SİNPAŞ GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. AND ITS SUBSIDIARIES

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1 SİNPAŞ GAYRİMENKUL YATIRIM ORTAKLIĞI A.Ş. AND ITS SUBSIDIARIES CONVENIENCE TRANSLATION INTO ENGLISH OF CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2011 Originally Issued in Turkish

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4 CONVENIENCE TRANSLATION OF THE NOTES TO THE AS AT 31 DECEMBER 2011 CONTENTS PAGE CONSOLIDATED BALANCE SHEETS CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME CONSOLIDATED STATEMENT OF CHANGES IN EQUITY... 4 CONSOLIDATED STATEMENT OF CASH FLOWS NOTES TO THE NOTE 1 ORGANIZATION AND OPERATIONS OF THE COMPANY... 7 NOTE 2 BASIS OF PRESENTATION OF FINANCIAL STATEMENTS NOTE 3 CASH AND CASH EQUIVALENTS NOTE 4 FINANCIAL INVESTMENTS NOTE 5 FINANCIAL BORROWINGS NOTE 6 TRADE RECEIVABLES AND PAYABLES NOTE 7 OTHER RECEIVABLES AND PAYABLES NOTE 8 INVENTORIES NOTE 9 INVESTMENTS VALUED USING EQUITY METHOD NOTE 10 INVESTMENT PROPERTIES NOTE 11 PROPERTY, PLANT AND EQUIPMENT NOTE 12 INTANGIBLE ASSETS NOTE 13 PROVISIONS AND CONTINGENT LIABILITIES NOTE 14 EMPLOYMENT TERMINATION BENEFITS NOTE 15 OTHER CURRENT/ NON-CURRENT ASSETS NOTE 16 ADVANCES RECEIVED NOTE 17 EQUITY NOTE 18 SALES AND COST OF SALES NOTE 19 MARKETING, SELLING AND DISTRUBITION, GENERAL ADMINISTRATIVE EXPENSES NOTE 20 QUALITATIVE EXPENSES NOTE 21 INCOME/ EXPENSE FROM OTHER OPERATIONS NOTE 22 FINANCIAL INCOME NOTE 23 FINANCIAL EXPENSES NOTE 24 TAX ASSETS AND LIABILITIES NOTE 25 EARNINGS PER SHARE NOTE 26 TRANSACTIONS WITH RELATED PARTIES NOTE 27 FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES NOTE 28 FINANCIAL INSTRUMENTS NOTE 29 EVENTS AFTER THE BALANCE SHEET DATE APEENDIX DISCLOSURE-COMPLIANCE CONTROL OF THE PORTFOLIO RESTRICTIONS

5 CONVENIENCE TRANSLATION OF CONSOLIDATED BALANCE SHEETS AS AT 31 DECEMBER 2011 AND 2010 (Amounts are expressed in TL unlesss othervise stated) Current Period (Reclassified Note 2.1) Prior Period Notes ASSETS Current Assets 937,755, ,140,798 Cash and Cash Equivalent 3 27,642,095 51,304,477 Financial Investments 4 17,687,850 13,321,883 Trade Receivables 6 153,170,794 65,357,564 -Due from related parties 26 10,952,625 9,178,967 -Trade Receivables 6 142,218,169 56,178,597 Other Receivables 7 11,191,522 34,757,688 -Due from related parties 26 6,351,104 6,777,940 -Other Receivables 7 4,840,418 27,979,748 Inventories 8 557,722, ,617,292 Other Current Assets ,340, ,781,894 -Other Current Assets from Related Parties 26 13,910,164 19,227,271 -Other Current Assets ,430, ,554,623 Non-Current Assets 1,055,761,045 1,016,411,768 Trade Receivables 6 128,858,267 59,456,557 Inventories 8 691,749, ,251,762 Financial Investments 4 81,717,189 78,526,244 Investments accounted through equity method 9 15,750,868 - Investment Property 10 6,520,000 - Tangible Fixed Assets 11 13,826,937 13,231,756 Intangible Fixed Assets , ,503 Other Non-current Assets ,561, ,180,946 TOTAL ASSETS 1,993,516,410 1,652,552,566 The accompanying notes form an integral part of these financial statements. 1

