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.)2.5.23 Frequent Flyer ProgramThe Group provides a frequent flyer program named “Miles and Smiles” in the form of free travel award to its memberson accumulated mileage. Miles earned by flights are recognized as a separately identifiable component of the salestransaction(s). A portion of the fair value of the consideration received in respect of the initial sale shall be allocated tothe award credits and the consideration allocated to award credits should be recognized as revenue when awards creditsare redeemed.The Group also sells mileage credits to participating partners in “Shop and Miles” program. A portion of such revenue isdeferred and amortized as transportation is provided.2.6 Changes and Errors in Accounting EstimatesIf estimated changes in accounting policies are for only one period, changes are applied on the current year but ifthe estimated changes effect the following periods, changes are applied both on the current and following yearsprospectively.Changes in accounting policies or accounting errors applied retroactively and the financial statements of the previousperiods were adjusted.2.7 Important Accounting Estimates and AssumptionsPreparation of the financial statements requires the amounts of assets and liabilities being reported, explanations ofcontingent liabilities and assets and the uses of accounting estimates and assumptions which would affect revenue andexpense accounts reported during the accounting period. Group makes estimates and assumptions about the futureperiods. Actual results could differ from those estimations.Accounting estimates and assumptions which might cause material adjustments on the book values of assets andliabilities in future financial reporting period were given below:The Determination of Impairment on Long Term Assets:Basic assumptions and calculation methods of the Group relating to impairment on assets are explained inDisclosure 2.5.7.Calculation of the Liability for Frequent Flyer Program:As explained in Note 2.5.23, Group has programs called “Miles and Smiles” and “Shop & Miles” which are applied for itsmembers. In the calculations of the liability related with concerned programs, the rate of use and mile values which aredetermined by using statistical methods over the historical data were used.Useful Lives and Salvage Values of Tangible Assets:Group has allocated depreciation over tangible assets by taking into consideration the useful lives and salvage valueswhich were explained in Note 2.5.3.Deferred Tax:Deferred tax assets and liabilities are recorded using substantially enacted tax rates for the effect of temporarydifferences between book and tax bases of assets and liabilities. There are deferred tax assets resulting from tax losscarry-forwards and deductible temporary differences, all of which could reduce taxable income in the future in theGroup. Based on available evidence, both positive and negative, it is determined whether it is probable that all or aportion of the deferred tax assets will be realized.25