Please find attached financial statements for Apple Inc, Samsung Inc. and word document that contains template and question. (for Samsung Inc, you can use the information from page 4 to 14).

1. Calculate all ratios in the attached template for Apple Inc. for fiscal years 2015 and 2016. Comment on each ratio and how it changes from 2015 to 2016.

2. Calculate all ratios for comparable Samsung Inc. for 2016. Use these ratios as reference and comment on Apple Inc.s ratios relative to those of Samsung Inc..

3. Please answer the question below the table in the word document.

Notes:

For P/E ratio, you should use end-of-fiscal year price. For example, if fiscal year end is December 31, you need to use stock price on December 31. Historical stock prices can be found at finance.google.com

Numerator and denominator of ratios should be clearly stated.

- for ratios that requires the "average" in the denominator, you can simply use the same year as the numerator.

To elaborate, ROA(2016) = NI (2016)/ Average Total Assets (average of 2015 and 2016). Instead of using average total assets use total assets for 2016.

CONSOLIDATED FINANCIAL STATEMENTS OF SAMSUNG ELECTRONICS CO., LTD. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS Page Independent Auditor's Report................................................................................................. 1 - 2 Consolidated Financial Statements Consolidated Statements of Financial Position........................................................................... 3 - 5 Consolidated Statements of Profit or Loss.................................................................................. 6 Consolidated Statements of Comprehensive Income.................................................................. 7 Consolidated Statements of Changes in Equity.......................................................................... 8 - 11 Consolidated Statements of Cash Flows.................................................................................... 12 - 13 Notes to the Consolidated Financial Statements ...................................................................... 14 - 93 INDEPENDENT AUDITOR'S REPORT To the Board of Directors and Shareholders of Samsung Electronics Co., Ltd. We have audited the accompanying consolidated financial statements of Samsung Electronics Co., Ltd. and its subsidiaries (collectively referred to as the \"Group\"), which comprise the consolidated statements of financial position as at December 31, 2016 and 2015, and the consolidated statements of profit or loss, consolidated statements of comprehensive income, consolidated statements of changes in equity and consolidated statements of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information. Management's responsibility for the financial statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (\"Korean IFRS\") and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibilities Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements, and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the Group's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Opinion In our opinion, the accompanying consolidated financial statements present fairly, in all material 1 respects, the consolidated financial position of the Group as at December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean IFRS. Other Matters Auditing standards and their application in practice vary among countries. The procedures and practices used in the Republic of Korea to audit such financial statements may differ from those generally accepted and applied in other countries. Seoul, Korea February 27, 2017 This report is effective as of February 27, 2017, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that there is a possibility that the above audit report may have to be revised to reflect the impact of such subsequent events or circumstances, if any. 2 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In millions of Korean won, in thousands of US dollars (Note 2.28)) Notes Assets Current assets Cash and cash equivalents Short-term financial instruments Short-term available-for-sale financial assets Trade receivables Non-trade receivables Advances Prepaid expenses Inventories Other current assets Assets held-for-sale Total current assets Non-current assets Long-term available-for-sale financial assets Investment in associates and joint ventures Property, plant and equipment Intangible assets Long-term prepaid expenses Net defined benefit assets Deferred income tax assets Other non-current assets Total assets December 31, 2016 KRW December 31, 2015 KRW December 31, 2016 USD December 31, 2015 USD 4, 6, 7, 31 5, 6, 7, 31 32,111,442 52,432,411 22,636,744 44,228,800 27,686,236 45,206,818 19,517,225 38,133,728 6, 9, 31 3,638,460 4,627,530 3,137,052 3,989,820 24,279,211 3,521,197 1,439,938 3,502,083 18,353,503 1,315,653 835,806 141,429,704 25,168,026 3,352,663 1,706,003 3,170,632 18,811,794 1,035,460 77,073 124,814,725 20,933,347 3,035,949 1,241,503 3,019,469 15,824,248 1,134,346 720,625 121,939,593 21,699,677 2,890,640 1,470,903 2,733,694 16,219,383 892,765 66,452 107,614,287 6, 9, 31 6,804,276 8,332,480 5,866,594 7,184,200 12 5,837,884 5,276,348 5,033,378 4,549,226 13 14 91,473,041 5,344,020 3,834,831 557,091 5,321,450 1,572,027 262,174,324 86,477,110 5,396,311 4,294,401 5,589,108 1,999,038 242,179,521 78,867,346 4,607,573 3,306,362 480,320 4,588,113 1,355,388 226,044,667 74,559,893 4,652,657 3,702,599 4,818,886 1,723,555 208,805,303 6, 7, 10, 31 10 11 36 17 28 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 3 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In millions of Korean won, in thousands of US dollars (Note 2.28)) December 31, 2016 KRW December 31, December 31, December 31, 2015 KRW 2016 USD 2015 USD 6, 31 6, 8, 15, 31 6, 31 6,485,039 12,746,789 11,525,910 1,358,878 685,028 12,527,300 2,837,353 6,187,291 11,155,425 8,864,378 1,343,432 992,733 11,628,739 3,401,625 5,591,350 10,990,183 9,937,550 1,171,614 590,626 10,800,941 2,446,344 5,334,634 9,618,121 7,642,798 1,158,297 855,927 10,026,208 2,932,855 6, 15, 16, 31 1,232,817 221,548 1,062,925 191,017 18 4,597,417 351,176 356,388 54,704,095 6,420,603 287,135 50,502,909 3,963,857 302,781 307,275 47,165,446 5,535,794 247,565 43,543,216 58,542 1,244,238 3,317,054 173,656 7,293,514 358,126 2,062,066 69,211,291 1,230,448 266,542 3,041,687 358,820 5,154,792 522,378 2,042,140 63,119,716 50,474 1,072,772 2,859,938 149,725 6,288,411 308,773 1,777,899 59,673,438 1,060,883 229,810 2,622,519 309,372 4,444,422 450,390 1,760,717 54,421,329 Notes Liabilities and Equity Current liabilities Trade payables Short-term borrowings Other payables Advances received Withholdings Accrued expenses Income tax payable Current portion of long-term liabilities Provisions Other current liabilities Liabilities held-for-sale Total current liabilities Non-current liabilities Debentures Long-term borrowings Long-term other payables Net defined benefit liabilities Deferred income tax liabilities Provisions Other non-current liabilities Total liabilities 36 6, 16, 31 6, 15, 31 6, 31 17 28 18 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 4 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (In millions of Korean won, in thousands of US dollars (Note 2.28)) Notes Equity attributable to owners of the parent Preferred stock Common stock Share premium Retained earnings Other components of equity Accumulated other comprehensive income attributable to assets heldfor-sale 