2012 Integrated report - Sappi

Government grants related to assets are recognised by deducting
the grant from the carrying amount of the related asset.
2.2.5 Intangible assets
(i) Research activities
Expenditures on research activities and internally generated goodwill
are recognised in profit or loss as an expense as incurred.
(ii) Development activities
Intangible assets are stated at cost less accumulated amortisation
and impairment losses. Amortisation of engineering projects,
computer software and development costs is charged to profit or
loss on a straight-line basis over the estimated useful lives of these
assets, not exceeding five years.
(iii) Brands and patents
Brands and patents acquired are capitalised and amortised on a
straight-line basis over their estimated useful lives, which is on
average ten years. Patents are derecognised when legal protection
relating to the patented item ceases to exist.
(iv) Licence fees
Licence fees are amortised on a straight-line basis over the useful life
of each licence.
2.2.6 Inventories
Inventories are stated at the lower of cost or net realisable value.
Cost includes all costs of purchase, costs of conversion and other
costs incurred in bringing the inventories to their present location
and condition.
Cost is determined on the following basis:
Classification
Cost formula
Finished goods
First in first out (‘FIFO’)
Raw materials, work in progress Weighted average
and consumable stores
Cost of items that are not
interchangeable
Specific identification inventory
valuation basis
2.2.7 Leases
(i) The group as lessee
Finance leases are capitalised at the inception of the lease at the
lower of the fair value of the leased asset or the present value of the
minimum lease payments. Lease payments are allocated between
capital repayments and finance charges using the effective interest
rate method.
Capitalised leased assets are depreciated on a consistent basis as
those with owned assets except where the transfer of ownership is
uncertain at the end of the lease period in which case they are
depreciated on a straight-line basis over the shorter of the lease
period and the expected useful life of the asset.
Lease payments made under operating leases are charged to profit
or loss on a straight-line basis over the term of the lease unless
another systematic basis is more representative of the time pattern
of the group’s benefit.
(ii) Recognition of lease of land
The land and buildings elements of a lease are considered separately
for the purpose of lease classification. Where the building is a
finance lease, and the lease payments cannot be allocated reliably
between these two elements, the entire lease is classified as a
finance lease.
2.2.8 Non-current assets held for sale
Non-current assets (or disposal groups) are classified as held for sale
when their carrying value will be recovered principally through sale
rather than use. Non-current assets held for sale are measured at
the lower of carrying amount and fair value less cost to sell and are
not depreciated.
2.2.9 Segment reporting
Sappi reports and discloses segment information on the basis of
information that is reviewed by the chief operating decision maker
to make decisions when allocating resources and to assess
performance of the group’s operating segments. The group’s
reportable segments are Sappi Fine Paper North America,
Sappi Fine Paper Europe and Sappi Southern Africa.
Assets, liabilities, revenues or expenses that are not directly
attributable to a particular segment are allocated between segments
where there is a reasonable basis for doing so. The group accounts
for inter-segment revenues and transfers as if the transactions were
with third parties at current market prices.
2.2.10 Borrowing costs
Borrowing costs directly attributable to the acquisition, construction
and production of qualifying assets are capitalised as part of the
costs of those assets.
Borrowing costs capitalised are calculated at the group’s average
funding cost, except to the extent that funds are borrowed
specifically for the purpose of obtaining a qualifying asset. Where this
occurs, actual borrowing costs incurred less any investment income
on the temporary investment of those borrowings are capitalised.
2.2.11 Revenue
Revenue, arising from the sale of goods, is recognised when the
significant risks and rewards of ownership have been transferred,
delivery has been made and title has passed, the amount of the
revenue and the related costs can be reliably measured and when it
is probable that the debtor will pay for the goods. For the majority of
local and regional sales, transfer occurs at the point of offloading
the shipment into the customer warehouse, whereas for the majority
of export sales transfer occurs when the goods have been loaded
into the relevant carrier, unless the contract of sale specifies
different terms.
Revenue is measured at the fair value of the amount received or
receivable which is arrived at after deducting trade and settlement
discounts, rebates, and customer returns.
Shipping and handling costs, such as freight to the group’s
customers’ destination are included in cost of sales. These costs,
when included in the sales price charged for the group’s products
are recognised in sales.
2.2.12 Emission trading
The group recognises grants, when allocated by governments for
emission rights, as an intangible asset at cost with an equal liability
at the time of the grant.
The group does not recognise a liability for emissions to the extent
that it has sufficient allowances to satisfy emission liabilities. Where
there is a shortfall of allowances that the group would have to deliver
for emissions, a liability is recognised at the current market value of
the shortfall.
Where the group sells allowances to parties outside the group at
amounts greater than carrying value, a gain is recognised in selling,
general and administrative expenses in profit or loss for the period.
2.2.13 Alternative fuel mixture credits
Up until 31 December 2009, the U.S. Internal Revenue Code allowed
an excise tax credit for alternative fuel mixtures produced by a
taxpayer for sale, or for use as a fuel in a taxpayer’s trade or business.
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