IMPLEMENTATION OF QUASI-REORGANIZATION 2004 12 Full Audited Financial Statements w Notes

PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated 160 61. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE BANK “INDONESIAN GAAP” AND INTERNATIONAL FINANCIAL REPORTING STANDARDS “IFRS” continued a. Allowance for Possible Losses on Earning Assets continued Under IAS No. 39 - “Financial Instruments: Recognition and Measurement”, the Bank calculates allowances for possible losses on earning assets based on the difference between the carrying amount of an impaired earning asset and the present value of expected future cash flows discounted at the earning assets original effective interest rate. An earning asset is considered impaired when it becomes probable that the Bank will be unable to collect all amounts due according to contractual terms. In addition, the Bank also recognizes allowance for possible losses on unimpaired loans in accordance with BI guidelines on minimum provisions. b. Estimated Losses on Commitments and Contingencies Under Indonesian GAAP, the Bank records estimated losses on commitments and contingencies using general and specific allowances based on management’s estimates and using the guidelines prescribed by BI. Under IFRS, the Bank does not recognize certain of the estimated losses on commitments and contingencies in accordance with the provisions of IAS No. 37 - “Estimated Liabilities, Contingent Liabilities and Contingent Assets”. c. Derivative Instruments Under Indonesian GAAP, the Bank applies SFAS Statements of Financial Accounting Standard No. 55 - “Accounting for Derivative Instruments and Hedging Activities” which requires that derivative instruments be measured and recognized at their fair values. Prior to October 23, 2003, the fair value of the foreign currency forward transactions has been determined based on Reuters spot rates at the reporting dates in accordance with the reporting guidelines prescribed by Bank Indonesia. On October 23, 2003, Bank Indonesia issued a letter to amend the guidelines and waived the requirement to use spot rates of exchange to revalue foreign currency forward transactions. Under IAS No. 39 - “Financial Instruments: Recognition and Measurement”, the Bank calculates the fair values of foreign currency forward derivative instruments based on forward rates of exchange at the balance sheet date. The Bank classifies Government Bonds Note 7 as originated loans under IFRS and therefore no separate measurement and recognition is required for indexation derivatives that are embedded in the hedge bonds. Originated loans are characterized by assets for which the Bank provided the original funding and are not determined by the form of the instrument that results from the loan origination. d. Employee Benefits Under Indonesian GAAP, prior to December 31, 2004, the Bank recognized a provision for employee entitlements under Labor Law No. 132003 equal to the present value of the obligation as determined by actuarial reports in accordance with SFAS No. 57 - “Estimated Liabilities, Contingent Liabilities and Contingent Assets”. In October 2004, the Indonesian Institute of Accountants IAI published revised SFAS No 24 - “Employee Benefits” which aligned the accounting treatment for employee benefits with IAS No. 19 - “Employee Benefits”. Therefore, upon the adoption of this revised standard on December 31, 2004, the accounting treatment for employee benefits is the same under IFRS and Indonesian GAAP. PT BANK MANDIRI PERSERO TBK. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 and 2003, and April 30, 2003 Expressed in millions of Rupiah, unless otherwise stated 161 61. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE BANK “INDONESIAN GAAP” AND INTERNATIONAL FINANCIAL REPORTING STANDARDS “IFRS” continued d. Employee Benefits continued Under IFRS, Labor Law No. 132003, entitlements are accounted for as a defined benefit plan and as such it requires the actuary to use the projected unit credit method of actuarial valuation as mandated by IAS No 19 - “Employee Benefits”. Further, under IFRS, past service cost is recognized on a straight-line basis over the average period until the benefits become vested and any actuarial gainloss resulting from differences between actuarial assumptions and what has actually occurred and changes in actuarial assumptions does not require amortization unless the change is more than a 10 corridor range of variation, in which event such excess is amortized over the remaining working lives of the employees. e. Loans Purchased from IBRA Under Indonesian GAAP, the difference between the outstanding loan principal and purchase price is booked as deferred income if the Bank enters into a new credit agreement with the borrower, and as an allowance for possible losses if the Bank does not enter into a new credit agreement with the borrower. The allowance for loan losses or deferred income is only adjusted once the Bank has recovered the original purchase price. Under IFRS, the difference between outstanding loan principal and purchase price is booked as deferred income for all loans purchased from IBRA. For performing loans, the deferred income is accreted into income over the life of the loan using the effective interest rate method in accordance with IAS No. 39 - “Financial Instruments: Recognition and Measurement”. For non- performing loans, the deferred income is only adjusted into income once the Bank has recovered the original purchase price. f. Premises and Equipment Under Indonesian GAAP, premises and equipment are stated at cost, except for certain premises and equipment used in operations that were revalued in 1979, 1987 and 2003 in accordance with Government regulations, less accumulated depreciation and amortization. Under IFRS, in accordance with IAS No. 16 - “Property, Plant and Equipment”, premises and equipment continues to be carried at its cost less any accumulated depreciation, rather than at its revalued amount, due to the requirement under IAS 16 to perform such revaluations with “sufficient regularity”. g. Deferred Income Taxes The impact on deferred income taxes of the IFRS adjustments has been recognized in accordance with IAS No. 12 - “Income Taxes”. An effective tax rate of 30 has been applied.