NUROL GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş.

Transcription

1 CONVENIENCE TRANSLATION INTO ENGLISH OF THE CONDENSED FINANCIAL STATEMENTS FOR THE INTERIM PERIOD 1 JANUARY - 31 MARCH 2017 TOGETHER WITH INDEPENDENT AUDITOR S REVIEW REPORT (ORIGINALLY ISSUED IN TURKISH)

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3 INDEX PAGE CONDENSED STATEMENTS OF FINANCIAL POSITION (BALANCE SHEET)... 1 CONDENSED STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME... 2 CONDENSED STATEMENTS OF CHANGES IN EQUITY... 3 CONDENSED STATEMENTS OF CASH FLOWS... 4 NOTES TO THE CONDENSED FINANCIAL STATEMENTS NOTE 1 COMPANY S ORGANIZATION AND NATURE OF OPERATIONS... 5 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS NOTE 3 SEGMENT REPORTING NOTE 4 RELATED PARTY DISCLOSURES NOTE 5 CASH AND CASH EQUIVALENTS NOTE 6 TRADE RECEIVABLES AND PAYABLES NOTE 7 INVENTORIES NOTE 8 PREPAID EXPENSES AND DEFERRED INCOME NOTE 9 INVESTMENT PROPERTIES NOTE 10 DERIVATIVE FINANCIAL INSTRUMENTS NOTE 11 FINANCIAL LIABILITIES NOTE 12 BORROWING COST NOTE 13 PROVISIONS, CONTINGENT ASSETS AND LIABILITIES NOTE 14 CURRENT INCOME TAX ASSETS, OTHER SHORT TERM PROVISIONS, OTHER CURRENT AND NON- CURRENT ASSETS AND LIABILITIES NOTE 15 CAPITAL, RESERVES AND OTHER EQUITY ITEMS NOTE 16 SALES AND COST OF SALES NOTE 17 MARKETING AND GENERAL ADMINISTRATIVE EXPENSES NOTE 18 EXPENSE BY NATURE NOTE 19 FINANCIAL INCOME/ (EXPENSE) NOTE 20 TAX ASSETS AND LIABILITIES NOTE 21 EARNINGS PER SHARE NOTE 22 NATURE AND LEVEL OF RISK ARISING FROM FINANCIAL INSTRUMENTS AND POLICIES NOTE 23 SUBSEQUENT EVENTS NOTE 24 ADDITIONAL NOTES: CONTROL OF COMPLIANCE WITH THE PORTFOLIO LIMITATIONS

4 CONVENIENCE TRANSLATION OF THE CONDENSED STATEMENTS OF FINANCIAL POSITION (BALANCE SHEET) AS OF 31 MARCH 2017 (Amounts expressed as Turkish Lira ( TRY ) unless otherwise stated.) ASSETS Reviewed Audited Notes CURRENT ASSETS 1,307,495,763 1,294,264,837 Cash and cash equivalents 5 20,167,822 22,731,649 Trade receivables Trade receivables from related parties 6 4, 6 152,812, , ,805, ,113 Trade receivables from third parties Other receivables 6 152,606,658 11, ,605,622 14,161 Other receivables from related parties Other receivables from third parties 4 2,155 9,372 4,789 9,372 Inventories 7 1,006,855, ,326,691 Prepaid expenses 8 88,559,289 87,834,741 Current income tax assets , ,679 Other current assets 14 38,972,922 40,450,181 NON-CURRENT ASSETS 571,047, ,671,887 Trade receivables 6 19,505,756 19,849,607 Trade receivables from third parties Other receivables 6 19,505, ,242 19,849, ,056 Other receivables from third parties Property and equipment 597,242 3,305, ,056 3,362,622 Investment properties Prepaid expenses ,155,087 5,239, ,565,000 5,206,104 Other non-current assets 14 81,244,226 76,198,498 TOTAL ASSETS 1,878,543,497 1,860,936,724 LIABILITIES CURRENT LIABILITIES 1,229,358,515 1,143,759,364 Short-term borrowings Short-term portion of long-term borrowings ,500, ,388,850 90,150, ,992,245 Derivative financial liabilities Trade payables , ,303,472 98, ,083,232 Trade payables to related parties Trade payables to third parties 4, ,019,328 8,284, ,269,463 7,813,769 Liabilities for employee benefits 140, ,403 Other payables 228, ,612 Other payables to related parties 4 94,085 27,657 Other payables to third parties 134, ,955 Deferred income 8 330,514, ,402,494 Short term provisions 19,481,716 19,011,406 Short term provisions for employee benefits 340, ,565 Other short term provisions Other current liabilities ,141,440 1,753,986 18,853,841 1,705,078 NON-CURRENT LIABILITIES 462,215, ,766,759 Long-term borrowings ,485, ,696,597 Deferred income 8 19,505,756 19,849,607 Long term provisions 225, ,555 Long term provisions for employee benefits 225, ,555 EQUITY 186,969, ,410,601 Paid in capital 15 80,000,000 80,000,000 Share premiums ,000, ,000,000 Other comprehensive income not to be reclassified to profit or loss 15 16,104 25,104 Remeasurement gain arising from defined benefit plans 15 16,104 25,104 Actuarial gain/losses arising from employee benefits Restricted reserves ,104 2,398,514 25,104 2,398,514 Retained earnings / (Accumulated deficit) 23,986,983 (127,083,379) Net (loss) / profit for the period (19,432,483) 151,070,362 TOTAL LIABILITIES 1,878,543,497 1,860,936,724 The accompanying notes form an integral part of these condensed interim financial statements. 1