6 CONVENIENCE TRANSLATION OF CONSOLIDATED BALANCE SHEETS AS AT 31 DECEMBER 2011 AND 2010 (Amounts are expressed in TL unlesss othervise stated) (Reclassified Note 2.1) Current Period Prior Period LIABILITIES Notes Current Liabilities 558,760, ,824,209 Financial Borrowings 5 95,975,790 14,367,750 Trade Payables 6 111,249,571 47,376,387 - Due to Related Parties 26 14,013, ,659 -Other Trade Payables 6 97,235,580 47,019,728 Advances Received ,605, ,017,811 Other Liabilities 7 22,918,959 16,253,988 Provision for Employee Benefits 14 1,010, ,273 Non-Current Liabilities 384,212, ,387,082 Financial Borrowings 5 186,342,810 25,766,667 Trade Payables 6 37,660 19,843,470 Advances Received ,647, ,643,060 Provision for Employment Benefits , ,885 EQUITY 1,050,543, ,341,275 Shareholder's Equity 1,050,543, ,341,275 Paid in Capital ,000, ,000,000 Capital Reserves ,888, ,388,864 Treasury Shares 17 (5,664,156) (5,664,156) Share Issue Premium 17 62,419,923 74,919,923 Revaluation Funds 17 22,094,067 18,903,122 Restricted Profit Reserves 17 9,673,982 3,935,637 Retained Earnings 17 9,119,540 (16,156,243) Profit for the year 140,010,918 61,014,128 TOTAL EQUITY AND LIABILITIES 1,993,516,410 1,652,552,566 The accompanying notes form an integral part of these financial statements. 2

7 CONVENIENCE TRANSLATION OF CONSOLIDATED STATEMENT OF COMPHRENSIVE INCOME (Amounts are expressed in TL unlesss othervise stated) Current Period Prior Period OPERATING INCOME Note Sales Revenue ,372, ,341,851 Cost of Sales (-) 18 (448,176,660) (257,445,193) GROSS PROFIT 207,195,571 95,896,658 Marketing, Selling and Distribution Expenses (-) 19 (51,176,034) (26,416,745) General Administrative Expenses (-) 19 (18,573,648) (17,739,376) Other Operating Income / (Loss), net 21 9,301, ,386 OPERATING PROFIT 146,747,268 52,171,923 Loss from investments accounted for using equity method 9 (11,141,132) (2,737,354) (Non Operating) Financial Income 22 65,889,135 25,456,652 (Non Operating) Financial Expenses (-) 23 (61,484,353) (13,877,093) INCOME BEFORE TAXATION 140,010,918 61,014,128 PROFIT FOR THE YEAR 140,010,918 61,014,128 Other Comprehensive Income: Increase in value of available for sale assets ,190,945 18,903,122 Other Comprehensive Income 3,190,945 18,903,122 TOTAL COMPREHENSIVE INCOME 143,201,863 79,917,250 PROFIT/(LOSS) Earnings Per Share The accompanying notes form an integral part of these financial statements. 3

8 CONVENIENCE TRANSLATION OF CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (Amounts are expressed in TL unlesss othervise stated) Opening Balance as of 1 January 2010 Notes Paid in Capital Capital Reserves Treasury Shares Share Issue Premium Revaluation Fund Restricted Profit Reserves Profit / (Loss) for the year Retained Earnings 400,000, ,388, ,919,923-3,935,637 (18,135,832) 1,979, ,088,181 Total Transfer to reserves from prior year profit / (loss) ,135,832 (18,135,832) - Purchase of treasury shares (5,664,156) (5,664,156) Transfer to paid in capital from capital reserves ,000, (100,000,000) Total comprehensive income ,903,122-61,014,128-79,917,250 Opening Balance as of 1 January ,000, ,388,864 (5,664,156) 74,919,923 18,903,122 3,935,637 61,014,128 (16,156,243) 937,341,275 Transfer to reserves from prior year profit / (loss) ,738,345 (61,014,128) 55,275,783 - Transfer to paid in capital from capital reserves ,000,000 (87,500,000) - (12,500,000) Dividend payment (30,000,000) (30,000,000) Total comprehensive income ,190, ,010, ,201,863 Balance as of 31 December ,000, ,888,864 (5,664,156) 62,419,923 22,094,067 9,673, ,010,918 9,119,540 1,050,543,138 The accompanying notes form and integral part of these financial statements. 4

