| 12. | Intangible Assets |
Changes in intangible assets for the years ended December 31, 2016 and 2017, are as follows:
| 2016 | ||||||||||||||||||||||||
| (In millions of Korean won) | Goodwill | Development costs1 |
Software |
Frequency usage rights |
Others | Total | ||||||||||||||||||
|
Acquisition cost |
449,379 | 1,487,420 | 805,387 | 2,591,229 | 1,109,085 | 6,442,500 | ||||||||||||||||||
|
Less: Accumulated amortization (including accumulated impairment loss and others) |
(107,038 | ) | (1,025,877 | ) | (574,003 | ) | (1,618,459 | ) | (517,372 | ) | (3,842,749 | ) | ||||||||||||
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Beginning, net |
￦ | 342,341 | ￦ | 461,543 | ￦ | 231,384 | ￦ | 972,770 | ￦ | 591,713 | ￦ | 2,599,751 | ||||||||||||
|
Acquisition and capital expenditure |
— | 36,075 | 35,631 | 978,309 | 74,312 | 1,124,327 | ||||||||||||||||||
|
Disposal and termination |
— | (8,600 | ) | (1,928 | ) | — | (16,397 | ) | (26,925 | ) | ||||||||||||||
|
Amortization |
— | (162,682 | ) | (78,643 | ) | (273,790 | ) | (84,606 | ) | (599,721 | ) | |||||||||||||
|
Impairment |
(131,600 | ) | — | (46 | ) | — | (3,618 | ) | (135,264 | ) | ||||||||||||||
|
Inclusion in scope of consolidation |
42,745 | — | 2,462 | — | 16,015 | 61,222 | ||||||||||||||||||
|
Others |
— | 8,340 | 8,278 | — | (17,205 | ) | (587 | ) | ||||||||||||||||
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Ending, net |
￦ | 253,486 | ￦ | 334,676 | ￦ | 197,138 | ￦ | 1,677,289 | ￦ | 560,214 | ￦ | 3,022,803 | ||||||||||||
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Acquisition cost |
492,105 | 1,483,205 | 838,532 | 2,531,654 | 1,154,993 | 6,500,489 | ||||||||||||||||||
| (238,619 | ) | (1,148,529 | ) | (641,394 | ) | (854,365 | ) | (594,779 | ) | (3,477,686 | ) | |||||||||||||
| 2017 | ||||||||||||||||||||||||
| (In millions of Korean won) | Goodwill | Development costs1 |
Software |
Frequency usage rights |
Others | Total | ||||||||||||||||||
|
Acquisition cost |
492,105 | 1,483,205 | 838,532 | 2,531,654 | 1,154,993 | 6,500,489 | ||||||||||||||||||
|
Less: Accumulated amortization (including accumulated impairment loss and others) |
(238,619 | ) | (1,148,529 | ) | (641,394 | ) | (854,365 | ) | (594,779 | ) | (3,477,686 | ) | ||||||||||||
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Beginning, net |
￦ | 253,486 | ￦ | 334,676 | ￦ | 197,138 | ￦ | 1,677,289 | ￦ | 560,214 | ￦ | 3,022,803 | ||||||||||||
|
Acquisition and capital expenditure |
— | 247,863 | 60,475 | — | 78,373 | 386,711 | ||||||||||||||||||
|
Disposal and termination |
— | (14,806 | ) | (548 | ) | — | (11,859 | ) | (27,213 | ) | ||||||||||||||
|
Amortization |
— | (151,718 | ) | (73,174 | ) | (311,146 | ) | (99,112 | ) | (635,150 | ) | |||||||||||||
|
Impairment |
(84,606 | ) | — | (3 | ) | — | (31,486 | ) | (116,095 | ) | ||||||||||||||
|
Inclusion in scope of consolidation |
— | (332 | ) | (3,216 | ) | — | (1,374 | ) | (4,922 | ) | ||||||||||||||
|
Others |
— | 2,876 | 9,569 | (1,201 | ) | (4,674 | ) | 6,570 | ||||||||||||||||
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Ending, net |
￦ | 168,880 | ￦ | 418,559 | ￦ | 190,241 | ￦ | 1,364,942 | ￦ | 490,081 | ￦ | 2,632,704 | ||||||||||||
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Acquisition cost |
474,908 | 1,643,886 | 893,500 | 2,530,341 | 1,171,378 | 6,714,014 | ||||||||||||||||||
|
Less; Accumulated amortization (including accumulated impairment loss and others) |
(306,028 | ) | (1,225,327 | ) | (703,259 | ) | (1,165,399 | ) | (681,297 | ) | (4,081,310 | ) | ||||||||||||
| 1 | The Company’s development costs mainly consist of acquisition costs to develop a combined billing system and an information management system. |
The carrying amount of membership rights with indefinite useful life not subject to amortization is ￦238,053 million (2016: ￦268,350 million) as of December 31, 2017.
