CMB_1995 — Page 23

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 subsidiaries made up to 30th June each year.

(b) Associated companies

The policy followed in accounting for the investment in associated companies, which in prior years were stated at cost less provision where the directors considered there has been a permanent diminution in their underlying value, was changed during the year ended 30th June, 1995 and such investment is now stated at the group's share of the net assets of the associate companies. The consolidated profit and loss account includes the group's share of the results of its associated companies for the year. It is considered that the new policy will give a better presentation of the consolidated results and financial position of the company as the results of the associated companies will become material to the accounts in the coming years.

No prior year balances have been restated as the effect of the change in accounting policy is not material to the results for the prior year or the state of affairs of the group as at 30th June, 1994.

(c) Depreciation

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

Leasehold land

Buildings

Motor buses

Plant, fixtures and equipment Computers

(d) Translation of foreign currencies

no depreciation

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 and $7,000 respectively on a straight line basis to write off the assets over 10 years

on a straight line basis to write off the assets over 5 years

Foreign currency transactions during the year are translated into Hong Kong dollars at the exchange rates ruling at the transaction dates. Monetary assets and liabilities in foreign currencies are translated into Hong Kong dollars at the market rates of exchange ruling at the balance sheet date. Exchange gains and losses on foreign currency translation are dealt with in the profit and loss

account.

(e) Employees' retirement schemes

The franchise requires the employees' retirement schemes of the company to be separately held by trustees. The company is to transfer the funds to the schemes in five equal annual instalments, the amount of which was determined with reference to an actuarial valuation of the company's liabilities as at 31st March, 1994, to liquidate the balance of deferred liabilities of the company. Thereafter, regular contributions to the schemes are to be made by the company with reference to the rates of contribution calculated by the actuary.

(f) Stores and spare parts

Stores and spare parts are stated at cost less provision where appropriate. Cost is determined on a weighted average basis.

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(g) 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.

(h) 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.

(i) Deferred taxation

Deferred taxation is calculated under the liability method in respect of the taxation effect arising from all timing differences which are expected with reasonable probability to crystallise in the foreseeable future.

(i) Deferred profits

Profits from the sale of land and buildings to associated companies for development for resale and investment are deferred to the extent of the group's attributable interest in the associated companies. The deferred profits will be recognised and taken to profit and loss account as and when the properties are sold by the associated companies to third parties.

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