2006 20-F - Sappi

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2006
2. ACCOUNTING POLICIES (Continued)
(ix) Offsetting financial instruments and related income
Financial assets and liabilities are offset and the net amount reported in the balance sheet only when
there is a legally enforceable right to set off and there is an intention of settling on a net basis or realising
the asset and settling the liability simultaneously. Income and expense items are offset only to the extent
that their related instruments have been offset in the balance sheet, with the exception of those relating to
hedges, which are disclosed in accordance with the profit or loss effect of the hedged item.
(x) Interest income and expense
Interest income and expense are recognised in profit or loss using the effective interest rate method
taking into account the expected timing and amount of cash flows. The effective interest rate method is a
method of calculating the amortised cost of a financial asset or financial liability (or group of financial
assets or financial liabilities) and of allocating the interest income or interest expense over the relevant
period. Interest income and expense include the amortisation of any discount or premium or other
differences between the initial carrying amount of an interest-bearing instrument and its amount at
maturity calculated on an effective interest rate basis.
(xi) Other
Dividends from investments and gains or losses on the sale of investments is recognised in profit or
loss when the amount of revenue from the transaction or service can be measured reliably, it is probable
that the economic benefits of the transaction or service will flow to the group and the costs associated with
the transaction or service can be measured reliably.
Gains or losses on derecognition of any financial assets or financial liabilities are included in finance
costs. Dividends receivable are included separately in dividend income, within finance income, when a
dividend is declared.
2.2.6 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 assets are recognised by deducting the grant from the carrying amount
of the related asset.
2.2.7 Intangible assets
Research activities
Expenditure on research activities undertaken with the prospect of gaining new scientific or technical
knowledge and understanding, and expenditure on internally generated goodwill and brands are
recognised in profit or loss as an expense as incurred.
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