Audit Report: Hyundai Card 3Q2011

HYUNDAI CARD CO., LTD. AND ITS SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS FOR THE
NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010
AND INDEPENDENT ACCOUNTANTS’ REVIEW REPORT

Independent Accountants’ Review Report
English Translation of a Report Originally Issued in Korean

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

We have reviewed the accompanying consolidated financial statements of Hyundai Card Co., Ltd. and its
subsidiaries (collectively the “Company”). The financial statements consist of the consolidated statements of
financial position as of September 30, 2011 and December 31, 2010, and the related consolidated statements of
comprehensive income, changes in shareholders’ equity and cash flows for the three months and the nine months
ended September 30, 2011 and 2010, and a summary of significant accounting policies and other explanatory
information.

Management’s responsibility for the consolidated financial statements

The Company’s management is responsible for the preparation and fair presentation of the accompanying
consolidated financial statements and for such internal control as management determines is necessary to enable the
preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Independent accountants’ responsibility

Our responsibility is to express a conclusion on the accompanying consolidated financial statements based on our
review.

We conducted our reviews in accordance with standards for review of interim financial statements in the Republic
of Korea. A review is limited primarily to inquiries of company personnel and analytical procedures applied to
financial data, and this provides less assurance than an audit. We have not performed an audit and, accordingly, we
do not express an audit opinion.

Review conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying
consolidated financial statements of the Company are not presently fairly, in all material respects, in accordance
with K-IFRS 1034, Interim Financial Reporting, and the requirements of K-IFRS 1101, First-time Adoption of
Korean International Financial Reporting Standards, relevant to interim financial reporting.

November 29, 2011

Notice to Readers

This report is effective as of November 29, 2011, the review report date. Certain subsequent events or
circumstances may have occurred between the review date and the time the review report is read. Such events or
circumstances could significantly affect the accompanying financial statements and may result in modifications to
the review report.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

AS OF SEPTEMBER 30, 2011 AND DECEMBER 31, 2010

September 30, 2011 December 31, 2010
(Korean won in millions)
ASSETS

CASH AND BANK DEPOSITS (Notes 6, 32, 33 and 34):
Cash and cash equivalents ￦ 935,121 ￦ 607,048
Bank deposits 33,041 23,131
Total cash and bank deposits 968,162 630,179

INVESTMENT FINANCIAL ASSETS (Notes 7, 33 and 34):
Financial assets at fair value through profit or loss (FVTPL) 70,011 190,027
Financial assets available-for-sale (AFS) 1,767 1,776
Total investment financial assets 71,778 191,803

CARD ASSETS (Notes 8, 9, 30, 33 and 34):
Card receivables, net of present value discounts, deferred
origination fees and allowance for doubtful accounts 5,856,927 5,961,380
Cash advances, net of allowance for doubtful accounts 1,011,428 1,115,700
Card loans, net of present value discounts, deferred loan
origination fees and allowance for doubtful accounts 1,829,842 1,928,688
Total card assets 8,698,197 9,005,768

LOANS (Notes 8, 9, 33 and 34)
Other loans, net of allowance for doubtful accounts 433 992

PROPERTY, PLANT AND EQUIPMENT (Notes 10, 12, 15
and 30):
Land 83,995 80,414
Buildings, net of accumulated depreciation 42,426 34,494
Vehicles, net of accumulated depreciation 368 293
Fixtures and equipment, net of accumulated depreciation 48,940 36,617
Capital lease assets 2,778 -
Assets under construction 623 698
Total property and equipment 179,130 152,516

OTHER FINANCIAL ASSETS (Notes 9,19,30,33 and 34):
Other accounts receivable, net of allowance for doubtful
accounts 50,431 15,054
Accrued revenue, net of allowance for doubtful accounts 42,117 47,611
Guarantee deposits 51,248 48,129
Derivative assets 3,507 13,748
Total other financial assets 147,303 124,542

OTHER NON-FINANCIAL ASSETS (Notes 6,9,11,26 and 30):
Advanced payments, net of allowance for doubtful
accounts 23,971 76,319
Prepaid expenses 6,133 11,634
Intangible assets 70,108 70,450
Deferred income tax assets 136,619 125,064
Others 23,263 27,307
Total other non-financial assets 260,094 310,774
Total Assets ￦ 10,325,097 ￦ 10,416,574

See accompanying notes to consolidated financial statements.


CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (CONTINUED)

AS OF SEPTEMBER 30, 2011 AND DECEMBER 31, 2010

LIABILITIES AND SHAREHOLDERS’ EQUITY (Korean won in millions)

BORROWINGS :
Borrowings (Notes 13, 33 and 34) ( ￦ 270,000 ￦ 1,581,766
Bonds payable, net (Notes 14, 29, 33 and 34) 6,608,662 5,594,406
Total borrowings 6,878,662 7,176,172

RETIREMENT BENEFIT(Note 16)
Retirement benefit obligation 13,463 9,609
Total retirement benefit 13,463 9,609

OTHER FINANCIAL LIABILITIES (Notes 15, 19, 28, 30, 33 and
34):
Accounts payable 822,175 795,721
Withholdings 74,306 73,572
Accrued expenses 101,562 123,112
Income tax payable 41,585 86,864
Finance lease liabilities 2,814 -
Derivatives liabilities 9,058 35,085
Import deposit 11,566 10,463
Total other financial liabilities 1,063,066 1,124,817

OTHER NON-FINANCIAL LIABILITIES :
Unearned revenue 330,206 287,440
Provisions (Note 18 and 28) 84,074 81,426
Total other non-financial liabilities 414,280 368,866

SHAREHOLDERS’ EQUITY :
Share capital (Note 20) 802,326 802,326
Share premium (Note 21) 57,704 57,704
Retained earnings (Notes 22 and 24) 1,118,522 880,210
Reserves (Note 19, 23 and 31) (22,947) (3,150)
Non-controlling Interest 20 20
Total shareholders’ equity 1,955,626 1,737,110
Total Liabilities and Shareholders’ Equity ￦ 10,325,097 ￦ 10,416,574



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2011 AND 2010

2011 2010
Three months Nine months Three months Nine months
ended ended ended ended
September 30. September 30. September 30. September 30.
(Korean won in millions, except for per share amount)
OPERATING REVENUE:
Card income (Notes 30 and 36) ￦ 575,665 ￦ 1,729,162 ￦ 546,430 ￦ 1,540,136
Interest income (Note 35) 6,868 18,203 4,067 11,479
Gain on fair value change of financial assets at
FVTPL (Note 37) 4 11 - 7
Gain on disposal of financial assets AFS
(Note 37) 3,599 7,650 94,905 101,142
Reversal of impairment loss on financial
assets AFS (Note 37) 67 805 - 1,753
Dividends income 297 591 223 653
Reversal of provision for unused credit limits 444 - 2,586 -
Other operating revenue (Notes 30 and 38) 58,330 60,796 15,731 81,539
Total operating revenue 645,274 1,817,218 663,942 1,736,709

OPERATING EXPENSES:
Card expenses (Notes 30 and 36) 230,743 678,074 220,366 621,122
Interest expenses (Note 35) 87,973 269,380 82,703 232,275
General and administrative expenses (Notes
16, 17, 25 and 30) 121,636 357,195 116,660 319,684
Securitization expenses 114 288 238 669
Bad debt expense and loss on disposal of
loans 38,345 132,517 33,942 97,541
Transfer to provision for unused credit limits
(Note 18) - 1,541 - 598
Loss on fair value change of financial assets at
FVTPL (Note 37) - - 49 -
Impairment loss on financial assets AFS (Note
37) - 8 - -
Other operating expenses (Note 30 and 38) 58,322 62,564 15,707 75,108
Total operating expenses 537,133 1,501,567 469,665 1,346,997

OPERATING INCOME 108,141 315,651 194,277 389,712

(Continued)


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (CONTINUED)


2011 2010
Three months Nine months Three months Nine months
ended ended ended ended
September 30. September 30. September 30. September 30.
(Korean won in millions, except for per share amount)
NON-OPERATING INCOME:
Rental revenue(Note 30) ￦ 243 ￦ 873 ￦ 438 ￦ 752

NON-OPERATING EXPENSES:
Donations 284 609 187 652

INCOME BEFORE INCOME TAX 108,100 315,915 194,528 389,812

INCOME TAX EXPENSE (Note 26) 26,109 77,603 34,845 92,919

PROFIT FROM THE PERIOD 81,991 238,312 159,683 296,893

OTHER COMPREHENSIVE INCOME FOR
THE PERIOD (Note 31)
Gain on fair value of financial assets AFS - - (47,567) (53,801)
Effective portion of changes in fair value of
cash flow hedges (12,294) (19,796) 5,800 8,773

TOTAL COMPREHENSIVE INCOME FOR
THE PERIOD ￦ 69,697 ￦ 218,516 ￦ 117,916 ￦ 251,865

Net income attributable to:
Owners of the Company 81,991 238,312 159,683 296,893
Non-controlling interests - - - -

Total comprehensive income attributable to:
Owners of the Company 69,697 218,516 117,916 251,865
Non-controlling interests - - - -

Earnings per share (In won per share) (Note
27)
Basic earnings per share ￦ 511 ￦ 1,485 ￦ 995 ￦ 1,850
Diluted earnings per share ￦ 511 ￦ 1,485 ￦ 995 ￦ 1,850



CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY


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

Balance at January 1, 2010 ￦ 802,326 ￦ 45,399 ￦ 12,305 - ￦ 734,778 ￦ 53,801 ￦ (16,278) ￦ 1,632,332 ￦ 20 ￦ 1,632,352
Dividends paid - - - - (104,302) - - (104,302) - (104,302)
Comprehensive income - - - - - - - - - -
Net income - - - - 296,893 - - 296,893 - 296,893
Other comprehensive
income - - - - - (53,801) 8,773 (45,028) - (45,028)
Balance at September 30,
2010 802,326 45,399 12,305 - 927,369 - (7,505) 1,779,895 20 1,779,915
Balance at January 1, 2011 802,326 45,399 12,305 - 880,210 - (3,150) 1,737,090 20 1,737,110
Comprehensive income - - - - - - - - - -
Net income - - - - 238,312 - - 238,312 - 238,312
Other comprehensive
income - - - - - - (19,796) (19,796) - (19,796)
Balance at September 30,
2011 ￦ 802,326 ￦ 45,399 ￦ 12,305 ￦ - ￦ 1,118,522 - ￦ (22,947) ￦ 1,955,606 ￦ 20 ￦ 1,955,626



CONSOLIDATED STATEMENTS OF CASH FLOWS


Nine months ended September 30,
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES:
Profit from the period ￦ 238,312 ￦ 296,893
Income tax expense 77,602 92,919
Interest income (18,203) (11,478)
Interest expense 269,380 232,275
Dividend received (591) (653)
Bad debt expense and loss on disposal of receivables 132,517 97,540
Retirement benefits 7,698 5,140
Depreciation 15,162 11,445
Amortization 8,167 6,161
Loss on foreign currency translation 32,524 8,108
Loss on valuation of derivatives and trading 5,878 27,910
Increase in provision for unused commitments limit 1,541 598
Loss from sale of property, plant and equipment 5 10
Impairment loss of financial assets AFS 8 -
Other operating losses 148 34
Gain on disposals of financial assets AFS (8,456) (101,142)
Gain on valuation of financial assets invested (11) (7)
Gain on foreign currency translation (198) (27,923)
Valuation of derivatives and trading profit (37,701) (8,041)
Amortization of card asset present value discounts (17,376) (5,185)
Depreciation of deferred profit or loss units on card asset (17,218) (14,214)
Gain from sale of property, plant and equipment (3) -
Changes in working capital:
Decrease in financial assets 1 (119,060)
Decrease (increase) in card assets 208,176 (1,198,069)
Decrease in loans 500 -
Increase in other financial assets (27,054) (20,072)
Decrease (increase)in other non-financial assets 64,714 (11,054)
Decrease in derivative assets 8,190 107,457
Increase in provisions 1,106 7,013
Decrease in retirement benefit obligations (3,354) (2,785)
Reduction(expansion) in plan asset (489) 1,516
Decrease in derivative liabilities (17,502) (7,484)
Increase in capital lease liabilities 2,814 -
Increase in other financial liabilities 554 148,688
Increase in other non-financial liabilities 42,765 26,428
Cash generated from operating activities
Interest received 16,353 11,345
Interest paid (254,469) (221,208)
Dividend received 591 653
Income tax paid (128,884) (127,503)
Net cash provided by operating activities 603,197 (555,625)

(Continued)


CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)


Nine months ended September 30,
2011 2010

CASH FLOWS FROM INVESTING ACTIVITIES:
Disposal of financial assets invested 120,027 -
Disposal of property and equipment 44 -
Disposal of intangible assets - 1,450
Net increase in bank deposit (9,910) (32,776)
Net increase in gurantee deposit (2,524) (13,902)
Acquisition of property and equipment (37,496) (22,058)
Acquisition of intangible assets (12,152) (17,622)
Net cash provided by (used in) investing activities 57,989 (84,908)

CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in borrowings ￦ 50,000 ￦ 3,680,000
Proceeds from issue of bonds payable 2,894,973 1,974,302
Repayment of borrowings (1,361,766) (3,679,980)
Repayment of bonds payable (1,916,320) (1,068,517)
Payment of dividend - (104,302)
Net cash provided by (used in) financing activities (333,113) 801,503

NET INCREASE IN CASH AND CASH EQUIVALENTS 328,073 160,970
CASH AND CASH EQUIVALENTS, BEGINNING OF
THE PERIOD 607,048 487,515
CASH AND CASH EQUIVALENTS, END OF THE
PERIOD ￦ 935,121 ￦ 648,485



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


1. GENERAL:

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

As of September 30, 2011, the Parent has approximately 9.3 million card members, 1.91 million registered
merchants, and 181 marketing centers, branches and posts. Its head office is located in Yoido, Seoul.

As of September 30, 2011, the total common stock of the Parent is ￦802,326 million. The shareholders of the
Parent and their respective ownerships as of September 30, 2011 and December 31, 2010 are as follows:

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

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

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

(1) Basis of Preparation

The Company has adopted the Korean International Financial Reporting Standards (“K-IFRS”) for the annual
period beginning on January 1, 2011. In accordance with K-IFRS 1101 First-time adoption of International
Financial Reporting Standards, and the transition date to K-IFRS is January 1, 2010. The significant accounting
policies under K-IFRS followed by the Company in the preparation of its consolidated financial statements are
summarized in Note 4.

