SFAS No.

38 Accounting for Restructuring

of
Entities under common control

CONTENTS

Paragraph

PREFACE

Background 01 - 03
Purpose
Scope 01 - 02
Definitions 03

ELUCIDATION 04 - 14

Criteria for the existence of control 04 - 05

The nature of Restructuring transactions of entities under common control 06 - 10
Difference between the transfer price and book value 11 - 13
Disclosures 14

STATEMENT OF THE FINANCIAL ACCOUNTING STANDARD No. 38

REGARDING ACCOUNTING FOR RESTRUCTURING OF ENTITIES
UNDER COMMON CONTROL 15 - 24

Disclosures 22
Transition Period 23
Effective Date 24

PREFACE

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SFAS No. 38 Accounting for Restructuring
of
Entities under common control

Background

A great number of business entities in Indonesia have the characteristic of majority ownership
and/or are controlled by the same party, either directly or indirectly. A business entity with this
characteristic is called an entity under common control. In a transaction for the restructuring of
entities under common control there is no change in the economic substance of economic
ownership, although the legal form of share ownership or assets or liabilities or other instruments
of ownership do change.

Purpose

The purpose of this standard is to deal with the accounting treatment of transaction relating to the
restructuring of entities under common control, which is not covered in SFAS 22 regarding
Accounting for business combination.

Scope

01. This standard is applicable to the accounting for restructuring transaction in respect of the
transfer of assets, liabilities, shares or other instruments of ownership between entities
under common control.

02. This standard does not deal with the transaction of business combination between entities
which are not under common control or entities which are not under the same control.
Transaction relating to business combination are dealt with in SFAS 22 regarding
accounting for business combination.

Definitions

The following terms used in this standard are defined as follows :

Control is the power to determine the financial and operating policies of an enterprise so as to
obtain the benefits of the activities of the enterprise.

Parent company is a company that owns one or more subsidiaries.

Subsidiaries are enterprises controlled by another enterprise (known as the parent company),
either through majority ownership or by other ways.

Group (company group) is the parent company and all of its subsidiaries.

Minority interest is that part of the net results of operations and of the net assets of the
subsidiaries which is not owned, directly or indirectly (through a subsidiary) by the parent
company.

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Fair value is the amount, which can be used as a base for an exchange of asset or for the
settlement of liabilities between knowledgable parties willing to conduct arm’s length transaction.

Date of Restructuring is the date when control over net assets and operations of the company
acquired is effectively transferred to the acquiring company.

Entities under common control are parties (individuals, companies or other forms of entities)
which directly or indirectly (through one or more intermediaries) control or are controlled by or
are under the same control.

Restructuring transactions among companies under common control are transactions related
to the transfer of assets, liabilities, shares or other instruments of ownership between parties
(individuals, companies or other forms of entity) which directly or indirectly (through one or
more intermediaries) control or are controlled by or are under the same control.

ELUCIDATION

Criteria for the existence of control

04. Control is presumed to exist if the controlling party (the parent company) owns, directly
or indirectly (through a subsidiary) more than 50% of the voting right of a subsidiary.

05. Even if the parent company has 50% or less of the voting right, control is still presumed to
exist, if one of the following conditions is satisfied :
a. having more than 50% of the voting rights by virtue of an agreement with other
investors;
b. has the right to determine the financial and operating policies of another company
based on the Articles of Association or agreement;
c. has the right to appoint or terminate the majority of the members of the board of
directors of the other company;
d. has the ability to dominate the majority of votes in the meeting of the board of
directors of the other company.

The nature of Restructuring Transaction of entities under common control

06. Restructuring transactions between entities under common control in the forms of
transfer of assets, liabilities, shares or other instruments of ownership carried out
within the framework of reorganizing the entities under the same business segment,
do not constitute a change of ownership within the meaning of economic substance,
so that such transactions would not result in a profit or loss to the company group or
to the individual entity within the same company group.

Examples of transactions between entities under common control are as follows :

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a. A parent company transfers part of the net assets of its subsidiary to become the assets of the
parent company. This transaction will result in a change of the legal form of
ownership of the net assets, but will not change the economic substance of ownership
of the net asset.

b. A parent company transfers part of its ownership in a subsidiary to another subsidiary. This
transaction also constitutes a change in the legal form of ownership of the subsidiary,
but does not constitute a change in the economic substance of ownership of the
subsidiary.

c. A parent company exchanges its ownership of part of the net assets of its subsidiary with
additional shares issued by another subsidiary (which is not 100% owned), so that the parent
company’s ownership in the other subsidiary increases, while the percentage of ownership of
the minority shareholders in that subsidiary decreases. In this case, although the legal form of
ownership of the net assets of the subsidiary has changed (from a direct ownership of the
parent company into the ownership of another subsidiary), there is no change in the economic
substance of ownership of the net assets.

