SAPPI LTD (SAP) 6-K

Goodwill that arose prior to 1 January 2004, has been recognised as an intangible asset and amortised in line with Finnish GAAP over 20 years until 31
December 2003. Effective with the transition to IFRS, goodwill is considered to have an indefinite useful life and is not subject to amortisation. Goodwill is
carried at cost less impairment losses and is tested for impairment at least annually and whenever events or changes in circumstances indicate that the carrying
amount may not be recoverable. Any impairment loss is recorded as an expense in the income statement in the reporting period during which the impairment
has been determined. For impairment testing, goodwill is tested at the Company level as management determined that the Company represents the lowest
level cash generating unit where assets generate cash inflows that are largely independent of the cash inflows from other assets or group of assets. An
impairment loss is recognised when the recoverable amount of the cash-generating unit is less than the carrying amount of that unit. The recoverable amount
of a cash-generating unit is determined by the higher of the following values: Fair value less costs to sell or value in use. An impairment loss is allocated first
to any goodwill of the cash generating unit and then to the other assets of the unit on a pro-rata basis based on the carrying amount of each asset in the unit.
An impairment loss recognised on goodwill may not be reversed in subsequent periods.
M-real’s other historical acquisitions of Company entities, also accounted for under Finnish GAAP preceding the transition to IFRS, did not result in the
recognition of goodwill.
Other intangible assets
The cost of patents, licenses and trademarks having a finite useful life is capitalised in the combined balance sheet under intangible assets and amortised on a
straight-line basis over their useful lives in 5-10 years.
Emission rights
Allowances received by the governments free of charge have initially been recognised as intangible assets and the corresponding government grant as advance
payment in liabilities based on fair value at the date of initial recognition. Allowances are measured at its cost or at their fair value if less. Allowances are not
amortised. The emissions produced are recognised as cost and as liability together with the corresponding government grant as income both based on the
value at the date of initial recognition. So rights consumed that are within the original range have no positive or negative effect on profit for the period. The
costs of purchasing additional rights to cover excess emissions or the sale of unused rights have no effect on the financial result.
Impairment of long-lived non-financial assets
Assets that are subject to depreciation and amortisation (tangible fixed assets and intangible assets with definite useful lives) are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by
which the carrying amount of the asset exceeds its recoverable amount, which is the higher of an asset’s fair value less costs to sell or its value in use. Value
in use is calculated based on estimated future cash flows expected to result from the use of the asset For the purposes of assessing impairment, assets are
grouped at the lowest levels of cash generating units for which there are separately identifiable cash flows which was determined to be at the level of the
Company. For assets other than goodwill, an impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of depreciation or amortisation, if no impairment loss had originally been recognised. A previously recognised
impairment loss may only be reversed if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment
loss was recognised.
Provisions
A provision is recognised in the combined balance sheet when the Company has a legal or constructive obligation as a result of a past event and it is probable
that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the
obligation. If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party, the reimbursement is recorded in the
combined balance sheet as a separate asset, but only if it is virtually certain that reimbursement will be received.
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