Exhibit 99.1

POSCO

and Subsidiaries

Consolidated Financial Statements

December 31, 2016 and 2015

(With Independent Auditors’ Report Thereon)

Table of Contents

	Page
Independent Auditors’ Report		1
Consolidated Financial Statements
Consolidated Statements of Financial Position		7
Consolidated Statements of Comprehensive Income (Loss)		9
Consolidated Statements of Changes in Equity		10
Consolidated Statements of Cash Flows		12
Notes to the Consolidated Financial Statements		14

Independent Auditors’ Report

Based on a report originally issued in Korean

The Board of Directors and Shareholders

POSCO:

We have audited the accompanying consolidated financial statements of POSCO and its subsidiaries (“the Company”), which comprise the consolidated statements of financial position as of December 31, 2016 and 2015, the consolidated statements of comprehensive income (loss), changes in equity and cash flows for the years then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.

Management’s Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Korean International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with Korean Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with Korean International Financial Reporting Standards.

Emphasis of matter

Without qualifying our opinion, we draw attention to the following key audit matters with regard to production-to-order transactions.

Pursuant to “Practical Guide to Korean Standards on Auditing 2016-1”, audit matters related to entities engaged in production-to-order transactions are of significance in our audit of the consolidated financial statements, which determination is based on our professional judgment and communications with those charged with governance. These matters were addressed in the context of our audit of the consolidated financial statements as of and for the year ended December 31, 2016 as a whole, and we do not provide a separate opinion on these matters.

We have considered the results of audit procedures for the following key audit matters in forming our audit opinion of the consolidated financial statements.

(a) Overview

An overview of key audit matters related to the industry with production-to-order transactions described in this audit report is as follows.

Certain subsidiaries of POSCO, including POSCO ENGINEERING & CONSTRUCTION CO., LTD. and POSCO ICT, are engaged in production-to-order transactions. Sales in relation to production-to-order transactions are approximately 13% of consolidated sales for the year ended December 31, 2016. As mentioned in note 3 to the consolidated financial statements, when the outcome of a construction contract can be estimated reliably, the Company recognizes contract revenues and contract costs associated with the construction contract as revenue and expenses, respectively, based on the percentage-of-completion method at the end of the reporting period. The percentage-of-completion is calculated based on the ratio of contract costs incurred for work performed to date to estimated total contract costs. The gross amount due from customers for contract work is presented for all contracts in which costs incurred plus recognized profits (less recognized losses) exceeded progress billings. The gross amount due to customers for contract work is presented for all contracts in which progress billings exceed costs incurred plus recognized profits (less recognized losses).

2

(b) Identification of significant risks and audit procedures

We identified the significant risks through discussions with auditors of certain subsidiaries in industry with production-to-order transactions and review of their audit documentation of identified significant risks. We also reviewed their audit procedures in responding to those significant risks, which were conducted based on their professional judgments. Our procedures included the review of the subsidiary auditors’ audit results, inquiries and application of analytical and other procedures on their audit results. The identified significant risks and major audit procedures for the Company’s production-to-order transactions are as follows:

1) Revenues recognized by the input method

We identified significant risks associated with revenues recognized by the input method. The variation of estimated amounts has significant impact on profit for the year ended December 31, 2016 and future periods because the uncertainty of estimated total contract revenues and costs is high for large-scale development constructions at initial stage, and constructions with delays and possibility of being discontinued of construction.

The following audit procedures were performed regarding revenues recognized by the input method.

• Inquiry, observation and inspection of documents whether the internal control and computerized systems are designed and operated effectively to make appropriate accounting treatments in relation to revenue recognition by the input method

• Inquiries as to significant changes and progress of the contracts as of December 31, 2016

• Analytical review of key financial indicators (effects of changes in profit or loss due to changes in total contract revenue and total contract costs, trade receivables and outstanding balances of due from customers)

• Inquires as to rationale and reliability of estimated result of construction contract, the type of the contracts and classification of the contracts

• Inspection of document regarding the terms of the contract

• Inquiries about the appropriateness of applying the percentage of completion method for major projects in the early stages of the construction contract, and examination of documents on the basis of conclusion

3

2) Uncertainty of estimated total contract costs

The changes in estimated total contract costs were W493,902 million for the year ended December 31, 2016 (see note 29(d) to the consolidated financial statements). We identified significant risks regarding uncertainty of estimated total contract costs based on the impact on profit or loss for the year ended December 31, 2016.

The following audit procedures were performed regarding the impact of uncertainty of estimated total contract costs on the consolidated financial statements.

• Inquiry, observation and inspection of documents whether the internal control is designed and operated so that total contract costs could be reliably estimated.

• Analytical review of the effects on the net income as a result of changes in estimation of the total contract costs.

• Analytical review of the components of the total contract costs of major projects and inspection of documentation on the estimation of total costs for samples selected

• Retrospective review of the rationale of estimation on the total contract costs and inquires and inspection of documents as to the cause of the changes for major projects in which significant changes in estimated total contract costs were made.

• Inquires as to rationale and reliability of the estimated result of total construction contract for major projects.

• Analytical review of major projects to see if there was a significant difference between the progress and the rate of completion according to the input method as of December 31, 2016.

• Inquiries and inspection of document regarding whether the results of evaluation of the potential risk factors such as the early stage of the contract and the process delay were appropriately reflected in the total contract cost estimate

• Inquiries and analytical review of significant changes in total contract costs since December 31, 2016

3) Assessment of the percentage-of-completion

The changes in estimated total contract costs were W493,902 million for the year ended December 31, 2016 (see note 29(d) to the consolidated financial statements). We identified significant risks regarding assessment of the percentage-of-completion as uncertainty of estimated total contract costs increased.

The following audit procedures were performed regarding total contract costs and cumulative incurred contract costs in assessing of the percentage-of-completion.

4

• Inquiries, observation and inspection of documentation on whether the internal control is designed and operated effectively in the review of the calculated construction progress and to record the progress properly

• For selected samples from contract costs incurred during the year ended December 31, 2016, inspection of documentation on existence and timing of occurrence, and performance of cut-off test

• Recalculation of percentage-of-completion for major construction projects

• Inquiries as to the reasonableness of cumulative incurred contract costs and the progress rate

• Analytical review of identification of costs to each project

4) Recoverability of due from customers for contract work

As of December 31, 2016 and December 31, 2015, the amounts of due from customers for contract work are W964,304 million and W1,218,031 million, respectively, or 10% and 13% of consolidated trade accounts and note receivable (see note 29(b) to the consolidated financial statements) as of the respective reporting dates. We identified significant risks regarding the recoverability of due from customers for contract work as the amounts of due from customers for contract work are significant.

The following audit procedures were performed regarding the recoverability of due from customers for contract work.

• Inquiries, observation and inspection of document on whether the internal controls are properly designed and effectively operated to respond to the risks associated with estimates on possibility of recovery

• Inquiries as to the financial soundness of clients, payment condition, timing of delivery, and condition of billing terms

• Analytical review on the quarterly trends and inquiries of significant changes in due from customers compared to the amount at the end of the previous reporting period

• Review of the reasonableness of the basis for the evaluation of the possibility of the recovery of the amount related to the unbilled construction balance

• Inspection of billing document on the samples selected from billed receivable balance as of year-end.

5) Accounting for the variation of construction work

The variation of construction contracts due to changes in estimated total contract costs had significant influence on profits or loss of the construction contracts (see note 29(d) to the consolidated financial statements). We identified significant risks regarding the accounting for the variation of construction work.

The following audit procedures were performed regarding accounting of the variation of construction work and disclosures.

5

• Inquiries, observation and inspection of document regarding whether the internal controls are properly designed and operated effectively to respond to the risks associated with measurement and change the total contract revenue for each project

• For selected samples on the constructions contract and contracts with changes, inspection of document on the basis of the calculating total contract revenue

• Inspection of document for compliance with recognition requirements for contract revenue when the contracted revenue increased through the construction work change other than the initially agreed upon contracted amount

• For selected major customers, confirmation letter as to the total contract amounts as of December 31, 2016

Other Matters

The procedures and practices utilized in the Republic of Korea to audit such consolidated financial statements may differ from those generally accepted and applied in other countries. Accordingly, this report and the accompanying consolidated financial statements are for use by those knowledgeable about Korean auditing standards and their application in practice.

Seoul, Korea

March 2, 2017

This report is effective as of March 2, 2017, the audit report date. Certain subsequent events or circumstances, which may occur between the audit report date and the time of reading this report, could have a material impact on the accompanying consolidated financial statements and notes thereto. Accordingly, the readers of the audit report should understand that the above audit report has not been updated to reflect the impact of such subsequent events or circumstances, if any.

6

POSCO and Subsidiaries

Consolidated Statements of Financial Position

As of December 31, 2016 and 2015

(in millions of Won)	Notes			December 31, 2016		December 31, 2015
Assets
Cash and cash equivalents		4,5,23	W		2,447,619		4,870,185
Trade accounts and notes receivable, net		6,17,23,29,37			9,786,927		9,595,935
Other receivables, net		7,23			1,539,742		1,679,879
Other short-term financial assets		8,23,37			5,224,911		3,910,387
Inventories		9			9,051,721		8,225,205
Current income tax assets		35			46,473		33,765
Assets held for sale		10			311,958		57,281
Other current assets		16			894,484		808,252
Total current assets					29,303,835		29,180,889
Long-term trade accounts and notes receivable, net		6,23			51,124		120,338
Other receivables, net		7,23			762,912		863,258
Other long-term financial assets		8,23			2,657,692		2,341,460
Investments in associates and joint ventures		11			3,882,389		3,945,333
Investment property, net		13			1,117,720		1,084,292
Property, plant and equipment, net		14			33,770,339		34,522,855
Intangible assets, net		15			6,088,729		6,405,754
Defined benefit assets, net		21			83,702		—
Deferred tax assets		35			1,476,873		1,315,580
Other non-current assets		16			567,680		629,000
Total non-current assets					50,459,160		51,227,870
Total assets			W		79,762,995		80,408,759

See accompanying notes to the consolidated financial statements.

7

POSCO and Subsidiaries

Consolidated Statements of Financial Position, Continued

As of December 31, 2016 and 2015

(in millions of Won)	Notes			December 31, 2016			December 31, 2015
Liabilities
Trade accounts and notes payable		23,37	W		4,073,286			3,125,348
Short-term borrowings and current installments of long-term borrowings		4,17,23			10,194,807			12,371,032
Other payables		18,23			1,851,659			2,129,093
Other short-term financial liabilities		19,23,37			149,748			202,117
Current income tax liabilities		35			446,071			377,962
Liabilities of disposal group held for sale		10			—			34,202
Provisions		20			114,865			102,320
Other current liabilities		22,29			2,084,961			1,788,852
Total current liabilities					18,915,397			20,130,926
Long-term trade accounts and notes payable		23,37			44,512			11,098
Long-term borrowings, excluding current installments		4,17,23			12,510,191			12,849,199
Other payables		18,23			208,559			134,470
Other long-term financial liabilities		19,23			81,309			54,696
Defined benefit liabilities, net		21			123,604			182,025
Deferred tax liabilities		35			1,642,939			1,676,658
Long-term provisions		20			337,739			221,692
Other non-current liabilities		22			60,351			77,773
Total non-current liabilities					15,009,204			15,207,611
Total liabilities					33,924,601			35,338,537
Equity
Share capital		24			482,403			482,403
Capital surplus		24			1,397,791			1,383,623
Hybrid bonds		25			996,919			996,919
Reserves		26			(143,985	)		(594,756	)
Treasury shares		27			(1,533,468	)		(1,533,898	)
Retained earnings					41,173,778			40,501,059
Equity attributable to owners of the controlling company					42,373,438			41,235,350
Non-controlling interests		25			3,464,956			3,834,872
Total equity					45,838,394			45,070,222
Total liabilities and equity			W		79,762,995			80,408,759

See accompanying notes to the consolidated financial statements.

8

POSCO and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

For the years ended December 31, 2016 and 2015

(in millions of Won, except per share information)	Notes		2016			2015
Revenue	28,29,37	W		53,083,513			58,192,345
Cost of sales	29,31,34,37			(46,393,962	)		(51,658,098	)
Gross profit				6,689,551			6,534,247
Selling and administrative expenses	30,34
Administrative expenses	31			(2,291,540	)		(2,395,248	)
Selling expenses				(1,553,686	)		(1,728,956	)
Operating profit				2,844,325			2,410,043
Share of loss of equity-accounted investees, net	11			(88,677	)		(506,054	)
Finance income and costs	23,32
Finance income				2,231,980			2,557,073
Finance costs				(3,014,190	)		(3,387,054	)
Other non-operating income and expenses	33,37
Other non-operating income				215,136			549,048
Other non-operating expenses	34			(755,720	)		(1,442,298	)
Profit before income tax				1,432,854			180,758
Income tax expense	35			(384,685	)		(276,939	)
Profit (loss)				1,048,169			(96,181	)
Other comprehensive income (loss)
Items that will not be reclassified subsequently to profit or loss:
Remeasurements of defined benefit pension plans	21			20,540			41,954
Items that are or may be reclassified subsequently to profit or loss:
Capital adjustment arising from investments in equity-accounted investees	23			134,590			(82,509	)
Net changes in the unrealized fair value of available-for-sale investments				310,608			(187,854	)
Foreign currency translation differences				(11,491	)		66,280
Other comprehensive income (loss), net of tax				454,247			(162,129	)
Total comprehensive income (loss)		W		1,502,416			(258,310	)
Profit (loss) attributable to:
Owners of the controlling company		W		1,363,310			180,647
Non-controlling interests				(315,141	)		(276,828	)
Profit (loss)		W		1,048,169			(96,181	)
Total comprehensive income (loss) attributable to:
Owners of the controlling company		W		1,822,533			33,017
Non-controlling interests				(320,117	)		(291,327	)
Total comprehensive income (loss)		W		1,502,416			(258,310	)
Basic and diluted earnings per share (in Won)	36			16,627			1,845

See accompanying notes to the consolidated financial statements.

9

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity

For the years ended December 31, 2016 and 2015

		Attributable to owners of the controlling company																			Non- controlling interests			Total
(in millions of Won)		Share capital		Capital surplus			Hybrid bonds		Reserves			Treasury shares			Retained earnings			Sub total
Balance as of January 1, 2015	W		482,403		1,083,718			996,919		(408,773	)		(1,534,457	)		40,967,558			41,587,368			3,703,996			45,291,364
Comprehensive income (loss):
Profit (loss)			—		—			—		—			—			180,647			180,647			(276,828	)		(96,181	)
Other comprehensive income (loss)
Remeasurements of defined benefit pension plans, net of tax			—		—			—		—			—			38,771			38,771			3,183			41,954
Capital adjustment arising from investments in equity-accounted investees, net of tax			—		—			—		(81,418	)		—			—			(81,418	)		(1,091	)		(82,509	)
Net changes in the unrealized fair value of available-for-sale investments, net of tax			—		—			—		(183,077	)		—			—			(183,077	)		(4,777	)		(187,854	)
Foreign currency translation differences, net of tax			—		—			—		78,094			—			—			78,094			(11,814	)		66,280
Total comprehensive income (loss)			—		—			—		(186,401	)		—			219,418			33,017			(291,327	)		(258,310	)
Transactions with owners of the controlling company, Recognized directly in equity:
Year-end dividends			—		—			—		—			—			(479,958	)		(479,958	)		(32,410	)		(512,368	)
Interim dividends			—		—			—		—			—			(159,987	)		(159,987	)		(67,700	)		(227,687	)
Changes in subsidiaries			—		—			—		—			—			—			—			(311,548	)		(311,548	)
Changes in ownership interests in subsidiaries			—		301,029			—		—			—			—			301,029			857,244			1,158,273
Interest of hybrid bonds			—		—			—		—			—			(43,574	)		(43,574	)		(24,187	)		(67,761	)
Disposal of treasury shares			—		(35	)		—		—			559			—			524			—			524
Others			—		(1,089	)		—		418			—			(2,398	)		(3,069	)		804			(2,265	)
Total transactions with owners of the controlling company			—		299,905			—		418			559			(685,917	)		(385,035	)		422,203			37,168
Balance as of December 31, 2015	W		482,403		1,383,623			996,919		(594,756	)		(1,533,898	)		40,501,059			41,235,350			3,834,872			45,070,222

See accompanying notes to the consolidated financial statements.

10

POSCO and Subsidiaries

Consolidated Statements of Changes in Equity, Continued

For the years ended December 31, 2016 and 2015

		Attributable to owners of the controlling company																		Non- controlling interests
(in millions of Won)		Share capital		Capital surplus		Hybrid bonds		Reserves			Treasury shares			Retained earnings			Sub total						Total
Balance as of January 1, 2016	W		482,403		1,383,623		996,919		(594,756	)		(1,533,898	)		40,501,059			41,235,350			3,834,872			45,070,222
Comprehensive income (loss) :
Profit (loss)			—		—		—		—			—			1,363,310			1,363,310			(315,141	)		1,048,169
Other comprehensive income (loss)
Remeasurements of defined benefit pension plans, net of tax			—		—		—		—			—			9,787			9,787			10,753			20,540
Capital adjustment arising from investments in equity-accounted investees, net of tax			—		—		—		124,626			—			—			124,626			9,964			134,590
Net changes in the unrealized fair value of available-for-sale investments, net of tax			—		—		—		314,428			—			—			314,428			(3,820	)		310,608
Foreign currency translation differences, net of tax			—		—		—		10,382			—			—			10,382			(21,873	)		(11,491	)
Total comprehensive income (loss)			—		—		—		449,436			—			1,373,097			1,822,533			(320,117	)		1,502,416
Transactions with owners of the controlling company, Recognized directly in equity :
Year-end dividends			—		—		—		—			—			(479,974	)		(479,974	)		(50,333	)		(530,307	)
Interim dividends			—		—		—		—			—			(179,992	)		(179,992	)		—			(179,992	)
Changes in subsidiaries			—		—		—		—			—			—			—			49,250			49,250
Changes in ownership interests in subsidiaries			—		8,650		—		—			—			—			8,650			(16,544	)		(7,894	)
Interest of hybrid bonds			—		—		—		—			—			(43,832	)		(43,832	)		(24,253	)		(68,085	)
Disposal of treasury shares			—		32		—		—			430			—			462			—			462
Others			—		5,486		—		1,335			—			3,420			10,241			(7,919	)		2,322
Total transactions with owners of the controlling company			—		14,168		—		1,335			430			(700,378	)		(684,445	)		(49,799	)		(734,244	)
Balance as of December 31, 2016	W		482,403		1,397,791		996,919		(143,985	)		(1,533,468	)		41,173,778			42,373,438			3,464,956			45,838,394

See accompanying notes to the consolidated financial statements.

11

POSCO and Subsidiaries

Consolidated Statements of Cash Flows

For the years ended December 31, 2016 and 2015

(in millions of Won)	Notes			2016			2015
Cash flows from operating activities
Profit (loss)			W		1,048,169			(96,181	)
Adjustments for:
Depreciation					2,835,843			2,836,663
Amortization					378,004			381,583
Finance income					(882,905	)		(1,165,340	)
Finance costs					1,501,953			1,852,862
Income tax expense					384,685			276,939
Impairment loss on property, plant and equipment					196,882			136,269
Gain on disposal of property, plant and equipment					(23,826	)		(22,730	)
Loss on disposal of property, plant and equipment					86,622			101,732
Impairment loss on goodwill and intangible assets					127,875			161,412
Share of loss of equity-accounted investees					88,677			506,054
Impairment loss on assets held for sale					24,890			133,547
Gain on disposal of assets held for sale					(23,112	)		(227,956	)
Loss on disposal of assets held for sale					254			190,357
Costs for defined benefit plans					333,139			245,402
Bad debt expenses					202,717			337,235
Loss on valuation of inventories					152,249			152,952
Increase to provisions					189,914			86,903
Others, net					7,073			(21,643	)
					5,580,934			5,962,241
Changes in operating assets and liabilities		39			(425,815	)		2,754,039
Interest received					206,839			198,193
Interest paid					(691,264	)		(831,566	)
Dividends received					152,559			237,715
Income taxes paid					(602,004	)		(622,612	)
Net cash provided by operating activities			W		5,269,418			7,601,829

See accompanying notes to the consolidated financial statements.

12

POSCO and Subsidiaries

Consolidated Statements of Cash Flows, Continued

For the years ended December 31, 2016 and 2015

(in millions of Won)	Notes			2016			2015
Cash flows from investing activities
Acquisitions of short-term financial instruments			W		(18,578,809	)		(13,037,990	)
Proceeds from disposal of short-term financial instruments					17,177,409			10,595,379
Increase in loans					(603,332	)		(295,689	)
Collection of loans					557,064			308,906
Acquisitions of available-for-sale investments					(328,151	)		(87,824	)
Proceeds from disposal of available-for-sale investments					280,066			308,161
Acquisitions of investment in associates and joint ventures					(173,769	)		(77,155	)
Proceeds from disposal of investment in associates and joint ventures					7,914			11,813
Acquisitions of investment property					(45,735	)		(61,478	)
Proceeds from disposal of investment property					11,624			1,120
Acquisitions of property, plant and equipment					(2,324,112	)		(2,560,244	)
Proceeds from disposal of property, plant and equipment					44,330			59,031
Acquisitions of intangible assets					(138,181	)		(289,148	)
Proceeds from disposal of intangible assets					8,672			12,832
Proceeds from disposal of assets held for sale					305,813			127,133
Cash paid in acquisition of business, net of cash acquired					4,503			—
Cash received from disposal of business, net of cash transferred					21,223			469,576
Others, net					18,844			(19,099	)
Net cash used in investing activities					(3,754,627	)		(4,534,676	)
Cash flows from financing activities
Proceeds from borrowings					1,988,665			1,779,097
Repayment of borrowings					(4,274,895	)		(3,509,970	)
Repayment of short-term borrowings, net					(885,861	)		(846,230	)
Capital contribution from non-controlling interest and proceeds from disposal of subsidiaries while maintaining control					24,704			1,260,053
Payment of cash dividends					(708,970	)		(822,570	)
Payment of interest of hybrid bonds					(68,097	)		(67,725	)
Others, net					(26,513	)		(34,256	)
Net cash used in financing activities					(3,950,967	)		(2,241,601	)
Effect of exchange rate fluctuation on cash held					12,611			23,496
Net increase (decrease) in cash and cash equivalents					(2,423,565	)		849,048
Cash and cash equivalents at beginning of the period		5			4,871,184			4,022,136
Cash and cash equivalents at end of the period		5	W		2,447,619			4,871,184

See accompanying notes to the consolidated financial statements.

13

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements

As of December 31, 2016 and 2015

1. General Information

General information about POSCO, its 38 domestic subsidiaries including POSCO ENGINEERING & CONSTRUCTION CO., LTD., 160 foreign subsidiaries including POSCO America Corporation (collectively “the Company”) and its 102 associates and joint ventures are as follows:

(a) The controlling company

POSCO, the controlling company, was incorporated on April 1, 1968, under the Commercial Code of the Republic of Korea to manufacture and sell steel rolled products and plates in the domestic and foreign markets.

The shares of POSCO have been listed on the Korea Exchange on June 10, 1988. POSCO owns and operates two steel plants (Pohang and Gwangyang) and one office in Korea and it also operates internationally through seven of its overseas liaison offices.

As of December 31, 2016, POSCO’s shareholders are as follows:

Shareholder’s name	Number of shares		Ownership (%)
National Pension Service		9,482,959		10.88
Nippon Steel & Sumitomo Metal Corporation(*1)		2,894,712		3.32
BlackRock Institutional Trust Company, N.A.(*1)		2,236,618		2.57
KB Financial Group Inc. and subsidiaries(*2)		2,091,553		2.40
Saudi Arabian Monetary Authority		2,071,515		2.38
Others		68,409,478		78.45
		87,186,835		100.00

(*1) Includes American Depository Receipts (ADRs) of POSCO, each of which represents 0.25 share of POSCO’s common share which has par value of W5,000 per share.

(*2) Includes shares held by subsidiaries pursuant to Articles of Incorporation.

As of December 31, 2016, the shares of POSCO are listed on the Korea Exchange, while its ADRs are listed on the New York Stock Exchange.

14

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Consolidated subsidiaries

Details of consolidated subsidiaries as of December 31, 2016 and 2015 are as follows:

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Domestic]
POSCO ENGINEERING & CONSTRUCTION., LTD.	Engineering and construction		52.80		—		52.80		52.80		—		52.80	Pohang
POSCO Processing&Service	Steel sales and trading		93.95		0.45		94.40		96.01		—		96.01	Seoul
POSCO COATED & COLOR STEEL Co., Ltd.	Coated steel manufacturing		56.87		—		56.87		56.87		—		56.87	Pohang
POSCO ICT	Computer hardware and software distribution		65.38		—		65.38		65.38		—		65.38	Pohang
POSCO Research Institute	Economic research and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSMATE	Business facility maintenance		57.25		11.05		68.30		57.25		11.05		68.30	Seoul
POSCO A&C	Architecture and consulting		100.00		—		100.00		100.00		—		100.00	Seoul
POSCO Venture Capital Co., Ltd.	Investment in venture companies		95.00		—		95.00		95.00		—		95.00	Pohang
eNtoB Corporation	Electronic commerce		7.50		53.63		61.13		7.50		53.63		61.13	Seoul
POSCO CHEMTECH	Refractories manufacturing and sales		60.00		—		60.00		60.00		—		60.00	Pohang
POSCO-Terminal Co., Ltd.	Transporting and warehousing		51.00		—		51.00		51.00		—		51.00	Gwangyang
POSCO M-TECH	Packing materials manufacturing and sales		48.85		—		48.85		48.85		—		48.85	Pohang
POSCO ENERGY CO., LTD.	Generation of electricity		89.02		—		89.02		89.02		—		89.02	Seoul
POSCO NIPPON STEEL RHF JOINT VENTURE.CO.,Ltd.	Steel manufacturing and sales		70.00		—		70.00		70.00		—		70.00	Pohang
IT Engineering CO. Ltd	Automotive engineering service		—		17.00		17.00		—		17.00		17.00	Seoul
MegaAsset Co.,Ltd.	Real estate rental and sales		—		100.00		100.00		—		100.00		100.00	Incheon
POSCO Engineering CO.,Ltd	Construction and engineering service		—		95.56		95.56		—		95.56		95.56	Incheon
Future Creation Fund Postech Early Stage account	Investment in venture companies		—		40.00		40.00		—		40.00		40.00	Seoul
POSCO WOMAN’S FUND	Investment in venture companies		—		40.00		40.00		—		40.00		40.00	Seoul
POSPOWER Co., Ltd.	Other generation		—		100.00		100.00		—		100.00		100.00	Samcheok
Songdo Posco Family housing	House manufacturing and management		—		100.00		100.00		—		100.00		100.00	Incheon
Posco Group University	Education service and real estate business		100.00		—		100.00		100.00		—		100.00	Incheon
HOTEL LAONZENA	Hotel business		—		100.00		100.00		—		100.00		100.00	Daegu
Growth Ladder POSCO K-Growth Global Fund	Investment in venture companies		—		50.00		50.00		—		50.00		50.00	Pohang
2015 POSCO New technology II Fund	Investment in venture companies		—		25.00		25.00		—		25.00		25.00	Pohang
POCA STEM Co., Ltd	Stem cell medicine development		—		100.00		100.00		—		—		—	Seoul
Posco e&c Songdo International Building(*1)	Non-residental building rental		—		100.00		100.00		—		—		—	Seoul
POSCO ES MATERIALS CO., Ltd.(*2)	Secondary and storage battery manufacturing		75.32		—		75.32		—		—		—	Gumi
Poscoene	Refuse derived fuel and power generation		—		100.00		100.00		—		100.00		100.00	Seoul
POSCO Humans	Construction		90.30		—		90.30		90.30		—		90.30	Pohang
Mapo Hibroad Parking co., Ltd.	Construction		—		70.99		70.99		—		70.99		70.99	Seoul
BLUE O&M Co.,Ltd.	Engineering service		—		100.00		100.00		—		100.00		100.00	Pohang
Busan E&E Co,. Ltd.	Refuse derived fuel and power generation		70.00		—		70.00		70.00		—		70.00	Busan
POSCO Family Strategy Fund	Investment in venture companies		69.91		30.09		100.00		69.91		30.09		100.00	Pohang
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)	Trading, energy & resource development and others		60.31		—		60.31		60.31		—		60.31	Seoul
Pohang Scrap Recycling Distribution Center Co., Ltd.	Steel processing and sales		—		51.00		51.00		—		51.00		51.00	Pohang
PSC Energy Global Co., Ltd.	Investment in energy industry		—		100.00		100.00		—		100.00		100.00	Pohang
Suncheon Eco Trans Co., Ltd	Train manufacturing and management		100.00		—		100.00		100.00		—		100.00	Suncheon
POSCO TMC Co., Ltd.	Component manufacturing		—		—		—		—		74.56		74.56	Cheonan
Tamra Offshore Wind Power Co., Ltd	Cogeneration plant operation		—		—		—		—		64.00		64.00	Jeju

15

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO Green Gas Technology Co., Ltd	Gas production and sales		—		—		—		100.00		—		100.00	Gwangyang
POSCO AST	Steel manufacturing and sales		—		—		—		—		100.00		100.00	Ansan
POSHIMETAL Co., Ltd.	Ferromanganese manufacturing and sales		—		—		—		100.00		—		100.00	Gwangyang
Steel Processing and Fabricating Center Co.,LTD	Steel manufacturing		—		—		—		—		84.89		84.89	Gwangyang
POSCO LED Co., Ltd.	LED lightening		—		—		—		16.70		63.30		80.00	Seongnam

16

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Foreign]
POSCO America Corporation	Steel trading		99.45		0.55		100.00		99.45		0.55		100.00	USA
POSCO AUSTRALIA PTY LTD	Iron ore sales & mine development		100.00		—		100.00		100.00		—		100.00	Australia
POSCO Canada Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCO Asia Co., Ltd.	Steel and raw material trading		100.00		—		100.00		100.00		—		100.00	China
POSCO-CTPC Co., Ltd.	Steel manufacturing		56.60		43.40		100.00		56.60		43.40		100.00	China
POSCO E&C Vietnam Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	Vietnam
Zhangjiagang Pohang Stainless Steel Co., Ltd.	Stainless steel manufacturing		58.60		23.88		82.48		58.60		23.88		82.48	China
POSCO(Guangdong) Coated Steel Co., Ltd.	Plating steel sheet manufacturing		87.04		10.04		97.08		87.04		10.04		97.08	China
POSCO (Thailand) Company Limited	Steel manufacturing		85.62		14.38		100.00		85.62		14.38		100.00	Thailand
Myanmar POSCO Steel Co., Ltd	Zinc relief manufacturing		70.00		—		70.00		70.00		—		70.00	Myanmar
POSCO-MKPC SDN BHD	Steel manufacturing		44.69		25.31		70.00		44.69		25.31		70.00	Malaysia
Qingdao Pohang Stainless Steel Co., Ltd.	Stainless steel manufacturing		70.00		30.00		100.00		70.00		30.00		100.00	China
POSCO(Suzhou) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSEC Hawaii, Inc.	Real estate Industry		—		100.00		100.00		—		100.00		100.00	USA
POSCO-China Qingdao Processing Center Co., Ltd.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
POS-ORE PTY LTD	Iron ore sales & mine development		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-China Holding Corp.	Holding company		100.00		—		100.00		100.00		—		100.00	China
POSCO JAPAN Co., Ltd.	Steel trading		100.00		—		100.00		100.00		—		100.00	Japan
POS-CD PTY LTD	Coal sales		—		100.00		100.00		—		100.00		100.00	Australia
POS-GC PTY LTD	Coal sales		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-India Private Limited	Steel manufacturing		99.99		—		99.99		99.99		—		99.99	India
POSCO-India Pune Processing Center. Pvt. Ltd.	Steel manufacturing		65.00		—		65.00		65.00		—		65.00	India
POSCO Japan PC CO.,LTD (formerly, POSCO-JEPC Co., Ltd.)	Steel manufacturing		—		86.12		86.12		—		88.02		88.02	Japan
POSCO-CFPC Co., Ltd.	Steel manufacturing		39.60		60.40		100.00		39.60		60.40		100.00	China
POSCO E&C CHINA Co., Ltd.	Construction and civil engineering		—		100.00		100.00		—		100.00		100.00	China
POSCO MPPC S.A. de C.V.	Steel manufacturing		—		95.00		95.00		—		95.00		95.00	Mexico
Zhangjigang Pohang Port Co., Ltd.	Loading and unloading service		—		100.00		100.00		—		100.00		100.00	China
POSCO-VIETNAM Co., Ltd.	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	Vietnam
POSCO MEXICO S.A. DE C.V.	Automotive steel sheet manufacturing		84.84		15.16		100.00		84.84		15.16		100.00	Mexico
POSCO India Delhi Steel Processing Centre Private Limited	Steel manufacturing		66.40		10.00		76.40		66.40		10.00		76.40	India
POSCAN Elkview	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCO-Poland Wroclaw Processing Center Sp. z o. o.	Steel manufacturing		60.00		—		60.00		60.00		—		60.00	Poland
POS-NP PTY LTD	Coal sales		—		100.00		100.00		—		100.00		100.00	Australia
POSCO-Vietnam Processing Center Co., Ltd.	Steel manufacturing		87.07		4.98		92.05		87.07		4.98		92.05	Vietnam
POSCO(Chongqing) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
SUZHOU POSCO-CORE TECHNOLOGY CO., LTD.	Component manufacturing		—		100.00		100.00		—		100.00		100.00	China
POSCO-Malaysia SDN. BHD.	Steel manufacturing		81.79		13.63		95.42		81.79		13.63		95.42	Malaysia
POS-Minerals Corporation	Mine development & sales		—		100.00		100.00		—		100.00		100.00	USA