The Company’s interim consolidated financial statements for the nine months ended September 30, 2011 are
prepared in accordance with K-IFRS 1034 Interim Financial Reporting. The interim financial statements are
prepared in accordance with the K-IFRS that are effective as of September 30, 2011.

There may be newly or amended K-IFRSs and interpretations that are effective subsequent to the current
period-end during 2011 or during 2012 which early-adoption is permitted during 2011. Accordingly,
accounting policies that are used for the preparation of the interim consolidated financial statements may be
different from the policies that are used for the preparation of the first annual consolidated financial statements

in accordance with K-IFRS as of and for the period ending December 31, 2011. Currently, enactments and
amendments of the K-IFRSs are in progress, and the financial information presented in the interim financial
statements may change accordingly in the future.

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

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

(2) Significant Accounting Policies

1) Basis of Consolidation

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

Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated
statement of comprehensive income from the effective date of acquisition and up to the effective date of
disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the
Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit
balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting
policies into line with those used by the Company.

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

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company losing control
over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Company’s interests
and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries.
Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the
consideration paid or received is recognized directly in equity and attributed to owners of the Company

When the Company loses control of a subsidiary, the profit or loss on disposal is calculated as the difference
between (i) the aggregate of the fair value of the consideration received and the fair value of any retained
interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary
and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values
and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in
equity, the amounts previously recognized in other comprehensive income and accumulated in equity are
accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or
transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at
the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting
under K-IFRS 1039 Financial Instruments: Recognition and Measurement or, when applicable, the cost on
initial recognition of an investment in an associate or a jointly controlled entity.

2) Card assets

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

- 3 -

① Card Receivables

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

② Card Loans

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

3) Financial assets

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

Financial assets are classified into the following specified categories: financial assets at ‘fair value through
profit or loss’ (FVTPL), ‘held-to-maturity’, ‘available-for-sale’ and ‘loans and receivables’. The classification
depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

① Effective interest rate method

The effective interest rate method is a method of calculating the amortized cost of a debt instrument and of
allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash receipts (including all fees and points paid or received that form an integral part of the
effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt
instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition.

Income is recognized on an effective interest rate method for debt instruments other than those financial assets
classified as at FVTPL.

② Financial assets at fair value through profit or loss (FVTPL)

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

A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling it in the near term; or
• on initial recognition it is part of a portfolio of identified financial instruments that the Company manages
together and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.

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

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise; or
• the financial asset forms part of a group of financial assets or financial liabilities or both, which is managed
and its performance is evaluated on a fair value basis, in accordance with the Company's documented risk
management or investment strategy, and information about the grouping is provided internally on that
basis; or
• it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 Financial
Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be
designated as at FVTPL.

- 4 -

Financial assets at FVTPL are stated at fair value, and any gains or losses arising on remeasurement are
recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any dividend or
interest earned on the financial asset and is included in the ‘other revenue or expenses’ line item in the
consolidated statement of comprehensive income. And transaction cost from acquisition of them recognized in
loss immediately when it arises.

③ Held-to-maturity investments

Non-derivatives financial assets with fixed or determinable payments and fixed maturity dates that the
Company has the positive intent and ability to hold to maturity are classified as held-to-maturity investments.
Held-to-maturity investments are measured at amortized cost using the effective interest rate method less any
impairment, with revenue recognized on an effective interest rate method basis.

④ Available-for-sale financial assets (ABS)

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

The fair value of AFS monetary assets denominated in a foreign currency is determined in that foreign currency
and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are
recognized in profit or loss are determined based on the amortized cost of the monetary asset. Other foreign
exchange gains and losses are recognized in other comprehensive income.

⑤ Loans and receivables

Trade receivables, loans, and other receivables that have fixed or determinable payments that are not quoted in
an active market are classified as ‘loans and receivables’. Loans and receivables are measured at amortized cost
using the effective interest rate method, less any impairment. Interest income is recognized by applying the
effective interest rate, except for short-term receivables when the recognition of interest would be immaterial.

⑥ Impairment of financial assets

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end of each
reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a
result of one or more events that occurred after the initial recognition of the financial asset, the estimated future
cash flows of the investment have been affected.

For listed and unlisted equity investments classified as AFS, a significant or prolonged decline in the fair value
of the security below its cost is considered to be objective evidence of impairment.

For all financial assets classified as AFS, objective evidence of impairment could include:

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

For certain categories of financial asset, such as card receivables, assets that are assessed not to be impaired
individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment
for a portfolio of receivables could include the Company’s past experience of collecting payments, an increase

- 5 -

in the number of delayed payments in the portfolio exceeding the average credit period, as well as observable
changes in national or local economic conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference
between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the
financial asset’s original effective interest rate.

