RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Summary of Principal Accounting Policies and Significant Judgements

3.2 Property, plant and equipment

The cost of an item of property, plant and equipment is recognised as an asset when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably.

Owned assets

Property, plant and equipment is initially measured at cost. Cost includes all of the expenditure which is directly attributable to the acquisition or construction of the asset, including the capitalisation of borrowing costs on qualifying assets and adjustments in respect of hedge accounting, where appropriate. Property, plant and equipment are subsequently stated at cost, net of accumulated depreciation and / or accumulated impairment losses, if any. Such cost includes the cost of replacing parts of the property, plant and equipment and borrowing costs for long‑term construction projects if the recognition criteria are met and any costs directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. Self‑constructed assets for production and supply purposes are carried at cost, less any recognised impairment loss. The cost includes the cost of materials, direct labour, borrowing costs, the initial estimate, where relevant, of costs of dismantling and removing the items and restoring the site on which they are located and an appropriate proportion of production overheads. Cost also includes professional fees and, for qualifying assets, borrowing costs capitalised in accordance with the Group’s accounting policy. Such costs are classified to the appropriate categories of property, plant and equipment when completed and ready for intended use. Depreciation of these assets, on the same basis as other assets, commences when the assets are ready for their intended use. Where major components of an item of property, plant or equipment have different useful lives, they are accounted for as separate items of property, plant or equipment and depreciated separately over their respective useful lives. Likewise, when a major inspection is performed, its cost is recognised in the carrying amount of the plant and equipment when the recognition criteria are satisfied. Spare parts, standby and servicing equipment held by the Group, which meets the definition of property, plant and equipment are classified as such. Spare parts and standby equipment that can only be used in connection with a specific item of property, plant and equipment are also accounted for as property, plant and equipment. All other spare parts are accounted for as inventory.

Transfer of assets from customers

Where the Group receives from a customer a transfer of an item of property, plant and equipment, which require an obligation to supply goods to the customer in the future, and it has assessed that the transferred asset meets the definition of an asset, the Group recognises the transferred asset as an item of property, plant and equipment and measures its cost on initial recognition based on its fair value.

Leased assets

The determination of whether an arrangement is, or contains, a lease is based on the substance of the arrangement at the inception date. The arrangement is assessed for whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset or assets, even if that right is not explicitly specified in an arrangement. Where a contractual arrangement is entered into by Group that conveys a right to use an identified asset for a period of time. The Group determines whether if such an arrangement contains a lease through an assessment on whether the Group has both of the following:

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