396 126,363 1,199,759
Current assets without financial effect 10,647,651 - 10,647,651
Total current assets 19,362,854 (642,775) 18,720,079
Non-current assets
Trade receivables - 87,300 87,300
Contract assets 221,008 (221,008) -
Other assets 789,497 43,616 833,113
Deferred income tax assets 1,410,793 3,880 1,414,673
Non-current assets without financial effect 22,544,291 - 22,544,291
Total non-current assets 24,965,589 (86,212) 24,879,377
Total assets 44,328,443 (728,987) 43,599,456
Current liabilities
Other payables 3,670,453 2,403 3,672,856
Provisions 672,544 37,004 709,548
Contract liabilities 1,119,806 (1,119,806) -
Other liabilities 2,861,341 366,613 3,227,954
Current liabilities without financial effect 8,810,885 - 8,810,885
Total current liabilities 17,135,029 (713,786) 16,421,243
Non-current liabilities
Contract liabilities 23,787 (23,787) -
Other liabilities 389,952 23,787 413,739
Non-current liabilities without financial effect 10,472,768 - 10,472,768
Total non-current liabilities 10,886,507 - 10,886,507
Total liabilities 28,021,536 (713,786) 27,307,750
Equity
Equity attributable to owners of the Parent
Company
Retained earnings 12,075,414 (15,201) 12,060,213
Equity without financial effect 2,177,854 - 2,177,854
Non-controlling interests 2,053,639 - 2,053,639
Total equity 16,306,907 (15,201) 16,291,706
34
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
After applying Korean IFRS 1115, cash flows from operating, investing and financing activities are
identical to those under the previous standard.
Amendments to Korean IFRS 1102 clarifies accounting for a modification to the terms and
conditions of a share-based payment that changes the classification of the transaction from cash-
settled to equity-settled. And also, clarifies that the measurement approach should treat the terms
and conditions of a cash-settled award in the same way as for an equity-settled award. The
amendment does not have a significant impact on the consolidated financial statements.
According to the enactment, the date of the transaction for the purpose of determining the
exchange rate to use on initial recognition of the related asset, expense or income (or part of it) is
the date on which an entity initially recognizes the non-monetary asset or non-monetary liability
arising from the payment or receipt of advance consideration. If there are multiple payments or
receipts in advance, the entity shall determine a date of the transaction for each payment or receipt
of advance consideration. The enactment does not have a significant impact on the consolidated
financial statements.
Korean IFRS 1040 clarifies that a transfer to, or from, investment property, including property under
construction, can only be made if there has been a change in use that is supported by evidence.
The amendment does not have a significant impact on the consolidated financial statements.
35
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) New, enacted and amended standards issued, but not effective for December 31, 2018, and
not early adopted by the Group
Korean IFRS 1116 Leases issued in May, 2017 is effective for annual periods beginning on or after
January 1, 2019, with early adoption permitted. This standard will replace Korean IFRS 1017
Leases, Interpretation 2104 Determining whether an Arrangement contains a Lease, Interpretation
2015 Operating Leases-Incentives, and Interpretation 2027 Evaluating the Substance of
Transactions Involving the Legal Form of a Lease.
At inception of a contract, the entity shall assess whether the contract is, or contains, a lease. Also,
at the date of initial application, the entity shall assess whether the contract is, or contains, a lease
in accordance with the standard. However, the entity will not need to reassess all contracts with
applying the practical expedient because the entity elected to apply the practical expedient only to
contracts entered before the date of initial application.
For a contract that is, or contains, a lease, the entity shall account for each lease component within
the contract as a lease separately from non-lease components of the contract.
A lessee is required to recognize a right-of-use asset representing its right to use the underlying
leased asset and a lease liability representing its obligation to make lease payments. The lessee
may elect not to apply the requirements to short-term lease (a lease term of 12 months or less at
the commencement date) and low value assets (e.g. underlying assets below $5,000). In addition,
as a practical expedient, the lessee may elect, by class of underlying asset, not to separate non-
lease components from lease components, and instead account for each lease component and
any associated non-lease components as a single lease component.
Lessor accounting treatment does not change significantly from current Korean IFRS 1017 Leases.
Lessee accounting
· retrospectively to each prior reporting period presented applying Korean IFRS 1008
Accounting Policies, Changes in Accounting Estimates and Errors (Full retrospective
application); or
· retrospectively with the cumulative effect of initially applying the standard recognized at the
date of initial application.
The Group plans to apply Korean IFRS 1116 retrospectively with the cumulative effect of initially
applying the standard as at January 1, 2019. The Group will not restate any comparative
information. Instead, the cumulative effect of applying the standard will be recognized as an
adjustment to the opening balance of retained earnings (or another component of equity, as
36
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The Group performed an impact assessment to identify potential financial effects of applying
Korean IFRS 1116. The Group is analyzing the financial effects based on available information as
at December 31, 2018, to identify effects on 2018 consolidated financial statements.
The total minimum lease payment expected to be paid by the Group in relation to operating leases
before discounted to their present value is \722,451 million. And, for a contract that is, or contains,
a lease, the Group plans to account for each lease component within the contract as a lease
separately from non-lease components of the contract.
The Group is analyzing the effects on the financial statements; however, it is difficult to provide
reasonable estimates of financial effects until the analysis is complete.
Lessor accounting
The Group expects the effect on the consolidated financial statements applying the new standard
will not be significant as accounting for the Group, as a lessor, will not significantly change.
If the Group, as an intermediate lessor, classified the sublease as an operating lease before the
date of initial application, the Group shall reclassify the sublease as a finance lease or an operating
lease in accordance with Korean IFRS 1116. When the Group determines the sublease as a
finance lease, the Group shall account the lease as a new lease entered on the date of initial
application.
As at December 31, 2018, the total minimum lease payment to be received by the Group in relation
to the sub-lease contracts amount to \8,879 million, and the Group is analyzing the effects on
consolidated financial statements including classification of the sublease as an operating lease or
a finance lease. However, it is difficult to provide reasonable estimates of financial effects until the
analysis is complete.
The narrow-scope amendments made to Korean IFRS 1109 Financial Instruments enable entities
to measure certain prepayable financial assets with negative compensation at amortized cost.
When a modification of a financial liability measured at amortized cost that does not result in the
derecognition, a modification gain or loss shall be recognized in profit or loss. These amendments
will be applied for annual periods beginning on or after January 1, 2019, with early adoption
permitted. The Group does not expect the amendments to have a significant impact on the
consolidated financial statements.
37
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The amendments require that an entity shall calculate current service cost and net interest for the
remainder of the reporting period after a plan amendment, curtailment or settlement based on
updated actuarial assumptions from the date of the change. The amendments also require that a
reduction in a surplus must be recognized in profit or loss even if that surplus was not previously
recognized because of the impact of the asset ceiling. The amendments are effective for plan
amendments, curtailments and settlements occurring in reporting periods that begin on or after
January 1, 2019. The Group does not expect the amendments to have a significant impact on the
consolidated financial statements.
The amendments clarify that an entity shall apply Korean IFRS 1109 to financial instruments in an
associate or joint venture to which the equity method is not applied. These include long-term
interests that, in substance, form part of the entity’s net investment in an associate or joint venture.
These amendments will be applied for annual periods beginning on or after January 1, 2019, with
early adoption permitted. In accordance with the transitional provisions in Korean IFRS 1109, the
restatement of the comparative information is not required and the cumulative effects of initially
applying the amendments retrospectively should be recognized in the beginning balance of
retained earnings (or other components of equity, as appropriate) at the date of initial application.
The Group does not expect the amendments to have a significant impact on the consolidated
financial statements.
- Enactment to Interpretation of Korean IFRS 2123 Uncertainty over Income Tax Treatments
The Interpretation explains how to recognize and measure deferred and current income tax assets
and liabilities where there is uncertainty over a tax treatment, and includes guidance on how to
determine whether each uncertain tax treatment is considered separately or together. It also
presents examples of circumstances where a judgement or estimate is required to be reassessed.
This Interpretation will be applied for annual periods beginning on or after January 1, 2019, and an
entity can either restate the comparative financial statements retrospectively or recognize the
cumulative effect of initially applying the Interpretation as an adjustment in the beginning balance
at the date of initial application. The Group does not expect the enactment to have a significant
impact on the consolidated financial statements.
The Company does not expect the above annual improvements to have a significant impact on the
consolidated financial statements.
38
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Consolidation
The Group has prepared the consolidated financial statements in accordance with Korean IFRS
1110 Consolidated Financial Statements.
(a) Subsidiaries
Subsidiaries are all entities over which the Parent Company has control. The Parent Company
controls the corresponding investee when it is exposed, or has rights, to variable returns from its
involvement with the investee and has the ability to affect those returns through its power over the
investee. Consolidation of a subsidiary begins from the date the Parent Company obtains control
of a subsidiary and ceases when the Parent Company loses control of the subsidiary.
The Group applies the acquisition method to account for business combinations. The consideration
transferred is measured at the fair values of the assets transferred, and identifiable assets acquired
and liabilities and contingent liabilities assumed in a business combination are initially measured
at their fair values at the acquisition date. The Group recognizes any non-controlling interest in the
acquiree on an acquisition-by-acquisition basis in the event of liquidation, either at fair value or at
the non-controlling interest’s proportionate share of the recognized amounts of acquiree’s
identifiable net assets. All other non-controlling interests are measured at their acquisition-date fair
values, unless another measurement basis is required by IFRSs. Acquisition-related costs are
expensed as incurred.
Goodwill is recognized as the excess of the aggregate of the consideration transferred, the amount
of any non-controlling interest in the acquiree, and the acquisition-date fair value of the acquirer’s
previously held equity interest in the acquiree over the identifiable net assets acquired. If this
consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference
is recognized in profit or loss.
Balances of receivables and payables, income and expenses and unrealized gains on transactions
between the Group subsidiaries are eliminated. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the policies adopted by the Group.
In transactions with non-controlling interests, which do not result in loss of control, the Group
recognizes directly in equity any difference between the amount by which the non-controlling
interests are adjusted and the fair value of the consideration paid or received, and attribute it to the
owners of the parent.
If the Group loses control of a subsidiary, any investment continuously retained in the subsidiary is
re-measured at its fair value at the date when control is lost and any resulting differences are
recognized in profit or loss.
(b) Associates
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
39
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
cost. The Group’s investment in associates includes goodwill identified at acquisition, net of any
accumulated impairment loss (Note 14).
The Group’s share of its associates’ post-acquisition profits or losses is recognized in the
consolidated statements of profit or loss, and its share of post-acquisition movements in reserves
is recognized in reserves. 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 unsecured receivables, the Group does not
recognize further losses, unless it has incurred obligations or made payments on behalf of the
associate.
Unrealized gains on transactions between the Group and its associates are eliminated to the extent
of the Group’s interest in the associates. Unrealized 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. Dilution gains and losses arising in investments in associates are recognized in the
consolidated statements of profit or loss.
A joint arrangement of which two or more parties have joint control is classified as either a joint
operation or a joint venture. A joint operator has rights to the assets, and obligations for the liabilities,
relating to the joint operation and recognizes the assets, liabilities, revenues and expenses relating
to its interest in a joint operation. A joint venture has rights to the net assets relating to the joint
venture and accounts for that investment using the equity method.
The Group applies a policy of treating transactions with non-controlling interests as transactions
with owners of the Group. The difference between any consideration paid and the relevant share
of the carrying value of net assets of the subsidiary is recorded in equity. Gains and losses on
disposal of non-controlling interests are also recognized in other components of equity.
The acquisition method of accounting is used to account for the acquisition of subsidiaries by the
Group. The cost of an acquisition is measured as the fair value of the assets given, equity
instruments issued and liabilities incurred or assumed at the date of exchange. The consideration
transferred in a business combination includes fair values of the assets and liabilities from
arrangements for contingent payments. Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are measured initially at their fair values at the
acquisition date. The Group measures non-controlling interests in the acquiree that entitle their
holders to a proportionate share of the entity’s net assets in the event of liquidation, on a case by
case basis, at the proportionate share of the acquiree’s identifiable net assets or fair value. All other
components of non-controlling interests are measured at fair values, unless another measurement
basis is required by IFRSs. Acquisition-related costs are recognized as expenses in the periods in
40
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
In case of business combination achieved in stages, previously held equity interest in the acquiree
is re-measured to fair value and a gain or loss is recognized in the consolidated statements of profit
or loss.
The excess of the aggregate of the consideration transferred, the amount of any non-controlling
interest in the acquiree and the acquisition-date fair value of the Group’s previously held equity
interest in the acquire over the net identifiable assets at the date of acquisition is recorded as
goodwill (Note 2). If the cost of the acquisition is less than the fair value of the net assets of the
subsidiary acquired, the difference is recognized directly in the consolidated statements of profit or
loss.
Segment Reporting
Operating segments are established on the basis of business divisions whose internal reporting is
provided to the chief operating decision-maker who is the chief executive officer. Segmental
disclosures are disclosed in Note 4 in accordance with Korean IFRS 1108 Operating Segment.
Items included in the financial statements of each of the Group’s companies 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 Parent
Company’s functional and presentation currency.
Foreign currency transactions are translated into the functional currency using the exchange rates
prevailing at the dates of the transactions or valuation in case of items subject to re-measurement.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the
translation of monetary assets and liabilities denominated in foreign currencies, are recognized in
the consolidated statements of profit or loss, except cash flow hedges qualifying to be recognized
in other comprehensive income.
Changes in the fair value of monetary debt securities denominated in foreign currency classified as
financial assets at fair value through other comprehensive income are analysed between
translation differences resulting from changes in the amortized cost of the security and other
changes in the carrying amount of the security. Translation differences related to changes in
amortized cost are recognized in profit or loss, and other changes in carrying amount are
recognized in other comprehensive income.
Translation differences on non-monetary financial assets and liabilities are recognized in the
separate statements of profit or loss as part of the fair value gain or loss. Translation differences
41
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
arising from equities held at fair value through profit or loss are recognized in profit or loss, and
those arising from equities held at fair value through other comprehensive income are recognized
in other comprehensive income.
The results and financial position of all Group companies whose functional currency is different
from the presentation currency are translated into the presentation currency as follows:
i) Assets and liabilities are translated at the closing rate at the end of the reporting period;
ii) Income and expenses are translated at monthly average exchange rates; and
iii) All resulting exchange differences from above i) and ii) are recognized in other
comprehensive income.
When the Parent Company ceases to control a subsidiary, exchange differences that were
recorded in equity are recognized in the consolidated statements of profit or loss as part of the gain
or loss on sale.
Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as
assets and liabilities of the foreign entity and translated at the closing rate at the end of the reporting
period.
Cash and cash equivalents include cash on hand, deposits at banks, and other short-term highly
liquid investments with original maturities of three months or less.