For financial assets measured at cost impairment is recognized as the difference between the carrying amount
of the asset and current value of estimated future cash flows discounted by similar to the current market rate
The impairment is not reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets
with the exception of card receivables, where the carrying amount is reduced through the use of an allowance
account. When a card receivable is considered uncollectible, it is written off against the allowance account.
Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes
in the carrying amount of the allowance account are recognized in profit or loss.

When an AFS financial asset is considered to be impaired, cumulative gains or losses previously recognized in
other comprehensive income are reclassified to profit or loss in the period.

With the exception of AFS equity instruments, if, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized,
the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying
amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would
have been had the impairment not been recognized.

In respect of AFS equity securities, impairment losses previously recognized in profit or loss are not reversed
through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other
comprehensive income.

⑦ Derecognition of financial assets

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

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

4) Property, Plant and Equipment

Property, plant and equipment are stated at cost less subsequent accumulated depreciation and accumulated
impairment losses. The cost of an item of property, plant and equipment is directly attributable to their
purchase or construction, which includes any costs directly attributable to bringing the asset to the location and
condition necessary for it to be capable of operating in the manner intended by management. It also includes
the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is

- 6 -

located.

Subsequent costs are recognized in carrying amount of an asset or as a separate asset if it is probable that future
economic benefits associated with the assets will flow into the Company and the cost of an asset can be
measured reliably. Routine maintenance and repairs are expensed as incurred.

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

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

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

The Company reviews the depreciation method, the estimated useful lives and residual values of property, plant
and equipment at the end of each annual reporting period. If expectations differ from previous estimates, the
changes are accounted for as a change in an accounting estimate.

When future economic benefits aren’t expected through the use or disposition of property, plant and equipment,
the Company removes the book value of the assets from consolidated statements of financial position. Income
inccurred from disposal of property, plant and equipment is the net amount of the trading and the book value
and is recognized when the asset is removed.

5) Lease

A lease is classified as a finance lease whenever the terms of the lease transfer substantially all the risks and
rewards of ownership to the lessee. All other leases are classified as operating leases.

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

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

6) Intangible assets

① Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated
amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their
estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each
reporting period, with the effect of any changes in estimate being accounted for on a prospective basis.
Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated
impairment losses.

② Internally-generated intangible assets - research and development expenditure

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

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

- 7 -

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

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred
from the date when the intangible asset first meets the recognition criteria listed above. Where no internally-
generated intangible asset can be recognized, development expenditure is recognized in profit or loss in the
period in which it is incurred.

Subsequent to initial recognition, internally-generated intangible assets are reported at cost less accumulated
amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired
separately.

③ Intangible assets acquired in a business combination

Intangible assets that are acquired in a business combination are recognized separately from goodwill and are
initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less
accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are
acquired separately.

④ Disposal of intangible assets

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

7) Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible
assets to determine whether there is any indication that those assets have suffered an impairment loss. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the
impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the
Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a
reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual
cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a
reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for
impairment at least annually, and whenever there is an indication that the asset may be impaired.
Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the
estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects
current market assessments of the time value of money and the risks specific to the asset for which the
estimates of future cash flows have not been adjusted.

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

If impairment recognized in prior periods is reversed the individual assets(or cash-generating unit), the revised
carrying amount of the recoverable amount and impairment loss recognized in prior periods, unless a small
amount of current carrying amounts have been recorded and determined, the reversal of impairment loss is
recognized immediately in profit or loss at the time.

- 8 -

8) Provisions

Provisions are recognized when the Company has a present obligation (legal or constructive) as a result of a
past event, it is probable that the Company will be required to settle the obligation, and a reliable estimate can
be made of the amount of the obligation.

The amount recognized as a provision is the best estimate of the consideration required to settle the present
obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the
obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its
carrying amount is the present value of those cash flows (where the effect of the time value of money is
material).

When some or all of the economic benefits required to settle a provision are expected to be recovered from a
third party, a receivable is recognized as an asset if it is virtually certain that reimbursement will be received
and the amount of the receivable can be measured reliably.

At the end of each reporting period, the remaining provision balance is reviewed and assessed to determine if
the current best estimate is being recognized. If the existence of an obligation to transfer economic benefit is no
longer probable, the related provision is reversed during the period.

9) Financial liabilities and equity instruments

① Classification as debt or equity

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

② Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting
all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of
direct issue costs.

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

③ Compound instruments

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

At the date of issue, the fair value of the liability component is estimated using the prevailing market interest
rate for a similar non-convertible instrument. This amount is recorded as a liability on an amortized cost basis
using the effective interest rate method until extinguished upon conversion or at the instrument’s maturity date.
The equity component is determined by deducting the amount of the liability component from the fair value of
the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and
is not subsequently remeasured.

④ Financial liabilities

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

⑤ Financial liabilities at FVTPL

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

- 9 -

A financial liability is classified as held for trading if:

• it has been acquired principally for the purpose of repurchasing it in the near term; or
• on initial recognition it is part of a portfolio of identified financial instruments that the Company manages
together and has a recent actual pattern of short-term profit-taking; or
• it is a derivative that is not designated and effective as a hedging instrument.

