RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Right of use assets are initially measured at the amount of the lease liability, reduced for any lease incentives received, and increased for: • lease payments made at or before commencement of the lease; • initial direct costs incurred; and • the amount of any provision recognised where the Group is contractually required to dismantle, remove or restore the leased asset. Subsequent to initial measurement, right of use assets are measured on the cost model less accumulated depreciation and accumulated impairment. Depreciation for the right of use asset is recognised on a straight‑line basis over the lease term as contracted, including the renewal period, where applicable. The lease liability is subsequently measured by adding interest costs and subtracting lease payments made on the lease liability. When the Group revises its estimate of the term of any lease (because, for example, it re‑assesses the probability of a lessee extension or termination option being exercised), it adjusts the carrying amount of the lease liability to reflect the payments to make over the revised term, which are discounted using a revised discount rate. The carrying value of lease liabilities is similarly revised when the variable element of future lease payments dependent on a rate or index is revised, except the discount rate remains unchanged. In both cases an equivalent adjustment is made to the carrying value of the right‑of‑use asset, with the revised carrying amount being amortised over the remaining (revised) lease term. If the carrying amount of the right‑of‑use asset is adjusted to zero, any further reduction is recognised in profit or loss. Group as lessor Finance leases Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. Finance leases are capitalised on commencement of the lease at the lower of the fair value of the leased asset and the present value of the minimum lease payments. The finance cost is charged to profit or loss over the lease period to produce a constant periodic rate of interest on the remaining balance of the liability for each period. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset and the lease term. Finance lease payables are derecognised in accordance with the derecognition requirements for financial liabilities. Summary of Principal Accounting Policies and Significant Judgements 3.4 Leases (Continued) Leases where substantially all of the risks and rewards of ownership are not transferred are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss within other expenses on a straight‑line basis over the period of the lease. Payments received under operating leases are recognised in profit or loss within other income on a straight‑line basis over the period of the lease. 3.5 Borrowing costs Interest on borrowings directly relating to the financing of qualifying capital projects under construction is added to the capitalised cost of those projects during the construction phase, until such time as the assets are substantially ready for their intended use or sale i.e when they are capable of commercial production. Interest expense is calculated using the effective interest method as per IFRS 9. The amount of borrowing costs eligible for capitalisation is determined as follows: • Where the funds used to finance a project form part of general borrowings, the amount capitalised is calculated using a weighted average of rates applicable to relevant general borrowings of the Group during the period. Operating leases

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