EX-99.2 3 grvy-ex992_7.htm EX-99.2 grvy-ex992_7.htm

Exhibit 99.2

 

 

 

 

 

 

GRAVITY CO., LTD.

 

Separate Financial Statements

 

For the Years Ended December 31, 2019 and 2018

 

(With Independent Auditors’ Report Thereon)

 

 

 


 

Contents

 

 

 

 

 

Page

 

 

 

Independent Auditors’ Report

 

1

 

 

 

Separate Statements of Financial Position

 

3

 

 

 

Separate Statements of Comprehensive Income

 

5

 

 

 

Separate Statements of Changes in Equity

 

6

 

 

 

Separate Statements of Cash Flows

 

7

 

 

 

Notes to the Separate Financial Statements

 

8

 

 

 

Independent Auditors’ Report on Internal Accounting Control System

 

57

 

 

 

Report on Operation of Internal Accounting Control System

 

59

 

 

 

 


 

Independent Auditors’ Report

Based on a report originally issued in Korean

 

To the Shareholders and Board of Directors of

Gravity Co., Ltd.:

 

Opinion

We have audited the accompanying separate financial statements of Gravity Co., Ltd (“the Company”), which comprise the separate statement of financial position as of December 31, 2019, the separate statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the separate financial statements comprising significant accounting policies and other explanatory information.  

In our opinion, the accompanying separate financial statements present fairly, in all material respects, the separate financial position of the Company as of December 31, 2019, and its separate financial performance and its separate cash flows for the year then ended in accordance with Korean International Financial Reporting Standards (“K-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 Auditors’ Responsibilities for the Audit of the Separate Financial Statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the separate financial statements in the Republic of Korea, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other Matters

The separate financial statements of the Company as of and for the year ended December 31, 2018 were audited by another auditor who expressed an unmodified opinion on those statements on March 25, 2019.

 

The procedures and practices utilized in the Republic of Korea to audit such separate financial statements may differ from those generally accepted and applied in other countries.

Responsibilities of Management and Those Charged with Governance for the Separate Financial Statements

Management is responsible for the preparation and fair presentation of the separate financial statements in accordance with K-IFRS, and for such internal control as management determines is necessary to enable the preparation of separate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the separate financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

1

 


 

Auditors’ Responsibilities for the Audit of the Separate Financial Statements

Our objectives are to obtain reasonable assurance about whether the separate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Korean Standards on Auditing will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these separate financial statements.

As part of an audit in accordance with Korean Standards on Auditing, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

 

Identify and assess the risks of material misstatement of the separate financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

 

Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.

 

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

 

Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the separate financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Company to cease to continue as a going concern.

 

Evaluate the overall presentation, structure and content of the separate financial statements, including the disclosures, and whether the separate financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

 

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

 

Seoul, Korea

March 24, 2020

This report is effective as of March 24, 2020, 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 separate financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

2

 


GRAVITY CO., LTD.

Separate Statements of Financial Position

 

As of December 31, 2019 and 2018

(In thousands of won)

Notes

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

5,6,22

 

W

40,088,250

 

 

46,598,874

 

 

Short-term financial instruments

6,22

 

 

39,500,000

 

 

9,500,000

 

 

Accounts receivables, net

6,7,14,22

 

 

17,977,026

 

 

24,659,595

 

 

Other receivables, net

6,7

 

 

1,162,439

 

 

469,710

 

 

Prepaid expenses

14

 

 

779,693

 

 

618,219

 

 

Other current assets

6,22

 

 

1,374,235

 

 

1,539,476

 

 

 

 

 

 

100,881,643

 

 

83,385,874

 

Non-current assets

 

 

 

 

 

 

 

 

 

Investments in subsidiaries

8

 

 

12,393,218

 

 

9,464,638

 

 

Property and equipment, net

9,21

 

 

2,855,143

 

 

882,089

 

 

Intangible assets, net

10

 

 

2,025,543

 

 

1,572,714

 

 

Deferred tax assets

19

 

 

5,840,022

 

 

7,413,106

 

 

Other non-current financial assets

6,22

 

 

1,702,234

 

 

1,405,988

 

 

Other non-current assets

 

 

 

1,871,208

 

 

1,880,367

 

 

 

 

 

26,687,368

 

 

22,618,902

 

Total assets

 

 

W

127,569,011

 

 

106,004,776

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Accounts payable

6

 

W

16,040,563

 

 

14,440,762

 

 

Deferred revenue

14

 

 

4,199,370

 

 

6,751,978

 

 

Withholdings

 

 

 

865,570

 

 

1,240,957

 

 

Accrued expenses

 

 

 

566,094

 

 

564,621

 

 

Income tax payable

19

 

 

1,210,020

 

 

1,390,798

 

 

Other current liabilities

6,21

 

 

1,034,647

 

 

159,151

 

 

 

 

 

23,916,264

 

 

24,548,267

 

Non-current liabilities

 

 

 

 

 

 

 

 

Long-term accounts payable

6

 

 

129,150

 

 

-

 

Long-term deferred revenue

14

 

 

98,226

 

 

3,362,537

 

Other non-current liabilities

21

 

 

1,924,050

 

 

305,853

 

 

 

 

 

2,151,426

 

 

3,668,390

 

Total liabilities

 

 

W

26,067,690

 

 

28,216,657

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the separate financial statements.

 

 

3


GRAVITY CO., LTD.

Separate Statements of Financial Position, Continued

 

As of December 31, 2019 and 2018

(In thousands of won)

Notes

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

 

 

 

 

 

 

 

 

Equity

 

 

 

 

 

 

 

 

 

 

Share capital

13

 

W

3,474,450

 

 

3,474,450

 

 

Share premium

13

 

 

27,482,683

 

 

27,482,683

 

 

Other components of equity

13

 

 

(26,017)

 

 

(270,936)

 

 

Retained earnings

13

 

 

70,570,205

 

 

47,101,922

 

Total equity

 

 

 

101,501,321

 

 

77,788,119

 

Total liabilities and equity

 

 

W

127,569,011

 

 

106,004,776

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the separate financial statements.

 

4


GRAVITY CO., LTD.

Separate Statements of Comprehensive Income

 

For the years ended December 31, 2019 and 2018

 

(In thousands of won)

Notes

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Revenue

14,23

 

 

 

 

 

 

  Online games – subscription revenue

 

 

W

7,943,556

 

W

18,891,718

  Online games – royalties and license fees

 

 

 

17,431,162

 

 

15,378,752

  Mobile games

 

 

 

107,529,902

 

 

164,303,242

  Other revenue

 

 

 

247,193

 

 

123,799

 

 

 

 

133,151,813

 

 

198,697,511

Cost of revenue

15

 

 

65,242,309

 

 

123,500,203

Gross profit

 

 

 

67,909,504

 

 

75,197,308

Selling, general and administrative expenses

15,16

 

 

33,362,951

 

 

34,746,608

Operating profit

 

 

 

34,546,553

 

 

40,450,700

Non-operating income and expenses

 

 

 

 

 

 

 

Finance income

6,17

 

 

1,525,335

 

 

1,075,820

Finance costs

6,17

 

 

(292,233)

 

 

(79,822)

Other non-operating income

6,18

 

 

4,994,020

 

 

5,803,645

Other non-operating expenses

6,18

 

 

(5,469,545)

 

 

(12,110,993)

Profit before income tax

 

 

 

35,304,130

 

 

35,139,350

Income tax expense

19

 

 

11,835,847

 

 

2,462,205

Profit for the year

 

 

W

23,468,283

 

W

32,677,145

Other comprehensive income

 

 

 

 

 

 

 

Items that may be subsequently reclassified to profit or loss

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

 

244,919

 

 

77,543

Total comprehensive income for the year

 

 

W

23,713,202

 

W

32,754,688

 

 

See accompanying notes to the separate financial statements.

 

5


GRAVITY CO., LTD.

Separate Statements of Changes in Equity

 

For the years ended December 31, 2019 and 2018

(In thousands of won)

Notes

 

Share

capital

 

Share

Premium

 

Other components of equity

 

Retained earnings

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2018

 

W

3,474,450

 

27,482,683

 

(348,479)

 

14,424,777

 

45,033,431

Total comprehensive income for the period:

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

-

 

-

 

-

 

32,677,145

 

32,677,145

Foreign currency translation adjustments

13

 

-

 

-

 

77,543

 

-

 

77,543

Transaction with owners

 

 

-

 

-

 

-

 

-

 

-

Balance at December 31, 2018

 

W

3,474,450

 

27,482,683

 

(270,936)

 

47,101,922

 

77,788,119

 

 

 

 

 

 

 

 

 

 

 

 

Balance at January 1, 2019

 

W

3,474,450

 

27,482,683

 

(270,936)

 

47,101,922

 

77,788,119

Total comprehensive income for the period:

 

 

 

 

 

 

 

 

 

 

 

Profit for the year

 

 

-

 

-

 

-

 

23,468,283

 

23,468,283

Foreign currency translation adjustments

13

 

-

 

-

 

244,919

 

-

 

244,919

Transaction with owners

 

 

-

 

-

 

-

 

-

 

-

Balance at December 31, 2019

 

W

3,474,450

 

27,482,683

 

(26,017)

 

70,570,205

 

101,501,321

 

 

 

 

 

 

 

 

 

 

 

 

 

See accompanying notes to the separate financial statements.

 

6


GRAVITY CO., LTD.

Separate Statements of Cash Flow

 

For the years ended December 31, 2019 and 2018

(In thousands of won)

Notes

 

 

2019

 

 

2018

 

 

 

 

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

Profit for the year

 

 

W

23,468,283

 

W

32,677,145

Adjustments

20

 

 

14,952,150

 

 

6,558,769

Changes in operating assets and liabilities

20

 

 

1,133,672

 

 

(19,018,839)

Interest received

 

 

 

1,043,667

 

 

1,161,390

Dividend received

 

 

 

2,557,694

 

 

-

Interest paid

 

 

 

(173,763)

 

 

-

Income tax paid

 

 

 

(10,435,781)

 

 

(7,133,795)

Net cash provided by operating activities

 

 

 

32,545,922

 

 

14,244,670

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

  Decrease in short term financial instruments

 

 

 

-

 

 

13,000,000

  Decrease in other non-current financial assets

 

 

 

-

 

 

3,772,670

  Decrease in other current assets

 

 

 

-

 

 

3,333

  Disposal of property and equipment

9

 

 

3,216

 

 

68,285

  Disposal of intangible assets

10

 

 

-

 

 

2,434

  Acquisition of subsidiaries

8

 

 

(6,777,526)

 

 

(18,261,560)

  Increase in short-term financial instruments

 

 

 

(30,000,000)

 

 

-

  Increase in other non-current financial assets

 

 

 

(69,487)

 

 

-

  Acquisition of property and equipment

9

 

 

(153,753)

 

 

(797,791)

  Acquisition of intangible assets

10

 

 

(839,132)

 

 

(450,832)

Net cash used in investing activities

 

 

 

(37,836,682)

 

 

(2,663,461)

 

 

 

 

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

  Payment of lease liabilities

 

 

 

(1,364,537)

 

 

-

Net cash used in financing activities

 

 

 

(1,364,537)

 

 

-

 

 

 

 

 

 

 

 

Effects of exchange rate changes on cash and cash equivalents

 

 

 

144,673

 

 

27,459

Net increase (decrease) in cash and cash equivalents

 

 

 

(6,510,624)

 

 

11,608,668

Cash and cash equivalents at beginning of the year

 

 

 

46,598,874

 

 

34,990,206

Cash and cash equivalents at end of the year

 

 

W

40,088,250

 

W

46,598,874

 

 

See accompanying notes to the separate financial statements.

 

7

 


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

1. General Information

GRAVITY CO., LTD. (the “Company”) was incorporated on April 4, 2000, to engage in developing and distributing online games and other related business. The Company’s headquarter is located at 15F, 396 World Cup buk‑ro, Mapo‑gu, Seoul, Korea. On November 17, 2016, the Company has established a Gravity Taiwan Branch in Taipei City, Taiwan. The Company’s principal game product, “Ragnarok”, a massive multi-player online role-playing game, was commercially launched in August 2002, and is currently operated internationally in 93 markets. The Company also operates many other games.

 

On February 8, 2005, the Company listed its shares on Nasdaq Stock Market in the United States, and issued 1,400,000 shares of common stocks in the form of American Depositary shares (“ADSs”) under the symbol “GRVY”.

 

The Company started with total paid-in capital amount of W500,000 thousand, and as of December 31, 2019, the total paid-in capital amounts to W3,474,450 thousand. The Company’s major shareholders and their respective percentage of ownership as of December 31, 2019 are as follows:

 

 

 

Number of shares

 

Ownership (%)

GungHo Online Entertainment, Inc.

