CMB_2001 — Page 23

Notes on The Accounts (Continued)

1.

SIGNIFICANT ACCOUNTING POLICIES (Continued)

(h) Depreciation

Depreciation is calculated to write off the cost or valuation of the company's and the group's fixed assets over their estimated useful lives as follows:-

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 and $7,000 respectively on a straight line basis to write off the assets over 10 or 5 years

No depreciation is provided on property held for redevelopment. 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 freehold investment properties or those 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.

(i) Assets held for use in operating leases

Where the group leases out assets under operating leases, the assets are included in the balance sheet according to their nature. Lease rental receivable arising from operating leases is recognised in accordance with the group's income recognition policies, as set out in note 1(o)(i) below.

(i) 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 denominated in foreign currencies are translated into Hong Kong dollars at the exchange rates ruling at the balance sheet date. Exchange gains and losses on foreign currency translation are dealt with in the profit and loss account. Investment properties denominated in a foreign currency are translated into Hong Kong dollars at the exchange rates ruling at the valuation date. Exchange gains and losses are taken directly to investment properties revaluation reserves.

(k) Employees' retirement schemes

Regular contributions to the schemes are made by the company with reference to the rates of contribution calculated by the actuary.

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(1) Contingency reserves insurance

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

(m) 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.

Future deferred tax benefits are not recognised unless their realisation is assured beyond reasonable doubt.

(n) Deferred profits

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

(o) Income recognition

(i) Rental income receivable under operating leases is recognised on a straight line basis over the term of the lease. (ii) Interest income from bank deposits is accrued on a time apportioned basis on the principal outstanding and at the rate

applicable.

(iii) Dividend income from listed investments is recognised at the time when the right to receive payment is established.

(p) Related parties

For the purposes of these accounts, parties are considered to be related to the group if the group has the ability, directly or indirectly, to control the party or exercise significant influence over the party in making financial and operating decisions, or vice versa, or where the group and the party are subject to common control or common significant influence. Related parties may be individuals or entities.

(q) Cash equivalents

Cash equivalents are short-term, highly liquid investments which are readily convertible into known amounts of cash without notice and which were within three months of maturity when acquired. For the purposes of the cash flow statement, cash equivalents would also include advances from banks repayable within three months from the date of the advance.

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