Form 6-K
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SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

Pursuant to Rule 13a-16 or 15d-16

of the Securities Exchange Act of 1934

For the Month of September 2014

Commission File Number: 001-13372

KOREA ELECTRIC POWER CORPORATION

(Translation of registrant’s name into English)

512 Yeongdongdaero, Gangnam-gu, Seoul 135-791, Korea

(Address of principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

Form 20-F  x                     Form 40-F  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):  ¨

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):  ¨

Indicate by check mark whether the registrant by furnishing the information contained in this form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes   ¨                    No  x

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82-            .


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This Report of Foreign Private Issuer on Form 6-K is deemed filed for all purposes under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended.


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QUARTERLY BUSINESS REPORT

(For the period from January 1, 2014 to June 30, 2014)

THIS IS A SUMMARY IN ENGLISH OF THE QUARTERLY BUSINESS REPORT ORIGINALLY PREPARED IN KOREAN AND IS IN SUCH FORM AS REQUIRED BY THE FINANCIAL SERVICES COMMISSION OF KOREA.

IN THE TRANSLATION PROCESS, SOME PARTS OF THE REPORT WERE REFORMATTED, REARRANGED OR SUMMARIZED FOR THE CONVENIENCE OF READERS. NON-MATERIAL OR PREVIOUSLY DISCLOSED INFORMATION IS OMITTED OR ABRIDGED.

UNLESS EXPRESSLY STATED OTHERWISE, ALL INFORMATION CONTAINED HEREIN IS PRESENTED ON A CONSOLIDATED BASIS IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS ADOPTED FOR USE IN KOREA, OR K-IFRS, WHICH DIFFER IN CERTAIN RESPECTS FROM GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN CERTAIN OTHER COUNTRIES, INCLUDING THE UNITED STATES. WE HAVE MADE NO ATTEMPT TO IDENTIFY OR QUANTIFY THE IMPACT OF THESE DIFFERENCES.


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I. Company Overview

1. Name of the company: Korea Electric Power Corporation (KEPCO)

2. Information of the company

(Address) 512 Yeongdongdaero, Gangnam-Gu, Seoul 135-791, Korea

(Phone number) 82-2-3456-4217

(Website) http://www.kepco.co.kr

3. Major businesses

KEPCO, as the parent company, is engaged in the following activities:

 

  l   development of electric power resources;

 

  l   generation, transmission, transformation and distribution of electricity and other related activities;

 

  l   research and development of technology related to the businesses mentioned above;

 

  l   overseas business related to the businesses mentioned above;

 

  l   investment or contributions related to the businesses mentioned above;

 

  l   development and operation of certain real estate holdings; and

 

  l   other businesses entrusted by the government.

Businesses operated by KEPCO’s major subsidiaries are as follows: nuclear power generation by Korea Hydro & Nuclear Power (KHNP), thermal power generation by Korea South-East Power (KOSEP), Korea Midland Power (KOMIPO), Korea Western Power (KOWEPO), Korea Southern Power (KOSPO) and Korea East-West Power (EWP), other businesses including engineering service by KEPCO Engineering & Construction (KEPCO E&C), maintenance and repair of power plants by KEPCO Plant Service & Engineering (KEPCO KPS), nuclear fuel processing by KEPCO Nuclear Fuel (KEPCO NF), IT service by KEPCO KDN, and other overseas businesses and related investments.

4. Subsidiaries and affiliates of KEPCO (As of June 30, 2014)

 

Classification

   Subsidiaries      Associates and joint ventures      Total  

Domestic

     16         59         75   

Overseas

     62         38         100   

Total

     78         97         175   


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5. Major changes in management

At the extraordinary general meeting of shareholders held on March 14, 2014, Mr. Koo, Bon-Woo was re-elected as a standing director of KEPCO, and Mr. Cho, Jeon-Hyeok and Mr. Choi, Gyo-Il, non-standing directors of KEPCO, were elected as members of the Audit Committee of KEPCO.

6. Changes in major shareholders

No changes in major shareholders for the past three years.

7. Information regarding KEPCO shares

A. Issued share capital: Won 3.2 trillion (Authorized capital: Won 6 trillion)

B. Total number of issued shares: 641,964,077

(Total number of shares authorized for issuance: 1,200,000,000)

C. Dividends: Dividend payment of Won 90 per share for fiscal year 2013 (Won 56 billion in aggregate). No dividend payments for fiscal years 2012 and 2011.

II. Business Overview

1. Segment results

(In billions of Won)

 

     Jan. - Jun. 2014      Jan. - Jun. 2013  
   Sales      Operating
income (loss)
     Sales      Operating
income (loss)
 

Electricity sales

     27,592         -454         25,334         -2,050   

Nuclear generation

     4,796         1,593         3,778         702   

Thermal generation

     13,054         822         14,564         853   

Others*

     1,452         211         1,309         172   

Subtotal

     46,894         2,172         44,985         -323   

Adjustment of related- party transactions

     -19,232         -116         -19,510         -113   
Total      27,662         2,056         25,475         -436   

 

* Others relate to 72 subsidiaries including KEPCO E&C, KEPCO KPS, KEPCO NF and KEPCO KDN.


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ø Sales and operating income (loss) reflects amendments to Korean IFRS 1001 “Presentation of Financial Statements.”

2. Changes in unit prices of major products

(In Won per kWh)

 

Business

sector

 

Company

 

2014

Jan. - Jun.

 

2013

Jan. - Dec.

Electricity sold

  Residential   KEPCO   125.02   127.02
  Commercial     125.61   121.98
  Educational     110.53   115.99
  Industrial     104.17   100.70
  Agricultural     47.43   45.51
  Street lighting     114.38   107.33
  Overnight usage     67.67   63.52

Electricity from nuclear generation

  Nuclear Generation   KHNP   61.62   45.32

Electricity from thermal generation

  Thermal generation   KOSEP   70.32   67.50
    KOMIPO   102.33   101.40
    KOWEPO   101.65   103.06
    KOSPO   110.65   107.97
    EWP   94.08   97.39


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3. Major contracts in 2014

(In billions of Won)

 

Party

   Date of
contract
    

Nature of contract

   Contract
amount
    

Counterparty

KEPCO      2014. 2.21      

Inspection of transmission

lines in 2014

     62       KEPCO KPS Co., Ltd.
KHNP
     2014. 3.27      

Re-wiring of the main

generators for Hanbit units

3, 4

     24      

Doosan Heavy

Industries &

Construction Co., Ltd.

     2014. 6.11      

Preventive maintenance of

nuclear power facilities for

2014

     307       KEPCO KPS Co., Ltd.
KOSEP      2014. 2.07      

Procurement of generation

facilities for fuel cells in

Ansan district

     14       Samsung Everland Inc.
KOMIPO      2014. 2.06      

Procurement of water

treatment facilities for

Shin-Boryeong

units 1, 2

     25      

POSCO Engineering

Co., Ltd.

     2014. 6.11      

Construction design for

Shin-Seocheon thermal

Power Plant

     70      

KEPCO E&C

Company, Inc.

     2014. 6.30      

Procurement of materials for

coal handling facilities for

Boryeong units 1~8

     61      

Hyundai Rotem

Co., Ltd

KOWEPO      2014. 1.31      

Procurement of

desulfurization facilities for

Taean units 9, 10

     91      

STX Heavy Industries

Co., Ltd.

EWP      2014. 3.27      

Procurement of materials

and service contract of

boilers for Dangjin thermal

unit 9, 10

     571      

Daelim Industrial

Co., Ltd

     2014. 6.16      

Procurement of power block

for Ulsan combined cycle

unit 4

     570      

Daelim Industrial

Co., Ltd

4. Intellectual property as of June 30, 2014

 

   

Patents

 

Utility

models

 

Designs

 

Trademarks

 

Domestic

 

Overseas

     

Domestic

 

Overseas

Number of

registrations

  4,727   589   802   171   367   60


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III. Financial Information

1. Condensed consolidated financial results for the first six months ended June 30, 2014

(In billions of Won)

 

Consolidated statements of

comprehensive income

    

Consolidated statements of

financial position

 
     Jan.- Jun
2013
     Jan.- Jun
2014
     Change
(%)
          As of Dec.
31, 2013
     As of Jun
31, 2014
     Change
(%)
 

Sales

     25,475         27,662         8.6      

Total assets

     155,527         158,872         2.2   

Operating income

     -436         2,056         n/m      

Total liabilities

     104,076         107,144         2.9   

Net income

     -1,424         753         n/m      

Total equity

     51,451         51,728         0.5   

 

  n/m means not meaningful.

2. Condensed separate financial results for the first six months ended June 30, 2014

(In billions of Won)

 

Separate statements of

comprehensive income

    

Separate statements of

financial position

 
     Jan.- Jun.
2013
     Jan.- Jun
2014
     Change
(%)
          As of Dec.
31, 2013
     As of Jun.
30, 2014
     Change
(%)
 

Sales

     25,334         27,592         8.9      

Assets

     98,250         98,633         0.4   

Operating income

     -2,050         -454         77.9      

Liabilities

     56,590         57,621         1.8   

Net income

     -1,543         -543         64.8      

Equity

     41,660         41,012         -1.6   


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IV. Independent Auditor’s Opinion

1. Independent auditor’s opinion on consolidated financial statements for the first six months ended June 30, 2014: Unqualified

 

ø KPMG Samjong Accounting Corp. has been engaged as KEPCO’s independent auditor from 2013 for a term of three years until 2015.

 

Jan. 1, 2014 – June. 30, 2014

 

Jan. 1, 2013 – Dec. 31, 2013

 

Jan. 1, 2012 – Dec. 31, 2012

KPMG Samjong Accounting Corp.   KPMG Samjong Accounting Corp.   Deloitte Anjin LLC

V. Board of Directors

1. Composition of the Board of Directors: not more than 15 directors (with standing directors comprising less than the majority of the directors)

 

ø The Audit Committee consists of one standing director and two non-standing directors

2. Board meetings and agendas

 

Number of

meetings

  

Number of

agendas

  

Classification

     

Resolutions

  

Status

  

Reports

  

Status

7

   22    17    Approved as proposed    5    Accepted as reported

 

ø Audit Committee: 4 meetings held where 20 agendas were discussed (of which, 14 were resolved as proposed and 6 were approved as reported).


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3. Major activities of the Board of Directors

 

Date

  

Agenda

   Status    Type

2014. 1. 14

   Approval to close the shareholders’ registry    Approved as proposed    Resolution
   Research and development plans for 2014    Accepted as reported    Report

2014. 2. 20

   Recommendation of candidates to become new members of the Audit Committee    Approved as proposed    Resolution
   Approval to call for the 54th extraordinary general meeting of shareholders    Approved as proposed    Resolution
   Approval of consolidated and separate financial statements for fiscal year 2013    Approved as proposed    Resolution
   Approval of aggregate ceiling on remuneration for directors in 2014    Approved as proposed    Resolution
   Approval to call for the 53rd annual general meeting of shareholders    Approved as proposed    Resolution
   Development plans for the next-generation Electricity Sales Information System    Approved as proposed    Resolution
   Auditor’s report to the Board of Directors for fiscal year 2013    Accepted as reported    Report

2014. 3. 20

   Approval of ceilings on the issue amounts of commercial papers and electronic short-term bonds in 2014    Approved as proposed    Resolution
   Annual report on internal control over financial reporting for fiscal year 2013    Accepted as reported    Report
   Annual evaluation report on internal control over financial reporting for fiscal year 2013    Accepted as reported    Report

2014. 4.17

   Composition of the director nomination committee to recommend candidates for non-standing directors and its evaluation criteria    Approved as proposed    Resolution
   Plans for the sales of equity interest in affiliates    Approved as proposed    Resolution
   Amendments to the regulation for remuneration and welfare    Approved as proposed    Resolution

2014. 5.15

   Amendments to the regulation for electricity service including special tariff for educational usage    Approved as proposed    Resolution
   Auditor’s report to the Board of Directors for the first quarter of the fiscal year 2014    Accepted as reported    Report

2014. 5.23

   Amendments to the special tariff for educational usage    Approved as proposed    Resolution

2014. 6.19

   Composition of the director nomination committee to recommend candidates for non-standing directors and its evaluation criteria    Approved as proposed    Resolution
   Mid-to-long term financial management planning for years from 2014 to 2018    Approved as proposed    Resolution
   Amendments to the Articles of Incorporation of KEPCO    Approved as proposed    Resolution
   Guarantee on a put option related to a joint venture in Gemeng International Energy Co., Ltd.    Approved as proposed    Resolution


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4. Major activities of the Audit Committee

 

Date

  

