ACCOUNTING STANDARD

FOR

COMBINED FINANCIAL STATEMENTS OF BUSINESS GROUP

Accounting Standard for Combined Financial Statements of Business Group

CONTENTS

I.	General Provisions

1.	Purpose

2.	Scope of Application

3.	Definitions

4.	Purpose of Combined Financial Statements

5.	Scope of a Business Group

6.	Designation of Business Groups to Prepare Combined Financial Statements

7.	Scope of Affiliated Companies to Be Combined

8.	Reporting Entity and Preparing Company of Combined Financial Statements

9.	Reporting Date of Combined Financial Statements

10.	General Principles in Preparing Combined Financial Statements

11.	Components and Formats of Combined Financial Statements

12.	Application of Accounting Policies

II.	Preparation of Combined Financial Statements

13.	Elimination of the Investing Affiliate's Investments and the Investee's Stockholders' Equity

14.	Issuance of Preferred Stocks in an Investee Affiliate

15.	Elimination of Intercompany Transactions and Unrealized Gains and Losses

16.	Changes in the Investing Affiliate's Ownership Interest in the Investee Affiliate

17.	Exclusion from Affiliated Companies to be Combined

18.	Use of the Equity Method for Investment

19.	Deferred Income Tax

20.	Combined Statement of Cash Flows

21.	Application of the FAS

III.	Disclosure

22.	Notes to Combined Financial Statements

23.	Documentation of Important Data Necessary for Preparing Combined Financial Statements

Addenda

Enacted on Oct. 21, 1998

Fully Amended on Dec. 22, 1999

Amended on May 4, 2001

CHAPTER I.

GENERAL PROVISIONS

1. Purpose

The purpose of this Standard is to prescribe the matters necessary for preparing combined financial statements in accordance with [Article 6 paragraph (3)] of the Financial Accounting Standards for Business Enterprises (hereinafter referred to as "the FAS")..

2. Scope of Application

This Standard is applied to the case where a company and affiliated companies prepares combined financial statements as a business group (hereinafter referred to as combined financial statements).

3. Definitions

Terms used in this Standard are defined as follows:

A. Combined financial statements refer to financial statements which a business group prepares in order to provide users with financial information such as financial position, performance and cash flows of the group.

B. A business group refers to a group of companies whose operations are effectively controlled by a single entity.

1.	In case the single entity is a company, that entity and one or more companies which are controlled by the entity; and

2.	In case the single entity is not a company, two or more companies which are controlled by that entity.

C. An affiliated company refers to the company that belongs to the same business group.

D. The business group to prepare combined financial statements refers to a business group that are required to file combined financial statements.

E. The affiliated company to be combined refers to an affiliated company to be included in the combined financial statements. The company accounted for under the equity method is excluded here.

F. An investing affiliated company refers to an affiliated company that has provided investment capital to another affiliated company to be combined in a capital investment transaction.

G. An investee affiliated company refers to an affiliated company that has been provided with capital by another affiliated company to be combined in a capital investment transaction .

4. Purpose of Combined Financial Statements

The purpose of combined financial statements is to provide users of the statements with useful and fair information on a business group's financial position, results of operations and cash flows, so that they will be able to make a rational decision concerning the business group.

(4-1) A business group which is effectively controlled by an entity and its related parties, forms an economic entity with a common fate and an affiliated company's risk is closely related with those of other affiliated companies in the same business group through cross guarantees of debts, unreasonable intercompany loans and borrowings, and other intercompany transactions. Combined financial statements can provide users with useful information about the financial position, results of operations, cash flows, guarantees of debts for other affiliates, collaterals provided for other affiliates, intercompany loans and borrowings, intercompany investments in capital, and other intercompany transactions which individual or consolidated financial statements do not show. With combined financial statements reporting accounting information on a whole business group, accounting information users would be able to make more rational economic and strategic decisions concerning the affiliated companies or the business group as a whole.

5. Scope of a Business Group

In determining the scope of a business group, a company which is effectively controlled refers to one of the following companies:

A. A company of which 30/100 or more of the total issued stocks(including equity and excluding non-voting stocks prescribed in [Article 370] of the Commerce Act, and the same hereinafter) are owned by the single entity alone and/or its related parties which own(s), which are/is the largest stockholder of the company.

B. A company falling under one of the following categories, on whose management the single entity and/or its related parties exercise(s) a significant influence:

1.	A company whose representative director can be appointed or discharged or of which 50/100 or more executive officers can be appointed by the single entity through the contract or agreement with other influential stockholders.

2.	A company upon which the single entity directly or through its related parties exercises a controlling influence with respect to the key managerial or operational decisions, e.g. decisions about organization changes, investments to new projects, etc.

3.	A company which exchanges personnel with the company under the control of the single entity as in the following cases.

a. Concurrent holding of officer posts in the company concerned and the company under the control of the single entity.

b. When an officer of the company concerned returns back to the company under the control of the single entity (or to another company under the control of the single entity).

c. When an officer of the company under the control of the single entity returns back to the company concerned or its affiliates.