 

4,121,737

 

59.31

Others

 

2,827,163

 

40.69

 

 

6,948,900

 

100.00

 

2. Basis of Presentation

These separate financial statements have been prepared in accordance with Korean International Financial Reporting Standards (“K-IFRS”), as prescribed in the Act on External Audits of Stock Companies, Etc. in the Republic of Korea.

 

These separate financial statements were authorized for issuance by the Board of Directors on March 6, 2020 which will be submitted for approval at the shareholders’ meeting to be held on March 31, 2020.

 

This is the first set of the Company’s annual separate financial statements in which K-IFRS No. 1116 Leases has been applied. The related changes to significant accounting policies are described in Note 3.

 

(1) Basis of measurement

The separate financial statements have been prepared on the historical cost basis.

8


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

2. Basis of Presentation, Continued

(2) Use of judgments and estimates

The preparation of the separate financial statements in conformity with K-IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates.

 

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are as follows:

(a) Deferred revenue

Revenue in connection with the game users’ payments for unused virtual currency and durable in-game items for online games are based on the estimated life cycle of game users by the Company. To estimate life cycle of games users, the Company analyzes player activities including item purchase, log-on, and others and periodically monitors for changes in estimates.

(b) Deferred tax assets

When the Company assessed the realizability of the deferred tax assets, the Company considered its performance, general economic environment, projected future taxable income, and periods available to utilize tax loss carryforwards and tax credit carryforwards. The Company periodically monitors the estimates used in assessing the realizability of the deferred tax assets. The amount of deferred tax assets may be changed if estimated future taxable income during the carryforward periods changes.

 

 

3. Changes in Accounting Policies

 

The Company has applied the following standards and amendments for the first time for the annual reporting period commencing January 1, 2019.

 

(1) Enactment of K-IFRS No. 1116 Leases

The Company applied K-IFRS No.1116 using the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at January 1 2019(date of initial application). Accordingly, the comparative information presented for 2018 is not restated – i.e. it is presented, as previously reported, under K-IFRS No.1017 and related interpretations. The details of the changes in accounting policies are disclosed below. Additionally, the disclosure requirements in K-IFRS No. 1116 have not generally been applied to comparative information.


9


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

3. Changes in Accounting Policies, Continued

(1) Enactment of K-IFRS No. 1116 Leases, Continued

(a) Definition of a lease

Previously, the Company determined at contract inception whether an arrangement was or contained a lease under K-IFRS No. 2104 Determining whether an arrangement contains a lease. The Company now assesses whether a contract is or contains a lease based on the definition of a lease under K-IFRS No.1116.

On transition to K-IFRS No. 1116, the Company elected to apply the practical expedient to grandfather the assessment of which transactions are leases. The Company applied K-IFRS No.1116 only to contracts that were previously identified as leases. Contracts that were not identified as leases under K-IFRS No.1017 and K-IFRS No. 2104 were not reassessed for whether there is a lease under K-IFRS No.1116. Therefore, the definition of a lease under K-IFRS No.1116 was applied only to contracts entered into or changed on or after January 1, 2019.

 

(b) As a lessee

As a lessee, the Company leases many assets including offices and vehicles. The Company previously classified leases as operating or finance leases based on its assessment of whether the lease transferred significantly all of the risks and rewards incidental to ownership of the underlying asset to the Company. Under K-IFRS No. 1116, the Company recognizes right-of-use assets and lease liabilities for most of these leases – i.e. these leases are on-balance sheet.

At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone price.

 

However, for leases of property, the Company has elected not to separate non-lease components and account for the lease and associated non-lease components as a single lease component.

Previously, the Company classified property leases as operating leases under K-IFRS No.1017. On transition, for these leases, lease liabilities were measured at the present value of the remaining lease payments, discounted at the Company’s incremental borrowing rate as of January 1, 2019. Right-of-use assets are measured at either:

 

their carrying amount as if K-IFRS No.1116 had been applied since the commencement date, discounted using the Company’s incremental borrowing rate at the date of initial application; or

 

an amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments

 

 

 

 

 

 

 

 

 

 

 

 

 

10


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

3. Changes in Accounting Policies, Continued

(1) Enactment of K-IFRS No.1116 Leases, Continued

(b) As a lessee, Continued

The Company used a number of practical expedients when applying K-IFRS No.1116 to leases previously classified as operating leases under K-IFRS No.1017. In particular, the Company:

 

did not recognize right-of-use assets and liabilities for leases for which the lease term ends within 12 months of the date of initial application;

 

did not recognize right-of-use assets and liabilities for leases of low value assets;

 

excluded initial direct costs from the measurement of the right-of-use asset at the initial application; and

 

used hindsight when determining the lease term.

(c) As a lessor

The company sub-leases part of its right-of-use assets. Under K-IFRS No. 1017, the head lease and sub-lease contracts were classified as operating leases. The Company assessed the classification of the sub-lease contracts with reference to the right-of-use assets rather than the underlying asset, and concluded that they are finance leases under K-IFRS No.1116.

(d) Impact on financial statements

On transition to K-IFRS No.1116, the Company recognized additional right-of-use assets and additional lease liabilities. Additionally, the impact on transition is summarized below.

 

(In thousands of won)

 

 

January 1, 2019

Right-of-use assets(*1)

 

 

 

 

Offices

 

W

 

2,321,368

Vehicles

 

 

 

28,226

Others

 

 

 

611,674

 

 

 

 

2,961,268

Lease receivables(*2)

 

 

Current

 

 

 

131,853

Non-current

 

 

 

326,932

 

 

 

 

458,785

 

 

W

 

3,420,053

Lease liabilities(*3)

 

 

 

 

Current

 

 

 

1,286,700

Non-current

 

 

 

2,133,353

 

 

W

 

3,420,053

 

(*1) Right-of-use assets are included in 'Property and equipment' in the separate statement of financial position.

 

 

 

 

 

 

11


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

3. Changes in Accounting Policies, Continued

(1) Enactment of K-IFRS No.1116 Leases, Continued

(d) Impact on financial statements, Continued

 

(*2) Lease receivables are included in ‘Other current assets’ and ‘Other non-current financial assets’ in the separate statement of financial position.

 

(*3) Lease liabilities are included in 'Other current liabilities' and 'Other non-current liabilities' in the separate statement of financial position.

 

On the adoption of K-IFRS No.1116, the Company recognized lease liabilities in relation to leases which had previously been classified as ‘operating leases’ under the principles of K-IFRS No.1017. These liabilities were measured at the present value of the remaining lease payments, discounted using the lessee’s incremental borrowing rate as of January 1, 2019. The lessee’s weighted average incremental borrowing rate applied to lease liabilities on January 1, 2019 is 6.54%.

 

(In thousands of won)

 

 

January 1, 2019

Operating lease commitments disclosed as of December 31, 2018

 

W

 

3,876,171

Discounted using the lessee’s incremental borrowing rate of at the date of initial application

 

 

 

(381,825)

Exemptions on low-value leases

 

 

 

-

Exemptions on short-term leases

 

 

 

(426,331)

Adjustments on evaluation of extension and termination options under K-IFRS No. 1116

 

 

 

352,038

Lease liability recognized as of January 1, 2019

 

W

 

3,420,053

 

 

 

 

 

Current lease liabilities

 

W

 

1,286,700

Non-current lease liabilities

 

 

 

2,133,353

 

 

W

 

3,420,053

 

(2) Amendments to K-IFRS No. 1109 Financial Instruments

Amendments made to K-IFRS No.1109 Financial Instruments enable entities to measure certain financial assets containing prepayment features with negative compensation at amortized cost. The amendments also clarified that when a modification of a financial liability measured at amortized cost that does not result in the derecognition, a modification gain or loss is recognized in profit or loss. The amendments did not have a significant impact on the separate financial statements.

(3) Amendment to K-IFRS No. 1028 Investments in Associates and Joint Ventures

The amendments clarifies that an entity applies K-IFRS No. 1109 Financial Instruments to financial instruments in an associate or joint venture to which the equity method is not applied. These include impairment of long-term interests that, in substance, form part of the entity’s net investment in an associate or joint venture for which K-IFRS No.1109 should take precedence. The amendment does not have a significant impact on the separate financial statements.

 

 

 

12


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

3. Changes in Accounting Policies, Continued

(4) Enactment of K-IFRS No. 2123 Uncertainty over Income Tax Treatments

K-IFRS No. 2123 clarifies how to recognize and measure deferred and current income tax assets and liabilities where there is uncertainty over a tax treatment, and includes guidance on how to determine whether each uncertain tax treatment is considered separately or together. It also presents examples of circumstances where a judgment or estimate is required to be reassessed. The adoption of K-IFRS No. 2123 did not have a significant impact on the separate financial statements.

(5) Annual Improvements

(a) Amendments to K-IFRS No. 1111 Joint Agreements

The amendments clarify that when a party that participates in, but does not have joint control of, a joint operation might obtain joint control of the joint operation in which the activity of the joint operation constitutes a business. In such cases, previously held interests in the joint operation are not remeasured. The amendments did not have a significant impact on the separate financial statements.

 

(b) Amendment to Paragraph 57A of K-IFRS No. 1012 Income Tax

The amendment is applied to all the income tax consequences of dividends and requires an entity to recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. The amendment did not have a significant impact on the separate financial statements.

(c) Amendments to K-IFRS No.1023 Borrowing Costs

The amendments clarify that if a specific borrowing remains outstanding after the related qualifying asset is ready for its intended use (or sale), it becomes part of general borrowings. The amendment did not have a significant impact on the separate financial statements.

 

 

4. Significant Accounting Policies

The principal accounting policies applied in the preparation of these separate financial statements in accordance with the K-IFRS are set out below. These policies have been consistently applied to all years presented, except if mentioned otherwise in Note 3.

(1) Investment in subsidiaries, joint ventures, and associates

These separate financial statements are prepared and presented in accordance with K-IFRS No. 1027, Separate Financial Statements. The Company applies the cost method to investments in subsidiaries, associates and joint ventures in accordance with K-IFRS No. 1027. Dividends from subsidiaries, associates, and joint ventures are recognized in profit or loss when the right to receive the dividends is established.

 

 

 

 

13


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(2) Cash and Cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with financial institutions, and other short-term investments with original maturities of three months or less that are readily convertible to known amounts of cash.

(3) Financial Assets

(a) Classification

At initial recognition, the Company classifies its financial assets in the following measurement categories:

 

 

measured at fair value through profit or loss;

 

measured at fair value through other comprehensive income; and

 

measured at amortized cost.

 

The classification depends on the Company’s business model for managing the financial assets and the contractual terms of the cash flows.

 

For financial assets measured at fair value, gains and losses will either be recorded in profit or loss or other comprehensive income. For investments in debt instruments, this will depend on the business model in which the investment is held. The Company reclassifies debt investments when, and only when its business model for managing those assets changes.

For investments in equity instruments that are not held for trading, this will depend on whether the Company has made an irrevocable election at the time of initial recognition to account for the equity investment at fair value through other comprehensive income. Changes in fair value of equity instruments not elected as equity investment at fair value through other comprehensive income will be recognized in profit or loss.

(b) Measurement

At initial recognition, the Company measures a financial asset at its fair value plus, for financial asset not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition. Transaction costs of financial assets carried at fair value through profit or loss are expensed in profit or loss.

Financial assets with embedded derivatives are considered in their entirety when determining whether their cash flows are solely payment of principal and interest.

 

 

 

 

 

 

14


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(3) Financial Assets, Continued

(b) Measurement, Continued

(i) Debt instruments

Subsequent measurement of debt instruments depends on the Company’s business model for managing the asset and the cash flow characteristics of the asset. The Company classifies its debt instruments into one of the following three measurement categories:

 

Amortized cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest are measured at amortized cost. A gain or loss on a debt investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in profit or loss when the asset is derecognized or impaired. Interest income from these financial assets is included in ‘finance income’ using the effective interest rate method.

 

Fair value through other comprehensive income: Assets that are held for collection of contractual cash flows and for selling the financial assets, where the assets’ cash flows represent solely payments of principal and interest, are measured at fair value through other comprehensive income. Movements in the carrying amount are taken through other comprehensive income, except for the recognition of impairment loss (reversal of impairment loss), interest income and foreign exchange gains and losses which are recognized in profit or loss. When the financial asset is derecognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Interest income from these financial assets is included in ‘finance income’ using the effective interest rate method. Foreign exchange gains and losses are presented in ‘finance income or costs’ and impairment losses are presented in ‘other non-operating expenses’.

 

 

Fair value through profit or loss: Assets that do not meet the criteria for amortized cost or fair value through other comprehensive income are measured at fair value through profit or loss. A gain or loss on a debt investment that is subsequently measured at fair value through profit or loss and is not part of a hedging relationship is recognized in profit or loss and presented net in the statement of profit or loss within ‘other non-operating income or expenses’ in the year in which it arises.

