Our performance in 2009 - Sappi

110
Notes to the group annual financial statements continued
(ix) Interest income and expense
Interest income and expense are recognised in profit or loss
using the effective interest rate method.
2.2.5 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
income are recognised in sundry income under Selling, General
and Administrative expenses.
Government grants related to assets are recognised by deducting
the grant from the carrying amount of the related asset.
2.2.6 Intangible assets
(i) Research activities
Expenditures on research activities, internally generated goodwill
and brands are recognised in profit or loss as an expense as
incurred.
(ii) Development activities
Expenditure on engineering projects, computer software and
other development activities, is capitalised if these projects
and activities are technically and commercially feasible and the
group has sufficient resources to complete development.
Computer development expenditure is amortised when the
relevant software is available for use. Intangible assets are stated
at cost less accumulated amortisation and impairment losses.
Intangible assets, which are not yet available for use, are stated
at cost less impairment losses.
Amortisation of engineering projects, computer software and
development costs is charged to profit or loss on a straightline
basis over the estimated useful lives of these assets, not
exceeding five years.
(iii) Patents
Patents acquired are capitalised and amortised on a straightline
basis over their estimated useful lives, which is on average
ten years.
2.2.7 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.
Intangible assets not yet available for use are tested at least
annually for impairment.
Should there be any indications of impairment, the recoverable
amounts of the assets are estimated. Where an impairment
exists, the losses are recognised in profit or loss for the period.
For an asset whose cash flows are largely dependent on those
of other assets, the recoverable amount is determined for the
cash-generating unit (CGU) 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. Reversals
of previously recognised impairment losses are recognised in
profit or loss for the period.
Critical areas of judgement and the use of estimates involving
asset impairments are included in section 2.3 of the accounting
policies.
2.2.8 Inventories
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 con-
sumable stores
• The specific identification basis is used to arrive at the cost
of items that are not interchangeable.
2.2.9 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 leased asset or
the present value of the minimum lease payments.
Lease payments are allocated between capital repayments
and finance charges using the effective interest rate method.
Capitalised leased assets are depreciated on a consistent
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. Lease payments made under operating
leases are charged to profit or loss on a straight-line basis over
the term of the lease unless another systematic basis is more
representative of the time pattern of the group’s benefit.
(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. The land and
buildings elements of a lease are considered separately for the
purpose of lease classification.
If the lease payments cannot be allocated reliably between
these two elements, the entire lease is classified as a finance
lease, where the building is a finance lease, unless it is clear
that both elements are operating leases.