17

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO(Wuhu) Automotive Processing Center Co., Ltd.	Steel manufacturing		68.57		31.43		100.00		68.57		31.43		100.00	China
POSCO Engineering and Construction India Private Limited	Construction and engineering		—		100.00		100.00		—		100.00		100.00	India
POSCO E&C SMART S DE RL DE CV	Construction and engineering		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO Philippine Manila Processing Center, Inc.	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	Philippines
POSCO Suzhou Processing Center Co.,Ltd.	Steel manufacturing		30.00		70.00		100.00		30.00		70.00		100.00	China
POSCO Gulf SFC LLC	Steel manufacturing		—		81.93		81.93		—		81.93		81.93	United Arab Emirates
SANPU TRADING Co., Ltd.	Raw material trading		—		70.00		70.00		—		70.00		70.00	China
Zhangjiagang BLZ Pohang International Trading	Steel transit trading		—		100.00		100.00		—		100.00		100.00	China
POSCO MESDC S.A. DE C.V.	Steel product sales		—		56.80		56.80		—		56.80		56.80	Mexico
POSCO ICT-China	IT service and DVR business		—		100.00		100.00		—		100.00		100.00	China
Pos-Sea Pte Ltd	Steel transit trading		—		67.54		67.54		—		67.54		67.54	Singapore
POSCO Europe Steel Distribution Center	Steel product sales		50.00		20.00		70.00		50.00		20.00		70.00	Slovenia
POSCO ENGINEERING (THAILAND) CO., LTD.	Chemical plant		—		100.00		100.00		—		100.00		100.00	Thailand
POSCO VST CO., LTD.	Stainless steel sheet manufacturing and sales		95.65		—		95.65		95.65		—		95.65	Vietnam
POSCO Maharashtra Steel Private Limited	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
POSCO India Chennai Steel Processing Centre Pvt.Ltd.	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	Turkey
POSCO VNPC(Vietnam HANOI Processing Center) Co., Ltd.	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Vietnam
POSCO(Liaoning) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO-Indonesia Jakarta Processing Center	Steel manufacturing		65.00		20.00		85.00		65.00		20.00		85.00	Indonesia
POSCO E&C VENEZUELA C.A.	Construction and engineering		—		100.00		100.00		—		100.00		100.00	Venezuela
PT.MRI	Mine development		65.00		—		65.00		65.00		—		65.00	Indonesia

18

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Foreign]
POSCO TMC INDIA PRIVATE LIMITED	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	India
POSCO-AAPC	Steel manufacturing		—		97.80		97.80		—		100.00		100.00	USA
PT PEN INDONESIA	Construction		—		100.00		100.00		—		100.00		100.00	Indonesia
POSCO(Yantai) Automotive Processing Center Co., Ltd.	Steel manufacturing		90.00		10.00		100.00		90.00		10.00		100.00	China
POSCO India Steel Distribution Center Private Ltd.	Steel logistics		—		100.00		100.00		—		100.00		100.00	India
POSCO China Dalian Plate Processing Center Co., Ltd.	Steel manufacturing		80.00		10.00		90.00		80.00		10.00		90.00	China
POSCO-South Asia Company Limited	Steel product sales		100.00		—		100.00		100.00		—		100.00	Thailand
POSCO SS-VINA Co., Ltd	Steel manufacturing		100.00		—		100.00		100.00		—		100.00	Vietnam
POSCO NCR Coal Ltd.	Coal sales		—		100.00		100.00		—		100.00		100.00	Canada
POSCO WA PTY LTD	Iron ore sales & mine development		100.00		—		100.00		100.00		—		100.00	Australia
POSCO Engineering and Construction - UZ	Construction		—		100.00		100.00		—		100.00		100.00	Uzbekistan
POSCO AUSTRALIA GP PTY LIMITED	Resource development		—		100.00		100.00		—		100.00		100.00	Australia
POSCO YongXin Rare Earth Metal Co., Ltd.	Magnet material manufacturing and sales		—		51.60		51.60		—		51.60		51.60	China
POSCO DAEWOO POWER (PNGPOM) LTD.	Electricity prodction		—		100.00		100.00		—		100.00		100.00	Papua New Guinea
POSCO DAEWOO AMERICA CORP.	Trading business		—		100.00		100.00		—		100.00		100.00	USA
POSCO DAEWOO DEUTSCHLAND GMBH	Trading business		—		100.00		100.00		—		100.00		100.00	Germany
POSCO DAEWOO JAPAN Corp	Trading business		—		100.00		100.00		—		100.00		100.00	Japan
POSCO DAEWOO SINGAPORE PTE LTD.	Trading business		—		100.00		100.00		—		100.00		100.00	Singapore
POSCO DAEWOO ITALIA S.R.L.	Trading business		—		100.00		100.00		—		100.00		100.00	Italy
POSCO DAEWOO CHINA CO., LTD	Trading business		—		100.00		100.00		—		100.00		100.00	China
Daewoo Textile LLC	Textile manufacturing		—		100.00		100.00		—		100.00		100.00	Uzbekistan
POSCO DAEWOO AUSTRALIA  HOLDINGS PTY. LTD.	Resource development		—		100.00		100.00		—		100.00		100.00	Australia
POSCO MAURITIUS LIMITED	Coal development and sales		—		100.00		100.00		—		100.00		100.00	Mauritius
PT. KRAKATAU POSCO	Steel manufacturing		70.00		—		70.00		70.00		—		70.00	Indonesia
POSCO DAEWOO MEXICO S.A. DE C.V.	Trading business		—		100.00		100.00		—		100.00		100.00	Mexico
Daewoo International Guangzhou Corp.	Trading business		—		100.00		100.00		—		100.00		100.00	China
POSCO (Zhangjiagang) STS Processing Center Co., Ltd	Steel manufacturing		—		100.00		100.00		—		100.00		100.00	China
POSCO DAEWOO MALAYSIA SDN BHD	Trading business		—		100.00		100.00		—		100.00		100.00	Malaysia
POSCO DAEWOO SHANGHAI CO., LTD.	Trading business		—		100.00		100.00		—		100.00		100.00	China
PGSF, L.P.	Investment in bio tech Industry		—		100.00		100.00		—		100.00		100.00	USA
POSCO DAEWOO INDIA PVT., LTD.	Trading business		—		100.00		100.00		—		100.00		100.00	India
PT. POSCO E&C INDONESIA	Construction		—		100.00		100.00		—		100.00		100.00	Indonesia
HUME COAL PTY LTD	Raw material manufacturing		—		100.00		100.00		—		100.00		100.00	Australia
EPC EQUITIES LLP	Construction		—		80.00		80.00		—		80.00		80.00	England
SANTOS CMI CONSTRUCTION TRADING LLP	Construction		—		99.90		99.90		—		99.90		99.90	England
SANTOS CMI INC. USA	Construction		—		100.00		100.00		—		100.00		100.00	USA

19

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
SANTOS CMI ENGENHARIA E CONSTRUCOES LTDA	Construction		—		99.98		99.98		—		99.98		99.98	Brazil
SANTOS CMI PERU S.A.	Construction		—		99.99		99.99		—		99.99		99.99	Peru
SANTOS CMI CONSTRUCCIONES S.A.	Construction		—		100.00		100.00		—		100.00		100.00	Uruguay
GENTECH INTERNATIONAL INC.	Construction		—		90.00		90.00		—		90.00		90.00	Panama
SANTOS CMI S.A.	Construction		—		80.00		80.00		—		80.00		80.00	Ecuador
SANTOS CMI CONSTRUCCIONES DE CHILE S.A.	Construction		—		99.00		99.00		—		99.00		99.00	Chile
COMPANIADEAUTOMATIZACION &CONTROL, GENESYS S.A.	Construction		—		90.00		90.00		—		90.00		90.00	Ecuador
POSCO ASSAN TST STEEL INDUSTRY	Steel manufacturing		60.00		10.00		70.00		60.00		10.00		70.00	Turkey
HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	Hongkong
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.	Construction		—		100.00		100.00		—		100.00		100.00	Brazil
POSCO Electrical Steel India Private Limited	Electrical steel manufacturing		100.00		—		100.00		100.00		—		100.00	India
PT.POSCO-Indonesia Inti	Mine development		99.99		—		99.99		99.99		—		99.99	Indonesia
POSCO(Dalian) IT Center Development Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	China
Brazil Sao Paulo Steel Processing Center	Steel manufacturing		—		76.00		76.00		—		76.00		76.00	Brazil
DAESAN (CAMBODIA) Co., Ltd.	Investment		—		100.00		100.00		—		100.00		100.00	Cambodia
PT.POSCO ICT INDONESIA	IT service and electric control engineering		—		66.99		66.99		—		66.99		66.99	Indonesia
PT. POSCO MTECH INDONESIA	Steel manufacturing		—		99.98		99.98		—		99.98		99.98	Indonesia
PT. KRAKATAU POSCO ENERGY	Manufacturing & management		—		90.00		90.00		—		90.00		90.00	Indonesia
POSCO RUS LLC	Trading business		90.00		10.00		100.00		90.00		10.00		100.00	Russia
POSCO Thainox Public Company Limited	Steel manufacturing		84.93		—		84.93		84.93		—		84.93	Thailand
POSCO DAEWOO WAIGAIQIAO SHANGHAI CO., LTD	Merchandising trade		—		100.00		100.00		—		100.00		100.00	China
PT. Bio Inti Agrindo	Forest resources development		—		85.00		85.00		—		85.00		85.00	Indonesia
POSCO ENGINEERING AND CONSTRUCTION AUSTRALIA (POSCO E&C AUSTRALIA) PTY LTD	Iron ore sales		—		100.00		100.00		—		100.00		100.00	Australia

20

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
[Foreign]
POSCO-TISCO (JILIN) PROCESSING CENTER Co., Ltd.	Steel manufacturing		50.00		10.00		60.00		50.00		10.00		60.00	China
Hunchun Posco Hyundai Logistics	Logistics		—		80.00		80.00		—		80.00		80.00	China
USA-SRDC	Scrap sales		—		100.00		100.00		—		100.00		100.00	USA
POSCO DAEWOO VIETNAM CO., LTD	Trading business		—		100.00		100.00		—		100.00		100.00	Vietnam
PT.Krakatau Posco Chemtech Calcination	Quicklime manufacturing and sales		—		80.00		80.00		—		80.00		80.00	Indonesia
POSCO AFRICA (PROPRIETARY) LIMITED	Mine development		100.00		—		100.00		100.00		—		100.00	South Africa
POSCO ICT BRASIL	IT service and engineering		—		100.00		100.00		—		100.00		100.00	Brazil
LA-SRDC	Scrap manufacturing		—		100.00		100.00		—		100.00		100.00	USA
DONG FANG JIN HONG	Real estate development, rental and management		—		100.00		100.00		—		100.00		100.00	China
POSCO AMERICA COMERCIALIZADORA S DE RL DE CV	Human resource service		—		100.00		100.00		—		100.00		100.00	Mexico
POSCO(Guangdong) Automotive Steel Co., Ltd.	Steel manufacturing and sales		83.64		10.00		93.64		83.64		10.00		93.64	China
POSCO MAPC SA DE CV	Steel manufacturing and sales		80.00		20.00		100.00		80.00		20.00		100.00	Mexico
PT KRAKATAU BLUE WATER	Wastewater treamtment facilities operation and maintemance		—		67.00		67.00		—		67.00		67.00	Indonesia
POSCO DAEWOO MYANMAR CORPORATION LIMITED	Trading business		—		100.00		100.00		—		100.00		100.00	Myanmar
POSCO-Italy Processing Center	Stainless steel sheet manufacturing and sales		80.00		10.00		90.00		80.00		10.00		90.00	Italy
POSCO DAEWOO E&P CANADA CORPORATION	Crude oil and natural gas mining		—		100.00		100.00		—		100.00		100.00	Canada
Yingkou Puxiang Trade Co.,Ltd.	Refractory quality test and import and export trade		—		100.00		100.00		—		100.00		100.00	China
Myanmar POSCO C&C Company, Limited.	Steel manufacturing and sales		—		70.00		70.00		—		70.00		70.00	Myanmar
POSCO ICT VIETNAM	IT service and electric control engineering		—		100.00		100.00		—		100.00		100.00	Vietnam
Daewoo Global Development. Pte., Ltd	Real estate development		—		51.00		51.00		—		51.00		51.00	Myanmar
Myanmar POSCO Engineering & Construction Company, Limited.	Construction and engineering service		—		100.00		100.00		—		100.00		100.00	Myanmar
POSCO COATED STEEL (THAILAND) CO., LTD.	Automotive steel sheet manufacturing and sales		100.00		—		100.00		100.00		—		100.00	Thailand
Daewoo Power and Infra (PTY) Limited	Electricity		—		100.00		100.00		—		100.00		100.00	South Africa
Daewoo Amara Company Limited	Real estate development		—		98.54		98.54		—		98.54		98.54	Myanmar
POSMATE-CHINA CO., LTD	Business facility maintenance		—		100.00		100.00		—		100.00		100.00	China
Daewoo Precious Resources Co., Ltd.	Resources development		—		70.00		70.00		—		70.00		70.00	Myanmar
POSCO-Mexico Villagran Wire-rod Processing Center	Steel manufacturing		56.75		10.00		66.75		56.75		10.00		66.75	Mexico
SANTOS CMI Guatemala S.A.	Construction		—		100.00		100.00		—		100.00		100.00	Guatemala
POSCO-CDSFC	Steel manufacturing		50.20		49.80		100.00		42.16		25.39		67.55	China
POSCO ChengDu Processing Center	Steel manufacturing		33.00		10.00		43.00		33.00		10.00		43.00	China
POSCO E&C HOLDINGS CO.,Ltd.	Holding company		—		100.00		100.00		—		100.00		100.00	Thailand

21

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
		December 31, 2016						December 31, 2015
	Principal operations	POSCO		Subsidiaries		Total		POSCO		Subsidiaries		Total		Region
POSCO E&C (THAILAND) CO.,Ltd.	Construction		—		100.00		100.00		—		100.00		100.00		Thailand
DAEWOO POWER PNG Ltd.	Electricity prodction		—		100.00		100.00		—		100.00		100.00		Papua New Guinea
POSCO India Ahmedabad Steel Processing Center Pvt.Ltd.	Steel manufacturing		100.00		—		100.00		100.00		—		100.00		India
COINSA INGENIERIA Y PETROQUIMICA S.R.L	Construction		—		50.00		50.00		—		50.00		50.00		Bolivia
PT.Krakatau Posco Social Enterprise	Social enterprise		—		100.00		100.00		—		100.00		100.00		Indonesia
POSCO Vietnam Holdings Co., LTD.	Holding company		79.28		20.72		100.00		79.28		20.72		100.00		Vietnam
Ventanas Philippines Construction Inc	Construction		—		100.00		100.00		—		100.00		100.00		Philippines
POSCO E&C Mongolia	Construction		—		100.00		100.00		—		100.00		100.00		Mongolia
Daewoo Minerals Canada Corporation	Resources development		—		100.00		100.00		—		—		—		Canada
Chongqing POSCO CISL Automotive Steel Co., Ltd.	Automotive steel sheet manufacturing and sales		51.00		—		51.00		—		—		—		China
POSCO-JWPC Co., Ltd.	Steel manufacturing		—		—		—		—		89.18		89.18		Japan
POSCO Investment Co., Ltd.	Financial Service		—		—		—		100.00		—		100.00		China
Qingdao Pos-metal Co., Ltd.	Steel manufacturing		—		—		—		—		100.00		100.00		China
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.	Electric control machine manufacturing		—		—		—		—		100.00		100.00		China
POSCO MEXICO HUMAN TECH S.A. de C.V.	Service		—		—		—		80.00		20.00		100.00		Mexico
DAEWOO TEXTILE BUKHARA LLC	Textile manufacturing		—		—		—		—		100.00		100.00		Uzbekistan
Daewoo Paper Manufacturing Co., Ltd.	Paper Manufacturing		—		—		—		—		66.70		66.70		China
Tianjin Daewoo Paper Manufacturing Co., Ltd.	Paper Manufacturing		—		—		—		—		68.00		68.00		China
Xenesys Inc.	Power generation equipment manufacturing		—		—		—		29.58		21.35		50.93		Japan
POSCO FOUNDATION	Non-profit charitable organization		—		—		—		—		100.00		100.00		India
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA	Construction and engineering		—		—		—		—		100.00		100.00		Costa Rica
PMM PIPE	Common steel welded pipe manufacturing and sales		—		—		—		—		50.00		50.00		Japan
KRAKATAU POS-CHEM DONG-SUH CHEMICAL(*3)	Chemical by-product manufacturing and sales		—		—		—		—		45.00		45.00		Indonesia

(*1) Reclassified to subsidiary from associate during the year ended December 31, 2016.

(*2) Reclassified to subsidiary from joint venture during the year ended December 31, 2016.

(*3) Reclassified to associate from subsidiary for during year ended December 31, 2016.

The equity of controlling company increased by W8,650 million (POSCO Processing &Service and others) and W301,029 million (POSCO ENGINEERING & CONSTRUCTION., LTD., PT PEN INDONESIA and others) in 2016 and 2015, respectively, as a result of changes in the Company’s ownership interests in subsidiaries that did not result in a loss of control.

Cash dividends paid to POSCO by subsidiaries in 2016 and 2015 amounted to W75,830 million and W437,914 million, respectively.

22

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

As of December 31, 2016, there are no restrictions on the ability of subsidiaries to transfer funds to the controlling company, such as in the form of cash dividends, repayment of loans or payment of advances.

(c) Summarized financial information of principal subsidiaries as of and for the years ended December 31, 2016 and 2015 are as follows:

1) December 31, 2016

(in millions of Won)
Company		Assets		Liabilities		Equity		Sales		Net income (loss)
[Domestic]
POSCO ENGINEERING & CONSTRUCTION., LTD.	W		6,406,125		3,792,507		2,613,618		5,496,137		(867,471	)
POSCO Processing&Service			1,632,940		845,450		787,490		2,593,388		(27,605	)
POSCO COATED & COLOR STEEL Co., Ltd.			382,815		175,511		207,304		771,337		30,426
POSCO ICT			649,838		277,065		372,773		838,258		27,891
POSCO A&C			126,447		94,345		32,102		254,495		423
POSCO Venture Capital Co.,Ltd			337,434		223,688		113,746		24,660		1,330
eNtoB Corporation			87,987		49,880		38,107		567,875		1,759
POSCO CHEMTECH			703,337		115,292		588,045		1,076,455		59,820
POSCO M-TECH			150,790		73,794		76,996		259,048		2,501
POSCO ENERGY CO., LTD.			4,520,521		3,115,520		1,405,001		1,657,890		(135,428	)
POSCO Engineering CO.,Ltd			520,000		517,884		2,116		969,559		(155,064	)
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)			7,419,600		4,988,663		2,430,937		15,417,230		123,709
[Foreign]
POSCO America Corporation	W		344,395		257,712		86,683		741,695		(1,889	)
POSCO AUSTRALIA PTY LTD(*1)			526,019		39,710		486,309		144,809		21,761
POSCO Asia Co., Ltd.			2,202,195		2,014,476		187,719		3,654,181		8,010
POSCO-CTPC Co., Ltd.			95,330		56,498		38,832		239,419		1,680
POSCO E&C Vietnam Co., Ltd.			199,162		140,750		58,412		126,922		(11,897	)
Zhangjiagang Pohang Stainless Steel Co., Ltd.			1,039,137		562,090		477,047		2,518,260		90,118
POSCO (Thailand) Company Limited			111,962		67,758		44,204		206,153		1,777
Qingdao Pohang Stainless Steel Co., Ltd.			185,993		92,722		93,271		411,129		12,778
POSCO(Suzhou) Automotive Processing Center Co., Ltd.			357,157		227,128		130,029		621,161		11,560
POSCO JAPAN Co., Ltd.			639,896		514,388		125,508		1,256,804		2,448
POSCO-India Pune Processing Center. Pvt. Ltd.			170,249		159,414		10,835		368,740		1,281
POSCO-Japan PC CO., LTD. (formerly, POSCO-JEPC Co., Ltd.)			301,910		255,694		46,216		325,871		4,472
POSCO-CFPC Co., Ltd.			173,723		126,753		46,970		550,356		5,515
POSCO E&C CHINA Co., Ltd.			138,961		95,205		43,756		81,882		4,791
POSCO MPPC S.A. de C.V.			287,498		237,312		50,186		401,579		4,353
POSCO-VIETNAM Co., Ltd.			455,383		419,923		35,460		609,374		22,691
POSCO MEXICO S.A. DE C.V.			781,307		550,807		230,500		542,253		380
POSCO India Delhi Steel Processing Centre Private Limited			109,166		101,627		7,539		222,332		1,846
POSCO Thainox Public Company Limited			399,667		90,877		308,790		477,976		19,131
POSCO-Vietnam Processing Center Co., Ltd.			101,999		66,714		35,285		214,552		5,210
DONG FANG JIN HONG			500,489		353,012		147,477		41,849		(5,607	)
POSCO(Guangdong) Automotive Steel Co., Ltd.			329,855		230,726		99,129		250,352		(8,801	)
POSCO COATED STEEL (THAILAND) CO., LTD.			346,381		239,365		107,016		71,426		(13,006	)
Pos-Sea Pte Ltd			25,456		23,260		2,196		182,598		299
POSCO VST CO., LTD.			335,103		310,386		24,717		401,972		4,354
POSCO Maharashtra Steel Private Limited			1,347,401		1,020,233		327,168		832,320		(9,888	)

23

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(in millions of Won)
Company	Assets		Liabilities		Equity			Sales		Net income (loss)
POSCO India Chennai Steel Processing Centre Pvt.Ltd.		101,307		83,258		18,049			227,436		3,731
POSCO SS VINA Co., Ltd.		814,883		734,223		80,660			279,023		(75,217	)
POSCO WA PTY LTD		437,231		14		437,217			—		(3,622	)
PT. KRAKATAU POSCO ENERGY		341,534		203,792		137,742			39,769		14,174
POSCO DAEWOO AMERICA CORP.		533,571		476,380		57,191			1,329,374		643
POSCO DAEWOO DEUTSCHLAND GMBH		205,346		193,007		12,339			401,379		1,284
POSCO DAEWOO JAPAN Corp		163,596		155,783		7,813			642,276		623
POSCO DAEWOO SINGAPORE PTE LTD.		211,122		206,586		4,536			610,787		55
POSCO DAEWOO ITALIA S.R.L.		102,986		98,041		4,945			405,543		1,818
POSCO DAEWOO CHINA CO., LTD		49,441		32,779		16,662			342,802		(35,625	)
PT. KRAKATAU POSCO		3,763,150		3,526,459		236,691			1,296,938		(218,461	)
POSCO DAEWOO MEXICO S.A. de C.V.		130,781		121,359		9,422			250,033		1,017
POSCO (Zhangjiagang) STS Processing Center Co., Ltd		47,829		33,693		14,136			254,371		3,539
POSCO(Dalian) IT Center Development Co., Ltd.		170,016		26,144		143,872			79,069		1,080
POSCO ASSAN TST STEEL INDUSTRY		612,442		677,829		(65,387	)		454,791		(105,849	)

24

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(*1) Summary financial information of POSCO AUSTRALIA PTY LTD, a subsidiary of POSCO, is based on consolidated amounts whereas other than this entity, the financial information is based on separate financial statements.

2) December 31, 2015

(in millions of Won)
Company		Assets		Liabilities		Equity		Sales		Net income (loss)
[Domestic]
POSCO ENGINEERING & CONSTRUCTION., LTD.	W		6,846,306		3,341,227		3,505,079		6,536,879		134,869
POSCO Processing&Service			1,192,733		320,732		872,001		3,144,016		737
POSCO COATED & COLOR STEEL Co., Ltd.			413,901		234,845		179,056		788,694		13,207
POSCO ICT			652,489		310,623		341,866		804,863		(79,635	)
POSCO A&C			109,146		75,015		34,131		237,705		1,017
POSCO Venture Capital Co.,Ltd			255,898		142,251		113,647		18,956		648
eNtoB Corporation			80,210		43,860		36,350		538,804		1,394
POSCO CHEMTECH			653,689		113,112		540,577		1,175,272		43,978
POSCO M-TECH			184,553		107,194		77,359		344,575		27,155
POSCO ENERGY CO., LTD.			4,676,349		3,113,948		1,562,401		1,909,919		18,752
POSCO Engineering CO.,Ltd			580,003		424,333		155,670		964,926		(15,610	)
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)			7,474,312		5,107,402		2,366,910		16,881,040		81,850
[Foreign]
POSCO America Corporation	W		489,103		429,409		59,694		823,847		(7,805	)
POSCO AUSTRALIA PTY LTD			666,132		46,015		620,117		88,651		35,002
POSCO Asia Co., Ltd.			908,975		857,837		51,138		3,142,920		1,335
POSCO-CTPC Co., Ltd.			102,739		63,982		38,757		185,735		(1,257	)
POSCO E&C Vietnam Co., Ltd.			219,373		150,704		68,669		315,703		2,691
Zhangjiagang Pohang Stainless Steel Co., Ltd.			1,077,372		673,542		403,830		2,482,140		(116,436	)
POSCO (Thailand) Company Limited			106,151		65,215		40,936		201,986		(2,613	)
Qingdao Pohang Stainless Steel Co., Ltd.			192,685		108,718		83,967		298,912		(3,933	)
POSCO(Suzhou) Automotive Processing Center Co., Ltd.			330,545		207,012		123,533		476,014		(3,648	)
POSCO JAPAN Co., Ltd.			656,583		541,807		114,776		1,240,549		5,594
POSCO-India Pune Processing Center. Pvt. Ltd.			191,590		182,160		9,430		377,977		1,724
POSCO-Japan PC CO., LTD. (formerly, POSCO-JEPC Co., Ltd.)			168,412		148,623		19,789		263,275		863
POSCO-CFPC Co., Ltd.			154,949		111,712		43,237		621,240		(3,650	)
POSCO E&C CHINA Co., Ltd.			230,130		146,633		83,497		190,987		10,483
POSCO MPPC S.A. de C.V.			259,419		220,234		39,185		410,857		2,306
POSCO-VIETNAM Co., Ltd.			469,107		457,647		11,460		527,439		(16,494	)
POSCO MEXICO S.A. DE C.V.			848,226		625,181		223,045		499,250		784
POSCO India Delhi Steel Processing Centre Private Limited			129,878		124,292		5,586		219,626		(1,056	)
POSCO Thainox Public Company Limited			375,865		81,878		293,987		409,505		3,669
POSCO-Vietnam Processing Center Co., Ltd.			146,858		117,903		28,955		242,303		(2,053	)
DONG FANG JIN HONG			526,123		366,636		159,487		20,567		(15,660	)
POSCO(Guangdong) Automotive Steel Co., Ltd.			332,981		220,571		112,410		221,343		(16,192	)
POSCO COATED STEEL (THAILAND) CO., LTD.			303,680		187,470		116,210		—		1,800
Pos-Sea Pte Ltd			41,926		40,638		1,288		561,755		1,064
POSCO VST CO., LTD.			329,849		310,278		19,571		401,440		(6,300	)
POSCO Maharashtra Steel Private Limited			1,282,589		1,081,312		201,277		687,120		(80,487	)
POSCO India Chennai Steel Processing Centre Pvt.Ltd.			113,568		99,506		14,062		194,323		2,652
POSCO SS VINA Co., Ltd.			755,135		600,905		154,230		76,545		(113,987	)

25

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(in millions of Won)
Company	Assets		Liabilities		Equity		Sales		Net income (loss)
POSCO WA PTY LTD		427,612		7		427,605		—		(11,690	)
PT. KRAKATAU POSCO ENERGY		336,338		217,076		119,262		39,624		6,915
POSCO DAEWOO AMERICA CORP.		443,504		388,689		54,815		1,124,251		800
POSCO DAEWOO DEUTSCHLAND GMBH		188,935		177,751		11,184		402,344		1,254
POSCO DAEWOO JAPAN Corp		253,125		246,367		6,758		770,362		442
POSCO DAEWOO SINGAPORE PTE LTD.		114,256		109,913		4,343		801,225		22
POSCO DAEWOO ITALIA S.R.L.		124,548		121,367		3,181		303,784		(1,288	)
POSCO DAEWOO CHINA CO., LTD		84,324		30,082		54,242		209,488		3,216
PT. KRAKATAU POSCO		4,259,257		3,818,369		440,888		1,227,266		(422,490	)
POSCO DAEWOO MEXICO S.A. de C.V.		117,205		107,406		9,799		345,087		3,036
POSCO (Zhangjiagang) STS Processing Center Co., Ltd		64,383		53,315		11,068		341,862		(2,863	)
POSCO(Dalian) IT Center Development Co., Ltd.		238,500		89,693		148,807		136,148		9,169
POSCO ASSAN TST STEEL INDUSTRY		761,826		692,929		68,897		485,847		(29,288	)

26

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) Details of non-controlling interest as of and for the years ended December 31, 2016 and 2015 are as follows:

1) December 31, 2016

(in millions of Won)		POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)			PT. KRAKATAU POSCO			POSCO CHEMTECH			POSCO ENGINEERING & CONSTRUCTION., LTD.			POSCO ENERGY CO., LTD.			Others			Total
Current assets	W		4,038,313			460,376			397,370			4,812,163			713,039			9,696,140			20,117,401
Non-current assets			4,510,085			3,304,292			243,401			1,687,052			3,038,665			7,749,277			20,532,772
Current liabilities			(3,662,811	)		(1,120,077	)		(109,016	)		(3,255,178	)		(937,668	)		(9,669,053	)		(18,753,803	)
Non-current liabilities			(1,681,182	)		(2,337,612	)		(2,337	)		(436,959	)		(2,172,226	)		(2,856,498	)		(9,486,814	)
Equity			3,204,405			306,979			529,418			2,807,078			641,810			4,919,866			12,409,556
Non-controlling interests			1,271,750			92,094			211,767			1,324,965			70,441			945,962			3,916,979
Sales			15,417,550			1,244,711			1,076,455			5,496,137			1,657,890			23,251,563			48,144,306
Profit (loss) for the period			113,832			(187,151	)		41,829			(744,083	)		(130,809	)		(461,034	)		(1,367,416	)
Profit (loss) attributable to non-controlling interests			45,177			(56,145	)		16,732			(351,214	)		(14,357	)		(312,297	)		(672,104	)
Cash flows from operating activities			337,338			45,672			30,295			(211,182	)		18,107			53,050			273,280
Cash flows from investing activities			(35,054	)		(8,804	)		(42,021	)		(102,939	)		(1,047	)		(253,206	)		(443,071	)
Cash flows from financing activities (before dividends to non-controlling interest)			(295,226	)		(36,286	)		(1,250	)		(20,953	)		(2,875	)		204,797			(151,793	)
Dividends to non-controlling interest			(22,597	)		—			(4,726	)		(14,800	)		(24,378	)		(7,349	)		(73,850	)
Effect of exchange rate fluctuation on cash held			10			67			1			760			—			1,687			2,525
Net increase (decrease) in cash and cash equivalents			(15,529	)		649			(17,701	)		(349,114	)		(10,193	)		(1,021	)		(392,909	)

2) December 31, 2015

(in millions of Won)		POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)			PT. KRAKATAU POSCO			POSCO CHEMTECH			POSCO ENGINEERING & CONSTRUCTION., LTD.			POSCO ENERGY CO., LTD.			Others			Total
Current assets	W		3,930,857			441,999			360,812			4,794,319			590,460			9,648,917			19,767,364
Non-current assets			4,777,482			3,363,935			248,549			1,738,162			3,333,351			7,776,264			21,237,743
Current liabilities			(3,568,714	)		(1,004,002	)		(106,167	)		(2,903,097	)		(663,945	)		(9,692,004	)		(17,937,929	)
Non-current liabilities			(1,941,909	)		(2,315,554	)		(5,405	)		(594,897	)		(2,420,547	)		(2,567,980	)		(9,846,292	)
Equity			3,197,716			486,378			497,789			3,034,487			839,319			5,165,197			13,220,886
Non-controlling interests			1,269,096			145,913			199,116			1,432,305			92,118			1,182,137			4,320,685
Sales			16,890,723			1,227,266			1,175,272			6,536,879			1,909,919			25,784,254			53,524,313
Profit (loss) for the period			79,092			(398,438	)		35,516			131,948			15,831			(835,389	)		(971,440	)
Profit (loss) attributable to non-controlling interests			31,390			(119,531	)		14,206			62,280			1,738			(247,106	)		(257,023	)
Cash flows from operating activities			433,493			(13,595	)		19,921			434,257			6,075			(72,371	)		807,780
Cash flows from investing activities			(74,644	)		(8,994	)		25,318			21,075			(20,980	)		(110,712	)		(168,937	)
Cash flows from financing activities (before dividends to non-controlling interest)			(340,532	)		18,886			66			69,615			11,572			289,715			49,322
Dividends to non-controlling interest			(22,597	)		—			(4,135	)		(703	)		(24,125	)		(145,582	)		(197,142	)
Effect of exchange rate fluctuation on cash held			430			83			—			819			—			3,502			4,834
Net increase (decrease) in cash and cash equivalents			(3,850	)		(3,620	)		41,170			525,063			(27,458	)		(35,448	)		495,857

