Financial assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to set off the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liabilities simultaneously.
Significant accounting estimates and judgments
The preparation of financial statements in accordance with the CMB Accounting Standards require the Company management
to make estimates and assumptions that affect certain reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting year. Actual results could differ from those estimates. Those estimates are reviewed periodically, and as adjustments
become necessary, they are reported in earnings in the periods in which they become known. Significant accounting policies are as follows:
a) Income taxes
There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business and significant judgment is required in determining the provision for income taxes. The Company recognises tax liabilities for anticipated tax issues based on estimates of whether additional taxes will be due and recognises tax assets for the carry forward tax losses and unused investment tax credits to the extent that the realisation of the related tax benefit through the future taxable profits is probable. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such
determination is made.
b) Fair value determination of available-for-sale investments
The generally accepted valuation techniques used in fair value determination of available-for-sale investments for which there is no quoted market price exists, consist of several assumptions, which are based on the management’s best estimates (Note 7).
c) Revaluation of land, buildings and land improvements, machinery and equipments
At December 31, 2008 land and land improvements, buildings, machinery and equipment were stated at fair value, based on valuations as of the same date. The fair value changes in land and land improvements, buildings, machinery and equipment
are estimated to be insignificant in 2010 since the carrying amounts of the land and land improvements, buildings, machinery
and equipment at December 31, 2010 do not significantly differ from their fair values as of the same date considering market
and technologic conditions, actual depreciation in 2009 and 2010, commercial attributes and industrial positions as well as demounting and assembling costs.
The revaluation techniques used in fair value determination of land and land improvements, buildings, machinery and equipment as at December 31, 2008, consist of several assumptions, which are based on the management’s best estimates:
- As there were no recent similar buying/selling transactions nearby, revaluations of land were based on the method of reference comparison whereas revaluations of buildings and land improvements were based on the method of cost approach. - In the market reference comparison method, current market information was utilized, taking into consideration the
comparable property in the market in recent past in the region, price adjustment was made within the framework of criteria that could affect market conditions, and accordingly an average m2 sale value was determined for the lands subject to the valuation.
The similar pieces of land found were compared in terms of location, size, settlement status, physical conditions, real estate
marketing firms were consulted for up-to-date valuation of the estate market, also, current information and experience of the
Chairperson’s Message
Management
In 2010
Environment & Sustainability
Corporate Governance and
Financial Information
2. Basis of preparation of financial statements (continued)
- In the cost approach method, fair value of the buildings and land improvements was calculated by considering recent re-
construction costs and related depreciation. In the cost approach method, above explained market reference comparison
method was used in calculation of the land value, one of the components.
- Whenever a fully integrated industrial plant was in discussion, the revaluation work was performed based on all the active and functioning assets in the integrated plant rather than taking as basis the data for the second-hand market within the scope
of the valuation of the machinery and equipment. Such machinery and equipment were reviewed and assessed by their line. The carrying values of land, land improvements, buildings, machinery and equipment do not necessarily reflect the amounts that
would result from the outcome of a sales transaction between independent parties.
d) Employee termination benefits:
The liability of defined benefit plans is determined using actuarial valuations which involve making assumptions about discount rates, future salary increases and employee turnover. Due to the long-term nature of these plans, such estimates are subject to significant uncertainty. Further details about the assumptions used are given in Note 24.
e) Economic lives of property, plant and equipment and intangible assets:
The Company’s management has made certain important assumptions based on experiences of their technical personnel in determining useful economic life of the tangible and intangible assets (Note 18-19).
Summary of significant accounting policies
The significant accounting policies applied in the preparation of financial statements is summarized as follows:
Revenue
Sale of goods
Revenues are recognised on an accrual basis at the time deliveries are made, services are given and significant risks and rewards are transferred to the buyer, the amount of revenue can be measured reliably and it is probable that the economic benefits associated with the transaction will flow to the Company at the fair value of considerations received or receivable. Net sales represent the invoiced value of goods shipped less sales returns, sales discounts and commissions given.
Interest income
Interest income is recognised on a time-proportion basis using the effective interest method. The amount of the provision for trade receivables is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. Interest income on loans is recognised using the effective interest rate. Rent income
Rent income is recognized on an accrual basis. Dividend income
Dividend income is recognised when the Company’s right to receive the payment is established.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, cash at banks, checks and short-term deposits having maturity of less than 3
Notes to the Financial Statements at December 31, 2010 and 2009
(Amounts expressed in Turkish lira (“TL”) unless otherwise indicated.)
2. Basis of preparation of financial statements (continued)