Basis of preparation of financial statements

PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2014 and for the Nine months Period Then Ended unaudited Figures in tables are expressed in billions of rupiah, unless otherwise stated 23

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued d. Business combinations continued

Goodwill arising on acquisition is recognized as an asset and measured at cost representing the excess of the aggregate of the consideration transferred and the amount of any non-controlling interests in the acquiree’s net identifiable assets acquired and liabilities assumed. For each business combination, non-controlling interest is measured at fair value or at the proportionate share of the acquiree’s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. The excess of the fair value of identifiable assets acquired and the liabilities assumed at the date of acquisitionover the aggregate fair value of consideration transferred and non-controlling interest in the acquireeat the acquisition date is a bargain purchase and recognized as gain in profit or loss at the acquisition date. Such gain is attributed to the acquirer. When the determination of consideration from a business combination includes contingent consideration, it is measured at its fair value on acquisition date. Contingent consideration is classified either as equity or a financial liability. Amounts classified as a financial liability are subsequently remeasured to fair value with changes in fair value recognized in profit or loss when adjustments are recorded outside the measurement period. Changes in the fair value of the contingent consideration that qualify as measurement-period adjustments are adjusted retrospectively, with corresponding adjustments made against goodwill. Measurement-period adjustments are adjustments that arise from additional information obtained during the measurement period, which cannot exceed one year from the acquisition date, about facts and circumstances that existed at the acquisition date. In case of loss of control over a subsidiary, the Company:  derecognizes the assets including goodwill and liabilities of the subsidiary at the carrying amounts when its loses of control;  derecognizes the carrying amounts of any non-controling interests of its former subsidiary on the date when it loses control;  recognizes the fair value of the consideration received if any from the transaction, events, or condition that caused the loss of control;  recognizes the fair value of any investment retained in the subsidiary at fair value on the date of loss of control;  recognizes any surplus or deficit in profit or loss that is attributable to the Company. In a business combination achieved in stages, the acquirer remeasures its previously held equity interest in the acquiree at its acquisition-date fair value and recognizes the resulting gain or loss, if any, in profit or loss. PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of September 30, 2014 and for the Nine months Period Then Ended unaudited Figures in tables are expressed in billions of rupiah, unless otherwise stated 24

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued d. Business combinations continued

Based on PSAK 38 Revised 2012, “Common Control Business Combination”, the transfer of assets, liabilities, shares or other ownership instruments among the companies under common control would not result in a gain or loss. Since the restructuring transaction between entities under common control does not result in a change of the economic substance of the ownership of assets, liabilities, shares or other instruments of ownership, which are exchanged, assets or liabilities transferred are recorded at book value using the pooling-of-interests method. In applying the pooling-of-interests method, the components of the financial statements for the period during which the restructuring occurred must be presented in such a manner as if the restructuring has occurred since the beginning of the earliest period presented. The excess of consideration paid or received over the carrying value of interest acquired, net of income tax, is directly recognized to equity and presented as “Additional Paid-in Capital” under the equity section of the consolidated statement of financial position. At the initial application of PSAK 38 Revised 2012, all balances of the Difference In Value of Restructuring Transactions of Entities under Common Control was reclassified to “Additional Paid- in Capital” in the consolidated statement of financial position.

e. Cash and cash equivalents

Cash and cash equivalents comprises cash on hand and in banks and all unrestricted time deposits with an original maturity of three months or less at the time of placement. Time deposits with maturities of more than three months but not more than one year are presented as other current financial assets.

f. Investments in associated companies

Investments in companies where the Company and subsidiaries have 20 to 50 of the voting rights, and through which the Company and subsidiaries exert significant influence, but not control, over the financial and operating policies are accounted for using the equity method. Under this method, the Company and subsidiaries recognize their proportionate share in the income or loss of the associated companies from the date that significant influence commences until the date that significant influence ceases. When the Company and subsidiaries’ share of loss exceeds the carrying amount of the investments in associated companies, the carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Company and subsidiaries have incurred legal or constructive obligations or made payments on behalf of the associated companies. Investment in a joint venture is accounted for using the equity method whereby the participation in a joint venture is initially recorded at cost and subsequently adjusted for changes that occur after the acquisition in the share of the venturer of the joint venture’s net assets. The Company and subsidiaries determine at each reporting date whether there is any objective evidence that the investments in the associated companies are impaired. If there is, the Company and subsidiaries calculate and recognize the amount of impairment as the difference between the recoverable amount of the investments in associated companies and their carrying value. These assets are included in long-term investment in the consolidated statement of financial position.