Q1.

a. Korea Stock Exchange (Pg 18)

b. Consumer Electronics, Information technology & Mobile Communications, Device Solutions

and Harman (Pg 18)

c. Korean International Financial Reporting Standards (or Korean IFRS) (Pg 1)

d. “Subsidiaries” are companies that are controlled by a company, also known as the parent
company, which would typically own at least 50% of it.

In this case, Samsung is the parent company and some of its subsidiaries include SU Materials,
which manufactures display components, and Samsung Display (SDC), which manufactures
and sells display panels. (Pg 18)

Samsung includes the results of its subsidiaries into its financial statements based on the Full
Disclosure Principle, which states that a company is required to provide all necessary
information in their financial statements for people who are accustomed to reading those
statements and for them to make informed decisions of the company. In this case, since
Samsung owns a large proportion of its subsidiaries, the results of these subsidiaries would
make a significant impact on its financial statements and how these statements are being
interpreted by parties who are reading them. As such, it would be necessary to include these
results in the financial statements of the parent company to allow these readers to make
informed decisions of Samsung.

Q2.
a. PricewaterhouseCoopers acted as Samsung’s independent auditor. (Pg 1)

b. Unqualified opinion.

c. The audit opinion indicates whether the auditor has reported an unqualified opinion, which
shows that the financial statements are free from any misstatements (Tuovila, 2019). This would
make financial statements reliable sources of information for investors to be assured that
Samsung would work in their best interests.

Q3.
The increase in revenue in this situation is due to the increase in trade receivables, which are
goods or services provided by Samsung to other companies but have not received cash or cash
equivalents for the work done. This is seen in the increase in trade receivables from KRW
27,695,995 to KRW 33,867,733 under the assets component of the statement of financial
position (Pg 7). This coincides with the Revenue Recognition Principle where revenues are
recognised when the company has delivered the goods or service and that the proceeds need
not be in the form of cash (i.e. credit sales). This explains that the increase in trade receivables
has accounted for the increase in Samsung’s revenue while the cash and cash equivalents have
dropped.

Q4.
a. Plant, Property and Equipment (PPE) and Inventory (Pg 7)
 b. The primary accounting principle for the situation in (a) would be the Measurement/Cost
Principle, which states that business transactions are recorded at the original price paid at the
time of the transactions. With this, the statement of financial position records the values of these
items as their current values, even though the book values would be reduced across the
accounting period by deducing its accumulated depreciation from its market values (Pg 57, 64
and 65).

Q5.
a. (Pg 7 and Pg 56)

Net amount of current trade receivables = Trade receivables less loss allowance and less non
current portion.

Net amount of current trade receivables = KRW 33,867,733

Net amount of current trade receivables/ Total Current Assets x 100% =

33,867,733/ 174,697,424 x 100% = 19.4% (1 dp)

Net amount of current trade receivables/ Total Assets x 100% =

33,867,733/ 339,357,244 x 100% = 9.98% (1 dp)

b. Bad debts expense = KRW 571,564 (Pg 56)

Q6.
a. Samsung used “Average Cost method”. (Pg 37)
The mass production in numerous batches (smartphones, tablets, electrical parts) by Samsung
makes inventory items very similar to each other, resulting in difficulty in assigning a specific
cost to an individual unit. This is even more so when there is significant fluctuation in material
costs. Hence, the method is very appropriate for Samsung.

b. Samsung takes the lower of cost and NRV to prevent inventories from being overstated on the
statement of financial position. The numerous explosions of the Galaxy Note 7 resulted in
Samsung having to recall all phones of that type. Customers’ demand for many Samsung
products fell as well. Thus, inventories had to be reduced to take into account such decline in
value of Samsung’s products.

To add on, many of Samsung’s business divisions dealing with electronics and technology (e.g.
Consumer Electronics and Information technology & Mobile communications), face fast
changing markets and stiff competitions.

