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Consolidated financial statements for the years ended December 31, 2018 and 2017
with the independent auditor’s report
Innocean Worldwide Inc. and its subsidiaries
Table of contents Independent auditor’s report Page Consolidated financial statements
Consolidated statements of financial position 1 Consolidated statements of profit or loss and other comprehensive income 3
Consolidated statements of changes in equity 4
Consolidated statements of cash flows 5
Notes to the consolidated financial statements 6
Independent auditor’s report
The Shareholders and Board of Directors Innocean Worldwide Inc.
Opinion We have audited the consolidated financial statements of Innocean Worldwide Inc. and its subsidiaries (the “Group”), which comprise the consolidated statements of financial position as of December 31, 2018 and 2017, and the consolidated statements of profit or loss and other comprehensive income, consolidated statement 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 of December 31, 2018 and 2017 and its consolidated
financial performance and consolidated its cash flows for the years then ended in accordance with Korean International Financial Reporting Standards. Basis for opinion
We conducted our audit in accordance with Korean Auditing Standards (KGAAS). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
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 International Financial Reporting Standards, 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, or has no realistic alternative but to do so. Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with KGAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.
Ernst & Young Han YoungTaeyoung Building, 111, Yeouigongwon-ro, Yeongdeungpo-gu, Seoul 07241 Korea
Tel: +82 2 3787 6600 Fax: +82 2 783 5890 ey.com/kr
A member firm of Ernst & Young Global Limited
As part of an audit in accordance with KGAAS, 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 for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We 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 to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. The partner in charge of the audit resulting in this independent auditor’s report is Seongjin Cho.
March 18, 2019
This report is effective as of March 18, 2019, the auditor’s report date. Accordingly, Certain material subsequent events or circumstances may have occurred during the period from the date of the independent auditor’s report to the time this report is used. Such events and circumstances could significantly affect the accompanying consolidated financial statements and may result in modifications to the auditor’s report.
A member firm of Ernst & Young Global Limited
Innocean Worldwide Inc. and its subsidiaries
Consolidated financial statements
for the years ended December 31, 2018 and 2017
“The accompanying consolidated financial statements, including all footnotes and disclosures, have been prepared by, and are the responsibility of, the Group.”
Ahn, Kun Hee Chief Executive Officer Innocean Worldwide Inc.
(Korean won)
Notes
AssetsCurrent assets
Cash and cash equivalents 30 \ 356,950,144,955 \ 330,161,565,375 Short-term financial instruments 4,30 341,034,213,147 392,371,208,849 Trade and other receivables 5,30,32,33 816,582,570,913 721,086,291,180 Other current financial assets 6,30 4,773,569,424 3,274,199,475 Current tax assets 2,227,008,051 1,351,887,862 Other current assets 7 54,175,223,261 60,927,862,968
Total current assets 1,575,742,729,751 1,509,173,015,709
Non-current assets:Long-term financial instruments 3,4,30 262,995,486 6,000,000 Available-for-sale (AFS) financial assets 8,30 - 1,818,239,500 Financial assets at fair value through OCI 9,30 478,234,640 - Other non-current financial assets 6,30 7,206,253,516 6,510,687,250 Investments in joint venture and associates 10 14,474,678,798 15,921,364,635 Property, plant and equipment 11 25,851,936,097 32,564,992,079 Intangible assets 12 111,510,769,899 54,135,246,199 Deferred tax assets 28 5,106,216,748 6,336,503,676 Other non-current assets 7 308,856,740 28,119,378
Total non-current assets 165,199,941,924 117,321,152,717 Total assets \ 1,740,942,671,675 \ 1,626,494,168,426
(Continued)
Innocean Worldwide Inc. and its subsidiariesConsolidated statements of financial positionas of December 31, 2018 and 2017
2018 2017
1
(Korean won)
Notes
LiabilitiesCurrent liabilities:
Trade and other payables 13,30,33 \ 884,030,855,193 \ 857,953,166,363 Other current financial liabilities 14,30 23,010,731 11,257,400 Current provisions 18 268,414,339 254,801,086 Income tax payable 9,420,926,514 6,197,098,796 Other current liabilities 15 40,295,966,888 27,306,041,241
Total current liabilities 934,039,173,665 891,722,364,886
Non-current liabilities:Other payables 13,30 16,947,611,974 4,330,862,489 Other non-current financial liabilities 14,30 20,683,096,076 19,819,219,333 Bond 16,30,32 10,000,000 10,000,000 Net defined benefit liabilities 17 441,652,678 1,702,487,094 Deferred tax liabilities 28 21,915,798,283 19,246,042,879 Non-current provisions 18 4,379,509,143 3,464,123,412 Other non-current liabilities 15 679,920,993 618,565,660
Total non-current liabilities 65,057,589,147 49,191,300,867 Total liabilities \ 999,096,762,812 \ 940,913,665,753
EquityCapital stock 1,19 10,000,000,000 10,000,000,000 Other contributed capital 20 132,848,563,863 132,848,563,863 Other components of equity 21 (30,287,470,029) (30,758,182,130)Retained earnings 22 614,910,381,203 560,216,014,823 Equity attributable to the owners of 727,471,475,037 672,306,396,556
the CompanyNon-controlling interests 14,374,433,826 13,274,106,117
Total equity \ 741,845,908,863 \ 685,580,502,673 Total liabilities and equity \ 1,740,942,671,675 \ 1,626,494,168,426
Innocean Worldwide Inc. and its subsidiariesConsolidated statements of financial positionas of December 31, 2018 and 2017 (cont'd)
2018 2017
The accompanying notes are an integral part of the consolidated financial statements.
2
(Korean won)
Notes
Sales 23,33,36 \ 1,239,176,790,460 \ 1,138,685,372,832 Cost of sales 27,33 (767,316,501,877) (745,485,265,126)Gross profit 471,860,288,583 393,200,107,706 Selling and administrative expenses 24,27 (353,673,802,261) (296,521,142,732)Operating profit 36 118,186,486,322 96,678,964,974
Share of profit (loss) of equity ofequity-accounted investees, net 10 (212,273,855) 963,347,448
Finance income 25,31 15,804,035,890 13,906,338,925 Finance costs 25,31 (4,498,146,661) (7,038,397,083)Other income 26 2,121,971,718 1,025,212,486 Other expenses 26 (2,674,160,037) (1,061,929,561)
Income before income tax 28 128,727,913,377 104,473,537,189 Income tax expense 27 (36,346,145,832) (28,811,990,794)
Profit for the year 92,381,767,545 75,661,546,395
Other comprehensive income (loss):Items that will not be reclassified
subsequently to profit or loss:Remeasurements of defined benefit plans 22 (2,149,463,222) (1,071,931,867)
(2,149,463,222) (1,071,931,867)
to profit or loss:Gain (loss) on foreign operations
transition, net 677,853,908 (15,483,201,441)Share of other comprehensive loss of
equity-accounted investees, net 10 (34,411,988) (468,590,149)Gain on AFS financial assets, net - 7,402,426
643,441,920 (15,944,389,164)Total other comprehensive loss (1,506,021,302) (17,016,321,031)
Total comprehensive income for the year \ 90,875,746,243 \ 58,645,225,364
Profit for the year attributable to:Owners of the Company \ 76,843,829,602 \ 61,480,985,162 Non-controlling interests 15,537,937,943 14,180,561,233
92,381,767,545 75,661,546,395 Comprehensive income attributable to:
Owners of the Company 74,536,613,334 47,124,509,850 Non-controlling interests 16,339,132,909 11,520,715,514
90,875,746,243 58,645,225,364
of the Company:Basic and diluted earnings per common share 29 ₩ 3,842 ₩ 3,074
Earnings per share attributable to the owners
The accompanying notes are an integral part of the consolidated financial statements.
Items that may be reclassified subsequently
Innocean Worldwide Inc. and its subsidiariesConsolidated statements of profit or loss and other comprehensive incomefor the years ended December 31, 2018 and 2017
20172018
3
(Kor
ean
won
)
Bal
ance
s at
Jan
uary
1, 2
017
\10
,000
,000
,000
\
132,
848,
563,
863 \
(7,0
92,6
15,8
80)\
518,
806,
961,
528 \
654,
562,
909,
511 \
23,6
89,9
72,0
58 \
678,
252,
881,
569
- -
- (1
9,00
0,00
0,00
0)(1
9,00
0,00
0,00
0)(1
2,49
8,38
4,92
7)(3
1,49
8,38
4,92
7)-
- -
61,4
80,9
85,1
62
61,4
80,9
85,1
62
14,1
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61,2
33
75,6
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Cha
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ir va
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ale
finan
cial
ass
ets,
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of t
ax-
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- 7,
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- 7,
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Rem
easu
rem
ents
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efin
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ty-a
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ers
- -
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- (1
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alan
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132,
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(30,
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130)\
560,
216,
014,
823 \
672,
306,
396,
556 \
13,2
74,1
06,1
17 \
685,
580,
502,
673
Bal
ance
s at
Jan
uary
1, 2
018
\10
,000
,000
,000
\13
2,84
8,56
3,86
3
\(3
0,75
8,18
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0)\
560,
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014,
823\
672,
306,
396,
556\
13,2
74,1
06,1
17\
685,
580,
502,
673
Paym
ent o
f cas
h di
vide
nds
-
-
-
(2
0,00
0,00
0,00
0)(2
0,00
0,00
0,00
0)(1
3,74
6,46
3,31
0)(3
3,74
6,46
3,31
0)Pr
ofit
for t
he y
ear
-
-
-
76
,843
,829
,602
76,8
43,8
29,6
0215
,537
,937
,943
92,3
81,7
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45R
emea
sure
men
ts o
f def
ined
ben
efit
plan
s-
-
-
(2,1
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63,2
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(2,1
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-(2
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)G
ain
(loss
) on
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net
-
-
(123
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,058
)-
(123
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1,19
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7,85
3,90
8
equi
ty-a
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nted
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et-
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8)-
(34,
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-(3
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ther
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-
62
8,46
5,14
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(1,4
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(863
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alan
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at D
ecem
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1, 2
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\10
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\13
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(30,
287,
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614,
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381,
203\
727,
471,
475,
037\
14,3
74,4
33,8
26\
741,
845,
908,
863
Inno
cean
Wor
ldw
ide
Inc.
and
its
subs
idia
ries
Con
solid
ated
sta
tem
ents
of c
hang
es in
equ
ity
Tota
l equ
ity
attr
ibut
able
toN
on-c
ontr
ollin
gO
ther
con
trib
uted
Oth
er c
ompo
nent
sth
e ow
ners
of
for t
he y
ears
end
ed D
ecem
ber 3
1, 2
018
and
2017
inte
rest
sca
pita
lof
equ
ityR
etai
ned
earn
ings
the
Com
pany
The
acco
mpa
nyin
g no
tes
are
inte
gral
par
t of t
he c
onso
lidat
ed fi
nanc
ial s
tate
men
ts.
Shar
e of
oth
er c
ompr
ehen
sive
loss
of
Paym
ent o
f cas
h di
vide
nds
Loss
on
fore
ign
oper
atio
ns tr
ansl
atio
n, n
etSh
are
of o
ther
com
preh
ensi
ve lo
ss o
f
Prof
it fo
r the
yea
r
Tota
l equ
ityC
apita
l sto
ck
4
(Korean won)
Notes
Cash flows from operating activities:Cash generated from operations: 34
Profit for the year \ 92,381,767,545 \ 75,661,546,395 Adjustments to reconcile profit for the year
to net cash flows 40,959,444,273 33,718,005,684 Changes in operating assets and liabilities (110,083,844,965) 21,853,121,151
23,257,366,853 131,232,673,230 Interest received 9,915,849,052 8,865,638,433 Interest paid (210,000) (25,098,822)Dividends received - 3,745,046,299 Income tax paid (28,637,018,737) (28,305,847,844)
Net cash provided by operating activities 4,535,987,168 115,512,411,296
Cash flows from investing activities:Proceeds from disposals of
short-term financial instruments, net 50,799,794,097 45,154,314,870 Proceeds from disposals of other financial assets 786,985,592 54,463,960 Proceeds from disposals of financial assets
at fair value through OCI 1,340,000,000 - Acquisitions of AFS financial assets - (335,546,515)Proceeds from disposals of property, plant
11,270,645,040 22,188,529 Acquisitions of other financial assets (1,459,817,450) (818,592,000)Acquisitions of property, plant and equipment (8,745,764,931) (8,791,816,482)Acquisitions of intangible assets (302,777,367) (300,363,107)Proceeds from disposal of
investments in associates 1,200,000,000 - Government grants received 300,000,000 - Net cash outflows from business combinations (122,201,761) -
Net cash provided by investing activities 55,066,863,220 34,984,649,255
Cash flows from financing activities:Issuance of bonds - 10,000,000 Dividends paid (33,972,175,086) (31,616,435,890)
Net cash used in financing activities (33,972,175,086) (31,606,435,890)
Net increase in cash and cash equivalents 25,630,675,302 118,890,624,661 Cash and cash equivalents, beginning of the year 330,161,565,375 231,155,874,852 Effect of exchange rate changes on cash
and cash equivalents 1,157,904,278 (19,884,934,137)Cash and cash equivalents, end of the year \ 356,950,144,955 \ 330,161,565,375
2018 2017
Innocean Worldwide Inc. and its subsidiariesConsolidated statements of cash flowsfor the years ended December 31, 2018 and 2017
and equipment
The accompanying notes are an integral part of the consolidated financial statements.
5
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
6
1. General 1.1 The Company Innocean Worldwide Inc. (the “Company” or “Parent Company”) was incorporated on May 17, 2005 under the laws of the Republic of Korea. The Company and its subsidiaries (the “Group”) conduct their business as an advertising agency and are engaged in the production of commercial advertising and promotional materials, and other related business activities. The Company listed its common shares on the Korea Stock Exchange on July 17, 2015. The Company’s head office is located at 308, Gangnam-daero, Gangnam-gu, Seoul, Korea.
As of December 31, 2018, the Company’s capital stock amounts to \10,000,000 thousand, and the stockholders
of the Company are as follows:
Name Number of shares Equity interest (%)
Sung-Yi Chung 5,599,000 27.99 NHPEA IV Highlight Holdings AB 3,600,000 18.00 Hyundai Motor Chung Mong-Koo Foundation 1,800,000 9.00 Eui-Sun Chung 400,000 2.00 Others 8,601,000 43.01
20,000,000 100.00
1.2 Subsidiaries The Company’s consolidated subsidiaries as of December 31, 2018 and 2017 are as follows:
Subsidiaries Nature of
the business Location Fiscal year-end
Ownership percentage
2018 2017
Innocean Worldwide Holdings, Inc.(IWH)
Holdings
US
12.31 100 100
Innocean Worldwide Americas, LLC (IWA)(*1)
Ad-agency
US
12.31 60 60
Canvas Worldwide, LLC (CANVAS WW)(*2)
Media agency
US
12.31 51 51
David & Goliath LLD (IDNG)(*3) Ad-agency US 12.31 100 - Spinach LLC (Spinach)(*4) Ad-agency US 12.31 100 - Innocean Worldwide
Communication Private Ltd. (IWI)
Ad-agency
India
3.31 100 100
Innocean Worldwide UK Ltd. (IWUK) Ad-agency UK 12.31 100 100 Innocean Worldwide Europe GmbH
(IWE)
Ad-agency
Germany
12.31 100 100
Innocean Worldwide Italy Srl (IWIt) Ad-agency Italy 12.31 100 100 Innocean Worldwide China
Shanghai (IWC Shanghai)
Ad-agency
China
12.31 100 100 Innocean Worldwide China
Beijing (IWC Beijing)
Ad-agency
China
12.31 100 100 Innocean Worldwide Australia
Pty Ltd.(IWAu)
Ad-agency Australia 12.31 100 100 Innocean Worldwide Rus LLC.
.(IWR)
Ad-agency
Russia
12.31 100 100 Innocean Worldwide Canada Inc.
(IWCa)
Ad-agency
Canada
12.31 100 100 Innocean Worldwide Spain S.L.
(IWS)
Ad-agency
Spain
12.31 100 100 Innocean Worldwide France
.(IWF)
Ad-agency France
12.31 100 100 Innocean Worldwide Turkey
.(IWTr)
Ad-agency
Turkey
12.31 100 100 Innocean Worldwide Brazil
.(IWB)
Ad-agency
Brazil
12.31 100 100 Innocean Worldwide Mexico
(IWM)
Ad-agency Mexico 12.31 100 100 Innocean Worldwide Middle
East & Africa FZ-LLC (IWMENA)
Ad-agency
United Arab Emirates
12.31 100 100
6
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
7
1.2 Subsidiaries (cont’d)
(*1) Parent's subsidiary, IWH, owns 60% stake.