 

 

 

 

 

 

 

 

 

15


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(3) Financial Assets, Continued

(b) Measurement, Continued

(ii) Equity instruments

The Company subsequently measures all equity investments at fair value. Where the Company’s management has elected to present fair value gains and losses on equity investments, which are held for long-term investment or strategic purpose, in other comprehensive income. There is no subsequent reclassification of fair value gains and losses to profit or loss following the derecognition of the investment. Dividend income from such investments continue to be recognized in profit or loss as ‘finance income’ when the right to receive payments is established.

Changes in the fair value of financial assets at fair value through profit or loss are recognized in ‘other non-operaing income and expenses’ in the statement of profit or loss as applicable. Impairment loss (reversal of impairment loss) on equity investments measured at fair value through other comprehensive income are not reported separately from other changes in fair value.

(c) Impairment

The Company recognizes loss allowances for expected credit losses (“ECLs”) on:

 

financial assets measured at amortized cost;

 

debt investments measured at fair value through other comprehensive income; and

 

contract assets under K-IFRS No. 1115.

The Company measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured at 12-month ECLs:

 

debt securities that are determined to have low credit risk at the reporting date; and

 

other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Loss allowances for accounts and other receivables (including lease receivables) and contract assets are always measured at an amount equal to lifetime ECLs.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Company’s historical experience and informed credit assessment that includes forward-looking information.

 

 

 

 

 

16


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(3) Financial Assets, Continued

(c) Impairment, Continued

The Company considers a financial asset to be in default when:

 

the debtor is unlikely to pay its obligations to the Company in full, without recourse by the Company to actions such as realizing security (if any is held); or

 

the financial asset is more than 90 days past due.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 months after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

 

The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at fair value through other comprehensive income are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at fair value through other comprehensive income, the loss allowance is charged to profit or loss and is recognized in OCI.

(d) Recognition and Derecognition

Regular way purchases and sales of financial assets are recognized or derecognized on trade-date, the date on which the Company commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Company has transferred substantially all the risks and rewards of ownership.

If a transfer does not result in derecognition because the Company has retained substantially all the risks and rewards of ownership of the transferred asset, the Company continues to recognize the transferred asset in its entirety and recognizes a financial liability for the consideration received.

 

 

 

 

 

17


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(3) Financial Assets, Continued

(e) Offsetting of financial instruments

Financial assets and liabilities are offset and the net amount reported in the statements of financial position where there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the assets and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

(4) Property and Equipment

Property and equipment are initially measured at cost. The cost of property and equipment includes expenditures arising directly from the construction or acquisition of the asset, any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, and the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

 

Property and equipment, subsequently, are carried at cost less accumulated depreciation and accumulated impairment losses.

 

Subsequent costs are recognized in the carrying amount of property and equipment at cost or, if appropriate, as a separate item if it is probable that future economic benefits associated with the item will flow to the Company and the cost of the item can be reliably measured.

Depreciation of all property and equipment, except for land, is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives as follows:

 

 

Estimated Useful Lives

Computer and other equipment

 

4 years

Furniture and fixture

 

4 years

Leasehold improvements

 

4 years

 

Depreciation methods, useful lives, and residual values are reviewed at the end of each reporting date and adjusted, if appropriate. The change is accounted for as a change in an accounting estimate.

 

 

 

 

 

 

 

 

18


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(5) Intangible Assets

Intangible assets, except for goodwill, are initially recognized at its historical cost, and carried at cost less accumulated amortization and accumulated impairment losses.

The Company amortizes intangible assets with a limited useful life using the straight-line method over the following periods:

 

 

Estimated Useful Lives

Software

 

1~3 years

Patents

 

10 years

Other intangible assets

 

3 years

Expenditure on research activities is recognized in profit or loss as incurred. Development expenditure is capitalized only if the expenditure can be measured reliably, the product or process is technically and commercially feasible, future economic benefits are probable and the Company intends to and has sufficient resources to complete development and to use or sell the asset. Other development expenditure is recognized in profit or loss as incurred.

The Company entered into a game licensing agreement with a number of third parties to gain exclusive rights to the games developed by other companies. The license fee payments are recognized as other intangible assets and amortized over the term of the contract.

(6) Impairment of Non-financial Assets

 

At each reporting date, the Company reviews the carrying amounts of its non-financial assets (other than contract assets, incremental costs of obtaining a contract, costs to fulfil a contract, employee benefit related assets and deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. Goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, irrespective of whether there is any indication of impairment, are tested for impairment annually by comparing their recoverable amounts to their carrying amounts.

 

The recoverable amount of an asset or cash generating unit (“CGU”) is the greater of its value in use and its fair value less costs to sell. Value in use is based on the estimated future cash flows, discounted to their present value using an adjusted discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU.

An impairment loss is recognized in profit or loss if the carrying amount of an asset or CGU exceeds its recoverable amount.

 

 

 

 

 

19


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(7) Leases

The Company has applied K-IFRS No. 1116 using the modified retrospective approach and therefore the comparative information has not been restated and continues to be reported under K-IFRS No. 1017 and K-IFRS No.2104. The details of accounting policies under K-IFRS No.1017 and K-IFRS No. 2104 are disclosed separately.

 

(a) Policies applicable from January 1, 2019

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company uses the definition of a lease in K-IFRS No.1116.

(i) As a lessee

At commencement or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of its relative stand-alone prices. However, for the leases of property the Company has elected not to separate non-lease components and account for the lease and non-lease components as a single lease component.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the end of the lease term, unless the lease transfers ownership of the underlying asset to the Company by the end of the lease term or the cost of the right-of-use asset reflects that the Company will exercise a purchase option. In that case the right-of-use asset will be depreciated over the useful life of the underlying asset, which is determined on the same basis as those of property and equipment. In addition, the right-of-use asset is periodically reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the Company uses its incremental borrowing rate as the discount rates.

The Company determines its incremental borrowing rate by obtaining interest rates from various external financing sources and makes certain adjustments to reflect the terms of the lease and type of the asset leased.

 

 

 

 

 

20


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(7) Leases, Continued

(a) Policies applicable from January 1, 2019, Continued

(i) As a lessee, Continued

Lease payments included in the measurement of the lease liability comprise the following:

 

fixed payments, including in-substance fixed payments;

 

variable lease payments that depend on an index or a rate, initially measured using the index or rate as at the commencement date;

 

amounts expected to be payable under a residual value guarantee;

 

the exercise price under a purchase option that the Company is reasonably certain to exercise, lease payments in an optional renewal period if the Company is reasonably certain to exercise an extension option, and penalties for early termination of a lease unless the Company is reasonably certain not to terminate early.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee, if the Company changes its assessment of whether it will exercise a purchase, extension or termination option or if there is a revised in-substance fixed lease payment.

When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.

The Company presents right-of-use assets that do not meet the definition of investment property in ‘property and equipment’ and lease liabilities in ‘Other current liabilities’ and ‘Other non-current liabilities’ in the statement of financial position.

The Company has elected not to recognize right-of-use assets and lease liabilities for leases of low-value assets and short-term leases. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

(ii) As a lessor

At inception or on modification of a contract that contains a lease component, the Company allocates the consideration in the contract to each lease component on the basis of their relative stand-alone prices.

 

When the Company acts as a lessor, it determines at lease inception whether each lease is a finance lease or an operating lease.

 

 


21


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(7) Leases, Continued

(a) Policies applicable from January 1, 2019, Continued

(ii) As a lessor, Continued

To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

When the Company is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Company applies the exemption described above, then it classifies the sub-lease as an operating lease.

 

If an arrangement contains lease and non-lease components, then the Company applies K-IFRS No.1115 to allocate the consideration in the contract.

The Company applies the derecognition and impairment requirements in K-IFRS No. 1109 to the net investment in the lease. The Company further regularly reviews estimated unguaranteed residual values used in calculating the gross investment in the lease.

The Company recognizes lease payments received under operating leases as income on a straight-line basis over the lease term as part of ‘other revenue’.

Generally, the accounting policies applicable to the Company as a lessor in the comparative period were not different from K-IFRS 1116.

(b) Policies applicable before January 1, 2019

To classify each lease, the Company makes an overall assessment of whether the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. As part of this assessment, the Company considers certain indicators such as whether the lease is for the major part of the economic life of the asset.

(i) As a lessor

Lease income from operating leases is recognized in income on a straight-line basis over the lease term. Initial direct costs incurred by the lessor in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognized as an expense over the lease term.

 

 

 

 

22


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(7) Leases, Continued

(b) Policies applicable before January 1, 2019, continued

 

(ii) As a lessee

Lease payments under an operating lease were recognized as an expense on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern of the user’s benefit. Contingent rents were charged as expenses in the periods in which they are incurred.

Lease incentives received were recognized as liabilities and then as deduction of expense over the term of the lease unless another systematic basis is more representative of the time pattern of the user’s benefit.

(8) Financial Liabilities

(a) Classification and measurement

The Company’s financial liabilities at fair value through profit or loss are financial instruments held for trading. A financial liability is held for trading if it is incurred principally for the purpose of repurchasing in the near term. A derivative that is not a designated as hedging instruments and an embedded derivative that is separated are also classified as held for trading.

The Company classifies non-derivative financial liabilities, except for financial liabilities at fair value through profit or loss, financial guarantee contracts and financial liabilities that arise when a transfer of financial assets does not qualify for derecognition, as financial liabilities carried at amortized cost and present as ‘accounts payable’, ‘other current liabilities’ and ‘other non-current liabilities’ in the separate statement of financial position.

(b) Derecognition

Financial liabilities are removed from the statement of financial position when it is extinguished; for example, when the obligation specified in the contract is discharged or cancelled or expired or when the terms of an existing financial liability are substantially modified. The difference between the carrying amount of a financial liability extinguished or transferred to another party and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss

(9) Provisions and Contingent Liabilities

Provisions for legal claims, service warranties and make good obligations are recognized when the Company has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated.

 

 

 

 

 

 

 

23


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(9) Provisions and Contingent Liabilities, Continued

Provisions are measured at the present value of management's best estimate of the expenditure required to settle the present obligation at the end of the reporting period. The discount rate used to determine the present value reflects current market assessments of the time value of money and the risks specific to the liability.

In addition, when there is a possible obligation that arises from past events and whose existence will be confirmed only by the occurrence or non-occurrence of one or more uncertain future events not wholly within the control of the entity or a present obligation that arises from past events but is not recognized because it is not probable that an outflow of resources embodying economic benefits will be required to settle the obligation or the amount of the obligation cannot be measured with sufficient reliability, a disclosure regarding the contingent liabilities is made in the notes to the financial statements.

(10) Foreign Currency Translation

(a) Functional and presentation currency

Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which it operates (the “functional currency”), which the financial statements in the Company and its branch (Taiwan) are presented in Korean won (KRW) and New Taiwan Dollar (NTD), respectively. The separate financial statements are presented in Korean won, which is the Company’s functional and presentation currency.

(b) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies at the exchange rate at the reporting date are generally recognized in profit or loss. They are recognized in other comprehensive income if they relate to qualifying cash flow hedges and qualifying effective portion of net investment hedges, or are attributable to monetary part of the net investment in a foreign operation.

Exchange differences arising on non-monetary financial assets and liabilities such as equity instruments at fair value through profit or loss and equity instruments at fair value through other comprehensive income are recognized in profit or loss and other comprehensive income, respectively, as part of the fair value gain or loss.

 

 


24


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(11) Statement of cash flows

The Company has elected to present cash flows from operating activities using the indirect method. Cash flows denominated in a foreign currency are reported using average exchange rate during the fiscal year.

(12) Revenues from contracts with customers

The Company engages in game licensing, IP licensing and game publishing businesses.

Revenue is measured at the fair value of the consideration received or receivable for the sale of goods or rendering of services arising from the normal course of the business. Amounts recognized as revenue are net of value added taxes, returns, rebates and discounts.

(a) Subscription revenue (Online and Mobile)

The Company recognizes online and mobile game subscription revenue on accrual basis when players make use of in-game premium features.

Mobile game users can access certain games free of charge, but may purchase virtual cash to acquire in-game premium features. The Company defer revenue recognition for the unused game points at the end of reporting period. Consumable in-game items are deferred when such in-game items are purchased by users with game points and recognized as revenue when the purchased in-game items are used in the games. In-game items with limited effective period are deferred and recognized as revenue in proportion to the number of days lapsed while durable in-game items are recognized ratably as revenues over the estimated life cycle of game users.

(b) Royalties and license fees

Revenue is recognized over time when there is reasonable expectation of ongoing activities that may have a significant effect on the customers during the duration of the contracts and the customers are exposed to the effect by the activities and there is no additional goods or services offered to the customers from the activities.

