Transactions Among Entities under Common Control

PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012 and 2011 and January 1, 2011December 31, 2010 and For the Years then Ended December 31, 2012 and 2011 Figures are Presented in Millions of Rupiah, unless Otherwise Stated - 28 - Transaction costs include only those costs that are directly attributable to the acquisition of a financial asset or issue of financial liability and they are incremental costs that would not have been incurred if the instrument had not been acquired or issued. Such transaction costs are amortized over the terms of the instruments based on the effective interest rate method. Effective interest rate method is a method of calculating the amortized cost of a financial asset or a financial liability and allocating the interest income or expense over the relevant period by using an interest rate that exactly discounts estimated future cash payments or receipts through the expected life of the instruments or, when appropriate, a shorter period to the net carrying amount of the financial instruments. When calculating the effective interest, the Group estimates future cash flows considering all contractual terms of the financial instruments excluding future credit losses and includes all fees and points paid or received that are an integral part of the effective interest rate. Amortized cost is the amount at which the financial asset or financial liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment. The classification of the financial instruments depends on the purpose for which the instruments were acquired and whether they are quoted in an active market. At initial recognition, the Group classifies its financial instruments in following categories: financial assets at FVPL, loans and receivables, held-to-maturity HTM investments, available for sale AFS financial assets, financial liabilities at FVPL, and other financial liabilities; and, where allowed and appropriate, re-evaluates such classification at every reporting date. Determination of Fair Value The fair value of financial instruments traded in active markets at the statements of financial position date is based on their quoted market price or dealer price quotations bid price for long positions and ask price for short positions, without any deduction for transaction costs. When current bid and asking prices are not available, the price of the most recent transaction is used since it provides evidence of the current fair value as long as there has not been a significant change in economic circumstances since the time of the transaction. For all other financial instruments not listed in an active market, except investment in unquoted equity securities, the fair value is determined by using appropriate valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models, and other relevant valuation models. In the absence of a reliable basis for determining fair value, investments in unquoted equity securities are carried at cost net of impairment. The Group classifies the measurement of fair value by using fair value hierarchy which reflects significance of inputs used to measure the fair value. The fair value hierarchy is as follows: 1. Quoted prices in active market for identical assets or liabilities Level 1; 2. Inputs other than quoted prices which include in Level 1, and are either directly or indirectly observable for assets or liabilities Level 2; 3. Inputs for assets and liabilities which are not derived from observable data Level 3. PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2012 and 2011 and January 1, 2011December 31, 2010 and For the Years then Ended December 31, 2012 and 2011 Figures are Presented in Millions of Rupiah, unless Otherwise Stated - 29 - The level in fair value hierarchy to determine the measurement of fair value as a whole is determined based on the lowest level of input which is significant to the measurement of fair value. Assessment of significance of an input to the measurement of fair value as a whole needs necessary judgments by considering specific factors of the assets or liabilities. “Day 1” ProfitLoss Where the transaction price in a non-active market is different from the fair value of other observable current market transactions in the same instrument or based on a valuation technique whose variables include only data from observable market, the Group recognizes the difference between the transaction price and fair value a “Day 1” profitloss in the consolidated statement of comprehensive income unless it qualifies for recognition as some other type of asset. In cases where the data is not observable, the difference between the transaction price and model value is only recognized in the consolidated statement of comprehensive income when the inputs become observable or when the instrument is derecognized. For each transaction, the Group determines the appropriate method of recognizing the “Day 1” profitloss amount. Financial Assets 1. Financial Assets at FVPL Financial assets at FVPL include financial assets held for trading and financial assets designated upon initial recognition at FVPL. Financial assets are classified as held for trading if they are acquired for the purpose of selling in the near term. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Financial assets may be designated at initial recognition at FVPL if the following criteria are met: 1. the designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise from measuring the financial assets or recognizing gains or losses on them on a different basis; 2. the assets are part of a group of financial assets, financial liabilities or both which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or 3. the financial instruments contains an embedded derivative, unless the embedded derivative does not significantly modify the cash flows or it is clear, with little or no analysis, that it would not be separately recorded. Financial assets at FVPL are recorded in the consolidated statement of financial position at fair value. Changes in fair value are recognized directly in the consolidated statement of comprehensive income. Interest earned is recorded as interest income, while dividend income is recorded as part of other income according to the terms of the contract, or when the right of payment has been established. As of December 31, 2012 and 2011 and January 1, 2011December 31, 2010, this category includes short-term investments – securities bonds, unit of mutual fund, shares and warrants which are traded in the Indonesia Stock Exchange, segregated Funds Net Assets – Unit Link and other assets – derivative assets.