(*2) Parent's subsidiary, IWH, owns 51% stake.
(*3) Parent's subsidiary, IWH, owns 100% stake.
(*4) Parent's subsidiary, IDNG, owns 100% stake.
Newly consolidated subsidiaries during 2018 are as follows (See Note 37):
Company Explanation
David & Goliath LLC (IDNG) New acquisition through a subsidiary, IWH Spinach LLC (Spinach) Subsidiary of subsidiary, IDNG Condensed financial positions and results of operations of the Company’s consolidated subsidiaries as of and for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
Name of subsidiaries
2018
Assets Liabilities Sales Profit
for the year
IWA ₩ 356,516,091 ₩ 318,787,875 ₩ 343,106,476 ₩ 26,685,191
CANVAS WW 371,468,990 349,161,769 62,666,412 11,389,213
The financial statements of all subsidiaries, which are used in the preparation of the consolidated financial statements, are prepared for the same reporting periods as the Company’s.
Name of subsidiaries
2017
Assets Liabilities Sales Profit
for the year
IWA ₩ 294,445,353 ₩ 261,260,088 ₩ 384,771,434 ₩ 23,845,541
CANVAS WW 308,646,386 289,384,760 55,860,996 9,474,173 The financial statements of all subsidiaries, which are used in the preparation of the consolidated financial
statements, are prepared for the same reporting periods as the Company’s.
Summarized cash flows of non-wholly owned subsidiaries that have material non-controlling interests to the Group as of December 31, 2018 are as follows (Korean won in thousands):
IWA CANVAS WW
Cash flows from operating activities ₩ (11,495,857) ₩ (25,259,128)
Cash flows from investing activities (4,011,764) (309,128)
Cash flows from financing activities (23,638,009) (9,218,309) Effect of exchange rate changes on cash and cash equivalents
1,620,179 4,341,390
Net increase in cash and cash equivalents ₩ (37,525,451)
₩ (30,445,175)
Details of non-wholly owned subsidiaries of the Company that have material non-controlling interests as at December 31, 2018 are as follows (Korean won in thousands):
IWA CANVAS WW
Ownership percentage of non-controlling interests 40% 49%
Non-controlling interests(*) ₩ 14,804,545 ₩ 10,930,538
Profit attributable to non-controlling interests 9,957,224 5,580,714
(*) As of the end of the reporting period, the cumulative non-controlling interest of CANVAS WW amounting
to ₩ 10,930,538 thousand was recognized as a derivative financial liability due to the equity option
contract with ERH (see Note 35).
7
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
8
2. Summary of significant accounting policies 2.1 Basis of consolidated financial statements preparation The Group prepares statutory financial statements in accordance with Korean International Financial Reporting Standards (KIFRS) enacted by the Act on External Audit of Stock Companies. The consolidated financial statements have been prepared on a historical cost basis, except for those items that are separately stated in the accounting policies below, such as financial instruments. The consolidated financial statements are presented in Korean won (KRW), except when otherwise indicated. 2.2 Basis of consolidation The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at December 31, 2018. Control is achieved when the Group 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. Specifically, the Group controls an investee if, and only if, the Group has: Power over the investee (i.e., existing rights that give it the current ability to direct the relevant activities of
the investee) Exposure, or rights, to variable returns from its involvement with the investee The ability to use its power over the investee to affect its returns Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: The contractual arrangement(s) with the other vote holders of the investee Rights arising from other contractual arrangements The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of other comprehensive income (OCI) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interest and other components of equity, while any resultant gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.
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2.3 Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognized at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of KIFRS 1039 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognized in the statement of profit or loss. In addition, contingent consideration classified as equity is accounted for within equity upon settlement without remeasurement. If the contingent consideration is not within the scope of KIFRS 1109, it is measured in accordance with the appropriate accounting standards. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognized for non-controlling interests, and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognized at the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognized in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the CGU retained. 2.4 Investment in associates and joint ventures
An associate is an entity over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. The Group’s investments in its associate and joint venture are accounted for using the equity method. Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying amount of the investment is adjusted to recognize changes in the Group’s share of net assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying amount of the investment and is not tested for impairment separately.
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2.4 Investment in associates and joint ventures (cont’d) The consolidated statements of profit or loss and other comprehensive income reflects the Group’s share of the results of operations of the associate or joint venture. Any change in OCI of those investees is presented as part of the Group’s OCI. In addition, when there has been a change recognized directly in the equity of the associate or joint venture, the Group recognizes its share of any changes, when applicable, in the statement of changes in equity. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the interest in the associate or joint venture.
The aggregate of the Group’s share of profit or loss of an associate and a joint venture is shown on the face of the statement of profit or loss and other comprehensive income outside operating profit and represents profit or loss after tax and non-controlling interests in the subsidiaries of the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. When necessary, adjustments are made to bring the accounting policies in line with those of the Group. After application of the equity method, the Group determines whether it is necessary to recognize an impairment loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognizes the loss as ‘Share of profit of an associate and a joint venture’ in the statement of profit or loss and other comprehensive income. Upon loss of significant influence over the associate or joint control over the joint venture, the Group measures and recognizes any retained investment at its fair value. Any difference between the carrying amount of the associate or joint venture upon loss of significant influence or joint control and the fair value of the retained investment and proceeds from disposal is recognized in profit or loss. 2.5 Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is current when it is: Expected to be realized or intended to be sold or consumed in the normal operating cycle Held primarily for the purpose of trading Expected to be realized within twelve months after the reporting period, or Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least
twelve months after the reporting period All other assets are classified as non-current. A liability is current when: It is expected to be settled in the normal operating cycle It is held primarily for the purpose of trading It is due to be settled within twelve months after the reporting period, or There is no unconditional right to defer the settlement of the liability for at least twelve months after the
reporting period The Group classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities.
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2.6 Revenue from contracts with customers
The Group is in the business of providing advertising agency service and advertisement production. Revenue from contracts with customers is recognized when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the Group expects to be entitled in exchange for those goods or services. The disclosures of significant accounting judgments, estimates and assumptions relating to revenue from contracts with customers are provided in Note 2.23. 2.6.1 Rendering of services
In case of advertising agency fees received from media companies in exchange for advertising on behalf of them, revenue is recognized only for the portion for agency service fees in accrual basis, and the Group acts as an agent in this contract. If another party is involved in providing goods or services to the customer, the Group assesses the nature of its promise with the customer to determine whether it is a principal or an agent in the transaction. If the Group controls the promised goods or services before they are transferred to the customer, the Group is a principal and recognizes revenue in the gross amount. However, if the Group is arranging for another party to provide goods or services, the Group is an agent, and revenue is recognized in net amounts for such arranging services. In terms of a sale of advertisement production services and other service sales, revenue is recognized based on the percentage-of-completion. However, if the results of the contract to render the service cannot be measured reliably, only the amount within the recoverable amount of the recognized expense is recognized as revenue.
2.6.2 Sales of goods
Revenue from the sale of goods is recognized when the significant risks and rewards of ownership of the goods have passed to the buyer, usually on delivery of the goods. 2.6.3 Significant financing component
Generally, the Group receives short-term advances from its customers. Using the practical expedient in KIFRS 1115, the Group does not adjust the promised amount of consideration for the effects of a significant financing component if it expects, at contract inception, that the period between the transfer of the promised good or service to the customer and when the customer pays for that the good or service will be one year or less. 2.6.4 Contract balances Contract assets
A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Group performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognized for the earned consideration that is conditional. Trade Receivables A receivable represents the Group’s right to an amount of consideration that is unconditional(i.e., only the passage of time is required before payment of the consideration is due). Refer to accounting policies for financial assets in the Note 2.9 Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or services to the customer, a contract liability is recognized when the payment is made or the payment is due (whichever is earlier). Contract liabilities are recognized as revenue when the Group performs under the contract.
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2.7 Foreign currency translation
The Group’s consolidated financial statements are presented in Korean won, which is also the parent company’s functional currency and reporting currency. For each entity, the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency.
Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rates at the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency spot rates of exchange at the reporting date. Differences arising on settlement or translation of monetary items are recognized in profit or loss with the exception of monetary items that are designated as part of the hedge of the Group’s net investment of a foreign operation. These are recognized in OCI until the net investment is disposed of, at which time, the cumulative amount is reclassified to profit or loss. Tax charges and credits attributable to exchange differences on those monetary items are also recorded in OCI. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item (i.e., translation differences on items whose fair value gain or loss is recognized in OCI or profit or loss is also recognized in OCI or profit or loss, respectively). In determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which the Group initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, the Group determines the transaction date for each payment or receipt of advance consideration. On consolidation, the assets and liabilities of foreign operations are translated into Korean won at the rate of exchange prevailing at the reporting date and their statements of profit or loss are translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on translation for consolidation are recognized in OCI. On disposal of a foreign operation, the component of OCI relating to that particular foreign operation is recognized in profit or loss. Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition are treated as assets and liabilities of the foreign operation and translated at the spot rate of exchange at the reporting date. 2.8 Cash and cash equivalents Cash and cash equivalents in the consolidated statement of financial position comprise cash at banks and on hand and short-term deposits with a maturity of three months or less, which are subject to an insignificant risk of changes in value. For the purpose of the consolidated statement of cash flows, cash and cash equivalents consist of cash and short-term deposits, as defined above.
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2.9 Financial instruments – initial recognition and subsequent measurement
A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or
equity instrument of another entity.
2.9.1 Financial assets
Initial recognition and measurement
Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow
characteristics and the Group’s business model for managing them. With the exception of trade receivables that
do not contain a significant financing component or for which the Group has applied the practical expedient, the
Group initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value
through profit or loss, transaction costs. Trade receivables that do not contain a significant financing component
or for which the Group has applied the practical expedient are measured at the transaction price determined
under KIFRS 1115. See Note 2.6.
In order for a financial asset to be classified and measured at amortized cost or fair value through OCI, it needs
to give rise to cash flows that are ‘solely payments of principal and interest (SPPI)’ on the principal amount
outstanding. This assessment is referred to as the SPPI test and is performed at an instrument level.
The Group’s business model for managing financial assets refers to how it manages its financial assets in order
to generate cash flows. The business model determines whether cash flows will result from collecting contractual
cash flows, selling the financial assets, or both.
Purchases or sales of financial assets that require delivery of assets within a time frame established by
regulation or convention in the market place (regular way trades) are recognized on the trade date, i.e., the date
that the Group commits to purchase or sell the asset.
Subsequent measurement
For purposes of subsequent measurement, financial assets are classified in four categories:
Financial assets at amortised cost (debt instruments)
Financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments)
Financial assets designated at fair value through OCI with no recycling of cumulative gains and losses
upon derecognition (equity instruments)
Financial assets at fair value through profit or loss
Financial assets at amortized cost (debt instruments)
This category is the most relevant to the Group. The Group measures financial assets at amortised cost if both
of the following conditions are met:
The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
Financial assets at amortised cost are subsequently measured using the effective interest rate (EIR) method
and are subject to impairment. Gains and losses are recognized in profit or loss when the asset is derecognized,
modified or impaired.
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2.9.1 Financial assets (cont’d)
Financial assets at fair value through OCI (debt instruments)
The Group measures debt instruments at fair value through OCI if both of the following conditions are met:
The financial asset is held within a business model with the objective of both holding to collect contractual
cash flows and selling, and
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding
For debt instruments at fair value through OCI, interest income, foreign exchange revaluation and impairment
losses or reversals are recognized in profit or loss and computed in the same manner as for financial assets
measured at amortised cost. The remaining fair value changes are recognized in OCI. Upon derecognition, the
cumulative fair value change recognized in OCI is recycled to profit or loss.
The Group’s debt instruments at fair value through OCI includes investments in quoted debt instruments
included under other non-current financial assets.
The Group can elect to classify irrevocably its non-listed equity investments under this category.
Financial assets at fair value through profit or loss
Financial assets at fair value through profit or loss are carried in the statement of financial position at fair value
with net changes in fair value recognized in profit or loss.
This category includes derivatives and listed equity instruments that are not elected to classify irrevocably
changes in fair value to other comprehensive income. Dividends on listed equity instruments are recognized in
profit or loss when the right of payment has been established.
Financial assets designated at fair value through OCI (equity instruments)
Upon initial recognition, the Group can elect to classify irrevocably its equity investments as equity instruments
designated at fair value through OCI when they meet the definition of equity under KIFRS 1032 Financial
Instruments: Presentation and are not held for trading. The classification is determined on an instrument-by-
instrument basis.
Gains and losses on these financial assets are never recycled to profit or loss. Dividends are recognized as
other income in the statement of profit or loss when the right of payment has been established, except when
the Group benefits from such proceeds as a recovery of part of the cost of the financial asset, in which case,
such gains are recorded in OCI. Equity instruments designated at fair value through OCI are not subject to
impairment assessment.
Financial assets at fair value through profit or loss include financial assets held for trading and financial assets
designated upon initial recognition at fair value through profit or loss. Financial assets are classified as held for
trading if they are acquired for the purpose of selling or repurchasing in the near term. Derivatives, including
separated embedded derivatives, are also classified as held for trading unless they are designated as effective
hedging instruments. Financial assets with cash flows that are not solely payments of principal and interest are
classified and measured at fair value through profit or loss, irrespective of the business model. Notwithstanding
the criteria for debt instruments to be classified at amortised cost or at fair value through OCI, as described
above, debt instruments may be designated at fair value through profit or loss on initial recognition if doing so
eliminates, or significantly reduces, an accounting mismatch.
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2.9.1 Financial assets (cont’d)
A derivative embedded in a hybrid contract, with a financial liability or non-financial host, is separated from the
host and accounted for as a separate derivative if: the economic characteristics and risks are not closely related
to the host; a separate instrument with the same terms as the embedded derivative would meet the definition of
a derivative; and the hybrid contract is not measured at fair value through profit or loss.
Embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss.
Reassessment only occurs if there is either a change in the terms of the contract that significantly modifies the
cash flows that would otherwise be required or a reclassification of a financial asset out of the fair value through
profit or loss category.
A derivative embedded within a hybrid contract containing a financial asset host is not accounted for separately.
The financial asset host together with the embedded derivative is required to be classified in its entirety as a
financial asset at fair value through profit or loss.
Derecognition
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is primarily derecognized when:
The rights to receive cash flows from the asset have expired, or
The Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has transferred substantially all the risks and rewards of the asset, or (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset
When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through
arrangement, it evaluates if, and to what extent, it has retained the risks and rewards of ownership. When it has
neither transferred nor retained substantially all of the risks and rewards of the asset, nor transferred control of
the asset, the Group continues to recognize the transferred asset to the extent of the Group’s continuing
involvement. In that case, the Group also recognizes an associated liability. The transferred asset and the
associated liability are measured on a basis that reflects the rights and obligations that the Group has retained.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower
of the original carrying amount of the asset and the maximum amount of consideration that the Group could be
required to repay.
2.9.2 Impairment of financial assets
Further disclosures relating to impairment of financial assets are also provided in the following notes:
Disclosures for significant assumptions Debt instruments at fair value through OCI Trade receivables, including contract assets
The Group recognizes an allowance for expected credit losses (ECLs) for all debt instruments not held at fair
value through profit or loss. ECLs are based on the difference between the contractual cash flows due in
accordance with the contract and all the cash flows that the Group expects to receive, discounted at an
approximation of the original effective interest rate. The expected cash flows will include cash flows from the
sale of collateral held or other credit enhancements that are integral to the contractual terms.
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2.9.2 Impairment of financial assets (cont’d)
ECLs are recognized in two stages. For credit exposures for which there has not been a significant increase in
credit risk since initial recognition, ECLs are provided for credit losses that result from default events that are
possible within the next 12-months (a 12-month ECL). For those credit exposures for which there has been a
significant increase in credit risk since initial recognition, a loss allowance is required for credit losses expected
over the remaining life of the exposure, irrespective of the timing of the default (a lifetime ECL).
For trade receivables and contract assets, the Group applies a simplified approach in calculating ECLs.
Therefore, the Group does not track changes in credit risk, but instead recognizes a loss allowance based on
lifetime ECLs at each reporting date. The Group has established a provision matrix that is based on its historical
credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic
environment.
For debt instruments at fair value through OCI, the Group applies the low credit risk simplification. At every
reporting date, the Group evaluates whether the debt instrument is considered to have low credit risk using all
reasonable and supportable information that is available without undue cost or effort. In making that evaluation,
the Group reassesses the internal credit rating of the debt instrument. In addition, the Group considers that
there has been a significant increase in credit risk when contractual payments are more than 30 days past due.