Agenda

   Status    Type

2014. 1. 29

   Auditor’s report on the agendas for the extraordinary meeting of shareholders    Approved as proposed    Resolution
   Audit plans for fiscal year 2014    Approved as proposed    Resolution
   Approval of selection of independent auditors of subsidiaries (KOSEP Material Co., Ltd. and KEPCO KPS Philippines Corp.)    Approved as proposed    Resolution
   Independent auditor’s report on audit plans for fiscal year 2013    Accepted as reported    Report
   Education plans for auditors for 2014    Accepted as reported    Report
   Auditor’s report for fiscal year 2013    Accepted as reported    Report

2014. 3. 20

   Election of the chairman of the Audit Committee    Approved as proposed    Resolution
   Auditor’s report on the agendas for the annual general meeting of shareholders    Approved as proposed    Resolution
   Approval of selection of independent auditors of subsidiaries    Approved as proposed    Resolution
   Independent auditor’s report on the auditing results for the consolidated and separate financial statements for fiscal year 2013    Accepted as reported    Report
   Annual report on internal control over financial reporting for fiscal year 2013    Accepted as reported    Report
   Annual evaluation report on internal control over financial reporting for fiscal year 2013    Accepted as reported    Report

2014. 4.17

   Prior approval for non-audit services of independent auditors    Approved as proposed    Resolution
   Auditor’s report for the fiscal year 2013 in accordance with U.S. accounting principles    Approved as proposed    Resolution
   Report on the Form 20-F for the fiscal year 2013 to be filed with the U.S. SEC    Approved as proposed    Resolution

2014. 5.15

   Amendments to code of conduct for employees    Approved as proposed    Resolution
   Amendments to the guidelines for voluntary property registration    Approved as proposed    Resolution
   Amendments to the guidelines for disciplinary actions    Approved as proposed    Resolution
   Auditor’s report to the Board of Directors for the first quarter of the fiscal year 2014    Approved as proposed    Resolution
   Independent auditor’s report for the auditing plans for the fiscal year 2014    Approved as proposed    Resolution


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ø An audit team, organized under the supervision of the Audit Committee, conducts internal audit with respect to the entire company and takes administrative measures as appropriate in accordance with relevant internal regulations. KEPCO’s District Divisions and Branch Offices also have separate audit teams which conduct internal inspection with respect to the relevant division or office.

VI. Shareholders

1. List of shareholders as of February 17, 2014

 

     Number of
shareholders
     Shares owned      Percentage (%)  

Korean Government

     1         135,917,118         21.17   

Korea Finance Corporation

     1         192,159,940         29.94   

National Pension Service

     1         41,775,649         6.51   

KEPCO (held in the form of treasury stock)*

     1         18,929,995         2.95   

Public

(non-Koreans)

   Common shares      1,086         118,634,815         18.48   
   American depositary shares      1         31,977,417         4.98   
Public (Koreans)    Corporate      1,552         68,468,358         10.66   
   Individual      383,104         34,100,785         5.31   

Total

     385,747         641,964,077         100.0   

 

* Treasury stocks do not have voting rights. Number of shares with voting rights: 623,034,082


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VII. Directors and Employees

1. Remuneration for directors

A. Aggregate ceiling on remuneration for directors approved by shareholders:

Won 1.9 billion

B. Actual amount paid to directors

 

Type

 

Number of

directors

 

Total remuneration

(Jan. 1, 2014 – Jun. 30, 2014)

Total

  15   Won 502 million

C. Stock option: None

2. Employees as of June 30, 2014

 

Employees    Average years of
employment
  

Total remuneration

(Jan. 1, 2014 – Jun. 30, 2014)

Regular

   Contract    Total      
19,605    309    19,914    18.5    Won 725 billion

VIII. Other Information Relating to the Protection of Investors

1. Number of shareholders’ meetings held in 2014: twice

(One annual general meeting of shareholders held on March 28, 2014 / one extraordinary general meeting of shareholders held on March 14, 2014)

2. Pending legal proceedings

 

Type

   Number of lawsuits    Litigation value

Lawsuits where KEPCO and its subsidiaries and affiliates are engaged as the defendant

   661    Won 432 billion

Lawsuits where KEPCO and its subsidiaries and affiliates are engaged as the plaintiff

   145    Won 161 billion


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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

By:  

/s/ Ko, Weon-Gun

Name:   Ko, Weon-Gun
Title:   Vice President

Date: September 3, 2014


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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Financial Statements

June 30, 2014

(Unaudited)

(With Independent Auditors’ Review Report Thereon)


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Contents

 

     Page  

Independent Auditors’ Review Report

     1   

Consolidated Interim Statements of Financial Position

     2   

Consolidated Interim Statements of Comprehensive Income (Loss)

     4   

Consolidated Interim Statements of Changes in Equity

     6   

Consolidated Interim Statements of Cash Flows

     8   

Notes to the Consolidated Interim Financial Statements

     10   


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Independent Auditors’ Review Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders

Korea Electric Power Corporation

Reviewed financial statements

We have reviewed the accompanying consolidated interim financial statements of Korea Electric Power Corporation and its subsidiaries (the “Company”), which comprise the consolidated interim statement of financial position as of June 30, 2014, the consolidated interim statements of comprehensive income (loss) for the three and six-month periods ended June 30, 2014 and 2013, changes in equity and cash flows for the six-month periods ended June 30, 2014 and 2013 and notes to the interim financial statements.

Management’s responsibility

Management is responsible for the preparation and fair presentation of these consolidated interim financial statements in accordance with Korean International Financial Reporting Standards (“K-IFRS”) No. 1034Interim Financial Reporting’, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ review responsibility

Our responsibility is to issue a report on these consolidated interim financial statements based on our reviews.

We conducted our reviews in accordance with the Review Standards for Quarterly and Semiannual Financial Statements established by the Securities and Futures Commission of the Republic of Korea. A review of interim financial statements consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the Republic of Korea and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

Conclusion

Based on our reviews, nothing has come to our attention that causes us to believe that the accompanying consolidated interim financial statements referred to above are not prepared, in all material respects, in accordance with K-IFRS 1034, ‘Interim Financial Reporting’.

Other matters

The procedures and practices utilized in the Republic of Korea to review such consolidated interim financial statements may differ from those generally accepted and applied in other countries.

The consolidated statement of financial position of the Company as of December 31, 2013, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, which are not accompanying this report, were audited by us and our report thereon, dated March 20, 2014, expressed an unqualified opinion. The accompanying consolidated statement of financial position of the Company as of December 31, 2013, presented for comparative purposes, is not different from that audited by us in all material respects.

/s/ KPMG Samjong Accounting Corp.

KPMG Samjong Accounting Corp.

Seoul, Korea

August 14, 2014

 

 

This report is effective as of August 14, 2014, the review report date. Certain subsequent events or circumstances, which may occur between the review report date and the time of reading this report, could have a material impact on the accompanying consolidated interim financial statements and notes thereto. Accordingly, the readers of the review report should understand that the above review report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

 


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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Financial Position

As of June 30, 2014 and December 31, 2013

(Unaudited)

 

In millions of won    Note      June 30,
2014
     December 31,
2013
 

Assets

        

Current assets

        

Cash and cash equivalents

     5,6,7,44       2,290,306         2,232,313   

Current financial assets, net

     5,10,11,12,44         206,501         436,213   

Trade and other receivables, net

     5,8,14,20,44,46         6,727,226         7,526,311   

Inventories, net

     13         4,428,825         4,279,593   

Income tax refund receivables

     40         11,785         223,803   

Current non-financial assets

     15         471,825         570,845   

Assets held-for-sale

     17,41         29,817         —     
     

 

 

    

 

 

 

Total current assets

        14,166,285         15,269,078   
     

 

 

    

 

 

 

Non-current assets

        

Non-current financial assets, net

     5,6,9,10,11,12,44         1,738,674         1,902,953   

Non-current trade and other receivables, net

     5,8,14,44,46         1,556,768         1,644,333   

Property, plant and equipment, net

     18,27,48         134,032,538         129,637,596   

Investment properties, net

     19,27         551,746         538,327   

Goodwill

     16         2,582         2,582   

Intangible assets other than goodwill, net

     21,27         818,329         810,664   

Investments in associates

     4,17         4,174,639         4,124,574   

Investments in joint ventures

     4,17         1,228,345         1,106,181   

Deferred tax assets

     40         476,266         359,535   

Non-current non-financial assets

     15         125,341         131,511   
     

 

 

    

 

 

 

Total non-current assets

        144,705,228         140,258,256   
     

 

 

    

 

 

 

Total Assets

     4       158,871,513         155,527,334   
     

 

 

    

 

 

 

Liabilities

        

Current liabilities

        

Trade and other payables, net

     5,22,24,44,46       5,051,859         5,892,763   

Current financial liabilities, net

     5,11,23,44,46         8,592,657         8,425,231   

Income tax payables

     40         582,401         51,407   

Current non-financial liabilities

     20,28,29         5,177,702         4,730,631   

Current provisions

     26,44         1,284,366         1,113,817   
     

 

 

    

 

 

 

Total current liabilities

        20,688,985         20,213,849   
     

 

 

    

 

 

 

Non-current liabilities

        

Non-current trade and other payables, net

     5,22,24,44,46         3,994,512         3,971,519   

Non-current financial liabilities, net

     5,11,23,44,46         55,162,692         53,163,394   

Non-current non-financial liabilities

     20,28,29         7,097,267         6,985,641   

Employee benefit liabilities, net

     25,44         2,345,486         2,137,296   

Deferred tax liabilities

     40         5,000,963         5,002,585   

Non-current provisions

     26,44         12,853,567         12,602,314   
     

 

 

    

 

 

 

Total non-current liabilities

        86,454,487         83,862,749   
     

 

 

    

 

 

 

Total Liabilities

     4       107,143,472         104,076,598   
     

 

 

    

 

 

 

 

(Continued)

 

2


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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Financial Position, Continued

As of June 30, 2014 and December 31, 2013

(Unaudited)

 

In millions of won    Note      June 30,
2014
    December 31,
2013
 

Equity

       

Contributed capital

     1,30,44        

Share capital

      3,209,820        3,209,820   

Share premium

        843,758        843,758   
     

 

 

   

 

 

 
        4,053,578        4,053,578   

Retained earnings

     31        

Legal reserves

        1,604,910        1,603,919   

Voluntary reserves

        22,999,359        22,753,160   

Unappropriated retained earnings

        8,737,166        8,409,007   
     

 

 

   

 

 

 
        33,341,435        32,766,086   
     

 

 

   

 

 

 

Other components of equity

     33        

Other capital surpluses

        827,065        830,982   

Accumulated other comprehensive income (loss)

        (197,828     55,538   

Treasury stock

        (741,489     (741,489

Other equity

        13,294,973        13,294,973   
     

 

 

   

 

 

 
        13,182,721        13,440,004   
     

 

 

   

 

 

 

Equity attributable to owners of the Company

        50,577,734        50,259,668   
     

 

 

   

 

 

 

Non-controlling interests

     16         1,150,307        1,191,068   
     

 

 

   

 

 

 

Total Equity

      51,728,041        51,450,736   
     

 

 

   

 

 

 

Total Liabilities and Equity

      158,871,513        155,527,334   
     

 

 

   

 

 

 

See accompanying notes to the consolidated interim financial statements.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Comprehensive Income (Loss)

For the three and six-month periods ended June 30, 2014 and 2013

(Unaudited)

 

In millions of won           June 30, 2014     June 30, 2013  
     Note      Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
 

Sales

     4,34,44,46            

Sales of goods

      11,830,026        25,903,602        10,938,507        24,172,866   

Sales of services

        142,886        207,464        70,332        150,704   

Sales of construction services

     20         829,221        1,377,969        587,478        993,258   

Revenue related to transfer of assets from customers

        87,166        172,911        79,947        158,534   
     

 

 

   

 

 

   

 

 

   

 

 

 
        12,889,299        27,661,946        11,676,264        25,475,362   
     

 

 

   

 

 

   

 

 

   

 

 

 

Cost of sales

     13,25,42,46            

Cost of sales of goods

        (10,682,236     (23,200,495     (11,709,575     (23,974,344

Cost of sales of services

        (55,591     (143,671     (62,187     (133,489

Cost of sales of construction services

        (798,761     (1,302,143     (552,704     (916,318
     

 

 

   

 

 

   

 

 

   

 

 

 
        (11,536,588     (24,646,309     (12,324,466     (25,024,151
     

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit (loss)

        1,352,711        3,015,637        (648,202     451,211   
     

 

 

   

 

 

   

 

 

   

 

 

 

Selling and administrative expenses

     25,35,42,46         (523,471     (959,320     (445,945     (887,589
     

 

 

   

 

 

   

 

 

   

 

 

 

Operating profit (loss)

