LG 2001 Annual Report Download - page 57

LG Electronics Inc. The
43
rd Annual Report
Notes to Financial Statements
for the years ended December 31, 2001 and 2000
Income Taxes
The Company recognizes deferred income taxes for anticipated future tax consequences resulting from
temporary differences between amounts reported for financial accounting and income tax purposes.
Deferred tax assets and liabilities are computed on such temporary differences by applying enacted statutory
tax rates applicable to the years when such differences are expected to be reversed. Deferred tax assets are
recognized to the extent that it is more likely than not that such deferred tax assets will be realized. The total
income tax provision includes current tax expenses under applicable tax regulations and the change in the
balance of deferred tax assets and liabilities.
Tax credits for investments and development of technology and manpower are accounted for using the
flow-through method, whereby they reduce income taxes in the period the assets giving rise to such credits
are placed in service. To the extent such credits are not currently utilized, deferred tax assets, subject to
realizability as stated above, are recognized for the carry-forward amount.
Sale of Accounts and Notes Receivables -
The Company sells certain accounts or notes receivable to financial institutions at a discount, and
accounts for the transactions as sales of the receivables if the rights and obligations relating to the
receivables are substantially transferred to the buyers. The gains and losses from the sales of the receivables
are charged to operations as incurred.
Foreign Currency Translation -
Monetary assets and liabilities denominated in foreign currencies are translated into Korean Won at the
basic rates in effect at the balance sheet date, and resulting translation gains and losses are recognized
currently.
The exchange rates used to translate U.S. Dollar denominated monetary assets and liabilities at
December 31, 2001 and 2000 are 1,326.1 : US$1 and 1,259.7 : US$1, respectively.
Foreign currency dominated convertible bonds and exchangeable bonds are translated at the historical
exchange rates prevailing as of the date of issuance. However, in case it is certain that a foreign currency
denominated convertible bond (or exchangeable bond) is expected not to be converted (or exchanged) to
stocks, it is translated using the basic exchange rate in effect at the balance sheet date.
Derivative Financial Instruments -
The Company utilizes several derivative financial instruments (derivatives) such as forward exchanges,
swaps and option contracts to reduce its exposure resulting from fluctuations in foreign currency and interest
rates. The derivatives are carried at fair market value. Unrealized gains or losses on derivatives for trading
or fair value hedging purposes are recorded in current operations. Unrealized gains or losses on derivatives
for cash flow hedging purposes are recorded in current operations for the portion of the hedge that is not
effective. For the portions of cash flow hedges which are effective, unrealized gains or losses are accounted
for in the capital adjustment account and recorded in operations in the period when underlying transactions