LG Electronics : 4Q Consolidated Financial Statements

LG Electronics

Consolidated Financial Statements December 31, 2020 and 2019

LG Electronics

Index

December 31, 2020 and 2019

Page(s)

Independent Auditor's Report ................................................................................	1 - 6
Consolidated Financial Statements
Consolidated Statements of Financial Position..........................................................	7
Consolidated Statements of Profit or Loss.................................................................	8
Consolidated Statements of Comprehensive Income ................................................	9
Consolidated Statements of Changes in Equity.........................................................	10
Consolidated Statements of Cash Flows ...................................................................	11
Notes to the Consolidated Financial Statements..................................................	12 - 138

Independent Auditor's Report

(English Translation of a Report Originally Issued in Korean)

To the Shareholders and Board of Directors of

LG Electronics Inc.

Opinion

We have audited the accompanying consolidated financial statements of LG Electronics Inc. and its subsidiaries (collectively referred to as the "Group"), which comprise the consolidated statements of financial position as at December 31, 2020 and 2019, 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.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2020 and 2019, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with International Financial Reporting Standards as adopted by the Republic of Korea (Korean IFRS).

Basis for Opinion

We conducted our audits in accordance with Korean Standards on Auditing. Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements of the Republic of Korea that are relevant to our audit of the consolidated financial statements and we have fulfilled our other ethical responsibilities in accordance with the ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

(a) Impairment of goodwill and others

Reasons why the matter was determined to be a key audit matter

As disclosed in Note 13, the Group allocates ₩305,172 million of goodwill to a Cash Generating Unit(CGU) consisting of ZKW Holdings GmbH, its subsidiaries and related entities (hereinafter referred to as "ZKW") as at December 31, 2020.

The Group performed an impairment test on the ZKW CGU during the current period in accordance with Korean IFRS 1036 Impairment of Assets and recognized ₩237,174 million of impairment loss on goodwill.

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We considered that the impairment of goodwill and others was a key audit matter given the goodwill allocated to the ZKW CGU was material in the consolidated financial statements of the Group, actual business performance compared to the business plan estimation was significantly decreased, and the level of management's judgments involved in the value-in-use estimation used in impairment testing are significant.

How our audit addressed the Key Audit Matter

We performed the following audit procedures on a valuation model, significant assumptions and judgements related to value-in-use estimation performed by the Group. We also involved our valuation specialists when performing such audit procedures. Our audit procedures included:

1. • Obtaining an understanding of the accounting policies and internal controls of the Group related to impairment testing
   • Testing internal controls such as the management's review and approval of business plan estimation and significant assumptions of the valuation model for impairment testing
   • Making inquiries on and obtaining an understanding of valuation model used by the Group, and assessing the consistency with the prior year
   • Evaluating the competence and objectivity of involved independent external experts engaged by the Group
   • Evaluating the appropriateness of the business plan estimation by management by comparing business plans of ZKW used in the prior year impairment testing with actual business performance
   • Obtaining an understanding of future cash flows of ZKW, and confirming that such future cash flows forecasts are consistent with the corresponding information included in business plans approved by management
   • Evaluating the appropriateness of significant assumptions used in the valuation model such as discount rates, growth rates and others by comparing them with external benchmarks within the same industry and historical financial information of ZKW
   • Performing a sensitivity analysis of significant assumptions in order to quantify the downside changes in assumptions that could result in an impairment
2. Impairment of investments in associates

Reasons why the matter was determined to be a key audit matter

As disclosed in Note 14, the Group held 37.9% of the shares of LG Display Co., Ltd. (hereinafter referred to as "LGD"), which was classified as an associate and accounted for using equity method. As at December 31, 2020, the book amount of the LGD shares was ₩4,214,088 million.

As the fair value of the LGD shares is significantly lower than its book amount at the end of the reporting period, the Group performed an impairment test in accordance with Korean IFRS 1036 Impairment of Assets.

We considered that the impairment of investments in associates was a key audit matter given the level of management's judgments involved in the value-in-use estimation of impairment testing are significant.

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How our audit addressed the Key Audit Matter

We performed the following audit procedures on a valuation model, significant assumptions and judgements related to value-in-use estimation performed by the Group. We also involved our valuation specialists when performing such audit procedures. Our audit procedures included:

• Obtaining an understanding of the accounting policies and internal controls of the Group related to impairment testing
• Testing internal controls such as the management's review and approval of business plan estimation and significant assumptions of the valuation model for impairment testing
• Making inquiries on and obtaining an understanding of valuation model used by the Group, and assessing the consistency with the prior year
• Evaluating the appropriateness of the business plan estimation by management by comparing business plans of LGD used in the prior year impairment testing with actual business performance
• Obtaining an understanding of future cash flows of LGD, and confirming that such future cash flows forecasts are consistent with the corresponding information included in business plans approved by management
• Evaluating the appropriateness of significant assumptions used in the valuation model such as discount rates, growth rates and others by comparing them with external benchmarks within the same industry and historical financial information of LGD
• Performing sensitivity analysis of significant assumptions in order to quantify the downside changes in assumptions that could result in an impairment

In addition, we reviewed the workpapers on the audit procedures related to the goodwill impairment testing performed by the independent auditor of LGD (hereinafter referred to as the "component auditor") and the evaluation result of competence and objectivity of involved independent external experts in the goodwill impairment testing prepared by management of LGD.

(c) Capitalization of internally generated development costs and their impairment

Reasons why the matter was determined to be a key audit matter

As disclosed in Note 13, the book amount of internally generated development costs of the Group was ₩845,011 million (including ₩378,629 million of construction-in-progress) as at December 31, 2020.

The Group recognized internally generated development costs which meet certain conditions defined in Korean IFRS 1038 Intangible Assets. The Group also performed an impairment test applying Korean IFRS 1036 Impairment of Assets during the current period and recognized ₩173,106 million of impairment loss.

We considered that the capitalization of internally generated development costs and their impairment was a key audit matter given that internally generated development costs were material in the consolidated financial statements of the Group and related to a significant level of judgments and estimations based on management's assumptions.

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