The nature of licensing promise is to provide a right to access the Company’s intellectual property as it exists throughout the license period. The Company recognizes revenue as the performance obligation satisfied over time.

The prepaid license fee revenues are recorded as deferred revenue and recognized on a straight-line method over the license period. The running royalties are recognized monthly on accrual basis as royalty payments are determined based on the conditions of contracts. The minimum guarantee (“MG”) royalties are recorded as deferred revenue and recognized on a straight-line method over the license period. If actual cumulative royalties exceed the cumulative revenue amount recognized under the straight-line method, the Company recognizes the excess amount as revenue.

 

 

 

 

 

25


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(13) Current and Deferred Tax

The tax expense for the period consists of current and deferred tax. Current and deferred tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or directly in equity. The tax expense is measured at the amount expected to be paid to the taxation authorities, using the tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the separate financial statements. However, deferred income tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss.

Deferred tax assets are recognized only if it is probable that future taxable amounts will be available to utilize those temporary differences and losses.

The Company recognizes a deferred tax liability all taxable temporary differences associated with investments in subsidiaries, associates, and interests in joint arrangements, except to the extent that the Company is able to control the timing of the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. In addition, the Company recognizes a deferred tax asset for all deductible temporary differences arising from such investments to the extent that it is probable the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis.

(14) Employee Benefits

(a) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within 12 months after the end of the period in which the employees render related services. When an employee has rendered a service to the Company during an accounting period, the Company recognizes the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service.

 

 

 

 

 

 

 

 

26


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

4. Significant Accounting Policies, Continued

(14) Employee Benefits, Continued

(b) Defined contribution pension plan

The Company has a defined contribution pension plan with the related contribution to the pension plan recorded as severance benefit expenses for the employees with service period over a year. The Company recognizes provision for severance benefits for the employees with service period less than a year.

(15) Standards issued but not yet effective

A number of new standards are effective for annual periods beginning after January 1, 2019 and earlier application is permitted; however, the Company has not early adopted the new or amended standards in preparing these separate financial statements.

The following amended standards and interpretations are not expected to have a significant impact on the Company’s separate financial statements.

 

Amendments to References to Conceptual Framework in K-IFRS Standards.

 

Definition of a Business (Amendments to K-IFRS No.1103).

 

Definition of Materiality (Amendments to K-IFRS No.1001 and K-IFRS No.1108).

 

 

5. Cash and cash equivalents

(1) Cash and cash equivalents as of December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

December 31, 2019

 

 

December 31, 2018

 

Demand deposits, etc.

 

W

40,088,250

 

 

46,598,874

 

 

(2) The Company does not have any restricted cash and cash equivalents as of December 31, 2019 and 2018.

 

 

 

 

 

 

 

 

 

 

27


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

6. Financial Instruments by Category

(1) Carrying amounts of financial instruments by category as of December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

December 31, 2019

 

 

December 31, 2018

Financial assets at amortized cost

Cash and cash equivalents

 

W

40,088,250

 

 

46,598,874

Short-term financial assets

 

 

39,500,000

 

 

9,500,000

Accounts receivable, net

 

 

17,977,026

 

 

24,659,595

Other receivables, net

 

 

1,162,439

 

 

469,710

Other current assets

 

 

334,415

 

 

189,539

Other non-current financial assets

 

 

1,702,234

 

 

1,405,988

 

 

W

100,764,364

 

 

82,823,706

 

(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

Financial liabilities at amortized cost

Accounts payable

 

W

16,169,713

 

14,440,762

Other current liabilities

 

 

1,034,556

 

150,008

Other non-current liabilities

 

 

1,597,999

 

-

 

 

W

18,802,268

 

14,590,770

 

 

 

(2) Net income (expenses) from financial instruments for the years ended December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

2019

 

 

2018

Financial assets at amortized cost

 

 

 

 

 

 

Interest income

 

W

1,089,618

 

 

1,075,805

Differences in foreign currency

 

 

1,281,950

 

 

148,918

 

 

W

2,371,568

 

 

1,224,723

 

(In thousands of won)

 

 

2019

 

 

2018

Financial liabilities at amortized cost

 

 

 

 

 

 

Interest expense

 

W

(173,763)

 

 

-

Differences in foreign currency

 

 

(88,862)

 

 

108,279

 

 

W

(262,625)

 

 

108,279

 

 

 

 

28


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

6. Financial Instruments by Category, Continued

(3) Fair value hierarchy

Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

 

Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

Level 2: all inputs other than quoted prices included in level 1 that are observable (either directly that is, prices, or indirectly that is, derived from prices) for the asset or liability;

 

Level 3: unobservable inputs for the asset or liability.

 

The fair value of financial instruments traded in an active market is determined based on the quoted market price as of the end of the reporting period. If the quoted prices are readily and regularly available through exchanges, sellers, brokers, industry groups, rating agencies or regulators and such prices represent actual market transactions that occur regularly between independent parties, they are considered active markets. These products are included in Level 1.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. These valuation techniques use as much market observable information as possible and use the least amount of company-specific information. At this time, if all the significant input variables required to measure the fair value of a good are observable, the good is included in Level 2.

If more than one significant input variable is not based on observable market information, the item is included in Level 3.

The valuation techniques used to measure the fair value of a financial instrument include:

-  Market price or dealer price of a similar financial instrument

-  The fair value of derivative instruments is determined by discounting the amount to present value using the leading exchange rate as of the end of the reporting period

For the other financial instruments, the Company applied other valuation techniques such as discounted cash flow, etc. For the financial assets and liabilities which carrying amount are reasonable approximation of fair value, those were excluded from fair value disclosure.

 

 


29


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

7. Accounts and Other Receivables

 

(1) Accounts and other receivables as of December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

 

 

 

Accounts

receivables

 

Other receivables

 

Accounts

receivables

 

Other receivables

 

Non-related party

 

W

8,839,697

 

-

 

9,093,546

 

192,625

 

Related party

 

 

9,156,286

 

1,162,439

 

15,587,784

 

358,764

 

Less: Loss allowance

 

 

(18,957)

 

-

 

(21,735)

 

(81,679)

 

 

 

W

17,977,026

 

1,162,439

 

24,659,595

 

469,710

 

 

(2) Changes in the loss allowance of accounts and other receivables during the years ended December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

2019

 

2018

 

 

 

 

 

Accounts

receivables

 

Other receivables

 

Accounts

receivables

 

Other receivables

 

Beginning balance

 

W

21,735

 

81,679

 

2,946,529

 

369,695

 

(Reversal of) Bad debt expenses

 

 

63,974

 

(37,520)

 

(2,870,546)

 

(285,816)

 

Write-off

 

 

(66,752)

 

(44,159)

 

(54,248)

 

(2,200)

 

Ending balance

 

W

18,957

 

-

 

21,735

 

81,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

30


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

7. Accounts and Other Receivables, Continued

(3) ECLs and credit risk exposures for accounts and other receivables as of December 31, 2019 and 2018 are as follows:

(a) Accounts receivables

(In thousands of won)

 

December 31, 2019

 

 

Expected loss rate(%)

 

 

Carrying

amount

 

 

Loss allowance

Less than 90 days

 

0.05

 

W

17,960,791

 

 

9,414

More than 90 days ~ Less than 180 days

 

2.32

 

 

18,158

 

 

421

More than 180 days ~ Less than 270 days

 

28.95

 

 

404

 

 

117

More than 270 days ~ Less than 1 year

 

30.02

 

 

10,896

 

 

3,271

More than 1 year

 

100.00

 

 

5,734

 

 

5,734

 

 

 

 

W

17,995,983

 

 

18,957

 

 

 

(In thousands of won)

 

December 31, 2018

 

 

Expected loss rate(%)

 

 

Carrying

amount

 

 

Loss allowance

Less than 90 days

 

-

 

W

23,889,524

 

 

-

More than 90 days ~ Less than 180 days

 

-

 

 

295,723

 

 

-

More than 180 days ~ Less than 270 days

 

-

 

 

199,172

 

 

-

More than 270 days~ Less than 1 year

 

-

 

 

199,172

 

 

-

More than 1 year

 

22.24

 

 

97,739

 

 

21,735

 

 

 

 

W

24,681,330

 

 

21,735

 

 

(b) Other receivables

(In thousands of won)

 

December 31, 2019

 

 

 

Expected loss rate(%)

 

 

Carrying amount

 

 

 

Loss allowance

 

Less than 90 days

 

-

 

W

 

 

1,162,439

 

 

 

-

 

 

(In thousands of won)

 

December 31, 2018

 

 

 

 

Expected loss rate(%)

 

 

Carrying amount

 

 

 

Loss allowance

 

 

 

Less than 90 days

 

-

 

W

 

469,710

 

 

 

-

 

More than 1 year

 

100

 

 

 

81,679

 

 

 

81,679

 

 

 

 

 

W

 

551,389

 

 

 

 

 

81,679

 

 


31


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

7. Accounts and Other Receivable, Continued

In assessing the recoverability of accounts and other receivables, the Company considers changes in the credit rating of accounts and other receivables from the commencement of the credit to the end of the reporting period.

 

The Company applies simplified approach for accounts and other receivables to measure the loss allowance at an amount equal to lifetime expected credit losses. To measure the expected credit losses, accounts and other receivables are grouped based on credit risk characteristics and the duration of past due balances. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls. The Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes the Company’s historical experience and informed credit assessment, that includes forward-looking information.

 

 

8. Investment in Subsidiaries

 

(1) Details of investment in subsidiaries as of December 31, 2019 and 2018 are as follows:

 

 

 

 

 

 

 

 

 

Percentage of ownership (%)

Subsidiary

 

Location

 

Main business

 

Fiscal year end

 

December 31, 2019

 

December 31, 2018

 

Gravity Interactive, Inc.

 

USA

 

Online and mobile game services

 

December

 

100

 

100

 

Gravity Entertainment Corp.

 

Japan

 

Animation production, distribution and game services

 

December

 

100

 

100

 

NeoCyon, Inc.(*)

 

Korea

 

Mobile Game Development and Service

 

December

 

99.24

 

98.73

 

Gravity Communications Co., Ltd.

 

Taiwan

 

Online and mobile game services

 

December

 

100

 

100

 

PT Gravity Game Link

 

Indonesia

 

Online and mobile game services

 

December

 

70

 

-

 

Gravity Game Tech Co., Ltd.

 

Thailand

 

Online and mobile game services

 

December

 

100

 

-

 

Gravity Game Arise Co., Ltd.

 

Japan

 

Online and mobile game services

 

December

 

100

 

-

 

 

(*) During the year ended December 31, 2019, the Company participated in paid-in capital increase of NeoCyon, Inc. which resulted in increase of ownership interest of the Company.


32


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

8. Investment in Subsidiaries, Continued

 

(2) Changes in investment in subsidiaries for the years ended December 31, 2019 and 2018 are as follows:

 

 

(In thousands of won)

 

 

2019

Subsidiary

 

 

Beginning balance

 

 

Acquisition

 

 

Impairment

 

 

Ending balance

Gravity Interactive, Inc.(*1)

 

W

-

 

 

-

 

 

-

 

 

-

Gravity Entertainment Corp.(*2)

 

 

379,978

 

 

-

 

 

(379,978)

 

 

-

NeoCyon, Inc.(*3)

 

 

3,403,245

 

 

1,999,995

 

 

(3,468,968)

 

 

1,934,272

Gravity Communications Co., Ltd.

5,681,415

 

 

-

 

 

-

 

 

5,681,415

PT Gravity Game Link(*4)

 

 

-

 

 

830,491

 

 

-

 

 

830,491

Gravity Game Tech Co., Ltd.(*5)

 

 

-

 

 

3,407,555

 

 

-

 

 

3,407,555

Gravity Game Arise Co., Ltd.(*6)

 

 

-

 

 

539,485

 

 

-

 

 

539,485

 

 

W

9,464,638

 

 

6,777,526

 

 

(3,848,946)

 

 

12,393,218

 

(*1) Prior to 2019, the Company recognized an impairment loss at its full amount as the recoverable amount was less than its book value.

 

(*2) The Company recognized an impairment loss as the recoverable amount was less than its book value for the year ended December 31, 2019. In addition, as of December 31, 2019, Gravity Entertainment Corp. is in the process of liquidation.

 

(*3) The Company recognized an impairment loss of W3,468,968 thousand as the recoverable amount was less than its book value for the year ended December 31, 2019.

 

(*4) PT Gravity Game Link was established during the year ended December 31, 2019 with 70% ownership interest held by the Company.

 

(*5) Gravity Game Tech Co., Ltd. was established during the year ended December 31, 2019 with 100% ownership interest held by the Company.

 

(*6) Gravity Game Arise Co., Ltd. was established during the year ended December 31, 2019 with 100% ownership interest held by the Company.


