LG 2003 Annual Report Download - page 63

LG Electronics Inc._Annual Report 2003 63
Notes to Non-Consolidated Financial Statements
For the years ended December 31, 2003 and 2002
employees and directors were to terminate their employment as of the balance sheet date.
Contributions made under the National Pension Plan and severance insurance deposits are deducted from
accrued severance benefits. Contributed amounts are refunded from the National Pension Plan and the insurance
companies to employees upon their retirement.
Income Taxes
The Company recognizes deferred income taxes for anticipated future tax consequences resulting from
temporary differences between amounts reported for financial reporting and income tax purposes. Deferred income
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 income tax assets are
recognized to the extent that it is almost certain that such deferred income 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 income tax assets and liabilities.
Tax credits for investments and development of research and manpower are accounted for using the flow-
through method, whereby income taxes are reduced in the period the assets giving rise to such credits are placed
in service. To the extent such credits are not currently utilized, deferred income tax assets, subject to realizability as
stated above, are recognized for the carry-forward amount.
Sale of Accounts and Notes Receivable
The Company sells certain accounts or notes receivable to financial institutions at a discount, and accounts for
the transactions as a sale of the receivables, if the rights and obligations relating to the receivables are substantially
transferred to the buyers. The losses from the sale of the receivables are charged to current 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 or losses are recognized in current
operations.
The exchange rate used to translate U.S. Dollar denominated monetary assets and liabilities as of December 31,
2003 and 2002 is ￦1,197.8: US$1 and ￦1,200.4: US$1, respectively.
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 adjustments
account and recorded in current operations in the period when the underlying transactions have an effect on
operations.