4.	A company which has transactions of funds, assets, commodities, services, etc. with the single entity or its related parties, or which provides guarantees thereto or receives guarantees therefrom in amount exceeding a normal range, or which is generally inferred to be the same economic entity with the single entity from its intercompany operation practices.

C. In application of [6A and 6B], the parties related to the single entity refer to one of the followings:

1.	Spouse, relatives by blood in paternal line within the eighth degree, and re1atives by blood in maternal line within the fourth degree (hereafter referred to as relatives).

2.	A non-profit corporation or organization (referring to unincorporated association or foundation, and the same hereinafter) to which the single entity alone and/ or its related parties invest the largest amount, or the founder of which is either the single entity or one of its related parties.

3.	A non-profit corporation or organization upon which the single entity directly or through its related parties exercises a controlling influence with respect to the composition of officers or business operation.

4.	A company whose business affairs are effectively controlled by the single entity under the provisions of [6A and 6B].

5.	Employees of the single entity or the entities mentioned in Items 2 through 4 above (referring to officers in the case of a corporation, and commercial employees and those hired under an employment contract in the case of a natural entity).

6. Designation of Business Groups to Prepare Combined Financial Statements

A. The business groups to prepare combined financial statements refer to large conglomerates designated by the Fair Trade Commission pursuant to [Article 21 ] of the Enforcement Decree of the Act on Monopoly Regulation and Fair Trade. They include the business groups designated as such in the preceding year. Thus, even though not designated as large conglomerates in the current period, the business groups are required to prepare combined financial statements if they were designated as such in the previous year.

B. Notwithstanding [7A], the business group that meets one of the following conditions is not required to prepare combined financial statements for reporting.

1.	When the total assets in the consolidated financial statements prepared by one of the affiliated companies in a business group account for more than 80/100 of the total assets of all the affiliated companies that would be reported in the combined financial statements for the business group;

2.	When the total assets of affiliated companies which would be excluded from the combined financial statements of a business group because they fall under [7B], comprise 50/100 or more of the total assets of all the affiliated companies to be included in its combined financial statements.

(6-1) In application of [6B], for companies engaging in the financial or insurance business, the equity should be used instead of the total assets. Here if the equity is zero (0) or less, the equity is deemed zero(0). When the audit opinion on the financial statements is qualified or adverse, the amount of the total assets or the equity corrected as suggested in the audit opinion should be used.

(6-2) The Business group to prepare combined financial statements should be determined in consideration of all the affiliated companies as of the date of the combined financial statements.

7. Scope of Affiliated Companies to Be Combined

A. Companies to be combined for financial reporting include all the domestic and overseas companies affiliated as of the date of combined financial statements, regardless of its form of organization such as general partnership, limited partnership, limited company, and corporation.

B. Notwithstanding [7A], a company which the SFC rules to fall under one of the following categories should not be included in the affiliated companies to be combined for financial reporting:

1.	An affiliated company that is difficult to be combined for financial reporting because of a war, a natural disaster or some other uncontrollable reasons.

2.	A small affiliated company.

3.	An affiliated company in the process of liquidation or in the process of merger, for which preparation of reliable financial statements is not feasible, and for this reason, it is determined by the SFC that combining the company for financial reporting significantly erodes the reliability of the combined financial statements.

(7-1) After the SFC designates affiliated companies to be combined for financial reporting by May 31 of each fiscal year in accordance with [Article 1-5 paragraph (2)] of the Act on External Audit of Corporations, a change could occur in the scope of affiliated companies to be combined for financial reporting. In this case the determination as to the inclusion of an affiliated company should be made as of the date of the combined financial statements.

(7-2) A small affiliated company refers to a company whose total asset amount is less than the amount specified in [Article 2 paragraph (1)] of the Enforcement Decree of the Act on External Audit of Corporations.

(7-3) If an affiliated company is in the first year of its operation, whether to include or not in the combined financial reporting is based on the larger of the total assets or stockholders' equity as of the establishment date instead of total assets at the end of the immediate preceding year.

(7-4) If financial and insurance companies are excluded from combined financial reporting, their assets and liabilities are omitted from the combined financial statements and intercompany transactions with them not eliminated. In addition, financial risk of these companies, although it could have significant impact on the financial risk of the whole business group, would not reflected in the combined financial statements, resulting in distortion of the combined financial statements. Also comparability would be lowered between business groups with and without financial and insurance affiliates. Thus, financial and insurance affiliates should be combined for financial reporting, There is a concern that information usefulness could be degraded when financial and insurance companies are combined with non-finance-related companies because of differences in operating activities and account descriptions, but it could be mitigated by disclosure of industry-specific financial statements.

(7-5) Forms of business organizations and their names could be different among countries. For example, most of domestic companies are in the form of corporation, whereas foreign affiliates might have chosen an organizational form that is most advantageous to them in consideration of the local relevant laws and conventions. Therefore, restricting the organizational form of affiliated companies to be combined for financial reporting to a particular one would result in excluding several important foreign affiliates from combined financial statements. Then, the financial position and the performance could be misrepresented and the comparability of combined financial statements between business groups could be lowered.