33


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

8. Investment in Subsidiaries, Continued

(2) Changes in investment in subsidiaries for the years ended December 31, 2019 and 2018 are as follows, Continued:

 

(In thousands of won)

 

 

2018

Subsidiary

 

 

Beginning balance

 

 

Acquisition

 

 

Impairment

 

 

Ending balance

Gravity Interactive, Inc.(*1)

 

W

-

 

 

10,580,150

 

 

(10,580,150)

 

 

-

Gravity Entertainment Corp.

 

 

379,978

 

 

-

 

 

-

 

 

379,978

NeoCyon, Inc.(*2)

 

 

1,403,250

 

 

1,999,995

 

 

-

 

 

3,403,245

Gravity Games Corp.(*3)

 

 

-

 

 

-

 

 

-

 

 

-

Gravity Communications Co., Ltd.(*4)

-

 

 

5,681,415

 

 

-

 

 

5,681,415

Total

 

W

1,783,228

 

 

18,261,560

 

 

(10,580,150)

 

 

9,464,638

 

(*1) The Company reduced the carrying amount of investment in Gravity Interactive, Inc. to zero as indications of impairment were present and carrying amount exceeded the recoverable amount.

 

(*2) Percentage of ownership increased as the Company participated in capital increase with consideration by NeoCyon, Inc. during the year ended December 31, 2018.

 

(*3) Excluded from the consolidation as liquidated during the year ended December 31, 2018.

 

(*4) Newly established during the year ended December 31, 2018 with 100% ownership interest of the Company.

 


34


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

8. Investment in Subsidiaries, Continued

(3) Condensed financial information of subsidiaries as of and for the years ended December 31, 2019 and 2018 are as follows:

 

(In thousands of won)

 

2019

Subsidiary

 

 

Total assets

 

 

Total liabilities

 

 

Revenue

 

 

Profit (loss) for

the year

Gravity Interactive, Inc.

 

W

39,296,390

 

 

29,112,064

 

 

230,028,732

 

 

12,803,917

Gravity Entertainment Corp.

 

 

44,413

 

 

51,753

 

 

263,173

 

 

(443,447)

NeoCyon, Inc.

 

 

9,145,058

 

 

6,728,294

 

 

25,346,555

 

 

(982,316)

Gravity Communications Co., Ltd.

 

 

19,963,791

 

 

8,226,688

 

 

21,811,450

 

 

5,636,742

PT Gravity Game Link

 

 

960,338

 

 

201,963

 

 

744,554

 

 

(436,734)

Gravity Game Tech Co., Ltd.

 

 

4,008,149

 

 

2,624,291

 

 

2,294,773

 

 

(1,973,125)

Gravity Game Arise Co., Ltd.

 

 

1,840,615

 

 

1,343,024

 

 

771,398

 

 

(35,290)

 

 

(In thousands of won)

 

2018

Subsidiary

 

 

Total assets

 

 

Total liabilities

 

 

Revenue

 

 

Profit (loss) for

the year

Gravity Interactive, Inc.

 

W

79,806,232

 

 

80,016,529

 

 

84,329,085

 

 

(2,511,020)

Gravity Entertainment Corp.

 

 

509,183

 

 

96,184

 

 

157,425

 

 

29,797

NeoCyon, Inc.

 

 

6,619,844

 

 

5,209,590

 

 

22,782,618

 

 

(2,056,820)

Gravity Communications Co., Ltd.

 

 

8,231,267

 

 

2,352,489

 

 

2,200,724

 

 

204,883

Gravity Games Corp.

 

 

-

 

 

-

 

 

11,641

 

 

4,164,622

 

 

9. Property and Equipment

(1) Details of property and equipment as of December 31, 2019 and 2018 are as follows:

 

(In thousands of won)

 

 

December 31, 2019

 

 

December 31, 2018

 

 

 

Acquisition

cost

 

 

Accumulated depreciation

 

 

Carrying

amount

 

 

Acquisition cost

 

 

Accumulated depreciation

 

 

 

Carrying

amount

Computer and other equipment

 

W

4,144,992

 

 

(3,724,780)

 

 

420,212

 

 

4,524,208

 

 

(3,981,176)

 

 

543,032

Furniture and fixture

 

 

495,090

 

 

(287,737)

 

 

207,353

 

 

497,137

 

 

(282,402)

 

 

214,735

Leasehold improvements

 

 

1,128,015

 

 

(1,052,718)

 

 

75,297

 

 

1,121,820

 

 

(997,498)

 

 

124,322

Right-of-use assets

 

 

3,384,302

 

 

(1,232,021)

 

 

2,152,281

 

 

-

 

 

-

 

 

-

 

 

W

9,152,399

 

 

(6,297,256)

 

 

2,855,143

 

 

6,143,165

 

 

(5,261,076)

 

 

882,089

 

 


35


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

9. Property and Equipment, Continued

(2) Changes in property and equipment for the years ended December 31, 2019 and 2018 are as follows:

 

(In thousands of won)

 

 

 

2019

 

 

 

 

Computer and other equipments

 

Furniture

and fixture

 

 

Leasehold

improvements

 

 

Right-of-use assets

 

 

Total

 

Beginning balance

 

W

543,032

 

214,735

 

 

124,322

 

 

-

 

 

882,089

 

Recognition of right-of-use asset on initial application of K-IFRS No. 1116

 

 

-

 

-

 

 

-

 

 

2,961,268

 

 

2,961,268

 

Acquisitions

 

 

87,334

 

66,418

 

 

-

 

 

441,190

 

 

594,942

 

Depreciation

 

 

(210,154)

 

(73,800)

 

 

(49,655)

 

 

(1,236,468)

 

 

(1,570,077)

 

Disposals

 

 

-

 

-

 

 

-

 

 

(13,709)

 

 

(13,709)

 

Foreign exchange differences

 

 

-

 

-

 

 

630

 

 

-

 

 

630

 

Ending balance

 

W

420,212

 

207,353

 

 

75,297

 

 

2,152,281

 

 

2,855,143

 

 

 

(In thousands of won)

 

 

2018

 

 

 

 

Computer and other equipments

 

Furniture

and fixture

 

 

Leasehold

improvements

 

 

Total

Beginning balance

 

W

319,038

 

30,222

 

 

126,767

 

 

476,027

Acquisitions

 

 

442,402

 

238,800

 

 

116,589

 

 

797,791

Depreciation

 

 

(187,394)

 

(33,508)

 

 

(115,098)

 

 

(336,000)

Disposals

 

 

(31,606)

 

(21,182)

 

 

(5,275)

 

 

(58,063)

Foreign exchange differences

 

 

592

 

403

 

 

1,339

 

 

2,334

Ending balance

 

W

543,032

 

214,735

 

 

124,322

 

 

882,089

 

(3) Classification of depreciation expenses in the statements of comprehensive income for the years ended December 31, 2019 and 2018 are as follows:

 


(In thousands of won)

 

 

2019

 

2018

Cost of revenues

 

W

967,487

 

114,460

Selling, general and administrative expenses

 

 

602,590

 

221,540

 

 

W

1,570,077

 

336,000

(4) As of December 31, 2019 and 2018, there are no property and equipment of the Company that are pledged as collateral for the Company’s debts.

 

 


36


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

10. Intangible Assets

 

(1) Details of intangible assets as of December 31, 2019 and 2018 are as follows:

 

(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

 

 

Acquisition cost

 

Accumulated depreciation(*)

 

Carrying

amount

 

Acquisition cost

 

Accumulated depreciation(*)

 

Carrying

amount

Software

 

W

10,523,420

 

(9,965,024)

 

558,396

 

10,078,904

 

(9,575,685)

 

503,219

Patents

 

 

669,854

 

(488,324)

 

181,530

 

532,832

 

(461,451)

 

71,381

Other intangible assets

 

 

4,717,784

 

(3,432,167)

 

1,285,617

 

3,454,522

 

(2,456,408)

 

998,114

 

 

W

15,911,058

 

(13,885,515)

 

2,025,543

 

14,066,258

 

(12,493,544)

 

1,572,714

 

(*) Accumulated depreciation includes the amount of accumulated impairment loss.

 

(2) Changes in intangible assets for the years ended December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

2019

 

 

Software

 

Patents

 

Other intangible

assets

 

Total

Beginning balance

 

W

503,219

 

71,381

 

998,114

 

1,572,714

Acquisitions

 

 

444,516

 

137,022

 

410,120

 

991,658

Amortization

 

 

(389,339)

 

(26,873)

 

(71,108)

 

(487,320)

Impairment loss (*)

 

 

-

 

-

 

(51,509)

 

(51,509)

Ending balance

 

W

558,396

 

181,530

 

1,285,617

 

2,025,543

 

(*) The Company recognized W51,509 thousand of impairment loss as carrying amount of other intangible assets exceeded recoverable amount as of December 31, 2019.

 

 

(In thousands of won)

 

 

2018

 

 

Software

 

Patents

 

Other intangible

assets

 

Total

Beginning balance

 

W

17,074

 

76,535

 

895,246

 

988,855

Acquisitions

 

 

877,339

 

15,971

 

976,225

 

1,869,535

Amortization

 

 

(388,811)

 

(21,125)

 

(250,216)

 

(660,152)

Disposals

 

 

(2,438)

 

-

 

-

 

(2,438)

Impairment loss(*)

 

 

-

 

-

 

(623,141)

 

(623,141)

Foreign exchange differences

 

 

55

 

-

 

-

 

55

Ending balance

 

W

503,219

 

71,381

 

998,114

 

1,572,714

 

(*) The Company recognized W623,141 thousand of impairment loss as carrying amount of other intangible assets exceeded recoverable amount as of December 31, 2018.

 


37


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

10. Intangible Assets, Continued

(3) Classification of amortization in the statements of comprehensive income for the years ended December 31, 2019 and 2018 are as follows:

 

(In thousands of won)

 

2019

 

2018

Cost of revenues

W

80,200

 

255,321

Selling, general and administrative expenses

 

407,120

 

404,831

Total

W

487,320

 

660,152

 

 

11. Employee Benefit

The expenses recognized in relation to defined contribution plan for the years ended December 31, 2019 and 2018 are W917,923 thousand and W770,086 thousand, respectively.

 

 

12. Commitments

The Company has entered into exclusive license agreements with foreign licensees, such as GungHo Online Entertainment, Inc. and Electronics Extreme Ltd., etc. to provide exclusive license to distribute and sell online games and receives a certain portion of each licensee’s revenues (20-40%) as royalties.

 

In March 2016, the Company and Shanghai The Dream Network Technology Co., Ltd. entered existing development agreements to grant them an exclusive right to develop mobile games and web games in China based on the contents of Ragnarok Online and distribute such games in China for five years.

 

As of December 31, 2019, the Company has entered into contracts with Gravity Interactive, Inc. and NeoCyon, Inc. for the exclusive rights of publishing and distributing online games and for the exclusive rights of developing, publishing and distributing mobile games, respectively. The Company also has entered into contracts with Gravity Communications Co., Ltd., Gravity Game Tech Co., Ltd. and PT. Gravity Game Link for the exclusive rights of publishing and distributing online and mobile games (Note 23).

 

As of December 31, 2019, the Company has entered into license agreements with various third-party game developers to secure exclusive right to publish the games developed by third-party developers. Upfront license fees paid are capitalized and recognized as other intangible assets and minimum guaranteed royalties are capitalized and recognized as other non-current asset. Purchase obligations for future payment related to above agreements as of December 31, 2019 and 2018 are W515,780 thousand and W1,709,357 thousand, respectively.

 

 


38


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

13. Share Capital and Share Premium

 

(1) Details of common shares as of December 31, 2019 and 2018 are as follows:


(In won and in number of shares)

 

 

December 31, 2019

 

December 31, 2018

 

Number of authorized shares

 

 

40,000,000

 

40,000,000

 

Value per share

 

W

500

 

500

 

Number of shares issued

 

 

6,948,900

 

6,948,900

 

Common shares

 

W

3,474,450,000

 

3,474,450,000

 

 

(2) Details of share premium as of December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Additional paid-in capital

 

W

25,357,547

 

25,357,547

 

Other capital surplus

 

 

2,125,136

 

2,125,136

 

 

 

W

27,482,683

 

27,482,683

 

 

(3) Details of other components of equity as of December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Foreign currency translation adjustments

 

W

(26,017)

 

(270,936)

 

 

(4) Details of retained earnings as of December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Unappropriated retained earnings

 

W

70,570,205

 

47,101,922

 

 

(5) According to the Company's Articles of Incorporation, the Company may issue 2,000,000 shares of preferred stock without voting rights, and there are no preferred shares issued as of December 31, 2019.


