2007 Annual Report - Sappi

2.3.8 Inventories
Inventories are assets held-for-sale in the ordinary course of
business, in the process of production for such sale or in the
form of materials or supplies to be consumed in the production
process or in the rendering of services.
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. Net realisable value is the estimated
selling price in the ordinary course of business, less the
estimated cost of completion, distribution and selling.
Cost is determined on the following basis:
• First-in-first-out (FIFO): finished goods
• Weighted average: raw materials, work-in-progress and
consumable stores
• The specific identification basis is used to arrive at the cost
of items that are not interchangeable.
The cost of raw materials and consumable stores is the
delivered landed cost, while the cost of work-in-progress
and finished goods includes both direct costs and production
overheads.
2.3.9 Leases
(i) The group as lessee
Leases in respect of which the group bears substantially all the
risks and rewards incidental to ownership are classified as
finance leases. Finance leases are capitalised at the inception
of the lease at the lower of the fair value of the lease property
or the present value of the minimum lease payments. Each
lease payment is allocated between the liability and finance
charges to achieve an effective rate of interest on the balance
outstanding. The corresponding rental obligations, net of
finance charges, are included in other long-term payables. The
interest element of the finance cost is charged to profit or loss
over the lease period.
Capitalised leased assets are depreciated on a consisent 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.
Leases in respect of which a significant portion of the risks and
rewards of ownership are retained by the lessor are classified
as operating leases. These leases are mainly for the use of
premises and certain office equipment. Payments made under
operating leases (net of any incentives received from the lessor)
are charged to income on a straight line basis over the term
of the lease. When another systematic basis is more
representative of the time pattern of the user’s benefit, then that
method is used.
(ii) Recognition of lease of land
Leases of land and buildings are classified as operating or
finance leases in the same way as leases of other assets.
However, when a single lease covers both land and a building,
the minimum lease payments at the inception of the lease
(including any upfront payments) are allocated between the land
and the building in proportion to the relative fair values of the
respective leasehold interests. Any upfront premium allocated
to the land element that is normally classified as an operating
lease represents prepaid lease payments. These payments are
amortised over the lease term in accordance with the time
pattern of benefits provided. If the lease payments cannot be
allocated reliably between these two elements, the entire lease
is classified as a finance lease, unless it is clear that both
elements are operating leases.
2.3.10 Non-current assets held for sale and
discontinued operations
Non-current assets (or disposal groups) are classified as held
for sale when their carrying value will be recovered principally
through sale within 12 months 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.
A discontinued operation is a clearly distinguishable component
of the group’s business that has been disposed of or is held for
sale within 12 months of initial identification, which:
• represents a separate line of a major line of business or
geographical area of operations;
• is part of a single coordinated plan to dispose of a major line
of business or geographical area of operations; or
• is a subsidiary acquired exclusively with a view to resale
within 12 months.
The entire asset or disposal group must be available for
immediate sale in its present condition and the sale should be
highly probable, with an active programme to find a buyer and
the appropriate level of management approving the sale. The
group does not currently have any discontinued operations.
sappi limited | 07 | annual report 81