RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Summary of Principal Accounting Policies and Significant Judgements 3.6 Financial instruments (Continued)

Derecognition

The Group derecognised financial assets when the rights to receive cash flows from the assets have expired or substantial risks and rewards of ownership have been transferred. Financial liabilities are derecognised by the Group when the obligations specified in the contracts are extinguished, cancelled or expire.

Trade and other receivables

Classification Trade receivables are amounts due from customers for goods sold and services rendered in the ordinary course of business.

Other receivables consist of prepayments, VAT receivables and sundry receivables of which are accounted in other accounting policies.

Trade receivables are classified as financial assets subsequently measured at amortised cost.

Recognition and measurement Trade and other receivables are recognised when the Group becomes a party to the contractual provisions of the receivables. They are measured at initial recognition, at fair value plus transaction costs, if any.

Trade receivables are measured at their transaction price as determined under IFRS 15. Subsequent to initial recognition, trade receivables are measured at amortised cost using the effective interest rate method less any accumulated impairment losses.

The prepayment shall be measured at cost which shall be deemed to be the cash amount paid for the goods or services not yet delivered. The prepayment will be derecognised as the related goods or services are received.

Impairment The Group recognises a loss allowance for expected credit losses on trade and other receivables and VAT excluding prepayments. The Group as a practical application has elected to exclude the VAT component from the ECL calculation on the basis that it is subject to full recovery from SARS at the point when the debt is irrecoverable and has been written off. The Group considers the impact of the time value of money at reporting date as immaterial.

The contract asset recognised on recoverable projects is subject to an expected credit losses impairment test on a quarterly basis, to determine whether the cost are recoverable from the customer.

The Group has adopted the simplified approach and record lifetime expected losses for all trade and other receivables including the contract assets wherein there is objective evidence that they do not contain a financing component. The Group has assessed the extent of this impact, and the application of the expected credit losses model will result in earlier recognition of credit losses.

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