     4         829,240        2,056,317        (1,094,147     (436,378

Other non-operating income

     36         74,958        145,681        88,596        176,655   

Other non-operating expenses

     36         (14,298     (37,357     (8,933     (26,146

Other gains, net

     37         49,395        90,477        6,645        39,528   

Finance income

     5,11,38         681,344        655,948        293,295        728,144   

Finance expenses

     5,11,39         (1,284,271     (1,782,938     (1,023,824     (2,083,367

Equity method income (loss) of associates and joint ventures

     4,17            

Share in income of associates and joint ventures

        50,095        185,078        17,466        117,226   

Gains on disposal of investments in associates and joint ventures

        45,981        45,981        4        4   

Share in loss of associates and joint ventures

        (3,790     (27,048     (13,678     (42,197

Losses on disposal of investments in associates and joint ventures

        (106     (106     (1,134     (1,134

Impairment losses on investments in associates and joint ventures

        —          (1,558     (2,492     (2,492
     

 

 

   

 

 

   

 

 

   

 

 

 
        92,180        202,347        166        71,407   
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) before income tax

        428,548        1,330,475        (1,738,202     (1,530,157
     

 

 

   

 

 

   

 

 

   

 

 

 

Income tax expense (benefit)

     40         237,036        577,692        (153,350     (105,730
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) for the period

      191,512        752,783        (1,584,852     (1,424,427
     

 

 

   

 

 

   

 

 

   

 

 

 

 

(Continued)

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Comprehensive Income (Loss), Continued

For the three and six-month periods ended June 30, 2014 and 2013

(Unaudited)

 

In millions of won, except per share Information           June 30, 2014     June 30, 2013  
     Note      Three-
month
period

ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
 

Other comprehensive income (loss)

     5,11,25,31,33            

Items that will not be reclassified subsequently to profit or loss:

           

Defined benefit plan actuarial profits, net of tax

     25,31       (45,363     (60,708     123,714        25,497   

Share in other comprehensive income (loss) of associates and joint ventures, net of tax

     31         (1,811     (2,017     (538     47   

Items that may be reclassified subsequently to profit or loss:

           

Net change in the unrealized fair value of available-for-sale financial assets, net of tax

     33         (23,948     (40,495     64,579        93,199   

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

     5,11,33         (37,238     (33,913     (28,542     (29,911

Foreign currency translation of foreign operations, net of tax

     33         (157,270     (98,465     40,333        100,006   

Share in other comprehensive income (loss) of associates and joint ventures, net of tax

     33         (27,895     (81,689     52,752        109,955   
     

 

 

   

 

 

   

 

 

   

 

 

 

Other comprehensive income (loss), net of tax

        (293,525     (317,287     252,298        298,793   
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period

      (102,013     435,496        (1,332,554     (1,125,634
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit or loss attributable to:

           

Owners of the Company

     43       154,752        687,014        (1,613,819     (1,480,519

Non-controlling interests

        36,760        65,769        28,967        56,092   
     

 

 

   

 

 

   

 

 

   

 

 

 
      191,512        752,783        (1,584,852     (1,424,427
     

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) attributable to:

           

Owners of the Company

      (117,946     378,057        (1,380,454     (1,212,456

Non-controlling interests

        15,933        57,439        47,900        86,822   
     

 

 

   

 

 

   

 

 

   

 

 

 
      (102,013     435,496        (1,332,554     (1,125,634
     

 

 

   

 

 

   

 

 

   

 

 

 

Profit (loss) per share

     43            

Basic and diluted loss per share

      248        1,103        (2,590     (2,376

See accompanying notes to the consolidated interim financial statements.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Changes in Equity

For the six-month periods ended June 30, 2014 and 2013

(Unaudited)

 

In millions of won    Equity attributable to owners of the Company     Non-
controlling
interests
       
     Contributed
Capital
     Retained
earnings
    Other components
of equity
    Subtotal       Total
equity
 

Balance at January 1, 2013

   4,053,578         32,564,283        13,270,906        49,888,767        1,175,435        51,064,202   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period:

             

Profit (loss) for the period

     —           (1,480,519     —          (1,480,519     56,092        (1,424,427

Items that will not be reclassified subsequently to profit or loss:

             

Defined benefit plan actuarial profits (losses), net of tax

     —           26,711        —          26,711        (1,214     25,497   

Share in other comprehensive income of associates and joint ventures, net of tax

     —           47        —          47        —          47   

Items that may be reclassified subsequently to profit or loss:

             

Net changes in the unrealized fair value of available-for-sale financial assets, net of tax

     —           —          93,273        93,273        (74     93,199   

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

     —           —          (35,839     (35,839     5,928        (29,911

Foreign currency translation of foreign operations, net of tax

     —           —          74,067        74,067        25,939        100,006   

Share in other comprehensive income of associates and joint ventures, net of tax

     —           —          109,805        109,805        150        109,955   

Transactions with owners of the Company, recognized directly in equity:

             

Dividends paid

     —           —          —          —          (41,815     (41,815

Issuance of share capital by subsidiaries

     —           —          —          —          59,892        59,892   

Changes in consolidation scope

     —           —          (10,743     (10,743     4,882        (5,861

Dividends paid (hybrid securities)

     —           —          —          —          (8,227     (8,227

Other

     —           —          (282     (282     913        631   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2013

   4,053,578         31,110,522        13,501,187        48,665,287        1,277,901        49,943,188   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

(Continued)

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Changes in Equity, Continued

For the six-month period ended June 30, 2014 and 2013

(Unaudited)

 

In millions of won    Equity attributable to owners of the Company     Non-        
     Contributed
Capital
     Retained
earnings
    Other components of
equity
    Subtotal     controlling
Interests
    Total
equity
 

Balance at January 1, 2014

   4,053,578         32,766,086        13,440,004        50,259,668        1,191,068        51,450,736   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total comprehensive income (loss) for the period:

             

Profit for the period

     —           687,014        —          687,014        65,769        752,783   

Items that will not be reclassified subsequently to profit or loss:

             

Defined benefit plan actuarial losses, net of tax

     —           (53,574     —          (53,574     (7,134     (60,708

Share in other comprehensive loss of associates and joint ventures, net of tax

     —           (2,017     —          (2,017     —          (2,017

Items that may be reclassified subsequently to profit or loss:

             

Net changes in the unrealized fair value of available-for-sale financial assets, net of tax

     —           —          (40,494     (40,494     (1     (40,495

Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax

     —           —          (30,673     (30,673     (3,240     (33,913

Foreign currency translation of foreign operations, net of tax

     —           —          (99,918     (99,918     1,453        (98,465

Share in other comprehensive income (loss) of associates and joint ventures, net of tax

     —           —          (82,281     (82,281     592        (81,689

Transactions with owners of the Company, recognized directly in equity:

             

Dividends paid

     —           (56,074     —          (56,074     (86,805     (142,879

Issuance of share capital by subsidiaries

     —           —          —          —          4,379        4,379   

Equity transaction in consolidated scope – other than issuance of share capital

     —           —          (3,917     (3,917     (1,939     (5,856

Changes in consolidation scope

     —           —          —          —          (5,648     (5,648

Dividends paid (hybrid securities)

     —           —          —          —          (8,182     (8,182

Other

     —           —          —          —          (5     (5
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at June 30, 2014

   4,053,578         33,341,435        13,182,721        50,577,734        1,150,307        51,728,041   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

See accompanying notes to the consolidated interim financial statements.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Cash Flows

For the six-month periods ended June 30, 2014 and 2013

(Unaudited)

 

In millions of won    June 30, 2014     June 30, 2013  

Cash flows from operating activities

    

Profit (loss) for the period

   752,783        (1,424,427
  

 

 

   

 

 

 

Adjustments for:

    

Income tax expense (benefit)

     577,692        (105,730

Depreciation

     3,797,274        3,622,834   

Amortization

     39,229        44,044   

Employee benefit expense

     173,881        186,946   

Bad debt expense

     30,299        15,433   

Interest expense

     1,193,767        1,195,607   

Loss on sale of financial assets

     2        —     

Loss on disposal of property, plant and equipment

     10,141        24,308   

Loss on abandonment of property, plant, and equipment

     127,051        130,807   

Impairment loss on property, plant and equipment

     8,900        1,161   

Impairment loss on intangible assets

     —          2   

Loss on disposal of intangible assets

     17        —     

Accretion expense to provisions, net

     568,534        248,771   

Loss (profit) on foreign currency translation, net

     (401,492     692,571   

Valuation and transaction loss (gain) on derivative instruments, net

     446,877        (503,688

Share in income of associates and joint ventures, net

     (158,030     (75,029

Gain on sale of property, plant and equipment

     (32,508     (22,180

Loss (gain) on sale of investments in associates and joint ventures

     (45,875     1,138   

Impairment loss on investments in associates and joint ventures

     1,558        2,492   

Interest income

     (98,005     (97,198

Dividends income

     (13,547     (9,784

Impairment loss on available-for-sale securities

     41,792        10,673   

Others, net

     (25,522     (19,931
  

 

 

   

 

 

 
     6,242,035        5,343,247   
  

 

 

   

 

 

 

Changes in:

    

Trade receivables

     710,016        1,261,288   

Non-trade receivables

     3,584        68,076   

Accrued income

     (87,989     10,183   

Other receivables

     2,907        2,222   

Other current assets

     20,963        (235,657

Inventories

     (502,572     (669,844

Other non-current assets

     (34,391     (598,573

Trade payables

     (1,118,435     (122,711

Non-trade payables

     281,887        146,255   

Accrued expenses

     84,938        28,729   

Other current liabilities

     849,354        1,288,686   

Other non-current liabilities

     (142,255     193,652   

Investments in associates and joint ventures

     22,378        45,602   

Provisions

     (327,564     (32,543

Payments of employee benefit obligations

     (88,605     (61,195

Plan assets

     (2,311     4,182   
  

 

 

   

 

 

 
     (328,095     1,328,352   
  

 

 

   

 

 

 

Cash generated from operating activities

     6,666,723        5,247,172   
  

 

 

   

 

 

 

 

(Continued)

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Interim Statements of Cash Flows, Continued

For the six-month periods ended June 30, 2014 and 2013

(Unaudited)

 

In millions of won    June 30, 2014     June 30, 2013  

Dividends received

   11,051        78,556   

Interest paid

     (1,227,539     (1,247,030

Interest received

     84,933        8,243   

Income taxes paid (refunded)

     111,027        (367,066
  

 

 

   

 

 

 

Net cash from operating activities

     5,646,195        3,719,875   
  

 

 

   

 

 

 

Cash flows investing activities

    

Proceeds from disposals of associates and joint ventures

     1,915        83   

Acquisition of associates and joint ventures

     (210,911     (121,185

Proceeds from disposals of property, plant and equipment

     35,453        28,277   

Acquisition of property, plant and equipment

     (7,642,027     (7,997,290

Proceeds from disposals of intangible assets

     2        16   

Acquisition of intangible assets

     (30,017     (39,089

Proceeds from disposals of financial assets

     433,673        176,402   

Acquisition of financial assets

     (192,456     (256,285

Increase in loans

     (91,151     (107,119

Collection of loans

     56,190        21,734   

Increase in deposits

     (120,450     (60,866

Decrease in deposits

     115,284        67,092   

Receipt of government grants

     31,021        32,900   

Usage of government grants

     (1,805     (14,879

Net cash outflow from business acquisitions

     —          (2,582

Proceeds from disposal of subsidiaries

     44,523        —     

Other cash outflow from investing activities, net

     (16,958     (117,896
  

 

 

   

 

 

 

Net cash used in investing activities

     (7,587,714     (8,390,687
  

 

 

   

 

 

 

Cash flows from financing activities

    

Proceeds from short-term borrowings, net

     1,218,390        2,432,350   

Proceeds from long-term borrowings and debt securities

     5,176,073        7,312,227   

Repayment of long-term borrowings and debt securities

     (3,876,757     (4,741,108

Payment of finance lease liabilities

     (60,078     (60,897

Settlement of derivative instruments, net

     (316,069     91,220   

Change in non-controlling interest

     (378     59,189   

Dividends paid (hybrid bond)

     (8,182     (10,102

Dividends paid

     (142,879     (41,815

Other cash inflow (outflow) from financing activities, net

     4,886        (1,373
  

 

 

   

 

 

 

Net cash from financing activities

     1,995,006        5,039,691   
  

 

 

   

 

 

 

Net increase in cash and cash equivalents before effect of exchange rate fluctuations

     53,487        368,879   

Effect of exchange rate fluctuations on cash held

     4,506        (3,660
  

 

 

   

 

 

 

Net increase in cash and cash equivalents

     57,993        365,219   

Cash and cash equivalents at January 1

     2,232,313        1,954,949   
  

 

 

   

 

 

 

Cash and cash equivalents at June 30

   2,290,306        2,320,168   
  

 

 

   

 

 

 

See accompanying notes to the consolidated interim financial statements.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements

June 30, 2014

(Unaudited)

 

1. Reporting Entity (Description of the controlling company)

Korea Electric Power Corporation (“KEPCO”), controlling company as defined in Korean International Financial Reporting Standards (“K-IFRS”) 1110 ‘Consolidated Financial Statements’, was incorporated on January 1, 1982 in accordance with the Korea Electric Power Corporation Act (the “KEPCO Act”) to engage in the generation, transmission and distribution of electricity and development of electric power resources in the Republic of Korea. KEPCO also provides power plant construction services. KEPCO’s stock was listed on the Korea Stock Exchange on August 10, 1989 and the Company listed its Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994.