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

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would
otherwise arise; or
• the financial liability forms part of a group of financial assets or financial liabilities or both, which is
managed and its performance is evaluated on a fair value basis, in accordance with the Company's
documented risk management or investment strategy, and information about the grouping is provided
internally on that basis; or
• it forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039 Financial
Instruments: Recognition and Measurement permits the entire combined contract (asset or liability) to be

Financial liabilities at FVTPL are stated at fair value, with any gains or losses arising on remeasurement
recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest paid on
the financial liability and is included in the ‘other operating revenue or expenses’ line item in the consolidated
statement of comprehensive income.

⑥ Other financial liabilities

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

The effective interest rate method is a method of calculating the amortized cost of a financial liability and of
allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts
estimated future cash payments through the expected life of the financial liability, or (where appropriate) a
shorter period, to the net carrying amount on initial recognition.

⑦ Financial guarantee contract liabilities

Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at
FVTPL, are subsequently measured at the higher of:

• the amount of the obligation under the contract, as determined in accordance with K-IFRS 1037 Provisions,
Contingent Liabilities and Contingent Assets; and
• the amount initially recognized less, cumulative amortization recognized in accordance with the K-IFRS
1018 Revenue Recognition.

⑧ Derecognition of financial liabilities

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

10) Derivative instruments

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

Derivatives are initially recognized at fair value at the date the derivative contract is entered into and are
subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is
recognized in profit or loss immediately unless the derivative is designated and effective as a hedging

- 10 -

instrument, in such case the timing of the recognition in profit or loss depends on the nature of the hedge
relationship.

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

① Embedded derivatives

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

② Hedge accounting

The Company designates certain derivative instruments as cash flow hedges.

At the inception of the hedge relationship, the Company documents the relationship between the hedging
instrument and the hedged item, along with its risk management objectives and its strategy for undertaking
various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company
documents whether the hedging instrument is highly effective in offsetting changes in cash flows of the hedged
item.

③ Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow
hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is
recognized immediately in profit or loss, and is included in the ‘other operating revenue or expenses’ line item.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to
profit or loss in the periods when the hedged item is recognized in profit or loss, in the same line of the
consolidated statement of comprehensive income as the recognized hedged item.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging
instrument expires or is sold, terminated, or exercised, or it no longer qualifies for hedge accounting. Any gain
or loss accumulated in equity at that time remains in equity and is recognized when the forecast transaction is
ultimately recognized in profit or loss. When a forecast transaction is no longer expected to occur, the gain or
loss accumulated in equity is recognized immediately in profit or loss.

11) Share capital

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

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

12) Commission revenue

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

Fees that are a part of the effective interest rate of a financial instrument are treated as an adjustment to the
effective interest rate. Such fees include compensation for activities such as evaluating the borrower's financial
condition, evaluating and recording guarantees, collateral, and other security arrangements, negotiating the
terms of the instrument, preparing and processing documents and closing the transaction as well as origination
fees received on issuing financial liabilities measured at amortized cost. These fees are deferred and recognized
as an adjustment to the effective interest rate. However, in case the financial instrument is classified as a
financial asset at fair value through profit or loss, the relevant fee is recognized as revenue when the instrument
is initially recognized.

- 11 -

② Commission from rendering of services

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

③ Commission from significant act performed

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

13) Interest income and expense

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

14) Net trading profit or loss

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

15) Dividend revenue

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

16) Foreign currencies

The individual financial statements of the Company are presented in the currency of the primary economic
environment in which the entity operates (its functional currency). For the purpose of the consolidated financial
statements, the results and financial position of each entity are expressed in Korean Won, which is the
functional currency of the Company and the presentation currency for the consolidated financial statements.

In preparing the financial statements of the individual entities, transactions in currencies other than the entity’s
functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the
transactions. At the end of each reporting period, monetary items denominated in foreign currencies are
retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in
foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences are recognized in profit or loss in the period in which they arise except for exchange
differences on transactions entered into in order to hedge certain foreign currency risks. See Note 2 (10) above
for hedging accounting policies.

17) Retirement benefit costs

For defined retirement benefit plans, the cost of providing benefits is determined using the Projected Unit
Credit Method, with actuarial valuations being carried out at the end of each reporting period The present value
of the Company’s defined benefit obligation and the fair value of plan assets as at the end of each reporting
period are amortized over the expected average remaining working lives of the participating employees. Past

- 12 -

service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is
amortized on a straight-line basis over the average period until the benefits become vested.

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

18) Taxation

Income tax consists of current tax and deferred tax.

