2007 Annual Report - Sappi

• it transfers (or it assumes an obligation to transfer) the
financial asset, including substantially all the risks and
rewards of ownership of the asset; or
• it transfers the financial asset, neither retaining nor transferring
substantially all the risks and rewards of ownership of the
asset, but no longer retains control of the asset.
A financial liability is derecognised when and only when the
liability is extinguished, i.e. when the obligation specified in the
contract is discharged, cancelled or has expired.
The difference between the carrying amount of a financial asset
or financial liability (or part thereof) that is derecognised and the
consideration paid or received, including any non-cash assets
transferred or liabilities assumed, is recognised in selling,
general and administration in profit or loss for the period.
(vi) Impairment of financial assets
An impairment is recognised when there is evidence that the
group will not be able to collect all amounts due according
to the original terms of the receivables. The amount of the
impairment is charged to the income statement.
• Available-for-sale financial assets
When a decline in the fair value of an available-for-sale financial
asset has been recognised directly in equity and there is
objective evidence that the asset is impaired, the cumulative
loss that has been recognised directly in equity is removed
from equity and recognised in profit or loss even though the
financial asset has not been derecognised. The amount of the
cumulative loss that is removed from equity and recognised in
profit or loss is the difference between the acquisition cost (net
of any principal repayment and amortisation) and current fair
value, less any impairment loss on that financial asset previously
recognised in profit or loss. Impairment losses recognised in
profit or loss for an investment in an equity instrument classified
as available-for-sale are not reversed through profit or loss.
If, in a subsequent period, the fair value of a debt instrument
classified as available-for-sale increases and the increase can
be objectively related to an event occurring after the impairment
loss was recognised in profit or loss, the impairment loss is
reversed, with the amount of the reversal recognised in profit or
loss for the period.
(vii) Hedge accounting
Hedge accounting recognises the offsetting effects on profit or
loss of changes in the fair values of the hedging instrument and
the hedged item.
Hedging relationships are of three types:
• Fair value hedges
If a fair value hedge meets the conditions for hedge accounting,
any gain or loss on the hedged item attributable to the hedged
risk is included in the carrying amount of the hedged item and
recognised in profit or loss. The changes in the fair value of the
hedging instrument and the hedged item is recognised in net
finance costs in profit or loss.
• Cash flow hedges
The group does not currently apply cash flow hedge accounting.
• Hedge of a net investment in a foreign operation
The group does not currently have any hedges of net
investments in foreign operations.
Hedge accounting is discontinued on a prospective basis when
the hedge no longer meets the hedge accounting criteria
(including when it becomes ineffective), when the hedge
instrument is sold, terminated or exercised when, for cash flow
hedges, the designation is revoked and the forecast transaction
is no longer expected to occur. Any cumulative gain or loss on
the hedging instrument for a forecast transaction is retained in
equity until the transaction occurs, unless the transaction is no
longer expected to occur, in which case it is transferred to profit
or loss for the period.
(viii) Offsetting financial instruments and
related income
Financial assets and liabilities are offset and the net amount
reported in the balance sheet only when there is a legally
enforceable right to set off and there is an intention of settling
on a net basis or realising the asset and settling the liability
simultaneously. Income and expense items are offset only to
the extent that their related instruments have been offset in the
balance sheet, with the exception of those relating to hedges,
which are disclosed in accordance with the profit or loss effect
of the hedged item.
(ix) Interest income and expense
Interest income and expense are recognised in profit or loss
using the effective interest rate method taking into account the
expected timing and amount of cash flows.
(x) Other
Dividends from investments and gains or losses on the sale of
investments are recognised in profit or loss when the amount of
revenue from the transaction or service can be measured
reliably, it is probable that the economic benefits of the
sappi limited | 07 | annual report 79