The Group’s debt instruments at fair value through OCI comprise solely of quoted bonds that are graded in the
top investment category and, therefore, are considered to be low credit risk investments. It is the Group’s policy
to measure ECLs on such instruments on a 12-month basis. However, when there has been a significant
increase in credit risk since origination, the allowance will be based on the lifetime ECL. The Group uses the
ratings from a credit rating agency both to determine whether the debt instrument has significantly increased in
credit risk and to estimate ECLs.
The Group considers a financial asset in default when contractual payments are 90 days past due. However, in
certain cases, the Group may also consider a financial asset to be in default when internal or external information
indicates that the Group is unlikely to receive the outstanding contractual amounts in full before taking into
account any credit enhancements held by the Group. A financial asset is written off when there is no reasonable
expectation of recovering the contractual cash flows.
2.9.3 Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate.
All financial liabilities are recognized initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs.
The Group’s financial liabilities include trade and other payables, bond, and derivative financial liabilities.
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2.9.3 Financial liabilities (cont’d)
Subsequent measurement
The measurement of financial liabilities depends on their classification, as described below:
Financial liabilities at fair value through profit or loss
Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial
liabilities designated upon initial recognition as of fair value through profit or loss.
Financial liabilities are classified as held for trading if they are incurred for the purpose of repurchasing in the
near term. This category also includes derivative financial instruments entered into by the Group that are not
designated as hedging instruments in hedge relationships as defined by KIFRS 1109. Separated embedded
derivatives are also classified as held for trading unless they are designated as effective hedging instruments.
Gains or losses on liabilities held for trading are recognized in profit or loss.
Financial liabilities designated upon initial recognition at fair value through profit or loss are designated at the
initial date of recognition, and only if the criteria in KIFRS 1109 are satisfied. The Group has not designated any
financial liability as of fair value through profit or loss.
Loans and borrowings
This category is the most relevant to the Group. After initial recognition, interest-bearing loans and borrowings
are subsequently measured at amortized cost using the EIR method. Gains and losses are recognized in profit
or loss when the liabilities are derecognized as well as through the EIR amortization process.
Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs
that are an integral part of the EIR. This category is generally applied to interest-bearing borrowings.
Derecognition
A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.
When an existing financial liability is replaced by another from the same lender on substantially different terms,
or the terms of an existing liability are substantially modified, such an exchange or modification is treated as the
derecognition of the original liability and the recognition of a new liability. The difference in the respective carrying
amounts is recognized in profit or loss.
2.9.4 Offsetting of financial instruments
Financial assets and financial liabilities are offset, and the net amount is reported in the consolidated statement
of financial position if there is a currently enforceable legal right to offset the recognized amounts and there is
an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.
2.10 Fair value measurement The Group measures financial instruments such as derivatives, and non-financial assets such as investment properties, at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either:
In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible by the Group.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.
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2.10 Fair value measurement (cont’d)
A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use.
The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the input that is significant to the fair value measurement as a whole:
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is directly or indirectly observable Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value
measurement is unobservable
For assets and liabilities that are recognized in the financial statements at fair value on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy, as explained above. Fair-value related disclosures for financial instruments and non-financial assets that are measured at fair value or where fair values are disclosed, are summarized in the following notes:
Notes
Quantitative disclosures of fair value measurement hierarchy 30 Investment in unquoted equity shares 9 Financial instruments (including those carried at amortized cost) 30 Contingent consideration 37
2.11 Property, plant and equipment Construction-in-progress is stated at cost, net of accumulated impairment losses and property, plant and equipment are stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of replacing part of the property, plant and equipment and borrowing costs for long-term construction projects if the recognition criteria are met. When significant parts of property, plant and equipment are required to be replaced at intervals, the Group depreciates them separately based on their specific useful lives. Likewise, when a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred. The present value of the expected cost for the decommissioning of an asset after its use is included in the cost of the respective asset if the recognition criteria for a provision are met. Refer to significant accounting judgments, estimates and assumptions and provisions for further information about the recognized decommissioning provision. Property, plant and equipment transferred from customers are initially measured at fair value at the date on which control is obtained.
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2.11 Property, plant and equipment (cont’d) Depreciation is calculated on a straight basis over the estimated useful life of the assets, as follows: Representative
useful lives (years)
Structures 5 – 8 Equipments 3 – 13 Leasehold improvements 2 – 10 Others 3 – 10 An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement when the asset is derecognized. The Group reviews the depreciation method, the estimated useful lives and residual values of property, plant and equipment at the end of each annual reporting period. If expectations differ from previous estimates, the changes are accounted for as a change in accounting estimate. 2.12 Intangible assets
Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses. Internally generated intangibles, excluding capitalized development costs, are not capitalized and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortization period or method, as appropriate, and are treated as changes in accounting accounting estimates. The amortization expense on intangible assets with finite lives is recognized in the
statement of profit or loss and other comprehensive income in the expense category that is consistent with the
function of the intangible assets.
Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the CGU level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in the statement of profit or loss and other comprehensive income when the asset is derecognized. A summary of the policies applied to the Group’s intangible assets is, as follows:
Amortization method Estimated useful life
Others Straight-line basis over the period of the others 30
Customer Relationships Straight-line basis over the period of the customer relationships
13~30
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
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2.13 Impairment of non-financial assets
The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or CGU’s fair value less costs of disposal and its value in use. The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transactions can be identified, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded companies or other available fair value indicators The Group bases its impairment calculation on detailed budgets and forecast calculations, which are prepared separately for each of the Group’s CGUs to which the individual assets are allocated. These budgets and forecast calculations generally cover a period of five years. A long-term growth rate is calculated and applied to project future cash flows after the fifth year. Impairment losses of continuing operations, including impairment on inventories, are recognized in the statement of profit or loss and other comprehensive income in expense categories consistent with the function of the impaired asset, except for properties previously revalued with the revaluation taken to OCI. For such properties, the impairment is recognized in OCI up to the amount of any previous revaluation. For assets excluding goodwill, an assessment is made at each reporting date to determine whether there is an indication that previously recognized impairment losses no longer exist or have decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognized. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in the statement of profit or loss and other comprehensive income unless the asset is carried at a revalued amount, in which case, the reversal is treated as a revaluation increase. The following assets have specific characteristics for impairment testing: 2.13.1 Goodwill
Goodwill is tested for impairment annually as at December 31 and when circumstances indicate that the carrying value may be impaired. Impairment is determined for goodwill by assessing the recoverable amount of each CGU (or group of CGUs) to which the goodwill relates. When the recoverable amount of the CGU is less than its carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot be reversed in future periods. 2.13.2 Intangible assets Intangible assets with indefinite useful lives are tested for impairment annually as at December 31 at the CGU level, as appropriate, and when circumstances indicate that the carrying value may be impaired.
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2.14 Leases
The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception of the lease. The arrangement is, or contains, a lease if fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Group as a lessee A lease is classified at the inception date as a finance lease or an operating lease. A lease that transfers substantially all the risks and rewards incidental to ownership to the Group is classified as a finance lease. Finance leases are capitalized at the commencement of the lease at the inception date fair value of the leased property or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in finance costs in the statement of profit or loss. A leased asset is depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain ownership by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and the lease term. An operating lease is a lease other than a finance lease. Operating lease payments are recognized as an operating expense in the statement of profit or loss on a straight-line basis over the lease term. Group as a lessor Leases in which the Group does not transfer substantially all the risks and rewards of ownership of an asset are classified as operating leases. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned. 2.15 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the asset. All other borrowing costs are expensed in the period in which they occur. 2.16 Pension benefits and other post-employment benefits
The retirement benefit plans of the Group are divided into defined contribution plans and defined benefit plans.
A defined contribution plan is a retirement pension plan in which the Group pays a fixed amount of contributions
to a separate fund, and the contributions are recognized as an expense when the employees provide service.
The Group operates a defined benefit pension plan. The cost of providing benefits under the defined benefit plan is determined using the projected unit credit method. Remeasurements, comprising of actuarial gains and losses, the effect of the asset ceiling, excluding amounts included in net interest on the net defined benefit liability and the return on plan assets (excluding amounts included in net interest on the net defined benefit liability), are recognized immediately in the statement of financial position with a corresponding debit or credit to retained earnings through OCI in the period in which they occur. Remeasurements are not reclassified to profit or loss in subsequent periods. Past service costs are recognized in profit or loss on the earlier of: The date of the plan amendment or curtailment, and The date that the Group recognizes related restructuring costs Net interest is calculated by applying the discount rate to the net defined benefit liability or asset. The Group recognizes the following changes in the net defined benefit obligation under ‘cost of sales’ and ‘selling and administrative expenses’ in the consolidated statement of profit or loss and other comprehensive income.
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2.17 Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When the Group expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the statement of profit or loss and other comprehensive income net of any reimbursement. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects, when appropriate, the risks specific to the liability. When discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost. 2.18 Government grants
Government grants are recognized where there is reasonable assurance that the grant will be received and all attached conditions will be complied with. When the grant relates to an expense item, it is recognized as income on a systematic basis over the periods that the related costs, for which it is intended to compensate, are expensed. When the grant relates to an asset, it is recognized as income in equal amounts over the expected useful life of the related asset. 2.19 Taxes
2.19.1 Current income tax
Current income tax assets and liabilities are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognized directly in equity is recognized in equity and not in the statement of profit or loss and other comprehensive income. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. 2.19.2 Deferred tax
Deferred tax is provided using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes at the reporting date. Deferred tax liabilities are recognized for all taxable temporary differences, except: When the deferred tax liability arises from the initial recognition of goodwill or an asset or liability in a
transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, when the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future
Deferred tax assets are recognized for all deductible temporary differences, the carry forward of unused tax credits and any unused tax losses. Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except:
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2.19 Taxes (cont’d) When the deferred tax asset relating to the deductible temporary difference arises from the initial
recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss
In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized
The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilized. On the other hand, the reduced amount is reversed within the range if the possibility of taxable income that is enough to be used becomes high. Unrecognized deferred tax assets are re-assessed at each reporting date and are recognized to the extent that it has become probable that future taxable profits will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in OCI or directly in equity. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Tax benefits acquired as part of a business combination, but not satisfying the criteria for separate recognition at that date, are recognized subsequently if new information about facts and circumstances change. The adjustment is either treated as a reduction in goodwill (as long as it does not exceed goodwill) if it was incurred during the measurement period or recognized in profit or loss. The Group offsets deferred tax assets and deferred tax liabilities if and only if it has a legally enforceable right to set off current tax assets and current tax liabilities and the deferred tax assets and deferred tax liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realise the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
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2.20 Derivative financial instruments and hedge accounting
2.20.1 Initial recognition and subsequent measurement The Group uses derivative financial instruments, such as forward currency contracts, interest rate swaps and forward commodity contracts, to hedge its foreign currency risks, interest rate risks and commodity price risks, respectively. Such derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. For the purpose of hedge accounting, hedges are classified as: Fair value hedges when hedging the exposure to changes in the fair value of a recognized asset or liability
or an unrecognized firm commitment Cash flow hedges when hedging the exposure to variability in cash flows that is either attributable to a
particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment
Hedges of a net investment in a foreign operation At the inception of a hedge relationship, the Group formally designates and documents the hedge relationship to which the Group wishes to apply hedge accounting and the risk management objective and strategy for undertaking the hedge. Before January 1, 2018, the documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the effectiveness of changes in the hedging instrument’s fair value in offsetting the exposure to changes in the hedged item’s fair value or cash flows attributable to the hedged risk. Such hedges are expected to be highly effective in achieving offsetting changes in fair value or cash flows and are assessed on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated. Beginning January 1, 2018, the documentation includes identification of the hedging instrument, the hedged
item, the nature of the risk being hedged and how the Group will assess whether the hedging relationship meets
the hedge effectiveness requirements (including the analysis of sources of hedge ineffectiveness and how the
hedge ratio is determined). A hedging relationship qualifies for hedge accounting if it meets all of the following
effectiveness requirements:
There is ‘an economic relationship’ between the hedged item and the hedging instrument. The effect of credit risk does not ‘dominate the value changes’ that result from that economic relationship. The hedge ratio of the hedging relationship is the same as that resulting from the quantity of the hedged
item that the Group actually hedges and the quantity of the hedging instrument that the Group actually uses to hedge that quantity of hedged item.
Hedges that meet the strict criteria for hedge accounting are accounted for, as described below: 2.20.2 Fair value hedges
The change in the fair value of a hedging derivative is recognized in the statement of profit or loss and other comprehensive income as finance costs. The change in the fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the statement of profit or loss and other comprehensive income as finance costs. For fair value hedges relating to items carried at amortized cost, any adjustment to carrying value is amortized through profit or loss over the remaining term of the hedge using the EIR method. EIR amortization may begin as soon as an adjustment exists and no later than when the hedged item ceases to be adjusted for changes in its fair value attributable to the risk being hedged. If the hedged item is derecognized, the unamortized fair value is recognized immediately in profit or loss. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in the fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in profit and loss.
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2.20 Derivative financial instruments and hedge accounting (cont’d) 2.20.3 Cash flow hedges
The effective portion of the gain or loss on the hedging instrument is recognized in OCI in the cash flow hedge reserve, while any ineffective portion is recognized immediately in the statement of profit or loss and other comprehensive income. Amounts recognized as OCI are transferred to profit or loss when the hedged transaction affects profit or loss, such as when the hedged financial income or financial expense is recognized or when a forecast sale occurs. When the hedged item is the cost of a non-financial asset or non-financial liability, the amounts recognized as OCI are transferred to the initial carrying amount of the non-financial asset or liability. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover (as part of the hedging strategy), or if its designation as a hedge is revoked, or when the hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss previously recognized in OCI remains separately in equity until the forecast transaction occurs or the foreign currency firm commitment is met. 2.20.4 Hedges of a net investment
Hedges of a net investment in a foreign operation, including a hedge of a monetary item that is accounted for as part of the net investment, are accounted for in a way similar to cash flow hedges. Gains or losses on the hedging instrument relating to the effective portion of the hedge are recognized as OCI while any gains or losses relating to the ineffective portion are recognized in the statement of profit or loss and other comprehensive income. On disposal of the foreign operation, the cumulative value of any such gains or losses recorded in equity is transferred to the statement of profit or loss and other comprehensive income. 2.21 Cash dividend
The Company recognizes a liability to pay a dividend when the distribution is authorized and the distribution is no longer at the discretion of the Company. A distribution is authorized when it is approved by the shareholders. A corresponding amount is recognized directly in equity. 2.22 New and amended standards and interpretations The Group applied KIFRS 1115 and KIFRS 1109 for the first time. The nature and effect of the changes as a result of adoption of these new accounting standards are described below.
Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the consolidated financial statements of the Group. The Group has not early adopted any standards, interpretations or amendments that have been issued but are not yet effective.
2.22.1 KIFRS 1115 Revenue from Contracts with Customers
KIFRS 1115 supersedes KIFRS 1011 Construction Contracts, KIFRS 1018 Revenue and related Interpretations, and it applies, with limited exceptions, to all revenue arising from contracts with its customers. KIFRS 1115 establishes a five-step model to account for revenue arising from contracts with customers and requires that revenue be recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. KIFRS 1115 requires entities to exercise judgment, taking into consideration all of the relevant facts and
circumstances when applying each step of the model to contracts with their customers. The standard also
specifies the accounting for the incremental costs of obtaining a contract and the costs directly related to fulfilling
a contract. In addition, the standard requires extensive disclosures.
The Group adopted KIFRS 1115 using the modified retrospective method of adoption with the date of initial application of January 1, 2018. Under this method, the standard can be applied either to all contracts at the date of initial application or only to contracts that are not completed at this date. The Group elected to apply the standard to only to contracts that are not completed at this date as of January 1, 2018.
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2.22 New and amended standards and interpretations (cont’d)
The cumulative effect of initially applying KIFRS 1115 is recognized at the date of initial application as an
adjustment to the opening balance of retained earnings. Therefore, the comparative information was not
restated and continues to be reported under KIFRS 1011, KIFRS 1018 and related Interpretations.
