SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 - 19

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

b. Principles of consolidation

The consolidated financial statements include the financial statements of the Company and its subsidiaries in which the Company directly or indirectly has ownership of more than 50, or the Company has the ability to control the entity, even though the ownership is less than or equal to 50. Subsidiaries are consolidated from the date on which effective control is obtained and are no longer consolidated from the date of disposal. All significant inter-company balances and transactions have been eliminated in consolidation.

c. Transactions with related parties

The Company and subsidiaries have transactions with related parties. The definition of related parties used is in accordance with Indonesian Statement of Financial Accounting Standards “PSAK” No. 7, “Related Party Disclosures.”

d. Acquisitions of subsidiaries

The acquisition of a subsidiary from a third party is accounted for using the purchase method of accounting. Intangible assets acquired in a purchase business combination are amortized over their respective contractual lives. The excess of the acquisition cost over the Companys interest in the fair value of identifiable assets acquired and liabilities assumed is recorded as goodwill and amortized using the straight-line method over a period of not more than five years. The Company continually assesses whether events or changes in circumstances have occurred that would require revision of the remaining estimated useful life of intangible assets and goodwill, or whether there is any indication of impairment. If any indication of impairment exists, the recoverable amount of intangible assets and goodwill is estimated based on the expected future cash flows which are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The acquisition transaction with entities under common control is accounted for in a manner similar to that in pooling of interests accounting carryover basis. The difference between the consideration paid or received and the related historical carrying amount, after considering income tax effects, is recognized directly in equity and reported as “Difference in value of restructuring transactions between entities under common control” in the stockholders’ equity section see Note 4.