Financial Instruments
Classification
The Group classifies its financial assets in the following measurement categories:
The classification depends on the Group’s business model for managing the financial assets and
the contractual terms of the cash flows.
For financial assets measured at fair value, gains and losses will either be recorded in profit or loss
or other comprehensive income. For investments in debt instruments, this will depend on the
business model in which the investment is held. The Group reclassifies debt investments when,
42
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
and only when its business model for managing those assets changes.
For investments in equity instruments that are not held for trading, this will depend on whether the
Group has made an irrevocable election at the time of initial recognition to account for the equity
investment at fair value through other comprehensive income.
Financial liabilities at fair value through profit or loss are financial instruments held for trading. A
financial liability is held for trading if it is incurred principally for the purpose of repurchasing in the
near term. A derivative that is not designated as hedging instruments and an embedded derivative
that is separated are also classified as held for trading.
The Group classifies non-derivative financial liabilities, except for financial liabilities at fair value
through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer
of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost.
Typical purchases and sales of financial assets are recognized on the trade date. At initial
recognition, the Group measures a financial asset and financial liabilities at its fair value plus, in
the case of a financial asset not at fair value through profit or loss, transaction costs that are directly
attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at
fair value through profit or loss are expensed in profit or loss.
Financial assets with embedded derivatives are considered in their entirety when determining
whether their cash flows are solely payment of principal and interest.
Subsequent measurement of debt instruments depends on the Group’s business model for
managing the asset and the cash flow characteristics of the asset. The Group classifies its debt
instruments into one of the following three measurement categories:
Amortized cost: Assets that are held for collection of contractual cash flows where those
cash flows represent solely payments of principal and interest are measured at amortized
cost. A gain or loss on a debt investment that is subsequently measured at amortized cost
and is not part of a hedging relationship is recognized in profit or loss when the asset is
derecognized or impaired. Interest income from these financial assets is included in
‘finance income’ using the effective interest rate method.
Fair value through other comprehensive income: Assets that are held for collection of
contractual cash flows and for selling the financial assets, where the assets’ cash flows
represent solely payments of principal and interest, are measured at fair value through
other comprehensive income. Movements in the carrying amount are taken through other
comprehensive income, except for the recognition of impairment loss (reversal of
43
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
impairment loss), interest income and foreign exchange gains and losses which are
recognized in profit or loss. When the financial asset is derecognized, the cumulative gain
or loss previously recognized in other comprehensive income is reclassified from equity to
profit or loss. Interest income from these financial assets is included in ‘finance income’
using the effective interest rate method. Foreign exchange gains and losses are presented
in ‘other non-operating income and expenses’ and impairment losses are presented in
‘other non-operating expenses’.
Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or
fair value through other comprehensive income are measured at fair value through profit
or loss. A gain or loss on a debt investment that is subsequently measured at fair value
through profit or loss and is not part of a hedging relationship is recognized in profit or loss
and presented net in the statement of profit or loss within ‘other non-operating income
(expenses)’ in the year in which it arises.
The Group subsequently measures all equity investments at fair value. Where the Group’s
management has elected to present fair value gains and losses on equity investments, which are
held for long-term investment or strategic purpose, in other comprehensive income, there is no
subsequent reclassification of fair value gains and losses to profit or loss following the derecognition
of the investment. Dividend income from such investments continue to be recognized in profit or
loss as ‘other non-operating income’ when the right to receive payments is established.
Changes in the fair value of financial assets at fair value through profit or loss are recognized in
‘other non-operating income and expenses’ in the statement of profit or loss as applicable.
Impairment loss (reversal of impairment loss) on equity investments measured at fair value through
other comprehensive income is not reported separately from other changes in fair value.
Impairment
The Group assesses on a forward looking basis the expected credit losses associated with its debt
instruments carried at amortized cost and fair value through other comprehensive income. The
impairment methodology applied depends on whether there has been a significant increase in
credit risk. For trade receivables, contract assets, and lease receivables, the Group applies the
simplified approach, which requires expected lifetime credit losses to be recognized from initial
recognition of the receivables.
Financial assets and liabilities are offset and the net amount is presented in the statements of
financial position when there is a legally enforceable right to offset the recognized amounts and an
intention to settle on a net basis or realize the assets and settle the liability simultaneously. The
legally enforceable right must not be contingent on future events and must be enforceable in the
normal course of business and in the event of default, insolvency or bankruptcy of the Group or the
counterparty.
44
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Derecognition
Financial assets are derecognized when the rights to receive cash flows from the financial assets
have expired or have been transferred and the Group has transferred substantially all the risks and
rewards of ownership.
If a transfer does not result in derecognition because the Group has retained substantially all the
risks and rewards of ownership of the transferred asset, the Group continues to recognize the
transferred asset in its entirety and recognizes a financial liability for the consideration received.
The Group classified the financial liability as ‘borrowings’ in the statement of financial position
Financial liabilities are derecognized from the statement of financial position when it is extinguished;
for example, when the obligation specified in the contract is discharged or cancelled or expired or
when the terms of an existing financial liability are substantially modified. The difference between
the carrying amount of a financial liability extinguished or transferred to another party and the
consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized
in profit or loss.
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 resulting gain or loss that does not meet the
conditions for hedge accounting is recognized in ‘other non-operating income (expenses)’ or
‘financial income (expenses)’ according to the nature of transactions.
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 the consolidated statements of profit or loss within
‘other non-operating income (expenses)’ or ‘financial income (expenses)’.
Amounts accumulated in other comprehensive income are reclassified to profit or loss in the
periods when the hedged item affects profit or loss. When a forecast transaction is no longer
expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred
to the consolidated statements of profit or loss within ‘other non-operating income (expenses)’ or
‘financial income (expenses)’.
Trade Receivables
Trade receivables are amounts due from customers for goods sold or services performed in the
ordinary course of business. If the collection of trade receivables is expected in one year or less,
they are classified as current assets. If not, they are presented as non-current assets. Trade
receivables are recognized initially at fair value, less allowance for doubtful debts.
Inventories
Inventories are stated at the lower of cost and net realizable value. Cost is determined using the
45
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
weighted-average method, except for inventories in-transit whose cost is determined using the
specific identification method. The cost of finished goods and work-in-process comprises of raw
materials, direct labour, other direct costs and related production overheads (based on normal
operating capacity). The Group periodically reviews a possibility of significant changes in net
realizable value of inventories from not in use, decrease in market value and obsolescence, and
recognizes as Allowances for Valuation of Inventories. Net realizable value is the estimated selling
price in the ordinary course of business, less applicable selling expenses.
Non-current assets (or disposal groups) are classified as ‘assets held for sale’ when their carrying
amount is to be recovered principally through a sale transaction and a sale is considered highly
probable. They are measured at the lower of carrying amount and the fair value less costs to sell.
All property, plant 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. The carrying amount of the
replaced part is derecognized. All other repairs and maintenance are charged to the consolidated
statements of profit or loss during the financial period in which they are incurred.
Land is not depreciated. Depreciation of other property, plant and equipment is calculated using
the straight-line method to allocate their acquisition cost or revalued amounts, net of their residual
values, over their estimated useful lives, as follows:
46
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Each asset’s depreciation method, residual values, and useful lives are reviewed and adjusted if
necessary, 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 differences between the
proceeds from the disposal of the asset and its carrying amount and are recognized within ‘other
non-operating income (expenses)’ in the consolidated statements of profit or loss.
Borrowing Costs
General and specific borrowing costs that are directly attributable to the acquisition or construction
of a qualifying asset are capitalized during the period of time that is required to prepare the asset
for its intended use. Investment income earned on the temporary investment of specific borrowings
pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for
capitalization. Other borrowing costs are expensed in the period in which they are incurred.
Government Grants
Grants from a government are recognized at their fair value when there is a reasonable assurance
that the grant will be received and the Group will comply with all attached conditions.
Government grants relating to income are deferred and recognized in the consolidated statements
of profit or loss over the period necessary to match them with the costs that they are intended to
compensate.
Government grants relating to property, plant and equipment are presented as a deduction of
related assets and are credited to depreciation over the expected lives of the related assets.
Intangible Assets
(a) Goodwill
The excess of consideration transferred, amount of any non-controlling interest in the acquired
entity and acquisition-date fair value of any previous equity interest in the acquired entity over the
fair value of the net identifiable assets acquired is recoded as goodwill. Goodwill is tested annually
for impairment and carried at cost less accumulated impairment losses. Impairment losses on
goodwill are not reversed.
Industrial property rights are shown at historical cost. Industrial property rights have a limited useful
life and are carried at cost less accumulated amortization. Amortization is calculated using the
straight-line method to allocate the cost of industrial property rights over their estimated useful lives
of ten years.
47
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
New product development project is processed through product planning, design planning, product
design, mass production verification, production readiness approval, and shipment approval. The
Group generally recognizes expenditures incurred during and after the product design phase as
development costs, and expenditures incurred before the phase are recognized as expenses within
research and development expenses. Costs recognized as development costs are controlled by
the Group and directly attributable to identifiable development projects, and meet all of the following
criteria.
- It is technically feasible to complete the intangible asset so that it will be available for use or
sale;
- Management intends to complete the intangible asset to use or sell it;
- It has the ability to use or sell the intangible asset;
- It can be demonstrated how the intangible asset will generate probable future economic
benefits;
- Adequate technical, financial and other resources to complete the development for using and
selling the intangible asset are available; and
- The expenditure attributable to the intangible asset during its development phase can be
reliably measured.
Amortization of development costs based on the straight-line method over their estimated useful
lives of one or three years begins at the commencement of sale or use of the related products.
(d) Membership
Membership rights are regarded as intangible assets with an indefinite useful life and are not
amortized because there is no foreseeable limit to the period over which the assets are expected
to be utilized. All membership rights are tested annually for impairment and stated at acquisition
cost less accumulated impairment losses.
Other intangible assets such as customer relationships, values of techniques and software which
meet the definition of an intangible asset are amortized using the straight-line method over their
estimated useful lives of five or ten years.
Investment Property
Investment property is held to earn rentals or for capital appreciation or both. Investment property
is measured initially at its cost including transaction costs incurred in acquiring the asset. After its
initial recognition, investment property is carried at its cost less any accumulated depreciation and
accumulated impairment losses.
Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset,
only when it is probable that future economic benefits associated with the item will flow to the Group
48
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
and the cost of the item can be measured reliably. The carrying amount of the replaced part is
derecognized. All other repairs and maintenance are charged to the consolidated statements of
profit or loss during the financial period in which they are incurred.
Land held for investment is not depreciated. Investment property, except for land, is depreciated
using the straight-line method over their estimated useful lives of 20 or 40 years.
Management reviews the depreciation method, the residual value and the useful life of an asset
are reviewed at the end of each period and judges that previous estimates should be adjusted, the
adjustment is accounted for as a change in an accounting estimate.
Goodwill and intangible assets that have indefinite useful live are not subject to amortization and
are tested annually for impairment. At the end of each reporting period, 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 as profit or loss
for the year 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 of disposal and its value-
in -use. The value-in-use is measured by determining the estimated pre-tax cash flows based on
past performance and its expectations of market development, and applying the pre-tax discount
rates that reflect specific risks relating to the relevant operating segments. 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 other than goodwill that
suffered impairment loss are reviewed for possible reversal of the impairment at the end of each
reporting period.
Trade Payables
Trade payables are obligations to pay for goods or services that have been acquired in the ordinary
course of business from suppliers. Trade payables are classified as current liabilities if payment is
due within one year or less. If not, they are presented as non-current liabilities. Trade payables are
recognized initially at fair value and subsequently measured at amortized cost using the effective
interest method. Current trade payables measured initially at fair value are not significantly different
from amortized cost using the effective interest method.
Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are
subsequently carried at amortized cost; any difference between the proceeds (net of transaction
costs) and the redemption value is recognized in the consolidated statements of profit or loss over
the period of the borrowings using the effective interest method. The Group classifies the liability
as current as long as it does not have an unconditional right to defer its settlement over 12 months
after the end of the reporting period.
49
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Financial guarantee contracts are contracts that require the issuer to make specified payments to
reimburse the holder for a loss it incurs because a specified debtor fails to make payments when
due, in accordance with the original or modified terms of a debt instrument. Financial guarantees
contracts provided by the Group are initially measured at fair value on the date the guarantee was
given. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured
at the higher of the following amounts below and recognized as ‘other financial liabilities’:
- the amount determined in accordance with the expected credit loss model under Korean
IFRS 1109 Financial Instruments; and
- the amount initially recognized less, where appropriate, the cumulative amount of income
recognized in accordance with Korean IFRS 1115 Revenue from Contracts with Customers
Provisions
Provisions are recognized when the Group has a present legal or constructive obligation as a result
of past events and an outflow of resources required to settle the obligation is probable and can be
reliably estimated. The Group recognizes a warranty provision, a provision for restoration, and a
provision for litigation.
A warranty provision is accrued for the estimated costs of future warranty claims based on historical
experience. Where the Group, as a tenant, is required to restore its leased assets to their original
state at the end of the lease-term, the Group recognizes the present value of the estimated cost of
restoration as a provision for restoration. When there is a probability that an outflow of economic
benefits will occur from litigation or disputes, and whose amount is reasonably estimable, a
corresponding amount of provision is recognized as a provision for litigation in the consolidated
financial statements.
- a possible obligation that arises from past events and whose existence will be confirmed only
by the occurrence or non-occurrence of one or more uncertain future events not wholly within
the control of the entity; or
- a present obligation that arises from past events but is not recognized because: it is not
probable that an outflow of resources embodying economic benefits will be required to settle
the obligation; or the amount of the obligation cannot be measured with sufficient reliability.
The tax expense for the year consists of current and deferred tax. Tax is recognized in the
consolidated statements of profit or loss, 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, respectively.
50
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the
end of the reporting period in 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 on temporary differences arising between the tax bases of
assets and liabilities and their carrying amounts in the consolidated financial statements. It
represents future tax consequences that will arise when recovering or settling the carrying amount
of its assets and liabilities. However, the deferred income tax is not accounted for if it arises 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 tax profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted or substantially enacted by the end
of the reporting period and are expected to apply when the related deferred income tax asset is
realized or the deferred income tax liability is settled.
Deferred tax assets are recognized only to the extent that it is probable that future taxable profit
will be available against which the deductible temporary differences can be utilized.
Deferred income tax liabilities are provided on taxable temporary differences arising on investments
in subsidiaries, associates and joint ventures, except 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 are recognized only to the extent
that it is probable that the deductible temporary difference will reverse in the foreseeable future and
taxable profit will be available against which the temporary difference can be utilized.
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 taxable
entity or different taxable entities where there is an intention either to settle the balances on a net
basis.