Based on the financial report, it states that “Inventories are reduced for the estimated losses
arising from excess, obsolescence, and decline in value. This reduction is determined by
estimating market value based on future customer demand. The losses on inventory
obsolescence are recorded as a part of cost of sales.” (Pg 37)

Thus, Samsung takes lower of cost and NRV.

Q7.
a. i) 5 years. (Pg 38)
ii) Straight-line method (Pg 38)

b. (Pg 64)

Q8. (Pg10)
Q9.

a. (Pg 99)

The total dividends declared for the year are: 1,774,050 + 135,642 = 1,909,692

Retained Earnings ------------------------- KRW1,909,692

Dividends Payable ------------------------- KRW1,909,692

b. (Pg 76)

Par Value = 596,978 million / 5,969,782,550 = ￦ 100

Jan 1 Land ------------------------ KRW 9,000 million

Share Capital - Ordinary --------------------------- KRW 1,000 million

Share Premium ---------------------------------------KRW 8,000 million

Q10.
a. Equity (SFP) (Pg 9)
 Equity results from deducting liabilities from assets. Theoretically, this is the capital available
for distribution to shareholders, which is why it is also called Shareholders’ equity. As a
shareholder of Samsung with one million shares, I would use equity as a gauge to calculate my
stake in the company as well as the overall financial health of Samsung. For example, if the
equity of Samsung is of a positive value, it shows that Samsung is financially healthy and at a
lower risk of solvency.

Net Profit (Profit for the Period) (SPL) (Pg 10)

The net profit indicates how successful the business is, and it is calculated by subtracting the
company’s expenses from its revenue earned (Gilroy Gannon, n.d.). As a shareholder, it would
be essential to me as it is an indication of whether the company is able to pay dividends to its
owners for investing in the company. For instance, based on the SPL, the Profit for the period
for the accounting year 2018 is recorded as KRW 44,344,857, with KRW 43,890,877 of the
amount attributed to owners of the parent company (shareholders).

Dividends (SCE) (Pg 14)

Dividends paid to shareholders come from Samsung’s earnings. It is an indicator of Samsung’s
financial performance throughout the years and it looks into Samsung’s potential for growth.
If Samsung consistently increases its dividend payments over the years, it gives a clear sign of
how steadily Samsung is generating profits and has a lower possibility of its financial status
from being threatened by economic downturns. As a shareholder, I would also like to see if
Samsung pays their shareholders regularly and whether such accumulated payments will make
this investment profitable for me. Since dividend payments only change once per year, it
provides an increased stable reference point of analysis than measurements that are subjected
to daily fluctuations in stock prices. This lowers risks that come from volatile stock prices.Data
on dividends will also help me decide if I should continue investing in Samsung or another
firm.

b. The Return On Equity (ROE) is not reported in Samsung’s financial statements.

ROE is considered a measure of how effectively the management is using a company’s assets
to generate profits (Hargrave, 2020). It is calculated with the formula: Net income/Average
shareholders’ equity. With a higher ROE ratio as compared to that of other companies, it
indicates that the company is more efficient in using its assets to create profits. This would
reflect how the company estimates stock rates and subsequently dividends paid to shareholders.
As such, shareholders would consider using this ratio to determine the amount of dividends
received.

c. Equity (Pg 9)

Equity (in millions)

 Year 2016 Year 2017 Year 2018

KRW 192,963,033 KRW 214,491,428 KRW 247, 753,177

Equity increased from KRW 192,963,033 in 2016 to KRW 247, 753,177 in 2018. This means
that Samsung has an increasing net worth and shares owned by shareholders have an increasing
worth.

Net Profit (Pg 10)

Net Profit (Profit for the period) (in millions)

Year 2016 Year 2017 Year 2018

KRW 22,726,092 KRW 42,186,747 KRW 44,344,857

(Samil, 2018)

The Net Profit earned shows an increasing trend from KRW 22,726,092 in 2016 to KRW
44,344,857 in 2018. This indicates an improvement in Samsung’s financial performance, which
would imply that shareholders would receive a larger amount of dividend payments in 2018 as
compared to 2016.