As of June 30, 2014, KEPCO’s share capital amounts to ₩3,209,820 million and KEPCO’s shareholders are as follows:

 

     Number of shares      Percentage of
ownership
 

Government of the Republic of Korea

     135,917,118         21.17

Korea Finance Corporation

     192,159,940         29.94

Foreign investors

     150,612,232         23.46

Other

     163,274,787         25.43
  

 

 

    

 

 

 
     641,964,077         100.00
  

 

 

    

 

 

 

In accordance with the Restructuring Plan enacted on January 21, 1999 by the Ministry of Trade, Industry and Energy (the “MTIE”, formerly the Ministry of Knowledge Economy), KEPCO spun off its power generation divisions on April 2, 2001, resulting in the establishment of six power generation subsidiaries.

 

2. Basis of Preparation

 

(1) Statement of compliance

The consolidated interim financial statements have been prepared in accordance with K-IFRS, as prescribed in the Act on External Audits of Corporations in the Republic of Korea.

These consolidated interim financial statements were prepared in accordance with K-IFRS 1034, ‘Interim Financial Reporting’ as part of the period covered by KEPCO and subsidiaries (the “Company”)’s K-IFRS annual financial statements. The notes are included to explain events and transactions to give the changes in financial position and performance of the Company since the last annual consolidated financial statements as at and for the year ended December 31, 2013.

 

(2) Basis of measurement

The consolidated interim financial statements have been prepared on the historical cost basis, except for the following material items in the consolidated statements of financial position:

 

    derivative financial instruments are measured at fair value

 

    available-for-sale financial assets are measured at fair value

 

    liabilities for defined benefit plans are recognized at the net of the total present value of defined benefit obligations less the fair value of plan assets

 

(3) Functional and presentation currency

These consolidated financial statements are presented in Korean won (“Won”), which are KEPCO’s functional currency and the currency of the primary economic environment in which the Company operates.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

2. Basis of Preparation, Continued

 

(4) Use of estimates and judgments

The preparation of the consolidated financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in any future periods affected.

The following are the key assumptions concerning the future, and other key sources of estimation uncertainty at the end of the reporting period, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

 

  (i) Continued operation of Wolseong #1 nuclear power plant

The Company owns Wolseong #1 nuclear power plant, which started its operation on November 21, 1982, and completed its operation on November 20, 2012, completing the permitted operation period of 30 years. As of June 30, 2014, the Company is in the process of obtaining safety assessments to obtain an approval from the Nuclear Safety and Security Commission to resume the plant’s operation for another term. The Company has prepared the consolidated interim financial statements assuming that the plant will operate for the next 10 years.

 

  (ii) Useful lives of property, plant and equipment, estimations on provision for decommissioning costs

The Company reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. Management’s assumptions could affect the determination of estimated economic useful lives.

The Company records the fair value of estimated decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with the retirement of long-lived assets that result from acquisition, construction, development and/or normal use of the assets. The Company is required to record a liability for the dismantling (demolition) of nuclear power plants and disposal of spent fuel and low and intermediate radioactive wastes.

 

  (iii) Deferred tax

The Company recognizes deferred tax assets and liabilities based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities of each consolidated taxpaying entity. However, the amount of deferred tax assets may be different if the Company does not realize estimated future taxable income during the carry forward periods.

 

  (iv) Valuations of financial instruments at fair values

The Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the financial officer.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS including the level in the fair value hierarchy in which such valuation techniques should be classified.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

2. Basis of Preparation, Continued

 

(4) Use of estimates and judgments, continued

 

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

 

  (v) Defined employee liabilities

The Company offers its employees defined benefit plans. The cost of providing benefits is determined using the Projected Unit Credit Method, with actuarial valuations being carried out at the end of each reporting period. For actuarial valuations, certain inputs such as discount rates and future salary increases are estimated. Defined benefit plans contain significant uncertainties in estimations due to its long-term nature.

 

  (vi) Unbilled revenue

Energy delivered but not yet metered, and the quantities of energy delivered but not yet measured and not billed are calculated at the reporting date based on consumption statistics and selling price estimates. Determination of the unbilled revenues at the end of the reporting period is sensitive to the estimated assumptions and prices based on statistics. Unbilled revenue recognized as of June 30, 2014 and 2013 is ₩1,303,863 million and ₩1,193,718 million, respectively.

 

(5) Changes in accounting policies

The following changes in accounting policies are also expected to be reflected in the Company’s consolidated financial statements as of and for the year ending December 31, 2014.

 

  (i) Amendments to K-IFRS 1032, ‘Financial Instruments: Presentation’

The Company has adopted amendments to K-IFRS 1032, ‘Financial Instruments: Presentation’, since January 1, 2014. The amendments require that a financial assets and a financial liability are offset and the net amount is presented in the statement of financial position when an entity currently has a legally enforceable right to set off the recognized amounts and intends either to settle on a net basis, or to realize the asset and settle the liability simultaneously. According to the amendments, the right to set off should not be contingent on a future event, and legally enforceable in the normal course of business, in the event of default, and in the event of insolvency or bankruptcy of the entity and all of the counterparties. The entity intends to settle on a net basis, if the gross settlement mechanism has features that eliminate or result in insignificant credit and liquidity risk, and that will process receivables and payables in a single settlement process or cycle.

The change had no significant impact on the measurements of Company’s consolidated financial statements.

 

  (ii) K-IFRS 2121, ‘Levies’

The Company has adopted K-IFRS No.2121, ‘Levies’ since January 1, 2014. The interpretation confirms that an entity recognizes a liability for a levy when the triggering event specified in the legislation occurs. An entity does not recognize a liability at an earlier date, even if it has no realistic opportunity to avoid the triggering event. If a levy is only payable once a specified amount has been reached, then no liability is recognized until this ‘minimum threshold’ is reached. The same recognition principles apply in the interim financial statements as in the annual financial statements, even if this results in uneven charges over the course of the year.

The interpretation does not provide guidance on the accounting for the costs arising from recognizing the liability to pay a levy. Other K-IFRSs should be applied to determine whether the recognition of a liability to pay a levy gives rise to an asset or an expense.

The change had no significant impact on the measurements of Company’s consolidated financial statements.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies

Except as describe in note 2, the Company applied the following significant accounting policies consistently for all periods presented.

 

(1) Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities (including special purpose entities) controlled by the Company (or one of its subsidiaries).

Income and expense of a subsidiary acquired or disposed of during the year are included in the consolidated statement of comprehensive income (loss) from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those of the Company.

Transactions between the Company and its subsidiaries are eliminated during the consolidation.

Changes in the Company’s ownership interests in a subsidiary that do not result in the Company losing control over the subsidiary are accounted for as equity transactions. The carrying amounts of the Company’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiary. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company.

When the Company loses control of a subsidiary, the income or loss on disposal is calculated as the difference between (i) the aggregate of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to income or loss or transferred directly to retained earnings). The fair value of any investment retained in the former subsidiary at the date when control is lost is recognized as the fair value on initial recognition for subsequent accounting under K-IFRS 1039, ‘Financial Instruments’: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity.

 

(2) Business combinations

A business combination is accounted for by applying the acquisition method, unless it is a combination involving entities or businesses under common control.

The consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Company, liabilities incurred by the Company to the former owners of the acquiree and the equity interests issued by the Company in exchange for control of the acquiree. Acquisition-related costs are generally recognized in income or loss as incurred.

At the acquisition date, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition date, except that:

 

    deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance with K-IFRS 1012, ‘ Income Taxes’ and K-IFRS 1019, ‘ Employee Benefits’ respectively;

 

    Assets (or disposal groups) that are classified as held for sale in accordance with K-IFRS 1105, ‘Non-current Assets Held for Sale’ are measured in accordance with that standard.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(2) Business combinations, continued

 

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after reassessment, net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the acquirer’s previously held interest in the acquiree (if any), the excess is recognized immediately in income or loss as a bargain purchase gain.

Non-controlling interest that is present on acquisition day and entitles the holder to a proportionate share of the entity’s net assets in an event of liquidation may be initially measured either at fair value or at the non-controlling interest’s proportionate share of the recognized amounts of the acquiree’s identifiable net assets. The choice of measurement can be elected on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value or, when applicable, on the basis specified in other K-IFRS.

When the consideration transferred by the Company in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and included as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with corresponding adjustments against goodwill. Measurement period adjustments are adjustments that arise from additional information obtained during the ‘measurement period’ (which cannot exceed one year from the acquisition date) about facts and circumstances that existed at the acquisition date.

The subsequent accounting for changes in the fair value of the contingent consideration that do not qualify as measurement period adjustments depends on how the contingent consideration is classified. Contingent consideration that is classified as equity is not re-measured at subsequent reporting dates and its subsequent settlement is accounted for within equity. Contingent consideration that is classified as an asset or a liability is re-measured at subsequent reporting dates in accordance with K-IFRS 1039, ‘Financial Instruments: Recognition and Measurement’, or with K-IFRS 1037, ‘Provisions’, Contingent Liabilities and Contingent Assets, as appropriate, with the corresponding gain or loss being recognized in income or loss.

When a business combination is achieved in stages, the Company’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date (i.e. the date when the Company obtains control) and the resulting gain or loss, if any, is recognized in income or loss. Amounts arising from interests in the acquiree prior to the acquisition date that have previously been recognized in other comprehensive income are reclassified to income or loss where such treatment would be appropriate if that interest were disposed of.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, the Company reports provisional amounts for the items for which the accounting is incomplete. Those provisional amounts are adjusted during the measurement period (see above), or additional assets or liabilities are recognized, to reflect new information obtained about facts and circumstances that existed at the acquisition date that, if known, would have affected the amounts recognized at that date.

 

(3) Investments in associates

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. If the investment is classified as held for sale, in which case it is accounted for in accordance with K-IFRS 1105 ‘Non-current Assets Held for Sale’, any retained portion of an investment in associates that has not been classified as held for sale shall be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(3) Investments in associates, continued

 

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee but does not have control or joint control over those policies.

The results and assets and liabilities of associates are incorporated in these consolidated financial statements using the equity method of accounting. If the investment is classified as held for sale, in which case it is accounted for in accordance with K-IFRS 1105, ‘Non-current Assets Held for Sale’, any retained portion of an investment in associates that has not been classified as held for sale shall be accounted for using the equity method until disposal of the portion that is classified as held for sale takes place. If the Company holds 20% ~ 50% of the voting power of the investee, it is presumed that the Company has significant influence.

After the disposal takes place, the Company shall account for any retained interest in associates in accordance with K-IFRS 1039, ‘Financial Instruments: Recognition and Measurement’ unless the retained interest continues to be an associates, in which case the entity uses the equity method.

Under the equity method, an investment in an associate is initially recognized in the consolidated statement of financial position at cost and adjusted thereafter to recognize the Company’s share of the income or loss and other comprehensive income of the associate. When the Company’s share of losses of an associate exceeds the Company’s interest in that associate (which includes any long-term interests that, in substance, form part of the Company’s net investment in the associate), the Company discontinues recognizing its share of further losses. Additional losses are recognized only to the extent that the Company has incurred legal or constructive obligations or made payments on behalf of the associate.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities of an associate recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment. Any excess of the Company’s share of the net fair value of the identifiable assets, liabilities and contingent liabilities over the cost of acquisition, after reassessment, is recognized immediately in income or loss. The requirements of K-IFRS 1039, ’Financial Instruments: Recognition and Measurement’, are applied to determine whether it is necessary to recognize any impairment loss with respect to the Company’s investment in an associate. When necessary, the entire carrying amount of the investment (including goodwill) is tested for impairment in accordance with K-IFRS 1036, ‘Impairment of Assets’ as a single asset by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized in accordance with K-IFRS 1036 to the extent that the recoverable amount of the investment subsequently increases.

Upon disposal of an associate that results in the Company losing significant influence over that associate, any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset in accordance with K-IFRS 1036. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. In addition, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. Therefore, if a gain or loss previously recognized in other comprehensive income by that associate would be reclassified to income or loss on the disposal of the related assets or liabilities, the Company reclassifies the gain or loss from equity to income or loss (as a reclassification adjustment) when it loses significant influence over that associate.