Employee Benefits
The Group operates various pension schemes. The schemes are generally funded through
payments to insurance companies or trustee-administered funds, determined by periodic actuarial
calculations. The Group operates both defined contribution and defined benefit plans.
A defined contribution plan is a pension plan under which the Group pays fixed contributions into
a separate fund. The Group has no legal or constructive obligations to pay further contributions
even if the fund does not hold sufficient assets to pay all employees the benefits relating to
employee service in the current and prior periods. For the defined contribution plan, the Group pays
contributions to publicly or privately administered pension insurance plans on a mandatory,
contractual or voluntary basis. The contributions are recognized as employee benefit expenses
51
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
when an employee has rendered service. Prepaid contributions are recognized as an asset to the
extent that a cash refund or a reduction in the future payments is available.
A defined benefit plan is a pension plan that is not a defined contribution plan. Typically defined
benefit plans define an amount of pension benefit that an employee will receive on retirement,
usually dependent on one or more factors such as age, years of service and salary levels. 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. The defined benefit obligation is calculated annually by independent qualified
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 and that have terms to maturity approximating to the terms of the related pension
obligation. The remeasurements of the net defined benefit liabilities are recognized in other
comprehensive income.
If any plan amendments, curtailments, or settlements occur, past service costs or any gains or
losses on settlement are recognized as profit or loss for the year.
The Group provides other long-term employee benefits to their employees. The entitlement to these
benefits is usually conditional on the employee working more than ten years. The expected costs
of these benefits are accrued over the period of employment using the same accounting
methodology as used for defined benefit pension plans. The Group recognizes past service cost,
net interest on other long-term employee benefits and remeasurements as profit or loss for the
year. These benefits are calculated annually by independent qualified actuaries.
Termination benefits are payable when employment is terminated by the Group before the normal
retirement date, or whenever an employee accepts voluntary redundancy in exchange for these
benefits. The Group recognizes termination benefits at the earlier of the following dates: when the
entity can no longer withdraw the offer of those benefits or when the entity recognizes costs for a
restructuring.
Share Capital
Ordinary shares and preferred shares without any obligation to repay are classified as equity.
Where the Parent Company purchases its own ordinary shares, the consideration paid, including
any directly attributable incremental costs, is deducted from equity attributable to owners of the
Parent Company until the shares are cancelled or reissued. Where such treasury shares are
subsequently reissued, any consideration received is included in equity attributable to owners of
the Parent Company.
52
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Revenue Recognition
The Group sells home appliances, mobile communications equipment, TVs, monitors, automobile
parts, information displays and others. If the contract with a customer includes any separate
services in addition to sales of goods, the Group identifies performance obligations of the services
to be rendered from such sales contracts.
According to the rules and guidance on the terms and conditions of international trading
(INCOTERMS 2010), the Group recognizes the transportation services as a separate performance
obligation apart from the sale of goods, under the transactions with the rules where seller is
responsible for paying shipping cost and insurance premium.
The Group determines standard warranty coverage periods per product and country, considering
warranty periods required by law and others when entering into contracts with customers for the
sales of products. If the Group provides an extended warranty beyond the standard warranty
coverage periods or a customer has the option to purchase an additional warranty separately, the
Group identifies the warranty as a separate performance obligation and recognizes revenue.
Sales of goods are recognized when the Group has delivered products to the customer. Delivery
does not occur until the products have been shipped to the specified location, the risks of
obsolescence and loss have been transferred to the customer, and either the customer has
accepted the products in accordance with the sales contract, the acceptance provisions have
lapsed, or the Group has objective evidence that all criteria for acceptance have been satisfied.
The products are often sold with volume discounts and customers have a right to return faulty
products. Accumulated experience is used to estimate and provide for the discounts and returns.
The volume discounts are assessed based on anticipated annual sales. The Group recognizes
provisions for product warranties and contract liabilities for sales returns based on reasonable
expectation reflecting warranty obligation and sales return rates incurred historically.
For royalty contracts, if there are no other goods or services provided to customer in the contracts
other than obligations to provide license, the nature of the contracts are provision of right to use
the Group's intellectual property that exist at the time of transfer. This means that the customer can
direct the use of and obtain substantially all of the remaining benefits from the license at the point
in time at which the license transfers. The Group determined the royalty income as a performance
obligation satisfied at a point in time.
The Group builds and sells customized equipment and design plan for a customer. The revenue is
recognized over time by measuring progress only if the Group’s performance does not create an
53
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
asset with an alternative use to the Group and the Group has an enforceable right to payment for
performance completed to date. The Group performed an analysis on those contracts and
determined the Group has an enforceable right to payment for performance completed to date;
therefore, the revenue is recognized over time using input methods by measuring the percentage
of completion.
When the outcome of a transaction involving the rendering of services provided separately to
customers can be estimated reliably, revenue associated with such transaction is recognized by
reference to the percentage of completion of the services. Any changes in expected revenue, cost
or the amount of services rendered are accounted for as changes in estimates. These changes in
estimates may bring adjustments to the expected revenue or cost which is recognized in the profit
or loss in the period in which the management recognizes the changes in circumstances.
The Group receives licensing fees for the trademark held by the Group from subsidiaries and
associates. The Group continues to develop the trademark’s value and performs marketing
activities through various media such as TV, internet, exhibitions, road shows and others. The
nature of the Group’s promise in granting a license is a promise to provide a right to access the
Group’s intellectual property over a license period; therefore, the Group determined the promised
license is a performance obligation that is satisfied over time.
Income from rental, lease, extended guarantees and others is recognized on a straight-line basis
over the period of the contract.
The Group estimates an amount of variable consideration by using the expected value which the
Group expects to better predict the amount of consideration. The Group recognizes revenue with
transaction price including variable consideration only to the extent that it is highly probable that a
significant reversal in the amount of cumulative revenue recognized will not occur when the refund
period has lapsed. The refund liability is measured at the amount of consideration received for
which the Group does not expect to be entitled.
The transaction price in an arrangement must be allocated to each separate performance obligation
based on the relative stand-alone selling prices of the goods or services being provided to a
customer. The Group determines the stand-alone selling price for each separate performance
obligation by using an ‘adjusted market assessment approach’. In limited circumstances, the Group
plans to use an ‘expected cost plus a margin approach’ to estimate expected cost plus a reasonable
margin.
(f) Returns
A gross contract liability (refund liability) for the expected returns to customers is recognized as
adjustment to revenue, and the Group has a right to recover the product from the customer when
54
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
the customer exercises his right of return and recognizes an asset and a corresponding adjustment
to cost of sales. A right to recover the products is measured at former carrying amount of the
product less the costs to recover the products.
In general, the period between the transfer of the promised goods or services to the customer and
the payment made by the customer is less than one year. In this case, the Group uses the practical
expedient in which the Group does not adjust the promised amount of consideration for the effects
of a significant financing component.
Leases
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series
of payments the right to use an asset for an agreed period of time.
(a) Lessees
The Group classifies leases that do not transfer substantially all the risks and rewards of ownership
incidental to ownership of assets as operating leases. Payments made under operating leases are
charged to the consolidated statements of profit or loss on a straight-line basis over the period of
the lease.
The Group classifies leases that transfer substantially all the risks and rewards of ownership
incidental to ownership of assets as finance leases. Finance leases are capitalized as financial
lease assets and liabilities at the lease’s commencement at the lower of the fair value of the leased
property and the fair value of the minimum lease payments.
(b) Lessors
The Group classifies a lease that transfers substantially all the risks and rewards incidental to
ownership of an asset at inception of the lease as a finance lease. A lease other than a finance
lease is classified as an operating lease.
Lease income from operating lease is recognized on a straight-line basis over the lease term. Initial
direct costs incurred by lessors in negotiating and arranging an operating lease are added to the
carrying amount of the leased asset and recognized as an expense over the lease term on the
same basis as the lease income.
Dividend Distribution
A dividend liability is recognized when the dividends are approved by the shareholders at their
general meeting.
55
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Basic earnings per share is calculated by dividing the profit attributable to shareholders of the
Parent Company by the weighted average number of shares issued excluding shares purchased
by the Parent Company that are held as treasury shares. Preferred shares have a right to
participate in the profits of the Parent Company. These participation rights have been considered
in presenting the EPS for ordinary shares and preferred shares.
Emission rights are defined as allowed amount of emissions that can be released, allocated by the
Korean government as ‘Act on the Allocation and Trading of Greenhouse-Gas Emission Permits’
takes effect. Emission rights that are received free of charge from the government are measured at
zero, while the rights purchased additionally from trading market such as the Korea Exchange are
measured at acquisition cost. Emission rights are subsequently stated as acquisition cost less
accumulated impairment loss. Emission liabilities are measured as the sum of the carrying amount
of emission rights to be delivered to the government to settle the obligation for emissions occurred
and expected expenditure required at the end of reporting period for any excess emissions. The
emission rights and liabilities are classified as ‘intangible assets’ and ‘provisions’, respectively, in
the consolidated statement of financial position.
The estimates and judgments are continuously evaluated and are based on historical experience
and other factors, including expectations of future events that are believed to be reasonable.
The Group makes estimates and assumptions concerning the future. Estimates and assumptions
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 adjustments to the carrying
amounts of assets and liabilities after the end of the reporting period are addressed below.
The Group recognizes revenue over time using the percentage of completion method for the
rendering of service such as equipment production and installation. The Group measures the
percentage of completion by estimating cost for the completion of the transaction, and the factors
for the estimation of revenue may vary.
The Group tests goodwill regularly for impairment. The recoverable amounts of cash-generating
units have been determined based on fair value less costs of disposal or value in use calculations.
These calculations require estimates.
56
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The Group recognizes assets and liabilities for anticipated tax audit issues based on the best
estimates of whether additional taxes will be due. Where the final tax outcome of these matters is
different from the amounts that were initially recorded, such differences will impact the current and
deferred income tax assets and liabilities in the period in which such determination is made.
The fair value of financial instruments that are not traded in an active market is determined by using
valuation techniques. The Group uses its judgment to select a variety of methods and makes
assumptions that are mainly based on market conditions existing at the end of each reporting
period.
(e) Provisions
The Group recognizes provisions for product warranties and others based on their historical data.
The present value of the defined benefit liability depends on various factors that are determined on
an actuarial basis. The assumptions used in determining the net cost (income) for pensions include
the discount rate, which is the interest rate that is used to determine the present value of estimated
future cash outflows expected to be required to settle the defined benefit liability. In determining
the appropriate discount rate, the Group considers the 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 the terms of the related pension liability. Other key assumptions for defined
benefit liability are based on current market conditions.
The Group capitalizes development costs when there is a reasonable assurance that projects have
technical feasibility and the possibility of generating future economic benefits, and performs
periodic impairment test. The recoverable amount of each project has been calculated on a basis
of the value-in-use reflecting historical experience and future business plans. These calculations
require estimates.
In order to determine the Group’s de-facto control, the Group considers the size of the Group’s
holding of voting rights relative to the size and dispersion of holdings of the other vote holders and
additional facts and circumstances including voting patterns at previous shareholders’ meetings.
57
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
4. Segment Information
The segments of the Group are strategic business divisions providing different products and
services. They are reported separately because each business division requires different
technologies and marketing strategies. The main products of each business division are as follows
and the comparative information is presented in conformity with the same classification in the
current period.
Home Appliance & Air Solution (H&A) Refrigerators, washing machines, residential and commercial
air conditioners, microwaves, vacuum cleaners and others
Home Entertainment (HE) TVs, monitors, PCs, audio, video and others
Mobile Communications (MC) Mobile communications and others
Vehicle Components (VC) Vehicle components and others
Business-to-Business (B2B) Information displays, solar modules and others
LG Innotek Co., Ltd. and its subsidiaries LED, camera modules, substrate & material, motor/sensor and
(Innotek) others
Other segments Water solution, equipment production and others
(a) The segment information for sales and operating profit(loss) for the years ended December
31, 2018 and 2017, is as follows:
2018
Inter-
(in millions of Other segment
Korean won) H&A HE MC VC B2B Innotek segments transactions2
1
Total
Sales 19,361,988 16,208,343 7,980,042 4,287,637 2,405,662 7,982,104 4,395,994 (1,280,106) 61,341,664
External sales 19,317,338 16,197,607 7,978,762 4,287,637 2,403,015 7,278,287 3,879,018 - 61,341,664
Internal sales 44,650 10,736 1,280 - 2,647 703,817 516,976 (1,280,106) -
Operating profit
(loss)3 1,524,793 1,518,505 (790,063) (119,777) 167,845 263,517 138,471 - 2,703,291
Depreciation
and amortization 464,615 273,441 191,455 313,430 180,215 507,849 50,734 - 1,981,739
2017
Inter-
(in millions of Other segment
Korean won) H&A HE MC VC B2B Innotek segments1 transactions2 Total
Sales 18,514,954 16,433,085 11,158,338 3,338,574 2,361,730 7,641,361 3,641,055 (1,692,813) 61,396,284
External sales 18,470,781 16,404,795 11,157,706 3,338,574 2,357,705 6,747,021 2,919,702 - 61,396,284
Internal sales 44,173 28,290 632 - 4,025 894,340 721,353 (1,692,813) -
Operating profit
(loss)3 1,448,825 1,336,545 (736,841) (106,947) 151,896 296,491 78,580 - 2,468,549
Depreciation
and amortization 454,869 301,265 257,815 172,445 173,928 355,034 39,769 - 1,755,125
1 Other segments include operating segments that are not qualified as reportable segments and departments
that support the operating segments and R&D.
2 Sales between segments are accounted on terms equivalent to those that prevail in arm’s length transactions.
3 Other income or expenses items not included in the operating profit (loss) are not separately disclosed
because the Chief Operating Decision Maker does not review them by segment.
58
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Segment assets and liabilities as at December 31, 2018 and 2017, are as follows:
(c) Non-current assets by geographic area as at December 31, 2018 and 2017, are as follows:
1 Non-current assets consist of property, plant and equipment, intangible assets and investment properties.
(d) There is no external customer contributing to more than 10% of net sales for the years ended
December 31, 2018 and 2017.
