Evren Özmen
Serbest Muhasebeci Mali Müşavir
Bilirkişi
evrenozmen@ozmconsultancy.com
www.kooperatiflerkanunu.com

Inflation Adjustment Guide Turkey

An Overview-What You Need to Know About Inflation Adjustment-

Brief Background

The numbers will tell the true story

Due to high inflation in Turkey for several years in a row, companies are required to make inflation adjustments to their financial statements at the end of 2023. 

This regulation was previously postponed. However, unless there is a last-minute change, the inflation adjustment legislation will be implemented from the end of 2023.

1-What is Inflation Adjustment?

Inflation adjustment is the process of correcting financial statements that cannot depict the true situation because the purchasing power of money has changed. This is done to ensure that they accurately reflect the real situation.

2-Is Inflation Adjustment Mandatory for Companies?

Yes. All companies must adjust their balance sheet as per inflation accounting on 31 December 2023.

3-Who is obliged to make an adjustment for inflation?

All types of commercial companies (Joint stock companies, limited companies limited partnerships, and cooperatives) whose income is determined according to the balance sheet method.

4-How is inflation adjustment applied to financials?

It is applied in stages as follows;

• Non-monetary items subject to adjustment are identified,
• The dates of the adjustment are determined,
• The ratio to correct for inflation between the initial date and 31st December 2023, when inflation accounting begins, is computed.
• The sum for adjustment is then multiplied by the ratio for correction.

5-In which financial statements is inflation accounting applied?

• Inflation accounting is applied to the financial statements as of 31.12.2023. 
• According to tax legislation, only the balance sheet is subject to inflation adjustment, no adjustment is made to the profit and loss accounts.

6-Will the inflation adjustment be taxed?

• In 2023, the gain/loss resulting from the adjustment to be made in 2023 will be excluded from the income statement and will be shown separately in retained earnings without being taxed. 
• In 2024, if the conditions are met, the inflation adjustment will be transferred to the income statement, recognized in profit or loss, and taxed.

7-Which accounts does it apply to?

Inflation accounting is used for non-monetary accounts such as fixed assets, inventories, and equity accounts.

8-Who May Pay Taxes Because of Inflation Accounting in 2024?

• If a company has more non-monetary liabilities than non-monetary assets, it might cause a loss due to inflation adjustment in 2024. 
• This implies a loss that will be deduct from the tax base.
• Conversely, when analyzing companies with the opposite situation, they may not face a tax deduction.
• Companies with significant assets, including fixed assets and real estate, may face a potential increase to their tax base in 2024 if their equity in their liabilities is low.

16.11.2023

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