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
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
p. Revenue and expense recognition continued
iii. Interconnection revenues Revenues from network interconnection with other domestic and international
telecommunications carriers are recognized as incurred and are presented net of interconnection expenses.
Expenses are recognized on an accrual basis.
q. Employee benefits
i. Pension and post-retirement health care benefit plans
The Company’s net obligations in respect of the defined pension benefit and post-retirement health care benefit plans are calculated at the present value of estimated future benefits that
the employees have earned in return for their service in the current and prior periods, deducted by any plan assets. The calculation is performed by an independent actuary using
the projected unit credit method.
ii. Long service awards “LSA”
The Company’s employees are entitled to receive certain cash awards based on length of service requirement. The benefits are either paid at the time the employee reaches certain
anniversary dates during employment, upon retirement or at the time of termination.
The Company’s obligation with respect to LSA is calculated by an independent actuary using the projected unit credit method.
iii. Early retirement benefits
Early retirement benefits are accrued at the time the Company makes a commitment to provide early retirement benefits as a result of an offer made in order to encourage voluntary
redundancy. The Company is demonstrably committed to a termination when, and only when, the Company has a detailed formal plan for the early retirement and is without
realistic possibility of withdrawal.
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
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
r. Income tax
The Company and subsidiaries apply the asset and liability method of accounting for income tax. Under this method, deferred tax assets and liabilities are recognized for temporary differences
between the financial and tax bases of assets and liabilities at each reporting date. This method also requires the recognition of future tax benefits, such as the benefit of tax loss carryforwards, to the
extent their realization is probable. Deferred tax assets and liabilities are measured using enacted tax rates at each reporting date which are expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled.
Income tax is charged or credited in the statement of income, except to the extent that it relates to items recognized directly in equity, such as difference in value of restructuring transactions
between entities under common control Note 2d and effect of foreign currency translation adjustment for certain investments in associated companies Note 2g.iii, in which case income tax
is also charged or credited directly to equity.
s. Earnings per share and earnings per American Depositary Share “ADS”
Basic earnings per share is computed by dividing net income by the weighted average number of shares outstanding during the year. Net income per ADS is computed by multiplying basic
earnings per share by 40, the number of shares represented by each ADS. t. Segment information
The Company and its subsidiaries segment information is presented based upon identified business segments. A business segment is a distinguishable unit that provides different products
and services and is managed separately. Business segment information is consistent with operating information routinely reported to the Companys chief operating decision maker.
Segment information is prepared in conformity with the accounting policies adopted for preparing and presenting the consolidated financial statements.
u. Derivative instruments
Derivative transactions are accounted for in accordance with PSAK 55, “Accounting for Derivative Instruments and Hedging Activities” which requires that all derivative instruments be
recognized in the financial statements at fair value. To qualify for hedge accounting, PSAK 55 requires certain criteria to be met, including documentation required to have been in place at the
inception of the hedge. Changes in fair value of derivative instruments that do not qualify for hedge accounting are
recognized in the statement of income. If a derivative instrument is designated and qualify for hedge accounting, changes in fair value of derivative instruments are recorded as adjustments to
the assets or liabilities being hedged in the income of the current year or in the stockholders’ equity, depending on the type of hedge transaction represented and the effectiveness of the hedge.
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
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2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
v. Use of estimates
The preparation of the consolidated financial statements 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. Significant items subject to such
estimates and assumptions include the carrying amount of property, plant and equipment and intangible assets, valuation allowance for receivables and obligations related to employee benefits.
Actual results could differ from those estimates.
3. TRANSLATION OF RUPIAH INTO UNITED STATES DOLLARS
The consolidated financial statements are stated in Indonesian Rupiah. The translations of Indonesian Rupiah amounts into United States Dollars are included solely for the convenience of the readers and
have been made using the average of the market buy and sell rates of Rp9,830 to US1 published by Reuters on December 31, 2005. The convenience translations should not be construed as
representations that the Indonesian Rupiah amounts have been, could have been, or could in the future be, converted into United States Dollars at this or any other rate of exchange.
4. CHANGES IN METHODS OF ACCOUNTING
a. Employee Benefits
In June 2004, the Indonesian Financial Accounting Standards Board issued PSAK No. 24 Revised 2004, “Employee Benefits” PSAK 24R, which is a revision of PSAK No. 24, “Accounting for
Pension Benefits.” PSAK 24R changes, for the Company, the method of accounting for its employee benefit plans by requiring the vested portion of prior service cost be immediately
recognized and that the cumulative unrecognized actuarial gain or loss exceeding ten percent of the greater of the present value of the projected benefit obligation and the fair value of plan assets be
amortized over the expected average remaining working lives of the employees participating in the plan.
PSAK 24R requires the Company to adopt its provisions retrospectively as of January 1, 2004, the “Transition Date” by way of the recognition of: i a liability computed in accordance with the
provisions of PSAK 24R determined as of the Transition Date the “Transition Liability” and ii the difference between the Transition Liability and the liability previously recognized for
employee benefits as of the same date pursuant to then in effect accounting standards, as a cumulative effect of a change in method of accounting in stockholders’ equity. Accordingly, the
Company has restated its accompanying consolidated balance sheet as of the Transition Date by increasing its liability for employee benefits previously reported by Rp3,218,724 million with a
corresponding decrease in consolidated stockholders’ equity of Rp2,618,665 million, net of tax of Rp600,059 million. In addition, the adoption of PSAK 24R effective as of January 1, 2004, has
resulted in an increase to previously reported net income for the year ended December 31, 2004 in the amount of Rp485,359 million, net of tax of Rp175,454 million.