8. Reporting Entity and Preparing Company of Combined Financial Statements

A. The reporting entity of the combined financial statements is a business group to prepare combined financial statements.

B. The preparing company of combined financial statements is designated by the SFC after considering the external auditor, month of fiscal year-end, and total assets of each company among the affiliated companies to be combined for financial reporting. An affiliated company of a business group may request the SFC to designate itself as the preparing company of combined financial statements.

9. Reporting Date of Combined Financial Statements

A. The reporting date of combined financial statements should be the date of the preparing company`s fiscal year-end.

B. When the fiscal year of the affiliated companies to be combined do not

coincide with that of the preparing company of the combined financial statements, individual financial statements of those affiliates should be restated for combining purposes.

C. Notwithstanding [9B], when the fiscal year-end of an affiliate falls within three (3) months before the reporting date of the combined financial statements, the affiliate's individual financial statements may be used without restatement for combining purposes. In this case, important transactions and other events occurring after the affiliate's fiscal year-end but before the reporting date of the combined financial statements should be appropriately accounted for when preparing combined financial statements. In addition, the effect of the transactions on the combined financial statements should be disclosed in the accompanying notes

D. Combined financial statements reflect the material events or transactions after the balance sheet date only if they are reflected in the individual financial statements of the affiliated companies. Otherwise, they are disclosed in the footnotes.

10. General Principles in Preparing Combined Financial Statements

Basically combined financial statements should be prepared in accordance with the general principles provided in the FAS. However, since, unlike individual financial statements, diverse accounting information of a number of affiliated companies need to be combined, appropriate trade-off between the materiality principle and the sufficiency principle should be maintained to ensure usefulness of combined financial information.

A. Materiality

In preparation of combined financial statements, accounting procedures and reporting should be determined based on the materiality of the accounting item involved. An information should be considered material if its omission, non-disclosure or misstatement would influence the decision making of users of combined financial statements or would hamper their rational judgement on the management's responsibility.

B. Sufficiency

Combined financial statements should provide accounting information concerning a business group sufficient enough to aid the decision making of its users. Therefore, information such as significant accounting policies, accounting principles, and the special financial information of a business group should be sufficiently presented in the combined financial statements

(10-1) Preparation of combined financial statements requires integration of financial information of a number of companies which might apply different accounting principles or belong to different industries. Therefore, if perfect theoretical justification and disclosure is pursued, preparation of combined financial statements wou1d become practically too time-consuming and costly. Thus, to the extent that information users' decision making is not influenced, the form and content of combined financial statements could be determined in a practical manner in consideration of the materiality in the amount and the nature of items.

(10-2) Special financial information concerning a business group such as guarantees of debts for other affiliates, offerings of collaterals for other affiliates, intercompany transactions, and intercompany investments is important in judging the possibility of risk transfers among affiliated companies, and thus their disclosure is required under the sufficiency principle.

11. Components and Formats of Combined Financial Statements

A. Combined financial statements consist of a combined balance sheet, a combined statement of income, and a combined statement of cash flows.

B. The combined financial statements of the immediately preceding period should be presented along with those of the current period for comparative purposes.

C. The combined balance should be prepared in the report form or in the

account form as illustrated in annexed Forms 1 and 2.

D The combined statement of income should be prepared in the report form as illustrated in annexed Form 3.

E. The statement of cash flows should be prepared in the form as illustrated in annexed Forms 4 and 5.

12. Application of Accounting Policies

A. Combined financial statements should be prepared on the basis of the individual financial statements prepared in conformity with the FAS. Therefore, if some items on the individual financial statements do not conform with the FAS, combined financial statements should be prepared based on the individual financial statements corrected for the departures from the FAS. The information should be disclosed in a note to the combined financial statements.

B. As for an overseas affiliate, when its financial statements prepared in conformity with the local accounting standards differ significantly from those prepared in conformity with the FAS, the financial statements should be restated in accordance with the FAS in preparing for combined financial reporting. However, when the differences are immaterial, the financial statements do not have to be restated.

C. Foreign-currency-denoted financial statements of overseas affiliates to be combined and companies subject to the equity method should be translated into won in accordance with the provision [Article 69] of the FAS.

D. The same accounting methods should be applied between affiliated companies for similar transactions and circumstances. However, if differences are not significant from applying different accounting methods, those methods may be allowed.

E. Notwithstanding [12A], if an affiliated company prepares consolidated financial statements, they may be used in lieu of individual financial statements for preparation of combined financial statements.

F. When preparing combined financial statements using consolidated financial statements in accordance with [12E]. minority interest should be treated as equity, and minority interest in net income (loss) should be treated as net income (loss) respectively.

(12-1) In case the fiscal-year ends between an overseas affiliate and the preparing company of combined financial statements differ, the financial statements of the overseas affiliate should be translated into won using the exchange rate as of the preparing company's balance sheet date and the average exchange rate for the fiscal year of the preparing company.

