CMB_1986 — Page 17

Notes on The Accounts

(Expressed in Hong Kong dollars)

1.

Accounting Policies

(a) Basis of consolidation

The consolidated accounts include the accounts of China Motor Bus Company, Limited and its subsidiary company made up to 30th June each year.

(b) Depreciation

Depreciation of the company's fixed assets is calculated in accordance with the company's franchise, as follows:-

Leasehold land

no depreciation

Buildings

Motor buses

Plant, fixtures and equipment

―

over the period of the lease plus any renewal period

on a straight line basis, over 12 years for new buses and 7 years for converted or second hand buses, to a residual value of $10,000 for each double deck and $7,000 for each single deck bus

on a straight line basis to write off the assets over 10 years.

Buildings held by the subsidiary company are depreciated at the rate of 25% in the year of purchase and thereafter at 4% per annum, based on the original cost to the subsidiary company. No depreciation is provided on leasehold land held by the subsidiary company.

(c) Translation of foreign currencies

Foreign currency balances at the year end are translated into Hong Kong dollars at the rates of exchange approximating to the market rates ruling at the balance sheet date. Foreign currency transactions during the year are translated into Hong Kong dollars at the rates of exchange ruling at the transaction dates. Exchange differences arising on the translation of foreign currencies are dealt with in the profit and loss account.

In previous years, unrealised differences arising on the translation of foreign currencies were transferred to exchange fluctuation reserve; realised differences and any deficit on the exchange fluctuation reserve were dealt with in the profit and loss account. As permitted under the transitional arrangements of SSAP11 'Foreign Currency Translation' issued by the Hong Kong Society of Accountants, the credit balance on exchange fluctuation reserve at 30th June, 1985 of $2,649,676 has been included in the current year's profit and loss account.

(d) Employees' retirement gratuities

Provision is made annually by the company to provide for the contingent liability in respect of the employees' retirement benefits payable to employees of the company.

(e) Stores and spare parts

Stores and spare parts are valued at cost less provision. Cost is computed on a weighted average basis.

(f) Contingency reserves

insurance

The company sets aside annually an amount to meet possible liabilities arising from third party claims in connection with the operation of franchised motor buses.

The company also sets aside an amount to meet potential future losses which may arise as a result of fire damage to the fleet.

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REFERENCE

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