Transactions with Related Parties

PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 and For the Years then Ended - 31 - After initial measurement, loans and receivables are subsequently measured at amortized cost using the effective interest method, less allowance for impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statements of comprehensive income. The losses arising from impairment are recognized in the consolidated statement of comprehensive income. As of December 31, 2011 and 2010, this category includes cash and cash equivalents, short-term investments time deposits, placement with other banks, and securities - export bill receivables, securities purchased under agreements to resell, consumer finance receivables, factoring receivables, segregated funds net assets – unit link cash and cash equivalents and investment receivables, segregated funds net assets - sharia cash and cash equivalents and investment receivables, loans, securities agent receivables, other accounts receivable, and other assets security deposits and money transfers. 3. HTM Investments HTM investments are non-derivative financial assets with fixed or determinable payments and fixed maturities for which the Group’ management has the positive intention and ability to hold to maturity. When the Company or its subsidiaries sell or reclassify other than an insignificant amount of HTM investments before maturity, the entire category would be tainted and reclassified as AFS financial assets. After initial measurement, these investments are subsequently measured at amortized cost using the effective interest method, less impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortization is included as part of interest income in the consolidated statements of comprehensive income. Gains and losses are recognized in the consolidated statements of comprehensive income when the HTM investments are derecognized and impaired, as well as through the amortization process using effective interest method. As of December 31, 2011 and 2010, this category includes short term investments – securities Bank Indonesia Intervention, Certificate of Bank Indonesia, Credit Linked Note, Republic of Indonesia – ROI Loans, bonds, export bill receivables, segregated funds net assets – unit link bonds, and segregated funds net assets – sharia sharia bonds. 4. AFS Financial Assets AFS financial assets are those which are designated as such or not classified in any of the other categories. They are purchased and held indefinitely and may be sold in response to liquidity requirements or changes in market conditions. After initial measurement, AFS financial assets are measured at fair value with unrealized gains or losses recognized as other comprehensive income - “Unrealized gain loss on increase decline in value of AFS financial assets” until the investment is derecognized, or determined to be impaired, at which time the cumulative gain or loss is reclassified to the profit and loss and removed from “Unrealized gain loss on decline in value AFS financial assets”. As of December 31, 2011 and 2010, this category includes short-term investment in bonds, Republic of Indonesia – ROI Loans, shares that are traded in Indonesia Stock Exchange, and certain investments in shares Note 17. 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.