5 CONVENIENCE TRANSLATION OF THE CONDENSED STATEMENTS OF PROFIT OR LOSS AND COMPREHENSIVE INCOME FOR THE INTERIM PERIOD (Amounts expressed as Turkish Lira ( TRY ) unless otherwise stated.) Reviewed Reviewed Profit or losses Notes 31 March March 2016 Revenue 16 54,201,934 48,701,129 Cost of sales (-) 16 (28,920,242) (21,326,963) Gross profit 25,281,692 27,374,166 Marketing expenses (-) 17 (5,971,640) (7,247,013) General administrative expenses (-) 17 (1,882,110) (2,225,428) Other operating income 26,196, ,824,086 Other operating expenses (-) (29,057,127) (23,956,089) Operating income 14,567, ,769,722 Expense from investing activities (-) (50,000) - Operating profit before financial expenses 14,517, ,769,722 Financial income ,118 8,303,707 Financial expenses (-) 19 (34,133,321) (7,594,182) (Loss) / Profit before tax (19,432,483) 106,479,247 Current tax income/ (expense) Net (loss) / profit (19,432,483) 106,479,247 Earnings / (loss) per share 21 (0.2429) Diluted earnings / (loss) per share 21 (0.2429) OTHER COMPREHENSIVE (EXPENSES)/INCOME Other comprehensive income to not be reclassified to profit or loss - Actuarial gain / (losses) arising from employee benefits (9,000) 60,500 TOTAL COMPREHENSIVE (EXPENSES)/INCOME (19,441,483) 106,539,747 The accompanying notes form an integral part of these condensed interim financial statements. 2

6 CONVENIENCE TRANSLATION OF THE CONDENSED STATEMENTS OF CHANGES IN EQUITY FOR THE INTERIM PERIOD (Amounts expressed as Turkish Lira ( TRY ) unless otherwise stated.) Retained earnings Actuarial gain Paid-in Capital Share arising from Restricted (Accumulated deficit)/ Net profit/(loss) capital advances premiums employee benefits reserves retained earnings for the period Equity Balance as of 1 January ,000, ,000,000 - (25,109) 2,046,429 (21,118,253) (105,613,041) 55,290,026 Capital increase 40,000,000 (140,000,000) 100,000, Transfers (105,613,041) 105,613,041 - Total comprehensive income , ,479, ,539,747 Balance as of 31 March ,000, ,000,000 35,391 2,046,429 (126,731,294) 106,479, ,829,773 Balance as of 1 January ,000, ,000,000 25,104 2,398,514 (127,083,379) 151,070, ,410,601 Transfers ,070,362 (151,070,362) - Total comprehensive income (9,000) - - (19,432,483) (19,441,483) Balance as of 31 March ,000, ,000,000 16,104 2,398,514 23,986,983 (19,432,483) 186,969,118 The accompanying notes form an integral part of these condensed interim financial statements. 3