07. An entity not under common control shall be treated as an entity under common
control, if within a period of twenty four months or less

a. the entity not under common control has even been under the same control, or
b. the assets, liabilities, shares or other instruments of ownership transferred were
previously owned by an entity under common control.

08. The acquisition of shares or net assets of minority shareholders (who are not under
the same control as the majority shareholders) constitutes a transaction involving a
change in the economic substance of ownership from the minority shareholders and
hence, such transaction is not a restructuring transaction between entities under
common control.

09. Since a restructuring transaction between entities under common control does not
result in a change of the economic substance of the ownership of assets, shares,
liabilities or other instruments of ownership which are exchanged, assets or
liabilities transferred (in their legal form) must be recorded at book values as
business combination using the pooling of interest method.

10. In applying the pooling of interest method, the components of the financial
statements of the restructured company for the period, during which the
restructuring occurred and for other periods presented for comparison purposes,
must be presented in such a manner as if the companies were combined from the
beginning of the period presented. Financial statements of a company must not
reflect a pooling of interest, even if the company is one of the joining party, if the
pooling of interest takes place after the balance sheet date.

Difference between the transfer price and book value

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11. Any difference between the transfer price and book value of each restructuring
transaction between entities under common control shall be recorded in the account
Difference in the Value of Restructuring transaction between entities under common
control. The balance of this account shall be presented as a component of equity.

12. Any difference between the transfer price and the value relating to the restructuring
transaction between entities under common control is not a goodwill.

13. The balance of the account Difference in the value of restructuring transaction between
entities under common control shall not change as a result of subsequent transfer of assets,
liabilities, shares or other instruments of ownership to another entity not under common
control.

Disclosures

14. For all restructuring transactions between entities under common control, the
following disclosures must be made in the financial statements for the period, during
which the restructuring has taken place :

a. the types, book value and transfer prices of assets, liabilities, shares or other
instruments of ownership transferred,
b. the date of the restructuring transaction between entities under common control,
c. the names of the entities involved
d. the method of accounting used.

STATEMENT OF THE FINANCIAL ACCOUNTING STANDARD No. 38 REGARDING

ACCOUNTING FOR RESTRUCTURING OF ENTITIES UNDER COMMON
CONTROL

This statement of Financial Accounting Standard No. 38 consists of paragraphs 15-24. The
statement must be read in the context of paragraphs 01-14.

The nature of the restructuring transactions between entities under common control.

15. Restructuring transactions between entities under common control in the forms of
transfer of assets, liabilities, shares or other instruments of ownership carried out
within the framework of reorganizing the entities under the same business segment,
do not constitute a change of ownership within the meaning of economic substance,
so that such transactions would not result in a profit or loss to the company group or
to the individual entity within the same company group.

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16. An entity not under common control shall be treated as an entity under common
control, if within a period of twenty four months or less :

a. The entity not under common control has ever been under the same control, or
b. The assets, liabilities, shares or other instruments of ownership transferred were
previously owned by an entity under common control.

17. The acquisition of shares or net assets of minority shareholders (who are not under
the same control as the majority shareholders) constitutes a transaction involving a
change in the economic substance of ownership from the minority shareholders to
the majority shareholders and hence, such transaction is not a restructuring
transaction between entities under common control.

18. Since a restructuring transaction between entities under common control does not
result in a change of the economic substance of the ownership of assets, liabilities,
shares or other instruments of ownership which are exchanged, assets or liabilities
transferred (in their legal forms) must be recorded at book values as business
combination using the pooling of interest method.

19. In applying the pooling of interest method, the components of the financial
statements for the period, during which the restructuring occurred and for other
periods presented for comparison purposes, must be presented in such a manner as
if the companies were combined from the beginning of the period presented.
Financial statements of a company must not reflect a pooling of interest, even if the
company is one of the joining party, if the pooling of interest takes place after the
balance sheet date.

Difference between the transfer Price and Book Value

20. Any difference between the transfer price and the book value of each restructuring
transaction between entities under common control shall be recorded in the account
Difference in the value of restructuring transaction between entities under common
control. The balance of this account shall be presented as a component of equity.

21. Any difference between the transfer price and the value relating to the restructuring
transaction between entities under common control is not a goodwill.

Disclosures

22. For all restructuring transactions between entities under common control, the
following disclosures must be made in the financial statements for the period, during
which the restructuring has taken place :

a. the types, book value and transfer prices of assets, liabilities, shares or other
instruments of ownership transferred.
b. the date of the restructuring transaction between entities under common control.

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c. the names of the entities involved

d. the method of accounting used.

Transition period

23. If the implementation of this standard results in changes in the accounting policy,
such changes should be reported prospectively.

Effective Date

24. This standard becomes effective for restructuring transactions occurred after 1
October, 1997. Early implementation is encouraged.

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