Çalık Pamuk Doğal ve Sentetik Elyaf Ticaret Anonim Şirketi

Transcription

1 Çalık Pamuk Doğal ve Sentetik Elyaf Ticaret Anonim Şirketi Financial Statements As at and for the Year Ended 2016 With Independent Auditor s Report KPMG Akis Bağımsız Denetim ve Serbest Muhasebeci Mali Müşavirlik Anonim Şirketi 17 July 2017 This report includes 3 pages of independent auditor s report and 45 pages of financial statements together wtih their explanatory notes.

2 Table of Contents Independent Auditor s Report Statement of Financial Position Statement of Profit or Loss and Other Comprehensive Income Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements

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6 Statement of Financial Position As at ASSETS Notes Current assets Cash and cash equivalents 5 17,478, ,325 Trade receivables 6 16,892,285 25,691,470 Due from related parties ,427,742 Due from third parties 16,892,285 19,263,728 Other receivables 7 20,744,658 14,559,381 Due from related parties 4 15,705,727 4,058,456 Due from third parties 5,038,931 10,500,925 Inventories 8 21,282,368 27,079,996 Derivative financial assets 15 1,126, Prepayments 9 66,041,673 38,856,365 Current tax assets ,751 Other current assets 11 2,557,907 1,041,087 Total current assets 146,124, ,794,375 Non- current assets Trade receivables 6 450, Property, plant and equipment 10 4,884,367 2,658,745 Intangible assets 1,829 1,006 Other intangible assets 1,829 1,006 Prepayments 9 7,485,062 3,633 Deferred tax assets 16 1,989, ,776 Total non-current assets 14,811,135 3,319,160 Total assets 160,935, ,113,535 The accompanying notes form an integral part of these financial statements. 1

7 Statement of Financial Position (Continued) As at LIABILITIES Notes Current liabilities Short term loans and borrowings 12 28,375,771 39,283,123 Short term portion of long term loans and borrowings 12 17,947,920 14,957,113 Trade payables 6 13,515,422 10,724,953 Due to related parties 4 27,214 6,298,315 Due to third parties 13,488,208 4,426,638 Payables related to employee benefits 107,178 43,444 Other payables 4 55,329, Due to related parties 55,329, Derivative financial liabilities 15 8,996, Deferred revenue 9 7,535,502 4,795,372 Current tax liabilities , Short term provisions , ,069 Short term employee benefits 227, ,069 Other short term liabilities 11 2,088, ,001 Total current liabilities 134,443,309 70,828,075 Non-current liabilities Long term provisions , ,913 Long term employee benefits 291, ,913 Total non-current liabilities 291, ,913 Total liabilities 134,735,187 70,972,988 EQUITY Share capital 17 30,000,000 30,000,000 Legal reserves 17 2,070, ,355 Other comprehensive income will never be reclassified to profit or loss (271,553) (119,039) Accumulated profits/(losses) (3,373,515) 1,843,459 Profit/(Loss) for the year (2,225,085) 7,929,772 Total equity 26,200,033 40,140,547 Total equity and liabilities 160,935, ,113,535 The accompanying notes form an integral part of these financial statements. 2

8 Statement of Profit or Loss and Other Comprehensive Income For the Year Ended 2016 Notes Revenue ,676, ,662,538 Cost of sales 18 (500,156,864) (371,933,523) Gross profit 28,519,744 24,729,015 General and administrative expenses 19 (6,612,171) (4,422,854) Selling, marketing and distribution expenses 19 (13,316,052) (11,041,559) Other income 20 23,661,512 12,834,648 Other expenses 20 (19,181,807) (2,313,957) Operating profit 13,071,226 19,785,293 Income from investing activities 21 1,570,389 15,691 Loss from investing activities 21 (3,421,151) (353) Operating profit before finance costs 11,220,464 19,800,631 Finance costs 22 (13,293,947) (9,605,653) Net finance costs (13,293,947) (9,605,653) Profit before tax from continuing operations (2,073,483) 10,194,978 Current tax expense 16 (1,447,208) (2,953,206) Deferred tax benefit 16 1,295, ,000 Total tax expense (151,602) (2,265,206) Net profit/(loss) for the year (2,225,085) 7,929,772 The accompanying notes form an integral part of these financial statements. 3

