Inflation accounting changes how investors should read Turkish food companies’ sales, profits, assets and cash flows. A larger lira figure does not necessarily mean a larger business, and a reported monetary gain does not mean cash arrived in the bank.
IAS 29 addresses this problem by expressing financial statements in a common purchasing power unit. For investors, the task is to separate trading performance from inflation restatement, financing effects and currency movements. That distinction matters whether the company sells biscuits, processes hazelnuts or operates supermarkets.
What IAS 29 Does
IAS 29, Financial Reporting in Hyperinflationary Economies, applies when an entity’s functional currency belongs to a hyperinflationary economy. Functional currency means the currency of the business’s primary economic environment, not simply the currency chosen for a presentation.
The assessment considers several indicators. Cumulative inflation approaching or exceeding 100% over three years is one indicator, not an automatic switch operating independently of economic conditions. The IFRS Foundation’s IAS 29 summary sets out the scope and the requirement to express statements, including comparatives, in purchasing power units current at the reporting date.
This is a change in measurement. It does not reverse inflation, improve a factory’s output or recover purchasing power already lost. It makes amounts recorded at different dates more comparable.
IAS 29 and TMS 29 in Turkish Reports
Turkish financial statements commonly refer to TMS 29, sometimes translated into English as TAS 29. This is the Turkish accounting standard addressing financial reporting in hyperinflationary economies.
The Capital Markets Board’s decision dated December 28, 2023 required issuers and capital market institutions within its financial reporting framework that apply Turkish Accounting/Financial Reporting Standards to begin applying TMS 29 with annual financial reports for periods ending December 31, 2023. The requirement is recorded in the CMB bulletin confirming the TMS 29 reporting decision.
Before analysing a company, read its basis of preparation note. Identify the accounting framework, reporting date, presentation currency and whether amounts appear in lira, thousands or millions. A spreadsheet can survive many mistakes; confusing thousands with millions is rarely one of them.
Also distinguish consolidated financial reporting from tax accounting. Do not assume that a tax announcement changes the treatment in an issuer’s consolidated statements.
Which Financial Statement Items Change?
The starting distinction is between monetary and non-monetary items. A monetary item involves receiving or paying a fixed or determinable number of currency units. The IAS 21 monetary-item definition reproduced in EU accounting legislation distinguishes these balances from inventories, property and other non-monetary assets.
| Item | Typical treatment under inflation accounting | Investor question |
|---|---|---|
| Cash, ordinary receivables and payables | Closing monetary balances are not multiplied by an inflation coefficient. | How much purchasing power was exposed during the period? |
| Inventory carried at cost | Historical costs are restated from the relevant acquisition or production dates. | Did the stock balance rise because of quantities, costs or restatement? |
| Factories and equipment carried at cost | Cost and accumulated depreciation are restated. | How much of the asset increase reflects investment rather than accounting? |
| Assets measured at reporting-date fair value | No further inflation uplift is applied to that current valuation. | Is the movement a valuation change or inflation restatement? |
| Revenue and expenses | Amounts are expressed in reporting-date purchasing power, reflecting relevant recognition dates and underlying costs. | Are both periods measured on the same basis? |
The distinction prevents a common mistake: multiplying every balance sheet figure by the same annual inflation rate. Closing cash already represents money held at the reporting date. An older production line does not.
A Simple Restatement Example
For an eligible historical cost amount, the basic calculation is:
Restated amount = historical amount × reporting-date price index ÷ transaction-date price index.
Suppose a food processor purchases packaging materials for TL10 million when the relevant index is 2,000. At the reporting date, the index is 2,600. Assuming the materials remain in inventory and ignoring other adjustments, the restated cost is TL13 million.
The extra TL3 million does not represent more packaging. Nor does the calculation establish what a supplier would charge to replace it. A general purchasing power adjustment is not a quotation for cardboard, wheat or refrigeration equipment.
For investment analysis, keep physical measures alongside accounting figures. Tonnes processed, units sold and production utilisation can help distinguish a larger operation from a larger measuring unit.
Compare Figures Within the Same Report
A prior-year figure can change between publications without the underlying transactions changing. The reason may be that the later report expresses that figure in a newer purchasing power unit.
Ülker’s financial statements at June 30, 2025 provide a practical example. They express amounts in purchasing power at that date and disclose adjustment coefficients of 1.16674 for December 31, 2024 and 1.35049 for June 30, 2024. These appear in the basis of presentation note of Ülker’s June 2025 consolidated financial statements.
The safest starting point is therefore the comparative column in the report being analysed, rather than a number copied from an older announcement.
Consider a hypothetical producer whose previous annual report showed revenue of TL100 million in that year’s closing purchasing power. If the relevant index subsequently rises 40%, that amount becomes TL140 million in the following year’s closing units. Current revenue of TL154 million represents 10% growth against the restated comparator, not 54%.
Do not then subtract inflation again from that 10%. That would adjust the comparison twice.
Even properly restated revenue growth is not volume growth. Ask whether the business sold more units, changed its product mix or raised prices relative to the general index. Acquisitions and changes in the group’s reporting perimeter also need separate treatment.
