2007 Annual Report - Sappi

Notes to the group annual financial statements continued
for the year ended September 2007
2. Accounting policies continued
including the results of remedial investigation/feasibility studies
(“RI/FS”). In evaluating any disposal site environmental
exposure, an assessment is made of the company’s potential
share of the remediation costs by reference to the known or
estimated volume of the company’s waste that was sent to the
site and the range of costs to treat similar waste at other sites
if a RI/FS is not available.
2.3.4 Financial instruments
Items which are treated under other accounting standards are
not treated as financial instruments, under IAS 32 and IAS 39.
(i) Initial recognition
Financial instruments are recognised on the balance sheet
when the group becomes a party to the contractual provisions
of a financial instrument. All purchases of financial assets that
require delivery within the time frame established by regulation
or market convention (‘regular way’ purchases) are recognised
at transaction date.
(ii) Initial measurement
All financial instruments are initially recognised at fair value plus
transaction costs that are incremental to the group and directly
attributable to the acquisition or issue of the financial asset or
financial liability except for those classified as ‘fair value through
profit or loss’.
Financial instruments carried at fair value through profit or loss
are measured at fair value on transaction date. All transaction
costs are immediately written off in the income statement.
(iii) Subsequent measurement
Subsequent to initial measurement, financial instruments are
either measured at fair value or amortised cost, depending on
their classification:
• Financial assets and financial liabilities at fair value
through profit or loss
Financial instruments at fair value through profit or loss consist
of items classified as held for trading.
Trading instruments are financial assets or financial liabilities that
were acquired or incurred principally for the purpose of sale or
repurchase in the near term, form part of a portfolio with a
recent actual pattern of short-term profit-taking or are
derivatives that do not form part of a designated and effective
hedging relationship.
• Non-trading financial liabilities
All financial liabilities, other than those at fair value through profit
or loss, are classified as non-trading financial liabilities and are
measured at amortised cost.
• Held-to-maturity financial assets
Held-to-maturity financial assets are measured at amortised
cost, with interest income recognised in profit or loss for
the period.
The group does not presently have any held to maturity
financial assets.
• Loans and receivables
Loans and receivables are carried at amortised cost, with
interest revenue recognised in profit or loss for the period. The
majority of the group’s receivables are included in the loans and
receivables category.
• Available-for-sale financial assets
Available-for-sale financial assets are measured at fair value,
with fair value gains and losses recognised directly in equity
along with the associated deferred taxation. Any foreign
currency translation gains or losses or interest revenue, measured
on an effective-yield basis, are removed from equity to the
income statement on debt instruments when they arise.
When available-for-sale equity instruments are determined to
be impaired to the extent that the fair value declines below its
original cost, the resultant losses are recognised in profit or loss.
(iv) Embedded derivatives
Certain derivatives embedded in financial and non-financial
instruments, are treated as separate derivatives and recognised
on a standalone basis, when their risks and characteristics are
not closely related to those of the host contract and the host
contract is not carried at fair value, with unrealised gains and
losses reported in profit or loss.
(v) Derecognition
All financial assets and financial liabilities are derecognised when
the group commits to selling a financial asset or redeeming a
financial liability.
The group derecognises a financial asset when:
• the contractual rights to the cash flows arising from the
financial asset have expired or have been forfeited by the
group; or
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sappi limited | 07 | annual report