Alleged Suspicions
There is growing suspicion that GM Korea let the company fall into a state of capital impairment. The impairment of capital is the core of restructuring efforts that the GM headquarters in the U.S. currently raise its share ratio by converting 3 trillion won (US$2.79 billion) of debts lent to GM Korea into equity. Critics also say that the Korea Development Bank (KDB), which is the second largest shareholder with an 18.02 percent stake, let inject public funds into the firm as the bank failed to keep watching over it.
According to accounting industry sources on March 18, GM Korea could have avoided the impairment of capital last year if the company’s land assets were reevaluated based on officially assessed land price in accounting in 2016. As of 2016, GM Korea has a capital of 166.3 billion won (US$154.84 million) and a total ownership interest of 8.67 billion won (US$8.07 million). In short, the company is in a state of capital impairment in where the total of capital is 157.6 billion won (US$146.74 million) less than its paid capital.
Accounting experts pointed out that GM Korea was able to easily get out of capital impairment when it added 157.6 billion won (US$146.74 million) in total ownership interest items, such as surplus and other comprehensive income as well as capital, but the company didn’t do so. In fact, GM Korea, which is an unlisted firm, calculated its land assets for the acquisition cost at 1.08 trillion won (US$1.01 billion) according to general company accounting standards.
However, general company accounting standards stipulate that land can be calculated for fair valuation, including appraised value of land. The appraised value of the company’s lands amounted to 1.68 trillion won (US$1.56 billion) as of 2016. When accounting with officially assessed land prices, GM Korea can get away from capital impairment as its other comprehensive income, which refers to non-operating profit, is 592.4 billion won (US$551.58 million) and its total ownership interest comes to 434.8 billion won (US$404.84 million), which subtracts 157.6 billion won (US$146.74 million) from 592.4 billion won (US$551.58 million). An official from the accounting industry said, “Impairment of capital is a serious management crisis that causes disadvantages, such as loan prepayment or delisting, but GM Korea didn’t avoid the impairment of capital.” In this regard, an official from GM Korea said, “We accounted the way we usually do because major shareholders, including the KDB, didn’t ask us to reevaluate our assets.”