9 Statement of Profit or Loss and Other Comprehensive Income (Continued) For the Year Ended 2016 Other comprehensive income Notes Items that will never be reclassified to profit or loss Defined benefit obligation actuarial differences 13 (190,643) (138,935) Tax on defined benefit obligation actuarial differences 16 38,129 27,787 Total other comprehensive income (152,514) (111,148) Total comprehensive income/(expense) (2,377,599) 7,818,624 The accompanying notes form an integral part of these financial statements. 4

10 Statement of Changes in Equity For the Year Ended 2016 Attributable to owners of the Company Share Defined benefit obligation Profit/(loss) for capital Legal reserves actuarial differences Accumulated losses the year Total Balances at 1 January ,000,000 83,998 (7,891) 1,479,957 4,314,558 35,870,622 Profit for the year ,929,772 7,929,772 Defined benefit obligation actuarial differences, net of tax (111,148) (111,148) Dividend distribution (3,548,699) (3,548,699) Transfers , ,912,201 (4,314,558) -- Balances at ,000, ,355 (119,039) 1,843,459 7,929,772 40,140,547 Balances at 1 January ,000, ,355 (119,039) 1,843,459 7,929,772 40,140,547 Loss for the year (2,225,085) (2,225,085) Defined benefit obligation actuarial differences, net of tax (152,514) (152,514) Dividend distribution (11,562,915) -- (11,562,615) Transfers -- 1,583, ,345,941 (7,929,772) -- Balances at ,000,000 2,070,186 (271,553) (3,373,515) (2,225,085) 26,200,033 The accompanying notes form an integral part of these financial statements. 5

11 Statement of Cash Flows For the Year Ended 2016 Notes Profit/(Loss) for the year (2,225,085) 7,929,772 Adjustments for depreciation , ,260 Adjustments for doubtful receivables 6 1,056,197 1,177,628 Adjustments for amortization 1,008 1,102 Adjustments for provision for long term employee benefits 13 38,851 21,181 Adjustments for inventory impairment, net 8 (1,809,200) 1,907,204 Adjustments for vacation pay liability 13 (32,234) 173,159 Adjustments for interest expenses 21,22 6,589,821 3,959,241 Adjustment for derivative financial assets 7,870, ,000 Rediscount interest income, net (57,834) Gain on sales of property, plant and equipment (1,569,318) (15,338) Unrealized foreign currency exchange losses 3,605,531 (3,629,862) Adjustments for tax expense ,602 2,265,206 Adjustments to reconcile cash flow generated from operating activities: 14,496,621 14,675,719 Change in inventories 7,606,828 (8,643,984) Change in trade receivables 7,292,622 (8,526,289) Change in other receivables (6,185,277) (10,143,885) Change in payables related to employee benefits 63,734 14,489 Change in restricted balances (13,181,818) 1,504,004 Change in other assets (1,516,820) 1,818,638 Change in trade payables 2,790,469 5,435,530 Change in other payables 55,329, Change in prepayments (34,666,737) (6,486,825) Change in deferred income 2,740,130 2,533,691 Change in other liabilities related with operating activities 1,324,242 (1,496,366) Changes in working capital 21,597,289 (23,990,997) Employee severance indemnity paid 13 (82,529) (25,654) Taxes paid 16 (1,053,756) (3,091,772) Interest paid (2,600,524) (551,100) Interest received 1,841,493 1,400,411 A.CASH FLOWS FROM OPERATING ACTIVITIES 34,198,594 (11,583,393) Proceeds from sale of property, plant and equipment 2,216,622 1,047,953 Acquisition of intangible assets (1,830) Acquisition of property, plant and equipment 10 (3,691,915) (2,490,097) B. CASH FLOWS FROM INVESTING ACTIVITIES (1,477,123) (1,442,144) Interest paid (5,853,216) (4,795,496) Dividend paid (11,562,915) (3,548,699) Proceeds from / (repayment of ) short term loans and borrowings, net (11,993,772) 21,210,185 C. CASH FLOWS FROM FINANCING ACTIVITIES (29,409,903) 12,865,990 D. TRANSLATION EFFECT OF FOREIGN CURRENCY ON CASH AND CASH EQUIVALENTS 494,121 (23,280) E. NET INCREASE / DECREASE IN CASH AND CASH EQUIVALENTS (A+B+C+D) 3,805,689 (182,827) F. CASH AND CASH EQUIVALENTS AT THE BEGINING OF THE PERIOD 5 268, ,492 CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD (A+B+C+D+F) 5 4,074, ,665 The accompanying notes form an integral part of these financial statements 6

