Consumer financing receivables SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued l.

PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 60 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued r. Fixed Assets, leased assets and intangible assets continued ii. Leased assets Under SFAS No. 30, determination of whether an agreement is a lease agreement or lease agreement containing the substance of the agreement based on the inception date and whether the fulfilment of the agreement depends on the use of an asset and the agreement provides a right to use the asset. According to this revised SFAS, leases that transfer substantially all the risks and benefit related to ownership, are classified as finance leases. Further, a lease is classified as operating leases, if the lease does not transfer substantially all the risks and benefits related to ownership of assets. Based on SFAS No. 30, under a finance leases, Group recognise assets and liabilities in its consolidated statement of financial position as the fair value of the leased property or, if lower, the present value of the minimum lease payments, each determined at the inception of the lease. Lease payment is apportioned between the finance charge and the reduction of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability. Finance expenses recorded in the consolidated statement of income. Leased assets presented under fixed assets are depreciated over the shorter of the estimated useful life of the assets and the lease term, if there is no reasonable certainty that Bank Mandiri will obtain ownership by the end of the lease term. Under an operating lease, the Group recognise lease payments as an expense on a straight-line basis over the lease term. If a rental agreement contains elements of land and buildings, the Group assessed the classification of each element as a finance lease or an operating lease separately. iii. Intangible assets Intangible assets are recognised if, and if only when its cost can be measured reliably and it is probable that expected future benefits that are attributable to it will flow to the Bank and Subsidiaries. Intangible assets consist of goodwill and computer software that are purchased by the Bank and Subsidiaries. Software purchased by the Bank and subsidiaries is recorded at cost less accumulated amortization and accumulation of possible losses. Amortization method, estimated useful life and residual value is reviewed at end of reporting period and adjusted if necessary. Refer to Note 2s for the accounting treatment of goodwill. PT BANK MANDIRI PERSERO Tbk. AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2016 and for the year then ended Expressed in millions of Rupiah, unless otherwise stated 61

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued s. Investments in shares

Investments in shares represent long-term investments in non-publicly-listed companies and temporary investments in debtor companies arising from conversion of loans to equity. Investments in shares in associated company represent ownership interests of 20.00 to 50.00 are recorded using the equity method. Under this method, investments are recorded at cost and adjusted for the Bank’s proportionate share in the net equity of the investees and reduced by dividends earned starting the acquisition date net of by allowance for impairment losses. Temporary investment is written-off from the consolidated statement of financial position if it is held for more than 5 years in accordance with Bank Indonesia Regulation No. 72PBI2005 dated January 20, 2005 on “Asset Quality Ratings for Commercial Banks”, as amended by Bank Indonesia Regulation No. 112PBI2009 dated January 29, 2009. Since October 24, 2012, Group follows Bank Indonesia Regulation No. 1415PBI2012 dated October 24, 2012 regarding “Asset Quality Rating for Commercial Banks” and Circular Letter of Bank Indonesia No.1528DPNP dated July 31, 2013 regarding Asset Quality Ratings for Commercial Banks. Investment in shares with ownership below 20.00 are classified as financial assets available for sale. Refer to Note 2c for the accounting policy of financial assets available for sale. Goodwill is recognised when there is a difference between the acquisition cost and the Bank’s portion of the fair value of identified assets and liabilities at the acquisition date. Goodwill is presented as other assets. The Bank conducts an assessment of goodwill impairment regularly.

t. Allowance for possible losses on non-earning assets

Non-earning assets of Bank Mandiri and the Subsidiaries consist of repossessed assets, abandoned properties, inter-office accounts and suspense accounts. The Bank provided an allowance for impairment of collateral confiscated and abandoned property equivalent to different between carrying amount and fair value net of costs to sell. As for the inter- office account and suspense account, equivalent to different between carrying value and the recovery value.

u. Acceptance receivables and payables

Acceptance receivables are classified as financial assets in loans and receivables category. Refer to Note 2c for the accounting policy of financial assets for loans and receivables. Acceptance payables are classified as financial liabilities at amortised cost. Refer to Note 2c for the accounting policy for financial liabilities at amortised cost.