20 20 December 31, 2016 KRW December 31, 2015 KRW December 31, 2016 USD December 31, 2015 USD 21 23 119,467 778,047 4,403,893 193,086,317 (11,934,586) 119,467 778,047 4,403,893 185,132,014 (17,580,451) 103,004 670,826 3,797,002 166,477,524 (10,289,907) 103,004 670,826 3,797,002 159,619,385 (15,157,728) 36 (28,810) 23,797 (24,841) 20,517 Non-controlling interests Total equity 186,424,328 6,538,705 192,963,033 172,876,767 6,183,038 179,059,805 160,733,608 5,637,621 166,371,229 149,053,006 5,330,968 154,383,974 Total liabilities and equity 262,174,324 242,179,521 226,044,667 208,805,303 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 5 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF PROFIT OR LOSS (In millions of Korean won, in thousands of US dollars (Note 2.28)) For the year ended December 31, Revenue Cost of sales Gross profit Selling and administrative expenses Operating profit Other non-operating income Other non-operating expense Share of profit of associates and joint ventures Financial income Financial expense Profit before income tax Income tax expense Profit for the year Profit attributable to owners of the parent Profit attributable to non-controlling interests Earnings per share for profit attributable to owners of the parent (in Korean Won, in US dollars) - Basic - Diluted Notes 2016 KRW 2015 KRW 2016 USD 2015 USD 32 24 201,866,745 120,277,715 200,653,482 123,482,118 174,047,940 103,702,512 173,001,874 106,465,323 24, 25 81,589,030 52,348,358 77,171,364 50,757,922 70,345,428 45,134,348 66,536,551 43,763,086 26 26 29,240,672 3,238,261 2,463,814 26,413,442 1,685,947 3,723,434 25,211,080 2,792,003 2,124,281 22,773,465 1,453,610 3,210,316 12 19,501 1,101,932 16,814 950,077 27 27 11,385,645 10,706,613 10,514,879 10,031,771 9,816,615 9,231,159 9,065,847 8,649,315 28 30,713,652 7,987,560 25,960,995 6,900,851 26,481,072 6,886,812 22,383,368 5,949,860 22,726,092 19,060,144 19,594,260 16,433,508 22,415,655 18,694,628 19,326,604 16,118,363 310,437 365,516 267,656 315,145 157,967 157,967 126,305 126,303 136.2 136.2 108.9 108.9 29 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 6 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions of Korean won, in thousands of US dollars (Note 2.28)) For the year ended December 31, Notes Profit for the year Other comprehensive income Items not to be reclassified to profit or loss subsequently: Remeasurement of net defined benefit liabilities, net of tax Shares of other comprehensive income of associates and joint ventures, net of tax Items to be reclassified to profit or loss subsequently: Changes in value of available-for-sale financial assets, net of tax Share of other comprehensive loss of associates and joint ventures, net of tax Foreign currency translation, net of tax Other comprehensive income for the year, net of tax Total comprehensive income for the year 2016 KRW 2015 KRW 2016 USD 2015 USD 22,726,092 19,060,144 19,594,260 16,433,508 17, 23 963,602 263,978 830,810 227,600 12, 23 50,438 24,069 43,487 20,752 9, 23 (23,839) (414,961) (20,554) (357,776) 12, 23 (130,337) (65,330) (112,376) (56,327) 23 1,131,536 268,315 975,603 231,339 1,991,400 76,071 1,716,970 65,588 24,717,492 19,136,215 21,311,230 16,499,096 24,310,814 406,678 18,804,189 332,026 20,960,595 350,635 16,212,826 286,270 Comprehensive income attributable to : Owners of the parent Non-controlling interests The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 7 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In millions of Korean won) 2015 KRW Notes Preferred stock Common stock Share premium Retained earnings Other components of equity Accumulated other comprehensive income attributable to assets held-for-sale Equity attributable to owners of the parent 119,467 778,047 4,403,893 169,529,604 (12,729,387) 80,101 Balance as at January 1, 2015 Profit for the year 18,694,628 Changes in value of available-for-sale 9, 23 (348,068) (24,750) financial assets, net of tax Share of other comprehensive income (loss) of associates and joint 12, 23 12,686 (54,118) ventures, net of tax Foreign currency translation, net of tax 23 266,061 (1,233) Remeasurement of net defined benefit 17, 23 258,983 liabilities, net of tax Classified as held-for-sale 36 (23,797) 23,797 18,694,628 165,865 (56,304) Total comprehensive income (loss) Dividends 22 (3,073,481) Capital transaction under common (5,314) control Changes in consolidated entities Acquisition of treasury stock 23 (5,015,112) Disposal of treasury stock 23 3,406 Stock option activities 23 (806) Others (18,737) 897 (3,092,218) (5,016,929) Total transactions with owners 119,467 778,047 4,403,893 185,132,014 (17,580,451) 23,797 Balance as at December 31, 2015 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 8 Noncontrolling interests Total 162,181,725 18,694,628 5,906,463 365,516 168,088,188 19,060,144 (372,818) (42,143) (414,961) (41,432) 171 (41,261) 264,828 3,487 268,315 258,983 4,995 263,978 18,804,189 (3,073,481) 332,026 (54,603) 19,136,215 (3,128,084) (5,314) 423 (4,891) (5,015,112) 3,406 (806) (17,840) (8,109,147) 172,876,767 (152) (1,119) (55,451) 6,183,038 (152) (5,015,112) 3,406 (806) (18,959) (8,164,598) 179,059,805 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands of US dollars (Note 2.28)) 2015 USD Notes Preferred stock Common stock Share premium Retained earnings Other components of equity Accumulated other comprehensive income attributable to assets held-for-sale Equity attributable to owners of the parent 103,004 670,826 3,797,002 146,167,108 (10,975,179) 69,063 Balance as at January 1, 2015 Profit for the year 16,118,363 Changes in value of available-for-sale 9, 23 (300,102) (21,339) financial assets, net of tax Share of other comprehensive income (loss) of associates and joint 12, 23 10,938 (46,660) ventures, net of tax Foreign currency translation, net of tax 23 229,398 (1,065) Remeasurement of net defined benefit 17, 23 223,293 liabilities, net of tax Classified as held-for-sale 36 (20,518) 20,518 16,118,363 143,009 (48,546) Total comprehensive income (loss) Dividends 22 (2,649,932) Capital transaction under common (4,582) control Changes in consolidated entities Acquisition of treasury stock 23 (4,323,991) Disposal of treasury stock 23 2,937 Stock option activities 23 (695) Others (16,154) 773 (2,666,086) (4,325,558) Total transactions with owners 103,004 670,826 3,797,002 159,619,385 (15,157,728) 20,517 Balance as at December 31, 2015 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 9 Noncontrolling interests Total 139,831,824 16,118,363 5,092,507 315,145 144,924,331 16,433,508 (321,441) (36,335) (357,776) (35,722) 147 (35,575) 228,333 3,006 231,339 223,293 4,307 227,600 16,212,826 (2,649,932) 286,270 (47,078) 16,499,096 (2,697,010) (4,582) 365 (4,217) (4,323,991) 2,937 (695) (15,381) (6,991,644) 149,053,006 (131) (965) (47,809) 5,330,968 (131) (4,323,991) 2,937 (695) (16,346) (7,039,453) 154,383,974 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In millions of Korean won) 2016 KRW Equity attributable Nonto owners of controlling the parent interests 172,876,767 6,183,038 22,415,655 310,437 Preferred stock 119,467 - Common stock 778,047 - Share premium 4,403,893 - Retained earnings 185,132,014 22,415,655 Other components of equity (17,580,451) - 9, 23 - - - - (87,706) (23,797) (111,503) 87,664 (23,839) 12, 23 - - - - (80,146) 212 (79,934) 35 (79,899) 23 - - - - 1,160,316 - 1,160,316 (28,780) 1,131,536 17, 23 - - - - 926,280 - 926,280 37,322 963,602 36 - - - 22,415,655 (3,061,361) 29,022 1,947,766 - (29,022) (52,607) - 24,310,814 (3,061,361) 406,678 (65,161) 24,717,492 (3,126,522) - - - - (37) - (37) 12,272 12,235 119,467 778,047 4,403,893 (11,399,991) (14,461,352) 193,086,317 (7,707,938) 11,399,991 6,083 3,698,099 (11,934,586) (28,810) (7,707,938) 6,083 (10,763,253) 186,424,328 1,790 88 (51,011) 6,538,705 1,790 (7,707,938) 6,171 (10,814,264) 192,963,033 Notes Balance as at January 1, 2016 Profit for the year Changes in value of available-for-sale financial assets, net of tax Share of other comprehensive income (loss) of associates and joint ventures, net of tax Foreign currency translation, net of tax Remeasurement of net defined benefit liabilities, net of tax Classified as held-for-sale Total comprehensive income (loss) Dividends Capital transaction under common control Changes in consolidated entities Acquisition of treasury stock Retirement of treasury stock Others Total transactions with owners Balance as at December 31, 2016 Accumulated other comprehensive income attributable to assets held-for-sale 23,797 - 22 23 23 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 10 Total 179,059,805 22,726,092 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In thousands of US dollars (Note 2.28)) 2016 USD Notes Balance as at January 1, 2016 Profit for the year Changes in value of available-for-sale financial assets, net of tax Share of other comprehensive income (loss) of associates and joint ventures, net of tax Foreign currency translation, net of tax Remeasurement of net defined benefit liabilities, net of tax Classified as held-for-sale Total comprehensive income (loss) Dividends Capital transaction under common control Changes in consolidated entities Acquisition of treasury stock Retirement of treasury stock Others Total transactions with owners Balance as at December 31, 2016 Preferred stock Common stock Share premium Retained earnings Other components of equity Accumulated other comprehensive income attributable to assets held-for-sale Equity attributable to owners of the parent Noncontrolling interests Total 103,004 - 670,826 - 3,797,002 - 159,619,385 19,326,604 (15,157,728) - 20,517 - 149,053,006 19,326,604 5,330,968 267,656 154,383,974 19,594,260 9, 23 - - - - (75,619) (20,518) (96,137) 75,583 (20,554) 12, 23 - - - - (69,101) 183 (68,918) 29 (68,889) 23 - - - - 1,000,415 - 1,000,415 (24,812) 975,603 17, 23 - - - - 798,631 - 798,631 32,179 830,810 36 - - - 19,326,604 (2,639,481) 25,023 1,679,349 - (25,023) (45,358) - 20,960,595 (2,639,481) 350,635 (56,182) 21,311,230 (2,695,663) - - - - (32) - (32) 10,581 10,549 103,004 670,826 3,797,002 (9,828,984) (12,468,465) 166,477,524 (6,645,724) 9,828,984 5,244 3,188,472 (10,289,907) (24,841) (6,645,724) 5,244 (9,279,993) 160,733,608 1,543 76 (43,982) 5,637,621 1,543 (6,645,724) 5,320 (9,323,975) 166,371,229 22 23 23 The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 11 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions of Korean Won, in thousands of U.S dollars (Note 2.28)) Notes Cash flows from operating activities Profit for the period Adjustments Changes in assets and liabilities arising from operating activities Cash generated from operations Interest received Interest paid Dividend received Income tax paid Net cash generated from operating activities Cash flows from investing activities Net increase in short-term financial instruments Proceeds from disposal of short-term available-for-sale financial assets Acquisition of short-term available-forsale financial assets Proceeds from disposal of long-term financial instruments Acquisition of long-term financial instruments Proceeds from disposal of long-term available-for-sale financial assets Acquisition of long-term available-forsale financial assets Proceeds from disposal of investment in associates and joint ventures Acquisition of investment in associates and joint ventures Disposal of property, plant and equipment Purchases of property, plant and equipment Disposal of intangible assets Purchases of intangible assets Cash outflows from business combinations Others Net cash used in investing activities 2016 For the year ended December 31, 2015 2016 2015 30 KRW 22,726,092 30,754,471 KRW 19,060,144 29,610,971 USD 19,594,260 26,516,267 USD 16,433,508 25,530,350 30 (1,180,953) (4,682,032) (1,018,209) (4,036,812) 52,299,610 1,405,085 (443,838) 256,851 (6,132,064) 43,989,083 2,151,741 (748,256) 266,369 (5,597,176) 45,092,318 1,211,453 (382,674) 221,455 (5,287,018) 37,927,046 1,855,215 (645,141) 229,661 (4,825,842) 47,385,644 40,061,761 40,855,534 34,540,939 (6,780,610) (5,762,783) (5,846,189) (4,968,627) 3,010,003 2,143,384 2,595,201 1,848,009 (2,129,551) (509,349) (1,836,082) (439,157) 789,862 3,999,710 681,013 3,448,519 (1,741,547) (132,733) (1,501,548) (114,441) 2,010,356 200,502 1,733,313 172,871 (1,498,148) (232,530) (1,291,692) (200,486) 2,280,203 278,009 1,965,973 239,697 (84,306) (137,917) (72,688) (118,911) 270,874 357,154 233,545 307,935 (24,142,973) (25,880,222) (20,815,884) (22,313,726) 6,944 (1,047,668) 1,083 (1,501,881) 5,987 (903,291) 934 (1,294,910) (622,050) (411,445) (536,327) (354,745) 19,936 (29,658,675) 421,231 (27,167,787) 17,190 (25,571,479) 363,183 (23,423,855) The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 12 Samsung Electronics Co., Ltd. and Subsidiaries CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions of Korean Won, in thousands of U.S dollars (Note 2.28)) Notes 2016 KRW For the year ended December 31, 2015 2016 2015 KRW USD USD 1,351,037 (7,707,938) - 3,202,416 (5,015,112) 3,034 1,164,854 (6,645,724) - 2,761,098 (4,323,991) 2,616 1,041,743 192,474 898,183 165,950 (252,846) (1,801,465) (218,002) (1,553,209) (3,114,742) 13,232 (8,669,514) (3,129,544) (25,312) (6,573,509) (2,685,506) 11,407 (7,474,788) (2,698,269) (21,823) (5,667,628) 417,243 (524,487) 359,744 (452,209) 9,474,698 5,795,978 8,169,011 4,997,247 Beginning of the period 22,636,744 16,840,766 19,517,225 14,519,978 End of the period 32,111,442 22,636,744 27,686,236 19,517,225 Cash flows from financing activities Net increase in short-term borrowings Acquisition of treasury stock Disposal of treasury stock Proceeds from long-term borrowings and debentures Repayment of long-term borrowings and debentures Payment of dividends Net increase in non-controlling interests Net cash used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents The above consolidated statement of financial position should be read in conjunction with the accompanying notes. 13 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 1. General Information 1.1 Company Overview Samsung Electronics Co., Ltd. (the \"Company\") was incorporated under the laws of the Republic of Korea in 1969 and listed its shares on the Korea Stock Exchange in 1975. The Company and its subsidiaries (collectively referred to as the \"Group\") operate three business divisions: Consumer Electronics (\"CE\"), Information technology & Mobile communications (\"IM\"), and Device Solutions (\"DS\"). The CE division includes digital TVs, monitors, air conditioners and refrigerators and the IM division includes mobile phones, communication systems, and computers. The DS division includes products such as memory and system LSI in the semiconductor business (\"Semiconductor\"), and LCD and OLED panels in the display business (\"DP\"). The Company is domiciled in the Republic of Korea and the address of its registered office is Suwon, the Republic of Korea. The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards as adopted by the Republic of Korea (\"Korean IFRS\") 1110, Consolidated Financial Statements. The Company, as the controlling company, consolidates its 169 subsidiaries, including Samsung Display and Samsung Electronics America (Note 1.2). The Group also applies the equity method of accounting to its 38 affiliates, including Samsung Electro-Mechanics. 