① Current tax

The tax currently payable is based on taxable profit for the period. Taxable profit differs from profit as reported
in the consolidated statement of comprehensive income because of items of income or expense that are taxable
or deductible in other periods. The Company’s liability for current tax is calculated using tax rates that have
been enacted or substantively enacted by the end of the reporting period

② Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in
the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit.
Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are
generally recognized for all deductible temporary differences to the extent that it is probable that taxable profits
will be available against which those deductible temporary differences can be utilized. Such deferred tax assets
and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition
(other than in a business combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in
subsidiaries and associates, and interests in joint ventures, except where the Company is able to control the
reversal of the temporary difference and it is probable that the temporary difference will not reverse in the
foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such
investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable
profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the
foreseeable future.

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

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which
the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or
substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets
reflects the tax consequences that would follow from the manner in which the Company expects, at the end of
the reporting period, to recover or settle the carrying amount of its assets and liabilities.

③ Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in
other comprehensive income or directly in equity, in which case, the current and deferred tax are also
recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax
arises from the initial accounting for a business combination, the tax effect is included in the accounting for the
business combination.

- 13 -

19) Earnings per share

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

3. CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company accounting policies, which are described in Note 2, management is required
to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and associated assumptions are based on historical
experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates
are recognized in the period in which the estimate is revised if the revision affects only that period, or in the
period of the revision and future periods if the revision affects both current and future periods.

4. TRANSITION TO K-IFRSs

Transition adjustments from previous GAAP, Korean GAAP (K-GAAP), to K-IFRSs that affected the
Company’s financial position, comprehensive income and cash flows are as follows.

(1) Explanation of transition to K-IFRSs

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

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

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

2) Provision for unused credit limits

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

3) Expansion of the scope for accrued income adjustment

Under K-GAAP, the Company adjusted for accrued income only for card assets not past due. However, under
K-IFRS, the Company adjusts for accrued income card assets that are past due and even those that are not
impaired. The Company also provides an allowance for accrued income under K-IFRS.

- 14 -

4) Financial instruments carried at amortized cost

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

5) Deferred annual membership income

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

6) Unearned revenue from points program

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

7) Review of useful lives of intangible assets

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

8) Retirement benefit obligation (Accrued severance liability)

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

9) Tax effect

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

10) Other accounts reclassified

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

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

- 15 -

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

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

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

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

INVESTMENT FINANCIAL ASSETS :
Financial assets available-for-sale (Note 1) 82,877 (300) 82,577
Financial assets held for trading 27 - 27
Total investment financial assets 82,904 (300) 82,604

CARD ASSETS :
Card receivables, net of present value discounts
and allowance for doubtful accounts (Notes 1,2
and 3) 4,061,085 1,179,079 5,240,164
Cash advances, net of allowance for doubtful
accounts (Notes 1 and 2) 535,785 205,031 740,816
Card loans, net of deferred loan origination fees
and 3) 814,509 219,884 1,034,393
Assets in trust, net of allowance for doubtful
accounts (Note 1) 837,372 (837,372) -
Total card assets 6,248,751 766,621 7,015,372

PROPERTY AND EQUIPMENT :
Land 67,819 - 67,819
Buildings, net of accumulated depreciation 32,055 - 32,055
Fixtures and equipment, net of accumulated
depreciation 34,333 - 34,333
Vehicles, net of accumulated depreciation 300 - 300
Assets under construction 912 - 912
Total property and equipment 135,419 - 135,419

OTHER ASSETS:
Other accounts receivable, net of allowance for
doubtful accounts (Notes 1 and 2) 9,808 (1,327) 8,481
Accrued revenue, net of allowance for doubtful
accounts (Note 2 and 4) 41,621 (12,968) 28,653
Advanced payments, net of allowance for
doubtful accounts (Note 1) 27,189 (6,622) 20,567
Prepaid expenses (Note 1) 4,121 5,189 9,310
Guarantee deposits (Note 3) 36,017 (1,519) 34,498
Intangible assets 27,466 - 27,466
Deferred income tax assets (Note 5) 55,551 36,581 92,132
Derivative assets (Note 1) 103,225 1,117 104,342
Memberships 22,933 - 22,933
Others 16,683 - 16,683
Total other assets 344,615 20,451 365,066
Total Assets ￦ 7,291,241 ￦ 794,789 ￦ 8,086,030

(Continued)

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January 1, 2010

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

OTHER LIABILITIES:
Accounts payable (Note 6) 628,103 1,514 629,617
Withholdings (Note 1) 67,332 (10,269) 57,063
Accrued expenses (Note 1) 175,115 1,955 177,070
Unearned revenue (Note 6) 4,664 241,537 246,201
Retirement benefit obligation (Note 7) 5,164 148 5,312
Provisions (Note 8) 387,819 (330,871) 56,948
Derivatives liabilities (Note 1) 6,363 8,034 14,397
Other liabilities (Note 3) 9,287 (235) 9,052
Total Liabilities 5,807,992 645,685 6,453,677