9 CONVENIENCE TRANSLATION OF CONSOLIDATED STATEMENT OF CASH FLOWS Current Period Prior Period 1 January- 1 January- Notes CASH FLOWS FROM OPERATING ACTIVITIES Profit for the period 140,010,918 61,014,128 Adjustments to reconcile net income to net cash flow provided by operating activities: - Depreciation of property, plant and equipment 11 4,229,748 3,909,974 - Amortization of intangible assets , ,681 - Impairment provision for inventories 8 (9,666,901) (4,583,055) - Rediscount on trade receivables / trade payables ,195, ,176 - Dividend income 22 (1,426,958) (4,338,293) - Financial investments fair value adjustments (630,486) (1,726,882) - Gain/ (loss) on property and equipment sale 21 (38,186) (1,585,771) - Group's share on associates's loss for the year 9 11,141,132 2,737,354 - Provision for unused vacation 14 52, ,079 - Provision for employee termination benefits , ,153 Operating cash flows before changes in working capital 161,263,629 56,341,544 - Decrease/(increase) in due from related parties ,970,285 (2,492,218) - Increase in trade receivables 6 (155,441,282) (75,337,654) - Increase in inventories 8 (137,936,560) (175,979,995) - Increase in investment property 10 (6,520,000) - - Increase in other trade receivables, current and non current assets 7-15 (34,884,503) (25,287,130) - Increase in trade payables 6 13,214,995 12,677,214 - Increase in financial investments 4 (3,735,481) (221,700) - Increase / (decrease) in advances received 16 (65,407,546) 188,834,797 - (Decrease)/increase in the due to related parties ,657,332 (9,381,431) - Increase in other trade payables and current liabilities ,815,129 8,192,571 Changes in working capital (205,004,002) (22,654,002) - Taxes paid 15 (232,436) (671,260) - Provision for employee termination benefits 14 (131,580) (107,412) - Dividends received 22 1,426,958 4,338,293 Cash used in operating activities (31,905,505) Net cash used in investment (10,763,864) activities The accompanying notes form and integral part of these financial statements 5 (203,941,060) (19,094,381) CASH FLOWS FROM FINANCE ACTIVITIES Acquisition of tangible fixed assets 11 (5,034,979) (7,342,870) - Cash provided from sales of tangible fixed assets , Acquisition of intagible assets 12 (240,571) (683,640) - Cash provided from sales of intangible fixed assets 12 14, Participation in capital increase of subsidiaries 9 (26,892,000) (2,737,354)

10 CONVENIENCE TRANSLATION OF CONSOLIDATED STATEMENT OF CASH FLOWS Current Period Prior Period 1 January- 1 January- Notes CASH FLOW FROM FINANCE ACTIVITIES - Dividends paid 17 (30,000,000) - - Purchase of treasury shares 17 - (5,664,156) - Loans received 5 256,922,443 40,037,386 - Loans paid 5 (14,641,229) - - Financial leasing payments 5 (97,031) (2,652,210) Net cash provided from finance activities 212,184,183 31,721,020 NET CHANGES CASH EQUIVALENTS NET CASH AND CASH EQUIVALENTS AT THEBEGINNING OF THEYEAR NET CASH AND CASH EQUIVALENTS AT THEEND OF THEYEAR (23,662,382) 1,862,775 51,304,477 49,441,702 27,642,095 51,304,477 The accompanying notes form and integral part of these financial statements 6

11 1. ORGANIZATION AND OPERATION OF THE COMPANY Sinpaş İnşaat A.Ş. (the Company ), was established on 22 December 2006 so as to be converted into a Real Estate Investment Company ( GYO ), has applied to the Capital Markets Board ( CMB ) and following its approval, it has been registered to the trade registry as from 3 May 2007 and the title of the Company has been changed to Sinpaş Gayrimenkul Yatırım Ortaklığı Anonim Şirketi ( Sinpaş GYO ). The Group s main operation is to develop residential real estate projects primarily for sale. The Group is part of the Sinpaş Group, one of the leading real estate investment and development groups in Turkey. The Group is incorporated and operates in Turkey. Major shareholders of the Group are Servet Gayrimenkul Yatırım Ortaklığı A.Ş. ( Servet GYO ) and Avni Çelik. As of 31 December 2011, the Group employed 159 people (2010: 155). The registered address of the group is Sinpaş Plaza, Dikilitaş Mahallesi Yenidoğan Sokak. No: Beşiktaş, Istanbul. Approval of Financials: Financials approved by the board of directors and have been granted authorization to be published on 11 April Board reserves the right to make changes to these financials. 2. BASIS OF THE PRESENTATION OF THE FINANCIAL STATEMENTS 2.1 The basis of presentation The Basis for Preparation of the Financial Statements and Significant Accounting Policies The Company maintains its books of account and prepares its statutory financial statements ( Statutory Financial Statements ) in accordance with accounting principles in the Turkish Commercial Code and tax legislation. The Capital Markets Board ( CMB ) has established principles, procedures and basis on the preparation of financial reports by enterprises and the representation of the reports with Communiqué No: XI/29 Communiqué on Capital Market Financial Reporting Standards. This Communiqué is applicable for the first interim financial statements to be prepared after 1 January 2008, and with this Communiqué, the Communiqué No: XI/25 Communiqué on Capital Market Accounting Standards has been repealed. In accordance with this Communiqué, the companies are supposed to prepare their financial statements in accordance with the International Financial Reporting Standards ( IAS/IFRS ) accepted by the European Union. Nevertheless, until the discrepancies between the IAS/IFRS accepted by the European Union, and the IAS/IFRS declared by IASB are announced by the Turkish Accounting Standards Board ( TASB ), IAS/IFRS will be in use. Under these circumstances, Turkish Accounting Standards/Turkish Financial Reporting Standards ( TAS/TFRS ), which are the standards published by TASB, not contradicting with IAS/IFRS will be predicated on. 7

