1999 — Page 36

Hong Kong Ferry (Holdings) Co. Ltd.

Notes on the Accounts

1. PRINCIPAL ACCOUNTING POLICIES

(g) Properties held for development

Properties held for development are carried at professional valuation. Surpluses arising on

revaluation are credited to "other property revaluation reserve"; deficits arising on revaluation

are firstly set off against any previous revaluation surpluses and thereafter taken to the profit

and loss account. These properties are reclassified as properties under development when

they are substantially ready for development.

(h) Hotel properties

In accordance with normal practice in the hotel industry, no depreciation is provided on

hotel properties held on leases with more than 20 years to run at the balance sheet date. It is

the Group's policy to maintain the hotel properties in such condition that their value is not

diminished by the passage of time so that any element of depreciation would be immaterial.

Routine maintenance expenditure is charged to the profit and loss account in the year in

which it is incurred. In addition, an annual provision based on the projected maintenance

cost for the next five years under the planned maintenance scheme is charged to the profit

and loss account.

(i) Properties under development

Properties under development for investment purposes are stated at carrying value less

provision for diminution in value. Properties under development for sale are stated at the

lower of carrying value and net realisable value. Carrying value includes amounts transferred

from properties held for development and investment properties, premium paid for land and

other development costs, including any related borrowing costs.

When properties under development for investment purposes are completed, they will be

transferred to investment properties and the revaluation surplus relating thereto will be

transferred to the investment property revaluation reserve.

When properties under development for sale are completed, they will be transferred to

completed properties for sale; the revaluation surplus relating thereto will be credited to the

profit and loss account upon sale of the properties.

When properties under development for sale are sold, revenue and the related costs are

recognised after taking into account the outstanding risks and obligations of the Group under the relevant sales agreement.