1 Understanding of Financial Statement 1. Balance Sheet 2. Income Statement 3. Statement of appropriation of retained earnings 4. Cash Flow Statement 5. Statement of the cost of goods manufactured (1) Drawing standard of balance sheet (2) Asset (operation of capital) (3) Liabilities and equity (source of financing) (4) Meaning of items on balance sheet (1) Drawing standard for income statement (2) Composition of income statement

2 1. Balance Sheet What is Balance Sheet ? Report presenting the financial status of company at certain point Equality of Balance Sheet Total Asset = Liabilities + Shareholder ’ s equity ① Principle of sectional presentation ② Gross amount principle ③ 1 year standard ④ Order of liquidity method ⑤ Section of capital transaction and profit & loss transaction ⑥ Suspended accounts and memorandum accounts (1) Drawing standard for balance sheet (2) Asset : operation of capital Current Asset Asset cashable within short-term or 1 year from the date of drawing balance sheet Quick Asset Inventories Cash & cash equivalents, short-term financial instruments, short-term investment asset, trade receivables, etc Commodities, goods, work in process, raw material Time Deposit Time Installment Deposit -Within 3 months of expiration : cash and cash equivalents -Over 3 months within 1 year of expiration : short-term financial instrument -Over 1 year of expiration : long-term financial instrument Cash & Cash Equivalents It refers to currency, currency equivalents including personal check, checking account, ordinary deposit, etc. Securities and short-term financial instrument easy for cash conversion and without risk followed by change in interest rate Current AssetFixed Asset Asset Asset cashable within short-term or 1 year from the date of drawing balance sheet Asset that requires more than 1 year for encashment All goods and rights with asset value

3 Fixed Asset Over 1 year Goodwill, industrial property right, mining rights, fishery right, development cost, etc Direct subtraction from book value Investment Asset Tangible Asset Intangible Asset Long-term financial instrument, long-term investment & securities, loan of affiliated company, etc Land, building, structure, ship, vehicle, machinery, etc Total depreciation (category of allowance for valuation) indirectly subtracted from book value It is generated when selling cost is bigger than the net asset acquired from company sold when two or more companies become one company with contract. In opposite case, negative goodwill generates What is Goodwill?What is Industrial Property Right? Account category combining each of account that is patent right, design right, utility model right, right of trade mark, etc into one Current Liabilities Within 1 year → Trade payables, short-term borrowings, non-payment, current long-term liabilities, other current liabilities, etc Transfer of long-term borrowings with arrival of repayment date of within 1 year among fixed assets to current liabilities (3) Liabilities and capital – source of capital procurement Current LiabilitiesFixed Liabilities Liabilities Liabilities with borrowing period within 1 year Liabilities with borrowing period of over 1 year Obligations to pay certain amount to others

4 Fixed Liabilities Over 1 year → Company bond, long-term borrowings, other fixed liabilities, etc Fund provided by shareholders after accepting the stock Surplus Fund accumulated as a result of management activity Common Stock Preferred Stock Retained earnings Additional paid-in capital Reservation of profit created from pure management activity for the certain purpose Surplus generated from activity other than net management activities Legal reserve, voluntary reserve, other reserves, etc Paid-in capital in excess of par value, profit from capital reduction, revaluation surplus reserve, etc Current Asset As scale becomes large, company has sufficient payment capability (liquidity) for short-term liability. Risk for default is lowered but possession of excessive current asset may lower profitability of company (4) Meaning of items on balance sheet Fixed Asset As scale of company becomes large, liquidity is lowered and risk is increased. However, company with too small scale of fixed asset is difficult to acquire appropriate profitability. ※ From the perspectives of company, risk is low when capital (equity) is used rather than liabilities. - Liabilities : Means of capital procurement with repayment obligations for principal - Capital : Means of capital procurement without conclusive obligation regarding the principal and error Fixed Asset Investment Stability of company can be secured with balanced investment within equity and fixed liabilities with relatively small risk Paid-in capital Surplus Equity Fund provided by shareholders after accepting the stock Fund accumulated as a result of management activity Capital is remaining of asset after subtracting the liabilities

