Million Baht (Continued from page 21) Consolidated Company's Separate Balance Sheets Balance Sheets 1999 1998 1999 1998 Other related parties Purchases of equipment for general operations 3.18 3.00 3.18 3.00 Purchases of equipment for the operations of mobile phone and pager service networks 0.39 1.35 0.39 1.35 Purchases of spare parts 0.02 - - - Payment for long-term computer services 15.00 - - - Significant transactions with related parties for the six-month periods ended June 30, are summarized as follows: Million Baht Consolidated Company's Separate Balance Sheets Balance Sheets 1999 1998 1999 1998 The parent company (1998 only) Revenues - Service Income - 1.73 - 1.35 - Sales of pagers - 0.09 - - Expenses - Rental and other services - 50.72 - 50.72 - Consulting and management services - 82.52 - 82.52 - Interest on bonds payable - 13.84 - 13.84 Purchase of computer software - 65.00 - 65.00 Subsidiary companies Revenues - Service Income - - 5.67 0.17 - Interest - - 0.26 - Expenses - Rental and other services - - 1.23 1.20 - Commission - - 29.57 - Purchases of mobile phone - - 5.73 - Other related companies Revenues - Service Income, rental and others 4.27 6.67 3.43 5.64 - Sales of pagers - 5.45 - - - Sales of mobile phone 5.50 - - - - Interest - 0.38 - - Million Baht (Continued from page 22) Consolidated Company's Separate Balance Sheets Balance Sheets 1999 1998 1999 1998 Other related companies Expenses - Rental and other services 262.92 355.46 223.38 324.85 - Advertisement 163.42 13.58 16.99 6.69 - Consulting and management services 41.68 - 41.68 - - Royalty fee 5.00 5.00 - - - Interest on bonds payable to - A major shareholder of an other related company 46.25 185.21 46.25 185.21 - Executives of an other related company and directors of the Company and subsidiaries 1.18 1.31 1.18 1.31 - An other related company 14.09 - 14.09 - Sales of land and buildings 7.30 - 7.30 - Purchases of equipment for general operations 5.17 4.15 4.59 4.15 Purchases of equipment for the operations of mobile phone and pager service networks 1.55 132.90 1.55 132.90 Purchases of spare parts 0.26 - - - Payment for long-term computer services 15.00 - - - Investment in share capital of a subsidiary (Note 1) 949.60 - 949.60 - Transactions other than those mentioned previously are as follows: - The Company has issued a Letter of Comfort to a bank to support credits obtained by a subsidiary in the amount of Baht 271 million. - As at June 30, 1999, the Company was jointly bound and liable to a bank in respect of bank credits (letters of credit and trust receipts) being used by a subsidiary amounting to Baht 77.11 million. - The Company has entered into an agreement with a related company to receive satellite transponder services. As at June 30, 1999, the Company was committed to pay for future services in respect of the said agreement amounting to approximately Baht 86.84 million. - The Company has entered into agreements with a related company to receive consulting and management services and other central services provided by the said related company for periods of 12 months with options to renew. The Company is committed to pay for services in respect of the said agreements amounting to approximately Baht 6.25 million per month. - The Company's subsidiary has entered into a technical services agreement with a related company to receive know-how relating to paging service. In consideration for the above, the Company's subsidiary agrees to pay annual royalty fee to the said related company based on certain percentage of annual net profit derived from pager service income or Baht 10 million per year, whichever is lower. - The Company's subsidiary has entered into a computer service agreement with a related company to receive computer services. As at June 30, 1999, the Company's subsidiary was committed to pay fee to the said related company in the amount of Baht 0.94 million. - The Company and its subsidiaries have entered into lease and related service agreements with other related companies covering their office spaces, cars and spaces for base stations for periods ranging from 11 months to 17 years with options to renew. The Company and its subsidiaries are committed to pay for rental and related services in respect of the said agreements as follows: Million Baht Per Month Advanced Info Service Public Company Limited 18.25 Advanced Info Service Public Company Limited and subsidiaries 22.33 NOTE 4 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Method of Revenue and Cost of Revenue Recognition - Revenues from mobile phone and pager services are recognized when said services are rendered to customers. All service costs incurred during the period are treated as period cost. - Revenue from repair service for telecommunication equipment is recognized when said service is rendered to customer. - Revenues from equipment rental are recognized over the period of and at the rate prescribed in each agreement. - Sales and cost of sales are recognized when merchandise is delivered to customer. Short-term Investments Held-to-maturity securities are measured at amortized cost. Accounts and Notes Receivable The Company and its subsidiaries provide an allowance for doubtful accounts which is equivalent to the estimated collection losses. The estimated losses are based on collection experience and the management estimates. Inventories Inventories are valued at the lower of cost or net realizable value. Costs of inventories are determined by the following method: - Costs of pager and related spare parts are determined on the moving average method. - Cost of mobile phone is determined by using the first-in, first-out method while related spare parts are determined on the moving average method. In considering the realizable value, due allowance is made for all obsolete and slow-moving items. Inventories in transit are stated at invoice price and include other acquisition costs incurred. Investments Subsidiary and associated companies Investments in subsidiary and associated companies in the Company's separate financial statements and investments in an associated company in the consolidated financial statements are recorded by using the equity method. Differences between costs of investments in subsidiary and associated companies and their book values at the dates near the acquisition are included in investments, and are amortized by the straight-line method over periods 5 - 15 years. The proportionate share in net income or net losses of subsidiary and associated companies for the three-month and six-month periods ended June 30, 1999 and 1998, after eliminating all significant gains or losses deriving from intercompany transactions incurred among the Company and its subsidiary and associated companies, less or add the amortization of differences between costs of investments in subsidiary