The adoption of KIFRS 1115 does not affect the opening retained earnings of the consolidated financial statements on January 1, 2018. The Group receives agency fees and production support funds for the production of PPL when performing the sports integrated marketing service and pays them to a third party. On the basis of the existence of credit risk prior to the adoption of KIFRS 1115, the Group accounted for the contract as a principal because it was exposed to significant risks and rewards relating to rendering of services. However, as it adopted KIFRS 1115, the Group accounted for itself as an agent because it did not control the right before rendering of the services. The impact on the consolidated statements of profit or loss and other comprehensive income for the year ended December 31, 2018 compared to the previous revenue recognition standard is decrease in revenue and cost of sales by
\5,159 million, respectively. The adoption of KIFRS 1115 does not have a significant impact on non-controlling
interests or cash flows from operating, investing, and financing activities of the Group. KIFRS 1109 Financial Instruments
KIFRS 1109 Financial Instruments replaces KIFRS 1039 Financial Instruments: Recognition and Measurement for annual periods beginning on or after January 1, 2018, bringing together all three aspects of the accounting for financial instruments: classification and measurement; impairment; and hedge accounting.
The Group has applied KIFRS 1109 prospectively, with the initial application date of January 1, 2018. The Group has not restated the comparative information, which continues to be reported under KIFRS 1039.
(a) Classification and measurement Under KIFRS 1109, debt instruments are subsequently measured at fair value through profit or loss, amortised cost, or fair value through OCI. The classification is based on two criteria: the Group’s business model for managing the assets; and whether the instruments’ contractual cash flows represent ‘solely payments of principal and interest’ on the principal amount outstanding. The assessment of the Group’s business model was made as of the date of initial application, January 1, 2018. The assessment of whether contractual cash flows on debt instruments are solely comprised of principal and interest was made based on the facts and circumstances as of the initial recognition of the assets. The classification and measurement requirements of KIFRS 1109 did not have a significant impact to the Group. The Group continued measuring at fair value all financial assets previously held at fair value under KIFRS 1039. The following are the changes in the classification of the Group’s financial assets:
Trade receivables and Other non-current financial assets classified as Loans and receivables as of December 31, 2017 are held to collect contractual cash flows and give rise to cash flows representing solely payments of principal and interest. These are classified and measured as Debt instruments at amortised cost beginning January 1, 2018.
Equity investments in non-listed companies previously classified as AFS financial assets are now classified and measured as Equity instruments designated at fair value through OCI. The Group elected to classify irrevocably its non-listed equity investments under this category as it intends to hold these investments for the foreseeable future. There were no impairment losses recognised in profit or loss for these investments in prior periods.
There are no changes in classification and measurement for the Group’s financial liabilities.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
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2.22 New and amended standards and interpretations (cont’d) In summary, upon the adoption of KIFRS 1109, the Group had the following required or elected reclassifications as at January 1, 2018 (Korean won in thousands):
KIFRS 1109 measurement category
Classification Total
Fair value through profit
or loss
Amortized cost
Fair value through OCI
KIFRS 1039 measurement category
Financial assets:
Financial assets at fair value through profit or loss:
Short-term financial instruments \ 202,174,292 \ - \ 202,174,292 \ -
Other financial assets 27,625 27,625 - -
Loans and receivables:
Cash and cash equivalent 330,161,565 - 330,161,565 -
Long/short-term financial assets 190,202,917 - 190,202,917 -
Trade and other receivables 721,086,291 - 721,086,291 -
Other financial assets 9,757,262 - 9,757,262 -
Available-for-sale financial assets:
Capital contributions 478,240 - - 478,240
Debt securities 1,340,000 - - 1,340,000
1,455,228,192 27,625 1,453,382,327 1,818,240
(b) Impairment
The adoption of KIFRS 1109 has fundamentally changed the Group’s accounting for impairment losses for financial assets by replacing KIFRS 1039’s incurred loss approach with a forward-looking expected credit loss (ECL) approach. KIFRS 1109 requires the Group to recognize an allowance for ECLs for all debt instruments not held at fair value through profit or loss and contract assets. The adoption of KIFRS 1109 ECLs will not affect the opening retained earnings of the consolidated statement of financial position as of January 1, 2018.
Amendments to KIFRS 2122 Foreign Currency Transactions and Advance Consideration
The Interpretation clarifies that, in determining the spot exchange rate to use on initial recognition of the related asset, expense or income (or part of it) on the derecognition of a non-monetary asset or non-monetary liability relating to advance consideration, the date of the transaction is the date on which an entity initially recognises the non-monetary asset or non-monetary liability arising from the advance consideration. If there are multiple payments or receipts in advance, then the entity must determine the transaction date for each payment or receipt of advance consideration. The amendments have no effect on the Group’s consolidated financial statements.
Amendments to KIFRS 1040 Investment Property — Transfers of Investment Property
The amendments clarify when an entity should transfer property, including property under construction or development into, or out of investment property. The amendments state that a change in use occurs when the property meets, or ceases to meet, the definition of investment property and there is evidence of the change in use. A mere change in management’s intentions for the use of a property does not provide evidence of a change in use. The amendments have no effect on the Group’s consolidated financial statements.
Amendments to KIFRS 1102 Share-based Payment — Classification and Measurement of Share-based Payment Transactions The amendments to KIFRS 1102 Share-based Payment that address three main areas: the effects of vesting conditions on the measurement of a cash-settled share-based payment transaction; the classification of a share-based payment transaction with net settlement features for withholding tax obligations; and accounting where a modification to the terms and conditions of a share-based payment transaction changes its classification from cash settled to equity settled. On adoption, entities are required to apply the amendments without restating prior periods, but retrospective application is permitted if elected for all three amendments and other criteria are met.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
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2.22 New and amended standards and interpretations (cont’d) Amendments to KIFRS 1028 Investments in Associates and Joint Ventures - Clarification that measuring
investees at fair value through profit or loss is an investment-by-investment choice
The amendments clarify that:
An entity that is a venture capital organisation, or other qualifying entity, may elect, at initial recognition on an investment-by-investment basis, to measure its investments in associates and joint ventures at fair value through profit or loss.
If an entity, that is not itself an investment entity, has an interest in an associate or joint venture that is an
investment entity, the entity may, when applying the equity method, elect to retain the fair value
measurement applied by that investment entity associate or joint venture to the investment entity
associate’s or joint venture’s interests in subsidiaries. This election is made separately for each investment
entity associate or joint venture, at the later of the date on which: (a) the investment entity associate or joint
venture is initially recognised; (b) the associate or joint venture becomes an investment entity; and (c) the
investment entity associate or joint venture first becomes a parent.
The amendments have no effect on the Group’s consolidated financial statements.
Amendments to KIFRS 1101 First-time Adoption of International Financial Reporting Standards -
Deletion of short-term exemptions for first-time adopters
Short-term exemptions in paragraphs E3–E7 of KIFRS 1101 were deleted because they have now served their
intended purpose. This amendment is not applicable to the Group.
2.23 Significant accounting judgments, estimates and assumptions The preparation of the Group’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods. Other disclosures relating to the Group’s exposure to risks and uncertainties includes: Retirement benefit plan Note 17 Risk management Note 32 2.23.1 Judgments
In the process of applying the Group’s accounting policies, management has made the following judgments, which have the most significant effect on the amounts recognized in the consolidated financial statements:
Revenue from contracts with customers The Group applied the following judgments that significantly affect the determination of the amount and timing of revenue from contracts with customers:
Determining the timing of satisfaction
The Group enters into a contract with a customer to produce advertisement and act as an advertising agent and provides services. The Group recognizes revenue over time based on the percentage-of-completion determined on the appropriate basis, such as input cost or time, depending on the type of service it provides. The production of advertisement and advertising agency projects typically take several months to produce advertisement requested by the customer and to cover the media transmission of the customer's requested advertising. The entity recognizes revenue over time if the entity’s performance does not create an asset with an alternative use to the entity and it has an enforceable right to payment for performance completed to date. After analyzing the terms of the contract, the Group recognizes revenue over time in which it performs its performance obligations because it determines that it has an enforceable right to payment for performance completed to date.
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2.23 Significant accounting judgements, estimates and assumptions (cont’d) Measurement of progress using input method
The Group enters into a contract with the customer to produce an advertisement and provide services.
According to KIFRS 1115, a faithful depiction of an entity’s performance might be to recognize revenue at an
amount equal to the cost of a good used to satisfy a performance obligation if the entity expects at contract
inception that the good is not distinct; the customer is expected to obtain control of the good significantly before
receiving services related to the good; the cost of the transferred good is significant relative to the total expected
costs to completely satisfy the performance obligation; and the entity procures the good from a third party and
is not significantly involved in designing and manufacturing the good.
Principal versus agent considerations
The Group provides advertising agency services in accordance with the contract with the customer. The Group determined that it does not control the services before they are transferred to customers. The following factors indicate that the Group does not control the services before they are being transferred to customers. Therefore, the Group determined that it is an agent in these contracts.
The Group is not primarily responsible for providing services in the event that the media company fails to transfer the services to the advertisers.
As the Group selects the media company at a request of the advertiser and does not possess any media companies without the advertiser confirmed, it does not have inventory risk before the service has been transferred to the customer or after transfer of control to the customer.
The Group has no discretion in establishing the purchase price for the specified media.
2.23.1 Estimates and assumptions
The Group based its assumptions and estimates on parameters available when the consolidated financial
statements were prepared. Existing circumstances and assumptions about future developments, however, may
change due to market changes or circumstances arising beyond the control of the Group. Such changes are
reflected in the assumptions when they occur.
2.23.1.1 Revenue recognition The Group applies the percentage-of-completion method when accounting for advertising production and a certain services. The percentage-of-completion method is applied by calculating the ratio of the cumulative costs incurred compared to total estimated costs that requires management’s judgment. 2.23.1.2 Fair value measurement of financial instruments When the fair values of financial assets and financial liabilities recorded in the statement of financial position cannot be measured based on quoted prices in active markets, their fair value is measured using valuation techniques including the DCF model. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. Judgments include considerations of inputs such as liquidity risk, credit risk and volatility. Changes in assumptions relating to these factors could affect the reported fair value of financial instruments. 2.23.1.3 Measurement and useful lives of property, plant and equipment or intangible assets If the Group acquires property, plant, equipment or intangible assets from business combination, it is required to estimate the fair value of the assets at the acquisition date and determine the useful lives of such assets for depreciation and amortization.
29
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
30
2.23 Significant accounting judgements, estimates and assumptions (cont’d) 2.23.1.4 Goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. 2.23.1.5 Defined benefit plans (pension benefits)
The cost of the defined benefit pension plan and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date. In determining the appropriate discount rate, management considers the interest rates of corporate bonds in currencies consistent with the currencies of the post-employment benefit obligation with at least an ‘AA’ rating or above, as set by an internationally acknowledged rating agency. The mortality rate is based on publicly available mortality tables for the specific countries. Future salary increases and pension increases are based on expected future inflation rates for the respective countries. Further details about pension obligations are provided in Note 17. 2.23.1.6 Taxes Deferred tax assets are recognized for unused tax credit to the extent that it is probable that taxable profit will be available against which the tax credit can be utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized, based upon the likely timing and the level
of future taxable profits together with future tax planning strategies. The Group has \19,350 million (December
31, 2017: \17,312 million) of tax credit carried forward. However, this tax credit may not be used to offset
taxable income elsewhere in the Group. The Group has determined that it cannot recognize deferred tax assets on the tax credit carried forward. 2.23.1.7 Provision for decommissioning A provision has been recognized for decommissioning costs associated with a lease office. In determining the fair value of the provision, assumptions and estimates are made in relation to discount rates, the expected cost to dismantle and remove the office from the site and the expected timing of those costs. The carrying amount
of the provision as of December 31, 2018 was \875 million.
30
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
31
2.24 Standards issued but not yet effective
The standards and interpretations that are issued, but not yet effective, up to the date of issuance of the Group’s consolidated financial statements are disclosed below. The Group intends to adopt these standards, if applicable, when they become effective. KIFRS 1116 Leases
KIFRS 1116 was issued in January 2016 and it replaces KIFRS 1017 Leases, KIFRS 2104 Determining whether
an Arrangement contains a Lease, KIFRS 2015 Operating Leases-Incentives and KIFRS 2027 Evaluating the
Substance of Transactions Involving the Legal Form of a Lease. KIFRS 1116 sets out the principles for the
recognition, measurement, presentation and disclosure of leases and requires lessees to account for all leases
under a single on-balance sheet model similar to the accounting for finance leases under KIFRS 1017. The
standard includes two recognition exemptions for lessees – leases of ’low-value’ assets (e.g., personal
computers) and short-term leases (i.e., leases with a lease term of 12 months or less). At the commencement
date of a lease, a lessee will recognise a liability to make lease payments (i.e., the lease liability) and an asset
representing the right to use the underlying asset during the lease term (i.e., the right-of-use asset). Lessees
will be required to separately recognise the interest expense on the lease liability and the depreciation expense
on the right-of-use asset.
Lessees will be also required to remeasure the lease liability upon the occurrence of certain events (e.g., a
change in the lease term, a change in future lease payments resulting from a change in an index or rate used
to determine those payments). The lessee will generally recognize the amount of the remeasurement of the
lease liability as an adjustment to the right-of-use asset.
Lessor accounting under KIFRS 1116 is not significantly changed from today’s accounting under KIFRS 1017.
Lessors will continue to classify all leases using the same classification principle as in KIFRS 1017 and
distinguish between two types of leases: operating and finance leases.
KIFRS 1116 is effective for annual periods beginning on or after January 1, 2019. KIFRS 1116 also requires
lessees and lessors to make more extensive disclosures than under KIFRS 1017.
In accordance with KIFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors, a lessee
can choose to apply the new standard using either a full retrospective approach or a modified retrospective
approach. The Group plans to adopt the new standard using the modified retrospective approach as of January
1, 2019. Accordingly, the cumulative effects of the application of KIFRS 1116 are adjusted in retained earnings
(or where appropriate, other components of equity) as of the date of the initial application. The Group will not
restate comparative financial statements.
Although the Group is currently analyzing the impacts on its 2018 consolidated financial statements based on the current status and information available as of December 31, 2018 to assess the financial impact of the initial adoption of KIFRS 1116, it is practically difficult to provide a reasonable estimate of the financial impact until such analysis is completed.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
32
2.24 Standards issued but not yet effective (cont’d)
Amendments to KIFRS 1109: Prepayment Features with Negative Compensation Under KIFRS 1109, a debt instrument can be measured at amortised cost or at fair value through other comprehensive income, provided that the contractual cash flows are ‘solely payments of principal and interest on the principal amount outstanding’ (the SPPI criterion) and the instrument is held within the appropriate business model for that classification. The amendments to KIFRS 1109 clarify that a financial asset passes the SPPI criterion regardless of the event or circumstance that causes the early termination of the contract and irrespective of which party pays or receives reasonable compensation for the early termination of the contract.
The amendments should be applied retrospectively and are effective from January 1, 2019, with earlier application permitted. These amendments have no impact on the consolidated financial statements of the Group.
Amendments to KIFRS 1110 and KIFRS 1028: Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments address the conflict between KIFRS 1110 and KIFRS 1028 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in KIFRS 1103, between an investor and its associate or joint venture, is recognised in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognised only to the extent of unrelated investors’ interests in the associate or joint venture. The KASB has deferred the effective date of these amendments indefinitely, but an entity that early adopts the amendments must apply them prospectively. The Group will apply these amendments when they become effective.
Amendments to KIFRS 1019: Plan Amendment, Curtailment or Settlement The amendments to KIFRS 1019 address the accounting when a plan amendment, curtailment or settlement occurs during a reporting period. The amendments specify that when a plan amendment, curtailment or settlement occurs during the annual reporting period, an entity is required to:
Determine current service cost for the remainder of the period after the plan amendment, curtailment or settlement, using the actuarial assumptions used to remeasure the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event
Determine net interest for the remainder of the period after the plan amendment, curtailment or settlement using: the net defined benefit liability (asset) reflecting the benefits offered under the plan and the plan assets after that event; and the discount rate used to remeasure that net defined benefit liability (asset).
The amendments also clarify that an entity first determines any past service cost, or a gain or loss on settlement, without considering the effect of the asset ceiling. This amount is recognised in profit or loss. An entity then determines the effect of the asset ceiling after the plan amendment, curtailment or settlement. Any change in that effect, excluding amounts included in the net interest, is recognised in other comprehensive income.
The amendments apply to plan amendments, curtailments, or settlements occurring on or after the beginning of the first annual reporting period that begins on or after January 1, 2019, with early application permitted. These amendments will apply only to any future plan amendments, curtailments, or settlements of the Group.
Amendments to KIFRS 1028: Long-term interests in associates and joint ventures The amendments clarify that an entity applies KIFRS 1109 to long-term interests in an associate or joint venture to which the equity method is not applied but that, in substance, form part of the net investment in the associate or joint venture (long-term interests). This clarification is relevant because it implies that the expected credit loss model in KIFRS 1109 applies to such long-term interests.