12 2. BASIS OF PRESANTATION OF FINANCIAL STATEMENTS (Continued) 2.1 The Basis of Presentation (Continued) Until the discrepancies between the IAS/IFRS accepted by the European Union, and the IAS/IFRS declared by IASB are announced by the Turkish Accounting Standards Board ( TASB ), the accompanying financial statements have been prepared in accordance with IFRS and comply with CMB s Communiqué No: XI/29 announce on 17 April 2008 and 9 January 2009 regarding to the format of the financial statements and footnotes. The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for assets. Currency in Use Accompanying financial statements of each Group entity are presented in the currency of the primary economic environment in which the entity operates (its functional currency). For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in TL, which is the functional currency of the Company, and the presentation currency for the consolidated financial statements. Adjustment of Financials in Hyperinflationary Periods As per the March 17 th 2005 dated, 11/367 numbered decree of CMB, companies engaged in Turkey and those of which prepare their financial statements in accordance with the CMB Accounting Standards (including IAS/IFRS exercisers), use of inflationary accounting standards have been discontinued effective from 1 January Pursuant effectuation, Financial Reporting Standards in Hyperinflationary Economies issued by the International Accounting Standards Committee (IASC); ( IAS/TAS 29 ) is not applied henceforward. Comparative information and reclassifications to the prior period financial statements: Consolidated financial statements of the Group have been prepared comparatively with the prior period in order to give information about financial position and performance. If the presentation or classification of the consolidated financial statements is changed, in order to maintain consistency, financial statements of the prior periods are also reclassified in line with the related changes. In the current year, the Group had reclassified certain comparative balances in order to conform to current year s presentation. The nature, amount and reasons for each of the reclassifications are described below: Group has made classifications to its financial statements prepared as of 31 December 2010 between Current Assets and Non-Current Assets and Current Liabilities and Non-Current Liabilities account groups. Group has made classification at Current Asset account group includes the Other Current Asset sub-account group, which is expected not to offset, and maturity dates are over twelve months. 104,180,946 TL amounting of Deferred VAT Receivables classified to Non-Current Asset account groups includes the Other Non-Current Asset at 31 December 2010 financial statements. 8

