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to show the true position. Appreciation or depreciation would in future be added to or deducted from the general revenue balance in the new form set out in paragraph 13 of the circular despatch. The Colony at present holds no investments on general account, so that the change is of no immediate significance.

2. A number of changes are also involved in the statement of assets and liabili- ties. These are :—

(1) There will be substituted for the surplus of assets over liabilities a general revenue balance, see the form of statement in paragraph 13 of the circular despatch which is intended to show the true available surplus of the Colony. (2) There will be appended to the statement of assets and liabilities a tabulated statement of special funds included in it. These will include in the case of Hong Kong the special security funds held against the one dollar note issue and the nickel subsidiary coin, which it is clearly desirable should not be confused with the general balance of the Colony.

(3) There will also be appended a statement of balances including special funds

with the object of showing the actual cash balances available.

(4) A further statement of loans and advances made out of revenue will be appended showing how these have varied during the year; as already explain- ed only building loans are affected in Hong Kong.

(5) Finally a tabular summary of unallocated stores accounts will be added to

show the changes in these accounts during the year.

3. Under the present system of assessing Military Contribution an artificial in- crease in the Contribution payable by the Colony would result from the inclusion of various additional receipts as revenue in consequence of the changes envisaged by the new accounting system. Draft legislation to obviate this result is under considera tion.

S. CAINE, Financial Secretary.