The amendments also clarified that, in applying KIFRS 1109, an entity does not take account of any losses of the associate or joint venture, or any impairment losses on the net investment, recognised as adjustments to the net investment in the associate or joint venture that arise from applying KIFRS 1028 Investments in Associates and Joint Ventures.
The amendments should be applied retrospectively and are effective from January 1, 2019, with early application permitted. Since the Group does not have such long-term interests in its associate and joint venture, the amendments will not have an impact on its consolidated financial statements.
32
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
33
2.24 Standards issued but not yet effective (cont’d) IFRIC Interpretation 23 Uncertainty over Income Tax Treatment The Interpretation addresses the accounting for income taxes when tax treatments involve uncertainty that affects the application of KIFRS 1012 and does not apply to taxes or levies outside the scope of KIFRS 1012, nor does it specifically include requirements relating to interest and penalties associated with uncertain tax treatments. The Interpretation specifically addresses the following:
Whether an entity considers uncertain tax treatments separately The assumptions an entity makes about the examination of tax treatments by taxation authorities How an entity determines taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and
tax rates How an entity considers changes in facts and circumstances
The Group has to determine whether to consider each uncertain tax treatment separately or together with one or more other uncertain tax treatments. The approach that better predicts the resolution of the uncertainty should be followed. The interpretation is effective for annual reporting periods beginning on or after January 1, 2019, but certain transition reliefs are available. The Group will apply the interpretation from its effective date. Since the Group operates in a complex multinational tax environment, applying the Interpretation may affect its consolidated financial statements. In addition, the Group may need to establish processes and procedures to obtain information that is necessary to apply the Interpretation on a timely basis.
Annual Improvements 2015-2017 Cycle (issued in December 2017)
These improvements include:
KIFRS 1103 Business Combinations
The amendments clarify that, when an entity obtains control of a business that is a joint operation, it applies the requirements for a business combination achieved in stages, including remeasuring previously held interests in the assets and liabilities of the joint operation at fair value. In doing so, the acquirer remeasures its entire previously held interest in the joint operation. An entity applies those amendments to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early application permitted. These amendments will apply on future business combinations of the Group.
KIFRS 1111 Joint Arrangements
A party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business as defined in KIFRS 1103. The amendments clarify that the previously held interests in that joint operation are not remeasured. An entity applies those amendments to transactions in which it obtains joint control on or after the beginning of the first annual reporting period beginning on or after January 1, 2019, with early application permitted. These amendments are currently not applicable to the Group but may apply to future transactions.
KIFRS 1012 Income Taxes
The amendments clarify that the income tax consequences of dividends are linked more directly to past transactions or events that generated distributable profits than to distributions to owners. Therefore, an entity recognises the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognised those past transactions or events. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application is permitted. When an entity first applies those amendments, it applies them to the income tax consequences of dividends recognised on or after the beginning of the earliest comparative period. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements.
33
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
34
2.24 Standards issued but not yet effective (cont’d)
KIFRS 1023 Borrowing Costs
The amendments clarify that an entity treats as part of general borrowings any borrowing originally made to develop a qualifying asset when substantially all of the activities necessary to prepare that asset for its intended use or sale are complete. An entity applies those amendments to borrowing costs incurred on or after the beginning of the annual reporting period in which the entity first applies those amendments. An entity applies those amendments for annual reporting periods beginning on or after January 1, 2019, with early application permitted. Since the Group’s current practice is in line with these amendments, the Group does not expect any effect on its consolidated financial statements. 2.25 The consolidate financial statements were approved by the Board of Directors of the Parent Company
on January 28, 2019 for submission of the regular general shareholders’ meeting.
34
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
35
3. Restricted financial instruments
Financial instruments with withdrawal restrictions as at December 31, 2018 and 2017 are as follows (Korean won in thousands):
Description 2018 2017
Short-term financial instruments Short-term financial institution deposits
₩ -
₩ 324,190
Long-term financial instruments
Guarantee deposits for checking accounts 6,000 6,000
Long-term financial institution deposits 256,995 -
₩ 262,995 ₩ 330,190
4. Financial instruments Financial instruments as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
Description 2018 2017
Short-term financial instruments
Time deposits ₩ 341,034,213 ₩ 189,872,727
Short-term financial institution deposits - 324,190
Financial assets at vair value through profit or loss - 202,174,292
₩ 341,034,213 ₩ 392,371,209
Long-term financial instruments
Guarantee deposit for checking accounts ₩ 6,000 ₩ 6,000
Long-term financial institution deposits 256,995 -
₩ 262,995 ₩ 6,000
5. Trade and other receivables Trade and other receivables as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Trade receivables (*) ₩ 265,279,782/ ₩ 718,683,984
Less: allowance for doubtful accounts (519,190) (578,093)
Other receivables (*) 552,168,111/ 3,168,653
Less: allowance for doubtful accounts (346,132) (188,253)
₩ 816,582,571/ ₩ 721,086,291
(*) The Group reclassified agent receivables in trade receivables to other receivables since 2018.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
36
5. Trade and other receivables (cont’d) The changes in allowance for doubtful accounts for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Trade receivables Other receivables
Beginning balance ₩ 578,093/ ₩ 188,253
Charge for the year (58,643) 157,879
Write-off 1/// -
Foreign exchange differences (261) -
Ending balance ₩ 519,190/ ₩ 346,132
2017
Trade receivables Other receivables
Beginning balance ₩ 443,743 ₩ 14,145
Charge for the year 198,072 174,108
Write-off (58,291)/ -
Collection (6,313)/ -
Foreign exchange differences 882 -
Ending balance ₩ 578,093 ₩ 188,253
6. Other financial assets Other financial assets as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Current Non-current Current Non-current Contracts on currency
forwards ₩ 16,345 ₩ - ₩ 27,625 ₩ - Accrued income 3,160,656 - 1,967,596 - Leasehold deposits 92,281 6,339,399 31,820 6,009,981 Loans 1,504,287 866,855 1,247,158 500,706
₩ 4,773,569 ₩ 7,206,254 ₩ 3,274,199 ₩ 6,510,687
7. Other assets Other assets as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Current Non-current Current Non-current Due from customers
for production work ₩ - ₩ - ₩ 17,968,391 ₩ - Contract assets 34,577,738 - - - Advanced payments 9,290,131 278,842 37,650,141 - Prepaid expenses 2,910,519 17,231 2,360,124 28,119 Prepaid value-added tax 893,478 - 454,867 - Others 6,503,357 12,784 2,494,340 -
₩ 54,175,223 ₩ 308,857 ₩ 60,927,863 ₩ 28,119
36
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
37
8. AFS financial assets AFS financial assets as of December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017(*1)
Ownership percentage
(%) Amortized cost
Valuation difference
Impairment loss Book value
Book value
Capital contributions: GAIA Broadcasting &
Contents Fund No.1
6.78 ₩ -
₩ -
₩ -
₩ -
₩ 350,000
D Mate Communications Co., Ltd
14.79 -
-
-
-
59,160
Others
- -
-
-
-
69,080
Debt securities: The Education Co., Ltd.(*2)
- - - -- - 1,340,000
₩ - ₩ - ₩ -- ₩ - ₩ 1,818,240
(*1) Reclassified as financial assets at fair value through other comprehensive income as the Group adopted KIFRS 1109 (See Note 9). (*2) All of the amount were collected during the year ended December 31, 2018.
9. Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income as of December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Ownership percentage
(%) Amortized cost
Valuation difference
Impairment loss Book value
Book value
Capital contributions: GAIA Broadcasting &
Contents Fund No.1
6.78 ₩ 350,000
₩ -
₩ -
₩ 350,000
₩ -
D Mate Communications Co., Ltd
14.79 59,160
-
-
59,160
-
Others
- 69,075
-
-
69,075
-
₩ 478,235 ₩ - ₩ -- ₩ 478,235 ₩ -
37
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
38
10. Investments in joint venture and associates Investments in joint venture and associates as at December 31, 2018 and 2017 are as follows (Korean won in thousands):
Nature of business
Location
2018 2017
Ownership Percentage
(%) Book value
Book value
Joint venture: Beijing Innocean-CBAC Advertising Co., Ltd. (ICBAC) (*)
Ad-agency China 51.00 ₩ 6,187,311 ₩ 6,186,379
Associates:
Mate Communications Co., Ltd. Ad-agency Korea 28.31 5,632,907 5,654,719
Inspirecorp. Co., Ltd. Education Korea 29.08 220,381 226,056 UNION Contents Value-Up Investment Fund
Investment Korea 27.27 2,434,079 3,854,210
₩ 14,474,678 ₩ 15,921,364
(*) ICBAC is categorized as a joint venture although the Group owns the majority of shares, because the Group does not have control over the entity by virtue of an agreement with the other investors.
Changes in investments in joint venture and associates for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Beginning of the year
Dividends
Share of profit (loss) for the year Others
End of the year
Joint venture:
ICBAC ₩ 6,186,379 ₩ - ₩ 35,344 ₩ (34,412) ₩ 6,187,311
Associates:
Mate Communications Co., Ltd. 5,654,719 - (21,812) - 5,632,907
Inspirecorp. Co., Ltd. 226,056 - (5,675) - 220,381
UNION Contents Value-Up Investment Fund 3,854,210 -
(220,131) (1,200,000) 2,234,079
₩ 15,921,364 ₩ - ₩ (212,274) ₩ (1,234,412) ₩ 14,474,678
2017
Beginning of the year
Dividends
Share of profit (loss) for the year Others
End of the year
Joint venture:
ICBAC ₩ 8,942,211 ₩ (3,744,997) ₩ 1,457,755 ₩ (468,590) ₩ 6,186,379
Associates:
Mate Communications Co., Ltd. 5,545,751 -. 108,968 - 5,654,719
Inspirecorp. Co., Ltd. 189,184 -. 36,872 - 226,056
UNION Contents Value-Up Investment Fund 4,494,458 -.
(640,248) - 3,854,210
₩ 19,171,604 ₩ (3,744,997) ₩ 963,347 ₩ (468,590) ₩ 15,921,364
38
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
39
10. Investments in joint venture and associates (cont’d) Condensed financial information of the Group’s joint venture and associates as of and for the years ended December 31, 2018 and 2017 follows (Korean won in thousands):
2018
Current assets Non-current
assets Current liabilities
Non-current liabilities
Joint venture:
ICBAC ₩ 31,273,459 ₩ 55,606 ₩ 19,197,085 ₩ - Associates: Mate Communications Co., Ltd. 16,092,429 3,268,481 4,013,548 - Inspirecorp. Co., Ltd. 293,287 47,471 277,424 - UNION Contents Value-Up Investment Fund 9,072,871 - 147,912 -
2018
Sales Profit for the
year
Other comprehensive
Income
Total comprehensive
income
Joint venture:
ICBAC ₩ 27,294,960 ₩ 70,1690 ₩ (67,474) ₩ 2,695/ Associates: Mate Communications Co., Ltd. 16,954,386 (77,043) - (77,043) Inspirecorp. Co., Ltd. 2,112,663 (19,516) - (19,516) UNION Contents Value-Up Investment Fund 1,320,419 (807,148) - (807,148)
2017
Current assets Non-current
assets Current liabilities
Non-current liabilities
Joint venture:
ICBAC ₩ 37,685,213 ₩ 51,767 ₩ 25,606,825 ₩ - Associates: Mate Communications Co., Ltd. 17,424,405 1,787,044 3,787,043 - Inspirecorp. Co., Ltd. 211,179 36,010 164,339 - UNION Contents Value-Up Investment Fund 14,266,027 - 133,921 -
2017
Sales Profit for the
year
Other comprehensive
Income
Total comprehensive
income
Joint venture:
ICBAC ₩ 38,128,852 ₩ 2,858,341 ₩ (918,804) ₩ 1,939,537 Associates: Mate Communications Co., Ltd. 15,841,670 384,896 - 384,896 Inspirecorp. Co., Ltd. 1,561,497 126,804 - 126,804 UNION Contents Value-Up Investment Fund 2,441,968 761,421 - 761,421
39
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
40
10. Investments in joint venture and associates (cont’d) Condensed additional financial information of the Group’s joint venture as of and for the years ended December 31, 2018 and 2017 is as follows (Korean won in thousands):
2018
Cash and cash
equivalents
Current financial liabilities
Non-current financial liabilities
Depreciation and
amortization
Interest income
Interest expenses
Income tax expense
ICBAC ₩ 23,698,704 ₩ 19,197,085 ₩ - ₩ 17,778 ₩ 488,092 ₩ - ₩ 701,803
2017
Cash and cash
equivalents
Current financial liabilities
Non-current financial liabilities
Depreciation and
amortization
Interest income
Interest expenses
Income tax expense
ICBAC ₩ 26,829,536 ₩ 25,606,825 ₩ - ₩ 25,330 ₩ 400,440 ₩ - ₩ 952,780
Reconciliations of the Group’s share of net assets of the Group’s joint venture and associates to their carrying amounts as at December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Net asset Ownership
percentage (%) Group’s share of net asset Goodwill Book value
Joint venture:
ICBAC ₩ 12,131,980 51.00 ₩ 6,187,311 ₩ - ₩ 6,187,311
Associates: Mate Communications
Co., Ltd. 15,347,363
28.31 4,344,838 1,288,069 5,632,907
Inspirecorp. Co., Ltd. 63,334 29.08 18,422 201,959 220,381 UNION Contents
Value-Up Investment Fund 8,924,959
27.27 2,434,079 - 2,434,079
2017
Net asset Ownership
percentage (%) Group’s share of net asset Goodwill Book value
Joint venture:
ICBAC ₩ 12,130,155 51.00 ₩ 6,186,379 ₩ - ₩ 6,186,379
Associates: Mate Communications
Co., Ltd. 15,424,406
28.31 4,366,650 1,288,069 5,654,719
Inspirecorp. Co., Ltd. 82,850 29.08 24,097 201,959 226,056 UNION Contents
Value-Up Investment Fund 14,132,107
27.27 3,854,210 - 3,854,210
11. Property, plant and equipment
Property, plant and equipment as of December 31, 2018 and 2017 consist of the following (Korean won in thousands): 2018
Land Buildings Structures Equipments
Leasehold improvements
Others
Total
Acquisition cost ₩ 5,258,214 ₩ 135,211/ ₩ 2,073,504 ₩ 25,665,339 ₩ 24,511,924 ₩ 9,216,400 ₩ 66,860,602
Accumulated depreciation - (5,634) (531,572) (19,941,710) (16,051,164) (4,191,086) (40,721,166)
Government grants - -/ (287,500) -/ -/ -/ (287,500)
Book value ₩ 5,258,214 ₩ 129,587/ ₩ 1,254,432 ₩ 5,723,629 ₩ 8,460,760 ₩ 5,025,314 ₩ 25,851,936
2017
Land Buildings Structures Equipments
Leasehold improvements
Others
Total
Acquisition cost ₩ 15,682,714 ₩ 135,221 ₩ 1,325,113 ₩ 23,909,983 ₩ 22,173,148 ₩ 2,551,439 ₩ 65,777,618
Accumulated depreciation - - (341,562) (17,835,060) (13,745,650) (1,290,354) (33,212,626)
Book value ₩ 15,682,714 ₩ 135,221 ₩ 983,551 ₩ 6,074,923 ₩ 8,427,498. ₩ 1,261,085 ₩ 32,564,992
40
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
41
11. Property, plant and equipment (cont’d)
The changes in property, plant and equipment (“PP&E”) for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Beginning of the year. Acquisitions Disposals Depreciation
Changes in scope of
consolidation Govermment
Grants Others End of the year
Land \ 15,682,714 \ - \ (10,424,500) \ -) \ - \ -) \ -)
\ 5,258,214
Buildings 135,221 - -) (5,634) - -) -) 129,587
Structures 983,551 748,391 -) (177,510) - (300,000) -) 1,254,432
Equipments 6,074,923 1,712,065 (158,805) (2,491,743) 185,902 -) 401,287/ 5,723,629
Leasehold Improvements 8,427,498 1,941,284 -) (1,852,313) 11,828 -) (67,537) 8,460,760
Others 1,261,085 4,468,367 (22,734) (882,167) 177,634 -) 23,129/ 5,025,314
\ 9,072,871 \ 8,870,107 \ (10,606,039) \ (5,409,367) \ 375,364
\ (300,000) \ 356,879/ \ 25,851,936
2017
Beginning of the year Acquisitions Disposals Depreciation Others End of the year
Land ₩ 10,424,499 ₩ 5,258,215 ₩ - ₩ - ₩ - ₩ 15,682,714
Buildings - 135,221 - - - 135,221
Structures 893,211 230,000 - (139,660) - 983,551
Equipments 7,158,612 2,050,798 (35,907) (2,804,915) (293,665) 6,074,923 Leasehold
improvements 11,045,263 116,710 - (1,795,731) (938,744) 8,427,498
Others 1,632,880 287,073 (7,404) (497,143) (154,321) 1,261,085
₩ 31,154,465 ₩ 8,078,017 ₩ (43,311) ₩ (5,237,449) ₩ (1,386,730) ₩ 32,564,992
12. Intangible assets
Intangible assets as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Acquisition cost Accumulated
amortization (*) Book value Acquisition cost Accumulated
amortization (*) Book value
Goodwill ₩ 74,384,675 ₩ (5,732,998) ₩ 68,651,677 ₩ 29,408,132 ₩ (4,043,290) ₩ 25,364,842
Software 3,634,548 (2,824,334) 810,214 3,064,144 (2,282,677) 781,467
Membership 10,842,692 (677,658) 10,165,034 10,842,692 (642,108) 10,200,584 Customer
relationships 25,716,300 (2,990,702) 22,725,5980 14,999,600 (1,624,064) 13,375,536
Trademark 4,919,640 - 4,919,640 - - -
Others 6,269,552 (2,030,945) 4,238,607 6,171,601 (1,758,784) 4,412,817
₩ 125,767,407 ₩ (14,256,637) ₩ 111,510,770- ₩ 64,486,169 ₩ (10,350,923) ₩ 54,135,246
(*) Accumulated amortization of the membership consists of only accumulated impairment.
