2002 Annual Report - Turkish Airlines

70 • 2002 TURKISH AIRLINES annual reportTURKISH AIRLINES INC.NOTES TO THE FINANCIAL STATEMENTS(all figures are restated to TL money values at December 31, 2002 pursuant to IAS 29)1- THE COMPANY'S OPERATIONSTürk Hava Yollar› A.O. (“the Company” or “THY”) was incorporated in Turkey in 1933. The principal activity of the Company is domestic and internationalair transportation of passengers and cargo.As of December 31, 2002, the shareholders and their respective shareholdings in the Company were as follows:Turkish Republic Privatization Administration 98.17%Others 1.83%100.00%2- BASIS OF PRESENTATION OF FINANCIAL STATEMENTSThe accompanying financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS” or “IAS”) andinterpretations issued by the Standing Interpretations Committee (SIC).Inflation AccountingThe Company's statutory records are maintained under the historical cost convention, as modified by the annual revaluation of property, plant andequipment. The accompanying IAS financial statements include restatement to reflect changes in the purchasing power of the Turkish Lira as requiredby IAS 29 ("Financial Reporting in Hyperinflationary Economies").IAS 29 requires that financial statements prepared in the currency of a hyperinflationary economy be stated in terms of the measuring unit current atthe balance sheet date and the corresponding figures for previous periods be restated in the same terms. One characteristic that leads to theclassification of an economy as hyperinflationary, necessitating the application of IAS 29 restatement, is a cumulative three-year inflation rateapproaching or exceeding 100%. Such cumulative rate in Turkey is 227% for the three years ended December 31, 2002 based on the wholesale priceindex announced by the Turkish State Institute of Statistics. The restatement has been calculated by means of conversion factors based on the Turkishcountrywide wholesale prices index ("WPI") published by the State Institute of Statistics.The index and corresponding conversion factors for year-ends are as follows (1994 average=100):IndexConversion Factor31 December 2000 2,626.0 2.467131 December 2001 4,951.7 1.308331 December 2002 6,478.8 1.0000The main guidelines for the restatement are as follows:• All amounts not already expressed in terms of the measuring unit current at the balance sheet date are restated by applying a general wholesale priceindex (the WPI). Corresponding figures for previous periods are similarly restated.• Monetary assets and liabilities are not restated because they are already expressed in terms of the monetary unit current at the balance sheet date.Monetary items are money held and items to be received or paid in money.• Non-monetary assets and liabilities and the components of shareholders' equity are restated by applying, (to the initial acquisition cost and anyaccumulated depreciation for fixed assets), the relevant conversion factors reflecting the increase in the WPI from the date of acquisition or initialrecording to the balance sheet date. Revaluations made on any other basis in the statutory records are eliminated.• All items in the statements of income are restated by applying the relevant conversion factors.• The effect of general inflation on the Company's net monetary position is included in the statements of income as monetary gain or loss.