27

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(e) Details of associates and joint ventures

1) Associates

Details of associates as of December 31, 2016 and 2015 are as follows:

		Ownership (%)
Investee	Category of business	2016		2015		Region
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF	Investment in new technologies		29.37		28.93	Seoul
POSCO PLANTEC Co., Ltd.(*2)	Construction of industrial plant		73.94		73.94	Ulsan
SNNC	Raw material manufacturing and sales		49.00		49.00	Gwangyang
QSONE Co.,Ltd.	Real estate rental and facility management		50.00		50.00	Seoul
Chun-cheon Energy Co., Ltd	Electricity generation		29.90		29.90	Chuncheon
Incheon-Gimpo Expressway Co., Ltd.	Construction		20.04		22.32	Anyang
BLUE OCEAN Private Equity Fund	Private equity financial		27.52		27.52	Seoul
UITrans LRT Co., Ltd.	Transporting		38.19		38.19	Seoul
Keystone-HYUNDAI SECURITIES NO. 1. Private Equity Fund	Private equity financial		40.45		40.45	Seoul
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd	Real estate development		29.53		25.10	Chungju
Daesung Steel(*1)	Steel sales		17.54		17.54	Busan
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund(*1)	Investment in new technologies		12.50		12.50	Seoul
KONES, Corp.	Technical service		41.67		41.67	Gyeongju
Gale International Korea, LLC	Real estate rental		29.90		29.90	Seoul
Pohang Techno Valley PFV Corporation	Real estate development and rental		30.28		54.99	Pohang
Gunggi Green Energy(*1)	Electricity generation		19.00		19.00	Hwaseong
Pohang Special Welding Co.,Ltd.	Welding material and tools manufacturing and sales		50.00		50.00	Pohang
KC Chemicals CORP(*1)	Machinery manufacturing		19.00		19.00	Hwaseong
Posco-IDV Growth Ladder IP Fund(*1)	Investment in new technologies		17.86		17.86	Seoul
DAEHO GLOBAL MANAGEMENT CO., LTD.	Investment advisory service		35.82		35.82	Pohang
Clean Gimpo Co., Ltd.	Construction		29.58		29.58	Gimpo
Postech Early Stage Fund(*1)	Investment in new technologies		10.00		10.00	Pohang
POSCO Energy Valley Fund	Investment in new technologies		20.00		20.00	Pohang
Pureun Tongyeong Enviro Co., Ltd.	Sewerage treatment		20.40		20.40	Tongyeong
Posgreen Co., Ltd.(*1)	Plaster manufacturing		19.00		19.00	Gwangyang
Pohang E&E Co,. Ltd.	Investment in waste energy		30.00		30.00	Pohang
POSTECH Social Enterprise Fund(*1)	Investment in new technologies		9.17		9.17	Seoul
Applied Science Corp.	Machinery manufacturing		24.88		25.73	Paju
Noeul Green Energy(*1)	Electricity generation		10.00		20.00	Seoul
Universal Studios Resort Asset Management Corporation	Real estate services		26.17		26.17	Seoul
Pohang Techno Valley AMC	Construction		29.50		29.50	Pohang
METAPOLIS Co.,Ltd.	Multiplex development		40.05		40.05	Hwaseong
New Songdo International City Development, LLC	Real estate rental		29.90		29.90	Seoul
Busan-Gimhae Light Rail Transit Co., Ltd.	Transporting		25.00		25.00	Gimhae
Mokpo Deayang Industrial Corporation	Real estate development		27.40		27.40	Mokpo
Clean Iksan Co., Ltd.	Construction		23.50		23.50	Iksan
Innovalley Co., Ltd.	Real estate development		28.77		28.77	Yongin
Pure Gimpo Co., Ltd.	Construction		28.79		28.79	Seoul
Garolim Tidal Power Plant Co.,Ltd	Tidal power plant construction and management		32.13		32.13	Seosan
2016 PoscoPlutus New Technology Investment Fund(*3)	Investment in new technologies		25.17		—	Seoul
Hyundai Invest Guggenheim CLO Private Special Asset Investment Trust II(*3)	Investment in new technologies		38.47		—	Seoul
PoscoPlutus Bio Fund(*1,3)	Investment in new technologies		11.97		—	Seoul
PoscoPlutus Project Fund(*1,3)	Investment in new technologies		11.91		—	Seoul
Posco Agrifood Export Investment Fund(*3)	Investment in new technologies		30.00		—	Seoul
PoscoPlutus Project II Investment Fund(*1,3)	Investment in new technologies		0.61		—	Seoul
Posco Culture Contents Fund(*3)	Investment in new technologies		31.67		—	Seoul

28

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

		Ownership (%)
Investee	Category of business	2016		2015		Region
SeAH Changwon Integrated Special Steel(*4)	Steel manufacturing and sales		—		19.94		Changwon
Green Jang Ryang Co.Ltd(*4)	Sewerage treatment		—		25.00		Pohang
Daewoo Public Car Sales (Gwangju) CO.,Ltd(*4)	Leasing services		—		50.00		Gwangju
Synergy Private Equity Fund(*5)	Investment in new technologies		—		17.86		Seoul
Posco e&c Songdo International Building(*6)	Non-residental building lease		—		49.00		Seoul
[Foreign]
South-East Asia Gas Pipeline Company Ltd.	Pipeline construction		25.04		25.04		Myanmar
AES-VCM Mong Duong Power Company Limited	Electricity generation		30.00		30.00		Vietnam
7623704 Canada Inc.(*1)	Investments management		10.40		10.40		Canada
Eureka Moly LLC	Raw material manufacturing and sales		20.00		20.00		USA
AMCI (WA) PTY LTD.	Iron ore sales & mine development		49.00		49.00		Australia
KOREA LNG LTD.	Gas production and sales		20.00		20.00		England
Nickel Mining Company SAS	Raw material manufacturing and sales		49.00		49.00		New Caledonia
NCR LLC	Coal sales		29.41		29.41		Canada
PT. Batutua Tembaga Raya	Raw material manufacturing and sales		24.10		24.10		Indonesia
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd	Tinplate manufacturing and sales		34.00		34.00		China
PT. Wampu Electric Power	Construction and engineering service		20.00		20.00		Indonesia
POSCO SeAH Steel Wire(Nantong) Co., Ltd.	Steel processing and sales		25.00		25.00		China
VSC POSCO Steel Corporation	Steel processing and sales		50.00		50.00		Vietnam
IMFA ALLOYS FINLEASE LTD.	Raw material manufacturing and sales		24.00		24.00		India
General Medicines Company Ltd.	Medicine manufacturing and sales		33.00		33.00		Sudan
PT.INDONESIA POS CHEMTECH CHOSUN Ref	Refractory manufacturing and sales		30.19		30.19		Indonesia
POSK(Pinghu) Steel Processing Center Co., Ltd.	Steel processing and sales		20.00		20.00		China
SHANGHAI LANSHENG DAEWOO CORP.	Trading		49.00		49.00		China
AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.	Highway construction and new town development		50.00		50.00		Vietnam
POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd	Steel processing and sales		25.00		25.00		China
SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.	Trading		49.00		49.00		China
PT. Tanggamus Electric Power(*1)	Construction and engineering service		17.50		17.50		Indonesia
NS-Thainox Auto Co., Ltd.	Steel manufacturing and sales		49.00		49.00		Vietnam
Hamparan Mulya	Resource development		45.00		45.00		Indonesia
Sebang Steel	Scrap sales		49.00		49.00		Japan
GLOBAL KOMSCO Daewoo LLC	Mintage		35.00		35.00		Uzbekistan
POSCO-Poggenamp Electrical Steel Pvt. Ltd.	Steel manufacturing		26.00		26.00		India
Fifth Combined Heat and Power Plant LLC	Thermal power generation		30.00		30.00		Mongolia
KIRIN VIETNAM CO., LTD(*1)	Panel manufacturing		19.00		19.00		Vietnam
POSCHROME (PROPRIETARY) LIMITED	Raw material manufacturing and sales		50.00		50.00		South Africa
CAML RESOURCES PTY LTD.	Raw material manufacturing and sales		33.34		33.34		Australia
KG Power(M) SDN. BHD	Energy & resource development		20.00		20.00		Malaysia
LI3 ENERGY INC	Energy & resource development		26.06		26.06		Peru
LLP POSUK Titanium	Titanium manufacturing and sales		36.83		36.83		Kazakhstan
POS-SeAH Steel Wire (Thailand) Co., Ltd.(*3)	Steel manufacturing and sales		25.00		—		Thailand
Jupiter Mines Limited(*1,3)	Energy & resource development		17.08		—		Australia
Chongqing CISL High Strength Cold Rolling Steel Co., Ltd.(*1,3)	Steel manufacturing and sales		10.00		—		China
KRAKATAU POS-CHEM DONG-SUH CHEMICAL(*1,7)	Chemical by-product manufacturing and sales		19.00		—		Indonesia
XG Sciences(*8)	New materials manufacturing and development		—		10.50		USA

(*1) The Company is able to exercise significant influence even though the Company’s percentage of ownership is below 20%.

(*2) On September 30, 2015, in order to improve its financial standing and normalize operation, the associates reached a workout agreement with its Creditor Financial Institutions Committee. As a result, the Company lost its control and classified its shares as investment in an associate.

(*3) These associates were newly established or acquired in 2016.

(*4) Excluded from associates due to the disposal of shares during the year ended December 31, 2016.

(*5) Excluded from associates due to liquidation during the year ended December 31, 2016.

(*6) Reclassified to subsidiary from associate for during year ended December 31, 2016.

(*7) Reclassified to associate from subsidiary for during year ended December 31, 2016.

(*8) Excluded from associates due to the loss of significant influence caused by change in composition of the Board of Directors during the year ended December 31, 2016.

29

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) Joint ventures

Details of joint ventures as of December 31, 2016 and 2015 are as follows:

		Ownership (%)
Investee	Category of business	2016		2015		Region
[Domestic]
POSCO MITSUBISHI CARBON TECHNOLOGY	Steel processing and sales		60.00		60.00	Gwangyang
POSCO ES MATERIALS CO., LTD(*1)	Secondary battery manufacturing		—		50.00	Gumi
[Foreign]
Roy Hill Holdings Pty Ltd.	Energy & resource development		12.50		12.50	Australia
POSCO-NPS Niobium LLC	Mine development		50.00		50.00	USA
CSP - Compania Siderurgica do Pecem	Steel manufacturing and sales		20.00		20.00	Brazil
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.	Steel processing and sales		25.00		25.00	China
KOBRASCO	Steel materials manufacturing and sales		50.00		50.00	Brazil
DMSA/AMSA	Energy & resource development		4.00		4.07	Madagascar
PT. POSMI Steel Indonesia	Steel processing and sale		36.69		36.69	Indonesia
Henan Tsingpu Ferro Alloy Co., Ltd.	Raw material manufacturing and sales		49.00		49.00	China
VNS-DAEWOO Co., Ltd.	Steel scrap processing and sale		40.00		40.00	Vietnam
YULCHON MEXICO S.A. DE C.V.	Tube for automobile manufacturing		19.00		19.00	Mexico
POSCO-SAMSUNG-Slovakia Processing Center	Steel processing and sales		30.00		30.00	Slovakia
Zhangjiagang Pohang Refractories Co., Ltd.	Refractory manufacturing		50.00		50.00	China
United Spiral Pipe, LLC	Material manufacturing and sales		35.00		35.00	USA
Korea Siberia Wood CJSC	Forest resource development		50.00		50.00	Russia
Hyunson Engineering & Construction HYENCO	Construction		4.90		4.90	Algeria
USS-POSCO Industries	Cold rolled coil manufacturing and sales		50.00		50.00	USA
POSCO E&C Saudi Arabia(*2)	Construction		40.00		—	Saudi Arabia
TANGGANG-POSCO LED(*3)	LED manufacturing and sales		—		50.00	China

(*1) Reclassified to subsidiary from joint venture during the year ended December 31, 2016.

(*2) These joint ventures were newly established in 2016.

(*3) Excluded from joint ventures due to the disposal of shares during the year ended December 31, 2016.

(f) Newly included subsidiaries

Consolidated subsidiaries acquired or newly established during the year ended December 31, 2016 are as follows:

Company	Date of addition	Ownership (%)		Reason
Daewoo Minerals Canada Corporation	March 2016		100.00	New establishment
POCA STEM Co., Ltd	June 2016		100.00	Acquisition of control
Chongqing POSCO CISL Automotive Steel Co., Ltd.	July 2016		51.00	New establishment
Posco e&c Songdo International Building	September 2016		100.00	Reclassification from associate
POSCO ES MATERIALS CO., LTD.	December 2016		75.32	Reclassification from joint venture

30

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(g) Excluded subsidiaries

Subsidiaries that were excluded from consolidation during the year ended December 31, 2016 are as follows:

Company	Date of exclusion	Reason
Tamra Offshore Wind Power Co., Ltd	January 2016	Disposal
POSCO Investment Co., Ltd.	January 2016	Merged into POSCO Asia Co., Ltd.
Xenesys Inc.	February 2016	Disposal
POSCO LED Co., Ltd.	March 2016	Disposal
POSHIMETAL Co., Ltd.	March 2016	Merged into POSCO
PMM PIPE	April 2016	Merged into POSCO Japan PC CO., LTD. (formerly, POSCO-JEPC Co., Ltd.)
POSCO Green Gas Technology	May 2016	Merged into POSCO
Qingdao Pos-metal Co., Ltd.	May 2016	Disposal
POSCO FOUNDATION	June 2016	Exclusion upon liquidation
POSCO MEXICO HUMAN TECH S.A. de C.V.	June 2016	Merged into POSCO MEXICO S.A. DE C.V.
POSCO AST	July 2016	Merged into POSCO Processing&Service
KRAKATAU POS-CHEM DONG-SUH CHEMICAL	September 2016	Reclassification to associates due to decline in ownership
Dalian POSCO ICT-DONGFANG Engineering Co., Ltd.	September 2016	Merged into POSCO ICT-China
POSCO-JWPC Co., Ltd.	November 2016	Merged into POSCO Japan PC CO., LTD. (formerly, POSCO-JEPC Co., Ltd.)
Steel Processing and Fabricating Center Co.,LTD	November 2016	Merged into POSCO Processing&Service
POSCO TMC Co., Ltd.	November 2016	Merged into POSCO Processing&Service
Daewoo Paper Manufacturing Co., Ltd.	December 2016	Disposal
Tianjin Daewoo Paper Manufacturing Co., Ltd.	December 2016	Exclusion upon liquidation
DAEWOO TEXTILE BUKHARA LLC	December 2016	Merged into Daewoo Textile LLC
EPC INGENIERIA & SERVICIOS DE COSTA RICA SA	December 2016	Exclusion upon liquidation

31

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2. Statement of Compliance

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

The consolidated financial statements were authorized for issue by the Board of Directors on January 25, 2017, and will be submitted for approval at the shareholders’ meeting to be held on March 10, 2017.

Basis of measurement

The consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position, as described in the accounting policy below.

(a) Derivatives instruments are measured at fair value

(b) Available-for-sale financial assets are measured at fair value

(c) Defined benefit liabilities are measured at the present value of the defined benefit obligation less the fair value of the plan assets

Functional and presentation currency

The financial statements of POSCO and subsidiaries are prepared in functional currency of the respective operation. These consolidated financial statements are presented in Korean Won, which is POSCO’s functional currency which is the currency of the primary economic environment in which POSCO operates.

Use of estimates and judgments

The preparation of the consolidated 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.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period prospectively.

(a) Judgments

Information about critical judgments in applying accounting policies that have the most significant effect on the amounts recognized in the consolidated financial statements is included in the following notes:

• Note 1 - Subsidiaries, associates and joint ventures

• Note 10 - Assets held for sale

• Note 11 - Investments in associates and joint ventures

• Note 12 - Joint operations

• Note 25 - Hybrid bonds

32

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Assumptions and estimation uncertainties

Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment within the next fiscal year is included in the following notes:

• Note 11 - Investments in associates and joint ventures

• Note 15 - Goodwill and other intangible assets, net

• Note 20 - Provisions

• Note 21 - Employee benefits

• Note 29 - Construction contracts

• Note 35 - Income taxes

• Note 38 - Commitments and contingencies

(c) Measurement of fair value

The Company’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. The Company has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the financial officer.

The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of K-IFRS including the level in the fair value hierarchy in which such valuation techniques should be classified.

Significant valuation issues are reported to the Company’s Audit Committee.

When measuring the fair value of an asset or a liability, the Company uses market observable data as far as possible. 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 - unadjusted quoted prices in active markets for identical assets or liabilities.

• Level 2 - inputs other than quoted prices included in Level 1 that are observable for the assets or liability, either directly or indirectly.

• Level 3 - inputs for the assets or liability that are not based on observable market data.

33

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Company recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred.

Information about the assumptions made in measuring fair values is included in the following note:

• Note 23 - Financial instruments

3. Summary of Significant Accounting Policies

The significant accounting policies applied by the Company in preparation of its consolidated financial statements are included below. The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

Basis of consolidation

(a) Business combinations

The Company accounts for business combinations using the acquisition method when control is transferred to the Company.

The consideration transferred in the acquisition is generally measured at fair value, as are the identifiable net assets acquired. Any goodwill that arises is tested annually for impairment. Any gain on bargain purchase is recognized in profit or loss immediately. Transaction costs are expensed as incurred, except if related to the issue of debt or equity securities. The consideration transferred does not include amounts related to the settlement of pre-existing relationships. Such amounts are generally recognized in profit or loss.

Any contingent consideration payable is measured at fair value at the acquisition date. If the contingent consideration is classified as equity, then it is not remeasured and settlement is accounted for within equity. Otherwise, subsequent changes in the fair value of the contingent consideration are recognized in profit or loss.

If share-based payment awards (replacement awards) are required to be exchanged for awards held by the acquiree’s employees (acquiree’s awards), then all or a portion of the amount of the acquirer’s replacement awards is included in measuring the consideration transferred in the business combination. This determination is based on the market-based measure of the replacement awards compared with the market-based measure of the acquiree’s awards and the extent to which the replacement awards relate to pre-combination service.

34

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Non-controlling interests

Non-controlling interests are measured at their proportionate share of the acquiree’s identifiable net assets at the acquisition date. Changes in the Company’s interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions.

(c) Subsidiaries

Subsidiaries are entities controlled by the Company. The Company controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.

(d) Loss of control

When the Company loses control over a subsidiary, it derecognizes the assets and liabilities of the subsidiary, and any related non-controlling interests and other components of equity. Any resulting gain or loss is recognized in profit or loss. Any interest retained in the former subsidiary is measured at fair value when control is lost.

(e) Interests in equity-accounted investees

The Company’s interests in equity-control investees comprise interests in associates and joint ventures. Associates are those entities in which the Company has significant influence, but not control or joint control, over the financial and operating policies. A joint venture is an arrangement in which the Company has joint control, whereby the Company has rights to the net assets of the arrangement, rather than rights to its assets and obligations for its liabilities.

Interests in associates and joint ventures are accounted for using the equity method. They are recognized initially at cost, which includes transaction costs. Subsequent to initial recognition, the consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of equity-accounted investees, until the date on which significant influence or joint control ceases.

(f) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated. Unrealized gains arising from transactions with equity-accounted investees are eliminated against the investment to the extent of the Company’s interest in the investee. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.

35

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Foreign currency transactions and translation

(a) Foreign currency transactions

Foreign currency transactions are initially recorded using the spot exchange rate between the functional currency and the foreign currency at the date of the transaction. At the end of each reporting period, foreign currency monetary items are translated using the closing rate. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the original transaction. Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rate at the date fair value was initially determined.

Exchange differences arising on the settlement of monetary items or on translating monetary items at rates different from those at which they were translated on initial recognition during the period or in previous financial statements are recognized in profit or loss in the period in which they arise. When gains or losses on non-monetary items are recognized in other comprehensive income, exchange components of those gains or losses are recognized in other comprehensive income. Conversely, when gains or losses on non-monetary items are recognized in profit or loss, exchange components of those gains or losses are recognized in profit or loss.

(b) Foreign operations

If the presentation currency of the Company is different from a foreign operation’s functional currency, the financial statements of the foreign operation are translated into the presentation currency using the following methods:

The assets and liabilities of foreign operations, whose functional currency is not the currency of a hyperinflationary economy, are translated to presentation currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated to functional currency at exchange rates at the dates of the transactions. Foreign currency differences are recognized in other comprehensive income.

Any goodwill arising on the acquisition of a foreign operation and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of that foreign operation are treated as assets and liabilities of the foreign operation. Thus, they are expressed in the functional currency of the foreign operation and translated at the closing rate.

When a foreign operation is disposed of, the relevant amount in the translation is transferred to profit or loss as part of the profit or loss on disposal. On the partial disposal of a subsidiary that includes a foreign operation, the relevant proportion of such cumulative amount is reattributed to non-controlling interest. In any other partial disposal of a foreign operation, the relevant proportion is reclassified to profit or loss.

Foreign exchange gains or losses arising from a monetary item receivable from or payable to a foreign operation, the settlement of which is neither planned nor likely to occur in the foreseeable future and which in substance is considered to form part of the net investment in the foreign operation, are recognized in other comprehensive income in the translation reserve.

36

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, demand deposits, and short-term investments in highly liquid securities that are readily convertible to known amounts of cash with maturities of three months or less from the acquisition date and which are subject to an insignificant risk of changes in value. Equity investments are excluded from cash and cash equivalents.

Non-derivative financial assets

The Company recognizes and measures non-derivative financial assets by the following four categories: financial assets at fair value through profit or loss, held-to-maturity financial assets, loans and receivables and available-for-sale financial assets. The Company recognizes financial assets in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the instrument.

Upon initial recognition, non-derivative financial assets are measured at their fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the asset’s acquisition or issuance.

(a) Financial assets at fair value through profit or loss

Financial assets are classified at fair value through profit or loss if they are held for trading or designated as such upon initial recognition. Upon initial recognition, transaction costs are recognized in profit or loss when incurred. Financial assets at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss.

(b) Held-to-maturity financial assets

A non-derivative financial asset with a fixed or determinable payment and fixed maturity, for which the Company has the positive intention and ability to hold to maturity, is classified as held-to-maturity. Subsequent to initial recognition, held-to-maturity financial assets are measured at amortized cost using the effective interest rate method.

(c) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method unless the effect of discounting is immaterial.

37

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) Available-for-sale financial assets

Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or are not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets or loans and receivables. Subsequent to initial recognition, they are measured at fair value, with changes in fair value, net of any tax effect, recorded in other comprehensive income in equity. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are measured at cost. When a financial asset is derecognized or impairment losses are recognized, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Dividends on an available-for-sale equity instrument are recognized in profit or loss when the Company’s right to receive payment is established.

(e) Derecognition of non-derivative financial assets

The Company derecognizes non-derivative financial assets when the contractual rights to the cash flows from the financial asset expire, or the Company transfers the rights to receive the contractual cash flows from the financial asset as well as substantially all the risks and rewards of ownership of the financial asset. Any interest in a transferred financial asset that is created or retained by the Company is recognized as a separate asset or liability.

If the Company retains substantially all the risks and rewards of ownership of the transferred financial assets, the Company continues to recognize the transferred financial assets and recognizes financial liabilities for the consideration received.

(f) Offsetting a financial asset and a financial liability

Financial assets and financial liabilities are offset and the net amount is presented in the consolidated statement of financial position only when the Company currently has a legally enforceable right to offset the recognized amounts, and there is the intention to settle on a net basis or to realize the asset and settle the liability simultaneously.

Inventories

Inventory costs, except materials-in-transit in which costs are determined by using specific identification method, are determined by using the moving-weighted average method. The cost of inventories comprise all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. The allocation of fixed production overheads to the costs of finished goods or work in progress are based on the normal capacity of the production facilities.

38

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Inventories are measured at the lower of cost or net realizable value. The amount of any write-down of inventories to net realizable value and all losses of inventories are recognized as an expense in the period the write-down or loss occurs. The amount of any reversal of any write-down of inventories arising from an increase in net realizable value is recognized as a reduction in the amount of inventories recognized as a cost of goods sold in the period in which the reversal occurs.

The carrying amount of those inventories is recognized as cost of goods sold in the period in which the related revenue is recognized.

Non-current assets held for sale

Non-current assets or disposal groups comprising assets and liabilities that are expected to be recovered primarily through sale rather than through continuing use are classified as held for sale. In order to be classified as held for sale, the assets or disposal groups must be available for immediate sale in their present condition and their sale must be highly probable.    The assets or disposal groups that are classified as non-current assets held for sale are measured at the lower of their carrying amount and fair value less cost to sell.

The Company recognizes an impairment loss for any initial or subsequent write-down of an asset or disposal group to fair value less costs to sell, and a gain for any subsequent increase in fair value less costs to sell, up to the cumulative impairment loss previously recognized in accordance with K-IFRS No. 1036 “Impairment of Assets”.

A non-current asset that is classified as held for sale or part of a disposal group classified as held for sale is not depreciated (or amortized).

Investment property

Property held to earn rentals or for capital appreciation or both is classified as investment property. Investment property is measured initially at its cost. Transaction costs are included in the initial measurement. Subsequently, investment property is carried at depreciated cost less any accumulated impairment losses.

Subsequent costs are recognized in the carrying amount of investment property at cost or, if appropriate, as separate items 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 measured reliably. The carrying amount of the replaced part is derecognized. The costs of the day-to-day servicing are recognized in profit or loss as incurred.

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.

39

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Property, plant and equipment

Property, plant and equipment are initially measured at cost and after initial recognition, are carried at cost less accumulated depreciation and any accumulated impairment losses. The cost of property, plant 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, when the Company has an obligation to remove the asset or restore the site, an estimate of the costs of dismantling and removing the item and restoring the site on which it is located.

The cost of replacing a part of an item is recognized in the carrying amount of the item of property, plant and equipment, if the following recognition criteria are met:

(a) it is probable that future economic benefits associated with the item will flow to the Company, and

(b) the cost can be measured reliably.

The carrying amount of the replaced part is derecognized at the time the replacement part is recognized. The costs of the day-to-day servicing of the item are recognized in profit or loss as incurred.

Items of property, plant and equipment are depreciated from the date they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use. Other than land, the costs of an asset less its estimated residual value are depreciated. Depreciation of property, plant and equipment is recognized in profit or loss on a straight-line basis, which most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset, over the estimated useful lives of each component of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company will obtain ownership by the end of the lease term. Land is not depreciated.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately.

The gain or loss arising from the derecognition of an item of property, plant and equipment is included in profit or loss when the item is derecognized.

The estimated useful lives for the current and comparative periods are as follows:

Buildings	3-60 years
Structures	4-50 years
Machinery and equipment	2-25 years
Vehicles	3-10 years
Tools	4-10 years
Furniture and fixtures	3-10 years
Lease assets	3-20 years

40

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

The estimated residual value, useful lives and the depreciation method are reviewed at least at the end of each reporting period and, if expectations differ from previous estimates, the changes are accounted for as changes in accounting estimates.

Borrowing costs

The Company capitalizes borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset as part of the cost of that asset. Other borrowing costs are recognized in expense as incurred. A qualifying asset is an asset that requires a substantial period of time to get ready for its intended use or sale. Financial assets and inventories that are manufactured or otherwise produced over a short period of time are not qualifying assets. Assets that are ready for their intended use or sale when acquired are not qualifying assets.

To the extent that the Company borrows funds specifically for the purpose of obtaining a qualifying asset, the Company determines the amount of borrowing costs eligible for capitalization as the actual borrowing costs incurred on that borrowing during the period less any investment income on the temporary investment of those borrowings. The Company immediately recognizes other borrowing costs as an expense. To the extent that the Company borrows funds generally and uses them for the purpose of obtaining a qualifying asset, the Company shall determine the amount of borrowing costs eligible for capitalization by applying a capitalization rate to the expenditures on that asset. The capitalization rate shall be the weighted average of the borrowing costs applicable to the borrowings of the Company that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs that the Company capitalizes during a period shall not exceed the amount of borrowing costs incurred during that period.

41

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Intangible assets

Intangible assets are measured initially at cost and, subsequently, are carried at cost less accumulated amortization and accumulated impairment losses.

Amortization of intangible assets except for goodwill is calculated on a straight-line basis over the estimated useful lives of intangible assets from the date that they are available for use. The residual value of intangible assets is zero. However, as there are no foreseeable limits to the periods over which club memberships are expected to be available for use, this intangible asset is determined as having an indefinite useful life and not amortized.

Intellectual property rights	5-10 years
Development costs	3-10 years
Port facilities usage rights	4-75 years
Other intangible assets	2-25 years

Amortization periods and the amortization methods for intangible assets with finite useful lives are reviewed at the end of each reporting period. The useful lives of intangible assets that are not being amortized are reviewed at the end of each reporting period to determine whether events and circumstances continue to support indefinite useful life assessments for those assets. Changes are accounted for as changes in accounting estimates.

Expenditures on research activities, undertaken with the prospect of gaining new scientific or technical knowledge and understanding, are recognized in profit or loss as incurred. Development expenditures are capitalized only if development costs 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 expenditures are recognized in profit or loss as incurred.

Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the specific asset to which they relate. All other expenditures, including expenditures on internally generated goodwill and brands, are recognized in profit or loss as incurred.

42

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Exploration for and evaluation of mineral resources

POSCO is engaged in exploration projects for mineral resources through subsidiaries, associates and joint ventures or other contractual arrangements. Expenditures related to the development of mineral resources are recognized as exploration or development intangible assets. The nature of these intangible assets are as follows:

(a) Exploration and evaluation assets

Exploration and evaluation assets consist of expenditures for topographical studies, geophysical studies and trenching. These assets are reclassified as development assets when it is proved that the exploration has identified commercially viable mineral deposit.

(b) Development assets

When proved reserves are determined and development is sanctioned, development expenditures incurred are capitalized. These expenditures include evaluation of oil fields, construction of oil/gas wells, drilling for viability and others. On completion of development and inception of extraction for commercial production of developed proved reserves, the development assets are reclassified as either property, plant and equipment or as intellectual property rights (mining rights) under intangible assets based on the nature of the capitalized expenditure.

The respective property, plant and equipment and intellectual property (mining rights) are each depreciated and amortized based on proved reserves on a unit of production basis.

Government grants

Government grants are not recognized unless there is reasonable assurance that the Company will comply with the grant’s conditions and that the grant will be received.

(a) Grants related to assets

Government grants whose primary condition is that the Company purchase, construct or otherwise acquire long-term assets are deducted from the carrying amount of the assets and recognized in profit or loss on a systematic and rational basis over the life of the depreciable assets.

(b) Grants related to income

Government grants which are intended to compensate the Company for expenses incurred are deducted from the related expenses.

43

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Leases

The Company classifies and accounts for leases as either a finance or operating lease, depending on the terms. Leases where the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. All other leases are classified as operating leases.

(a) Finance leases

At the commencement of the lease term, the Company recognizes as finance assets and finance liabilities the lower amount of the fair value of the leased property and the present value of the minimum lease payments, each determined at the inception of the lease. Any initial direct costs are added to the amount recognized as an asset.

Minimum lease payments are apportioned between the finance charge and the reduction of the outstanding liability. The finance charge is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Contingent rents are charged as expenses in the periods in which they are incurred.

The depreciable amount of a leased asset is allocated to each accounting period during the period of expected use on a systematic basis consistent with the depreciation policy the Company adopts for similar depreciable assets that are owned. If there is no reasonable certainty that the Company will obtain ownership by the end of the lease term, the asset is fully depreciated over the shorter of the lease term and its useful life.

(b) Operating leases

Lease obligations under operating leases are recognized as an expense on a straight-line basis over the lease term. Contingent rents are charged as expenses in the periods in which they are incurred.

(c) Determining whether an arrangement contains a lease

Determining whether an arrangement is, or contains, a lease is based on the substance of the arrangement and requires an assessment of whether fulfillment of the arrangement is dependent on the use of a specific asset or assets (the asset) and the arrangement conveys a right to use the asset.

At inception or reassessment of the arrangement, management of the Company separates payments and other consideration required by such an arrangement into those for the lease and those for other elements on the basis of their relative fair values. If management of the Company concludes for a financial lease that it is impracticable to separate the payments reliably, the Company recognizes an asset and a liability at an amount equal to the fair value of the underlying asset that was identified as the subject of the lease. Subsequently, the liability shall be reduced as payments are made and an imputed finance charge on the liability recognized using the purchaser’s incremental borrowing rate of interest.

44

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Impairment for financial assets

A financial asset not carried at fair value through profit or loss is assessed at each reporting date to determine whether there is objective evidence that it is impaired. A financial asset is impaired if objective evidence indicates that a loss event has occurred after the initial recognition of the asset, and that the loss event had a negative effect on the estimated future cash flows of that asset that can be estimated reliably. However, losses expected as a result of future events, regardless of likelihood, are not recognized.

Objective evidence that a financial asset or group of financial assets are impaired includes:

(a) significant financial difficulty of the issuer or obligor;

(b) a breach of contract, such as a default or delinquency in interest or principal payments;

(c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

(d) it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

(e) the disappearance of an active market for that financial asset because of financial difficulties; or

(f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group.

In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment.

If there is objective evidence that financial assets are impaired, impairment losses are measured and recognized.