CHAPTER II.

PREPARATION OF COMBINED FINANCIAL STATEMENTS

13. Elimination of the Investing Affiliate's Investments and the Investee's Stockholders' Equity

Combined financial statements provide financial information to users for a business group viewed as an economic entity. Thus, the investments of the investing affiliate and the corresponding stockholders' equity of the investee affiliate should be eliminated by offsetting each other.

A. In eliminating the investment of the investing affiliate and the stockholders' equity of the investee affiliate, the portion of the investee's stockholders' equity that belongs to minority interest should not be separately presented.

B. The elimination of the investments of the investing affiliate and the stockholders' equity of the investee affiliate should be done as of the date of controlling interest acquisition.

C. When the investments of the investing affiliate differs from the portion of the investing affiliate's interest in the fair value of the investee affiliate's net assets as of the date of controlling interest acquisition, the difference (hereinafter referred to as investment elimination difference) should be accounted for as goodwill or negative goodwill.

1.	Out of the difference between the fair value and the book value of the investee affiliate's net assets, the minorities' portion should be charged to combined capital surplus.

2.	Goodwill and negative goodwill should be accounted for in accordance with the Accounting Standard for Merge and Acquisition.

3.	The portion of the difference between the fair value and the book value of the investee affiliate's assets and liabilities, charged to combined capital surplus, should be removed from the combined financial statements in the accounting period when the assets are used or disposed and/or the liabilities are disposed or redeemed.

4.	Goodwill should be reported below the intangible assets, and negative goodwill as a deduction from the intangible assets.

D. When the investing affiliate has adjusted the carrying amount of its investment after acquisition of the investment, the carrying amount of the investment should be restored to the original acquisition cost and net earnings and retained earnings adjusted before combined financial statements are prepared.

(13-1) The date of controlling interest acquisition refers to the date an affiliated company became a constituent in a business group. When the date is not clear, the date the Fair Trade Commission enlisted the company as an affiliate of the business group should be used. When there are more than one investing affiliate investing in an investee affiliate, investments of the investing affiliates should be eliminated altogether as of the date of controlling interest acquisition.

(13-2) When years have passed since the date of controlling interest acquisition and the date is not clear, a later date determined to be appropriate may be used for elimination of the investing affiliate`s investment and investee affiliate`s stockholders` equity.

(13-3) When controlling interest was acquired during an accounting period, the closest fiscal year end should be considered as the date of controlling interest acquisition. The rationale behind this is as follows. Unless the investee affiliate prepares financial statements at the point of the controlling interest acquisition, the stockholders' equity of the investee affiliate at this date is unknown.

(13-4) Stockholders of an investee affiliate consist of the investing affiliates, individual large stockholders (referring to the single entity and its related parties except for the investing affiliates), and external minority stockholders. In combined financial statements, large stockholders' interest and minority interest remain in stockholders' equity on the combined financial statements while the investing affiliates' interests are eliminated. If minority interest is separated out in combined financial statements, large stockholders' interest which is not eliminated is in part included in minority interest, leading to the misrepresentation of minority interest. In addition, since the cost of computing the minority interest is believed to be greater than the benefit derived from separate presentation, the minority interest should not be presented separately on the combined financial statements.

(13-5) Treasury stocks owned by affiliated companies to be combined for financial reporting should be presented as a deduction from the stockholders` equity.

(13-6) In the case that a company in the combined entity holds stocks or bonds of another company in the combined entity through a special money-in-trust, invested stocks are eliminated against the stockholders' equity accounts of the investee and bonds are eliminated against the liabilities of the issuer in an intercompany transaction.

14. Issuance of Preferred Stocks in an Investee Affiliate

In the case that an investee affiliate has preferred stocks outstanding, the accounts are recorded as follows:

A. The stockholders' equity accounts of the investee affiliate are first allocated between the common and preferred stockholders before applying combining procedures.

B. An acquisition of the investee affiliate's preferred stocks by the investing affiliate would be accounted for as if the investee affiliate retired preferred stocks. An elimination of investments and stockholders` equity for preferred stocks are accounted for as follows:

1.	When the price paid is less than the preferred equity retired, the difference is added to capital surplus of the combined entity.

2.	When the price paid exceeds the preferred equity retired, the difference is offset against capital surplus of the combined entity applicable to the preferred stocks. If not enough of capital surplus applicable to the preferred stocks exists, the remainder is taken from retained earnings of the combined entity.

C. In applying the above B, the difference between fair values and book values of the investee affiliate's assets and liabilities arising from the elimination of investments and stockholders` equity in excess of the investing affiliate's interest is recorded in the combined capital surplus.

D. The allocation of the stockholders' equity of the investee affiliate to the common and preferred stockholder interests is accomplished by the following procedure. The preferred stockholder interests are the amount as a result of deducting the common stockholder interests from the stockholders' equity of the investee affiliate.