1.2 Consolidated Subsidiaries (A) The consolidated subsidiaries as at December 31, 2016 are as follows: Area Domestic Subsidiaries Samsung Display (SDC) SU Materials STECO SEMES Samsung Electronics Service Samsung Electronics Sales Samsung Electronics Logitech Samsung Medison Samsung Venture Capital Union #20 Samsung Venture Capital Union #21 Samsung Venture Capital Union #22 Samsung Venture Capital Union #23 Samsung Venture Capital Union #26 Samsung Venture Capital Union #27 Samsung Venture Capital Union #28 Samsung Venture Capital Union #29 Samsung Venture Capital Union #32 Samsung Venture Capital Union #33 Mirero System S-Printing Solution Industry Manufacture and sale of display panels Manufacture of LCD components Manufacture of semiconductor components Manufacture of semiconductor/FPD Repair services for electronic devices Sale of electronic devices General logistics agency Medical equipment Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Technology business, Venture capital investments Quality control system of semiconductor Business of printing solutions 14 Percentage of ownership1 84.8 50.0 70.0 91.5 99.3 100.0 100.0 68.5 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 99.0 74.7 100.0 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Area America Percentage of ownership1 100.0 100.0 Subsidiaries Samsung Electronics America (SEA) NexusDX (Nexus) Industry Sale of electronic devices Medical equipment Samsung Receivables (SRC) NeuroLogica Samsung Semiconductor (SSI) Samsung Electronics Canada (SECA) Credit management Medical equipment Sale of semiconductor/LCD Sale of electronic devices 100.0 100.0 100.0 100.0 Samsung Research America (SRA) Samsung Mexicana (SAMEX) Samsung International (SII) Samsung Austin Semiconductor (SAS) R&D Manufacture of electronic devices Manufacture of TV/monitors Manufacture of semiconductor 100.0 100.0 100.0 100.0 Samsung Electronics Mexico (SEM) SEMES America (SEMESA) Samsung Electronics Digital Appliance Mexico (SEDAM) Samsung Electronics Latinoamerica Miami (SEMI) Samsung Electronics Latinoamerica (SELA) Samsung Electronics Venezuela (SEVEN) Samsung Electronica Colombia (SAMCOL) Samsung Electronics Panama (SEPA) Sale of electronic devices Semiconductor equipment Manufacture of electronic devices 99.9 100.0 99.9 Sale of electronic devices 100.0 Sale of electronic devices Marketing and services Sale of electronic devices Consulting 100.0 100.0 100.0 100.0 Samsung Electronica da Amazonia (SEDA) Samsung Electronics Argentina (SEASA) Samsung Electronics Chile (SECH) Samsung Electronics Peru (SEPR) Manufacture and sale of electronic devices Marketing and services Sale of electronic devices Sale of electronic devices 100.0 100.0 100.0 100.0 RT SV CO-INVEST (RT-SV) Quietside Technology business, Venture capital investments Sale of heating and cooling products SmartThings PrinterOn PrinterOn America Simpress Sale of smart home electronics Sale of printing solutions Sale of printing solutions Sale of printing solutions 99.9 100.0 100.0 100.0 Samsung Pay Prismview (formerly YESCO Electronics) Beijing Integrated Circuit Industry International Fund (Beijing Fund) Stellus Technologies Develop and provide mobile payment service Manufacture and sale of LED displays Venture capital investments 100.0 100.0 100.0 100.0 61.4 Samsung Oak Holdings (SHI) Manufacture and sale of server semiconductor storage system Holding company 100.0 AdGear Technologies Joyent Samsung Next Samsung Next Fund Digital advertising platforms Cloud Services Holding Company Technology business, Venture capital investments 100.0 100.0 100.0 100.0 Dacor Holdings Dacor Dacor Canada EverythingDacor.com Holding Company Manufacture and sale of Home appliances Sale of Home appliances Sale of Home appliances 100.0 100.0 100.0 100.0 Distinctive Appliances of California Sale of Home appliances Research of AI technology RCS (Rich Communication Service) 100.0 100.0 100.0 Viv Labs NewNet Communication Technologies Canada 15 100.0 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Area Europe/CIS Percentage of ownership1 100.0 Subsidiaries Samsung Electronics (UK) (SEUK) Industry Sale of electronic devices Samsung Electronics Holding (SEHG) Holding Company 100.0 Samsung Semiconductor Europe GmbH (SSEG) Samsung Electronics GmbH (SEG) Sale of semiconductor/LCD 100.0 Sale of electronic devices 100.0 Samsung Electronics Iberia (SESA) Sale of electronic devices 100.0 Samsung Electronics France (SEF) Sale of electronic devices 100.0 Samsung Electronics Hungarian (SEH) Manufacture and sale of electronic devices 100.0 Samsung Electronics Czech and Slovak (SECZ) Samsung Electronics Italia (SEI) Sale of electronic devices 100.0 Sale of electronic devices 100.0 Samsung Electronics Europe Logistics (SELS) Samsung Electronics Benelux (SEBN) Logistics 100.0 Sale of electronic devices 100.0 Samsung Display Slovakia (SDSK) Toll processing of LCD 100.0 Samsung Electronics Romania (SEROM) Sale of electronic devices 100.0 Samsung Electronics Overseas (SEO) Sale of electronic devices 100.0 Samsung Electronics Polska (SEPOL) Sale of electronic devices 100.0 Samsung Electronics Portuguesa (SEP) Sale of electronic devices 100.0 Samsung Electronics Nordic (SENA) Sale of electronic devices 100.0 Samsung Semiconductor Europe (SSEL) Sale of semiconductor/LCD 100.0 Samsung Electronics Austria (SEAG) Sale of electronic devices 100.0 Samsung Electronics Slovakia (SESK) Manufacture of TV/monitors 100.0 Samsung Electronics Europe Holding (SEEH) Holding Company 100.0 Samsung Electronics Poland Manufacturing (SEPM) Samsung Electronics Greece (SEGR) Manufacture of home appliances 100.0 Sale of electronic devices 100.0 Samsung Nanoradio Design Center (SNDC) R&D 100.0 Samsung Electronics Rus (SER) Marketing 100.0 Samsung Electronics Rus Company (SERC) Sale of electronic devices 100.0 Samsung Electronics Ukraine (SEU) Marketing 100.0 Samsung Electronics Baltics (SEB) Sale of electronic devices 100.0 Samsung Electronics Ukraine Company (SEUC) Samsung R&D Institute Rus (SRR) Sale of electronic devices 100.0 R&D 100.0 Samsung Electronics Central Eurasia (SECE) Sale of electronic devices 100.0 Samsung Electronics Rus Kaluga (SERK) Manufacture of TV 100.0 Samsung Electronics (London) Limited (SEL) Holding Company 100.0 Samsung Denmark Research Center (SDRC) R&D 100.0 Samsung France Research Center (SFRC) R&D 100.0 Samsung Cambridge Solution Centre (SCSC) R&D 100.0 Samsung Electronics Switzerland GmbH (SESG) PrinterOn Europe Sale of electronic devices 100.0 Sale of printing solutions 100.0 Samsung Electronics Caucasus (SECC) Marketing 100.0 Joyent(UK) Cloud services 100.0 16 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Area Middle East and Africa Asia (Except China) Industry Percentage of ownership1 100.0 Subsidiaries Samsung Electronics West Africa (SEWA) Marketing Samsung Electronics East Africa (SEEA) Samsung Gulf Electronics (SGE) Samsung Electronics Egypt (SEEG) Samsung Electronics Israel (SEIL) Marketing Sale of electronic devices Manufacture and sale of electronic devices Marketing 100.0 100.0 100.0 100.0 Samsung Electronics Tunisia (SETN) Samsung Electronics Pakistan (SEPAK) Samsung Electronics South Africa (SSA) Samsung Electronics