Use of Estimates Summary of Significant Accounting and Financial Reporting Policies

PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 and For the Years then Ended - 32 - In the absence of a reliable basis for determining the fair value, the Group’ certain investments in shares of stock enumerated in Note 17 are carried at cost. Financial Liabilities 1. Financial Liabilities at FVPL Financial liabilities are classified in this category if these result from trading activities or derivative transactions that are not accounted for as accounting hedges, or when the Group elect to designate a financial liability under this category. Changes in fair value are recognized directly in the consolidated statements of comprehensive income. As of December 31, 2010, the Group has not classified any financial liability as at FVPL. 2. Other Financial Liabilities This category pertains to financial liabilities that are not held for trading or not designated at FVPL upon the inception of the liability. Issued financial instruments or their components, which are not classified as financial liabilities at FVPL are classified as other financial liabilities, where the substance of the contractual arrangement results in the Company having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares. Other financial liabilities are recognized initially at fair value and are subsequently carried at amortized cost, taking into account the impact of applying the effective interest rate method of amortization or accretion for any related premium, discount and any directly attributable transaction costs. As of December 31, 2011 and 2010, this category includes deposits and deposits from other banks, securities sold under agreement to repurchase, accounts payable, securities agent payables, accrued expenses, loan received, and other liabilities. Derivative Financial Instruments An embedded derivative is separated from the host contract and accounted for as derivative if all the following conditions are met: a. The economic characteristics and risks of the embedded derivative are not closely related to economic characteristics of the host contract; b. Separate instrument with the same terms as the embedded derivative would meet the definition of a derivative; and c. Hybrid or combined instrument is not recognized at fair value through profit or loss. Freestanding and separated embedded derivatives are classified as financial assets or financial liabilities at FVPL unless they are designated as effective hedging instruments. Derivative instruments are initially recognized at fair value on the date in which a derivative transaction is entered into or bifurcated, and are subsequently re-measured at fair value. Derivative are carried as assets when the fair value is positive and as liabilities when the fair value is negative. Consequently, gains and losses from changes in fair value of these derivative are recognized immediately in the consolidated statement of comprehensive income.