41
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41 42
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
43
12. Intangible assets (cont’d) Impairment test of goodwill Goodwill of the Group as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
(*) Changes of book value are due to the effect of foreign currency exchange differences and so forth. (**) See Note 37. (***) Impairment loss is recognized during 2018. The recoverable amounts of the Group’s CGUs are measured at their value-in-use calculated based on cash flow projections of financial budgets for the next five to ten years approved by management. Cash flows expected to occur in periods beyond the business plan have been extrapolated by using 2.5% for a long term-growth rate. The pre-tax discount rate applied to the cash flow projections for the Group’s CGUs are 14.5%~23%. As a result of the impairment test, goodwill of Research and consulting division of GASK Co, Ltd. recognized the impairment loss on the total amount. 13. Trade and other payables
Trade and other payables as of December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Current Non-current Current Non-current
Trade payables (*) ₩ 247,306,148 ₩ - ₩ 797,968,963 ₩ -
Other payables (*) 591,350,096 - 34,258,398 -
Present value discount - - (5,944) -
591,350,096 - 34,252,854 -
Accrued expenses 45,374,611 16,947,612 25,731,349 4,330,862
₩ 884,030,855 ₩ 16,947,612 ₩ 857,953,166 ₩ 4,330,862
(*) The Group reclassified agent payables in trade payables to other payables since 2018.
2018 2017 Changes
IWA (*) ₩ 24,575,165 ₩ 23,655,842 ₩ 919,323/
IDNG (**) 44,076,512 -… 44,076,512
Research and consulting division of GASK Co.,Ltd. (***) - 1,709,000 (1,709,000)
68,651,677 25,364,842 43,286,835
43
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
44
14. Other financial liabilities
Other financial liabilities as of December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Current Non-current Current Non-current
Contracts on currency forwards ₩ 13,931 ₩ - ₩ - ₩ -
Derivative liabilities(*) - 20,683,096 - 19,819,219
Accrued expenses 9,080 - 11,257 -
₩ 23,011 ₩ 20,683,096 ₩ 11,257 ₩ 19,819,219
(*) The amount is recognized in accordance with the equity option contract of CANVAS WW (see Note 35).
15. Other liabilities
Other liabilities as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Current Non-current Current Non-current
Advances received ₩ 7,240,739 ₩ - ₩ 20,299,861 ₩ -
Contract liabilities 19,784,631 - - -
Value-added tax withheld 4,372,546 - 2,003,634 -
Withholdings 4,764,655 - 2,857,161 -
Unearned income 3,978,892 - 1,995,713 -
Others 154,504 679,921 149,672 618,566
₩ 40,295,967 ₩ 679,921 ₩ 27,306,041 ₩ 618,566
16. Bond
Bond as at December 31, 2018 and 2017 consist of the following (Korean won in thousands):
Types of Bonds Issue Date Maturity Date Interest rate 2018 2017
Unsecured private equity June 9, 2017 June 9, 2020 2.10% ₩ 10,000 ₩ 10,000
17. Net defined benefit liabilities
The main actuarial assumptions used by the Company as at December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Discount rate 2.34~7.5% 1.40~7.69% Expected rate of salary increase 7.54~10.00% 1.50~11.00%
The amounts recognized in the consolidated statements of financial position related to defined benefit plans as of December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Present value of defined benefit obligations ₩ 43,279,946/ ₩ 38,385,811
Fair value of plan assets (42,838,293) (36,683,324)
Net defined benefit liabilities ₩ 441,653/ ₩ 1,702,487
44
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
45
17. Net defined benefit liabilities (cont’d)
Changes in the net defined benefit liabilities for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
The fair value of the plan assets as at December 31, 2018 and 2017 consists of the following (Korean won in thousands):
2018 2017
Insurance instruments ₩ 42,838,293 ₩ 36,683,324
2018
Present value of the defined benefit
obligations Fair value of the
plan assets Net defined
benefit liabilities
Beginning of the year ₩ 38,385,811/ ₩ (36,683,324) ₩ 1,702,487
Current service cost 6,145,144/ -.. 6,145,144
Interest expenses (income) 1,046,360/ (999,194) 47,166
45,577,315/ (37,682,518) 7,894,797
Remeasurements:
Return on plan assets -.. 404,866/ 404,866
Actuarial loss arising from changes in demographic assumptions 198,646/ -.. 198,646
Actuarial loss arising from changes in financial assumptions
1,012,427/ -.. 1,012,427
Actuarial loss arising from experience adjustments 1,214,130/ -.. 1,214,130
2,425,203/ 404,866/ 2,830,069
Contributions ₩ -.. ₩ (9,000,000) ₩ (9,000,000)
Benefits paid (4,502,740) 3,439,359/ (1,063,381)
Effect of exchange rate and others (219,832) -.. (219,832)
End of the year ₩ 43,279,946/ ₩ (42,838,293) ₩ 441,653
2017
Present value of the defined benefit
obligations Fair value of the
plan assets Net defined
benefit liabilities
Beginning of the year ₩ 32,353,064 ₩ (33,510,479) ₩ (1,157,415)
Current service cost 5,943,834 -… 5,943,834
Interest expenses (income) 740,839 (767,464) (26,625)
39,037,737 (34,277,943) 4,759,794
Remeasurements:
Return on plan assets -///. 179,284 179,284 Actuarial loss arising from changes in financial assumptions 2,087,781 -///. 2,087,781
Actuarial loss arising from experience adjustments (848,953) -///. (848,953)
1,238,828 179,284 1,418,112
Contributions ₩ -///. ₩ (4,000,000) ₩ (4,000,000)
Benefits paid (1,870,704) 1,415,335 (455,369)
Effect of exchange rate and others (20,050) -///. (20,050)
End of the year ₩ 38,385,811 ₩ (36,683,324) ₩ 1,702,487
45
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
46
17. Net defined benefit liabilities (cont’d) The sensitivity analyses below have been determined based on reasonably possible changes of the respective assumptions occurring as at December 31, 2018 and 2017, while holding all other assumptions constant.
2018 2017
1% increase 1% decrease 1% increase 1% decrease
Discount rate ₩ (2,230,761) ₩ 2,531,554. ₩ (2,009,255) ₩ 2,274,100 Expected rate of salary increase
2,480,674.
(2,231,333) 2,209,937 (1,987,932)
Since there is correlation among actuarial assumptions, changes of assumptions will not occur in isolation and the above sensitivity analyses will not show the actual change of defined benefit obligations. Also, in the above sensitivity analyses, present value of defined benefit obligations is measured by using the Projected Unit Credit Method which is applied to measure the amount of defined benefit obligations in the consolidated statements of financial position. The weighted-average maturity of the defined benefit obligation as of December 31, 2018 is 7.82 years (7.70 years as of December 31, 2017). 18. Provisions Provisions as of December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Current Non-current Current Non-current
Provision for restoration costs ₩ - ₩ 926,999 ₩ - ₩ 677,510 Other long-term employee benefits - 3,030,387 - 2,412,643
Others 268,414 422,123 254,801 373,970
₩ 268,414 ₩ 4,379,509 ₩ 254,801 ₩ 3,464,123
Changes in provisions for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Beginning of
the year Charged Utilized Others
End of
the year
Provision for restoration costs
₩ 677,510 ₩ 252,416 ₩ (3,000) ₩ 73 ₩ 926,999
Other long-term
employee benefits
2,412,643 815,176 (197,432)) - 3,030,387
Others 628,772 246,721 -)) (184,956) 690,537
₩ 3,718,925 ₩ 1,314,313 ₩ (200,432)) ₩ (184,883) ₩ 4,647,923
2017
Beginning of
the year Charged Utilized Others
End of
the year
Provision for restoration costs
₩ 678,272 ₩ - ₩ - ₩ (762) ₩ 677,510
Other long-term
employee benefits
2,194,748 477,197 (259,302) - 2,412,643
Others 525,578 372,055 (242,425) (26,437) 628,771
₩ 3,398,598 ₩ 849,252 ₩ (501,727) ₩ (27,199) ₩ 3,718,924
46
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
47
19. Capital stock Capital stock as of December 31, 2018 and 2017 consists of the following:
2018 2017
Authorized 50,000,000
shares 50,000,000
shares
Issued 20,000,000
shares 20,000,000
shares
Par value ₩ 500 ₩ 500
Capital stock ₩ 10,000,000,000 ₩ 10,000,000,000
20. Other contributed capital Details of other contributed capital as of December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Paid-in capital in excess of par value ₩ 132,848,564 ₩ 132,848,564 21. Other components of equity Details of other components of equity as of December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Share of the other comprehensive loss of equity-accounted investees
₩ (297,925) ₩ (263,513)
Loss on foreign operations translation (20,236,987) (20,113,646)
Others (9,752,558) (10,381,023)
₩ (30,287,470) ₩ (30,758,182)
47
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
48
22. Retained earnings Retained earnings as of December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Legal reserve (*) ₩ 5,000,000. ₩ 5,000,000
Discretionary reserve
Reserve for establishment of research center for brand 18,000,000. 18,000,000
Reserve for development for overseas markets 21,500,000. 21,500,000
Unappropriated retained earnings 570,410,381. 515,716,015
₩ 614,910,381. ₩ 560,216,015
(*) The Commercial Code of the Republic of Korea requires the Group to appropriate as a legal reserve, a minimum of 10% of annual cash dividends declared, until such reserve equals 50% of its capital stock. The legal reserve may not be utilized for cash dividends but may only be used to offset a deficit, if any, or be transferred to capital stock. Changes in retained earnings for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Beginning of the year ₩ 560,216,015. ₩ 518,806,962
Profit for the year attributable to the owners of the Company 76,843,830. 61,480,985
Payment of dividends (20,000,000) (19,000,000)
Remeasurements of defined benefit plans (2,830,069) (1,418,112)
Tax effect 680,605. 346,180
End of the year ₩ 614,910,381. ₩ 560,216,015
The computation of the proposed dividends of the Company for the years ended December 31, 2018 and 2017 are as follows:
2018 2017
Dividend per share (dividend rate) ₩ 1,500(300%) ₩ 1,000 ( 200%)
Number of shares issued
20,000,000
Shares 20,000,000
Shares
Dividends ₩ 30,000,000,000 ₩ 20,000,000,000
Changes in remeasurements of defined benefit plans for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Beginning of year ₩ (4,315,445) . ₩ (3,243,513)
Changes (2,830,069) (1,418,112)
Tax effect 680,605. 346,180
End of the year ₩ (6,464,909) ₩ (4,315,445)
48
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
49
23. Revenue from contracts with customers
Revenue from contracts with customers for the years ended December 31, 2018 consist of the following (Korean won in thousands):
2018
Segments
Advertisement agency
Advertisement production Total
Type of goods or service
Sale of media agency service \ 303,532,654 \ - \ 303,532,654 Sale of advertisement production service - 922,253,707 922,253,707
Sales of goods - 13,390,429 13,390,429 Total revenue from contracts with customers \ 303,532,654 \ 935,644,136 \ 1,239,176,790
Geographical markets
Republic of Korea \ 67,296,539 \ 304,674,804 \ 371,971,343
Overseas 236,236,115 630,969,332 867,205,447 Total revenue from contracts with customers \ 303,532,654 \ 935,644,136 \ 1,239,176,790
Timing of revenue recognition
Goods transferred at a point in time \ - \ 13,390,429 \ 13,390,429
Services transferred over time 303,532,654 922,253,707 1,225,786,361 Total revenue from contracts with customers \ 303,532,654 \ 935,644,136 \ 1,239,176,790
Sales from the customers who account for more than 10% of the Group’s sales are as follows (Korean won in thousands):
2018 2017
Hyundai Motor America ₩ 265,099,699 ₩ 298,244,386
Hyundai Motor Company 158,603,920 208,084,959
KIA Motors America, Inc. 127,642,805 63,791,533
Contract balances for the years ended December 31, 2018 consist of the following (Korean won in thousands):
2018
Trade receivables ₩ 265,279,782
Contract assets 34,577,738
Contract liabilities 19,784,631
Trade receivables are interest free, and the usual collection term is 90 days.
Contract assets are recognized for the first time when the Group performs advertising services to the customer before the customer pays the consideration or before payment is due and are reclassified as trade receivables when the transfer of the promised services to the customer is complete.
Contract liabilities are recognized when the customer pays the customer before the Group performs the advertising services to the customer and are recognized as revenue when the Group transfers the promised services to the customer. Most of the contract liabilities at the beginning of the reporting period of the Group are recognized as revenue of that reporting period.
