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Hong Kong Ferry (Holdings) Co. Ltd.

Notes on the Accounts

1. PRINCIPAL ACCOUNTING POLICIES

(a) Statement of compliance

These accounts have been prepared in accordance with all applicable Statements of Standard Accounting Practice and Interpretations issued by the Hong Kong Society of Accountants, accounting principles generally accepted in Hong Kong and the requirements

of the Hong Kong Companies Ordinance. A summary of the significant accounting policies

adopted by the Group is set out below.

(b) Basis of preparation of the accounts

The measurement basis used in the preparation of the accounts is historical cost modified by

the revaluation of certain properties and the marking to market of investments in non-trading

securities as explained in the accounting policies set out below.

(c) Basis of consolidation

The consolidated accounts include the accounts of the Company and all its subsidiaries

made up to 31 December each year. All material inter-company transactions and balances

are eliminated on consolidation.

Goodwill arising on consolidation, representing the excess of the cost of investments in

subsidiaries over the Group's share of the fair value of the separable net assets of the subsidiaries

at the respective acquisition dates, is written off directly to capital reserves in the year in

which it arises. The excess of the Group's share of the fair value of the separable net assets of

subsidiaries acquired over the cost of investments in subsidiaries is credited to capital reserves.

(d) Investments in subsidiaries

A subsidiary is a company in which the group, directly or indirectly, holds more than half of

the issued share capital, or controls more than half of the voting power, or controls the

composition of the board of directors.

Investments in subsidiaries in the company's balance sheet are stated at cost less any provisions

for diminution in value which is other than temporary as determined by the directors for each

subsidiary individually. Any such provisions are recognised as an expense in the profit and loss

account.

(e) Revenue recognition

(i) Ferry operations and related services

Revenue relating to the ferry operations is recognised when the relevant ferry services are

provided.