RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Operating costs, capital expenditure and other operating factors • Operating costs and capital expenditure are based on financial budgets and internal management forecasts. Cost assumptions incorporate management experience and expectations. Trade receivables and payables are non‑derivative assets and liabilities with fixed or determinable payments that are not quoted in an active market. Trade receivables and payables are measured at amortised cost using the effective interest rate method less any impairments, these are assumed to approximate their fair values based on the short term nature thereof. 2.6 Post‑employment benefit obligation and plan asset The cost of post‑employment benefit obligations and the present value of the plan asset are determined using actuarial valuations. An actuarial valuation involves making various assumptions. Due to the complexity of the valuation, the underlying assumptions and its long‑term nature, a defined benefit obligation is highly sensitive to changes in these assumptions. All assumptions are reviewed at each reporting date and the carrying amount of the liability and plan asset, have been disclosed in Note 17 to the annual financial statements. 2.7 Provisions and contingent liabilities Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are not recognised for future operating losses. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation using a rate that reflects current market assessments of the time value of money and the risks specific to the obligation. Various estimates and assumptions have been applied by management in arriving at the carrying value of provisions. Summary of Principal Accounting Policies and Significant Judgements 2.5 Assessment of fair value (Continued)

Management further relies on input from the Group’s lawyers in assessing the probability of items of a contingent nature.

Significant judgement is applied in estimating the ultimate rehabilitation cost that will be required in future to rehabilitate the Group’s sludge disposal site, related to the purification process of its potable water. Ultimate cost may significantly differ from current estimates.

Changes to the estimates for provision are recognised in the statement of Financial Perfomance except for changes relating to the rehabilitation provision, which is adjusted against the cost of the item of Property, Plant and Equipment.

2.8 Revenue The application of IFRS 15: Revenue from Contracts with Customers requires the Group to make judgements that affect the determination of the amount and timing of revenue from contracts with customers (Refer to Note 4.13 and Note 23).

The Group uses forecasted and budgeted financial data to determine the tariff charged to customers, which are then negotiated with the customers and then finally gazetted by parliament. (Refer to the Board report).

The Group used the practical expedient described in paragraph 63 of IFRS 15 and did not adjust the promised amount of consideration for the effects of a significant financing component because it has assessed that for most of the contracts the period between when the Group transfers the goods and services to the customer and when the customer pays for the consideration is one year or less.

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