49
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
50
24. Selling and administrative expenses Selling and administrative expenses for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Payroll ₩ 237,444,536 ₩ 192,451,120
Post-employment benefits 6,308,005 5,917,209 Termination benefits 71,336 223,116 Welfare 25,048,166 20,136,575 Entertainment 3,608,178 2,893,200 Depreciation 5,172,150 5,099,895 Amortization 1,860,402 1,154,634 Taxes and dues 1,814,161 1,365,665 Advertisements 2,115,785 2,155,098 Service charges 15,490,235 17,182,773 Employee training cost 984,135 1,271,792 Market development 1,926,034 2,486,486 Travel 6,045,675 5,323,343 Communication 1,994,597 1,867,376 Supplies 514,605 439,169 Publication 2,231,928 1,392,971 Repairs 921,848 505,479 Vehicles maintenance 1,214,005 1,306,457 Rents 22,166,342 19,221,179 Office supplies 3,604,082 2,300,667 Market research 3,376,634 3,843,081 Bad debt expenses 99,236 372,180 Outsourcing 7,096,170 5,713,545 Others 2,565,558 1,898,133
₩ 353,673,803 ₩ 296,521,143
50
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
51
25. Finance income and costs
Finance income for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Interest income ₩ 10,810,904 ₩ 9,351,269
Gain on foreign exchange transactions 4,330,940 4,031,728
Gain on foreign currency translation 494,594 492,930
Gain on valuation of derivatives 16,345 27,625
Others 151,253 2,787
₩ 15,804,036 ₩ 13,906,339
Finance costs for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Interest expenses ₩ 73,607 ₩ 52,765
Loss on foreign exchange transactions 3,781,298 4,734,543
Loss on foreign currency translation 618,297 1,571,930
Loss on valuation of derivatives 13,931 -
Loss on disposals of AFS financial assets - 12,234
Impairment losses on AFS financial assets - 660,000
Others 11,014 6,925
₩ 4,498,147 ₩ 7,038,397
26. Other income and expenses Other income for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Gain on disposals of PP&E ₩ 812,836 ₩ 10,780
Miscellaneous gain 914,983 930,683
Others 394,153 83,749
₩ 2,121,972 ₩ 1,025,212
Other expenses for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Loss on disposals of PP&E ₩ 38,200 ₩ 15,436
Impairment loss on intangible assets 1,744,550 496,000
Miscellaneous losses 74,223 289,683
Donations 643,299 91,831
Others 173,888 168,980
₩ 2,674,160 ₩ 1,061,930
51
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
52
27. Expenses by nature Expenses by nature for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Outsourced production expenses ₩ 717,449,040 ₩ 697,311,352
Employee benefits 268,872,043 218,728,020
Depreciation 5,409,363 5,237,449
Amortization 1,860,402 1,154,634
Service charges 36,132,396 31,572,593
Others 91,267,060 88,002,360
₩ 1,120,990,304 ₩ 1,042,006,408
28. Income tax expense Income tax expenses for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018 2017
Current income tax expense ₩ 32,249,625/ ₩ 27,452,559 Adjustments recognized in the current year in relation to the prior years (321,189) 561,710
Changes in deferred taxes from temporary differences 2,397,575/ 14,979
Deferred taxes directly recognized in equity 680,606/ 343,817
Corporate tax on unappropriated earnings of enterprises 1,502,468/ -
Others (162,939) 438,926
Income tax expense ₩ 36,346,146/ ₩ 28,811,991
52
Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
53
28. Income tax expense (cont’d)
The reconciliation of income before income taxes and income tax expense for the years ended December 31, 2018 and 2017 is as follows (Korean won in thousands):
2018 2017
Income before income tax ₩ 128,727,913/ ₩ 104,473,537
Income tax expense calculated at statutory tax rates 33,825,224/ 26,565,788
Adjustments:
Non-taxable income (13,720) (323,695)
Non-deductible expenses 1,926,165/ 1,707,817
Tax credits (1,150,057) (2,955,598)
Unrealized deferred tax related to temporary differences 201,867/ 122,396
Adjustment amount of previous year transfer 322,209/ -
Previous year's income tax adjustment (321,189) 642,176
Corporate tax on unappropriated earnings of enterprises 1,502,468/ -
Others 53,179/ 3,053,107
Income tax expense ₩ 36,346,146/ ₩ 28,811,991
Effective tax rate 28.23%/ 27.58%
Changes in deferred tax assets (liabilities) for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Beginning of the year Other changes End of the year
Accrued expenses ₩ 548,288 ₩ 240,538/ ₩ 788,826
Property, plant and equipment 294,925 62,350/ 357,275
Allowance for doubtful accounts - 16,907/ 16,907
Investment in associates (13,362,069) (4,779,591) (18,141,660)
Accrued income (733,026) (7,610) (740,636)
Defined benefit liabilities and others 35,058 383,895/ 418,953
Provisions 857,033 76,806/ 933,839
AFS financial assets 156,695/ (156,695) -
Intangible assets and others (706,443) 263,357/ (443,086)
₩ (12,909,539) ₩ (3,900,043) ₩ (16,809,582)
2017
Beginning of the year Other changes End of the year
Accrued expenses ₩ 663,231 ₩ (114,943) ₩ 548,288
Property, plant and equipment 274,364 20,561 294,925
Allowance for doubtful accounts 16,907 (16,907) -
Investment in associates (12,799,775) (562,294) (13,362,069)
Accrued income (734,230) 1,204 (733,026)
Defined benefit liabilities and others 428,923 (393,865) 35,058
Provisions 691,278 165,755 857,033
AFS financial assets (662) 157,357 156,695
Intangible assets and others (1,434,596) 728,153 (706,443)
₩ (12,894,560) ₩ (14,979) ₩ (12,909,539)
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
54
28. Income tax expense (cont’d) Deferred taxes directly recognized in equity for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Loss on valuation of AFS financial assets ₩ - ₩ (2,363)
Remeasurements of defined benefit plans 680,606 346,180
₩ 680,606 ₩ 343,817
Unused foreign tax credits, which are not recognized in deferred tax assets, by expiration years, as of December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
2019 ₩ 273,780 ₩ 293,521 2020 5,495,388 6,755,123 2021 3,623,512 4,881,234
2022 4,824,806 5,381,803
2023 5,132,293 -
₩ 19,349,779 ₩ 17,311,681
29. Earnings per share
Basic earnings per share are computed by dividing profit for the year attributable to owners of the Company by the weighted-average number of common shares outstanding during the year. The Group did not compute diluted earnings per share for the years ended December 31, 2018 and 2017 since there were no dilutive features during the years. Basic earnings per share for the years ended December 31, 2018 and 2017 are computed as follows:
2018 2017
Profit attributable to the owners of the Parent Company ₩ 76,843,829,602 ₩ 61,480,985,162
Weighted-average number of common shares outstanding 20,000,000
Shares 20,000,000
Shares
Basic earnings per share ₩ 3,842 ₩ 3,074
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
55
30. Financial instruments Categories of financial assets as of December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018
Financial assets at FVTPL
Financial assets at amortized cost
Financial assets at FVOCI
Book value Fair value
Cash and cash equivalents
₩ -
₩ 356,950,145
₩ -
₩ 356,950,145
₩ 356,950,145
Short-term and long- term financial instruments
-
341,297,208
-
341,297,208
341,297,208
Trade and other receivables
-
816,582,571
-
816,582,571
816,582,571
Financial assets at FVOCI - - 478,235 478,235 478,235
Other financial assets 16,345 11,963,478 - 11,979,823 11,979,823
₩ 16,345 ₩ 1,526,793,402 ₩ 478,235 ₩ 1,527,287,982 ₩ 1,527,287,982
2017
Financial assets at FVPL
Loans and receivables
AFS financial assets
Book value Fair value
Cash and cash equivalents
₩ -
₩ 330,161,565
₩ -
₩ 330,161,565
₩ 330,161,565
Short-term and long- term financial instruments
202,174,292
190,202,917
-
392,377,209
392,377,209
Trade and other receivables
-
721,086,291
-
721,086,291
721,086,291
AFS financial assets - - 1,818,240 1,818,240 1,818,240
Other financial assets 27,625 9,757,262 - 9,784,887 9,784,887
₩ 202,201,917 ₩ 1,251,208,035 ₩ 1,818,240 ₩ 1,455,228,192 ₩ 1,455,228,192
Categories of financial liabilities as of December 31, 2018 and 2017 consist of the following (Korean won in thousands): 2018
Financial liabilities at
FVTPL
Financial liabilities at
amortized cost
Book value Fair value
Trade and other payables ₩ - ₩ 900,978,467 ₩ 900,978,467 ₩ 900,978,467
Bond - 10,000 10,000 10,000
Other financial liabilities 20,697,027 9,080 20,706,107 20,706,107
₩ 20,697,027 ₩ 900,997,547 ₩ 921,694,574 ₩ 921,694,574
2017
Financial
liabilities at FVPL
Financial liabilities carried at
amortized cost
Book value Fair value
Trade and other payables ₩ - ₩ 862,284,028 ₩ 862,284,028 ₩ 862,284,028
Bond - 10,000 10,000 10,000
Other financial liabilities 19,819,219 11,257 19,830,476 19,830,476
₩ 19,819,219 ₩ 862,305,285 ₩ 882,124,504 ₩ 882,124,504
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
56
30. Financial instruments (cont’d) Fair value hierarchy Financial instruments that are measured subsequent to initial recognition at fair value are grouped into Level 1 to Level 3, based on the degree to which the fair value is observable, as described below: Level 1: Fair value measurements are those derived from quoted prices (unadjusted) in active markets for
identical assets or liabilities. Level 2: Fair value measurements are those derived from inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).
Level 3: Fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).
Fair value measurements of financial instruments by fair value hierarchy levels as at December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Level 1 Level 2 Level 3 Total
Financial assets at FVOCI ₩ - ₩ - ₩ 478,235 ₩ 478,235
Derivatives assets - 16,345 - 16,345
Derivatives liabilities - 13,931 20,683,096 20,697,028
2017
Level 1 Level 2 Level 3 Total
Financial assets at FVPL ₩ - ₩ 202,174,292 ₩ - ₩ 202,174,292
AFS financial assets - 1,340,000 - 1,340,000
Derivatives assets - 27,625 - 27,625
Derivatives liabilities - - 19,819,219 19,819,219 The Group recognizes transfers between levels of the fair value hierarchy at the date of the event or change in circumstances that caused the transfer. Descriptions of the valuation techniques and the inputs used in the fair value measurements categorized within Level 2 of the fair value hierarchy are as follows: Fair value Valuation technique Input
Derivatives assets:
Currency forwards ₩ 16,345 Discounted cash flow method Forward exchange rate
Derivatives liabilities: Currency forwards 13,931 Discounted cash flow method Forward exchange rate There are no changes in valuation techniques used in the fair value measurements of financial instruments categorized within Level 2.
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57
30. Financial instruments (cont’d)
The significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy, range of unobservable inputs and valuation techniques are as follows:
Fair value at December 31,
2018 Valuation
techniques Inputs Unobservable
inputs
Range of unobservable
inputs
Liabilities- Financial Liabilities ₩ 20,683,097
Discounted cash flow method
Growth rate, Discount rate
Growth rate 2.20%~7,74% Discount rate 10.38%
The quantitive information about significant unobservable inputs used in the fair value measurements categorized within Level 3 of the fair value hierarchy and the description of relationships of significant unobservable inputs to the fair value are as follows:
Fair value at December 31, 2018
Valuation techniques
Unobservable inputs Description of relationship
Liabilities- Financial Liabilities
₩ 20,683,097 Discounted cash
flow method
Growth rate If the growth rate increases, the fair value increases.
Discount rate If the discount rate increases, the fair value decreases.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
58
31. Gain (loss) by categories of financial instruments
Gain (loss) by categories of financial instruments for the years ended December 31, 2018 and 2017 consist of the following (Korean won in thousands):
2018
Financial assets at
amortized cost
Financial assets
at FVTPL
Financial assets
at FVOCI
Financial liabilities at
amortized cost Total
Recognized as Profit or loss:
Interest income (expenses) ₩ 10,743,451
₩ -/ ₩ - ₩ (6,154)
₩ 10,737,297.
Gain (loss) on foreign exchange transactions, net 588,084/. (24,559) - (13,883) 549,6420
Gain (loss) on foreign currency translation, net (155,978). -/ - 32,275 (123,703).
Gain on valuation of derivatives -. 2,413/ - -. 2,413.
Others 140,240./ -/ - -. 140,240/.
₩ 11,315,797 ₩ (22,146) ₩ -/ ₩ 12,238 ₩ 11,305,889.
2017
Loans and receivables
Financial assets
at FVPL AFS financial
assets
Financial liabilities carried at
amortized cost Derivatives Total
Recognized as Profit or loss:
Interest income (expenses) ₩ 5,351,887
₩ 3,975,888 ₩ - ₩ (29,271)
₩ - ₩ 9,298,504
Gain (loss) on foreign exchange transactions, net (743,781) - - (30,772) 71,738 (702,815)
Gain (loss) on foreign currency translation, net (1,477,934) - - 398,934 - (1,079,000)
Gain on valuation of derivatives - - - - 27,625 27,625
Loss on disposals of other financial assets - - (12,234) - - (12,234)
Impairment losses on AFS financial assets - - (660,000) - - (660,000)
Others (1,663) - - - (2,475) (4,318)
₩ 3,128,509 ₩ 3,975,888 ₩ (672,234) ₩ 338,891 ₩ 96,888 ₩ 6,867,942
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
59
32. Risk management
32.1 Capital risk management
The Group manages its capital to maintain an optimal capital structure for maximizing profit of its shareholders and reducing the cost of capital. Debt to equity ratio calculated as total liabilities divided by total equity is used as an index to manage the Group’s capital. The overall capital risk management policy is consistent with that of the prior period.
Debt-to-equity ratios as of December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Total liabilities ₩ 999,096,763 ₩ 940,913,666
Total equity 741,845,909 685,580,503
Debt-to-equity ratio 134.68% 137.24%
32.2 Financial risk management
The Group is exposed to various financial risks such as market risk (foreign exchange risk, interest rate risk and price risk), credit risk and liquidity risk related to its financial instruments. The purpose of risk management of the Group is to identify potential risks related to financial performance and reduce, eliminate and evade those risks to an acceptable level of risks to the Group. The overall financial risk management policy is consistent with that of the prior period.
32.2.1 Market risk
The Group is exposed to the risk that fair value of future cash flows of financial instrument will fluctuate due to changes in market prices. Market risk consists of foreign exchange risk, interest risk and price risk.
32.2.1.1 Foreign exchange risk management
Foreign exchange risk is the risk that fair value of financial instrument will fluctuate due to changes in foreign currency exchange rates. The Group is mainly exposed to exchange rate risk of foreign currencies such as USD because of overseas operating activities.
The Group monitors and manages the foreign exchange risks regularly. The Group’s sensitivity to a 5% change in exchange rate of the functional currency against each foreign currency on income before income tax for the year ended December 31, 2018 would be as follows (Korean won in thousands):
Foreign exchange rate sensitivity
Foreign currency Increase by 5% Decrease by 5%
USD ₩ 1,632,031 ₩ (1,632,031)
EUR 2,108,331 (2,108,331)
GBP 1,007 (1,007)
Others 331,848 (331,848)
The sensitivity analysis is applied to the Group’s monetary assets and liabilities in foreign currencies other than functional currency.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
60
32.2.1.2 Interest rate risk management Interest rate risk is the risk that interest income and expenses will fluctuate following to market interest rate. The Group is exposed to interest rate risk arising from financial instruments with floating interest rates. The Group manages interest rate risk to minimize the uncertainty and fluctuation of the profit for the year due to changes in interest rate. The Group’s sensitivity to a 1% change in interest rates for the financial assets and liabilities with floating interest rates on income before income tax for the year ended December 31, 2018, would be as follows (Korean won in thousands):
Interest rate sensitivity
Increase by 1% Decrease by 1%
Interest income ₩ 3,434,054 ₩ (3,434,054) 32.2.1.3 Price risk Price risk is the risk that the fair value or future cash flow of financial instrument will fluctuate due to changes in market price other than foreign currency risk and interest rate risk. However, the Group does not have equity securities traded in active market. 32.2.2 Credit risk The Group is exposed to credit risk when counterparty defaults on its contractual obligation resulting in a financial loss for the Group. The Group operates a policy to transact with counterparties who only meet a certain level of credit rating which was evaluated based on the counterparty’s financial conditions, default history, and other factors. The credit risk in the liquid funds and derivative financial instruments is limited as the Group transacts only with financial institutions with high credit-ratings assigned by international credit-rating agencies. The book value of financial assets in the consolidated financial statements represents the maximum amounts of exposure to credit risk. The receivables (billing basis) of customers, which represent more than 5% of total trade and other receivables, are as follows (See Note 33) (Korean won in thousands):
2018 2017
Hyundai Motor Company ₩ 134,064,441 ₩ 154,582,029
Kia Motors America, Inc. 101,820,867 10,526,315
Kia Motors Corporation 45,417,270 53,247,938
Hyundai Motor America 200,252,258 182,971,128
₩ 481,554,836 ₩ 401,327,410
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
61
32.2.3 Liquidity risk
The Group manages liquidity risk by matching the maturity of financial liabilities and financial assets through reviewing and analyzing between actual cash flows and budgetary cash flows based on long-term and short-term cash management plan.
The maturity analysis of financial liabilities according to their remaining contract expiration as of December 31, 2018 is as follows (Korean won in thousands):
Nominal cash flows
Less than one year One-five years Total
Non-interest-bearing liabilities ₩ 884,053,866 ₩ 37,630,708 ₩ 921,684,574
Bond 210 10,105 10,315
₩ 884,054,076 ₩ 37,640,813 ₩ 921,694,889
The above maturity analysis have been drawn up based on the undiscounted cash flows of financial liabilities based on earliest date on which the Group can be required to pay.
32.3 Changes in liabilities arising from financing activities for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
January 1 Cash flows December 31
Bond ₩ 10,000 ₩ - ₩ 10,000
2017
January 1 Cash flows December 31
Bond ₩ - ₩ 10,000 ₩ 10,000
The Group classifies the interest payments as cash flows from operating activities.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
62
33. Related party transactions
For the year ended December 31, 2018, the status of related parties and business group affiliates of the Group is as follows:
Inputs Name of related parties
Related party Investment in joint venture and associates Beijing Innocean-CBAC Advertising
Co., Ltd. (ICBAC)
Mate Communications Co., Ltd.
Inspirecorp. Co., Ltd. Union Contents Value up Investment association
Business Group Affiliate Hyundai Motor Company,
Kia Motors Corporation, etc.