When the Company transacts with its associate, incomes and losses resulting from the transactions with the associate are recognized in the Company’s consolidated financial statements only to the extent of interests in the associate that are not related to the Company.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(4) Joint arrangements

A joint arrangement is an arrangement of which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control. Joint arrangements are classified into two types – joint operations and joint ventures. A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint operators) have rights to the assets, and obligations for the liabilities, relating to the arrangement. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement (i.e. joint venturers) have rights to the net assets of the arrangement.

If the Company is a joint operator, the Company is to recognize and measure the assets and liabilities (and recognize the related revenues and expenses) in relation to its interest in the arrangement in accordance with relevant IFRSs applicable to the particular assets, liabilities, revenues and expenses. If the joint arrangement is a joint venture, the Company is to account for that investment using the equity method accounting in accordance with K-IFRS 1028, ‘Investment in Associates and Joint Ventures’ (see note 3 (3)), except when the Company is applicable to the K-IFRS 1105, ‘Non-current Assets Held for Sale’.

 

(5) Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the non-current asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

When the Company is committed to a sale plan involving loss of control of a subsidiary, all of the assets and liabilities of that subsidiary are classified as held for sale when the criteria described above are met, regardless of whether the Company will retain a non-controlling interest in its former subsidiary after the sale.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their previous carrying amount and fair value less costs to sell.

 

(6) Goodwill

The Company measures goodwill which acquired in a business combination at the amount recognized at the date on which it obtains control of the acquiree (acquisition date) less any accumulated impairment losses. Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired.

The Company assesses at the end of each reporting period whether there is any indication that an asset may be impaired. An impairment loss is recognized if the carrying amount of an asset or a CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss.

Any impairment identified at the CGU level will first reduce the carrying value of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(7) Revenue recognition

Revenue from the sale of goods, rendering of services or use of the Company assets is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates, and are recognized as a reduction of revenue. Revenue is recognized when the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Company.

 

  (i) Sales of goods

The Korean government approves the rates charged to customers by the Company’s power transmission and distribution division. The Company’s utility rates are designed to recover the Company’s reasonable costs plus a fair investment return. The Company’s power generation rates are determined in the market.

The Company recognizes electricity sales revenue based on power sold (transferred to the customer) up to the reporting date. To determine the amount of power sold, the Company estimates daily power volumes of electricity for residential, commercial, general and etc. The differences between the current month’s estimated amount and actual (meter-read) amount, is adjusted for (trued-up) during the next month period.

 

  (ii) Sales of services

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed or services performed to date as a percentage of total services to be performed or the proportion that costs incurred to date bear to the estimated total costs of the transaction or other methods that reliably measures the services performed.

 

  (iii) Dividend income and interest income

Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established, which in the case of quoted securities is the ex-dividend date.

Interest income is recognized as it accrues in profit or loss, using the effective interest method. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

 

  (iv) Rental income

The Company’s policy for recognition of revenue from operating leases is described in note 3 (9) below.

 

  (v) Deferral of revenue – Transfer of Assets from Customers

The Company recovers a substantial amount of the cost related to its electric power distribution facilities from customers through the transfer of assets, while the remaining portion is recovered through electricity sales from such customers in the future. As such, the Company believes there exists a continued service obligation to the customers in accordance with K-IFRS 2118, ‘Transfer of Assets from Customers’ when the Company receives an item of property, equipment, or cash for constructing or acquiring an item of property or equipment, in exchange for supplying electricity to customers. The Company defers the amounts received, which are then recognized as revenue over the estimated service period which does not exceed the transferred asset’s useful life.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(8) Construction service revenue

The Company provides services related to the construction of power plants related to facilities of its customers, mostly in foreign countries.

When the outcome of a construction contract can be estimated reliably, revenue and costs are recognized based on the stage of completion of the contract activity at the end of the reporting period, measured based on the proportion of contract costs incurred for work performed to date relative to the estimated total contract costs, except where this would not be representative of the stage of completion. Variations in contract work, claims and incentive payments are included to the extent that the amount can be measured reliably and its receipt is considered probable.

When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized to the extent of contract costs incurred when it is probable the revenue will be realized. Contract costs are recognized as expenses in the period in which they are incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.

When contract costs incurred to date plus recognized income less recognized losses exceed progress billings, the surplus is shown as amounts due from customers for contract work. For contracts where progress billings exceed contract costs incurred to date plus recognized income less recognized losses, the surplus is shown as the amounts due to customers for contract work. Amounts received before the related work is performed are included in the consolidated statements of financial position, as a liability, as advances received. Amounts billed for work performed but not yet paid by the customer are included in the consolidated statements of financial position as accounts and other receivables.

 

(9) Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

 

  (i) The Company as lessor

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term.

 

  (ii) The Company as lessee

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

Assets held under finance leases are initially recognized as assets of the Company at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement of financial position as a finance lease obligation.

Lease payments are apportioned between finance expenses and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance expenses are recognized immediately in income or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Company’s general policy on borrowing costs. Contingent rentals are recognized as expenses in the periods in which they are incurred.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(9) Leases, continued

 

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rentals arising under operating leases are recognized as an expense in the period in which they are incurred.

In the event that lease incentives are received to enter into operating leases, such incentives are recognized as a liability. The aggregate benefit of incentives is recognized as a reduction of rental expense on a straight-line basis, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed.

 

(10) Foreign currencies

Transactions in foreign currencies are translated to the respective functional currencies of the Company entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated to the functional currency using the reporting date’s exchange rate. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined.

Exchange differences are recognized in profit or loss in the period in which they arise except for:

 

    Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

 

    Exchange differences on transactions entered into in order to hedge certain foreign currency risks; and

 

    Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to income or loss on disposal or partial disposal of the net investment.

For the purpose of presenting financial statements, the assets and liabilities of the Company’s foreign operations are expressed in Korean won using exchange rates prevailing at the end of the reporting period. Income and expense items are translated at the average exchange rates for the period, unless exchange rates fluctuated significantly during that period, in which case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in other comprehensive income and accumulated in equity.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal.

 

(11) Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in income or loss in the period in which they are incurred.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(12) Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grant’s conditions and that the grant will be received.

Benefit from a government loan at a below-market interest rate is treated as a government grant, measured as the difference between proceeds received and the fair value of the loan based on prevailing market interest rates.

 

  (i) If the Company received grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted in calculating the carrying amount of the asset. The grant is recognized in profit or loss over the life of a depreciable asset as a reduced depreciation expense.

 

  (ii) If the Company received grants related to income

Government grants which are intended to compensate the Company for expenses incurred are recognized as other income (government grants) in profit or loss over the periods in which the Company recognizes the related costs as expenses.

 

(13) Employee benefits

 

  (i) Retirement benefits: defined contribution plans

When an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as a liability (accrued expense), after deducting any contribution already paid.

 

  (ii) Retirement benefits: defined benefit plans

For defined benefit pension plans and other post-employment benefits, the net periodic pension expense is actuarially determined by “Pension Actuarial System” developed by independent actuaries using the projected unit credit method.

The asset or liability recognized in the statement of financial position is the present value of the defined benefit obligation at the end of the reporting period less the fair value of plan assets, together with adjustments for unrecognized past service costs. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related pension liability.

All actuarial gains and losses that arise in calculating the present value of the defined benefit obligation and the fair value of plan assets are recognized immediately in retained earnings and included in the statement of comprehensive income.

For the purpose of calculating the expected return on plan assets, the assets are valued at fair value. Actual results will differ from results which are estimated based on assumptions. Past service cost is recognized as an expense at the earlier of the following dates: (a) when the plan amendment or curtailment occurs; (b) when the company recognizes related restructuring costs or termination benefits.

The retirement benefit obligation recognized in the consolidated statement of financial position represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to unrecognized actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(14) Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

 

  (i) Current tax

Current tax is the expected tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit (tax loss) of future periods, and non-taxable or non-deductible items from the accounting profit.

 

  (ii) Deferred tax

Deferred tax is recognized, using the asset-liability method, in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. A deferred tax liability is recognized for all taxable temporary differences. A deferred tax asset is recognized for all deductible temporary differences to the extent that it is probable that taxable profit will be available against which they can be utilized. However, deferred tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets or deferred tax liabilities on investment properties measured at fair value, unless any contrary evidence exists, are measured using the assumption that the carrying amount of the property will be recovered entirely through sale.

The Company recognizes a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint ventures, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. The Company recognizes a deferred tax asset for all deductible temporary differences arising from investments in subsidiaries and associates, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

The carrying amount of a deferred tax asset is reviewed at the end of each reporting period and reduces the carrying amount to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current tax liabilities and assets on a net basis.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(14) Income taxes, continued

 

  (iii) Current and deferred tax for the year

Current and deferred tax are recognized in income or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

 

(15) Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and accumulated impairment losses. The cost of property, plant and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

Subsequent costs are recognized in the carrying amount of property, plant and equipment at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Property, plant and equipment, except for land, are depreciated on a straight-line basis over estimated useful lives that appropriately reflect the pattern in which the asset’s future economic benefits are expected to be consumed. For loaded nuclear fuel related to long-term raw materials and spent nuclear fuels related to asset retirement costs, the Company uses the production method to measure and recognizes as expense the economic benefits of the assets.

The estimated useful lives of the Company’s property, plant and equipment are as follows:

 

     Useful lives (years)

Buildings

   8 ~ 40

Structures

   8 ~ 50

Machinery

   6 ~ 32

Vehicles

   4

Loaded heavy water

   30

Asset retirement costs

   18, 30, 40

Finance lease assets

   20

Ships

   9

Others

   4 ~ 9

A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life. Depreciation methods, useful lives and residual values are reviewed at the end of each reporting date and adjusted, if appropriate.

Property, plant and equipment are derecognized on disposal, or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of a property, plant and equipment, measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in income or loss when the asset is derecognized.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(16) Investment property

Property held for the purpose of earning rentals or benefiting from capital appreciation is classified as investment property. Investment property is initially measured at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

Investment property except for land, are depreciated on a straight-line basis over 8 ~ 40 years as estimated useful lives.

The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

An investment property is derecognized upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in income or loss in the period in which the property is derecognized.

 

(17) Intangible assets

 

  (i) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets with indefinite useful lives that are acquired separately are carried at cost less accumulated impairment losses.

 

  (ii) Research and development

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

An internally-generated intangible asset arising from development (or from the development phase of an internal project) is recognized if, and only if, all of the following have been demonstrated:

 

    The technical feasibility of completing the intangible asset so that it will be available for use or sale;

 

    The intention to complete the intangible asset and use or sell it;

 

    The ability to use or sell the intangible asset;

 

    How the intangible asset will generate probable future economic benefits;

 

    The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

 

    The ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. When the development expenditure does not meet the criteria listed above, an internally-generated intangible asset cannot be recognized and the expenditure is recognized in income or loss in the period in which it is incurred.

Internally-generated intangible assets are reported at cost less accumulated amortization and accumulated impairment losses.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(17) Intangible assets, continued

 

The estimated useful lives and amortization methods of the Company’s intangible assets with finite useful lives are as follows:

 

     Useful lives (years)    Amortization methods

Usage rights for donated assets

   4 ~ 30    Straight

Software

   4, 5    Straight

Industrial rights

   5, 10    Straight

Development expenses

   5    Straight

Dam usage right

   50    Straight

Mining right

   —      Unit of production

Others

   4 ~ 20, 50    Straight

 

  (iii) Intangible assets acquired in a business combination

Intangible assets that are acquired in a business combination are recognized separately from goodwill are initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

 

  (iv) Derecognition of intangible assets

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from its use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset, and are recognized in income or loss when the asset is derecognized.

 

(18) Impairment of non-financial assets other than goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets with definite useful lives to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Where a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to individual cash-generating units, or otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(18) Impairment of non-financial assets other than goodwill, continued

 

If the recoverable amount of an asset (or a cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or the cash-generating unit) is reduced to its recoverable amount. An impairment loss is recognized immediately in income or loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

When an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized immediately in income or loss, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

 

(19) Inventories

Inventories are measured at the lower of cost and net realizable value. Cost of inventories, except for those in transit, are measured under the weighted average method and consists of the purchase price, cost of conversion and other costs incurred in bringing the inventories to their present location and condition.

Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories, arising from an increase in net realizable value, are recognized as a reduction in the amount of inventories recognized as an expense in the period in which the reversal occurs.

 

(20) Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

 

  (i) Provision for employment benefits

The Company determines the provision for employment benefits as the incentive payments based on the results of the individual performance evaluation or management assessment.

