2006 20-F - Sappi

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2006
2. ACCOUNTING POLICIES (Continued)
Development activities
Expenditure on engineering projects, computer software and other development activities, whereby
set procedures and processes are applied to a project for the production of new or substantially improved
products and processes, is capitalised if the engineering projects, computer software and other developed
products or processes are technically and commercially feasible and the group has sufficient resources to
complete development. The expenditure capitalised includes the cost of materials and directly attributable
employee and other costs. Computer development expenditure is amortised only once the relevant
software has been commissioned. Intangible assets are stated at cost less accumulated amortisation and
impairment losses. Intangible assets, which have not yet been commissioned, are stated at cost less
impairment losses.
Amortisation of engineering projects, computer software and development costs is charged to profit
or loss on a straight-line basis over the estimated useful lives of these assets, not exceeding five years.
Subsequent expenditure relating to computer software is capitalised only when it increases the future
economic benefits embodied in the specific asset to which it relates. All other subsequent expenditure is
recognised as an expense in the period in which it is incurred.
Surpluses or deficits on the disposal of computer software are recognised in profit or loss in the period
in which they are incurred. The profit or loss is the difference between the net disposal proceeds and the
carrying amount of the asset.
Patents
Patents acquired are capitalized and amortized on a straight line basis over their estimated useful
lives, which is on average 10 years.
2.2.8 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. Should there be any indications of impairment, the recoverable amounts of the assets are
estimated. These impairments, where the carrying value of an asset exceeds its recoverable amount, or the
reversal of a previously recognised impairment, are recognised in profit or loss for the period.
Intangible assets not yet available for use are tested at least annually for impairment.
An impairment loss is recognised in profit or loss whenever the carrying amount of an asset exceeds its
recoverable amount.
The recoverable amount of an asset is the higher of its fair value less cost to sell and its value-in-use.
The fair value less cost to sell is determined by ascertaining the current market value of an asset and
deducting any costs related to the realisation of the asset.
F-20