LG 2004 Annual Report Download - page 72

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LG Electronics Inc.
Notes to Non-Consolidated Financial Statements
December 31, 2004 and 2003
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( 1,043.8: US$1 as of
December 31, 2004, 1,197.8: US$1 as of December 31, 2003),
and resulting translation gains or losses are recognized in
current operations. However, convertible bonds in foreign
currency are translated into Korean won at the agreed rate of
exchange, considering the exercise of conversion rights by the
creditors.
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.
Convertible Bonds
The Company recorded a premium for conversion rights
as a capital surplus representing the difference between the
issuance price of convertible bonds and the present value of
bonds under identical conditions without conversion rights.
The Company offset conversion rights adjustment by the face
value of convertible bonds and add call premium to the face
value of convertible bonds.
Government grants
The Company recognizes government grants, which are
to be redeemed, as liabilities. The government grants, which
are intended to be used for the acquisition of certain assets,
are deducted from the cost of the acquired assets. Before the
acquisition of the assets specified by the grant, the amounts
are recognized as a deduction from the account under which
the asset to be acquired is to be recorded, or from the other
assets acquired as a temporary investment of the grant
received.
The government grants, contributed to compensate for
specific expenses, are offset against the related expenses.
Other government grants, for which the use or purpose is not
specified, are recorded as gains from assets contributed, and
are recognized in current operations.