7 CONVENIENCE TRANSLATION OF THE CONDENSED STATEMENTS OF CASH FLOWS FOR THE INTERIM PERIOD Reviewed Reviewed 1 January - 1 January - Notes 31 March March 2016 A. Cash flows from operating activities: 7,839, ,161 Net (loss) / profit for the period (19,432,483) 106,479,247 Adjustments to reconcile profit to cash provided by operating activities: 34,380,871 (102,523,981) Depreciation and amortization 17 64, ,695 Adjustments related to provisions 684, ,203 Adjustments related to interest income and expenses 19 33,633,833 (1,001,527) Adjustments related to reconcile profit or loss (52,395) 327,705 Fair value (loss) / gain on investment properties - (103,176,057) Fair value (loss) / gain on investment properties - (103,176,057) (Loss) / gain on sales of investment properties 50,000 - Gain / (loss) on sales of investment properties 50,000 - Net Working capital changes in: (7,082,461) (3,688,137) Adjustments related to increase in other receivables (104,552) (1,955) (Increase) / decrease in prepaid expenses (758,346) 34,453,075 Increase in inventories (33,871,641) (76,840,486) Increase in trade payables 34,220,240 52,753,379 (Decrease) / increase in trade receivables 1,336,684 (31,361,264) (Decrease) / increase in deferred income (4,231,348) 37,005,325 Increase / (decrease) in other payables from operating activities 71,539 (4,021,646) Adjustments related to decrease in other working capital (3,745,037) (15,674,565) Net cash flow provided from operating activities 7,865, ,129 Employment termination benefits paid (25,993) (6,968) B. Cash Flows From Investing Activities 352,259 (41,227) Cash outflow from acquisition of tangible and intangible assets (7,654) (34,238) Cash outflow from acquisition of tangible assets (7,654) 34,238) Cash outflow from acquisition of investments properties (155,087) (7,039) Cash inflow from sale of investments properties 515,000 - C. Cash flows from financing activities (13,397,512) (4,200,367) Cash inflow from borrowing received 98,361, ,901,154 Cash outflow from borrowing payment (111,759,379) (427,101,521) Net (decrease) / increase in cash and cash equivalents (5,205,319) (3,981,483) Cash and cash equivalents at the beginning of the period 5 15,840,628 5,313,677 Cash and cash equivalents at the end of the period 5 10,635,309 1,332,194 The accompanying notes form an integral part of these condensed interim financial statements. 4

8 1 COMPANY S ORGANISATION AND NATURE OF OPERATIONS Nurol Gayrimenkul Yatırım Ortaklığı Anonim Şirketi ( Company ) has been incorporated on 3 September The headquarter office of the Company is located in İstanbul. The Company s 49% of shares were offered to public at the Istanbul Stock Exchange on December The Company s main scope of operation is to engage in written objectives and subjects stipulated in the Communiqué on real estate investment companies published by the Capital Markets Board of Turkey ( CMB ) such as investing in real estate, capital market instruments based on real estate, real estate projects and capital market instruments. Basis of operations of the Company are consistent with the regulatory requirements of CMB on the Principles of Real Estate Investment Trusts. The address of the Company is as follows: Nurol-Maslak Plaza, Büyükdere Caddesi No: 257 Floor: 3 Maslak, Istanbul. As of 31 March 2017, the number of employees of Company is 55 (31 December 2016: 50). The condensed interim financial statements of the Company is approved on 10 May 2017 by the Board of Directors as of 31 March General Assembly has the right to change the financial statements. The ultimate parent and ultimate controlling party of the Company is Nurol İnşaat. 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS The principal accounting policies applied in the preparation of these condensed financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated Basis of preparation a. Financial statements of preparation The accompanying financial statements are prepared in accordance with Communiqué Serial II, No:14.1, Principles of Financial Reporting in Capital Markets ( the Communiqué ) and in accordance with TAS 34 as of 31 March Entities, in accordance with TAS 34, Interim financial reporting regarding disclosure of information, can prepare their interim financial statements in either full set or condensed. Company has preferred to prepare to its interim financial statements in condensed. The condensed interim financial statements of the Company have been prepared in accordance with TAS 34 Interim Financial Reporting. The accounting policies used in the preparation of these condensed interim financial statements are consistent with those used in the preparation of annual financial statements for the year ended 31 December Accordingly, these condensed interim financial statements should be read in conjunction with the annual financial statements for the year ended 31 December

9 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1. Basis of preparation (Continued) The Company maintains their books of account and prepares their statutory financial statements ( Statutory Financial Statements ) in TRY in accordance with the Turkish Commercial Code ( TCC ), tax legislation and the Uniform Chart of Accounts issued by the Ministry of Finance. The TAS Taxonomy of 2016 developed on the basis of Article 9 (b) of Decree Law No. 660 was approved by the Board decision dated 2 June 2016 and numbered 30 in order to ensure that the financial statements conforming to TAS are shared with users in the format of "Extensible Enterprise Reporting Language". This TAS taxonomy has been taken into account in the attached financial statements. b. Declaration of conformity to TAS The condensed interim financial statements of the Company have been prepared in accordance with the communiqué numbered II-14,1 Communiqué on the Principles of Financial Reporting In Capital Markets ( the Communiqué ) announced by the Capital Markets Board ( CMB ) (hereinafter will be referred to as the CMB Accounting Standards ) on 13 June 2013 which is published on Official Gazette numbered In accordance with article 5th of the CMB Accounting Standards, companies should apply Turkish Accounting Standards/Turkish Financial Reporting Standards ( TAS/TFRS ) and interpretations regarding these standards as adopted by the Public Oversight Accounting and Auditing Standards Authority ( POA ). c. Adjustment of financial statements in periods of high inflation Inflation accounting application is terminated for the companies operating in Turkey and preparing their financial statements in accordance with the provisions of the CMB according to the decision taken by CMB dated on 17 March 2005 and numbered 11/367, to be effective from 1 January Accordingly, "Financial Reporting in Hyperinflationary Economies" Standard ("TAS 29") published by the Public Oversight Agency, did not apply as from 1 January d. Functional and presentation currency Items included in the financial statements of the Company are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The Company s functional and presentation currency is TRY. e. Going concern The Company's financial statements are prepared under the going concern assumption. As of 31 March 2017, the Company s current assets are amounting to TRY1,307,495,763 and its current liabilities are amounting to TRY1,229,358,515. The Company does not foresee any disruption regarding fulfilment of the current liabilities mentioned above. As of 31 March 2017, the Company s inventories and investment properties are approximately amounting to TRY1,468 million. The Company s marketing and sales activities continue for sales of inventories. The Company will evaluate the sales, mortgage, or other alternative methods in case of any liquidity problems. 6