and associated companies and their book values at the dates near the acquisition, are shown as net result of investments in subsidiary and associated companies in the statements of income. The recording of investments in subsidiary and associated companies by using the equity method has been made for the purpose of reflecting the status of and return on investments in those companies. Accordingly, the net result of investments in subsidiary and associated companies for the three-month and six-month periods ended June 30, 1999 and 1998 had not been considered in the income tax computation for such periods. Other company Investment in share capital of a company, which is not a subsidiary or an associate and does not represent marketable securities, is recorded by using the cost method and less adjustment relating to the decline in value of investment, determined from the said company's financial status. Property and Equipment Land is stated at cost while no depreciation is considered for land. Buildings and building improvements, leasehold building improvements and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are computed by the straight-line method based on the estimated useful lives of assets of 1 - 20 years. In considering the recoverability of equipment, due allowance is made for certain equipment items. Depreciation and amortization for the three-month and six-month periods ended June 30, are summarized as follows: Million Baht Three Months Six Months Ended June 30 Ended June 30 1999 1998 1999 1998 Recorded in the consolidated statements of income 146.84 120.53 282.56 229.37 Recorded in the Company's separate statements of income 125.80 104.45 241.01 197.21 The Company has entered into a number of financial lease agreements to obtain vehicles for its business operations. For the financial reporting purpose, vehicle under each financial lease and its related obligation are recorded at the discounted minimum lease amount, using the discount rate as prescribed in each lease agreement, or the fair market value at the date of each agreement, whichever is lower. Depreciation of vehicles under financial leases is computed by the straight-line method based on the estimated useful lives of vehicles of 5 years. Depreciation of vehicles under financial leases for the three-month and six-month periods ended June 30, are as follows: Million Baht Three Months Six Months Ended June 30 Ended June 30 1999 1998 1999 1998 Recorded in the consolidated statements of income 0.22 0.24 0.46 0.48 Recorded in the Company's separate statements of income 0.22 0.24 0.46 0.48 The aforesaid depreciation are included in the total depreciation and amortization for the three-month and six-month periods ended June 30, 1999 and 1998 as discussed previously. Goodwill Goodwill in the consolidated balance sheets represents the excess of the cost of investment in shares of a subsidiary company over its book value at the date near the acquisition. Goodwill is amortized by the straight-line method over a period of 15 years. Amortization of goodwill for the three-month periods ended June 30, 1999 and 1998 were approximately Baht 26.11 million and Baht 9.15 million, respectively, while amortization of goodwill for the six-month periods ended June 30, 1999 and 1998 were approximately at Baht 40.91 million and Baht 18.30 million, respectively. Excess of Book Value of Investment in Subsidiary Over Cost Excess of book value of investment in share capital of a subsidiary over cost at the date near the acquisition, in the consolidated balance sheet, is amortized by the straight-line method over a period of 5 years. Amortization of the excess of book value of investment in subsidiary over cost for the three-month and six-month periods ended June 30, 1999 were approximately Baht 1.10 million and Baht 2.20 million, respectively. Costs of Mobile Phone and Pager Networks Under Concession Agreements Costs of mobile phone and pager networks under concession agreements represent costs of certain equipment and other assets which have been transferred and/or have to be transferred to the Telephone Organization of Thailand. Costs of certain equipment and other assets which have been transferred and/or ready to be transferred to the Telephone Organization of Thailand are amortized over the remaining period of each concession agreement until September 30, 2015 for the Company, and until June 11, 2005 for Advanced Paging Company Limited. Amortization of costs of mobile phone and pager networks under concession agreements for the three-month and six-month periods ended June 30, are summarized as follows: Million Baht Three Months Six Months Ended June 30 Ended June 30 1999 1998 1999 1998 Recorded in the consolidated statements of income 468.42 387.96 925.83 737.31 Recorded in the Company's separate statements of income 437.20 358.59 864.23 679.00 Deferred Charges Deferred charges represent expenditure relating to commitment fees of long-term loans, costs of long-term leases for spaces for base stations, expenditure relating to the increase of power of electricity at base stations, cost of additional supplementary equipment for the operations of pager network other than those specified in the concession agreement and have been transferred to the Telephone Organization of Thailand, cost of computer software, expenditure relating to the improvement project of mobile phone service network, cost of security identification system, cost of permanent membership of the GSM MoU Association and cost of long-term computer services agreement. The following amortization methods are used: - Commitment fees of long-term loans are amortized over the period of each loan agreement. - Costs of long-term leases for spaces for base stations are amortized over the period of each lease agreement. - Expenditure relating to the increase of power of electricity at base stations is amortized over the remaining period of the concession agreement for the operations of mobile phone network. - Costs of additional supplementary equipment for the pager network other than those specified in the concession agreement and have been transferred to the Telephone Organization of Thailand are amortized over periods of five years. - Cost of computer software is amortized over a period of ten years. - Expenditure relating to the improvement project of mobile phone service network is amortized over the remaining period of concession agreement. - Cost of security identification system is amortized over a period of five years. - Cost of permanent membership of the GSM MoU Association are amortized over the remaining period of the concession agreement for the operations of mobile phone network. - Cost of long-term computer services is amortized over the period of agreement of ten years. 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