Investment in sukuk SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued c. Financial instruments continued

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 49

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued d. Principles of consolidation continued

The Bank controls Subsidiaries if and only if the Bank acquires these rights: a Power over the Subsidiaries has existing rights that give it the current ability to direct the relevant activities, ie the activities that significantly affect the Subsidiaries’ returns; b Exposure, or rights, to variable returns from its involvement with the subsidiaries; c The ability to use its power over the Subsidiaries to affect the amount of the Banks returns In the consolidated financial statements, all significant inter-company balances and transactions have been eliminated. Non-controlling interest in net income of Subsidiaries is presented as a deduction of consolidated net income in order to present the Bank’s income. Non-controlling interest in net assets are presented as part of equity in the consolidated statement of financial position, except for non-controlling interest from mutual fund consolidation are presented as part of liabilities in the consolidated statement of financial position. The consolidated financial statements are prepared using a consistent accounting policy for transactions and events in similar circumstances. The accounting policies adopted in preparing the consolidated financial statements have been consistently applied by the Subsidiaries, unless otherwise stated. If the control on an entity is obtained or ends in the current year, the entity’s net income are included in the consolidated statement of income from the date of acquisition of the control or until the date of the control is ceased. Business combination transaction amongst entities under common control, in form of transfer of business conducted for the purpose of reorganisation of entities under common control, does not represent a change of ownership in terms of economic substance, therefore, there shall be no gain or loss recognised by the group as a whole and by individual entities within the group. Since the business combination transaction amongst entities under common control does not cause any change in economic substance of ownership of the transferred business, therefore the transaction is recognised at book value using the pooling interest method. Changes in the Bank’s ownership interest in Subsidiaries that does not result in a loss of control is accounted for as an equity transaction, in this case a transaction with owners in their capacity as owners. Any difference between the amount by when the non-controlling interest are adjusted and their fair value if the consideration paid or received shall be recognised directly in equity and attributable to the owners of the parent. The entity that acceptsreleases a business in a combination or separation of business amongst entities under common control, shall recognise the difference between benefits being transferred or received and the recorded amount of every business combination transaction as equity and present it under additional paid-in capitalshare premium. PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 50 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued e. Foreign currency transactions and balances Subsidiaries and overseas branches Bank Mandiri maintains its accounting records in Indonesian Rupiah. For consolidation purposes, the financial statements of the overseas branches and overseas Subsidiaries of Bank Mandiri denominated in foreign currencies are translated into Rupiah based on the following bases: 1 Assets and liabilities, commitments and contingencies - using the Reuters spot rates at the consolidated statement of financial position date. 2 Revenues, expenses, income and losses - using the average middle rates during each month when the transaction occurs. 3 Shareholders’ equity accounts - using historical rates on the date of transaction. 4 Statements of cash flows - using the Reuters spot rates at the reporting date, except for income and loss statement balances which are translated using the average middle rates and shareholders’ equity balances which are translated using historical rates. The differences arising from the translation adjustment is presented as “Differences arising from translation of foreign currency financial statements” under the Shareholders’ Equity section of the consolidated statement of financial position. Transactions and balances in foreign currencies Transactions in currencies other than Rupiah are recorded into Rupiah by using rates on the date of the transactions. At consolidated statement of financial position date, all foreign currencies monetary assets and liabilities are translated into Rupiah using the Reuters spot rates at 4.00 p.m. WIB Western Indonesian Time on December 31, 2016 and 2015. The resulting gains or losses are credited or charged to the current year’s consolidated statements of profit or loss and other comprehensive income. The exchange rates used against the Rupiah at the dates of the consolidated statement of financial position are as follows amounts in full Rupiah: December 31, December 31, 2016 2015 Great Britain Pound Sterling 1Rp 16,555.01 20,439.02 Euro 1Rp 14,175.77 15,056.67 United Stated Dollar 1Rp 13,472.50 13,785.00 Japanese Yen 100Rp 11,507.00 11,452.00 Other foreign currencies are not disclosed as above since it is considered not material in the translation of transaction in foreign currencies of the Bank and Subsidiaries.

f. Transactions with related parties

The Bank and Subsidiaries enter into transactions with parties which are defined as related parties in accordance with Statement of Financial Accounting Standards SFAS No. 7 regarding “Related Party Disclosures” and Regulation of Bapepam and LK No. KEP-347BL2012, dated June 25, 2012 regarding “Financial Statements Presentation and Disclosure of Issuers or Public Companies”.