59
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
5. Financial Instruments by Category and Offsetting Financial Assets and Financial Liabilities
(a) Categorizations of financial instruments as at December 31, 2018 and 2017, are as follows:
60
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Net gains or losses on each category of financial instruments for the years ended December
31, 2018 and 2017, are as follows:
2018
Financial Financial assets at fair Financial assets at
assets at value through other fair value through
(in millions of Korean won) amortized cost comprehensive income profit or loss Other Total
Interest income 115,837 - - - 115,837
Exchange differences 301,675 2,055 - - 303,730
Bad debts expense (19,538) - - - (19,538)
Loss on disposal of trade
(5,691) (15,200) - - (20,891)
receivables
Dividend income - 452 - - 452
Loss on valuation of financial
assets at fair value through - - (2,282) - (2,282)
profit or loss
Gain on derivatives (through
- - 72,714 - 72,714
profit or loss)
Fair value loss, net of tax
(through other comprehensive - (618) - - (618)
income)
Gain on derivatives, net of tax
(through other comprehensive - - - 597 597
income)
Others (827) - - - (827)
2018
Financial liabilities
Financial liabilities at at fair value through
(in millions of Korean won) amortized cost profit or loss Other Total
Interest expense (403,709) - (10,815) (414,524)
Exchange differences (477,284) - 33,485 (443,799)
Loss on derivatives
- (47,316) - (47,316)
(through profit or loss)
Loss on derivatives, net of tax
(through other comprehensive - - (36,148) (36,148)
income)
Others (3,826) - - (3,826)
61
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
2017
Financial
assets at fair Available-for- Held-to-
value through Loans and sale financial maturity
(in millions of Korean won) profit or loss receivables assets financial assets Other Total
Interest income - 95,257 - 3 - 95,260
Exchange differences - (889,183) - - - (889,183)
Bad debts expense - (335) - - - (335)
Loss on disposal of trade
- (13,407) - - - (13,407)
receivables
Gain on disposal of available-for-
- - 9,209 - - 9,209
sale financial assets
Impairment loss on available-for-
- - (1,758) - - (1,758)
sale financial assets
Dividend income - - 248 - - 248
Gain on derivatives (through
19,869 - - - - 19,869
profit or loss)
Loss on valuation of available-
for-sale financial assets, net of
- - (1,180) - - (1,180)
tax (through other
comprehensive income)
Gain on derivatives, net of tax
(through other comprehensive - - - - 3,452 3,452
loss)
2017
Financial liabilities at Financial liabilities
fair value through carried at amortized
(in millions of Korean won) profit or loss cost Other Total
Interest expense - (341,815) (25,458) (367,273)
Exchange differences - 882,991 (74,766) 808,225
Loss on derivatives
(36,706) - - (36,706)
(through profit or loss)
Gain on derivatives, net of tax
(through other comprehensive - - 26,010 26,010
loss)
Others - (2,278) - (2,278)
(c) Recognized financial instruments that are subject to an enforceable master netting
arrangements or similar arrangements as at December 31, 2018 and 2017, are as follows:
2018
Net amounts Amounts not offset
Recognized presented in
Recognized financial the statement
financial instrument of financial Financial Cash
(in millions of Korean won) instrument offset position instruments collateral Net amount
Financial assets
Trade receivables 229,580 (210,189) 19,391 - - 19,391
Financial liabilities
Trade payables 399,779 (210,189) 189,590 - - 189,590
62
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
2017
Net amounts Amounts not offset
Recognized presented in
Recognized financial the statement
financial instrument of financial Financial Cash
(in millions of Korean won) instrument offset position instruments collateral Net amount
Financial assets
Trade receivables 221,813 (207,165) 14,648 - - 14,648
Financial liabilities
Trade payables 352,878 (207,165) 145,713 - - 145,713
Cash and cash equivalents in the consolidated statements of financial position are equal to the
cash and cash equivalents in the consolidated statements of cash flows. Details are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Cash on hand 396 571
Bank deposits 4,269,992 3,350,026
Total 4,270,388 3,350,597
The deposits held by financial institutions restricted in use as at December 31, 2018 and 2017, are
as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Current
Fund for business cooperation 80,500 80,500
Others 16 15
Subtotal 80,516 80,515
Non-current
Deposit for drawing a bill 6,227 14,794
Deposit for checking account 66 223
National project 1,178 1,752
Others 38,382 36,006
Subtotal 45,853 52,775
Total 126,369 133,290
63
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) Trade receivables and other receivables, net of allowance for doubtful accounts, as at
December 31, 2018 and 2017, are as follows:
(b) Details of other receivables as at December 31, 2018 and 2017, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Current
Loans 21,081 24,636
Non-trade receivables 281,652 293,889
Accrued income 149,703 113,981
Deposits 54,001 34,921
Subtotal 506,437 467,427
Non-current
Loans 86,441 86,289
Non-trade receivables 12,639 19,092
Deposits 353,286 364,835
Subtotal 452,366 470,216
Total 958,803 937,643
(c) The aging analysis of trade receivables and other receivables as at December 31, 2018 and
2017, is as follows:
64
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(d) The allowance for doubtful accounts is recognized based on aging analysis and historical
experience.
(e) The Group classifies individually impaired receivables as defaulted receivables if the
receivables are impaired due to reasons including bankruptcy and insolvency of the debtors.
Defaulted receivables are classified into two categories of rehabilitation related receivables
and other defaulted receivables. The Group performs impairment test on rehabilitation related
receivables based on expected repayment amount and recognizes impairment loss on other
defaulted receivables based on types and values of collaterals.
(f) Movements in allowance for doubtful accounts for the years ended December 31, 2018 and
2017, are as follows:
2018
Addition
(in millions of Korean won) At Jan. 11 (reversal) Write-off Other At Dec. 31
Trade receivables 78,883 20,475 (4,107) (4,236) 91,015
Other receivables
Current 13,132 (442) (142) 345 12,893
Non-current 576 (495) - (3) 78
2017
Addition
(in millions of Korean won) At Jan. 1 (reversal) Write-off Other At Dec. 31
Trade receivables 86,481 1,314 (16,608) 9,064 80,251
Other receivables
Current 16,339 (941) (1,730) (536) 13,132
Non-current 115 (38) - 499 576
1 Allowance for doubtful accounts for trade receivables as at January 1, 2018 amounting to \1,368 million
was reclassified to contract assets from trade receivables upon adoption of Korean IFRS 1115.
The bad debt expenses of impaired trade receivables have been included in selling and
marketing expenses in the consolidated statements of profit or loss and the bad debt expenses
of other receivables have been included in other non-operating expenses. Amounts charged
to the allowance account are generally reversed when reasons for allowance are resolved, or
written off when there is no expectation of recovering additional cash.
(g) There are no financial assets that are not derecognized in their entirety, nor any associated
liabilities recognized at the end of the reporting period.
65
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) Details of other financial assets and liabilities as at December 31, 2018 and 2017, are as
follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Other financial assets
Derivatives 8,575 5,396
Financial assets at fair value through other
56,070 -
comprehensive income
Financial assets at fair value through profit
20,099 -
or loss
Available-for-sale financial assets - 50,998
Financial assets at amortized cost 1,729 -
Held-to-maturity financial asset - 121
Total 86,473 56,515
Current 8,401 3,534
Non-current 78,072 52,981
(in millions of Korean won) December 31, 2018 December 31, 2017
Other financial liabilities
Derivatives 92,443 70,755
Financial guarantee liability 167 135
Total 92,610 70,890
Current 3,343 2,280
Non-current 89,267 68,610
66
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Details of derivatives as at December 31, 2018 and 2017, are as follows:
The details of major derivative contracts at the end of the reporting period are presented in Note
38.
(c) Financial assets at fair value through other comprehensive income and available-for-sale
financial assets
i) Changes in financial assets at fair value through other comprehensive income for the year
ended December 31, 2018, are as follows:
2018
Increase due to
business Valuation
(in millions of Korean won) At January 1 combination Acquisition Disposal (OCI) Other At December 31
Listed equity securities 13,844 7,225 - - (448) (158) 20,463
Unlisted equity securities 21,076 - 17,050 (2,666) (882) (523) 34,055
Debt securities - 1,744 - (352) 198 (38) 1,552
Total 34,920 8,969 17,050 (3,018) (1,132) (719) 56,070
ii) Changes in available-for-sale financial assets for the year ended December 31, 2017, are
as follows:
2017
Valuation
(in millions of Korean won) At January 1 Acquisition Disposal (OCI) Impairment Other At December 31
Listed equity securities 14,837 - - (993) - - 13,844
Unlisted equity securities 35,102 7,254 (2,469) - (1,758) (975) 37,154
Total 49,939 7,254 (2,469) (993) (1,758) (975) 50,998
67
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
iii) In 2018, the Group disposed of debt securities at fair value through other comprehensive
income amounting to \352 million. Accordingly, the Group eliminated \188 million of
accumulated other comprehensive income and recognized gain on disposal of \8 million
in other non-operating income and loss on disposal of \133 million in other non-operating
expenses, respectively.
(d) Changes in carrying amount of financial assets at fair value through profit or loss for year ended
December 31, 2018, are as follows:
2018
Increase due to
business
(in millions of Korean won) At January 1 combination Acquisition Disposal Valuation Other At December 31
Unlisted equity securities 16,078 - 4,288 (113) (2,341) 576 18,488
Debt securities - 1,762 - - (114) (37) 1,611
Total 16,078 1,762 4,288 (113) (2,455) 539 20,099
For some subsidiaries, financial assets at fair value through profit or loss amounting to \1,717
million (December 31, 2017: \1,717 million of available-for-sale financial assets) are provided
as collateral.
i) Maturity analysis of financial assets at amortized cost as at December 31, 2018 and that
of held-to-maturity financial assets as at December 31, 2017, is as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Within one year 117 -
One to five years 1,612 121
Total 1,729 121
ii) The amount recognized as interest income in relation to financial assets at amortized cost
and held-to-maturity financial assets for the year ended December 31, 2018, is \14
million (2017: \3 million). No impairment losses were recognized in relation to financial
assets at amortized cost and held-to-maturity financial assets for the years ended
December 31, 2018 and 2017.
68
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
9. Inventories
(b) The cost of inventories recognized as expense during the year ended December 31, 2018
amounted to ₩44,525,555 million (2017: ₩44,839,956 million). These were included in ‘cost
of sales’. Loss on valuation of inventories during the year ended December 31, 2018 amounted
to ₩145,421 million (2017: ₩128,300 million).
(c) There is no inventory provided as collateral for borrowings as at December 31, 2018.
(a) Contract assets as at December 31, 2018 and January 1, 2018, are as follows:
(b) Contract liabilities as at December 31, 2018 and January 1, 2018, are as follows:
69
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(c) Revenue recognized in relation to contract liabilities for the year ended December 31, 2018,
is as follows:
At the end of the reporting period, the total amount of transaction price allocated to the
unsatisfied or partially unsatisfied performance obligations is \ 1,170,159 million which are
expected to be satisfied by 2022, at the latest. Also, as a practical expedient, the Group
excluded performance obligation which is part of a contract that has an original expected
duration of one year or less.
(e) For the year ended December 31, 2018, the Group recognized an impairment loss amounting
to \3,509 million in relation to due from customers and an amortization and other loss of
\30,673 million in relation to costs to fulfil a contract.
Details of other assets as at December 31, 2018 and 2017, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Current:
Advances 133,331 173,338
Prepaid expenses 393,792 339,758
Prepaid value added tax 546,273 537,555
Subtotal 1,073,396 1,050,651
Non-current:
Long-term prepaid expenses 542,402 433,094
Long-term advances 246,932 279,246
Other investment assets 163 182
Subtotal 789,497 712,522
Total 1,862,893 1,763,173
70
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) Details of property, plant and equipment as at December 31, 2018 and 2017, are as follows:
Construction
(in millions of Korean won) Land Buildings Structures Machinery Tools Equipment Other -in-progress Total
At December 31, 2018
Acquisition cost 2,677,304 7,895,584 388,538 8,626,822 3,222,473 1,020,322 813,914 353,483 24,998,440
Accumulated depreciation - (2,041,520) (188,880) (5,386,085) (2,722,808) (713,706) (287,439) - (11,340,438)
Accumulated impairment losses - (155,356) (1,903) (144,936) (10,077) (1,433) (304) - (314,009)
Government grants (4,427) (456) (9) (4,765) (153) (232) - - (10,042)
Net book amount 2,672,877 5,698,252 197,746 3,091,036 489,435 304,951 526,171 353,483 13,333,951
Construction
(in millions of Korean won) Land Buildings Structures Machinery Tools Equipment Other -in-progress Total
At December 31, 2017
Acquisition cost 2,479,681 6,927,233 394,231 7,549,923 3,204,892 831,402 571,846 433,020 22,392,228
Accumulated depreciation - (1,746,080) (183,702) (4,858,436) (2,684,604) (611,561) (217,003) - (10,301,386)
Accumulated impairment losses - (131,279) (1,362) (134,385) (11,286) (1,619) (402) - (280,333)
Government grants (5,245) (704) (9) (3,137) (309) (323) - - (9,727)
Net book amount 2,474,436 5,049,170 209,158 2,553,965 508,693 217,899 354,441 433,020 11,800,782
(b) Changes in property, plant and equipment for the years ended December 31, 2018 and 2017,
are as follows:
2018
Construction
(in millions of Korean won) Land Buildings Structures Machinery Tools Equipment Other -in-progress Total
At January 1, 2018 2,474,436 5,049,170 209,158 2,553,965 508,693 217,899 354,441 433,020 11,800,782
Acquisitions 1 (7,292) 221,973 19,091 237,553 153,667 101,780 304,025 1,856,957 2,887,754
Acquisition from
28,067 144,116 - 254,538 - 74,209 - 70,845 571,775
business combination
Transfer-in (out) 187,741 582,430 2,096 1,069,173 152,309 8,631 17,343 (2,019,723) -
Disposals and others (9,053) (5,690) (11,404) (84,025) (6,002) (5,616) (27,191) (5,337) (154,318)
Decrease due to transfer
- - - (3,361) (318) (10) - - (3,689)
of business
Depreciation - (253,400) (16,772) (788,892) (315,577) (89,908) (121,394) - (1,585,943)
Impairment losses2 - (28,262) (2,120) (24,309) (1,770) (222) (1,151) - (57,834)
Reclassification to
- - - (115,212) - - - - (115,212)
assets held for sale
Exchange differences (1,022) (12,085) (2,303) (8,394) (1,567) (1,812) 98 17,721 (9,364)
At December 31, 2018 2,672,877 5,698,252 197,746 3,091,036 489,435 304,951 526,171 353,483 13,333,951
71
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
2017
Construction
(in millions of Korean won) Land Buildings Structures Machinery Tools Equipment Other -in-progress Total
At January 1, 2017 2,817,414 4,264,297 213,953 1,815,939 570,685 200,703 239,428 1,100,009 11,222,428
Acquisitions 16,966 267,520 544 126,303 176,089 93,756 216,352 1,872,569 2,770,099
Acquisitions due to
- - - - 495 47 79 - 621
business combination
Transfer-in (out) 53,523 956,363 20,424 1,325,404 141,707 14,983 5,101 (2,517,505) -
Disposals and others (383,197) (128,354) (2,961) (23,604) (13,043) (2,529) (23,692) (12,172) (589,552)
Decrease due to transfer
- - - - (827) (6) - - (833)
of business
Depreciation - (221,632) (17,030) (588,346) (347,436) (81,010) (79,311) - (1,334,765)
Impairment losses 2
- (14,088) (1,188) (55,826) (6,642) (1,279) (436) - (79,459)
Reclassification to
(17,761) (3,662) (4) - (9) - - - (21,436)
assets held for sale
Exchange differences (12,509) (71,274) (4,580) (45,905) (12,326) (6,766) (3,080) (9,881) (166,321)
At December 31, 2017 2,474,436 5,049,170 209,158 2,553,965 508,693 217,899 354,441 433,020 11,800,782
(c) Line items including depreciation in the consolidated statements of profit or loss for the years
ended December 31, 2018 and 2017, are as follows:
(d) Capitalized borrowing costs and capitalization rates for the years ended December 31, 2018
and 2017, are as follows:
72
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(e) Details of property, plant and equipment provided as collateral as at December 31, 2018 and
2017, are as follows:
At the end of the reporting period, buildings were pledged as a collateral to guarantee the
land lessor’s obligation to Shinhan Bank, the mortgagee, within the secured amount of up
to ₩6,480 million (2017: ₩9,120 million). The carrying amount of the pledged asset was
₩1,743 million as at December 31, 2018 (the pledged asset was fully depreciated as at
December 31, 2017).