39


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

13. Share Capital and Share Premium, Continued

 

(6) Statements of appropriation of retained earnings as of December 31, 2019 and 2018 are as follows:

Date of appropriation for 2019: March 31, 2020

 

 

 

 

 

 


Date of appropriation for 2018: March 29, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Retained earnings available for appropriation

 

 

 

 

 

 

Unappropriated retained earnings carried over from prior year

 

W

47,101,922

 

14,424,777

 

Profit for the year

 

 

23,468,283

 

32,677,145

 

 

 

 

70,570,205

 

47,101,922

 

Appropriation of retained earnings

 

 

-

 

-

 

Unappropriated retained earnings to be carried forward

 

W

70,570,205

 

47,101,922

 

 

 

14. Revenue from Contracts with Customers

 

(1) Details of revenue from contracts with customers based on the service contract type and the timing of satisfaction of performance obligations are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Service contract

 

 

 

 

 

 

Subscription contract

 

W

58,141,836

 

166,269,860

 

Licensing contract

 

 

74,762,784

 

32,303,853

 

Others

 

 

247,193

 

123,798

 

 

 

 

133,151,813

 

198,697,511

 

Major geographic market

 

 

 

 

 

 

Taiwan

 

 

36,161,211

 

96,670,359

 

Korea

 

 

27,679,411

 

64,595,872

 

Japan

 

 

27,496,812

 

9,538,576

 

Others

 

 

41,814,379

 

27,892,704

 

 

 

 

133,151,813

 

198,697,511

 

Timing of satisfaction of performance obligations

 

 

 

 

 

 

At a point in time

 

 

9,401

 

8,082

 

Over time

 

 

133,142,412

 

198,689,429

 

 

 

W

133,151,813

 

198,697,511

 

 


40


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

14. Revenue from Contracts with Customers, Continued

(2) Accounts receivables, incremental costs of obtaining a contract and contract liabilities related to contracts with customers as of December 31, 2019 and December 31, 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Accounts receivable

 

W

17,977,026

 

24,659,595

 

Incremental costs of obtaining a contract (Prepaid expenses)

 

 

320,460

 

221,180

 

Contact liabilities(Deferred revenue)

 

 

4,297,596

 

10,114,516

 

Subscription revenue

 

 

2,894,517

 

3,254,122

 

Royalties and license fees

 

 

1,403,079

 

6,860,394

 

 

(3) Changes in contract liabilities for the years ended December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

Contract liabilities

 


 

 

2019

 

2018

 

Balance at January 1

 

W

10,114,516

 

20,476,897

 

Increase related to subscription revenue

 

 

15,463,579

 

3,254,122

 

Increase related to royalties and license fees

 

 

-

 

540,460

 

Decrease upon satisfaction of performance obligation

– subscription revenue

 

 

(15,823,184)

 

(10,628,665)

 

Decrease upon satisfaction of performance obligation

– royalties and license fees

 

 

(5,397,315)

 

(2,919,483)

 

Decrease due to termination of contracts

 

 

(60,000)

 

(608,815)

 

Balance at December 31

 

W

4,297,596

 

10,114,516

 

 

The amount of revenue recognized from previous period’s contract liabilities satisfied during the year ended December 31, 2019 is W6,751,535 thousand.

 

(4) Transaction price allocated to unsatisfied performance obligations as of December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Subscription revenue

 

W

2,894,517

 

3,254,122

 

Royalties and license fees

 

 

1,403,079

 

6,860,394

 

 

 

W

4,297,596

 

10,114,516

 

 

The Company’s management expects to recognize 97.7% (W4,199,370 thousand) of the transaction price allocated to contracts that have not been performed as of December 31, 2019 as revenue within 12 months. The remaining 2.3% (W98,226 thousand) is expected to be recognized as revenue thereafter. The amounts disclosed above do not include variable consideration which is constrained.


41


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

14. Revenue from contracts with customers, Continued

(5) Details of incremental costs of obtaining a contract recognized as assets as of and for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Incremental costs of obtaining a contract

 

W

320,460

 

221,180

 

 

 

 

 

 

 

 

 

 

 

2019

 

2018

 

Amortization costs recognized as cost of revenue

 

W

221,180

 

2,071,368

 

 

 

15. Classification of expenses by nature


(In thousands of won)

 

 

2019

 

2018

 

Fees and commissions

 

W

62,072,405

 

120,801,617

 

Advertising expenses

 

 

9,973,687

 

16,545,848

 

Salaries

 

 

12,206,316

 

12,014,404

 

Outsourcing expenses

 

 

7,626,034

 

5,180,257

 

Rent

 

 

987,892

 

2,056,655

 

Employee benefits

 

 

1,180,771

 

1,134,249

 

Expenses related to defined contribution plan

 

 

938,120

 

820,488

 

Depreciation

 

 

1,570,077

 

336,000

 

Amortization

 

 

487,320

 

660,152

 

Bad debt(Reversal of allowance for doubtful accounts)

 

 

63,974

 

(2,814,155)

 

Other expenses

 

 

1,498,664

 

1,511,296

 

 

 

W

98,605,260

 

158,246,811

 

 

Classification of expenses by nature includes selling, general and administrative expenses and cost of revenues in the separate statements of comprehensive income.

 

 

 

 

 

 

 

 

42


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

16. Selling, general and administrative expenses


(In thousands of won)

 

 

2019

 

 

2018

 

Advertising expenses

 

W

9,973,687

 

W

16,545,848

 

Fees

 

 

3,971,736

 

 

4,766,120

 

Research and development

 

 

10,417,665

 

 

7,511,840

 

Salaries

 

 

5,553,006

 

 

5,393,115

 

Employee benefits

 

 

741,512

 

 

740,282

 

Rent

 

 

400,619

 

 

754,490

 

Expenses related to defined contribution plan

 

 

381,757

 

 

324,484

 

Depreciation

 

 

514,669

 

 

211,616

 

Amortization

 

 

383,181

 

 

400,772

 

Bad debt (Reversal of allowance for doubtful accounts)

 

 

63,974

 

 

(2,814,155)

 

Other expenses

 

 

961,145

 

 

912,196

 

 

 

W

33,362,951

 

W

34,746,608

 

 

 

17. Finance Income and Costs

(1) Details of finance income for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Finance income

 

 

 

 

 

 

Interest income

 

W

1,089,618

 

1,075,805

 

Gain on foreign currency transaction

 

 

435,717

 

15

 

 

 

W

1,525,335

 

1,075,820

 

 

(2) Details of finance costs for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Finance costs

 

 

 

 

 

 

Interest expense

 

W

173,763

 

-

 

Unrealized foreign currency loss

 

 

117,839

 

72,667

 

Loss on foreign currency transactions

 

 

631

 

7,155

 

 

 

W

292,233

 

79,822

 

 

 


43


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

18. Other Non-Operating Income and Expenses

 

(1) Details of other non-operating income for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Unrealized foreign currency gain

 

W

86,980

 

80,541

 

Gain on foreign currency transactions

 

 

1,920,485

 

1,154,194

 

Gain on disposal of property and equipment

 

 

3,666

 

15,497

 

Reversal of allowance for doubtful accounts

 

 

37,520

 

4,233,457

 

Dividend income

 

 

2,557,694

 

-

 

Others

 

 

387,675

 

319,956

 

 

 

W

4,994,020

 

5,803,645

 

 

(2) Details of other non-operating expenses for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Unrealized foreign currency loss

 

W

123,701

 

27,590

 

Loss on foreign currency transactions

 

 

1,007,922

 

870,139

 

Impairment loss on intangible assets

 

 

485,963

 

623,141

 

Loss on retirement of property and equipment

 

 

-

 

5,275

 

Impairment loss on investment in subsidiaries

 

 

3,848,946

 

10,580,150

 

Others

 

 

3,013

 

4,698

 

 

 

W

5,469,545

 

12,110,993

 

 

 

19. Income tax expense

 

(1) Details of income tax expense for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Current tax on profit for the year

 

W

10,262,763

 

6,839,146

 

Deferred tax expense (benefit)

 

 

1,573,084

 

(4,376,941)

 

 

 

W

11,835,847

 

2,462,205

 

 


44


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

19. Income tax expense, Continued

(2) The differences between the tax expense on the Company’s profit before tax and the amount that would arise using the statutory tax rate applicable to profits of the Company are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Profit before income tax expense

 

W

35,304,130

 

35,139,350

 

Income tax using the statutory tax rate

 

 

8,081,600

 

8,041,723

 

Adjustments:

 

 

 

 

 

 

Expenses not deductible for tax purposes

 

 

39,450

 

36,420

 

Tax amounts paid in a foreign country

 

 

4,754,083

 

4,671,928

 

Tax deduction

 

 

(542,868)

 

-

 

Utilization of previously unrecognized tax losses

 

 

-

 

(3,799,856)

 

Utilization of previously unrecognized tax credits  

 

 

-

 

(652,938)

 

Change in deferred tax due to carry-forward deficits

 

 

-

 

(1,950,584)

 

Change in deferred tax due to tax credit carry-forward

 

 

-

 

(4,314,883)

 

Others

 

 

(496,418)

 

430,395

 

 

 

 

3,754,247

 

(5,579,518)

 

Income tax expense

 

W

11,835,847

 

2,462,205

 

Effective tax rate

 

 

34%

 

7%

 

 


45


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

19. Income tax expense, Continued

 

(3) Details of the changes in deferred tax assets (liabilities) for the years ended December 31, 2019 and 2018 are as follows:

 

(In thousands of won)

 

2019

 

 

2018

 

 

Beginning

balance

 

 

Increase

(Decrease)

 

 

 

Ending

balance

 

 

 

Beginning

balance

 

 

 

Increase

(Decrease)

 

 

 

Ending

balance

Property and equipment

W

24,585

 

 

10,838

 

 

35,423

 

 

-

 

 

24,585

 

 

24,585

Intangible assets

 

238,471

 

 

(17,365)

 

 

221,106

 

 

-

 

 

238,471

 

 

238,471

Accounts Payable

 

531,182

 

 

(104,255)

 

 

426,927

 

 

-

 

 

531,182

 

 

531,182

Deferred revenue

 

59,814

 

 

(52,617)

 

 

7,197

 

 

179,929

 

 

(120,115)

 

 

59,814

Allowance for doubtful accounts

 

264,484

 

 

-

 

 

264,484

 

 

-

 

 

264,484

 

 

264,484

Asset retirement obligation

 

46,264

 

 

-

 

 

46,264

 

 

39,205

 

 

7,059

 

 

46,264

Investment in subsidiaries

 

-

 

 

389,453

 

 

389,453

 

 

2,747,475

 

 

(2,747,475)

 

 

-

Tax paid in foreign countries

 

(3,835)

 

 

3,481

 

 

(354)

 

 

-

 

 

(3,835)

 

 

(3,835)

Others

 

(13,326)

 

 

91,606

 

 

78,280

 

 

(70,606)

 

 

57,280

 

 

(13,326)

Sub-total(Ⅰ)

W

1,147,639

 

 

321,141

 

 

1,468,780

 

 

2,896,003

 

 

(1,748,364)

 

 

1,147,639

Deferred tax due to carry-forward deficits(Ⅱ)

 

1,950,584

 

 

(1,950,584)

 

 

-

 

 

107,567

 

 

1,843,017

 

 

1,950,584

Deferred tax due to tax credit carry-forward(Ⅲ)

 

4,314,883

 

 

56,359

 

 

4,371,242

 

 

32,595

 

 

4,282,288

 

 

4,314,883

Deferred tax assets

(Ⅰ+Ⅱ+Ⅲ) (*)

W

7,413,106

 

 

(1,573,084)

 

 

5,840,022

 

 

3,036,165

 

 

4,376,941

 

 

7,413,106

 

(*) The future realizability of deferred tax assets is assessed by taking into consideration various factors such as the Company's performance, the overall economic environment and industry outlook, expected future earnings, and deductible period of tax credit carry-forward. As of December 31, 2019, the Company has recognized deferred tax assets related to temporary differences, carry-forward deficits and tax credit carry-forward, which can be utilized based on the likelihood of future taxable income. This amount may change if the estimate for future taxable income changes.

(4) As of December 31, 2019, the Company did not recognize deferred tax assets for deductible temporary differences associated with investments in subsidiaries of W23,495,101 thousand because it is not probable that the temporary difference will reverse in the foreseeable future.


