15. Goodwill and Other Intangible Assets, Net
(a) Goodwill and other intangible assets as of December 31, 2016 and 2017 are as follows:
| 2016 | 2017 | |||||||||||||||||||||||||||||||
| Acquisition cost |
Accumulated amortization and impairment loss |
Government grants |
Book value |
Acquisition cost |
Accumulated amortization and impairment loss |
Government grants |
Book value |
|||||||||||||||||||||||||
| (in millions of Won) | ||||||||||||||||||||||||||||||||
|
Goodwill |
￦ | 1,669,556 | (294,425 | ) | — | 1,375,131 | 1,604,288 | (254,450 | ) | — | 1,349,838 | |||||||||||||||||||||
|
Intellectual property rights |
2,923,030 | (401,156 | ) | (703 | ) | 2,521,171 | 3,140,159 | (690,966 | ) | — | 2,449,193 | |||||||||||||||||||||
|
Premium in rental |
139,843 | (20,804 | ) | — | 119,039 | 139,873 | (21,563 | ) | — | 118,310 | ||||||||||||||||||||||
|
Development expense |
376,327 | (259,184 | ) | (131 | ) | 117,012 | 397,129 | (316,892 | ) | (19 | ) | 80,218 | ||||||||||||||||||||
|
Port facilities usage rights |
633,025 | (376,408 | ) | — | 256,617 | 705,692 | (396,319 | ) | — | 309,373 | ||||||||||||||||||||||
|
Exploration and evaluation assets |
196,124 | (33,856 | ) | — | 162,268 | 296,320 | (90,376 | ) | — | 205,944 | ||||||||||||||||||||||
|
Customer relationships |
859,643 | (345,398 | ) | — | 514,245 | 857,624 | (390,679 | ) | — | 466,945 | ||||||||||||||||||||||
|
Power generation permit |
539,405 | — | — | 539,405 | 539,405 | — | — | 539,405 | ||||||||||||||||||||||||
|
Other intangible assets |
1,007,871 | (524,000 | ) | (30 | ) | 483,841 | 1,006,219 | (573,152 | ) | (24 | ) | 433,043 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| ￦ | 8,344,824 | (2,255,231 | ) | (864 | ) | 6,088,729 | 8,686,709 | (2,734,397 | ) | (43 | ) | 5,952,269 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
(b) The changes in carrying amount of goodwill and other intangible assets for the years ended December 31, 2016 and 2017 were as follows:
1) For the year ended December 31, 2016
| Beginning | Acquisitions | Disposals | Amortization | Impairment loss |
Others (*2) | Ending | ||||||||||||||||||||||
| (in millions of Won) | ||||||||||||||||||||||||||||
|
Goodwill |
￦ | 1,461,954 | — | — | — | (95,984 | ) | 9,161 | 1,375,131 | |||||||||||||||||||
|
Intellectual property rights |
2,667,086 | 56,849 | (753 | ) | (204,112 | ) | (16,786 | ) | 18,887 | 2,521,171 | ||||||||||||||||||
|
Premium in rental (*1) |
127,949 | 1,964 | (7,526 | ) | (243 | ) | (1,559 | ) | (1,546 | ) | 119,039 | |||||||||||||||||
|
Development expense |
135,796 | 4,027 | (60 | ) | (61,732 | ) | (298 | ) | 39,279 | 117,012 | ||||||||||||||||||
|
Port facilities usage rights |
264,801 | — | — | (15,217 | ) | — | 7,033 | 256,617 | ||||||||||||||||||||
|
Exploration and evaluation assets |
151,144 | 45,524 | — | — | (3,290 | ) | (31,110 | ) | 162,268 | |||||||||||||||||||
|
Customer relationships |
559,809 | — | — | (47,790 | ) | — | 2,226 | 514,245 | ||||||||||||||||||||
|
Power generation permit |
539,405 | — | — | — | — | — | 539,405 | |||||||||||||||||||||
|
Other intangible assets |
497,810 | 52,350 | (1,454 | ) | (48,910 | ) | (7,353 | ) | (8,602 | ) | 483,841 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| ￦ | 6,405,754 | 160,714 | (9,793 | ) | (378,004 | ) | (125,270 | ) | 35,328 | 6,088,729 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| (*1) | Premium in rental includes memberships with indefinite useful lives. |
| (*2) | Represents assets transferred from construction-in-progress to intangible assets and assets transferred from property, plant and equipment, adjustments of foreign currency translation difference and others. |
2) For the year ended December 31, 2017
| Beginning | Acquisitions | Business combination |
Disposals | Amortization | Impairment loss |
Others (*2) | Ending | |||||||||||||||||||||||||
| (in millions of Won) | ||||||||||||||||||||||||||||||||
|
Goodwill |
￦ | 1,375,131 | — | — | — | — | (21,750 | ) | (3,543 | ) | 1,349,838 | |||||||||||||||||||||
|
Intellectual property rights |
2,521,171 | 167,580 | 47,625 | (450 | ) | (217,932 | ) | (74,524 | ) | 5,723 | 2,449,193 | |||||||||||||||||||||
|
Premium in rental (*1) |
119,039 | 6,006 | — | (3,666 | ) | (611 | ) | (1,661 | ) | (797 | ) | 118,310 | ||||||||||||||||||||
|
Development expense |
117,012 | 3,479 | — | (1,179 | ) | (66,847 | ) | (694 | ) | 28,447 | 80,218 | |||||||||||||||||||||
|
Port facilities usage rights |