13 2. BASIS OF PRESANTATION OF FINANCIAL STATEMENTS (Continued) 2.1 The Basis of Presentation (Continued) Comparative information and reclassifications to the prior period financial statements: (Continued) Group has made classification at Current Asset account group includes the Inventory sub-account group. Land and work in process which are expected to complete over twelve months, amounting of 760,251,762 TL, classified to Non-Current Asset account group includes the Inventory subaccount group at 31 December 2010 financial statements. Group has made classification at Current Asset account group includes the Short Term Trade Receivables and amounting of 1,141,786 TL at discount on notes receivables, classified to Non- Current Asset account group includes Long Term Trade Receivables sub-account group at 31 December 2010 financial statements. Group has made classification at Short Term Liabilities account group includes the Advances Received sub-account group. 377,643,060 TL amounting of advances which are expected to delivery houses over twelve months, classified to Long Term Liabilities account group includes the Advances Received at 31 December 2010 financial statements. Consolidation Principles The details of the Company s subsidiaries as of 31 December 2011 are as follows: Proportion of Share in voting power Country of Equity held Principal Subsidiaries Origin % % Activity Eviya Gayrimenkul Gelisştirme ve Yatırım A.Ş. (*) Turkey Real estate and investing in real estate rights (*) Eviya has 147,055,649 shares. Avni Çelik and the other family members has four of these shares and, the Group owns the remaining shares. Company s trade name changed to Eviya Gayrimenkul Geliştirme İnşaat ve Taahhüt A.Ş. ( Eviya ) as of 11 November The final trade name revised to Eviya Gayrimenkul Geliştirme ve Yatırım A.Ş. as of 5 December Since November 2011, Eviya has offered for sale under the name of Egeboyu Project. The consolidated financial statements incorporate the financial statements of the Company and entities controlled or jointly controlled by the Company (its subsidiaries). Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed of during the year are included in the consolidated income statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. Where necessary, adjustments are made to the financial statements of subsidiaries to be in compliance with the accounting policies used by other members of the Group. All significant transactions and balances between the Group and its consolidated subsidiaries have been eliminated during the consolidation. 9

14 2. BASIS OF PRESANTATION OF FINANCIAL STATEMENTS (Continued) 2.1 The Basis of Presentation (Continued) Changes in the Group s ownership interests in existing subsidiaries Changes in the Group's ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group's interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to owners of the Company. When the Group loses control of a subsidiary, the profit or loss on disposal is calculated as the difference between (i) the total of the fair value of the consideration received and the fair value of any retained interest and (ii) the previous carrying amount of the assets (including goodwill), and liabilities of the subsidiary and any non-controlling interests. When assets of the subsidiary are carried at revalued amounts or fair values and the related cumulative gain or loss has been recognized in other comprehensive income and accumulated in equity, the amounts previously recognized in other comprehensive income and accumulated in equity are accounted for as if the Company had directly disposed of the relevant assets (i.e. reclassified to profit or loss or transferred directly to retained earnings as specified by applicable IFRSs). The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement or, when applicable, the cost on initial recognition of an investment in an associate or a jointly controlled entity. Affiliates: Subsidiaries are companies in which the Company has power to control directly. Control power means that the benefits flow to the Company and that the Company has direct or indirect power to affect the financial and operating policies of the related companies. Subsidiaries and proportion of ownership interest as of December 31, 2011 and December 31, 2010 are shown below: Ownership interest (%) Investments in associates Place of incorporation and operation 31 December December 2010 Proportion of voting power held (%) Ottoman Gayrimenkul İstanbul % 24.9 % 24.9 % 24.9 Principal Activity Real estate acquisitions to add value by projects and to generate earnings by their sale The results related to assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting, except when the investment is classified as held for sale, in which case it is accounted for under IFRS 5. Under the equity method, investments in associates are carried in the consolidated balance sheet at cost as adjusted for post-acquisition changes in the Group s share of the net assets of the associate, less any impairment in the value of individual investments. Losses of an associate in excess of the Group s interest in that associate (which includes any long-term interests that, in substance, form part of the Group s net investment in the associate) are not recognized. Unrealized profit and losses derived from the transactions between the Group and its joint ventures are eliminated at the rate of Group s share in that joint venture. 10

15 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.2 Changes in Accounting Policies Significant changes in accounting policies have been applied retrospectively and prior period financial statements are restated. The Group applies same accounting policies on the financial statements as of 31 December Changes and Errors in Accounting Estimates If estimated changes in accounting policies are for only one period, changes are applied on the current year but if the estimated changes effect the following periods, changes are applied both on the current and following years prospectively. There are not any significant changes in accounting estimates of the Group in the current period. Changes in accounting policies or accounting errors applied retroactively and the financial statements of the previous periods were adjusted. 2.4 Adoption of New and Revised International Financial Reporting Standards The Company has applied all standards and interpretations published by the IASB and International Financial Reporting Interpretation Committee ( IFRIC ) effective for annual accounting periods beginning on or after 1 January 2011, that are relevant to its operations. The standards listed below and the changes and comments introduced to the prior standards have been enforced as of 1 January 2011: - IAS 32 (amendment), Financial instruments: Presentation, is effective for annual periods beginning on or after 1 February IFRIC 19, Extinguishing financial liabilities with equity instruments, is effective for annual periods beginning on or after 1 July IFRS 1 (amendment), First-time adoption of IFRS, is effective for annual periods beginning on or after 1 July IAS 24 (revised), Related party disclosures, is effective for annual periods beginning on or after 1 January (The Company adopted the related standard early in 2010). - IFRIC 14 (amendment), IAS 19 - The limit on a defined benefit asset, minimum funding requirements and their interaction, is effective for annual periods beginning on or after 1 January Annual Improvements to IFRSs Amendments effect six standards and one IFRIC: IFRS 1, IFRS 3, IFRS 7, IAS 27, IAS 34 and IFRIC

