CMB_1998 — Page 26

Notes on The Accounts

(Expressed in Hong Kong dollars)

1.

SIGNIFICANT ACCOUNTING POLICIES

These accounts have been prepared in accordance with Hong Kong Statements of Standard Accounting Practice, accounting principles generally accepted in Hong Kong and the disclosure requirements of the Hong Kong Companies Ordinance. A summary of the significant accounting policies is set out below.

(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.

Investments in subsidiaries in the company's balance sheet are stated at cost less any provisions for permanent diminution in value as determined by the directors.

(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.

Investments in associated companies are stated at cost less any provisions for permanent diminution in value as determined by the directors.

(c) Listed investments

Listed investments are held for long term purposes and are stated at cost less provision where the directors consider there has been a permanent diminution in the underlying value of the investments.

(d) 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, 1998 is stated at cost except for one piece of land owned by the which is stated at valuation at 30th June, 1962.

company

Investment properties with an unexpired lease term of more than 20 years are stated in the balance sheet at their open market value assessed annually by persons holding recognised professional qualification and every three years by qualified external valuers. Surpluses arising on revaluations on a portfolio basis are credited to the profit and loss account to the extent of any deficits arising on revaluations previously charged to the profit and loss account and are thereafter taken to the investment property revaluation reserve; deficits arising on revaluations are firstly set off against any previous revaluation surpluses and thereafter taken to the profit and loss account.

On disposal of the investment properties, the related portion of surpluses or deficits previously taken to the investment properties revaluation reserve are transferred to the profit and loss account.

(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

for new years

on a straight line basis, over 12

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. No depreciation is provided in respect of investment properties with an unexpired lease term of over 20 years since the valuation takes into account the state of each property at the date of valuation.

(e) 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.

(f) Employees' retirement schemes

The franchise requires the employees' retirement schemes of the company to be separately held by trustees. The company is transferring 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.

(g) Stores and spare parts

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

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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 retains as a provision an amount to meet future losses which may arise as a result of fire damage to the fleet.

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