CMB_1997_Copy2 — Page 24

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 consolidated profit and loss account includes the group's share of the results of its associated companies for the year. In the consolidated balance sheet, investments in associated companies are stated at the group's share of the net assets of the associated companies.

(c) Fixed assets and depreciation

(i) Fixed assets

Fixed assets, excluding leasehold land, are stated in the balance sheet at cost less accumulated depreciation.

All leasehold land held by the company at 30th June, 1997 is stated at cost except for land owned by the company as at 30th June, 1962 which is stated at the greater of cost and valuation at 30th June, 1962.

(ii) Depreciation

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

Buildings

Motor buses

Plant, fixtures and equipment

Computers

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

Leasehold land is depreciated over its estimated useful life to the extent that the charge would be material.

(d) Translation of foreign currencies

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.

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