46


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

20. Cash flow information

 

(1) Cash generated from operations for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Adjustments for:

 

 

 

 

 

 

Depreciation

 

W

1,570,077

 

336,000

 

Amortization

 

 

487,320

 

660,152

 

Bad debt (reversal of allowance for doubtful accounts)

 

 

63,974

 

(2,814,155)

 

Impairment loss on investment in subsidiaries

 

 

3,848,946

 

10,580,150

 

Interest expense

 

 

173,763

 

-

 

Unrealized foreign currency loss

 

 

241,540

 

100,257

 

Loss on retirement of property and plant

 

 

-

 

5,275

 

Impairment loss on intangible asset

 

 

485,963

 

623,141

 

Retirement benefit expenses

 

 

20,198

 

11,044

 

Income tax expense

 

 

11,835,847

 

2,462,205

 

Unrealized foreign currency gain

 

 

(86,980)

 

(80,541)

 

Gain on disposal of property and plant

 

 

(3,666)

 

(15,497)

 

Interest income

 

 

(1,089,618)

 

(1,075,805)

 

Dividend income

 

 

(2,557,694)

 

-

 

Reversal of allowance for doubtful accounts - others

 

 

(37,520)

 

(4,233,457)

 

 

 

W

14,952,150

 

6,558,769

 

 

(2) Changes in assets and liabilities arising from operating activities for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Accounts receivable

 

W

6,496,776

 

17,078,691

 

Other receivable

 

 

(652,831)

 

412,364

 

Lease receivable

 

 

131,851

 

-

 

Prepaid expenses

 

 

1,242,390

 

2,168,456

 

Other current assets

 

 

(270,300)

 

393,224

 

Other non-current assets

 

 

(1,370,803)

 

(901,789)

 

Accounts payable

 

 

1,781,894

 

(27,909,531)

 

Deferred revenue

 

 

(5,842,332)

 

(10,344,989)

 

Withholdings

 

 

(375,396)

 

(108,012)

 

Accrued expenses

 

 

1,474

 

220,931

 

Other current liabilities

 

 

(9,051)

 

(10,792)

 

Long-term deferred revenue

 

 

-

 

(17,392)

 

 

 

W

1,133,672

 

(19,018,839)

 

 

 

 

47


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

20. Cash flow information, Continued

(3) Significant non-cash transactions for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Reclassification of advance payment to intangible assets

 

W

     119,935

 

-

 

Acquisition of right-of-use assets

 

 

441,190

 

-

 

Increase in accounts payable relating to the acquisition of software

 

 

32,590

 

225,710

 

 

(4) Changes in liabilities arising from financing activities for the year ended December 31, 2019, are as follows:

 


(In thousands of won)

 

 

 

Lease liabilities

 

Beginning of the year

 

 

W

-

 

Adjustment due to adoption of K-IFRS No. 1116

 

 

 

3,420,053

 

Beginning balance after adjustment

 

 

 

3,420,053

 

Cash flows from financing activities – Repayment of lease liabilities

 

 

 

(1,364,537)

 

Cash flows from operating activities – Interest paid

 

 

 

(173,763)

 

Non-cash transactions:

 

 

 

 

 

Acquisitions – leases

 

 

 

441,190

 

Interest expense

 

 

 

173,763

 

Early termination of leases

 

 

 

(14,159)

 

Ending of the year

 

 

W

2,482,547

 

 

 

21. Leases

 

The Company leases offices, vehicles and others. The leases typically run for a period of 1 ~5 years with an option to renew or terminate the lease after that date. There are no restrictions or covenants imposed to leases, but the lease assets are not be provided as collateral for borrowings.

The Company has a sublease for a portion of the existing lease contract. The head lease and its sub-lease terminates in 2022.


48


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

21. Leases, Continued

(1) As a lessee

(a) Details of right-of-use assets and lease liabilities recognized in the separate statement of financial position as of December 31, 2019 are as follows:


(In thousands of won)

 

 

 

December 31, 2019

 

Right-of-use assets(*1)

 

 

 

 

 

Offices

 

 

W

1,851,301

 

Vehicles

 

 

 

253,928

 

Others

 

 

 

47,052

 

 

 

 

W

2,152,281

 

Lease liabilities(*2)

 

 

 

 

 

Current

 

 

 

884,548

 

Non-current

 

 

 

1,597,999

 

 

 

 

W

2,482,547

 

 

(*1) Right-of-use assets are included in the 'Property and equipment' in the separate statement of financial position.

 

(*2) Lease liabilities are included in the 'Other current liabilities' and 'Other non-current liabilities' in the separate statement of financial position.

  

(b) Changes in right-of-use assets for the year ended December 31, 2019 are as follows:

(In thousands of won)

 

 

2019

 

 

 

Offices

 

 

Vehicles

 

 

Others

 

 

Total

Balance as of January 1, 2019

 

W

2,321,368

 

 

28,226

 

 

611,674

 

 

2,961,268

Depreciation

 

 

(591,940)

 

 

(79,906)

 

 

(564,622)

 

 

(1,236,468)

Acquisitions

 

 

121,873

 

 

319,317

 

 

-

 

 

441,190

Disposals

 

 

-

 

 

(13,709)

 

 

-

 

 

(13,709)

Balance as of December 31, 2019

 

W

1,851,301

 

 

253,928

 

 

47,052

 

 

2,152,281

 


49


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

21. Leases, Continued

(1) As a lessee, Continued

(c) Details of amounts recognized in the separate statement of profit or loss for the year ended December 31, 2019 are as follows:


(In thousands of won)

 

2019

 

Interest expense relating to lease liabilities (included in finance cost)

W

173,763

 

Revenue from sub-lease of right-of-use asset

 

23,519

 

Expense relating to short-term leases

 

119,412

 

Expense relating to leases of low-value assets excluding short-term leases

 

577

 

(d) Details of amounts recognized in the separate statement of cash flows for the year ended December 31, 2019 are as follows:

 


(In thousands of won)

 

 

 

2019

 

Total cash outflows of leases

 

 

W

1,658,289

 

 

(2) As a lessor

The Company has a sub-leased part of its right-of-use assets. The Company recognized interest income related to the lease receivable amounting to W23,519 thousand for the year ended December 31, 2019.

The aging analysis with the amounts expressed in undiscounted lease receivables after the reporting date are as follows. The Company does not have any sublease as finance lease in accordance with K-IFRS No. 1017.

(In thousands of won)

 

 

 

 

 

 

 

Less than

1 Year

 

 

1 to 2 Years

 

 

2 to 5 Years

 

 

Contractual

cash flow

 

 

Unrealized financial income

 

 

Net investment in the lease

W

120,007

 

 

120,007

 

 

120,006

 

 

360,020

 

 

33,088

 

 

326,932

 

 


50


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

22. Financial Risk Management

The Company’s operating activities expose itself to a variety of financial risks: market risk, credit risk and liquidity risk from which the Company’s risk management program focuses on minimizing any adverse effects on its financial performance. The Company operates financial risk management policies and programs that closely monitor and respond to each risk factor.

(1) Capital Risk Management

The Company’s objectives when managing capital are to safeguard the Company’s ability to continue as a going concern, so the Company can continue to provide returns and benefits for shareholders and to maintain an optimal capital structure to reduce the cost of capital. The Company monitors capital on the basis of the debt ratio. This ratio is calculated as total debt divided by total capital. The debt ratios as of December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Total liabilities

 

W

26,067,690

 

28,216,657

 

Total equity

 

 

101,501,321

 

77,788,119

 

Debt ratio

 

 

26%

 

36%

 

 

(2) Market Risk

(a) Foreign exchange risk

The Company is exposed to foreign exchange risk arising from royalty revenues and commission payment primarily with respect to the US dollar and etc. The Company’s financial assets and liabilities are exposed to foreign currency risk as of December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

December 31, 2019

 

 

 

Assets in foreign

currency

 

 

Liabilities in foreign currency

 

 

 

Assets in

Korean Won

 

 

Liabilities in Korean Won

USD

 

 

11,396,740

 

 

6,674,807

 

W

13,198,736

 

 

7,728,092

JPY

 

 

524,699,713

 

 

388,469,775

 

 

5,581,212

 

 

4,131,260

EUR

 

 

338,598

 

 

1,000

 

 

439,307

 

 

1,297

IDR

 

 

12,955,000

 

 

17,023,944

 

 

1,077

 

 

1,415

THB

 

 

28,510

 

 

7,379

 

 

1,102

 

 

285

TWD

 

 

29,236,669

 

 

5,567,672

 

 

1,125,027

 

 

214,244

VND

 

 

9,270,000

 

 

3,243,600

 

 

464

 

 

162

GBP

 

 

-

 

 

5,625

 

 

-

 

 

8,543

 

 

W

20,346,925

 

 

12,085,298

 


51


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

22. Financial Risk Management, Continued

(2) Market Risk, Continued

(a) Foreign exchange risk, Continued

(In thousands of won)

 

 

December 31, 2018

 

 

 

Assets in foreign

currency

 

 

Liabilities in

foreign currency

 

 

Assets in

Korean Won

 

 

Liabilities in Korean Won

USD

 

 

22,022,340

 

 

7,468,609

 

W

24,624,065

 

 

8,351,245

JPY

 

 

82,108,730

 

 

14,110,499

 

 

831,996

 

 

142,965

EUR

 

 

359,769

 

 

-

 

 

460,202

 

 

-

IDR

 

 

172,789,131

 

 

3,098,944

 

 

13,270

 

 

238

THB

 

 

34,633

 

 

173,389

 

 

1,190

 

 

5,956

TWD

 

 

36,311,172

 

 

6,597,223

 

 

1,328,263

 

 

241,326

VND

 

 

9,270,000

 

 

3,243,600

 

 

447

 

 

156

HKD

 

 

2,731

 

 

-

 

 

390

 

 

-

 

 

 

 

 

 

 

 

W

27,259,823

 

 

8,741,886

 

The Company measures foreign exchange risk at the exchange rate of 10% for each foreign currency, and the rate of change reflects the management's assessment of the risk of exchange rate fluctuation that can be reasonably experienced. The effects of changes in foreign currency exchange rate on profit before tax for the years ended of December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

2019

 

2018

 

 

 

Increased by 10%

 

 

Decreased by 10%

 

Increased by 10%

 

 

Decreased by 10%

USD

 

W

547,064

 

 

(547,064)

 

1,627,282

 

 

(1,627,282)

JPY

 

 

144,995

 

 

(144,995)

 

68,903

 

 

(68,903)

Others

 

 

134,103

 

 

(134,103)

 

155,608

 

 

(155,608)

 

 

W

826,162

 

 

(826,162)

 

1,851,793

 

 

(1,851,793)

 

The sensitivity analysis is based on monetary assets and liabilities denominated in foreign currencies other than the functional currency at the end of the reporting period.

(b) Interest rate risk

There are no borrowings under variable interest rate conditions as of December 31, 2019 and 2018.

(c) Price risk

There are no assets and liabilities exposed to price risk as of December 31, 2019 and 2018.


52


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

22. Financial Risk Management, Continued

(3) Credit Risk

Credit risk arises from normal trading and investing activities and occurs when a customer or a counterparty fails to comply with the terms of the contract. In order to manage these credit risks, the Company regularly evaluate the creditworthiness of customers based on their financial condition, past experiences and other factors.

The carrying amounts of financial assets represent their maximum exposure to credit risk. The maximum exposure to credit risk of the Company as of December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

 

Cash and cash equivalents

 

W

40,088,250

 

46,598,874

 

Short-term financial instruments

 

 

39,500,000

 

9,500,000

 

Accounts receivables, net

 

 

17,977,026

 

24,659,595

 

Other receivables, net

 

 

1,162,439

 

469,710

 

Other current assets

 

 

334,415

 

189,539

 

Oher non-current assets

 

 

1,702,234

 

1,405,988

 

 

 

W

100,764,364

 

82,823,706

 

 

Cash and cash equivalents and short-term financial instruments are deposited in financial institutions with strong credit ratings. Accounts receivable are mainly due from payment processing companies and platform service providers, which the Company believes have low levels of credit risk.

 

(4) Liquidity Risk

Liquidity risk management includes the maintenance of sufficient cash and marketable securities, the availability of funds from appropriately committed credit lines, and the ability to settle market positions. The following table summarizes the financial liabilities of the Company by maturity according to the remaining period from the end of the reporting period to the contractual maturity date.


(In thousands of won)

December 31, 2019

 

 

Carrying
value

 

 

Less than

3 months

 

 

3 months to

1 year

 

 

1 to 2 years

 

 

2 to 3 years

 

 

Total

Accounts payable

W

16,169,713

 

 

15,431,913

 

 

608,650

 

 

129,150

 

 

-

 

 

16,169,713

Other liabilities (*)

 

2,632,555

 

 

294,934

 

 

873,269

 

 

920,715

 

 

776,403

 

 

2,865,321

 

W

18,802,268

 

 

15,726,847

 

 

1,481,919

 

 

1,049,865

 

 

776,403

 

 

19,035,034

 

(*) Other liabilities as of December 31, 2019 consist of lease deposits received and lease liabilities


53


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

22. Financial Risk Management, Continued

(4) Liquidity Risk, Continued

 

(In thousands of won)

December 31, 2018

 

 

Carrying
value

 

 

Less than

3 months

 

 

3 months to

1 year

 

 

More than

1 year

 

 

Total

Accounts payable

W

14,440,762

 

 

12,915,953

 

 

1,524,809

 

 

-

 

 

14,440,762

Other current liabilities

 

150,008

 

 

150,008

 

 

-

 

 

-

 

 

150,008

 

W

14,590,770

 

 

13,065,961

 

 

1,524,809

 

 

-

 

 

14,590,770

The cash flows above are not discounted and the amount due within 12 months is the same as the carrying amount since the effect of the discount is not material.