16 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.4 Adoption of New and Revised International Financial Reporting Standards (Continued) Standards, amendments and interpretations not yet effective as of 1 January 2011 and not early adopted by the Group: - IFRS 7 (amendment), Financial instruments: Disclosures, is effective for annual periods beginning on or after 1 July IFRS 1 (amendment), First-time adoption of IFRS, is effective for annual periods beginning on or after 1 July IAS 12 (amendment), Income taxes, is effective for annual periods beginning on or after 1 January IAS 1 (amendment), Presentation of financial statements, is effective for annual periods beginning on or after 1 July IAS 19 (amendment), Employee benefits, is effective for annual periods beginning on or after 1 January IFRS 9, Financial instruments, is effective for annual periods beginning on/after 1 January IFRS 10, Consolidated financial statements, is effective for annual periods beginning on or after 1 January IFRS 11, Joint arrangements, is effective for annual periods beginning on/after 1 January IFRS 12, Disclosures of interests in other entities, is effective for annual periods beginning on or after 1 January IFRS 13, Fair value measurement, is effective for annual periods beginning on or after 1 January IAS 27 (revised), Separate financial statements, is effective for annual periods beginning on or after 1 January IAS 28 (revised), Associates and joint ventures, is effective for annual periods beginning on or after 1 January IFRIC 20, Stripping costs in the production phase of a surface mine. Abovementioned amendments to the standards do not have a material impact on the financial statements of the Group. 2.5 Summary of Significant Accounting Policies Revenue Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for rebates and other similar allowances. Revenue generated from Buyers Revenue generated from the residency construction projects are accounted for when the Group fulfils its requirements defined in the contracts and all the legal rights and those risks that may legally exist from the ownership of the completed goods are transferred to the buyer. 12

17 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Procedures related to the Landowner In accordance with the landownership ( LOA ) and revenue sharing agreements ( RSA ), the Group commits to develop real estate projects on lands that are owned by other individuals and transfers the corresponding revenue portion obtained from the assets to be build in consideration of the land received based on the LOA and the corresponding sale profit obtained from the premises to be built under the RSA to the respective landowners. For landownership agreements, the value of land transferred to the Group is carried at fair value at the date of agreement and when the Group meets all of its contractual liabilities and all risks and awards of the ownership of the assets are transferred to the landowner following the approval of the delivery notice by the landowner, revenue is recognized as the sale profit obtained from the landowner. For RSA agreements, sale profit is transferred to the landowners at the date when the Group receives the related revenue and the transferred amount is recognized under the advances given to landowners account. When the Group meets its liabilities specified in the Revenue from buyers paragraph, fair value of the corresponding land portion of the Group is recognized as sale profit obtained from the landowner. Inventories Construction of housing project works in progress consists of direct, indirect and overhead costs. These work in progress inventories are stated at their lower of cost and net realizable value. Lands to be developed for projects consist of lands which their constructions have not started yet and are stated at their lower of cost and net realizable value. Finished goods are completed and ready to sell housing projects and are stated at their lower of cost and net realizable value. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to make a sale. Group classified inventories at short term and long term. The Group classifies the vacant land and uncompleted residences and commercial units which are expected to be completed over 12 months as long term assets while the remaining inventories are classified within short term assets. Property, Plant and Equipment Property plant & equipment are carried at cost less accumulated depreciation and any accumulated impairment losses. Properties in the course of construction for production, rental or administrative purposes, or for purposes not yet determined are carried at cost, less any recognized impairment loss. Cost includes professional fees and, for qualifying assets, borrowing costs capitalized in accordance with the Group s accounting policy. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use. 13