1.	Issuance of cumulative and participating preferred stocks in an investee affiliate

When dividends are in arrears, the common stockholder interests are the portion of common stocks in the stockholders' equity of the investee affiliate in excess of dividends in arrears. Dividends in arrears may be deducted up to the amount of unrestricted retained earnings. When no dividends are in arrears, the common stockholder interests are the portion of common stocks in the total stockholders' equity of the investee affiliate.

2.	Issuance of cumulative and non-participating preferred stocks in an investee affiliate

When dividends are in arrears, the common stockholder interests are the sum of i) the portion of common stocks in the stockholders' equity of the investee affiliate in excess of retained earnings and ii) retained earnings of the investee affiliate in excess of dividends in arrears. Dividends in arrears may be deducted up to the amount of unrestricted retained earnings. When no dividends are in arrears, the common stockholder interests are the sum of the amount described in i) and the investee affiliate's retained earnings.

3.	Issuance of non-cumulative and participating preferred stocks in an investee affiliate

The common stockholder interests are the portion of common stocks in the total stockholders' equity of the investee affiliate.

4.	Issuance of non-cumulative and non-participating preferred stocks in an investee affiliate

The common stockholder interests are the sum of i) the portion of common stocks in the stockholders' equity of the investee affiliate in excess of retained earnings and ii) retained earnings of the investee affiliate.

(14-1) The stockholders' equity of the investee affiliate is accounted for depending on the residual claim of the preferred stocks. When the preferred and common stocks have identical residual claims, the stockholders' equity of the investee affiliate is the amount of the stockholders' equity reflecting the fair values of the investee affiliate's assets and liabilities. When the preferred stocks do not have residual claims identical to the common stocks, the stockholders' equity of the investee affiliate is the book value of the stockholders' equity of the investee affiliate. The difference between the fair values and book values of the investee affiliate's assets and liabilities is recorded to the common stockholders interests.

(14-2) "The portion of common stocks" refers to the par value of the common stocks to the total par values of the preferred and common stocks.

(14-3) The common stockholder interest in net income of the investee affiliate for cumulative preferred stocks is determined based on the amount of net income after the preferred dividends deducted regardless of the declaration of dividends because the arrearage for prior periods must be met first in the subsequent periods.

(14-4) When the investee affiliate has non-cumulative preferred stocks outstanding, the arrearage is ignored in determining the common stockholders' equity of the investee affiliate.

15. Elimination of Intercompany Transactions, Unrealized Gains and Losses

A. Receivables and payables, revenues and expenses, and unrealized gains and losses arising from intercompany transactions between affiliated companies to be combined for financial reporting should be eliminated in the preparation of the combined financial statements. However, immaterial unrealized gains and losses resulting from intercompany transactions may be left without elimination:

1.	Even when a transaction between affiliated companies is undertaken using an outsider company as an intermediary, if it is apparent that it is in fact a transaction between affiliated companies in the business group, the transaction should be accounted for as an intercompany transaction.

2.	Receivables and payables to be eliminated should include all the receivables and payables arising from intercompany transactions. They include intercompany determined receivables and payables such as trade receivables, trade payables, loans receivable, borrowings and other receivables and payables. In addition, intercompany receivables and payables recognized in connection with the determination of periodic income on an accrual basis, such as accrued revenues, accrued expenses, prepaid expenses and unearned revenues, should be eliminated.

3.	Of unrealized gains and losses from previous periods, the amount realized in the current period should be appropriately adjusted.

4.	Unrealized gains and losses resulting from transactions before a company becomes affiliated should not be eliminated.

B. Trade receivables, trade payables, sales and cost of goods sold arising from intercompany sales of inventories, and the resulting unrealized gains and losses should be eliminated:

1.	When a trade note payable issued by an affiliated company to another affiliated company is discounted to an external entity such as a financial institutions, the discounted note should be accounted for as borrowings. In addition, when a note issued from transactions not involving inventory is discounted to an external entity, the face amount of the note should be accounted for as borrowings;

2.	Allowance for doubtful accounts established for receivables and estimated liabilities accrued for product warranties in conjunction with intercompany transactions between affiliates should be reversed.

C. Gains and losses on disposition of marketable and investment securities arising from intercompany transactions between affiliates are not de factor realized and thus should be eliminated.

D. When there have been intercompany sales of tangible fixed assets, receivables and payables, related revenues and expenses, and unrealized gains and losses should be e1iminated by offsetting one another. When dividends are received and paid between affiliated companies, the investing affiliate's dividend revenue should be eliminated, the investee affiliate's dividends payable that is attributable to the investing affiliate should be revoked, and combined retained earnings are adjusted accordingly.

E. When one affiliate purchases bonds issued by another affiliate, the transaction should be considered as a redemption of bonds. Thus, any related receivables and payables, and revenues and expenses should be eliminated, and any estimated gains and losses on redemption of bonds resulting from the intercompany transaction should be recognized.

