Edgar Filing: KOREA ELECTRIC POWER CORP

Classification

Loss allowances

Credit risk has not increased significantly since the initial recognition

12-month ECL:

ECLs that resulted from possible default events within the 12 months after the reporting date

Credit risk has increase significantly since the initial recognition

Lifetime ECL:

ECL that resulted from all possible default events over the expected life of a financial instrument

Credit-impaired

Form 6-K

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 March 2017

KOREA ELECTRIC POWER CORPORATION

(Translation of registrant’s name into English)

55 Jeollyeok-ro, Naju-si, Jeollanam-do, 58217, 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 ☒ 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 ☒

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

On March 6, 2017, Korea Electric Power Corporation filed its audit report for the fiscal year 2016 prepared in accordance with Korean International Financial Reporting Standards (K-IFRS) as shown below. The financial statements in such reports have been approved by the shareholders of Korean Electric Power Corporation and remain subject to change.

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/ Kim, Jeong-soo

Name:		Kim, Jeong-soo

Title:		Head of Finance & IR team

Date: March 6, 2017

KOREA ELECTRIC POWER CORPORATION

AND SUBSIDIARIES

Consolidated Financial Statements

December 31, 2016

(With Independent Auditors’ Report Thereon)

INDEX TO FINANCIAL STATEMENTS


	Page

Independent Auditors’ Report		1

Consolidated Statements of Financial Position		3

Consolidated Statements of Comprehensive Income		5

Consolidated Statements of Changes in Equity		7

Consolidated Statements of Cash Flows		9

Notes to the Consolidated Financial Statements		11

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders

Korea Electric Power Corporation:

We have audited the accompanying consolidated statement of financial statements of Korea Electric Power Corporation and subsidiaries (the “Company”), which comprise the consolidated statements of financial position as at December 31, 2016 and 2015, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015 and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Emphasis of Matters

Without qualifying our audit report, we draw attention to the following key audit matters of the build-to-order industry that were of significance in our audit of the consolidated financial statements as of and for the year ended December 31, 2016, which determination is based on auditor’s professional judgment and communications with those who charged with governance, in accordance with Practical Guide of Korean Standards on Auditing 2016-1. This matter was addressed in the context of our audit of the consolidated financial statements as a whole, and we do not provide a separate opinion on this matter. We have considered the results from audit procedures for these key audit matters in forming our audit opinion on the 2016 consolidated financial statements.

When the outcome of a construction contract can be estimated reliably, the Company recognizes contract revenue and costs based on the percentage-of-completion method at the end of the reporting period. Also, the gross amount due from customers for contract work is presented for all contracts in which costs incurred plus recognized profits exceed progress billings. The gross amount due to customers for contract work is presented for all contracts in which progress billings exceed costs incurred plus recognized profits.

Total contract revenue is measured based on an agreed contract price; however, it may fluctuate due to the variation of construction work. The measurement of contract revenue is affected by various uncertainties resulting from unexpected future events. Total contract costs are estimated based on the estimates of future costs such as material costs, labor costs and construction period. The uncertainty of estimated total contract costs and changes in such estimates have an impact on the completion progress and contract revenue.

Considering the impacts from these uncertainty and changes in estimates on profit or loss for the current or future periods, we identified the Company’s revenue recognition accounting policy utilizing the input method, uncertainty of estimated total contract costs, assessment of the percentage-of-completion and accounting for the variation of construction works as significant risks.

We conducted the following audit procedures regarding the Company’s accounting policy of revenue recognition utilizing the input method as of and for the year ended December 31, 2016:

•

Review of the appropriateness of accounting policy of revenues recognition by the input method

•

Inquiry and analytical review of current progress and significant changes in major projects as of period end

•

Inquiry and analytical review of financial indicators such as contract price, estimated contract costs, cost ratio, ratio of amounts due from customers for contract work, major components of total contract costs by the reporting period, accumulated contract costs, fluctuations in total contract costs and others

•

Testing of design and operating effectiveness of internal controls over construction contracts with changed terms and conditions

•

Testing of design and operating effectiveness of internal controls over new construction contracts

•

Recalculation of the percentage of completion independently for the contracts in which the percentage of completion was significantly changed

•

Independent testing of appropriateness of input costs, cut-off, and attribution of costs to each construction contract

•

Review of whether financial statement disclosures on changes in constructions are disclosed appropriately

LOGO

KPMG Samjong Accounting Corp.

Seoul, Korea

March 6, 2017

This report is effective as of March 6, 2017, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Position

As of December 31, 2016 and 2015


In millions of won	*Note*		2016		2015

Assets

Current assets
Cash and cash equivalents		5,6,7,45	W	3,051,353		3,783,065
Current financial assets, net		5,10,11,12,45		2,671,989		5,335,621
Trade and other receivables, net		5,8,14,20,45,46,47		7,788,876		7,473,548
Inventories, net		13		5,479,443		4,946,413
Income tax refund receivables		41		19,163		9,081
Current non-financial assets		15		631,860		397,950
Assets held-for-sale		42		65,842		79,647

Total current assets				19,708,526		22,025,325

Non-current assets
Non-current financial assets, net		5,6,9,10,11,12,45		2,657,494		2,495,554
Non-current trade and other receivables, net		5,8,14,45,46,47		1,903,515		1,798,419
Property, plant and equipment, net		18,27,49		145,743,056		141,361,351
Investment properties, net		19,27		353,680		269,910
Goodwill		16		2,582		2,582
Intangible assets other than goodwill, net		21,27,46		980,821		855,832
Investments in associates		4,17		4,092,252		4,405,668
Investments in joint ventures		4,17		1,418,196		1,287,862
Deferred tax assets		41		795,131		623,623
Non-current non-financial assets		15		181,789		131,233

Total non-current assets				158,128,516		153,232,034


Total Assets		4	W	177,837,042		175,257,359

(Continued)

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Financial Position, Continued

As of December 31, 2016 and 2015


In millions of won	*Note*		2016			2015

Liabilities

Current liabilities
Trade and other payables, net		5,22,24,45,47	W	5,585,411			4,735,697
Current financial liabilities, net		5,11,23,45,47		8,942,329			7,857,198
Income tax payables		41		1,843,288			2,218,060
Current non-financial liabilities		20,28,29		6,368,210			6,320,711
Current provisions		26,45		1,999,988			1,579,176

Total current liabilities				24,739,226			22,710,842

Non-current liabilities
Non-current trade and other payables, net		5,22,24,45,47		3,558,175			3,718,435
Non-current financial liabilities, net		5,11,23,45,47		44,835,562			51,062,811
Non-current non-financial liabilities		28,29		7,591,605			7,092,252
Employee benefits liabilities, net		25,45		1,686,258			1,503,107
Deferred tax liabilities		41		8,948,520			8,362,683
Non-current provisions		26,45		13,427,151			12,864,754

Total non-current liabilities				80,047,271			84,604,042


Total Liabilities		4	W	104,786,497			107,314,884


Equity

Contributed capital		1,30,45
Share capital			W	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			1,604,910
Voluntary reserves				31,847,275			23,720,167
Unappropriated retained earnings				19,721,686			22,862,164

				53,173,871			48,187,241


Other components of equity		34
Other capital surplus				1,235,146			1,197,388
Accumulated other comprehensive loss				(33,875	)		(98,713	)
Other equity				13,294,973			13,294,973

				14,496,244			14,393,648


Equity attributable to owners of the controlling company				71,723,693			66,634,467


Non-controlling interests		16, 33		1,326,852			1,308,008


Total Equity			W	73,050,545			67,942,475


Total Liabilities and Equity			W	177,837,042			175,257,359

See accompanying notes to the consolidated financial statements.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

For the years ended December 31, 2016 and 2015


In millions of won, except per share information	*Note*		2016			2015

Sales		4,35,45,47
Sales of goods			W	55,379,487			54,367,036
Sales of services				356,743			453,487
Sales of construction services		20		4,026,857			3,761,204
Revenue related to transfer of assets from customers				427,297			375,995

				60,190,384			58,957,722

Cost of sales		13,25,43,47
Cost of sales of goods				(41,237,372	)		(41,348,917	)
Cost of sales of services				(557,037	)		(545,692	)
Cost of sales of construction services				(3,755,144	)		(3,563,120	)

				(45,549,553	)		(45,457,729	)


Gross profit				14,640,831			13,499,993

Selling and administrative expenses		25,36,43,47		(2,639,232	)		(2,153,261	)


Operating profit		4		12,001,599			11,346,732

Other non-operating income		37		412,887			432,219

Other non-operating expense		37		(188,624	)		(108,848	)

Other gains, net		38		70,498			8,610,773

Finance income		5,11,39		791,543			1,182,988

Finance expenses		5,11,40		(2,437,087	)		(3,015,457	)