18 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Depreciation is charged so as to write off the cost or valuation of assets over their estimated useful lives, using the straight-line method. The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset, and is recognized in the statement of income. Estimated useful lives are summarized below: Buildings Motor and vehicles Furniture and fixtures Leasehold improvements Useful Life 50 years 5 years 4-5 years 5 years Financial Lease Operations Leasing classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases treated as operational leases. Assets held under finance leases are recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are capitalized in accordance with the Group s general policy on borrowing costs and recognized in the income statement, unless they are directly attributable to qualifying assets. Rental income from operating leases (initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and recognized on a straight-line basis over the lease term), is recognized on a straight-line basis over the term of the relevant. Intangible Assets Intangible assets are reported at cost less accumulated amortization and accumulated impairment losses. Amortization is charged on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. 14

19 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Impairment of Assets Assets with indefinite useful lives such as goodwill are not subject to amortization. Such assets are subject to impairment test each year. Assets that are subject to amortization and depreciation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. Investment Property The Group s investment properties are lands and leisure centre which are held either for rental income or capital appreciation, or both and carried at fair value in the accompanying consolidated financial statements. Investment properties are classified as asset if only the following conditions are met: When it is probable that the future economic benefit will flow to the Group and The cost of the investment property can be reliable measured. Gains or losses arising from changes in the fair values of investment properties are included in the comprehensive income statement of the year which they arise. Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in comprehensive income statement in the year of retirement or disposal as fair value increase of investment property. Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets which are assets that necessarily take a substantial period to get ready for their intended use or sale (qualifying assets), are added to the cost of those assets, until the assets are substantially ready for their intended use or sale. Investment income earned on temporary investment of specific borrowings with their pending expenditure on qualifying assets, deducted from the borrowing costs eligible for capitalization. All other borrowing costs recognized in the income statement in the period during which they incurred. 15

20 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Financial Instruments Financial assets Investments excluding FVTPL are recognized and derecognized on a trade date, where the purchase or sale of an investment under a contract whose terms require delivery of the investment within the period established by the market concerned, and initially measured at fair value. Net of transaction costs except for those financial assets classified as at fair value through profit or loss are initially measured at fair value. Financial assets classified into the following specified categories: financial assets as at fair value through profit or loss (FVTPL), held-to-maturity investments, available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. Effective interest method The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. Income is recognized on an effective interest basis for debt instruments other than those financial assets designated as at fair value through profit or loss. Financial assets at FVTPL Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short-term. Derivatives also are categorized as held for trading unless they are designated as hedges. Assets in this category are classified as current assets. Held-to-maturity investments Investments in debt securities with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to maturity are classified as held-to-maturity investments. Held-to-maturity investments are recorded at amortized cost using the effective interest method less impairment, with revenue recognized on an effective yield basis. Held-to-maturity investments are accounted by the escalation of amortized cost based on effective interest method and the amount of impairment, and related income is calculated via effective interest method. Loans and receivables Trade receivables, other receivables and loans that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortized cost using the effective interest method less any impairment. 16

21 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Financial Instruments (Continued) Available-for-sale financial assets Available-for-sale financial assets are consisted of financial assets, which are not held-to-maturity investments, not credit and receivables, or not financial assets held for trading. The Group also has investments in quoted equity investments that are traded in an active market but are also classified as available-for-sale financial assets and stated at cost since their value can be reliably measured. The fair value of AFS financial assets is determined via market price announcing by Istanbul Stock Exchange. Gains and losses are recognized in the income statement. Gains and losses arising from changes in fair value are recognized in equity. Where the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss. Impairment losses resulting from equity instruments that are classified as available for sale recognized in profit and loss and couldn t be reversed in the income statetement the later periods. Dividends on available-for-sale equity instruments are recognized in profit or loss when the Group s right to receive the dividends is established. Impairment of financial assets Financial assets, other than those at fair value through profit or loss are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. With the exception of available for sale equity instruments, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of available for sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity. 17

22 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Financial Instruments (Continued) Cash and cash equivalents Cash and cash equivalents comprise cash on hand and demand deposits and other short-term highly liquid investments which their maturities are three months or less from date of acquisition and that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. Financial liabilities Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Financial liabilities are classified as either financial liabilities at fair value through profit or loss or other financial liabilities. Financial Liabilities at FVTPL Financial liabilities at fair value through profit or loss are stated at fair value, with any resultant gain or loss recognised in profit or loss. Every reporting period, FVTPL is revalued. Change in the fair value is recognized in the income statement. The net gain or loss recognised in profit or loss incorporates any interest paid on the financial liability. Group does not have any financial liabilities at FVTPL. Other financial liabilities Other financial liabilities including borrowings are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period to the net carrying amount on initial recognition. 18

