The principal accounting policies which have been adopted in preparing these financial statements and which conform with accounting principles generally accepted in Hong Kong are as follows:

Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Company and its subsidiaries made up to 31st March each year.

Goodwill or capital reserve represents, respectively, the excess or shortfall of the purchase consideration over the fair value of the Group's share of the separable net assets of subsidiaries or associated companies acquired. Goodwill or capital reserve is written off or credited directly to reserves, respectively, in the year of acquisition.

On disposal of a subsidiary or associated company, the attributable amount of goodwill or capital reserve previously eliminated against or credited to reserves is included in the determination of the profit and loss on disposal.

All significant intercompany transactions and balances within the Group have been eliminated on consolidation.

Investment in subsidiaries

A subsidiary is a company in which the Company holds more than half of the issued share capital, or controls more than half of the voting power, or where the Company controls the corporation of its board of directors.

Investment in subsidiaries is stated at cost less provision for permanent diminution in value, if any.

Income from subsidiaries is accounted for by the Company on the basis of dividends received and receivable during the year.

Associated companies

An associated company is a company, other than a subsidiary, in which the Group has a long-term equity interest and over which the Group is in a position to exercise significant influence in management, including participation in commercial and financial policy decisions.

The consolidated profit and loss account includes the Group's share of results of its associated companies for the year and the consolidated balance sheet includes the Group's share of the net assets of its associated companies.

Turnover

Turnover represents the amounts received and receivable for goods sold, less returns, to outside customers during the year.

Recognition of income

Sales of goods are recognised when goods are delivered and title has passed.

Dividend income from investments is recognised when the shareholders' rights to receive payment have been established.

Interest income from bank deposits is accrued on a time basis by reference to the principal outstanding and at the interest rate applicable.

Fixed assets and depreciation and amortisation

Fixed assets other than properties under construction are stated at cost less depreciation and amortisation. The cost of an asset comprises its purchase price and any directly attributable costs of bringing the asset to its working condition and location for its intended use. Expenditure incurred after the fixed assets have been put into operation, such as repairs and maintenance and overhaul costs, is normally charged to the profit and loss account in the period in which it is incurred. In situations where it can be clearly demonstrated that the expenditure has resulted in an increase in the future economic benefits expected to be obtained from the use of the fixed assets, the expenditure is capitalised as an additional cost of the fixed asset. The gain or loss arising from disposal or retirement of an asset is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognised in the profit and loss account.

Depreciation and amortisation are provided to write off the depreciable amount of fixed assets, other than properties under construction, over their estimated useful lives, using the straight line method, at the following rates per annum:

Freehold property	2%
Leasehold land	Over the term of the leases
Buildings	2%
Furniture, fixtures and fittings	15%
Plant and machinery	20%
Motor vehicles	30%

Properties under construction are stated at cost which includes all development expenditure and other direct costs attributable to such projects. Properties under construction are not depreciated until completion of construction when the properties are ready for their intended use. Costs on completed construction work are transferred to the appropriate category of fixed assets.

Assets held under finance leases are depreciated over their estimated useful lives on the same basis as owned assets or, where shorter, the term of the leases.

Assets held under finance leases

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the Group. Assets held under finance leases are capitalised at their fair value at the date of acquisition. The corresponding principal portion of the leasing commitments are shown as an obligation of the Group. The finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to the profit and loss account on the actuarial basis over the term of the relevant leases.

Long-term investments

Investments held for long-term investment purposes is stated at cost less provision, if necessary, for permanent diminution in value.

Stocks and work in progress

Stocks and work in progress are stated at the lower of cost and net realisable value. Cost, which comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the stocks and work in progress to their present location and condition, is calculated using the weighted average method. Net realisable value represents the expected selling price less all costs to completion and costs to be incurred in selling and distribution.

Foreign currencies

Transactions in foreign currencies are translated at the rates ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are re-translated at the rates ruling on the balance sheet date. Gains and losses arising on exchange are dealt with in the profit and loss account.