SHAREHOLDERS’ EQUITY:
Share capital 802,326 - 802,326
Share premium 57,704 - 57,704
Retained earnings (Note 9) 576,332 158,446 734,778
Reserves (Note 1) 46,886 (9,363) 37,523
Non-controlling interest (Note 1) - 20 20
Total shareholders’ equity 1,483,249 149,103 1,632,352
Total Liabilities and Shareholders’ Equity ￦ 7,291,241 ￦ 794,789 ￦ 8,086,030

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

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

- 17 -

2) Adjustments in equity as of December 31, 2010, the end of the final fiscal period described in annual
consolidated financial statements in accordance with K-GAAP, are as follows (Unit: Won in millions):

December 31, 2010

ASSETS
CASH AND BANK DEPOSITS :
Cash and cash equivalents (Note 1) ￦ 719,544 ￦ 77,504 ￦ 797,048
Bank deposits (Note 1) 23,128 3 23,131
Total cash and bank deposits 742,672 77,507 820,179

INVESTMENT FINANCIAL ASSETS :
Financial assets available-for-sale (Note 1) 2,143 (367) 1,776
Financial assets held for trading - - -
Total investment financial assets 2,143 (367) 1,776

CARD ASSETS :
Card receivables, net of present value discounts
and 3) 4,859,801 1,101,579 5,961,380
Cash advances, net of allowance for doubtful
accounts (Notes 1 and 2) 893,897 221,803 1,115,700
Card loans, net of deferred loan origination fees
and 3) 1,638,017 290,672 1,928,689
Assets in trust, net of allowance for doubtful
accounts (Note 1) 1,081,585 (1,081,585) -
Total card assets 8,473,299 532,469 9,005,768

LOANS 985 7 992
Other loans, net of allowance for doubtful
accounts (Note 2) 985 7 992

PROPERTY AND EQUIPMENT :
Land 80,414 - 80,414
Buildings, net of accumulated depreciation 34,494 - 34,494
Fixtures and equipment, net of accumulated
depreciation 36,618 - 36,618
Vehicles, net of accumulated depreciation 293 - 293
Assets under construction 698 - 698
Total property and equipment 152,516 - 152,516

OTHER ASSETS:
Other accounts receivable, net of allowance for
doubtful accounts (Notes 1 and 2) 15,859 (805) 15,054
Accrued revenue, net of allowance for doubtful
accounts (Note 2 and 4) 60,034 (12,397) 47,637
Advanced payments, net of allowance for
doubtful accounts (Note 1) 152,933 (76,614) 76,319
Prepaid expenses (Note 1) 7,821 3,813 11,634
Guarantee deposits (Note 3) 49,961 (1,832) 48,129
Intangible assets 47,859 1,107 48,966
Deferred income tax assets (Note 5) 147,146 (22,082) 125,064
Derivative assets (Note 1) 13,748 - 13,748
Memberships 21,484 - 21,484
Others 27,308 - 27,308
Total other assets 544,152 (108,809) 435,343
Total Assets ￦ 9,915,768 ￦ 500,806 ￦ 10,416,574

(Continued)

- 18 -

December 31, 2010

LIABILITIES AND SHAREHOLDERS’ EQUITY
BORROWINGS :
Borrowings (Note 1) ￦ 1,391,766 ￦ 190,000 ￦ 1,581,766
Bonds payable, net (Note 1) 5,292,077 302,330 5,594,407
Total borrowings 6,683,843 492,329 7,176,172

OTHER LIABILITIES:
Accounts payable (Note 6) 792,925 2,796 795,721
Withholdings (Note 1) 85,105 (11,533) 73,572
Accrued expenses (Note 1) 207,816 2,160 209,976
Unearned revenue (Note 6) 5,237 282,203 287,440
Retirement benefit obligation (Note 7) 7,250 2,357 9,608
Provisions (Note 8) 466,218 (384,792) 81,426
Derivatives liabilities (Note 1) 4,789 30,297 35,086
Other liabilities (Note 3) 10,496 (33) 10,463
Total Liabilities 8,263,679 415,785 8,679,464

SHAREHOLDERS’ EQUITY:
Share capital 802,326 - 802,326
Share premium 57,704 - 57,704
Retained earnings (Note 9) 792,807 87,403 880,210
Reserves (Note 1) (749) (2,401) (3,150)
Non-controlling interest (Note 1) - 20 20
Total shareholders’ equity 1,652,089 85,021 1,737,110
Total Liabilities and Shareholders’ Equity ￦ 9,915,768 ￦ 500,806 ￦ 10,416,574

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

December 31, 2010
Adjustment in allowance for doubtful accounts ￦ (25,849)
Adjustment in provision for unused credit limits 17,701
Adjustment in accrued income 452
Effective interest rate (EIR) 2,222
Deferred annual membership income (10,123)
Unearned revenue from the points program 6,159
Adjustment of retirement benefit liabilities 1,107
Tax reconciliation 855
Consolidation effect 94,879
Total ￦ 87,403

Audit Report: Hyundai Card 3Q2011

Audit Report: Hyundai Card 3Q2011

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