Insurance Contract continued Mandiri - Investor Relations - Audited Financials
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2012 AND 2011
Expressed in millions of Rupiah, unless otherwise stated
Appendix 543 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
af. Interest and Sharia Income and Expense
i Conventional Interest income and expense for all interest-bearing financial instruments are recognised within
“interest income” and “interest expense” in the consolidated statement of income using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant
period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate,
a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual
terms of the financial instrument but does not consider future credit losses. The calculation includes all fees, commissions and other fees received between parties to the contract that are
an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised on the non-impaired portion of the impaired
financial assets using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.
ii Sharia income Included in interest income and expense are sharia income and expense. The Subsidiariess
income as a fund manager mudharib consists of income from murabahah and istishna transactions, income from ijarah leasing, income from profit sharing of mudharabah and
musyarakah financing and other main operating income.
Murabahah income by deferred payment or by installment is recognised during the period of the contract based on the level of risk and the effort to realise the income. The methods
implemented by Subsidiary are effective method annuity based on the period of contracts.
Subsidiary determine risk policy based on the internal requirement. Subsidiary ceases the amortisation of deferred income when the financing were classified as non performing.
Income from istishna is recognised using the percentage of completion or full completion method.
Income from Ijarah is recognised proportionally during the contract period. Profit sharing for passive partner in musyarakah is recognized in the period when the right arise
in accordance with the agreed sharing ratio. Profit sharing income from mudharabah is recognized in the period when the right arise in
accordance with agreed sharing ratio and the recognition based on projection of income is not allowed.
DSAS-IAI has issued Technical Bulletin No. 5 to standarize accounting treatment for income and expenses arising directly to murabahah transaction. Based on Technical Bulletin No. 5, direct
income and expenses are recognized in-line with recognition of margin murabahah as set forth in SFAS 102. Currently the Subsidiary is evaluating and has not determined the impacts of this
Technical Bulletin on its financial statements.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2012 AND 2011
Expressed in millions of Rupiah, unless otherwise stated
Appendix 544 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES continued
af. Interest and Sharia Income and Expense continued
iii Third Parties’ Share on Return of Temporary Syirkah Funds Third parties’ share on the return of temporary syirkah funds represent fund owners’ share of the
profit of Subsidiary derived from managing of such funds under mudharabah mutlaqah, mudharabah muqayyadah and mudharabah musytarakah principles. The profit sharing is
determined on a cash basis.
Distribution of profit sharing is based on profit sharing principle which calculated from the Subsidiary’s gross profit margin.
Margin income and profit sharing on financing facilities and other earning assets are distributed to fund owners and the Subsidiary based on proportion of fund used in the financing and other
earning assets. Margin income and profit sharing income allocated to the fund owners are then distributed to fund owners as shahibul maal and the Subsidiary as mudharib based on a
predetermined ratio. Margin income and profit sharing from financing facilities and other earning assets using the Subsidiary’s funds, are entirely shared for the Subsidiary, including income
from the Subsidiary’s fee-based transactions.
ag. Premium Income Recognition, Claims and Benefits Expenses and Unearned Premium Income
Premium received from short duration insurance contracts is recognised as revenue over the period of risk coverage in proportion to the amounts of insurance protection provided. Premiums from long
duration contracts are recognised as revenue when the policy is due.
Premiums received before the due date of the respective policies are reported as policyholders’ deposits in the consolidated statement of financial position.
Claims and benefits consist of settled claims, claims that are still in process of completion and estimated of claims incurred but not yet reported IBNR. Claims and benefits are recognised as
expenses when the liabilities to cover claims are incurred. Claim recoveries from reinsurance companies are recognised and recorded as deduction from claims expenses consistent in the same
period with the claim expenses recognition.
Total claims in process, including claims incurred but not yet reported, are stated at estimated amounts determined based on the actuarial technical insurance calculations. Changes in estimated
claims liabilities as a result of further evaluation and the difference between estimated claims and paid claims are recognised as addition to or deduction from expenses in the period the changes
occurred.
The unearned premium income set by the Subsidiary is aligned with regulatory requirement in calculating unearned premium reserve for both of non-sharia and shariah short term insurance
contract with coverage period up to one year or for insurance contract with coverage period more than one year where the term and condition of the policy can be renewed renewable at policy
anniversary years.