Profit related to associates, joint ventures and subsidiaries		4,17
Share in profit of associates and joint ventures				224,435			280,794
Gain on disposal of investments in associates and joint ventures				52			4,731
Gain on disposal of investments in subsidiaries		16		—			8,376
Share in loss of associates and joint ventures				(243,361	)		(86,522	)
Loss on disposal of investments in associates and joint ventures				(2,935	)		—
Impairment loss on investments in associates and joint ventures		17		(115,539	)		—

				(137,348	)		207,379


Profit before income tax				10,513,468			18,655,786

Income tax expense		41		(3,365,141	)		(5,239,413	)


Profit for the period			W	7,148,327			13,416,373

(Continued)

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income, Continued

For the years ended December 31, 2016 and 2015


In millions of won, except per share information	*Note*		2016			2015

Other comprehensive income (loss)		5,11,25,31,34
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit liability, net of tax		25,31	W	(75,926	)		(87,861	)
Share in other comprehensive loss of associates and joint ventures, net of tax		31		(2,515	)		(283	)
Items that are or may be reclassified subsequently to profit or loss:
Net change in the unrealized fair value of available-for-sale financial assets, net of tax		34		61,279			9,648
Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax		5,11,34		28,414			4,409
Foreign currency translation of foreign operations, net of tax		34		41,360			18,535
Share in other comprehensive income (loss) of associates and joint ventures, net of tax		34		(54,914	)		89,558


Other comprehensive income (loss), net of tax				(2,302	)		34,006

Total comprehensive income for the period			W	7,146,025			13,450,379


Profit or loss attributable to:
Owners of the controlling company		44	W	7,048,581			13,289,127
Non-controlling interests				99,746			127,246

			W	7,148,327			13,416,373

Total comprehensive income attributable to:
Owners of the controlling company			W	7,041,557			13,308,132
Non-controlling interests				104,468			142,247

			W	7,146,025			13,450,379


Earnings per share		44
Basic and diluted earnings per share			W	10,980			20,701

See accompanying notes to the consolidated financial statements.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015


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

Balance at January 1, 2015	W	4,053,578		35,303,647			14,244,106			53,601,331			1,223,679			54,825,010

Total comprehensive income (loss) for the period
Profit for the period		—		13,289,127			—			13,289,127			127,246			13,416,373
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit liability, net of tax		—		(84,271	)		—			(84,271	)		(3,590	)		(87,861	)
Share in other comprehensive loss of associates and joint ventures, net of tax		—		(280	)		—			(280	)		(3	)		(283	)
Items that are or may be reclassified subsequently to profit or loss:
Net change in the unrealized fair value of available-for-sale financial assets, net of tax		—		—			9,744			9,744			(96	)		9,648
Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax		—		—			3,157			3,157			1,252			4,409
Foreign currency translation of foreign operations, net of tax		—		—			1,179			1,179			17,356			18,535
Share in other comprehensive income of associates and joint ventures, net of tax		—		—			89,476			89,476			82			89,558
Transactions with owners of the Company, recognized directly in equity
Dividends paid		—		(320,982	)		—			(320,982	)		(86,071	)		(407,053	)
Issuance of shares of capital by subsidiaries and others		—		—			2,536			2,536			12,329			14,865
Equity transaction within consolidation scope – other than issuance of share capital		—		—			44,166			44,166			9,046			53,212
Changes in consolidation scope		—		—			(716	)		(716	)		23,229			22,513
Dividends paid (hybrid securities)		—		—			—			—			(16,455	)		(16,455	)
Others		—		—			—			—			4			4


Balance at December 31, 2015	W	4,053,578		48,187,241			14,393,648			66,634,467			1,308,008			67,942,475

(Continued)

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2016 and 2015


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

Balance at January 1, 2016	W	4,053,578		48,187,241			14,393,648			66,634,467			1,308,008			67,942,475

Total comprehensive income (loss) for the period
Profit for the period		—		7,048,581			—			7,048,581			99,746			7,148,327
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit liability, net of tax		—		(69,330	)		—			(69,330	)		(6,596	)		(75,926	)
Share in other comprehensive income (loss) of associates and joint ventures, net of tax		—		(2,532	)		—			(2,532	)		17			(2,515	)
Items that are or may be reclassified subsequently to profit or loss:
Net change in the unrealized fair value of available-for-sale financial assets, net of tax		—		—			61,275			61,275			4			61,279
Net change in the unrealized fair value of derivatives using cash flow hedge accounting, net of tax		—		—			27,075			27,075			1,339			28,414
Foreign currency translation of foreign operations, net of tax		—		—			31,406			31,406			9,954			41,360
Share in other comprehensive income (loss) of associates and joint ventures, net of tax		—		—			(54,918	)		(54,918	)		4			(54,914	)
Transactions with owners of the Company, recognized directly in equity
Dividends paid		—		(1,990,089	)		—			(1,990,089	)		(99,982	)		(2,090,071	)
Issuance of shares of capital by subsidiaries and others		—		—			1,750			1,750			14,809			16,559
Equity transaction within consolidation scope – other than issuance of share capital		—		—			36,008			36,008			12,299			48,307
Changes in consolidation scope		—		—			—			—			3,705			3,705
Dividends paid (hybrid securities)		—		—			—			—			(16,455	)		(16,455	)


Balance at December 31, 2016	W	4,053,578		53,173,871			14,496,244			71,723,693			1,326,852			73,050,545

See accompanying notes to the consolidated financial statements.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

For the years ended December 31, 2016 and 2015


In millions of won	2016			2015

Cash flows from operating activities
Profit for the period	W	7,148,327			13,416,373
Adjustments for:
Income tax expense		3,365,141			5,239,413
Depreciation		8,881,273			8,269,118
Amortization		79,715			72,266
Employee benefit expense		373,753			314,692
Bad debt expense		37,815			18,350
Interest expense		1,752,868			2,015,684
Loss on sale of financial assets		9			3,008
Loss on disposal of property, plant and equipment		4,996			1,933
Loss on abandonment of property, plant, and equipment		426,519			365,056
Impairment loss on property, plant and equipment		—			30,344
Impairment loss on intangible assets		3,945			22
Loss on disposal of intangible assets		158			16
Accretion expense to provisions, net		1,782,732			1,602,724
Loss on foreign currency translation, net		253,468			617,224
Valuation and transaction gain on derivative instruments, net		(231,630	)		(708,120	)
Share in loss (income) of associates and joint ventures, net		18,926			(194,272	)
Gain on disposal of financial assets		(1,482	)		(4	)
Gain on disposal of property, plant and equipment		(74,035	)		(8,637,508	)
Gain on disposal of intangible assets		—			(32	)
Gain on disposal of investments in associates and joint ventures		(52	)		(4,731	)
Loss on disposal of investments in associates and joint ventures		2,935			—
Gain on disposal of investments in subsidiaries		—			(8,376	)
Impairment loss on investments in associates and joint ventures		115,539			—
Interest income		(241,778	)		(241,585	)
Dividend income		(9,446	)		(14,069	)
Impairment loss on available-for-sale securities		86,703			84,370
Others, net		66,260			(35,107	)

		16,694,332			8,790,416

Changes in:
Trade receivables		200,529			715,498
Non-trade receivables		(68,322	)		(17,102	)
Accrued income		69,151			17,051
Other receivables		10,093			(9,441	)
Other current assets		(259,492	)		67,520
Inventories		(1,439,545	)		(1,190,188	)
Other non-current assets		(2,792	)		(31,465	)
Trade payables		141,994			(1,577,551	)
Non-trade payables		(8,379	)		38,223
Accrued expenses		(153,172	)		(410,744	)
Other payables		—			964
Other current liabilities		284,417			870,945
Other non-current liabilities		809,699			377,617
Investments in associates and joint ventures		75,407			114,708
Provisions		(1,527,129	)		(1,033,502	)
Payments of employee benefit obligations		(53,477	)		(43,100	)
Plan assets		(312,125	)		(214,449	)

		(2,233,143	)		(2,325,016	)

(Continued)

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2016 and 2015


In millions of won	2016			2015

Cash generated from operating activities	W	21,609,516			19,881,773
Dividends received		10,294			38,565
Interest paid		(2,041,379	)		(2,176,040	)
Interest received		240,878			133,875
Income taxes paid		(3,298,757	)		(935,068	)