F. For an intercompany operating lease transaction between affiliates, rent payable and rent expense of the lessee affiliate should be eliminated by offsetting against rent receivable and rent revenue of the lessor affiliate. In addition, leased assets on an operating lease and its related accumulated depreciation should be reclassified into regular tangible fixed assets and its related accumulated depreciation.

G. For an intercompany finance lease transaction between affiliates, lease liability and interest expense on a finance lease of the lessee affiliate should be eliminated against lease receivable and interest revenue of the lessor affiliate. In addition, a leased asset on a finance lease and its related accumulated depreciation should be reclassified into regular tangible fixed asset and its related accumulated depreciation.

(15-1) Intercompany trade receivable and trade payable eliminated should be the same in amount. When the amounts are not identical between the two affiliates involved at the date of combined financial statements, they should be appropriately adjusted to be identical before elimination.

(15-2) When any inventory purchased from an affiliated company by another affiliated company in the current period remain unsold at the date of combined financial statements, unrealized intercompany gain or loss contained in the ending inventory should be eliminated.

(15-3) Unrealized gain or loss to be eliminated with respect to ending inventory should be computed based upon actual gross margin of the concerned transaction. However, when the actual gross margin is deemed not materially different from the industry-specific annual average gross margin and is practically difficult to figure out, the industry gross margin can be used instead.

(15-4) Unrealized gain or loss from intercompany sale of a depreciable tangible fixed asset will be realized through a sale of the asset to a non-affiliate third party or in the process of depreciation. Thus, depreciation expense on the combined statement of income should be adjusted by subtracting (adding) the overstated (understated) portion of the depreciation expense increased (decreased) due to intercompany unrealized gain or loss included in the depreciable tangible fixed asset.

(15-5) When bonds issued by one affiliate has been purchased by another affiliate, investment in bonds, interest revenue and interest receivable of the purchaser affiliate should be eliminated against bonds payable, interest expense and interest payable of the issuer affiliate. When the acquisition cost of an investment in bonds is not same as the carrying value of the bonds payable, the difference should be accounted for as estimated gain or loss on the redemption of bonds. In this case, the difference between interest revenue and interest expense of affiliates involved should be accounted for by adjusting estimated gain or loss on redemption of bonds over the remaining period of the bond .

16. Changes in the Investing Affiliate's Ownership Interest in the Investee Affiliate

A. Subsequent to the date of an investee affiliate's admission to a business group, an investing affiliate may acquire additional stock of the investee affiliate from outside stockholders. Investment elimination difference resulting from such additional stock purchase by the investing affiliate should be charged or credited to capital surplus.

B. When an investing affiliate sells a portion of its investee affiliate's stockholdings to outsiders, and the investee still remains as an affiliate, the gain or loss on disposal of stocks should not be recognized but credited or charged directly to capital surplus.

C. When an investee affiliate issues stocks for considerations, pays stock dividends, or reclassifying its retained earnings to capital stock (hereafter referred to as capital increase), the difference between the increase in the investing affiliate's share in the equity of the investee affiliate and acquisition cost of new stocks (0 in the case of stock dividends and capital stock increases without considerations) due to such capital increase should be credited to capital surplus.

D. When an investing affiliate acquired investee affiliate's stocks before forming a combined entity, investment elimination difference is determined based on the sum of the carrying book value of investee affiliate's stocks and the cost of additional acquisition. In this case, capital adjustments due to mark-to-market valuation of investee affiliate's stocks are recognized as realized gains or losses in the fiscal year of forming the combined entity.

E. When a company accounted for under the equity method becomes an affiliate for combined financial reporting through the acquisition of the additional shares, etc., investment elimination difference is determined based on the sum of the carrying book value under the equity method and the cost of additional acquisition.

F. The acquisition of the additional shares or partial disposition of an investee affiliate by the combined entity from or to other affiliates is an intercompany transaction. Thus, receivables and payables, revenues and expenses, and unrealized gains and losses corresponding to that intercompany transaction should be eliminated.

G. When affiliates are merged together during a fiscal year, combined financial statements would reflect this transaction as if the combined entity acquired additional interest rather than a merger took place. The net income or loss for the acquiree as of the merger date should be reflected in the combined income statement.

H. When the combined entity's interest in the investee affiliate increases as a result of the acquisition of the additional shares from outside stockholders during a fiscal year, the merger between affiliates, or the issuance of the new stocks, the incremental interest in the net income or loss of the investee affiliate is recorded as "adjustments due to change in interest" in the retained earnings of the combined statement of changes in equity.

(16-1) In combined financial statements treating a business group of affiliated companies as an economic entity, the stockholders of the affiliated companies of the group are the stockholders of the business group. Therefore, gains or losses on intercompany transactions of an affiliate's capital stocks occurring after the date of controlling interest acquisition should not be recognized as gains or losses are not recognized for ordinary capital transactions.

(16-2) When affiliates are merged together during a fiscal year, the economic entity does not change at the combined entity's stand point. However, the net income or loss for the acquiree as of the merger date is reflected in the acquirer's retained earnings but not in the acquirer's income statement. As a result, combined net income or loss after the merger may not coincide with combined net income or loss without the merger. In order to mitigate this inconsistency, the combined financial statements would reflect this transaction as if the combined entity acquired additional interest rather than a merger took place. In addition, the net income or loss for the acquiree as of the merger date should be reflected in the combined income statement.