(a) Financial assets measured at amortized cost

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. If it is not practicable to obtain the instrument’s estimated future cash flows, impairment losses would be measured by using prices from any observable current market transactions. The Company can recognize impairment losses directly or establish a provision to cover impairment losses. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss shall be reversed either directly or by adjusting an allowance account.

45

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Financial assets carried at cost

If there is objective evidence that an impairment loss has occurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses are not reversed.

(c) Available-for-sale financial assets

When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income shall be reclassified from equity to profit or loss as a reclassification adjustment even though the financial asset has not been derecognized. Impairment losses recognized in profit or loss for an investment in an equity instrument classified as available-for-sale are not reversed through profit or loss. If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss shall be reversed, with the amount of the reversal recognized in profit or loss.

Impairment for non-financial assets

The carrying amounts of the Company’s non-financial assets, other than assets arising from construction contracts, employee benefits, inventories, deferred tax assets and non-current assets held for sale, are reviewed at the end of the reporting period 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 amount to their carrying amount.

Management estimates the recoverable amount of an individual asset. If it is impossible to measure the individual recoverable amount of an asset, then management estimates the recoverable amount of cash-generating unit (“CGU”). A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. The Company determined that individual operating entities are CGUs.

46

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

The recoverable amount of an asset or CGU is the greater of its value-in-use and its fair value less costs to sell. The value-in-use is estimated by applying a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU for which estimated future cash flows have not been adjusted, to the estimated future cash flows expected to be generated by the asset or CGU.

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

Goodwill acquired in a business combination is allocated to each CGU that is expected to benefit from the synergies arising from the goodwill acquired. Any impairment identified at the CGU level will first reduce the carrying amount of goodwill and then be used to reduce the carrying amount of the other assets in the CGU on a pro rata basis. Except for impairment losses in respect of goodwill which are never reversed, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Derivative financial instruments and hedges

Derivatives are initially recognized at fair value. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss.

(a) Embedded derivatives

Embedded derivatives are separated from the host contract and accounted for separately only if the following criteria have been met: (a) the economic characteristics and risks of the host contract and the embedded derivatives are not clearly and closely related to a separate instrument with the same terms as the embedded derivative that would meet the definition of a derivative, and (b) the hybrid (combined) instrument is not measured at fair value through profit or loss. Changes in the fair value of separable embedded derivatives from the host contract are recognized immediately in profit or loss. However, convertible rights of convertible bonds are not separated from the host contract and the compound financial instruments of bonds and convertible rights are designated and measured at fair value through profit and loss.

(b) Other derivatives

Changes in the fair value of a derivative that is not designated as a hedging instrument are recognized immediately in profit or loss.

47

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Non-derivative financial liabilities

The Company classifies non-derivative financial liabilities into financial liabilities at fair value through profit or loss or other financial liabilities in accordance with the substance of the contractual arrangement and the definitions of financial liabilities. The Company recognizes financial liabilities in the consolidated statement of financial position when the Company becomes a party to the contractual provisions of the financial liability.

(a) Financial liabilities at fair value through profit or loss

Financial liabilities at fair value through profit or loss include financial liabilities held for trading or designated as such upon initial recognition. Subsequent to initial recognition, financial liabilities at fair value through profit or loss are measured at fair value, and changes therein are recognized in profit or loss. Upon initial recognition, transaction costs that are directly attributable to the acquisition are recognized in profit or loss as incurred.

(b) Other financial liabilities

Non-derivative financial liabilities other than financial liabilities at fair value through profit or loss are classified as other financial liabilities. At the date of initial recognition, other financial liabilities are measured at fair value minus transaction costs that are directly attributable to the acquisition. Subsequent to initial recognition, other financial liabilities are measured at amortized cost using the effective interest method. The Company derecognizes a financial liability from the consolidated statement of financial position when it is extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires).

Construction work in progress

The gross amount due from customers for contract work is presented for all contracts in which costs incurred plus recognized profits (less recognized losses) exceed progress billings. If progress billings exceed costs incurred plus recognized profits (less recognized losses), then the gross amount due to customers for contract work is presented. Cost includes all expenditures related directly to specific projects and an allocation of fixed and variable overheads incurred in the Company’s contract activities based on normal operating capacity.

The Company recognizes advances received regarding the amount received from the ordering organization before the commencement of the construction. Also, the Company recognized trade accounts and notes receivable with respect to the amount billed to the ordering organization.

48

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Employee benefits

(a) Short-term employee benefits

Short-term employee benefits are employee benefits that are due to be settled within twelve months after the end of the period in which the employees render the related service. When an employee has rendered 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 as profit or loss. If the Company has a legal or constructive obligation which can be reliably measured, the Company recognizes the amount of expected payment for profit-sharing and bonuses payable as liabilities.

(b) Other long-term employee benefits

Other long-term employee benefits include employee benefits that are settled beyond 12 months after the end of the period in which the employees render the related service, and are calculated at the present value of the amount of future benefit that employees have earned in return for their service in the current and prior periods, less the fair value of any related assets. Any actuarial gains and losses are recognized in profit or loss in the period in which they arise.

(c) Retirement benefits: Defined contribution plans

For defined contribution plans, when an employee has rendered service to the Company during a period, the Company recognizes the contribution payable to a defined contribution plan in exchange for that service as an accrued expense, after deducting any contributions already paid. If the contributions already paid exceed the contribution due for service before the end of the reporting period, the Company recognizes that excess as an asset (prepaid expense) to the extent that the prepayment will lead to a reduction in future payments or a cash refund.

49

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) Retirement benefits: Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Company’s net obligation in respect of defined benefit plans is calculated by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. The fair value of plan assets is deducted. The calculation is performed annually by an independent actuary using the projected unit credit method.

The discount rate is the yield at the reporting date on corporate bonds that have maturity dates approximating the terms of the Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The Company recognizes all actuarial gains and losses arising from actuarial assumption changes and experiential adjustments in other comprehensive income when incurred.

When the fair value of plan assets exceeds the present value of the defined benefit obligation, the Company recognizes an asset, to the extent of the present value of the total of cumulative any economic benefits available in the form of refunds from the plan or reduction in the future contributions to the plan.

Remeasurements of net defined benefit liabilities, which comprise actuarial gains and losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), are recognized immediately in other comprehensive income. The Company determines the net interest expense (income) on the net defined benefit liability (asset) for the period by applying the discount rate used to measure the defined benefit obligation at the beginning of the annual period to the then-net defined benefit liability (asset), taking into account any changes in the net defined benefit liability (asset) during the period as a result of contributions and benefit payments, net interest expense and other expenses related to defined benefit plans are recognized in profit or loss.

When the benefits of a plan are changed or when a plan is curtailed, the resulting change in benefit that relates to past service or the gain or loss in curtailment is recognized immediately in profit or loss. The Company recognizes gains and losses on the settlement of a defined benefit plan when the settlement occurs.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Provisions

Provisions are recognized when the Company has a present legal or constructive obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

The risks and uncertainties that inevitably surround many events and circumstances are taken into account in reaching the best estimate of a provision. Where the effect of the time value of money is material, provisions are determined at the present value of the expected future cash flows.

Where some or all of the expenditures required to settle a provision are expected to be reimbursed by another party, the reimbursement shall be recognized when, and only when, it is virtually certain that reimbursement will be received if the entity settles the obligation. The reimbursement shall be treated as a separate asset.

Provisions are reviewed at the end of each reporting period and adjusted to reflect the current best estimates. If it is no longer probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the provision is reversed.

A provision for warranties is recognized when the underlying products are sold. The provision is based on historical warranty.

Regarding provision for construction warranties, warranty period starts from the completion of construction in accordance with construction contracts. If the Company has an obligation for warranties, provision for warranties which are estimated based on historical warranty data are recorded as cost of construction and provision for warranties during the construction period.

A provision for restoration regarding contamination of land is recognized in accordance with the Company’s announced Environment Policy and legal requirement as needed.

A provision is used only for expenditures for which the provision was originally recognized.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Emission Rights

The Company accounts for greenhouse gases emission right and the relevant liability as follows pursuant to the Act on Allocation and Trading of Greenhouse Gas Emission which became effective in Korea in 2015.

(a) Greenhouse Gases Emission Right

Greenhouse Gases Emission Right consists of emission allowances which are allocated from the government free of charge and those purchased from the market. The cost includes any directly attributable costs incurred during the normal course of business.

Emission rights held for the purpose of performing the obligation are classified as intangible asset and initially measured at cost and subsequently carried at cost less accumulated impairment losses. Emission rights held for short-swing profits are classified as current asset and are measured at fair value with any changes in fair value recognized as profit or loss in the respective reporting period.

The Company derecognizes an emission right asset when the emission allowance is unusable, disposed or submitted to government when the future economic benefits are no longer expected to be probable.

(b) Emission liability

Emission liability is a present obligation of submitting emission rights to the government with regard to emission of greenhouse gas. Emission liability is recognized when there is a high possibility of outflows of resources in performing the obligation and the costs required to perform the obligation are reliably estimable. Emission liability is an amount of estimated obligations for emission rights to be submitted to the government for the performing period. The emission liability is measured based on the expected quantity of emission for the performing period in excess of emission allowance in possession and the unit price for such emission rights in the market at the end of the reporting period.

Equity instruments

(a) Share capital

Common stock is classified as equity and the incremental costs arising directly attributable to the issuance of common stock less their tax effects are deducted from equity.

If the Company reacquires its own equity instruments, the amount of those instruments (“treasury shares”) are presented as a contra equity account. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or cancellation of its own equity instruments. When treasury shares are sold or reissued subsequently, the amount received is recognized as an increase to equity, and the resulting surplus or deficit on the transaction is recorded in capital surplus.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Hybrid Bonds

Debt and equity instruments issued by the Company are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of financial liability and an equity instrument. When the Company has an unconditional right to avoid delivering cash or another financial asset to settle a contractual obligation, the instruments are classified as equity instruments.

Revenue

Revenue from the sale of goods, services provided and the use of assets is measured at the fair value of the consideration received or receivable, net of returns and allowances, trade discounts and volume rebates, which are not significant for all periods presented.

(a) Sale of goods

Revenue from the sale of goods in the ordinary course of activities is measured at the fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the buyer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. The appropriate timing for transfer of risks and rewards varies depending on the individual terms and conditions of the sales contract. For international sales, this timing depends on the type of international commercial terms of the contract.

(b) Services rendered

Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date. The stage of completion is assessed by reference to surveys of work performed.

(c) Construction contracts

Construction contracts of the Company primarily consist of contracts for the construction of plants and commercial or residential buildings, and revenue recognition for different types of contracts is as follows:

When the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. The stage of completion of a contract is determined based on the proportion that contract costs incurred for work performed to date bear to the estimated total contract costs. Contract revenue includes the initial amount agreed in the contract plus any variation in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

When the outcome of a construction contract cannot be estimated reliably, the revenue is recognized only to the extent of contract costs incurred that it is probable will be recoverable. An expected loss on the construction contract is recognized as an expense immediately.

(d) Rental income

Rental income from investment property, net of lease incentives granted, is recognized in profit or loss on a straight-line basis over the term of the lease.

Finance income and finance costs

Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains on the disposal of available-for-sale financial assets and changes in the fair value of financial assets at fair value through profit or loss. Interest income is recognized as it accrues in profit or loss, using the effective interest rate method. Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established.

Finance costs comprise interest expense on borrowings and changes in the fair value of financial assets at fair value through profit or loss. Borrowing costs are recognized in profit or loss using the effective interest rate method.

Income taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in profit or loss except to the extent that it relates to a business combination, or items recognized directly in equity or in other comprehensive income.

(a) Current income tax

Current income tax is the expected income tax payable or receivable on the taxable profit or loss for the year, using tax rates enacted or substantively enacted at the end of the reporting period and any adjustment to tax payable in respect of previous years. The taxable profit is different from the accounting profit for the period since the taxable profit is calculated excluding the temporary differences, which will be taxable or deductible in determining taxable profit of future periods, and non-taxable or non-deductible items from the accounting profit.

(b) Deferred income tax

The measurement of deferred income tax liabilities and deferred tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

The Company recognizes a deferred income tax liability for all taxable temporary differences associated with investments in subsidiaries, associates, and joint ventures, 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. The Company recognizes a deferred income tax asset for deductible temporary differences arising from investments in subsidiaries, associates and joint ventures, to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary difference can be utilized. However, deferred income tax is not recognized for the following temporary differences: taxable temporary differences arising on the initial recognition of goodwill, or the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting profit or loss nor taxable income.

The carrying amount of a deferred income tax asset is reviewed at the end of each reporting period and is reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow the benefit of part or all of that deferred tax asset to be utilized.

Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred income tax liabilities and deferred income tax assets reflects the tax consequences that would follow from the manner in which the Company expects, at the end of the reporting period to recover or settle the carrying amount of its assets and liabilities.

Deferred income tax assets and liabilities are offset only if there is a legally enforceable right to offset the related current income tax liabilities and assets, and they relate to income taxes levied by the same tax authority and they intend to settle current income tax liabilities and assets on a net basis.

Earnings per share

Management calculates basic earnings per share (“EPS”) data for the Company’s ordinary shares, which is presented at the end of the statement of comprehensive income. Basic EPS is calculated by dividing profit attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period, adjusted for own shares held.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Operating segments

An operating segment is a component of the Company that : a) engages in business activities from which it may earn revenues and incur expenditures, including revenues and expenses that relate to transactions with any of the Company’s other components, b) whose operating results are regularly reviewed by the Company’s chief operating decision maker (“CODM”) to make decisions about resources to be allocated to the segment and assess its performance and for which discrete financial information is available. Management has determined that the CODM of the Company is the CEO.

Segment profit and loss is determined the same way that consolidated net after tax profit for the period is generally determined under K-IFRS without any adjustment for corporate allocations. The accounting policies used by each segment are consistent with the accounting policies used in the preparation of the consolidated financial statements. Segment assets and liabilities are generally measured based on total assets and liabilities in accordance with K-IFRS without any adjustment for corporate allocations. Also, segment assets and liabilities are based on the respective separate financial statements of the entities instead of on consolidated basis. As of and for the years ended December 31, 2016 and 2015, for the purpose of preparing segment information regarding construction segment in these consolidated financial statements, prior year errors as discussed in note 29 were corrected in 2016. In addition, there are varying levels of transactions amongst the reportable segments. These transactions include sales of property, plant and assets, and rendering of construction service and so on.

Segment results that are reported to the CEO include items directly attributable to a segment and do not include allocated items. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

New standards and interpretations not yet adopted

The following new standards, interpretations and amendments to existing standards have been published but are not mandatory for the Company for annual periods beginning on January 1, 2016, and the Company has not early adopted them.

(a) K-IFRS No. 1109 “Financial Instruments”

K-IFRS No. 1109, published on September 25, 2015, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing guidance in K-IFRS No. 1039 “Financial Instruments: Recognition and Measurement”. The Company plans to adopt K-IFRS No. 1109 for the year beginning on January 1, 2018.

K-IFRS No. 1109 will generally be applied retrospectively; however the Company plans to take advantage of the exemption allowing it not to restate the comparative information for prior periods with respect to classification and measurement including impairment changes. New hedge accounting requirements will generally be applied prospectively except for certain exemptions including the accounting for the time value of options.

Key features of the new standard, K-IFRS No. 1109, are 1) classification and measurement of financial assets that reflects the business model in which the assets are managed and their cash flow characteristics, 2) impairment methodology that reflects ‘expected credit loss’ (ECL) model for financial assets, and 3) expanded scope of hedged items and hedging instruments which qualify for hedge accounting and changes in assessment method for effect of hedging relationships.

K-IFRS No. 1109 will require the Company to assess the financial impact from application of K-IFRS No. 1109 and revise its accounting processes and internal controls related to financial instruments. Actual impact of adopting K-IFRS No. 1109 will be dependent on the financial instruments the Company holds and economic conditions at that time as well as accounting policy elections and judgment that it will make in the future.

The Company has not initiated any changes related to K-IFRS No. 1109, therefore the Company has not performed an assessment of the impact resulting from the application of K-IFRS No. 1109. The Company will complete the analysis of financial impacts arising from applying this standard in 2017.

Expected impacts on the consolidated financial statements are generally categorized as follows:

1) Classification and measurement of financial assets

Under K-IFRS No. 1109, financial assets are classified into three principal categories; measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification is determined based on the business model in which assets are managed and their cash flow characteristics, as detailed in the below table.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Business model	Contractual cash flows are solely payments of principal and interests	All other cases
To collect contractual cash flows	Amortized cost(*1)
Both to collect contractual cash flows and sell financial assets	Fair value through other comprehensive income(*1)	Fair value through profit or loss(*2)
For trading, and others	Fair value through profit or loss

(*1) The Company may irrevocably designate as at fair value through profit or loss to eliminate or significantly reduce an accounting mismatch.

(*2) The Company may irrevocably designate equity investments that is not held for trading as at fair value through other comprehensive income.

The adoption of K-IFRS No. 1109 would potentially increase the proportion of financial assets that are measured at fair value through profit or loss, it may increases volatility in the Company’s profit or loss.

As of December 31, 2016, the Company had loans and receivables amounting to W19,390,610 million, held-to-maturity financial assets amounting to W2,470 million, available-for-sale financial assets amounting to W2,514,924 million, and financial assets at fair value through profit or loss amounting to W147,582 million.

Under K-IFRS No. 1109, a financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at fair value through profit or loss: 1) the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and 2) the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. As of December 31, 2016, the Company had loans and receivables which amount to W19,390,610 million, and held-to-maturity financial assets which amount to W2,470 million, which were measured at amortized costs.

Under K-IFRS No. 1109, a financial asset is measured at fair value through other comprehensive income if it meets both of the following conditions and is not designated as at fair value through profit or loss: 1) the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and 2) the contractual terms of the financial asset give rise on specified dates to cash flow that are solely payments of principal and interest on the principal amount outstanding. As of December 31, 2016, the Company had debt instruments of W49,282 million classified as available-for-sale.

Under K-IFRS No. 1109, on initial recognition of equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in fair value in other comprehensive income, and will not reclassify the those items in other comprehensive income to profit or loss subsequently. As of December 31, 2016, the Company had equity investment that is classified as available-for-sale which amounts to W2,392,534 million.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) Classification and measurement of financial liabilities

Under K-IFRS No. 1109, the amount of change in the fair value attributable to the changes in the credit risk of the financial liabilities is presented in other comprehensive income, not in profit or loss, and the other comprehensive income amount will not be reclassified to profit or loss. However, if doing so creates or increase an accounting mismatch, the amount of change in the fair value is recognized in profit or loss.

As a portion of fair value change which was recognized in profit or loss under the existing standard, K-IFRS No. 1039, will be presented in other comprehensive income under K-IFRS No. 1109, profit or loss related to valuation of financial liabilities is likely to decrease.

3) Impairment: Financial assets and contract assets

K-IFRS No. 1109 replaces the incurred loss model in the existing standard with a forward-looking expected credit loss model for debt instruments, lease receivables, contractual assets, loan commitments, financial guarantee contracts.

Under K-IFRS No. 1109, impairment losses are likely to be recognized earlier than using the incurred loss model under the existing guidance in K-IFRS No. 1039 as loss allowances will be measured on either of the 12-month or lifetime expected credit loss based on the extent of increase in credit risk since inception as shown in the below table.

Classification(*1)		Loss allowances
Stage 1	Credit risk has not increased significantly since the initial recognition(*2)	12-month expected credit loss: Expected credit losses resulted from possible default events within the 12 months after the reporting date
Stage 2	Credit risk has increased significantly since the intial recognition	Lifetime expected credit loss: Expected credit loss resulted from all possible default events over the expected life of a financial instrument
Stage 3	Credit-impaired

(*1) A loss allowance for lifetime expected credit losses is required for a financial instrument if the credit risk on that financial instrument has increased significantly since initial recognition. It is also required for contract assets or trade receivables that are not, according to K-IFRS No. 1115 “Revenue from Contracts with Customers”, considered to contain a significant financing component. Additionally, the Company can elect an accounting policy of recognizing lifetime expected credit losses for all contract assets and/or all trade receivables, including those that contain a significant financing component.

(*2) If the financial instrument has low credit risk at the reporting date, the Company may assume that the credit risk has not increased significantly since initial recognition.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Under K-IFRS No. 1109, financial assets of which the credit was impaired at the initial recognition, cumulative changes in lifetime expected credit loss since the initial recognition are recognized as loss allowances.

As of December 31, 2016, the Company had financial instruments measured at amortized cost amounting to W19,393,080 million (loans and receivables W19,390,610 million and held- to-maturity financial assets W2,470 million), financial instruments measured at fair value through other comprehensive income as they are classified as available for sale amounting to W49,282 million, and has recognized bad debt allowance of loans and receivables of W977,771 million as of December 31, 2016.

(b) K-IFRS No. 1115 “Revenue from Contracts with Customers”

K-IFRS No. 1115 “Revenue from Contracts with Customers”, published on November 6, 2015, is effective for annual periods beginning on or after January 1, 2018, with earlier adoption permitted. It replaces existing revenue recognition guidance, including K-IFRS No. 1018 “Revenue”, K-IFRS No. 1011 “Construction Contracts”, K-IFRS No. 2031 “Revenue- Barter transactions involving advertising services”, K-IFRS No. 2113 “Customer Loyalty Programs”, K-IFRS No. 2115 “Agreements for the construction of real estate”, and K-IFRS No. 2118 “Transfers of assets from customers”. The Company shall apply this standard using one of the following two methods; (a) retrospectively to each prior reporting period presented in accordance with K-IFRS No. 1008 “Accounting Policies, Changes in Accounting Estimates and Errors” but using the practical expedients for completed contracts- i.e. completed contracts for the earliest prior period presented are not restated; or (b) retrospectively with the cumulative effect of initially applying this standard recognized at the date of initial application. The Company plans to adopt K-IFRS No. 1115 in its consolidated financial statements for the year ending December 31, 2018, however the Company has not determined the transition method.

Existing K-IFRS standards and interpretations including K-IFRS No. 1018 provide revenue recognition guidance by transaction types such as sales of goods, rendering of services, interest income, royalty income, dividend income and construction revenue; however, under the new standard, K-IFRS No. 1115, the five-step approach (Step 1: Identify the contract(s) with a customer, Step 2: Identify the performance obligations in the contract, Step 3: Determine the transaction price, Step 4: Allocate the transaction price to the performance obligations in the contract, Step 5: Recognize revenue when the entity satisfied a performance obligation) is applied for all types of contracts or agreements.

The new standard will require the Company to revise its internal controls related to reporting revenue, and these changes are not yet initiated, and the Company has not performed an assessment of the impact resulting from the application of K-IFRS No. 1115. The Company will complete the analysis of financial impacts arising from applying this standard in 2017.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

Expected qualitative impacts on the consolidated financial statements are as follows:

1) Progress measurement using input method

Revenue generated from construction contracts for the year ended December 31, 2016 amounts to W6,641,465 million which represents approximately 13% of consolidated revenue. The Company enters into certain construction contracts including the purchase and installation of special equipment and proceeds over a period of one year or longer. The Company installs the specialized equipment which is procured from an external manufacturer, and the promised construction service, including the installation of the equipment, is a single performance obligation.

Under K-IFRS No. 1115, if the promised goods and services are not distinct at inception of the contract, the Company is expected to obtain control of the goods before rendering the service related to the goods, the costs to procure the goods are significant relative to the total expected costs to completely satisfy the performance obligation and the Company is provided with the goods from third party and is not significantly involved in designing and manufacturing the goods, the Company adjusts its measure of progress by excluding the costs to procure the goods from both the measure of costs incurred and the transaction price.

2) Variable consideration

Under K-IFRS No. 1115, the Company estimates an amount of variable consideration by using the method the Company expects to better predict the amount of consideration to which it will be entitled. The Company includes an amount of variable consideration in the transaction price only to the extent that it is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the return period expires. The Company recognize the amounts received or receivable for which the Company does not expect to be entitled as a refund liability.

(c) K-IFRS No. 1007 “Statement of Cash Flows”

In accordance with K-IFRS No. 1007 “Statement of Cash Flows” revised on May 27, 2016, liabilities related to the cash flows that were classified as a financing activity in the statement of cash flows or will be classified as a financing activity in the future should be disclosed as follows:

• Fluctuations in financing cash flows

• Changes in the acquisition or loss of control of a subsidiary or other business

• Exchange rate effect

• Fair value changes

• Other changes

K-IFRS No. 1007 is effective for the accounting periods beginning on January 1, 2017, and the Company is not required to provide comparative information for the prior period.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) K-IFRS No. 1012 “Income Taxes”

In accordance with K-IFRS No. 1012 “Income Taxes” amended on November 15, 2016, In the case of debt instruments measured at fair values, deferred tax accounting treatment is clarified. Temporary difference is calculated from the difference between the carrying amount and taxable base amount of the debt liabilities, regardless of the expected recovery method. When reviewing the feasibility of deferred tax assets, if there is sufficient evidence that it is likely to recover some part of an entity’s assets in excess of the carrying amount, the estimated amount of future taxable income would be included in the estimated future taxable income. In addition, future taxable income estimates are calculated as the amount before deducting the deductible (deduction) effect from deductible temporary differences.

K-IFRS No. 1012 is effective from accounting periods beginning on January 1, 2017. The Company believes that the effect of the amendments to the consolidated financial statements is not significant.

4. Financial risk management

The Company has exposure to the following risks from its use of financial instruments:

• credit risk

• liquidity risk

• market risk

• capital risk

This note presents information about the Company’s exposure to each of the above risks, the Company’s objectives, policies and processes for measuring and managing risk, and the Company’s management of capital. Further quantitative disclosures are included throughout these consolidated financial statements.

(a) Financial risk management

1) Risk management framework

The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Company’s risk management policies are established to identify and analyze the risks faced by the Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company’s activities.

The Company, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) Credit risk

Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Company’s receivables from customers and investment securities. In addition, credit risk arises from finance guarantees.

The Company implements a credit risk management policy under which the Company only transacts business with counterparties that have a certain level of credit rate evaluated based on financial condition, historical experience, and other factors. The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The default risk of a nation or an industry in which a customer operates its business does not have a significant influence on credit risk. The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness.

The Company establishes an allowance for impairment that represents its estimate of incurred losses in respect of trade and other receivables. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loss component established for companies of similar assets in respect of losses that have been incurred but not yet identified. The collective loss allowance is determined based on historical data of payment statistics for similar financial assets. Debt securities are analyzed individually, and an expected loss shall be directly deducted from debt securities.

Credit risk also arises from transactions with financial institutions, and such transactions include transactions of cash and cash equivalents, various deposits, and financial instruments such as derivative contracts. The Company manages its exposure to this credit risk by only entering into transactions with banks that have high international credit ratings. The Company’s treasury department authorizes, manages, and overseas new transactions with financial institutions with whom the Company has no previous relationship.

Furthermore, the Company limits its exposure to credit risk of financial guarantee contracts by strictly evaluating their necessity based on internal decision making processes, such as the approval of the board of directors.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

3) Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation.

The Company’s cash flow from business, borrowing or financing is sufficient to meet the cash requirements for the Company’s strategic investments. Management believes that the Company is capable of raising funds by borrowing or financing if the Company is not able to generate cash flow requirements from its operations. The Company has committed borrowing facilities with various banks.

4) Market risk

Market risk means that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. The goal of market risk management is optimization of profit and controlling the exposure to market risk within acceptable limits.

① Currency risk

The Company’s policy in respect of foreign currency risks is a natural hedge whereby foreign currency income is offset with foreign currency expenditures. The remaining net exposures after the natural hedge have been hedged using derivative contracts such as forward exchange contracts. In addition, the Company’s derivative transactions are limited to hedging actual foreign currency transactions and speculative hedging is not permitted. Based on this policy, the Company has performed currency risk management specific to various characteristics of different segments. The entities in the steel segment reduces the foreign currency exposure by repayment of foreign currency borrowings subjected to investment in overseas when its maturities come. The entities in the engineering and construction segment have hedged foreign currency risks by using forward exchange contracts. Entities in the trading segment have hedged foreign currency risks by using forward exchange contracts when the foreign currencies received and paid are different.

② Interest rate risk

The Company manages the exposure to interest rate risk by adjusting of borrowing structure ratio between borrowings at fixed interest rates and variable interest rate. The Company monitors interest rate risks regularly in order to avoid exposure to interest rate risk on borrowings at variable interest rate.

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

③ Other market price risk

Equity price risk arises from listed equity securities among available-for-sale equity securities. Management of the Company measures regularly the fair value of listed equity securities and the risk of variance in future cash flow caused by market price fluctuations. Significant investments are managed separately and all buy and sell decisions are approved by management of the Company.

(b) Management of capital

The fundamental goal of capital management is the maximization of shareholders’ value by means of the stable dividend policy and the retirement of treasury shares. The capital structure of the Company consists of equity and net borrowings (after deducting cash and cash equivalents) and current financial instruments from borrowings. The Company applied the same capital risk management strategy that was applied in the previous period.

Net borrowing-to-equity ratio as of December 31, 2016 and 2015 is as follows:

(in millions of Won)		2016			2015
Total borrowings	W		22,704,998			25,220,231
Less: Cash and cash equivalents			2,447,619			4,870,185
Net borrowings			20,257,379			20,350,046
Total equity			45,838,394			45,070,222
Net borrowings-to-equity ratio			44.19	%		45.15	%

5. Cash and Cash Equivalents

Cash and cash equivalents as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Cash	W		11,960		2,632
Demand deposits and checking accounts			1,312,426		1,796,736
Time deposits			254,888		2,263,199
Other cash equivalents			868,345		807,618
	W		2,447,619		4,870,185

Cash and cash equivalents classified as assets held for sale amounting to W999 million are included in the beginning balance of cash and cash equivalents in the statement of cash flows for the year ended December 31, 2016. As a result, they are different from cash and cash equivalents in the statement of financial position for the corresponding amounts (Note 10).

65

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

6. Trade Accounts and Notes Receivable

(a) Trade accounts and notes receivable as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016			2015
Current
Trade accounts and notes receivable	W		9,329,799			8,953,245
Finance lease receivables			10,300			21,042
Due from customers for contract work			964,304			1,218,031
Less: Allowance for doubtful accounts			(517,476	)		(596,383	)
	W		9,786,927			9,595,935
Non-current
Trade accounts and notes receivable	W		80,447			126,200
Finance lease receivables			11,326			22,758
Less: Allowance for doubtful accounts			(40,649	)		(28,620	)
	W		51,124			120,338

Trade accounts and notes receivable sold to financial institutions, for which the derecognition conditions were not met, amounted to W344,410 million and W390,172 million as of December 31, 2016 and 2015, respectively. The fair value of trade accounts and notes receivable approximates the carrying amounts and trade accounts and notes receivable are included in short-term borrowings from financial institutions (Note 17).

(b) Finance lease receivables are as follows:

(in millions of Won)
Customer	Contents		2016		2015
Korea Electric Power Corporation	Combined thermal power plant #3~4	W		20,648		42,536
KC Chemicals CORP	Machinery and equipment			244		380
Hystech.Co. Ltd.	Machinery and equipment			734		884
		W		21,626		43,800

(c) The gross amount and present value of minimum lease payments as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016			2015
Less than 1 year	W		13,114			27,382
1 year - 5 years			12,547			25,643
Unrealized interest income			(4,035	)		(9,225	)
Present value of minimum lease payment	W		21,626			43,800

66

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

7. Other Receivables

Other receivables as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016			2015
Current
Loans	W		421,818			405,281
Other accounts receivable			1,131,492			1,255,075
Accrued income			139,618			136,762
Deposits			93,891			89,444
Others			13,606			20,383
Less: Allowance for doubtful accounts			(260,683	)		(227,066	)
	W		1,539,742			1,679,879
Non-current
Loans	W		733,974			725,968
Other accounts receivable			81,938			142,290
Accrued income			1,746			1,236
Deposits			104,217			141,373
Less: Allowance for doubtful accounts			(158,963	)		(147,609	)
	W		762,912			863,258

67

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

8. Other Financial Assets

Other financial assets as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Current
Derivatives assets held for trading	W		49,281		94,603
Available-for-sale securities (bonds)			2,952		17,994
Current portion of held-to-maturity securities			422		21,490
Short-term financial instruments(*1,2)			5,172,256		3,776,300
	W		5,224,911		3,910,387
Non-current
Derivatives assets held for trading	W		98,301		93,886
Available-for-sale securities (equity instruments)(*3,4)			2,392,534		2,095,206
Available-for-sale securities (bonds)			46,330		36,914
Available-for-sale securities (others)			73,108		59,630
Held-to-maturity securities			2,048		1,889
Long-term financial instruments(*2)			45,371		53,935
	W		2,657,692		2,341,460

(*1) As of December 31, 2016 and 2015, W6,813 million and W6,593 million, respectively, are restricted for the use in a government project.

(*2) As of December 31, 2016 and 2015, financial instruments amounting to W82,008 million and W105,195 million, respectively, are restricted for use in financial arrangements, pledge and others.

(*3) During the year ended December 31, 2016, there were objective evidences of impairment for listed equity securities such as Nippon Steel & Sumitomo Metal Corporation and others due to the significant or prolonged decline in the fair value below cost of the shares and for non-listed equity securities such as Troika Foreign Resource Development Fund and others. As a result, an impairment loss of W248,404 million was recognized in profit or loss for the year ended December 31, 2016.

(*4) As of December 31, 2016 and 2015, W123,220 million and W124,541 million of available-for-sale securities, respectively, have been provided as collateral for borrowings, construction projects and others.