 

  (ii) Provision for decommissioning costs of nuclear power plants

The Company records the fair value of estimated decommissioning costs as a liability in the period in which the Company incurs a legal obligation associated with retirement of long-lived assets that result from acquisition, construction, development and/or normal use of the assets. Accretion expense consists of period-to-period changes in the liability for decommissioning costs resulting from the passage of time and revisions to either the timing or the amount of the original estimate of undiscounted cash flows.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(20) Provisions, continued

 

  (iii) Provision for disposal of spent nuclear fuel

Under the Radioactive Waste Management Act, the Company is levied to pay the spent nuclear fuel fund for the management of spent nuclear fuel. The Company recognizes the provision of present value of the payments.

 

  (iv) Provision for low and intermediate radioactive wastes

Under the Radioactive Waste Management Act, the Company recognizes the provision for the disposal of low and intermediate radioactive wastes in best estimate of the expenditure required to settle the present obligation.

 

  (v) Provision for Polychlorinated Biphenyls (“PCB”)

Under the regulation of Persistent Organic Pollutants Management Act, enacted in 2007, the Company is required to remove polychlorinated biphenyls (PCBs), a toxin, from the insulating oil of its transformers by 2025. As a result of the enactments, the Company is required to inspect the PCBs contents of transformers and dispose of PCBs in excess of safety standards under the legally settled procedures. The Company’s estimates and assumptions used to determine fair value can be affected by many factors, such as the estimated costs of inspection and disposal, inflation rate, discount rate, regulations and the general economy.

 

  (vi) Provisions for power plant regional support program

Power plant regional support programs consist of scholarship programs to local students, local economy support programs, local culture support programs, environment development programs, and local welfare programs. The Company recognizes the provision in relation to power plant regional support program.

 

  (vii) Renewable portfolio standard (RPS) provisions

Renewable portfolio standard (RPS) provisions are recognized for the governmental regulations to require the production of energies from renewable energy sources such as solar, wind and biomass.

 

(21) Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity investments, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the statement of financial position when the Company becomes a party to the contractual provisions of the instrument. Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting or settlement date accounting. A regular way purchase or sale is a purchase or sale of a financial asset under a contract whose terms require delivery of the asset within the time frame established generally by regulation or convention in the marketplace concerned.

 

  (i) Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt instrument and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appropriate, a shorter period, to the net carrying amount on initial recognition. Income is recognized on an effective interest basis for debt instruments other than those financial assets classified as financial assets at fair value through profit or loss.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(21) Non-derivative financial assets, continued

 

  (ii) Financial assets at fair value through profit or loss (FVTPL)

A financial asset is classified as financial assets are classified at fair value through profit or loss if it is held for trading or is designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. A financial assets its acquired principally for the purpose of selling it in the near term are classified as a short-term financial assets held for trading and also all the derivatives including an embedded derivate that is not designated and effective as a hedging instrument are classified at the short-term trading financial asset as well. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

A financial asset is classified as held for trading if:

 

    It has been acquired principally for the purpose of selling it in the near term; or

 

    On initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short term profit taking; or

 

    It is derivative, including an embedded derivative that is not designated and effective as a hedging instrument.

A financial asset other than a financial asset held for trading may be designated as at financial assets at fair value through profit or loss upon initial recognition if:

 

    Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

 

    The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its’ performance is evaluated on a fair value basis in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

 

    It forms a part of a contract containing one or more embedded derivatives, and with K-IFRS 1039, Financial Instruments; Recognition and Measurement permits the entire combined contract (asset or liability) to be designated as at financial assets at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on re-measurement recognized in income or loss. The net gain or loss recognized in income or loss incorporates any dividend or interest earned on the financial asset and is included in the ‘finance income and finance expenses’ line item in the consolidated statement of comprehensive income.

 

  (iii) Held-to-maturity investments

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, are classified as held-to-maturity investments. Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(21) Non-derivative financial assets, continued

 

For financial assets recorded at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in income or loss.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to income or loss in the period.

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through income or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

In respect of available-for-sale equity securities, impairment losses previously recognized in income or loss are not reversed through income or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, impairment losses are subsequently reversed through income or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

 

  (iv) De-recognition of financial assets

The Company derecognizes a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Company is recognized as a separate asset or liability. If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

On de-recognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in income or loss.

On de-recognition of a financial asset other than in its entirety (e.g. when the Company retains an option to repurchase part of a transferred asset), the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in income or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(22) Non-derivative financial liabilities and equity instruments issued by the Company

 

  (i) Classification as debt or equity

Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangement.

 

  (ii) Equity instruments

An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in income or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

 

  (iii) Financial liabilities

Financial liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments. Financial liabilities are initially measured at fair value. Transaction cost that are directly attributable to the issue of financial liabilities are added to or deducted from the fair value of the financial liabilities, as appropriate, on initial recognition. Transaction cost directly attributable to acquisition of financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities.

 

  (iv) Financial liabilities at fair value through profit or loss (FVTPL)

Financial liabilities are classified as at financial liabilities at fair value through profit or loss when the financial liability is either held for trading or it is designated as financial liabilities at fair value through profit or loss.

A financial liability is classified as held for trading if:

 

    It has been acquired principally for the purpose of repurchasing it in the near term; or

 

    On initial recognition it is part of a portfolio of identified financial instruments that the Company manages together and has a recent actual pattern of short-term profit-taking; or

 

    It is a derivative that is not designated and effective as a hedging instrument.

A financial liability other than a financial liability held for trading may be designated as at FVTPL upon initial recognition if:

 

    Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

 

    The financial liability forms part of a Company of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

 

    It forms part of a contract containing one or more embedded derivatives, and K-IFRS 1039, ‘Financial Instruments: Recognition and Measurement’, permits the entire combined contract (asset or liability) to be designated as at FVTPL.

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on re-measurement recognized in income or loss. The net gain or loss recognized in income or loss incorporates any interest paid on the financial liability and is included in ‘finance income and finance expenses’.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(22) Non-derivative financial liabilities and equity instruments issued by the Company, continued

 

  (v) Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs.

Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition.

 

  (vi) Financial guarantee contract liabilities

Financial guarantee contract liabilities are initially measured at their fair values and, if not designated as at FVTPL, are subsequently measured at the higher of: (a) the amount of the obligation under the contract, as determined in accordance with K-IFRS 1037, ‘Provisions’, Contingent Liabilities and Contingent Assets; or (b) the amount initially recognized less, cumulative amortization recognized in accordance with K-IFRS 1018, ‘Revenue’.

 

  (vii) De-recognition of financial liabilities

The Company derecognizes financial liabilities when, and only when, the Company’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in income or loss.

 

(23) Derivative financial instruments, including hedge accounting

The Company enters into a variety of derivative financial instruments to manage its exposure to interest rate and foreign exchange rate risk, including foreign exchange forward contracts, interest rate swaps and cross currency swaps and others.

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value.

The resulting gain or loss is recognized in income or loss immediately unless the derivative is designated and effective as a hedging instrument, in such case the timing of the recognition in income or loss depends on the nature of the hedge relationship.

A derivative with a positive fair value is recognized as a financial asset; a derivative with a negative fair value is recognized as a financial liability. A derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the instrument is more than 12 months and it is not expected to be realized or settled within 12 months. Other derivatives are presented as current assets or current liabilities.

 

  (i) Separable embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the host contracts and when the host contracts are not measured at FVTPL.

An embedded derivative is presented as a non-current asset or a non-current liability if the remaining maturity of the hybrid instrument to which the embedded derivative is part of, is more than 12 months and it is not expected to be realized or settled within 12 months. All other embedded derivatives are presented as current assets or current liabilities.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

3. Significant Accounting Policies, Continued

 

(23) Derivative financial instruments, including hedge accounting, continued

 

  (ii) Hedge accounting

The Company designates certain hedging instruments, which include derivatives, embedded derivatives and non-derivatives in respect of foreign currency risk, as either fair value hedges or cash flow hedges. Hedges of foreign exchange risk on firm commitments are accounted for as cash flow hedges.

At the inception of the hedge relationship, the entity documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is highly effective in offsetting changes in fair values or cash flows of the hedged item.

 

  (iii) Fair value hedges

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recognized in income or loss immediately, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. The changes in the fair value of the hedging instrument and the change in the hedged item attributable to the hedged risk relating to the hedged items are recognized in the consolidated statements of comprehensive income.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or when it no longer qualifies for hedge accounting. The fair value adjustment to the carrying amount of the hedged item arising from the hedged risk is amortized as income or loss as of that date.

 

  (iv) Cash flow hedges

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in other comprehensive income and accumulated under the heading of reverse for gains (loss) on valuation of derivatives. The gain or loss relating to the ineffective portion is recognized immediately in income or loss, and is included in the ‘finance income and expense’.

Amounts previously recognized in other comprehensive income and accumulated in equity are reclassified to income or loss in the periods when the hedged item is recognized in income or loss, in the same line of the consolidated statement of comprehensive income as the recognized hedged item. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset or a non-financial liability, the gains and losses previously accumulated in equity are transferred from equity and included in the initial measurement of the cost of the non-financial asset or non-financial liability.

Hedge accounting is discontinued when the Company revokes the hedging relationship, when the hedging instrument expires or is sold, terminated, or exercised, or it no longer qualifies for hedge accounting. Any gain or loss accumulated in equity at that time remains in equity and is recognized when the forecast transaction is ultimately recognized in income or loss. When a forecast transaction is no longer expected to occur, the gain or loss accumulated in equity is recognized immediately in income or loss.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

4. Segment, Geographic and Other Information

 

(1) Assets, liabilities, revenue and expenses

The Company’s operating segments are its business components that generates discrete financial information that is reported to and regularly revised by the Company’s the chief operating decision maker, the Chief Executive Officer, for the purpose of resource allocation and assessment of segment performance. The Company’s reportable segments, in accordance with K-IFRS 1108, are ‘Transmission and distribution’, ‘Electric power generation (Nuclear)’, ‘Electric power generation (Non-nuclear)’, ‘Plant maintenance & engineering service’ and ‘Others’; others mainly represent the business unit that manages the Company’s foreign operations.

Segment operating profit (loss) is determined the same way that consolidated operating profit is determined under K-IFRS 1108 without any adjustment for corporate allocations. The accounting policies used by each segment are consistent with the accounting policies used in the preparation of the consolidated financial statements. Segment assets and liabilities are determined based on separate financial statements of the entities instead of on a consolidated basis. There are various transactions between the reportable segments, including sales of property, plant and equipment and so on, that are conducted on an arms-length basis at market prices that would be applicable to an independent third-party. For subsidiaries which are in a different segment from that of its immediate parent company, their carrying amount in separate financial statements is eliminated in the consolidating adjustments in the tables below. In addition, consolidation adjustments in the table below include adjustments of the amount of investment in associates and joint ventures from the cost basis amount reflected in segment assets to that determined using an equity method basis in the consolidated financial statements.

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

4. Segment, Geographic and Other Information, Continued

 

(2) Financial information of the segments for the three and six-month periods ended June 30, 2014 and 2013 respectively are as follows:

 

In millions of won  

June 30, 2014

 
    Total
segment revenue
    Intersegment revenue     Revenue from external
customers
    Depreciation and
amortization
    Interest income     Interest expense     Income (loss) of associates
and joint ventures
    Operating income (loss)  

Segment

  Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period

ended
    Six-
month
period

ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
 

Transmission and distribution

  12,910,804        27,591,865        367,866        653,818        12,542,938        26,938,047        672,748        1,344,667        6,128        13,093        367,594        727,483        47,295        154,351        (186,677     (453,644

Electric power generation (Nuclear)

    2,348,101        4,796,222        2,346,772        4,792,235        1,329        3,987        726,898        1,430,109        8,005        11,957        145,511        291,308        —          740        644,341        1,593,310   

Electric power generation (Non-nuclear)

    5,625,770        13,054,438        5,559,204        12,860,962        66,566        193,476        513,202        1,030,271        8,395        16,545        65,968        140,881        46,107        49,679        307,609        821,981   

Plant maintenance & engineering service

    647,547        1,202,026        467,514        870,558        180,033        331,468        17,141        34,907        3,697        8,699        (35     108        (1,222     (2,423     90,757        148,415   

Others

    127,435        249,635        29,002        54,667        98,433        194,968        6,856        13,513        28,258        55,154        21,852        40,420        —          —          31,116        62,223   

Consolidation adjustments

    (8,770,358     (19,232,240     (8,770,358     (19,232,240     —          —          (8,466     (16,964     (4,673     (7,443     (4,169     (6,433     —          —          (57,906     (115,968
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  12,889,299        27,661,946        —          —          12,889,299        27,661,946        1,928,379        3,836,503        49,810        98,005        596,721        1,193,767        92,180        202,347        829,240        2,056,317   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income

                                74,958        145,681   

Other expenses

                                (14,298     (37,357

Other gains (losses), net

                                49,395        90,477   

Finance income

                                681,344        655,948   

Finance costs

                                (1,284,271     (1,782,938
                             

 

