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:
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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 | ||||||||||||||||
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Total |
21 | 16 | ￦ | 1,375,131 | 1,349,838 | |||||||||||||
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| (*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%. |