68

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

9. Inventories

(a) Inventories as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016			2015
Finished goods	W		1,200,344			1,381,018
Merchandise			851,325			715,951
Semi-finished goods			1,552,988			1,390,382
Raw materials			1,939,539			1,868,773
Fuel and materials			817,397			810,516
Construction inventories			990,941			828,071
Materials-in-transit			1,807,816			1,382,291
Others			94,535			79,581
			9,254,885			8,456,583
Less: Allowance for inventories valuation			(203,164	)		(231,378	)
	W		9,051,721			8,225,205

(b) The changes of allowance for inventories valuation for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Beginning	W		231,378			161,940
Loss on valuation of inventories			152,249			152,952
Utilization on sale of inventories			(161,458	)		(77,102	)
Others			(19,005	)		(6,412	)
Ending	W		203,164			231,378

69

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

10. Assets Held for Sale

Details of assets held for sale and related liabilities as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016						2015
		Controlling company(*1)		Subsidiaries (*2,3)		Total		Controlling company(*1)		Subsidiaries (*3,4)		Total
Assets
Cash and cash equivalents	W		—		—		—		—		999		999
Trade accounts and notes receivable and other receivables			—		—		—		—		7,724		7,724
Property, plant and equipment			764		305,864		306,628		25,892		10,383		36,275
Others			—		5,330		5,330		—		12,283		12,283
	W		764		311,194		311,958		25,892		31,389		57,281
Liabilities
Borrowings			—		—		—		—		26,500		26,500
Others			—		—		—		—		7,702		7,702
	W		—		—		—		—		34,202		34,202

(*1) During the year ended December 2015, the Company classified 1 FINEX facilities as assets held for sale amounting to W25,892 million. However, during the year ended December 31, 2016, the Company reclassified related facilities to property, plant and equipment as the conditions for classification of the assets held for sale were not met due to the delay of disposal negotiation.

(*2) During the year ended December 2016, Posco e&c Songdo International Building, a subsidiary of the Company, determined to dispose of the office building of POSCO ENGINEERING & CONSTRUCTION CO., LTD. in Songdo and entered into a sales contract with Booyoung Housing Co., Ltd. on September 9, 2016. As a result, the Company classified the accompanying property, plant and equipment amounting to W300,000 million as assets held for sale, and recognized impairment loss for assets held for sale of W17,943 million.

(*3) Subsidiaries of the Company (POSCO ENERGY CO., LTD., POSCO ICT, POSCO Humans, and POSCO Processing&Service) determined to dispose of certain tangible assets including land and disused facilities and classified them as assets held for sale.

(*4) During the year ended December 2015, the Company determined to dispose of its shares in POSCO LED Co., Ltd., a subsidiary of the Company, to Armitron consortium. The Company classified the accompanying assets and liabilities held for sale. During the year ended December 2016, disposal of accompanying assets and liabilities was completed. As a result, the Company recognized gain on disposal of assets held for sale of W19,353 million.

70

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

11. Investments in Associates and Joint ventures

(a) Investments in associates and joint ventures as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Investments in associates	W		1,595,441		1,875,971
Investments in joint ventures			2,286,948		2,069,362
	W		3,882,389		3,945,333

(b) Details of investments in associates as of December 31, 2016 and 2015 are as follows:

(in millions of Won)	2016										2015
Company	Number of shares		Ownership (%)			Acquisition cost			Book value		Book value
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF		178,713,975,892		29.37	W		178,787	W		175,690		175,676
POSCO PLANTEC Co., Ltd.(*4)		133,711,880		73.94			217,282			—		171,218
SeAH Changwon Integrated Special Steel(*1)		—		—			—			—		165,754
SNNC		18,130,000		49.00			90,650			107,859		111,326
QSONE Co.,Ltd.		200,000		50.00			84,395			84,799		83,919
Chuncheon Energy Co., Ltd		10,539,989		29.90			52,700			45,077		30,420
Incheon-Gimpo Expressway Co., Ltd.(*2)		9,032,539		20.04			45,163			37,372		39,447
BLUE OCEAN Private Equity Fund		333		27.52			33,300			35,752		35,437
UITrans LRT Co., Ltd.(*2)		7,714,380		38.19			38,572			17,851		40,903
Keystone-HYUNDAI SECURITIES NO. 1. Private Equity Fund		13,800,000		40.45			13,800			13,314		13,015
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd(*2)		2,008,000		29.53			10,040			12,551		12,265
Daesung Steel		108,038		17.54			14,000			12,302		14,000
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund		11,350		12.50			11,350			11,890		14,829
KONES, Corp.		3,250,000		41.67			6,893			5,641		5,775
Others (33 companies)(*2)										55,061		33,933
										615,159		947,917
[Foreign]
South-East Asia Gas Pipeline Company Ltd.		135,219,000		25.04			150,779			215,996		222,269
AES-VCM Mong Duong Power Company Limited(*3)		—		30.00			74,161			167,141		153,271
7623704 Canada Inc.		114,452,000		10.40			124,341			137,512		134,034
Eureka Moly LLC		—		20.00			240,123			89,601		87,878
AMCI (WA) PTY LTD		49		49.00			209,664			70,501		72,289
KOREA LNG LTD.		2,400		20.00			135,205			63,058		53,548
Nickel Mining Company SAS		3,234,698		49.00			157,585			45,138		76,445
NCR LLC		—		29.41			32,348			36,738		35,447
PT. Batutua Tembaga Raya		128,285		24.10			21,824			22,723		15,382
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd		10,200,000		34.00			9,517			18,008		19,311
PT. Wampu Electric Power(*2)		8,708,400		20.00			10,044			8,706		8,855
POSCO SeAH Steel Wire(Nantong) Co., Ltd.		50		25.00			4,723			6,840		7,061
Others (26 companies)(*2)										98,320		42,264
										980,282		928,054
								W		1,595,441		1,875,971

71

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(*1) During the year ended December 31, 2016, the Company disposed shares of SeAH Changwon Integrated Special Steel.

(*2) Investments in associates are provided as collateral related to the associates’ borrowings amounting to W124,963 million and W101,360 million as of December 31, 2016 and 2015, respectively.

(*3) Shares of PSC Energy Global Co., Ltd., a subsidiary of the Company, is provided as collateral related to associates’ borrowings as of December 31, 2016.

(*4) As of December 31, 2016, there was objective evidence of impairment due to the prolonged decline of fair value of POSCO PLANTEC Co., Ltd below costs, and, accordingly, impairment test was performed. Recoverable amount was determined based on value-in-use, which was calculated by applying a 14.5% discount rate. As a result, the Company recognized an impairment loss (Share of losses) of W116,604 million as the carrying amount was higher than its recoverable amount.

(c) Details of investments in joint ventures as of December 31, 2016 and 2015 are as follows:

(in millions of Won)	2016										2015
Company	Number of shares		Ownership (%)			Acquisition cost			Book value		Book value
[Domestic]
POSCO MITSUBISHI CARBON TECHNOLOGY		11,568,000		60.00	W		115,680	W		83,113		104,970
POSCO ES MATERIALS CO.,LTD(*1)		—		—			—			—		38,447
										83,113		143,417
[Foreign]
Roy Hill Holdings Pty Ltd(*2)		13,117,972		12.50			1,528,672			1,186,859		1,153,434
POSCO-NPS Niobium LLC		325,050,000		50.00			364,609			393,570		381,461
CSP—Compania Siderurgica do Pecem		1,108,696,532		20.00			558,821			330,463		80,805
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.		—		25.00			61,961			97,369		100,908
KOBRASCO		2,010,719,185		50.00			32,950			88,308		78,364
DMSA/AMSA(*3)		—		4.00			290,236			74,935		105,964
Others (11 companies)										32,331		25,009
										2,203,835		1,925,945
								W		2,286,948		2,069,362

(*1) During the year ended December 31, 2016, the Company classified POSCO ES MATERIALS CO.,LTD from joint venture to subsidiary, due to the increase of percentage ownership upon issuance of share capital by the investee.

(*2) As of December 31, 2016 and 2015, investments in joint ventures amounting to W1,186,859 million and W1,153,434 million, respectively, are provided as collateral in relation to borrowings.

(*3) As of December 31, 2016 and 2015, investments in joint ventures amounting to W74,935 million and W105,964 million, respectively, are provided as collateral for guarantees.

72

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) The movements of investments in associates and joint ventures for the years ended December 31, 2016 and 2015 were as follows:

1) For the year ended December 31, 2016

(in millions of Won)
Company		December 31, 2015 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease)(*1)			December 31, 2016 Book value
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF	W		175,676		222		—			(399	)		191			175,690
POSCO PLANTEC Co., Ltd.			171,218		—		—			(171,927	)		709			—
SeAH Changwon Integrated Special Steel			165,754		—		—			4,797			(170,551	)		—
SNNC			111,326		—		—			(3,417	)		(50	)		107,859
QSONE Co.,Ltd.			83,919		—		—			880			—			84,799
Chun-cheon Energy Co., Ltd			30,420		19,832		—			(5,175	)		—			45,077
Incheon-Gimpo Expressway Co., Ltd.			39,447		—		—			(2,758	)		683			37,372
BLUE OCEAN Private Equity Fund			35,437		—		—			643			(328	)		35,752
UITrans LRT Co., Ltd.			40,903		6,817		—			(29,825	)		(44	)		17,851
Keystone-HYUNDAI SECURITIES NO. 1. Private Equity Fund			13,015		—		—			281			18			13,314
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd			12,265		—		—			286			—			12,551
Daesung Steel			14,000		—		—			(2,272	)		574			12,302
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund			14,829		1,875		—			1,186			(6,000	)		11,890
KONES, Corp.			5,775		—		—			(256	)		122			5,641
POSCO MITSUBISHI CARBON TECHNOLOGY			104,970		—		—			(21,929	)		72			83,113
POSCO ES MATERIALS CO.,LTD			38,447		—		—			(2,061	)		(36,386	)		—
Others (33 companies)			33,933		20,061		(200	)		(2,802	)		4,069			55,061
			1,091,334		48,807		(200	)		(234,748	)		(206,921	)		698,272
[Foreign]
South-East Asia Gas Pipeline Company Ltd.			222,269		—		(59,717	)		46,855			6,589			215,996
AES-VCM Mong Duong Power Company Limited			153,271		—		—			27,031			(13,161	)		167,141
7623704 Canada Inc.			134,034		—		(921	)		175			4,224			137,512
Eureka Moly LLC			87,878		—		—			(18	)		1,741			89,601
AMCI (WA) PTY LTD			72,289		—		—			(3,358	)		1,570			70,501
KOREA LNG LTD.			53,548		—		(6,342	)		6,392			9,460			63,058
Nickel Mining Company SAS			76,445		—		—			(31,047	)		(260	)		45,138
NCR LLC			35,447		—		—			(41	)		1,332			36,738
PT. Batutua Tembaga Raya			15,382		7,040		—			—			301			22,723
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			19,311		—		—			(412	)		(891	)		18,008
PT. Wampu Electric Power			8,855		—		—			(397	)		248			8,706
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			7,061		—		—			242			(463	)		6,840
Roy Hill Holdings Pty Ltd			1,153,434		—		—			12,643			20,782			1,186,859
POSCO-NPS Niobium LLC			381,461		—		(10,893	)		11,499			11,503			393,570
CSP—Compania Siderurgica do Pecem			80,805		88,930		—			116,694			44,034			330,463
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.			100,908		—		—			258			(3,797	)		97,369
KOBRASCO			78,364		—		(29,297	)		20,761			18,480			88,308
DMSA/AMSA			105,964		24,624		—			(60,415	)		4,762			74,935
Others (37 companies)			67,273		28,993		(4,252	)		(791	)		39,428			130,651
			2,853,999		149,587		(111,422	)		146,071			145,882			3,184,117
	W		3,945,333		198,394		(111,622	)		(88,677	)		(61,039	)		3,882,389

(*1) Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, change in capital adjustments effect from translations of financial statements of foreign investees and others.

73

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) For the year ended December 31, 2015

(in millions of Won)
Company		December 31, 2014 Book value		Acquisition		Dividends			Share of profits (losses)			Other increase (decrease)(*1)			December 31, 2015 Book value
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF	W		176,899		—		—			(1,223	)		—			175,676
POSCO PLANTEC Co., Ltd.			—		217,282		—			(46,058	)		(6	)		171,218
SeAH Changwon Integrated Special Steel			—		159,978		—			6,464			(688	)		165,754
SNNC			131,671		—		—			(20,566	)		221			111,326
QSONE Co.,Ltd.			83,849		—		—			70			—			83,919
Chun-cheon Energy Co., Ltd			—		32,853		—			(2,433	)		—			30,420
Incheon-Gimpo Expressway Co., Ltd.			43,045		—		—			(3,910	)		312			39,447
BLUE OCEAN Private Equity Fund			31,439		—		—			5,645			(1,647	)		35,437
UITrans LRT Co., Ltd.			30,098		9,777		—			1,086			(58	)		40,903
Keystone-HYUNDAI SECURITIES NO. 1. Private Equity Fund			—		13,800		—			(451	)		(334	)		13,015
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd			19,801		—		—			(7,536	)		—			12,265
Daesung Steel			—		14,000		—			—			—			14,000
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund			12,268		3,725		—			211			(1,375	)		14,829
KONES, Corp.			5,430		—		—			311			34			5,775
POSCO MITSUBISHI CARBON TECHNOLOGY			112,837		—		—			(7,841	)		(26	)		104,970
POSCO ES MATERIALS CO.,LTD			38,021		—		—			440			(14	)		38,447
Others (30 companies)			33,511		3,800		—			2,877			(6,255	)		33,933
			718,869		455,215		—			(72,914	)		(9,836	)		1,091,334
[Foreign]
South-East Asia Gas Pipeline Company Ltd.			172,805		—		(18,602	)		54,351			13,715			222,269
AES-VCM Mong Duong Power Company Limited			93,021		23,146		—			29,561			7,543			153,271
7623704 Canada Inc.			117,100		—		(1,775	)		10,875			7,834			134,034
Eureka Moly LLC			228,004		—		—			(147,270	)		7,144			87,878
AMCI (WA) PTY LTD			88,050		—		—			(11,222	)		(4,539	)		72,289
KOREA LNG LTD.			72,089		—		(12,195	)		12,362			(18,708	)		53,548
Nickel Mining Company SAS			107,408		—		—			(25,562	)		(5,401	)		76,445
NCR LLC			32,598		—		—			(62	)		2,911			35,447
PT. Batutua Tembaga Raya			14,653		—		—			—			729			15,382
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			21,032		—		(376	)		(1,787	)		442			19,311
PT. Wampu Electric Power			7,611		1,015		—			(261	)		490			8,855
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			6,969		—		—			(76	)		168			7,061
Roy Hill Holdings Pty Ltd			1,268,678		—		—			(61,589	)		(53,655	)		1,153,434
POSCO-NPS Niobium LLC			357,874		—		(13,177	)		12,967			23,797			381,461
CSP—Compania Siderurgica do Pecem			260,906		—		—			(145,206	)		(34,895	)		80,805
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.			98,893		—		—			291			1,724			100,908
KOBRASCO			99,787		—		(24,380	)		31,124			(28,167	)		78,364
DMSA/AMSA			165,094		72,430		—			(137,723	)		6,163			105,964
CAML RESOURCES PTY LTD			38,240		—		—			(34,987	)		(3,253	)		—
Others (33 companies)			90,826		2,839		(5,506	)		(18,926	)		(1,960	)		67,273
			3,341,638		99,430		(76,011	)		(433,140	)		(77,918	)		2,853,999
	W		4,060,507		554,645		(76,011	)		(506,054	)		(87,754	)		3,945,333

(*1) Other increase or decrease represents the changes in investments in associates and joint ventures due to disposals, change in capital adjustments effect from translations of financial statements of foreign investees and others.

74

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(e) Summarized financial information of associates and joint ventures as of and for the years ended December 31, 2016 and 2015 are as follows:

1) December 31, 2016

(in millions of Won)
Company		Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF	W		597,767		864		596,903			—		(1,349	)
POSCO PLANTEC Co., Ltd.			501,659		678,004		(176,345	)		361,351		(43,195	)
SNNC			725,987		482,429		243,558			527,101		2,022
QSONE Co.,Ltd.			247,385		77,786		169,599			15,961		1,760
Chun-cheon Energy Co., Ltd			547,805		378,613		169,192			—		(3,748	)
Incheon-Gimpo Expressway Co., Ltd.			929,539		718,107		211,432			—		(1,910	)
BLUE OCEAN Private Equity Fund			357,723		220,895		136,828			456,311		2,335
UITrans LRT Co., Ltd.			400,761		307,625		93,136			—		(822	)
Keystone-HYUNDAI SECURITIES NO. 1. Private Equity Fund			119,378		79,946		39,432			197		694
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd			136,857		124,666		12,191			19,028		967
Daesung Steel			150,944		112,194		38,750			60,772		(12,955	)
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund			96,213		1,094		95,119			14,157		9,561
KONES, Corp.			2,627		1,519		1,108			3,952		(615	)
POSCO MITSUBISHI CARBON TECHNOLOGY			448,618		311,070		137,548			53,908		(36,572	)
[Foreign]
South-East Asia Gas Pipeline Company Ltd.			2,171,689		1,305,942		865,747			491,011		187,114
7623704 Canada Inc.			1,334,391		1		1,334,390			—		19,485
KOREA LNG LTD.			303,389		19,704		283,685			33,035		31,962
Nickel Mining Company SAS			491,458		347,194		144,264			145,571		(61,473	)
PT. Batutua Tembaga Raya			351,119		332,037		19,082			—		—
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			83,291		24,676		58,615			117,387		(1,216	)
PT. Wampu Electric Power			206,052		165,618		40,434			3,405		(1,984	)
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			67,905		40,451		27,454			81,260		938
Roy Hill Holdings Pty Ltd			10,962,261		8,059,714		2,902,547			845,243		129,968
POSCO-NPS Niobium LLC			786,937		—		786,937			—		24,719
CSP—Compania Siderurgica do Pecem			5,682,161		4,237,247		1,444,914			226,669		243,151
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.			789,336		427,475		361,861			948,488		1,033
KOBRASCO			178,853		2,236		176,617			72,274		41,522
DMSA/AMSA			6,570,172		4,842,560		1,727,612			579,388		(519,969	)

75

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) December 31, 2015

(in millions of Won)
Company		Assets		Liabilities		Equity (deficit)			Sales		Net income (loss)
[Domestic]
EQP POSCO Global NO1 Natural Resources PEF	W		607,966		1,043		606,923			—		(1,231	)
POSCO PLANTEC Co., Ltd.			609,655		725,406		(115,751	)		457,180		(330,819	)
SeAH Changwon Integrated Special Steel			1,293,143		568,639		724,504			971,557		23,403
SNNC			793,480		551,830		241,650			509,044		(57,156	)
QSONE Co.,Ltd.			249,482		81,644		167,838			15,068		140
Chun-cheon Energy Co., Ltd			149,025		42,094		106,931			—		(2,389	)
Incheon-Gimpo Expressway Co., Ltd.			648,602		458,137		190,465			—		(1,567	)
BLUE OCEAN Private Equity Fund			380,000		244,316		135,684			492,065		24,422
UITrans LRT Co., Ltd.			343,744		267,543		76,201			—		(846	)
Keystone-HYUNDAI SECURITIES NO. 1. Private Equity Fund			68,315		31,626		36,689			—		(1,956	)
CHUNGJU ENTERPRISE CITY DEVELOPMENT Co.,Ltd			154,695		137,471		17,224			21,518		(30,023	)
Daesung Steel			163,331		115,475		47,856			13,798		(1,725	)
KoFC POSCO HANWHA KB Shared Growth NO. 2. Private Equity Fund			119,747		1,112		118,635			5,012		1,804
KONES, Corp.			3,544		2,114		1,430			5,337		746
POSCO MITSUBISHI CARBON TECHNOLOGY			489,393		315,392		174,001			—		(13,068	)
POSCO ES MATERIALS CO.,LTD			84,719		39,381		45,338			29,214		880
[Foreign]
South-East Asia Gas Pipeline Company Ltd.			2,223,846		1,333,048		890,798			554,927		220,203
7623704 Canada Inc.			1,300,951		7		1,300,944			76,114		118,007
KOREA LNG LTD.			257,773		36		257,737			63,574		61,806
Nickel Mining Company SAS			445,685		238,695		206,990			155,980		(45,748	)
PT. Batutua Tembaga Raya			286,761		268,933		17,828			—		—
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			107,874		45,534		62,340			114,994		(5,783	)
PT. Wampu Electric Power			201,383		160,159		41,224			17,473		(1,304	)
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			65,973		38,336		27,637			67,700		(403	)
Roy Hill Holdings Pty Ltd			9,295,492		6,584,536		2,710,956			—		(492,709	)
POSCO-NPS Niobium LLC			762,719		—		762,719			—		25,935
CSP—Compania Siderurgica do Pecem			3,839,967		3,319,880		520,087			—		(721,937	)
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.			703,408		327,391		376,017			936,590		1,162
KOBRASCO			187,823		31,094		156,729			94,169		62,248
DMSA/AMSA			6,415,380		4,812,244		1,603,136			737,604		(3,308,836	)
CAML RESOURCES PTY LTD			136,112		41,768		94,344			146,909		(20,110	)

12. Joint Operations

Details of significant joint operations that the Company is participating in as a party to a joint arrangement as of December 31, 2016 are as follows:

Joint operations	Operation	Ownership (%)		Location
Myanmar A-1/A-3 mine	Mine development		51.00	Myanmar
Offshore midstream	Mine development		51.00	Myanmar
Greenhills mine	Mine development		20.00	Canada
Arctos Anthracite coal project	Mine development		50.00	Canada
Mt. Thorley J/V	Mine development		20.00	Australia
POSMAC J/V	Mine development		20.00	Australia
CD J/V	Mine development		5.00	Australia
RUM J/V	Mine development		10.00	Australia

76

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

13. Investment Property, Net

(a) Investment property as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016							2015
		Acquisition cost		Accumulated depreciation and impairment loss			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Book value
Land	W		423,910		(31,187	)		392,723		378,717		(31,838	)		346,879
Buildings			807,657		(136,118	)		671,539		806,030		(109,504	)		696,526
Structures			3,148		(1,001	)		2,147		3,971		(2,152	)		1,819
Construction-in-progress			51,311		—			51,311		39,068		—			39,068
	W		1,286,026		(168,306	)		1,117,720		1,227,786		(143,494	)		1,084,292

As of December 31, 2016, the fair value of investment property is W1,629,308 million, among which the Company believed the fair value of its investment property of 3 subsidiaries, including DAESAN (CAMBODIA) Co., Ltd. approximate its book value of W67,924 million. Also, the Company used the prior year’s fair value for some of the investment property since it is believed that the fair value has not changed significantly.

(b) Changes in the carrying amount of investment property for the years ended December 31, 2016 and 2015 were as follows:

1) For the year ended December 31, 2016

(in millions of Won)		Beginning		Acquisitions		Disposals			Depreciation(*1)			Others(*2)			Ending
Land	W		346,879		24,116		(8,056	)		—			29,784			392,723
Buildings			696,526		7,548		(3,339	)		(24,043	)		(5,153	)		671,539
Structures			1,819		1		—			(288	)		615			2,147
Construction-in-progress			39,068		13,910		—			—			(1,667	)		51,311
	W		1,084,292		45,575		(11,395	)		(24,331	)		23,579			1,117,720

(*1) Impairment loss on investment property amounting to W318 million is included.

(*2) Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

2) For the year ended December 31, 2015

(in millions of Won)		Beginning		Acquisitions		Business combination		Disposals			Depreciation(*1)			Others(*2)			Ending
Land	W		415,512		2,665		5,964		(433	)		(85	)		(76,744	)		346,879
Buildings			591,647		49,281		26,750		(909	)		(25,391	)		55,148			696,526
Structures			2,060		40		—		—			(173	)		(108	)		1,819
Construction-in-progress			46,373		9,492		—		—			—			(16,797	)		39,068
	W		1,055,592		61,478		32,714		(1,342	)		(25,649	)		(38,501	)		1,084,292

(*1) Impairment loss on investment property amounting to W85 million is included.

(*2) Includes reclassification resulting from changing purpose of use, adjustment of foreign currency translation difference and others.

77

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

14. Property, Plant and Equipment, Net

(a) Property, plant and equipment as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016										2015
		Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value		Acquisition cost		Accumulated depreciation and impairment loss			Government grants			Book value
Land	W		2,607,660		(6,452	)		—			2,601,208		2,572,807		—			—			2,572,807
Buildings			9,180,028		(4,183,974	)		(423	)		4,995,631		8,982,405		(3,816,242	)		(438	)		5,165,725
Structures			5,385,365		(2,476,818	)		(67	)		2,908,480		5,217,953		(2,268,465	)		(75	)		2,949,413
Machinery and equipment			46,698,254		(26,379,544	)		(320	)		20,318,390		45,547,591		(24,453,433	)		(415	)		21,093,743
Vehicles			306,770		(259,986	)		(85	)		46,699		303,366		(251,315	)		(46	)		52,005
Tools			385,960		(312,266	)		(2,314	)		71,380		372,440		(298,586	)		(376	)		73,478
Furniture and fixtures			609,736		(477,064	)		(266	)		132,406		590,046		(441,565	)		(382	)		148,099
Finance lease assets			248,590		(89,577	)		—			159,013		168,601		(75,805	)		—			92,796
Construction-in-progress			2,542,233		—			(5,101	)		2,537,132		2,379,890		—			(5,101	)		2,374,789
	W		67,964,596		(34,185,681	)		(8,576	)		33,770,339		66,135,099		(31,605,411	)		(6,833	)		34,522,855

(b) Changes in the carrying amount of property, plant and equipment for the years ended December 31, 2016 and 2015 were as follows:

1) For the year ended December 31, 2016

(in millions of Won)		Beginning		Acquisitions		Business combination		Disposals			Depreciation(*1)			Others(*2)			Ending
Land	W		2,572,807		8,901		15,687		(16,176	)		(6,452	)		26,441			2,601,208
Buildings			5,165,725		37,493		277,242		(12,857	)		(396,899	)		(75,073	)		4,995,631
Structures			2,949,413		19,043		—		(1,994	)		(216,631	)		158,649			2,908,480
Machinery and equipment			21,093,743		193,856		47,021		(36,095	)		(2,277,740	)		1,297,605			20,318,390
Vehicles			52,005		8,967		88		(1,990	)		(18,484	)		6,113			46,699
Tools			73,478		17,546		635		(848	)		(27,396	)		7,965			71,380
Furniture and fixtures			148,099		30,650		32		(4,248	)		(51,361	)		9,234			132,406
Finance lease assets			92,796		79,556		—		(38	)		(13,409	)		108			159,013
Construction-in-progress			2,374,789		1,935,339		2,181		(4,255	)		—			(1,770,922	)		2,537,132
	W		34,522,855		2,331,351		342,886		(78,501	)		(3,008,372	)		(339,880	)		33,770,339

(*1) Includes impairment loss on property, plant and equipment amounting to W196,882 million mainly related to machinery and equipment of POSCO ENERGY CO., LTD, a subsidiary of the Company.

(*2) Represents assets transferred from construction-in-progress to intangible assets and other property, plant and equipment, assets transferred to investment property, assets transferred from asset held-for-sale, reclassifications resulting from changing purpose of use, adjustments of foreign currency translation differences and others.

78

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) For the year ended December 31, 2015

(in millions of Won)		Beginning		Acquisitions		Business combination		Disposals			Depreciation(*1)			Others(*2)			Ending
Land	W		2,801,288		47,858		12,520		(30,222	)		(1,517	)		(257,120	)		2,572,807
Buildings			5,359,324		57,042		56,156		(20,759	)		(349,774	)		63,736			5,165,725
Structures			3,030,163		23,149		—		(3,819	)		(213,550	)		113,470			2,949,413
Machinery and equipment			21,199,885		239,430		301		(74,445	)		(2,244,183	)		1,972,755			21,093,743
Vehicles			56,695		9,735		—		(1,601	)		(18,221	)		5,397			52,005
Tools			64,069		25,230		1,714		(1,169	)		(29,401	)		13,035			73,478
Furniture and fixtures			143,782		43,697		1,497		(1,502	)		(63,754	)		24,379			148,099
Finance lease assets			80,081		598		157		(98	)		(9,026	)		21,084			92,796
Construction-in-progress			2,505,908		2,245,729		—		(4,418	)		(17,846	)		(2,354,584	)		2,374,789
	W		35,241,195		2,692,468		72,345		(138,033	)		(2,947,272	)		(397,848	)		34,522,855

(*1) Impairment loss on property, plant and equipment amounting to W136,269 million is included.

(*2) Represents assets transferred from construction-in-progress to intangible assets and other property, plant and equipment, assets transferred to investment property, assets transferred from asset held-for-sale, reclassifications resulting from changing purpose of use, adjustments of foreign currency translation differences and others.

(c) Borrowing costs capitalized and the capitalized interest rate for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Weighted average expenditure	W		1,070,280		1,733,503
Borrowing costs capitalized			40,321		40,990
Capitalization rate (%)			3.32 ~ 3.82		3.02 ~ 4.24

(d) Property, plant and equipment and investment property pledged as collateral as of December 31, 2016 and 2015 are as follows:

(in millions of Won)	Collateral right holder		2016		2015
Land(*1)	Korea Development Bank and others	W		925,670		826,802
Buildings and structures(*1)	Korea Development Bank and others			1,734,543		1,446,605
Machinery and equipment	Korea Development Bank and others			4,037,813		4,260,206
Tools	Korea Development Bank			—		162
Construction-in-progress	Export-Import Bank of Korea			—		1,000,318
		W		6,698,026		7,534,093

(*1) Investment property and other assets (land-use right) are included.

79

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

15. Goodwill and Other Intangible Assets, Net

(a) Goodwill and other intangible assets as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016										2015
		Acquisition cost		Accumulated amortization and impairment			Government grants			Book value		Acquisition cost		Accumulated amortization and impairment			Government grants			Book value
Goodwill	W		1,669,556		(294,425	)		—			1,375,131		1,660,395		(198,441	)		—			1,461,954
Intellectual property rights			2,923,030		(401,156	)		(703	)		2,521,171		2,848,990		(181,098	)		(806	)		2,667,086
Premium in rental			139,843		(20,804	)		—			119,039		148,141		(20,192	)		—			127,949
Development expense			376,327		(259,184	)		(131	)		117,012		337,318		(201,278	)		(244	)		135,796
Port facilities usage rights			633,025		(376,408	)		—			256,617		625,991		(361,190	)		—			264,801
Exploration and evaluation assets			196,124		(33,856	)		—			162,268		181,710		(30,566	)		—			151,144
Customer relationships			859,643		(345,398	)		—			514,245		857,417		(297,608	)		—			559,809
Power generation permit			539,405		—			—			539,405		539,405		—			—			539,405
Other intangible assets			1,007,871		(524,000	)		(30	)		483,841		966,761		(468,934	)		(17	)		497,810
	W		8,344,824		(2,255,231	)		(864	)		6,088,729		8,166,128		(1,759,307	)		(1,067	)		6,405,754

(b) The changes in carrying amount of goodwill and other intangible assets for the years ended December 31, 2016 and 2015 were as follows:

1) For the year ended December 31, 2016

(in millions of Won)		Beginning		Acquisitions		Disposals			Amortization			Impairment loss			Others(*2)			Ending
Goodwill	W		1,461,954		—		—			—			(95,984	)		9,161			1,375,131
Intellectual property rights			2,667,086		44,215		(753	)		(204,112	)		(16,786	)		31,521			2,521,171
Premium in rental(*1)			127,949		1,964		(7,526	)		(243	)		(1,559	)		(1,546	)		119,039
Development expense			135,796		4,027		(60	)		(61,732	)		(298	)		39,279			117,012
Port facilities usage rights			264,801		—		—			(15,217	)		—			7,033			256,617
Exploration and evaluation assets			151,144		45,524		—			—			(3,290	)		(31,110	)		162,268
Mining development assets			—		12,634		—			—			—			(12,634	)		—
Customer relationships			559,809		—		—			(47,790	)		—			2,226			514,245
Power generation permit			539,405		—		—			—			—			—			539,405
Other intangible assets			497,810		52,350		(1,454	)		(48,910	)		(7,353	)		(8,602	)		483,841
	W		6,405,754		160,714		(9,793	)		(378,004	)		(125,270	)		35,328			6,088,729

(*1) Premium in rental includes memberships with indefinite useful lives.

(*2) Represents assets transferred from construction-in-progress to intangible assets and assets transferred from property, plant and equipment, adjustments of foreign currency translation difference and others.

2) For the year ended December 31, 2015

(in millions of Won)		Beginning		Acquisitions		Disposals			Amortization			Impairment loss			Others(*2)			Ending
Goodwill	W		1,795,144		—		—			—			(99,052	)		(234,138	)		1,461,954
Intellectual property rights			2,762,679		127,112		(3,921	)		(192,660	)		(20,725	)		(5,399	)		2,667,086
Premium in rental(*1)			130,942		13,530		(10,594	)		(171	)		(2,413	)		(3,345	)		127,949
Development expense			168,746		6,749		(1,084	)		(53,740	)		(3,034	)		18,159			135,796
Port facilities usage rights			156,444		—		—			(11,810	)		—			120,167			264,801
Exploration and evaluation assets			92,459		61,427		—			—			—			(2,742	)		151,144
Customer relationships			641,625		—		—			(51,808	)		(28,402	)		(1,606	)		559,809
Power generation permit			539,405		—		—			—			—			—			539,405
Other intangible assets			597,545		88,105		(488	)		(71,394	)		(7,531	)		(108,427	)		497,810
	W		6,884,989		296,923		(16,087	)		(381,583	)		(161,157	)		(217,331	)		6,405,754

(*1) Premium in rental includes memberships with indefinite useful lives.

