Our performance in 2009 - Sappi

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Notes to the group annual financial statements continued
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 ton 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).
Critical areas of judgement and the use of estimates involving
plantations are included in section 2.3 of the accounting policies.
2.2.14 Property, plant and equipment
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.
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.
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 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.
Critical areas of judgement and the use of estimates involving
property, plant and equipment are included in section 2.3 of
the accounting policies.
2.2.15 Segment reporting
The primary business segments are Sappi Fine Paper and Sappi
Forest Products. On a secondary segment basis, significant
geographic regions have been identified based on the location
of the productive assets, being Asia, Southern Africa, Europe
and North America.
Assets, liabilities, revenues or expenses that are not directly
attributable to a particular segment are allocated between
segments where there is a reasonable basis for doing so. The
group accounts for inter-segment revenues and transfers as if
the transactions were with third parties at current market prices.
2.2.16 Share-based payments
(i) Equity-settled share-based payment transactions
with employees
The services received in an equity-settled share-based payment
transaction with employees are measured at the fair value of
the equity instruments granted. The fair value of those equity
instruments is measured at grant date.
If the equity instruments granted vest immediately and an
employee is not required to complete a specified period of
service before becoming unconditionally entitled to those
instruments, the services received are recognised in profit
or loss for the period in full on grant date with a corresponding
increase in equity.
Where the equity instruments do not vest until the employee
has completed a specified period of service, it is assumed that
the services rendered by the employee, as consideration for
those equity instruments, will be received in the future during
the vesting period. These services are accounted for in profit
or loss as they are rendered during the vesting period, with
a corresponding increase in equity. Share-based payment
expenses are adjusted for non-market related performance
conditions.
(ii) Measurement of fair value of equity instruments granted
The equity instruments granted by the group are measured at
fair value at the measurement date using modified binomial
option pricing valuation models. The valuation technique is
consistent with generally acceptable valuation methodologies
for pricing financial instruments and incorporates all factors
and assumptions that knowledgeable, willing market participants
would consider in setting the price of the equity instruments.
2.2.17 Shareholders’ equity
(i) Share capital
Share capital issued by the company is recorded as the proceeds
received, net of direct issue costs.
Shares repurchased by the issuing company are cancelled.
(ii) Treasury shares
When share capital recognised as equity is repurchased by
the company or other members of the group, the amount of
the consideration paid, including directly attributable costs, is
recognised as a change in equity.
Shares repurchased by group companies are classified as
treasury shares and are held at cost. These shares are treated
as a deduction from the issued and weighted average number
of shares and the cost price of the shares is presented as a
deduction from total equity.