12 As at and for the Year Ended 2016 Notes Description Pages 1 Reporting entity 8 2 Basis of prepration of financial statements 8 3 Significant accounting policies Related party disclosures 21 5 Cash and cash equivalents 22 6 Trade receivables and payables Other receivables and other payables 23 8 Inventories 23 9 Prepayments and deferred revenue Property, plant and equipment Other assets and liabilities Loans and borrowings Provisions Commitments and contingencies Derivative financial instruments Taxation Capital and reserves Revenue and cost of sales Administrative expenses, selling, marketing and distribution expenses Other operating income and expenses Income and loss from investing activities Finance costs Financial instruments Fair values and risk management Subsequent events 45 7

13 As at and for the Year Ended Reporting entity Çalık Pamuk Doğal ve Sentetik Elyaf Ticaret Anonim Şirketi ( The Company or Çalık Pamuk ) was established on 30 November 2011 in İstanbul, Turkey. It is engaged in supplying cotton of different origins grown both in Turkey and abroad, including the United States, India, Central Asia, Africa, and Greece and sells cotton to textile industrialists in the domestic and international markets. Çalık Pamuk supplies different types of yarn from countries in different parts of the world, including Turkey, USA, Asia, Africa, and offers its services to yarn users in Turkey and abroad. Çalık Pamuk Doğal ve Sentetik Elyaf Ticaret Anonim Şirketi s registered address is as follows: Keresteciler Sitesi Fatih Caddesi Ladin Sokak No: 17 Merter. İstanbul/Turkey. As at 2016, the number of employees of the Company is 27 ( 2015: 21). 2 Basis of preparation of financial stataments a) Statement of compliance The Company maintains its books of account and prepares its statutory financial statements in Turkish Lira ( TL ) in accordance with the accounting principles per Turkish Uniform Chart of Accounts, Turkish Commercial Code and Turkish Tax Code. The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). b) Basis of measurement The financial statements have been prepared on the historical cost basis, except derivative financial instruments. The methods used to measure the fair values are discussed further in Note 23. c) Functional and presentation currency The accompanying financial statements are presented in TL which is Çalık Pamuk s functional currency. d) Use of estimates and judgements The preparation of the financial statements in conformity with IFRSs requires management to make judgements, 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 recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas at estimation uncertainty and critical judgment in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in the following notes: Note 3 (c) and (d) Useful lives of property, plant and equipment, and intangible assets Note 13 Provisions Note 16 Taxation Note 23 Financial instruments Fair values and risk management 8

14 As at and for the Year Ended Significant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these financial statements. a) Foreign currency i) Foreign currency transactions Transactions in foreign currencies are translated to the functional currency of the Company at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between the amortised cost in the functional currency at the beginning of the year, adjusted for effective interest and payments during the year, and the amortised cost in foreign currency translated at the exchange rate at the end of the year. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Nonmonetary items in a foreign currency that are measured in terms of historical cost are translated using the exchange rate at the date of the transaction. Foreign currency differences arising on retranslation are recognised in profit or loss, except for differences arising on the retranslation of available-for-sale equity instruments (except on impairment in which case foreign currency differences that have been recognised in other comprehensive income are reclassified to profit or loss), a financial liability designated as a hedge of the net investment in a foreign operation to the extent that the hedge is effective; or qualifying cash flow hedges to the extent the hedge is effective. b) Financial instruments i) Non-derivative financial assets The Company initially recognises loans and receivables and deposits on the date that they are originated. All other financial assets are recognised initially on the trade date at which the Company becomes a party to the contractual provisions of the instrument. The Company derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in such transferred financial assets that is created or retained by the Company is recognised as a separate asset or liability. Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Company classifies non-derivative financial assets into the following categories: loans and receivables, and available-for-sale financial assets. Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are recognised initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses. Loans and receivables comprise trade receivables and other receivables. 9

