38.1 Fair Value of Financial Instruments by Category

Carrying amount and fair value of financial instruments by category as at December 31, 2021 and 2022, are as follows:


	December 31, 2021				December 31, 2022
(in millions of Korean won)	Carrying amount		Fair value		Carrying amount		Fair value
Financial assets
Cash and cash equivalents	￦	3,019,592		1	￦	2,449,062		1
Trade and other receivables
Financial assets measured at amortized cost 2		5,610,377		1		7,364,516		1
Financial assets at fair value through other comprehensive income		491,713		491,713		129,124		129,124
Other financial assets
Financial assets measured at amortized cost		608,389		1		1,060,058		1
Financial assets at fair value through profit or loss		952,319		952,319		1,064,856		1,064,856
Financial assets at fair value through other comprehensive income		347,877		347,877		1,508,192		1,508,192
Derivative financial assets for hedging purpose		99,453		99,453		190,830		190,830

Total	￦	11,129,720			￦	13,766,638

Financial liabilities
Trade and other payables	￦	7,980,203		1	￦	8,397,264		1
Borrowings		8,437,703		8,578,827		10,006,685		9,405,992
Other financial liabilities
Financial liabilities at amortized cost		263,500		1		246,606		1
Financial liabilities at fair value through profit or loss		216,040		216,040		141,280		141,280
Derivative financial liabilities for hedging purpose		18,126		18,126		33,555		33,555

Total	￦	16,915,572			￦	18,825,390

The Group did not conduct fair value estimation since the book amount is a reasonable approximation of the fair value

With the application of IFRS 7, lease receivables are excluded from

fair value disclosure.

38.2

Fair Value Hierarchy

To provide an indication about the reliability of the inputs used in determining fair value, the Group classifies its financial instruments into the three levels prescribed under the accounting standards. Financial instruments that are measured at fair value are categorized by the fair value hierarchy, and the defined levels are as follows:

•

Level 1: The fair value of financial instruments traded in active markets is based on quoted market prices at the end of the reporting period. The quoted market price used for financial assets held by the Group is the current bid price. These instruments are included in level 1.

•

Level 2: The fair value of financial instruments that are not traded in active market

is determined

using val

uation techniques which maximize the use of observable market data and rely as little as possible on entity-specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2.

•

Level 3: If one or more of the significant inputs is not based on observable market data, the instrument is included in level 3.

Fair value hierarchy classifications of the financial assets and financial liabilities that are measured at fair value or its fair value is disclosed as at December 31, 2021 and 2022, are as follows:


	December 31, 2021
(in millions of Korean won)	Level 1		Level 2		Level 3		Total
Assets
Trade and other receivables
Financial assets at fair value through other comprehensive income	￦	—	￦	491,713	￦	—	￦	491,713
Other financial assets
Financial assets at fair value through profit or loss		24,285		350,949		577,085		952,319
Financial assets at fair value through other comprehensive income		17,328		7,176		323,373		347,877
Derivative financial assets for hedging purpose		—		67,888		31,565		99,453
Investment properties		—		—		4,263,381		4,263,381

Total	￦	41,613	￦	917,726	￦	5,195,404	￦	6,154,743

Liabilities
Borrowings	￦	—	￦	8,578,827	￦	—	￦	8,578,827
Other financial liabilities
Financial liabilities at fair value through profit or loss		—		708		215,332		216,040
Derivative financial liabilities for hedging purpose		—		18,126		—		18,126

Total	￦	—	￦	8,597,661	￦	215,332	￦	8,812,993


(in millions of Korean won)	December 31, 2022
(in millions of Korean won)	Level 1		Level 2		Level 3		Total
Assets
Trade and other receivables
Financial assets at fair value through other comprehensive income	￦	—	￦	129,124	￦	—	￦	129,124
Other financial assets
Financial assets at fair value through profit or loss		26,647		426,140		612,069		1,064,856
Financial assets at fair value through other comprehensive income		1,005,900		5,163		497,129		1,508,192
Derivative financial assets for hedging purpose		—		189,717		1,113		190,830
Investment properties		—		—		5,370,047		5,370,047

Total	￦	1,032,547	￦	750,144	￦	6,480,358	￦	8,263,049

Liabilities
Borrowings	￦	—	￦	9,405,992	￦	—	￦	9,405,992
Other financial liabilities
Financial liabilities at fair value through profit or loss		—		—		141,280		141,280
Derivative financial liabilities for hedging purpose		—		33,555		—		33,555

Total	￦	—	￦	9,439,547	￦	141,280	￦	9,580,827

38.3 Transfers Between Fair Value Hierarchy Levels of Recurring Fair Value Measurements

There are no transfers between Level 1 and Level 2 of the fair value hierarchy for the recurring fair value measurements.

Details of changes in Level 3 of the fair value hierarchy for the recurring fair value measurements as at December 31, 2021 and 2022, are as follows:


	2021
	Financial assets									Financial liabilities
(in millions of Korean won)	Financial assets at fair value through profit or loss			Financial assets at fair value through other comprehensive income			Derivative financial assets for hedging			Financial liabilities at fair value through profit or loss
Beginning balance	￦	432,509		￦	50,789		￦	(4,194	)	￦	2,637
Acquisition		492,842			118,648			—			205,323
Reclassification		(25,757	)		14,633			—			—
Changes in c onsolidation s cope		353			(3,051	)		—			46,208
Disposal		(418,029	)		(5,325	)		—			—
Amount recognized in profit or loss 1, 2		95,167			71			43,150			(38,836	)
Amount recognized in other comprehensive income 2		—			147,608			(7,391	)		—

Ending balance	￦	577,085		￦	323,373		￦	31,565		￦	215,332

The recognition of gains and losses on derivatives financial liabilities (assets) for hedging purposes consists entirely of derivatives valuation losses.