Goodwill is allocated to the Group’s cash-generating unit which is identified by operating segments. As of December 31, 2017, goodwill allocated to each cash-generation unit is as follows:
|
(In millions of Korean won) Cash generating Unit |
Amount | |||
|
Marketing/Customer |
||||
|
Telecom Wireless business1 |
￦ | 65,057 | ||
|
Finance and Rental |
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BC Card Co., Ltd. 2 |
41,234 | |||
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Others |
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PlayD Co., Ltd. (N search Marketing Co., Ltd) 3 |
42,745 | |||
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Genie Music Corporation (KT Music Corporation) and others |
19,844 | |||
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Total |
￦ | 168,880 | ||
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| 1 | The recoverable amounts of mobile business are calculated based on value-in use calculations. These calculations use cash flow projections for the next five years based on financial budgets. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five year. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its revenue growth rate -2.46% based on past performance and its expectation of future market changes. In addition, management estimated the cash flow based on past performance and its expectation of market growth, and the discount rates 8.95% used reflected specific risks relating to the relevant CGUs. As a result of the impairment test, the Group concluded that the carrying amount of CGUs does not exceed the recoverable amount. Accordingly, the Group did not recognise the impairment loss on goodwill on mobile business for the years ended December 31, 2017 and 2016. |
| 2 | The recoverable amounts of BC Card Co., Ltd. are calculated based on value-in use calculations. These calculations use cash flow projections for the next five years based on financial budgets. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five year. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its revenue growth rate 0.11% based on past performance and its expectation of future market changes. In addition, management estimated the cash flow based on past performance and its expectation of market growth, and the discount rates 14.62% used reflected specific risks relating to the relevant CGUs. As a result of the impairment test, the Group concluded that the carrying amount of CGUs does not exceed the recoverable amount. Accordingly, the Group did not recognise the impairment loss on goodwill on BC Card Co., Ltd. for the years ended December 31, 2017 and 2016. |
| 3 |
The recoverable amounts of PlayD Co., Ltd. (N search Marketing Co., Ltd.) are calculated based on value-in use calculations. These calculations use cash flow projections for the next five years based on financial budgets. An annual growth rate of 1.0% was applied for the cash flows expected to be incurred after five year. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its revenue growth rate 4.27% based on past performance and its expectation of future market changes. In addition, management estimated the cash flow based on past performance and its expectation of market growth, and the discount rates 9.5% used reflected specific risks relating to the relevant CGUs. As a result of the impairment test, the Group concluded that the carrying amount of CGUs does not exceed the recoverable amount. Accordingly, the Group did not recognise the impairment loss on goodwill on PlayD Co., Ltd. (N search Marketing Co., Ltd.) for the years ended December 31, 2017 and 2016. |
As a result of the impairment test, the Group recognized the impairment losses of ￦78,200 million on entire balance of goodwill allocated to Satellite TV segment and ￦29,325 million on indefinite-lived intangible assets, and recognized the losses as operating expenses in the consolidated statement of profit or loss. It is resulted from intense competition between internets, IPTV, Cable TV service providers.
The recoverable amounts of Satellite TV segment are calculated based on value-in use calculations or fair value less costs to sell. These calculations use cash flow projections for the next five years based on financial budgets. An annual growth rate of 0.0% was applied for the cash flows expected to be incurred after five year. This growth rate does not exceed the long-term average growth rate of the industry which the cash-generate unit belongs in. The Group estimated its revenue growth rate (-0.77%) based on past performance and its expectation of future market changes. The Group determined cash flow projections based on past performance and its estimation of market growth. Specific risk of related operating segment is reflected in its 13.25% discount rate.