Accounting for Business Combination

PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2014 and 2013 Figures are Presented in Millions of Rupiah,unless Otherwise Stated Amounts accumulated in equity are recycled to profit or loss in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging floating rate borrowings is recognized in profit or loss within “Other Income Expense – Net”. However, when the forecast transaction that is hedged results in the recognition of a non-financial asset, the gains and losses previously deferred in equity are transferred from equity and included in the initial measurement of the cost of the asset. The deferred amount will eventually be recognized as Depreciation if these assets are property and equipment. Offsetting of Financial Instruments Financial assets and liabilities are offset and the net amount reported in the consolidated statement of financial position if, and only if, there is a currently enforceable right to offset the recognized amounts and there is intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Impairment of Financial Assets The Group’s management assesses at each consolidated statement of financial position date whether a financial asset or group of financial assets is impaired. 1. Assets Carried at Amortized Cost The Company assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset a “loss event” and that loss event or events has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan with the terms that the Company would not otherwise consider if the borrower has no financial difficulties, indications that a borrower or issuer will enter into bankruptcy, disappearance of an active market for a security due to financial difficulties, observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio. The management first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the management determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. Assets that are individually assessed for impairment and for which an impairment loss, is or continues to be recognized are not included in a collective assessment of impairment. - 27 - PT SINAR MAS MULTIARTHA Tbk AND ITS SUBSIDIARIES Notes to Consolidated Financial Statements For the Years Ended December 31, 2014 and 2013 Figures are Presented in Millions of Rupiah,unless Otherwise Stated If there is an objective evidence that an impairment has been incurred on financial assets in loans and receivables or HTM investments category, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows excluding future credit losses that have not been incurred discounted at the financial asset’s original effective interest rate i.e., the effective interest rate computed at initial recognition. The carrying amount of the asset is reduced either directly or through the use of an allowance account. The amount of loss is charged to the consolidated statement of comprehensive income. The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable. For the purposes of a collective assessment impairment, financial assets are grouped based on similar characteristics such as credit risk and credit segmentation considering delinquent status. The characteristics chosen are relevant to the estimation of future cash flows from the assets that indicates the ability of the debtor counterparty to pay allliabilities with maturities corresponding contractual terms of the assets being assessed. Future cash flows from the financial assets that are collectively assessed for impairment, are estimated based on contractual cash flows and historical loss experience for assets with similar credit risk characteristics of the group. Historical loss experience is adjusted on the basis of current observable data to reflect effects in the period in which the experience is based and to remove the effects of conditions in the historical period that do not currently exist. If, in a subsequent year, the amount of the impairment loss decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed. Any subsequent reversal of an impairment loss is recognized in the consolidated statement of comprehensive income, to the extent that the carrying value of the asset does not exceed its amortized cost at the reversal date. When a financial asset is uncollectible, it is written off against the related allowance for impairment loss. Such financial asset is written off after all the necessary procedures have been completed and the amount of the loss has been determined. 2. Financial Assets Carried at Cost If there is an objective evidence that an impairment loss has been incurred on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, the amount of the loss is measured as the difference between the financial asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. 3. AFS Financial Assets In case of equity investments classified as AFS, assessment of any impairment would include a significant or prolonged decline in the fair value of the investments below its cost. Where there is evidence of impairment, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the profit and loss is removed from equity and recognized in the profit and loss. Impairment losses on equity investments are not reversed through the profit and loss. Increases in fair value after impairment are recognized directly in equity. - 28 -