SAPPI LIMITED

SAPPI
NOTES TO THE GROUP ANNUAL FINANCIAL STATEMENTS (Continued)
for the year ended September 2010
2. ACCOUNTING POLICIES (Continued)
transaction is no longer expected to occur. Where a forecasted transaction is no longer expected to
occur, the cumulative gain or loss deferred in equity is transferred to profit or loss.
The financial instruments that are used in hedging transactions are assessed both at inception and
quarterly thereafter to ensure they are effective in offsetting changes in either the fair value or cash flows
of the related underlying exposures. Hedge ineffectiveness is recognized immediately in profit or loss.
Refer to note 29 for details of the fair value hedging relationships as well as the impact of the hedge
on the pre-tax profit or loss for the period.
2.3.6 Plantations
Plantations are stated at fair value less estimated cost to sell at the harvesting stage.
In arriving at plantation fair values, the key assumptions are estimated prices less cost of delivery,
discount rates, and volume and growth estimations.
All changes in fair value are recognized in the period in which they arise.
The impact of changes in estimate prices, discount rates and, volume and growth assumptions may
have on the calculated fair value and other key financial information on plantations are disclosed in
note 10.
Estimated prices less cost of delivery
In periods prior to the third quarter of fiscal 2010 the group used unadjusted current market prices to
estimate the fair value of timber.
In the third quarter of fiscal 2010, the group revised this methodology for all immature timber and
mature timber that is to be felled in more than 12 months from the reporting period to consider a
12 quarter rolling historical average price. This is considered a reasonable period of time taking into
consideration the length of the growth cycle of the plantations. The new methodology also takes into
consideration expected future price trends and recent market transactions involving comparable
plantations.
The group considers the new methodology to be preferable. Current market prices for timber are
highly volatile for timber that is expected to be felled in more than 12 months from the reporting period.
Therefore, the group considers the use of a rolling historical average price coupled with consideration of
expected future price trends and recent market transactions involving comparable plantations to be a
preferable methodology.
Mature timber that is expected to be felled within 12 months from the reporting period continues to
be valued using unadjusted current market prices. Such timber is expected to be used in the short term
and consequently, current market prices are considered an appropriate reflection of fair value.
The fair value is derived by using the prices as explained above reduced by the estimated cost of
delivery. Cost of delivery includes all costs associated with getting the harvested plantations to the
market, being harvesting, loading, transport and allocated fixed overheads.
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