UDITED YEAR ENDED F/S AND CONSOLIDATED F/S

Siam Makro Public Company Limited Page 7 Notes to the financial statements and consolidated financial statements - December 31, 1997 Basis for consolidation 1. The consolidated financial statements include the financial statements of Siam Makro Public Company Limited and its subsidiaries as follows : % of interest Makro Properties Limited 99.99 Makro Auto Care Company Limited 99.99 Makro Office Centre Company Limited 99.99 Significant intercompany transactions have been eliminated in the consolidated financial statements. The minority interest is immaterial and not, therefore, shown separately in the consolidated financial statements. Principal accounting policies 2. A summary of the significant accounting policies of the company, which have been applied consistently, is set out below. (a) Depreciation and amortisation Depreciation is calculated so as to write off the cost of the assets on a straight-line basis over the expected useful economic lives of the assets which range from 5 - 20 years. Leasehold rights are deferred and amortised by the straight-line method over the period of agreement which range from 6 - 20 years. Pre-opening and start-up expenses are deferred and amortised by the straight-line method over a period of 5 years. Siam Makro Public Company Limited Page 8 Notes to the financial statements and consolidated financial statements - December 31, 1997 continued (b) Inventories Inventories are stated at the lower of cost or market. Cost is determined on the latest purchase price which is approximate to cost determined on a first-in first-out basis. (c) Foreign currencies Trading transactions denominated in foreign currencies are translated into Thai Baht at the exchange rates ruling when the transactions are entered into. Monetary assets and liabilities denominated in foreign currencies are translated into Thai Baht at the exchange rates ruling at the balance sheet date and the forward contracted rate. Exchange gains or losses arising from the application of forward contracted rate are deferred and amortised by the straight-line method over the period of forward contracted rate agreements. Exchange gains or losses arising from the application of exchange rates at the balance sheet date are included in the statement of income. (d) Investment Investment in companies in which Siam Makro Public Company Limited holds more than 20% of the share capital and over which the company exercises significant influence, are accounted for under the equity method. The investment is initially recorded at cost. The carrying amount of the investment is increased or decreased to recognise the company's share of the profits or losses of the investee after the date of acquisition and to take account of any dividends received. (e) Deferred development rights Deferred development rights represent certain costs of development that the subsidiary companies acquired from Siam Makro Public Company Limited. These costs are capitalised and are being amortised over 5 years from the date of acquisition by the subsidiary companies. Siam Makro Public Company Limited Page 9 Notes to the financial statements and consolidated financial statements - December 31, 1997 continued (f) Provision for retirement benefits Provision for retirement benefits is made for employees whose length of service exceeds 3 years and is normally payable on termination of service. The calculation is based on the latest basic salary multiplied by the years of each employee's service, as set out in the company's retirement benefits plan. Cash in hand and at banks 3. Cash in hand and at banks include deposit amounting to Baht 1,778 million in respect of which the company has agreed to maintain a minimum balance of Baht 65 million in order to earn favorable interest rate. However, there are no restrictions on the company withdrawing from this fund should the special rate be lower than the interest rates offered by other banks. Short-term investments 4. Short-term investments comprise fixed deposits bearing interest at rates between 12.75% - 13.50% per annum. Siam Makro Public Company Limited Page 10 Notes to the financial statements and consolidated financial statements - December 31, 1997 continued Related company transactions 5. A portion of the company's transactions have been made with subsidiary, associated and affiliated companies. A summary of significant transactions is set out below : The company only 1997 1996 (Million Baht) (Million