2006 20-F - Sappi

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2006
2. ACCOUNTING POLICIES (Continued)
office equipment. Payments made under operating leases (net of any incentives received from the lessor)
are charged to income on a straight-line basis over the term of the lease. When another systematic basis is
more representative of the time pattern of the user’s benefit, then that method is used.
(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.
However, when a single lease covers both land and a building, the minimum lease payments at the
inception of the lease (including any upfront payments) are allocated between the land and the building in
proportion to the relative fair values of the respective leasehold interests. Any upfront premium allocated
to the land element that is normally classified as an operating lease represents prepaid lease payments.
These payments are amortized over the lease term in accordance with the time pattern of benefits
provided. If the lease payments cannot be allocated reliably between these two elements, the entire lease is
classified as a finance lease, unless it is clear that both elements are operating leases.
2.2.11 Non-current assets held for sale and discontinued operations
Non-current assets (or disposal groups) are classified as held for sale when their carrying value will be
recovered principally through sale within 12 months rather than use. Non-current assets held for sale are
measured at the lower of carrying amount and fair value less cost to sell and are not depreciated.
A discontinued operation is a clearly distinguishable component of the group’s business that has been
disposed of or is held for sale within 12 months of initial identification, which:
• represents a separate line of a major line of business or geographical area of operations;
• is part of a single coordinated plan to dispose of a major line of business or geographical area of
operations; or
• is a subsidiary acquired exclusively with a view to resale within 12 months.
The entire asset or disposal group must be available for immediate sale in its present condition and
the sale should be highly probable, with an active programme to find a buyer and the appropriate level of
management approving the sale. The group does not currently have any discontinued operations.
2.2.12 Provisions
Provisions are recognised when the group has a present legal or constructive obligation as a result of a
past event, in respect of which it is probable that an outflow of economic benefits will occur and a reliable
estimate can be made of the amount of the obligation. Where the effect of discounting (time value) is
material, provisions are discounted and the discount rate used is a pre-taxation rate that reflects current
market assessments of the time value of money and, where appropriate, the risks specific to the liability.
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