(*2) Represents assets transferred from construction-in-progress to intangible assets and assets transferred from property, plant and equipment, adjustments of foreign currency translation difference and others.

80

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(c) For the purpose of impairment testing, goodwill is allocated to individually operating entities which are determined to be CGUs. The goodwill amounts as of December 31, 2016 and 2015 are as follows:

(in millions of Won)
Reporting segments	Total number of CGUs
	2016		2015		CGUs		2016		2015
Steel		9		9	POSCO VST CO., LTD.	W		36,955		36,955
					Others			13,151		13,279
Trading		3		3	POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)(*1)			1,163,922		1,163,922
					Others			8,070		7,638
E&C		4		4	POSCO Engineering CO., Ltd(*2)			111,309		194,637
					SANTOS CMI S.A.(*3)			—		11,795
					Others			166		763
Others		6		7	POSCO ENERGY CO., LTD.			26,471		26,471
					Others			15,087		6,494
Total		22		23		W		1,375,131		1,461,954

(*1) Recoverable amounts of POSCO DAEWOO Corporation (formerly, Daewoo International Corporation) are determined based on its value in use. As of December 31, 2016, value in use is estimated by applying a 7.6% discount rate and a 1.5% terminal growth rate within 5 years, the period for the estimated future cash flows, based on management’s business plan. The terminal growth rate does not exceed long-term average growth rate of its industry. No impairment loss on goodwill was recognized for the year ended December 31, 2016 as the recoverable amount exceeded the carrying amount of the CGU.

The estimated recoverable amount of CGU exceeded the carrying amount by W69,563 million. Value in use of the CGU was affected by the assumptions such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value in use will be decreased by 3.33% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by 0.93%. Management believes that any reasonably possible negative change in the key assumptions on which the recoverable amount is based would result in impairment loss of goodwill.

(*2) Recoverable amounts of POSCO Engineering CO., Ltd are determined based on its value in use. As of December 31, 2016, value in use is estimated by applying a 9.0% discount rate and a 1.0% terminal growth rate within 5 years, the period for the estimated future cash flows, based on management’s business plan. The terminal growth rate does not exceed long-term average growth rate of its industry. Impairment loss on goodwill of W83,328 million was recognized for the year ended December 31, 2016 as the recoverable amount calculated by value in use of CGU decreased below the carrying amount of the CGU.

Value in use of the CGU was affected by the assumptions such as discount rate and terminal growth used in discount cash flow model. When the discount rate increases by 0.25%, value in use will be decreased by 3.57% and when the terminal growth rate decreases by 0.25%, value in use will be decreased by 1.90%.

(*3) The Company recognized full impairment loss of W11,795 million since recoverable amount of SANTOS CMI S.A., a subsidiary of the Company, decreased below its carrying amount.

81

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

16. Other Assets

Other current assets and other non-current assets as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Current
Advance payment	W		787,452		696,839
Prepaid expenses			105,102		107,379
Others			1,930		4,034
	W		894,484		808,252
Non-current
Long-term advance payment	W		27,189		3,467
Long-term prepaid expenses			380,678		403,536
Others(*1)			159,813		221,997
	W		567,680		629,000

(*1) As of December 31, 2016 and 2015, the Company recognized tax assets amounting to W100,693 million and W132,489 million, respectively, based on the Company’s best estimate of the tax amounts to be refunded when the result of the Company’s appeal in connection with the additional income tax payment in prior years’ tax audits that were finalized in 2015 and claim for rectification are finalized.

82

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

17. Borrowings

(a) Short-term borrowings and current portion of long-term borrowings as of December 31, 2016 and 2015 are as follows:

(in millions of Won)	Bank	Issuance date	Maturity date	Interest rate (%)		2016			2015
Short-term borrowings
Bank overdrafts	Bank of America and others	January, 2016~ December, 2016	January, 2017~ December, 2017	0.6~4.0	W		254,036			129,891
Short-term borrowings	HSBC and others	January, 2016~ December, 2016	January, 2017~ December, 2017	0.3~10.7			7,725,691			8,285,869
							7,979,727			8,415,760
Current portion of long-term liabilities
Current portion of long-term borrowings	Export-Import bank of Korea and others	June, 2003~ September, 2016	January, 2017~ December, 2017	0.5~8.5			1,390,535			1,318,276
Current portion of foreign loan(*1)	NATIXIS	March, 1986	March, 2017	2.0			198			401
Current portion of debentures	Korea Development Bank and others	August, 2009~ March, 2016	March, 2017~ December, 2017	1.3~5.9			825,176			2,637,614
Less: Current portion of discount on debentures issued							(829	)		(1,019	)
							2,215,080			3,955,272
					W		10,194,807			12,371,032

(*1) Korea Development Bank has provided guarantees related to the foreign loan.

(b) Long-term borrowings, excluding current portion as of December 31, 2016 and December 31, 2015 are as follows:

				Interest
(in millions of Won)	Bank	Issuance date	Maturity date	rate (%)		2016			2015
Long-term borrowings	Export-Import bank of Korea and others	January, 1983~ September, 2016	March, 2018~ March, 2033	0.4~6.6	W		6,420,612			6,814,753
Less : Present value discount							(55,799	)		(76,828	)
Foreign loan	—	—	—	—			—			200
Bonds	Korea Development Bank and others	August, 2009~ July, 2016	October, 2018~ July, 2025	1.2~6.3			6,163,896			6,134,132
Less: Discount on debentures issued							(18,518	)		(23,058	)
					W		12,510,191			12,849,199

(c) Property, plant and equipment including investment property, cash equivalents, trade accounts and notes receivable, financial assets, available-for-sale financial assets, inventories and other assets amounting to W6,546,430 million, W77,617 million, W5,772 million (84 of notes receivable), W72,015 million, W9,839 million, W66,175 million and W151,596 million, respectively, are provided as collateral related to short-term borrowings, long-term borrowings and debentures.

83

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

18. Other Payables

Other payables as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Current
Accounts payable	W		854,623		983,408
Accrued expenses			665,295		759,598
Dividend payable			7,770		6,453
Finance lease liabilities			24,523		26,876
Withholdings			299,448		352,758
	W		1,851,659		2,129,093
Non-current
Accounts payable	W		6,823		22,665
Accrued expenses			41,082		30,221
Finance lease liabilities			89,886		14,409
Long-term withholdings			70,768		67,175
	W		208,559		134,470

19. Other Financial Liabilities

Other financial liabilities as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Current
Derivatives liabilities	W		85,786		117,841
Financial guarantee liabilities			63,962		84,276
	W		149,748		202,117
Non-current
Derivatives liabilities	W		37,110		37,661
Financial guarantee liabilities			44,199		17,035
	W		81,309		54,696

84

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

20. Provisions

(a) Provisions as of December 31, 2016 and 2015 are as follows:

		2016				2015
(in millions of Won)		Current		Non-current		Current		Non-current
Provision for bonus payments	W		42,986		—		42,602		—
Provision for construction warranties			10,551		86,158		10,656		70,790
Provision for legal contingencies and claims(*1)			4,348		80,498		—		52,610
Provision for the restoration(*2)			10,169		37,962		15,569		26,357
Others(*3,4)			46,811		133,121		33,493		71,935
	W		114,865		337,739		102,320		221,692

(*1) The Company recognized probable outflow of resources amounting to W30,425 million and W32,220 million as provisions for legal contingencies and asserted claims in relation to lawsuits against the Company as of December 31, 2016 and 2015, respectively.

(*2) Due to contamination of land near the Company’s magnesium smelting plant located in Gangneung province and gas treatment plant located in Pohang work, the Company recognized present values of estimated costs for recovery as provisions for restoration as of December 31, 2016. In order to determine the estimated costs, the Company used the assumption that it would use all of technologies and materials available for now to recover the land. In addition, the Company has applied discount rates of 2.49% and 2.37% to assess present value of these costs for recovery of land in Gangneung province and Pohang work, respectively.

(*3) As of December 31, 2016 and 2015, POSCO ENERGY CO., LTD., a subsidiary of the Company, recognized W87,827 million and W41,638 million of provisions for warranties, respectively, for the service contract on fuel cell based on its estimate of probable outflow of resources.

(*4) As of December 31, 2016 and 2015, the amount includes a provision of W23,600 million for expected outflow of resources in connection with the performance guarantee for the Hwaseong-Dongtan complexes development project of POSCO ENGINEERING & CONSTRUCTION., LTD.

(b) The following are the key assumptions concerning the future and other key sources of estimation uncertainties at the end of the reporting period.

	Key assumptions for the estimation
Provision for bonus payments	Estimations based on financial performance
Provision for construction warranties	Estimations based on historical warranty data
Provision for legal contingencies and claims	Estimations based on the degree of probability of an unfavorable outcome and the ability to make a sufficient reliable estimate of the amount of loss

85

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(c) Changes in provisions for the years ended December 31, 2016 and 2015 were as follows:

1) For the year ended December 31, 2016

(in millions of Won)		Beginning		Increase		Utilization			Reversal			Others(*1)			Ending
Provision for bonus payments	W		42,602		44,106		(42,211	)		(272	)		(1,239	)		42,986
Provision for construction warranties			81,446		33,925		(19,469	)		(2,695	)		3,502			96,709
Provision for legal contingencies and claims			52,610		45,525		(14,012	)		(188	)		911			84,846
Provision for the restoration			41,926		31,673		(13,367	)		(12,475	)		374			48,131
Others			105,428		142,767		(68,143	)		(3,086	)		2,966			179,932
	W		324,012		297,996		(157,202	)		(18,716	)		6,514			452,604

(*1) Includes adjustments of foreign currency translation differences and others.

2) For the year ended December 31, 2015

(in millions of Won)		Beginning		Increase		Utilization			Reversal			Others(*1)			Ending
Provision for bonus payments	W		49,505		46,420		(49,563	)		(1,493	)		(2,267	)		42,602
Provision for construction warranties			80,348		33,698		(21,166	)		(4,822	)		(6,612	)		81,446
Provision for legal contingencies and claims			50,424		15,998		(2,467	)		(4,058	)		(7,287	)		52,610
Provision for the restoration			74,798		2,293		(35,461	)		—			296			41,926
Others			118,194		59,219		(46,994	)		(15,425	)		(9,566	)		105,428
	W		373,269		157,628		(155,651	)		(25,798	)		(25,436	)		324,012

(*1) Includes adjustments of foreign currency translation differences and others.

21. Employee Benefits

(a) Defined contribution plans

The expenses related to post-employment benefit plans under defined contribution plans for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Expense related to post-employment benefit plans under defined contribution plans	W		30,344		25,224

86

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Defined benefit plans

1) The amounts recognized in relation to net defined benefit liabilities in the statements of financial position as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016			2015
Present value of funded obligations	W		1,715,583			1,702,735
Fair value of plan assets(*1)			(1,693,118	)		(1,532,090	)
Present value of non-funded obligations			17,437			11,380
Net defined benefit liabilities	W		39,902			182,025

(*1) As of December 31, 2016, the Company recognized net defined benefit assets amounting to W83,702 million since there are consolidated entities whose fair value of plan assets exceeded the present value of defined benefit obligations.

2) Changes in present value of defined benefit obligations for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Defined benefit obligation at the beginning of period	W		1,714,115			1,718,243
Current service costs			285,706			239,508
Interest costs			39,286			47,039
Remeasurements :			(32,927	)		(63,364	)
- Gain from change in financial assumptions			(72,910	)		(37,367	)
- Gain from change in demographic assumptions			(4,140	)		(10,017	)
- Others			44,123			(15,980	)
Benefits paid			(278,278	)		(157,983	)
Others			5,118			(69,328	)
Defined benefit obligation at the end of period	W		1,733,020			1,714,115

3) Changes in fair value of plan assets for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Fair value of plan assets at the beginning of period	W		1,532,090			1,427,918
Interest on plan assets			37,385			41,145
Remeasurement of plan assets			(6,963	)		(8,515	)
Contributions to plan assets			328,671			243,082
Benefits paid			(189,817	)		(127,808	)
Others			(8,248	)		(43,732	)
Fair value of plan assets at the end of period	W		1,693,118			1,532,090

The Company expects to make an estimated contribution of W180,232 million to the defined benefit plan assets in 2017.

87

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

4) The fair value of plan assets as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Equity instruments	W		56,187		58,987
Debt instruments			411,726		218,219
Deposits			1,167,475		1,139,186
Others			57,730		115,698
	W		1,693,118		1,532,090

5) The amounts recognized in consolidated statements of comprehensive income for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Current service costs	W		285,706		239,508
Net interest costs(*1)			1,901		5,894
	W		287,607		245,402

(*1) The actual return on plan assets amounted to W30,422 million and W32,630 million for the years ended December 31, 2016 and 2015, respectively.

The above expenses by function were as follows:

(in millions of Won)		2016		2015
Cost of sales	W		161,810		170,334
Selling and administrative expenses			124,994		74,210
Others			803		858
	W		287,607		245,402

88

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

6) Accumulated actuarial gains (losses), net of tax recognized in other comprehensive income for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Beginning	W		(272,152	)		(314,106	)
Current actuarial gains			20,540			41,954
Ending	W		(251,612	)		(272,152	)

7) The principal actuarial assumptions as of December 31, 2016 and 2015 are as follows:

(%)	2016		2015
Discount rate		2.15~8.59		2.19~9.20
Expected future increase in salaries(*1)		1.00~10.00		1.05~10.00

(*1) The expected future increase in salaries is based on the average salary increase rate for the past three years.

All assumptions are reviewed at the end of the reporting period. Additionally, the total estimated defined benefit obligation includes actuarial assumptions associated with the long-term characteristics of the defined benefit plan.

8) Reasonably possible changes at the reporting date to one of the relevant actuarial assumptions, holding the other assumptions constant, would have affected the defined benefit obligation by the amounts shown below:

(in millions of Won)		1% Increase						1% Decrease
		Amount			Percentage(%)			Amount			Percentage(%)
Discount rate	W		(126,918	)		(7.3	)		146,710			8.5
Expected future increases in salaries			145,222			8.4			(129,172	)		(7.5	)

9) As of December 31, 2016 the maturity of the expected benefit payments are as follows:

(in millions of Won)		Within 1 year		1 year -5 years		5 years -10 years		10 years -20 years		After 20 years		Total
Benefits paid	W		83,983		456,679		667,805		684,859		483,152		2,376,478

The maturity analysis of the defined benefit obligation was nominal amounts of defined benefit obligations using expected remaining period of service of employees.

89

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

22. Other Liabilities

Other liabilities as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Current
Due to customers for contract work	W		1,160,201		812,120
Advances received			707,086		780,357
Unearned revenue			8,702		11,684
Withholdings			186,665		153,562
Others			22,307		31,129
	W		2,084,961		1,788,852
Non-current
Unearned revenue	W		20,013		20,838
Others			40,338		56,935
	W		60,351		77,773

23. Financial Instruments

(a) Classification of financial instruments

1) Financial assets as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Financial assets at fair value through profit or loss
Derivatives assets held for trading	W		147,582		188,489
Available-for-sale financial assets			2,514,924		2,209,744
Held-to-maturity financial assets			2,470		23,379
Loans and receivables			19,390,610		20,601,109
	W		22,055,586		23,022,721

90

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) Financial liabilities as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Financial liabilities at fair value through profit or loss
Derivatives liabilities held for trading	W		122,896		155,502
Financial liabilities measured at amortized cost
Trade accounts and notes payable			4,117,798		3,136,446
Borrowings			22,704,998		25,220,231
Financial guarantee liabilities			108,161		101,311
Others			2,007,114		2,197,463
	W		29,060,967		30,810,953

3) Finance income and costs by category of financial instrument for the years ended December 31, 2016 and 2015 were as follows:

① For the year ended December 31, 2016

(in millions of Won)		Finance income and costs																					Other comprehensive income
		Interest income (expense)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total
Financial assets at fair value through profit or loss	W		—			57,411			—			310,625			—			—			368,036			—
Available-for-sale financial assets			431			—			—			127,524			(248,404	)		41,000			(79,449	)		310,608
Held-to-maturity financial assets			266			—			—			—			—			38			304			—
Loans and receivables			181,778			—			140,751			(17,854	)		—			(172	)		304,503			—
Financial liabilities at fair value through profit or loss			—			(72,976	)		—			(332,415	)		—			—			(405,391	)		—
Financial liabilities measured at amortized cost			(658,726	)		—			(283,059	)		(61	)		—			(28,367	)		(970,213	)		—
	W		(476,251	)		(15,565	)		(142,308	)		87,819			(248,404	)		12,499			(782,210	)		310,608

② For the year ended December 31, 2015

(in millions of Won)		Finance income and costs																					Other comprehensive loss
		Interest income (expense)			Gain and loss on valuation			Gain and loss on foreign currency			Gain and loss on disposal			Impairment loss			Others			Total
Financial assets at fair value through profit or loss	W		—			129,949			—			357,715			—			—			487,664			—
Available-for-sale financial assets			1,956			—			—			138,782			(142,781	)		183,712			181,669			(187,854	)
Held-to-maturity financial assets			456			—			—			—			—			(688	)		(232	)		—
Loans and receivables			207,781			—			283,030			(15,406	)		—			(217	)		475,188			—
Financial liabilities at fair value through profit or loss			—			(46,748	)		—			(334,340	)		—			—			(381,088	)		—
Financial liabilities measured at amortized cost			(788,772	)		—			(665,583	)		—			—			(138,827	)		(1,593,182	)		—
	W		(578,579	)		83,201			(382,553	)		146,751			(142,781	)		43,980			(829,981	)		(187,854	)

91

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Credit risk

1) Credit risk exposure

The carrying amount of financial assets represents the Company’s maximum exposure to credit risk. The maximum exposure to credit risk as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Cash and cash equivalents	W		2,447,619		4,870,185
Financial assets at fair value through profit or loss			147,582		188,489
Available-for-sale financial assets			51,649		55,320
Held-to-maturity financial assets			2,470		23,379
Loans and other receivables			7,104,940		6,014,651
Trade accounts and notes receivable, net			9,786,927		9,595,935
Long-term trade accounts and notes receivable, net			51,124		120,338
	W		19,592,311		20,868,297

The Company provided financial guarantees for the repayment of loans of associates, joint ventures and third parties. As of December 31, 2016 and 2015, the maximum exposure to credit risk related to the financial guarantees amounted to W2,995,544 million and W4,129,825 million, respectively.

2) Impairment losses on financial assets

① Allowance for doubtful accounts as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Trade accounts and notes receivable	W		558,125		625,003
Other accounts receivable			203,346		146,031
Loans			210,346		220,966
Other assets			5,954		7,678
	W		977,771		999,678

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

② Impairment losses on financial assets for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Bad debt expenses on trade accounts and notes receivable	W		165,150			189,616
Other bad debt expenses(*1)			50,225			158,071
Impairment loss on available-for-sale financial assets			248,404			142,781
Impairment loss on held-to-maturity financial assets			—			1,000
Less: Recovery of allowance for other bad debt accounts			(12,658	)		(10,452	)
Less: Recovery of impairment loss on held-to-maturity financial assets			(38	)		(312	)
	W		451,083			480,704

(*1) Other bad debt expenses are mainly related to loans and other accounts receivable.

③ The aging and impairment losses of trade accounts and notes receivable as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016				2015
		Trade accounts and notes receivable		Impairment		Trade accounts and notes receivable		Impairment
Not due	W		8,076,392		62,511		6,840,471		55,993
Over due less than 1 month			790,042		27,482		1,843,132		5,084
1 month - 3 months			205,394		8,955		367,663		1,781
3 months - 12 months			189,605		26,814		421,505		37,719
over 12 months			1,134,743		432,363		868,505		524,426
	W		10,396,176		558,125		10,341,276		625,003

④ The aging and impairment losses of other receivables as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016				2015
		Other receivables		Impairment		Other receivables		Impairment
Not due	W		1,641,924		23,958		1,921,274		38,866
Over due less than 1 month			197,772		75,207		155,762		17,955
1 month - 3 months			27,525		1,189		10,285		302
3 months - 12 months			82,337		20,300		76,571		10,556
over 12 months			357,401		298,992		395,200		306,996
	W		2,306,959		419,646		2,559,092		374,675

93

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

⑤ Changes in the allowance for doubtful accounts for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Beginning	W		999,678			954,153
Bad debt expenses			165,150			189,616
Other bad debt expenses			37,567			147,619
Others			(224,624	)		(291,710	)
Ending	W		977,771			999,678

(c) Liquidity risk

1) Contractual maturities for non-derivative financial liabilities, including estimated interest, are as follows:

(in millions of Won)		Book value		Contractual cash flow		Within 1 year		1 year -5 years		After 5 years
Trade accounts and notes payable	W		4,117,798		4,117,798		4,073,286		44,512		—
Borrowings			22,704,998		25,300,261		10,783,630		11,241,991		3,274,640
Financial guarantee liabilities(*1)			108,161		2,995,544		2,995,544		—		—
Other financial liabilities			2,007,114		2,020,008		1,802,035		217,973		—
	W		28,938,071		34,433,611		19,654,495		11,504,476		3,274,640

(*1) For issued financial guarantee contracts, the maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

2) The maturity analysis of derivative financial liabilities is as follows:

(in millions of Won)		Within 1 year		1 year-5 years		Total
Currency forward	W		15,897		9,430		25,327
Currency futures			23,953		5		23,958
Currency swaps			41,933		25,207		67,140
Interest swaps			217		2,468		2,685
Other forwards			3,786		—		3,786
	W		85,786		37,110		122,896

94

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) Currency risk

1) The Company has exposure to the risk that the fair value or future cash flows of a financial instrument will fluctuate because of the changes in foreign exchange rates. The exposure to currency risk as of December 31, 2016 and 2015 are as follows:

		2016				2015
(in millions of Won)		Assets		Liabilities		Assets		Liabilities
USD	W		5,007,649		6,636,065		5,535,915		7,196,614
EUR			463,110		550,235		433,686		657,734
JPY			45,975		821,403		64,495		1,036,545
Others			219,444		286,112		181,091		92,881

2) As of December 31, 2016 and 2015, provided that functional currency against foreign currencies other than functional currency hypothetically strengthens or weakens by 10%, the changes in gain or loss for the years ended December 31, 2016 and 2015 were as follows:

		2016					2015
(in millions of Won)		10% increase			10% decrease		10% increase			10% decrease
USD	W		(162,842	)		162,842		(166,070	)		166,070
EUR			(8,713	)		8,713		(22,405	)		22,405
JPY			(77,543	)		77,543		(97,205	)		97,205

(e) Interest rate risk

1) The carrying amount of interest-bearing financial instruments as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016			2015
Fixed rate
Financial assets	W		8,650,483			9,686,358
Financial liabilities			(10,794,724	)		(13,432,518	)
	W		(2,144,241	)		(3,746,160	)
Variable rate
Financial liabilities	W		(12,024,683	)		(11,828,998	)

2) Sensitivity analysis on the fair value of financial instruments with fixed interest rate

The Company does not account for any fixed rate financial assets and liabilities at fair value through profit or loss, and the Company does not designate derivatives (interest rate swaps) as hedging instruments under fair value hedge accounting model. Therefore a change in interest rates at the reporting date would not affect profit or loss.

95

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

3) Sensitivity analysis on the cash flows of financial instruments with variable interest rate

As of December 31, 2016 and 2015, provided that other factors remain the same and the interest rate of borrowings with floating rates increases or decreases by 1%, the changes in interest expense for the years ended December 31, 2016 and 2015 were as follows:

		2016					2015
(in millions of Won)		1% increase			1% decrease		1% increase			1% decrease
Variable rate financial instruments	W		(120,247	)		120,247		(118,290	)		118,290

(f) Fair value

1) Fair value and book value

The carrying amount and the fair value of financial instruments as of December 31, 2016 and 2015 are as follows:

		2016				2015
(in millions of Won)		Book value		Fair value		Book value		Fair value
Assets measured at fair value
Available-for-sale financial assets(*1)	W		2,139,687		2,139,687		1,854,784		1,854,784
Derivatives assets held for trading			147,582		147,582		188,489		188,489
			2,287,269		2,287,269		2,043,273		2,043,273
Assets measured at amortized cost(*2)
Cash and cash equivalents			2,447,619		2,447,619		4,870,185		4,870,185
Trade accounts and notes receivable, net			9,838,051		9,838,051		9,716,273		9,716,273
Loans and other receivables, net			7,104,940		7,104,940		6,014,651		6,014,651
Held-to-maturity financial assets			2,470		2,470		23,379		23,379
			19,393,080		19,393,080		20,624,488		20,624,488
Liabilities measured at fair value
Derivatives liabilities held for trading			122,896		122,896		155,502		155,502
Liabilities measured at amortized cost(*2)
Trade accounts and notes payable			4,117,798		4,117,798		3,136,446		3,136,446
Borrowings			22,704,998		22,956,571		25,220,231		25,413,577
Financial guarantee liabilities			108,161		108,161		101,311		101,311
Others			2,007,114		2,007,114		2,197,463		2,197,463
	W		28,938,071		29,189,644		30,655,451		30,848,797

(*1) Available-for-sale financial assets which are not measured at fair value are not included.

(*2) The fair value of financial assets and financial liabilities measured at amortized cost is determined at the present value of estimated future cash flows discounted at the current market interest rate. The fair value is calculated for the disclosures in the notes. On the other hand, the Company has not performed fair value measurement for the financial assets and financial liabilities measured at amortized cost except borrowings(fair value hierarchy level 2) since their carrying amounts approximate fair value.

96

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) The fair values of financial assets and financial liabilities by fair value hierarchy as of December 31, 2016 and 2016 are as follows:

① December 31, 2016

(in millions of Won)		Level 1		Level 2		Level 3		Total
Financial assets
Available-for-sale financial assets	W		1,800,943		—		338,744		2,139,687
Derivatives assets held for trading			—		137,236		10,346		147,582
			1,800,943		137,236		349,090		2,287,269
Financial liabilities
Derivatives liabilities held for trading	W		—		122,896		—		122,896

② December 31, 2015

(in millions of Won)		Level 1		Level 2		Level 3		Total
Financial assets
Available-for-sale financial assets	W		1,458,551		—		396,233		1,854,784
Derivatives assets held for trading			—		110,197		78,292		188,489
			1,458,551		110,197		474,525		2,043,273
Financial liabilities
Derivatives liabilities held for trading	W		—		147,384		8,118		155,502

3) Financial assets and financial liabilities classified as fair value hierarchy level 2

Fair values of derivatives are measured using the derivatives instrument valuation model such as market approach method and discounted cash flow method. Inputs of the financial instrument valuation model include interest rate, exchange rate, spot price of underlying assets, volatility and others. It may change depending on the type of derivatives and the nature of the underlying assets.

97

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

4) Financial assets and financial liabilities classified as fair value hierarchy level 3

① Value measurement method and significant but not observable inputs for the financial assets classified as fair value hierarchy level 3 as of December 31, 2016 are as follows:

(in millions of Won)		Fair value	Valuation technique	Inputs	Range of inputs	Effect on fair value assessment with unobservable input
Available-for-sale financial assets	W	280,478	Discounted cash flows	Growth rate	0% ~ 2.0%	As growth rate increases, fair value increases
				Discount rate	0.5% ~ 11.9%	As discount rate increases, fair value decreases
		16,000	Peer group usage	PER	1.085 ~ 5.245	As PER increases, fair value increases
		42,266	Asset value approach	—	—	—
Derivatives assets held for trading		10,346	Discounted cash flows	Discount rate	8.39%	As discount rate increases, fair value decreases

② Sensitivity analysis of financial assets and financial liabilities classified as Level 3 of fair value hierarchy

If other inputs remain constant as of December 31, 2016 and one of the significant but not observable input is changed, the effect on fair value measurement is as follows:

(in millions of Won)	Input variable		Favorable changes		Unfavorable changes
Available-for-sale financial assets	Fluctuation 0.5% of growth rate	W		8,809		7,369
	Fluctuation 0.5% of discount rate			28,392		25,380
Derivatives assets held for trading	Fluctuation 0.5% of discount rate			72		71

③ Changes in fair value of financial assets and financial liabilities classified as Level 3 for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Beginning	W		466,407			154,905
Acquisition			47,493			381,960
Changes in the fair value of derivatives			(59,829	)		48,487
Other comprehensive loss			(38,731	)		(13,523	)
Impairment			(19,111	)		(27,211	)
Disposal and others			(47,139	)		(78,211	)
Ending	W		349,090			466,407

98

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

24. Share Capital and Capital Surplus

(a) Share capital as of December 31, 2016 and 2015 are as follows:

(Share, in Won)		2016		2015
Authorized shares			200,000,000		200,000,000
Par value	W		5,000		5,000
Issued shares(*1)			87,186,835		87,186,835
Shared capital(*2)	W		482,403,125,000		482,403,125,000

(*1) As of December 31, 2016, total shares of ADRs of 39,889,560 outstanding in overseas stock market are equivalent to 9,972,390 of common stock.

(*2) As of December 31, 2016, the difference between the ending balance of common stock and the par value of issued common stock is W46,469 million due to retirement of 9,293,790 treasury stocks.

(b) The changes in issued common stock for the years ended December 31, 2016 and 2015 were as follows:

(share)	2016							2015
	Issued shares		Treasury shares			Number of Outstanding shares		Issued shares		Treasury shares			Number of Outstanding shares
Beginning		87,186,835		(7,191,187	)		79,995,648		87,186,835		(7,193,807	)		79,993,028
Disposal of treasury shares		—		2,017			2,017		—		2,620			2,620
Ending		87,186,835		(7,189,170	)		79,997,665		87,186,835		(7,191,187	)		79,995,648

(c) Capital surplus as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Share premium	W		463,825		463,825
Gain on disposal of treasury shares			783,788		783,756
Other capital surplus			150,178		136,042
	W		1,397,791		1,383,623

99

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

25. Hybrid Bonds

(a) Hybrid bonds classified as equity as of December 31, 2016 and 2015 are as follows:

(in millions of Won)	Date of issue		Date of maturity		Interest rate (%)			2016			2015
Hybrid bond 1-1(*1)		2013-06-13		2043-06-13		4.30	W		800,000			800,000
Hybrid bond 1-2(*1)		2013-06-13		2043-06-13		4.60			200,000			200,000
Issuance cost									(3,081	)		(3,081	)
							W		996,919			996,919

(*1) Details of issuance of hybrid bonds as of December 31, 2016 are as follows:

(in millions of Won)	Hybrid bond 1-1	Hybrid bond 1-2
Issue price	800,000	200,000
Maturity date	30 years (The Company has a right to extend the maturity date)	30 years (The Company has a right to extend the maturity date)
Interest rate	Issue date ~ 2018-06-12 : 4.3% Reset every 5 years as follows; •    After 5 years : return on government bond (5 years) + 1.3% •    After 10 years : additionally +0.25% according to Step-up clauses •    After 25 years : additionally +0.75%	Issue date ~ 2023-06-12 : 4.6% Reset every 10 years as follows; •    After 10 years : return on government bond (10 years) + 1.4% •    After 10 years : additionally +0.25% according to Step-up clauses •    After 30 years : additionally +0.75%
Interest payments condition	Quarterly (Optional deferral of interest payment is available to the Company)	Quarterly (Optional deferral of interest payment is available to the Company)
Others	The Company can call the hybrid bond at year 5 and interest payment date afterwards	The Company can call the hybrid bond at year 10 and interest payment date afterwards

The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2016 amounts to W2,389 million.

(b) POSCO ENERGY Co., Ltd., a subsidiary of the Company, issued hybrid bonds, which are classified as non-controlling interests in the consolidated financial statements. Hybrid bonds as of December 31, 2016 and 2015 are as follows:

(in millions of Won)	Date of issue		Date of maturity		Interest rate (%)			2016			2015
Hybrid bond 1-1(*1)		2013-08-29		2043-08-29		4.66	W		165,000			165,000
Hybrid bond 1-2(*1)		2013-08-29		2043-08-29		4.72			165,000			165,000
Hybrid bond 1-3(*1)		2013-08-29		2043-08-29		4.72			30,000			30,000
Hybrid bond 1-4(*1)		2013-08-29		2043-08-29		5.21			140,000			140,000
Issuance cost									(1,532	)		(1,532	)
							W		498,468			498,468

100

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(*1) Details of issuance of hybrid bonds of POSCO ENERGY Co., Ltd .as of December 31, 2016 are as follows:

(in millions of Won)	Hybrid bond 1-1	Hybrid bond 1-2 and 1-3	Hybrid bond 1-4
Issue price	165,000	195,000	140,000
Maturity date	30 years (The Company has a right to extend the maturity date)	30 years (The Company has a right to extend the maturity date)	30 years (The Company has a right to extend the maturity date)
Interest rate	Issue date ~ 2018-08-29 : 4.66% Reset every 5 years as follows; •    After 5 years : return on government bond (5 years) + 1.39% •    After 10 years : additionally +0.25% according to Step-up clauses •    After 30 years : additionally +0.75%	Issue date ~ 2018-08-29 : 4.72% Reset every 5 years as follows; •    After 5 years : return on government bond (5 years) + 1.45% •    After 10 years : additionally +0.25% according to Step-up clauses •    After 30 years : additionally +0.75%	Issue date ~ 2018-08-29 : 5.21% Reset every 5 years as follows; •    After 5 years : return on government bond (5 years) + 1.55% •    After 10 years : additionally +0.25% according to Step-up clauses •    After 30 years : additionally +0.75%
Interest payments condition	Quarterly (Optional deferral of interest payment is available to the Company)	Quarterly (Optional deferral of interest payment is available to the Company)	Quarterly (Optional deferral of interest payment is available to the Company)
Others	The Company can call the hybrid bond at year 5 and interest payment date afterwards	The Company can call the hybrid bond at year 5 and interest payment date afterwards	The Company can call the hybrid bond at year 5 and interest payment date afterwards

The hybrid bond holders’ preference in the event of liquidation is higher than the common stock holders, but lower than other creditors. The interest accumulated but not paid on the hybrid bonds as of December 31, 2016 amounts to W2,000 million.

