2007 Annual Report - Sappi

2.3.13 Plantations
Plantations are stated at fair value less estimated cost to sell at
the harvesting stage. Fair value is determined using the present
value of expected future cashflows for immature timber and the
standing value method for mature timber. The age threshold
used for quantifying immature timber is dependent on the
rotation period of the specific timber genus which varies
between eight to eighteen years. In the Southern African region
softwood less than eight years and hardwood less than five
years is classified as immature timber. All changes in fair value
are recognised in the period in which they arise.
The fair value of immature timber is the present value of the
expected future cashflows taking into account, unadjusted
current market prices, estimated projected growth over the
rotation period for the existing immature timber volumes in
metric tonne, cost of delivery and estimated maintenance costs
up to the timber becoming. The discount rate used is the
applicable pre-tax weighted average cost of capital of the
business unit. The standing value for mature timber is based
on unadjusted current market prices and estimated timber
volumes in metric tonne less cost of delivery.
Cost of delivery includes all costs associated with getting the
harvested agricultural produce to the market, being harvesting,
loading, transport and allocated fixed overheads.
Trees are generally felled at the optimum age when ready for
intended use. At the time the tree is felled it is taken out of
plantations and accounted for under inventory and reported as
depletion cost (felllings).
Depletion costs include the fair value of timber felled, which is
determined on the average method, plus amounts written off
against standing timber to cover loss or damage caused by fire,
disease and stunted growth. These costs are accounted for on
a cost per metric tonne allocation method multiplied by
unadjusted current market prices. Tons are calculated using the
projected growth to rotation age and are extrapolated to current
age on a straight line basis.
Sappi directly manages plantations established on its own land
that the company either owns or leases from a third party.
Indirectly managed plantations represents plantations established
on land held by independent commercial farmers where Sappi
provides technical advice on the growing and tendering of trees.
The associated costs for managing the plantations are
recognised as silviculture costs in cost of sales (see note 4.1).
Land is accounted for under property, plant and equipment
separately from the trees which are accounted for as plantations.
2.3.14 Property, plant and equipment
Property, plant and equipment represents all items and
equipment that are held-for-use in the production or supply of
goods or services, for rental to others, or for administrative
purposes and are expected to be used during more than
one period. Land, logging roads and related facilities used
for and at our tree plantations is accounted separately from
the plantations.
Items of property, plant and equipment are stated at cost
less accumulated depreciation and impairment losses. Cost
includes the estimated cost of dismantling and removing the
assets, where specifically required in terms of legislative
requirements or a constructive obligation exists.
Owner-occupied investment properties and properties in the
course of construction are carried at cost, less any impairment
loss where the recoverable amount of the asset is estimated to
be lower than its carrying value. Cost includes professional fees
and, for qualifying assets, borrowing costs capitalised in
accordance with the group’s accounting policy. Depreciation
commences, on the same basis as other property assets, when
the assets are ready for their intended use. The group currently
does not hold any investment properties.
Subsequent expenditure is capitalised when it is measurable
and will result in probable future economic benefits. Expenditure
incurred to replace a component of an item of owner-occupied
property or equipment is capitalised to the cost of the item of
owner-occupied property and equipment and the part replaced
is derecognised. All other expenditure is recognised in profit or
loss as an expense when incurred.
Depreciation is charged so as to write-off the depreciable
amount of the assets, other than land, over their estimated
useful lives to estimated residual values, using a method that
reflects the pattern in which the asset’s future economic
benefits are expected to be consumed by the entity.
Where significant parts of an item have different useful lives to
the item itself, these parts are depreciated over their estimated
useful lives. The methods of depreciation, useful lives and
residual values are reviewed annually.
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