10 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.1 Basis of preparation (Continued) The Company has respectively 127, 288 and 270 residences which will create a cash inflow and whose sale commitment agreements were not made on Nurol Tower, Nurol Park and Nurol Life Project. Delivery activities of Nurol Tower Project residences has started and the Company completed the delivery process of 135 residences as of 31 March Delivery activities of Nurol Park Project residences has started in July 2016 and the Company completed the delivery process of 820 residences as of 31 March The expected date to start the delivery process of Nurol Life project residences is July The delivery process of the residences and leasing activities are continue. The Company foresees that Nurol Tower, Nurol Life and Nurol Park projects will generate significant amounts of cash. The shareholder of the Company which is Nurol İnşaat, is committed to continue supporting the financing of the Company and to assist the Company in raising additional funds or restructuring its current debts to reimburse the borrowing payments and comply with the contractual requirements of the borrowings as well as financing its net working capital requirements. As of 31 March 2017, the Company continues the leasing activities related to the Nurol Tower Project commercial units, which are accounted under the investment properties. As of 31 March 2017, the Company agreed with important part of tenants on leasing. The Company foresees that they will collect significant amounts of rent income from these investment properties. The company is of the opinion that there is no need for an additional source to supplement the current sources related to projected liquidity and cash flows. 2.2 Changes and mistakes in accounting policies and accounting forecasts If the rearrangement ensures that the entity's financial status, performance, or the impacts of the operations and events on the cash flows are presented in a more appropriate and reliable manner, the major changes in accounting policies and major accounting mistakes are applied retrospectively and the previous period's financial statements are restated. Changes in accounting estimates are applied prospectively, both in the period in which the change is made and in future periods if the change relates to the current period in the current period in which the change is related to the future periods. There has been no significant change in the accounting estimates of the company during the current period. 7

11 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.3 Turkish Financial Reporting Standards Change and Comparative Information and reclassifications in the Previous Period s Financial Statement Changes in Turkish Financial Reporting Standards a. The new standards, amendments and interpretations which are effective for the financial statements as of 31 March 2017: - TFRS 14 Regulatory deferral accounts, effective from annual periods beginning on or after 1 January TFRS 14, Regulatory deferral accounts permits first-time adopters to continue to recognise amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt TFRS. However, to enhance comparability with entities that already apply TFRS and do not recognise such amounts, the standard requires that the effect of rate regulation must be presented separately from other items. - Annual improvements 2014, effective from annual periods beginning on or after 1 January These set of amendments impacts 4 standards: TFRS 5, Non-current assets held for sale and discontinued operations regarding methods of disposal. TFRS 7, Financial instruments: Disclosures, (with consequential amendments to TFRS 1) regarding servicing contracts. TAS 19, Employee benefits regarding discount rates. TAS 34, financial reporting regarding disclosure of information. - Amendment to TFRS 11, 'Joint arrangements' on acquisition of an interest in a joint operation, effective from annual periods beginning on or after 1 January This amendment adds new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments specify the appropriate accounting treatment for such acquisitions. - Amendments to TAS 16 Property, plant and equipment, and TAS 41, Agriculture, regarding bearer plants, effective from annual periods beginning on or after 1 January These amendments change the financial reporting for bearer plants, such as grape vines, rubber trees and oil palms. It has been decided that bearer plants should be accounted for in the same way as property, plant and equipment because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of TAS 16, instead of TAS 41. The produce growing on bearer plants will remain within the scope of TAS Amendment to TAS 16, 'Property, plant and equipment' and TAS 38, 'Intangible assets', on depreciation and amortisation, effective from annual periods beginning on or after 1 January In this amendment the it has clarified that the use of revenue based methods to calculate the depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset. It is also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. 8