Net cash from operating activities		16,520,552			16,943,105


Cash flows from investing activities
Proceeds from disposals of associates and joint ventures		46,644			22,058
Acquisition of associates and joint ventures		(113,222	)		(116,114	)
Proceeds from disposals of property, plant and equipment		207,960			9,843,796
Acquisition of property, plant and equipment		(12,028,789	)		(14,049,887	)
Proceeds from disposals of intangible assets		430			467
Acquisition of intangible assets		(124,422	)		(87,946	)
Proceeds from disposals of financial assets		10,876,017			242,856
Acquisition of financial assets		(8,130,621	)		(5,326,151	)
Increase in loans		(206,092	)		(153,570	)
Collection of loans		117,561			111,714
Increase in deposits		(468,734	)		(352,669	)
Decrease in deposits		161,166			185,154
Receipt of government grants		32,878			52,696
Usage of government grants		(33,516	)		(13,372	)
Net cash inflow (outflow) from changes in consolidation scope		3,754			(968	)
Other cash inflow (outflow) from investing activities, net		13,116			(132,034	)

Net cash used in investing activities		(9,645,870	)		(9,773,970	)


Cash flows from financing activities
Repayment of short-term borrowings, net		(49,604	)		(65,355	)
Proceeds from long-term borrowings and debt securities		2,302,060			4,178,454
Repayment of long-term borrowings and debt securities		(7,750,047	)		(8,960,706	)
Payment of finance lease liabilities		(118,215	)		(110,040	)
Settlement of derivative instruments, net		73,246			73,348
Change in non-controlling interest		10,538			104,019
Dividends paid (hybrid bond)		(16,455	)		(16,455	)
Dividends paid		(2,088,429	)		(409,884	)
Other cash outflow from financing activities, net		(570	)		—

Net cash used in financing activities		(7,637,476	)		(5,206,619	)


Net increase (decrease) in cash and cash equivalents before effect of exchange rate fluctuations		(762,794	)		1,962,516

Effect of exchange rate fluctuations on cash held		31,082			24,249


Net increase (decrease) in cash and cash equivalents		(731,712	)		1,986,765

Cash and cash equivalents at January 1		3,783,065			1,796,300


Cash and cash equivalents at December 31	W	3,051,353			3,783,065

See accompanying notes to the consolidated financial statements.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements

December 31, 2016

1.	Reporting Entity (Description of the controlling company)

Korea Electric Power Corporation (“KEPCO”), the 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 KEPCO listed its Depository Receipts (DR) on the New York Stock Exchange on October 27, 1994. KEPCO’s head office is located in Naju, Jeollanam-do.

As of December 31, 2016, KEPCO’s share capital amounts to W3,209,820 million and KEPCO’s shareholders are as follows:


	Number of shares		Percentage of ownership
Government of the Republic of Korea		116,841,794		18.20	%
Korea Development Bank		211,235,264		32.90	%
Other (*)		313,887,019		48.90	%


		641,964,077		100.00	%

(*)	The number of shares held by foreign shareholders are 197,308,414 shares (30.74%) as of December 31, 2016.

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

2.	Basis of Preparation

The consolidated financial statements of Korea Electric Power Corporation and subsidiaries (the “Company”) were authorized for issuance by the Board of Directors on February 17, 2017, which will be submitted for approval at the shareholders’ meeting held on March 21, 2017.

(1)

Statement of compliance

These consolidated 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.

(2)

Basis of measurement

These consolidated 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 is KEPCO’s functional currency and the currency of the primary economic environment in which the Company operates.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

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 followings 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)

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.

(ii)

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 carryforward periods.

(iii)

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.

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.

(iv)

Defined employee benefit 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 (refer to note 25).

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

2.	Basis of Preparation, Continued

(4)

Use of estimates and judgments, continued

(v)

Unbilled revenue

Energy delivered but not yet metered nor billed are estimated at the reporting date are estimated 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 consumptions and prices based on statistics. Unbilled revenue recognized as of December 31, 2016 and 2015 are W1,615,322 million and W1,599,592 million, respectively.

(vi)

Construction contracts

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 utilizing the cost-based input method at the end of the reporting period. In applying the cost-based input method, it is necessary to use estimates and assumptions related to the total estimated costs expected to be incurred in the future, costs incurred which are not related to construction progress, changes in costs due to change of contract or design, etc. Total contract revenue is measured based on an agreed contract price; however, it may fluctuate due to the variation of construction work. The measurement of contract revenue is affected by various uncertainties resulting from unexpected future events.

(vii)

Wolsung unit 1 nuclear power plant of the Company commenced operations on November 21, 1982 and ended its operations on November 20, 2012 pursuant to its 30-year operating license. On February 27, 2015, the Nuclear Safety and Security Commission (NSSC) evaluated the safety of operation on the Wolsung Unit 1 nuclear power plant and approved to continue its operation until November 20, 2022. As described in note 50, the lawsuit related to the validity of the approval of NSSC is currently ongoing. The consolidated financial statements were prepared based on the judgment of the Company that the approval of NSSC is valid and Wolsung Unit 1 nuclear power plant will be operating until 2022.

(5)

Changes in accounting policies

(i)

Amendments to K-IFRS 1016, ‘Property, Plant and Equipment’

The Company has adopted amendments to K-IFRS 1016, ‘Property, Plant and Equipment’, since January 1, 2016. Amendments to K-IFRS 1016, ‘Property, Plant and Equipment’, specify that the use of revenue-based methods to calculate the depreciation of an asset is not appropriate.

Upon adoption of the amendments, there is no significant impact on the Company’s consolidated financial statements.

(ii)

Amendments to K- IFRS 1038, ‘Intangible Assets’

The Company has adopted amendments to K- IFRS 1038, ‘Intangible Assets’, since January 1, 2016. Amendments to K-IFRS 1038, ‘Intangible Assets’, introduce a rebuttable presumption that the use of revenue-based amortization methods for intangible assets is inappropriate. This presumption can be rebutted only when revenue and the consumption of the economic benefits of the intangible asset are highly correlated, or when the intangible asset is expressed as a measure of revenue.

Upon adoption of the amendments, there is no significant impact on the Company’s consolidated financial statements.

(iii)

Amendments to K-IFRS 1111, ‘Joint Arrangement’

The Company has adopted amendments to K-IFRS 1111, ‘Joint Arrangement’, since January 1, 2016. Amendments to K-IFRS 1111, ‘Joint Arrangement’, require an investor to apply the principles of business combination accounting when it acquires an interest in a joint operation that constitutes a business as defined in K-IFRS 1103, ‘Business Combinations’.

Upon adoption of the amendments, there is no significant impact on the Company’s consolidated financial statements.

(iv)

Amendments to K-IFRS 1011, ‘Construction Contracts’

The Company has adopted amendments to K-IFRS 1011, ‘Construction Contracts’, since January 1, 2016. Amendments to K-IFRS 1011, ‘Construction Contracts’, require the Company to disclose the construction contracts by each project or operating segment (refer to note 20).

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

2.	Basis of Preparation, Continued

(5)

Changes in accounting policies, continued

There are certain amendments to K-IFRS 1105, ‘Non-current Assets Held for Sale and Discontinued Operation’, that provides guidance when an entity reclassifies an asset (or disposal group) from held for sale to held for distribution to owners (or vice versa), K-IFRS 1107, ‘Financial Instruments: Disclosures’, K-IFRS 1019, ‘Employee Benefits’, and K-IFRS 1034, ‘Interim Financial Reporting’.

Upon adoption of the amendments, there is no significant impact on the Company’s consolidated financial statements.

(6)

New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published for mandatory application for annual periods beginning after January 1, 2016.

(i)

K-IFRS 1109, ‘Financial Instruments’

K-IFRS 1109, published on September 25, 2015, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing guidance in K-IFRS 1039, ‘Financial Instruments: Recognition and Measurement’. The Company plans to adopt K-IFRS 1109 for the year beginning on January 1, 2018. K-IFRS 1109 will generally be applied retrospectively; however the Company plans to take advantage of the exemption allowing it not to restate the comparative information for prior periods with respect to classification and measurement including impairment changes. New hedge accounting requirements will generally be applied prospectively except for certain exemptions including the accounting for the time value of options.

Key features of the new standard, K-IFRS 1109, are 1) classification and measurement of financial assets that reflects the business model in which the assets are managed and their cash flow characteristics, 2) impairment methodology that reflects ‘expected credit loss’ (ECL) model for financial assets, and 3) expanded scope of hedged items and hedging instruments which qualify for hedge accounting and changes in assessment method for effect of hedging relationships.

K-IFRS 1109 will require the Company to assess the financial impact from application of K-IFRS 1109 and revise its accounting processes and internal controls related to financial instruments. Actual impact of adopting K-IFRS 1109 will be dependent on the financial instruments the Company holds and economic conditions at that time as well as accounting policy elections and judgment that it will make in the future.

