12 Months Financial Report - Turkish Airlines

TÜRK HAVA YOLLARI ANONİM ORTAKLIĞINOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSFOR THE YEAR ENDED 31 DECEMBER, 20092. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Cont’d)2.5 Summary of Significant Accounting Policies (Cont’d)2.5.8 Financial Instruments (Cont’d)a) Financial assets (cont’d)Cash and cash equivalentsCash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquidinvestments which their maturities are three months or less from date of acquisition and that are readilyconvertible to a known amount of cash and are subject to an insignificant risk of changes in value. Thecarrying amount of these assets approximates their fair value.b) Financial liabilitiesThe Group’s financial liabilities and equity instruments are classified in accordance with the contractualarrangements and recognition principles of a financial liability and equity instrument. An equityinstrument is any contract that evidences a residual interest in the assets of an entity after deducting all ofits liabilities. The significant accounting policies for financial liabilities and equity instruments aredescribed below. Financial liabilities are classified as either financial liabilities at fair value through profitand loss or other financial liabilities.Financial liabilities at fair value through profit or lossFinancial liabilities at fair value through profit or loss are initially measured at fair value, and at eachreporting period revalued at fair value as of balance sheet date. Changes in fair value are recognized inprofit and loss. The net gain or loss recognized in profit or loss incorporates any interest paid on thefinancial liability.Other financial liabilitiesOther financial liabilities, including bank borrowings, are initially measured at fair value, net oftransaction costs. Other financial liabilities are subsequently measured at amortized cost using theeffective interest method, with interest expense recognized on an effective yield basis. The effectiveinterest method is a method of calculating the amortized cost of a financial liability and of allocatinginterest expense over the relevant period. The effective interest rate is the rate that exactly discountsestimated future cash payments through the expected life of the financial liability, or, where appropriate, ashorter period.19