15 As at and for the Year Ended Significant accounting policies (continued) b) Financial instruments (continued) i) Non-derivative financial assets (continued) ii) iii) iv) Cash and cash equivalents Cash and cash equivalents comprise cash balances, bank deposits and other liquid assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value. Non-derivative financial liabilities The Company initially recognises all financial liabilities on the date which is date that company becomes a party to the contractural provisions of the instrument. The Company derecognises a financial liability when its contractual obligations are discharged or cancelled, or expire. Financial assets and liabilities are offset and the net amount is presented in the statement of financial position when, and only when, the Company has a legal right to offset the amounts and intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. The Company classifies non-derivative financial liabilities into other financial liabilities which mainly are comprise loans and borrowings, trade and other payables and due to related parties. Such financial liabilities are recognised initially at fair value less any directly attributable transaction costs. Subsequent to initial recognition these financial liabilities are measured at amortised cost using the effective interest method. Derivative financial instruments The Company enters into commodity future contracts, foreign currency forwards and swap contracts for the purpose of avoiding price risk and foreign currency risk which is resulting from fluctuations in the price of commodities and foreign currencies required for the final sale. This contracts are recognized as derivative instruments in the statement of financial position. The Company does not designate derivative transaction as hedging instrument. For that reason derivative financial instruments are measured at fair value and changes in fair value are recognized immediately in profit or loss as incurred. Share capital Ordinary shares Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of ordinary shares are recognised as a deduction from equity, net of any tax effects. c) Property, plant and equipment i) Recognition and measurement Items of property, plant and equipment are measured at cost less accumulated depreciation and any accumulated impairment losses. 10

16 As at and for the Year Ended Significant accounting policies (continued) c) Property, plant and equipment (continued) i) Recognition and measurement (continued) ii) iii) Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of selfconstructed assets includes the following: cost of materials and direct labor; any other costs directly attributable to bringing the asset to a working condition for its intended use; when the Company has an obligation to remove the assets or restore the site, an estimate of the costs of dismantling and removing the items and restoring the site on which they are located; and capitalised borrowing costs. When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. An item of property, plant and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of an item of property, plant and equipment (calculated as the difference between the net proceeds from disposal and the carrying amount of the asset) is recognised in Gains from investing activities or Losses from investing activities under profit or loss. Subsequent costs Subsequent expenditure is capitalised only when it is probable that the future economic benefits associated with the expenditure will flow to the Company. Ongoing repairs and maintenance is expensed as incurred. Depreciation Items of property, plant and equipment are depreciated from the date that they are available for use or, in respect of self-constructed assets, from the date that the asset is completed and ready for use. Depreciation is calculated to write off the cost of items of property, plant and equipment using the straight-line basis over their estimated useful lives. Depreciation is generally recognised in profit or loss, unless the amount is included in the carrying amount of another asset. 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. The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: Description Year Machinery and equipments 5-15 Vehicles 5 Furniture and fixtures 3-15 Leasehold improvements 5-10 Leasehold improvements are depreciated over the shorter of the lease term and their useful lives, also on a straight-line basis. Depreciation methods and useful lives are reviewed at each reporting date and adjusted if appropriate. 11

17 As at and for the Year Ended Significant accounting policies (continued) d) Intangible assets Intangible assets of the Company mainly consist of rights and computer software acquired by the Company, which have finite useful lives, and are measured at cost less accumulated amortisation and any accumulated impairment losses, if any. Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill, and brands is recognised in profit or loss as incurred. Intangible assets are amortised on a straight-line basis in profit or loss over their estimated useful lives (3 years), from the date that they are available for use. Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate. e) Inventories Inventories are measured at the lower of cost and net realisable value. The cost of inventories is mainly based on the weighted average, and includes expenditure incurred in acquiring the inventories and other costs incurred in bringing them to their existing location and condition. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and estimated costs necessary to make the sale. The provision for impairment in value of inventories was provided for slow moving and obsolete inventories with respect to sales forcasts and net realizable value estimations. f) Impairment i) Non-derivative financial assets A financial asset not classified as 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 of impairment as a result of one or more events that occurred after the initial recognition of the asset, and that the loss event(s) had an impact on the estimated future cash flows of that asset that can be estimated reliably. Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers in the Company, economic conditions that correlate with defaults or the disappearance of an active market for a security. 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. 12

