RAND WATER ANNUAL REPORT 2023

Consolidated Annual Financial Statements for the year ended 30 June 2023

Summary of Principal Accounting Policies and Significant Judgements

3.7 Inventories

Inventories comprise finished products (water inventory), work‑in‑progress, maintenance spares and consumable stores (for example chemicals), raw materials and merchandise, and are measured at the lower of cost, determined on a weighted average basis, and net realisable value. Included in raw materials is steel coils that will be converted into a pipeline. These raw materials are carried at actual cost.

The cost of finished goods and work‑in‑progress comprises raw materials, direct labour, other direct costs and fixed production overheads, but excludes finance costs. Fixed production overheads are allocated on the basis of normal capacity.

Maintenance spares and consumable stores are expensed to the statement of financial performance as they are utilised.

Net realisable value is the estimated selling price in the ordinary course of business, less the cost of completion and variable selling expenses. Write‑downs to net realisable value and inventory losses are expensed in the statement of financial performance in the period in which the write‑downs or losses occur. Water inventory is classified as raw water (untreated) and potable water (treated) and is quantified within the production process. Raw water quantities are determined within the abstraction activity and related infrastructure storage capacity. Potable water inventory quantities are determined within the purification, distribution and storage network as per the related storage capacity. All direct cost such as raw water, raw materials, direct labour & other direct cost will determine the valuation of the water inventory throughout the production process. The allocation of production costs is absorbed into inventory based on actual capacity as this represents an acceptable approximation of normal capacity as required by the standard. Rand Water accepts a variation of 10% as a standard deviation between actuals and budgets, this judgement is in line with what has been achieved in the last 5 years. This therefore means that normal capacity and actual capacity are in line, hence acceptable as an approximation of normal capacity as per IAS 2 paragraph 13. 3.8 Impairment The Group’s assets are reviewed annually to determine whether there is any indication that those assets are impaired, or previous impairment has reversed, whenever events or changes in circumstances indicate that the carrying value may not be recoverable. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment or reversal of previous impairment. Recoverable amounts are estimated for individual assets. Where an individual asset cannot generate cash inflows independently, the assets are grouped at the lowest level for which there is separately identifiable cash flows (cash‑generating units). The recoverable amount is determined for the cash‑generating unit to which the asset belongs. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs of disposal and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows cash‑generating units (CGUs).

For assets that have indefinite useful lives, the recoverable amount is estimated at each reporting date and whenever there is an indication that the asset may be impaired.

If the recoverable amount of an asset or CGU is estimated to be less than its carrying amount, the carrying amount of the asset or CGU is reduced to its recoverable amount and an impairment loss is recognised in the statement of financial performance.

A previously recognised impairment is reversed insofar as estimates change as a result of an event occurring after the impairment was recognised. An impairment is reversed only to the extent that the asset or CGUs carrying amount does not exceed the carrying amount that would have been determined had no impairment been recognised. A reversal of an impairment is recognised in the statement of financial performance.

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