1999 — Page 58

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Kong Ferry (Holdings) Co. Ltd.

Notes on the Accounts

26. CHANGE IN ACCOUNTING POLICY

In prior years, long term investments (reclassified as non-trading securities in 1999) were stated at cost less provision for permanent diminution in value estimated by the directors. With effect from 1 January 1999, the Group adopted an accounting policy for stating non-trading securities at fair value as set out in note 1 (1) in order to comply with Statement of Standard Accounting Practice ("SSAP") 24 issued by the Hong Kong Society of Accountants. No prior period adjustment has been made as the effect of this change in policy on the Group's profit and net assets is immaterial.

27. MATERIAL RELATED PARTY AND CONNECTED TRANSACTIONS

During the year, the Group entered into a Development Agreement ("the Agreement") with Henderson Land Development Company Limited ("HL") and two wholly-owned subsidiaries of HL ("HL Sub"), whereby HL Sub acquired 50% of the sales proceeds that may be derived from such part of the redevelopment intended for domestic use in respect of Kowloon Inland Lot No. 11127 ("the Property") to which the Group is entitled.

The total consideration amounting to HK$1,500 million was based on a professional valuation performed by an independent valuer on 12 November 1999. At 31 December 1999, the Group had received HK$202.5 million. The remaining balance of HK$1,297.5 million will be received upon the fulfilment by the Group of conditions as set out in the Agreement.

As part of the Agreement, HL Sub agreed to reimburse the Group 50% of its development expenditures relating to the domestic portion of the Property including those incurred prior to the Agreement. HL Sub's share thereof amounting to HK$18,450,000 which remained unpaid at 31 December 1999 has been included in debtors and prepayments.

In connection with the redevelopment of the Property, the Group has engaged a wholly-owned subsidiary of HL as the main contractor for a fee of 5% on all works relating to the redevelopment. As at 31 December 1999, no fee had been charged to the Group.

The Agreement also provided that, if requested by the Group, HL shall advance or procure one or more of its subsidiaries to advance to the Group an amount of not exceeding HK$1,100 million in total, to enable the Group to discharge its obligations to pay 50% of the development expenditures in respect of the redevelopment of the domestic portion of the Property.

HL through its subsidiaries beneficially owns approximately 64.28% of the entire issued share capital of Henderson Investment Limited, a substantial shareholder (as defined in the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited) of the Company.