12 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.3 Turkish Financial Reporting Standards Change and Comparative Information and reclassifications in the Previous Period s Financial Statements (Continued) - Amendments to TAS 27, Separate financial statements on the equity method, effective from annual periods beginning on or after 1 January These amendments allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. - Amendment to TFRS 10 Consolidated financial statements and TAS 28, Investments in associates and joint ventures, effective from annual periods beginning on or after 1 January 2016.These amendments clarify the application of the consolidation exception for investment entities and their subsidiaries. - Amendment to TAS 1, Presentation of financial statements on the disclosure initiative, effective from annual periods beginning on or after 1 January 2016, these amendments are as part of the TASB initiative to improve presentation and disclosure in financial reports. b. The new standards, amendments and interpretations introduced to the prior Financial Statements as of 31 March 2017, however is not effective yet: - Amendments to TAS 7 Statement of cash flows on disclosure initiative, effective from annual periods beginning on or after 1 January These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. The amendment is part of the TASB s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. - Amendments TAS 12, Income Taxes, effective from annual periods beginning on or after 1 January The amendments clarify the accounting for deferred tax where an asset is measured at fair value and that fair value is below the asset s tax base, It also clarify certain other aspects of accounting for deferred tax assets. - Amendments to TFRS 2, Share based payments on clarifying how to account for certain types of share-based payment transactions, effective from annual periods beginning on or after 1 January This amendment clarifies the measurement basis for cash-settled, share-based payments and the accounting for modifications that change an award from cash-settled to equitysettled. It also introduces an exception to the principles in TFRS 2 that will require an award to be treated as if it was wholly equity-settled, where an employer is obliged to withhold an amount for the employee s tax obligation associated with a share-based payment and pay that amount to the tax authority. - TFRS 9 Financial instruments, effective from annual periods beginning on or after 1 January This standard replaces the guidance in TAS 39. It includes requirements on the classification and measurement of financial assets and liabilities; it also includes an expected credit losses model that replaces the current incurred loss impairment model. - TFRS 15 Revenue from contracts with customers, effective from annual periods beginning on or after 1 January TFRS 15, Revenue from contracts with customers is a converged standard from the TASB and FASB on revenue recognition. The standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. 9

13 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.3 Turkish Financial Reporting Standards Change and Comparative Information and reclassifications in the Previous Period s Financial Statements (Continued) - Amendment to TFRS 15, Revenue from contracts with customers, effective from annual periods beginning on or after 1 January These amendments comprise clarifications of the guidance on identifying performance obligations, accounting for licences of intellectual property and the principal versus agent assessment (gross versus net revenue presentation). New and amended illustrative examples have been added for each of those areas of guidance. The TASB has also included additional practical expedients related to transition to the new revenue standard. - TFRS 16 Leases, effective from annual periods beginning on or after 1 January 2019, This standard replaces the current guidance in TAS 17 and is a farreaching change in accounting by lessees in particular. Under TAS 17, lessees were required to make a distinction between a finance lease (on balance sheet) and an operating lease (off balance sheet). TFRS 16 now requires lessees to recognise a lease liability reflecting future lease payments and a right-of-use asset for virtually all lease contracts. The TASB has included an optional exemption for certain short-term leases and leases of low-value assets; however, this exemption can only be applied by lessees. For lessors, the accounting stays almost the same. However, as the TASB has updated the guidance on the definition of a lease (as well as the guidance on the combination and separation of contracts), lessors will also be affected by the new standard. At the very least, the new accounting model for lessees is expected to impact negotiations between lessors and lessees. Under TFRS 16, a contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. - Amendments to TFRS 4, Insurance contracts regarding the implementation of TFRS 4, Financial instruments, effective from annual periods beginning on or after 1 January These amendments introduce two approaches: an overlay approach and a deferral approach. The amended standard will: give all companies that issue insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the volatility that could arise when TFRS 9 is applied before the new insurance contracts standard is issued; and give companies whose activities are predominantly connected with insurance an optional temporary exemption from applying TFRS 9 until 2021, The entities that defer the application of TFRS 9 will continue to apply the existing financial instruments standard, TAS Amendment to TAS 40, Investment property relating to transfers of investment property, effective from annual periods beginning on or after 1 January These amendments clarify that to transfer to, or from, investment properties there must be a change in use. To conclude if a property has changed use there should be an assessment of whether the property meets the definition. This change must be supported by evidence. 10