256,617 | — | — | — | (19,912 | ) | — | 72,668 | 309,373 | |||||||||||||||||||||||
|
Exploration and evaluation assets |
162,268 | 91,548 | — | — | — | (56,519 | ) | 8,647 | 205,944 | |||||||||||||||||||||||
|
Customer relationships |
514,245 | — | — | — | (46,508 | ) | — | (792 | ) | 466,945 | ||||||||||||||||||||||
|
Power generation permit |
539,405 | — | — | — | — | — | — | 539,405 | ||||||||||||||||||||||||
|
Other intangible assets |
483,841 | 84,502 | — | (1,641 | ) | (57,964 | ) | (11,829 | ) | (63,866 | ) | 433,043 | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| ￦ | 6,088,729 | 353,115 | 47,625 | (6,936 | ) | (409,774 | ) | (166,977 | ) | 46,487 | 5,952,269 | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
| (*1) | Premium in rental includes memberships with indefinite useful lives. |
| (*2) | Represents assets transferred from construction-in-progress to intangible assets and assets transferred from property, plant and equipment, adjustments of foreign currency translation difference and others. |
(c) For the purpose of impairment testing, goodwill is allocated to individually operating entities which are determined to be CGUs. The goodwill amounts as of December 31, 2016 and 2017 are as follows:
|
Reportable segments |
Total number of CGUs | |||||||||||||||||
| 2016 | 2017 |
CGUs |
2016 | 2017 | ||||||||||||||
| (in millions of Won) | ||||||||||||||||||
|
Steel |
9 | 7 | POSCO VST CO., LTD. | ￦ | 36,955 | 36,955 | ||||||||||||
| Others (*1) | 13,151 | 12,494 | ||||||||||||||||
|
Trading |
2 | 2 | POSCO DAEWOO Corporation (*1) | 1,163,922 | 1,165,030 | |||||||||||||
| PT. Bio Inti Agrindo | 8,070 | 7,099 | ||||||||||||||||
|
E&C |
4 | 2 | POSCO ENGINEERING & CONSTRUCTION CO., LTD. (*2) |
— | 90,426 | |||||||||||||
| POSCO Engineering CO.,Ltd (*2) | 111,309 | — | ||||||||||||||||
| DONG FANG JIN HONG | 166 | 157 | ||||||||||||||||
|
Others |
6 | 5 | POSCO ENERGY CO., LTD. | 26,471 | 26,471 | |||||||||||||
| Others | 15,087 | 11,206 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
|
Total |
21 | 16 | ￦ | 1,375,131 | 1,349,838 | |||||||||||||
|
|
|
|
|
|
|
|
|
|||||||||||
| (*1) | For the year ended December 31, 2017, POSCO DAEWOO Corporation has taken over steel marketing and other business unit of POSCO Processing & Service. As a result, goodwill of POSCO Processing & Service amounting to ￦1,108 million was transferred to POSCO DAEWOO Corporation. |
| Recoverable amounts of POSCO DAEWOO Corporation are determined based on its value in use. As of December 31, 2017, value in use is estimated by applying 8.1% discount rate and 1.9% terminal growth rate within 5 years, the period for the estimated future cash flows, based on management’s business plan. The terminal growth rate does not exceed long-term average growth rate of its industry. No impairment loss on goodwill was recognized for the year ended December 31, 2017 as the recoverable amount exceeded the carrying amount of the CGU. |
| The estimated recoverable amount of the CGU exceeded the carrying amount by ￦117,324 million. Value in use of the CGU was affected by the assumptions such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value in use will be decreased by 3.45% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by 1.78%. Management believes that any reasonably possible negative change in the key assumptions on which the recoverable amount is based would result in impairment loss of goodwill. |
| (*2) | For the year ended December 31, 2017, POSCO Engineering CO., Ltd was merged into POSCO ENGINEERING & CONSTRUCTION CO., LTD, resulting in transfer of its goodwill to POSCO ENGINEERING & CONSTRUCTION CO., LTD. |
| Recoverable amounts of POSCO ENGINEERING & CONSTRUCTION CO., LTD are determined based on its value in use. As of December 31, 2017, value in use is estimated by applying 8.2% discount rate and 1.0% terminal growth rate within 5 years, the period for the estimated future cash flows, based on management’s business plan. The terminal growth rate does not exceed long-term average growth rate of its industry. Impairment loss on goodwill of ￦20,883 million was recognized for the year ended December 31, 2017 as the recoverable amount is lower than the carrying amount of the CGU. |
| Value in use of the CGU was affected by the assumptions such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value in use will be decreased by 3.02% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by 2.06%. |