(a) Details of intangible assets as at December 31, 2018 and 2017, are as follows:
Industrial
property Development Membership Construction-
(in millions of Korean won) Goodwill rights costs rights Other in-progress Total
At December 31, 2018
Acquisition cost 686,694 962,384 2,810,684 84,619 1,268,371 783,091 6,595,843
Accumulated amortization and
(1,214) (463,992) (2,364,678) (2,496) (739,887) (22,421) (3,594,688)
impairment losses
Net book amount 685,480 498,392 446,006 82,123 528,484 760,670 3,001,155
73
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Changes in intangible assets for the years ended December 31, 2018 and 2017, are as follows:
2018
Industrial
property Development Membership Construction-
(in millions of Korean won) Goodwill rights costs rights Other in-progress Total
At January 1, 2018 145,316 498,152 345,531 79,850 186,244 599,527 1,854,620
Acquisitions - 152,008 21,733 4,497 75,784 54,008 308,030
Acquisitions due to
542,346 - 4,639 - 341,472 8,608 897,065
business combination1
Acquisitions by internal
- - 1,762 - 5,291 492,773 499,826
development
Transfer-in(out) - - 357,264 - 12,945 (370,209) -
Disposals and others - (56,532) (344) (1,151) (829) (1,368) (60,224)
Decrease due to transfer of
- (183) - - - - (183)
business
Amortization - (93,215) (235,500) - (85,454) - (414,169)
Impairment losses 2,3,4
(2,111) (1,655) (48,809) (1,080) (205) (22,421) (76,281)
Exchange differences (71) (183) (270) 7 (6,764) (248) (7,529)
At December 31, 2018 685,480 498,392 446,006 82,123 528,484 760,670 3,001,155
2017
Industrial
property Development Membership Construction-
(in millions of Korean won) Goodwill rights costs rights Other in-progress Total
At January 1, 2017 145,436 476,973 377,490 79,832 222,006 269,350 1,571,087
Acquisitions - 143,676 19,032 1,645 25,313 48,867 238,533
Acquisitions by internal
- - 12,604 - 2,755 530,033 545,392
development
Transfer-in(out) - - 216,030 - 20,628 (236,658) -
Disposals and others - (25,368) (2,647) (375) (220) (11,416) (40,026)
Decrease due to transfer of
- - (566) - - - (566)
business
Amortization - (90,384) (259,299) - (83,121) - (432,804)
Impairment losses2,3 - (6,703) (15,905) (1,150) (432) (626) (24,816)
Exchange differences (120) (42) (1,208) (102) (685) (23) (2,180)
At December 31, 2017 145,316 498,152 345,531 79,850 186,244 599,527 1,854,620
1 In 2018, the Group recognized goodwill amounting to ₩542,346 million and other identifiable intangible assets
arising from business combination with ZKW Holding GmbH, its subsidiaries and related entities.
2 Certain divisions, defined as a separate cash-generating unit, were tested for impairment based on the
recoverable amount, and no impairment loss was recognized for the year ended December 31, 2018 (2017:
₩10,855 million).
3 As a result of an impairment test for all projects related to internally generated development costs and others, an
impairment loss of development costs relating to certain projects determined to have less business value, was
recognized as other non-operating expenses.
4 In 2018, the Group disposed of Membrane business which is classified as other segments, and an impairment
loss on goodwill amounting to ₩2,111 million, based on the recoverable amount, was recognized as ‘other non-
operating expenses’ before disposal.
74
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(c) Line items including amortization of intangible assets for the years ended December 31, 2018
and 2017, are as follows:
(d) Capitalized borrowing costs and capitalization rates for the years ended December 31, 2018
and 2017, are as follows:
(e) There are no intangible assets pledged as a collateral for borrowings as at December 31, 2018.
i) Goodwill is allocated among the Group’s cash generating units (CGUs) under each
operating segment. As at December 31, 2018, an operating segment-level summary of
goodwill allocation is presented below:
ii) The recoverable amount of CGUs has been determined based on value-in-use
calculations. These calculations use pre-tax cash flow projections based on financial
budgets approved by the management covering a five-year period. Cash flows beyond the
fiver-year period are extrapolated using the estimated growth rate which does not exceed
the long-term average growth rate for the electronic industry in which the Group operated.
iii) Management determined the estimated pre-tax cash flow based on past performance and
its expectations of market development. Value-in-use is measured by applying the pre-tax
discount rates reflecting specific risks relating to the relevant operating segments.
Discount rates and nominal long-term growth rates used for calculating the value-in-use
of major divisions are as follows:
H&A MC Other
Discount rates 11.3% 11.0% 10.3%
Nominal long-term growth rates 2.5% 0.0% 0.0%
75
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Research and development expenses for the years ended December 31, 2018 and 2017, are
as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Associates 5,386,252 5,474,932
Joint ventures 151,304 145,399
Total 5,537,556 5,620,331
ii) Investments in associates as at December 31, 2018 and 2017, are as follows:
76
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
iii) Investments in joint ventures as at December 31, 2018 and 2017, are as follows:
EIC PROPERTIES PTE LTD. 9,636 14,882 - 14,882 9,636 14,181 - 14,181
77
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
All joint arrangements, over which the Group has joint control, are structured through separate
companies and are categorized as joint ventures as the parties with joint control are assumed
to have rights to the net assets of the arrangement.
iii) All associates and joint ventures are accounted for using the equity method.
i) Changes in the carrying amounts of investments in associates for the years ended
December 31, 2018 and 2017, are as follows:
Other
comprehen-
sive income Changes in
(excluding Remeasure- ownership
Beginning Share of remeasure- ment Dividend/ Exchange interest over Ending
balance Acquisition profit(loss)1 ment) component recovery difference associates balance
LG Display Co., Ltd. 5,357,492 - (95,504) (4,812) 1,721 (67,813) - - 5,191,084
Korea Information
Certificate Authority Inc. 4,825 - 524 (49) - (100) - - 5,200
LG Fuel Cell Systems Inc. 34,290 7,178 (21,062) 404 (59) - - (20,751) -
Total 5,474,932 90,223 (88,881) (4,682) 1,945 (67,913) 563 (19,935) 5,386,252
78
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Other
comprehen-
sive income Changes in
(excluding Remeasure- ownership
Beginning Share of remeasure- ment Dividend/ Exchange interest over Ending
balance Acquisition profit(loss)1 ment) component recovery difference associates balance
LG Display Co., Ltd. 4,837,810 - 665,530 (75,548) (2,487) (67,813) - - 5,357,492
Korea Information
Certificate Authority Inc. 5,167 - 376 35 - (753) - - 4,825
LG Fuel Cell Systems Inc. 9,222 35,284 (14,953) (371) 89 - - 5,019 34,290
Total 4,906,450 79,665 641,726 (75,586) (1,020) (81,066) (256) 5,019 5,474,932
1 The Group recognized additional equity method gain of ₩1,635 million (2017: equity method gain of ₩17,499
million) for loans to Hitachi-LG Data Storage Inc. in 2018.
ii) Changes in the carrying amounts of investments in joint ventures for the years ended
December 31, 2018 and 2017, are as follows:
79
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(d) Summarized financial information of the associates that are material to the reporting entity as
at December 31, 2018 and 2017, and for the years ended December 31, 2018 and 2017, is as
follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Current assets 8,800,127 10,473,703
Non-current assets 24,375,583 18,685,984
Total assets 33,175,710 29,159,687
Current liabilities 9,954,483 8,978,682
Non-current liabilities 8,334,981 5,199,496
Total liabilities 18,289,464 14,178,178
Equity attributable to owners of
13,979,188 14,373,482
LG Display Co., Ltd.
Non-controlling interests 907,058 608,027
Total equity 14,886,246 14,981,509
The Group received dividends from LG Display Co., Ltd. amounting to \67,813 million (2017:
\67,813 million) for the year ended December 31, 2018.
80
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(e) Reconciliations of the summarized financial information of associates that are material to the
reporting entity to the carrying amount of the Group’s interest for the years ended December
31, 2018 and 2017, are as follows:
(f) The Group’s share in the operating results of the individually insignificant associates and joint
ventures for the years ended December 31, 2018 and 2017, is as follows:
2018 2017
(in millions of Korean won) Associates Joint ventures Associates Joint ventures
Profit(loss) for the year 7,864 10,269 (1,899) 7,545
Other comprehensive income
925 (3,859) (1,444) (23,278)
(loss), net of tax
Total comprehensive income
8,789 6,410 (3,343) (15,733)
(loss), net of tax
(g) There is no accumulated unrecognized change in equity due to discontinued use of the equity
method for the years ended December 31, 2018 and 2017.
(h) Details of marketable investments in associates as at December 31, 2018 and 2017, are as
follows:
Korea Information
Associate 2,010,247 3,775 7,589 5,200
Certificate Authority Inc.
81
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Korea Information
Associate 2,010,247 5,670 11,398 4,825
Certificate Authority Inc.
(a) Details of investment properties as at December 31, 2018 and 2017, are as follows:
(b) Changes in investment properties for the years ended December 31, 2018 and 2017, are as
follows:
2018
(in millions of Korean won) Land Buildings Total
At January 1 63,864 31,848 95,712
Depreciation - (1,316) (1,316)
At December 31 63,864 30,532 94,396
2017
(in millions of Korean won) Land Buildings Total
At January 1 63,864 33,167 97,031
Depreciation - (1,319) (1,319)
At December 31 63,864 31,848 95,712
(c) The fair value of investment property is valued by an independent professional appraiser with
certified qualification or determined based on the evaluation reflecting official land value or
recently available transaction price of similar properties, and it is classified as ‘level 3’ of the
fair value hierarchy. The fair value of investment property as at December 31, 2018, is
₩118,868 million (December 31, 2017: ₩110,123 million).
82
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(d) Rental income amounting to ₩1,091 million (2017: ₩3,235 million) and rental expenses
amounting to ₩2,112 million (2017: ₩2,082 million) are recognized in the consolidated
statements of profit or loss relating to the investment properties for the year ended December
31, 2018.
(e) At the end of the reporting period, the Group assumes obligation for repairs and maintenance
of investment property owned by the Group.
16. Borrowings
(a) The carrying amounts of borrowings as at December 31, 2018 and 2017, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Current
Short-term borrowings 293,221 314,246
Current portion of long-term borrowings 128,760 356,841
Current portion of debentures 983,135 689,669
Subtotal 1,405,116 1,360,756
Non-current
Long-term borrowings 4,241,936 2,864,425
Debentures 5,254,134 5,225,299
Subtotal 9,496,070 8,089,724
Total 10,901,186 9,450,480
(b) Details of borrowings as at December 31, 2018 and 2017, are as follows:
83
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
84
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The Group entered into interest rate swap and cross-currency swap contracts to hedge cash flow
risks related to floating interest rates and foreign exchange rates of some of these borrowings
(Note 38).
85
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
86
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
87
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
88
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The Group entered into interest rate swap and cross-currency swap contracts to hedge cash flow
risk related to floating interest rates and foreign exchange rates of the debentures (Note 38).
The principal and interests of private guaranteed bonds (70th, 84th) are guaranteed by Shinhan Bank
(Note 35).
89
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Details of other payables as at December 31, 2018 and 2017, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Current
Non-trade payables 2,744,784 2,676,089
Accrued expenses 913,665 832,334
Dividends payable 230 223
Leasehold deposits received 11,774 14,193
Subtotal 3,670,453 3,522,839
Non-current
Non-trade payables 16,271 4,853
Leasehold deposits received 1,724 1,637
Subtotal 17,995 6,490
Total 3,688,448 3,529,329
(a) Details of income tax expense(benefit) for the years ended December 31, 2018 and 2017, are
as follows:
90
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) The reconciliation between profit before income tax and income tax expense for the years
ended December 31, 2018 and 2017, is as follows:
1 The applicable tax rate, calculated using the weighted average statutory tax rates applicable to each
entity within the Group to the profit before tax of the Group is 27.3% (2017: 26.0%) for the year ended
December 31, 2018. The applicable tax rate has increased due to changes in the proportions of each
entity’s profit (loss) before income tax.