Turkey (SETK) Marketing Marketing Sale of electronic devices Sale of electronic devices 100.0 100.0 100.0 100.0 Samsung Semiconductor Israel R&D Center R&D (SIRC) Samsung Electronics Levant (SELV) Sale of electronic devices Samsung Electronics Maghreb Arab Sale of electronic devices (SEMAG) Samsung Electronics South Africa Production Manufacture of TV/monitors (SSAP) Samsung Japan (SJC) Sale of electronic devices Samsung R&D Institute Japan (SRJ) R&D Samsung Electronics Japan (SEJ) Sale of electronic devices 100.0 100.0 100.0 Samsung Electronics Display (M) (SDMA) Samsung Electronics (M) (SEMA) Samsung Vina Electronics (SAVINA) Samsung Asia Private (SAPL) Manufacture of electronic devices Manufacture of home appliances Sale of electronic devices Sale of electronic devices 100.0 100.0 100.0 100.0 Samsung India Electronics (SIEL) Samsung R&D Institute India-Bangalore (SRI-B) Samsung Electronics Australia (SEAU) Samsung Electronics Indonesia (SEIN) Samsung Telecommunications Indonesia (STIN) Thai Samsung Electronics (TSE) Samsung Electronics Philippines (SEPCO) Manufacture and sale of electronic devices R&D 100.0 100.0 Sale of electronic devices Manufacture and sale of electronic devices Sale and services of communication systems 100.0 100.0 100.0 Manufacture and sale of electronic devices Sale of electronic devices 91.8 100.0 Sale of electronic devices R&D Manufacture of electronic devices Manufacture and sale of communication equipment 100.0 100.0 100.0 100.0 Medical equipment Sale of electronic devices 100.0 100.0 Manufacture of LCD Manufacture and sale of electronic devices 100.0 100.0 Marketing 100.0 Samsung Malaysia Electronics (SME) Samsung R&D Institute Bangladesh (SRBD) Samsung Electronics Vietnam (SEV) Samsung Electronics Vietnam THAINGUYEN (SEVT) Samsung Medison India (SMIN) Samsung Electronics New Zealand (SENZ) Samsung Display Vietnam (SDV) Samsung Electronics HCMC CE Complex (SEHC) Laos Samsung Electronics Sole(LSE) 17 100.0 100.0 100.0 100.0 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Area China 1 Percentage of ownership1 100.0 Subsidiaries Samsung Display Dongguan (SDD) Industry Manufacture of LCD Samsung Display Tianjin (SDT) Samsung Electronics Hong Kong (SEHK) Suzhou Samsung Electronics (SSEC) Samsung Suzhou Electronics Export (SSEC-E) Samsung (China) Investment (SCIC) Manufacture of LCD Sale of electronic devices Manufacture of home appliances Manufacture of home appliances 95.0 100.0 88.3 100.0 Sale of electronic devices 100.0 Samsung Mobile R&D Center China-Guangzhou (SRC-Guangzhou) Samsung Tianjin Mobile Development Center (STMC) Samsung R&D Institute China-Shenzhen(SRCShenzhen) Samsung Electronics Suzhou Semiconductor (SESS) R&D 100.0 R&D 100.0 R&D 100.0 Toll processing of semiconductor 100.0 Manufacture of printers 100.0 Samsung Electronics (Shandong) Digital Printing (SSDP) Samsung Electronics Huizhou (SEHZ) Manufacture of electronic devices Tianjin Samsung Electronics (TSEC) Samsung Electronics Taiwan (SET) Beijing Samsung Telecom R&D Center (BST) Tianjin Samsung Telecom Technology (TSTC) Manufacture of TV/monitors Sale of electronic devices R&D Manufacture of communication equipment 91.2 100.0 100.0 90.0 Shanghai Samsung Semiconductor (SSS) Samsung Electronics Suzhou Computer (SESC) Samsung Suzhou Module (SSM) Samsung Suzhou LCD (SSL) Sale of semiconductor/LCD Manufacture of electronic devices Toll processing of LCD Manufacture of LCD 100.0 100.0 100.0 60.0 Shenzhen Samsung Electronics Telecommunication (SSET) Samsung Semiconductor (China) R&D (SSCR) Samsung Electronics China R&D Center (SCRC) Samsung (China) Semiconductor (SCS) Samsung Electronics (Beijing) Service (SBSC) Manufacture of communication equipment R&D R&D Manufacture of semiconductor Services 100.0 100.0 100.0 100.0 Tianjin Samsung LED (TSLED) Tianjin Samsung Opto-Electronics (TSOE) SEMES (Xian) Samsung Semiconductor Xian (SSCX) Manufacture of LED Manufacture of cameras/camcorders Semiconductor equipment Sale of semiconductor/LCD 100.0 90.0 100.0 100.0 Ownership represents the Group's ownership of voting rights in each entity. 18 99.9 95.0 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (B) A summary of financial data of major consolidated subsidiaries is as follows: (1) 2016 2016 Samsung Electronics America (SEA) Assets \\ 43,305,405 21,810,492 Liabilities \\ 8,361,256 9,496,649 Sales \\ 24,658,814 34,521,654 Net Income (Loss) \\ 1,498,628 246,141 Samsung (China) Investment (SCIC) 13,632,938 11,672,755 8,792,750 298,373 Samsung (China) Semiconductor (SCS) 9,749,448 4,564,793 4,152,137 1,113,218 Samsung Electronics Vietnam (SEV) 9,134,023 1,258,948 19,426,334 2,046,280 Samsung Electronics Europe Holding (SEEH) 8,643,308 6,661,092 - 350,974 Samsung Semiconductor (SSI) 7,804,698 3,746,687 19,911,135 30,247 Samsung Electronics Vietnam THAINGUYEN (SEVT) Samsung Electronics Huizhou (SEHZ) 7,646,828 2,179,023 23,563,736 2,641,418 6,174,579 1,106,633 12,971,475 764,426 Shanghai Samsung Semiconductor (SSS) 5,862,409 5,166,385 20,983,314 181,041 Samsung Asia Private (SAPL) 5,528,472 592,320 1,458,176 1,056,956 Samsung Electronica da Amazonia (SEDA) 5,200,799 1,510,972 6,092,245 966,821 Samsung Austin Semiconductor (SAS) 4,940,748 1,293,458 3,586,127 104,747 Samsung India Electronics (SIEL) 4,563,407 2,256,194 8,827,028 753,164 Samsung Display Vietnam (SDV) 3,165,239 3,437,791 5,230,581 (98,102) Samsung Electronics Europe Logistics (SELS) 2,887,230 2,779,296 13,157,455 36,768 Samsung Suzhou LCD (SSL) 2,499,917 1,376,439 1,494,787 1,091 Thai Samsung Electronics (TSE) 2,079,865 364,518 4,069,078 198,980 Samsung Electronics Slovakia (SESK) 2,053,467 440,402 3,634,166 115,387 Samsung Electronics Taiwan (SET) 1,857,017 1,540,478 3,533,924 (36,178) (In millions of Korean won) Samsung Display (SDC) Samsung Electronics HCMC CE Complex (SEHC) 1,814,566 1,572,982 2,010,442 118,091 Samsung Electronics Hungarian (SEH) 1,743,979 633,975 2,441,881 89,712 Samsung Electronics GmbH (SEG) 1,621,827 1,618,305 6,257,480 2,187 Samsung Display Dongguan (SDD) 1,584,504 518,511 5,187,954 199,922 Samsung Electronics (UK) (SEUK) 1,526,879 1,103,579 4,731,464 107,243 19 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (2) 2015 2015 Samsung Electronics America (SEA) Assets \\ 39,225,460 14,875,687 Liabilities \\ 6,586,259 7,562,099 Sales \\ 26,397,111 35,766,374 Net Income (Loss) \\ 1,673,165 268,083 Samsung (China) Investment (SCIC) 12,748,395 11,040,055 11,461,304 (77,629) Samsung (China) Semiconductor (SCS) 9,742,388 5,537,446 2,610,462 171,644 Samsung Semiconductor (SSI) 8,288,391 4,379,980 21,724,671 (32,056) Samsung Electronics Vietnam (SEV) 7,829,507 1,155,075 18,431,838 1,948,071 Samsung Electronics Europe Holding (SEEH) 6,989,207 5,223,523 - (31,925) Samsung Electronics Vietnam THAINGUYEN (SEVT) Samsung Electronics Huizhou (SEHZ) 6,571,798 3,940,926 19,379,347 1,592,920 6,192,974 1,738,095 17,949,623 722,700 Samsung Austin Semiconductor (SAS) 6,179,289 2,746,852 3,045,453 94,698 (In millions of Korean won) Samsung Display (SDC) Samsung Asia Private (SAPL) 4,227,798 504,256 1,392,926 957,734 Shanghai Samsung Semiconductor (SSS) 3,792,437 3,207,942 14,372,358 141,232 Samsung India Electronics (SIEL) 3,723,127 2,204,333 8,008,884 326,462 Samsung Electronica da Amazonia (SEDA) 3,114,334 1,021,869 5,634,385 322,939 Samsung Suzhou LCD (SSL) 2,784,122 1,634,304 1,024,881 76,099 Tianjin Samsung Telecom Technology (TSTC) 2,075,123 778,133 6,963,943 146,972 Samsung Electronics Europe Logistics (SELS) 1,894,614 1,793,917 12,943,676 (7,745) Thai