(16-3) In the above H, the inconsistency between the combined net income and changes in combined retained earnings arises from the elimination of investee affiliate's net income or loss as of the acquisition date when investing affiliate acquires additional shares of the investee affiliate during a fiscal year. The "adjustments due to change in interest" reflected in the retained earnings of the combined statement of changes in equity is to mitigate this inconsistency to articulate combined financial statements.

17. Exclusion from Affiliated Companies to be Combined

When an investee affiliate becomes no longer under control and gets excluded from affiliates to be combined for financial reporting, changes in the investee affiliate's retained earnings or accumulated deficit from the date of controlling interest acquisition to the date of exclusion should be reflected in gain or loss on the disposal of the investment in stocks and the carrying value of the remaining investment in stocks.

(17-1) When an investee affiliate no longer qualifies as an affiliate to be combined for financial reporting after an investing affiliate sells its stockholdings of the investee affiliate to an external third party, gain or loss on the disposal of investment should be adjusted by a portion, attributable to the ownership interest sold to the third party, of changes in the investee affiliate's retained earnings or accumulated deficit since the date of controlling interest acquisition.

(17-2) When the stocks of an invested affiliate is partially disposed or an investee affiliate is excluded from the affiliates to be combined for financial reporting without disposal of stocks of the investee affiliate, the investing affiliate's proportionate share of changes in the retained earnings or accumulated deficit from the date of controlling interest acquisition to the date of exclusion should be added to or deducted from the investing affiliate's investment in stocks.

18. Use of the Equity Method for Investment

When combined affiliates of a business group have significant influence over an investee company that is not an affiliate to be combined for financial reporting, that investment in stocks of the investee company should be accounted for by the equity method.

A. Investing affiliates are presumed to exercise significant influence over a non-affiliate investee company under one of the following circumstances:

1.	representation on the board of directors or decision-making bodies

2.	participation in decision-making processes such as in distribution and/or retention of earnings

3.	participation in decision-making on operating stategy.

4.	material intercompany transaction between investing affiliates and a non-affiliate investee company.

5.	interchanges of managerial personnel

6.	communications of essential information

7.	Besides 1) through 6), significant influence is effectively exercisable and can be demonstrated.

B. When the combined entity in aggregate owns not less than 20 percent of the voting stocks of a company outside its combined entity, it is presumed that the combined entity has the ability to exercise significant influence over the company unless there is clear evidence to the contrary.

C. When the increase (decrease) in the investment account results from changes in the investee's capital surplus, it should be reported as an increase (decrease) in combined capital surplus.

19. Deferred Income Tax

Income tax effect for combined financial statements should be recognized in accordance with the FAS and the Interpretations on the FAS and presented in the combined balance sheet and the combined statement of income. The deferred tax credit and charge from individual financial statements of a combined entity should be reported in a net amount in the combined balance sheet.

20. Combined Statement of Cash flows

The combined statement of cash flows should be prepared based upon the prior period's and current period's combined balance sheets and combined statements of income. Or it may be prepared using individual statements of cash flows of affiliated companies to be combined after eliminating intercompany cash flows.

A. The combined statement of cash flows should be prepared in accordance with the FAS.

B. The following should be noted in applying the FAS:

1.	Amortization of goodwill, investment loss under the equity method, dividends in excess of investment income received under the equity method, etc. should be included in expenses not involving cash outflows.

2.	Recovery of negative goodwill, investment income (in excess of dividends received) under the equity method, etc. should be included in revenues not involving cash inflows

(20-1) Increases or decreases in cash due to changes in the combined entity are reported as cash flows from changes in the combined entity.

(20-2) When combined affiliates purchase additional interest of an affiliate from a third party or an affiliate still remains as a member of combined affiliates after a part of their interest on that affiliate is sold to a third party, the purchase or sale should be reported under cash flows from financing activities.

21. Application of the FAS

The general matters not prescribed in this Standard are governed by the FAS.

CHAPTER Ⅲ.

DISCLOSURE

22. Notes to Combined financial Statements

A. General matters

1.	Names, industry classifications, stockholders' equities, insiders' stockholding ratios, locations, and fiscal year ends of affiliated companies included in or excluded from the combined financial statements (as illustrated in annexed Form 6).

2.	Names of investee companies accounted for by the equity method, shares of individual large stockholders and affiliated companies, and the reason for using the equity method.

3.	Names and descriptions of affiliated companies that are newly included in or excluded from the combined financial statements.

4.	When the fiscal year end of an affiliate is different from the reporting date of the combined financial statements, descriptions of significant transactions and events that have taken place between the fiscal year end of the affiliate and the reporting date of combined financial statements, and any adjustments made for them.

5.	Description of significant transactions between affiliates combined for financial reporting and investees accounted for by the equity method and any adjustments made for them.

