CMB_1989_Copy2 — Page 18

Notes on The Accounts

(Expressed in Hong Kong dollars)

1.

Significant accounting policies

(a) Basis of consolidation

The consolidated accounts include the accounts of China Motor Bus Company, Limited and its subsidiary 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 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. No depreciation is provided on leasehold land held by the subsidiary.

(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 gains and losses on foreign currency translation are dealt with in the 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.

(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.

(g) Operating leases

Payments under operating leases are charged to the profit and loss account on a straight line basis over the periods of the respective leases.

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