14 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.3 Turkish Financial Reporting Standards Change and Comparative Information and reclassifications in the Previous Period s Financial Statements (Continued) - Annual improvements , effective from annual periods beginning on or after 1 January These amendments impact 3 standards: TFRS 1, First-time adoption of TFRS, regarding the deletion of short-term exemptions for first-time adopters regarding TFRS 7, TAS 19, and TFRS 10 effective 1 January TFRS 12, Disclosure of interests in other entities regarding clarification of the scope of the standard. These amendments should be applied retrospectively for annual periods beginning on or after 1 January TAS 28, Investments in associates and joint ventures regarding measuring an associate or joint venture at fair value effective 1 January TFRS 22, Foreign currency transactions and advance consideration, effective from annual periods beginning on or after 1 January This TFRIC addresses foreign currency transactions or parts of transactions where there is consideration that is denominated or priced in a foreign currency. The interpretation provides guidance for when a single payment/receipt is made as well as for situations where multiple payments/receipts are made. The guidance aims to reduce diversity in practice. The Company will assess the affect of the regarding changes mentioned above and apply accordingly, As of the reporting date, the following standards, interpretations and amendments have been published by the Public Oversight, Accounting and Auditing Standards Authority (POA) as public draft text: - TFRS, 16 Leases - Amendments to TFRS 22, 'Foreign currency transactions and advances As of the publication date of this bulletin, the following standards, comments and amendments have not been published by the Public Oversight, Accounting and Auditing Standards Authority (POA): - Amendments to TFRS 2, Share-based payment - Amendments to TFRS 15, Revenue from contracts with customers - Amendments for cash flow statements TAS 7 Financial instruments disclosure - Amendments to TAS 12, Income taxes - TAS 40, Investment properties - Annual improvements from 2014 to Amendments to TFRS 4, 'Insurance Contracts' 11

15 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies Significant accounting policies applied during the preparation of the financial statements are summarized as follows: Revenue Revenue is recognized on accrual basis at the fair value of the amount received or to be received based on the assumptions that revenue is measured reliably. Revenue is presented net of sales returns, discounts and provisions. Sales of residence and office Revenue from the sale of residence and office is recognized when all the following conditions are satisfied and recorded as revenue when delivery form is signed: The Company has transferred to the buyer the significant risks and rewards of ownership, The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, The amount of revenue can be measured reliably, It is probable that the economic benefits associated with the transaction will flow to the entity; and The costs incurred or to be incurred in respect of the transaction can be measured reliably. Revenue is recognized when the amount of revenue can be measured reliably and when it is probable that the economic benefits associated with the transaction will flow to the Company in the comprehensive income statement. Other income Rental income: Rental income is recognized on a straight-line basis over the term of the relevant lease Investment Properties Investment properties are properties held to earn rentals and/or for capital appreciation, including property under construction for such purposes. Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are stated at fair value. The profit or loss recognized due to the changes in the fair value of an investment property is included in the current year s comprehensive income statement. The profit or loss recognized due to condemnation or disposal of an investment property is the difference between net collection obtained from the disposal of the asset and the book value of the real estate, and it is accounted in the income statement under fair value increase in investment properties. 12

16 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies (Continued) The borrowing costs related to qualifying assets is also recognized during the construction of the asset, the mentioned capitalization continues until the completion of the construction. Company does not include the daily service expenses related to real estate in the book value of the investment property. Those costs are recognized in the profit or loss statement to the extent that they are realized. Maintanance expenses related to the real estates are recognized in the profit and loss statement in the relevant period. After initial recognition, investment property is carried at fair value. Fair value is based on active market prices, adjusted, if necessary, for any difference in the nature, location or condition of the specific asset. If this information is not available, the Company uses alternative valuation methods, such as discounted cash flow projections. Company considers the conditions resulted with the difference in the determination of the fair value of the investment properties in order to make the most reliable estimation. The fair value of investment property does not reflect future capital expenditure that will improve or enhance the property and does not reflect the related future benefits from this future expenditure. Company transfers its investment properties to inventory or fixed assets if and only if a change occurs in use of the investment property. Transfers to, or from, investment property shall be made when there is a change in use, evidence by: - Commencement of owner-occupation, for a transfer from investment property to owner occupied property; - Commencement of development with a view to sale, for a transfer from investment property to inventories; - End of owner-occupation, for a transfer from owner-occupied property to investment property or; - Commencement of an operating lease to another party, for a transfer from inventories to investment property. The Company to transfer a property from investment property to inventories when, and only when, there is a change in use, evidenced by commencement of development with a view to sale. When the Company decides to dispose of an investment property without development, it continues to treat the property as an investment property until it is derecognised and does not treat it as inventory. Similarly, if the Company begins to redevelop an existing investment property for continued future use as investment property, the property remains an investment property and is not reclassified as owner-occupied property during the redevelopment. For a transfer from investment property carried at fair value to owner-occupied property or inventories, the property s deemed cost for subsequent accounting in accordance with TAS 16 shall be its fair value at the date of change in use. If an owner-occupied property becomes an investment property that will be carried at fair value, the Company shall apply TAS 16 up to the date of change in use. The Company shall treat any difference at that date between the carrying amount of the property in accordance with TAS 16 and its fair value in the same way as a revaluation in accordance with TAS