(a) Deferred tax assets and deferred tax liabilities after offsetting as at December 31, 2018 and
2017, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Deferred tax assets:
Deferred tax asset to be recovered within 12 months 1,048,404 1,022,780
Deferred tax asset to be recovered after more than
12 months 2,001,223 1,926,057
Deferred tax assets before offsetting 3,049,627 2,948,837
Deferred tax liabilities:
Deferred tax liability to be settled within 12 months 139,142 44,262
Deferred tax liability to be settled after more than 12
months 1,626,706 1,547,967
Deferred tax liabilities before offsetting 1,765,848 1,592,229
Deferred tax assets after offsetting 1,410,793 1,365,367
Deferred tax liabilities after offsetting 127,014 8,759
91
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Changes in deferred income tax assets and liabilities for the years ended December 31, 2018
and 2017, are as follows:
2018
Charged Charged
(credited) to to other
At Business the statements comprehensive Exchange At
(in millions of Korean won) January 1 combination of profit or loss income differences December 31
Changes in temporary
differences
Investments in subsidiaries (517,855) (85,409) 52,043 160 (242) (551,303)
Property, plant and equipment 4,029 2,685 45,898 - 61 52,673
Accrued expenses 552,035 - (143,226) - 4,682 413,491
Provisions 163,710 4,957 11,505 - (5,694) 174,478
Other 331,049 (27,329) 59,381 39,886 (5,492) 397,495
Subtotal 532,968 (105,096) 25,601 40,046 (6,685) 486,834
Tax credit carryforwards 748,342 - (85,990) - - 662,352
Tax loss carryforwards 75,298 256 59,042 - (3) 134,593
Deferred tax assets(liabilities) 1,356,608 (104,840) (1,347) 40,046 (6,688) 1,283,779
2017
Charged Charged(credited)
(credited) to the to other
At statements of comprehensive Exchange At
(in millions of Korean won) January 1 profit or loss income differences December 31
Changes in temporary differences
Investments in subsidiaries (314,788) (204,858) 1,791 - (517,855)
Property, plant and equipment (37,822) 41,932 - (81) 4,029
Accrued expenses 473,298 75,151 - 3,586 552,035
Provisions 204,387 (36,090) - (4,587) 163,710
Other 407,137 (11,622) (29,343) (35,123) 331,049
Subtotal 732,212 (135,487) (27,552) (36,205) 532,968
Tax credit carryforwards 566,551 181,791 - - 748,342
Tax loss carryforwards 246,245 (173,849) - 2,902 75,298
Deferred tax assets(liabilities) 1,545,008 (127,545) (27,552) (33,303) 1,356,608
92
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(c) Tax effects directly recognized in other comprehensive income directly for the years ended
December 31, 2018 and 2017, are as follows:
2018 2017
Before Tax After Before Tax After
(in millions of Korean won) tax effects tax tax effects tax
Remeasurements of net defined benefit
(100,533) 26,651 (73,882) 117,933 (21,419) 96,514
liabilities
Cash flow hedge (48,336) 12,785 (35,551) 37,199 (7,737) 29,462
Financial assets at fair value through other
(1,068) 450 (618) - - -
comprehensive income
Available-for-sale financial assets - - - (993) (187) (1,180)
Exchange differences on translation of
(24,047) 160 (23,887) (462,537) 1,791 (460,746)
foreign operations
Total (173,984) 40,046 (133,938) (308,398) (27,552) (335,950)
(d) Details of deductible (taxable) temporary differences, tax credit and tax loss carryforwards
unrecognized as deferred tax assets (liabilities) as at December 31, 2018, are as follows:
(e) Expirations of unrecognized tax credit and tax loss carryforwards as at December 31, 2018,
are as follows:
(in millions of Korean won) 1 year or less 1 to 2 years 2 to 3 years Over 3 years
Tax credit carryforwards 52,754 1,210 145,842 90,378
Tax loss carryforwards 5,928 12,597 63,071 334,423
93
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) The amounts of net defined benefit liabilities as at December 31, 2018 and 2017, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Present value of funded obligations 3,170,154 2,886,079
Present value of unfunded obligations 45,705 31,192
Subtotal 3,215,859 2,917,271
Fair value of plan assets (2,818,190) (2,591,256)
Net defined benefit liabilities1 397,669 326,015
1 Net defined benefit assets are included.
(b) The amounts recognized in the consolidated statements of profit or loss for the years ended
December 31, 2018 and 2017, are as follows:
(c) Line items in which expenses are included for the years ended December 31, 2018 and 2017,
are as follows:
94
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(d) Movements in the present value of defined benefit obligations for the years ended December
31, 2018 and 2017, are as follows:
(e) Movements in the fair value of plan assets for the years ended December 31, 2018 and 2017,
are as follows:
(f) The significant actuarial assumptions used as at December 31, 2018 and 2017, are as
follows:
As at December 31, 2018, the discount rates applied to the Parent Company and subsidiaries are within the
range of 0.3% and 10.2% (2017: 0.3% and 7.5%), and the expected salary growth rates are within the range
of 1.0% and 10.0% (2017: 1.0% and 11.0%).
95
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(g) The sensitivity analysis of the defined benefit obligation to changes in principal assumptions
as at December 31, 2018, is as follows:
Above sensitivity analysis is based on a change in an assumption while holding all other
assumptions constant. In practice, this is unlikely to occur, and changes in some of the
assumptions may be correlated. The sensitivity of the defined benefit obligation to changes in
principal actuarial assumptions is calculated using the projected unit credit method, the same
method applied when calculating the defined benefit obligations.
(i) The weighted average duration of the defined benefit obligations is 9.5 years. Expected
maturity analysis of undiscounted pension benefits as at December 31, 2018, is as follows:
Within Over
(in millions of Korean won) 1 year 1 to 2 years 2 to 5 years 5 to 10 years 10 years Total
Pension benefits 159,317 226,935 670,429 1,032,468 2,222,827 4,311,976
The Group evaluates the fund contribution level annually and if there is a shortfall in the funds the
Group has a policy to finance the funds. Expected contributions to post-employment benefit plans
for the year ending December 31, 2019, are \354,892 million.
The expense recognized in the current year in relation to defined contribution plan was \18,642
million (2017: \12,330 million).
96
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
20. Provisions
(a) Changes in provisions for the years ended December 31, 2018 and 2017, are as follows:
2018
Litigation and
(in millions of Korean won) Warranty Restoration others Total
At January 11 652,343 34,133 224,690 911,166
Increase due to
business combination 16,039 - 13,711 29,750
Additions 824,280 8,340 41,687 874,307
Utilization (746,719) (3,519) (38,914) (789,152)
Decrease due to transfer
of business (80) - - (80)
Exchange differences (5,024) 59 (4,671) (9,636)
At December 31 740,839 39,013 236,503 1,016,355
Current 642,791 11,082 18,671 672,544
Non-current 98,048 27,931 217,832 343,811
2017
Litigation
(in millions of Korean won) Warranty Sales returns Restoration and others Total
At January 1 756,509 39,071 24,985 978,700 1,799,265
Additions 1,003,743 269,729 13,886 119,322 1,406,680
Utilization (1,083,404) (269,702) (4,551) (861,830) (2,219,487)
Exchange differences (24,505) (2,588) (187) (11,502) (38,782)
At December 31 652,343 36,510 34,133 224,690 947,676
Current 593,681 36,510 12,813 6,551 649,555
Non-current 58,662 - 21,320 218,139 298,121
1 Sales return provision as at January 1, 2018 amounting to \36,510 million was reclassified to contract
liabilities upon adoption of Korean IFRS 1115.
As at December 31, 2018, emission rights received free of charge for each reporting period and
greenhouse gas emission estimated by management, are as follows:
In 2018, there is no emission right that the Group additionally purchased from the market and
there is no recognized emission liability as greenhouse gas emission estimated by management
is 1,331,540 tons.
97
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(in millions of Korean won) December 31, 2018 December 31, 2017
Current
Advances from customers1 369,531 557,122
Unearned income1 - 64,765
Withholding 632,673 639,530
Accrued expenses 1,859,070 2,501,743
Other 67 1
Subtotal 2,861,341 3,763,161
Non-current
Advances from customers1 220,456 95,862
Unearned income1 - 18,926
Accrued expenses 169,397 95,903
Other 99 1,711
Subtotal 389,952 212,402
Total 3,251,293 3,975,563
1 Advances from customers and unearned income as at January 1, 2018 amounting to \354,796 million was
reclassified to contract liabilities upon adoption of Korean IFRS 1115.
(a) As at December 31, 2018 and 2017, the number of shares authorized is 600 million.
The preferred shareholders have no voting rights and are entitled to preferred dividends at a
rate of one percentage point over that of ordinary shares. This preferred dividend rate is not
applicable to stock dividends. In addition, the preferred shareholders have same rights on the
remaining assets as ordinary shareholders. Repayment and conversion are not applicable to
preferred shares.
(b) Share premium balance as at December 31, 2018, is ₩3,088,179 million. The share premium
of ₩1,876,153 million was recognized, which is ₩2,815,707 million of the carrying amount of
net assets acquired from the entity split-off back on April 1, 2002, less the Parent Company’s
capital of ₩783,961 million and less the Parent Company’s capital adjustment of ₩155,593
million. In addition, the amount of ₩331,766 million paid in excess of par value due to issuance
of ordinary shares (merger with LG IBMPC Co., Ltd.) and the exercise of conversion option in
98
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
2005 and 2006 are included. The excess in paid-in capital amounting to ₩880,260 million
over the par value was recognized as the share premium due to the issuance of ordinary
shares in 2011.
(a) Retained earnings as at December 31, 2018 and 2017, consist of:
(in millions of Korean won) December 31, 2018 December 31, 2017
Legal reserves1 182,342 175,054
Discretionary reserves 5,347,641 4,603,535
Unappropriated retained earnings 6,545,431 6,185,566
Total 12,075,414 10,964,155
1The Commercial Code of the Republic of Korea requires the Parent Company to appropriate, as a legal
reserve, an amount equal to a minimum of 10% of cash dividends paid until such reserve equals 50% of its
issued share capital. The reserve is not available for the payment of cash dividends, but may be transferred
to share capital or used to reduce accumulated deficit.
Details of dividends per share and a total dividend in respect of the year ended December 31, 2018,
which is to be proposed at the annual general meeting on March 15, 2019, are as follows. These
consolidated financial statements do not reflect this dividend payable.
1 Dividend payout ratio is calculated based on the net profit of the Parent Company. It is not calculated for the
year ended December 31, 2018 due to the net loss of the Parent Company.
2 Average of prices in the stock market for one week preceding the two business days before the record
date of the shareholders’ list for the general meeting of shareholders related to above dividends.
99
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Accumulated other comprehensive income as at December 31, 2018 and 2017, consist of:
(in millions of Korean won) December 31, 2018 December 31, 2017
Accumulated other comprehensive loss of
(204,769) (196,195)
associates and joint ventures
Cash flow hedge (61,887) (26,409)
Financial assets at fair value through other
(8,400) -
comprehensive income
Available-for-sale financial assets - 9,384
Exchange difference on translation of foreign
(1,329,674) (1,309,258)
operations
Total (1,604,730) (1,522,478)
Other components of equity as at December 31, 2018 and 2017, consist of:
(in millions of Korean won) December 31, 2018 December 31, 2017
Treasury shares1 (44,893) (44,893)
Consideration for conversion rights 9,891 9,891
Gain on disposal of treasury shares 2,183 2,183
Capital transactions within the Group (176,945) (176,945)
Total (209,764) (209,764)
1 As at December 31, 2018, the Parent Company has treasury shares consisting of 763,172 ordinary
shares (December 31, 2017: 763,172 shares) and 4,692 preferred shares (December 31, 2017: 4,690
shares) at the end of the reporting period. The Parent Company intends to either grant these treasury
shares to employees and directors as compensation, or to dispose them in the future.
(a) Details of net sales for the years ended December 31, 2018 and 2017, are as follows:
100
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Details of revenue from contracts with customers for the year ended December 31, 2018, are
as follows:
2018
Inter-
(in millions of Korean Other segment
won) H&A HE MC VC B2B Innotek segments transactions Total
Revenue from
contracts with
customers:
External sales 19,009,047 16,183,168 7,976,770 4,286,792 2,400,741 7,277,511 3,888,856 - 61,022,885
Internal sales 44,650 10,507 1,280 - 2,643 703,811 510,911 (1,273,802) -
19,053,697 16,193,675 7,978,050 4,286,792 2,403,384 7,981,322 4,399,767 (1,273,802) 61,022,885
By type of products:
Refrigerators/
washing machine/
air conditioners and 16,247,684 - - - - - - (12,343) 16,235,341
others
TV/monitor/PC and
others - 14,945,616 - - - - - (10,428) 14,935,188
Mobile
communications - - 7,875,153 - - - - (1,280) 7,873,873
In-vehicle
infotainment - - - 2,932,590 - - - - 2,932,590
Information display - - - - 1,490,059 - - (2,643) 1,487,416
Camera modules - - - - - 5,096,900 - (199,625) 4,897,275
Others 2,806,013 1,248,059 102,897 1,354,202 913,325 2,884,422 4,399,767 (1,047,483) 12,661,202
By major geographical
market 1:
Korea 6,660,782 2,146,414 1,438,498 954,796 360,978 7,450,075 4,283,378 (1,222,710) 22,072,211
North America 4,608,261 3,856,475 4,798,269 1,040,343 906,774 16,197 250 (344) 15,226,225
Asia 3,205,867 2,011,961 354,192 283,131 409,594 40,117 - (24,878) 6,279,984
Europe 1,228,304 3,845,532 478,388 1,515,816 485,147 20,756 14 (9,582) 7,564,375
South America 823,233 2,098,616 697,982 61,688 80,513 - 734 (11) 3,762,755
Middle East & Africa 947,113 1,025,791 96,298 - 81,565 - - (183) 2,150,584
China 897,145 355,018 81,466 431,018 49,622 454,177 115,391 (16,088) 2,367,749
Russia and others 682,992 853,868 32,957 - 29,191 - - (6) 1,599,002
Timing of transfer:
Transferred at a
point in time 18,665,326 16,085,094 7,892,702 4,188,745 2,387,449 7,979,010 1,447,247 (816,306) 57,829,267
Transferred over
time 388,371 108,581 85,348 98,047 15,935 2,312 2,952,520 (457,496) 3,193,618
1 Sales by major geographical market are the sales by region in which the Group is located.
101
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Due to the factors causing the changes in costs of VC and other segments in 2018, the estimated
total revenue and total costs for contracts in progress have changed. Details of changes in
estimated total contract revenue and costs and the impact on profit or loss for the year ended
December 31, 2018 and the succeeding period are as follows:
Changes in
estimated total Changes in Impact on Impact on profit
contract estimated total profit or loss or loss for the
(in millions of Korean won) revenue contract cost for the year succeeding year
VC 46,563 41,375 3,422 1,766
Other segments 144,425 126,792 4,001 13,632
Total 190,988 168,167 7,423 15,398
Expenses that are recorded by nature for the years ended December 31, 2018 and 2017, consist
of:
102
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
28. General Operating Expenses (Selling and Marketing Expenses, Administrative Expenses,
Research and Development Expenses, and Service Costs)
Details of general operating expenses for the years ended December 31, 2018 and 2017, are as
follows:
Financial income for the years ended December 31, 2018 and 2017, consists of:
Financial expenses for the years ended December 31, 2018 and 2017, consist of:
103
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Other non-operating income for the years ended December 31, 2018 and 2017, consists of:
Other non-operating expenses for the years ended December 31, 2018 and 2017, consist of:
104
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The Group has no potential dilutive ordinary shares. Accordingly, basic earnings per share is
identical to diluted earnings per share.
