Basis of preparation of financial statements

PERUSAHAAN PERSEROAN PERSERO P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued DECEMBER 31, 2010 AUDITED AND SEPTEMBER 30, 2011 UNAUDITED AND NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2010 AND 2011 UNAUDITED Figures in tables are presented in millions of Rupiah, unless otherwise stated 23 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued a. Basis of preparation of financial statements continued viii. PSAK No. 48 : Impairment of Assets The standard provides guidance on how to identify cash generating unit and measure impairment of assets. An impairment loss shall be recorded for a cash-generating unit when the recoverable amount of the unit is less than its carrying amount. The impairment loss shall be allocated to reduce the carrying amount of any goodwill allocated to the cash-generating unit and to other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. The standard requires the entity to assess at the end of each reporting period whether there is any indication that an asset may be impaired and impairment loss recognized in prior periods for assets other than goodwill may no longer exist. The Company and its subsidiaries has evaluated the impairment of assets under the revised disclosure requirements Note 2k. ix. ISAK 10 : Customer Loyalty Programmes The standard provides guidance on how to record and measure grant award credits to customers. The standard requires the award credits to be separately identified and measured by reference to their fair values. The Company and its subsidiaries has evaluated the recording and measurement of grant award credits to customers and separately identified and measured by reference to their fair values. The consolidated financial statements have been prepared under the revised disclosure requirements. The adoption of those standards did not have a material impact on the results of the Company and its subsidiaries. In addition, the Company and its subsidiaries has disclosed information of financial statements presentation, interim financial reporting, operating segments, related party disclosures, intangible assets, business combinations, revenue, impairment of assets and customer loyalty program as required by the standards.

b. Principles of consolidation

Since January 1, 2011, the Company and its subsidiaries have adopted PSAK 4 Revised 2009, “Consolidated and Separate Financial Statements”, which became effective for financial statement periods beginning on or after January 1, 2011 and is applied retrospectively. The consolidated financial statements include the financial statements of the Company and its subsidiaries in which the Company, directly or indirectly has ownership of more than half of the voting power and has the ability to control the entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control, or the Company has the ability to control the entity, even though the ownership is less than or equal to half of the voting power. Subsidiaries are consolidated from the date on which effective control is obtained and are no longer consolidated from the date of disposal. All significant intercompany balances and transactions have been eliminated in the consolidated financial statements. PERUSAHAAN PERSEROAN PERSERO P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued DECEMBER 31, 2010 AUDITED AND SEPTEMBER 30, 2011 UNAUDITED AND NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2010 AND 2011 UNAUDITED Figures in tables are presented in millions of Rupiah, unless otherwise stated 24

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c. Transactions with related parties

Since January 1, 2011, the Company and its subsidiaries have adopted PSAK 7 Revised 2010, “Related Party Disclosures”, which became effective for financial statement periods beginning on or after January 1, 2011 and is applied prospectively. Related party represents a person or an entity who is related to the reporting entity. i. A person or a close member of the person’s family is related to a reporting entity if that person: a has control or joint control over the reporting entity; b has significant influence over the reporting entity; or c is a member of the key management personnel of the reporting entity or of a parent of the reporting entity. ii. An entity is related to a reporting entity if any of the following conditions applies: a The entity and the reporting entity are members of the same group which means that each parent, subsidiary and fellow subsidiary is related to the others. b One entity is an associate or joint venture of the other entity or an associateor joint venture of a member of a group of which the other entity is a member. c Both entities are joint ventures of the same third party. d One entity is a joint venture of a third entity and the other entity is an associate of the third entity. e The entity is a post-employment benefit plan for the benefit of employees of either the reporting entity or an entity related to the reporting entity. If the reporting entity is it self such a plan, the sponsoring employers are also related to the reporting entity. f The entity is controlled or jointly controlled by a person identified in i. g A person identified in ia has significant influence over the entity or is a member of the key management personnel of the entity or of a parent of the entity.

d. Acquisitions of subsidiaries

Since January 1, 2011, the Company and its subsidiaries have adopted PSAK 22 Revised 2010, “Business Combinations”, which became effective for financial statement periods beginning on or after January 1, 2011 and is applied prospectively. The acquisition of a subsidiary from a third party is accounted for using the purchase method of accounting. The cost of an acquisition is allocated to the identifiable assets and liabilities recognized using as reference, their fair values at the date of the transaction. The excess of the acquisition cost over the Companys interest in the fair value of identifiable assets acquired and liabilities assumed is recorded as goodwill. Acquisition-related costs are recognized in the periods in which the costs are incurred and the services are received. The Company continually assesses whether there is any indication of impairment. If any indication of impairment exists, the recoverable amount of intangible assets and goodwill is estimated based on the expected future cash flows which are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Goodwill aroused from business combination which acquisition date prior January 1, 2011 was stopped amortized since the period beginning on or after January 1, 2011. PERUSAHAAN PERSEROAN PERSERO P.T. TELEKOMUNIKASI INDONESIA Tbk AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS continued DECEMBER 31, 2010 AUDITED AND SEPTEMBER 30, 2011 UNAUDITED AND NINE MONTHS PERIOD ENDED SEPTEMBER 30, 2010 AND 2011 UNAUDITED Figures in tables are presented in millions of Rupiah, unless otherwise stated 25

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued d. Acquisitions of subsidiaries continued

The acquisition of entities under common control is accounted for using book value, in a manner similar to that of pooling of interests accounting carryover basis. Any difference between the consideration paid or received and the related historical carrying amount, after considering income tax effects, is recognized directly in equity and reported as “Difference in value arising from restructuring transactions and other transactions between entities under common control” in the stockholders’ equity section. The balance of “Difference in value arising from restructuring transactions and other transactions between entities under common control” is charged to the consolidated statement of comprehensive income when the common control relationship has ceased. The difference between the consideration paid and the non-controlling interest’s proportionate share of the acquiree’s net identifiable assets debited is recognized directly in equity and reported as “Difference due to acquisition of non-controlling interest in subsidiaries”.

e. 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.

f. Investments

Since January 1, 2011, the Company and its subsidiaries have adopted PSAK 12 Revised 2009, “Interests in Joint Ventures” and PSAK 15 Revised 2009 “Investments in Associates”, which became effective for financial statement periods beginning on or after January 1, 2011 and is applied retrospectively. i. Time deposits Time deposits with maturities of more than three months but not more than one year, are presented as temporary investments. ii. Investments in securities Investments in available-for-sale securities and trading 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 consolidated statements of comprehensive income, 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 and is charged to the consolidated statements comprehensive of income. Gains or losses arising from changes in fair value of the trading secuirites are presented in the income statement within other expenses income in the period in which they arise.