On consolidation, the assets and liabilities of entities outside Hong Kong are translated at the rates ruling on the balance sheet date and the income and expense items are at average rate for the financial period. All exchange differences arising on consolidation are dealt with in reserves.

Taxation

The charge for taxation is based on the results for the year as adjusted for items which are non-assessable or disallowed. Timing differences arise from the recognition for tax purposes of certain items of income and expense in a different accounting period from that in which they are recognised in the financial statements. The tax effect of timing differences, computed under the liability method, is recognised as deferred taxation in the financial statements to the extent that it is probable that a liability or asset will crystallise in the foreseeable future.

Operating leases

Rentals payable under operating leases are charged to the profit and loss account on a straight line basis over the term of the relevant lease.

Retirement benefit scheme contributions

The retirement benefit scheme contributions charged in the profit and loss account represent the amount of contributions payable to the Group's defined contribution scheme.

Cash equivalents

Cash equivalents represent short-term, highly liquid investments which are readily convertible into known amounts of cash and which were within three months of maturity when acquired, less advances from banks repayable within three months from the date of the advance.

The five (1997: four) individuals with the highest emoluments in the Group were directors of the Company, whose emoluments are included in the disclosures in note 4 above. The salaries and other benefits of the remaining individual in 1997 amounted to HK$741,172.

Certain income of the Group is not subject to taxation in the jurisdictions in which the Group operates.

Pursuant to the relevant laws and regulations in the People's Republic of China (the "PRC"), the Group's PRC subsidiaries are entitled to an exemption from PRC income tax for two years starting from their first profit-making year, followed by a 50% reduction for the next three years. No provision for PRC income tax has been made in the financial statements as all of the PRC subsidiaries were exempted from PRC income tax during the year.

Details of deferred taxation are set out in note 19.

Of the Group's profit attributable to shareholders, a loss of HK$1,630,613 (1997: profit of HK$124,243,550) has been dealt with in the financial statements of the Company and a loss of HK$3,267,071 (1997: HK$2,066,927), after take into account of HK$1,089,024 (1997: HK$58,368) shared by minority shareholders of a subsidiary, is attributable to the associated companies.

The amounts of the proposed final dividends for the year ended 31st March, 1998 have been calculated with reference to the 379,559,375 shares in issue as at 26th June, 1998.

* Details of the Bonus Share Issue are set out in note 16.

The calculation of basic earnings per share is based on the profit attributable to shareholders of HK$103,478,810 (1997: HK$210,621,190) and on the weighted average of 377,523,185 shares (1997: 369,849,871 shares after adjusting for the Bonus Share Issue) in issue during the year.

The calculation of the adjusted earnings per share is based on the profit attributable to shareholders (excluding the effect of the exceptional item) of HK$103,478,810 (1997: HK$111,014,870) and on the weighted average of 377,523,185 shares (1997: 369,849,871 shares after adjusting for the Bonus Share Issue) in issue during the year.

The effect of the adjustment is as follows:

In the opinion of the directors, the adjusted earnings per share is disclosed to give a clearer indication of the maintainable earnings of the Group.

Fully diluted earnings per share are not presented as the exercise of the Company's outstanding share options would not have a material diluting effect on the basic or adjusted earnings per share.

The net book value of land and buildings shown above comprises:

The properties under construction are situated outside Hong Kong and are held under medium-term leases of less than fifty years.

The net book value of fixed assets included an amount of HK$4,897,844 (1997: HK$3,606,328) in respect of assets held under finance leases.

At 31st March, 1998, land and buildings with a net book value of HK$1,726,516 (1997: HK$40,571,837) have been pledged to banks to secure general banking facilities granted to the Group.

The carrying value of the unlisted investments is based on the book values of the underlying net assets of the subsidiaries attributable to the Group as at the date on which the Company became the ultimate holding company of the Group under the group reorganisation in 1993.

Details of the Company's subsidiaries at 31st March, 1998 are set out in note 28.

None of the subsidiaries had any loan capital outstanding at the end of the year or at any time during the year.

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