2013 — Page 59

Hong Kong Ferry (Holdings) Company Limited Annual Report 2013

Notes to the Accounts (Continued)

1 SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d)

Subsidiaries

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed, or has rights,

to variable returns from its involvement with the entity and has the ability to affect those returns through its

power over the entity. When assessing whether the Group has power, only substantive rights (held by the Group

and other parties) are considered.

An investment in a subsidiary is consolidated into the consolidated accounts from the date that control

commences until the date that control ceases. Intra-group balances, transactions and cash flows and any

unrealised profits arising from intra-group transactions are eliminated in full in preparing the consolidated

accounts. Unrealised losses resulting from intra-group transactions are eliminated in the same way as unrealised

gains but only to the extent that there is no evidence of impairment.

In the Company's balance sheet, an investment in a subsidiary is stated at cost less impairment losses (see note 1(j)), unless the investment is classified as held for sale (or included in a disposal group that is classified as held

for sale).

(e)

Associates

An associate is an entity in which the Group or Company has significant influence, but not control or joint control, over its management, including participation in the financial and operating policy decisions.

An investment in an associate is accounted for in the consolidated accounts under the equity method, unless it is classified as held for sale (or included in a disposal group that is classified as held for sale). Under the equity method, the investment is initially recorded at cost, adjusted for any excess of the Group's share of the acquisition-date fair values of the associate's identifiable net assets over the cost of the investment (if any). Thereafter, the investment is adjusted for the post acquisition change in the Group's share of the associate's net assets and any impairment loss relating to the investment (see note 1(j)). Any acquisition-date excess over cost, the Group's share of the post-acquisition, post-tax results of the associates and any impairment losses for the year are recognised in the consolidated profit and loss account, whereas the Group's share of the post- acquisition post-tax items of the associates' other comprehensive income is recognised in the consolidated

statement of comprehensive income.

When the Group's share of losses exceeds its interest in the associate, the Group's interest is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. For this purpose, the Group's interest is the carrying amount of the investment under the equity method together with the Group's long-term interests that in substance form part of the Group's net investment in the associate.

Unrealised profits and losses resulting from transactions between the Group and its associates are eliminated to the extent of the Group's interest in the investee, except where unrealised losses provide evidence of an impairment of the asset transferred, in which case they are recognised immediately in profit or loss.

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