The Company has not initiated any changes in internal controls processes or accounting processing systems, and has not performed an assessment of the impact resulting from the application of K-IFRS 1109. The Company is currently performing a detailed assessment of the potential impact from the application of K-IFRS 1109 and plans to complete the assessment in advance of its effective date. Expected impacts on the consolidated financial statements are generally categorized as follows:

①

Classification and measurement of financial assets

Under K-IFRS 1109, financial assets are classified into three principal categories; measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL) based on the business model in which assets are managed and their cash flow characteristics. Under K-IFRS 1109, derivatives embedded in hybrid contracts where the host is a financial asset are not bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification.

As there are additional requirements for a financial asset to be classified as measured at amortized costs or FVOCI under K-IFRS 1109 compared to the existing guidance in K-IFRS 1039, the adoption of K-IFRS 1109 would potentially increase the proportion of financial assets that are measured at FVTPL, increasing volatility in the Company’s profit or loss.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

2.	Basis of Preparation, Continued

(6)

New standards and interpretations not yet adopted, continued

The criteria for classification and measurement of financial assets under K-IFRS 1109 are as follows:

•

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

•

A financial asset is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: 1) the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and 2) the contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding.

•

On initial recognition of equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in fair value in OCI, and will not reclassify(recycle) the those items in OCI to profit or loss subsequently.

•

A financial asset is measured at FVTPL if the contractual terms of the financial asset give rise to specified dates to cash flows that are not solely payments of principal and interest on the principal amount outstanding, the debt instrument is held within a business model whose objective is to sell the asset, or the equity instruments that are not elected to be designated as measured at FVOCI.

As of December 31, 2016, the Company has loans and receivables amounting to W16,273,877 million, available-for-sale financial assets amounting to W1,014,732 million, and financial assets at fair value through profit or loss amounting to W367,477 million.

②

Classification and measurement of financial liabilities

Under K-IFRS 1109, the amount of change in the fair value attributable to the changes in the credit risk of the financial liabilities is presented in OCI, not recognized in profit or loss, and the OCI amount will not be reclassified (recycled) to profit or loss. However, if doing so creates or increase an accounting mismatch, the amount of change in the fair value is recognized in profit or loss.

As a portion of fair value change which was recognized in profit or loss under the existing standard, K-IFRS 1039, will be presented in OCI under K-IFRS 1109, profit or loss related to valuation of the same financial liabilities is likely to decrease.

The Company does not have any financial liability designated as at FVTPL as of December 31, 2016.

③

Impairment: Financial assets and contract assets

K-IFRS 1109 replaces the ‘incurred loss’ model in the existing standard with a forward-looking ‘expected credit loss’ (ECL) model for debt instruments, lease receivables, contractual assets, loan commitments, financial guarantee contracts.

Under K-IFRS 1109, impairment losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in K-IFRS 1039 as loss allowances will be measured on either of the 12-month or lifetime ECL based on the extent of increase in credit risk since inception as shown in the below table.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

2.	Basis of Preparation, Continued

(6)

New standards and interpretations not yet adopted, continued

Under K-IFRS 1109, financial assets of which the credit was impaired at the initial recognition, cumulative changes in lifetime ECL since the initial recognition are recognized as loss allowances.

As of December 31, 2016, the Company has debt instruments in financial assets measured at amortized cost amounting to W16,438,054 million (loans and receivables) and has recognized loss allowances for W164,177 million.

④

Hedge accounting

K-IFRS 1109 retains the mechanics of hedge accounting (fair value hedge, cash flow hedge, hedging on net investment in a foreign operation) which was defined in the existing guidance in K-IFRS 1109, but provides principle-based and less complex guidance in hedging which focuses on the risk management activities. More hedged items and hedging instruments would qualify for hedge accounting, more qualitative and forward-looking approach will be taken to assessing hedge effectiveness, and qualitative threshold (80~125%) is removed under K-IFRS 1109.

Certain transactions which were not qualified for hedge accounting under the existing standard will likely quality for hedge accounting under K-IFRS 1109, decreasing volatility in the Company’s profits or loss.

As of December 31, 2016, the Company has asset and liabilities designated as hedged items amounting to W413,897 million and W117,157 million, respectively.

When initially applying K-IFRS 1109, the Company may choose as its accounting policy to continue to apply the hedge accounting requirements of K-IFRS 1039.

(ii)

K-IFRS 1115, ‘Revenue from Contracts with Customers’

K-IFRS 1115, ‘Revenue from Contracts from Customers’, published on November 6, 2015, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted.

It replaces existing revenue recognition guidance, including K-IFRS 1018, ‘Revenue’, K-IFRS 1011, ‘Construction Contracts’, K-IFRS 2031, ‘Revenue-Barter transactions involving advertising services’, K-IFRS, ‘2113 Customer Loyalty Programs’, K-IFRS 2115, ‘Agreements for the construction of real estate’, K-IFRS 2118, ‘Transfers of assets from customers’.

Existing K-IFRS standards and interpretations including K-IFRS 1018 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue; however, under the new standard, K-IFRS 1115, the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation) is applied for all types of contracts or agreements.

The Company is currently performing a detailed assessment of the impact resulting from the application of K-IFRS 1115 and plans to complete the assessment in advance of its effective date.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

2.	Basis of Preparation, Continued

(6)

New standards and interpretations not yet adopted, continued

(iii)

Amendments to K-IFRS 1102, ‘Share-based Payment’

The amendments include: 1) when measuring the fair value of share-based payment, the effects of vesting and non-vesting conditions on the measurement of cash-settled share-based payment should be consistent with the measurement of equity-settled share-based payment, 2) Share-based payment transaction in which the company settles the share-based payment arrangement net by withholding a specified portion of the equity instruments per statutory tax withholding requirements would be classified as equity-settled in its entirety, if otherwise would be classified as equity-settled without the net settlement feature, and 3) when a cash-settled share-based payment changes to an equity-settled share-based payment because of modifications of the terms and conditions, the original liability recognized is derecognized and the equity-settled share-based payment is recognized at the modification date fair value. Any difference between the carrying amount of the liability at the modification date and the amount recognized in equity at the same date would be recognized in profit and loss immediately. The amendments are effective for annual periods beginning on or after January 1, 2018.

The adoption of the amendments is not expected to have a significant impact on the Company’s consolidated financial statements.

(iv)

Amendments to K-IFRS 1007, ‘Statement of Cash Flows’

The amendments require changes in liabilities arising from financing activities to be disclosed. The amendments are effective for annual periods beginning on or after January 1, 2017.

The adoption of the amendments is not expected to have a significant impact on the Company’s consolidated financial statements.

(v)

Amendments to K-IFRS 1012, ‘Income Taxes’

The amendments clarify that unrealized losses on fixed-rate debt instruments measured at fair value and measured at cost for tax purposes give rise to a deductible temporary difference regardless of whether the holder expects to recover the carrying amount of the debt instrument by sale or by use and that the estimate of probable future taxable profit may include the recovery of some of assets for more than their carrying amount. When the Company assesses whether there will be sufficient taxable profit, the Company should compare the deductible temporary differences with future taxable profit that excludes tax deductions resulting from the reversal of those deductible temporary differences. The amendments are effective for annual periods beginning on or after January 1, 2017.

The adoption of the amendments is not expected to have a significant impact on the Company’s consolidated financial statements.

3.	Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its consolidated financial statements are included below. Except as described in note 2.(5), the accounting policies applied by the Company in these consolidated financial statements are the same as those applied by the Company in its consolidated financial statements as of and for the year ended December 31, 2015.

(1)

Basis of consolidation

The consolidated financial statements are the financial statements of a group in which the assets, liabilities, equity, income, expenses and cash flows of the parent and its subsidiaries are presented as those of a single economic entity. Subsidiaries are controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(1)

Basis of consolidation, continued

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 within the Company 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.

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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(2)

Business combinations, continued

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-IFRSs.

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.

The assets and liabilities acquired under business combinations under common control are recognized at the carrying amounts recognized previously in the consolidated financial statements of the ultimate parent. The difference between consideration transferred and carrying amounts of net assets acquired is recognized as part of share premium.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(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. 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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(3)

Investments in associates, continued

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.

(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 ventures) 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 K-IFRS’ 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’ (refer to note 3.(3)), except when the Company is applying 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 is 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 business acquired.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(6)

Goodwill, continued

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.

(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, which 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 utility 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 recognize revenue from 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, etc. The differences between the current month’s estimated amount and actual (meter-read) amount, is adjusted for (trued-up) during the subsequent month.

(ii)

Sales of other 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 subsequently recognized as revenue on a straight-line basis over the estimated service period which does not exceed the transferred asset’s useful life.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(8)

Construction services 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 presented 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 presented 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 advance 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.

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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(9)

Leases, continued

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.

(iii)

Determining whether an arrangement contains a lease

At inception of an arrangement, the Company determines whether the arrangement is or contains a lease.