(a) Basic earnings per ordinary share for the years ended December 31, 2018 and 2017, is as
follows:
2018 2017
Profit attributable to ordinary shares1
1,121,032 1,560,330
(in millions of Korean won)
Weighted average number of ordinary shares
162,884,642 162,884,642
outstanding (unit: shares) 2
Basic earnings per ordinary share
6,882 9,579
(in Korean won)
(b) Basic earnings per preferred share for the years ended December 31, 2018 and 2017, is as
follows:
2018 2017
Profit attributable to preferred shares1
119,107 165,444
(in millions of Korean won)
Weighted average number of preferred shares
17,181,300 17,181,300
outstanding (unit: shares) 2
Basic earnings per preferred share
6,932 9,629
(in Korean won)
105
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Cash flows from operating activities are prepared using the indirect method. Details of cash
generated from operations for the years ended December 31, 2018 and 2017, are as follows:
106
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
2018
Non-cash transactions
Net cash flow Exchange Effects of
from financing Business differences exchange
(in millions of Korean won) At January 1 activities combination (profit/loss) Amortization rate changes At December 31
Short-term borrowings 314,246 (233,224) 216,114 31,287 - (35,202) 293,221
Long-term borrowings 3,221,266 882,223 297,802 (11,910) 67 (18,752) 4,370,696
Debentures 5,914,968 292,822 - 24,988 4,491 - 6,237,269
Total 9,450,480 941,821 513,916 44,365 4,558 (53,954) 10,901,186
2017
Non-cash transactions
Net cash flow Exchange Effects of
from financing differences exchange
(in millions of Korean won) At January 1 activities (profit/loss) Amortization rate changes At December 31
Short-term borrowings 596,541 (250,331) (2,700) - (29,264) 314,246
Long-term borrowings 2,622,708 661,184 (11,831) 14 (50,809) 3,221,266
Debentures 5,439,762 546,737 (75,912) 4,381 - 5,914,968
Total 8,659,011 957,590 (90,443) 4,395 (80,073) 9,450,480
ii) Total consideration received and the assets of the transferred business are as follows:
107
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
i) On July 1, 2018, OLED T-Con chip design business was transferred to Silicon Works Co.,
Ltd.
ii) Total consideration received and the assets of the transferred business are as follows:
i) On May 17, 2017, set-top box product business of Home Entertainment segment was
transferred to Technicolor SA.
ii) Total consideration received and the assets of the transferred business are as follows:
35. Contingencies
(a) At the end of the reporting period, borrowings are collateralized by a certain portion of property,
plant and equipment (land, buildings and others) (Note 12).
108
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) At the end of the reporting period, the Parent Company and domestic subsidiaries are provided
with performance guarantees of \355,761 million (December 31, 2017: \448,068 million) from
Seoul Guarantee Insurance and others relating to the performance guarantees. The Parent
Company is provided with guarantee of principal USD 200 million, EUR 100 million (December 31,
2017: USD 200 million, EUR 100 million) and interests from Shinhan Bank for the guaranteed
private placement bonds.
(c) At the end of the reporting period, the Parent Company is providing KEB Hana Bank with a
subrogation payment obligation for customers up to \46,000 million (December 31, 2017:
\46,000 million). Also, subsidiaries provide joint performance guarantee amounting to \32,862
million (December 31, 2017: \87,252 million), and payment guarantee for Hitachi-LG Data Storage
Inc. (HLDS) amounting to USD 7.5 million (December 31, 2017: USD 10 million).
(d) There are a number of legal actions, disputes and investigations arising from the normal course
of business that remain pending at the end of the reporting period. The ultimate effect of those
lawsuits on the financial position of the Group cannot reflect a reasonable expectation.
Management does not expect the outcome of the litigations will have a material effect on the
Group’s financial position.
At the end of the reporting period, LG Display Co., Ltd., an associate of the Group, has been
accused as a defendant in cases related to the infringement of patents. In addition, LG Display Co.,
Ltd. is currently under the investigation and civil suit for anti-competitive activities. The outcome of
the case may affect the gain or loss from the equity method valuation, but the Group is not
individually responsible for the above case and the investigation.
At the end of the reporting period, the European Commission imposed a penalty amounting to EUR
37,121 thousand on Hitachi-LG Data Storage Inc. (HLDS), an associate of the Group, for anti-
competitive activities among Optical Disk Drive (ODD) manufactures as a result of an investigation.
However, HLDS appealed against the decision of the European Commission. The outcome of the
investigation may affect gain or loss from equity method valuation, but the Group is not individually
responsible for the above case.
36. Commitments
(a) At the end of the reporting period, the Parent Company has overdraft facility agreements with
various banks, including Shinhan Bank, with a limit of \165,500 million (December 31, 2017:
\165,500 million).
In addition, LG Innotek Co., Ltd. has overdraft facility agreements with various banks, including
Shinhan Bank, with a limit of \27,000 million (December 31, 2017: \27,000 million). The total limit
of overdrafts and comprehensive limits provided by financial institutions to the overseas
subsidiaries of LG Innotek Co., Ltd. is \389,791 million (December 31, 2017: \212,500 million).
Other subsidiaries have overdraft facility agreements with a limit of \1,387,534 million (December
31, 2017: \1,494,848 million) with Citibank and others.
109
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) At the end of the reporting period, the Parent Company has sales agreements for export trade
receivables with KEB Hana Bank and 19 other banks amounting to \1,926,486 million (December
31, 2017: \1,915,663 million) and has sales agreements for domestic trade receivables with
MUFG Bank amounting to \690,000 million (December 31, 2017: \500,000 million).
In addition, LG Innotek Co., Ltd. has trade receivables transfer agreements with various banks,
including ING Bank, amounting to \709,994 million (December 31, 2017: \669,625 million) at the
end of the reporting period.
In addition, other subsidiaries transfer their trade receivable to Societe Generale Bank and others
on a revolving basis, for up to US$ 768 million (December 31, 2017: US$ 641 million), and have
sales agreements for trade receivables with a limit of US$ 400 million (December 31, 2017:
US$ 620 million) with MUFG Bank. In addition, other subsidiaries have entered into corporate
electronic settlement services contracts and discount note agreements with Shinhan Bank and
others with a limit of \81,000 million (December 31, 2017: \84,000 million) in connection with the
collection of the trade receivables.
(c) At the end of the reporting period, the Parent Company has corporate electronic settlement
services contracts and vendor prepayment services contracts with Shinhan Bank and seven other
banks for up to \1,160,000 million (December 31, 2017: \1,160,000 million) in connection with
the payment of trade payables.
In addition, LG Innotek Co., Ltd., a subsidiary, has corporate electronic settlement services
contracts and vendor prepayment services contracts with Shinhan Bank and others for up to
\204,000 million (December 31, 2017: \184,000 million) in connection with the payment of trade
payables, where under the contracts the vendors of LG Innotek Co., Ltd. can transfer their
receivables to these banks.
In addition, other subsidiaries have contract arrangements such as corporate electronic settlement
services contracts and note discount agreements with Shinhan Bank and other banks for up to
\69,900 million limit (December 31, 2017: \65,400 million) in connection with the payment of
trade payables.
(d) At the end of the reporting period, other subsidiaries have commercial paper agreements with
Shinhan Bank and others for \40,000 million (December 31, 2017: \40,000 million).
(e) At the end of the reporting period, the Group has other trade financing agreements and loan
commitments with financial institutions, including Shinhan Bank, of up to \3,663,920 million
(December 31, 2017: \4,698,230 million).
110
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Assets contracted for, but not yet acquired at the end of the reporting period, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Property, plant and equipment 228,841 360,394
Intangible assets 52,632 33,615
Investments in associates and joint ventures 9,863 -
Total 291,336 394,009
i) The future aggregate minimum lease payments under non-cancellable operating leases
at the end of the reporting period, are as follows:
ii) Under the above operating lease agreement, lease expense recognized in the
consolidated statement of profit or loss for the year ended December 31, 2018, is
\350,860 million (2017: \343,975 million).
iii) As at December 31, 2018, total future minimum sublease receipts under non-cancellable
sublease agreements for some buildings amount to \8,879 million, and lease income
recognized under the sublease agreements for the year ended December 31, 2018,
amounts to \7,580 million (2017: \9,378 million).
i) The Group has non-cancellable operating lease agreements regarding healthcare rental
business that lends water purifiers and others to customers and real estate rentals
business. The future aggregate lease receipts under operating lease agreements at the
end of the reporting period, are as follows:
ii) The Group recognized \292,402 million (2017: \160,545 million) of lease income for the
year ended December 31, 2018.
111
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(in millions of Korean won) December 31, 2018 December 31, 2017
Acquisition cost 631,976 420,911
Accumulated depreciation (144,975) (88,272)
Accumulated impairment losses (105) (231)
Net book amount 486,896 332,408
iv) Changes in net book amount of assets subject to operating lease for the years ended
December 31, 2018 and 2017, are as follows:
At the end of the reporting period, the Group has entered into a finance lease agreement with a
lease company for the use of building and others and has recognized related assets and liabilities
in the consolidated statements of financial position. Net book amount of the leased assets amounts
to \20,418 million, and the present value of the finance lease liabilities amounts to \18,923 million.
As at December 31, 2018 and 2017, future minimum lease payments under the finance lease
agreement are as follows:
At the end of the reporting period, the Group has various agreements as follows:
112
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) Major transactions for the years ended December 31, 2018 and 2017, and balances of
receivables and payables from transaction with related parties as at December 31, 2018 and
2017, are as follows:
S&I Corp. and its subsidiaries2 79,794 9,483 89,277 1,004,881 654,001 1,658,882
113
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Silicon Works Co., Ltd. 24,497 48,160 72,657 9,519 1,050 10,569
LG HOUSEHOLD & HEALTH
CARE LTD and its subsidiaries 7,484 5 7,489 372 900 1,272
GⅡR Inc. and its subsidiaries 4,318 12 4,330 125 425,748 425,873
Subtotal 2,493,909 116,756 2,610,665 3,913,806 2,406,182 6,319,988
Total 4,599,369 169,939 4,769,308 9,438,222 3,845,811 13,284,033
114
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
GⅡR Inc. and its subsidiaries 2,324 - 2,324 3,911 393,863 397,774
SK Siltron Incorporated and its
subsidiaries4 6,261 - 6,261 28 - 28
Subtotal 1,830,923 2,067 1,832,990 4,719,131 2,248,451 6,967,582
Total 3,978,202 310,501 4,288,703 11,598,127 3,539,937 15,138,064
1
Although the entities are not the related parties of the Group in accordance with Korean IFRS 1024, the entity belongs
to the Large Enterprise Group to which the Group also belongs in accordance with the Monopoly Regulation and Fair
Trade Act.
2
SERVEONE Co., Ltd. was spun off into S&I Corp. and SERVEONE Co., Ltd. on December 1, 2018. As at December
31, 2018, S&I Corp., the existing corporation, holds 100% share of SERVEONE Co., Ltd., newly established
corporation.
3
All shares of LUSEM CO., LTD. were sold to LB SEMICON, INC. on February 27, 2018, and the name of LUSEM
CO., LTD. was changed to LB Lusem Co., Ltd. on March 15, 2018.
4
All shares of LG Siltron Incorporated were sold to SK Holdings Co., Ltd. on August 17, 2017, and the name of LG
Siltron Incorporated was changed to SK Siltron Co., Ltd.
Hitachi-LG Data
Storage Inc. and its 109 7,257 31 7,397 32,687 - 397 33,084
subsidiaries2
LG Fuel Cell Systems
Inc. and its 12 - 240 252 - - 28 28
subsidiaries
115
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
LG Management
Development Institute - - 17,864 17,864 - - 1,850 1,850
LG HAUSYS,LTD. and
its subsidiaries and 725 - 1,354 2,079 29 - 485 514
associates
Silicon Works Co., Ltd. 3,309 - - 3,309 2,011 - 748 2,759
LG HOUSEHOLD &
HEALTH CARE LTD 2,270 - 350 2,620 32 - 734 766
and its subsidiaries
GⅡR Inc. and its
83 - 137 220 334 - 251,174 251,508
subsidiaries
Subtotal 536,020 - 282,348 818,368 838,394 - 607,380 1,445,774
Total 1,134,098 7,257 547,761 1,689,116 1,669,113 - 1,191,018 2,860,131
116
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Hitachi-LG Data
Storage Inc. and its 33 13,347 1,625 15,005 21,589 - 237 21,826
subsidiaries2
LG Fuel Cell Systems
Inc. and its 1,201 - - 1,201 - - 5 5
subsidiaries
Korea Information
Certificate Authority - - - - - - 7 7
Inc.
Subtotal 625,249 13,347 19,142 657,738 1,075,927 - 104,405 1,180,332
Arcelik-LG Klima
Joint ventures Sanayi ve Ticaret 6,811 - - 6,811 2,548 - - 2,548
A.S.(LGEAT)
LG Holdings (HK) Ltd.
and its subsidiaries - - - - - - 1,329 1,329
LG HAUSYS,LTD. and
its subsidiaries and 18,932 - 169 19,101 4,548 - 4,098 8,646
associates
Silicon Works Co., Ltd. 6,312 - - 6,312 2,181 - 852 3,033
117
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
iii) Significant capital transactions with related parties and others for the years ended
December 31, 2018 and 2017, are as follows:
118
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) The compensation paid or payable to key management personnel for the years ended
December 31, 2018 and 2017, consist of:
Key management refers to the directors who have significant control and responsibilities on the
Group’s business plans, operations and control.
(c) The Group provides payment guarantee for Hitachi-LG Data Storage Inc.(HLDS) amounting to
US$ 7.5 million at the end of the reporting period (December 31, 2017: US$ 10 million).
(d) There is no collateral provided by the Group for the financial support of related parties at the
end of the reporting period.
(e) The Group has not recognized any bad debt expense or allowance for trade receivables from
related parties at the end of the reporting period.
The Group’s financial risk management (“FRM”) policy supports each business division to achieve
excellent performance solidly and continuously against market risk, credit risk and liquidity risk. In
addition, FRM helps the Group to enhance cost competitiveness through cost-efficient financing
119
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
While cooperating with other divisions, Finance Division in the Parent Company mainly implements
FRM. This involves setting-up risk management policies and recognizing, evaluating and hedging
risks from a global point of view.
The Group anticipatively and systematically manages the financial risks over global business
activities through its four overseas treasury centers in New Jersey (United States), Amsterdam
(Netherlands), Beijing (China), and Singapore in coordination with Finance Division in the Parent
Company. And it also helps to improve overseas subsidiaries’ business competitiveness by
performing integration of their finance functions.
The Group mitigates the adverse effects from financial risk by monitoring the risk periodically and
updating FRM policy each year.
The carrying amount and profit or loss of each category of financial instruments and the details of
borrowings related to the financial risk management are presented in Note 5 and Note 16,
respectively.
Due to its multinational business operations, the Group is mainly exposed to foreign exchange
risk on the US Dollar and Euro.
The purpose of foreign exchange risk management is to provide the foundation of a stable
business operation by minimizing the uncertainty and volatility of foreign exchange gains and
losses from foreign exchange rate fluctuations.