 

 

23. Related Party Transactions

(1) Related parties of the Company includes entities and individuals capable of exercising control or significant influence over the Company and its subsidiaries. Related parties include GungHo Online Entertainment, Inc. (the controlling shareholder with 59.31% common shares), its subsidiaries, members of board of directors, executives with strategic responsibilities and their immediate families.

 

Ownership interests in subsidiaries as of December 31, 2019 and 2018 are as follows;

Name of entity

 

Percentage of ownership (%)

 

December 31, 2019

 

December 31, 2018

Gravity Interactive, Inc.

 

100.00

 

100.00

Gravity Entertainment Corp.

 

100.00

 

100.00

NeoCyon, Inc.

 

99.24

 

98.73

Gravity Communications Co., Ltd.

 

100.00

 

100.00

PT Gravity Game Link

 

70.00

 

-

Gravity Game Tech Co., Ltd.

 

100.00

 

-

Gravity Game Arise Co., Ltd.

 

100.00

 

-

 


54


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

23. Related Party Transactions, Continued

(2) Account balances with related parties

Balances of receivables and payables with related parties as of December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

December 31, 2019

 

December 31, 2018

Related party

 

Name of entity

 

 

Receivables

 

 

Payables

 

Receivables

 

 

Payables

Parent company

 

GungHo Online Entertainment, Inc.

 

W

2,553,022

 

 

73,678

 

831,478

 

 

2,981

Subsidiaries

 

Gravity Interactive, Inc.

 

 

   4,804,814

 

 

      365

 

14,911,497

 

 

215,381

 

Gravity Entertainment Corp.

 

 

       8,325

 

 

        -

 

-

 

 

139,984

 

NeoCyon, Inc.

 

 

   1,166,940

 

 

850,412

 

851,615

 

 

660,630

 

Gravity Communications Co., Ltd.

 

 

1,547,814

 

 

2,120,357

 

590,891

 

 

13,396

 

PT. Gravity Game Link

 

 

     22,504

 

 

  215,884

 

-

 

 

-

 

Gravity Game Tech Co., Ltd.

 

 

  451,879

 

 

    360

 

-

 

 

-

 

Gravity Game Arise Co., Ltd.

 

 

889,785

 

 

228,929

 

-

 

 

-

 

W

11,445,083

 

 

3,489,985

 

17,185,481

 

 

1,032,372

 

(3) Transactions with related parties

 

The details of transactions with related parties for the years ended December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

2019

 

2018

Related party

 

Name of entity

 

 

Revenues

 

 

Purchases

 

Revenues

 

 

Purchases

Parent company

 

GungHo Online Entertainment, Inc.

 

W

26,477,425

 

 

   56,899

 

9,538,157

 

 

-

Subsidiaries

 

Gravity Interactive, Inc. (*1)

 

 

38,508,020

 

 

  2,791

 

15,068,304

 

 

2,937

 

Gravity Entertainment Corp.

 

 

       -

 

 

251,102

 

-

 

 

158,025

 

NeoCyon, Inc.

 

 

517,314

 

 

7,018,159

 

74,931

 

 

5,392,633

 

Gravity Games Corp.

 

 

-

 

 

-

 

255

 

 

2,635

 

Gravity Communications Co., Ltd. (*2)

 

 

5,570,889

 

 

2,245,589

 

741,076

 

 

13,845

 

PT. Gravity Game Link

 

 

   156,995

 

 

   34,853

 

-

 

 

-

 

Gravity Game Tech Co., Ltd.

 

 

-

 

 

      360

 

-

 

 

-

 

Gravity Game Arise Co., Ltd.

 

 

-

 

 

797,955

 

-

 

 

-

 

W

71,230,643

 

 

10,407,708

 

25,422,723

 

 

5,570,075

 

(*1) Revenues in 2019 include W2,368,200 thousand of dividend income received from Gravity Interactive, Inc.

(*2) Revenues in 2019 include W189,494 thousand of dividend income received from Gravity Communications Co., Ltd.

 


55


GRAVITY CO., LTD.

Notes to the Financial Statements

 

For the years ended December 31, 2019 and 2018

23. Related Party Transactions, Continued

(4) Other transactions with related parties

 

Other transactions with related parties for the years ended December 31, 2019 and 2018 are as follows:

(In thousands of won)

 

 

2019

 

2018

Related party

 

Name of entity

 

 

Loans

 

Collection

 

Contribution

 

Loans

 

Collection

 

Contribution

Subsidiaries

 

Gravity Interactive, Inc.

 

W

-

 

-

 

-

 

-

 

3,772,670

 

10,580,150

 

Gravity Communications Co., Ltd.

 

 

-

 

-

 

-

 

-

 

-

 

5,681,415

 

NeoCyon, Inc.

 

 

-

 

-

 

1,999,995

 

-

 

-

 

1,999,995

 

PT. Gravity Game Link

 

 

-

 

-

 

830,491

 

-

 

-

 

-

 

Gravity Game Tech Co., Ltd.

 

 

-

 

-

 

3,407,555

 

-

 

-

 

-

 

Gravity Game Arise Co., Ltd.

 

 

-

 

-

 

539,485

 

-

 

-

 

-

 

 

(5) Key management personnel compensation

 

The compensation given to key management personnel (registered directors) for the years ended December 31, 2019 and 2018 are as follows:


(In thousands of won)

 

 

2019

 

2018

 

Salaries

 

W

816,224

 

640,059

 

 

 

 

 

 

56


 

Independent Auditors’ Review Report on Internal Accounting Control System

 

(English translation of a Report Originally Issued in Korean)

 

To the Shareholders and Board of Directors of

Gravity Co., Ltd.

 

We have reviewed the accompanying report on the Operation of Internal Accounting Control System (“IACS”) of Gravity Co., Ltd. (the “Company”) as of December 31, 2019. The Company's management is responsible for designing and maintaining effective IACS and for its assessment of the effectiveness of IACS. Our responsibility is to review the management's assessment and issue a report based on our review. In the accompanying report of management’s assessment of IACS, the Company’s management stated: “Based on the assessment of the operation of the IACS as of December 31, 2019, Chief Executive Officer and ICFR officer believe that the Company’s IACS has material weaknesses as of December 31, 2019, based on the Best Practice Guideline”.

We conducted our review in accordance with IACS Review Standards, issued by the Korean Institute of Certified Public Accountants. Those Standards require that we plan and perform the review to obtain assurance of a level less than that of an audit as to whether the Report on the Operation of Internal Accounting Control System is free of material misstatement. Our review consists principally of obtaining an understanding of the Company’s IACS, inquiries of company personnel about the details of the report, and tracing to related documents we considered necessary in the circumstances. We have not performed an audit and, accordingly, we do not express an audit opinion. However, as the Company is a privately-held large enterprise, the design and operations and assessment of its IACS are limited compared with those of publicly-held large enterprises, under Chapter 5 “Application for Small and Medium Sized Enterprises” of IACS Standards. As such, we performed our review in accordance with Chapter 14 “Review Standards for Small and Medium Sized Enterprises.”

A company's IACS is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with Korean International Financial Reporting Standards. Because of its inherent limitations, however, IACS may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the financial statements will not be prevented or detected. The following material weaknesses have been included in the management’s report referred to above.

 

 

1.

Material Weakness related to ITGC: The Company did not design and operate sufficient and appropriate access control procedures for the OS/DB super user account within the game systems for its main games. This deficiency represents a material weakness in the access control procedure, as unauthorized access to the game systems using the shared authentication key for the super-user account is not being prevented or detected.


57


 

 

 

2.

Material Weakness related to Risk Assessment: The Company did not sufficiently consider the risk factors that may affect financial reporting, such as sharing of super user authority in cloud environment, in designing and operating control procedures during the current year. This deficiency represents a material weakness related to the risk assessment procedures on the entity level.

 

 

3.

Material Weakness related to Control Environment: The Company determined that its effort to maintain experienced and knowledgeable personnel and conduct the expanded training programs were not sufficient to address the material weaknesses newly and previously identified. This deficiency represents a material weakness of the control environment on the entity level.  

 

Based on the results of our review on the Report on the Operation of Internal Accounting Control System as of December 31, 2019, nothing has come to our attention that there is other material weakness except for the material weaknesses included in the Report on the Operation of Internal Accounting Control System.

 

This report applies to the Company’s IACS in existence as of December 31, 2019. We did not review the Company’s IACS subsequent to December 31, 2019. This report has been prepared for Korean regulatory purposes, pursuant to the Act on External Audit of Stock Companies, Etc. and may not be appropriate for other purposes or for other users.

 

 

 

 

KPMG Samjong Accounting Corp.

March 24, 2020

 

 

 

 


58


 

 

Report on the Operation of Internal Accounting Control System

(English Translation of a Report Originally Issued in Korean)

 

 

To Shareholders, the Board of Directors, and the Audit Committee,

 

The CEO and the Internal Control over Financial Reporting (“ICFR”) Officer of Gravity (“the Company”), assessed the effectiveness of the design and operation of the Company’s ICFR for the year ending December 31, 2019.

 

The Company’s management, including the CEO and ICFR officer, is responsible for designing and operating an ICFR.

 

The CEO and ICFR Officer assessed the design and operational effectiveness of the ICFR in the prevention and detection of an error or fraud which may cause a misstatement in the preparation and disclosure of reliable financial statements.

 

The CEO and ICFR Officer used the Chapter 5 (Application to Small-and-Medium sized Companies) of the Best Practice Guideline to evaluate the effectiveness of the ICFR design and operation.

 

Based on our assessment, the following material weaknesses in the Company’s ICFR, in all material respects, were noted based on the Chapter 5 of the Practice Guideline.

 

<Description of material weaknesses>

 

1.

Material Weakness related to ITGC: The Company did not design and operate sufficient and appropriate access control procedures for the OS/DB super user account within the game systems for its main games. This deficiency represents a material weakness in the access control procedure, as unauthorized access to the game systems using the shared authentication key for the super-user account is not being prevented or detected.

 

 

2.

Material Weakness related to risk assessment: The Company did not sufficiently consider the risk factors that may affect financial reporting, such as sharing of super user authority in cloud environment, in designing and operating control procedures during the current year. This deficiency represents a material weakness related to the risk assessment procedures on the entity level.

 

 

3.

Material Weakness related to Control Environment: The Company determined that its effort to maintain experienced and knowledgeable personnel and conduct the expanded training programs were not sufficient to address the newly and previously identified material weaknesses. This deficiency represents a material weakness of the control activities on the entity level.  

 

<Remediation plans for material weaknesses>

1. We plan to design and operate control activities to strengthen authentication by using “two-step verification” when super user access to game server’s OS/DB.

2. To maintain knowledgeable personnel and improve the risk assessment process related to financial reporting, we plan to conduct expanded training programs to the personnel in charge of internal control over financial reporting of the Company.

59


 

The CEO and ICFR Officer have confirmed that this report does not contain any untrue statement or omit to state a material fact necessary to make the statements made. Also the CEO and ICFR Officer have confirmed the report does not include any statements that may lead to material misunderstanding and have carefully reviewed the statements of the report.

 

<Annex>

Results of the management’s remediation plan for material weaknesses identified in preceding year.

1. Material Weakness related to ITGC: The Company implemented the ongoing monitoring control on the appropriateness of data interface between databases in order to make relevant accounts related to mobile revenue recorded appropriately and completely. However, it is determined to be not remediated as control activities on reviewing the configuration changes of the monitoring tool were not operated in a timely manner.

2. Material Weakness related to Revenue recognition of Mobile game: The material weakness related to the review of cut-off, and the review of logic in calculating deferred revenue are assessed to be remediated as the Company designed and operated periodic reconciliation control of external PG data with game operation data and upper managers’ review control on the appropriateness of cut-off and the logic in calculating deferred revenue. However, the Company determined the material weakness related to revenue recognition of mobile game is not remediated as the Company is not confident of the data completeness as part of data could not be reconciled during its periodic reconciliation.

3. Material Weakness related to Control Environment: Though the Company hired additional experienced knowledgeable personnel and conducted expanded training programs, the Company determined the material weakness related to control environment is not remediated as the Company determined that its effort to maintain experienced and knowledgeable personnel and conduct the expanded training programs are not enough to address the newly and previously identified material weaknesses.

 

 

 

 

March 6, 2020

 

Chief Executive Officer    Park Hyun Chul

ICFR Officer   Kim Heung Gon

 

 

 

 

 

 

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