18 As at and for the Year Ended Significant accounting policies (continued) f) Impairment (continued) i) Non-derivative financial assets (continued) ii) Financial assets measured at amortised cost The Company considers evidence of impairment for these assets at both an individual asset and a collective level. All individually significant assets are individually assessed for impairment. Those found not to be impaired are then collectively assessed for any impairment that has been incurred but not yet individually identified. Assets that are not individually significant are collectively assessed for impairment. Collective assessment is carried out by grouping together assets with similar risk characteristics. In assessing collective impairment, the Company uses historical information on the timing of recoveries and the amount of loss incurred, and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than suggested by historical trends. An impairment loss is calculated as the difference between an asset s carrying amount and the present value of the estimated future cash flows discounted at the asset s original effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account. When the Company considers that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss. Non-financial assets The carrying amounts of the Company s non-financial assets, other than inventories and deferred tax assets, are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset or its related cash-generating unit ( CGU ) exceeds its recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using 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 the purpose of impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGUs. Subject to an operating segment ceiling test, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. 13

19 As at and for the Year Ended Significant accounting policies (continued) f) Impairment (continued) ii) Non- financial assets (continued) Impairment losses are recognised in profit or loss. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs), and then to reduce the carrying amounts of the other assets in the CGU (group of CGUs) on a pro rata basis. An impairment loss in respect of goodwill is not reversed. For the other assets, impairment loss is reversed when there is a change in the estimates used in the calculation of recoverable amount. For other assets, 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 amortisation, if no impairment loss had been recognised. g) Employee benefits i) Reserve for employee severance indemnity Reserve for employee severance indemnity represents the present value of the estimated future probable obligation of the Company arising from the retirement of the employees and calculated in accordance with the Turkish Labour Law. It is computed and reflected in the financial statements on an accrual basis as it is earned by serving employees. The computation of the liabilities is based upon the retirement pay ceiling announced by the Government. The ceiling amounts applicable for each year of employment were TL 4,297 and TL 3,828 at 2016 and 2015, respectively. ii) IFRSs require actuarial valuation methods to be developed to estimate the entity s obligation under defined benefit plans. The total liability for employee severance benefit was calculated by an independent actuary based on past service cost methodology using the observerable statistical market data such as mortality, inflation and interest rates or retirement pay ceilings applicable to the relevant periods and assumptions derived from the specific historic date of the Company such as retention and employee turnover rates or salary increase rates. Actuarial gains/losses are comprised of adjustment of difference between actuarial assumptions and realised and change in actuarial assumptions. As a result of the adoption of IAS 19 (2011), all actuarial differences are recognised in other comprehensive income. Reserve for employee severance indemnity is not subject to any statutory funding. Vacation pay liability Short-term employee benefit obligations are consisting of reserve for the vacation pay liability due to the earned and unused vacation rights of its employees of the Company, and measured on an undiscounted basis and are recognised in profit or loss as the related service is provided. h) Revenue Revenue is recognised when the significant risks and rewards of ownership have been transferred to the customer, 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 good, and the amount of revenue can be measured reliably. Revenue from sale of textile products is measured net of returns, trade discounts and volume rebates. 14

20 As at and for the Year Ended Significant accounting policies (continued) i) Leases i) Leased assets ii) iii) Leases in terms of which the Company assumes substantially all the risks and rewards of ownership are classified as finance leases. On initial recognition, the leased asset is measured at an amount equal to the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset. Other leases are operating leases are not recognised on the Company s statement of financial position. Lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease. Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction of the outstanding liability. The finance expense 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. Determining whether an arrangement contains a lease At inception of an arrangement, the Company determines whether such an arrangement is or contains a lease. The following two criteria must be met for a lease : the fulfillment of the arrangement is dependent on the use of a specific asset or assets; and the arrangement contains a right to use the asset(s). At inception or upon reassessment of the arrangement, 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 the Company concludes for a finance lease that it is impracticable to separate the payments reliably, an asset and a liability are recognised at an amount equal to the fair value of the underlying asset. Subsequently the liability is reduced as payments are made and an imputed finance charge on the liability is recognised using the Company s incremental borrowing rate. j) Finance income and finance costs Finance costs comprise interest expense on borrowings and foreign currency losses (excluding those on trade receivables and payables). Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in profit or loss using the effective interest method. Foreign currency gains and losses are reported on a net basis as either finance income or finance cost depending on whether foreign currency movements are in a net gain or net loss position. k) Income tax Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to a business combination, or items recognised directly in equity or in other comprehensive income. 15

