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3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
3.32 Derivative Financial Instruments
(continued)
The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges are deferred in equity. The gain or loss relating to the ineffective portion
is recognised immediately in profit or loss.
The fair value of forward currency contracts is calculated by reference to current forward exchange rates for contracts with similar maturity profiles.
3.33 Significant Accounting Judgments and Estimates
The preparation of the financial statements in accordance with IFRS requires the Group Management to make estimates and assumptions that affect the 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 period.
Actual results could differ from those estimates. These estimates are reviewed periodically, and as adjustments become necessary, they are reported in earnings in the periods in which
they become known. The significant management estimates are as follows:
Doubtful receivables:
The Group recognizes a provision for receivables which are overdue and probable to create collection problems in the future. The provision is recognized by considering guarantees
received for these receivables.
Impairment of inventory:
When the net realizable value of inventory is less than its cost, the inventory is written down to the net realizable value and the expense is included in the statement of income / (loss) in
the period the write-down or loss occurred. When the circumstances that previously caused inventories to be written down below its cost no longer exist or when there is clear evidence
of an increase in the net realizable value due to change in the economic circumstances, the amount of the write-down is reversed. The reversal amount is limited to the amount of the
original write-down.
Useful lives of property, plant and equipment:
Tangible and intangible assets are depreciated and amortized over the useful lives determined by the Group Management (Note 3.11). The Group periodically reviews its useful live
estimates to ensure that they reflect the actual use and expected remaining future benefits to be derived from the use of these property, plant and equipment.
Revaluation of property, plant and equipment:
The Group Management periodically performs independent valuation for land, buildings and flat steel, steel pipe machinery asset groups. These valuations are performed frequently
enough to ensure that the fair value of the revalued assets does not differ materially from its carrying amount. If the Group Management believes that the carrying amount of the
revalued assets does not differ significantly from its fair value, they do not perform a new revaluation exercise. As at the balance sheet date the Group Management has performed a
comprehensive valuation exercise that resulted in approximately USD 98 million increase in revaluation reserve.
Deferred tax assets:
Deferred tax assets are recorded using substantially enacted tax rates for the effect of temporary differences between book and tax bases of assets and liabilities. Currently, there are
deferred tax assets resulting from tax loss carry-forwards and deductible temporary differences, all of which could reduce taxable income in the future. Based on available evidence,
both positive and negative, it is determined whether it is probable that all or a portion of the deferred tax assets will be realised. The main factors taken into consideration include future
earnings potential; cumulative losses in recent years; history of loss carry-forwards and other tax assets expiring; the carry-forward period associated with the deferred tax assets;
future reversals of existing taxable temporary differences; tax-planning strategies that would, if necessary, be implemented, and the nature of the income that can be used to realise
the deferred tax asset. If based on the weight of all available evidence, it is the Group’s belief that taxable profit will not be available sufficient to utilise some portion of these deferred
tax assets, therefore some portion of or all of the deferred tax assets are not recognised. The Group has not recognized deferred tax assets in certain entities because it is not probable
that sufficient taxable profit will be available to recognise deferred tax assets in those entities. If market conditions improve and future results of operations exceed the Group’s current
expectations, the existing unrecognised deferred tax assets may be recognised, resulting in future tax benefits.
BORUSAN HOLDING A.Ş. AND ITS SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014
(Currency - US Dollars (“USD”) unless otherwise indicated)