Baht) Transactions during the year : With subsidiary companies Revenues : - Sales of inventory 228.9 - - Disposal of fixed assets 294.8 - - Disposal of deferred development rights 55.8 - - Interest income 99.2 72.7 - Rental income 61.5 - - Management fee 1.8 1.8 Expenses : - Land rental 242.1 219.6 - Royalty and service fee 11.9 12.5 With an associated company Interest income 3.1 - With an affiliated company Royalty fee 127.0 136.6 The transactions in respect of sales of inventory, disposal of fixed assets and deferred development rights to subsidiary companies, Makro Auto Care Company Limited and Makro Office Centre Company Limited, resulted from a business reorganisation in the first quarter of this year. The selling prices of the above transactions represent net book value, as specified in the agreements between the company and the subsidiary companies. Siam Makro Public Company Limited Page 11 Notes to the financial statements and consolidated financial statements - December 31, 1997 continued The consolidation 1997 1996 (Million Baht) (Million Baht) Transaction during the year : With an affiliated company Royalty fee 133.1 136.6 The company only The consolidation Notes 1997 1996 1997 1996 (Million Baht) (Million Baht) (Million Baht) (Million Baht) Balance as at December 31, 1997 and 1996 Amount due from subsidiary companies 515.8 23.0 - - Amount due from an associated company 5.1 1.6 5.1 1.6 Amount due from affiliated companies 5.9 6.4 5.9 6.4 526.8 31.0 11.0 8.0 Short-term loans to subsidiary companies (interest at 9% per annum) 5.1 464.8 - - - Short-term loan to an associatedcompany (interest at Minimum OverdraftRate) 22.5 22.5 22.5 22.5 1,014.1 53.5 33.5 30.5 Less: Allowance for doubtful account 5.2 (28.0) - (28.0) - 986.1 53.5 5.5 30.5 Amount due to a subsidiary company 8.6 - - - Amount due to affiliated companies 63.4 73.6 67.1 73.6 72.0 73.6 67.1 73.6 Long-term loans to a subsidiary company (interest at 6% per annum) 5.3 1,178.4 1,178.4 - - Deposits for landlease paid to a subsidiary company 261.6 219.6 - - Siam Makro Public Company Limited Page 12 Notes to the financial statements and consolidated financial statements - December 31, 1997 continued 5.1 Short-term loans to subsidiary companies, being in the form of promissory notes, are due at call. 5.2 Allowance for doubtful account is reserved for amount due from and loan to an associated company amounting to Baht 28 million which is charged to the statement of income. At the board of directors' meeting dated November 26, 1997, it was unanimously resolved that the company should disinvest in this associated company due to its financial losses. The company is currently in the process of negotiating this disposal. 5.3 Long-term loans to a subsidiary company are due for repayment within 10 years commencing from January 1, 1993. Inventories 6. Inventories are made up as follows: 1997 1996 (Baht) (Baht) Finished goods 2,491,833,670 2,997,502,894 Goods in transit 10,353,773 - 2,502,187,443 2,997,502,894 Less: Provision for obsolete and shrinkage inventories (103,257,144) (123,708,750) Inventories, net 2,398,930,299 2,873,794,144 Siam Makro Public Company Limited Page 13 Notes to the financial statements and consolidated financial statements - December 31, 1997 continued Investments 7. Investments in subsidiary and associated companies are accounted for under the equity method. Investments comprise : % 1997 1996 Holding (Baht) (Baht) Sunsidiary companies : Makro Properties Limited 99.99 1,086,866,650 974,773,742 Makro Auto Care Company Limited 99.99 (4,794,104) 2,500,000 Makro Office Centre Company Limited 99.99 (20,368,040) 2,500,000 1,061,704,506 979,773,742 Associated company : Peoples Health Care Company Limited 45.00 - 17,867,000 1,061,704,506 997,640,742 Property, plant and equipment, net 8. The company only 1997 1996 (Baht) (Baht) Property, plant and equipment, at cost Land 784,892,052 784,892,052 Buildings 3,097,762,822 2,702,251,168 Leasehold rights and leasehold improvement 182,893,814 182,610,408 Store equipment 2,138,144,512 2,174,365,534 Office equipment and furniture and fixtures 496,652,606 534,650,054 Motor vehicles 55,491,177 33,609,893 Construction in progress 259,644,572 104,842,197 7,015,481,555 6,517,221,306 Less: Accumulated depreciation (1,700,910,332) (1,380,781,724) Property, plant and equipment, net 5,314,571,223 5,136,439,582 Depreciation for the year amounting to Baht 512,453,082 is charged to statement of income (1996 : Baht 443,994,179). (more)