2007 Annual Report - Sappi

Notes to the group annual financial statements continued
for the year ended September 2007
2. Accounting policies continued
transaction or service will flow to the group and the costs
associated with the transaction or service can be measured
reliably. Dividends receivable are included separately in dividend
income, within finance income, when a dividend is declared.
2.3.5 Government grants
Government grants are recognised in income over the periods
necessary to match them with the related costs which they are
intended to compensate.
Government grants related to assets are recognised by
deducting the grant from the carrying amount of the
related asset.
2.3.6 Intangible assets
• Research activities
Expenditure on research activities undertaken with the
prospect of gaining new scientific or technical knowledge and
understanding, and expenditure on internally generated
goodwill and brands are recognised in profit or loss as an
expense as incurred.
• Development activities
Expenditure on engineering projects, computer software and
other development activities, whereby set procedures and
processes are applied to a project for the production of new or
substantially improved products and processes, is capitalised
if the engineering projects, computer software and other
developed products or processes are technically and
commercially feasible and the group has sufficient resources to
complete development. The expenditure capitalised includes
the cost of materials and directly attributable employee and
other costs. Computer development expenditure is amortised
only once the relevant software has been commissioned.
Intangible assets are stated at cost less accumulated
amortisation and impairment losses. Intangible assets, which
have not yet been commissioned, are stated at cost less
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. Subsequent expenditure relating to
computer software is capitalised only when it increases the
future economic benefits embodied in the specific asset to
which it relates. All other subsequent expenditure is recognised
as an expense in the period in which it is incurred.
Surpluses or deficits on the disposal of computer software are
recognised in profit or loss in the period in which they are
incurred. The profit or loss is the difference between the net
disposal proceeds and the carrying amount of the asset.
• Patents
Patents acquired are capitalised and amortised on a straight
line basis over their estimated useful lives, which is on average
10 years.
2.3.7 Impairment of assets other than goodwill and
financial instruments
The group assesses all assets (other than goodwill and
intangible assets not yet available for use) at each balance sheet
date for indications of an impairment or the reversal of a
previously recognised impairment. Should there be any
indications of impairment, the recoverable amounts of the
assets are estimated. These impairments, where the carrying
value of an asset exceeds its recoverable amount, or the
reversal of a previously recognised impairment, are recognised
in profit or loss for the period.
Intangible assets not yet available for use are tested at least
annually for impairment.
An impairment loss is recognised in profit or loss whenever the
carrying amount of an asset exceeds its recoverable amount.
The recoverable amount of an asset is the higher of its fair value
less cost to sell and its value-in-use. The fair value less cost to
sell is determined by ascertaining the current market value of an
asset and deducting any costs related to the realisation of
the asset.
In assessing value-in-use, the expected future cash flows from
the asset are discounted to their present value using a discount
rate as defined on page 73.
For an asset whose cash flows are largely dependent on those
of other assets the recoverable amount is determined for the
cash-generating unit to which the asset belongs.
A previously recognised impairment loss will be reversed if
the recoverable amount increases as a result of a change in
the estimates used previously to determine the recoverable
amount, but not to an amount higher than the carrying amount
that would have been determined, net of depreciation or
amortisation, had no impairment loss been recognised in
prior periods.
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