At inception or on reassessment of an arrangement that contains a lease, the Company separates payments and other consideration required by the arrangement into those for the lease and those for other elements on the basis of their relative fair values. If the Company concludes for a finance lease that it is impracticable to separate the payments reliably, then an asset and a liability are recognized at an amount equal to the fair value of the underlying asset.

(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 (refer to note 3.(25) Derivative financial instruments, including hedge accounting); 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 gain 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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

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

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).

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 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. However, if there is not a deep market, market yields on government bonds are used.

Net defined benefit liability’s measurement is composed of actuarial gains and losses, return on plan assets excluding net interest on net defined benefit liability, and any change in the effect of the asset ceiling, excluding net interest, which will immediately recognized in other comprehensive income. The actuarial gains or losses recognized in other comprehensive income which will not be reclassified into net profit or loss for later periods are immediately recognized in retained earnings. Past service cost will be recognized as expenses upon the earlier of the date of change or reduction to the plan, or the date of recognizing termination benefits.

The retirement benefit obligation recognized in the 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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

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.

(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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(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		2 ~ 32
Vehicles		3 ~ 8
Loaded heavy water		30
Asset retirement costs		18, 30, 40, 60
Finance lease assets		6 ~ 32
Ships		9
Others		4 ~ 15

A component that is significant compared to the total cost of property, plant and equipment is depreciated over its separate useful life.

Depreciation methods, residual values and useful lives of property, plant and equipment are reviewed at the end of each reporting period and if change is deemed appropriate, it is treated as a change in accounting estimate. Accordingly, useful lives of certain machinery were changed during 2016 and as a result, depreciation expenses increased by W160,985 million for the year ended December 31, 2016. Depreciation expenses are expected to increase by W130,514 million and W91,197 million for the years ending December 31, 2017 and 2018, respectively, and to decrease by W382,696 million for the years after December 31, 2018.

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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

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	10 ~ 20	Straight
Software	4, 5	Straight
Industrial rights	5, 10	Straight
Development expenses	5	Straight
Leasehold rights	10	Straight
Others	3 ~ 50 or Indefinite	Straight
Mining right	—	Unit of production

(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 are 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)

Greenhouse gas emissions rights (allowances) and obligations

In connection with Enforcement of Allocation and Trading of Greenhouse Gas Emissions Allowances, the Company applies the following accounting policies for greenhouse gas emissions rights and obligations.

(i)

Greenhouse gas emissions rights

Greenhouse gas emissions rights consist of the allowances received free of charge from the government and the ones purchased. The cost of the greenhouse gas emissions rights includes expenditures arising directly from the acquisition and any other costs incurred during normal course of the acquisition.

Greenhouse gas emissions rights are held by the Company to fulfill the legal obligation and recorded as intangible assets. To the extent that the portion to be submitted to the government within one year from the end of reporting period, the greenhouse gas emissions rights are classified as current assets. Greenhouse gas emissions rights recorded as intangible assets are initially measured at cost and substantially remeasured at cost less accumulated impairment losses.

Greenhouse gas emissions rights are derecognized on submission to the government or when no future economic benefits are expected from its use or disposal.

(ii)

Greenhouse gas emissions obligations

Greenhouse gas emissions obligations are the Company’s present legal obligation to submit the greenhouse gas emissions allowances to the government and recognized when an outflow of resources is probable and a reliable estimate can be made of the amount of the obligation. Greenhouse gas emissions obligations are measured as the sum of the carrying amount of the allocated rights that will be submitted to the government and the best estimate of expenditure required to settle the obligation at the end of the reporting period for any excess emission.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(19)

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.

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 profit 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, to the extent 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 profit 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.

(20)

Inventories

Inventories are measured at the lower of cost and net realizable value. Cost of inventories for inventories in transit are measured by using specific identification method. 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.

(21)

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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(21)

Provisions, continued

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.

(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 (“PCBs”)

Under the regulation of Persistent Organic Pollutants Management Act, enacted in 2007, the Company is required to remove 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)

Provisions for transmission and transformation facilities-neighboring areas support program

The Company has present obligation to conduct transmission and transformation facilities-neighboring areas support program under Act on assistance to transmission and transformation facilities-neighboring areas. The Company recognizes the provision of estimated amount to fulfill the obligation.

(viii)

Renewable Portfolio Standard (“RPS”) provisions

RPS program is recognized for the governmental regulations to require the production of energies from renewable energy sources such as solar, wind and biomass.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(22)

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.

(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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(22)

Non-derivative financial assets, continued

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.

(iv)

Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity investments or loans and receivables.

Gains and losses arising from changes in fair value are recognized in other comprehensive income and accumulated in the valuation reserve. However, impairment losses, interest calculated using the effective interest method, and foreign exchange gains and losses on monetary assets are recognized in income or loss. Unquoted equity investments which are not traded in an active market, whose fair value cannot be measured reliably are carried at cost.

When a financial asset is derecognized or impairment losses are recognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Dividends on an available-for-sale equity instrument are recognized in profit or loss when the Company’s right to receive payment is established.

The fair value of available-for-sale monetary assets denominated in a foreign currency is determined in that foreign currency and translated at the spot rate at the end of the reporting period. The foreign exchange gains and losses that are recognized in income or loss are determined based on the amortized cost of the monetary asset. Other foreign exchange gains and losses are recognized in other comprehensive income.

(v)

Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method except for loans and receivables of which the effect of discounting is immaterial.

(vi)

Impairment of financial assets

Financial assets, other than those at financial assets at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

For listed and unlisted equity investments classified as available-for-sale financial asset, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment in addition to the criteria mentioned below.

For all other financial assets, objective evidence of impairment could include:

•

Significant financial difficulty of the issuer or counterparty; or

•

Breach of contract, such as a default or delinquency in interest or principal payments, or

•

It becoming probable that the borrower will enter bankruptcy or financial re-organization; or

•

The disappearance of an active market for that financial asset because of financial difficulties.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(22)

Non-derivative financial assets, continued

For certain categories of financial asset, such as trade receivables, assets that are assessed not to be impaired individually are, in addition, assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of receivables could include the Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period and, as well as observable changes in national or local economic conditions that correlate with default on receivables.

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 profit 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 profit or loss are not reversed through profit 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 profit 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.

(vii)

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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(22)

Non-derivative financial assets, continued

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.

(23)

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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(23)

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

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’.

(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.

(24)

Service Concession Arrangements

The Company recognizes revenues from construction services and operating services related to service concession arrangements in accordance with K-IFRS 1011, ’Construction Contracts’ and K-IFRS 1018, ‘Revenue’, respectively. If the Company performs more than one service under a single contract or arrangement, consideration received or receivable is allocated by reference to the relative fair values of the services delivered, when the amounts are separately identifiable.

The Company recognizes a financial asset to the extent that it has an unconditional contractual right to receive cash or another financial asset for the construction services and an intangible asset to the extent that it receives a right (license) to charge users of the public service. Borrowing costs attributable to the arrangement are recognized as an expense in the period in which they are incurred unless the Company has a contractual right to receive an intangible asset (a right to charge users of the public service). In this case, borrowing costs attributable to the arrangement are capitalized during the construction phase of the arrangement.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(25)

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.

(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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

3.	Significant Accounting Policies, Continued

(24)

Derivative financial instruments, including hedge accounting, continued

(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. 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.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

4.	Segment, Geographic and Other Information

(1)

Segment determination and explanation of the measurements

The Company’s operating segments are its business components that generate discrete financial information that is reported to and regularly reviewed 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 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 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 equity method in the consolidated financial statements.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

4.	Segment, Geographic and Other Information, Continued

(2)

Financial information of the segments for the years ended December 31, 2016 and 2015, respectively, are as follows:


In millions of won
2016
Segment	Total segment revenue			Intersegment revenue			Revenue from external customers		Operating profit			Depreciation and amortization			Interest income			Interest expense			Profit related associates, joint ventures and subsidiaries

Transmission and distribution	W	60,289,581			1,890,489			58,399,092		4,881,540			3,226,700			80,882			844,200			(128,402	)
Electric power generation (Nuclear)		11,168,579			11,129,385			39,194		3,819,778			3,130,820			33,111			474,590			(1,082	)
Electric power generation (Non-nuclear)		21,394,223			20,561,044			833,179		3,211,318			2,523,306			24,171			359,607			(8,342	)
Plant maintenance & engineering service		2,618,388			2,190,207			428,181		196,989			98,843			10,672			2,156			478
Others		567,836			77,098			490,738		89,301			26,817			115,928			97,926			—
Consolidation adjustments		(35,848,223	)		(35,848,223	)		—		(197,327	)		(45,498	)		(22,986	)		(25,611	)		—


	W	60,190,384			—			60,190,384		12,001,599			8,960,988			241,778			1,752,868			(137,348	)