Samsung Electronics (TSE) 1,889,410 416,382 3,949,756 179,527 Samsung Electronics Slovakia (SESK) 1,888,341 373,886 3,480,848 107,968 Samsung Electronics GmbH (SEG) 1,820,922 1,762,978 6,047,305 (1,630) Samsung Display Dongguan (SDD) 1,276,263 384,963 4,649,277 130,635 Samsung Electronics Benelux (SEBN) 1,264,497 291,332 2,148,502 42,790 Samsung Electronics Hungarian (SEH) 1,254,673 231,785 3,029,047 97,474 Samsung Electronics Taiwan (SET) 1,253,480 918,482 4,258,650 44,025 Samsung Electronics (UK) (SEUK) 1,133,512 745,126 4,656,990 106,413 20 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (C) Changes in scope of consolidation (1) Subsidiaries newly included in the consolidation for the year ended December 31, 2016: Area Domestic America Europe/CIS Asia (Except China) China Subsidiary Description Samsung Venture Capital Union #32 Incorporation Samsung Venture Capital Union #33 Incorporation Mirero System Acquisition of shares S-Printing Solution Spin-off Samsung Oak Holdings (SHI) Incorporation AdGear Technologies Acquisition of shares Joyent Acquisition of shares Joyent Canada Samsung Next Acquisition of shares Samsung Next Fund Incorporation Dacor Holdings Acquisition of shares Dacor Acquisition of shares Dacor Canada Acquisition of shares EverythingDacor.com Acquisition of shares Distinctive Appliances of California Acquisition of shares Viv Labs Acquisition of shares NewNet Communication Technologies Canada Acquisition of shares Joyent (UK) Acquisition of shares Laos Samsung Electronics Sole (LSE) Incorporation Samsung Semiconductor Xian (SSCX) Incorporation Incorporation (2) Subsidiaries excluded from the consolidation for the year ended December 31, 2016: Area Domestic America Europe/CIS Asia (Except China) China Subsidiary Description Samsung Venture Capital Union #14 Liquidation Grandis Liquidation Joyent Canada Liquidation Samsung Russia Service Centre (SRSC) Merger1 SonoAce Deutschland (SDG) Samsung Electronics Kazakhstan(SEK) Liquidation Samsung Telecommunications Malaysia (STM) Liquidation Future Technology & Service Liquidation Samsung R&D Institute China-Xian (SRC-Xian) Merger2 Samsung Electronics Shanghai Telecommunication (SSTC) Merger3 Merger4 1 Samsung Electronics Rus Company (SERC), a subsidiary of the Group, merged with Samsung Russia Service Centre (SRSC) on February 1, 2016. 2 Samsung (China) Semiconductor (SCS), a subsidiary of the Group, merged with Samsung R&D Institute China-Xian (SRCXian) in July, 2016. 3 Samsung (China) Investment (SCIC), a subsidiary of the Group, merged with Samsung Electronics Shanghai Telecommunication (SSTC) in September, 2016. 4 Samsung Electronics Central Eurasia (SECE), a subsidiary of the Group, merged with Samsung Electronics Kazakhstan (SEK) in December, 2016. 21 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 2. Summary of Significant Accounting Policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of Presentation The Group maintains its accounting records in Korean won and prepares statutory financial statements in the Korean language (Hangul) in accordance with Korean IFRS. The accompanying consolidated financial statements have been condensed, restructured and translated into English from the Korean language financial statements. Certain information attached to the Korean language financial statements, but not required for a fair presentation of the Group's financial position, financial performance or cash flows, is not presented in the accompanying consolidated financial statements. The consolidated financial statements of the Group presented have been prepared in accordance with Korean IFRS. International Financial Reporting Standards (\"IFRS\") have been adopted by the Korean Accounting Standards Board as Korean IFRS based on standards and interpretations published by the International Accounting Standards Board. Korean IFRS permits the use of critical accounting estimates in the preparation of the financial statements and requires management judgments in applying accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements, are disclosed in Note 3. 2.2 Changes in Accounting Policy and Disclosures (A) New and amended standards adopted by the Group The Group applied the following amended and enacted standards for the annual period beginning on January 1, 2016: Amendment to Korean IFRS 1001, Presentation of Financial Statements Korean IFRS 1001 Presentation of Financial Statements clarifies that materiality applies to the exclusion or inclusion or aggregation of the disclosures in the notes. The standard also clarifies that the share of OCI arising from equity-accounting should be presented in total for items which will and will not be reclassified to profit or loss. Additional amendments are made in relation to the particular ordering of the footnote disclosures. The adoption of this standard did not have a material impact on the financial statements. 22 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (B) New and amended standards not adopted by the Group The Group expects that new standards, amendments and interpretations issued but not effective for the financial year beginning January 1, 2016, and not early adopted, would not have a material impact on its consolidated financial statements. Amendment to Korean IFRS 1007, Statement of Cash Flows Amendments to Korean IFRS 1007 Statement of Cash flows requires disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes. The Group will apply this amendment for annual reporting periods beginning on or after January 1, 2017. The Group is in the process of determining the impact of adopting the new Standard. Korean IFRS 1109, Financial Instruments The new standard for financial instruments issued on September 25, 2015 is effective for annual periods beginning on or after January 1, 2018 with early application permitted. This standard will replace Korean IFRS 1039 Financial Instruments: Recognition and Measurement. The Group will apply the standards for annual periods beginning on or after January 1, 2018. The standard requires retrospective application with some exceptions. For example, the entity is not required to restate prior periods in relation to classification, measurement and impairment of financial instruments. The standard requires prospective application of its hedge accounting requirements for all hedging relationships except the accounting for time value of options and other exceptions. Korean IFRS 1109 Financial Instruments requires all financial assets to be classified and measured on the basis of the entity's business model for managing financial assets and the contractual cash flow characteristics of the financial assets. A new impairment model, an expected credit loss model, is introduced and any subsequent changes in expected credit losses will be recognized in profit or loss. Also, hedge accounting rules amended to extend the hedging relationship, which consists only of eligible hedging instruments and hedged items, qualifies for hedge accounting. An effective implementation of Korea IFRS 1109 requires preparation processes including financial impact assessment, accounting policy establishment, accounting system development and system stabilization. The impact on the Group's financial statements due to the application of the standard is dependent on judgements made in applying the standard, financial instruments held by the Group and macroeconomic variables. The Group has performed a preliminarily assessment of the financial impacts of the implementation of Korean