Hyundai 2004 Annual Report Download - page 40

Hyundai Motor Company Annual Report 2004_78
HYUNDAI MOTOR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003
life of the identifiable acquired depreciable assets and the amount of negative goodwill in excess of the total fair value of the acquired
identifiable non-monetary assets is recognized as non-operating gain at the date of acquisition.
When the Company acquires additional interests in a subsidiary after obtaining control over the subsidiary, the difference between
incremental price paid by the Company and the amount of incremental interest in the shareholders' equity of the subsidiary is reflected
in the consolidated capital surplus. In case a subsidiary still belongs to a consolidated economic entity after the Company disposes a
portion of the stocks of subsidiaries to non-subsidiary parties, gain or loss on disposal of the subsidiary`s stock is accounted for as
consolidated capital surplus.
When consolidated companies are merged together during a fiscal year, for purposes of consolidation, the merger is regarded as
additional acquisition of ownership. The net income for the acquiree as of the merger date is reflected in the consolidated statement
of income.
Inter-company receivables, payables, revenues and expenses arising from transactions between the Company and its subsidiaries or
among subsidiaries are eliminated against each other in the consolidated financial statements. On sales from the Company to its
subsidiaries (downstream sales), the full amounts of unrealized gains or loss are eliminated in the consolidated income and charged
(credited) to the majority interests. On sales from a subsidiary to the Company (upstream sales), unrealized gains and losses are
eliminated and allocated proportionately between majority and minority interests.
The accounting methods adopted by the Company and its subsidiaries for similar transactions and circumstances are generally the
same. However, if the differences resulting from applying different accounting methods are not material, such different methods are
applied. Financial statements of a subsidiary as of the same closing date of the Company are used in preparing the consolidation.
Revenue Recognition
Sales of goods is recognized at the time of shipment only if it meet the conditions that significant risks and rewards of ownership of
the goods have been transferred to the customer, and neither continuing managerial involvement nor effective control over the goods
sold is retained. Revenue arising from rendering of services is generally recognized by the percentage-of-completion method at the
balance sheet date. In addition, revenue arising from interest, dividends or royalties is recognized when it is probable that future
economic benefits will flow into the Company and those benefits can be measured reliably.
In the case of subsidiaries in financial business, interest revenues earned on financial assets are recognized as time passes using the
level yield method, and fees and commissions in return for services rendered are recognized as services are provided.
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based on management’s estimated loss on uncollectible accounts.
Inventories
Inventories are stated at the lower of cost or net realizable value, cost being determined by the moving average cost method.
HYUNDAI MOTOR COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2004 AND 2003
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidated Financial Statement Presentation
The Company maintains its official accounting records in Korean won and prepares statutory consolidated financial statements in the
Korean language (Hangul) in conformity with the accounting principles generally accepted in the Republic of Korea. Certain
accounting principles applied by the Company that conform with financial accounting standards and accounting principles in the
Republic of Korea may not conform with generally accepted accounting principles in other countries. Accordingly, these financial
statements are intended for use by those who are informed about Korean accounting principles and practices. The accompanying
financial statements have been condensed, restructured and translated into English 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 and
its subsidiaries’ financial position, results of operations or cash flows, is not presented in the accompanying financial statements.
The U.S. dollar amounts presented in these financial statements were computed by translating the Korean won into U.S. dollars based
on the market average exchange rate announced by Seoul Money Brokerage Services, Ltd. of 1,043.80 to US$1.00 at December
31, 2004, solely for the convenience of the reader. This convenience translation into U.S. dollars should not be construed as a
representation that the Korean won amounts have been, could have been, or could in the future be, converted at this or any other rate
of exchange.
The Company prepared its financial statements as of December 31, 2004 in accordance with Financial Accounting Standards and
Statements of Korea Accounting Standards (SKAS) in the Republic of Korea.
In 2004, the Company additionally adopted SKAS No. 10 – “Inventories” and No.13 – “Troubled Debt Restructurings”, which are
effective from January 1, 2004.
The Company’s accounting policies have not been changed since the preparation of the 2003 financial statements, except for
changes due to the application of the above SKAS. The significant accounting policies followed by the Company in the preparation of
its consolidated financial statements are summarized below.
Principles of Consolidation
The consolidated financial statements include the individual accounts of the Company and its domestic and foreign subsidiaries over
which the Company has control, is the largest shareholder and owns more than 30 percent of the voting shares, except for companies
with total assets of less than 7,000 million (US$6,706 thousand) at the end of the preceding fiscal year. Investments in affiliates in
which a consolidated entity is able to exercise significant influence over the operating and financial policies of a non-consolidated
company are accounted for using the equity method. Significant influence is deemed to exist when the investor owns more than twenty
percent of the investee’s voting shares unless there is evidence to the contrary. If the changes in the investment value due to the
changes in the net assets of affiliates, whose individual beginning balance of total assets or paid-in capital at the date of its
establishment is less than 7,000 million (US$6,706 thousand), are not material, investments in affiliates can be excluded from using
the equity method.
The investment account of the Company and corresponding equity accounts of subsidiaries are eliminated at the dates the Company
obtained control over the subsidiaries. The difference between the investment cost and the fair value of the Company's portion of
assets acquired less liabilities assumed of a subsidiary is accounted for as goodwill or negative goodwill. Goodwill is amortized on a
straight-line basis over its useful life, not exceeding twenty years. The amount of negative goodwill not exceeding the total fair value of
acquired identifiable non-monetary assets is recognized as income on a straight-line basis over the remaining weighted average useful