Provisions continued Borrowings Borrowing costs

180 ×Ø Ù IABlE, STrong, EFFICIEnT PT ADARO ENERGY Tbk AND SUBSIDIARIES Schedule 520 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2013 AND 2012 Expressed in thousands of Ú S Dollars, unless otherwise stated

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

r. Provisions continued

ii Other provisions continued Provision is measured at the present value of the expenditure expected to be required to settle the obligation using a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Increase in the provision due to the passage of time is recognised as finance cost.

s. Borrowings

Borrowings are recognised initially at their fair value, net of any transaction costs incurred. Borrowings are subsequently carried at amortised cost; any difference between the proceeds net of transaction costs and the redemption value is recognised in profit or loss over the year of the borrowing, using the effective interest method. Fees paid on the establishment of loan facilities are recognised as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee is deferred until the drawdown occurs. To the extent that there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalised as a prepayment for liquidity services and amortised over the year of the facility to which it relates. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer the settlement of the liability for at least 12 months after the reporting date.

t. Borrowing costs

Borrowing costs either directly or indirectly attributable to the acquisition, construction or production of a qualifying asset, are capitalised as part of the cost of that asset until such time as the asset is substantially ready for its intended use or sale. For borrowings directly attributable to a qualifying asset, the amount to be capitalised is determined as the actual borrowing costs incurred during the year, less any income earned on the temporary investment of such borrowings. For borrowings that are not directly attributable to a qualifying asset, the amount to be capitalised is determined by applying a capitalisation rate to the amount expended on the qualifying asset. All other borrowing costs are recognised in profit or loss in the period in which they are incurred.

u. Employee benefits