Why Monetary Gains and Losses Affect Profit
Inflation erodes the purchasing power of money. Holding monetary assets generally creates a purchasing power loss; owing monetary liabilities can create a purchasing power gain, where those balances are not protected through indexation.
The resulting net monetary gain or loss enters profit or loss. The KGK’s TMS 29 standard also addresses restatement, depreciation and the calculation of monetary effects.
Suppose a company holds TL100 million in cash throughout a year during which the general price index rises 40%. Ignore interest, transactions and other balances. Maintaining the opening purchasing power would require TL140 million at year end. The company still has TL100 million, producing a monetary loss of TL40 million expressed in year-end purchasing power units.
That does not mean TL40 million disappeared from the bank account. It measures the purchasing power shortfall. Conversely, a fixed nominal liability can become less burdensome in purchasing power terms without its contractual repayment amount falling.
A Monetary Gain Is Not Free Financing
A food retailer funded partly through supplier credit might record a monetary gain. An exporter holding substantial receivables might face a monetary loss. These are possible outcomes, not conclusions to draw from a business label.
Examine balances throughout the period, not just at year end. A December debt figure cannot explain a year’s exposure if borrowing rose sharply in November.
Then consider interest costs, supplier pricing and foreign exchange movements. A monetary gain may coexist with expensive borrowing or a currency loss. Removing it from a profit calculation can help isolate trading performance, but it does not make the underlying exposure irrelevant.
Reading Food Company Margins and Asset Returns
For a hypothetical flour mill, compare tonnes sold and selling prices with the restated cost of wheat consumed. A change in gross margin deserves investigation, but the headline percentage alone cannot identify whether procurement, pricing or accounting timing caused it.
For a preserved-food producer, separate purchases made around harvest from sales spread across later months. Restatement makes timing visible in a different way; it does not remove spoilage, storage costs or weak demand. Inventory quality still matters.
For a factory owner, examine depreciation and asset movements together. A higher asset balance should not automatically be described as capacity growth. Ask what the business actually bought, built or commissioned, and reconcile that activity with capital spending.
The same discipline applies to equity. An increase in restated equity is not evidence that shareholders injected cash. Before interpreting a lower return on equity or a cheaper price-to-book ratio, establish how the denominator changed.
These checks are analytical questions rather than reasons to reject the accounts. Inflation accounting makes comparison more useful, but it does not replace operating analysis.
Cash Flow and Tax Need Separate Checks
The cash flow statement is also expressed in reporting-date purchasing power. It should not be treated as an untouched list of nominal bank movements.
Deferred tax needs attention too. Inflation restatement can change accounting carrying amounts relative to tax bases, affecting deferred tax balances and the tax charge. The KGK’s inflation accounting application guide covers both cash flow presentation and deferred tax effects.
Read the reconciliation from profit to operating cash flow. Look for the treatment of monetary gains or losses, working capital movements and the inflation effect on cash. Avoid treating an accounting gain as operating cash generation simply because both appear in the same reporting package.
For a seasonal processor, ask how much funding was needed to buy crops before customers paid. For a branded manufacturer, examine whether receivables and inventory absorbed cash despite higher profit.
Separate current tax, deferred tax and cash taxes paid. If the tax charge looks unusual, investigate the note before attributing the entire movement to a change in the tax rate.
Inflation Restatement Is Not Currency Translation
IAS 29 addresses purchasing power within a currency. IAS 21 governs foreign currency transactions and the translation of financial statements into another presentation currency. The IFRS Foundation’s IAS 21 summary explains that separate role.
For a foreign shareholder, distinguish three questions: did operations improve, did profit rise in constant purchasing power lira, and did the investment gain value in dollars or another home currency?
Those answers need not match. A stronger operating result does not guarantee a stronger foreign-currency shareholder return.
Do not convert one headline revenue number into dollars and assume that resolves inflation accounting. First establish the reporting basis, then identify the translation method and exchange rates used. Where a group has overseas subsidiaries, read the currency policies rather than assuming every entity follows the same measurement path.
A Practical Review Before Using Valuation Ratios
Build a short worksheet before calculating earnings multiples or comparing margins:
- Record the measurement basis. Note the reporting date, units, index and purchasing power date.
- Use compatible comparatives. Start with the prior-period columns in the same filing and investigate later revisions.
- Separate performance drivers. Review sales volumes, operating margins, monetary effects, financing costs and taxes.
- Reconcile profit, assets and cash. Check whether reported improvements correspond to stronger operations and funding capacity.
For valuation work, avoid combining earnings from one purchasing power date with balance sheet figures from another without considering the mismatch. The companion guide to comparing Turkish food stocks using valuation and cash flow develops that part of the analysis.
Keep the reporting process repeatable. Save the filing used, record its publication date and retain the company’s reconciliation of any alternative performance measures. When a presentation shows results excluding inflation accounting, compare those figures with the reported statements rather than substituting them without review.
The broader guide to reading Turkish food company reports and KAP disclosures provides the surrounding document checks. IAS 29 belongs within that process: establish the measuring unit, compare compatible figures, then judge the business.