The recognition of gains and losses on financial liabilities measured at fair value through profit or loss consists of derivative valuation losses.


	2022
	Financial assets									Financial liabilities
(in millions of Korean won)	Financial assets at fair value through profit or loss			Financial assets at fair value through other comprehensive income			Derivative financial assets for hedging			Financial liabilities at fair value through profit or loss
Beginning balance	￦	577,085		￦	323,373		￦	31,565		￦	215,332
Acquisition		226,310			262,408			—			3,046
Reclassification		(8,962	)		8,122			—			(54,921	)
Changes in consolidation scope		—			(40	)		—			—
Disposal		(179,740	)		(97,426	)		(31,565	)		—
Amount recognized in profit or loss 1,		(2,624	)		18			—			(22,177	)
Amount recognized in other comprehensive income 2		—			674			1,113			—

Ending balance	￦	612,069		￦	497,129		￦	1,113		￦	141,280

The recognition of gains and losses on financial liabilities measured at fair value through profit or loss consists of derivative valuation gains and losses.

The recognition of gains and losses on derivatives financial liabilities for hedging purposes consists entirely of derivatives valuation gains.

38.4

Valuation Technique and the Inputs

Valuation techniques and inputs used in the recurring, non-recurring fair value measurements and disclosed fair values categorized within Level 2 and Level 3 of the fair value hierarchy as at December 31, 2021 and 2022, are as follows:

December 31, 2021

(in millions of Korean won)

Fair value

Level

Valuation techniques

Inputs

Assets

Trade and other receivables

Financial assets at fair value
through other comprehensive
income

￦

491,713

DCF Model

Guaranteed bond interest
rate

Other financial assets

Financial assets at fair value
through profit or loss

928,034

2,3

DCF Model,
Adjusted Net Asset Model

Bond interest rate,

Underlying asset price

Financial assets at fair value
through other comprehensive
income

330,549

2,3

DCF Model,
Market approach Model

Discount rate

Derivative financial assets for
hedging

99,453

2,3

Hull-White Model,
DCF Model

Market observation

discount rate

Investment properties

4,263,381

DCF Model

Liabilities

Borrowings

￦

8,578,827

DCF Model

Bond interest rate

Other financial liabilities

Financial liabilities at fair value
through profit or loss

216,040

2,3

DCF Model,
Binomial Option Pricing Model

Forward rate,

Market interest rate

Derivative financial liabilities for
hedging

18,126

DCF Model

Market observation
discount rate

December 31, 2022

(in millions of Korean won)

Fair value

Level

Valuation techniques

Inputs

Assets

Trade and other receivables

Financial assets at fair value

through
other comprehensive

income

￦

129,124

DCF Model

Guaranteed bond interest
rate

Other financial assets

Financial assets at fair value

through
profit or loss

1,038,209

2,3

DCF Model,
Adjusted Net Asset

Model,
Monte-Carlo Simulation

Market Interest rate,

Underlying asset price

Financial assets at fair value through
other comprehensive income

502,292

2,3

DCF Model,
Market approach Model

Discount rate

Derivative financial assets for hedging

190,830

2,3

Hull-White Model,
DCF Model

Market observation

discount rate,

Swap interest rate

Investment properties

5,370,047

DCF Model

Liabilities

Borrowings

￦

9,405,992

DCF Model

Bond interest rate

Other financial liabilities

Financial liabilities at fair value through profit or loss

141,280

2,3

DCF Model,

Binomial Option Pricing Model,

Monte-Carlo Simulation

Derivative financial liabilities for hedging

33,555

DCF Model

Market observation
discount rate

38.5

Valuation Processes for Fair Value Measurements Categorized Within Level 3

The Group uses external experts that perform the fair value measurements required for financial reporting purposes. External experts report directly to the chief financial officer (CFO), and discusses valuation processes and results with the CFO in line with the Group’s closing dates.

38.6

Gains and losses on valuation at the transaction date

In the case that the Group values derivative financial instruments using inputs not based on observable market data, and the fair value calculated by the said valuation technique differs from the transaction price, then the fair value of the financial instruments is recognized as the transaction price. The difference between the fair value at initial recognition and the transaction price is deferred and amortized using a straight-line method by maturity of the financial instruments. However, in the case that inputs of the valuation techniques become observable in markets, the remaining deferred difference is immediately recognized in full in profit for the year.

In relation to this, details and changes of the total deferred difference for the years ended December 31, 2021 and 2022, are as follows:


(in millions of Korean won)	2021					2022
(in millions of Korean won)	Derivatives used for hedging			Derivative held for trading		Derivatives used for hedging			Derivative held for trading
I. Beginning balance	￦	2,257		￦	—	￦	832		￦	—
II. New transactions		—			—		—			—
III. Recognized at fair value through profit or loss		(1,425	)		—		(832	)		—

IV. Ending balance (I+II+III)	￦	832		￦	—	￦	—		￦	—