IFRS 1109 to the 2016 financial statements based on current situation and available information as at December 31, 2016. The expected impact of application of the standard on the Group's financial statements are set out below. The Group will conduct further analysis of detailed financial impacts based on additional information in the future, and the result of the preliminary assessment may change depending on additional information available to the Group. (a) Classification and Measurement of Financial Assets When implementing Korean IFRS 1109, the classification of financial assets will be driven by the Group's business model for managing the financial assets and contractual terms of cash flow. The following table shows the classification of financial assets measured subsequently at amortized cost, at fair value through other 23 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS comprehensive income reserve and at fair value through profit or loss. For hybrid (combined) instruments, if the Group is unable to measure an embedded derivative separately from its host contract, financial assets with embedded derivatives are classified in their entirety. Business model for the contractual cash flows characteristics Solely represent payments of principal and interest Hold the financial asset for the collection of the contractual cash flows Measured at amortized cost1 Hold the financial asset for the collection of the contractual cash flows and trading Recognized at fair value through other comprehensive income reserve 1 Hold for trading Recognized at fair value through profit or loss All other Recognized at fair value through profit or loss 2 1 A designation at fair value through profit or loss is allowed only if such designation mitigates an accounting mismatch (irrevocable). 2 A designation at fair value through other comprehensive income is allowed only if the financial instrument is the equity investment that are not held for trading (irrevocable). With the implementation of Korean IFRS 1109, the criteria to classify the financial assets at amortized cost or at fair value through other comprehensive income are more strictly applied than the criteria applied under Korean IFRS 1039. Accordingly, the financial assets at fair value through profit or loss may increase by implementing Korean IFRS 1109 and may result in an increased fluctuation in profit or loss. As at December 31, 2016, the Group recognizes loan and trade receivables amounting to \\112,219,719 million, financial assets available-for-sales amounting to \\10,442,736 million. According to Korean IFRS 1109, debt investments are measured at amortized cost if: a) the objective of the business model is to hold the financial assets for the collection of the contractual cash flows, and b) the contractual terms of cash flows solely represent payments of principal and interest. As at December 31, 2016, the Group recognized loan and trade receivables amounting to \\112,219,719 million held at amortized costs. According to the result of preliminary impact assessment, when applying Korean IFRS 1109 to the financial assets as at December 31, 2016, under the terms and conditions of the contracts, most financial assets consist of cash flows solely representing payments of principal and interest on a due date. Where the Group holds the financial assets for the collection of the contractual cash flows, the financial assets are classified as accounts subsequently measured at amortized cost. In conclusion, it is expected that the financial impact on the financial statements will be immaterial. Korean IFRS 1109 measures debt investments at fair value through other comprehensive income of which terms of cash flows solely represent payments of the principal and interest on a due date, where the purpose of holding debt investment is to collect contractual cash flows and trade. As at December 31, 2016, the Group has debt investments classified as available-for-sale financial assets amounting to \\3,743,173 million. 24 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS According to the result of preliminary impact assessment, when applying Korean IFRS 1109 to the debt investments classified as available-for-sale as at December 31, 2016, most of the investments will be classified as financial instruments measured at fair value through other comprehensive income. According to Korean IFRS 1109, equity investments not being held for trading may be given an irrevocable election to be classified as financial instruments measured at fair value through other comprehensive income at initial recognition and the cumulative gain or loss previously recognized in other comprehensive income is not subsequently recycled from equity to profit or loss as a reclassification adjustment. As at December 31, 2016, the Group's equity investments classified as available-for-sale financial assets amount to \\6,699,563 million and the cumulative unrealized profit or loss on available-for-sale equity investments amounting to \\631,601 million was recycled from equity to profit or loss as a reclassification adjustment for the 2016 fiscal year. As a result of the preliminary impact assessment, the Group will designate long-term investment equity investments, which account for most of the available-for-sale equity instruments, as financial instruments measured at fair value through other comprehensive income. Therefore, the financial impact to the financial statements is expected to be immaterial. As at December 31, 2016, the remaining cumulative profit or loss which is comprehensive income not subject to be subsequently recycled from equity to profit or loss is \\1,390,624 million. According to Korean IFRS 1109, debt investments of which the contractual term of cash flows are not solely representing payments of principal and interest or which are held for trading are classified as at fair value through profit or loss. Also equity investments not designated at fair value through comprehensive income are measured at fair value through profit or loss. As at December 31, 2016, the Group has no debt or equity investments classified as financial instruments at fair value through profit or loss. According to the results of the preliminary impact assessment, as most of the financial assets held as at December 31, 2016 are recorded at fair value through the profit and loss for the current term, the financial impact of adopting Korean IFRS 1109 is expected to be immaterial. (b) Classification and Measurement of Financial Liabilities Korean IFRS 1109 requires the change in the liability's fair value attributable to changes in the credit risk to be recognized in other comprehensive income, unless this treatment of the credit risk component creates or enlarges a measurement mismatch. Amounts presented in other comprehensive income are not subsequently transferred to profit or loss. Under Korean IFRS 1039, all financial liabilities designated at fair value through profit or loss recognized their fair value movements in profit or loss. However, under Korean IFRS 1109, certain fair value movements will be recognized in other comprehensive income thus profit or loss from fair value movements may decrease. As at December 31, 2016, total financial liabilities account for \\46,944,824 million of which \\417,399 million are designated to be measure at fair value through profit or loss, and for the 2016 fiscal year the Group recognized loss of 61,221 million in relation to financial liabilities measured at fair value through profit or loss. According to the result of the preliminary impact assessment, financial liabilities measured at fair value through profit and loss for the current terms as at December 31, 2016 have mostly short maturities and the credit risk fluctuation of financial liabilities is insignificant. Therefore, it is expected that the impact of adopting Korean IFRS 1109 will not be significant. 