5 2. Income Statement What is Income Statement ? Reports to coped with income and expense for sales result of company within a certain period Equality for Income Statement Expense + Profit = Income Gross Income – Gross Expense = Gross Profit ① Accrual principle : All income and expense shall be processed so that it can be reasonably distributed at the generation ② Principle of matching : Each income item and relevant expense item shall be indicated correspondingly ③ Gross amount principle ④ Principle of section indication Same as concept in balance sheet (1) Drawing standard for income statement (2) Composition of income statement 1) Sales : Income from sales at current term or provision of service (total sales – sales allowances and returns) 2) COGS : Economic value consumed at production or purchase process to realize the sales - Wholesale industry : Inventory at beginning of term + product purchase of current term – inventory at end of term - Manufacturing : Inventory at beginning of term + product manufacturing cost of current term － Inventory at end of term 3) Sales and management expense : It is the expense generated in sales activity of goods and service or management or maintenance of company. It includes all operating expense not included in the sales cost. → Salary, retirement benefit, welfare cost, rental expenses, depreciation, tax and utility, etc 1.Sales 2.Cost of goods sold (COGS) 3.Gross Profit (1-2) > Product and Purchase Efficiency 4.Sales and Management Expense 5.Operating Profit (3-4) > Operating Efficiency 6.Non-Operating Profit 7.Non-Operating Expense 8.Ordinary Profit (5+6-7) > Financial Efficiency 9.Special Profit 10.Special Loss 11.Net Profit before Subtraction of Corporate Tax Expense (8+9-10) 12.Corporate Tax 13.Net Profit of Current Term (11-12) > Efficiency of Company

6 4) Non-operating profit : Banking or financial profit generated without direct relevance to sales, the original purpose of company → Interest income, dividend income, rental, gains from disposition of securities, gains from valuation of securities, gain on foreign exchange, gain on foreign currency transactions, gain on equity method valuation, gain on disposition of investment asset, gain on disposition of tangible asset, etc 5) Non-operating expense : Expense generated circulating from incidental activity other than operating activity with expense corresponding to non-operating profit → Interest expense, other depreciation, loss on disposition of securities, loss on valuation of securities, inventories, loss on valuation, loss on foreign exchange, loss on foreign currency transactions, loss on disposition of investment asset, loss on disposition of tangible asset, etc ※ Loss or profit on foreign exchange : Loss or profit generated with change in exchange rate ※ Loss or profit on equity method valuation : Loss or profit generated when value of investment stock increases with change of net asset of company invested 6) Special loss or profit: Loss or profit item generated extraordinarily without direct relevance to operating activities including gain from assets contributed, gain from liabilities exempted, gain on insurance claim, loss from disasters, etc 3. Surplus Appropriation Statement - Draw up the statement of loss disposition when there is deficit rather than surplus with generation of loss - Surplus appropriation shall be concluded with approval of shareholder ’ s meeting as prescribed in regulation of commercial law What is Statement of appropriation of retained earnings? It is the calculation indicating the total change in surplus to clearly report the revision of earned surplus carried forward to following term of company and appropriate of earned surplus 4. Cash Flow Chart - Importance is shed light on with recent change in review on loan Review on Loan from Collateral → Cash Flow What is Cash Flow Statement? Char drawn with purpose to provide information relevant to inflow and outflow of cash to clearly report the change in cash of company at certain period 5. Manufacturing Cost Statement + Material Cost + Labor Cost + Expense Total manufacturing expense at current term + Raw cost of work in process at beginning of term - Raw cost of work in process at end of term - Substitution of tangible asset (or other account) Manufacturing cost of product at current term What is Statement of the cost of goods manufactured? Cost statement drawn by company that leads the manufacturing industry among various cost statements Corporation ACorporation B Investment of 30 million won Acquisition of 30% of issuing stock Acquiring 30% of stock of Corporation B with 30 million won, Investment Securities 30 million won/ Cash 30 million won Corporation B achieves net profit of 20 million won at current term, Investment Securities 6 million won/ Gain on Equity Method Valuation 6 million won Corporation B pays 50% of profit at previous term to shareholders, Cash received as Dividend 3 million won/ Investment Securities 3 million won