21 As at and for the Year Ended Significant accounting policies (continued) k) Income tax (continued) Current tax Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred tax Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss. In addition, deferred tax is not recognised for taxable temporary differences arising on the initial recognition of goodwill. Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities and assets, and they relate to income taxes levied by the same tax authority on the same taxable entity. A deferred tax asset is recognised for unused tax losses, tax credits and deductable temporary differences, to the extent that it is probable that future taxable profits will be available against which the temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Tax exposures In determining the amount of current and deferred tax the Company takes into account the impact of uncertain tax positions and whether additional taxes and interest may be due. The Company believes that its accruals for tax liabilities are adequate for all open tax years based on its assessment of many factors, including interpretations of tax law and prior experience. This assessment relies on estimates and assumptions and may involve a series of judgements about future events. New information may become available that causes the Company to change its judgement regarding the adequacy of existing tax liabilities; such changes to tax liabilities will impact tax expense in the period that such a determination is made. l) Subsequent events Subsequent events represents the events after reporting date comprising any event between the reporting date and the date of authorisation for the financial statements issue to the benefit or loss of the entity. Conditions of subsequent events are as follows: to have new evidences of subsequent events as of reporting date (adjusting events after reporting date); and to have evidences of related subsequent events occurred after reporting date (non adjusting events after reporting date). The Company adjusts its financial statements according to the new condition if adjusting subsequent events arise subsequent to the reporting date. If it is not necessary to adjust the financial statements according to subsequent events, these subsequent events must be disclosed in the notes to the financial statements. 16

22 As at and for the Year Ended Significant accounting policies (continued) m) Statement of Cash Flow Cash flows during the period are classified and reported by operating, investing and financing activities in the cash flow statements. Cash flows from operating activities reflect cash flows mainly generated from main operations of the Company. The Company presents the cash flows from operating activities by using the indirect method such as adjusting the accruals for cash inflows and outflows from gross profit/loss, other non-cash transactions, prior and future transactions or deferrals. Cash flows from investment activities express cash used in investment activities (direct investments and financial investments) and cash flows generated from investment activities of the Company. Cash flows relating to financing activities express sources of financial activities and payment schedules of the company. Cash and cash equivalents comprise cash on hand, demand deposits, and other bank deposits which their maturities are three months or less from date of acquisition. n) Related parties Parties are considered related to the Company if: (a) Directly, or indirectly through one or more intermediaries, the party: (i) controls, is controlled by, or is under common control with the Company (this includes parent, subsidiaries and fellow subsidiaries); (ii) has an interest in the Company that gives it significant influence over the company; or (iii) has joint control over the Company; (b) the party is an associate of the Company; (c) the party is a joint venture/operation in which the Company is a venturer; (d) the party is member of the key management personnel of the Company and its parent; (e) the party is a close member of the family of any individual referred to in (a) or (d); (f) the party is an entity that is controlled or significantly influenced by, or for which significant voting power in such entity resides with directly or indirectly, any individual referred to in (d) or (e); (g) the party is a post-employment benefit plan for the benefit of employees of the Company, or of any entity that is a related party of the Company. A related party transaction is a transfer of resources, services or obligations between related parties, regardless of whether a price is charged. A number of transactions are entered into with related parties in the normal course of business. 17