26. Reserves

(a) Reserves as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016			2015
Accumulated comprehensive loss of investments in associates and joint ventures	W		(301,734	)		(426,360	)
Changes in the unrealized fair value of available-for-sale investments			276,143			(38,294	)
Foreign currency translation differences			(99,264	)		(109,646	)
Others			(19,130	)		(20,456	)
	W		(143,985	)		(594,756	)

(b) Changes in fair value of available-for-sale investments for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Beginning balance	W		(38,294	)		144,783
Changes in the unrealized fair value of available-for-sale investments			218,542			(236,752	)
Reclassification to profit or loss upon disposal			(88,781	)		(45,817	)
Impairment of available-for-sale investments			187,108			94,487
Others			(2,432	)		5,005
Ending balance	W		276,143			(38,294	)

101

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

27. Treasury Shares

Based on the Board of Directors’ resolution, the Company holds treasury shares for business purposes including price stabilization. The changes in treasury shares for the years ended December 31, 2016 and 2015 were as follows:

(shares, in millions of Won)	2016							2015
	Number of shares				Amount			Number of shares				Amount
Beginning		7,191,187		W		1,533,898			7,193,807		W		1,534,457
Disposal of treasury shares		(2,017	)			(430	)		(2,620	)			(559	)
Ending		7,189,170		W		1,533,468			7,191,187		W		1,533,898

28. Revenue

Details of revenue for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Sales of goods	W		43,683,169		47,018,466
Services			2,276,534		2,489,447
Construction revenue			6,641,465		8,216,531
Rental income			8,930		11,757
Others			473,415		456,144
	W		53,083,513		58,192,345

29. Construction Contracts

(a) Details of in-progress construction contracts as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016						2015
		Construction segment			Others			Construction segment			Others
Accumulated cost	W		22,493,050			313,422			18,786,683			311,726
Add: Accumulated profit			1,574,858			48,119			1,374,548			34,939
Less: Accumulated loss			(1,115,245	)		(23,920	)		(430,957	)		(16,510	)
Accumulated revenue			22,952,663			337,621			19,730,274			330,155
Less: Progress billings			(23,157,151	)		(338,991	)		(19,265,173	)		(344,252	)
Others			2,909			7,052			(24,967	)		(20,126	)
	W		(201,579	)		5,682			440,134			(34,223	)

102

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Details of due from customers for contract work and due to customers for contract work related to construction as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016						2015
		Construction segment			Others			Construction segment			Others
Due from customers for contract work	W		894,181			70,123			1,157,617			60,414
Due to customers for contract work			(1,095,760	)		(64,441	)		(717,483	)		(94,637	)
	W		(201,579	)		5,682			440,134			(34,223	)

(c) Details of the provisions of construction loss, the allowance for due from customers and the accounts receivable of construction as of December 31, 2016 and December 31, 2015 are as follows:

(in millions of Won)		2016		2015
Construction segment	W		143,159		55,101
Others			3,524		1,380
	W		146,683		56,481

(d) Due to the factors causing the variation of costs for the year ended December 31, 2016, the estimated total contract costs have changed. Details of changes in estimated total contract costs and the impact on profits or loss for the year ended December 31, 2016 and future periods are as follows:

(in millions of Won)		Changes in estimated total contract costs		Changes in profit (loss) of construction contract(*1)
				2016			Future periods			Total
Construction segment(*2)	W		488,352		(776,237	)		92,082			(684,155	)
Others			5,550		4,518			(559	)		3,959
	W		493,902		(771,719	)		91,523			(680,196	)

(*1) The effect on the current and future profit is estimated based on the circumstances that have occurred from the commencement date of the contract to the end of 2016. The estimation is evaluated for the total contract cost and expected total contract revenue as of the end of the period. Also, it may change during future periods.

(*2) During the year ended December 31, 2016, errors were detected in prior years calculating the estimated total contract costs of POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA, a subsidiary of the construction segment. The errors were corrected and reflected in the year ended December 31, 2016. Had the consolidated financial statements have been revised retrospectively to reflect the correction of the errors, sales and net income for the year ended December 31, 2016 would have been increased by W90,905 million and W84,314 million respectively. Also the sales and net income in current year input is determined for the year ended December 31, 2015 would have been decreased by W93,851 million and W87,047 million respectively.

103

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(e) Uncertainty of estimates

1) Total contract revenues

Total contract revenues are measured based on contractual amount initially agreed. However, the contract revenues can increase due to additional contract work, claims and incentive payments in the course of construction, or decrease due to penalty when the completion of contract is delayed due to the Company’s fault. Therefore, this measurement of contract revenues is affected by the uncertainty of the occurrence of future events.

2) Total contract costs

Construction revenues are recognized based on the percentage of completion, which is measured on the basis of the gross amount incurred to date. Total contract costs are estimated based on estimates of future material costs, labor costs, outsourcing cost and others. There is uncertainty in future estimates due to various internal and external factors such as fluctuation of market, the risk of business partner and the experience of project performance and others. The significant assumptions including uncertainty of the estimate of total contract costs are as follows:

	Method of significant assumption
Material cost	Assumption based on recent purchasing price and quoted market price
Labor cost	Assumption based on standard monthly and daily labor cost
Outsourcing cost	Assumption based on the past experience rate of similar project and market price

Management reviews the assumptions used in estimated contract costs at each reporting period end and adjusts them, if necessary.

104

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

30. Selling and Administrative Expenses

(a) Administrative expenses

Administrative expenses for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Wages and salaries	W		769,589		810,851
Expenses related to post-employment benefits			200,956		87,293
Other employee benefits			176,794		193,967
Travel			40,828		48,426
Depreciation			74,486		111,683
Amortization			168,525		162,312
Communication			11,186		12,502
Electricity expenses			7,527		9,573
Taxes and public dues			78,895		74,315
Rental			82,005		119,836
Repairs			11,316		11,677
Entertainment			13,157		15,740
Advertising			86,141		90,698
Research & development			120,608		135,508
Service fees			201,129		218,751
Supplies			7,297		9,855
Vehicles maintenance			10,090		10,756
Industry association fee			13,468		12,603
Conference			13,108		16,053
Contribution to provisions			6,532		14,900
Bad debt expenses			165,150		189,616
Others			32,753		38,333
	W		2,291,540		2,395,248

105

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Selling expenses

Selling expenses for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Freight and custody expenses	W		1,342,009		1,531,906
Operating expenses for distribution center			10,315		11,021
Sales commissions			94,377		80,165
Sales advertising			5,117		3,220
Sales promotion			10,670		22,443
Sample			2,335		2,576
Sales insurance premium			31,379		30,682
Contract cost			49,480		38,425
Others			8,004		8,518
	W		1,553,686		1,728,956

31. Research and Development Expenditures Recognized as Expenses

Research and development expenditures recognized as expenses for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Administrative expenses	W		120,608		135,508
Cost of sales			324,190		356,173
	W		444,798		491,681

106

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

32. Finance Income and Costs

Details of finance income and costs for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Finance income
Interest income	W		182,475		210,193
Dividend income			41,000		183,712
Gain on foreign currency transactions			1,032,552		1,025,240
Gain on foreign currency translations			377,723		466,090
Gain on derivatives transactions			316,524		366,482
Gain on valuations of derivatives			147,111		155,334
Gain on disposals of available-for-sale financial assets			130,830		139,136
Others			3,765		10,886
	W		2,231,980		2,557,073
Finance costs
Interest expenses	W		658,726		788,772
Loss on foreign currency transactions			1,147,192		1,157,161
Loss on foreign currency translations			405,391		716,722
Loss on derivatives transactions			338,314		343,118
Loss on valuation of derivatives			162,676		72,133
Impairment loss on available-for-sale financial assets			248,404		142,781
Others			53,487		166,367
	W		3,014,190		3,387,054

107

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

33. Other Non-Operating Income and Expenses

Details of other non-operating income and expenses for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Other non-operating income
Gain on disposals of assets held for sale	W		23,112		227,956
Gain on disposals of investment in subsidiaries, associates and joint ventures			23,305		88,718
Gain on disposals of property, plant and equipment			23,826		22,730
Recovery of allowance for other doubtful accounts			12,658		10,452
Rental revenues			1,771		1,019
Gain on insurance proceeds			22,400		14,976
Others			108,064		183,197
	W		215,136		549,048
Other non-operating expenses
Impairment loss on assets held for sale	W		24,890		133,547
Loss on disposals of assets held for sale			254		190,357
Loss on disposals of investment in subsidiaries, associates and joint ventures			22,499		18,996
Loss on disposals of property, plant and equipment			86,622		101,732
Impairment loss on property, plant and equipment			196,882		136,269
Impairment loss on goodwill and intangible assets			127,875		161,412
Other bad debt expenses			50,225		158,071
Idle tangible asset expenses			6,437		12,773
Impairment loss on other non-current assets			9,894		12,264
Incease to provisions			53,058		18,396
Donations			43,810		62,957
Others(*1)			133,274		435,524
	W		755,720		1,442,298

(*1) The Company paid W299,037 million in connection with its settlement with Nippon Steel & Sumitomo Metal Corporation for a civil lawsuit regarding improperly acquired trade secrets and patents for the year ended December 31, 2015.

108

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

34. Expenses by Nature

Expenses that are recorded by nature as cost of sales, selling and administrative expenses and other non-operating expenses in the statements of comprehensive income for the years ended December 31, 2016 and 2015 were as follows (excluding finance costs and income tax expense):

(in millions of Won)		2016		2015
Raw material used, changes in inventories and others	W		30,300,229		33,578,772
Employee benefits expenses(*2)			3,444,276		3,472,295
Outsourced processing cost			7,678,055		8,681,271
Electricity expenses			1,018,429		1,251,546
Depreciation(*1)			2,835,843		2,836,663
Amortization			378,004		381,583
Freight and custody expenses			1,342,009		1,531,906
Sales commissions			94,377		80,165
Loss on disposal of property, plant and equipment			86,622		101,732
Impairment loss on property, plant and equipment			196,882		136,269
Impairment loss on goodwill and intangible assets			127,875		161,412
Contribution to provisions			189,914		86,903
Donations			43,810		62,957
Others			3,258,583		4,861,126
	W		50,994,908		57,224,600

(*1) Includes depreciation expense of investment property.

(*2) The details of employee benefits expenses for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016		2015
Wages and salaries	W		3,016,488		3,186,237
Expenses related to post-employment benefits			427,788		286,058
	W		3,444,276		3,472,295

109

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

35. Income Taxes

(a) Income tax expense for the years ended December 31, 2016 and 2015 was as follows:

(in millions of Won)		2016			2015
Current income taxes	W		699,269			553,041
Deferred income tax due to temporary differences			(204,565	)		(246,500	)
Items recorded directly in equity			(110,019	)		(29,602	)
Income tax expense	W		384,685			276,939

(b) The income taxes credited (charged) directly to equity for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Net changes in the unrealized fair value of available-for-sale investments	W		(100,550	)		60,077
Loss (gain) on sale of treasury shares			(10	)		12
Other capital surplus			—			(83,746	)
Others			(9,459	)		(5,945	)
	W		(110,019	)		(29,602	)

(c) The following table reconciles the calculated income tax expense based on POSCO’s statutory rate (24.2%) to the actual amount of taxes recorded by the Company for the years ended December 31, 2016 and 2015.

(in millions of Won)		2016			2015
Profit before income tax expense	W		1,432,854			180,758
Income tax expense computed at statutory rate			346,289			43,281
Adjustments:
Tax credits			(30,124	)		(152,139	)
Over provisions from prior years			(11,829	)		(47,053	)
Investment in subsidiaries, associates and joint ventures			76,751			442,594
Tax effects due to permanent differences			(9,962	)		(26,045	)
Others			13,560			16,301
			38,396			233,658
Income tax expense	W		384,685			276,939
Effective tax rate (%)			26.85	%		153.21	%

110

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) The movements in deferred tax assets (liabilities) for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016									2015
		Beginning			Inc. (Dec.)			Ending			Beginning			Inc. (Dec.)			Ending
Deferred income tax due to temporary differences
Allowance for doubtful accounts	W		202,592			10,527			213,119			195,735			6,857			202,592
Reserve for technology developments			(177,676	)		85,716			(91,960	)		(259,033	)		81,357			(177,676	)
PP&E - Depreciation			(15,240	)		3,601			(11,639	)		(6,675	)		(8,565	)		(15,240	)
Share of profit or loss of equity-accounted investees			(45,174	)		115,433			70,259			(96,693	)		51,519			(45,174	)
Allowance for inventories valuation			13,373			2,278			15,651			1,991			11,382			13,373
PP&E - Revaluation			(1,393,501	)		(130,648	)		(1,524,149	)		(1,222,599	)		(170,902	)		(1,393,501	)
Prepaid expenses			19,180			485			19,665			17,461			1,719			19,180
PP&E - Impairment loss			8,055			(2,760	)		5,295			21,962			(13,907	)		8,055
Gain or loss on foreign currency translation			(29,355	)		23,398			(5,957	)		(69,112	)		39,757			(29,355	)
Defined benefit obligations			354,175			7,663			361,838			365,721			(11,546	)		354,175
Plan assets			(287,839	)		(28,686	)		(316,525	)		(298,072	)		10,233			(287,839	)
Provision for construction losses			612			385			997			4,953			(4,341	)		612
Provision for construction warranty			21,604			2,718			24,322			20,371			1,233			21,604
Accrued income			(8,982	)		(459	)		(9,441	)		(3,691	)		(5,291	)		(8,982	)
Impairment loss on AFS			266,474			(21,306	)		245,168			172,001			94,473			266,474
Difference in acquisition costs of treasury shares			62,116			(17	)		62,099			62,139			(23	)		62,116
Others			278,002			102,401			380,403			81,310			196,692			278,002
			(731,584	)		170,729			(560,855	)		(1,012,231	)		280,647			(731,584	)
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments			50,043			(100,550	)		(50,507	)		(10,034	)		60,077			50,043
Others			61,291			(9,459	)		51,832			67,236			(5,945	)		61,291
			111,334			(110,009	)		1,325			57,202			54,132			111,334
Deferred tax from tax credit
Tax credit carry-forward and others			277,261			30,074			307,335			339,959			(62,698	)		277,261
Investments in subsidiaries, associates and joint ventures
Investments in subsidiaries, associates and joint ventures			(18,088	)		104,217			86,129			(21,627	)		3,538			(18,089	)
	W		(361,077	)		195,011			(166,066	)		(636,697	)		275,619			(361,078	)

111

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(e) Deferred tax assets and liabilities for the years ended December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016								2015
		Assets		Liabilities			Net			Assets		Liabilities			Net
Deferred income tax due to temporary differences
Allowance for doubtful accounts	W		213,119		—			213,119			202,592		—			202,592
Reserve for technology developments			—		(91,960	)		(91,960	)		—		(177,676	)		(177,676	)
PP&E - Depreciation			50,843		(62,482	)		(11,639	)		34,575		(49,815	)		(15,240	)
Share of profit or loss of equity-accounted investees			178,538		(108,279	)		70,259			52,521		(97,695	)		(45,174	)
Allowance for inventories valuation			15,651		—			15,651			13,373		—			13,373
PP&E - Revaluation			—		(1,524,149	)		(1,524,149	)		—		(1,393,501	)		(1,393,501	)
Prepaid expenses			19,665		—			19,665			19,180		—			19,180
PP&E - Impairment loss			5,397		(102	)		5,295			8,159		(104	)		8,055
Gain or loss on foreign currency translation			99,836		(105,793	)		(5,957	)		107,076		(136,431	)		(29,355	)
Defined benefit obligations			361,838		—			361,838			354,175		—			354,175
Plan assets			—		(316,525	)		(316,525	)		—		(287,839	)		(287,839	)
Provision for construction losses			997		—			997			612		—			612
Provision for construction warranty			24,322		—			24,322			21,604		—			21,604
Accrued income			—		(9,441	)		(9,441	)		—		(8,982	)		(8,982	)
Impairment loss on AFS			245,168		—			245,168			266,474		—			266,474
Difference in acquisition costs of treasury shares			62,099		—			62,099			62,116		—			62,116
Others			429,079		(48,676	)		380,403			351,558		(73,556	)		278,002
			1,706,552		(2,267,407	)		(560,855	)		1,494,015		(2,225,599	)		(731,584	)
Deferred income taxes recognized directly to equity
Loss (gain) on valuation of available-for-sale investments			50,245		(100,752	)		(50,507	)		218,161		(168,118	)		50,043
Others			65,532		(13,700	)		51,832			76,086		(14,795	)		61,291
			115,777		(114,452	)		1,325			294,247		(182,913	)		111,334
Deferred tax from tax credit
Tax credit carry-forward and others			307,335		—			307,335			277,261		—			277,261
Investments in subsidiaries, associates and joint ventures
Investments in subsidiaries, associates and joint ventures			561,505		(475,376	)		86,129			518,326		(536,415	)		(18,089	)
	W		2,691,169		(2,857,235	)		(166,066	)		2,583,849		(2,944,927	)		(361,078	)

(f) As of December 31, 2016, the Company did not recognize income tax effects associated with deductible temporary differences of W4,612,900 million mainly relating to loss of subsidiaries and affiliates because realization is not considered probable. As of December 31, 2016, the Company did not recognize income tax effects associated with taxable temporary differences of W3,933,428 million (deferred tax liabilities W951,890 million) mainly relating to increase in retained earnings of subsidiaries since it is probable that the temporary difference will not reverse in the foreseeable future.

112

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

36. Earnings per Share

Basic and diluted earnings per share for the years ended December 31, 2016 and 2015 were as follows:

(in Won, except per share information)		2016			2015
Profit attribute to controlling interest	W		1,363,309,633,135			180,646,881,979
Interests of hybrid bonds			(33,225,163,081	)		(33,029,632,499	)
Weighted-average number of common shares outstanding(*1)			79,996,389			79,993,834
Basic and diluted earnings per share	W		16,627			1,845

(*1) The weighted-average number of common shares used to calculate basic and diluted earnings per share are as follows:

(shares)	2016			2015
Total number of common shares issued		87,186,835			87,186,835
Weighted-average number of treasury shares		(7,190,446	)		(7,193,001	)
Weighted-average number of common shares outstanding		79,996,389			79,993,834

Since there were no potential shares of common stock which had dilutive effects as of December 31, 2016 and 2015, diluted earnings per share is equal to basic earnings per share.

113

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

37. Related Party Transactions

(a) Significant transactions between the controlling company and related companies for the years ended December 31, 2016 and 2015 were as follows:

1) For the year ended December 31, 2016

(in millions of Won)		Sales and others(*1)				Purchase and others(*2)
		Sales		Others		Purchase of material		Purchase of fixed assets		Outsourced processing cost		Others
Subsidiaries(*3)
POSCO ENGINEERING & CONSTRUCTION., LTD.	W		29,511		16,661		8		183,768		—		24,511
POSCO Processing&Service			1,212,220		5,778		549,803		2,896		22,704		2,445
POSCO COATED & COLOR STEEL Co., Ltd.			326,078		2,560		—		—		12,232		126
POSCO ICT(*4)			1,224		727		—		219,301		32,456		171,107
eNtoB Corporation			—		5		278,016		9,836		212		19,436
POSCO CHEMTECH			319,164		33,784		502,448		14,847		290,427		5,139
POSCO ENERGY CO., LTD.			187,311		1,382		—		—		—		7
POSCO TMC Co., Ltd.(*5)			219,489		—		2		—		863		1,177
POSCO AST(*5)			152,098		1		—		—		19,695		922
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)(*6)			3,227,716		34,341		92,203		—		343		—
POSCO Thainox Public Company Limited			237,471		2,915		9,593		—		19		548
POSCO America Corporation			469,543		—		284		—		—		1,103
POSCO Canada Ltd.			275		—		148,528		—		—		—
POSCO Asia Co., Ltd.			1,758,080		1,373		403,174		247		939		3,602
Qingdao Pohang Stainless Steel Co., Ltd.			135,405		—		—		—		—		525
POSCO JAPAN Co., Ltd.			1,112,489		128		23,217		3,744		345		3,841
POSCO-VIETNAM Co., Ltd.			226,063		445		—		—		—		—
POSCO MEXICO S.A. DE C.V.			274,210		462		—		—		—		—
POSCO Maharashtra Steel Private Limited			355,829		2,613		—		—		—		93
POSCO(Suzhou) Automotive Processing Center Co., Ltd.			149,911		—		—		—		—		—
Others			766,263		22,717		207,601		62,202		212,344		145,562
			11,160,350		125,892		2,214,877		496,841		592,579		380,144
Associates and joint ventures(*3)
SeAH Changwon Integrated Special Steel			28		—		1,095		—		627		—
POSCO PLANTEC Co., Ltd.			2,245		48		3,533		244,898		16,812		8,146
SNNC			6,004		1,042		487,395		—		—		2
POSCO-SAMSUNG-Slovakia Processing center			44,686		—		—		—		—		—
KOBRASCO			—		29,297		—		—		—		—
Others			26,625		13,122		175,246		—		—		—
			79,588		43,509		667,269		244,898		17,439		8,148
	W		11,239,938		169,401		2,882,146		741,739		610,018		388,292

(*1) Sales and others mainly consist of sales of steel products to subsidiaries, associates and joint ventures.

(*2) Purchases and others mainly consist of subsidiaries’ purchases of construction services and purchases of raw materials to manufacture steel products.

(*3) As of December 31, 2016, the Company provided guarantees to related parties (Note 38).

(*4) Others (purchase) mainly consist of service fees related to maintenance and repair of ERP System.

(*5) During the year ended December 31, 2016, it was merged into POSCO Processing& Service.

(*6) During the year ended December 31, 2016, Daewoo International Corporation was renamed POSCO DAEWOO Corporation.

114

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) For the year ended December 31, 2015

(in millions of Won)		Sales and others				Purchase and others
		Sales		Others		Purchase of material		Purchase of fixed assets		Outsourced processing cost		Others
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	W		4,441		145		19		427,760		2,250		37,488
POSCO Processing&Service			1,074,826		24		437,626		—		—		2,281
POSCO COATED & COLOR STEEL Co., Ltd.			380,626		—		—		—		9,359		104
POSCO ICT			1,259		7		—		210,877		29,612		182,745
eNtoB Corporation			—		—		261,989		6,501		130		22,017
POSCO CHEMTECH			436,594		30,343		519,956		9,515		297,183		1,773
POSCO ENERGY CO., LTD.			188,458		1,359		—		—		—		6
POSCO TMC Co., Ltd.			263,242		—		—		—		1,497		1,560
POSCO AST			362,658		15		4,115		—		39,175		1,611
POSHIMETAL Co., Ltd.			10,777		151		145,165		—		—		46
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)			3,505,187		34,334		46,675		—		—		480
SeAH Changwon Integrated Special Steel(*1)			2,811		176,904		8,239		—		515		75
POSCO PLANTEC Co., Ltd.(*1)			4,280		33		2,544		125,192		15,135		13,649
POSCO Thainox Public Company Limited			268,576		10		5,147		—		—		34
POSCO America Corporation			624,549		6		—		—		—		725
POSCO Canada Ltd.			—		—		111,243		—		—		—
POSCO Asia Co., Ltd.			1,822,932		960		269,086		—		513		2,273
Qingdao Pohang Stainless Steel Co., Ltd.			118,845		—		—		—		—		220
POSCO JAPAN Co., Ltd.			1,051,910		9,383		25,957		2,278		201		2,754
POSCO MEXICO S.A. DE C.V.			270,184		80		—		—		—		11
PT. KRAKATAU POSCO			—		—		118,888		—		—		—
POSCO Maharashtra Steel Private Limited			421,244		752		—		—		—		31
Others(*2)			867,334		14,474		223,393		113,769		212,539		129,506
			11,680,733		268,980		2,180,042		895,892		608,109		399,389
Associates and joint ventures
SeAH Changwon Integrated Special Steel(*1)			6,042		—		3,802		—		419		—
POSCO PLANTEC Co., Ltd.(*1)			147		14		1,017		82,338		3,513		4,676
SNNC			4,673		594		422,420		—		—		—
POSCO-SAMSUNG-Slovakia Processing Center			26,379		—		—		—		—		—
Others(*3,4)			28,841		40,600		51,855		—		—		—
			66,082		41,208		479,094		82,338		3,932		4,676
	W		11,746,815		310,188		2,659,136		978,230		612,041		404,065

(*1) During the year ended December 31, 2015, it was reclassified from a subsidiary to an associate(Note 11).

(*2) During the year ended December 31, 2015, the Company borrowed USD 17.42 million from POSCO-Uruguay S.A., a subsidiary of the Company, and the entire amount was repaid as of December 31, 2015.

(*3) During the year ended December 31, 2015, the Company lent USD 60 million to CSP-Compania Siderurgica do Pecem, an associate of the Company, and the entire amount of loan was collected as of December 31, 2015.

(*4) The Company has collected loans of USD 3.85 million from LLP POSUK Titanium, an associate of the Company for the year ended December 31, 2015

115

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) The related account balances of significant transactions between the controlling company and related companies as of December 31, 2016 and 2015 are as follows:

1) December 31, 2016

(in millions of Won)		Receivables						Payables
		Trade accounts and notes receivable		Others		Total		Trade accounts and notes payable		Accounts payable		Others		Total
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	W		3		3,359		3,362		—		9,825		515		10,340
POSCO Processing&Service			207,744		178		207,922		1,085		5,367		5,184		11,636
POSCO COATED & COLOR STEEL Co., Ltd.			48,716		324		49,040		—		5		1,600		1,605
POSCO ICT			—		128		128		1,062		89,382		6,074		96,518
eNtoB Corporation			—		—		—		9,948		29,310		15		39,273
POSCO CHEMTECH			27,253		3,868		31,121		54,702		11,870		19,282		85,854
POSCO ENERGY CO., LTD.			18,701		2,012		20,713		—		—		1,425		1,425
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)			182,700		11,184		193,884		460		183		49		692
POSCO Thainox Public Company Limited			62,034		8		62,042		—		224		—		224
POSCO America Corporation			10,008		—		10,008		—		—		—		—
POSCO Asia Co., Ltd.			375,823		7		375,830		25,101		—		—		25,101
Qingdao Pohang Stainless Steel Co., Ltd.			25,386		—		25,386		—		5		—		5
POSCO MEXICO S.A. DE C.V.			114,166		—		114,166		—		—		—		—
POSCO Maharashtra Steel Private Limited			208,737		2,512		211,249		—		—		—		—
Others			333,031		2,461		335,492		17,374		46,455		26,974		90,803
			1,614,302		26,041		1,640,343		109,732		192,626		61,118		363,476
Associates and jointventures
POSCO PLANTEC Co., Ltd.			30		9		39		2,125		39,647		—		41,772
SNNC			223		26		249		40,201		—		—		40,201
Others			800		1		801		991		17,685		—		18,676
			1,053		36		1,089		43,317		57,332		—		100,649
	W		1,615,355		26,077		1,641,432		153,049		249,958		61,118		464,125

116

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) December 31, 2015

(in millions of Won)		Receivables						Payables
		Trade accounts and notes receivable		Others		Total		Trade accounts and notes payable		Accounts payable		Others		Total
Subsidiaries
POSCO ENGINEERING & CONSTRUCTION., LTD.	W		508		30,368		30,876		—		42,159		1,002		43,161
POSCO Processing&Service			74,985		175		75,160		10,868		603		—		11,471
POSCO COATED & COLOR STEEL Co., Ltd.			43,669		66		43,735		—		—		1,262		1,262
POSCO ICT			—		6,832		6,832		1,060		94,865		5,880		101,805
eNtoB Corporation			—		—		—		8,683		14,209		12		22,904
POSCO CHEMTECH			32,670		4,500		37,170		54,636		11,398		18,062		84,096
POSCO ENERGY CO., LTD.			18,680		2,585		21,265		—		—		—		—
POSCO TMC Co., Ltd.			63,521		31		63,552		—		180		195		375
POSCO AST			54,844		54		54,898		—		1,915		3,294		5,209
POSHIMETAL Co., Ltd.			707		9		716		—		10,148		—		10,148
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)			144,970		—		144,970		—		—		—		—
POSCO Thainox Public Company Limited			65,152		2		65,154		542		—		—		542
POSCO America Corporation			38,715		—		38,715		—		—		—		—
POSCO Asia Co., Ltd.			299,608		235		299,843		21,198		69		—		21,267
Qingdao Pohang Stainless Steel Co., Ltd.			16,689		—		16,689		—		—		—		—
POSCO MEXICO S.A. DE C.V.			94,588		—		94,588		—		—		—		—
POSCO Maharashtra Steel Private Limited			205,390		20		205,410		—		—		—		—
Others			172,019		5,035		177,054		18,208		45,476		23,985		87,669
			1,326,715		49,912		1,376,627		115,195		221,022		53,692		389,909
Associates and jointventures
SeAH Changwon Integrated Special Steel			1,201		—		1,201		161		15		—		176
POSCO PLANTEC Co., Ltd.			123		19		142		1,901		46,159		—		48,060
SNNC			298		20		318		639		2		—		641
Others			740		12,200		12,940		—		145		—		145
			2,362		12,239		14,601		2,701		46,321		—		49,022
	W		1,329,077		62,151		1,391,228		117,896		267,343		53,692		438,931

117

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(c) Significant transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2016 and 2015 were as follows:

1) December 31, 2016

(in millions of Won)		Sales and others				Purchase and others
		Sales		Others		Purchase of material		Others
Associates and jointventures
SeAH Changwon integrated Special Steel	W		16,294		—		22,029		—
POSCO PLANTEC Co., Ltd.			21,659		5		3,335		5,912
New Songdo International City Development, LLC			226,042		—		—		14
SNNC			29,330		—		21,479		9,494
Posco e&c Songdo International Building			4,245		—		—		16,219
Chun-cheon Energy Co., Ltd			288,307		—		—		—
Noeul Green Energy			107,268		—		—		—
Incheon-Gimpo Expressway Co., Ltd.			102,183		—		—		—
VSC POSCO Steel Corporation			43,650		47		479		—
USS-POSCO Industries			287,072		—		1,195		—
CSP - Compania Siderurgica do Pecem			157,814		—		—		—
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			61,844		—		57,179		—
LLP POSUK Titanium			—		—		14,575		—
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.			—		—		24,365		—
POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd			15,759		—		—		—
PT. Batutua Tembaga Raya			—		—		13,079		—
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			31,711		—		65		—
Zhangjiagang Pohang Refractories Co., Ltd.			250		14		364		2,472
Sebang Steel			—		—		26,276		—
SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.			157,886		—		3,535		—
DMSA/AMSA			—		—		72,582		—
South-East Asia Gas Pipeline Company Ltd.			—		87,973		—		—
Others			195,139		11,184		16,664		1,801
	W		1,746,453		99,223		277,201		35,912

118

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) December 31, 2015

(in millions of Won)		Sales and others				Purchase and others
		Sales		Others		Purchase of material		Others
Associates and jointventures
SeAH Changwon integrated Special Steel	W		32,802		—		49,862		1,977
POSCO PLANTEC Co., Ltd.			10,543		—		5,953		6,386
New Songdo International City Development, LLC			420,094		—		—		667
SNNC			32,160		44		6,518		53,260
Posco e&c Songdo International Building			6,278		—		—		25,197
VSC POSCO Steel Corporation			37,416		—		2,395		3
USS-POSCO Industries			353,626		—		1,109		—
CSP - Compania Siderurgica do Pecem			845,979		—		—		—
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			68,300		111		70,236		—
BX STEEL POSCO Cold Rolled Sheet Co., Ltd.			3		—		23,320		—
POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd			9,668		—		—		—
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			30,310		—		4		—
Zhangjiagang Pohang Refractories Co., Ltd.			970		1,248		17,484		2,023
Sebang Steel			—		—		29,007		—
SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.			214,521		—		3,960		3,190
DMSA/AMSA			800		9,322		241,074		—
South-East Asia Gas Pipeline Company Ltd.			—		47,556		—		—
Others			415,217		17,793		18,518		2,683
	W		2,478,687		76,074		469,440		95,386

119

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) The related account balances of significant transactions between the Company, excluding the controlling company, and related companies as of December 31, 2016 and December 31, 2015 are as follows:

1) December 31, 2016

(in millions of Won)		Receivables(*1)								Payables
		Trade accounts and notes receivable		Loan		Others		Total		Trade accounts and notes payable		Others		Total
Associates and joint ventures
POSCO PLANTEC Co., Ltd.	W		4,709		—		6		4,715		2,718		8,521		11,239
New Songdo International City Development, LLC			255,822		—		5,725		261,547		—		—		—
Chun-cheon Energy Co., Ltd			12,142		—		—		12,142		—		3,171		3,171
VSC POSCO Steel Corporation			5,265		—		—		5,265		—		—		—
USS-POSCO Industries			583		—		—		583		75		—		75
Nickel Mining Company SAS			133		60,425		116		60,674		—		—		—
AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.			62,814		60,425		1,643		124,882		—		875		875
CSP - Compania Siderurgica do Pecem			224,760		—		149,700		374,460		—		109,272		109,272
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			3,279		6,647		6		9,932		1,365		—		1,365
PT. Batutua Tembaga Raya			—		38,120		—		38,120		2,293		—		2,293
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			9,292		8,460		43		17,795		40		—		40
SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO., LTD.			100,367		—		—		100,367		—		—		—
DMSA/AMSA			—		90,638		—		90,638		—		—		—
South-East Asia Gas Pipeline Company Ltd.			—		276,605		48		276,653		—		—		—
Others			184,402		142,812		6,593		333,807		4,615		750		5,365
	W		863,568		684,132		163,880		1,711,580		11,106		122,589		133,695

(*1) As of December 31, 2016, the Company recognizes bad-debt allowance for receivables amounting to W48,891 million.

