Principles of consolidation continued

Adaro Energy Annual Report 2009 147 www.adaro.com PT ADARO ENERGY Tbk AND SUBSIDIARIES Schedule 59 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2009 AND 2008 Expressed in million Rupiah, unless otherwise stated

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued

h. Fixed assets and depreciation continued

The fixed assets of Adaro are depreciated using the straight-line method to their estimated residual value, over the lesser of the estimated useful lives of the assets, the life of the mine or the term of the CCA, stated as follows: Years Buildings 10 - 20 Machinery, operational equipment and vehicles 3 - 10 Office equipment 10 Crushing and handling facilities 13 - 30 Roads and bridges 13 - 30 Stockpile facilities 17 - 20 Dock facilities 20 Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the consolidated statement of income during the financial period in which they are incurred. The assets’ useful lives and residual values are reviewed, and adjusted if appropriate, at each balance sheet date. The effects of any revisions are recognised in the consolidated statement of income, prospectively. For assets which are no longer utilised or sold or surrendered to the Government, the carrying amounts are eliminated from the consolidated financial statements, and the resulting gains and losses on the disposal of fixed assets are recognised in the consolidated statement of income. The accumulated costs of the construction of buildings and plant and the installation of machinery are capitalised as construction in progress. These costs are reclassified to the fixed asset accounts when the construction or installation is completed. Depreciation is charged from that date. Interest and other borrowing costs, such as discount fees on loans either directly or indirectly used in financing the construction of a qualifying asset, are capitalised up to the date when construction is complete. For borrowings directly attributable to a qualifying asset, the amount to be capitalised is determined as the actual borrowing costs incurred during the year, less any income earned on the temporary investment of such borrowings. For borrowings that are not directly attributable to a qualifying asset, the amount to be capitalised is determined by applying a capitalisation rate to the amount expended on the qualifying asset. The capitalisation rate is the weighted-average of the borrowing costs applicable to the total borrowings outstanding during the period, excluding borrowings directly attributable to financing the qualifying asset under construction.

i. Impairment of long-lived assets

At the balance sheet date, the Group undertakes a review to determine whether there is any indication of asset impairment. Fixed assets and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s net selling price or value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. Reversal of impairment is recorded as income in the period when the reversal occurs.

j. Deferred exploration and development expenditure

Exploration expenditure incurred is capitalised and carried forward, on an area of interest basis, provided one of the following conditions is met: i such costs are expected to be recouped through successful development and exploitation of the area of interest or, alternatively, by its sale; or ii exploration activities in the area of interest have not yet reached the stage which permits a reasonable assessment of the existence or otherwise of economically recoverable reserves, and active and significant operations in or in relation to the area of interest are continuing.