Hyundai 2000 Annual Report Download - page 49

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2000 Annual Report •Hyundai-Motor Company
NOTES TO FINANCIAL STATEMENTS
December 31, 2000 and 1999
Stock Options
The Company computes total compensation expense to stock options, which are granted to employees and directors, by fair
value method using the option-pricing model. The compensation expense has been accounted for as a charge to current
operations and a credit to capital adjustment from the grant date using the straight-line method.
Derivative Instruments
All derivative instruments are accounted for at fair value with the valuation gain or loss recorded as an asset or liability. If the
derivative instrument is not part of a transaction qualifying as a hedge, the adjustment to fair value is reflected in current
operations. The accounting for derivative transactions that are part of a qualified hedge, based both on the purpose of the
transaction and on meeting the specified criteria for hedge accounting, differs depending on whether the transaction is a fair
value hedge or a cash flow hedge. Fair value hedge accounting is applied to a derivative instrument designated as hedging
the exposure to changes in the fair value of an asset or a liability or a firm commitment (hedged item) that is attributable to a
particular risk. The gain or loss both on the hedging derivative instruments and on the hedged item attributable to the hedged
risk are reflected in current operations. Cash flow hedge accounting is applied to a derivative instrument designated as
hedging the exposure to variability in expected future cash flows of an asset or a liability or a forecasted transaction that is
attributable to a particular risk. The effective portion of gain or loss on a derivative instrument designated as a cash flow hedge
is recorded as a capital adjustment and the ineffective portion is recorded in current operations. The effective portion of gain or
loss recorded as a capital adjustment is reclassified to current earnings in the same period during which the hedged forecasted
transaction affects earnings. If the hedged transaction results in the acquisition of an asset or the incurrence of a liability, the
gain or loss in capital adjustment is added to or deducted from the asset or the liability.
The Company entered into derivative instrument contracts related to forward, option and swap to hedge the exposure to
changes in foreign exchange rate. In 2000, the Company deferred the loss on valuation of the effective portion of derivative
instruments for cash flow hedging purpose from forecasted exports as capital adjustments, amounting to ￦55,676 million
($44,198 thousand) as of December 31, 2000 and recognized loss on valuation of the ineffective portion of such instruments
and the other derivative instruments in current operations of ￦68,880 million ($54,680 thousand). The period in which the
forecasted transactions is expected to occur is within 12 months from December 31, 2000, and all deferred losses in capital
adjustments at that date are expected to enter into the determination of net income within the 12 month period. In 2000, the
Company recorded total loss on valuation of derivatives of ￦111,441 million ($88,466 thousand) in liabilities. In 1999, the
Company recognized gain on the derivative instruments amounting to ￦12,067 million ($9,579 thousand) in current operations
and recorded the equal amounts as accrued gain on valuation of derivatives in other assets.
Accounting for Foreign Currency Transactions and Translation
The Company maintains its accounts in Korea won. Transactions in foreign currencies are recorded in Korean won based on
the prevailing rates of exchange on the transaction date. Monetary accounts with balances denominated in foreign currencies
are recorded and reported in the accompanying financial statements at the exchange rates prevailing at the balance sheet
dates. The balances have been translated using the Bank of Korea Basic Rate which was ￦1,259.7 and ￦1,145.4 to US
$1.00 at December 31, 2000 and 1999, respectively, and translation gains or losses have been reflected in current operations.
Assets and liabilities of branch outside the Republic of Korea are translated at the rate of exchange in effect on the balance
sheet date; income and expenses are translated at the average rates of exchange prevailing in 2000 which was ￦1,130.6 to
US$1.00.
Conversion Rights Adjustment
The Company is obligated to pay interest at a guaranteed rate to convertible debenture holders who do not exercise their
options to convert and instead hold the bond until maturity. The difference between the face value of the bonds and the
present value of principal amount payable at maturity is respectively recorded as conversion rights in the capital adjustment
account under shareholders’ equity and conversion right adjustment account.
At the time of conversion, the consideration received for the conversion rights is presented as other capital surplus, after
deducting the amount of related conversion right adjustment. However, if the convertible debentures are repaid, the
consideration received for conversion rights is offset against the related premium paid at the time of redemption.