1984 — 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 1984 together with the Group's share of the results for the year and post acquisition retained profits or losses of its associates.

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. Interests in the associated companies are stated at cost, less provision where appropriate. In 1983, the profits of the associated companies were included in the profit and loss account to the extent of dividends received or receivable at the balance sheet date. As from 1984, results of associated companies are incorporated in the accounts to the extent of the Group's share of the post acquisition profits less losses calculated from the audited accounts made up to 31st December 1984 in accordance with an accounting standard (SSAP 10) on associated companies issued by the Hong Kong Society of Accountants. The overall effect of the change has been to decrease the current year's profits by $1,584,000. The effect on the Group's prior years' profits is shown in note 7.

(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

Land held on medium term leases

Buildings

Vessels - steel hull

fibreglass hull

Reconditioned vessels

Motor vehicles

Machinery, furniture and other fixed assets

Nil

Over the unexpired terms of the leases (1983 Nil)

2.5%

3.33%

5%

5% - 12.5%

25%

10%

(ii) Following the signing on 19th December 1984 of the Sino-British Agreement, which provides that the lessees holding land leases in the New Territories shall be granted the right to extend the leases to 30th June 2047, which right is subject to the ratification of the Agreement, the directors consider it appropriate to classify such leasehold land held by the Company as being on long term lease. Accordingly, no amortisation is provided on land leases in the New Territories.

(iii) No amortisation was provided in 1983 on land held on medium term lease. With effect from 1st January 1984, this policy has been changed and the additional amortisation charge arising from this change is insignificant.

(d) 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.

(e) Assets under construction

(i)

Vessels

Construction cost is transferred to fixed assets on granting of the marine licence.