120

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) December 31, 2015

(in millions of Won)		Receivables(*1)								Payables
		Trade accounts and notes receivable		Loan		Others		Total		Trade accounts and notes payable		Others		Total
Associates and joint ventures
SeAH Changwon Integrated Special Steel	W		8,721		—		—		8,721		3,489		19		3,508
POSCO PLANTEC Co., Ltd.			9,853		—		6		9,859		6,263		8,908		15,171
New Songdo International City Development, LLC			168,646		—		25,964		194,610		—		14		14
Posco e&c Songdo International Building			5,821		—		—		5,821		—		—		—
VSC POSCO Steel Corporation			17,283		—		—		17,283		34		—		34
USS-POSCO Industries			170,170		—		—		170,170		9		—		9
Nickel Mining Company SAS			2,353		17,580		67		20,000		—		—		—
AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.			63,132		58,600		642		122,374		—		3,982		3,982
CSP - Compania Siderurgica do Pecem			410,005		—		118,112		528,117		—		138,111		138,111
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			9,455		10,782		6		20,243		3,999		—		3,999
PT. Batutua Tembaga Raya			—		36,830		—		36,830		—		—		—
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			8,961		11,720		48		20,729		4		—		4
SHANGHAI WAIGAOQIAO FREE TRADE ZONE LANSHENG DAEWOO IN’L TRADING CO.,LTD.			90,195		—		—		90,195		921		—		921
DMSA/AMSA			—		99,854		—		99,854		—		—		—
South-East Asia Gas Pipeline Company Ltd.			—		283,954		—		283,954		—		—		—
Others			192,621		137,202		13,648		343,471		12,591		21,181		33,772
	W		1,157,216		656,522		158,493		1,972,231		27,310		172,215		199,525

(*1) As of December 31, 2015, the Company recognizes bad-debt allowance for receivables amounting to W25,475 million.

121

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(e) Significant financial transactions between the Company, excluding the controlling company, and related companies for the years ended December 31, 2016 and 2015 were as follows:

1) December 31, 2016

(in millions of Won)		Beginning		Lend		Collect			Others(*3)			Ending
Associates and joint ventures
METAPOLIS Co.,Ltd.	W		26,000		—		(12,730	)		—			13,270
Posco e&c Songdo International Building(*1)			—		298,865		—			(298,865	)		—
DMSA/AMSA(*2)			99,854		11,774		—			(20,990	)		90,638
South-East Asia Gas Pipeline Company Ltd.			283,954		27,087		(43,080	)		8,644			276,605
PT. Batutua Tembaga Raya			36,830		—		—			1,290			38,120
PT. Tanggamus Electric Power			2,359		1,174		—			73			3,606
PT. Wampu Electric Power			4,454		1,169		—			138			5,761
PT. POSMI Steel Indonesia			4,688		—		—			146			4,834
Nickel Mining Company SAS			17,580		40,594		—			2,251			60,425
POSK(Pinghu) Steel Processing Center Co., Ltd.			5,743		5,683		(11,366	)		(60	)		—
AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.			58,600		—		—			1,825			60,425
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			10,782		—		(4,471	)		336			6,647
KRAKATAU POS-CHEM DONG-SUH CHEMICAL			—		6,959		—			292			7,251
Hamparan Mulya			3,516		—		—			110			3,626
POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd			5,274		—		—			164			5,438
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			11,720		—		(3,480	)		220			8,460
POS-SeAH Steel Wire (Thailand) Co., Ltd.			—		6,959		—			292			7,251
AMCI (WA) PTY LTD			85,168		4,665		—			1,942			91,775
	W		656,522		404,929		(75,127	)		(302,192	)		684,132

(*1) During the year ended December 31, 2016, it was classified as a subsidiary from an associate.

(*2) During the year ended December 31, 2016, loans amounting to W24,624 million have been converted to shares of DMSA/AMSA, and its amount is included in others.

(*3) Includes adjustments of foreign currency translation differences and others.

122

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

2) December 31, 2015

(in millions of Won)		Beginning		Lend		Collect			Others(*2)			Ending
Associates and joint ventures
METAPOLIS Co.,Ltd.	W		26,000		—		—			—			26,000
DMSA/AMSA(*1)			140,544		21,653		—			(62,343	)		99,854
South-East Asia Gas Pipeline Company Ltd.			295,352		—		(29,885	)		18,487			283,954
PT. Batutua Tembaga Raya			34,342		—		—			2,488			36,830
PT. Tanggamus Electric Power			1,733		493		—			133			2,359
PT. Wampu Electric Power			—		4,299		—			155			4,454
VSC POSCO Steel Corporation			2,024		—		(2,024	)		—			—
PT. POSMI Steel Indonesia			4,397		—		—			291			4,688
Nickel Mining Company SAS			16,488		—		—			1,092			17,580
POSK(Pinghu) Steel Processing Center Co., Ltd.			10,772		—		(5,543	)		514			5,743
AN KHANH NEW CITY DEVELOPMENT J.V CO., LTD.			54,960		—		—			3,640			58,600
Zhongyue POSCO (Qinhuangdao) Tinplate Industrial Co., Ltd			11,212		—		(1,132	)		702			10,782
Hamparan Mulya			3,298		—		—			218			3,516
POS-SEAHSTEELWIRE(TIANJIN)CO.,Ltd			4,946		—		—			328			5,274
POSCO SeAH Steel Wire(Nantong) Co., Ltd.			10,992		—		—			728			11,720
AMCI (WA) PTY LTD			78,911		10,262		—			(4,005	)		85,168
	W		695,971		36,707		(38,584	)		(37,572	)		656,522

(*1) During the year ended December 31, 2015, loans amounting to W72,430 have been converted to shares of DMSA/AMSA, and its amount is included in others.

(*2) Includes adjustments of foreign currency translation differences and others.

123

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(f) For the years ended December 31, 2016 and 2015, details of compensation to key management officers were as follows:

(in millions of Won)		2016		2015
Short-term benefits	W		90,916		111,278
Long-term benefits			17,905		19,513
Retirement benefits			17,870		21,850
	W		126,691		152,641

Key management officers include directors (including non-standing directors), executive officials and fellow officials who have significant influences and responsibilities in the Company’s business and operations.

38. Commitments and Contingencies

(a) Contingent liabilities

Contingent liabilities may develop in a way not initially expected. Therefore, management continuously assesses contingent liabilities to determine whether an outflow of resources embodying economic benefits has become probable. If it becomes probable that an outflow of future economic benefits will be required for an item previously dealt with as a contingent liability, a provision is recognized in the financial statements of the period in which the change in probability occurs (except in the extremely rare circumstances where no reliable estimate can be made).

Management makes estimates and assumptions that affect disclosures of commitments and contingencies. All estimates and assumptions are based on the evaluation of current circumstances and appraisals with the supports of internal specialists or external consultants.

Management regularly analyzes current information about these matters and provides for probable contingent losses including the estimate of legal expense to resolve the matters. Internal and external lawyers are used for these assessments. In making the decision regarding the need for a provision, management considers whether the Company has an obligation as a result of a past event, whether it is probable that an outflow or cash or other resources embodying economic benefits will be required to settle the obligation and the ability to make a reliable estimate of the amount of the obligation.

124

POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Details of guarantees

Contingent liabilities on outstanding guarantees provided by the Company as of December 31, 2016 are as follows.

(in millions of Won)			Guarantee limit					Guarantee amount
Guarantors	Guarantee beneficiary	Financial institution	Foreign currency			Won equivalent		Foreign currency		Won equivalent
[The Company]
POSCO	POSCO Asia Co., Ltd.	MIZUHO and others		USD	100,000,000		120,850		100,000,000		120,850
	POSCO ASSAN TST STEEL INDUSTRY	SMBC and others		USD	146,527,500		177,078		131,874,750		159,371
	POSCO COATED STEEL (THAILAND) CO., LTD.	The Great&CO Co.,Ltd(SPC)		THB	5,501,000,000		184,999		5,501,000,000		184,999
	POSCO Electrical Steel India Private Limited	ING and others		USD	83,784,000		101,253		83,784,000		101,253
	POSCO Maharashtra Steel Private Limited	Export-Import Bank of Korea and others		USD	566,069,000		684,095		353,348,300		427,022
	POSCO MEXICO S.A. DE C.V.	Korea Development Bank and others		USD	344,725,000		416,601		234,725,000		283,664
	POSCO SS-VINA CO., LTD.	Export-Import Bank of Korea and others		USD	354,351,050		428,233		344,413,094		416,224
	POSCO VST CO., LTD.	ANZ and others		USD	65,000,000		78,553		24,375,000		29,458
	POSCO-VIETNAM Co., Ltd.	Export-Import Bank of Korea		USD	196,000,000		236,866		196,000,000		236,866
	PT. KRAKATAU POSCO	Export-Import Bank of Korea and others		USD	1,350,300,000		1,631,841		1,210,963,477		1,463,450
	Zhangjiagang Pohang Stainless Steel Co., Ltd.	Korea Development Bank and others		CNY	1,084,955,000		187,979		1,084,955,000		187,979
POSCO DAEWOO Corporation	Daewoo Power PNG Ltd.	Export-Import Bank of Korea		USD	54,400,000		65,742		36,000,000		43,506
(formerly. Daewoo International Corporation)	POSCO ASSAN TST STEEL INDUSTRY	ING and others		USD	14,652,750		17,708		14,652,750		17,708
	POSCO DAEWOO INDIA PVT., LTD.	Shinhan Bank and others		USD	165,000,000		199,403		137,024,552		165,594
	PT. Bio Inti Agrindo	Export-Import Bank of Korea and others		USD	93,625,000		113,146		93,625,000		113,146
	Daewoo Textile LLC	Export-Import Bank of Korea		USD	8,000,000		9,668		8,000,000		9,668
POSCO ENGINEERING & CONSTRUCTION.,LTD.	EPC EQUITIES LLP	SG BANK SEOUL and others		USD	59,000,000		71,302		59,000,000		71,302
	HONG KONG POSCO E&C (CHINA) INVESTMENT Co., Ltd.	Woori Bank and others		USD	147,000,000		177,650		147,000,000		177,650
	POSCO E&C Vietnam Co., Ltd.	Export-Import Bank of Korea		USD	16,500,000		19,940		16,500,000		19,940
	POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.	HSBC		USD	100,000,000		120,850		100,000,000		120,850
	SANTOS CMI INC. USA	Citi New York		USD	8,000,000		9,668		8,000,000		9,668
	SANTOSCMI S.A.	Citi Ecuador		USD	3,000,000		3,626		3,000,000		3,626
POSCO ICT	PT.POSCO ICT INDONESIA	POSCO Asia Co., Ltd.		USD	1,800,000		2,175		1,800,000		2,175
POSCO Engineering CO.,Ltd	POSCO ENGINEERING (THAILAND) CO., LTD.	HSBC		USD	39,450,863		47,676		39,450,863		47,676
	PT PEN INDONESIA	POSCO Asia Co., Ltd.		USD	5,000,000		6,043		5,000,000		6,043
POSCO M-TECH	PT. POSCO MTECH INDONESIA	POSCO Asia Co., Ltd.		USD	12,500,000		15,106		12,500,000		15,106
POSCO CHEMTECH	PT.Krakatau Posco Chemtech Calcination	Hana Bank		USD	33,600,000		40,606		24,470,588		29,573
POSCO Processing & Service	POSCO Canada Ltd.	Korea Development Bank		USD	8,114,925		9,807		7,728,500		9,340
	POSCO Gulf SFC LLC	Hana Bank and others		USD	45,700,000		55,228		43,650,000		52,751
	Pos-Sea Pte Ltd	Woori Bank and others		USD	20,000,000		24,170		3,900,000		4,713
POSCO Japan Co., Ltd.	POSCO Japan PC CO.,LTD	Higo Bank and others		JPY	593,200,000		6,151		593,200,000		6,151
POSCO Coated & Color Steel Co.,Ltd.	Myanmar POSCO C&C Company, Limited.	POSCO Asia Co., Ltd. And others		USD	13,986,947		16,903		13,986,947		16,903
POSCO ENERGY CO., LTD.	PT. Krakatau Posco Energy	Export-Import Bank of Korea and others		USD	193,900,000		234,328		153,560,430		185,578

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(in millions of Won)			Guarantee limit					Guarantee amount
Guarantors	Guarantee beneficiary	Financial institution	Foreign currency			Won equivalent		Foreign currency		Won equivalent
[Associates and joint ventures]
POSCO	CSP - Compania Siderurgica do Pecem	Export-Import Bank of Korea and others		USD	420,000,000		507,572		420,000,000		507,572
		BNDES		BRL	464,060,000		172,389		461,494,142		171,436
	LLP POSUK Titanium	Kookmin Bank		USD	15,000,000		18,128		15,000,000		18,128
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)	GLOBAL KOMSCO Daewoo LLC	Industrial & Commercial Bank of China and others		USD	9,187,500		11,103		8,225,000		9,940
POSCO ENGINEERING &  CONSTRUCTION.,LTD.	New Songdo International City Development, LLC	Others		KRW	340,000		340,000		310,500		310,500
POSCO ICT	INCHEON GIMPO EXPRESSWAY CO.,LTD	Korea Development Bank		KRW	100,000		100,000		100,000		100,000
	UITRANS COPORATION	Kookmin Bank		KRW	76,000		76,000		76,000		76,000
POSCO CHEMTECH	KRAKATAU POS-CHEM DONG-SUH CHEMICAL	Hana Bank		USD	5,883,750		7,111		2,774,489		3,353
	PT.INDONESIA POS CHEMTECH CHOSUN Ref	Hana Bank		USD	3,900,000		4,713		3,900,000		4,713
[Others]
POSCO DAEWOO Corporation (formerly, Daewoo International Corporation)	Ambatovy Project Investments Limited and others	Export-Import Bank of korea		USD	87,272,727		105,469		44,620,083		53,923
POSCO ENGINEERING & CONSTRUCTION.,LTD.	Ecocity CO.,LTD and others	Others		KRW	990,350		990,350		364,031		364,031
	THE GALE INVESTMENTS COMPANY, L.L.C.	Woori Bank		USD	50,000,000		60,425		50,000,000		60,425
POSCO ICT	Hyochun CO., LTD	Daegu Bank and others		KRW	39,575		39,575		39,575		39,575
	SMS Energy and others	Hana Bank and others		KRW	123,880		123,880		101,124		101,124
	BLT Enterprise and others	Kyobo Life Insurance Co.,Ltd and others		KRW	1,163,585		1,163,585		1,163,585		1,163,585
POSCO Engineering CO., Ltd	SAMJIN SOLAR ENERGY and others	Hana Bank and others		KRW	10,511		10,511		3,532		3,532
POSCO AUSTRALIA PTY LTD	Department of Trade and Investment (NSW Government)	Woori Bank and others		AUD	8,277,336		7,218		8,277,336		7,218
POSCO(Suzhou) Automotive Processing Center Co.,Ltd.	POS INFRA AUTO	Korea Development Bank		USD	405,000		489		405,000		489
				USD	4,841,636,012		5,851,125		4,153,257,823		5,019,217
				KRW	2,843,901		2,843,901		2,158,347		2,158,347
				CNY	1,084,955,000		187,979		1,084,955,000		187,979
				THB	5,501,000,000		184,999		5,501,000,000		184,999
				JPY	593,200,000		6,151		593,200,000		6,151
				AUD	8,277,336		7,218		8,277,336		7,218
				BRL	464,060,000		172,389		461,494,142		171,436

(c) POSCO ENGINEERING & CONSTRUCTION CO., LTD. has provided the completion guarantees for Samsung C&T Corporation amounting to W605,508 million while Samsung C&T Corporation has provided the construction guarantees or payment guarantees on customers’ borrowings on behalf of POSCO ENGINEERING & CONSTRUCTION CO., LTD. amounting to W303,789 million as of December 31, 2016.

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) Other commitments

Details of other commitments of the Company as of December 31, 2016 are as follows:

POSCO	POSCO entered into long-term contracts to purchase iron ore, coal, nickel and others. The contracts of iron ore and coal generally have terms of more than three years and the contracts of nickel have terms of more than one year. These contracts provide for periodic price adjustments based on the market price. As of December 31, 2016, 144 million tons of iron ore and 22 million tons of coal remained to be purchased under such long-term contracts.
	POSCO entered into an agreement with Tangguh Liquefied Natural Gas (LNG) Consortium in Indonesia to purchase 550 thousand tons of LNG annually for 20 years commencing in August 2005. The purchase price is subject to change, based on changes of the monthly standard oil price (JCC) and with a price ceiling.
	As of December 31, 2016, the Company entered into commitments with Korea National Oil Corporation for long-term foreign currency borrowings, which enables the Company to borrow up to the amount of USD 6.49 million. The borrowings are related to the Company’s the exploration of gas hydrates in Western Fergana-Chinabad. The repayment of the borrowings depends on the success of the projects. The Company is not liable for the repayment of full or part of the amount borrowed if the respective projects fail. The Company has agreed to pay a certain portion of its profits under certain conditions, as defined by the borrowing agreements. As of December 31, 2016, the ending balance of the borrowing amounts to USD 4.09 million.
	POSCO has provided a supplemental funding agreement, as the largest shareholder, as requested from the creditors, including Norddeutsche Landesbank, for seamless funding to POSCO ENERGY Co., Ltd. under construction of new power plant.
POSCO ENGINEERING & CONSTRUCTION., LTD.	As of December 31, 2016, POSCO ENGINEERING & CONSTRUCTION., LTD. has comprehensive loan agreements of up to W213.5 billion and USD 218 million with Woori Bank. Also, POSCO ENGINEERING & CONSTRUCTION., LTD. has bank overdraft agreements of up to W20 billion with Woori Bank.Comprehensive loan agreements include bank overdraft up to W20 billion of loans on checking account during the day with Woori Bank.
POSCO ICT	As of December 31, 2016, in relation to contract enforcement, POSCO ICT was provided with W137,237 million and W50,483 million guaranties from Korea Software Financial Cooperative and Seoul Guarantee Insurance, respectively.

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(e) Litigation in progress

As of December 31, 2016, litigations in progress that POSCO and certain subsidiaries are defendants in legal actions arising from the normal course of business are as follows:

(in millions of Won, in thousands of foreign currencies)
Company	Legal actions		Claim amount			Won equivalent		Description
POSCO		37		KRW	123,858		123,858	Lawsuit on claim for employee right and others(*1)
		2		USD	1,783		2,155	Arbitration on trading and other
POSCO DAEWOO Corporation		1		EUR	2,667		3,381	Lawsuit on claim for payment
(formerly, Daewoo International Corporation)		2		INR	4,469,396		79,511	Lawsuit on claim for payment on guarantees(*1)
		10		KRW	5,802		5,802	Lawsuit on claim for payment and others
		3		USD	15,644		18,906	Lawsuit on claim for damages and others(*1)
		1		CAD	79,000		70,683	Lawsuit on claim for damages
		1		PKR	124,775		1,314	Lawsuit on claim for damages
POSCO ENGINEERING & CONSTRUCTION., LTD.		69		KRW	185,225		185,225	Arbitration on construction costs allocation and others
POSCO Processing&Service		5		KRW	7,800		7,800	Revoking of fraudulent act and others and others(*1)
POSCO Engineering CO.,Ltd		18		KRW	107,441		107,441	Lawsuit on claim for damages and others(*1)
		4		THB	206,207		6,599	Arbitration on damages and others
		1		GHS	84		20	Lawsuit on ownership and payment on usage
POSCO ICT		12		KRW	13,869		13,869	Lawsuit on claim for damages and others
POSCO M-TECH		3		KRW	4,467		4,467	Lawsuit on claim for damages and others
POSCO ENERGY CO., LTD.		2		KRW	5,202		5,202	Lawsuit on claim for damages and revocation of electricity supply contract and others
POSCO E&C CHINA CO., LTD.		4		CNY	4,159		721	Lawsuit on claim for payment of reserve for construction warranty and others
		1		KRW	3,305		3,305	Lawsuit on claim for payment on construction
POSPOWER Co., Ltd.		1		KRW	9,668		9,668	Lawsuit on claim for payment on service contract(*1)
POSCO TNPC Otomotiv Celik San. Ve Tic. A.S		6		TRY	31		11	Lawsuit on claim for unfair dismissal and others
POSCO CHEMTECH		1		KRW	657		657	Lawsuit on claim for payment on construction(*1)
PT. KRAKATAU POSCO		1		IDR	74,548,384		6,694	Lawsuit on claim for payment on construction
POSCO ENGINEERING & CONSTRUCTION DO BRAZIL LTDA.		101		BRL	102,752		38,153	Lawsuit on claim for damages and others(*1)
POSCO Humans		2		KRW	95		95	Lawsuit on claim for debt collection and others

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(in millions of Won, in thousands of foreign currencies)
Company	Legal actions		Claim amount			Won equivalent		Description
POSCO(Dalian) IT Center Development Co., Ltd.		7		CNY	9,440		1,636	Lawsuit over contract dispute dealing apartment and others
Brazil Sao Paulo Steel Processing Center		3		BRL	1,264		469	Lawsuit on claim for payment on construction and others
POSCO A&C		2		KRW	911		911	Lawsuit on claim for payment on service contract and others
eNtoB Corporation		1		KRW	5		5	Lawsuit on claim for payment
POSCO-Poland Wroclaw Processing Center Sp. z o. o.		1		PLN	3		1	Lawsuit on claim for payment
Posco e&c Songdo International Building		3		KRW	313		313	Lawsuit on affirmation of the non-existence of general meeting of stockholders and others

(*1) The Company made a reliable estimate in 73 lawsuits by considering the possibility and amount of outflow of resources and recognized W30,425 million as provision for legal contingencies and claims.

For all the other lawsuits and claims, management does not believe the Company has any present obligations and therefore, the Company has not recognized any provisions as of December 31, 2016 for the matters.

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(f) Other contingencies

POSCO	POSCO has provided two blank checks to Korea Resources Corporation as collateral for long-term domestic borrowings, and has provided three blank promissory notes and three blank checks to Korea National Oil Corporation as collateral for long-term foreign currency borrowings.
POSCO DAEWOO Corporation (Formerly, Daewoo International Corporation)	As of December 31, 2016, POSCO DAEWOO Corporation has provided thirty-five blank promissory notes and sixteen blank checks to Korea National Oil Corporation as collateral for the guarantee on performance for contracts and others.
POSCO ENGINEERING & CONSTRUCTION., LTD.	As of December 31, 2016, POSCO ENGINEERING & CONSTRUCTION., LTD. has provided eight blank promissory notes and thirty-six blank checks as collateral for agreements and outstanding loans.
POSCO ICT	As of December 31, 2016, POSCO ICT has provided two blank promissory notes and eight blank checks to financial institutions as collateral for the guarantee on performance for contracts and others.

39. Cash Flows from Operating Activities

Adjustments for operating cash flows for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)		2016			2015
Trade accounts and notes receivable	W		181,189			1,686,910
Other receivables			191,591			259,741
Inventories			(767,501	)		2,095,732
Other current assets			(287,377	)		42,131
Other non-current assets			33,584			72,826
Trade accounts and notes payable			769,337			(894,129	)
Other payables			(179,174	)		39,811
Other current liabilities			196,178			(182,518	)
Provisions			(124,884	)		(119,172	)
Payments severance benefits			(278,278	)		(157,983	)
Plan assets			(138,854	)		(115,274	)
Other non-current liabilities			(21,626	)		25,964
	W		(425,815	)		2,754,039

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

40. Non-Cash Transactions

Significant non-cash investing and financing transactions for the years ended December 31, 2016 and 2015 were as follows:

(in millions of Won)	2016		2015
Increase in borrowings due to guarantee provided to associate		298,865		—
Exchange of investments in available-for-sale securities		—		295,398

41. Operating Segments

(a) The Company’s operating businesses are organized based on the nature of markets and customers. The Company has four reportable operating segments—steel, construction, trading and others. The steel segment includes production of steel products and revenue of such products. The construction segment includes planning, designing and construction of industrial plants, civil engineering projects and commercial and residential buildings, both in Korea and overseas. The trading segment consists of exporting and importing a wide range of steel products and raw materials that are both obtained from and supplied to POSCO, as well as between other suppliers and purchasers in Korea and overseas. Other segments include power generation, liquefied natural gas production, network and system integration and logistics. The policies of classification and measurement on operating segments were the same as those that applied to the consolidated financial statements as of and for the year ended December 31, 2015.

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(b) Information about reportable segments as of and for the years ended December 31, 2016 and 2015 was as follows:

1) As of and for the year ended December 31, 2016

(in millions of Won)		Steel			Trading			Construction			Others			Total
External revenues	W		26,844,154			16,774,078			6,768,348			2,696,933			53,083,513
Internal revenues			16,062,016			9,646,026			713,703			2,379,945			28,801,690
Including inter segment revenue			8,992,783			5,296,847			557,526			2,285,128			17,132,284
Total revenues			42,906,170			26,420,104			7,482,051			5,076,878			81,885,203
Interest income			126,210			40,424			65,256			13,564			245,454
Interest expenses			(459,345	)		(70,841	)		(102,292	)		(126,523	)		(759,001	)
Depreciation and amortization			(2,788,535	)		(165,863	)		(57,719	)		(264,299	)		(3,276,416	)
Impairment loss on property, plant and equipment and others			(99,165	)		(45,995	)		(9,426	)		(88,696	)		(243,282	)
Impairment loss on available-for-sale investments			(225,225	)		(28,988	)		(35,331	)		(24,902	)		(314,446	)
Share of loss of equity-accounted investees, net			(211,084	)		(53,586	)		(283,833	)		(6,369	)		(554,872	)
Income tax expense			(495,874	)		(18,629	)		107,520			(56,026	)		(463,009	)
Segment profit (loss)			1,511,383			53,244			(1,403,712	)		(25,889	)		135,026
Segment assets			69,914,939			13,580,179			9,501,046			8,529,600			101,525,764
Investment in subsidiaries, associates and joint ventures			16,109,360			1,100,973			795,445			1,200,295			19,206,073
Acquisition of non-current assets			2,334,842			249,597			25,533			191,715			2,801,687
Segment liabilities			20,292,764			10,134,170			6,780,380			4,709,689			41,917,003

2) As of and for the year ended December 31, 2015

(in millions of Won)		Steel			Trading			Construction			Others			Total
External revenues	W		28,292,824			18,315,487			8,515,780			3,068,254			58,192,345
Internal revenues			16,543,951			8,692,020			1,352,067			2,691,361			29,279,399
Including inter segment revenue			9,146,808			4,480,744			1,090,193			2,571,219			17,288,964
Total revenues			44,836,775			27,007,507			9,867,847			5,759,615			87,471,744
Interest income			139,821			55,630			27,134			16,173			238,758
Interest expenses			(560,767	)		(76,672	)		(91,742	)		(141,095	)		(870,276	)
Depreciation and amortization			(2,782,680	)		(166,814	)		(50,605	)		(282,817	)		(3,282,916	)
Impairment loss on property, plant and equipment and others			(243,828	)		(17,281	)		(28,345	)		(22,979	)		(312,433	)
Impairment loss on available-for-sale investments			(151,503	)		(1,410	)		(47,616	)		(40,261	)		(240,790	)
Share of loss of equity-accounted investees, net			(562,133	)		(212,535	)		(25,223	)		(22,618	)		(822,509	)
Income tax expense			(390,000	)		(4,772	)		(30,615	)		(18,718	)		(444,105	)
Segment profit (loss)			181,495			38,843			(275,651	)		(65,570	)		(120,883	)
Segment assets			70,102,972			12,160,406			9,997,683			10,962,594			103,223,655
Investment in subsidiaries, associates and joint ventures			17,457,391			1,097,971			1,076,024			1,186,307			20,817,693
Acquisition of non-current assets			2,102,674			303,753			276,863			345,971			3,029,261
Segment liabilities			21,078,613			8,953,410			5,716,550			6,472,925			42,221,498

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(c) Reconciliations of total segment revenues, profit or loss, assets and liabilities, and other significant items to their respective consolidated financial statement line items are as follows:

1) Revenues

(in millions of Won)		2016			2015
Total revenue for reportable segments	W		81,885,203			87,471,744
Elimination of inter-segment revenue			(28,801,690	)		(29,279,399	)
	W		53,083,513			58,192,345

2) Profit (loss)

(in millions of Won)		2016			2015
Total profit (loss) for reportable segments	W		135,026			(120,883	)
Goodwill and corporate FV adjustments			(123,110	)		(95,150	)
Elimination of inter-segment profit			1,036,253			119,852
Income tax expense			384,685			276,939
Profit before income tax expense	W		1,432,854			180,758

3) Assets

(in millions of Won)		2016			2015
Total assets for reportable segments(*1)	W		101,525,764			103,223,655
Investment in subsidiaries, associates and joint ventures			(15,322,271	)		(16,872,523	)
Goodwill and corporate FV adjustments			3,750,915			3,390,277
Elimination of inter-segment assets			(10,191,413	)		(9,332,650	)
	W		79,762,995			80,408,759

(*1) As segment assets and liabilities are determined based on separate financial statements, for subsidiaries which are in a different segment from that of its immediate parent company, their carrying amount in separate financial statements is eliminated upon consolidation. In addition, adjustments are made to adjust the amount of investment in associates and joint ventures from the amount reflected in segment assets to that determined using equity method in consolidated financial statements.

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Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

4) Liabilities

(in millions of Won)		2016			2015
Total liabilities for reportable segments	W		41,917,003			42,221,498
Goodwill and corporate FV adjustments			442,178			321,793
Elimination of inter-segment liabilities			(8,434,580	)		(7,204,754	)
	W		33,924,601			35,338,537

5) Other significant items

a) December 31, 2016

(in millions of Won)		Total segment			Goodwill and corporate FV adjustments			Elimination of inter-segment transactions			Consolidated
Interest income	W		245,454			—			(62,979	)		182,475
Interest expenses			(759,001	)		(807	)		101,082			(658,726	)
Depreciation and amortization			(3,276,416	)		(104,949	)		167,518			(3,213,847	)
Share of loss of equity-accounted investees, net			(554,872	)		(38,732	)		504,927			(88,677	)
Income tax expense			(463,009	)		21,945			56,379			(384,685	)
Impairment loss on property, plant and equipment and others			(243,282	)		—			(125,657	)		(368,939	)
Impairment loss on available-for-sale investments			(314,446	)		—			66,042			(248,404	)
	W		(5,365,572	)		(122,543	)		707,312			(4,780,803	)

b) December 31, 2015

(in millions of Won)		Total segment			Goodwill and corporate FV adjustments			Elimination of inter-segment transactions			Consolidated
Interest income	W		238,758			—			(28,565	)		210,193
Interest expenses			(870,276	)		1,282			80,222			(788,772	)
Depreciation and amortization			(3,282,916	)		(117,595	)		182,265			(3,218,246	)
Share of loss of equity-accounted investees, net			(822,509	)		—			316,455			(506,054	)
Income tax expense			(444,105	)		24,294			142,872			(276,939	)
Impairment loss of property, plant and equipment and others			(312,433	)		—			(142,234	)		(454,667	)
Impairment loss on available-for-sale investments			(240,790	)		—			98,009			(142,781	)
	W		(5,734,271	)		(92,019	)		649,024			(5,177,266	)

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POSCO and Subsidiaries

Notes to the Consolidated Financial Statements, Continued

As of December 31, 2016 and 2015

(d) Revenue by geographic area for the years ended December 31, 2016 and 2015 was as follows:

(in millions of Won)		2016		2015
Domestic	W		34,883,941		39,268,907
Japan			1,892,022		1,934,808
China			5,908,046		5,756,867
Asia-other			5,649,843		5,888,045
North America			1,899,291		1,921,039
Others			2,850,370		3,422,679
	W		53,083,513		58,192,345

In presenting information on the basis of geography, segment revenue is based on the geographical location of customers.

(e) Non-current assets by geographic area as of December 31, 2016 and 2015 are as follows:

(in millions of Won)		2016		2015
Domestic	W		31,772,641		32,693,800
Japan			187,266		174,979
China			1,451,405		1,631,863
Asia-other			6,163,388		5,969,215
North America			168,800		152,935
Others			1,233,288		1,390,109
	W		40,976,788		42,012,901

Non-current assets by geographic area include investment property, property, plant and equipment, goodwill and other intangible assets.

(f) There are no customers whose revenue is 10% or more of the consolidated revenue.

135