23 As at and for the Year Ended Significant accounting policies (continued) o) Standards and interpretations issued but not yet effective Standards issued but not yet effective and not early adopted Standards, interpretations and amendments to existing standards that are issued but not yet effective up to the date of issuance of the financial statements are as follows. The Company will make the necessary changes if not indicated otherwise, which will be affecting the financial statements and disclosures, after the new standards and interpretations become in effect. IFRS 9 Financial Instruments IFRS 9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidance on the classification and measurement of financial instruments, a new expected credit loss model for calculating impairment on financial assets, and new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. IFRS 9 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. The Company is in the process of assessing the impact of the standard on the financial position or performance of the Company. IFRS 15 Revenue from Contracts with customers The standard replaces existing IFRS and US GAAP guidance and introduces a new control-based revenue recognition model for contracts with customers. In the new standard, total consideration measured will be the amount to which the Company expects to be entitled, rather than fair value and new guidance have been introduced on separating goods and services in a contract and recognising revenue over time. The standard is effective for annual periods beginning on or after 1 January 2018, with early adoption permitted under IFRS. The Company is in the process of assessing the impact of the standard on the financial position or performance of the Company. IFRS 16 Leases On 13 January 2016, IASB published the new leasing standard which will replace IAS 17 Leases, IFRIC 4 Determining Whether an Arrangement Contains a Lease, SIC 15 Operating Leases Incentives, and SIC 27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease and consequently change IAS 40 Investment Properties. IFRS 16 eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Lessor accounting remains similar to current practice. The standard is effective for annual periods beginning on or after 1 January 2019, with early adoption permitted provided that an entity also adopts IFRS 15-Revenue from Contracts with Customers. The Company is in the process of assessing the impact of the amendment on financial position or performance of the Company. IFRIC 22 Foreign Currency Transactions and Advance Consideration The amendments clarifies the accounting for transactions that include the receipt or payment of advance entity recognizes a non-monetary asset or non-monetary liability arising from the payment or receipt of advance consideration before the entity recognizes the related asset, expense or income. The date of the transaction, for the purpose of determining the exchange rate, is the date of initial recognition of the non-monetary prepayment asset or deferred income liability. If there are multiple payments or receipts in advance, a date of transaction is established for each payment or receipt. The amendment is effective for annual reporting periods beginning on or after 1 January 2018 with earlier application is permitted. The Company is in the process of assessing the impact of the amendment on financial position or performance of the Company. 18

24 As at and for the Year Ended Significant accounting policies (continued) o) Standards and interpretations issued but not yet effective (continued) Standards issued but not yet effective and not early adopted Amendments to IAS 7 Statement of Cash Flows Disclosure Initiative IAS 7 Statement of Cash Flows has been amended as part of the IASB s broader disclosure initiative to improve presentation and disclosure in financial statements. The amendments will require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The amendments are effective for periods beginning on or after 1 January 2017, with earlier application permitted. The Company is in the process of assessing the impact of the amendment on financial position or performance of the Company. Amendments to IAS 12 Income Taxes Recognition of Deferred Tax Assets for Unrealised Losses The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. The amendments are effective for annual periods beginning on or after 1 January The Company is in the process of assessing the impact of the amendment on financial position or performance of the Company. Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions IFRS 2 Share-Based Payment has been amended by IASB to improving consistency and resolve some long-standing ambiguities in share-based payment accounting. The amendments cover three accounting areas: i) measurement of cash-settled share-based payments, ii) classification of share-based payments settled net of tax withholdings; and iii) accounting for modification of a share-based payment from cashsettled to equity-settled. Also, same approach has been adopted for the measurement of cash-settled share-based payments as equity-settled share-based payments. If certain conditions are met, share-based payments settled net of tax withholdings are accounted for as equity-settled share-based payments. The amendments are effective for periods beginning on or after 1 January 2018, with earlier application permitted. The Company does not expect that these amendments will have significant impact on the financial position or performance of the Company. IAS 40 Transfers of Investment Property Amendments to IAS 40 - Transfers of Investment Property issued by IASB have been made to clarify uncertainty about that provide evidence of transfer of /from investment property to other asset groups. A change in management s intentions for the use of property does not provide evidence of a change in intended use. Therefore, when an entity decides to dispose of an investment property without development, it continues to treat the property as an investment property until it is derecognized (eliminated from the statement of financial position) and does not reclassify it as inventory. Similarly, if an entity 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. The amendment is effective for annual reporting periods beginning on or after 1 January 2018 with earlier application is permitted. The Company does not expect that these amendments will have significant impact on the financial position or performance of the Company. 19

