1983 — Page 12

Notes on the Accounts

(Expressed in HK$'000)

1.

Accounting Policies

(a) Basis of consolidation

The consolidated accounts include the accounts of the Company and all its subsidiaries made up to 31st December 1983.

Capital reserve arising on consolidation represents the excess of net tangible assets of the companies acquired as at the date of acquisition over the value of the consideration paid. Unrealised inter-company profits arising on sale of fixed assets, constructed by a subsidiary company, to the Group are credited to capital reserve.

(b) Associated companies

An associated company is defined as an investment where the Group holds for long term purposes between 20% and 50% of the issued share capital and exercises significant influence over that company's management. The investments in the associated companies are stated at cost. The profits of the associated companies are included in the profit and loss account to the extent of dividends received or receivable at the balance.sheet date.

(c) Depreciation

(i)

Depreciation is provided at rates calculated to write off the cost of fixed assets over their estimated useful lives on a straight line basis per annum as follows:-

Land held on long leases

(with an unexpired term in excess of 50 years) Land held on medium term leases

Buildings

Vessels steel hull

Reconditioned vessels

fibreglass hull

Motor vehicles

Nil

Nil (1982 - Over the unexpired terms of the leases)

22% (1982-4% or over the

unexpired terms of the leases, if less than 25 years)

3.33%

5% (1982-6.67%)

5%- 12.5% (1982-6.67% -

12.5%)

11

Machinery, furniture and other fixed assets

25%

10%

(ii) Land and buildings are amortised and depreciated on the basis as stated above which

is not in accordance with the requirements of the Statement of Standard Accounting Practice 123 issued by the Hong Kong Society of Accountants. Had amortisation been provided on medium term leasehold land and buildings been depreciated over the lease periods in accordance with this requirement, an additional depreciation charge of $945,000 would have arisen for the year ended 31st December 1983. (iii) From 1983, the principal rate of depreciation applied to the cost value of fibreglass

hull vessel is 5% (1982-6.67%). The effect of this change has resulted in a reduction of the current year's charge by $3,333,000.

(d) Change of accounting policy

In prior years, certain buildings are depreciated on a straight line basis over an estimated useful life of 25 years. As a result of the adoption of the new accounting policy relating to the depreciation of buildings as stated above, the Group's profit has been increased by $1,072,000 for the year ended 31st December 1983. The effect on the Group's prior years' profits is insignificant.

(e) Stocks and work in progress

Stocks and work in progress are valued at the lower of cost and net realisable value. In respect of work in progress, cost includes cost of purchase of materials, direct labour and expenses and an appropriate proportion of production overheads, less any foreseeable losses and progress payments receivable to date. No profit is taken until the work is fully completed.