Insurance contract SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued y. Deposits from other banks

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 61

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

aa. Marketable securities issued Marketable securities issued by the Bank and its Subsidiaries, include bonds, subordinated notes, medium term notes and travellers’ cheques, are initially measured at fair value plus directly attributable transaction costs. Subsequently transactions costs are amortised using the effective interest rate up to the maturity of marketable securities issued. Marketable securities issued are classified as financial liabilities at amortised cost. Refer to Note 2c for the accounting policy for financial liabilities at amortised cost. ab. Fund borrowings Fund borrowings represent funds received from other banks, Bank Indonesia or other parties with the obligation of repayment in accordance with the requirements of the loan agreement. Fund borrowings are initially measured at fair value minus directly attributable transaction costs. Fund borrowings are classified as financial liabilities at amortised cost. Refer to Note 2c for the accounting policy for financial liabilities at amortised cost. ac. Subordinated loans Subordinated loans are initially measured at fair value minus directly attributable transaction costs. Subsequently transactions costs are amortised using the effective interest rate up to the maturity of subordinated loans. Subordinated loans are classified as financial liabilities at amortised cost. Refer to Note 2c for the accounting policy for financial liabilities at amortised cost. ad. Income tax Bank Mandiri and Subsidiaries applies SFAS No.46 Revised 2014 “Income Tax” which required Bank Mandiri and Subsidiaries to account for the current and future recovery settlement of the carrying amount of assets liabilities that are recognized in the consolidated statement of financial position; and transactions and other events of the current period. The tax expense comprises current and deferred tax. Tax is recognised in the consolidated statement of profit or loss and other comprehensive income, except to the extent that it relates to items recognised directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively. Group’s management periodically evaluates the implementation of prevailing tax regulations especially those that are subject to further interpretation on its implementation, including evaluation on tax assessment letters received from tax authorities. Where appropriate the Bank establishes provisions based on the amounts expected to be paid to the tax authorities. Bank Mandiri and subsidiaries applies the balance sheet liability method to determine income tax expense. Under the balance sheet liability method, deferred tax assets and liabilities are recognised for all temporary differences arising between the tax base of assets and liabilities and their carrying amount in the consolidated statement of financial position at each reporting date. This method also requires the recognition of future tax benefits, to the extent that realisation of such benefits is probable. Deferred tax assets are recognized if there is probable future that taxable income will be sufficient to be applied against the deductible temporary. PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2015 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 62

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued ad. Income tax continued

Currently enacted or substantially enacted tax rates at the time deferred tax assets has been realised or deferred tax liabilities has been settled are used in the determination of deferred income tax. The changes to the carrying value of deferred tax assets and liabilities due to the changes of tax rates are charged in the current year, except for transactions which previously have been directly charged or credited to equity. Amendments to taxation obligations are recorded when an assessment is received or, if appealed against, when the result of the appeal is determined. Management provides provision for future tax liability at the estimated amount that will be payable to the tax office if there is a probable tax exposure, based on management’s assessment as of the date of consolidated statement of financial position. Assumptions and estimation used in the provisioning calculation may involve element of uncertainty. The estimated corporate income tax of Bank Mandiri and Subsidiaries is calculated for each company as a separate legal entity. Current tax assets and current tax liabilities for different legal entities can not be set-off in the consolidated financial statements. Corporate tax payables and other tax payables of Bank Mandiri and Subsidiaries are presented as taxes payable in the consolidated statement of financial position. Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis. ae. Temporary syirkah funds Temporary syirkah funds represent investment received by Subsidiary PT Bank Syariah Mandiri. The Subsidiary has the right to manage and invest funds in accordance with either the Subsidiary’s policy or restriction set by the depositors with the agreed profit sharing. Relationship between the Subsidiary and the owner of temporary syirkah funds are based on partnership mudharabah muthlaqah, mudharabah muqayyadah or musyarakah. The examples of temporary syirkah funds are investment funds received from mudharabah muthlaqah, mudharabah muqayyadah, mudharabah musytarakah and other similar accounts. 1 Mudharabah muthlaqah represents mudharabah in which the fund owner shahibul maal entrusts to fund manager mudharibSubsidiary in managing its investment. 2 Mudharabah muqayyadah represents mudharabah in which the fund owner sets restrictions against fund manager regarding, among others, the place, the means andor the object of investment. 3 Mudharabah muqayyadah represents mudharabah in which fund manager also submits its capital or fund in the investment. Temporary syirkah funds cannot be classified as liability because the Subsidiary does not have any liability to return the fund to the owners, except for losses due to the Subsidiary’s management negligence or misrepresentation. On the other hand, temporary syirkah funds also cannot be classified as equity, because of the existence of maturity period and the depositors do not have the same rights as the shareholders, such as voting rights and the rights of realised gain from current asset and other non-investment accounts.