The Group’s foreign exchange risk management is implemented under its own foreign exchange
policy through which the Group can minimize the exposure to foreign exchange risk by
preferentially making equal amount of foreign exchange assets and liabilities from general
operating activities. And the Group continuously considers efficient foreign exchange risk
hedges against its remaining exposure with derivative financial instruments and scrutinizes
changes in foreign exchange exposure and the results of hedging activities on a monthly basis.
Speculative foreign exchange trading is prohibited in principle.
As at December 31, 2018 and 2017, if the foreign exchange rate of the Korean won fluctuated
for monetary assets and liabilities denominated in major foreign currency other than functional
currency by 10% while other variables were fixed, the effects on income (loss) before tax would
be as follows:
(in millions of Korean won) 10% increase 10% decrease 10% increase 10% decrease
USD/KRW (40,378) 40,378 38,886 (38,886)
EUR/KRW 18,956 (18,956) 19,998 (19,998)
120
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The Group is exposed to interest rate risk through changes in interest-bearing liabilities or assets.
The risk mainly arises from borrowings and deposits held by financial institutions with variable
interest rates linked to market interest rate changes in the future. The objective of interest rate
risk management lies in improving corporate value by minimizing uncertainty caused by
fluctuations in interest rates and minimizing net interest expense.
The Group minimizes its borrowings from others and optimizes its deposits by expanding
internal finance sharing. The Group periodically establishes the plan for reaction by the
monitoring trends of internal and external interest rates and minimizes the risk of net interest
expense by properly operating short-term borrowings with variable interest rates and deposits.
If interest rates fluctuate by 1%p without other variables changing, the effects on income and
expenses related to borrowings and deposits held by financial institutions with variable interest
rates for the years ended December 31, 2018 and 2017, are as follows:
2018 2017
(in millions of Korean won) 1%p increase 1%p decrease 1%p increase 1%p decrease
Interest income 40,372 (40,372) 32,249 (32,249)
Interest expense 4,719 (4,719) 3,721 (3,721)
Hedging purposes
The Group entered into the cross-currency swap contracts and the interest rate swap contracts
to hedge cash flow risks related to the floating interest rates and foreign exchange rates of
debentures.
Book amount
(in millions of
Contracted Contracted Korean won)
amount currency Interest rate
Contractor (in millions) rate (paid) (%) Starting date Expiration date Assets Liabilities
Shinhan Bank USD 730 1,067.9 ~ 2013. 7.31~ 2019. 1.31 ~
2.17 ~ 3.64 1,572 20,920
and others (USD/KRW) 1,155.2 2018. 6. 8 2028. 6. 8
Cross-currency
swap
CZK 756 2018. 6.29~ 2019. 1. 2 ~
Commerzbank 25.7 ~ 26.3 1.48 261 -
(EUR/CZK) 2018. 12. 17 2019.12. 2
KRW 1,270,000
Interest rate Woori Bank and 2012. 2. 3 ~ 2019. 9.30 ~
/ EUR 103 - 1.00 ~ 4.53 - 60,250
swap others 2018. 5.24 2030. 7. 7
/ USD 155
Interest rates received for the above swap contracts are equal to annual interest rates of
borrowings and debentures (Note 16).
121
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Changes in
fair value Accumulated other
(in millions of Korean won) Hedged items Book amount (net of tax) comprehensive loss
Cross-currency swap Borrowings 853,082 (11,178) (19,587)
Interest rate swap Borrowings 1,603,836 30,221 (42,374)
Trading purposes
The Group entered into the currency forward contracts and the interest rate swap contracts to
manage the risk against possible future changes in foreign exchange rates and interest rates.
The subsidiaries’ currency forward contracts and the interest rate swap contracts as at
December 31, 2018, and related profit or loss for the year ended December 31, 2018, are as
follows:
The Group entered into a contract to additionally purchase shares of Robostar Co.,Ltd. in
December 2019 at the average price of immediate four months with a 25% mark up. In relation
to this share purchase contract, the Group recognized derivative liabilities amounting to \2,713
million at the time of acquisition of Robostar Co.,Ltd. and recognized gain on valuation of
derivatives amounting to \851 million during the year ended December 31, 2018.
The Group is exposed to price risk through equity securities owned by the Group classified as
financial assets at fair value through other comprehensive income and available-for-sale
financial assets.
The listed securities owned by the Group are traded in the open market, and related to KOSDAQ
Index and Austrian Traded Index.
The effect of price index’s fluctuation related to the listed securities on the equity (before
applying the tax effect) is set out in the below table. The analysis is performed in respect of 30%
122
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
increase/decrease in the price index under the assumption that other variations are consistent
and the listed securities owned by the Group have correlation with the relevant past index.
The valuation and the reclassification of the financial assets at fair value through other
comprehensive income and available-for-sale financial assets related to the market risk above
are presented in Note 8.
The Group operates a consistent Global Credit / TR (trade receivables) policy to manage credit risk
exposures.
In regard to receivables, the Group operates an integrated receivable insurance program with the
world top three receivable insurers (Euler Hermes, Atradius and Coface) and Korea Trade
Insurance Corporation (K-SURE). In an effort to minimize receivable credit risk, the Group applies
the credit rating of the counterparty when determining the insurance coverage. In addition, the
Group performs stringent credit risk management based on credit valuation criteria for receivables
without insurance coverage or collateral.
Details of credit quality for trade receivables that are neither past due nor impaired are as follows:
123
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Tier 1 – National or local government, domestic and global credit rating agency AA- ~ AAA+
Tier 2 – Debtors with domestic and global credit rating other than Tier 1
Tier 3 – Small debtors without credit history
The credit rating of cash equivalents and deposits held by financial institutions estimated by the
Group using external credit rating criteria as at December 31, 2018 and 2017, is as follows:
Excellent: Equal to or more than A-(Global credit rating agency such as S&P), AAA(Domestic credit rating
agency such as Korea investors service)
Good: Equal to or more than BBB-(Global credit rating agency such as S&P), AA(Domestic credit rating agency
such as Korea investors service)
Others: Financial deposit without credit rating
The Group forecasts its cash flow and liquidity status, and sets action plans on a regular basis to
manage liquidity risk proactively. The Group systematically works with experts in four regional
treasury centers to carry out fund and liquidity management that can react proactively to the
changing global financial environment.
The Group maintains adequate amount of cash and committed credit facilities in Kookmin Bank
and Shinhan Bank to cope with potential financial distress.
In addition, the Group is able to source funds any time in the domestic and international financial
markets as of the end of reporting period because it has good investment credit grades of AA Stable
from Korea Investors Service, Korea Ratings and NICE Information Service, BBB from Standard &
Poors, and Baa3 from Moody’s as at December 31, 2018.
124
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
i) Cash flow information on maturity of financial liabilities as at December 31, 2018, are as
follows:
(in millions of Korean won) Total Within 1 year 1 to 2 years 2 to 5 years Over 5 years
Trade payables 7,216,739 7,216,739 - - -
Borrowings 12,563,403 1,761,142 1,643,496 4,458,107 4,700,658
Other payables 3,691,059 3,670,703 6,620 5,086 8,650
Other financial liabilities 19,274 13,091 - - 6,183
Total 23,490,475 12,661,675 1,650,116 4,463,193 4,715,491
The above cash flows are calculated at nominal value based on the earliest maturity dates and
include cash flows of principal and interests. The Group’s trading portfolio derivative within other
financial liabilities that are not qualified for hedge accounting have been included at their fair
value of \3,288 million within the less than 1-year time bucket. This is because the contractual
maturities are not essential for an understanding of the timing of the cash flows. These contracts
are managed on a net-fair value basis rather than by maturity date. Derivatives for cash flow
hedges from changes in interest rate and exchange rate are reflected in the cash flows of
related borrowings.
ii) The maturity analysis of financial guarantee contracts provided by the Group to third party
companies as at December 31, 2018, are as follows:
Within 1 Over 5
(in millions of Korean won) Total year 1 to 2 years 2 to 5 years years
Financial guarantee contracts 54,386 47,398 4,193 2,795 -
The above cash flow is the maximum amount of guarantees allocated to earliest period in which
the Group can be required to make payments.
The Group’s capital risk management purpose is to maximize shareholders’ value through
maintaining a sound capital structure. The Group monitors financial ratios, such as liability to equity
ratio and net borrowing ratio each month and implements required action plan to improve the capital
structure.
Debt-to-equity ratio and net borrowing ratio as at December 31, 2018 and 2017, are as follows:
(in millions of Korean won, except for ratios) December 31, 2018 December 31, 2017
Liability (A) 28,021,536 26,547,275
Equity (B) 16,306,907 14,673,684
Cash and cash equivalents (C) 4,270,388 3,350,597
Borrowings (D) 10,901,186 9,450,480
Debt-to-equity ratio (A/B) 171.8% 180.9%
Net borrowings ratio ((D-C)/B) 40.7% 41.6%
125
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) The book amounts and fair values of the Group’s financial assets and liabilities as at December
31, 2018 and 2017, are as follows:
126
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Assets at cost
Available-for-sale financial assets
Other financial assets - - 37,154 3
127
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
cash flows is significant and the probabilities of the various estimates within the range cannot be reasonably
assessed.
4 Measured at the higher of the amount determined in accordance with Korean IFRS 1037 Provisions,
Contingent Liabilities and Contingent Assets, and the amount initially recognized less cumulative
amortization recognized in accordance with Korean IFRS 1018 Revenue.
The fair value is defined as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants. The fair value measurement
is to estimate the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date under current
market conditions. When measuring fair value using valuation techniques, the Group
maximizes the use of market information and minimizes the use of unobservable inputs.
Financial instruments measured at fair value are categorized within the fair value hierarchy,
and the defined levels are as follows:
- Level 1: Financial instruments measured at the quoted prices in an active market for identical
assets or liabilities are included in ‘level 1’. Assets or liabilities categorized within ‘level 1’
include financial instruments such as marketable equity securities traded.
- Level 2: When financial instruments are measured by using a discounted cash flow, if all
significant inputs required to measure the fair value of an instrument are observable, the
instrument is included in ‘level 2’. Assets or liabilities categorized within ‘level 2’ include
financial instruments such as derivative financial instruments.
- Level 3: When financial instruments are measured by using a discounted cash flow, if one or
more of the significant inputs are unobservable market data, the instrument is included in ‘level
3’. There are no assets or liabilities categorized within ‘level 3’.
The fair value of financial instruments traded in active markets is based on quoted market
prices at the end of the reporting period. A market is regarded as active if quoted prices are
readily and regularly available from an exchange, dealer, broker, an entity within the same
industry, pricing service, or regulatory agency, and those prices represent actual and regularly
occurring market transactions on an arm’s length basis. The quoted market price for financial
assets held by the Group is the closing price at the end of the reporting period. These
instruments are included in ‘level 1’. Instruments included in ‘level 1’ comprise primarily equity
investments classified as financial assets at fair value through other comprehensive income
and available for sale financial assets.
The fair value of financial instruments that are not traded in an active market is determined by
using valuation techniques. The Group uses various valuation techniques that the Group
develops or figures that external valuation agencies provide, and makes judgements based on
128
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
current market conditions. These valuation techniques maximize the use of observable market
data where it is available and rely as little as possible on entity specific estimates. If all
significant inputs required to measure the fair value of an instrument are observable, the
instrument is included in ‘level 2’.
If one or more of the significant inputs are not based on observable market data, the instrument
is included in ‘level 3’. Financial instrument included ‘level 3' uses other method including
discounting cash flow method.
Fair value hierarchy classifications of the financial assets and financial liabilities that are
measured at fair value as at December 31, 2018 and 2017, are as follows:
129
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
The above fair value amounts are recurring fair value measurements.
- Valuation technique and inputs for fair value measurements categorized within ‘level 2’
Valuation technique and inputs for fair value measurements categorized within ‘level 2’ as at
December 31, 2018 and 2017, are as follows:
Fair value
December 31, December 31, Valuation
(in millions of Korean won) 2018 2017 techniques Inputs
Assets
Other financial assets
Financial assets at fair value Discounted cash Discount rate and
6,742 3,534
through profit or loss flow exchange rate
Discounted cash Discount rate and
Derivatives for hedging purposes 1,833 1,862
flow exchange rate
Liabilities
Other financial liabilities
Discount rate,
Financial liabilities at fair value Discounted cash
11,273 2,166 exchange rate
through profit or loss flow
and share price
Discounted cash Discount rate and
Derivatives for hedging purposes 81,170 68,589
flow exchange rate
At the end of the reporting period, no financial instruments measured at fair value are
categorized within ‘level 3’.
iii) Financial instruments not measured at fair value but for which the fair value is disclosed
Financial instruments not measured at fair value but for which the fair value is disclosed as at
December 31, 2018 and 2017, are as follows:
130
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
- Valuation technique and inputs for fair value measurements categorized within ‘level 2’
At the end of the reporting period, there are no financial instruments that are not measured at
fair value but for which the fair value is disclosed and categorized within ‘level 2’.
Valuation technique, inputs and unobservable inputs of financial instruments that are not
measured at fair value but for which the fair value is disclosed and categorized within ‘level 3’
as at December 31, 2018 and 2017, are as follows:
131
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(a) On August 3, 2018, the Group acquired 70% shares of ZKW Holding GmbH, its subsidiaries
and related entities in order to secure competitiveness of the vehicle components business.
The following table summarizes the consideration paid and the fair value of assets acquired
and liabilities assumed:
132
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
Net sales and profit of ZKW Holding GmbH, its subsidiaries and related entities for the period
from the acquisition date, August 3, 2018, to December 31, 2018 included in the consolidated
statements of profit or loss are \708,610 million and \29,388 million, respectively. Net sales
and profit for the current reporting period as though the acquisition date had been as of the
beginning of the annual reporting period are as follows:
(b) On July 1, 2017, the Group acquired R&D institutions in Japan from LG Chem, Ltd. and LG
Display Co., Ltd. in order to create synergy effects by integrating R&D base in Japan.
The following table summarizes the consideration paid and the fair value of assets acquired
and liabilities assumed:
(a) Details of assets classified as held for sale as at December 31, 2018 and 2017, are as follows:
(in millions of Korean won) December 31, 2018 December 31, 2017
Assets held for sale
Property, plant and equipment1 115,212 21,436
Total 115,212 21,436
1 At the end of the reporting period, sales procedure of the assets held for sale is in progress and the sale
is expected to be completed by the second quarter of 2019. Meanwhile, sale of assets, which are
classified as assets held for sale as at the end of prior year, was completed in 2018.
133
LG Electronics
Notes to the Consolidated Financial Statements
December 31, 2018 and 2017
(b) Assets held for sale were measured at fair value less costs to sell before the reclassification,
and no impairment loss was recognized in relation to this.
The issuance of the December 31, 2018 consolidated financial statements of the Group was
approved by the Board of Directors on January 29, 2019.
134