 

   

 

 

 

Equity method Income of associates joint ventures

                                92,180        202,347   
                             

 

 

   

 

 

 

Income before income tax

                              428,548        1,330,475   
                             

 

 

   

 

 

 

 

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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

4. Segment, Geographic and Other Information, Continued

 

(2) Financial information of the segments for the three and six-month periods ended June 30, 2014 and 2013 are as follows, continued:

 

In millions of won  

June 30, 2013

 
    Total
segment revenue
    Intersegment revenue     Revenue from external
customers
    Depreciation and
amortization
    Interest income     Interest expense     Income (loss) of associates
and joint ventures
    Operating profit (loss)  

Segment

  Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period

ended
    Six-
month
period

ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
 

Transmission and distribution

  11,700,705        25,333,679        272,139        479,509        11,428,566        24,854,170        658,816        1,312,764        7,964        15,948        380,535        766,983        1,261        81,926        (1,570,842     (2,049,783

Electric power generation (Nuclear)

    1,766,337        3,778,054        1,766,337        3,749,941        —          28,113        686,693        1,381,156        4,170        9,682        139,288        278,779        —          —          147,703        701,635   

Electric power generation (Non-nuclear)

    6,933,283        14,563,991        6,862,717        14,336,749        70,566        227,242        473,141        946,091        19,122        31,078        70,549        131,925        (2,640     (11,237     259,892        853,309   

Plant maintenance & engineering service

    640,503        1,153,959        539,932        932,492        100,571        221,467        18,380        37,247        4,565        12,955        35        71        1,545        718        80,830        125,652   

Others

    86,141        155,457        9,580        11,087        76,561        144,370        2,817        4,841        17,759        37,259        13,752        25,105        —          —          24,610        46,515   

Consolidation adjustments

    (9,450,705     (19,509,778     (9,450,705     (19,509,778     —          —          (7,796     (15,221     (7,044     (9,724     (3,834     (7,256     —          —          (36,340     (113,706
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 
  11,676,264        25,475,362        —          —          11,676,264        25,475,362        1,832,051        3,666,878        46,536        97,198        600,325        1,195,607        166        71,407        (1,094,147     (436,378
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Other income

                                88,596        176,655   

Other expenses

                                (8,933     (26,146

Other gains, net

                                6,645        39,528   

Finance income

                                293,295        728,144   

Finance expenses

                                (1,023,824     (2,083,367
                             

 

 

   

 

 

 

Equity method income of associates joint ventures

                                166        71,407   
                             

 

 

   

 

 

 

Loss before income tax

                              (1,738,202     (1,530,157
                             

 

 

   

 

 

 

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

4. Segment, Geographic and Other Information, Continued

 

(3) Information related to segment assets and segment liabilities as of and for the six-month period ended June 30, 2014 and as of and for the year ended December 31, 2013 are as follows:

 

In millions of won       

June 30, 2014

 

Segment

   Segment assets     Investments in
associates and
joint ventures
     Acquisition of
non-current
assets
    Segment liabilities  

Transmission and distribution

   98,632,821        3,972,857         2,732,516        57,620,943   

Electric power generation (Nuclear)

     47,801,732        1,652         1,124,722        26,592,186   

Electric power generation (Non-nuclear)

     38,937,320        1,373,198         3,674,438        21,890,823   

Plant maintenance & engineering service

     2,621,605        55,277         119,021        1,094,505   

Others

     5,537,359        —           90,393        1,939,567   

Consolidation adjustments

     (34,659,324     —           (69,046     (1,994,552
  

 

 

   

 

 

    

 

 

   

 

 

 

Consolidated totals

   158,871,513        5,402,984         7,672,044        107,143,472   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

In millions of won       

December 31, 2013

 

Segment

   Segment assets     Investments in
associates and
joint ventures
     Acquisition of
non-current
assets
    Segment liabilities  

Transmission and distribution

   98,249,927        3,895,266         4,458,291        56,590,381   

Electric power generation (Nuclear)

     46,717,706        908         2,412,782        26,482,646   

Electric power generation (Non-nuclear)

     36,455,090        1,275,330         6,882,630        19,832,122   

Plant maintenance & engineering service

     2,463,204        59,251         222,547        932,485   

Others

     5,617,304        —           429,626        2,008,541   

Consolidation adjustments

     (33,975,897     —           (75,237     (1,769,577
  

 

 

   

 

 

    

 

 

   

 

 

 

Consolidated totals

   155,527,334        5,230,755         14,330,639        104,076,598   
  

 

 

   

 

 

    

 

 

   

 

 

 

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

4. Segment Information, Continued

 

(4) Geographic information

The following information on revenue from external customers and non-current assets is determined by the location of the customers and of the assets:

 

In millions of won              

Geographical unit

   Revenue from external customers      Non-current assets (*2)  
   June 30, 2014      June 30, 2013      June 30,
2014
     December 31,
2013
 
   Three-
month
period
ended
     Six-
month
period

ended
     Three-
month
period

ended
     Six-
month
period

ended
       

Domestic

   11,970,221         26,134,851         11,064,912         24,394,080         136,377,338         131,876,535   

Overseas (*1)

     919,078         1,527,095         611,352         1,081,282         4,556,182         4,474,900   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   12,889,299         27,661,946         11,676,264         25,475,362         140,933,520         136,351,435   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(*1) Middle East and other Asian countries make up the majority of overseas revenue and non-current assets.
(*2) Amount excludes financial assets and deferred tax assets.

 

(5) Information on key clients

There is no individual client comprising more than 10% of the Company’s revenue for the six-month periods ended June 30, 2014 and 2013.

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

5. Classification of Financial Instruments

 

(1) Classification of financial assets as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    June 30, 2014  
     Financial
assets at fair
value through
profit or loss
     Loans and
receivables
     Available-
for-sale
financial
assets
     Held-to-
maturity
investments
     Derivative
assets
(using
hedge
accounting)
     Total  

Current assets:

                 

Cash and cash equivalents

   —           2,290,306         —           —           —           2,290,306   

Current financial assets

                 

Held-to-maturity investments

     —           —           —           206         —           206   

Derivative assets

     932         —           —           —           —           932   

Other financial assets

     —           205,363         —           —           —           205,363   

Trade and other receivables

     —           6,727,226         —           —           —           6,727,226   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     932         9,222,895         —           206         —           9,224,033   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets:

                 

Non-current financial assets

                 

Available-for-sale financial assets

     —           —           1,148,915         —           —           1,148,915   

Held-to-maturity investments

     —           —           —           3,426         —           3,426   

Derivative assets

     1,047         —           —           —           29,037         30,084   

Other financial assets

     —           556,249         —           —           —           556,249   

Trade and other receivables

     —           1,556,768         —           —           —           1,556,768   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,047         2,113,017         1,148,915         3,426         29,037         3,295,442   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   1,979         11,335,912         1,148,915         3,632         29,037         12,519,475   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

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Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

5. Classification of Financial Instruments, Continued

 

(1) Classification of financial assets as of June 30, 2014 and December 31, 2013 are as follows, continued:

 

In millions of won    December 31, 2013  
     Financial
assets at fair
value through
profit or loss
     Loans and
receivables
     Available-
for-sale
financial
assets
     Held-to-
maturity
investments
     Derivative
assets
(using
hedge
accounting)
     Total  

Current assets

                 

Cash and cash equivalents

   —           2,232,313         —           —           —           2,232,313   

Current financial assets

                 

Held-to-maturity investments

     —           —           —           168         —           168   

Derivative assets

     1,437         —           —           —           —           1,437   

Other financial assets

     —           434,608         —           —           —           434,608   

Trade and other receivables

     —           7,526,311         —           —           —           7,526,311   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     1,437         10,193,232         —           168         —           10,194,837   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Non-current assets

                 

Non-current financial assets

                 

Available-for-sale financial assets

     —           —           1,256,765         —           —           1,256,765   

Held-to-maturity investments

     —           —           —           2,117         —           2,117   

Derivative assets

     2,681         —           —           —           82,376         85,057   

Other financial assets

     —           559,013         —           —           —           559,013   

Trade and other receivables

     —           1,644,333         —           —           —           1,644,333   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
     2,681         2,203,346         1,256,765         2,117         82,376         3,547,285   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 
   4,118         12,396,578         1,256,765         2,285         82,376         13,742,122   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

38


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KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

5. Classification of Financial Instruments, Continued

 

(2) Classification of financial liabilities as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    June 30, 2014  
     Financial liabilities at
fair value through
profit or loss
     Financial liabilities
recognized at

amortized cost
     Derivative liabilities
(using hedge
accounting)
     Total  

Current liabilities:

           

Borrowings

   —           2,636,801         —           2,636,801   

Debt securities

     —           5,811,606         —           5,811,606   

Derivative liabilities

     90,899         —           53,351         144,250   

Trade and other payables

     —           5,051,859         —           5,051,859   
  

 

 

    

 

 

    

 

 

    

 

 

 
     90,899         13,500,266         53,351         13,644,516   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current liabilities:

           

Borrowings

     —           4,293,306         —           4,293,306   

Debt securities

     —           50,193,598         —           50,193,598   

Derivative liabilities

     337,721         —           338,067         675,788   

Trade and other payables

     —           3,994,512         —           3,994,512   
  

 

 

    

 

 

    

 

 

    

 

 

 
     337,721         58,481,416         338,067         59,157,204   
  

 

 

    

 

 

    

 

 

    

 

 

 
   428,620         71,982,682         391,418         72,801,720   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

In millions of won    December 31, 2013  
     Financial liabilities at
fair value through
profit or loss
     Financial liabilities
recognized at

amortized cost
     Derivative liabilities
(using hedge
accounting)
     Total  

Current liabilities

           

Borrowings

   —           1,470,862         —           1,470,862   

Debt securities

     —           6,616,636         —           6,616,636   

Derivative liabilities

     304,699         —           33,034         337,733   

Trade and other payables

     —           5,892,763         —           5,892,763   
  

 

 

    

 

 

    

 

 

    

 

 

 
     304,699         13,980,261         33,034         14,317,994   
  

 

 

    

 

 

    

 

 

    

 

 

 

Non-current liabilities

           

Borrowings

     —           4,538,390         —           4,538,390   

Debt securities

     —           48,262,262         —           48,262,262   

Derivative liabilities

     186,336         —           176,406         362,742   

Trade and other payables

     —           3,971,519         —           3,971,519   
  

 

 

    

 

 

    

 

 

    

 

 

 
     186,336         56,772,171         176,406         57,134,913   
  

 

 

    

 

 

    

 

 

    

 

 

 
   491,035         70,752,432         209,440         71,452,907   
  

 

 

    

 

 

    

 

 

    

 

 

 

 

39


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

5. Classification of Financial Instruments, Continued

 

(3) Classification of comprehensive income (loss) from financial instruments for the three and six-month periods ended June 30, 2014 and 2013 are as follows:

 

In millions of won         June 30, 2014     June 30, 2013  
          Three-
month
period

ended
    Six-
month
period
ended
    Three-
month
period
ended
    Six-
month
period
ended
 

Cash and cash equivalents

  

Interest income

   14,600        26,835        16,264        32,154   

Available-for-sale financial assets

  

Dividends income

     1,022        13,547        423        9,784   
  

Impairment loss on available-for-sale financial assets

     (41,792     (41,792     —          —     
  

Loss on disposal of financial assets

     —          (2     —          —     
  

Interest income

     110        218        283        810   

Held-to-maturity investments

  

Interest income

     21        38        16        31   

Loans and receivables

  

Interest income

     8,981        16,929        7,966        20,657   

Trade and other receivables

  

Interest income

     24,875        50,646        18,909        34,321   

Other financial assets

  

Interest income

     —          —          526        533   

Short-term financial instruments

  

Interest income

     1,142        3,148        2,567        8,682   

Long-term financial instruments

  

Interest income

     81        191        5        10   

Financial assets at fair value through profit or loss

  

Gain (loss) on valuation of derivatives

     (14,141     (4,762     87,404        130,636   
  

Gain on transaction of derivatives

     42,762        33,199        5,222        12,656   

Derivative assets (using hedge accounting)

  

Gain (loss) on valuation of derivatives (profit or loss)

     (107,359     (71,451     13,054        92,776   
  

Loss on valuation of derivatives (equity, before tax) (*)

     (16,813     (22,545     (23,427     (29,834
  

Gain (loss) on transaction of derivatives

     —          (1,584     —          5,220   

Financial liabilities carried at amortized cost

  

Interest expense of borrowings and debt securities

     (426,175     (853,722     (432,537     (860,872
  

Interest expense of trade and other payables

     (24,764     (47,140     (26,187     (52,410
  

Interest expense of others

     (145,782     (292,905     (141,600     (282,325
  

Gain (loss) on foreign currency transactions and translations

     590,587        445,196        (375,466     (784,132

Financial liabilities at fair value through profit or loss

  

Gain (loss) on valuation of derivatives

     (267,921     (199,082     (14,521     101,542   
  

Gain (loss) on transaction of derivatives

     (103,335     (74,740     14,467        14,598   

Derivative liabilities (using hedge accounting)

  

Gain (loss) on valuation of derivatives (profit or loss)

     (151,029     (121,509     67,638        117,618   
  

Loss on valuation of derivatives (equity, before tax)(*)

     (37,717     (31,027     (40,727     (37,065
  

Gain (loss) on transaction of derivatives

     (1,636     (6,948     26,627        28,642   

 

(*) Items are included in other comprehensive income. All other income and gain amounts listed above are included in finance income, and all expense and loss amounts listed above are included in finance expenses in the accompanying consolidated statements of comprehensive income.