Dividends (Pg 12 and 14)

Dividends (in millions)

Year 2016 Year 2017 Year 2018

KRW 3,126,522 KRW 6,811,400 (Pg 12) KRW 10,194,002 (Pg 14)

As shown in the table above, there is a significant dividend boost year by year, from KRW
3,126,522 million in 2016 to KRW 10,194,00 million in 2018, which is a positive indicator of
Samsung’s performance. The increase in dividends provides a strong status of Samsung’s
financial strength, hence making me happy with their performance as the increase in dividends
will result in an increase in payout to me. It is very clear that Samsung is generating profits
steadily and would highly likely continue to generate even more profit. In the coming years,
the dividends may continuously increase and hence there might be higher distribution of profits
to myself and other shareholders.

Return on Equity (net income/ total shareholders’ equity)

Return on Equity For Samsung

 Year 2016 Year 2017 Year 2018

11.8% 11.87% 12.11%

From Year 2016 to 2018, there is a gradual increase in ROE from 11.8% to 12.11%. This
suggests that Samsung is increasing its capabilities to generate profit with lower amount of
capital. It also indicates how the increase in efficiency of Samsung's management in deploying
the other shareholders and my capital. This shows that Samsung has a strong asset turnover and
financial leverage.

Return on Equity For Apple

Year 2016 Year 2017 Year 2018

7.85% 6.26% 4.93%

Apple, one of Samsung’s biggest competitors, has a lower ROE as compared to Samsung.
Additionally, Apple’s ROE has been decreasing on a year-on-year basis from 7.85% in 2016 to
4.93% in 2018. This means that Apple is not as efficient in turning the cash invested into the
business into greater gains and growth for the company and shareholders.

In conclusion, there is an increase in all of the financial measures - namely equity, net profit,
dividends and return on equity. Samsung is very healthy financially and we do not have to
worry about Samsung being unable to pay its debts and going out of business. Therefore, I am
happy with Samsung’s financial performance from 2016 to 2018.
References

Tuovila, A. (2019, July 14). Auditor’s Opinion. Investopedia. Retrieved from:

https://www.investopedia.com/terms/a/auditors-opinion.asp

Hargrave, M. (2020, March 27). Return on Equity - ROE. Investopedia. Retrieved from:
https://www.investopedia.com/terms/r/returnonequity.asp

Gilroy Gannon. (n.d.). What is Net Profit and Why is it important? Retrieved from:
https://www.gilroygannon.com/net-profit-important/

How Important Are Dividends? (n.d.). Retrieved from https://www.retireondividends.com/how-

important-are-dividends.html

CONSOLIDATED FINANCIAL STATEMENTS OF SAMSUNG ELECTRONICS CO. LTD. AND

ITS SUBSIDIARIES 2017. (n.d.). Retrieved from
https://images.samsung.com/is/content/samsung/p5/global/ir/docs/2017_con_quarter04_all.pdf.

SSNLF ROE % Adjusted to Book Value | Samsung Electronics Co - GuruFocus.com. (n.d.).

Retrieved from https://www.gurufocus.com/term/roe_adj/GREY:SSNLF/ROE-Percentage-Adjusted-
to-Book-Value/Samsung%20Electronics%20Co

Kumaran, S. (2015, June 29) Essential Components of Financial Statements. Invensis. Retrieved from
https://www.invensis.net/blog/finance-and-accounting/essential-components-financial-
statements/

Apple ROE % Adjusted to Book Value | AAPL - GuruFocus.com. (n.d.). Retrieved from
https://www.gurufocus.com/term/roe_adj/NAS:AAPL/ROE-Percentage-Adjusted-to-Book-
Value/Apple