Ifrs 10 Application to Hyundai and Kia

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  • Topic: Hyundai Kia Automotive Group, Kia Motors, Hyundai
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  • Published : October 22, 2012
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ACCT333 Advanced Financial Accounting
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Group Project Assignment (IFRS 10)
Cheong Wang Shen Gordon

Prepared for: Prof Bernardine Low
Prepared by: Gordon Cheong Wang Shen
Jason Tan Zhu En
Twain Teo Wei Ren
Wee Huixiang (G4)

Table of Contents
Question 1: IFRS 10 flowchart3
Question 25
(a) Identifying ambiguity of control5
Background5
Control issues5
Co-owning of subsidiaries5
Inter-company director relations6
Same platform manufacturing6
(b) & (c) Application of IFRS 10 flowchart to determine existence of control by Hyundai7
Step 1: Determine the purpose and design of investee (Kia)7
Step 2: Determine relevant activities7
Step 3: Determination of ability to direct relevant activities8
Step 4: Determine if exposed to variable returns9
Step 5: Determine if Hyundai is a principal or an agent10
Question 310
Identification of four requirements in IFRS 10 that are challenging to interpret and apply10
Considering the purpose and design of the investee10
Determining the relative size of voting rights11
Considering related parties12
Determining if investor is a principal or agent12
References14

Question 1: IFRS 10 flowchart

Question 2
(a) Identifying ambiguity of control
Background
The Hyundai Motor Company (hereafter referred to as Hyundai) is a multinational automaker based in Seoul, South Korea. Hyundai is one of the two best-known divisions of the global conglomerate Hyundai, the other being Hyundai Heavy Industries, the largest shipbuilder globally. A famous Korean businessman, Chung Ju-yung, founded Hyundai in 1974. Following the Asian Financial Crisis in 1997, Hyundai bought over Kia Motors Corporation (hereafter referred to as Kia) in 1998, which resulted in the formation of the Hyundai Kia Automotive Group (HKAG). It consists of multiple affiliated companies related through complex shareholding agreements, although Hyundai is taken to be the de facto representative in transactions done with HKAG. During the acquisition of Kia in 1998, Hyundai out-bidded Ford motors to acquire 51% of the company’s shareholding. After a series of divestments over the years, the total ownership of Hyundai in Kia has been reduced to only 33.75%. Hyundai and Kia are both listed individually on the Korean Stock Exchange. In 2008, Hyundai was ranked the 8th largest automaker in the world. It was also the fastest growing automaker globally for 2 consecutive years (2010 and 2011). The chairman and CEO of Hyundai is Chung Mong-koo, one of the surviving sons of Chung Ju-yung. Control issues

Hyundai currently has a 33.75% direct shareholding in Kia, with the remaining shareholdings being presumably widely dispersed. As such, it evidently has significant influence over the operations and running of Kia’s business. However, establishing direct control between Hyundai and Kia is not as straightforward. There are a number of issues that we have to look at. Co-owning of subsidiaries

Hyundai and Kia co-own a large number of subsidiaries. As evidenced by the 2010 consolidated financials of Hyundai, the global branches of the Kia Motors Group are 100% held by Hyundai through Kia themselves. Both companies also have percentage ownership in Hyundai’s various component manufacturing companies like Hyundai HYSCO Company Limited and Hyundai Powertech Company Limited. Aside from this, they also have holdings in Autoever Systems Corporation, where their main Research and Development unit is located. Inter-company director relations

The current Chairman and CEO of HMC is Chung Mong-koo. He took over Hyundai in 1992 when the Hyundai Group split into its various divisions. The Hyundai group itself follows a South Korean Business form of conglomerate known as chaebol, where the unique characteristic is that it is usually a huge family controlled corporate group. As...
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