 

40


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

6. Restricted Deposits

Restricted deposits as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won         June 30, 2014      December 31, 2013  

Cash and cash equivalents

  

Escrow accounts

   129         61,873   
  

Deposits for government project

     12,610         17,807   
  

Collateral provided for lawsuit

     189         —     
  

Collateral for borrowings

     14,540         —     

Short-term financial instruments

  

Restriction on withdrawal related to win-win growth program for small and medium enterprises

     5,000         —     

Long-term financial instruments

  

Guarantee deposits for checking account

     5         5   
  

Guarantee deposits for banking accounts at oversea branches

     289         300   
  

Collateral provided for lawsuit

     331         330   
     

 

 

    

 

 

 
      33,093         80,315   
     

 

 

    

 

 

 

 

7. Cash and Cash Equivalents

Cash and cash equivalents as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    June 30, 2014      December 31, 2013  

Cash

   64         56   

Cash equivalents

     1,305,443         1,141,202   

Short-term deposits classified as cash equivalents

     738,925         1,073,789   

Short-term investments classified as cash equivalents

     245,874         17,266   
  

 

 

    

 

 

 
   2,290,306         2,232,313   
  

 

 

    

 

 

 

 

8. Trade and Other Receivables

 

(1) Trade and other receivables as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    June 30, 2014  
     Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 

Current assets

         

Trade receivables

   6,367,153         (70,624     (51     6,296,478   

Other receivables

     474,607         (41,702     (2,157     430,748   
  

 

 

    

 

 

   

 

 

   

 

 

 
     6,841,760         (112,326     (2,208     6,727,226   
  

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

         

Trade receivables

     393,009         —          —          393,009   

Other receivables

     1,215,616         (44,977     (6,880     1,163,759   
  

 

 

    

 

 

   

 

 

   

 

 

 
     1,608,625         (44,977     (6,880     1,556,768   
  

 

 

    

 

 

   

 

 

   

 

 

 
   8,450,385         (157,303     (9,088     8,283,994   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

41


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

8. Trade and Other Receivables, Continued

 

(1) Trade and other receivables as of June 30, 2014 and December 31, 2013 are as follows, continued

 

In millions of won    December 31, 2013  
     Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 

Current assets

         

Trade receivables

   7,076,303         (65,024     (136     7,011,143   

Other receivables

     559,958         (42,729     (2,061     515,168   
  

 

 

    

 

 

   

 

 

   

 

 

 
     7,636,261         (107,753     (2,197     7,526,311   
  

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

         

Trade receivables

     421,949         —          (8     421,941   

Other receivables

     1,255,724         (27,158     (6,174     1,222,392   
  

 

 

    

 

 

   

 

 

   

 

 

 
     1,677,673         (27,158     (6,182     1,644,333   
  

 

 

    

 

 

   

 

 

   

 

 

 
   9,313,934         (134,911     (8,379     9,170,644   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

(2) Other receivables as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    June 30, 2014  
     Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 

Current assets

         

Non-trade receivables

   129,934         (41,702     —          88,232   

Accrued income

     87,895         —          —          87,895   

Deposits

     170,324         —          (2,157     168,167   

Finance lease receivables

     5,627         —          —          5,627   

Others

     80,827         —          —          80,827   
  

 

 

    

 

 

   

 

 

   

 

 

 
     474,607         (41,702     (2,157     430,748   
  

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

         

Non-trade receivables

     89,850         (19,606     —          70,244   

Accrued income

     8,245         —          —          8,245   

Deposits

     239,454         —          (6,880     232,574   

Finance lease receivables

     808,104         —          —          808,104   

Others

     69,963         (25,371     —          44,592   
  

 

 

    

 

 

   

 

 

   

 

 

 
     1,215,616         (44,977     (6,880     1,163,759   
  

 

 

    

 

 

   

 

 

   

 

 

 
   1,690,223         (86,679     (9,037     1,594,507   
  

 

 

    

 

 

   

 

 

   

 

 

 

 

42


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

8. Trade and Other receivables, Continued

 

(2) Other receivables as of June 30, 2014 and December 31, 2013 are as follows, continued:

 

In millions of won    December 31, 2013  
     Gross
amount
     Allowance for
doubtful accounts
    Present value
discount
    Book
value
 

Current assets

         

Non-trade receivables

   233,714         (42,729     —          190,985   

Accrued income

     47,310         —          —          47,310   

Deposits

     162,730         —          (2,061     160,669   

Finance lease receivables

     4,569         —          —          4,569   

Others

     111,635         —          —          111,635   
  

 

 

    

 

 

   

 

 

   

 

 

 
     559,958         (42,729     (2,061     515,168   
  

 

 

    

 

 

   

 

 

   

 

 

 

Non-current assets

         

Non-trade receivables

     102,254         (8,608     —          93,646   

Accrued income

     7,052         —          —          7,052   

Deposits

     230,083         —          (6,174     223,909   

Finance lease receivables

     845,712         —          —          845,712   

Others

     70,623         (18,550     —          52,073   
  

 

 

    

 

 

   

 

 

   

 

 

 
     1,255,724         (27,158     (6,174     1,222,392   
  

 

 

    

 

 

   

 

 

   

 

 

 
   1,815,682         (69,887     (8,235     1,737,560   
  

 

 

    

 

 

   

 

 

   

 

 

 

Trade and other receivables are classified as loans and receivables, and are measured using the effective interest method. No interest is accrued for trade receivables for the duration between the billing date and the payment due dates. Once trade receivables are overdue, the Company imposes a 2.0% interest rate on the overdue trade receivables. The Company holds deposits of six months’ expected electricity usage for customers requesting temporary usage and customers with past defaulted payments.

 

43


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

8. Trade and Other Receivables, Continued

 

(3) Aging analysis of trade receivables as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    June 30, 2014     December 31, 2013  

Trade receivables: (not overdue, not impaired)

   6,569,014        7,350,705   
  

 

 

   

 

 

 

Trade receivables: (overdue, not impaired)

     968        292   
  

 

 

   

 

 

 

Less than 60 days

     968        292   
  

 

 

   

 

 

 

Trade receivables: (impairment reviewed)

     190,180        147,255   

60 ~ 90 days

     44,024        36,707   

90 ~ 120 days

     26,143        18,214   

120 days ~ 1 year

     76,470        38,066   

Over 1 year

     43,543        54,268   
  

 

 

   

 

 

 
     6,760,162        7,498,252   
  

 

 

   

 

 

 

Less allowance for doubtful accounts

     (70,624     (65,024

Less present value discount

     (51     (144
  

 

 

   

 

 

 
   6,689,487        7,433,084   
  

 

 

   

 

 

 

The Company assesses at the end of each reporting period whether there is any objective evidence that trade receivables are impaired, and provides allowances for doubtful accounts which includes impairment for trade receivables that are individually significant.

The Company considers receivables as overdue if the receivables are outstanding 60 days after the maturity and sets allowance based on past experience of collection.

 

(4) Aging analysis of other receivables as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    June 30, 2014     December 31, 2013  

Other receivables: (not overdue, not impaired)

   1,518,838        1,667,837   
  

 

 

   

 

 

 

Other receivables: (overdue, not impaired)

     34,690        24,878   
  

 

 

   

 

 

 

Less than 60 days

     34,690        24,878   
  

 

 

   

 

 

 

Other receivables: (impairment reviewed)

     136,695        122,967   

60 ~ 90 days

     2,265        17,507   

90 ~ 120 days

     2,445        1,880   

120 days ~ 1 year

     19,383        23,996   

Over 1 year

     112,602        79,584   
  

 

 

   

 

 

 
     1,690,223        1,815,682   
  

 

 

   

 

 

 

Less allowance for doubtful accounts

     (86,679     (69,887

Less present value discount

     (9,037     (8,235
  

 

 

   

 

 

 
   1,594,507        1,737,560   
  

 

 

   

 

 

 

 

44


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

8. Trade and Other receivables, Continued

 

(5) Changes in allowance for doubtful accounts for the six-month period ended June 30, 2014 and for the year ended December 31, 2013 are as follows:

 

In millions of won    June 30, 2014     December 31, 2013  
     Trade receivables     Other receivables     Trade receivables     Other receivables  

Beginning balance

   65,024        69,887        47,312        225,078   

Bad debt expense

     12,628        17,671        40,446        8,665   

Write-off

     (6,829     (7,392     (22,734     (4,227

Reversal

     —          (14     —          —     

Others (*)

     (199     6,527        —          (159,629
  

 

 

   

 

 

   

 

 

   

 

 

 

Ending balance

   70,624        86,679        65,024        69,887   
  

 

 

   

 

 

   

 

 

   

 

 

 

 

(*) The amounts in 2014 and 2013 represented allowance against loans to equity method investments which were reversed when the loans were converted to investment in associates during 2013.

 

45


Table of Contents

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Interim Financial Statements, Continued

June 30, 2014

(Unaudited)

 

9. Available-for-sale Financial Assets

Available-for-sale financial assets as of June 30, 2014 and December 31, 2013 are as follows:

 

In millions of won    Ownership     June 30, 2014      December 31, 2013  

Equity securities

       

Listed

       

Kwanglim Co., Ltd. (*2)

     0.44   153         150   

Sungjee Construction Co., Ltd. (*2)

     0.01     7         7   

Korea District Heating Corp. (*1)

     19.55     149,428         194,710   

Ssangyong Motor Co., Ltd. (*2)

     0.03     337         291   

LG Uplus Corporation

     8.80     354,134         412,901   

Fission Uranium Corp. (formerly named Fission)

     0.52     875         848   

Denison Mines Corp.

     12.62     74,843         74,498   

Energy Fuels INC

     9.06     13,107         10,307   

PT Adaro Energy Tbk (*1)

     1.50     47,884         45,204   

Cockatoo Coal Limited (*3)

     1.20     1,592         1,875   

Fission 3.0

     0.52     72         —     

Namkwang Engineering & Construction Co., Ltd

     0.01     7         5   

Pumyang Construction Co., Ltd.

     0.00     2         3   

Korea Line Corp.

     0.00     —           —     

ELCOMTEC Co., Ltd.

     0.05     107         —     

PAN ocean Co., Ltd.

     0.00     5         —     
    

 

 

    

 

 

 
       642,553         740,799   
    

 

 

    

 

 

 

Unlisted

       

Byucksan Engineering & Construction Co., Ltd (*1)

     0.00     —           1   

Dongyang Engineering & Construction Corp. (*1)

     0.00     —           5   

Construction Guarantee

     0.02     787         790   

Global Dynasty Overseas Resource Development Private Equity Firm

     7.46     1,681         1,517   

Plant & Mechanical Contractors Financial Cooperative of Korea

     0.01     36         36   

Dongnam Co., Ltd.

     0.46     72         72   

Mobo Co., Ltd.

     0.00     14         14   

Fire Guarantee

     0.02     20         20   

Korea Software Financial Cooperative

     0.18     301         301   

Woobang ENC Co., Ltd.

     0.00     22         22   

Women’s Venture Fund

     10.00     780         780   

Engineering Financial Cooperative

     0.11     60         60   

Intellectual Discovery, Ltd.

     9.13     5,000         5,000   

Electric Contractors Financial Cooperative

     0.03     152         152   

Korea Specialty Contractor Financial Cooperative

     0.01     417         417   

Information & Communication Financial Cooperative

     0.03     10         10   

Troika Overseas Resource Development Private Equity Firm

     3.66     11,934         10,664   

Poonglim Industrial Co., Ltd.

     0.01     78         78   

Woori Ascon Co., Ltd.

     0.34     10         10   

HANKOOK Silicon Co., Ltd.

     11.82     7,513         7,513   

LIG E&C Co., Ltd.

     0.00     5         5   

Miju Steel Mfg. Co., Ltd.

     0.23     51         51   

Ginseng K Co., Ltd.