2007 Annual Report - Sappi

(ii) Associates
The results and assets and liabilities of associates are incorporated
in the group’s financial statements using the equity method of
accounting. The share of the associates’ retained income,
which is the profit after tax, is determined from their latest
financial statements. The carrying amount of such investments
is reduced to recognise any impairment in the value of individual
investments. When the group’s share of losses exceeds the
carrying amount of the associate, the carrying amount is
reduced to nil, inclusive of any debt outstanding, and
recognition of further losses is discontinued, except to the
extent that the group has incurred or guaranteed obligations in
respect of the associate.
Where an entity within the group transacts with an associate of
the group, unrealised profits and losses are eliminated to the
extent of the group’s interest in the relevant associate.
Investments in associates held with the intention of disposing
thereof within 12 months are accounted for as non-current
assets held for sale.
(iii) Joint ventures
Joint ventures are included in the group’s financial statements
using the equity method of accounting. The carrying amount
of such investments is reduced to recognise any impairment in
the value of individual investments.
Where an entity within the group transacts with a joint venture
of the group, unrealised profits and losses are eliminated to the
extent of the group’s interest in the joint venture. When the
group’s share of losses exceeds the carrying amount of the joint
venture, the carrying amount is reduced to nil and recognition
of further losses is discontinued, except to the extent that the
group has incurred losses or guaranteed obligations in respect
of the joint venture. Investments in joint ventures held with the
intention of disposing thereof within 12 months are accounted
for as non-current assets held for sale.
(iv) Goodwill
All business combinations are accounted for by applying the
purchase method of accounting. At acquisition date the group
recognises the acquiree’s identifiable assets, liabilities and
contingent liabilities that satisfy the recognition criteria at their
respective fair values. The cost of a business combination is
the fair value of the purchase consideration due at date of
acquisition plus any directly attributable transaction costs. Any
contingent purchase consideration is recognised to the extent
that it is probable and can be measured reliably. Any excess
between the cost of the business combination and the group’s
interest in the net fair value of the identifiable assets, liabilities
and contingent liabilities acquired is recognised as goodwill in
the balance sheet. Goodwill is adjusted for any subsequent
remeasurement of contingent purchase consideration.
Goodwill is subsequently held at cost less any accumulated
impairment losses. Goodwill is not amortised but tested for
impairment annually or more frequently where there is an
indication of impairment.
Goodwill is tested for impairment based on an allocation to one
or more cash-generating units (CGUs), being the smallest
identifiable group of assets that generates cash inflows that are
largely independent of the cash inflows from other assets or
group of assets. Goodwill is allocated to the CGUs in which the
synergies from the business combinations are expected. Each
CGU containing goodwill is tested annually for impairment. An
impairment loss is recognised whenever the carrying amount
of an asset or its CGU exceeds its recoverable amount.
Impairment losses recognised in respect of CGUs are allocated
first to reduce the carrying amount of any goodwill allocated to
a CGU and then to reduce the carrying amount of the other
assets in the CGU on a pro rata basis.
In assessing value-in-use, the expected future cash flows from
the CGU are discounted to their present value using a pre-tax
discount rate.
Impairment losses relating to goodwill are not reversed.
On the disposal of a subsidiary, the attributable amount of goodwill
is included in the determination of profit or loss on disposal.
2.3.3 Environmental expenditures and liabilities
Environmental expenditure that pertains to current operations or
relates to future revenues are expensed or capitalised,
consistent with the company’s capitalisation policy. Expenditures
that result from the remediation of an existing condition caused
by past operations, and do not contribute to current or future
revenues, are recognised in profit and loss for the period.
Environmental accruals are recorded based on current
interpretation of environmental laws and regulations when it is
probable that a liability has been incurred and the amount of
such liability can be reliably estimated. Amounts accrued do
not include third-party recoveries. Liabilities are recognised for
remedial activities when the clean-up is probable and the cost
can be reliably estimated. All available information is considered
sappi limited | 07 | annual report 77