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

4.	Segment, Geographic and Other Information, Continued

(2)

Financial information of the segments for the years ended December 31, 2016 and 2015, respectively, are as follows, continued:


In millions of won
2015
Segment	Total segment revenue			Intersegment revenue			Revenue from external customers		Operating profit (loss)		Depreciation and amortization			Interest income			Interest expense			Profit related associates, joint ventures and subsidiaries

Transmission and distribution	W	58,540,389			1,230,975			57,309,414		4,425,361		2,859,037			132,809			1,092,594			220,406
Electric power generation (Nuclear)		10,642,352			10,596,189			46,163		3,784,990		3,070,828			24,612			532,490			(595	)
Electric power generation (Non-nuclear)		21,469,345			20,906,081			563,264		2,732,497		2,337,353			22,171			319,647			(10,686	)
Plant maintenance & engineering service		2,533,887			2,016,699			517,188		285,786		85,662			12,293			542			(1,746	)
Others		672,250			150,557			521,693		42,629		27,491			108,104			127,684			—
Consolidation adjustments		(34,900,501	)		(34,900,501	)		—		75,469		(38,987	)		(58,404	)		(57,273	)		—


	W	58,957,722			—			58,957,722		11,346,732		8,341,384			241,585			2,015,684			207,379

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

4.	Segment, Geographic and Other Information, Continued

(3)

Information related to segment assets and segment liabilities as of and for the years ended December 31, 2016 and 2015 are as follows:


In millions of won
2016
Segment	Segment assets			Investments in associates and joint ventures		Acquisition of non- current assets			Segment liabilities

Transmission and distribution	W	105,321,129			4,121,462		6,345,004			49,854,420
Electric power generation (Nuclear)		52,782,915			15,384		1,945,610			27,366,938
Electric power generation (Non-nuclear)		47,427,642			1,320,203		3,508,313			26,205,049
Plant maintenance & engineering service		3,106,909			53,399		180,715			1,218,047
Others		7,423,132			—		365,470			2,761,262
Consolidation adjustments		(38,224,685	)		—		(191,901	)		(2,619,219	)


Consolidated totals	W	177,837,042			5,510,448		12,153,211			104,786,497


In millions of won
2015
Segment	Segment assets			Investments in associates and joint ventures		Acquisition of non- current assets		Segment liabilities

Transmission and distribution	W	106,306,250			4,338,888		5,885,919		53,125,589
Electric power generation (Nuclear)		51,043,890			16,385		2,647,304		27,386,113
Electric power generation (Non-nuclear)		44,453,545			1,283,432		5,063,195		25,587,071
Plant maintenance & engineering service		2,990,862			54,825		249,627		1,172,351
Others		5,962,546			—		144,846		2,312,658
Consolidation adjustments		(35,499,734	)		—		146,942		(2,268,898	)


Consolidated totals	W	175,257,359			5,693,530		14,137,833		107,314,884

(4)

Geographic information

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


In millions of won	Revenue from external customers				*Non-current assets (2)**
Geographical unit	2016		2015		2016		2015

Domestic	W	55,737,308		54,727,071		148,297,677		143,788,043
Overseas (*1)		4,453,076		4,230,651		4,474,699		4,526,395


	W	60,190,384		58,957,722		152,772,376		148,314,438

(*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 significant customers

There is no individual customer comprising more than 10% of the Company’s revenue for the years ended December 31, 2016 and 2015.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

5.	Classification of Financial Instruments

(1)

Classification of financial assets as of December 31, 2016 and 2015 are as follows:


In millions of won	2016
	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	W	—		3,051,353		—		—		—		3,051,353
Current financial assets
Held-to-maturity investments		—		—		—		114		—		114
Derivative assets		79,709		—		—		—		113,574		193,283
Other financial assets		—		2,478,592		—		—		—		2,478,592
Trade and other receivables		—		7,788,876		—		—		—		7,788,876

		79,709		13,318,821		—		114		113,574		13,512,218

Non-current assets
Non-current financial assets
Available-for-sale financial assets		—		—		1,014,732		—		—		1,014,732
Held-to-maturity investments		—		—		—		3,130		—		3,130
Derivative assets		287,768		—		—		—		300,323		588,091
Other financial assets		—		1,051,541		—		—		—		1,051,541
Trade and other receivables		—		1,903,515		—		—		—		1,903,515

		287,768		2,955,056		1,014,732		3,130		300,323		4,561,009


	W	367,477		16,273,877		1,014,732		3,244		413,897		18,073,227


In millions of won	2015
	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	W	—		3,783,065		—		—		—		3,783,065
Current financial assets
Held-to-maturity investments		—		—		—		381		—		381
Derivative assets		1,498		—		—		—		95,759		97,257
Other financial assets		—		5,237,983		—		—		—		5,237,983
Trade and other receivables		—		7,473,548		—		—		—		7,473,548

		1,498		16,494,596		—		381		95,759		16,592,234

Non-current assets
Non-current financial assets
Available-for-sale financial assets		—		—		584,479		—		—		584,479
Held-to-maturity investments		—		—		—		3,242		—		3,242
Derivative assets		253,510		—		—		—		266,383		519,893
Other financial assets		—		1,387,940		—		—		—		1,387,940
Trade and other receivables		—		1,798,419		—		—		—		1,798,419

		253,510		3,186,359		584,479		3,242		266,383		4,293,973


	W	255,008		19,680,955		584,479		3,623		362,142		20,886,207

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

5.	Classification of Financial Instruments, Continued

(2)

Classification of financial liabilities as of December 31, 2016 and 2015 are as follows:


In millions of won	2016
	Financial liabilities at fair value through profit or loss		Financial liabilities recognized at amortized cost		Derivative liabilities (using hedge accounting)		Total
Current liabilities
Borrowings	W	—		1,115,521		—		1,115,521
Debt securities		—		7,823,557		—		7,823,557
Derivative liabilities		3,251		—		—		3,251
Trade and other payables		—		5,585,411		—		5,585,411

		3,251		14,524,489		—		14,527,740

Non-current liabilities
Borrowings		—		1,773,891		—		1,773,891
Debt securities		—		42,926,236		—		42,926,236
Derivative liabilities		18,278		—		117,157		135,435
Trade and other payables		—		3,558,175		—		3,558,175

		18,278		48,258,302		117,157		48,393,737


	W	21,529		62,782,791		117,157		62,921,477


In millions of won	2015
	Financial liabilities at fair value through profit or loss		Financial liabilities recognized at amortized cost		Derivative liabilities (using hedge accounting)		Total
Current liabilities
Borrowings	W	—		1,144,027		—		1,144,027
Debt securities		—		6,702,926		—		6,702,926
Derivative liabilities		9,487		—		758		10,245
Trade and other payables		—		4,735,697		—		4,735,697

		9,487		12,582,650		758		12,592,895

Non-current liabilities
Borrowings		—		1,932,259		—		1,932,259
Debt securities		—		48,974,287		—		48,974,287
Derivative liabilities		39,524		—		116,741		156,265
Trade and other payables		—		3,718,435		—		3,718,435

		39,524		54,624,981		116,741		54,781,246


	W	49,011		67,207,631		117,499		67,374,141

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

5.	Classification of Financial Instruments, Continued

(3)

Classification of comprehensive income from financial instruments for the years ended December 31, 2016 and

2015 are as follows:


In millions of won		2016			2015

Cash and cash equivalents	Interest income	W	61,380			54,687
Available-for-sale financial assets	Dividends income		9,446			14,069
	Impairment loss on available-for-sale financial assets		(86,703	)		(84,370	)
	Gain (loss) on disposal of available-for-sale financial assets		1,473			(3,004	)
	Interest income		—			29
Held-to-maturity investments	Interest income		97			99
Loans and receivables	Interest income		25,106			28,586
Trade and other receivables	Interest income		102,237			100,771
Short-term financial instruments	Interest income		45,763			46,921
Long-term financial instruments	Interest income		7,195			10,492
Financial assets at fair value through profit or loss	Gain on valuation of derivatives		113,671			220,285
	Gain (loss) on transaction of derivatives		(8,039	)		8,605
Derivative assets (using hedge accounting)	Gain on valuation of derivatives (profit or loss)		145,458			244,020
	Gain (loss) on valuation of derivatives (equity, before tax) (*)		50,047			(12,572	)
	Gain (loss) on transaction of derivatives		(13,994	)		2,818
Financial liabilities carried at amortized cost	Interest expense of borrowings and debt securities		(1,202,065	)		(1,392,477	)
	Loss on retirement of financial liabilities		(23,000	)		(33	)
	Interest expense of trade and other payables		(68,375	)		(84,527	)
	Interest expense of others		(482,428	)		(538,680	)
	Loss on foreign currency transactions and translations		(290,485	)		(708,178	)
Financial liabilities at fair value through profit or loss	Gain on valuation of derivatives		23,225			35,312
	Gain on transaction of derivatives		17,045			107,454
Derivative liabilities (using hedge accounting)	Gain on valuation of derivatives (profit or loss)		5,714			93,914
	Gain (loss) on valuation of derivatives (equity, before tax) (*)		(3,297	)		9,728
	Loss on transaction of derivatives		(51,450	)		(4,288	)

