Basis of Consolidated Financial Statements Preparation and Measurement

PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 and For the Years then Ended - 23 - Prior January 1, 2011, allowance for possible losses on non-productive assets was determined as follow: Period Current Up to 1 year Substandard More than 1 year up to 3 years Doubtful More than 3 years up to 5 years Loss More than 5 years The above changes on the determination of allowance for impairment losses represent changes in accounting policy which should generally be applied retrospectively requiring restatements of prior years’ results. However, as the impact of the changes in respect of prior years’ results is not material, no restatements were made and the impact of the changes was charged to the current year’s statement of comprehensive income. 8 PSAK No. 48 Revised 2009, “Impairment of Assets”, including goodwill and assets acquired from business combinations before January 1, 2011, prescribes the procedures to be employed by an entity to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. If this is the case, the asset is described as impaired and this revised PSAK requires the entity to recognize an impairment loss. This revised PSAK also specifies when an entity should reverse an impairment loss and prescribes disclosures. As described herein, the adoption of PSAK No. 48 Revised 2009 has a significant impact on the financial reporting including for the related disclosures, mainly on the impairment test of goodwill which is required at least once a year and more frequently when indications for impairment exist. The following are the new and revised accounting standards and interpretations which should be adopted effective January 1, 2011 but which are or relevant but do not have material impact to the Group’ consolidated financial statements: PSAK 1. PSAK No. 2 Revised 2009, Statements of Cash Flows 2. PSAK No. 3 Revised 2010, Interim Financial Reporting 3. PSAK No. 8 Revised 2010, Events After the Reporting Period 4. PSAK No. 19 Revised 2010, Intangible Assets 5. PSAK No. 23 Revised 2010, Revenues 6. PSAK No. 57 Revised 2009, Provisions, Contingent Liabilities and Contingent Assets ISAK 1. ISAK 17 Revised 2009, Interim Financial Reporting and Impairment The following are the new and revised statements and interpretations which are effective January 1, 2011 but are irrelevant to the Group’s financial statements: PSAK 1. PSAK No. 12 Revised 2009, Investments in Joint Ventures 2. PSAK No. 58 Revised 2009, Non-Current Assets Held for Sale and Discontinued Operations PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements December 31, 2011 and 2010 and For the Years then Ended - 24 - ISAK 1. ISAK No. 7 Revised 2009, Consolidation – Special Purpose Entities 2. ISAK No. 9 Revised 2009, Changes in Existing Decommissioning, Restoration and Similar Liabilities 3. ISAK No. 10 Revised 2009, Customer Loyalty Program 4. ISAK No. 11 Revised 2009, Distribution of Non – Cash Assets to Owners 5. ISAK No. 12 Revised 2009, Jointly Controlled Entities – Nonmonetary Contributions by Ventures 6. ISAK No. 14 Revised 2009, Intangible Assets – Website Cost

c. Principles of Consolidation and Accounting for Business Combination

Principles of Consolidation Effective January 1, 2011, the Group retrospectively adopted PSAK No. 4 Revised 2009, “Consolidated and Separate Financial Statements”, except for the following items that were applied prospectively: i losses of a subsidiary that result in a deficit balance to noncontrolling interests “NCI”; ii loss of control over a subsidiary; iii change in the ownership interest in a subsidiary that does not result in a loss of control; iv potential voting rights in determining the existence of control; V consolidation of a subsidiary that is subject to long-term restriction. Accounting Policies Effective January 1, 2011 The consolidated financial statements include the accounts of the Group mentioned in Note 1c. All significant intercompany transactions and account balances including the related significant unrealized gains or losses have been eliminated. Subsidiaries are fully consolidated from the date of acquisitions, being the date on which the Company obtained control, and continue to be consolidated until the date such control ceases. Control is presumed to exist if the Company owns, directly or indirectly through subsidiaries, more than a half of the voting power of an entity unless, in exceptional circumstances, it can be clearly demonstrated that such ownership does not constitute control. Control also exists under certain circumstances even when the Group owns half or less of the voting power of an entity. Losses of a non-wholly owned subsidiary are attributed to the Noncontrolling Interest NCI even if that results in a deficit balance. In case of loss of control over a subsidiary, the Company andor its subsidiaries: • derecognizes the assets including goodwill and liabilities of the subsidiary; • derecognizes the carrying amount of any NCI; • derecognizes the cumulative translation differences, recorded in equity, if any; • recognizes the fair value of the consideration received; • recognizes the fair value of any investment retained; • recognizes any surplus or deficit in profit or loss; and • reclassifies the parent’s share of components previously recognized in other comprehensive income to profit or loss or retained earnings, as appropriate. NCI represents the portion of the profit or loss and net assets of the Subsidiaries attributable to equity interests that are not owned directly or indirectly by the Company, which are presented in the interim consolidated statements of comprehensive income and under the equity section of the consolidated statements of financial position, respectively, separately from the corresponding portion attributable to the equity holders of the parent company.