Transactions with related parties

PERUSAHAAN PERSEROAN PERSERO P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued DECEMBER 31, 2004 AND 2005, AND FOR YEARS ENDED DECEMBER 31, 2004 AND 2005 Figures in tables are presented in millions of Rupiah, unless otherwise stated - 20

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

e. Foreign currency translation

The functional currency of the Company and its subsidiaries is the Indonesian Rupiah and the books of accounts of the Company and its subsidiaries are maintained in Indonesian Rupiah. Transactions in foreign currencies are translated into Indonesian Rupiah at the rates of exchange prevailing at transaction date. At the balance sheet date, monetary assets and monetary liability balances denominated in foreign currencies are translated into Indonesian Rupiah based on the buy and sell rates quoted by Reuters prevailing at the balance sheet date. The Reuters buy and sell rates, applied respectively to translate monetary assets and monetary liability balances, were Rp9,280 and Rp9,300 to US1 as of December 31, 2004, and Rp9,825 and Rp9,835 to US1 as of December 31, 2005. The resulting foreign exchange gains or losses, realized and unrealized, are credited or charged to income of the current year, except for foreign exchange differences incurred on borrowings during the construction of qualifying assets which are capitalized to the extent that the borrowings can be attributed to the construction of those qualifying assets Note 2k.

f. Cash and cash equivalents

Cash and cash equivalents consist of cash on hand and in banks and all unrestricted time deposits with maturities of not more than three months from the date of placement.

g. Investments

i. Time deposits Time deposits with maturities of more than three months are presented as temporary investments. ii. Investments in securities Investments in available-for-sale securities are stated at fair value. Unrealized holding gains or losses on available-for-sale securities are excluded from income of the current year and are reported as a separate component in the stockholders’ equity section until realized. Realized gains or losses from the sale of available-for-sale securities are recognized in the income of the current year, and are determined on a specific-identification basis. A decline in the fair value of any available-for-sale securities below cost that is deemed to be other-than-temporary is charged to income of the current year.