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

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

6.	Restricted Deposits

Restricted deposits as of December 31, 2016 and 2015 are as follows:


In millions of won		2016		2015

Cash and cash equivalents	Escrow accounts	W	91		4,828
	Deposits for government project		16,457		5,839
	Collateral provided for borrowings		80,327		6,839
	Collateral provided for lawsuit		241		641
	Deposits for transmission regional support program		2,137		204
	Pledge		—		740
Non-current available-for-sale financial asset	Decommissioning costs of nuclear power plants		437,015		—
Short-term financial instruments	Bidding guarantees		118		—
	Restriction on withdrawal related to ‘win-win growth program’ for small and medium enterprises		33,000		18,000
Other current receivables	Deposit for lawsuit		16,000		—
Long-term financial instruments	Guarantee deposits for checking account		2		2
	Guarantee deposits for banking accounts at oversea branches		342		333
	Decommissioning costs of nuclear power plants		214,121		652,700
	Collateral provided for borrowings		—		20
	Funds for developing small and medium enterprises (*1)		200,000		100,000


		W	999,851		790,146

(*1)	Deposits for small and medium enterprise at IBK for construction of Bitgaram Energy Valley and support for the high potential businesses as of December 31, 2016.

7.	Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2016 and 2015 are as follows:


In millions of won	2016		2015

Cash	W	119		109
Other demand deposits		1,725,785		1,309,396
Short-term deposits classified as cash equivalents		120,594		374,575
Short-term investments classified as cash equivalents		1,204,855		2,098,985


	W	3,051,353		3,783,065

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

8.	Trade and Other Receivables

(1)

Trade and other receivables as of December 31, 2016 and 2015 are as follows:


In millions of won	2016
	Gross amount		Allowance for doubtful accounts			Present value discount			Book value
Current assets
Trade receivables	W	7,260,227		(71,985	)		—			7,188,242
Other receivables		652,782		(50,071	)		(2,077	)		600,634

		7,913,009		(122,056	)		(2,077	)		7,788,876

Non-current assets
Trade receivables		491,509		—			—			491,509
Other receivables		1,455,860		(37,590	)		(6,264	)		1,412,006

		1,947,369		(37,590	)		(6,264	)		1,903,515


	W	9,860,378		(159,646	)		(8,341	)		9,692,391


In millions of won	2015
	Gross amount		Allowance for doubtful accounts			Present value discount			Book value
Current assets
Trade receivables	W	6,862,762		(51,956	)		(14	)		6,810,792
Other receivables		718,717		(52,778	)		(3,183	)		662,756

		7,581,479		(104,734	)		(3,197	)		7,473,548

Non-current assets
Trade receivables		447,010		—			—			447,010
Other receivables		1,396,107		(38,968	)		(5,730	)		1,351,409

		1,843,117		(38,968	)		(5,730	)		1,798,419


	W	9,424,596		(143,702	)		(8,927	)		9,271,967

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

8.	Trade and Other Receivables, Continued

(2)

Other receivables as of December 31, 2016 and 2015 are as follows:


In millions of won	2016
	Gross amount		Allowance for doubtful accounts			Present value discount			Book value
Current assets
Non-trade receivables	W	360,021		(50,071	)		—			309,950
Accrued income		62,063		—			—			62,063
Deposits		193,720		—			(2,077	)		191,643
Finance lease receivables		12,225		—			—			12,225
Others		24,753		—			—			24,753

		652,782		(50,071	)		(2,077	)		600,634

Non-current assets
Non-trade receivables		80,393		(26,942	)		—			53,451
Accrued income		174		—			—			174
Deposits		320,935		—			(6,264	)		314,671
Finance lease receivables		960,649		—			—			960,649
Others		93,709		(10,648	)		—			83,061

		1,455,860		(37,590	)		(6,264	)		1,412,006


	W	2,108,642		(87,661	)		(8,341	)		2,012,640


In millions of won	2015
	Gross amount		Allowance for doubtful accounts			Present value discount			Book value
Current assets
Non-trade receivables	W	330,669		(52,778	)		—			277,891
Accrued income		88,256		—			—			88,256
Deposits		235,745		—			(3,183	)		232,562
Finance lease receivables		12,098		—			—			12,098
Others		51,949		—			—			51,949

		718,717		(52,778	)		(3,183	)		662,756

Non-current assets
Non-trade receivables		93,782		(31,829	)		—			61,953
Accrued income		582		—			—			582
Deposits		256,745		—			(5,730	)		251,015
Finance lease receivables		941,710		—			—			941,710
Others		103,288		(7,139	)		—			96,149

		1,396,107		(38,968	)		(5,730	)		1,351,409


	W	2,114,824		(91,746	)		(8,913	)		2,014,165

(3)

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 related to electricity for the duration between the billing date and the payment due dates. But once trade receivables are overdue, the Company imposes a monthly interest rate of 1.5% on the overdue trade receivables. The Company holds deposits of three-months’ expected electricity usage for customers requesting temporary usage and customers with past defaulted payments.

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

8.	Trade and Other Receivables, Continued

(4)

Aging analysis of trade receivables as of December 31, 2016 and 2015 are as follows:


In millions of won	2016			2015

Trade receivables: (not overdue, not impaired)	W	7,592,363			7,198,403

Trade receivables: (overdue, not impaired)		820			891

Less than 60 days		820			891

Trade receivables: (impairment reviewed)		158,553			110,478

60 ~ 90 days		44,277			31,973
90 ~ 120 days		18,917			11,010
120 days ~ 1 year		42,534			35,097
Over 1 year		52,825			32,398

		7,751,736			7,309,772
Less: allowance for doubtful accounts		(71,985	)		(51,956	)
Less: present value discount		—			(14	)


	W	7,679,751			7,257,802

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 an allowance based on past experience of collection.

(5)

Aging analysis of other receivables as of December 31, 2016 and 2015 are as follows:


In millions of won	2016			2015

Other receivables: (not overdue, not impaired)	W	1,887,620			1,918,132

Other receivables: (overdue, not impaired)		46,887			20,249

Less than 60 days		46,887			20,249

Other receivables: (impairment reviewed)		174,135			176,443

60 ~ 90 days		7,352			2,409
90 ~ 120 days		2,160			10,097
120 days ~ 1 year		17,613			21,433
Over 1 year		147,010			142,504

		2,108,642			2,114,824
Less: allowance for doubtful accounts		(87,661	)		(91,746	)
Less: present value discount		(8,341	)		(8,913	)


	W	2,012,640			2,014,165

(6)

Changes in the allowance for doubtful accounts for the years ended December 31, 2016 and 2015 are as follows:


In millions of won	2016						2015
	Trade receivables			Other receivables			Trade receivables			Other receivables

Beginning balance	W	51,956			91,746			80,644			67,932
Bad debt expense		38,719			233			1,308			18,473
Write-off		(18,939	)		(928	)		(28,978	)		(888	)
Reversal		—			(5,489	)		(1,018	)		(413	)
Others		249			2,099			—			6,642


Ending balance	W	71,985			87,661			51,956			91,746

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

9.	Available-for-sale Financial Assets

(1)

Changes in available-for-sale financial assets for the years ended December 31, 2016 and 2015 are as follows:


In millions of won	2016
	Beginning balance		Acquisition		Disposal			Valuation			Impairment			Others			Ending balance
Listed:
Korea District Heating Corp.	W	130,410		—		—			23,773			—			—			154,183
Kwanglim Co., Ltd. (*1)		262		—		(214	)		598			—			(646	)		—
Ssangyong Motor Co., Ltd.		299		—		—			5			—			—			304
Sungjee Construction. Co., Ltd.		5		—		—			16			—			—			21
Korea Line Corp.		—		—		—			—			—			—			—
Namkwang Engineering & Construction Co., Ltd.		1		—		—			(1	)		—			—			—
Pumyang Construction Co., Ltd.		—		—		—			—			—			—			—
ELCOMTEC Co., Ltd.		53		—		—			21			—			—			74
PAN ocean Co., Ltd.		6		—		—			1			—			—			7
Borneo International Furniture Co., Ltd.		103		—		—			—			—			—			103
TONGYANG Inc. (*1)		217		—		(44	)		25			—			(198	)		—
TONGYANG networks Inc. (*1)		6		—		(3	)		—			—			(3	)		—
Nexolon Co., Ltd. (*1)		3,196		—		(3,137	)		569			—			(628	)		—
Dongbu Corporation,		—		—		—			—			—			12			12
PT Adaro Energy Tbk		21,012		—		—			52,049			—			—			73,061
Energy Fuels Inc.		5,926		—		—			(2,775	)		(3,273	)		3,507			3,385
Baralaba Coal Company Limited (formerly, Cockatoo Coal Limited)		42		—		—			—			—			—			42
Denison Mines Corp.		34,457		—		—			—			(5,849	)		7,896			36,504
Fission 3.0		30		—		—			(16	)		—			2			16
Fission Uranium Corp.		554		—		—			(126	)		—			31			459