25 As at and for the Year Ended Significant accounting policies (continued) o) Standards and interpretations issued but not yet effective (continued) Improvements to IFRSs The IASB issued Annual Improvements to IFRSs Cycle. The amendments are effective as of 1 January Earlier application is permitted. The Company does not expect that these amendments will have significant impact on the financial position or performance of the Company. Annual Improvements to IFRSs Cycle IFRS 1 First Time Adoption of International Financial Reporting Standards IFRS 1 is amended to clarify that the deletion of short-term exemptions for first-time adopters within the context of Annual Improvements to IFRSs Cycle related to disclosures for financial instruments, employee benefits and consolidation of investment entities. IFRS 12 Disclosure of Interests in Other Entities The amendments clarify that the entity is not required to disclose summarized financial information for that subsidiary, joint venture or associate under the requirements of IFRS 12, when an entity s interest in a subsidiary, a joint venture or an associate (or a portion of its interest in a joint venture or an associate) is classified (or included in a disposal group that is classified) as held for sale in accordance with IFRS 5. IAS 28 Investments in Associates and Joint Ventures The amendment enable when an investment in an associate or a joint venture is held by, or is held indirectly through, an entity that is a venture capital organization, or a mutual fund, unit trust and similar entities including investment-linked insurance funds, the entity may elect to measure that investment at fair value through profit or loss in accordance with IFRS 9. 20

26 As at and for the Year Ended Related party disclosures As at 2016 and 2015, the Company had the following balance outstanding from its related parties: Trade Receivables Gap Pazarlama A.Ş -- 6,313,383 Çalık Holding A.Ş ,359 Total -- 6,427,742 Other receivables Mahmut Can Çalık 14,415,068 4,056,557 Agrocot Holding B.V. 1,197, Calik Cotton N.V. 92, Çalık Enerji A.Ş -- 1,899 Total 15,705,727 4,058, Trade Payables Gap İnşaat Yatırım ve Dış Tic.A.Ş 27, Gap Pazarlama A.Ş. -- 6,298,315 Total 27,214 6,298,315 Other Payables Çalık Holding A.Ş.(*) 55,146, Gap Pazarlama A.Ş. 183, Total 55,329, Loans and borrowings Aktif Bank Yatırım Bankası A.Ş. 17,947,920 14,828,760 Total 17,947,920 14,828,760 *As at 2016, there is no spesific maturity for the payables due to Çalık Holding. Çalık Holding charges the interest to the Company monthly with the annual interest rate of 15.24% (2015: 17%). No impairment losses have been recognised against balances outstanding as at 2016 (31 December 2015: none) and no specific allowance has been made for impairment losses on balances with the related parties. Related party transactions For the year ended 2016 and 2015, related party transactions comprised the following: Revenue/ Income Expense Revenue/ Income Expense Çalık Denim Tekstil San. ve Tic.A.Ş. 42,137,114 9,012,828 19,967, ,064 Gap Pazarlama A.Ş. 54,754 93,200 6,070,646 73,140 Mahmut Can Çalık 1,668, ,590 1,032 Çalık Holding A.Ş. -- 1,592, ,113 11,359 Aktif Bank Yatırım Bankası A.Ş -- 1,669, ,226,629 43,859,906 12,368,188 26,531,546 2,003,224 Transactions with key management personnel Key management costs included in general and administrative expenses for the year ended 2016 amounted to TL 1,326,378 (2015: TL 838,876). 21

27 As at and for the Year Ended Cash and cash equivalents At 2016 and 2015, cash and cash equivalents comprised the following: Cash on hand 43, Cash at banks 17,435, ,978 -Demand deposits 4,030, ,318 -Other deposits* 13,404, ,660 Other liquid assets -- 11,762 Cash and cash equivalents 17,478, ,325 Restricted balances(*) 13,404, ,660 Cash and cash equivalents in cash flow statement 4,074, ,665 (*) Other deposits comprise restricted balances of the Company which consists of balances deposited against cotton future transactions. The Company s exposure to currency risks related to cash and cash equivalents are disclosed in Note Trade receivables and payables Short-term trade receivables As at 2016 and 2015, short-term trade receivables comprised the following: Due from third parties 16,892,285 19,263,728 Due from related parties (Note 4) -- 6,427,742 16,892,285 25,691,470 As at 2016 and 2015, due from third parties comprised the following: Accounts receivables 16,892,285 19,114,236 Notes receivables ,492 Doubtful trade receivables 2,233,825 1,177,628 Allowances for doubtful trade receivables (-) (2,233,825) (1,177,628) 16,892,285 19,264,728 Discount on trade receivables (-) -- (1,000) Total 16,892,285 19,263,728 Movements of allowance for doubtful receivables for the years ended at were as follows: Balance at 1 January 1,177, Allowance for the year(note 19) 1,056,197 1,177,628 Recoveries of amounts previously impaired (-)(Note 19) ,233,825 1,177,628 22