For the year ended December 31, 2018, significant transactions arising from operations between the Group and related parties or affi liates of Hyundai Motor company Group (“The Affi liates”) by the Monopoly Regulation and Fair Trade Act of the Republic of Korea (“the Act”) are as follows (Korean won in thousands):
Income Expenses
Sales and others Purchases and
others
Joint venture and associates
ICBAC ₩ 1,080 ₩ -
Mate Communications Co., Ltd. 199,744 3,386,067
Inspirecorp. Co., Ltd. - 220,731 Other related parties
Hyundai Motor America 265,099,699 -
KIA Motors America, Inc. 127,642,805 4,251
Eden Road Holdings 34,287 5,130,701 Affiliates by the Act Hyundai Motor Company 158,603,920 246,729
Kia Motors Corporation 67,890,564 278,023
Hyundai Motor India Limited 37,074,231 -
KIA Motors Europe GmbH.. 34,726,555 -
Hyundai Auto Canada Corp. 23,354,899 86,319
Hyundai Motor Europe GmbH 18,988,819 - Hyundai Motor Deutschland GmbH 18,733,446 101,284
Hyundai Motor CIS 17,248,953 -
Hyundai Motor Company Australia Pty Ltd. 16,616,068 27,091
KIA Motors Deutschland GmbH 16,350,493 89,264
Hyundai Engineering Co.,Ltd. 15,172 2,770,052
Hyundai Autoever Corp. - 1,675,136
Hyundai Card Co., Ltd. 3,282,259 1,198,663
Hyundai AutoEver America, LLC - 1,112,403
Others (*) 137,191,079 1,017,076
₩ 943,054,071 ₩ 17,343,790
(*) Others include subsidiaries of the Affiliates by the Act.
During the year ended December 31, 2018, the Group had financial instruments transaction of ₩25 billion
investments and ₩20 billion collections with Hyundai Motor Securities Co., Ltd., an affiliate by the Act.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
63
33. Related party transactions (cont’d)
For the year ended December 31, 2017, significant transactions arising from operations between the Group and related parties or the Affiliates by Act, are as follows:
Income Expenses
Sales and others Dividend Purchases and
others
Joint venture and associates
ICBAC ₩ 30,644 ₩ 3,744,997 ₩ -
Mate Communications Co., Ltd 80,814 - 3,139,680
Inspirecorp. Co., Ltd. - - 145,000Other related parties
Hyundai Motor America 298,244,386 - -
KIA Motors America, Inc. 63,791,533 - -
Eden Road Holdings - - 3,207,501 Affiliates by the Act
Hyundai Motor Company 208,089,959 - 475,041
Kia Motors Corporation 60,715,122 - 258,743
Hyundai Motor India Limited 28,964,822 - -
KIA Motors Europe GmbH. 30,576,435 - -
Hyundai Auto Canada Corp. 20,070,122 - 81,815
Hyundai Motor Europe GmbH 24,426,163 - -Hyundai Motor Deutschland GmbH 18,376,363 - 140,492
Hyundai Motor CIS 8,108,988 - -Hyundai Motor Company
Australia Pty Ltd. 16,825,084 - 33,896
KIA Motors Deutschland GmbH 17,952,111 - 99,583
Hyundai Engineering Co.,Ltd. 188,381 - 3,183,652
Hyundai Autoever Corp. 8,738 - 1,611,391
Hyundai Card Co., Ltd. 3,103,852 - 1,559,211
Hyundai AutoEver America, LLC - - 1,156,278
Others (*) 143,064,090 - 1,197,274
₩ 942,617,607 ₩ 3,744,997 ₩ 16,289,557
(*) Others include subsidiaries of the Business Group Affiliate.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
64
33. Related party transactions (cont’d) As of December 31, 2018 and 2017, significant balances related to the transactions between the Group and related parties or the Affiliates by the Act are as follows (Korean won in thousands):
2018
Receivables Payables
Trade receivables
Other receivables and others Trade payables
Other payables
and others
Joint venture and associates
Beijing Innocean-CBAC Advertising Co., Ltd. ₩ - ₩ 1,073 ₩ - ₩ -
Mate Communications Co., Ltd 17,578 - 506,850 127,050
Inspirecorp. Co., Ltd. - - - 13,200 Other related parties
Hyundai Motor America 83,923,015 116,329,242 - -
KIA Motors America, Inc. 101,819,476 1,392 - - Eden Road Holdings 1,865 - - 460,602 Affiliates by the Act
Hyundai Motor Company 50,938,754 83,125,687 - 11,728,777
Kia Motors Corporation 10,581,699 34,835,571 17,988 3,151,221
KIA Motors Russia LLC 12,211,101 - - -
Kia Motors Iberia S.L. 11,764,324 575 - -
Hyundai Motor India Ltd 5,653,858 4,172,691 - -
Kia Motors Europe GmbH 8,331,511 - - 256
Hyundai MOBIS Co., Ltd. 793,518 20,083,886 - 131,116 Hyundai auto Canada 7,870,832 3,493 - 7,087 Hyundai Motor CIS 7,318,613 4,084 - - Hyundai Motor Australia 7,234,581 - - - Hyundai Engineering Co.,India, LLP. 495,751 - - 1,209,457
Hyundai Autoever Corp - 280,492 - 594,281 Haevichi hotels & resorts Co.,Ltd. - - 110,000 - Hyundai Engineering & Construction Co., Ltd. 186,939 6,619,344 - 58,395
Others (*) 64,559,705 12,502,014 9,292 373,189
₩ 373,703,121 ₩ 277,959,543 ₩ 644,130 ₩ 17,854,632
(*) Others include subsidiaries of the Affiliates by the Act.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
65
33. Related party transactions (cont’d) 2017
Receivables Payables
Trade receivables
Other receivables and others Trade payables
Other payables
and others
Joint venture and associates
Beijing Innocean-CBAC Advertising Co., Ltd. ₩ - ₩ 1,194 ₩ - ₩ -
Mate Communications Co., Ltd 13,964 - 148,454 1,010,517
Inspirecorp. Co., Ltd. - - - 13,200 Other related parties
Hyundai Motor America 182,971,128 - - 2,311,076
KIA Motors America, Inc. 10,526,315 - - 1,351,776 Affiliates by the Act
Hyundai Motor Company 154,582,029 12,384,126 40,056 9,610,376
Kia Motors Corporation 53,247,938 4,393,377 57,843 5,398,240
KIA Motors Russia LLC 12,006,309 - - 582,587
Kia Motors Iberia S.L. 11,270,625 - - -
Hyundai Motor India Ltd 7,171,373 1,849,933 - -
Hyundai MOBIS Co., Ltd. 24,019,308 - - -
Hyundai auto Canada 6,689,371 - - 8,997 Hyundai Motor CIS 4,723,757 - - 3,245 Hyundai Motor Australia 4,524,568 - - 182,665
Hyundai Autoever Corp - - 159,567 159,023 Haevichi hotels & resorts Co.,Ltd. - - 132,000 - Hyundai Engineering & Construction Co., Ltd. 7,569,475 - - -
Others (*) 113,973,009 1,161,726 3,167,833 178,177
₩ 598,332,648 ₩ 19,790,356 ₩ 3,705,753 ₩ 20,810,135
(*) Others include subsidiaries of the Affiliates by the Act. Compensation for registered directors and unregistered directors of the Company for the years ended December 31, 2018 and 2017 is as follows (Korean won in thousands):
2018 2017
Short-term employee salaries ₩ 3,452,530 ₩ 2,810,505
Post-employment benefits 713,927 770,584
Other long-term benefits - 5,021
₩ 4,166,457 ₩ 3,586,110
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
66
34. Cash generated from operations Cash generated from operations for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018 2017
Profit for the year ₩ 92,381,768/ ₩ 75,661,546 Adjustments to reconcile profit for the year to net cash flows:
Post-employment benefits 6,192,310/ 5,917,209 Depreciation 5,409,363/ 5,237,449 Amortization of intangible assets 1,860,402/ 1,154,634 Bad debt expenses 99,236/ 372,180 Gain on valuation of derivatives, net (2,413) (27,625) Income tax expense 36,346,146/ 28,811,991 Loss on foreign currency translation, net 123,703/ 1,079,000 Loss on disposals of AFS financial assets -/. 12,234 Impairment losses on AFS financial assets -/. 660,000 Loss (gain) on disposals of PP&E, net (774,636) 4,656 Impairment loss on intangible assets 1,744,550/ 496,000 Interest income (expense), net (10,737,297) (9,298,504) Share of profit (loss) of equity-accounted investees, net 212,274/ (963,347) Others 485,806/ 262,129
40,959,444/ 33,718,006
Changes in operating assets and liabilities: Decrease (increase) in trade receivables (311,980,679) 37,095,093 Decrease in other receivables 213,347,418/ 17,654,406 Decrease (increase) in other financial assets 2,969,928/ (335,298) Decrease (increase) in other assets 4,568,450/ (30,749,036) Increase in trade payables 219,983,171/ 4,973,724 Increase (decrease) in other payables (241,107,474) 6,907,386 Increase (decrease) in other liabilities 12,462,508/ (8,727,279) Decrease in other financial liabilities -/. (8,779) Payment of severance benefits (1,063,381) (455,369)
Increase in plan assets (9,000,000) (4,000,000) Decrease in provisions (263,786) (501,727)
(110,083,845) 21,853,121
Cash generated from operations ₩ 23,257,367/ ₩ 131,232,673
Significant non-cash transactions for the years ended December 31, 2018 and 2017, are as follows (Korean won in thousands):
2018 2017
Other payables related to acquisitions of PP&E ₩ 208,714 ₩ 27,482
Other receivables related to disposals of PP&E 126,531 16,466
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
67
35. Commitments and contingencies Payment guarantees of the Company provided by third parties as of December 31, 2018 are as follows (Korean won in thousands):
Financial institutions Guaranteed limits Guaranteed amount
Payment guarantees Kookmin Bank ₩ 10,000,000 ₩ -
Woori Bank 1,000,000 -
Woori Bank $ 1,000,000 -
The Company has been provided with guarantees amounting to \4,826,743 thousand relating to contract
performance by Seoul Guarantee Insurance Company as of December 31, 2018. The Group has entered into an agency agreement with KOBACO, which also serves as a regulatory agency for the domestic media and advertising industry. Under the agreement, the Group should submit all requests for advertisements received from direct advertisers or advertising sponsors to KOBACO, which is authorized to deal with media companies for the airing of such advertisements, and from which the Group receives an agent fee ranging from 9% to 13% of the receipts from advertisers.
As of December 31, 2018, the Company maintains the lines for bank overdraft of up to \7,000 million and
discount of notes receivable of up to \3,000 million with Kookmin Bank and other financial institutions. The
Company does not have discounted notes receivable as of December 31, 2018. As of December 31, 2018, the Company is involved in two lawsuits relating to claim for damages as a defendant
(aggregate claim amount of \450,000 thousand). The Company is currently unable to estimate the outcome or
the potential financial impacts of such lawsuits. IWH, a subsidiary, acquired 51% shares in Canvas Worldwide, LLC, its subsidiary, upon the establishment during the year 2015 and entered into an equity option contract in respect of 49% shares that Eden Road Holdings (“ERH”), a non-controlling shareholder, holds. According to the equity option contract, IWH and ERH are granted with a call option and a put option, respectively, which can be exercised after 2021 at an exercise price calculated based on financial results. Based on the equity option contract, the Group recognized derivative
liabilities of \207 billion in 2018(\198 billion in 2017) based on the results of its business operations, after the
establishment and future financial performance estimates (see Note 14). IWH, a subsidiary, has acquired all of shares in David & Goliath LLC(IDNG) on January 2, 2018, in order to enhance its business performance and strengthen its competitiveness. This business combination includes contingent consideration (See Note 37).
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
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36. Segment information The Group has a single business, advertising agencies, and consists of a single operating segment. Operating performance by region where the Group’s entities are located for the years ended December 31, 2018 and 2017 are as follows (Korean won in thousands):
2018
Korea Europe
America China Others Consolidation adjustments
Total
Total sales ₩ 418,280,334 ₩ 162,899,965 ₩ 574,287,943 ₩ 21,184,104 ₩ 116,490,164 ₩ (53,965,720) ₩ 1,239,176,790
Inter-company sales (55,872) (1,384,070) (52,441,975) - (83,803) 53,965,720 -
Net sales 418,224,462 161,515,895 521,845,968 21,184,104 116,406,361 - 1,239,176,790
Operating profit 38,294,272 12,399,492 51,390,603 1,428,338 14,576,556 97,225 118,186,486
2017
Korea Europe
America China Others Consolidation adjustments
Total
Total sales ₩ 421,637,499 ₩ 173,621,764 ₩ 490,645,720 ₩ 24,554,844 ₩ 82,037,363 ₩ (53,811,817) ₩ 1,138,685,373
Inter-company sales (125,062) (1,656,743) (51,887,079) (30,656) (112,277) 53,811,817 -
Net sales 421,512,437 171,965,021 438,758,641 24,524,188 81,925,086 - 1,138,685,373
Operating profit 32,077,207 12,228,904 38,268,195 2,365,161 11,625,004 103,494 96,678,965
Non-current assests by region where the Group’s entities are located as of December 31, 2018 and 2017 are as follows (Korean won in thousands):
December 31, 2018
Korea Europe
America China Others Consolidation adjustments
Total
Non-current assets (*)
₩ 24,324,263
₩ 2,118,390 ₩ 41,534,988 ₩ 220,581 ₩ 512,808 ₩ 68,651,676 ₩ 137,362,706
(*) Non-current assets consist of PP&E and intangible assets.
December 31, 2017
Korea Europe
America China Others Consolidation adjustments
Total
Non-current assets (*)
₩ 36,500,809
₩ 1,880,259 ₩ 23,849,761 ₩ 416,029 ₩ 397,538 ₩ 23,655,842 ₩ 86,700,238
(*) Non-current assets consist of PP&E and intangible assets. 37. Business combinations
Innocean Worldwide Holdings, inc., a subsidiary, has acquired all of shares in David & Goliath LLC(IDNG) on January 2, 2018 in order to enhance its business performance and strengthen its competitiveness. Details of the business combination that occurred during the year ended December 31, 2018 are as follows (US dollar and Korean won in thousands):
Consideration transferred(*)
Major business
activities Acquisition date USD KRW
David & Goliath LLC(IDNG) Ad-agency Jan 2, 2018 $ 54,090 ₩ 57,951,601 (*) The amount for Spinach, a 100% subsidiary of IDNG, is included.
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Innocean Worldwide Inc. and its subsidiaries Notes to the consolidated financial statements December 31, 2018 and 2017
69
37. Business combinations (cont’d) The fair value of the consideration transferred for the business combination that occurred during the year ended December 31, 2018 is as follows (US dollar and Korean won in thousands):
Amounts
USD KRW
Fair value of assets transferred for cash and cash equivalents $ 35,074 ₩ 37,577,859
Contingent consideration arrangement (*) 19,016 20,373,742
Consideration transferred 54,090 57,951,601 (*) The contingent consideration will be determined depending on the actual performance of each year from
2018 to 2021 based on ratio contractually agreed (0~100%). Thus, residual amounts may occur from nil to USD
35,838,111, which is 50% of the maximum amount, depending on the future performance. The contingent
consideration is \20,373,742 thousand, the fair value at the acquisition date measured by using the real option
assessment model based on market risk, and includes consideration transferred.
The consideration paid for the business combination incurred during the year ended December 31, 2018, the fair value of the assets acquired and liabilities assumed at the acquisition date, and the resulting goodwill are as follows (US dollar and Korean won in thousands):
USD KRW
Consideration transferred: $ 54,090 ₩ 57,951,601
Assets acquired and liabilities assumed(*1) Cash and cash equivalents 9,677 10,368,148 Trade and other receivables(*2) 10,258 10,990,154 Other assets 223 238,835 Property, plant and equipments 350 375,364 Intangible assets 13,509 14,473,2300 Leasehold deposits 105 112,892 Trade and other payables 15,842 16,972,676 Unearned revenue 424 453,966 Other liabilities 3,187 3,415,935
14,669 15,716,046
Goodwill(*3) $ 39,421 ₩ 42,235,555
(*1) The amount for Spinach, a 100% subsidiary of IDNG, is included.
(*2) The fair value of the acquired trade receivables is ₩10,258 thousand, and the total contractual amount is
₩10,258 thousand. The Group expects to collect all of the contractual amounts.
(*3) Goodwill of ₩42,235,555 thousand is the expected synergy effect from the business combination. The
goodwill recognized is not expected to be deducted for tax purposes. Sales and profit for the year of David & Goliath LLC included in the consolidated statement of profit or loss and
other comprehensive income for the year ended December 31, 2018 after the acquisition date are ₩115,613
million and ₩8,335 million, respectively, and the acquisition date is same as the beginning of the reporting
period.
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