		196,579		—		(3,398	)		74,139			(9,122	)		9,973			268,171

Unlisted:
K&C - Gyeongnam youth job creation Investment Fund		1,207		—		—			—			—			—			1,207
Korea investment – Korea EXIM Bank CERs Private Special Asset Investment Trust I		571		—		—			—			—			—			571
Troika Overseas Resource Development Private Equity Firm		1,553		—		—			—			—			—			1,553
IBK-AUCTUS Green Growth Private Equity firm (*1)		855		—		(814	)		—			—			—			41
Global Dynasty Overseas Resource Development Private Equity Firm		2,233		—		—			—			—			—			2,233
Intellectual Discovery, Ltd.		1,375		—		—			—			—			—			1,375
Hanwha-KOSEP New Renewable Energy Private Special Assets Investment Trust 1 (*1)		1,069		3,685		(365	)		—			—			—			4,389
Construction Guarantee		805		—		—			14			—			—			819
Plant & Mechanical Contractors Financial Cooperative of Korea		36		—		—			—			—			—			36
Fire Guarantee		20		—		—			—			—			—			20
Korea Software Financial Cooperative		301		3,000		—			—			—			—			3,301
Engineering Financial Cooperative		60		—		—			—			—			—			60
Electric Contractors Financial Cooperative		152		—		—			—			—			—			152
Korea Specialty Contractor Financial Cooperative		417		—		—			—			—			—			417
Information & Communication Financial Cooperative		10		—		—			—			—			—			10
Korea Electric Engineers Association		40		—		—			—			—			—			40
Korea investment – Investment Pool for Public funds 10		—		142,470		—			(1,155	)		—			—			141,315
Samsung investment – Investment Pool for Public funds 2		—		213,710		—			(1,790	)		—			—			211,920
Samsung investment – Investment Pool for Public funds 1		—		53,220		—			(8	)		—			—			53,212
Korea investment – Hanwha KT Mater Lease Private Special Investment Trust (*1)		—		31,200		(640	)		8			—			—			30,568

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

9.	Available-for-sale Financial Assets, Continued

(1)

Changes in available-for-sale financial assets for the years ended December 31, 2016 and 2015 are as follows, continued:


In millions of won	2016
	Beginning balance		Acquisition		Disposal		Valuation		Impairment			Others			Ending balance
Hwan Young Steel Co., Ltd.	W	97		—		—		—		—			—			97
Woobang ENC Co., Ltd		22		—		—		—		(22	)		—			—
Dongnam Co., Ltd.		72		—		—		—		(72	)		—			—
SAMBO AUTO. Co., Ltd.		38		—		—		—		—			—			38
Mobo Co., Ltd.		14		—		—		—		—			—			14
Poonglim Industrial Co., Ltd.		93		—		—		—		(93	)		—			—
HANKOOK Silicon Co., Ltd.		7,513		—		—		—		(6,018	)		—			1,495
Kun Young Engineering & Construction Co., Ltd.		5		—		—		—		(3	)		(2	)		—
Pumyang Asset Management Co., Ltd.		3		—		—		—		(3	)		—			—
Dae Kwang Semiconductor Co., Ltd.		6		—		—		—		—			—			6
Sanbon Department Store		3		—		—		—		—			—			3
Woori Ascon Co., Ltd.		10		—		—		—		—			(10	)		—
Miju Steel Mfg. Co., Ltd.		51		—		—		—		—			—			51
BnB Sungwon Co., Ltd.		15		—		—		—		—			—			15
Hana Civil Engineering Co., Ltd.		1		—		—		—		—			—			1
KC Development Co., Ltd.		6		—		—		—		—			—			6
IMHWA Corp.		5		—		—		—		—			—			5
DALIM Special Vehicle Co., Ltd.		10		—		—		—		—			—			10
ASA JEONJU Co., Ltd.		69		—		—		—		—			—			69
KYUNGWON Co., Ltd.		14		—		—		—		(14	)		—			—
Moonkyung Silica Co., Ltd.		—		—		—		—		—			—			—
Yousung Remicon Co., Ltd.		4		—		—		—		(4	)		—			—
Sungkwang Timber Co., Ltd.		4		—		—		—		—			—			4
Yongbo Co., Ltd.		3		—		—		—		—			—			3
HJ Steel Co., Ltd.		2		—		—		—		—			—			2
KS Remicon Co., Ltd.		3		—		—		—		—			—			3
Sewoong Heavy Industries Co., Ltd.		40		—		—		—		(40	)		—			—
SIN-E Steel Co., Ltd.		33		—		—		—		—			—			33
Joongang Platec Co., Ltd.		72		—		—		—		(37	)		—			35
Pyungsan SI Ltd.		9		—		—		—		—			—			9
Samgong Development Co., Ltd.		7		—		—		—		—			—			7
Joongang Development Co., Ltd.		8		—		—		—		—			—			8
AJS Co., Ltd.		32		—		—		—		—			—			32
SHIN-E B&P Co., Ltd.		10		—		—		—		—			—			10
MSE Co., Ltd.		9		—		—		—		—			—			9
Ilrim Nano Tec Co., Ltd.		15		—		—		—		—			—			15
Kwang Myeong Electronics Technology Co., Ltd.		11		—		—		—		(11	)		—			—
Youngjin Hi-Tech Co., Ltd.		21		—		—		—		—			—			21
Dong Woo International Co., Ltd.		18		—		—		—		—			—			18
Bench Mark Construction Co., Ltd.		—		—		—		—		—			—			—
Buyoung Co., Ltd.		3		—		—		—		—			—			3
Ilsuk Co., Ltd.		10		—		—		—		—			—			10
Dongyang Telecom Co., Ltd.		11		—		—		—		—			—			11
Han Young Construction Co., Ltd.		3		—		—		—		—			—			3
Jongwon Remicon Co., Ltd.		13		—		—		—		—			—			13
Ace Heat Treating Co., Ltd.		72		—		—		—		—			—			72
Zyle Daewoo Motor Sales Co., Ltd.		—		—		—		—		—			—			—
Daewoo Development Co., Ltd.		—		—		—		—		—			—			—
Seyang Inc.		27		—		—		—		—			—			27
Seungri Enterprise Co., Ltd.		3		—		—		—		—			—			3

KOREA ELECTRIC POWER CORPORATION AND SUBSIDIARIES

Notes to the Consolidated Financial Statements, Continued

December 31, 2016

9.	Available-for-sale Financial Assets, Continued

(1)

Changes in available-for-sale financial assets for the years ended December 31, 2016 and 2015 are as follows, continued:


In millions of won	2016
	Beginning balance		Acquisition		Disposal		Valuation		Impairment			Others			Ending balance
Onggane Food Co., Ltd.	W	1		—		—		—		—			—			1
Shin-E P&C Co., Ltd.		1		—		—		—		—			—			1
Ejung Ad Co., Ltd.		3		—		—		—		—			—			3
Solvus Co., Ltd.		3		—		—		—		—			—			3
Myung Co., Ltd.		2		—		—		—		—			—			2
Emotion Co., Ltd.		8		—		—		—		—			—			8
Youngdong Concrete Co., Ltd.		7		—		—		—		—			—			7
Shinil Engineering Co., Ltd.		3		—		—		—		—			—			3
Korea Castiron Industrial Co., Ltd.		22		—		—		—		(22	)		—			—
FFG DMC Co., Ltd.		17		—		—		—		(68	)		51			—
Daeseong Metal Co., Ltd.		47		—		—		—		—			(47	)		—
Biwang Industry Co., Ltd		2		—		—		—		—			—			2
Huimun Co., Ltd.		4		—		—		—		—			—			4
Sunun IT F Co., Ltd.		8		—		—		—		—			(8	)		—
Young Sung Co., Ltd.		27		—		—		—		—			—			27
Yuil Industrial Electronics Co., Ltd.		16		—		—		—		—			—			16
DN TEK Inc.		62		—		—		—		(56	)		—			6
Daeyang F.M.S Corporation		3		—		—		—		—			20			23
Kwang Jin Structure Co., Ltd.		31		—