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SAPPI<br />
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)<br />
2. ACCOUNTING POLICIES (Continued)<br />
for the year ended September <strong><strong>20</strong>06</strong><br />
• national or local economic conditions that correlate with defaults on the assets in the group.<br />
• Assets carried at amortised cost<br />
If there is objective evidence that an impairment loss on loans and receivables carried at amortised<br />
cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying<br />
amount and the present value of estimated future cash flows (excluding future credit losses that have not<br />
been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of<br />
the asset is reduced through the use of an allowance account and the amount of the loss is recognised in<br />
profit or loss.<br />
The group first assesses whether there is objective evidence of impairment individually for financial<br />
assets that are individually significant, and individually or collectively for financial assets that are not<br />
individually significant. If the group determines that there is no objective evidence of impairment for an<br />
individually assessed financial asset, whether significant or not, it includes the asset in a group of financial<br />
assets with similar credit risk characteristics and collectively assesses them for impairment.<br />
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be<br />
related objectively to an event occurring after the impairment was recognised (such as an improvement in<br />
the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance<br />
account. The reversal does not result in a carrying amount of the financial asset that exceeds what the<br />
amortised cost would have been had the impairment not been recognised at the date on which the<br />
impairment is reversed. The amount of the reversal is recognised in profit or loss for the period.<br />
• Available-for-sale financial assets<br />
When a decline in the fair value of an available-for-sale financial asset has been recognised directly in<br />
equity and there is objective evidence that the asset is impaired, the cumulative loss that has been<br />
recognised directly in equity is removed from equity and recognised in profit or loss even though the<br />
financial asset has not been derecognised. The amount of the cumulative loss that is removed from equity<br />
and recognised in profit or loss is the difference between the acquisition cost (net of any principal<br />
repayment and amortisation) and current fair value, less any impairment loss on that financial asset<br />
previously recognised in profit or loss. Impairment losses recognised in profit or loss for an investment in<br />
an equity instrument classified as available-for-sale are not reversed through profit or loss.<br />
If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases<br />
and the increase can be objectively related to an event occurring after the impairment loss was recognised<br />
in profit or loss, the impairment loss is reversed, with the amount of the reversal recognised in profit or loss<br />
for the period.<br />
(viii) Hedge accounting<br />
Hedge accounting recognises the offsetting effects on profit or loss of changes in the fair values of the<br />
hedging instrument and the hedged item.<br />
Hedging relationships are of three types:<br />
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