Financial - Turkish Airlines

(Convenience Translation of Report and Financial Statements Originally Issued in Turkish)TÜRK HAVA YOLLARI ANONİM ORTAKLIĞI AND ITS SUBSIDIARIESNotes to the Audited Consolidated Financial StatementsFor the Year Ended 31 December 2012(All amounts are expressed in Turkish Lira (TL) unless otherwise stated.)Deferred TaxDeferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases which is used in the computation of taxable profit, and is accounted forusing the balance sheet liability method.Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets arerecognized for all deductible temporary differences to the extent that it is probable that taxable profits will be availableagainst which those deductible temporary differences can be utilized. Such assets and liabilities are not recognized ifthe temporary difference arises from goodwill or from the initial recognition (other than in a business combination) ofother assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiariesand affiliates, and interests in joint ventures, except where the Group is able to control the reversal of the temporarydifference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assetsarising from deductible temporary differences associated with such investments and interests are only recognizedto the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of thetemporary differences and they are expected to reverse in the foreseeable future.The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is nolonger probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which theliability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantivelyenacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequencesthat would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carryingamount of its assets and liabilities.Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets againstcurrent tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intendsto settle its current tax assets and liabilities on a net basis.Current and deferred tax for the periodCurrent and deferred tax are recognized as an expense or income in profit or loss, except when they relate to itemscredited or debited directly to equity, in which case the tax is also recognized directly in equity, or where they arise fromthe initial accounting for a business combination. In the case of a business combination, the tax effect is taken intoaccount in calculating goodwill or determining the excess of the acquirer’s interest in the net fair value of the acquirer’sidentifiable assets, liabilities and contingent liabilities over cost.2.5.17 Government GrantsGovernment grants are not recognised until there is reasonable assurance that the Group will comply with the conditionsattaching to them and that the grants will be received.Government grants are recognised in profit or loss on a systematic basis over the periods in which the Group recognisesas expenses the related costs for which the grants are intended to compensate. Specifically, government grants whoseprimary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognisedas deferred revenue in the consolidated statement of financial position and transferred to profit or loss on a systematicand rational basis over the useful lives of the related assets.23