17 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies (Continued) Up to the date when an owner-occupied property becomes an investment property carried at fair value, an entity depreciates the property and recognises any impairment losses that have occurred. The Company treats any difference at that date between the carrying amount of the property in accordance with TAS 16 and its fair value in the same way as a revaluation in accordance with TAS 16. In other words: (a) (b) any resulting decrease in the carrying amount of the property is recognised in profit or loss. However, to the extent that an amount is included in revaluation surplus for that property, the decrease is recognised in other comprehensive income and reduces the revaluation surplus within equity. any resulting increase in the carrying amount is treated as follows: (i) (ii) to the extent that the increase reverses a previous impairment loss for that property, the increase is recognised in profit or loss. The amount recognised in profit or loss does not exceed the amount needed to restore the carrying amount to the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised. any remaining part of the increase is recognised in other comprehensive income and increases the revaluation surplus within equity. On subsequent disposal of the investment property, the revaluation surplus included in equity may be transferred to retained earnings. The transfer from revaluation surplus to retained earnings is not made through profit or loss. The treatment of transfers from inventories to investment property that will be carried at fair value is consistent with the treatment of sales of inventories. For a transfer from inventories to investment property that will be carried at fair value, any difference between the fair value of the property at that date and its previous carrying amount shall be recognised in profit or loss Property and Equipment Property and equipment are carried at cost less accumulated depreciation and provision for impairment, if any. Any directly attributable costs of setting the asset in working order for its intended use are included in the initial measurement. Depreciation is calculated over of the cost of property and equipment using the straight-line method based on expected useful lives. 14

18 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies (Continued) The expected useful lives are stated below: Property and Equipment Expected useful life (year) Buildings Furniture and fixture 2-15 Motor vehicles 5 Leasehold improvements 5 Subsequent costs incurred for tangible assets are included in the asset s carrying amount or recognized as a separate asset as appropriate, only when 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. All other repairs and maintenance are charged to the statement of income during the financial period in which they were incurred. Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down to its recoverable amount and the provision for impairment is charged to statement of income. Gains and losses on the disposal of property and equipment are determined by deducting the net book value of the property and equipment from its sales value and are included in the related income and expense accounts, as appropriate Financial investments The Company enters swap contracts in order to hedge interest risk occurred due to the fluctuations in interest rates. The derivative financial instruments are initially recognized at fair value and are subsequently re-measured at fair value. The changes in fair value of the derivative instruments are recognized in income statement as financial income and expenses. As of 31 March 2017, the Company do not apply hedge accounting (Note 10) Impairment of assets Financial assets At each reporting date, the Company evaluates whether there are unbiased indicators that a financial asset or a group of financial assets are subject to impairment. If such an indicator exists, the Company determines the relevant impairment amount. A financial asset or a group of financial assets are impaired and impairment loss arises only when there is an unbiased indicator that one or more events ("loss") occurred after the relevant asset's initial recognition and the relevant financial asset or a group of assets was impaired due to the impact of the said loss on the future cash flows that can be forecast reliably. Potential losses that may arise from future events are not recognized, regardless of their likelihood. 15

19 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies (Continued) Non-financial assets At each reporting date, the Company assesses whether there is any indication of an impairment on the book value of the non-financial assets. If there is such an indication, the recoverable amount of that asset is estimated in order to determine the impairment amount. In cases when the asset's recoverable amount cannot be calculated separately, the recoverable amount of the cash generating unit to which that asset is affiliated is calculated. The recoverable amount is the higher of the values in use or the fair value after deducting sales costs. In measuring value in use, the discount rate used should be the pre-tax rate that reflects prospective estimated cash flows, the time value of money, and the risks specific to the asset. If the recoverable amount of the asset (or cash generating unit) is less than the book value, the book value of the asset (or cash generating unit) is discounted to the recoverable amount. The impairment losses that result are recognized as loss or profit Financial instruments Classification The Company has the following financial assets; cash and cash equivalents and financial investment carried at fair value through profit or loss; and has the following financial liabilities; borrowings and trade payables. i) Non-derivative financial assets The Company recognizes its deposits at the date they are incurred. All other financial assets, the transaction date that becomes a party to the conditions of the contract regarding the Company's financial instruments are recognized. When the Company transfers the assets with the relevant contract in accordance with the resulting cash flows related rights expired or related rights of ownership of all of the risks and rewards associated with the assets in a purchase and sale transactions in question is to remove the financial asset register. All kinds of rights created from the transfer of financial assets or retained at hand is recognized as a separate asset or liability. Non-derivative financial assets, including the attributable transaction costs, are recognized at fair value in the statement of financial position. Subsequent to initial recognition, financial assets are measured as described below. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss is divided into three subgroups: Financial assets held for trading, Financial assets at fair value through profit or loss and Derivative financial assets held for trading. Financial assets at fair value through profit or loss are generally acquired for the purpose of selling in the short term in order to acquire profit from price and such fluctuations in the market. Financial assets at fair value through profit or loss are reflected to statement of financial position with their cost value and then measured at fair value. Difference between cost and fair values is included in profit/loss accounts. 16

