Inflation adjustment in Turkey is the procedure of modifying financial statements to accurately reflect the economic reality, considering the fluctuations in the purchasing power of currency. This involves adapting the Turkish Lira value of non-monetary assets in financial statements by utilizing adjustment coefficients.
When is the adjustment scheduled ?
The implementation of inflation adjustment is scheduled to commence from the conclusion of the 2023 calendar year (or the termination of specific accounting periods concluding in 2024). It might also extend to the 2024 accounting period and beyond, contingent upon specific conditions.
Wich of the financial statements will undergo inflation adjustment in Turkey?
Inflation adjustment in turkey exclusively applies to balance sheets among various financial statements.
Will it have an impact on tax ?
Regarding its impact on taxation, the variance in profit or loss resulting from the inflation adjustment of financial statements as of December 31, 2023, will impact the retained earnings account. The tax base for the 2024 accounting period will be determined based on the adjusted balance sheet.
Taxpayers are required to follow a sequence of steps, encompassing the identification of non-monetary assets, determination of adjustment basis amounts, establishment of adjustment dates and coefficients, and recording of inflation differences.
What is the process inflation adjustment in Turkey ?
The following procedures will be carried out in the process of inflation adjustment, with taxpayers following these steps sequentially:
1. Identification of non-monetary assets within the financial statement.
2. Determination of the amounts relevant to the inflation adjustment for the identified non-monetary assets (adjustable amounts).
3. Establishment of adjustment dates and determination of adjustment/transportation coefficients for the inflation adjustment of identified non-monetary assets.
4. Multiplication of the determined adjustment basis amounts by the corresponding adjustment/carrying coefficients, resulting in the calculation of adjusted amounts for non-monetary assets. Subsequently, recording of inflation differences.
5. Presentation of non-monetary assets in the financial statement with their adjusted values, while monetary assets are displayed without adjustment.
The correction process for taxpayers within the specified scope will follow the subsequent order:
6. Initially, the balance sheet for the conclusion of the 2023 accounting period will be prepared without considering the provisions related to inflation adjustment.
7. Subsequently, inflation adjustment will be applied to validate the balance sheet at the end of the 2023 accounting period. The tax base for the 2023 accounting period will be computed based on the profits determined from the financial statements before the adjustment.
8. In any case, the balance sheet issued at the end of the 2023 accounting period will undergo inflation adjustment.
As for the starting values for 2024:
The amounts derived from the correction of the balance sheet at the end of the 2023 accounting period will be regarded as the starting values for the subsequent period, irrespective of whether inflation adjustment is implemented in that period.
Depending on the presence of inflation adjustment conditions, correction transactions for the period after 1/1/2024 (commencing from 1/1/2024) will be executed using the corrected values from the balance sheet dated 31/12/2023, which is subject to inflation adjustment.
In the subsequent accounting period, depreciation and amortization will be computed over the adjusted values.
Will inflation adsjustment be made in the 2024 accounting period ?
Depending on specific conditions, inflation adjustment may be implemented in the 2024 accounting period and subsequent periods, including temporary tax periods.
In essence, inflation adjustment is a multifaceted process involving the recalibration of financial statements to accommodate changes in currency value due to inflation, and it carries implications for taxation in subsequent periods.
Conclusion
Inflation adjustment is a crucial financial reporting tool designed to align financial statements with economic reality in times of high inflation. In Turkey, the mandatory implementation beginning with the 2023 year-end balance sheet ensures that businesses reflect more accurate values for non-monetary assets and prepare for the tax implications in the following periods.
As the adjustment process affects future depreciation, amortization, and tax bases, companies should approach it with care, ensuring technical accuracy and compliance. For a smooth transition and correct application of inflation adjustment procedures, working with experienced professionals is strongly recommended.
For tailored support in managing inflation adjustment and its tax implications, feel free to contact ÖzbekCPA.