BIRLESIM_2021_ANNUAL REPORT

BİRLEŞİM MÜHENDİSLİK 2021 ANNUAL REPORT 166 Birleşim Mühendislik Isıtma Soğutma Havalandırma Sanayi Ticaret A.Ş. and Its Subsidiary (All amounts expressed in Turkish Lira (“TL”)) Notes to the Consolidated Financial Statements For the Year Ended 31 December 2021 2. BASIS OF PRESENTATION OF THE CONSOLIDATED FINANCIAL STATEMENTS (Continued) (k) Summary of significant accounting policies and assessment methods (continued) Financial Instruments (continued) Short and Long Term Borrowings and Trade Payables: Short and long term borrowings consist of bank loans. Bank loans are carried at cost which is the sum of the principal amount and interest expenses accrued as of the reporting date, discounted by effective interest rate method. Trade payables are created through buying goods and services directly from the suppliers and are stated in the accounting records at their discounted values. The fair value of the short and long term bank loans are assumed to be equivalent to the values computed by adding the accrued interest liabilities calculated over the effective interest rate as of the reporting dates on the cost of the financial debts. Similarly, the discounted cost values of trade payables are assumed to be equivalent to their fair values. 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 Effects of changes in exchange rates The individual financial statements of each Group entity are presented in TL which is the currency of the primary economic environment in which the entity operates (its functional currency). In preparing the financial statements of the individual entities, transactions in currencies other than TL (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at 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. Exchange differences are recognized in profit or loss in the period in which they arise except for: - Exchange differences on foreign currency borrowings relating to 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 those foreign currency borrowings, - Exchange differences on transactions entered into in order to hedge certain foreign currency risks (see below for hedging accounting policies