SAPPI LIMITED

The following methods and rates were used during the year to depreciate property, plant and
equipment to estimated residual values:
Buildings ................................. straight line 40 years
Plant .................................... straight line 5 to 20 years
Vehicles .................................. straight line 5 to 10 years
Furniture and equipment ...................... straight line 3 to 6 years
Taxation. Taxation on the profit or loss for the year comprises current and deferred taxation.
Taxation is recognized in profit or loss except to the extent that it relates to items recognized directly in
other comprehensive income, in which case it is also recognized in other comprehensive income.
Current taxation
Current taxation is the expected taxation payable on the taxable income, which is based on the
results for the period after taking into account the necessary adjustments, for the year, using taxation
rates enacted or substantively enacted at the balance sheet date, and any adjustment to taxation
payable in respect of previous years.
The Group estimates its income taxes in each of the jurisdictions in which it operates. This process
involves estimating its current tax liability together with assessing temporary differences resulting from
differing treatment of items for tax and accounting purposes.
Secondary Tax on Companies (STC) is a South African income tax, that arises from the distribution
of dividends and is recognized in profit or loss at the same time as the liability to pay the related dividend.
Deferred taxation
Deferred taxation is provided using the balance sheet liability method, based on temporary
differences. The amount of deferred taxation provided is based on the expected manner of realization or
settlement of the carrying amount of assets and liabilities using taxation rates enacted or substantively
enacted at the balance sheet date. Such assets and liabilities are not recognized if the temporary
difference arises from the initial recognition of goodwill or from the initial recognition (other than in a
business combination) of other assets and liabilities in a transaction that affects neither the taxable profit
nor the accounting profit. Deferred taxation is charged to profit or loss for the period, except to the extent
that it relates to a transaction that is recognized directly in equity, or a business combination that is an
acquisition.
Before recognizing a deferred tax asset the Group assesses the likelihood that the deferred tax
assets will be recovered from future taxable income and, to the extent recovery is not probable, a
deferred tax asset is not recognized. In recognizing deferred tax assets, the Group considers profit
forecasts including the effect of exchange rate fluctuations on sales and external market conditions.
Derivatives and hedge accounting
Fair value hedges
If a fair value hedge meets the conditions for hedge accounting, any gain or loss on the hedged item
attributable to the hedged risk is included in the carrying amount of the hedged item and recognized in
profit or loss. The changes in the fair value of the hedging instrument and the hedged item is recognized
in profit or loss.
Cash flow hedges
In relation to cash flow hedges, which meet the conditions for hedge accounting, the portion of the
gain or loss on the hedging instrument that is determined to be an effective hedge is recognized directly
in equity and the ineffective portion is recognized in profit or loss.
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