SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued u. Financial instruments

PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of March 31, 2014 and for three months period then ended unaudited Figures in tables are expressed in billions of rupiah, unless otherwise stated 33

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued u. Financial instruments continued

iv. Fair value of financial instruments Fair value is the amount for which an asset could be exchanged, or liability settled, in an arms’ length transaction. The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to quoted market prices, without any deduction for transaction costs. For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such techniques may includeusing recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same,a discounted cash flow analysis or other valuation models. An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 44. v. Impairment of financial assets The Company and subsidiaries assess the impairment of financial assets if there is objective evidence that a loss event has a negative impact on the estimated future cash flows of the financial asset. Impairment is recognized when the loss event can be reliably estimated. Losses expected as a result of future events, no matter how likely, are not recognized. Impairment loss on financial assets carried at cost is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate. Cash flows relating to short-term receivables are not discounted if the effect of discounting is immaterial. When a decline in the fair value of an available-for-sale financial asset has been recognized in other comprehensive income and there is objective evidence that the asset is impaired, the cumulative loss that had been recognized in other comprehensive income is recognized in profit or loss as an impairment loss. The amount of the cumulative loss is the difference between the acquisition cost net of any principal repayment and amortization and current fair value, less any impairment loss on that financial asset previously recognized. vi. Derecognition of financial instrument The Company and subsidiaries derecognize a financial asset when the contractual rights to the cash flows from the financial asset expire, or when the Company and subsidiaries transfer substantially all the risks and rewards of ownership of the financial asset. The Company and subsidiaries derecognize a financial liability when the obligation specified in the contract is discharged or cancelled or expired.

v. Treasury stock

Reacquired Companyshares of stock are accounted for at their reacquisition cost and classified as “Treasury Stock” and presented as a deduction to equity. The cost of treasury stock soldtransferred is accounted for using the weighted average method. The portion of treasury stock transferred for employees ownership program is accounted for at its fair value. The difference between the cost and the proceeds from the saletransfer value of treasury stock is credited to “Additional Paid-in Capital”. PERUSAHAAN PERSEROAN PERSERO PT TELEKOMUNIKASI INDONESIA Tbk AND ITS SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As of March 31, 2014 and for three months period then ended unaudited Figures in tables are expressed in billions of rupiah, unless otherwise stated 34

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued w. Dividends

Dividend distribution to the Company’s stockholders is recognized as a liability in the Company’s consolidated financial statements in the year in which the dividend is approved by the Company’s stockholders. The Company recognizes interim dividend as a liability based on the Board of Directors’ decision with the approval from the Board of Commissioners.

x. Basic earnings per share and earnings per ADS

Basic earnings pershare is computed by dividing profit for the year attributable to owners of the parent company by the weighted average number of shares outstanding during the year. Income per ADS is computed by multiplying basic earnings per share by 200, the number of shares represented by each ADS. The Company does not have potentially dilutive financial investments.

y. Segment information

The Company and subsidiaries segment information is presented based upon identified operating segments. An operating segment is a component of an entity: a that engages in business activities from which it may earn revenues and incur expenses including revenues and expenses relating to transactions with other components of the same entity; b whose operating results are regularly reviewed by the Company and subsidiaries chief operating decision maker i.e., Directors, to make decisions about resources to be allocated to the segment and assess its performance, and c for which discrete financial information is available.

z. Provision

Provisionis recognized when the Company and subsidiaries have a present obligation legal or constructive as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the obligation. aa. Critical accounting estimates and judgements Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company and subsidiaries make estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are addressed below.

i. Retirement benefits

The present value of the retirement benefit obligations depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost income for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of retirement benefit obligations. The Company and subsidiaries determine the appropriate discount rate at the end of each reporting period. This is the interest rate that should be used to determine the present value of estimated future cash outflows expected to be required to settle the obligations. In determining the appropriate discount rate, the Company and subsidiaries consider the interest rates of government bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating the terms of the related retirement benefit obligations.