6.	Description of foreign currency assets and liabilities, basis of translation, and translation gains and losses.

7.	Redemption schedule of bonds and long-term borrowings (separate presentations for the next five years and thereafter).

8.	Amount and nature of contingent liabilities.

9.	Description of subsequent events that have significant influence on the combined financial statements.

10.	Combined statement of changes in capital (as illustrated in annexed Form 7).

11.	Other important items on combination policies.

B. Accounting Principles

1.	Accounting methods employed by affiliated companies combined, any changes in accounting principles and procedures in preparing for combined financial statements, and content and justifications of the changes and their effects on the combined financial statements;

2.	Details of amortization of goodwill, recovery of negative goodwill, any allocations to certain identifiable assets or liabilities of the investment elimination difference, and accounting for the investment elimination difference under the equity method.

3.	Description of the valuation of investment accounts under the equity method.

4.	Description of any corrective adjustments made to the financial statements of an affiliated company combined for financial reporting when they are judged not to fairly present financial position and results of operations.

5.	Description of the prior year`s criteria and estimation procedures, if any, used for preparing the current year's combined financial statements.

C. Disclosure of major transactions among affiliates:

1.	Domestic insiders' stockholding ratios (as illustrated in annexed Form 8).

2.	Details on guarantees of affiliates' obligations, which are restricted under [Article 10-2] of the Act on Monopoly Regulation and Fair Trade (as illustrated in annexed Form 9).

3.	Details on other guarantees of affiliates' obligations (as illustrated in annexed Form 10).

4.	Details on assets pledged as collaterals for affiliates (as illustrated in annexed Form 11);

5.	Details on intercompany cash loans and borrowings between affiliated companies combined (as illustrated in annexed Form 12); and

6.	Details on intercompany sales and purchases of inventories between affiliated companies combined (as illustrated in annexed Form 13).

D. Disclosure of segment information of affiliated companies combined:

1.	Combined balance sheets by industry (non-financial, financial and insurance) (as illustrated in annexed Form 14).

2.	Combined statements of income by industry (non-financial, financial and insurance) (as illustrated in annexed Form 15).

3.	Details of operations by industry (as illustrated in annexed Form 16).

4.	Details of operations by region (as illustrated in annexed Form 17).

E. Besides the above disclosures in the note, items material to the combined financial statements and prescribed in the FAS are subject to additional disclosure.

23. Documentation of Important Data Necessary for Preparing Combined Financial Statements

For preparation of combined financial statements, affiliated companies to be combined for financial reporting should prepare the following data:

A. Investing affiliated companies with investment in an investee affiliate or an investee accounted for by the equity method should provide information concerning their investment stockholdings, the dates of stock acquisition, dividends received (cash and stock), increases or decreases in the investee's equity, changes in the investment stockholdings subsequent to the initial acquisition (additional acquisitions or disposals), and valuation of investment stockholdings.

B. Affiliated companies to be combined or accounted for by the equity method, which are owned by other affiliated companies, should provide yearly details on stockholders' equity, reclassification of capital surplus and retained earnings to capital stock, dividend payments, increases and decreases in capital stock. and list of stockholders.

C. Details on receivables and payables between affiliated companies as of the reporting date of the combined financial statements (including the amount due to difference in revenue recognition criteria, and the amount of bill of exchange discounted in an export transaction).

D. Details on intercompany revenue and expense transactions between affiliated companies and with an investee accounted for by the equity method during the fiscal year of combined financial statements.

F. Details on sales and purchase of fixed assets between affiliates.

G. Details on guarantees of affiliates' obligations.

H Details on assets pledged as collaterals for affiliates.

I. Details on notes issued by affiliates discounted and endorsed.

J. Details of accounting policies which differ from those of the preparing company of combined financial statements.

K. Other details necessary for combination.

Addenda

(October 21, 1998)

1. This Standard shall be effective from October 22,1998.

2. This Standard shall be applied from the first fiscal year beginning on or after January 1,1999.

3. For the fiscal year in which this Standard is initially adopted, the combined statement of cash flows needs not be prepared, and the combined balance sheet and the combined statement of income should be prepared for the current year only.

Addenda

(December 22, 1999)

1. Effective Date

This Standard shall be effective from December 23,1999.

2. Application in General

This Standard should be applied from the fiscal year to which the effective date belongs.

3. In the fiscal year when the combined financial statements are initially prepared, the combined statement of changes in stockholders' equity should be prepared for the current year only.

4. When consolidated financial statements prepared by an affiliated company are used for preparation of combined financial statements in accordance with [12E], adjustments to consolidated assets and liabilities should be presented as goodwill or negative goodwill.

5. In application of [13C/2)], if the date of controlling interest acquisition is not so clearly evident or too long ago, negative goodwill may be recovered over the period within 20 years using the straight-line method.

Addenda

(May 4, 2001)

1. This Standard shall be effective from May 4, 2001.

2. This Standard should be applied from the fiscal year beginning on or after January 1, 2000.