23 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Foreign Currency Transactions The financial statements of the Group are presented in the currency of the primary economic environment in which the entity operates (its functional currency). In preparing the financial statements of the Group, transactions in currencies other than TL (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Gains and losses arising on settlement and translation of foreign currency items are included in the profit or loss with the exception of: Assets under construction for future productive use, which are included in the cost of those assets where they are regarded as an adjustment to interest costs on foreign currency borrowings and translation difference, Translation differences arising from hedging operations (accounting policies regarding hedge accounting described below). Earnings per Share Earnings per share disclosed in the consolidated statement of income are determined by dividing net income by the weighted average number of shares in existence during the year concerned. In Turkey, companies can raise their share capital by distributing bonus shares to shareholders from retained earnings. In computing earnings per share, such bonus share distributions are assessed as issued shares. Accordingly, the retrospective effect for those share distributions is taken into consideration in determining the weighted-average number of shares outstanding used in this computation. Subsequent Events Subsequent events are composed of any event between the balance sheet date and the publication date of the balance sheet, even if they arise after any announcements of profits or other financial data. The Group; restates its consolidated financial statements if such subsequent events arise. Provisions, Contingent Assets and Liabilities Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. 19

24 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Provisions, Contingent Assets and Liabilities (Continued) The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Onerous Contracts Any current liabilities from contracts that might cause losses are calculated for provision allocation and accounted accordingly. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations of the contract exceed the economic benefits expected to be received from it. Taxation The Group, acquired the status of a real-estate investment company (GYO), and its income from real estate investment transactions is exempt from tax in accordance with Article 5/(1) (d) (4) of the Corporate Tax Law No: Based on Article 15/ (3) of the Corporate Tax Law, 15% withholding tax is calculated on profit exempted from the corporate tax. The Council of Ministers is authorized to reduce the mentioned tax rate stated in Article 15 to nil for each payment and income separately. The Council may also increase it to reach the corporate tax rate and may change those rates for the income mentioned in Article 3, within the same limits, according to the types of funds or establishment or nature and distribution of assets in their portfolios. The Council of Ministers decisions no 2009/14594, withholding tax rate on portfolio management income of real estate investment trusts is 0%. Income that is subject to tax deduction under this context is not subject to dividend withholding tax in accordance with Article 15/(2) of the Corporate Tax Law. Reporting of Financials According to Segments The reportable segments of Sinpaş GYO have been organized by management as portfolio on a project-by-project basis and makes decisions about resources to be allocated to the properties on the same basis. No business segment or geographical segments were defined as reportable segment, since the Group only operates in developing and selling residential real estate developments. Management of the Group is only the authority to make a decision related to Group s operating activities. It reviews and evaluates the financial statements preparing at every 3 months in acceptance with accounting principles by the CMB. 20

25 2. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS (Continued) 2.5 Summary of Significant Accounting Policies (Continued) Employee Benefits / Retirement Pay Provision Under Turkish law and union agreements, lump sum payments are made to employees retiring or involuntarily leaving the Group. Such payments are considered as being part of a defined retirement benefit plan as per International Accounting Standard No. 19 (revised) Employee Benefits ( IAS 19 ). The retirement benefit obligation recognized in the balance sheet represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses through statement of income. Statement of Cash Flows Current period cash flows are categorized and reported based on main, investing and financing activities. Cash flows provided from main activities of the Group shows, the cash flows provided from Group s house development, sales, and improvement of house projects. Cash flows regarding Investment activities summarize Group s used and generated cash from investment activities (fixed and financial investments). Cash flows regarding Financing activities summarize loans the Group had used and liabilities occurred because of those financing needs. Capital and Dividends Common stocks are classified as equity. Dividends paid over common stocks are recorded by subtracting from current period-retained earnings balance. 2.6 Important Accounting Estimates and Assumptions Preparation of the financial statements requires the amounts of assets and liabilities being reported, explanations of contingent liabilities and assets and the uses of accounting estimates and assumptions which would affect revenue and expense accounts reported during the accounting period. Group makes estimates and assumptions about the future periods. Actual results could differ from those estimations. As of 31 December 2011, the explanation of important accounting estimates and assumptions is seen as below. a) The Fair Value of Investment Property As of 31 December 2011, Trilye Marine Club which is located at Mudanya district, Zeytinbağı town, Kumyaka village, and 301 and 13 Parsels where the construction activities still on-going presented as investment property in the consolidated financial statements. 21