SAPPI LIMITED

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2010
2. ACCOUNTING POLICIES (Continued)
(vi) Impairment of financial assets
Loans and receivables
An impairment loss is recognized in profit or loss when there is evidence that the group will not be
able to collect all amounts due according to the original terms of the receivables.
Available-for-sale financial assets
When there is objective evidence that an available-for-sale financial asset is impaired, the
cumulative unrealized gains and losses previously recognized in equity are removed from equity and
recognized in profit or loss even though the financial asset has not been derecognized.
Impairment losses are only reversed in a subsequent period if the fair value increases due to an
objective event occurring since the loss was recognized.
(vii) Interest, income and expense
Interest income and expense are recognized in profit or loss using the effective interest rate method.
2.2.4 Government grants
Government grants related to income are recognized in sundry income under Selling, general and
administrative expenses.
Government grants related to assets are recognized by deducting the grant from the carrying
amount of the related asset.
2.2.5 Intangible assets
(i) Research activities
Expenditures on research activities and internally generated goodwill are recognized in profit or loss
as an expense as incurred.
(ii) Development activities
Intangible assets are stated at cost less accumulated amortization and impairment losses.
Amortization 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.
(iii) Patents
Patents acquired are capitalized and amortized on a straight-line basis over their estimated useful
lives, which is on average ten years.
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