Environmental expenses Accounting for derivative financial instruments and hedging activities

Schedule 518 PT BAYAN RESOURCES AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 MARCH 2008 AND 2007 AND 31 DECEMBER 2007, 2006 AND 2005 Expressed in million Indonesian Rupiah, unless otherwise stated 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued q. Accounting for derivative financial instruments and hedging activities continued a committed or forecasted transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated statements of income. At the inception of the transaction, the Group documents the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecast transactions. The Group also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

r. Provision for decommissioning, demobilisation and restoration

Effective 1 January 2008, the Group established a provision for decommissioning, demobilisation and restoration of certain mine-related assets as required by the Statement of Financial Accounting Standards “SFAS” No. 16—Fixed Assets Revised 2007, which became effective 1 January 2008. The estimated costs are recorded as part of the carrying values of the assets and depreciated over the remaining useful life of the related assets. The provision has been recorded as “provision for decommissioning, demobilisation and restoration” in the balance sheet and is accreted to full value through the income statements.

s. Basic earnings per share

Basic earnings per share is computed by dividing net income by the weighted-average number of ordinary shares outstanding during the periodyear.

t. Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment that are subject to risks and returns that are different from those of segments operating in other economic conditions. The Group segments its financial reporting as follows: i business segments primary, where the Group’s business activities are classified into coal and non-coal; and ii geographical segments secondary, which classifies sales based on target market areas.

u. Sharing of production

As stipulated in the CCoW, the Government is entitled to take 13.5 of total coal produced from the final production processes established by GBP, PIK, TSA, WBM and FKP. In accordance with Presidential Decree No. 751996 dated 25 September 1996, for GBP and CCoW for PIK, TSA, WBM and FKP, these companies pay the Government’s share of production in cash, which represents 13.5 of sales after deduction of selling expenses. These companies recognise this entitlement on an accrual basis as royalty expense as part of cost of revenue.

v. Dividends

Dividend distribution to the Company’s shareholders is recognised as a liability in the Company’s consolidated financial statements in the period in which the dividends are declared. F-35 Schedule 519 PT BAYAN RESOURCES AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 MARCH 2008 AND 2007 AND 31 DECEMBER 2007, 2006 AND 2005 Expressed in million Indonesian Rupiah, unless otherwise stated

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued w. Use of estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles in Indonesia requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management’s best knowledge of current events and activities, actual results could differ from those estimates.

3. ACQUISITION AND ADDITIONAL SHARES IN SUBSIDIARIES

In 2007, 2006 and 2005, the Company and BE made share capital acquisitions in subsidiaries as follows: Acquired parties Acquiring parties Acquisition date Total acquired share capital Acquired from 1. DPP —the Company and BE 5 October 2005 51.00 GBP, Low Tuck Kwong 2. PIK —the Company and BE 28 March 2005 100.00 PT Kaltim Bara Sentosa, Low Tuck Kwong, Engki Wibowo 3. IP —the Company and BE 28 March 2005 100.00 Low Tuck Kwong, Engki Wibowo, Jenny Quantero, 4. WBM —the Company and BE 28 March 2005 100.00 PT Kaltim Investama, Low Tuck Kwong, Engki Wibowo 5. BE —the Company 2 May 2005 99.90 Low Tuck Kwong, Engki Wibowo, Jenny Quantero, 6. TSA —the Company 11 August 2006 75.04 PT Sumber Harmoni Sekawan —BE 26 December 2007 24.96 PT Bara Citra Indah 7. FKP —the Company 11 August 2006 75.00 PT Selecta Harum Sari —BE 26 December 2007 25.00 PT Bara Citra Indah 8. FSP —the Company 14 December 2007 90.00 Low Tuck Kwong 9. BT —the Company 7 November 2007 90.00 Low Tuck Kwong 10. BAS —the Company 31 December 2007 90.00 Low Tuck Kwong In addition, the Company and BE injected additional capital into the following subsidiaries, diluting the minority interests: Investee Investor Date of injection of additional capital Total additional shareholding Diluted parties 1. DPP —the Company and BE 19 December 2007 36.42 Pan Marine International Ltd. 2. MP —the Company 6 December 2007 95.24 Low Tuck Kwong, Engki Wibowo, Jenny Quantero F-36