20 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies (Continued) Available for sale financial assets Available for sale financial assets are the financial assets other than assets held for trading purposes, financial assets at fair value through profit or loss, held to maturity financial assets and loans and receivables. Available-for-sale financial assets are subsequently measured at their fair values. Unrecognized gains or losses derived from the difference between their fair value and the discounted values calculated per effective interest rate method are recorded in Fair value reserve under shareholders equity. In case of sales, the realized gain or losses are recognized directly in the statement of operations. When equity investments are disposed of, any resulting gain or loss is recognized in profit or loss as the difference between the sales price and the carrying amount of the investment. There is no available for sale financial assets of the Company. Investments held to maturity Investments held to maturity are the investments, for which there is an intention of holding until maturity and the relevant conditions for fulfillment of such intention, including the funding ability, and for which there are fixed or determinable payments with fixed maturity; and which are recognized at fair value at initial recognition. Investments held to maturity with the initial recognition at fair value including transaction costs are subject to valuation with their discounted cost value by using the internal rate of return method less provision for any impairment, if any. Interest income from investments held to maturity are recognized in the income statement as an interest income. There is no investments held to maturity of the Company. Cash and cash equivalents Cash and cash equivalents are comprised of cash, bank deposits with maturity periods of less than threemonths and other highly liquid short-term investments which are readily convertible to a known amount of cash and are subject to an insignificant risk of change in value. The carrying values of these assets are close to their fair values. ii) Non-derivative financial liabilities Loans and borrowings Loans and borrowings are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortized cost using the effective interest method. 17

21 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies (Continued) Offsetting All items with significant amounts and nature, even with similar characteristics, are presented separately in the financial statements. Insignificant amounts are grouped and presented by means of items having similar substance and function. When the nature of transactions and events necessitate offsetting, presentation of these transactions and events over their net amounts or recognition of the assets after deducting the related impairment are not considered as a violation of the rule of non-offsetting Foreign Currency Transactions Transactions in foreign currencies are translated into TRY at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to TRY at the exchange rate at that date. Gains or losses on translation of foreign currency denominated transactions to TRY are recognized in profit or loss. Currency ratios used by the Company are given as below: 18 USD Euro Share premium Share premium represents the difference as a result of its sale of the stocks of the investments which are evaluated through equity method with a higher price than their nominal prices or the stocks of its subsidiaries; or the difference between the nominal and net realizable values of the stocks of its acquired companies Paid-in capital Ordinary shares are classified as equity. Proceeds from issuing new equity instruments are recorded in equity net of transaction costs Dividends Dividend income is recognized by the Company at the date the right to collect the dividend is realized. Dividend payables are recognized as a result of profit distribution in the period they are declared Earning per share Earnings per share are determined by dividing net comprehensive income by the weighted average number of shares that have been outstanding during the period concerned. In Turkey, companies can increase their share capital by making a pro-rata distribution of their shares bonus shares to existing shareholders funded from retained earnings or other reserves. For the purpose of earnings per share computations, such bonus share issuances are regarded as issued shares for all periods presented and accordingly the weighted average number of shares used in earnings per share computations in prior periods is adjusted retroactively for the effects of these shares, issued without receiving cash or another consideration from shareholders.

22 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Summary of critical account policies (Continued) Subsequent events Subsequent events represent the events that occur against or on behalf of the Company between the reporting date and the date when reporting was authorized for the issue. There are two types of subsequent events: - Those that provide evidence of conditions that existed as of reporting date (adjusting events after the reporting date); and - Those that are indicative of conditions that arose after the reporting date (non-adjusting events after the reporting date). If there is evidence of such events as of reporting date or if such events occur after reporting date and if adjustments are necessary, the Company s financial statements are adjusted according to the new situation. The Company discloses the post-balance sheet events that are not adjusting events but material Provisions, contingent liabilities and contingent assets A provision is recognized when the Company has a present implicit or legal obligation as a result of a past event and 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. If the specified criteria are not met, the Company discloses the related issues in the notes. If the inflow of economic benefits is probable, contingent assets are disclosed in the notes to the financial statements. If the inflow of the economic benefit is more than likely to occur, such asset and income statement effect are recognized in the financial statements at the relevant period that income change effect occurs Leases Leases are classified as finance leases whenever the terms of the lease transfers substantially all the risks and rewards incidental to ownership of an asset to the lessee. All other leases are classified as operating leases. The Company as the lessor Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. 19