25 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (c) Impairment: Financial Assets and Contract Assets Korean IFRS 1109 sets out a new forward looking 'expected loss impairment model' which replaces the incurred loss model in Korean IFRS 1039 if there is objective evidence and applies to: Financial assets measured at amortized cost Debt investments measured at fair value through other comprehensive income, and Certain loan commitments and financial guaranteed contracts. Under Korean IFRS 1109, a credit event (or impairment 'trigger') no longer has to occur before credit losses are recognized. The Group will always recognize (at a minimum) 12-month expected credit losses in profit or loss. Lifetime expected losses will be recognized on assets for which there is a significant increase in credit risk after initial recognition. Stage1 1 No significant increase in credit risk after initial recognition2 2 Significant increase in credit risk after initial recognition 3 Objective evidence of credit-impaired Loss allowance 12-month expected credit losses (expected credit losses that result from those default events on the financial instruments that are possible within 12 months after the reporting date) Lifetime expected credit losses (expected credit losses that result from all possible default events over the life of the financial instruments) 1 The Group shall measure the loss allowance at an amount equal to Lifetime expected credit losses for contract assets or trade receivables under the standard, Korean IFRS 1115 Revenue from Contracts with Customers, which do not contain a significant financing component. However, the Group elects to measure the loss allowance at an amount equal to Lifetime expected credit losses for all contract assets or all trade receivables which contain a significant financing component in accordance with Korean IFRS 1115. The Group also elects to measure the loss allowance at an amount equal to Lifetime expected credit losses for lease receivables. 2 If the financial instrument has low credit risk at the reporting date, the Group may assume that the credit risk has not increased significantly since initial recognition. Under Korean IFRS 1109, the asset that is credit-impaired at initial recognition would recognize all changes in lifetime expected credit losses since the initial recognition as a loss allowance with any changes recognized in profit or loss. Korean IFRS 1115, Revenue from Contracts with Customers The Group will apply Korean IFRS 1115 Revenue from Contracts with Customers issued on November 6, 2015 for annual reporting periods beginning on or after January 1, 2018. This standard replaces Korean IFRS 1018 Revenue, Korean IFRS 1011 Construction Contracts, Interpretation 2031 Revenue-Barter Transactions Involving Advertising Services, Interpretation 2113 Customer Loyalty Programs, Interpretation 2115 Agreements for the Construction of Real Estate and Interpretation 2118 Transfers of assets from customers. The Group will apply the standard retrospectively to prior reporting periods presented in accordance with Korean IFRS 1008 Accounting Policies, Changes in Accounting Estimates and Errors and apply the simplified transition method with no restatement for completed contracts as at January 1, 2017. The new standard is based on the principle that revenue is recognized when control of goods or services transfers 26 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS to a customer - so the notion of control replaces the existing notion of risks and rewards. A new five-step process must be applied before revenue from contract with customer can be recognized: Identify contracts with customers Identify the separate performance obligation Determine the transaction price of the contract Allocate the transaction price to each of the separate performance obligations, and Recognize the revenue as each performance obligation is satisfied. Based on the information available at the end of the reporting period, the Group is in the process of preliminary assessment of the potential impact on the financial statements for the year 2016 when applying Korean IFRS 1115, and the interim results are set out below. The Group will analyze more specific financial impacts based on additional information in the future. (a) Identification of performance obligations The Group's IM (information technology & mobile communications) business consists of mobile phone, communication systems and computers. The Group manufactures and installs network communication systems, and provides them to customers. In 2016, the related revenue from such activities did not account for a large portion of total revenue. When applying Korean IFRS 1115, performance obligation, such as network system production with customers, distinguished as technical support in the integrated contract such as (1) product sales, (2) installation service, and (3) maintenance, were identified. The timing of revenue recognition may change depending on whether each performance obligation is fulfilled at one time or over a period of time. (b) Variable payment As the Group allows returns when selling products and merchandise, variability in payment may occur. When apply Korean IFRS 1115, the Group estimates the variable payment using an expectation-value method that is expected to better anticipate the payments to which the company is entitled, and recognizes revenue by including variable payment in the transaction price only to the amount that it is highly unlikely to reverse a significant portion of the cumulative revenue amount that has already been recognized, at the end of the return period. Amounts not expected to be consideration received or receivable are recognized as a refund liability. (c) Distribution of transaction price When applying Korean IFRS 1115, the Group allocates transaction prices based on the relative individual selling prices to the various performance obligations identified in a single contract. The Group will use the 'Market Valuation Adjustment Approach' to estimate the individual selling prices of each performance obligation and will use the 'Estimated Cost Plus Margin Approach', which predicts the expected costs and adds the appropriate profits to the transactions. 2.3 Consolidation The Group prepares the consolidated financial statements in accordance with Korean IFRS 1110, Consolidated Financial Statements. (A) Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has control. The Group controls the corresponding investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Consolidation of a subsidiary begins from the date the Group obtains control of a subsidiary and ceases when the Group loses control of the subsidiary. 27 Samsung Electronics Co., Ltd. and Subsidiaries NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The Group applies the acquisition method to account for business combinations. The consideration transferred is measured at the fair values of the assets transferred, and identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are initially measured at their fair values at the acquisition date. The Group re